1. What is this all about?
   

   Regarding the matter of Bridgeway Capital Management, Inc., John Noland Ryan Montgomery and the United State Securities and Exchange Commission, Administrative Proceeding File No. 3-11659.

   The United States Securities and Exchange Commission (the “SEC”) has accepted a settlement offer to an administrative proceeding against Bridgeway Capital Management, Inc. (“Bridgeway Capital”) concerning non-compliance with Section 205 and Rule 205-2 of the Investment Advisers Act of 1940, dealing with the calculation of performance-based fees of three of the Bridgeway Funds, Aggressive Investors 1, Aggressive Investors 2, and Micro-Cap Limited.

   Bridgeway Capital charged each fund a performance-based fee against the fund’s current assets instead of against its assets averaged over the period during which the fund’s performance was computed, as Section 205 of the Investment Advisers Act requires. As a result, Bridgeway Capital charged the three funds and, consequently, their respective shareholders, approximately $4.4 million in the aggregate more than it would have if its performance-based fees had complied with Section 205.
   
   The SEC Order contained the following table that explains which funds were affected, the time frame for each fund, and the net overcharge in each fund.

   FUND	PERIOD SINCE INCEPTION OF PERFORMANCE FEE	NET OVERCHARGE
   Aggressive Investors 1	July 1, 1995 to March 22, 2004	$3,989,346
   Aggressive Investors 2	January 1, 2003 to March 22, 2004	$110,365
   Micro-Cap Limited	July 1, 1995 to March 22, 2004	$307,989

   As part of the settlement agreement, Bridgeway Capital hired an -Independent Distribution Consultant, Bernerd E. Young, not unacceptable to the SEC-, to develop a Distribution Plan (“Plan”) for the distribution of disgorgement and interest provided for in the SEC Order. The Plan will include:

   1. An explanation of the method used to calculate the payments to eligible shareholders, including shareholders who hold or held their shares through an omnibus account at a third party brokerage intermediary.
   2. The procedures for locating eligible shareholders and providing notice to such shareholders.
   3. The procedure for distributing the disgorgement and interest to eligible shareholders, including the provision for disposition of any funds not otherwise distributed.

   Additional Information can be obtained from the web links below:
   
   Click the file or link below to obtain a copy of the SEC Administrative Proceeding, File No 3-1659 (bridgeway settlement [PDF]) Or at the SEC web site http://www.sec.gov/litigation/admin/ia-2294.htm
   
   Click the files below to obtain a copy of The Final Approved Plan of Distribution (Approved Plan of Distribution [PDF]) (Plan of Distribution AMENDMENT [PDF])

2. What is the total dollar amount of this settlement and will there be interest paid on the overcharges? Who is paying for this settlement?
   

   Bridgeway Capital Management, Inc., the Investment Adviser to Bridgeway Funds, Inc., has paid a civil penalty in the amount of $200,000 and John Montgomery has paid a civil penalty in the amount of $50,000 to the United States Treasury.

   Bridgeway Capital Management, Inc. shall pay disgorgement in the amount of $4,407,700, plus interest. Interest charges of $450,256, $2,368 and $33,090 will be credited to shareholders of Aggressive Investors 1, Aggressive Investors 2 and Micro-Cap Limited Funds, respectively. This amount was determined as part of the SEC Fair Fund Settlement based on each quarter’s overcharges to the shareholders and using the IRS late payment interest rate.

   Affected shareholders will receive one check, which will include both the overcharge amount, and all applicable interest thereon.

3. What has been the Fund’s and the Adviser’s response to the settlement?
   

   You can obtain a copy of the letter from John Montgomery, President of the Funds and President of the Investment Adviser at: http://www.bridgeway.com/files/Letter%20from%20John%20Montgomery.pdf

   You may also obtain a copy of the letter from Miles Harper, Independent Chairman of the Board of Directors for Bridgeway Funds, Inc. at: http://www.bridgeway.com/files/Letter%20from%20Chairman%20of%20the%20Funds.pdf

   These two letters summarize key actions taken by both the Funds and the Adviser.

4. Can you explain how I know if I am part of the settlement and the manner in which I will be receiving my share of the settlement?
   

   If you were a shareholder of the designated funds during any period of overcharges, you will receive a check.

   The check will be issued bearing the name of the issuer, Eastern Bank. Recipients will have 60 days  to present the check for payment.

   All funds from checks that are not negotiated within 60 days of the date of distribution will remain in the Distribution Account and returned to the U.S. Treasury at the conclusion of the Plan of Distribution.

5. Why are the other Bridgeway Funds not included in the settlement?
   

   The three funds listed in the SEC Order are the only Bridgeway funds included in the settlement.

   In November 2003, Bridgeway Funds launched four additional mutual funds with performance-based fees. These were the "Small-Cap Growth" fund, the "Small-Cap Value" fund, the "Large-Cap Growth" fund, and the "Large-Cap Value" fund. For each new fund, Bridgeway Funds entered into an advisory contract with Bridgeway Capital that provided for the same method of calculating performance-based fees that Bridgeway Capital charged the Aggressive Investors 1, Aggressive Investors 2, and Micro-Cap Limited funds. In each of these funds, however, no performance-based fee has yet been charged, as of the date of the SEC Settlement, because, under the contracts, no performance-based fee is charged in the first year. The board of directors for the Bridgeway Funds has approved an amendment to the management agreement with Bridgeway Capital that on an interim basis, pending shareholder approval of new advisory contracts will ensure that Bridgeway Capital will not receive performance fees in excess of those permitted under Section 205.

   The Ultra-Small Company, Ultra-Small Company Market, the Blue Chip 35 Index and the Balanced do not use the Performance Based Management Fee formula to calculate the management fees.

6. What if I don’t receive a check and believe that I should have?
   

   You will need to put your concerns in writing, along with all supporting documentation, and mail them to the Administrator of the Distribution Plan at:
   
   Bridgeway Capital Management Settlement Administration
   PO Box 859221
   Braintree MA 02185-9221
   
   Disputes relating to the distribution will be considered and resolved by the Settlement Claims Administrator under the direction of the IDC.
   
   Please note that the documentation presented will not be returned under any circumstances.
   
   

7. How is my settlement payment calculated?
   

   The Plan will determine the “Shareholder Distribution Amount” due each shareholder using the following methodology:

   • For each Fund determine, where there was a daily overcharge, the daily overcharge rate per share by comparing the Correct Management Fee per day mandated in the SEC Order under Rule 205-2 to the Actual Management Fee per day.
   • On those days in which there was an overcharge, the daily overcharge rate will then be multiplied by the shares held by each registered shareholder on each day to determine the daily dollar overcharge.
   • The daily dollar overcharges will then be summed by quarter for each shareholder to get the quarterly dollar overcharge per shareholder.
   • Pre-judgment interest will be credited to shareholders, on a pro-rata basis, for the entire period July 1995 through March 22, 2004.
   • The quarterly dollar overcharges plus pro-rata pre-judgment interest for the shareholder will then be summed to determine the “Shareholder Distribution Amount” for each shareholder of record. The sum of these amounts will equal the Final Distribution Amount of $4,893,414, as stipulated in the Order.

    

8. What controls are in place to ensure that all shareholders receive the amount of the distribution to which they are entitled?
   

   The Independent Distribution Consultant has engaged the services of a regional Certified Public Accounting Firm and a National Technology Provider to monitor the process and ensure that all shareholders are treated fairly and receive their proportionate share of the Distribution.

9. Do I have any other options besides receiving a check?
   

   The only manner in which affected shareholders will receive their distribution is through the issuance of a check to their address of record.

10. There are special circumstances surrounding the distribution I am to receive. What can I do to resolve this issue?
    

    The Administrator of the Distribution Plan will review special circumstances on a case-by-case basis. Please call the Administrator of the Distribution Plan at (800) 364-3565, Monday through Friday, 9:00 A.M. to 5:00 P.M. Central Time, to determine what actions you may need to take to resolve these issue.

11. How will this settlement effect my tax reporting?
    

    For tax information related to this settlement, please refer to the tab labeled "Tax Information" in this website. As always, you should consult your financial advisor or tax professional to determine the potential tax consequences and appropriate tax treatment for your situation.

12. Who can I contact if I disagree with the amount of the distribution check I receive?
    

    You will need to put your concerns in writing, along with all supporting documentation, and mail them to the Administrator of the Distribution Plan at:
    
    Bridgeway Capital Management Settlement Administration
    PO Box 859221
    Braintree MA 02185-9221
    
    Disputes relating to the distribution will be considered and resolved by the Settlement Claims Administrator under the direction of the IDC.
    
    Please note that the documentation presented will not be returned under any circumstances.

13. I held my Bridgeway mutual fund shares through my broker.  Were my shares included in determining if I was an eligible accountholder?
    

    The Distribution Plan explains in detail the process used to identify accountholders that owned their Bridgeway mutual fund shares through their broker.
    
    The Administrator of the Distribution Plan requested from the broker dealer firms all registration and transactional information needed to determine if you were eligible for this settlement. Any information received from your brokerage firm by the Administrator of the Distribution Plan will be kept in strict confidence.

14. What has Bridgeway done to ensure this does not happen in the future?
    

    Bridgeway has taken a number of actions recently to ensure that any kind of non-compliance does not occur again.

    • Bridgeway Capital Management Inc. and Bridgeway Funds, Inc. hired a new compliance officer with 20 years of mutual fund related experience. In addition, Bridgeway significantly increased the budget of staff time for compliance.
    • The Bridgeway Funds' Board of Directors engaged a law firm as counsel to the Fund, giving more depth on both the legal and compliance sides of the business.
    • Bridgeway outsourced the Bridgeway Funds' accounting and a large part of the fund accounting administration to ALPs Mutual Fund Services.
    • Bridgeway outsourced the Bridgeway Funds' transfer agency (accounting for fund share ownership and servicing shareholder requests) to Citigroup Financial Services.
    • Bridgeway outsourced distribution services to Forum Financial Services (FFS), a member of the National Association of Securities Dealers (NASD). FFS assists in distributing shares of the Bridgeway Funds, which includes among other things, the reviewing of shareholder communications.
    • Bridgeway will pay the costs of soliciting shareholder approval of new advisory contracts with the Aggressive Investors 1, Aggressive Investors 2, Micro-Cap Limited, Small-Cap Growth, Small-Cap Value, Large-Cap Growth, and Large-Cap Value funds, which comply with the Advisers Act. This meeting was held on March 30, 2005 and all amended advisory contracts were approved.

     

15. What if I have additional Questions about the settlement?
    

    Please contact the Administrator of the Distribution Plan at (800) 364-3565, Monday through Friday, 9:00 A.M. to 5:00 P.M. Central Time.

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