SEC Company Response from BRIDGEWAY FUNDS INC (CIK 0000916006) — Oct 20, 2005
BRIDGEWAY FUNDS INC (CIK 0000916006)
Date: Oct. 20, 2005 · CIK: 0000916006 · Accession: 0001308012-05-000103
AI Filing Summary & Sentiment
File numbers found in text: 811-08200
Letter
October 20, 2005 VIA Edgar and Email Brion Thompson Division of Investment Management U.S. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Bridgeway Funds, Inc. (File Nos. 33-72416 and 811-08200 - Response to SEC Comments on Filing Pursuant to Rule 485(a)
Dear Mr. Thompson:
We are responding to your comments, provided via telephone, related to the filing made by Bridgeway Funds, Inc. (the "Fund") pursuant to Rule 485(a) on August 24, 2005. Please note that any changes to disclosure indicated below will be made in a post-effective amendment that the Fund plans on filing pursuant to Rule 485(b) no later than October 28, 2005. Each of your comments and our response to each comment is set forth below. For convenience, the Fund and each of its series are referred to individually as a "Fund" and collectively, as the "Funds."
In connection with our responses to your comments, we acknowledge, on behalf of the Fund and each of its series, that:
|X| The Fund is responsible for the adequacy and accuracy of the disclosure in the filing;
|X| Staff comments or changes to disclosure in response to staff comments in the filing reviewed by the staff do not foreclose the Commission from taking any action with respect to the filing; and
|X| The Fund may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Prospectus Comments
1. Comment: For each Fund, if the investment objective is not fundamental, include disclosure that the objective may be changed without shareholder approval as required by Item 4(a) of Form N-1A.
Response: Each Fund's investment objective is not fundamental. Therefore, we have added the following sentence to the end of the "Investment Objective" section for each Fund:
"The Fund's investment objective may be changed by the Board of Directors without shareholder approval."
2. Comment: Because Aggressive Investors 1 Fund and Aggressive Investors 2 Fund invest in foreign companies, include risk disclosure related to such investments.
Response: We have added the following risk disclosure to the "Principal Risk Factors" section for both Aggressive Investors 1 Fund and Aggressive Investors 2 Fund in response to your comment:
"Investments in foreign companies can be more volatile than investments in U.S. companies. Foreign securities have additional risk, including exchange rate changes, political and economic upheaval, the relative lack of information about the companies, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards."
3. Comment: Because Aggressive Investors 1 Fund and Aggressive Investors 2 Fund utilize futures, options and leverage, include risk disclosure related to such techniques.
Response: We have added the following risk disclosures to the "Principal Risk Factors" section for both Aggressive Investors 1 Fund and Aggressive Investors 2 Fund in response to your comment:
"The Fund's use of futures and options to manage risk or hedge market volatility are subject to certain additional risks. Futures and options may not always be successful hedges and their prices can be highly volatile. They may not always successfully manage risk. Using futures and options could lower the Fund's total return, and the potential loss from the use of futures can exceed the Fund's initial investment in such contracts. Also, the Fund's use of leverage may cause the Fund's portfolio to be more volatile than if the portfolio had not been leveraged because leverage could exaggerate the effect of any increase or decrease in the value of the securities held by the Fund."
4. Comment: Current disclosure in the "Principal Risk Factors" section for Aggressive Investors 1 Fund and Aggressive Investors 2 Fund related to investing in a small number of issuers should be moved to the investment strategy section while leaving the risk disclosure regarding focus investing in the "Principal Risk Factors" section.
Response: We have moved the referenced disclosure from the risk section to the investment strategy section for both Aggressive Investors 1 Fund and Aggressive Investors 2 Fund.
5. Comment: A footnote to each Fund's fee table states that "The Adviser pays all distribution (12b-1) fees." However, page 54 of the prospectus indicates that the Adviser will reimburse the Funds for all distribution costs. Please reconcile this difference. In other words, if the 12b-1 plan is a reimbursement plan, then each Fund's fee table should include the actual 12b-1 fee and show an offsetting waiver rather than showing zero for the 12b-1 fee.
Response: We have reviewed the Funds' 12b-1 plan and determined that the plan is not a reimbursement plan. The plan has been structured so that the Adviser directly pays for all distribution costs. As a result, the footnote to each fee table is correct. In addition, we have revised the disclosure related to the 12b-1 plan on page 54 of the prospectus to be consistent with the footnote.
6. Comment: A sentence in the "Principal Investment Strategy" section for Ultra-Small Company Fund, Ultra-Small Company Market Fund, Micro-Cap Limited Fund, Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth Fund and Large-Cap Value Fund indicating the market capitalization range of stocks invested in should be revised for clarity.
Response: We have revised the applicable sentence in each such Fund's "Principal investment Strategy" section in response to your comment. An example of the revised sentence is as follows (example is for Ultra-Small Company Fund):
"On September 30, 2005, each of the stocks in this group had a market capitalization of less than $313 million."
7. Comment: Each Fund that has a policy of investing 80% of its "net assets" in certain types securities should include a parenthetical of "plus borrowings for investment purposes."
Response: We have included the parenthetical "(plus borrowings for investment purposes)" immediately following the words "net assets" for each applicable Fund.
8. Comment: Each Fund that has a policy of investing 80% of its net assets in certain types of securities should add disclosure that the 80% policy can be changed without shareholder approval upon 60 days' notice to shareholders if such 80% policy is non-fundamental.
Response: We note that each applicable Fund's 80% policy is non-fundamental. As a result, we have added the following disclosure in the "Principal Investment Strategy" section for each applicable Fund:
"The Fund will notify shareholders at least 60 days prior to any change in its policy of investing at least 80% of its assets in the types of securities described above."
9. Comment: The "Principal Investment Strategy" section for Ultra-Small Company Fund indicates that the Fund may engage in frequent trading. As a result, the impact of higher portfolio turnover on Fund performance should be disclosed as required by Item 4(b), Instruction 7.
Response: We have added the following disclosure as the last sentence in the "Principal Investment Strategy" section for the Ultra-Small Company Fund in response to your comment:
"In addition, higher trading costs may negatively impact Fund performance."
10. Comment: The Blue Chip 35 Index Fund should revise the disclosure related to its 80% policy to indicate that it will invest 80% of its assets in securities included within the index.
Response: We have revised the disclosure related to Blue Chip 35 Index Fund's 80% policy as follows in response to your comment:
"The Adviser normally invests more than 80% of the Fund's net assets (plus borrowings for investment purposes) in blue chip company stocks included within the Index."
11. Comment: The "Index Composition" section for Blue Chip 35 Index Fund notes that 35 or 36 companies make up the Index, excluding tobacco companies. Please reconcile the reference to 35 or 36 with the name of the Index or clarify the disclosure.
Response: We have clarified the disclosure in response to your comment. As a result, the first sentence of the "Index Composition" section for Blue Chip 35 Index Fund is deleted in its entirety and replaced with the following sentence:
"The long-term objective of this roughly equally weighted Index is to hold 35 "blue-chip" companies, excluding any tobacco companies and ensuring reasonable industry diversification. At times however the Index may hold more or less stocks as a result of corporate actions such as spin-outs or mergers and acquisitions."
12. Comment: The "Index Composition" section for Blue Chip 35 Index Fund notes that as of Index rebalancing in December 2004, the Index included all 23 of the largest U.S. companies, excluding one tobacco company. Please clarify this disclosure.
Response: We have revised the sentence to read as follows in response to your comment:
"At the time of Index rebalancing in December 2004, the Index included many of the largest U.S. companies, excluding tobacco companies."
13. Comment: The Balanced Fund is required to invest at least 25% in equities and 25% in fixed income securities. The Balanced Fund indicates that it invests at least 25% in fixed income securities and up to 75% of its assets in options. Please explain how the current disclosure meets the SEC's position that a balanced fund should invest at least 25% in equities and 25% in fixed income instruments. In addition, explain supplementally how an equity option is the economic equivalent of a direct investment in equity securities.
Response: We have the revised the "Principal Investment Strategy" section of the Balanced Fund in response to your comment. As a result of this revision, we do not believe that a response to the economic equivalent issue is necessary. The revised disclosure is as follows:
"Up to 75% of Fund assets may be invested in common stocks and options. The Adviser may write covered calls and/or secured puts. Both of these strategies are used to accomplish the same objective. At all times, at least 25% of the Fund's assets will be invested in equities."
14. Comment: The "Principal Investment Strategy" section of the Balanced Fund indicates that the Fund invests in futures. As a result, risk disclosure related to such investments should be included in the "Principal Risk Factors" section.
Response: We have added the following risk disclosure to the "Principal Risk Factors" section for the Balanced Fund in response to your comment:
"The Fund's use of futures to manage risk or hedge market volatility are subject to certain additional risks. Futures may not always be successful hedges, their prices can be highly volatile and they may not always successfully manage risk. Using futures could lower the Fund's total return, and the potential loss from the use of futures can exceed the Fund's initial investment in such contracts."
15. Comment: The "Principal Investment Strategy" section of the Balanced Fund indicates that the Fund invests in U.S. Government obligations. As a result, risk disclosure related to the varying levels of support provided by the U.S. Government to different types of government obligations should be included in the "Principal Risk Factors" section.
Response: We have added the following risk disclosure to the "Principal Risk Factors" section for the Balanced Fund in response to your comment:
"U.S. government obligations vary in the level of support they receive from the U.S. government. They may be: (i) supported by the full faith and credit of the U.S. Treasury; (ii) supported by the right of the issuer to borrow from the U.S. Treasury; (iii) supported by the discretionary authority of the U.S. government to purchase the issuer's obligations; or (iv) supported only by the credit of the issuer."
16. Comment: The section entitled "Who is the Investment Management Team?" appears to indicate that the Funds are team managed. However, biographical information is only provided for two portfolio managers. If other members of the team are primarily and jointly responsible for the management of the Funds, then disclosure regarding those other team members should be included. In addition, please ensure that at least 5 years experience is included for all team members required to be disclosed pursuant to this requirement.
Response: We have revised the entire section as follows in response to your comment:
"All Funds Except for the Balanced Fund
Investment decisions for each Fund except for the Balanced Fund are made by an investment management team. The investment management team is comprised of eight investment professionals on the Adviser's staff including the trading team. The following individuals are jointly and primarily responsible for the day-to-day management of each such Fund's portfolio:
John Montgomery is the portfolio manager for all of the Bridgeway Funds except for the Balanced Fund and has held that position since each Fund's inception. John founded the Adviser in 1993 and currently holds the title of President. In addition to the Funds, John manages separate accounts for high net worth individuals, endowments and other institutional investors.
Elena Khoziaeva began working at the Adviser in 1998. Since 1999, her responsibilities have included investment management research and analysis as well as quantitative model maintenance and operation for the Adviser. Elena earned a Bachelor of Economic Sciences degree from Belarussian State Economic University in Minsk and graduated with highest honors from the University of Houston with an MBA in accounting.
Mike Whipple, CFA, began working at the Adviser in 2002. Since then, his responsibilities have included investment management research and analysis as well as quantitative model maintenance and operation for the Adviser. He holds a BS in Accountancy and Finance from Miami Univer
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Bridgeway Funds, Inc.- SEC Correspondence filed 10/20/05
[STRADLEY RONON LOGO] Stradley Ronon Stevens & Young, LLP
1220 19th Street, NW
Suite 600
Washington, DC 20036
Telephone (202) 822-9611
Fax (202) 822-0140
October 20, 2005
VIA Edgar and Email
Brion Thompson
Division of Investment Management
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Bridgeway Funds, Inc. (File Nos. 33-72416 and 811-08200 -
Response to SEC Comments on Filing Pursuant to Rule 485(a)
Dear Mr. Thompson:
We are responding to your comments, provided via telephone, related to the
filing made by Bridgeway Funds, Inc. (the "Fund") pursuant to Rule 485(a) on
August 24, 2005. Please note that any changes to disclosure indicated below will
be made in a post-effective amendment that the Fund plans on filing pursuant to
Rule 485(b) no later than October 28, 2005. Each of your comments and our
response to each comment is set forth below. For convenience, the Fund and each
of its series are referred to individually as a "Fund" and collectively, as the
"Funds."
In connection with our responses to your comments, we acknowledge, on behalf of
the Fund and each of its series, that:
|X| The Fund is responsible for the adequacy and accuracy of the disclosure in
the filing;
|X| Staff comments or changes to disclosure in response to staff comments in
the filing reviewed by the staff do not foreclose the Commission from
taking any action with respect to the filing; and
|X| The Fund may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws
of the United States.
Prospectus Comments
1. Comment: For each Fund, if the investment objective is not fundamental,
include disclosure that the objective may be changed without shareholder
approval as required by Item 4(a) of Form N-1A.
Response: Each Fund's investment objective is not fundamental. Therefore,
we have added the following sentence to the end of the "Investment
Objective" section for each Fund:
"The Fund's investment objective may be changed by the Board of Directors
without shareholder approval."
2. Comment: Because Aggressive Investors 1 Fund and Aggressive Investors 2
Fund invest in foreign companies, include risk disclosure related to such
investments.
Response: We have added the following risk disclosure to the "Principal
Risk Factors" section for both Aggressive Investors 1 Fund and Aggressive
Investors 2 Fund in response to your comment:
"Investments in foreign companies can be more volatile than investments in
U.S. companies. Foreign securities have additional risk, including exchange
rate changes, political and economic upheaval, the relative lack of
information about the companies, relatively low market liquidity and the
potential lack of strict financial and accounting controls and standards."
3. Comment: Because Aggressive Investors 1 Fund and Aggressive Investors 2
Fund utilize futures, options and leverage, include risk disclosure related
to such techniques.
Response: We have added the following risk disclosures to the "Principal
Risk Factors" section for both Aggressive Investors 1 Fund and Aggressive
Investors 2 Fund in response to your comment:
"The Fund's use of futures and options to manage risk or hedge market
volatility are subject to certain additional risks. Futures and options may
not always be successful hedges and their prices can be highly volatile.
They may not always successfully manage risk. Using futures and options
could lower the Fund's total return, and the potential loss from the use of
futures can exceed the Fund's initial investment in such contracts. Also,
the Fund's use of leverage may cause the Fund's portfolio to be more
volatile than if the portfolio had not been leveraged because leverage
could exaggerate the effect of any increase or decrease in the value of the
securities held by the Fund."
4. Comment: Current disclosure in the "Principal Risk Factors" section for
Aggressive Investors 1 Fund and Aggressive Investors 2 Fund related to
investing in a small number of issuers should be moved to the investment
strategy section while leaving the risk disclosure regarding focus
investing in the "Principal Risk Factors" section.
Response: We have moved the referenced disclosure from the risk section to
the investment strategy section for both Aggressive Investors 1 Fund and
Aggressive Investors 2 Fund.
5. Comment: A footnote to each Fund's fee table states that "The Adviser pays
all distribution (12b-1) fees." However, page 54 of the prospectus
indicates that the Adviser will reimburse the Funds for all distribution
costs. Please reconcile this difference. In other words, if the 12b-1 plan
is a reimbursement plan, then each Fund's fee table should include the
actual 12b-1 fee and show an offsetting waiver rather than showing zero for
the 12b-1 fee.
Response: We have reviewed the Funds' 12b-1 plan and determined that the
plan is not a reimbursement plan. The plan has been structured so that the
Adviser directly pays for all distribution costs. As a result, the footnote
to each fee table is correct. In addition, we have revised the disclosure
related to the 12b-1 plan on page 54 of the prospectus to be consistent
with the footnote.
6. Comment: A sentence in the "Principal Investment Strategy" section for
Ultra-Small Company Fund, Ultra-Small Company Market Fund, Micro-Cap
Limited Fund, Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth
Fund and Large-Cap Value Fund indicating the market capitalization range of
stocks invested in should be revised for clarity.
Response: We have revised the applicable sentence in each such Fund's
"Principal investment Strategy" section in response to your comment. An
example of the revised sentence is as follows (example is for Ultra-Small
Company Fund):
"On September 30, 2005, each of the stocks in this group had a market
capitalization of less than $313 million."
7. Comment: Each Fund that has a policy of investing 80% of its "net assets"
in certain types securities should include a parenthetical of "plus
borrowings for investment purposes."
Response: We have included the parenthetical "(plus borrowings for
investment purposes)" immediately following the words "net assets" for each
applicable Fund.
8. Comment: Each Fund that has a policy of investing 80% of its net assets in
certain types of securities should add disclosure that the 80% policy can
be changed without shareholder approval upon 60 days' notice to
shareholders if such 80% policy is non-fundamental.
Response: We note that each applicable Fund's 80% policy is
non-fundamental. As a result, we have added the following disclosure in the
"Principal Investment Strategy" section for each applicable Fund:
"The Fund will notify shareholders at least 60 days prior to any change in
its policy of investing at least 80% of its assets in the types of
securities described above."
9. Comment: The "Principal Investment Strategy" section for Ultra-Small
Company Fund indicates that the Fund may engage in frequent trading. As a
result, the impact of higher portfolio turnover on Fund performance should
be disclosed as required by Item 4(b), Instruction 7.
Response: We have added the following disclosure as the last sentence in
the "Principal Investment Strategy" section for the Ultra-Small Company
Fund in response to your comment:
"In addition, higher trading costs may negatively impact Fund performance."
10. Comment: The Blue Chip 35 Index Fund should revise the disclosure related
to its 80% policy to indicate that it will invest 80% of its assets in
securities included within the index.
Response: We have revised the disclosure related to Blue Chip 35 Index
Fund's 80% policy as follows in response to your comment:
"The Adviser normally invests more than 80% of the Fund's net assets (plus
borrowings for investment purposes) in blue chip company stocks included
within the Index."
11. Comment: The "Index Composition" section for Blue Chip 35 Index Fund notes
that 35 or 36 companies make up the Index, excluding tobacco companies.
Please reconcile the reference to 35 or 36 with the name of the Index or
clarify the disclosure.
Response: We have clarified the disclosure in response to your comment. As
a result, the first sentence of the "Index Composition" section for Blue
Chip 35 Index Fund is deleted in its entirety and replaced with the
following sentence:
"The long-term objective of this roughly equally weighted Index is to hold
35 "blue-chip" companies, excluding any tobacco companies and ensuring
reasonable industry diversification. At times however the Index may hold
more or less stocks as a result of corporate actions such as spin-outs or
mergers and acquisitions."
12. Comment: The "Index Composition" section for Blue Chip 35 Index Fund notes
that as of Index rebalancing in December 2004, the Index included all 23 of
the largest U.S. companies, excluding one tobacco company. Please clarify
this disclosure.
Response: We have revised the sentence to read as follows in response to
your comment:
"At the time of Index rebalancing in December 2004, the Index included many
of the largest U.S. companies, excluding tobacco companies."
13. Comment: The Balanced Fund is required to invest at least 25% in equities
and 25% in fixed income securities. The Balanced Fund indicates that it
invests at least 25% in fixed income securities and up to 75% of its assets
in options. Please explain how the current disclosure meets the SEC's
position that a balanced fund should invest at least 25% in equities and
25% in fixed income instruments. In addition, explain supplementally how an
equity option is the economic equivalent of a direct investment in equity
securities.
Response: We have the revised the "Principal Investment Strategy" section
of the Balanced Fund in response to your comment. As a result of this
revision, we do not believe that a response to the economic equivalent
issue is necessary. The revised disclosure is as follows:
"Up to 75% of Fund assets may be invested in common stocks and options. The
Adviser may write covered calls and/or secured puts. Both of these
strategies are used to accomplish the same objective. At all times, at
least 25% of the Fund's assets will be invested in equities."
14. Comment: The "Principal Investment Strategy" section of the Balanced Fund
indicates that the Fund invests in futures. As a result, risk disclosure
related to such investments should be included in the "Principal Risk
Factors" section.
Response: We have added the following risk disclosure to the "Principal
Risk Factors" section for the Balanced Fund in response to your comment:
"The Fund's use of futures to manage risk or hedge market volatility are
subject to certain additional risks. Futures may not always be successful
hedges, their prices can be highly volatile and they may not always
successfully manage risk. Using futures could lower the Fund's total
return, and the potential loss from the use of futures can exceed the
Fund's initial investment in such contracts."
15. Comment: The "Principal Investment Strategy" section of the Balanced Fund
indicates that the Fund invests in U.S. Government obligations. As a
result, risk disclosure related to the varying levels of support provided
by the U.S. Government to different types of government obligations should
be included in the "Principal Risk Factors" section.
Response: We have added the following risk disclosure to the "Principal
Risk Factors" section for the Balanced Fund in response to your comment:
"U.S. government obligations vary in the level of support they receive from
the U.S. government. They may be: (i) supported by the full faith and
credit of the U.S. Treasury; (ii) supported by the right of the issuer to
borrow from the U.S. Treasury; (iii) supported by the discretionary
authority of the U.S. government to purchase the issuer's obligations; or
(iv) supported only by the credit of the issuer."
16. Comment: The section entitled "Who is the Investment Management Team?"
appears to indicate that the Funds are team managed. However, biographical
information is only provided for two portfolio managers. If other members
of the team are primarily and jointly responsible for the management of the
Funds, then disclosure regarding those other team members should be
included. In addition, please ensure that at least 5 years experience is
included for all team members required to be disclosed pursuant to this
requirement.
Response: We have revised the entire section as follows in response to your
comment:
"All Funds Except for the Balanced Fund
Investment decisions for each Fund except for the Balanced Fund are made by
an investment management team. The investment management team is comprised
of eight investment professionals on the Adviser's staff including the
trading team. The following individuals are jointly and primarily
responsible for the day-to-day management of each such Fund's portfolio:
John Montgomery is the portfolio manager for all of the Bridgeway Funds
except for the Balanced Fund and has held that position since each Fund's
inception. John founded the Adviser in 1993 and currently holds the title
of President. In addition to the Funds, John manages separate accounts for
high net worth individuals, endowments and other institutional investors.
Elena Khoziaeva began working at the Adviser in 1998. Since 1999, her
responsibilities have included investment management research and analysis
as well as quantitative model maintenance and operation for the Adviser.
Elena earned a Bachelor of Economic Sciences degree from Belarussian State
Economic University in Minsk and graduated with highest honors from the
University of Houston with an MBA in accounting.
Mike Whipple, CFA, began working at the Adviser in 2002. Since then, his
responsibilities have included investment management research and analysis
as well as quantitative model maintenance and operation for the Adviser. He
holds a BS in Accountancy and Finance from Miami Univer