Bridgeway Fund, Inc.
5650 Kirby, Suite 141
Houston, TX 77550
September 9, 1996
Filing Desk
U.S. Securities and Exchange Commission
450 Fifth St., N.W.
Washington, D.C. 20549
RE: Bridgeway Fund, Inc.
40 Act Reg. No. 811-8200
33 Act File No. 33-72416
Proxy Statement
Ladies and Gentlemen,
Enclosed are five preliminary copies of the first proxy statement for
Bridgeway Fund, Inc., Schedule 14A. The $125 filing has been paid
with a fedwire.
As you will note in the attached filing, a 12b-1 Plan is being
presented to shareholders, but we do so with some hesitancy. The
reason is quite simple. The management company first began
considering dropping their NASD membership and its registration as a
broker dealer when they were questioned by an SEC examiner as to why
they registered as a broker dealer only to distribute shares of a
fully no-load fund. Further research with the NASD indicated the investment
adviser, Bridgeway Capital Management, Inc., might withdraw its NASD
membership if and when the Fund became its own distributor.
The Fund's attorney then began to research the subject by calling the
NASD, the Investment Company Institute, and the general counsel's
offices of both the Division of Investment Management and the
Division of Market Regulation. No one could answer the question,
"Does a Fund have to adopt a 12b-1 Plan in order to act as its own
distributor?" An attorney in the Division of Market Regulation
suggested that since Rule 12b-1(b) talked in terms of having to have
a written Plan approved by shareholders, that we may need one in
order for our Fund to act as its own Distributor.
However, the particular paragraph that he cited also seems to permit
one to interpret it to mean that a fund can only act as its own
Distributor if payments made in connection with the 12b-1 Plan are
made by the Fund either directly or indirectly. Thus, we have
included a Plan to expedite this filing, since no one has been able
to answer the question. However, since Bridgeway Fund will be making
no payments under the proposed plan, does it need a written plan at
all? We respectfully request that someone on the staff answer this
question, since the Fund could save quite a bit of money for its
shareholders both in printing costs and mailing costs if it is deemed
not necessary to include this item in the Proxy material.
Please call the Fund's counsel, Jim Ellis, at 914 if you have
questions. Please fax him your comments at .
Sincerely,
John Montgomery
President
<PAGE>
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
File by a Party other than the Registrant [ ]
Check the appropriate box:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Paragraph 240.14a-11(c) or 240.14a-12
Bridgeway Fund, Inc.
(Name of Registrant as Specified In Its Charter)
John Montgomery, President
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ X ] $125 per Exchange Act Rules 0-11 (c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or item 22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant
to Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
______________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________
(3) Per unit price or other underlying value of transaction computer pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined.)
______________________________________________________
(4) Proposed maximum aggregate value of transaction:
______________________________________________________
(5) Total fee paid:
______________________________________________________
[ ] Fee paid previously with preliminary material.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
<PAGE>
Bridgeway Fund, Inc.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of Bridgeway Fund, Inc. (the "Fund")
hereby constitutes and appoints Miles D. Harper III and Joanna R.
Schima, and each of them, singly, proxies and attorneys of the
undersigned, with full power of substitution to each, for and in the name
of the undersigned to vote and act upon all matters (unless and except as
expressly limited below) at the Special Meeting of Shareholders to be
held on Wednesday, October 15, 1996, at 11:30 a.m. and at any and all
adjournments thereof, in respect of all shares of Common Stock of the
Fund held by the undersigned or in respect of which the undersigned would
be entitled to vote or act, with all powers the undersigned would possess
if personally present. All proxies heretofore given by the undersigned
in respect of said meeting are hereby revoked.
Specify desired action by check mark in the appropriate space. The
Proxy will be voted and voted as specified. IF NO SPECIFICATION IS MADE,
THE PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1 AND 2. ALL SHAREHOLDERS
OF THE FUND ARE ENTITLED TO VOTE ON PROPOSAL 1, BUT ONLY SHAREHOLDERS OF
THE ULTRA-SMALL COMPANY PORTFOLIO CAN VOTE ON PROPOSAL 2 AND ONLY
SHAREHOLDERS OF THE AGGRESSIVE GROWTH AND SOCIAL RESPONSIBILITY
PORTFOLIOS CAN VOTE ON PROPOSAL 3. The persons named proxies have
discretionary authority, which they intend to exercise in favor of the
proposals referred to and according to their best judgment as to any
other matter which may properly come before the meeting.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposal 1. To approve a proposed Distribution, Assistance, FOR AGAINST ABSTAIN
Promotion and Administrative Services Plan pursuant
to Rule 12b-1 under the Investment Company Act of
1940 at no additional net cost to the Fund.
(all Fund shareholders vote)
Proposal 2. To approve closing the Ultra-Small Company Portfolio FOR AGAINST ABSTAIN
to new investors at $27.5 million instead of $55 million;
to allow current investors to purchase an equal dollar
amount of shares through at least December, 1997; to
increase the management fee during the period assets
are in that range (only) from 0.9% of net assets to $495,000
per year subject to a maximum 1.49% per year of net assets;
and to permit Fund and Adviser employees and directors
to purchase unsubscribed shares after the cut-off date as
more fully explained in the Proxy Statement.
(only Ultra-Small Company shareholders vote)
Proposal 3. To calculate the performance adjustment fee rate quarterly FOR AGAINST ABSTAIN
rather than monthly and correct the ending date of the first
five year period to September 30, 1999.
(only Aggressive Growth and Social Responsibility share-
holders vote)
</TABLE>
The signature(s) of this proxy should correspond exactly to the
shareholder(s) names(s) as shown hereon. In the case of joint tenancies,
co-executors, or co-trustees, both should sign. Persons signing as
attorney, Executor, Administrator, Trustee or Guardian should give their
full title.
___________________________________ Dated:_____________________________, 1996
Signature(s) of Shareholders
Please mark boxes in blue or black ink. Sign, date and return this Proxy
promptly using the enclosed envelope.
<PAGE>
Bridgeway Fund, Inc.
5650 Kirby Drive, Suite 141
Houston, Texas 77005
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF BRIDGEWAY FUND, INC.
NOTICE IS HEREBY GIVEN THAT A Special Meeting of the shareholders of
Bridgeway Fund, Inc. (the "Fund") will be held at the offices of Wood,
Harper & Associates, One Sugar Creek Center Blvd., Suite 500, Sugar Land,
Texas 77478 on October 15, 1996, at 11:30 a.m. for the following
purposes:
(1) To approve or disapprove a proposal to adopt a 12(b)-1 Plan
whereby the Fund would become the distributor of its securities at no
cost to the Fund.
(2) To approve or disapprove a proposal for shareholders of the
Ultra-Small Company Portfolio (the "Portfolio"):
a) to close the Portfolio to new shareholders whenever net
assets are above $27.5 million instead of $55 million,
b) allow then current shareholders the option to purchase
additional shares with a minimum value of $2,000, but no more
than the dollar value of their previous net purchases (i.e.
purchases less redemptions, not including dividend
reinvestments) for a period of time through at least December 1997,
c) calculate the investment advisory fee for the Portfolio
during the period that the Portfolio's net assets range from
$27,500,000 to $55,000,000 as if the Portfolio had $55,000,000
under management (that is, $55 million times .009 equals
$495,000), subject to a maximum 1.49% annual rate (the current
rate is 0.9%), and
d) to allow employees, directors, and the employee pension plan
of Bridgeway Capital Management, Inc. (the Adviser) and of the
Fund to purchase any unsubscribed shares under proposal b)
above or other redeemed shares after the date that the
Portfolio is closed to new shareholders.
3) To approve or disapprove a proposal for shareholders of the
Aggressive Growth and Social Responsibility Portfolios to calculate the
performance adjustment fee rate quarterly rather than monthly and correct
the ending date of the first five year period to September 30, 1999 in
the Management Contract.
4) To consider and act upon such other business as may properly
come before the meeting or any adjournment thereof.
Shareholders of record at the close of business on July 31, 1996
are entitled to vote at the Meeting or any adjournment thereof.
By order of the Board of Directors
September 19, 1996 Joanna Schima, Secretary
I M P O R T A N T
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE AND SIGN IT,
AND RETURN IT IN THE ACCOMPANYING POSTAGE PREPAID ENVELOPE. IF YOU SIGN,
DATE AND RETURN THE PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES
WILL BE VOTED IN FAVOR OF THE PROPOSALS NOTICED ABOVE. BY PROMPTLY MARKING,
SIGNING, AND RETURN THE ENCLOSED PROXY, YOU WILL SAVE THE FUND THE ADDITIONAL
EXPENSE OF FURTHER SOLICITATIONS.
<PAGE>
Bridgeway Fund Inc.
5650 Kirby Drive, Suite 141 Houston, Texas 77005
The enclosed proxy is solicited by the Board of Directors of the
Fund in connection with a Special Meeting of Shareholders (hereinafter
"Meeting") of the Fund or any adjournment thereof. Proxies will be voted
in accordance with the instructions contained therein, and as to
proposals for which no instructions are given, a proxy will be voted in
favor of the particular proposal. The proxy confers discretionary
authority on the person designated therein to vote on other business not
currently contemplated, which may properly come before the Meeting. A
shareholder may revoke his proxy at any time prior to use by written
notice to the Fund, by executing and filing a subsequently dated proxy,
or by voting in person at the meeting. This proxy statement and the
accompanying form of proxy are being sent to shareholders on
approximately September 20, 1996.
At the close of business on July 31, 1996, the record date fixed by
the Board of Directors for the determination of shareholders entitled to
notice of and to vote at the Meeting, 529,218.307 shares of the Common
Stock of the Fund were outstanding. Of these shares, 95,899.395,
408,618.977, and 24,699.935 shares were attributable to the Aggressive
Growth, Ultra-Small Company, and Social Responsibility Portfolios,
respectively. Each share is entitled to one vote with respect to each of
the matters presented for action at the Meeting except that only
shareholders of the Ultra-Small Company Portfolio are entitled to vote on
the second proposal since it only affects that Portfolio. Directors and
officers of the Fund, as a group, held beneficially 9,982.39 shares, or
1.9% of such outstanding shares on July 31, 1996. Bridgeway Capital
Management, Inc., the Fund's Investment Adviser and Distributor
(hereinafter "Bridgeway" or the Adviser") owned 502.38 shares or .1% of
the shares outstanding. See "Security Ownership of Certain Beneficial
Owners" for details of other large shareholders' holdings.
The affirmative vote of a majority of shares (of the Ultra-Small
Company Portfolio) cast at the Meeting is required to approve the
proposal regarding the new cut off amount and revised Management Contract
(Proposal 2), to approve the frequency of performance rate calculation
and correct the date of the first five year period in the Management
Contract (Proposal 3), and any other business that may come before the
meeting (Proposal 4). The affirmative vote of the lesser of (a) 67% or
more of the Fund's voting securities present at the Meeting if more than
50% of outstanding voting securities are present or represented by proxy
or (b) more than 50% of all outstanding voting securities is required to
approve the 12b-1 Plan (Proposal 1).
The cost of solicitation, including the printing and mailing of
proxies, will be borne by the Fund. In addition to solicitation through
the mails, the Fund, may, if necessary to obtain the requisite
representation of shareholders, solicit proxies personally by its
employees or the Adviser's employees, but it is not anticipated that any
employees will be specially engaged for such purpose. The cost of such
additional solicitation, if any, including out-of-pocket disbursements,
will be borne by the Fund. Any cost of additional solicitation is
estimated to be nominal in amount and is expected to be reimbursed by
the Adviser through the Fund's expense limitation.
Proposal Number 1. To approve or disapprove a proposal to adopt a
12(b)-1 Plan whereby the Fund would become the distributor of its
securities at no additional net cost to the Fund.
Bridgeway Capital Management, Inc., a Texas corporation whose
address is 5650 Kirby Drive, Houston, Texas 77005, acts as the Fund's
investment adviser pursuant to a contract dated May 26, 1994, which has
been renewed annually by the Fund's Board of Directors, including those
directors who are not considered "interested persons" as that term is
used in the Investment Company Act of 1940. Bridgeway also acts as
distributor of the Fund's shares pursuant to a contract with the Fund,
and consequently acts as the Fund's underwriter and distributor, as well.
Only because of this distribution contract, Bridgeway is registered as a
broker dealer with the Securities and Exchange Commission and is a member
of the
<PAGE>
National Association of Securities Dealers ("NASD"). All of the
voting stock of the Adviser is owned by John Montgomery, the president of
Bridgeway and the Fund, and members of his family. Since December 31,
1995 through the date of this proxy, John Montgomery, President and a
director of both the Fund and of Bridgeway Capital Management, Inc. has
purchased 20 shares of Bridgeway Capital Management, Inc. common stock at
a cost of $20,000.
BACKGROUND TO AND DISCUSSION OF PROPOSAL ONE
Bridgeway's management has become aware that it is not necessary
for Bridgeway to continue to be registered as a broker dealer and member
of the NASD, if the Fund were to adopt a plan to act as its own
distributor of the Fund's shares. Such a plan is called a 12b-1 Plan,
pursuant to Section 12 of the Investment Company Act of 1940 and the
rules thereunder relating to a mutual fund acting as its own distributor.
Among other things, such a plan must be in writing and approved by the
shareholders of the Fund and its Board of Directors, including a majority of
the Fund's Directors who are not considered "interested persons" of the
Fund. The Board of Directors of the Fund, including all of the directors
who are not considered "interested persons" of the Fund, unanimously
approved entering into such a Plan of distribution at a meeting held in
person on September 4, 1996. The Proposed 12b-1 Plan appears as Exhibit
A to this proxy statement.
The Plan approved by the Directors calls for the Fund to act as its
own distributor, with all of the costs of doing so to be reimbursed by
Bridgeway Capital Management, Inc. out of its capital and/or profits.
The directors felt that the proposed Plan would give the Fund direct
control over its distribution efforts without imposing any type of
financial commitment on the Fund. If the Plan is approved by
shareholders, Bridgeway employees would continue to devote time to the
distribution effort since they will continue to be registered as the
selling agents of the Fund (depending on individual state securities
laws) in those states where the Fund's shares are registered for sale.
However, the Plan would permit Bridgeway Capital Management, Inc. to
cancel its registration as a broker dealer with the SEC, cancel its
membership with the NASD, save the costs associated with such continued
registrations, and better utilize its time on the Fund's affairs.
The fund is an open end registered investment company, whose shares
are sold directly to investors without sales charge and redeemed by the
Fund without any redemption charge. Bridgeway Capital Management, Inc.
acts as the Fund's investment adviser and distributor of its shares.
Pursuant to the Distribution Agreement with the Fund, Bridgeway acts as
agent of the Fund in the sale and purchase of its shares and is
responsible for all advertising and promotion expenses including the
printing and distributing of prospectuses used in such solicitation.
Bridgeway receives no fees for performing its duties under the
Distribution contract, and is not required to solicit orders to purchase
nor is it required to promote and advertise the availability of the
Fund's shares.
The Directors of the Fund, after due deliberation, recommend that
the Fund adopt, pursuant to Rule 12b-1 of the Investment Company Act of
1940, a Plan whereby the Fund can act as its own distributor. As noted
in the Fund's current Prospectus, the Adviser has undertaken to reimburse
the Fund for all operating expenses over 2.5% and is voluntarily
reimbursing expenses over 2.0% of average net assets. A waiver of all or
a portion of the Management Fee due to this undertaking was required
during the Fund's first two full years of operation ended June 1996, and
may be required in the current year ending June 1997. Adoption of the
Plan will not impact any prospective yield to shareholders in the
foreseeable future.
Requirements of Rule 12b-1
The Securities and Exchange Commission has adopted Rule 12b-1 under
the Investment Company Act of 1940, permitting a mutual fund to act as
its own distributor and to pay distribution expenses directly. Prior to
adoption of that Rule, mutual funds were not permitted to bear the cost
of
<PAGE>
distribution expenses. In general, rule 12b-1 defines distribution
expenses as those expenses primarily intended to result in the sale of
Fund shares.
Among other things, Rule 12b-1 required that the Directors, in the
exercise of their reasonable business judgment and in light of their
fiduciary duties, determine there is a reasonable likelihood the Plan
will benefit the Fund and its shareholders. Rule 12b-1 also requires
that the Plan be submitted to shareholders for their approval and that
continuance of the Plan be approved at least annually by the Board of
Directors, including a majority of the Directors who are not interested
persons of the Fund and who have no direct or indirect financial interest
in the operation of the Plan or any related contracts, by vote cast in
person at a meeting called for that purpose. The Adviser must prepare
reports for the Board of Directors on a quarterly basis showing the
amounts paid for the various distribution categories of expense, the
purpose of such payments, and the amount and purpose of any payment made
pursuant to the Plan in promoting the sale of the Fund's shares.
As required by Rule 12b-1, implementation of the Plan requires
approval by a majority of the Directors, including a majority of
Directors who are not interested persons of the Advisor and who have no
direct or indirect financial interest in the operation of the Plan. The
Fund's "non-interested" directors unanimously approved proposing this
Plan at the meeting held in person on September 4, 1996.
Board of Directors' Considerations
Bridgeway submitted the Plan to the Board of Directors for its
consideration at a meeting held on September 4, 1996. The Board
considered a number of factors in reviewing and analyzing the Plan,
including the terms and payment levels contained in other 12b-1 plans
adopted by other mutual funds. It determined that the terms of this Plan
were far more beneficial to shareholders as it does not require the use
of any of the Fund's assets. It acknowledged that in light of
competition in the future, that it may be necessary to consider revising
the Plan at some future date to use some Fund assets to pay for
distribution expenses, but any such change would have to be submitted to
and approved by shareholders before it could be effected. Other material
amendments to the Plan may be adopted by majority vote of the Fund's
Board of Directors, including a majority of Directors who are not
interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plan or any related contracts.
Once adopted, the Plan may be terminated at any time by a majority vote
of the Board of Directors, including a majority vote of its Directors who
are not interested persons of the Fund and who have no direct or
indirect financial interest in the Plan or any related agreements. It
may also be terminated by Bridgeway Capital Management, Inc. or by a vote
of the Fund's outstanding voting securities. All underlying agreements
relating to implementation of the Plan will be subject to termination on
60 days' notice without penalty and any such agreement will automatically
terminate, as will the Plan itself, in the event of assignment (as
"assignment" is defined in the Investment Company Act of 1940).
The Board concluded that the Plan, if adopted by shareholders,
would benefit both present shareholders and those who invest in the Fund
in the future, since increasing the size of the fund is likely to
increase the Fund's available yield to the benefit of all shareholders.
Based on the foregoing reasons, the Fund's Directors have
determined that in exercise of their reasonable business judgment and in
light of their fiduciary duties there is a reasonable likelihood
that the adoption of the Plan under Rule 12b-1 will benefit the Fund and
its shareholders, although there can be no assurance that such benefits
will be realized. Certainly, it will not cost the Fund more than it is
presently paying for distribution, since in both the present and proposed
plans, distribution costs are and will be paid for or reimbursed by
Bridgeway Capital Management, Inc. The Board of Directors unanimously
approved the Plan at its meeting held September 4, 1996.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE TO APPROVE
ADOPTION OF THE PLAN WHEREBY THE FUND WILL ACT AS ITS OWN DISTRIBUTOR OF
ITS SHARES.
<PAGE>
Proposal Number (2) To approve or disapprove a proposal for
shareholders of the Ultra-Small Company Portfolio (the "Portfolio"):
a) to close the Portfolio to new shareholders whenever net
assets are above $27.5 million instead of $55 million,
b) allow then current shareholders the option to purchase
additional shares with a minimum value of $2,000, but no more
than the dollar value of their previous net purchases (i.e.
purchases less redemptions, not including dividend
reinvestments) for a period of time through at least December 1997,
c) calculate the investment advisory fee for the Portfolio
during the period that the Portfolio's net assets range from
$27,500,000 to $55,000,000 as if the Portfolio had $55,000,000
under management (that is, $55 million times .009 equals
$495,000), subject to a maximum 1.49% annual rate (the current
rate is 0.9%), and
d) to allow employees, directors, and the employee pension plan
of Bridgeway Capital Management, Inc. (the Adviser) and of the
Fund to purchase any unsubscribed shares under Proposal b)
above or other redeemed shares after the date that the
Portfolio is closed to new shareholders.
BACKGROUND AND DISCUSSION OF PROPOSAL NUMBER 2
The Portfolio is, by prospectus, committed to closing the Portfolio
to new investments any time the net assets are above $55 million. This
is in order that the Adviser may continue to actively invest in very
small companies. Closing the Portfolio has the added advantage of
cutting down on some portfolio expenses such as the accounting expenses
associated with setting up and processing new shareholder accounts and
also state registration fees. However, some current shareholders have
expressed an interest in being able to continue to invest in the
Portfolio for a longer period of time. In response to these suggestions,
the Adviser's staff submitted to the Board of Directors the basic
elements of this proposal, to which the Board has made minor changes.
The proposal above would keep the Portfolio open to current shareholders
longer than possible otherwise, and would also keep the Portfolio smaller
longer, which management perceives as an advantage in "ultra-small"
portfolio management. Staff estimates that this proposal will delay Fund
growth from reaching $55 million in net assets by several years, although
this number cannot be known with any certainty. In considering this
proposal, the Board of Directors, including a majority of those directors
who are not considered "interested persons" of the Fund, have agreed that
cutting off sales of the Portfolio to new investors at $27.5 million may
be unfair to the Adviser, since its future earnings for acting as the
investment adviser to the Portfolio would be impaired. To offset this
disadvantage, this proposal is conditioned on an upward adjustment to the
current annual management fee (which is 0.9% of net assets) any time net
assets are between $27.5 and $55 million. Specifically, the management
fee would be calculated as if the Portfolio had $55 million under
management ($55 million times .009 equals $495,000), subject to a maximum
1.49% annual rate (the current rate is 0.9%), and also subject to a
maximum expense ratio of 2.0% (the current rate). Above $55 million in
net assets, the annual management fee would return once again to the
current rate of 0.9% of net assets.
The Fund's Board of Directors believes this proposal is
advantageous to shareholders who do not want to buy additional shares
(since it will keep the Portfolio smaller longer), advantageous to
shareholders who do want to buy additional shares (since they will be
able to do so for an additional period of time), and is fair to
Bridgeway, since advisory fees will approach the target level even though
the bulk of share sales will be cut off at the lower level of $27.5
million. In addition, part (d) of the
<PAGE>
proposal will help ensure that
current and future employees of the Adviser and current and future
directors of the Adviser and Fund have as strong an interest in this
portfolio as other shareholders. Staff estimates that part (d) of this
proposal can be implemented without increasing the total number of
outstanding shares envisioned in the original prospectus, since only
unsubscribed or redeemed shares would be used for this purpose.
The Board believes that the primary disadvantage of this proposal
is that the Portfolio would incur somewhat higher operating expenses
during the period of time while assets grow from $27.5 to $55 million.
Bridgeway estimates that the additional costs to the Portfolio would
accrue, on average, at the rate of 0.25% of net assets annually until the
fund reaches $55 million in net assets, after which point it would be
somewhat less. During the fiscal year ending June 30, 1996, the Ultra-
Small Company Portfolio accrued management fees of $14,056, which were
waived by the Adviser. If this proposal had been in effect last year the
fees would have been the same, since the net assets were never above
$27.5 million. The table below presents management fees and estimated
total expenses with and without passage of this shareholder resolution.
The Board of Directors believes this additional cost is quite reasonable
relative to the estimated benefits to shareholders. The Board also
believes these costs are reasonable relative to competitive "micro-cap"
funds. The average expense ratio for 14 micro-cap funds listed in a
recent Mutual Funds Magazine article was 1.68%. At $41.25 million net
assets (halfway between $27.5 and $55 million), the estimated expense
ratio would be lower than half of these micro-cap funds. Even at the
maximum 2.0% expense ratio, the Portfolio expense ratio would be less
than or equal to four of the 14 micro-cap funds in the article. The
Board believes that, all else being equal, the expense ratio of an ultra-
small company fund should be higher than that of a micro-cap fund, since
it is usually more costly to manage stocks with smaller market
capitalizations. (Micro-cap companies are roughly two to ten times
larger in size than ultra-small companies.) On the performance side of
the equation, Bridgeway Ultra-Small Company Portfolio's performance was
#2 of ten funds which had a one year performance record in this same
Mutual Funds Magazine article. Thus, the Board feels all of the levels
of expenses below to be reasonable. A copy of the revised Management
contract is attached as Exhibit B, with proposed additions underlined and
proposed deletions struck through.
<TABLE>
<CAPTION>
Recent Growth Under Current Prospectus Growth Under Shareholder Resolution
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets $7,500,000 $27,600,000 $41,250,000 $55,000,000 $27,600,000 41,250,000 $55,000,000
Management Fee $67,000 $248,400 $371,250 $495,000 $411,240 495,000 $495,000
Other Oper. $90,500 $139,533 $180,099 $215,075 $135,581 166,913 $182,474
Expenses
Exp. Reimbursement ($12,000) $0 $0 $0 $0 $0 $0
------- ------- ------- ------- ------- ------ -------
Net Expenses $150,000 $387,933 $551,349 $710,075 $546,821 $661,913 $677,474
Expense Ratio 2.00% 1.41% 1.34% 1.29% 1.98% 1.60% 1.23%
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF THE ULTRA-SMALL
COMPANY PORTFOLIO VOTE TO APPROVE PROPOSAL NUMBER 2, INCLUDING APPROVAL OF
THE REVISED MANAGEMENT CONTRACT AS IT APPLIES TO THE PORTFOLIO.
Proposal Number (3) Change in Date of Five Year Performance Period and
quarterly calculation of performance rate. (Aggressive Growth and Social
Responsibility Portfolios only)
<PAGE>
BACKGROUND AND DISCUSSION OF PROPOSAL NUMBER 3
The original management contract with Bridgeway Capital Management, Inc.
anticipated a date of inception for the Fund in the June quarter of 1994.
Consequently, the "first five year performance period" was stated as
beginning on April 30, 1994 and ending on April 30, 1999. In fact, the
Fund became operational on August 5, 1994, several months later.
Therefore, the April 30, 1999 date is incorrect and the Board is
proposing that the first five year period end on September 30, 1999. In
addition, for reasons of simplicity, the Advisor is proposing to
calculate the performance adjustment rate on a quarterly rather than a
monthly basis. Thus, for example, the performance adjustment rate
calculated on June 30 would continue in effect until September 30 rather
than for just one month. At the time the original Management Contract
was adopted, the performance index was available to Bridgeway through a
data vendor on a daily basis. This data vendor no longer carries this
data, which creates an additional burden on staff in pricing the
portfolio. This part of the proposal will thus simplify the accounting
process. A copy of the revised Management contract is attached as
Exhibit B, with proposed additions underlined and proposed deletions
struck through. The Adviser's balance sheet, which is required any time
shareholders vote on a management contract, is attached as Exhibit C.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF THE AGGRESSIVE
GROWTH AND SOCIAL RESPONSIBILITY PORTFOLIOS VOTE TO APPROVE PROPOSAL
NUMBER 3, INCLUDING APPROVAL OF THIS REVISION TO THE MANAGEMENT CONTRACT
AS IT APPLIES TO THE AGGRESSIVE GROWTH AND SOCIAL RESPONSIBILITY
PORTFOLIOS.
Proposal Number (4) Other Matters.
Neither management nor the persons named in the enclosed form of
proxy know of any other business which will be presented for
consideration at the Meeting. If, however, any such other business shall
properly come before the Meeting, it is intended that the proxies will be
voted in respect to any such other business in accordance with the best
judgment of the persons acting thereunder.
Security Ownership of Certain Beneficial Owners
In addition, the following people or entities were holders directly
or beneficially of more than 5% of the Fund's outstanding shares as of
the record date.
<TABLE>
<CAPTION>
Percentage Ownership
Ultra-Small Aggr. Social
Company Growth Respons. Total
Beneficial Owner Address
<S> <C> <C> <C> <C> <C>
Axness, W. 7522 Live Oak Dr. 5.3% 1.9%
Humble, TX
Stevens, J. 3139 Prescott St 7.1%
Houston, TX
Kern, K. 4444 Richmond 12.0% 4.4%
Houston, TX
Technical Risks 2020 N. Memorial Way 8.8% 23.2% 5.9%
Houston, TX
Silard, J. 6916 Wilson Ln. 14.7% 1.4%
Bethesda, MD
Montgomery, J. 3214 Tangley 6.8% 0.9%
Houston, TX
Webb, J. 4211 Sunset Blvd. 5.3% 0.5%
Houston, TX
Gross, G. 9202 Triola Lane 15.8% 1.9%
Houston, TX
Donaldson, Lufkin, PO Box 2052
Jenrette Secs. Corp Jersey City, NJ 14.2%
------ ------ ------ ------
Total Above 14.2% 33.1% 65.8% 30.8%
All officers/directors 1.1% 2.9% 11.3% 1.9%
</TABLE>
All shares are both of record and beneficial.
Shareholder Proposals
<PAGE>
Shareholder proposals intended to be presented in the Fund's proxy
material relating to the 1997 Annual Meeting of Shareholders, should one
be held, must be received by the Fund at 5650 Kirby Drive, Houston, Texas
77005 on or before July 31, 1997.
By Order of the Board of Directors
Joanna Schima, Secretary
September 19, 1996
<PAGE>
Exhibit A
Bridgeway Fund, Inc.
Distribution Assistance, Promotion,
and Administrative Service Plan
Pursuant to Rule 12b-1 Under the Investment Company Act of 1940
This Distribution Assistance, Promotion, and Administrative
Service Plan (the "Plan") is designed to conform to the requirements of
Rules 12b-1 under Investment Company Act of 1940 (the "Act") and has
been adopted by Bridgeway Fund, Inc. (the "Fund") and by Bridgeway
Capital Management, Inc., the Fund Investment Adviser ("Bridgeway").
Nothing in the Plan will result in additional expenses to Fund
shareholders since Bridgeway Capital Management, Inc. will continue to
pay distribution expenses.
The Fund and Bridgeway both desire to substantially increase the
sale of the Fund's shares in order to (a) spread the cost of the Fund's
operation over a larger shareholder base and (b) permit the Fund to take
advantage of certain economies of scale that are available to Funds with
a larger asset base. The Directors of both the Fund and Bridgeway
believe that the best way to achieve this goal is to establish an
account to which Bridgeway would contribute moneys that will be used to
pay for (1) advertising and promotion expenses of all kinds (including
cooperative ads placed by brokers and dealers who have entered into
written agreements with the Fund or Bridgeway in the future), (2)
fulfillment expenses which include the cost of printing and mailing
prospectuses and sales literature to prospective shareholders of the
Fund, (3) sales assistance payments to brokers and dealers who may enter
into written agreements with the Fund in the future relating to the sale
of Fund shares, and (4) for reimbursement and/or to compensate brokers,
dealers, and other financial intermediaries, such as banks and other
institutions, for administrative and accounting services rendered for
the accounts of Fund stockholders who purchase and redeem their shares
through such banks or other institutions.
If this Plan is amended in the future so that the Fund will
utilize some of its assets for distribution purposes, the Fund will
contribute a sum of money to this account at the beginning of each and
every month that is equal to 1/12th of the budgeted moneys to be spent
for these purposes at the beginning of every fiscal year. In the
meantime, Bridgeway will reimburse the Fund for any expenditures that it
may make pursuant to this Plan or alternatively pay the bills directly.
Bridgeway will be responsible for administering this Plan, providing
reports on its income and disbursements to the Directors of the Fund on
a continuing basis, and negotiating and entering into written
Distribution Assistance Agreements with brokers and dealers, and written
Administrative Service Agreements with brokers, dealers, banks and other
financial intermediaries as contemplated by this Plan.
The level of Distribution Assistance payments to be made to each
broker or dealer entering into a written Distribution Assistant
Agreement will be set forth in each such agreement and will be
determined by the Fund. It is contemplated that Distribution Assistance
payments will be made monthly and will vary directly with the average
level of Fund assets comprising the accounts of Fund shareholders who
are customers of that broker or dealer, Administrative Assistance
payments will be made in accordance with the terms of each such
agreement, and it is contemplated that such payments will be made
quarterly, after Bridgeway has reviewed and approved a list of
reimbursable expenses submitted by the other party to these agreements.
It is understood by the Directors of the Fund and by the
Distributor that all Fund payments made to this account in accordance
with this Plan will not exceed (when added to other Fund operating
expenses) the permissible level of Fund operating expense that is
permitted pursuant to the terms of any expense limitation arrangement or
undertaking in effect from time to time between the Fund and Bridgeway.
The Treasurer of the Fund and the Treasurer of Bridgeway will
prepare and furnish to the Fund's Board of Directors at least quarterly
a written report complying with the requirements of Rule 12b-1 which
sets forth all amounts expended under the Plan and the purposes for
which such expenditures were made.
<PAGE>
Exhibit A
Page Two
The Plan will become effective immediately upon approval by (a) a
majority of the outstanding voting securities of the Fund, and (b) a
majority of the Board of Directors of the Fund including a majority of
the Directors who are not "interested persons" (as defined in the Act)
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements entered into in connection
with the Plan, pursuant to a vote cast in person at a meeting called for
the purposes of voting on the approval of the Plan.
The Plan will remain in effect until October 15, 1997, unless
earlier terminated in accordance with its terms, and thereafter may
continue for successive annual periods if the Plan is approved at least
annually by a majority of the Board of Directors of the Fund, including
a majority of the Directors who are not "interested persons" (as defined
in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements entered into
in connection with the Plan, pursuant to a vote cast in person at a
meeting called for the purpose of voting on the continuance of the Plan.
The Plan may be amended at any time with the approval of the Board
of Directors of the Fund, provided that (a) any material amendments of
the terms of the Plan will become effective only if approved by a
majority of the Board of Directors of the Fund, including a majority of
the Directors who are not "interested persons" (as defined in the Act)
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements entered into in connection
with the Plan, pursuant to a vote cast in person at a meeting called for
the purpose of voting on the approval of the Plan and (b) any amendment
that would result in the Fund using any of its assets to be expended for
distribution assistance, administrative services, and advertising and
other expenses would require additional approval by a vote of a majority
of the outstanding voting securities of the Fund.
The Plan is terminable without penalty at any time by (a) a vote
of the majority of the Directors of the Fund who are not "interested
persons" (as defined in the Act) of the Fund and who have no direct or
indirect financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan, (b) a vote of a
majority of the outstanding voting securities of the Fund, or (c) by
Bridgeway Capital Management, Inc.
All agreements with any persons relating to the implementation of
the Plan will be subject to termination without penalty, pursuant to the
provisions of the paragraph above, and will automatically terminate in
the event of their assignment.
The Distributor is not obligated by the Plan to execute agreements
with any qualified broker or dealer or financial intermediary and any
termination of an agreement with broker or dealer or financial
intermediary under the Plan will have no effect on similar agreements
between the Fund and other participating brokers or dealers or financial
intermediaries pursuant to the Plan.
While the Plan is in effect, the selection and nomination of the
Directors who are not "interested persons" of the Funds (as defined in
the Act) will be committed to the discretion of such "disinterested"
Directors.
<PAGE>
Exhibit B
MANAGEMENT CONTRACT
AGREEMENT, made this 26th day of May, 1994 as amended on this 4th
day of September, 1996 by and between Bridgeway Fund, Inc., a Maryland
corporation (hereinafter called the "Fund"), and Bridgeway Capital
Management, Inc., a Texas corporation (hereinafter sometimes called the
"Adviser").
WITNESSETH:
WHEREAS the Fund and the Adviser wish to enter into an agreement
setting forth the terms on which the Adviser will perform certain
services for the Fund;
NOW THEREFORE, in consideration of the premises and the covenants
contained hereinafter, the Fund and the Adviser agree as follows:
1. The Fund hereby employs the Adviser to manage the investment
and reinvestment of the assets of the Fund and to administer its affairs,
subject to the supervision of the Board of Directors of the Fund, for the
period and on the terms in this agreement set forth. The Adviser hereby
accepts such employment and agrees during such period, at its own
expense, to render the services and to assume the obligations herein set
forth, for the compensation herein provided. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Fund in any way or otherwise be deemed as agent
of the Fund.
2. The Adviser, at its own expense, shall furnish to the Fund
office space in the offices of the Adviser or in such other place as may
be agreed upon from time to time, and all necessary office facilities,
equipment and personnel (with the exception of bookkeeping, auditing, and
accounting personnel) for managing the affairs and investments and
keeping the Fund's records and shall arrange, if desired by the Fund, for
members of the Adviser's organization or its affiliates to serve without
salaries from the Fund as officers or agents of the Fund. The Adviser
assumes and shall pay or reimburse the Fund for: (1) the compensation
(if any) of the directors of the Fund who are interested persons of the
Adviser, and the compensation of the officers of the Fund as such (with
the exception of the Chief Financial Officer, Accounting Officer or
Treasurer), and (2) all expenses incurred by the Adviser or by the Fund
in connection with the management of the investment and reinvestment of
the assets of the Fund and the administration of the affairs of the Fund,
other than those specifically assumed by the Fund herein.
Except as otherwise expressly provided above, the Fund assumes and
shall pay all expenses of the Fund, including, without limitation: (1)
the charges and expenses of any custodian or depository appointed by the
Fund for the safekeeping of its cash, securities and other property, (2)
the charges and expenses of bookkeeping personnel, auditors, and
accountants, computer services and record keeping, (3) the charges and
expenses of any transfer agents and registrars appointed by the Fund, (4)
brokers' commissions and issue and transfer taxes chargeable to the Fund
in connection with securities transactions to which the Fund is a party,
(5) all taxes and corporate fees payable by the Fund to federal, state or
other government agencies, (6) the cost of stock certificates (if any)
representing shares of the Fund, (7) fees and expenses involved in
registering and maintaining registrations of the Fund and of its shares
with the Securities and Exchange Commission and qualifying its shares
under state or other securities laws, including the preparation and
printing of prospectuses used for these purposes and for shareholders of
the Fund, (8) all expenses of shareholders' and directors' meetings and
of preparing and printing reports to shareholders, (9) charges and
expenses of legal counsel for the Fund in connection with legal matters
relating to the Fund, including without limitation, legal services
rendered in connection with the Fund's corporate existence, corporate and
financial structure and relations with its shareholders, registrations
and qualifications of securities under federal, state and other laws,
issues of securities and expenses which the Fund has herein assumed, (10)
compensation of directors who are not interested
<PAGE>
persons of the Adviser,
(11) interest expense, (12) insurance expense, and (13) association
membership dues.
The services of the Adviser to the Fund hereunder are not to be
deemed exclusive, and the Adviser shall be free to render similar
services to others so long as its services hereunder be not impaired
thereby.
3. As compensation for its services rendered and the charges and
expenses assumed and to be paid by the Adviser as described above, each
Portfolio of the Fund pays the Adviser a base fee computed and payable on
or promptly after the last market day end of each month at the following
annual rate:
.9% of the value of the Portfolio's average daily net assets
during such month up to $250,000,000;
.875% of the next $250,000,000 of such assets; and
.85% of such assets over $500,000,000,
except that the fee for the Ultra-Small Company Portfolio during the
period that the Portfolio's net assets range from $27,500,000 to
$55,000,000 will be paid as if the Portfolio had $55,000,000 under
management (that is, $55 million times .009 equals $495,000), subject to
a maximum 1.49% annual rate.
For purposes of calculating such fee, average daily net assets
shall be computed by adding the total asset values less liabilities of
each Portfolio as computed by the Adviser each day (during the month and
dividing the resulting total by the number of days in the month).
Expenses and fees of each Portfolio, including the advisory fee, will be
accrued daily and taken into account in determining net asset value. For
any period less than a full month during which this agreement is in
effect, the fee shall be prorated according to the proportion which such
period bears to a full month.
The base fee for the Ultra-Small Company Portfolio will not be
adjusted for performance. The Aggressive Growth and Social
Responsibility Portfolio base fee described above will be adjusted each
Quarterly Period (as defined below) by adding to or subtracting
from such rate, when appropriate, the applicable performance adjustment
rate percentage as described below. The resulting advisory fee rate will
then be applied to the average daily net asset value of the Fund for the
succeeding quarterly period. The advisory fee will be paid monthly and
will be one-twelfth (1/12th) of the resulting dollar figure.
The performance adjustment rate shall vary 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" or "S & P 500 Index") and will range from -.7% to +.7%; the
performance rate adjustment will be calculated at 4.67% of the difference
between the performance of the Fund and that of the Index, except that
there will be no performance adjustment if the difference between the
Fund performance and the Index performance is less than or equal to 2%.
The graph and table in the Prospectus (see "Management of the Fund")
illustrate the relationship between the advisory fee and the fund
performance relative to the Index.
The performance period shall consist of the most recent
five year period ending on the last day of the quarter (March,
June, September, and December) that the New York Stock Exchange was open
for trading. For example, on February 15, 2000, the relevant five year
period would be from Friday, December 30, 1994 through Friday, December
31, 1999.
The performance of the Index will be the five year
percentage increase (or decrease) in the capitalization weighted S & P
500 Index with dividends reinvested. The Fund performance will be the
percentage increase (or decrease) of the portfolio net asset value per
share over the performance period
<PAGE>
and will be calculated as the sum of:
1) the change in the portfolio unit value during such period, 2) the unit
value of portfolio distributions from income or capital gains (long or
short term) having an ex-dividend date occurring within the performance
period and assumed to have been reinvested at the net asset value on ex-
date, and 3) the unit value of capital gains taxes paid or accrued during
the performance period of undistributed realized capital gains, if any.
Thus, the Fund performance will be in accordance with SEC standardized
total return formula.
The adjustment to the Basic Advisory Fee will not be cumulative.
An increased fee will result even though the performance of the Fund over
some period of time shorter than the Performance Period has been behind
that of the Index and, conversely, a reduction in the Basic Advisory Fee
will be made for a month even though the performance of the Fund over
some period of time shorter than the performance Period has been ahead of
that of the Index.
As indicated above, the Fund's expenses (including the monthly
Basic Advisory fee) will be accrued daily. The performance adjustment
for each performance fee period will be computed monthly and accrued
daily in the subsequent monthly period and taken into account in
computing the daily net asset value of a Fund Portfolio's share.
However, the expenses in excess of any maximum expense limitation that is
assumed by the Fund's Adviser or Distributor, if any, shall not be
accrued for the purpose of computing the daily net asset value of a Fund
share.
Since the Fund does not have a five year operating history, the
performance rate adjustment will be calculated as follows during the
initial five year period.
(a) From Fund inception through April 30, 1995, the
performance rate adjustment will not be operative. The advisory
fee payable will be the base fee only.
(b) From April 30, 1995 through September 30,
1999, the performance rate adjustment fee will be calculated
based upon a comparison of the investment performance of each
Portfolio and the Index over the number of quarters that
have elapsed since the Fund began operations (August 5, 1994).
Each time the performance adjustment fee is calculated, it will
cover a longer time span, until it can cover a running
five year period as intended. In the meantime, the early months
of the transition period will have a disproportionate effect on
the performance adjustment of the fee.
4. The Fund shall cause its books and accounts to be audited at
least once each year by a reputable, independent public accountant or
organization of public accountants who shall render a report to the Fund.
5. Subject to and in accordance with the Articles of Incorporation
of the Fund and of the Certificate of Incorporation of the Adviser,
respectively, it is understood that directors, officers, agents and
stockholders of the Fund are or may be interested in the Adviser (or any
successor thereof) as directors, officers or stockholders, or otherwise,
that directors, officers, agents and stockholders of the Adviser are or
may be interested in the Fund as directors, officers, stockholders or
otherwise, that the Adviser (or any such successor) is or may be
interested in the Fund as stockholder or otherwise and that the effect of
any such adverse interests shall be governed by said Articles of
Incorporation and Certificate of Incorporation, respectively.
6. This agreement shall continue in effect until June 30, 1997 and
thereafter from year to year if its continuance after said date is
specifically approved on or before said date and at least annually
thereafter by vote of a majority of the outstanding voting securities of
the Fund or by the Board or Directors of the Fund, and in addition
thereto by a majority of the Directors of the Fund who are not parties to
the agreement or interested persons of the Adviser or affiliated with any
such party except as directors of the Fund, provided, however, that: (1)
this agreement may at any time be terminated without the payment of any
penalty either by vote of the Board
<PAGE>
of Directors of the Fund or by vote
of a majority of the outstanding voting securities of the Fund, on sixty
days' written notice to the Adviser, (2) this agreement shall immediately
terminate in the event of its assignment (within the meaning of the
federal Investment Company Act of 1940), and (3) this agreement may be
terminated by the Adviser on ninety days' written notice to the Fund.
Any notice under this agreement shall be given in writing, addressed and
delivered, or mailed postpaid, to the other party at any office of such
party.
7. This agreement may be amended at any time by mutual consent of
the parties, provided that such consent on the part of the Fund shall
have been approved by vote of a majority of the outstanding voting
securities of the Fund.
IN WITNESS WHEREOF the parties have hereto executed this agreement
on the day and year first above written.
BRIDGEWAY FUND, INC.
By: _______________________
President
BRIDGEWAY CAPITAL MANAGEMENT, INC.
By: _______________________
President
