<PAGE> 1
January 25, 2000
Dear Fellow Aggressive Growth Shareholder,
It only takes one really good quarter to make the investment picture look very
rosy. We had just such a quarter to end the century--up 69%. To say I'm pleased
would be a gross understatement. Someone please pull me down off the ceiling.
(Me, not the Portfolio, thank you very much.)
On top of three previous S&P-beating quarters, the December quarter gave us a
calendar year with a three-digit return--up 121%. Bridgeway Aggressive Growth
ranks 5th of 160 aggressive growth funds in the last quarter, 7th of 156 in the
last year, and 5th of 76 in the last five years through December.
Performance Summary
TRANSLATION: As explained in detail in the following section, technology
companies of all sizes carried the day for our Portfolio. Our performance during
this period was also influenced by the "growth" orientation of our Portfolio.
Any way you measure it, the quarter was outstanding. We stomped all of our
benchmarks.
The table below presents our December quarter, one year, five year, and
life-to-date financial results according to the formula required by the SEC. The
graph presents the growth of $10,000 invested in the Portfolio and each of three
benchmarks since inception on August 5, 1994.
<TABLE>
<CAPTION>
December Qtr. 1 Year 5 Year Life-to-Date
10/1/99 1/1/99 1/1/95 8/5/94
to 12/31/99 to 12/31/99 to 12/31/99 to 12/31/99(3)
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Aggressive Growth Portfolio 69.3% 120.6% 39.2% 37.9%
S&P 500 Index (large companies)(1) 15.0% 21.0% 28.5% 26.3%
Russell 2000 (small companies)(1) 18.4% 21.3% 16.7% 16.0%
Lipper Capital Appreciation Funds(2) 38.2% 52.6% 26.5% 25.0%
</TABLE>
(1) The S&P 500 and the Russell 2000 are unmanaged indexes of large and small
companies, respectively, with dividends reinvested. (2) The Lipper Capital
Appreciation Funds reflect the aggregate record of more aggressive domestic
growth mutual funds as reported by Lipper Analytical Services, Inc. (3) Five
year and life-to-date returns are annualized; quarterly returns are not
annualized. Past performance does not guarantee future returns.
[GRAPH SHOWING GROWTH OF $10,000 INVESTED FROM 8/5/94 TO 12/31/99]
<PAGE> 2
Detailed Explanation of Quarterly Performance--Our Tech Stocks Soared
TRANSLATION: Hooray for technology! This part of our Portfolio represented 27%
at the beginning of the quarter and, due to appreciation, an unusually large 50%
at the end of the quarter.
It doesn't take a great deal of study of individual stock performance to see
what happened in the December quarter. Let's look at the stocks that contributed
the most to our quarterly return:
<TABLE>
<CAPTION>
Rank Description Industry % Gain
---- ----------- -------- ------
<S> <C> <C> <C>
1 Qualcomm Inc. Telecommunications 272.4%
2 JDS Uniphase Corporation Electronics/Electric 183.5%
3 Santa Cruz Operation Inc. Data Processing/Software 154.5%
4 Siebel Systems Inc. Data Processing/Software 152.2%
5 Unify Corporation Data Processing/Software 143.3%
6 IDEC Pharmaceuticals Drugs-Generic and OTC 99.9%
Corporation
</TABLE>
Technology sparked our performance in a big way. Eleven stocks appreciated more
than 50%. Nine of these were technology related (telecommunication, electronics,
and software), and two were biotechnology firms. All five of the stocks that
more than doubled were technology. Just phenomenal. The sweetest part was that
our largest holding at the beginning of the quarter (comprising a whopping 14%
of net assets) was also at the top of the list above.
Detailed Explanation of Quarterly Performance--What Didn't Go Well
TRANSLATION: Retail stores did not "go well" in the December quarter. These
stocks represented our second largest sector at the beginning of the quarter
(21% of net assets) and detracted significantly from our quarterly return.
Fortunately, our technology stocks made up the difference several times over.
It's rather hard to tell from the performance table on page one, but the retail
sector was a significant drag on our performance in the December quarter. This
was unfortunate, because it represented 21% of Portfolio net assets at the
beginning of the quarter, more than three and a half times the weighting of the
sector in the economy. The drag would have been even worse had we not
significantly trimmed our Best Buy position last summer. (It was our second
largest holding on June 30, but number nine by September 30.) Four of our eight
retail stocks actually declined from September to December.
Our worst performing stock was Children's Place Retail Stores, which declined
38% in the quarter, or 69% from its peak in July. The interesting thing is that
nothing has changed about the fundamentals of this company. Our models like it
even more now than last summer. The company continues to grow at a dramatic
rate. Earnings have greatly exceeded Wall Street estimates each of the last
three quarters. The company has no debt and plenty of cash for expansion, which
it has executed flawlessly. I don't see any storm clouds on the horizon. It
appears that the company has been taken down with investor concerns of rising
interest rates and the threat of a pullback in consumer spending. I don't
believe it. We'll see. We have continued to buy shares of this company.
Explanation of Performance--"Growth" Stocks Helped
TRANSLATION: Growth companies (those with fast growing sales and earnings) did
much better than value companies (slower growing companies which are inexpensive
according to certain measures of valuation) during the quarter. Some of our
growth companies have appreciated so far so fast, that we did some trimming to
add to our value companies at the end of the quarter.
The following "style box" indicates the performance of funds invested in small
versus large stocks, and growth versus value stocks. In 1996, the Aggressive
Growth Portfolio had a strong small-value bias. Over the last couple of years it
has "migrated" toward the mid-cap/growth end of the spectrum as our models have
identified more "buys" in this category and as these companies appreciated much
more quickly. Keep in mind, however, that our Portfolio typically owns an
assortment of both large and small
2
<PAGE> 3
companies, and value and growth companies. We're really trying to keep some
balance in this Portfolio (and improve diversification) by using models of
various "styles." Just as we had no "commitment" to small/value in 1996, we have
no commitment to mid-cap/growth in 2000. I will follow wherever our models take
us. As demonstrated in the following "grid" of December quarter mutual fund
returns by company size and style (value versus growth), the growth side of the
chart was the place to be in 1999.
Value Growth
Large
------- ------- -------
6.0% 14.7% 25.8%
------- ------- -------
6.1% 16.7% 39.5%
------- ------- -------
4.2% 13.6% 42.0%
------- ------- -------
Small
The following presents the number of stocks in each of the grid boxes above in
the Portfolio at the beginning of the quarter.
Value Growth
Large
------- ------- -------
1 0 6
------- ------- -------
0 1 7
------- ------- -------
7 4 4
------- ------- -------
Small
Growth sure helped. Of our top-performing stocks on page 2, three were
large-growth (upper right hand box), one was mid-growth (mid right hand box),
one was small-growth (lower right hand box), and one was small-blend (bottom
middle box). Not surprisingly from the first box, our value companies were
(relatively) a significant drag on our performance. But our diversification is
important, and I hope to beat the market in lots of different environments, not
just the growth-dominated one. At the end of the quarter, I trimmed some of our
growth exposure, adding to the "value" end of the spectrum.
Oh For More Problems Like This
One problem created by the meteoric rise of Qualcomm this year (it has
appreciated over five-fold since our first purchase) is the potential
concentration in our Portfolio. We frequently invest in one or two companies
("core positions") with as much as 7% or 8% of Portfolio assets. Sometimes, but
rarely, I will invest more, but only when my models indicate that downside risk
is very low. However, if a stock really takes off, I typically start trimming it
when it becomes 20% of assets. A higher level is simply too much from the
standpoint of diversification or risk (having too many eggs in one basket).
About every three years I expect a core position to "blow up," that is, decline
35% or more. I certainly don't want this to happen with a stock that represents,
say, 25% of the entire Portfolio.
3
<PAGE> 4
I've had to trim back Qualcomm significantly several times to keep this monster
at bay, that is, to keep it from becoming too big a piece of the whole Portfolio
pie. The good thing is that we seem to have timed our selling fairly well, if
you accept the premise that we had to sell at all. Mind you, at no time has our
model given a sell signal in this stock. (Fortunately, I was able to invest in
some alternative stocks that have also done outstandingly well.) The graph below
shows how this has worked with our position in Qualcomm. At the end of the
quarter, even after trimming on three occasions, Qualcomm still represented over
12% of the Portfolio.
[GRAPH SHOWING STOCK POSITION OF QUALCOMM INC IN PORTFOLIO]
I hate selling a company before getting a model "sell" signal. On the other
hand, risk management is a big part of what this Portfolio is about, and it's
best not to get too greedy. We just follow the discipline of our models and
diversification rules.
Top Ten Holdings
In spite of all our talk of technology, we still try to maintain reasonable
industry diversification. Here are the top ten holdings at the end of December:
<TABLE>
<CAPTION>
Percent of
Rank Description Industry Net Assets
---- ----------- -------- ----------
<S> <C> <C> <C>
1 Qualcomm Inc. Telecommunications 12.3%
2 JDS Uniphase Corporation Electronics/Electric 11.8%
3 PE Celera Genomics Group Drugs-Generic and OTC 5.8%
4 Network Appliances Inc. Telecommunications 4.6%
5 Siebel Systems Inc Data Processing/Software 3.9%
6 Titan Corporation Electronics/Electric 3.5%
7 Children's Place Retail Stores Inc. Retail Stores 3.5%
8 Oracle Corporation Data Processing/Software 3.5%
9 Arkansas Best Group Trucking 3.3%
10 CTS Corporation Electronics/Electric 3.1%
----
Total 55.1%
</TABLE>
Since late December I have continued to "harvest" from among our growth stocks
to add to our value stocks. You will notice in the attached detailed investment
schedule a few more "mature" and less
4
<PAGE> 5
"pricey" stocks, such as Ford and Bank of America, not to mention some cheap
retail stocks. I am also looking to add some cheaper small stocks. (See "The
Tide Has Turned" below.) Current holdings such as Arkansas Best (a trucking
firm) and Amtran (an airline) are examples of these.
The Tide Has Turned--Maybe
Two of the more dramatic long-term historical stock trends have been the
relative superior performance of small stocks (which has definitely not been the
case over the last five years) and the persistence of large or small-stock
dominance, typically for periods of time ranging from three to six years. The
period from 1994 to 1998 represented the longest dominance of large stock
performance over the last seven decades. However, small stocks edged out large
ones in 1999. Based on prior historical trends (small stocks tend to outperform
large ones in the current year if they did the year before) and based on some
attractive current valuations (a greater number of small stocks appear cheap), I
believe we could finally see a market more favorable to small U.S. stocks in
2000.
One caveat: the future never looks exactly like the past. Or, as Yogi Berra put
it, "The future just ain't what it used to be." Nevertheless, I expect the
trends above to hold over the long term.
Disclaimer
The following is a reminder from the friendly folks at Bridgeway Fund who worry
about liability. The views expressed here are exclusively those of Fund
management. They are not meant as investment advice. Any favorable (or
unfavorable) description of a holding applies only as of the quarter end,
December 31, 1999; security positions can and do change thereafter.
We Survived Y2K
TRANSLATION: We didn't get overly excited about Y2K at Bridgeway; we just kept
looking for the next great stock.
In previous letters I explained why we would not analyze the Y2K readiness of
our individual holdings. (However, we did take precautions to prepare our own
operations.) Some people were concerned that there would be major economic
disruptions as a result of computers not being able to read or make calculations
based on dates in the new century. My reasoning for ignoring this problem was
two-fold.
First, my models don't have a Y2K variable, so it's impossible to take such
things into consideration quantitatively. Second, moving money because of a
possible computer problem seemed just another way to time the market, which
neither I - nor the vast majority of people who try - do successfully. A (very)
few Bridgeway shareholders did sell everything early in the quarter, hoping to
invest again during a big downturn near the end of the year. Based on our recent
performance numbers, these people missed quite a bit of investment appreciation.
If there is a "moral" to this story, I think it would be to concentrate on
what's important in the long term, and to resist the many ways to "time" the
market. I plan to be fully invested at the next market correction, and
undoubtedly my fund investments will also fall. I just strive to build up a
cushion before it happens. 1999 gave us a pretty thick cushion.
Tax Efficiency Update
Translation: All of Bridgeway's portfolios rank in the top half among comparable
funds in the area of tax efficiency. Although I would not expect Aggressive
Growth to rank long-term in the top quarter (which we have over the last five
years), I would hope to rank in the second quartile long-term. What's working in
our favor is significant asset growth and our tax management "on the margin" (or
wherever I feel it will not hurt our overall returns.) What's working against us
is our turnover, which I expect to continue to be well over 100%.
5
<PAGE> 6
The following table indicates the tax efficiency over the last one- and
five-year periods:
<TABLE>
<CAPTION>
% Tax
Efficiency 1-year 5-year
Since Percentile Percentile
Portfolio Inception Rank Rank
--------- ---------- ---------- ----------
<S> <C> <C> <C>
Aggressive Growth 94.1% 46th 17th
Ultra-Small Company 89.8% 1st 38th
Ultra-Small Index 100% 1st NA
Micro-Cap Limited 96.1% 26th NA
Social Responsibility 98.2% 17th 4th
Ultra-Large 35 Index 99.1% 21st NA
S&P 500 Fund 96.5%* 32nd 5th
Russell 2000 Index Fund 87.2%* 65th 48th
</TABLE>
*Based on the last five year period.
The second column of the table is calculated by dividing the total cumulative
return after federal taxes (at the highest current tax rates) by the total
return before taxes. For example, a taxpayer in the highest tax bracket would
have kept 94.1% of the Portfolio's total return since inception on August 5,
1994, based on current tax rates of 39.6% for income and 20% for long-term
capital gains. The third column makes the same calculation for calendar year
1999 only and ranks this tax efficiency compared to all domestic equity funds.
The one-year column is only of mild interest, since there is frequently a "lag"
between the return earned and taxable distributions made. (In the worst case, a
portfolio may make a substantial distribution from its prior years' appreciation
in a year when the total return is actually negative; this happened in 1998 in
the Ultra-Small Company Portfolio.) The final column compares our tax efficiency
to other funds for a longer (five-year) period of time. This is the column that
I believe best measures my longer-term report card on tax efficiency.
Although I care a great deal about the tax efficiency in all of our portfolios,
you should be aware that I do not consider the Aggressive Growth Portfolio to be
a "tax-managed" fund. We make decisions "on the margin" to improve our tax
efficiency when I believe that it is not to the detriment of the Portfolio's
overall return or risk. However, my ability to maintain favorable tax efficiency
is greatly limited in a portfolio such as this one with turnover much higher
than 100%. Which brings me to the next topic . . .
Portfolio Turnover
TRANSLATION: The turnover figure reflects the amount of buying and selling in a
mutual fund. Turnover can be detrimental because the Portfolio must pay
"transaction costs" each time it buys or sells; it can also increase the amount
of taxes you pay (in a taxable account only). On the other hand, turnover is
good if the securities I buy go up more than that ones I sell. So far the
benefits have outweighed the disadvantages for Aggressive Growth.
In my last letter I committed to discussing various sections and specific
numbers from our prospectus. This quarter I will answer these questions about
portfolio turnover: "What does this number mean?" "How does it compare with
similar funds?" "Why should I care?" "Is our turnover good or bad?" I asked the
same kinds of questions as a mutual fund shareholder before becoming a mutual
fund manager. Trying to get answers was usually pretty frustrating, so I'll try
to make it easier for you!
The "portfolio turnover rate" for June 30, 1999 appears as the last line in the
Financial Highlights table on page 21 of the prospectus. The December 31, 1999
rate appears as the last line in the Financial Highlights schedule in the
financial statements attached.
6
<PAGE> 7
What does "portfolio turnover" mean?
The portfolio turnover rate indicates the number of portfolio holdings that are
bought and sold in a year relative to the size of the portfolio. A turnover rate
of 100% is equivalent to the sale and repurchase of all of the securities in the
portfolio one time during the year. It is calculated by dividing the dollar
value of all portfolio sales (or purchases, if this is a lower number) by the
average net assets over the course of the period in question. Aggressive
Growth's recent turnover rate was 249%, higher than the average 158% in prior
years. The strong appreciation of our stocks in the last half year required more
buying and selling to keep our Portfolio risk in line with our objective.
How does the turnover in the Aggressive Growth Portfolio compare with that of
similar funds?
Turnover for the Aggressive Growth Portfolio is higher than the average 126%
rate among all aggressive growth mutual funds and much higher than the 88% rate
among all domestic equity funds, based on recent data from Morningstar.
Is Aggressive Growth's turnover good or bad?
Some of our turnover is created by harvesting losses (selling positions that
have declined in value). This is good because it offsets other taxable gains. I
have found that harvesting losses also slightly boosts returns. Any turnover for
any reason adds to transaction costs, and this is bad. Overall, I would argue
strongly that our turnover has added value so far. My "proof" is that we have
beaten the returns of an index strategy both before and after taxes on a
cumulative basis. This has not been true in every shorter time period, however,
which is one reason I think this Portfolio is appropriate only for long-term
investors.
Why should I care?
Turnover can be either good or bad. It is bad when the buying and selling
generates additional net costs for the portfolio that are not offset by the
additional return generated by the newly-purchased security. In this Portfolio,
I estimate the cost of an average trade at about 0.75% of the trade value. Thus,
to buy and sell $100,000 of stock costs the Portfolio about $1,500 or $100,000
times 2 times .0075. In a future letter, I'll explain how I estimate this cost
and what we do to minimize it.
[Footnote: For now, suffice it to say that these costs include broker
commissions, stock spreads (the difference between the price for which you can
sell a stock and the price for which you can buy it), impact cost (the
additional premium you pay if you buy more than the "offered" number of shares
and you want to buy quickly), and opportunity cost (or the cost of being so
stingy with the price you are willing to pay that a great investing opportunity
simply passes you by).]
At any rate, when I buy and sell a stock, the new stock has to return 1.5% more
over the period I hold it than the stock I sold. Otherwise, the Portfolio would
have come out ahead just "staying put." One way to measure the effectiveness or
"value added" of a portfolio manager is to compare the portfolio performance
with what the performance would have been if there had been no trading during
the year. We'll do this analysis in a future letter too. Our active trading
added quite a bit of value in 1999.
Apart from the additional costs implied by turnover, there are also tax
implications if your shares are held in a taxable account. (If they are in an
IRA, there are no tax implications.) For example, take two funds, A and B.
Assume that both funds appreciate 10%/year (close to the long-term rate for
large stocks), but fund A distributes all of its gains each year, half in the
form of short-term capital gains (taxed at 39.6%) and half in the form of
long-term capital gains (taxed at 20%). Fund B has no turnover and incurs no
gains. Further assume that the expenses of both funds equal the dividend income,
so there are no "ordinary" or "income" fund distributions. Finally, assume that
both funds are held 20 years until retirement, at which time a person's tax rate
falls from 39.6% to, say, 25%. Then $10,000 invested in Fund B grows to $67,275
in 20 years. After paying the taxes of $14,319 to withdraw this money, an
investor is left with $52,956. [footnote: You can avoid these taxes by dying at
year 20, at which point the basis is increased to $67,275; then you can
celebrate having a lot of money but no need to spend it.]
7
<PAGE> 8
In Fund A, you pay some taxes each year equal to a total of $12,243, but because
Uncle Sam has had use of this money each year rather than you, your nest egg
only grows to $38,842. Fund B grows 36% more to $52,956 after all taxes are
paid. So the less tax efficient portfolio has an after-tax annualized return of
7.0% while the more tax efficient portfolio has an after-tax annualized return
of 8.7%. (If the person were still taxed at the highest 39.6% rate after 30
years, then Fund B would have grown to 15% more than Fund A for an after-tax
annualized return of 7.8%.)
The bottom line is that turnover can eat very significantly into returns, due to
the higher trading costs and due to the higher tax bill. A very actively managed
portfolio must compensate for this large difference with clearly superior stock
picking. Marginally better stock picking just won't do if you hold shares in a
taxable account.
If all this talk of taxes and trading costs has turned you off to active
management, go back to page one and study the returns. So far, we have
compensated our long-term investors for both higher trading costs and higher
taxes (relative to an index fund of the same size stocks), but we have not done
so in each individual year.
Bridgeway Makes Mutual Funds Magazine's list of Top Fund Groups
I am pleased to report that Bridgeway was included in Mutual Fund Magazine's
list of the top 30 fund groups in 1999 on the basis of peer group performance.
According to the magazine, Bridgeway's six funds outperformed their peer group
by an average of 12.3% last year.
Bridgeway's Smallest Holding
With each quarterly letter, I discuss our largest holdings, since these are the
most likely to have a big impact on our returns. With this letter I'd like to
talk about our smallest holding, also significant, but for a different reason.
The smallest holding among the six Bridgeway portfolios is 10 shares of Kirby
Industries, previously an oil exploration firm, now an oil transportation firm,
held in the Aggressive Growth Portfolio. It represents one one-thousandth of one
percent of net assets. Though an economic asset, its purpose is primarily
symbolic. My father worked for this company from the time I was one year old
until he died when I was twenty-seven. When I see the KEX symbol among my
holdings, it reminds me of my father and many others who created the foundation
upon which I build. Nothing of significance that I have accomplished at
Bridgeway has been done alone. I'm blessed by the energetic and talented people
I work with, by my family who supports me in my work, by my parents and teachers
who gave me the tools and resources to found this venture, and by you who allow
me to be steward of your money.
As I write this part of my letter two days before century's end, I hope and pray
you will continue to find your relationship with Bridgeway a positive and
rewarding one in the years ahead.
Conclusion
As always, I appreciate your feedback. We take shareholder comments seriously
and have made continuing improvements because people have taken the time to
write or call us. Please keep your ideas coming.
Sincerely,
/s/ JOHN MONTGOMERY
John Montgomery
8
<PAGE> 9
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited)
Showing percentage of total net assets
December 31, 1999
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C> <C>
Common Stock - 92.7%
Air Transport - 1.0%
Amtran, Inc. * 9,450 $ 183,094
Automobiles - 2.5%
Ford Motor Company 9,100 485,144
Banking - 2.6%
BankAmerica Corporation 9,800 491,838
Data Processing - Computer Systems - 3.9%
Siebel Systems, Inc. * 8,900 747,600
Data Processing - Leasing & Distributor - 2.0%
CDW Computer Centers, Inc. *# 4,800 377,400
Data Processing - Software & Services - 15.5%
ANSYS, Inc. * 21,700 238,700
Adobe Systems Inc. * 5,500 369,875
America Online, Inc. * 4,000 303,500
Oracle Corporation * 5,900 661,169
The Santa Cruz Operation, Inc. * 13,000 394,875
Symantec Corporation * 8,100 474,863
Unify Corporation *# 19,110 523,136
----------
2,966,118
Drugs-Generic and OTC - 5.7%
PE Celera Genomics * 7,400 1,102,600
Electronics/Electric - 23.5%
C T S Corporation 7,900 595,463
Candela Corporation * 17,000 316,625
Integrated Device
Technology, Inc. * 19,800 574,200
JDS Uniphase Corporation * 14,000 2,258,375
Power Integrations, Inc. * 2,000 95,875
The Titan Corporation * 14,000 662,375
----------
4,502,913
Equipment/Service - 4.5%
Network Appliance, Inc. * 10,500 872,156
Finance - 0.2%
Web Street, Inc. * 3,000 37,125
Leisure-Amusement - 0.5%
SCP Pool Corporation * 4,000 103,750
Machinery - 1.3%
VISX, Inc. * 4,700 243,225
Retail Stores - 9.7%
American Eagle Outfitters, Inc. * 5,600 252,000
Catherines Stores Corporation * 4,715 99,015
Chico's FAS, Inc. * 14,000 526,750
</TABLE>
<PAGE> 10
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1999
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C> <C>
Retail Stores, continued
Creative Computers, Inc. * 7,725 $ 56,489
Spiegel, Inc. * # 38,300 269,297
The Children's Place Retail
Stores, Inc. * 40,236 661,379
-----------
1,864,930
Shipping/Shipbuilding - 0.0%
Kirby Corporation * 10 205
Telecommunications - 16.6%
Harmonic Inc. * 5,800 550,638
QUALCOMM Inc. * 13,352 2,351,621
Tellabs, Inc. * 4,300 276,006
-----------
3,178,265
Trucking - 3.3%
Arkansas Best Corporation * 52,800 633,600
===========
Total Common Stock (Identified Cost $11,599,005) $17,789,963
Options - 1.0%
CDW Computer Centers, Inc. - 0.1%
January, 2000 Calls @ $70 * 20 18,000
S&P 100 Index - 0.0%
January, 2000 Puts @ $650 * 25 2,031
January, 2000 Puts @ $680 * 35 5,250
-----------
7,281
S&P 500 Index - 0.1%
January, 2000 Puts @ $1,300 * 60 18,750
Spiegel, Inc. - 0.0%
February, 2000 Calls @ $10 * 30 563
January, 2000 Calls @ $10 * 50 1,250
January, 2000 Calls @ $7.50 * 30 1,688
May, 2000 Calls @ $7.50 * 30 4,500
-----------
8,001
Standard Pacific Corporation - 0.0%
March, 2000 Calls @ $10 * 20 2,750
Unify Corporation - 0.7%
February, 2000 Calls @ $5 * 60 132,000
===========
Total Options (Identified Cost $98,489) $ 186,782
Preferred Stock - 0.2%
Furniture/Home Furnishing - 0.2%
O'Sullivan Industries
Holdings, Inc. - 12% * 77,000 36,480
===========
Total Preferred Stock (Identified Cost $69,843) $ 36,480
===========
</TABLE>
<PAGE> 11
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
SCHEDULE OF PORTFOLIO INVESTMENTS (unaudited), continued
Showing percentage of total net assets
December 31, 1999
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C> <C>
Short-term Investments - 0.7%
Money Market Funds - 0.7%
Expedition Money Market Fund 45,387 $ 45,387
Federated Money Market Prime
Obligations Fund 44,052 44,052
SEI Daily Income Trust Prime
Obligations Fund 44,052 44,052
-----------
133,491
===========
Total Short-term Investments (Identified Cost
$133,491) $ 133,491
===========
Total Investments - 94.5% $18,146,716
</TABLE>
<TABLE>
<CAPTION>
Industry Company Shares Value
-------- ------- ------ -----
<S> <C> <C> <C>
Other Assets and Liabilities, net - 5.5% $ 1,047,260
===========
Total Net Assets - 100.0% $19,193,976
===========
</TABLE>
* Non-income producing security as no dividends were paid during the
period from July 1, 1999 to December 31, 1999.
# The portfolio owns a call option on this security.
** The aggregate identified cost on a tax basis is $11,900,828.
Gross unrealized appreciation and depreciation were $6,470,308 and
$224,420 respectively, or net unrealized appreciation of $6,245,888.
See accompanying notes to financial statements.
<PAGE> 12
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
As of December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at value (cost - $11,900,828) $18,146,716
Cash 1,003,497
Receivable for investments sold 2,132,100
Receivable for shares sold 34,548
Receivable for interest 5,688
Receivable for dividends 237
Prepaid expenses 14,328
-----------
Total assets 21,337,114
-----------
LIABILITIES:
Payable for investments purchased 2,095,176
Payable for management fee 40,907
Payable for shares redeemed 2,662
Accrued expenses 4,393
-----------
Total liabilities 2,143,138
-----------
NET ASSETS (474,784 SHARES OUTSTANDING) $19,193,976
===========
Net asset value, offering and redemption price per share ($19,193,976/474,784) $ 40.43
===========
NET ASSETS REPRESENT:
Paid-in capital $ 9,419,144
Undistributed net realized gain 3,528,944
Net unrealized appreciation of investments 6,245,888
-----------
NET ASSETS $19,193,976
===========
</TABLE>
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF OPERATIONS (unaudited)
For the six months ended December 31, 1999
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 8,887
Interest 16,833
-----------
Total income 25,720
EXPENSES:
Management fees 67,913
Accounting fees 24,744
Audit fees 3,520
Custody 3,709
Insurance 1,056
Legal 1,558
Registration fees 3,016
Directors' fees 693
Miscellaneous 188
-----------
Total expenses 106,397
-----------
NET INVESTMENT LOSS (80,677)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 4,348,032
Net realized gain on options 48,626
Net change in unrealized appreciation 3,617,783
-----------
Net realized and unrealized gain 8,014,441
-----------
NET INCREASE IN ASSETS RESULTING FROM OPERATIONS $ 7,933,764
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 13
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS (unaudited)
<TABLE>
<CAPTION>
Six months ended Year ended
INCREASE (DECREASE) IN NET ASSETS: December 31, 1999 June 30, 1999
OPERATIONS:
<S> <C> <C>
Net investment loss $ (80,677) $ (47,554)
Net realized gain on investments 4,348,032 839,698
Net realized gain (loss) on options 48,626 (61,855)
Net change in unrealized appreciation 3,617,783 1,914,535
------------ ------------
Net increase resulting from operations 7,933,764 2,644,824
------------ ------------
Distributions to shareholders:
From net investment income 0 0
From realized gains on investments (1,763,406) (196,285)
------------ ------------
Total distributions to shareholders (1,763,406) (196,285)
FUND SHARE TRANSACTIONS:
Proceeds from sale of shares 3,150,630 6,114,447
Reinvestment of dividends 1,758,598 195,660
Cost of shares redeemed (1,395,233) (6,100,843)
------------ ------------
Net increase from Fund share transactions 3,513,995 209,264
------------ ------------
Net increase in net assets 9,684,353 2,657,803
NET ASSETS:
Beginning of period 9,509,623 6,851,820
------------ ------------
End of period $ 19,193,976 $ 9,509,623
============ ============
Number of Fund shares:
Sold 97,921 313,043
Issued on dividends reinvested 54,061 13,635
Redeemed (42,618) (298,404)
------------ ------------
Net increase 109,364 28,274
Outstanding at beginning of period 365,420 337,146
------------ ------------
Outstanding at end of period 474,784 365,420
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 14
BRIDGEWAY FUND, INC. - AGGRESSIVE GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS (unaudited)
(for a share outstanding throughout the period)
<TABLE>
<CAPTION>
Six months ended Year ended Year ended Year ended
December 31, 1999 June 30, 1999 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period $ 26.02 $ 20.32 $ 18.79 $ 16.66
------------ ------------ ------------ ------------
Income (loss) from investment operations:
Net investment loss (0.20) (0.13) (0.30) (0.24)
Net realized and
unrealized gain 18.90 6.43 3.46 3.43
------------ ------------ ------------ ------------
Total from investment operations 18.70 6.30 3.16 3.19
------------ ------------ ------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00 0.00 0.00
Net realized gains (4.29) (0.60) (1.63) (1.06)
------------ ------------ ------------ ------------
Total distributions (4.29) (0.60) (1.63) (1.06)
------------ ------------ ------------ ------------
Net asset value, end of period $ 40.43 $ 26.02 $ 20.32 $ 18.79
============ ============ ============ ============
TOTAL RETURN [1] 75.9% 33.4% 18.1% 19.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 19,193,976 $ 9,509,623 $ 6,851,820 $ 3,420,490
Ratios to average net assets: [2]
Expenses after waivers
and reimbursements 1.76% 1.04% 2.00% 2.00%
Expenses before waivers
and reimbursements 1.76% 1.04% 2.00% 2.77%
Net investment loss after waivers
and reimbursements (1.33%) (0.65%) (1.50%) (1.40%)
Portfolio turnover rate [2] 249.0% 211.1% 132.3% 138.9%
<CAPTION>
Year ended 8/5/94* to
June 30, 1996 June 30, 1995
<S> <C> <C>
PER SHARE DATA
Net asset value,
beginning of period $ 11.71 $ 9.89
------------ ------------
Income (loss) from investment operations:
Net investment loss (0.18) (0.02)
Net realized and
unrealized gain 5.22 1.84
------------ ------------
Total from investment operations 5.04 1.82
------------ ------------
Less distributions to shareholders:
Net investment income 0.00 0.00
Net realized gains (0.09) 0.00
------------ ------------
Total distributions (0.09) 0.00
------------ ------------
Net asset value, end of period $ 16.66 $ 11.71
============ ============
TOTAL RETURN [1] 43.3% 19.5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period $ 1,502,485 $ 276,272
Ratios to average net assets: [2]
Expenses after waivers
and reimbursements 1.97% 1.86%
Expenses before waivers
and reimbursements 5.73% 16.15%
Net investment loss after waivers
and reimbursements (1.26%) (0.30%)
Portfolio turnover rate [2] 167.7% 139.9%
</TABLE>
[1] Not annualized for periods less than a year.
[2] Annualized for periods less than a year.
* August 5, 1994 was commencement of operations.
See accompanying notes to financial statements.
<PAGE> 15
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Organization:
Bridgeway Fund, Inc. (the "Fund") was organized as a Maryland corporation
on October 19, 1993, and is registered under the Investment Company Act
of 1940, as amended, as a no-load, diversified, open-end management
investment company.
The Fund is organized as a series fund and has six portfolios. The Fund
commenced operations as a regulated investment company on August 5, 1994
with the Ultra-Small Company Portfolio, the Aggressive Growth Portfolio
and the Social Responsibility Portfolio. On July 20, 1997, the Fund added
two portfolios: the Ultra-Small Index Portfolio and the Ultra-Large 35
Index Portfolio. On June 5, 1998, the Fund added the Micro-Cap Limited
Portfolio. The Fund is authorized to issue 1,000,000,000 shares.
Bridgeway Capital Management, Inc. is the Adviser to the Fund.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Securities Valuation
Securities, including options, are valued at the closing price for
securities traded on a principal U.S. securities exchange and on NASDAQ.
Listed securities for which no sales are reported are valued at the
latest bid price in accordance with the pricing policy established by the
Fund's Board of Directors. When current bid prices are not available, the
most recently available quoted closing or bid price is used and adjusted
for changes in the index on the exchange on which that security trades,
also in accordance with the pricing policy established by the Fund's
Board of Directors.
Federal Income Taxes
It is the Fund's policy to comply with the requirements of Subchapter M
of the Internal Revenue Code applicable to regulated investment
companies, including the timely distribution of all its taxable income to
its shareholders. Therefore, no federal income tax provision has been
recorded.
Distributions to Shareholders
Distributions to shareholders are recorded when declared. The Fund
distributes net realized capital gains, if any, to its shareholders at
least annually, if not offset by capital loss carryovers. Distributions
of net investment income and realized short-term capital gains, if any,
are taxable as ordinary income to shareholders. The amount and character
of income and gains to be distributed are determined in accordance with
income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to the
differing treatment of net operating losses and tax allocations.
Use of Estimates in Financial Statements
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
Risks and Uncertainties
The Fund provides for various investment options including stocks and
call and put options. Such investments are exposed to various risks, such
as interest rate, market and credit. Due to the risks involved, it is at
least reasonably possible that changes in risks in the near term would
materially affect shareholders' account values and the amounts reported
in the financial statements and financial highlights. (See prospectus for
additional risk information.)
<PAGE> 16
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
2. Significant Accounting Policies, Continued:
12b-1 Plan
The Fund acts as distributor of its shares pursuant to a 12b-1 plan
adopted by shareholders on October 15, 1996. The cost of distributing
shares of the Fund is borne by the Adviser at no cost to the Fund; thus,
there are no 12b-1 fees.
Other
Security transactions are accounted for as of the trade date, the date
the order to buy or sell is executed. Realized gains and losses are
computed on the identified cost basis. Dividend income is recorded on the
ex-dividend date, and interest income is recorded on the accrual basis.
3. Use of Derivative Instruments:
The Aggressive Growth Portfolio may use derivative securities such as
futures, stock options and index options. (See Prospectus for additional
information.) Buying calls increases a Portfolio's exposure to the
underlying security. Buying puts on a stock market index tends to limit a
Portfolio's exposure to a stock market decline. All options purchased by
the Fund were listed on exchanges and considered liquid positions with
readily available market quotes. A summary of transactions in options by
the Aggressive Growth Portfolio follows:
<TABLE>
<CAPTION>
Call Options Put Options
------------------------ ------------------------
Number Cost Number Cost
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding June 30, 1999 12 $ 9,927 5 $ 16,029
Split 50
Purchased 903 274,118 408 263,951
Expired (80) (23,186) (110) (89,006)
Exercised (235) (67,335) 0 0
Closed (410) (149,558) (183) (136,451)
---------- ---------- ---------- ----------
Outstanding December 31, 1999 240 $ 43,966 120 $ 54,523
========== ========== ========== ==========
Market value December 31, 1999 $ 160,751 $ 26,031
========== ==========
</TABLE>
4. Management Contract:
The Fund has entered into a management contract with Bridgeway Capital
Management, Inc. (the "Adviser"), a shareholder of the Fund. As
compensation for the advisory services rendered, facilities furnished,
and expenses borne by Bridgeway Capital Management, Inc., the Portfolio
pays Bridgeway Capital Management, Inc. a fee, computed and paid monthly
based on the average daily net assets of the portfolio for the month.
Such fee is based on the following annual rates: 0.90% of the first $250
million of the portfolio's average daily net assets, 0.875% of the next
$250 million and 0.85% of any excess over $500 million.
The fee is adjusted quarterly based upon performance. The performance
adjustment rate varies with the Fund's performance as compared to the
performance of the Standard & Poor's 500 Composite Stock Price Index with
dividends reinvested (hereinafter "Index" ) and ranges from -.7% to +.7%.
The performance rate adjustment is calculated at 4.67% of the difference
between the performance of the Fund and that of the Index over the
trailing five year period, except that there is no performance adjustment
if the difference between the Fund performance and the Index performance
is less than or equal to 2%.
<PAGE> 17
BRIDGEWAY FUND, INC.
AGGRESSIVE GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS, Continued
5. Related Party Transactions:
One director of the Fund, John Montgomery, is an owner and director of
the Adviser. Under the Investment Company Act of 1940 definitions, he is
considered to be "affiliated" and "interested." Compensation of Mr.
Montgomery is borne by the Adviser rather than the Fund. The other
officers of the Fund are employees of the Adviser and the portion of
their compensation attributable to fund accounting, shareholder
accounting and state registration services is paid by the Fund and is
included in the Accounting fees expense category of the financial
statements. All amounts paid for shareholder accounting are paid to the
Adviser.
6. Custodial Agreement:
The Fund has entered into a Custodial Agreement with Compass Bank. As
compensation for services rendered by the custodian, each portfolio pays
a fee, computed and paid quarterly based on the average month end total
assets of each portfolio for the quarter plus a fee per transaction.
7. Cost, Purchases and Sales of Investment Securities:
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment securities, other than cash
equivalents were $15,640,894 and $14,710,952, respectively, for the six
months ended December 31, 1999.
8. Federal Income Taxes:
During the six months ended December 31, 1999, the Fund paid a short-term
capital gain of $2.321 per share and a long-term capital gain
distribution of $1.964 per share to shareholders of record.
