Bridgeway Funds, Inc. N-CSR 1 dncsr.htm BRIDGEWAY FUNDS, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

 

Investment Company Act file number

  

811-08200

 

 

 

 

 

 

 

BRIDGEWAY FUNDS, INC.

(Exact name of registrant as specified in charter)

 

5615 Kirby Drive, Suite 518

Houston, Texas

  77005-2448
(Address of principal executive offices)   (Zip code)

 

 

Bridgeway Funds, Inc.

5615 Kirby Drive, Suite 518

Houston, Texas 77005-2448

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: (713) 661-3500

 

Date of fiscal year end: June 30

 

Date of reporting period: June 30, 2008


Item 1. Reports to Stockholders.


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  A no-load mutual fund family of domestic funds
 

Annual Report

June 30, 2008

 

  AGGRESSIVE INVESTORS 1   BRAGX
  (Closed to New Investors)  
  AGGRESSIVE INVESTORS 2   BRAIX
  ULTRA-SMALL COMPANY   BRUSX
  (Closed)  
  ULTRA-SMALL COMPANY MARKET   BRSIX
  MICRO-CAP LIMITED   BRMCX
  (Closed to New Investors)  
  SMALL-CAP GROWTH   BRSGX
  SMALL-CAP VALUE   BRSVX
  LARGE-CAP GROWTH   BRLGX
  LARGE-CAP VALUE   BRLVX
  BLUE CHIP 35 INDEX   BRLIX
  BALANCED   BRBPX

 

  www.bridgeway.com


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TABLE OF CONTENTS

 

 

Letter from the Investment Management Team

   1

AGGRESSIVE INVESTORS 1

  

Manager’s Commentary

   10

Schedule of Investments

   16

AGGRESSIVE INVESTORS 2

  

Manager’s Commentary

   18

Schedule of Investments

   24

ULTRA-SMALL COMPANY

  

Manager’s Commentary

   26

Schedule of Investments

   32

ULTRA-SMALL COMPANY MARKET

  

Manager’s Commentary

   36

Schedule of Investments

   42

MICRO-CAP LIMITED

  

Manager’s Commentary

   50

Schedule of Investments

   56

SMALL-CAP GROWTH

  

Manager’s Commentary

   58

Schedule of Investments

   64

SMALL-CAP VALUE

  

Manager’s Commentary

   68

Schedule of Investments

   74

LARGE-CAP GROWTH

  

Manager’s Commentary

   78

Schedule of Investments

   84

LARGE-CAP VALUE

  

Manager’s Commentary

   86

Schedule of Investments

   92

BLUE CHIP 35 INDEX

  

Manager’s Commentary

   94

Schedule of Investments

   100

BALANCED

  

Manager’s Commentary

   102

Schedule of Investments

   108

Schedule of Options Written

   113

STATEMENTS OF ASSETS AND LIABILITIES

   116

STATEMENTS OF OPERATIONS

   118

STATEMENTS OF CHANGES IN NET ASSETS

   120

FINANCIAL HIGHLIGHTS

   124

Notes to Financial Statements

   128

Report of Independent Registered Public Accounting Firm

   140

Other Information

   141

Disclosure of Fund Expenses

   145


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Bridgeway Funds Standardized Returns as of June 30, 2008*

 

 

        Annualized          
   

June Qtr.

  1 Year   5 Years   10 Years  

Inception

to Date

  Inception
Date
  Gross
Expense
Ratio
 
Fund   4/1/08
to 6/30/08
           

Aggressive Investors 1

  7.73%   3.51%   14.63%   17.11%   19.41%   8/5/1994   1.69%  

Aggressive Investors 2

  11.61%   5.88%   16.57%     12.66%   10/31/2001   1.19%  

Ultra-Small Company

  -1.84%   -24.59%   10.93%   14.93%   18.08%   8/5/1994   1.06%  

Ultra-Small Co Market

  -1.67%   -21.72%   9.18%   11.68%   11.97%   7/31/1997   0.65%  

Micro-Cap Limited

  2.32%   -17.58%   6.93%   12.84%   12.84%   6/30/1998   0.79%  

Small-Cap Growth

  3.26%   -12.87%       7.40%   10/31/2003   0.88%  

Small-Cap Value

  2.65%   -15.37%       10.39%   10/31/2003   0.84%  

Large-Cap Growth

  3.54%   -2.50%       7.17%   10/31/2003   0.73%  

Large-Cap Value

  -4.22%   -16.46%       8.55%   10/31/2003   0.74%  

Blue Chip 35 Index

  -6.85%   -14.28%   4.63%   2.88%   4.53%   7/31/1997   0.30% 1

Balanced

  1.62%   -1.57%   6.37%     4.77%   6/30/2001   0.93%  

1 Some of the Fund’s fees were waived or expenses reimbursed otherwise returns would have been lower. The Adviser has contractually agreed to waive fees and/or reimburse expenses such that the total operating expenses of the Fund do not exceed 0.15%. Any material change to this Fund policy would require a vote by shareholders.

Bridgeway Funds Returns for Calendar Years 1995 through 2007*

 

 

     1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007

Aggressive Investors 1

  27.10%   32.20%   18.27%   19.28%   120.62%   13.58%   -11.20%   -18.01%   53.97%   12.21%   14.93%   7.11%   25.80%

Aggressive Investors 2

                -19.02%   44.01%   16.23%   18.59%   5.43%   32.19%

Ultra-Small Company

  39.84%   29.74%   37.99%   -13.11%   40.41%   4.75%   34.00%   3.98%   88.57%   23.33%   2.99%   21.55%   -2.77%

Ultra-Small Co Market

        -1.81%   31.49%   0.67%   23.98%   4.90%   79.43%   20.12%   4.08%   11.48%   -5.40%

Micro-Cap Limited

          49.55%   6.02%   30.20%   -16.61%   66.97%   9.46%   22.55%   -2.34%   -4.97%

Small-Cap Growth

                    11.59%   18.24%   5.31%   6.87%

Small-Cap Value

                    17.33%   18.92%   12.77%   6.93%

Large-Cap Growth

                    6.77%   9.33%   4.99%   19.01%

Large-Cap Value

                    15.15%   11.62%   18.52%   4.49%

Blue Chip 35 Index

        39.11%   30.34%   -15.12%   -9.06%   -18.02%   28.87%   4.79%   0.05%   15.42%   6.07%

Balanced

                -3.51%   17.82%   7.61%   6.96%   6.65%   6.58%

Performance figures quoted represent past performance and are no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than original cost. To obtain performance current to the most recent month-end, please visit our website at www.bridgeway.com or call 1-800-661-3550. Total return figures include the reimbursement of dividends and capital gains.

This report is submitted for the general information of the shareholders of each Fund. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus, which includes information regarding a Fund’s risks, objectives, fees and expenses, experience of its management, and other information. Investors should read the prospectus carefully before investing in a Fund. For questions or other Fund information, call 1-800-661-3550 or visit the Funds’ website www.bridgeway.com. Funds are available for purchase by residents of the United States, Puerto Rico, U.S. Virgin Islands and Guam only. Foreside Fund Services, LLC, Distributor.

The views expressed here are exclusively those of Fund management. These views including those relating to the market, sectors or individual stocks are not meant as investment advice and should be not considered predictive in nature.

 

* Numbers with green highlight indicate periods when the Fund outperformed its primary benchmark.

 

i   www.bridgeway.com


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM

 

 

June 30, 2008

Dear Fellow Shareholders,

Fighting the trend of the broader market averages, seven of our eleven Funds ended the June 2008 quarter with positive returns. Nine Funds beat their primary market benchmarks as detailed on the facing page (market beating returns are in green). For the full fiscal year ending in June, the same nine Funds beat their primary market benchmark, although only Aggressive Investors 1 Fund and Aggressive Investors 2 Fund had a positive one-year return as the market tumbled in the environment of a credit crisis, inflation, and economic pull-back. While negative returns don’t feel good, we aim to be fully invested for the long haul, so we are generally pleased when and where we are able to provide some “cushion” in a downturn.

More details of the market in the June quarter are provided in the section following this letter. On page 2 we also provide an overview of Bridgeway’s “hot button” issue: ways investors can “destroy value” even while being generally invested in market-beating mutual funds. We’re especially impressed with two communications from a shareholder on what she learned by investing in our Funds during the current decade (page 3). As part of a section covering the current fad (ok, it could be with us for some time to come) of “target date funds,” Bridgeway discloses what we think about when we come to market with a new fund. If you’re interested in how we think and what goes on behind the scenes at Bridgeway, you probably won’t want to miss this section starting on page 4. One of our shareholders asked a handful of insightful questions about our quantitative models, and we share our answers on page 5. (No, we’re not disclosing the “secret sauce,” but we are trying to provide some insight for how our investment management team does what it does.) An icon of investing and model of integrity in business, Sir John Templeton, died last quarter at age 95. John’s tribute to Sir John is on page 6. Recent news articles have reported very basic statistics on fund ownership by portfolio managers. Mike Mulcahy, President of Bridgeway Funds, conducted a much more detailed study for Bridgeway staff and reports the impressive results on page 6. Each fiscal year we report the worst thing that happened at Bridgeway. You are our owner and boss, and we think you have the right to know the good (everybody discloses) and the bad (most firms sweep this under the carpet). If the worst thing is not clear, our staff votes on it. This year has an interesting twist. See page 8. The Adviser to our Funds celebrated 15 years along with John’s 15 years at Bridgeway on July 1, 2008. On page 8 Mike wrote a tribute to John and his vision (but didn’t give him a vote on whether to include this section in Bridgeway’s report.)

As always, we appreciate your feedback. We take your comments very seriously and regularly discuss them internally to help in managing our Funds and this company. Please keep your ideas coming—both favorable and critical. They provide us with a vital tool helping us serve you better.

Sincerely,

 

LOGO   LOGO
John Montgomery   Dick Cancelmo
LOGO   LOGO
Elena Khoziaeva   Michael Whipple

 

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Rasool Shaik

 

Your investment team

 

www.bridgeway.com   1


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

Market Review

 

The Short Version:  In the midst of a decline for the broader market averages, value companies (those that are cheaper on the basis of certain economic measures) were hardest hit across the board of all size companies. The stocks of growth companies (those growing at a faster rate) actually had a positive return for the quarter ending June 30, 2008.

It seems that each area of the “style box” eventually gets its day in the sun. Growth stocks, which had lagged the market every calendar year from 2000 through 2006, actually had a significant positive quarterly return, even as most stocks declined. Many of the companies hardest hit in the credit crisis “hailed’ from the value end of the spectrum, and this contributed to the style box results below. (Data from Morningstar for the quarter ended June 30, 2008):

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Staying Put

 

The Short Version:  For those of you who read each of our shareholder letters, you may have recognized a common theme around several related issues. In particular, we consistently encourage our investors: a) not to “chase hot returns” (buy funds that look strong recently and dump ones that have done poorly), b) not to try to time the market, c) not to base long-term investment decisions on short-term events. In this letter we thought we’d pull these together, given unusually strong opportunities in this market environment to get off track.

One of the saddest things we see some of our shareholders do is appropriately pick a given Bridgeway Fund to meet their investment objectives, but to time the entry and exit of our Funds so as to “destroy value” by buying after a market and/or Fund run up, and selling after a decline. This drives us nuts. Here is some hard data evidence about why.

Not chasing hot returns.  Page i of our annual report gives all the details on performance of our Funds over various time periods. One would then think that individual investors in those Funds have also done as well. While anyone who has invested, with dividend reinvested, over the full time period reported has actually achieved these audited results—in aggregate these returns are frequently over-inflated! These are the actual returns, and over the long haul they have been very attractive. One would think that, since individual investors in those Funds have done as well. While anyone who has invested over the full time period reported and who has reinvested Fund dividends has actually achieved these audited results—in aggregate these returns are frequently overinflated! Did you read that correctly? Bridgeway, which prides itself on straightforward, blunt, and honest communications, is inflating its returns? Let’s dig a little deeper.

This over-inflation has to do with the timing of actual shareholder returns. Let’s say 100 shareholders invest $10,000 each in a fictitious “Skyrocket Fund” at the beginning of year one. Let’s also assume that the total return that first year is 50%, or 25% more than the market. Skyrocket Fund appears in performance tables and is written up as a “top performer.” There’s a nice story in Buy this Fund magazine about a hot shot portfolio manager who is very articulate about why he or she chose such great stocks. The adviser to Skyrocket Fund knows a marketing opportunity when they see it and takes out advertising, which rather conspicuously reports year one returns. (Fund companies as a whole have actually gotten better about this practice, but there are still many versions of it.) Furthermore, they ante up large fees to ensure “shelf space” with a brokerage firm that assures Skyrocket Fund will get some much needed exposure. On the basis of this performance, press coverage, advertisements, and new “distribution channel,” 1,000 new investors each buy $20,000 (they are more confident than the earlier investors, because the fund now has a track record) at the beginning of year two. That year, the market declines 10%, but Skyrocket Fund declines 20%. Frustrated and disappointed, the 1,000 new investors realize they made the wrong decision and sell at the end of the second year. The Fund is no longer in performance charts and no journalist wants to write about it, so there are no new investors at the beginning of year three. This is the year the market recovers 11% (the long term historical average) and Skyrocket Fund does the same.

 

2   Annual Report  |  June 30, 2008


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

Under this scenario, the first investors enjoyed a 33% total return, not too shabby for a three-year period. The second round of investors suffered a 20% loss (and missed the third year recovery). Skyrocket Fund reports three-year returns of 33% cumulative (or 10.03% per year)—beating the 25% return of the market—but the average shareholder still suffered a significant decline. The only way to ensure the full three-year period returns is to stay invested for the full three-year period. (To be fair, if Skyrocket Fund had declined three years in a row, the second year shareholders would have suffered less; so mathematically, staying in longer doesn’t necessarily mean better returns, just the actual returns for the fund for the period). Sound far fetched? Let’s look at some actual numbers from Bridgeway.

For the last five-year period from June 2003 to June 2008, Bridgeway Aggressive Investors 2 Fund appreciated 16.57% per year, much better than the S&P 500 Index, which appreciated 7.58% per year. However, according to Morningstar, the average shareholder return was only 11.39% per year—more than 5% poorer than the record of this Fund itself. Unfortunately, this statistic is predictable. In a more aggressive fund that does well over the long haul, way too many investors will squander a big portion of the fund’s return by buying and selling, rather than staying put. By comparison, people are much less likely to sell a closed fund when performance is off. Our sister Fund, Aggressive Investors 1 (which is closed to new investors) returned 14.63% over the same five-year time period (not quite as high as Aggressive Investors 2 Fund). Nevertheless, because the investors mostly stayed put, the average investor’s return was actually higher than those in the “better performing” sister Fund, and was within one percentage point of the actual, reported Fund returns. We can’t tell you the best time to buy (or sell) our Funds. We never know returns before the fact. But we do know that human emotion tends to work against you, and our most successful investors tend to be the ones who have been with us over the long haul.

Not timing the market.  Bridgeway got a wonderful letter from a shareholder, Denise Di Salvo, about lessons learned by “market timing:”

 

     This is just to let you know that I learned my lesson in 2000, when I bailed & shouldn’t have. Been there, done that, so now I leave it to you to make the great decisions & look for buying opportunities. I’m not really that worried.

I, John, have my own “lessons learned,” which cost me money at the time, but now seem like cheap lessons. I wrote Denise back for more details. Here’s what she said:

 

     In 2000 I did not understand how much of the market is based on emotion. All of these waves rolling around on top. Underneath all the froth are some things that are going to remain unaffected, like good companies with solid business plans & a need & ability to pay for that particular product or service in the marketplace. The rest is all hysteria.

 

     This was a painful & expensive lesson. I yanked my money out of Bridgeway Aggressive Investors 1 Fund at the bottom & proceeded to watch the NAV recover over the next few years. This was far more painful than any 300-point drop in the Dow. It is far and away the stupidest thing I have ever done, but it earned me the dubious title of “seasoned investor.”

 

     I did not understand that at biddy-bottom it feels as though prices have nowhere to go but down. Just like at tippy-top, it feels like they have nowhere to go but up. To my mind, this might be more definitive of a top and bottom than any other measure. It makes me think that when projections are being made for another precipitous drop in, say, the housing market, we are by definition closer to the bottom than one may think.

 

     Anyway, I hope some of these thoughts can help other investors relax & stay focused on the number of shares they have rather than the NAV.

Not basing long-term decision on short-term events.  Matching up your investment needs with the investment objective of your fund (and especially the investment time horizon) is crucial. Stock market instruments are by definition long-term investments. If you use our stock market-based Funds, our assumption is that you are investing for the long haul. Our prospectus says in eleven places that our Funds are not appropriate investments for short-term investors, those trying to time the market, or those who would panic during a major market or Fund correction. Likewise with events: as one investor recently said that with all the talk of credit crises, soaring energy costs, deficits, and inflation, isn’t it clear that the stock market direction is down?

Of course, We’d love to use recent events to predict the direction of the stock market. We’ve even spent some time in prior years trying to model this, and the modeling is fraught with problems. Our conclusion: don’t time our Funds, don’t time the

 

www.bridgeway.com   3


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

market, and don’t think—even if you did know the direction of the economy (and your name is Ben Bernanke)—that you could productively predict the direction of the market. In short, you could adopt John’s sister’s investment philosophy, the “Rip Van Winkle” principle: “Get a long-term plan, put it in place for the long term, then fall asleep until something changes or it’s getting closer to time to spend the money.”

Opportunities and Problems of Target Date Funds

 

The Short Version:  Target date funds seem like an attractive way to simplify the decision of how to allocate investment funds among the major alternatives (e.g., stocks, bonds, and cash) within a mutual fund structure. Unfortunately, used at “face value,” they are an oversimplification that may get an investor off the best track for the long haul due to their simplified “one size fits all” approach.

Target date funds (ones with asset allocations designed around the date that a person is targeted to retire) currently attract the largest inflows of new money of any mutual fund segment. You might be interested to know then, why Bridgeway isn’t planning to offer a target date fund.

As background, it’s helpful to know what we think about when designing a new fund. Bridgeway never offers a fund simply because there is a “market,” and our advisory firm can make money by offering it. Our high standards for a new fund include the following five factors:

  1) it must meet a legitimate investing need (such as diversification, or attractive asset class returns, or favorable risk characteristics),
  2) it must be an attractive way (or part of a statistically “optimal” way) to achieve that legitimate investing need,
  3) it must be “in sync” with our four business values (integrity, performance, cost efficiency, and service),
  4) we must be able to look at a lot of historical data, so we can model what returns might look like in a downturn, and
  5) we must believe we have a “leg up” on the competition.

While we think we are up to the task of competition among target date funds (the fifth criterion), our current analysis of the second criterion indicates target date funds pose significant limitations at the individual investor level.

To understand why this is so, it is helpful to understand how target date funds got started and became so popular. The answer, according to a recent article in the New York Times (“You’re on Autopilot,” July 13, 2008), concerns company liability in corporate retirement plans. It turns out that one of the biggest investing mistakes we investors make is not getting around to saving and investing. To address that problem, companies have looked for ways within defined contribution retirement plans to automatically enroll their employees. But then the question is, “could a company be sued for the investment choices they make on behalf of their employees, especially if those investments did poorly?” According to the article,

 

     The Labor Department’s effort to answer [this] question set off the current boom in target-date funds. The department issued a regulation last year saying that employers could not be held liable for 401(k) [retirement plan] losses if they had taken care to enroll their workers in investment funds that had diversified portfolios and reflected the number of years before the employees would retire.

We believe companies’ push to get employees’ funds invested quickly is a noble one and that diversification is an extremely important part of any investment program. We disagree, however, with the interpretation that target date funds are in all cases the best solution for both the employer and retirement plan participant. The defining element of how risky a person’s investments should be allocated (i.e., how much is invested in stocks, bonds, and cash—the defining focus of the various target date funds) is not the date of their retirement, but rather a combination of a) when they will actually need to spend that money (the investment time horizon), b) their withdrawal rate (what percentage of their investment nest egg they will need to spend each year) at that time and c) their tolerance for short term risk (swings in account valuation). Thus, a 60 year old employee, who through a combination, let’s say, of relatively modest lifestyle and alternative resources, only plans to spend 2% of their 401(k) plan assets each year in retirement, can afford to be in the same target date fund (with respect to risk and investment allocation) as a 25 year old. The target date fund concept is a way around the conundrum of how a company can invest a large number of employees’ retirement funds with the only information at hand (age), but it generally doesn’t address the real underlying investment needs and risks of the individual investor. (One size doesn’t fit all!)

 

4   Annual Report  |  June 30, 2008


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

In our next letter, we’ll propose two alternative ways to approach a plan for investment allocation in a retirement fund—considering the three (admittedly more complex) criteria of investment horizon, withdrawal rate, and risk tolerance.

Conversation with a Shareholder on our “Quant” models

 

The Short Version:  Bridgeway uses quantitative models to pick stocks in our actively managed Funds. Since these models focus on longer timeframes, they tend to be more stable than strategies you may read about in the press. Thus, our investment process looks the same in radically different market environments, which is just one more way we can keep emotions out. Another “upside” to our process is that we’re not dependent on any one person for the operation or implementation of our models.

The following are questions asked recently by a shareholder: (along with our replies):

 

  1) Do you ever revise the quantitative models on the basis of which you manage the funds? In other words, are you using the same model today as you did 1, 2, 5 or more years ago? We don’t use just one model, and yes, we do revise them. However, they are relatively stable, due to the modeling process we use. Last year we added two models to our library and now use 17 at Bridgeway across the sum total of our funds. We recently “reengineered” two of the early Bridgeway models and made only minor changes.

 

  2) If you do not revise the models, then do you believe that the market does not “fundamentally” change. ever? There are different modeling strategies; ours are designed for use in divergent market environments. Our process looks exactly the same in a bull or bear market. We view the markets from the standpoint of risk. The kinds of risk may change, e.g., the risk of nuclear war did not exist eight decades ago (higher risk now). The Federal Reserve is more successful with economic interventions (lower risk now). Bank insurance was not as prevalent eight decades ago (higher risk then). Derivative instruments were largely absent (lower risk then). Risk principles of diversification and stress testing are just as relevant in any time period. We say the economy and the market may significantly change over time, but not the principles of risk on which our models are based. Therefore, we count on their working over the long haul in many different (even “new”) market environments. Some of our Funds are old enough to get some picture of our success along these lines, at least historically.

 

  3) Is it possible that certain forces (e.g., electronic trading, more widespread dissemination of information) might actually cause fundamental changes? Yes.

 

  4) If so, do you worry that the models might need tweaking? We’re continually doing research to “stay ahead of the curve.” But we think we have less to worry about than, say, many hedge funds which rely on fewer models, short-term trends, and leverage (debt).

 

  5) If you do revise the models, then how do I, as a shareholder, find out about it? Generally, you won’t, at least not on a “real time” basis. It’s our intention to report some major changes in shareholder letters, as long as we feel it won’t damage our future returns by divulging too much to competitors—we’re always trying to protect our investors’ returns in this regard. Recent changes (but I would say these are much more incremental than major) are: a) we’ve added to our resources (both human and data) to expand our investment research capabilities, b) we’ve begun a methodical process to reengineer the earlier models, and c) we’re focusing some current research on looking for ways to dampen short-term risk without giving up expected returns.

 

  6) Conventional advice says that fund shareholders should monitor changes in fund management. I would certainly sit up and take notice if John Montgomery were no longer fund manager. A change from using Bridgeway Capital Management as the adviser for Bridgeway Funds would require the approval of shareholders, so you would know if the advisory firm changed (or John’s majority ownership of it). However, if John (or any other member of the investment team) were suddenly “out of the loop” for whatever reason, nothing about the operation of the models would change as a result. As a matter of fact, we think much less would change at Bridgeway than at most “fundamental” shops, where managers are given more leeway to implement their personal investment views. We have a formal backup plan for each member of the investment management team, and our models are well documented, we intentionally rotate roles and we operate without members to assure more continuity.

 

www.bridgeway.com   5


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

     To put it bluntly, we think that much more so than most other fund companies, nothing would change about the investment management process of your funds. Four people are trained on the operation of our models, and we expect the remaining three would keep cranking as they currently are.

 

  7) But since a ‘quant’ fund is managed largely by the model, shouldn’t I be concerned if the model is substantially revised? We don’t expect dramatic, wholesale changes. Our team’s confidence is in the modeling process, however, so any new model has to meet the same standards of “vetting” that our old ones do. As a matter of fact, with increased resources for data, tools, and staff, we hope there is reason for increased confidence. Of course, each shareholder will have to decide for him- or herself.

 

  8) Don’t get me wrong, I am very happy with being a Bridgeway shareholder for the last 5+ years, but these questions have been nagging me for a while. Great that you’re a long term shareholder! These are the shareholders who have done the best with Bridgeway, keeping cool and holding through downturns with money they have invested for the long haul. We can make no representations about the future, but we don’t see any current structural change that would cause us to modify our own investing strategy, personally or corporately.

Fund Founder and Philanthropist John Templeton Dies at Age 95 in early July

 

It’s unusual that we would highlight the founder of a competing fund company, but John Templeton was an extraordinary man. John Montgomery had the privilege of meeting him in his office a little over four years ago. Here are some notes from that meeting:

  ¡  

I was struck by a graph of total returns of his fund for the two plus decades he was portfolio manager; it was an encouragement to aim for long-term results.

  ¡  

At age 91, he was terribly sharp and said he was the busiest he had ever been.

  ¡  

He demonstrated self awareness, broad perspective, and humility.

  ¡  

He noted instances in his life and career where strength was born out of severe adversity.

  ¡  

For every dollar he spent on himself or his family, he donated nine (a “reverse tithe”).

  ¡  

He had already accomplished two of my life goals: celebrating a 50th wedding anniversary and giving away $100 million annually.

Our condolences go to his family members and colleagues. He was truly a gifted, generous, and extraordinary man, leaving a very important and significant footprint behind in our industry and through the work of Templeton Foundation.

Fund Managers “Eating Their Own Cooking” (the next three sections by Mike Mulcahy)

 

The Short Version:  While it is good that shareholders consider whether their fund manager is investing alongside their own shareholders, a simple absolute number of dollars invested per fund may not be the best metric and certainly shouldn’t be the only one. In this section, we help you “look under the hood” at Bridgeway.

In this past quarter, Morningstar, the mutual fund rating and investment research company, released their study on how much managers invest in their own funds. A requirement of the Securities & Exchange Commission is that managers must disclose their holdings in each fund annually. This report is typically done in the Statement of Additional Information, (Bridgeway’s most recent SAI is available on our website www.bridgeway.com) and displays holdings in a range of values.

What looks like a rather shocking statistic, Morningstar discovered 46% of domestic stock fund managers were not invested in their own funds! That certainly is not “eating their own cooking.” But, is that good or bad? Probably mostly bad, but an accurate judgment requires more information. (In fairness, Morningstar acknowledges this is not a one size fits all statistic, any more than the magnitude of an expense ratio taken out of context.)

Here are several things you may want to consider as you review this metric against any funds you may hold:

  ¡  

What is the investment style of the fund, and is it an appropriate investment for the managers to have a large part of their investable assets in it? For example, if the fund is a municipal bond fund, it may not make sense for the manager

 

to be invested, particularly if he or she doesn’t live in that state. Or an aggressive fund may not be appropriate for someone who has near-term cash needs.

 

6   Annual Report  |  June 30, 2008


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

  ¡  

How many funds does the person manage? If the manager works on multiple funds, is it possible for the manager to make significant investments in each?

  ¡  

Is the amount invested increasing or decreasing? This information is possible to get but requires some digging. This trend could give an idea of what the manager is thinking.

  ¡  

How much of the manager’s investable assets are in the funds he or she manages? Unfortunately, this metric is not available. But THAT would be more telling than just how much money is invested. Someone with $10s of millions of dollars in net worth who only has $100,000 in the fund doesn’t seem to have his or her interests aligned with yours. But a manager with $200,000 in net worth probably does.

What you probably don’t want to see as an investor are token investments. Instead, you want a manager who “feels your pain” and is interested in success of the fund—and you.

Why do I bring this up? Well, Bridgeway did not score as well as we would have liked on the Morningstar study (see www.morningstar.com for details), and we did get a question from a shareholder as a result. So, like Paul Harvey would say, I am here to tell you the “rest of the story.”

We recently surveyed the partners at Bridgeway Capital Management (that is, all full-time staff members) to measure their commitment to the Funds. There are 26 partners. (The results below reflect 23 data points as we excluded 3 partners who had been here less than 3 months). So, we are looking at a pool larger than just the investment management team. What did we find?

 

  Average number of funds invested: 4.9 per partner
  Most popular funds: Aggressive Investors 2 with 96% of partners invested, Aggressive Investor 1 (78%) and Ultra-Small Company (74%).
  Least popular funds: Small-Cap Growth (17%), Small Cap-Value (17%) and Large-Cap Growth (22%).

Clearly there is a bent toward “aggressive” in our partner pool.

We also asked: “What percentage of your estimated investable assets is in Bridgeway Funds?”—This is an important metric, and one we really believe reflects commitment.

 

  All 23 partners invested in at least 1 Bridgeway Fund.
  On average, partners reported that 66% of their investable assets were in Bridgeway Funds.
  For partners that have been here more than 5 years, that number increases to 75%.
  For partners on the investment management team…69%
  For partners that are officers and directors…. 76%

We don’t have any industry data to compare but believe this IS a strong commitment.

Finally, we asked “Are you committed to further investments in the Bridgeway Funds?” The answer was not surprising: 100% are planning more investment.

In regards to the portfolio managers specifically and the Morningstar study results, here are some points for you to ponder about Bridgeway:

 

  ¡  

We subscribe to a 7 to 1 total compensation cap with Bridgeway Capital Management. That means no one makes more than 7x the lowest compensated full-time person at Bridgeway. So unlike some firms who have outrageously high salaries for their “top” people, Bridgeway’s are much more conservative. In fact, salaries and trends are disclosed in the SAI annually.

  ¡  

Three of our investment management team members (Rasool, Elena and Michael)—being very candid—are not in the stage of life to have large investable assets. Each is in the 30-40 age range and is supporting young and growing families. They are committed and are building positions. This is where following trend is important.

  ¡  

Our investment team members are involved with up to 11 funds. Unlike fundamental shops that typically align a manager with 1 or 2 funds, our team works on up to 11. For the team to make significant investment in a large number of funds will take time.

 

www.bridgeway.com   7


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                                    [GRAPHIC]

                                        

LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

  ¡  

Bridgeway Capital Management and our Bridgeway Foundation both maintain significant positions in the funds, which do not get captured in these surveys. The Adviser’s investments are disclosed in the SAI.

We are proud of our commitment to the Funds by the entire staff of Bridgeway. Maybe it doesn’t show up in the numbers captured by the Morningstar study, but it is there.

The Worst Thing of the Year

 

The Short Version:  Micro-Cap Limited Fund continues to lag its market benchmark over a three-year period (by 2.65% per year) and over a five-year period (by 0.70% per year). At most fund companies we suspect beating a market benchmark by 7.39% in the last year and by 5.25% per year for the last ten years would be enough to put it in the “outright winner” column. At Bridgeway, our standards are a bit different. We designed Micro-cap Limited Fund to keep up with our Aggressive Investors Fund(s) over the long haul (and with “diversifying” timing) but it hasn’t come close to doing so in the Fund’s first decade. We’re also not satisfied with our consistency of relative performance with this Fund. Thus, the performance record of Micro-cap Limited Fund got the most votes for “worst thing in fiscal year 2008” among our staff at a recent full-staff meeting, and we’re presenting the case here to you.

In each annual report, Bridgeway reveals its “worst thing of the year.” This section has become an important Bridgeway tradition within each annual report. As a shareholder, you are the owner and “boss,” and we think you have a right to know the negatives as well as the positives. In previous years we have discussed company turnover, trading errors, and compliance issues, among other things. This year we selected our three- and five-year track record for Micro-Cap Limited Fund as the worst thing.

Bluntly, Micro-Cap Limited Fund’s three-year record lags its market benchmark, and by our standards, that stinks, and ditto for our five-year record. This puts more than a dent in our excitement of celebrating the ten year anniversary of our Fund on June 30, 2008. The Adviser seeks to beat each Fund’s market and peer benchmarks over the long term—periods of three years and more. Informally, we want to be in the top 5% of our peer group over the long haul—but even in the ten year timeframe Micro-Cap Limited Fund falls out of this range. (see page 50 for more details.)

For seven quarters in a row from December 2005 until June 2007, this Fund underperformed its market benchmark, which contributed to the lagging five-year period. Since the fall of 2006, the investment management team has evaluated the nine models used for this Fund with renewed vigor. These models span the spectrum in orientation from value to growth to technical. The conclusion: we found no reason to change course. In spite of seven quarters lagging the market, perhaps the thing we are most proud of is that we stuck to the discipline of our process and didn’t succumb to the strong human tendency to change direction when things didn’t look good. This (changing course when something current feels bad) works in some other areas of life (picture sticking your hand in a fire), but it can lead to a travesty in investing. Without this kind of discipline, it is unlikely that your investment management team could have delivered a “cushion” of 7.39% (on a relative basis) in the most recently completed fiscal year, a time corresponding to the first bear market since 2002.

We do take long-term underperformance seriously. So far, periods of extended underperformance haven’t happened too often. (Past performance is no guarantee of future returns, however.) No actively-managed Bridgeway Fund has lagged its benchmark at any quarter end over a five-year period since our first Funds hit their five-year anniversary. While we cannot know the future of Micro-Cap Limited Fund, we do know that we are not making any major changes, except through our disciplined modeling process—and this is where we want to focus significant energy. And the “worst” part is that it has had such an extended period of underperformance—but it’s not a “dud” because at one point, it was the “bomb”.

15 Years in the Making (and Many More to Go)

 

The Short Version:  In July, Bridgeway celebrated the founding of Bridgeway Capital Management, the investment adviser to Bridgeway Funds. This section was written by Mike Mulcahy, a Bridgeway partner, and is a celebration of John Montgomery, the founder of Bridgeway, and the vision he created.

In 1991, an unassuming, spectacle-wearing, flute-playing man running budgets and operations for Houston’s transportation company (METRO) was tossed the proverbial once-in-a-lifetime offer by his legal and tax firm. After Glenn H. Johnson

 

8   Annual Report  |  June 30, 2008


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LETTER FROM THE INVESTMENT MANAGEMENT TEAM (continued)

 

 

reviewed John’s personal investment track record and returns, he unknowingly started John on the journey of founding Bridgeway Capital Management, the adviser to the Bridgeway Funds, by making the comment “We do a lot of tax returns, and I’ve never seen returns like these; if you ever consider investing professionally, I will be your client and bring you others.” Some years later in 1993 after intensive research (as is John’s unrelenting nature) Bridgeway Capital Management was formed and the idea for Bridgeway Funds was firmly planted.

John founded Bridgeway on a set of ideals, which not only haven’t wavered but have grown stronger through the years, and have been essential to our growth and success to date.

   

He wanted to build a firm based on integrity. Not just in name but visible in all that we do. The so-called markers or flags that investors see regularly are reminders that we really take integrity seriously.

   

He wanted to create funds with long-term performance that would be among the top 5% of their peers. No fund would be launched that wasn’t diligently scrutinized, back-tested, and scrubbed for the potential of long-term performance.

   

He wanted service that reflected a commitment to and respect of people. Friendly, honest and open.

   

He wanted us to be cost efficient as reflected in our expense ratios, so that more money remains in the hands of investors.

Aside from these four pillars of Bridgeway’s mission statement (which you can read more about at www.bridgeway.com) there were some incredible ideals in the founding of Bridgeway that have come to life in amazing ways over the first 15 years. These include such visions as:

 

   

Building an organization that was highly participative, empowering, relatively flat, and intensely respectful and loving of each other and our community around us. An organization committed to the development and success of “partners” where everyone is an owner and acts like an owner of the company. No titles. Salary caps. Equity participation. Everyone leads, everyone follows. Not dependent on any one person. A new kind of—rather, a better—organization.

   

Committing an amazing 50% of after-tax profits of the Adviser to charitable causes. As John jokingly says, “It’s more fun to give away money while you are alive than dead.” (A truism we wish everyone would adopt.) It’s a great ideal that has truly been transformational to the partners of Bridgeway and, more importantly, organizations and people around the world addressing some of the world’s most depressing, repressive and daunting challenges and where we have been able to come along side with our time, talent and treasures. (See our foundation website for more information, www.bridgewayfoundation.com).

This is Bridgeway. Who we are and who we are becoming is a reflection of one man’s unpolished, raw vision which time, our partners, friends, investors and the markets are helping to refine, shape and shine into something of emerging beauty that is truly a different and better place to work.

Thank you, John, for the vision, the willingness to take a chance and for never giving up the dream. Happy 15!

 

www.bridgeway.com   9


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Aggressive Investors 1 Fund Shareholder,

Our Fund bounced back strongly in the June quarter, outperforming all our market and peer benchmarks. Aggressive Investors 1 increased by an impressive 7.73%, trouncing our primary market index (the S&P 500 Index—down 2.73%), our peer benchmark (the Lipper Capital Appreciation Funds Index—up 4.54%), and the Russell 2000 Index of small companies (up 0.58%) for the three-month period. This was our best quarter relative to our primary market benchmark in five years and our fifth best quarter since inception 14 years ago. We are quite pleased.

Likewise, our Fund performed well for the full fiscal year on both an absolute and relative return basis, outperforming each of its benchmarks. For the 12-months ending June 30, 2008, the Fund rose by 3.51% while each of the indexes closed in negative territory: S&P 500 (-13.12%), Lipper Capital Appreciation Funds Index (-0.16%), and Russell 2000 Index (-16.19%). While we welcome such strong results during these shorter-term quarterly and 12-month time horizons, we strive to achieve excellent consistent returns over the long term. We are pleased to report that Aggressive Investors 1 Fund has rewarded our shareholders with double-digit returns and outperformed each of its benchmarks over the past five and ten years as well as since inception in August 1994 (where we have ranked first among our peers according to Lipper research as detailed below). Our strategies stay constant and consistent in both good times and bad, in both strong and weak markets, during both “the sky is the limit” and “the sky is falling” investor environments. Such long-term results always will remain the key objective of our firm. The information below bears out our historical success in these areas.

The table below presents our June quarter, one-year, five-year, ten-year and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance from inception to June 30, 2008.

 

     

June Qtr.

4/1/08
to 6/30/08

  

1 Year

7/1/07
to 6/30/08

  

5 Year

7/1/03
to 6/30/08

  

10 Year

7/1/98
to 6/30/08

  

Life-to-Date

8/5/94

to 6/30/08

Aggressive Investors 1 Fund

   7.73%    3.51%    14.63%    17.11%    19.41%

S&P 500 Index (large companies)

   -2.73%    -13.12%    7.58%    2.88%    9.61%

Lipper Capital Appreciation Funds Index

   4.54%    -0.16%    11.19%    4.53%    9.06%

Russell 2000 Index (small companies)

   0.58%    -16.19%    10.29%    5.53%    9.19%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks with dividends reinvested, while the Russell 2000 Index is an unmanaged, market value weighted index, that measures performance of the 2,000 companies that are between the 1,000th and 3,000th largest in the market with dividends reinvested. The Lipper Capital Appreciation Funds Index reflects the record of the 30 largest funds in this category, comprised of more aggressive domestic growth mutual funds, as reported by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Aggressive Investors 1 Fund ranked 33rd of 296 capital appreciation funds for the twelve months ending June 30, 2008, 28th of 218 over the last five years, 3rd of 120 over the last ten years, and 1st of 59 since inception in August, 1994. These long-term numbers and the following graph give two snapshots of our long-term success. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns

 

10   Annual Report  |  June 30, 2008


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY (continued)

 

 

Aggressive Investors 1 Fund vs. S&P 500 Index & Lipper Capital Appreciation Funds Index & Russell 2000 Index Inception (8/5/94) to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  These days, a lump of coal in the old holiday stocking actually would be a pretty good thing (ok, its 97 degrees in August in Bridgeway’s hometown of Houston). Commodities like coal continued to surge during the past quarter, and companies within industries that deal with natural resources and related products performed best over the three-month period. Our top performer list is comprised entirely of energy, basic materials, and industrial companies, most of which engage in some commodities-driven operations. These ten performers contributed over 13% to the return of the Fund over the three-month period.

These are the ten best performers for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Alpha Natural Resources Inc

  

Coal

   74.2%
2   

National Oilwell Varco Inc

  

Oil & Gas Services

   52.0%
3   

CF Industries Holdings Inc

  

Chemicals

   47.5%
4   

Potash Corp of Saskatchewan

  

Chemicals

   47.3%
5   

Bucyrus International Inc

  

Machinery-Construction & Mining

   43.7%
6   

Mosaic Co

  

Chemicals

   41.0%
7   

Terra Industries Inc

  

Chemicals

   38.9%
8   

Petroleo Brasileiro SA ADR

  

Oil & Gas

   38.7%
9   

Flir Systems Inc

  

Electronics

   34.8%
10   

Flowserve Corp

  

Machinery-Diversified

   31.0%
                

Alpha Natural Resources was the Fund’s top performer and contributed over three percent to the overall return of the Fund. The company is the leading domestic exporter of metallurgical coal, which is used in the production of steel. With demand for coal (and steel) skyrocketing in emerging markets like China and India, Alpha Resources reported that its earnings tripled in the first-quarter, and some analysts predict soaring profitability through at least 2010. High natural gas prices and the weak dollar contributed to the strong global demand, which helped push the company’s stock price to an all-time high in late June.

Bucyrus International manufactures mining equipment used to extract resources like coal, copper, iron, and other minerals. Coal and copper mining companies represent its two largest customer bases. A consistent story during the quarter, higher commodities prices derived from growing international demand escalated the need for such specialized equipment; replacement parts and repairs accounted for over half of the company’s sales in the most recent quarter. In May, Lehman Brothers initiated coverage at “overweight,” and the stock price hit a 52-week high shortly thereafter. However, our own “overweighting” (See the top ten holdings on page 14) resulted from following our models’ analysis, not any broker’s recommendation. For the quarter, Bucyrus contributed over a percentage point to the overall return of the Fund.

 

www.bridgeway.com   11


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  While the Fund did not suffer much from the ill-effects of the downturn in financial-related companies this past quarter, four consumer-oriented firms were among those on the list of worst performers. Of note, food companies struggled from the rising costs of grains and other commodities; additionally, retailers recognized less traffic (both in stores and online), as consumers grew more cautious given the weaker domestic economic environment. Combined, the four consumer companies lost two and a half percent during the three-month period.

These are the ten stocks that performed the worst in the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Chiquita Brands International Inc

  

Food

   -32.6%
2   

Turkcell Iletisim Hizmet AS ADR

  

Telecommunications

   -29.9%
3   

Owens-Illinois Inc

  

Packaging & Containers

   -26.1%
4   

NewMarket Corp

  

Chemicals

   -23.5%
5   

Garmin Ltd

  

Electronics

   -23.5%
6   

Amtrust Financial Services Inc

  

Insurance

   -22.3%
7   

Fresh Del Monte Produce Inc

  

Food

   -21.4%
8   

GameStop Corp

  

Retail

   -20.8%
9   

Sigma Designs Inc

  

Semiconductors

   -19.5%
10   

Intuitive Surgical Inc

  

Healthcare-Products

   -16.9%
                

Chiquita Brands distributes bananas and other produce across the U.S. and abroad. Late in the quarter, blaming bad weather in Central America and Ecuador, management warned that higher costs will lead to a significant loss in the third quarter. The company has not been able to pass along these escalating costs to consumers and previously strong markets in Europe have been slowing as of late. (Apparently, as banana prices rise, healthy eaters seek out alternative sources for their potassium!) After the warning, its stock price plummeted by 28% in one day, which represents the majority of the loss for the quarter. Chiquita was the Fund’s poorest performer for the three-months, and we sold it after quarter end.

Owens-Illinois is the largest glass manufacturer in the world and sells containers and related products throughout North and South America, Asia, and Europe. The company produced excellent fundamental results as of late, including four straight quarters of better than expected earnings reports. Indeed, our Fund had a sizable gain in the stock coming into the June quarter. However, after hitting an all-time high in April, Owens-Illinois took a step back and lost over 25% of its value during the quarter. While the company has benefited from strong international demand (70% of its revenue comes from overseas), management warned about the effects that rising energy and raw material costs may have on future sales. The company cost the Fund just less than two percent for the three-month period.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  The four top performers during the fiscal year are all chemical-related stocks, further proof that companies engaged in commodities-driven industries have reaped tremendous benefits during the run-up in prices over the past twelve months. In fact, our three best performers each doubled in value during the period and contributed over 10% to the return of the Fund.

 

12   Annual Report  |  June 30, 2008


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Potash Corp of Saskatchewan

  

Chemicals

   193.2%
2   

Mosaic Co

  

Chemicals

   140.1%
3   

CF Industries Holdings Inc

  

Chemicals

   106.7%
4   

Terra Industries Inc

  

Chemicals

   92.4%
5   

Research In Motion Ltd

  

Computers

   85.2%
6   

Alpha Natural Resources Inc

  

Coal

   74.2%
7   

National Oilwell Varco Inc

  

Oil & Gas Services

   70.2%
8   

priceline.com Inc

  

Internet

   68.0%
9   

Mobile Telesystems OJSC ADR

  

Telecommunications

   55.5%
10   

Bucyrus International Inc

  

Machinery-Construction & Mining

   52.4%
                

Our top performing stock, Potash Corp. of Saskatchewan, nearly tripled in price during the past twelve months and represented almost four percent of the Fund’s return. The Canadian-based company produces and markets fertilizer and related products across the globe. As the population in many emerging markets become more affluent, demand for different foods and other materials has increased dramatically, thus, enhancing the farmers’ needs for fertilizer. Additionally, natural disasters like the floods that devastated the Midwest earlier in the year also contributed to the shrinking supply (and rising demand) for grains, foods, and other products—all benefiting our Fund’s performance.

Three other top performers (Mosaic, CF Industries, and Terra Industries) are also chemical-related, and their stories have some similarities to Potash Corp. Outside of that industry, priceline.com was another excellent performer. The online travel company actually benefited from the ailing economy, as travelers sought out any and all discounts and promotions for their trips. When Captain Kirk…aka William Shatner…talks, people listen (though a few Bridgeway traders are more partial to Captain Picard in The Next Generation). The company’s tag line “name your own price” attracted consumers and business travelers alike to its sight in search of discounted flights, hotels, rental cars, and full packages, as priceline.com outperformed its key competitors: Orbitz and Expedia. For the summer, its management initiated a new creative promotion called “Sunshine Guaranteed.” Travelers who book through the website can get refunds should poor weather conditions ruin vacation plans.

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  While financials received much of the negative headlines over the past twelve months, the weaker economy impacted companies within other (non-commodities-related) sectors as well, including technology and consumer non-cyclicals. The five poorest performing stocks declined at least 50%, and together they cost the Fund over 4% in return.

These are the ten stocks that performed the worst for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

WellCare Health Plans Inc

  

Healthcare-Services

   -77.5%
2   

Sigma Designs Inc

  

Semiconductors

   -63.3%
3   

Garmin Ltd

  

Electronics

   -54.7%
4   

Synaptics Inc

  

Computers

   -52.2%
5   

Perini Corp

  

Engineering & Construction

   -51.5%
6   

Apollo Group Inc

  

Commercial Services

   -44.3%
7   

Sunpower Corp

  

Energy-Alternate Sources

   -43.1%
8   

Onyx Pharmaceuticals Inc

  

Pharmaceuticals

   -41.4%
9   

Turkcell Iletisim Hizmet AS ADR

  

Telecommunications

   -40.5%
10   

Sun Microsystems Inc

  

Computers

   -38.4%
                

 

www.bridgeway.com   13


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY (continued)

 

 

WellCare Health Plans was our Fund’s worst performer for the fiscal year. This managed care provider offers government-sponsored healthcare and prescription drug programs through Medicare and Medicaid. In late October 2007, federal officials began investigating the company for fraud-related claims. The company’s stock price plummeted over 70% in one day on the news of the investigation. Additionally, reports surfaced that corporate execs had sold a sizable number of shares in advance of the decline, prompting concerns about insider trading and other illegal activities. We had only owned this stock a brief period when this news came out, and we sold shortly thereafter. Fortunately, as a smaller diversifying position, it cost the Fund less than a percentage point of return.

Chip-maker Sigma Designs is a leading manufacturer of digital solutions for home entertainment products, particularly high definition (HD) televisions and DVDs. The company holds a considerable market share advantage in providing chips for Sony’s Blu-Ray devices. During the year, management disclosed a significant error in its ordering system that resulted in its shipping products in excess of actual demand. As a result, the problem prompted the company to reduce its future sales forecasts, and several analysts lowered their price targets. Sigma Designs was the second worst-performing holding and cost the Fund just over a percentage point during the fiscal year.

Top Ten Holdings as of June 30, 2008

 

Commodities were a consistent theme among the Fund’s top holdings, as companies related to chemicals, coal, energy, and mining highlighted the list. Six of our largest positions at fiscal year end were also among our top quarterly performers: Mosaic, Alpha Natural Resources, Potash Corp., CF Industries, Bucyrus International, and National Oilwell Varco. The top ten holdings represented just under half of the overall net assets of the Fund, which represents more concentration in a smaller number of stocks and in more related industries than we have seen in quite a while.

 

Rank   Description   Industry   Percent of
Net Assets
1  

Mosaic Co

 

Chemicals

  8.0%
2  

Alpha Natural Resources Inc

 

Coal

  7.3%
3  

Potash Corp of Saskatchewan

 

Chemicals

  6.5%
4  

Owens-Illinois Inc

 

Packaging & Containers

  5.1%
5  

CF Industries Holdings Inc

 

Chemicals

  4.2%
6  

Bucyrus International Inc

 

Machinery-Construction & Mining

  4.1%
7  

Intuitive Surgical Inc

 

Healthcare-Products

  3.8%
8  

Compass Minerals International Inc

 

Mining

  3.7%
9  

Invitrogen Corp

 

Biotechnology

  3.1%
10  

National Oilwell Varco Inc

 

Oil & Gas Services

  2.6%
             
      48.4%

 

14   Annual Report  |  June 30, 2008


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Aggressive Investors 1 Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Our Fund’s concentration in basic materials greatly contributed to the June quarter success. This overweighting along with good stock selection in the sector added over seven percent to the return. Conversely, we were underweighted in financials and avoided much of the hardships faced by companies engaged in subprime lending, mortgage-related securities investing, and other ramifications of the ongoing credit crisis, which saved the Fund more than two percentage points relative to our primary market benchmark.

 

      % of Portfolio    % S&P 500 Index    Difference

Basic Materials

   30.0%    3.9%    26.1%

Communications

   3.1%    11.0%    -7.9%

Consumer, Cyclical

   4.6%    7.1%    -2.5%

Consumer, Non-cyclical

   13.6%    20.6%    -7.0%

Energy

   17.0%    16.3%    0.7%

Financial

   1.6%    14.0%    -12.4%

Industrial

   19.9%    11.5%    8.4%

Technology

   6.7%    11.6%    -4.9%

Utilities

   0.0%    3.9%    -3.9%

Diversified

   0.0%    0.1%    -0.1%

Cash

   3.5%    0.0%    3.5%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views, including those of market sectors or individual stocks, are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of the quarter end, June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and may not be indicative of future performance.

Market volatility can significantly affect short-term performance. The Fund is not an appropriate investment for short-term investors. Investments in the small companies within this multi-cap fund generally carry greater risk than is customarily associated with larger companies. This additional risk is attributable to a number of factors, including the relatively limited financial resources that are typically available to small companies, and the fact that small companies often have comparatively limited product lines. In addition, the stock of small companies tends to be more volatile than the stock of large companies, particularly in the short term and particularly in the early stages of an economic or market downturn. The Fund’s use of options, futures, and leverage can magnify the risk of loss in an unfavorable market, and the Fund’s use of short-sale positions can, in theory, expose shareholders to unlimited loss. Finally, the Fund exposes shareholders to “focus risk” which may add to Fund volatility through the possibility that a single company could significantly affect total return. Shareholders of the Fund, therefore, are taking on more risk than they would if they invested in the stock market as a whole.

Conclusion

 

Thank you for your continued investment in Aggressive Investors 1 Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

www.bridgeway.com   15


LOGO

Bridgeway Aggressive Investors 1 Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 96.48%

Aerospace/Defense - 0.88%

 

Lockheed Martin Corp.

  30,100    $ 2,969,666

Apparel - 1.32%

 

Warnaco Group, Inc.*

  101,200      4,459,884

Banks - 0.85%

 

US Bancorp+

  103,800      2,894,982

Biotechnology - 5.22%

 

Invitrogen Corp.*

  259,700      10,195,822
 

OSI Pharmaceuticals, Inc.*

  181,700      7,507,844
          
         17,703,666

Chemicals - 24.15%

 

CF Industries Holdings, Inc.+

  91,600      13,996,480
 

Dow Chemical Co.

  82,300      2,873,093
 

Monsanto Co.

  28,000      3,540,320
 

Mosaic Co.*

  184,000      26,624,800
 

NewMarket Corp.

  50,500      3,344,615
 

Potash Corp. of Saskatchewan, Inc.

  95,100      21,737,007
 

Syngenta AG - ADR

  37,900      2,452,130
 

Terra Industries, Inc.+

  146,370      7,223,359
          
         81,791,804

Coal - 7.22%

 

Alpha Natural Resources, Inc.*+

  234,400      24,445,576

Computers - 3.78%

 

Apple, Inc.*

  21,300      3,566,472
 

Research In Motion, Ltd.*

  26,800      3,132,920
 

Western Digital Corp.*

  176,500      6,094,545
          
         12,793,937

Electrical Components & Equipment - 1.24%

 

GrafTech International, Ltd.*

  156,400      4,196,212

Electronics - 1.23%

 

FLIR Systems, Inc.*

  103,200      4,186,824

Engineering & Construction - 1.20%

 

ABB, Ltd. - ADR*

  143,400      4,061,088

Food - 0.04%

 

Chiquita Brands International, Inc.*+

  8,600      130,462
Industry   Company   Shares    Value

Healthcare - Products - 4.65%

 

Intuitive Surgical, Inc.*

  46,800    $ 12,607,920
 

St. Jude Medical, Inc.*

  76,700      3,135,496
          
         15,743,416

Insurance - 0.78%

 

AmTrust Financial Services, Inc.

  209,400      2,638,440

Internet - 2.18%

 

Priceline.com, Inc.*+

  64,000      7,389,440

Iron/Steel - 2.28%

 

AK Steel Holding Corp.

  50,600      3,491,400
 

Mechel Open Joint Stock Co. - ADR+

  85,300      4,225,762
          
         7,717,162

Machinery - Construction & Mining - 4.08%

 

Bucyrus International, Inc., Class A+

  189,200      13,815,384

Machinery - Diversified - 3.34%

 

AGCO Corp.*+

  57,300      3,003,093
 

Flowserve Corp.

  33,100      4,524,770
 

Gardner Denver, Inc.*

  66,600      3,782,880
          
         11,310,743

Media - 0.93%

 

Walt Disney Co.

  101,100      3,154,320

Mining - 3.61%

 

Compass Minerals International, Inc.

  152,000      12,245,120

Office Furnishing - 1.00%

 

Herman Miller, Inc.

  136,100      3,387,529

Oil & Gas - 5.00%

 

CNOOC, Ltd. - ADR

  13,100      2,273,374
 

ConocoPhillips

  36,700      3,464,113
 

EOG Resources, Inc.

  23,500      3,083,200
 

Petroleo Brasileiro S.A. - ADR

  68,400      4,844,772
 

Transocean, Inc.

  21,400      3,261,146
          
         16,926,605

Oil & Gas Services - 3.72%

 

FMC Technologies, Inc.*

  51,600      3,969,588
 

National Oilwell Varco, Inc.*

  97,200      8,623,584
          
         12,593,172

 

16   Annual Report  |  June 30, 2008


LOGO

Bridgeway Aggressive Investors 1 Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Packaging & Containers - 5.04%

 

Owens-Illinois, Inc.*

  409,600    $ 17,076,224

Pharmaceuticals - 3.65%

 

Bristol-Myers Squibb Co.

  174,300      3,578,379
 

Express Scripts, Inc.*

  50,600      3,173,632
 

Medco Health Solutions, Inc.*

  68,200      3,219,040
 

Novo Nordisk A/S - Sponsored ADR

  36,200      2,389,200
          
         12,360,251

Pipelines - 1.07%

 

The Williams Cos., Inc.

  89,700      3,615,807

Retail - 2.25%

 

Aeropostale, Inc.*

  91,600      2,869,828
 

Costco Wholesale Corp.+

  33,200      2,328,648
 

Tiffany & Co.

  60,000      2,445,000
          
         7,643,476

Semiconductors - 0.99%

 

Amkor Technology, Inc.*

  321,500      3,346,815

Software - 1.92%

 

Microsoft Corp.

  115,900      3,188,409
 

Oracle Corp.*

  157,500      3,307,500
          
         6,495,909

Transportation - 2.86%

 

CH Robinson Worldwide, Inc.

  53,900      2,955,876
 

CSX Corp.

  49,700      3,121,657
 

Kirby Corp.*

  20      960
 

Ryder System, Inc.

  52,600      3,623,088
          
         9,701,581
          

TOTAL COMMON STOCKS - 96.48%

     326,795,496
          

(Cost $250,679,171)

  

 

PURCHASED CALL OPTIONS - 0.18%

 
Company   Number
of Contracts
  Value

Southwestern Energy Co.
Expiring September, 2008 at $42.50

  800   $        624,000
       

TOTAL PURCHASED CALL OPTIONS - 0.18%

          624,000
       

(Cost $480,679)

   

 

MONEY MARKET FUNDS - 0.35%

    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    1,170,513    $ 1,170,513
           

TOTAL MONEY MARKET FUNDS - 0.35%

     1,170,513
           

(Cost $1,170,513)

  

TOTAL INVESTMENTS - 97.01%

   $ 328,590,009

(Cost $252,330,363)

  

Other Assets in Excess of Liabilities - 2.99%

     10,124,881
           

NET ASSETS - 100.00%

   $ 338,714,890
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $53,026,296 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.
ADR - American Depositary Receipt

See Notes to Financial Statements.

 

www.bridgeway.com   17


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Aggressive Investors 2 Fund Shareholder,

Our Fund bounced back strongly in the June quarter, outperforming all our market and peer benchmarks. Aggressive Investors 2 increased by an impressive 11.61%, trouncing our primary market index (the S&P 500 Index—down 2.73%), our peer benchmark (the Lipper Capital Appreciation Funds Index—up 4.54%), and the Russell 2000 Index of small companies (up 0.58%) for the three-month period. This was our best quarter relative to our primary market benchmark in five years and our second best quarter relative to our primary market benchmark since inception six and a half years ago. We are quite pleased.

Likewise, our Fund outperformed all of its benchmarks for the full fiscal year on both an absolute and relative return basis. For the twelve months ending June 30, 2008, the Fund appreciated 5.88%, while each of the indexes closed in negative territory: S&P 500 (-13.12%), Lipper Capital Appreciation Funds Index (-0.16%), and Russell 2000 Index (-16.19%). While we welcome such strong results during these shorter-term quarterly and twelve month time horizons, we strive to achieve excellent consistent returns over the long term. We are pleased to report that Aggressive Investors 2 Fund has rewarded our shareholders with double-digit returns and outperformed each of its benchmarks over the past five years as well as since inception in October, 2001. Our strategies stay constant and consistent in both good times and bad, in both strong and weak markets, during both “the sky is the limit” and “the sky is falling” investor environments. Such long-term results always will remain the key objective of our firm. The information below bears out our longer term success in these areas.

The table below presents our June quarter, one-year, five-year and life-to-date financial results, according to the formula required by the SEC. See the next page for a graph of performance from inception to June 30, 2008.

 

     

June Qtr.

4/1/08
to 6/30/08

  

1 Year

7/1/07
to 6/30/08

  

5 Year

7/1/03
to 6/30/08

  

Life-to-Date

10/31/01

to 6/30/08

Aggressive Investors 2 Fund

   11.61%    5.88%    16.57%    12.66%

S&P 500 Index (large companies)

   -2.73%    -13.12%    7.58%    4.75%

Lipper Capital Appreciation Funds Index

   4.54%    -0.16%    11.19%    7.41%

Russell 2000 Index (small companies)

   0.58%    -16.19%    10.29%    8.76%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks with dividends reinvested, while the Russell 2000 Index is an unmanaged, market value weighted index, that measures performance of the 2,000 companies that are between the 1,000th and 3,000th largest in the market with dividends reinvested. The Lipper Capital Appreciation Funds Index reflects the record of the 30 largest funds in this category, comprised of more aggressive domestic growth mutual funds, as reported by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Aggressive Investors 2 Fund ranked 23rd of 296 capital appreciation funds for the twelve months ending June 30, 2008, 15th of 218 over the last five years, and 12th of 198 since inception in October, 2001. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

18   Annual Report  |  June 30, 2008


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY (continued)

 

 

Aggressive Investors 2 Fund vs. S&P 500 Index & Lipper Capital Appreciation Funds Index & Russell 2000 Index 10/31/01 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  These days, a lump of coal in the old holiday stocking actually would be a pretty good thing (ok, its 97 degrees in August in Bridgeway’s hometown of Houston). Commodities like coal continued to surge during the past quarter, and companies within industries that deal with natural resources and related products performed best over the three-month period. Our top performer list is comprised entirely of energy, basic materials, and industrial companies, most of which engage in some commodities-driven operations. These ten performers contributed over 13% to the return of the Fund over the three-month period.

These are the ten best performers for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Alpha Natural Resources Inc

  

Coal

   68.0%
2   

GrafTech International Ltd

  

Electrical Components & Equipment

   65.5%
3   

National Oilwell Varco Inc

  

Oil & Gas Services

   52.0%
4   

CF Industries Holdings Inc

  

Chemicals

   47.5%
5   

Potash Corp of Saskatchewan

  

Chemicals

   47.3%
6   

Bucyrus International Inc

  

Machinery-Construction & Mining

   43.7%
7   

Mosaic Co/The

  

Chemicals

   41.0%
8   

Terra Industries Inc

  

Chemicals

   38.9%
9   

Petroleo Brasileiro SA ADR

  

Oil & Gas

   38.7%
10   

Flir Systems Inc

  

Electronics

   34.8%
                

Alpha Natural Resources was the Fund’s top performer and contributed over three percent to the overall return of the Fund. The company is the leading domestic exporter of metallurgical coal, which is used in the production of steel. With demand for coal (and steel) skyrocketing in emerging markets like China and India, Alpha Resources reported that its earnings tripled in the first-quarter, and some analysts predict soaring profitability through at least 2010. High natural gas prices and the weak dollar contributed to the strong global demand, which helped push the company’s stock price to an all-time high in late June.

Bucyrus International manufactures mining equipment used to extract resources like coal, copper, iron, and other minerals. Coal and copper mining companies represent its two largest customer bases. A consistent story during the quarter, higher commodities prices derived from growing international demand escalated the need for such specialized equipment; replacement parts and repairs accounted for over half of the company’s sales in the most recent quarter. In May, Lehman Brothers initiated coverage at “overweight,” and the stock price hit a 52-week high shortly thereafter. However, our own “overweighting” (See the top ten holdings on page 22) resulted from following our models’ analysis, not any broker’s recommendation. For the quarter, Bucyrus contributed over a percentage point to the overall return of the Fund.

 

www.bridgeway.com   19


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  While the Fund did not suffer much from the ill-effects of the downturn in financial-related companies this past quarter, five consumer-oriented firms are among those on the list of worst performers. Of note, food companies struggled from the rising costs of grains and other commodities; additionally, retailers recognized less traffic (both in stores and online), as consumers grew more cautious given the weaker domestic economic environment. Combined, the five consumer companies lost about a percent and a half during the three-month period.

These are the ten stocks that performed the worst in the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Goodyear Tire & Rubber Co

  

Auto Parts & Equipment

   -38.3%
2   

Chiquita Brands International Inc

  

Food

   -34.8%
3   

Turkcell Iletisim Hizmet AS ADR

  

Telecommunications

   -30.4%
4   

Owens-Illinois Inc

  

Packaging & Containers

   -26.1%
5   

LKQ Corp

  

Distribution/Wholesale

   -24.7%
6   

Garmin Ltd

  

Electronics

   -23.5%
7   

GameStop Corp

  

Retail

   -20.8%
8   

Sigma Designs Inc

  

Semiconductors

   -19.7%
9   

NewMarket Corp

  

Chemicals

   -19.1%
10   

Perrigo Co

  

Pharmaceuticals

   -18.2%
                

Chiquita Brands distributes bananas and other produce across the U.S. and abroad. Late in the quarter, blaming bad weather in Central America and Ecuador, management warned that higher costs will lead to a significant loss in the third quarter. The company has not been able to pass along these escalating costs to consumers and previously strong markets in Europe have been slowing as of late. (Apparently, as banana prices rise, healthy eaters seek out alternative sources for their potassium!) After the warning, its stock price plummeted by 28% in one day, which represents the majority of the loss for the quarter. Chiquita was the Fund’s second poorest performer for the three-months, and we sold it after quarter end.

Owens-Illinois is the largest glass manufacturer in the world and sells containers and related products throughout North and South America, Asia, and Europe. The company has produced excellent fundamental results as of late, including four straight quarters of better than expected earnings reports. Indeed, our Fund had a sizable gain in the stock coming into the June quarter. However, after hitting an all-time high in April, Owens-Illinois took a step back and lost over 25% of its value during the quarter. While the company has benefited from strong international demand (70% of its revenue comes from overseas), management warned about the effects that rising energy and raw material costs may have on future sales. The company cost the Fund about a percent and a half for the three-month period.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Four of the Fund’s top five performers during the fiscal year are chemical-related stocks, further proof that companies engaged in commodities-driven industries have reaped tremendous benefits during the run-up in prices over the past twelve months. In fact, our three best performers each doubled in value during the period and contributed over 11% to the return of the Fund.

 

20   Annual Report  |  June 30, 2008


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Potash Corp of Saskatchewan

  

Chemicals

   182.2%
2   

Mosaic Co

  

Chemicals

   138.9%
3   

CF Industries Holdings Inc

  

Chemicals

   104.4%
4   

Research In Motion Ltd

  

Computers

   82.1%
5   

Terra Industries Inc

  

Chemicals

   75.0%
6   

GrafTech International Ltd

  

Electrical Components & Equipment

   74.2%
7   

National Oilwell Varco Inc

  

Oil & Gas Services

   70.2%
8   

Alpha Natural Resources Inc

  

Coal

   68.0%
9   

Vimpel-Communications ADR

  

Telecommunications

   53.3%
10   

Bucyrus International Inc

  

Machinery-Construction & Mining

   51.6%

Our top performing stock, Potash Corp. of Saskatchewan, nearly tripled in price during the past twelve months and represented almost four percent of the Fund’s return. The Canadian-based company produces and markets fertilizer and related products across the globe. As the population in many emerging markets become more affluent, demand for different foods and other materials has increased dramatically, thus, enhancing the farmers’ needs for fertilizer. Additionally, natural disasters like the floods that devastated the Midwest earlier in the year also contributed to the shrinking supply (and rising demand) for grains, foods, and other products—all benefiting our Fund’s performance.

Three other top performers (Mosaic, CF Industries, and Terra Industries) are also chemical-related and have some similar “commodities” success stories as Potash Corp. Combined, these companies contributed over 8% to the Fund’s return during the fiscal year.

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  While financials received much of the negative headlines over the past 12 twelve months, the weaker economy impacted companies within other (non-commodities-related) sectors as well, including five consumer-related companies (two cyclical and three non-cyclical) represented on the list. Each of the ten worst performers lost over 40% in value during the fiscal year.

These are the ten stocks that performed the worst for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

WellCare Health Plans Inc

  

Healthcare-Services

   -77.5%
2   

Sigma Designs Inc

  

Semiconductors

   -63.4%
3   

Garmin Ltd

  

Electronics

   -59.5%
4   

China Southern Airlines Co Ltd ADR

  

Airlines

   -58.4%
5   

Synaptics Inc

  

Computers

   -52.7%
6   

Perini Corp

  

Engineering & Construction

   -49.9%
7   

Apollo Group Inc

  

Commercial Services

   -45.7%
8   

Turkcell Iletisim Hizmet AS ADR

  

Telecommunications

   -44.3%
9   

Cooper Tire & Rubber Co

  

Auto Parts & Equipment

   -42.9%
10   

Onyx Pharmaceuticals Inc

  

Pharmaceuticals

   -41.8%
                

WellCare Health Plans was our Fund’s worst performer for the fiscal year. This managed care provider offers government-sponsored healthcare and prescription drug programs through Medicare and Medicaid. In late October 2007, federal officials began investigating the company for fraud-related claims. The company’s stock price plummeted over 70% in one day on the news of the investigation. Additionally, reports surfaced that corporate execs had sold a sizable number of shares in advance of the decline, prompting concerns about insider trading and other illegal activities. We had only owned this stock a brief

 

www.bridgeway.com   21


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY (continued)

 

 

period when this news came out, and we sold shortly thereafter. Fortunately, as a smaller diversifying position, it cost the Fund less than a percentage point of return.

Chip-maker Sigma Designs is a leading manufacturer of digital solutions for home entertainment products, particularly high definition (HD) televisions and DVDs. The company holds a considerable market share advantage in providing chips for Sony’s Blu-Ray devices. During the year, management disclosed a significant error in its ordering system that resulted in its shipping products in excess of actual demand. As a result, the problem prompted the company to reduce its future sales forecasts, and several analysts lowered their price targets. Sigma Designs was the second worst-performing holding and cost the Fund roughly a percent and a half return during the fiscal year.

Top Ten Holdings as of June 30, 2008

 

Commodities were a consistent theme among the Fund’s top holdings, as companies related to chemicals, coal, energy, and mining highlighted the list. Five of our largest positions at fiscal year end were also among our top quarterly performers: Alpha Natural Resources, Mosaic, Potash Corp., Bucyrus International, and CF Industries. Each is engaged in some form of commodities-driven operations. The top 10 holdings represented a strong 40% of the overall Fund net assets.

 

Rank   Description   Industry   Percent of
Net Assets
1  

Alpha Natural Resources Inc

 

Coal

  7.0%
2  

Mosaic Co

 

Chemicals

  6.3%
3  

Potash Corp of Saskatchewan

 

Chemicals

  4.7%
4  

Bucyrus International Inc

 

Machinery-Construction & Mining

  3.7%
5  

Owens-Illinois Inc

 

Packaging & Containers

  3.6%
6  

Compass Minerals International Inc

 

Mining

  3.4%
7  

CF Industries Holdings Inc

 

Chemicals

  3.2%
8  

Invitrogen Corp

 

Biotechnology

  3.0%
9  

Monsanto Co

 

Chemicals

  2.8%
10  

Southwestern Energy Co

 

Oil & Gas

  2.4%
             
 Total       40.1%

Industry Sector Representation as of June 30, 2008

 

Our Fund’s concentration in basic materials greatly contributed to the June quarter success. This overweighting along with good stock selection in the sector added over seven percent to the return. Conversely, we were underweighted in financials and avoided much of the hardships faced by companies engaged in subprime lending, mortgage-related securities investing, and other ramifications of the ongoing credit crisis, which saved the Fund more than two percentage points relative to our primary market benchmark.

 

      % of Portfolio    % S&P 500 Index    Difference

Basic Materials

   29.1%    3.9%    25.2%

Communications

   2.4%    11.0%    -8.6%

Consumer, Cyclical

   4.9%    7.1%    -2.2%

Consumer, Non-cyclical

   14.3%    20.6%    -6.3%

Energy

   19.1%    16.3%    2.8%

Financial

   0.9%    14.0%    -13.1%

Industrial

   20.0%    11.5%    8.5%

Technology

   7.9%    11.6%    -3.8%

Utilities

   0.0%    3.9%    -3.9%

Diversified

   0.0%    0.1%    -0.1%

Cash

   1.4%    0.0%    1.5%
                

Total

   100.0%    100.0%   

 

22   Annual Report  |  June 30, 2008


LOGO

Aggressive Investors 2 Fund

MANAGER’S COMMENTARY (continued)

 

 

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views, including those of market sectors or individual stocks, are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of the quarter end, June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

Market volatility can significantly affect short-term performance. The Fund is not an appropriate investment for short-term investors. Investments in the small companies within this multi-cap fund generally carry greater risk than is customarily associated with larger companies. This additional risk is attributable to a number of factors, including the relatively limited financial resources that are typically available to small companies, and the fact that small companies often have comparatively limited product lines. In addition, the stock of small companies tends to be more volatile than the stock of large companies, particularly in the short term and particularly in the early stages of an economic or market downturn. The Fund’s use of options, futures, and leverage can magnify the risk of loss in an unfavorable market, and the Fund’s use of short-sale positions can, in theory, expose shareholders to unlimited loss. Finally, the Fund exposes shareholders to “focus risk” which may add to Fund volatility through the possibility that a single company could significantly affect total return. Shareholders of the Fund, therefore, are taking on more risk than they would if they invested in the stock market as a whole.

Conclusion

 

Thank you for your continued investment in Aggressive Investors 2 Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

www.bridgeway.com   23


LOGO

Bridgeway Aggressive Investors 2 Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 98.64%

Apparel - 0.94%

 

Warnaco Group, Inc.*

  188,700    $ 8,316,009

Auto Parts & Equipment - 0.58%

 

Goodyear Tire & Rubber Co.*+

  287,600      5,127,908

Banks - 0.25%

 

US Bancorp+

  79,000      2,203,310

Biotechnology - 5.40%

 

Gilead Sciences, Inc.*

  182,000      9,636,900
 

Invitrogen Corp.*

  675,400      26,516,204
 

OSI Pharmaceuticals, Inc.*

  282,700      11,681,164
          
         47,834,268

Chemicals - 20.93%

 

CF Industries Holdings, Inc.

  184,400      28,176,320
 

Dow Chemical Co.

  201,000      7,016,910
 

Monsanto Co.

  197,200      24,933,968
 

Mosaic Co.*

  381,600      55,217,520
 

NewMarket Corp.

  100,300      6,642,869
 

Potash Corp. of Saskatchewan, Inc.

  181,299      41,439,512
 

Syngenta AG - ADR

  97,200      6,288,840
 

Terra Industries, Inc.+

  313,800      15,486,030
          
         185,201,969

Coal - 8.02%

 

Alpha Natural Resources, Inc.*+

  593,100      61,854,399
 

Massey Energy Co.

  97,000      9,093,750
          
         70,948,149

Commercial Services - 1.00%

 

ITT Educational Services, Inc.*+

  107,400      8,874,462

Computers - 5.06%

 

Apple, Inc.*

  52,000      8,706,880
 

EMC Corp.*

  470,700      6,914,583
 

Hewlett-Packard Co.

  138,900      6,140,769
 

Research In Motion, Ltd.*

  69,500      8,124,550
 

Western Digital Corp.*+

  431,700      14,906,601
          
         44,793,383

Electrical Components & Equipment - 1.69%

 

GrafTech International, Ltd.*

  557,500      14,957,725

Electronics - 1.12%

 

FLIR Systems, Inc.*+

  244,100      9,903,137
Industry   Company   Shares    Value

Engineering & Construction - 2.76%

 

ABB, Ltd. - ADR*

  334,400    $ 9,470,208
 

EMCOR Group, Inc.*

  325,100      9,275,103
 

Foster Wheeler, Ltd.*

  77,800      5,691,070
          
         24,436,381

Environmental Control - 1.08%

 

Darling International, Inc.*

  579,400      9,571,688

Food - 0.68%

 

Chiquita Brands International, Inc.*+

  394,000      5,976,980

Healthcare - Products - 2.74%

 

Intuitive Surgical, Inc.*

  64,000      17,241,600
 

St. Jude Medical, Inc.*

  172,100      7,035,448
          
         24,277,048

Insurance - 0.68%

 

MetLife, Inc.+

  114,300      6,031,611

Internet - 2.06%

 

Priceline.Com, Inc.*+

  158,100      18,254,226

Iron/Steel - 3.22%

 

AK Steel Holding Corp.

  128,500      8,866,500
 

Mechel Open Joint Stock Co. - ADR+

  222,600      11,027,604
 

Steel Dynamics, Inc.

  220,100      8,599,307
          
         28,493,411

Machinery - Construction & Mining - 3.69%

 

Bucyrus International, Inc., Class A+

  447,600      32,683,752

Machinery - Diversified - 3.16%

 

AGCO Corp.*+

  147,000      7,704,270
 

Flowserve Corp.

  77,300      10,566,910
 

Gardner Denver, Inc.*

  170,976      9,711,437
          
         27,982,617

Mining - 5.00%

 

Compania de Minas Buenaventura S.A. - ADR

  91,700      5,994,429
 

Compass Minerals International, Inc.

  370,500      29,847,480
 

Goldcorp., Inc.+

  181,200      8,366,004
          
         44,207,913

Miscellaneous Manufacturing - 0.85%

 

Parker Hannifin Corp.

  104,900      7,481,468

 

24   Annual Report  |  June 30, 2008


LOGO

Bridgeway Aggressive Investors 2 Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Oil & Gas - 7.93%

 

Canadian Natural Resources, Ltd.

  25,450    $ 2,551,363
 

CNOOC, Ltd. - ADR+

  33,600      5,830,944
 

ConocoPhillips

  95,400      9,004,806
 

EOG Resources, Inc.

  62,600      8,213,120
 

Petroleo Brasileiro S.A. - ADR

  216,200      15,313,446
 

Southwestern Energy Co.*

  443,800      21,129,318
 

Transocean, Inc.

  53,700      8,183,343
          
         70,226,340

Oil & Gas Services - 3.13%

 

FMC Technologies, Inc.*

  125,800      9,677,794
 

National Oilwell Varco, Inc.*

  202,800      17,992,416
          
         27,670,210

Packaging & Containers - 3.59%

 

Owens-Illinois, Inc.*

  762,300      31,780,287

Pharmaceuticals - 4.50%

 

Bristol-Myers Squibb Co.

  465,500      9,556,715
 

Express Scripts, Inc.*

  126,800      7,952,896
 

Medco Health Solutions, Inc.*

  162,200      7,655,840
 

Novo Nordisk A/S - Sponsored ADR

  92,900      6,131,400
 

Pfizer, Inc.

  490,800      8,574,276
          
         39,871,127

Retail - 3.40%

 

Aeropostale, Inc.*

  250,900      7,860,697
 

Costco Wholesale Corp.+

  85,200      5,975,928
 

Gymboree Corp.*

  198,400      7,949,888
 

Tiffany & Co.

  204,400      8,329,300
          
         30,115,813

Semiconductors - 0.88%

 

Amkor Technology, Inc.*

  746,900      7,775,229

Software - 1.90%

 

Microsoft Corp.

  278,700      7,667,037
 

Open Text Corp.*+

  17,300      555,330
 

Oracle Corp.*

  408,300      8,574,300
          
         16,796,667

Telecommunications - 0.36%

 

Turkcell Iletisim Hizmetleri AS - ADR+

  219,100      3,187,905
Industry   Company   Shares    Value

Transportation - 2.04%

 

CSX Corp.

  150,100    $ 9,427,781
 

Ryder System, Inc.

  125,300      8,630,664
          
         18,058,445

TOTAL COMMON STOCKS - 98.64%

     873,039,438
          

(Cost $700,183,122)

    

 

MONEY MARKET FUNDS - 0.42%

  
    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    3,702,144      3,702,144
           

TOTAL MONEY MARKET FUNDS - 0.42%

     3,702,144
           

(Cost $3,702,144)

     

TOTAL INVESTMENTS - 99.06%

      $ 876,741,582

(Cost $703,885,266)

  

Other Assets in Excess of Liabilities - 0.94%

     8,334,468
           

NET ASSETS - 100.00%

      $ 885,076,050
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $129,946,137 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.
ADR - American Depositary Receipt

See Notes to Financial Statements.

 

www.bridgeway.com   25


LOGO

Ultra-Small Company Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Ultra-Small Company Fund Shareholder,

In the environment of the ongoing credit crisis and market downturn, Ultra-Small Company Fund declined 1.84% for the quarter ended June 30, 2008, providing a nice “cushion” of 3.69% against the decline of our primary market benchmark, the CRSP Cap Based Portfolio 10 Index, which was down 5.53%. The smallest companies were the hardest hit during this period, as reflected in our unfavorable performance versus our other benchmarks that invest in “larger” small companies. The Russell 2000 Index of small companies increased 0.58% while the Lipper Small-Cap Stock Funds Index increased 1.78%. Given our focus on ultra-small companies, it was a good quarter and exactly what we hope to do in a down market. However, on an absolute return basis, and relative to some broader exposure small company indexes, it was not a good quarter.

For the same reasons above, our Fund’s fiscal year performance was in “bear market” territory. The Fund declined a significant 24.59%; however, it provided a cushion of 2.72% relative to the CRSP 10 Index of ultra-small companies. Nevertheless, we significantly underperformed our peer and small-cap market indexes. The Lipper Small-Cap Stock Funds Index dropped 12.67%, and the Russell 2000 Index declined 16.19% over the same one-year period ending June 30, 2008. On a more positive note, and in line with the long-term focus of our Fund, Ultra-Small-Company Fund has rewarded our shareholders with double-digit returns and outperformed our primary benchmark (CRSP Cap-Based Portfolio 10 Index) by 5.50% per year since inception. The shorter time frames have been—and we expect will continue to be—very bumpy along the way. This is the nature of ultra-small stocks: strong appreciation potential over the long term, strong diversification for larger-company dominated portfolios, and frequently bigger (and unpredictable) market moves both up and down.

The table below presents our June quarter, one-year, five-year, ten-year and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance from inception.

 

      June Qtr.
4/1/08
to 6/30/08
   1 Year
7/1/07
to 6/30/08
   5 Year
7/1/03
to 6/30/08
   10 Year
7/1/98
to 6/30/08
   Life-to-Date
8/5/94
to 6/30/08

Ultra-Small Company Fund

   -1.84%    -24.59%    10.93%    14.93%    18.08%

CRSP Cap-Based Port. 10 Index

   -5.53%    -27.31%    10.04%    10.35%    12.58%

Lipper Small-Cap Stock Funds Index

   1.78%    -12.67%    11.22%    5.59%    9.21%

Russell 2000 Index (small companies)

   0.58%    -16.19%    10.29%    5.53%    9.19%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Lipper Small-Cap Stock Funds Index is an index of small-company funds compiled by Lipper, Inc. The Russell 2000 Index is an unmanaged, market value weighted index, which measures performance of the 2,000 companies that are between the 1,000th and 3,000th largest in the market with dividends reinvested. The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 1,780 of the smallest publicly traded U.S. stocks (with dividends reinvested), as reported by the Center for Research on Security Prices. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Ultra-Small Company Fund ranked 66th of 97 micro-cap funds for the twelve months ending June 30, 2008, 15th of 66 over the last five years, 3rd of 38 over the last ten years, and 1st of 9 since inception in August, 1994. These long-term numbers and the graph below give two snapshots of our long-term success. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

26   Annual Report  |  June 30, 2008


LOGO

Ultra-Small Company Fund

MANAGER’S COMMENTARY (continued)

 

 

Ultra-Small Company Fund vs. CRSP 10 Index & Lipper Small Company Funds Index & Russell 2000 Index Inception (8/5/94) to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  Five industrial companies highlighted the list of top performers during the quarter, as some of these companies benefited from international business (where a weak dollar proved helpful). Combined, the five holdings contributed over two percent to the Fund’s return. While many ultra-small-cap companies struggled during the quarter, thirteen of our holdings increased by over 25% for the three-month period.

These are the ten best performers for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Graham Corp

  

Electrical Components & Equipment

   108.1%
2   

Crimson Exploration Inc

  

Oil & Gas

   65.3%
3   

Crawford & Co

  

Insurance

   44.5%
4   

Natural Gas Services Group Inc

  

Oil & Gas Services

   39.6%
5   

Advanced Battery Technologies Inc

  

Electrical Components & Equipment

   32.5%
6   

Integral Systems Inc

  

Computers

   32.4%
7   

Peerless Manufacturing Co

  

Miscellaneous Manufacturing

   30.8%
8   

FreeSeas Inc

  

Transportation

   29.3%
9   

PC Mall Inc

  

Retail

   27.6%
10   

LSB Industries Inc

  

Miscellaneous Manufacturing

   26.9%
                

Graham Corporate was the Fund’s top performer during the quarter and an example of a company that benefited from surging commodities (energy) prices, the weak dollar, and its growing global footprint. The industrial company produces and markets vacuums and heat transfer equipment that is used by petrochemical, fertilizer, and liquefied natural gas plants (among others). In April, it announced a 32% surge in fourth quarter orders on strong international demand from Saudi Arabia, China, and Canada. In June, Graham expanded its international business even further by receiving significant contracts from oil refineries in South Korea, China, Malaysia, and Russia. Its stock price doubled over the quarter and contributed over one percent to the return of the Fund.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Much of the economic news continued to revolve around financial companies, and in spite of owning relatively few of these companies, our Fund was not immune. Four of the poorest performers came from that sector and cost the Fund just under half a percent in return. Six different sectors were represented in the list of worst performers, indicating that the losses were more widespread than just financials. Thirteen holdings lost over 25% during the past three months.

 

www.bridgeway.com   27


LOGO

Ultra-Small Company Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten stocks that performed the worst in the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

WSI Industries Inc

  

Hand/Machine Tools

   -46.9%
2   

Chindex International Inc

  

Distribution/Wholesale

   -40.3%
3   

BluePhoenix Solutions Ltd

  

Computers

   -37.0%
4   

21st Century Holding Co

  

Insurance

   -36.2%
5   

Centrue Financial Corp

  

Banks

   -35.9%
6   

Dayton Superior Corp

  

Building Materials

   -35.5%
7   

Dollar Financial Corp

  

Commercial Services

   -34.3%
8   

Penford Corp

  

Chemicals

   -31.5%
9   

Rainier Pacific Financial Group Inc

  

Savings & Loans

   -31.3%
10   

Farmers Capital Bank Corp

  

Banks

   -30.5%
                

Chindex International is a provider of healthcare services (under the United Family Healthcare brand) and also sells medical equipment and related products. The company operates the only foreign-owned private hospitals in China and has plans for future expansion in this rapidly-growing market. In its recent earnings report, Chindex announced a 40% increase in sales from last year’s levels. So, what happened? As proof that small companies have no room for error (especially in tough markets), the company suffered a fourth quarter loss as a result of a non-recurring interest expense. Its results came in below Wall Street expectations, investors sold on the news, and its price plunged about 30% in one trading session. For the quarter, Chindex cost the Fund over one percent in performance. The models gave it a poor bill of health late in the fiscal year, and we sold out of the position.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Three consumer-related companies highlighted our list of top performers for the fiscal year. Combined, these companies contributed about three percent to the Fund’s overall performance. In addition, despite the widespread negativity that hurt small-cap companies over the past twelve months, two of our holdings actually doubled in value and another three increased at least 50%.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Natural Gas Services Group Inc

  

Oil & Gas Services

   102.2%
2   

Cal-Maine Foods Inc

  

Food

   101.6%
3   

Integral Systems Inc/MD

  

Computers

   69.8%
4   

Ebix Inc

  

Software

   51.3%
5   

Jinpan International Ltd

  

Electronics

   51.3%
6   

Graham Corp

  

Electrical Components & Equipment

   44.6%
7   

HQ Sustainable Maritime Industries Inc

  

Food

   44.6%
8   

Crawford & Co

  

Insurance

   44.5%
9   

Crimson Exploration Inc

  

Oil & Gas

   43.8%
10   

Vnus Medical Technologies Inc

  

Healthcare-Products

   41.5%
                

Hard boiled? Scrambled? Over easy? However you like them, eggs are in hot demand these days. Cal-Maine Food is the largest domestic egg producer and was the second best Fund performer of the fiscal year. In January, the company announced that revenues had skyrocketed by over 60%, with strong exports contributing to another solid quarter. In April, it announced another strong quarter, and demand continued to grow worldwide, despite the record high prices of eggs. The company also announced a lucrative (for shareholders) variable dividend policy and will pay out a third of its income each quarter. In June, the egg giant got even bigger as it acquired a majority interest in Zephyr Eggs, a regional company with a stronghold on the Florida market. For the twelve month period, Cal-Maine doubled in value and contributed over two and a half percent to the Fund’s return.

 

28   Annual Report  |  June 30, 2008


LOGO

Ultra-Small Company Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  The good news: The Fund managed to avoid the worst of the crisis among financials, as no related company made the list of poor performers. The bad news: The negativity moved into other sectors of the economy as well. Four different sectors were represented in the list of poor performers, with four industrials highlighting the list. Seven holdings lost over half their value during the twelve-month period as investors shied away (to put it mildly) from the smallest of small-cap companies.

These are the ten stocks that performed the worst for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

CPI Corp

  

Commercial Services

   -69.6%
2   

BluePhoenix Solutions Ltd

  

Computers

   -60.9%
3   

Transcend Services Inc

  

Commercial Services

   -58.7%
4   

Clean Diesel Technologies Inc

  

Chemicals

   -53.6%
5   

Hardinge Inc

  

Hand/Machine Tools

   -53.1%
6   

Landec Corp

  

Chemicals

   -51.7%
7   

Dayton Superior Corp

  

Building Materials

   -51.4%
8   

Twin Disc Inc

  

Machinery-Diversified

   -49.7%
9   

Trio Tech International

  

Semiconductors

   -49.5%
10   

Silicom Ltd

  

Electronics

   -49.2%
                

BluePhoenix Solutions is an Israeli-based software company that develops enterprise information technologies serving to modernize or update preexisting products (before they become antiquated). In January, its stock plunged when its quarterly revenue missed analysts’ expectations. In June, the troubles continued when two investment firms reduced their earnings estimates on concerns that Israel’s strong currency (as opposed to operations) was having too great an effect on company earnings. BluePhoenix stock moved to a 52-week low in late June, and its performance cost the Fund about three-quarters of a percent of returns. Our models gave us a sell signal soon after.

Top Ten Holdings as of June 30, 2008

 

Three of the Fund’s top holdings at the end of the fiscal year were also on our list of top performers for the quarter: Natural Gas Services Group, Graham Corp., and Integrated Systems Inc. While our top holding accounted for over six percent of the net assets, no other stock represented greater than three percent of the Fund.

 

Rank    Description    Industry    Percent of
Net Assets
1   

Cal-Maine Foods Inc

  

Food

   6.3%
2   

American Physicians Capital Inc

  

Insurance

   3.0%
3   

AZZ Inc

  

Miscellaneous Manufacturing

   3.0%
4   

Natural Gas Services Group Inc

  

Oil & Gas Services

   2.7%
5   

Graham Corp

  

Electrical Components & Equipment

   2.2%
6   

Penford Corp

  

Chemicals

   2.1%
7   

Ezcorp Inc

  

Retail

   2.0%
8   

Integral Systems Inc/MD

  

Computers

   1.9%
9   

Lydall Inc

  

Miscellaneous Manufacturing

   1.9%
10   

Bolt Technology Corp

  

Oil & Gas Services

   1.9%
                
 Total          27.0%

 

www.bridgeway.com   29


LOGO

Ultra-Small Company Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Fortunately, we were underweighted in financial stocks and avoided some of the hardships faced by companies engaged in subprime lending, mortgage-related securities investing, and other ramifications of the ongoing credit crisis. Likewise, our models’ direction to overweight industrials proved beneficial during the quarter.

 

      % of Portfolio    % of CRSP 10 Index    Difference

Basic Materials

   2.8%    2.7%    0.1%

Communications

   5.0%    8.2%    -3.2%

Consumer, Cyclical

   11.0%    10.8%    0.2%

Consumer, Non-cyclical

   19.9%    24.9%    -5%

Energy

   11.9%    8.8%    3.1%

Financial

   9.1%    21.1%    -12%

Industrial

   27.2%    11.2%    16%

Technology

   5.6%    8.7%    -3.1%

Utilities

   0.0%    1.5%    -1.5%

Diversified

   0.0%    2.1%    -2.1%

Cash

   7.5%    0.0%    7.5%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

The Fund is subject to very high, above market risk (volatility) and is not an appropriate investment for short-term investors. Investments in ultra-small companies generally carry greater risk than is customarily associated with larger companies and even “small companies” for various reasons such as narrower markets (fewer investors), limited financial resources and greater trading difficulty.

Conclusion

 

Ultra-Small Company Fund remains closed to investors. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

30   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

www.bridgeway.com   31


LOGO

Bridgeway Ultra-Small Company Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 92.53%

Aerospace/Defense - 0.92%

 

LMI Aerospace, Inc.*

  50,000    $ 878,500

Airlines - 0.78%

 

Hawaiian Holdings, Inc.*

  106,000      736,700

Apparel - 0.82%

 

G-III Apparel Group, Ltd.*

  63,200      779,888

Auto Parts & Equipment - 0.63%

 

China Automotive Systems, Inc.*+

  101,570      594,185

Banks - 0.68%

 

Centrue Financial Corp.

  10,000      109,000
 

Farmers Capital Bank Corp.+

  4,500      79,290
 

Pennsylvania Commerce Bancorp, Inc.*

  11,900      286,195
 

Southcoast Financial Corp.*

  12,500      170,750
          
         645,235

Biotechnology - 0.31%

 

CombiMatrix Corp.*+

  29,400      293,706

Chemicals - 2.83%

 

Landec Corp.*

  107,800      697,466
 

Penford Corp.

  133,400      1,984,992
          
         2,682,458

Commercial Services - 6.07%

 

Carriage Services, Inc.*

  62,500      412,500
 

Dollar Financial Corp.*+

  107,200      1,619,792
 

ICF International, Inc.*

  88,250      1,466,715
 

Princeton Review, Inc.*

  47,800      323,128
 

QC Holdings, Inc.

  35,434      276,031
 

The Hackett Group, Inc.*

  168,900      969,486
 

Transcend Services, Inc.*

  77,600      692,192
          
         5,759,844

Computers - 2.62%

 

Adept Technology, Inc.*+

  25,000      244,250
 

Computer Task Group, Inc.*

  33,000      168,960
 

Integral Systems, Inc.

  47,700      1,845,990
 

TechTeam Global, Inc.*

  21,600      230,904
          
         2,490,104

Distribution/Wholesale - 0.24%

 

Chindex International, Inc.*

  15,600      228,852
Industry   Company   Shares    Value

Diversified Financial Services - 0.67%

 

Westwood Holdings Group, Inc.

  15,900    $ 632,820

Electrical Components & Equipment - 3.70%

 

Advanced Battery Technologies, Inc.*+

  229,200      1,322,484
 

Espey Manufacturing & Electronics Corp.

  6,000      113,940
 

Graham Corp.

  28,000      2,075,080
          
         3,511,504

Electronics - 6.71%

 

Aehr Test Systems*

  50,000      386,500
 

Chyron International Corp.*

  24,000      141,120
 

Digital Ally, Inc.*+

  115,500      984,060
 

Eagle Test Systems, Inc.*

  77,000      862,400
 

IntriCon Corp.*

  30,500      256,200
 

Iteris, Inc.*

  62,600      158,378
 

Jinpan International, Ltd.+

  36,400      1,346,800
 

LaBarge, Inc.*

  35,000      455,000
 

NVE Corp.*+

  56,100      1,776,126
          
         6,366,584

Engineering & Construction - 1.56%

 

Argan, Inc.*

  14,000      193,760
 

VSE Corp.

  46,700      1,284,250
          
         1,478,010

Environmental Control - 0.40%

 

Industrial Services of America, Inc.+

  24,123      384,279

Food - 6.35%

 

Cal-Maine Foods, Inc.+

  182,000      6,004,180
 

Overhill Farms, Inc.*

  2,900      20,155
          
         6,024,335

Hand/Machine Tools - 1.18%

 

K-Tron International, Inc.*

  4,300      557,280
 

WSI Industries, Inc.

  82,800      568,008
          
         1,125,288

Healthcare - Products - 3.68%

 

Cynosure, Inc., Class A*

  39,600      784,872
 

Exactech, Inc.*

  13,200      339,372
 

Northstar Neuroscience, Inc.*+

  400,000      636,000
 

Vnus Medical Technologies, Inc.*

  86,800      1,736,868
          
         3,497,112

 

32   Annual Report  |  June 30, 2008


LOGO

Bridgeway Ultra-Small Company Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Healthcare - Services - 2.31%

 

Advocat, Inc.*

  30,000    $ 323,400
 

Almost Family, Inc.*

  47,400      1,260,840
 

Dynacq Healthcare, Inc.*+

  27,100      173,440
 

Life Sciences Research, Inc.*

  15,500      437,720
          
         2,195,400

Household Products/Wares - 0.19%

 

A.T. Cross Co., Class A*

  21,800      181,594

Insurance - 6.08%

 

21st Century Holding Co.

  55,300      451,801
 

American Physicians Capital, Inc.

  59,550      2,884,602
 

American Physicians Service Group, Inc.

  31,000      683,240
 

Crawford & Co., Class B*

  31,200      249,288
 

Hallmark Financial Services*

  55,000      531,850
 

Navigators Group, Inc.*

  18,000      972,900
          
         5,773,681

Internet - 2.94%

 

A.D.A.M., Inc.*

  37,200      276,954
 

Bidz.com, Inc.*+

  100,600      876,226
 

InsWeb Corp.*

  10,800      101,088
 

TeleCommunication Systems, Inc., Class A*

  203,800      943,594
 

Zix Corp.*+

  213,200      592,696
          
         2,790,558

Investment Companies - 0.35%

 

Medallion Financial Corp.

  35,000      329,700

Machinery - Diversified - 2.62%

 

Alamo Group, Inc.

  45,100      928,609
 

Art’s-Way Manufacturing Co., Inc.

  8,000      158,000
 

Key Technology, Inc.*

  43,900      1,396,459
          
         2,483,068

Metal Fabrication - Hardware - 1.51%

 

Hawk Corp., Class A*

  35,700      664,020
 

NN, Inc.

  54,950      766,003
          
         1,430,023

Miscellaneous Manufacturing - 7.16%

 

AZZ, Inc.*

  71,300      2,844,870
 

Chase Corp.

  57,000      1,068,180
 

LSB Industries, Inc.*+

  53,000      1,049,400
 

Lydall, Inc.*

  146,200      1,834,810
          
         6,797,260
Industry   Company   Shares    Value

Oil & Gas - 3.20%

 

Adams Resources & Energy, Inc.

  12,583    $ 426,564
 

BMB Munai, Inc.*+

  219,900      1,306,206
 

Crimson Exploration, Inc.*

  20,000      324,000
 

Double Eagle Petroleum Co.*+

  54,000      984,420
          
         3,041,190

Oil & Gas Services - 8.69%

 

Bolt Technology Corp.*+

  80,025      1,806,164
 

Boots & Coots International Well Control, Inc.*

  586,810      1,396,608
 

Dawson Geophysical Co.*

  26,400      1,569,744
 

Mitcham Industries, Inc.*

  52,300      893,284
 

Natural Gas Services Group, Inc.*

  84,800      2,584,704
          
         8,250,504

Packaging & Containers - 1.11%

 

UFP Technologies, Inc.*

  105,100      1,052,051

Pharmaceuticals - 1.03%

 

Omega Protein Corp.*

  65,500      979,225

Retail - 8.55%

 

Allion Healthcare, Inc.*

  66,000      376,200
 

America’s Car-Mart, Inc.*

  39,700      711,424
 

Einstein Noah Restaurant Group, Inc.*

  96,800      1,071,576
 

EZCORP, Inc., Class A*

  151,418      1,930,579
 

Hastings Entertainment, Inc.*

  29,300      234,693
 

PC Connection, Inc.*

  136,527      1,271,066
 

PC Mall, Inc.*

  73,800      1,000,728
 

PetMed Express, Inc.*

  34,538      423,091
 

Sport Supply Group, Inc.

  95,800      983,866
 

Winmark Corp.*

  6,608      114,054
          
         8,117,277

Savings & Loans - 1.32%

 

OceanFirst Financial Corp.

  63,500      1,146,175
 

Rainier Pacific Financial Group, Inc.

  11,100      106,005
          
         1,252,180

Semiconductors - 0.89%

 

CEVA, Inc.*

  58,400      465,448
 

Ramtron International Corp.*

  91,300      384,373
          
         849,821

Shipbuilding - 0.17%

 

Todd Shipyards Corp.

  11,600      164,836

 

www.bridgeway.com   33


LOGO

Bridgeway Ultra-Small Company Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Software - 1.97%

 

BSQUARE Corp.*

  135,000    $ 652,050
 

CAM Commerce Solutions, Inc.

  11,500      456,665
 

Ebix, Inc.*+

  9,800      761,656
          
         1,870,371

Telecommunications - 2.09%

 

Communications Systems, Inc.

  8,900      95,675
 

Fibernet Telecom Group, Inc.*+

  55,211      466,533
 

Globecomm Systems, Inc.*

  172,100      1,421,546
          
         1,983,754

Trucking & Leasing - 0.20%

 

Willis Lease Finance Corp.*

  17,900      191,172
          

TOTAL COMMON STOCKS - 92.53%

     87,843,069
          

(Cost $83,056,717)

  

 

MONEY MARKET FUNDS - 4.66%

    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    4,424,623      4,424,623
           

TOTAL MONEY MARKET FUNDS - 4.66%

     4,424,623
           

(Cost $4,424,623)

       

TOTAL INVESTMENTS - 97.19%

   $ 92,267,692

(Cost $87,481,340)

  

Other Assets in Excess of Liabilities - 2.81%

     2,664,902
           

NET ASSETS - 100.00%

   $ 94,932,594
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $18,095,257 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.

See Notes to Financial Statements.

 

34   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

www.bridgeway.com   35


LOGO

Ultra-Small Company Market Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Ultra-Small Company Market Fund Shareholder,

In the environment of the ongoing credit crisis and market downturn, our passively-managed Ultra-Small Company Market Fund declined 1.67% for the quarter ended June 30, 2008, providing a “cushion” of 3.86% against the decline of our primary market benchmark, the CRSP Cap Based Portfolio 10 Index, which declined 5.53%. The smallest companies were the hardest hit during this period, and this fact is reflected in our unfavorable performance versus our other benchmarks that invest in “larger” small companies. The Russell 2000 Index of small companies increased 0.58%, and the Lipper Small-Cap Stock Funds Index increased 1.78%. Given our primary investment strategy seeking to approximate the return of the CRSP 10 Index of ultra-small companies, it was a good quarter. Of course, on an absolute return basis, it was not.

For the same reasons above and due partly to strong CRSP 10 Index exposure to financial companies (there are a large number of very small banks), our Fund’s fiscal year performance was in “bear market” territory. The Fund declined a significant 21.72%; however, it provided a cushion of 5.59% relative to the CRSP 10 Index of ultra-small companies. Nevertheless, we underperformed our peer and small cap market indexes. The Lipper Small-Cap Stock Funds dropped 12.67%, and the Russell 2000 Index declined 16.19% over the same one-year period ending June 30, 2008. On a more positive note, and in line with the strategy of our Fund, Ultra-Small-Company Market Fund has rewarded our shareholders with double-digit returns and outperformed our primary benchmark (CRSP Cap-Based Portfolio 10 Index) over the past ten years as well as since inception in July 1997. Such long-term results always will remain the key objective of our firm. The shorter time frames have been—and we expect will continue to be—very bumpy along the way. This is the nature of ultra-small stocks: strong appreciation potential over the long term, strong diversification for larger-company dominated portfolios, and frequently bigger (and unpredictable) market moves both up and down.

Ultra-Small Company Market Fund is (generally) passively managed to track the CRSP 10 Index, though it holds many fewer stocks and considers turnover, costs, and tax efficiency in trade decisions. Therefore, the Fund may lag or exceed the return of its benchmark over any given period. The table below presents our June quarter, one-year, five-year, ten-year and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance from inception.

 

     

June Qtr.

4/1/08
to 6/30/08

  

1 Year

7/1/07
to 6/30/08

  

5 Year

7/1/03
to 6/30/08

  

10 Year

7/1/98
to 6/30/08

  

Life-to-Date

7/31/97

to 6/30/08

Ultra-Small Company Market Fund

   -1.67%    -21.72%    9.18%    11.68%    11.97%

CRSP Cap-Based Port. 10 Index

   -5.53%    -27.31%    10.04%    10.35%    10.60%

Lipper Small-Cap Stock Funds Index

   1.78%    -12.67%    11.22%    5.59%    6.51%

Russell 2000 Index (small companies)

   0.58%    -16.19%    10.29%    5.53%    6.09%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Lipper Small-Cap Stock Funds Index is an index of small-company funds compiled by Lipper, Inc. The Russell 2000 Index is an unmanaged, market value weighted index, which measures performance of the 2,000 companies that are between the 1,000th and 3,000th largest in the market with dividends reinvested. The CRSP Cap-Based Portfolio 10 Index is an unmanaged index of 1,780 of the smallest publicly traded U.S. stocks (with dividends reinvested), as reported by the Center for Research on Security Prices. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Ultra-Small Company Market Fund ranked 44th of 97 micro-cap funds for the twelve months ended June 30, 2008, 31st of 66 over the last five years, 11th of 38 over the last ten years, and 7th of 30 since inception in July 1997. These long-term numbers and the graph below give two snapshots of our long-term success. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

36   Annual Report  |  June 30, 2008


LOGO

Ultra-Small Company Market Fund

MANAGER’S COMMENTARY (continued)

 

 

Ultra-Small Company Market Fund vs. CRSP 10 Index & Lipper Small Company Funds Index & Russell 2000 Index Inception (7/31/97) to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  As commodity prices continued to increase, six of the Fund’s top ten holdings came from the energy sector and combined to contribute over two percent to the overall return during the quarter. Five of our holdings, four of which were energy-related, actually doubled in value (and in some cases, much better), and a total of fifteen stocks increased by over 50% over the prior three months.

These are the ten best performers for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Royale Energy Inc

  

Oil & Gas

   332.1%
2   

James River Coal Co

  

Coal

   235.7%
3   

Fuel Systems Solutions Inc

  

Auto Parts & Equipment

   188.8%
4   

Brigham Exploration Co

  

Oil & Gas

   160.8%
5   

Clayton Williams Energy Inc

  

Oil & Gas

   109.5%
6   

Finish Line

  

Retail

   82.8%
7   

IXYS Corp

  

Semiconductors

   74.8%
8   

Cano Petroleum Inc

  

Oil & Gas

   71.7%
9   

Vaalco Energy Inc

  

Oil & Gas

   70.4%
10   

American Superconductor Corp

  

Electrical Components & Equipment

   67.4%
                

These days, a lump of coal in the old holiday stocking actually would be a pretty good thing (ok, its 97 degrees in August in Bridgeway’s hometown of Houston). James River Coal Co. was the Fund’s second top performer, as its stock price soared over 200% during the quarter. With demand for coal increasing across the globe (particularly in developing nations), producers have benefited from a commodity shortage that in turn allows them to sell at the rapidly escalating prices. Supply issues have even prompted European utilities to turn to domestic coal producers to keep up with demand. Since James River Coal had very few long-term contracts, management was best able to accommodate some of these growing needs and effectively took advantage of the higher commodity prices. For the quarter, the company contributed just less than one percent to the return of the Fund.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Much of the negative economic news revolved around financial companies, and our Fund was not immune this quarter. Five of the poorest performers came from that sector and cost the Fund about half a percent in return. Consumers felt the strain of the ongoing economic weakness, and three related companies (cyclical and noncyclical) also made the worst performing list. Six of our holdings lost over 50% in value during the three-month period.

 

www.bridgeway.com   37


LOGO

Ultra-Small Company Market Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten stocks that performed the worst in the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Indevus Pharmaceuticals Inc

  

Pharmaceuticals

   -67.1%
2   

First Regional Bancorp/Los Angeles CA

  

Banks

   -59.5%
3   

Superior Bancorp

  

Banks

   -57.3%
4   

Harrington West Financial Group Inc

  

Savings & Loans

   -53.1%
5   

I-many Inc

  

Internet

   -51.9%
6   

Independent Bank Corp/MI

  

Banks

   -51.1%
7   

Aldila Inc

  

Leisure Time

   -49.7%
8   

Consumer Portfolio Services

  

Diversified Financial Services

   -48.2%
9   

Introgen Therapeutics Inc

  

Pharmaceuticals

   -47.7%
10   

Soapstone Networks Inc

  

Telecommunications

   -46.5%
                

Two pharmaceutical companies were among the Fund’s worst performers, including Indevus, which topped the list. The company is engaged in developing products that treat urology and endocrinology issues. In June, the FDA failed to approve a widely anticipated testosterone drug due to safety concerns and instead requested additional data that is expected to take the company another eighteen months to complete. The stock price plunged to a 52-week low on the disappointing news and cost the Fund just under a quarter of a percent in return.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Five energy-related companies highlighted the list of top performers and contributed almost two percent to the return of the Fund during the past 12-months. Such news was not surprising considering the rapid increase in commodities prices. However, what was most surprising was that three consumer-related companies also made the list including one each from the struggling retail and auto parts industries. Sometimes you can have a great company in a downtrodden industry.

Altogether, our top ten companies added about two and a half percentage points to our annual return. These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

James River Coal Co

  

Coal

   464.0%
2   

Clayton Williams Energy Inc

  

Oil & Gas

   315.4%
3   

Finish Line

  

Retail

   234.9%
4   

Royale Energy Inc

  

Oil & Gas

   226.3%
5   

Brigham Exploration Co

  

Oil & Gas

   169.7%
6   

Contango Oil & Gas Co

  

Oil & Gas

   155.9%
7   

Rigel Pharmaceuticals Inc

  

Pharmaceuticals

   154.3%
8   

Axsys Technologies Inc

  

Electronics

   143.3%
9   

Fuel Systems Solutions Inc

  

Auto Parts & Equipment

   132.2%
10   

Document Sciences Corp

  

Software

   131.9%
                

Finish Line, the country’s second largest athletic footwear retailer, operates about 700 stores in malls across the country. The company’s stock price had been on a steady decline after it announced its intent to acquire retailer Genesco in a joint deal with UBS last summer 2007. Soon after, management decided that such a transaction was not in the best interest of Finish Line, especially during the current sluggish retail environment. After some legal challenges, the company finally was able to abandon the deal in March, much to the delight of analysts and shareholders. The stock began rising immediately after news that the acquisition could be halted. In May, the company entered into an agreement with athletic attire giant Nike and opened a co-branded store. A month later, Finish Line announced earnings that beat analysts’ expectations. Finish Line rose over 200% during the fiscal year.

 

38   Annual Report  |  June 30, 2008


LOGO

Ultra-Small Company Market Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  Financial services companies and bio-techs highlighted the list of poor performers for the fiscal year, and the results were definitely not very pretty. In fact, a couple of our ultra small-cap holdings were virtually worthless once the period came to a close. All ten of these poor performers plummeted by over 80% and, combined; they cost the Fund about one-and-a-half percent over the prior twelve months.

In spite of how negative the list of stocks below looks, it is noteworthy among the dynamics of ultra-small companies that the maximum theoretical decline is 100%, but the maximum increase is much higher. In fact, all ten of our top performing companies increased more than 100%, more than offsetting the carnage below. Or from another perspective, even as bad as they were, our worst ten stocks cost the Fund a percent and a half, but our best stocks (above) more than offset these (with more than a two and half percent return contribution).

These are the ten stocks that performed the worst for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Delta Financial Corp

  

Diversified Financial Services

   -99.7%
2   

Keryx Biopharmaceuticals Inc

  

Biotechnology

   -94.0%
3   

Federal Trust Corp

  

Savings & Loans

   -89.2%
4   

Sonus Pharmaceuticals Inc

  

Biotechnology

   -89.0%
5   

Neose Technologies Inc

  

Biotechnology

   -84.7%
6   

LodgeNet Interactive Corp

  

Media

   -82.2%
7   

Tarragon Corp

  

Real Estate

   -80.8%
8   

Fremont General Corp

  

Banks

   -80.8%
9   

Jupitermedia Corp

  

Internet

   -80.8%
10   

Spectrum Pharmaceuticals Inc

  

Pharmaceuticals

   -80.6%
                

Even the most optimistic of investors and financial professionals will rarely make the claim that a 99.7% decline in value creates a “buying opportunity.” Delta Financial was a subprime mortgage lender (say no more) that filed for Chapter 11 bankruptcy protection in December 2007, suspended all new mortgage originations, and let go its 1,300 employees (some of whom followed up with lawsuits). Of note, the company had originated about $7 billion in mortgage loans between January 2006 and September 2007, but severely suffered when the subprime debacle surfaced and its entire business operations all but evaporated (along with its capital). Nevertheless, since we take many small positions, Delta Financial cost the Fund less than a quarter-of-a-percent in return for the full fiscal year.

Top Ten Holdings as of June 30, 2008

 

Two of the Fund’s top holdings at the end of the fiscal year were also among the best performers over the past quarter: Clayton Williams Energy and Brigham Exploration Co. Predictably, both companies operate within the energy sector. Because this passively managed fund is designed to model the ultra-small-cap index (CRSP 10), no one company comprises too great a percentage of its assets. In fact, the top ten holdings represent a meager ten and a half percent of Fund net assets. Since the maximum we typically invest in a new company is 0.2% of net assets, all of these companies made the list due to appreciation, not because we like them any better than another among our Fund’s holdings.

 

Rank    Description    Industry    Percent of
Net Assets
1   

Cal-Maine Foods Inc

  

Food

   1.4%
2   

Clayton Williams Energy Inc

  

Oil & Gas

   1.3%
3   

HUB Group Inc

  

Transportation

   1.2%
4   

Lufkin Industries Inc

  

Oil & Gas Services

   1.1%
5   

Spartan Stores Inc

  

Food

   1.1%
6   

Layne Christensen Co

  

Engineering & Construction

   1.0%
7   

Bolt Technology Corp

  

Oil & Gas Services

   1.0%
8   

Darling International Inc

  

Environmental Control

   1.0%
9   

Amedisys Inc

  

Healthcare-Services

   0.9%
10   

Brigham Exploration Co

  

Oil & Gas

   0.9%
                
         10.9%

 

www.bridgeway.com   39


LOGO

Ultra-Small Company Market Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Typically, any differences in the sector weightings between the Fund and the Index will be slight, as we are always trying to bring the Fund weightings back in line with the CRSP 10 Index. Occasional variances occur due to decisions that take into account the timing of cash flows, upcoming or recent Index quarterly rebalancing, Fund turnover, costs, and tax efficiency in this (generally) passively managed fund.

 

      % of Portfolio    % CRSP 10 Index    Difference

Basic Materials

   2.6%    2.7%    -0.1%

Communications

   8.6%    8.2%    0.4%

Consumer, Cyclical

   11.9%    10.8%    1.1%

Consumer, Non-cyclical

   23.7%    24.9%    -1.2%

Energy

   7.9%    8.8%    -0.9%

Financial

   16.8%    21.1%    -4.3%

Industrial

   11.6%    11.2%    0.4%

Technology

   8.6%    8.7%    -0.1%

Utilities

   1.4%    1.5%    -0.1%

Diversified

   0.4%    2.1%    -1.7%

Cash

   6.5%    0.0%    6.5%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

The Fund is subject to very high, above market risk (volatility) and is not an appropriate investment for short-term investors. Investments in ultra-small companies generally carry greater risk than is customarily associated with larger companies and even “small companies” for various reasons such as narrower markets (fewer investors), limited financial resources and greater trading difficulty.

Conclusion

 

Thank you for your continued investment in Ultra-Small Company Market Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

40   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

www.bridgeway.com   41


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 93.53%

Advertising - 0.43%

 

inVentiv Health, Inc.*

  110,400    $ 3,068,016

Aerospace/Defense - 0.40%

 

CPI Aerostructures, Inc.*

  31,400      243,978
 

Ducommun, Inc.*

  94,700      2,174,312
 

LMI Aerospace, Inc.*

  27,626      485,389
          
         2,903,679

Agriculture - 0.80%

 

Andersons, Inc.+

  129,002      5,251,671
 

Maui Land & Pineapple Co., Inc.*+

  17,155      505,215
          
         5,756,886

Airlines - 0.34%

 

Hawaiian Holdings, Inc.*+

  348,000      2,418,600

Apparel - 1.16%

 

Cherokee, Inc.+

  52,400      1,055,860
 

G-III Apparel Group, Ltd.*

  143,400      1,769,556
 

Perry Ellis International, Inc.*

  121,600      2,580,352
 

Sport-Haley, Inc.*

  104,900      208,751
 

Tandy Brands Accessories, Inc.

  65,009      358,199
 

Unifi, Inc.*

  441,900      1,113,588
 

Weyco Group, Inc.+

  46,875      1,243,594
          
         8,329,900

Auto Parts & Equipment - 1.40%

 

Fuel Systems Solutions, Inc.*+

  81,750      3,147,375
 

Spartan Motors, Inc.+

  242,470      1,811,251
 

Titan International, Inc.

  144,000      5,129,280
          
         10,087,906

Banks - 8.85%

 

Abigail Adams National Bancorp

  22,220      207,757
 

American River Bankshares

  42,000      414,120
 

Arrow Financial Corp.

  109,545      1,986,051
 

Bancorp Rhode Island, Inc.

  70,800      2,022,756
 

Beach First National Bancshares, Inc.*

  28,900      225,998
 

Beverly Hills Bancorp, Inc.

  147,900      248,472
 

Cadence Financial Corp.+

  7,830      84,799
 

Camden National Corp.

  52,400      1,219,872
 

Capitol Bancorp, Ltd.+

  53,392      478,926
 

Cardinal Financial Corp.

  287,700      1,801,002
 

Cass Information Systems, Inc.+

  101,070      3,237,272
 

Center Bancorp, Inc.

  68,342      597,993
Industry   Company   Shares    Value

Banks (continued)

 

Central Bancorp, Inc.

  12,300    $ 135,300
 

Centrue Financial Corp.

  31,200      340,080
 

Community Bancorp*

  61,944      310,339
 

Enterprise Financial Services Corp.+

  83,600      1,575,860
 

Financial Institutions, Inc.

  78,000      1,252,680
 

First Bancorp

  109,500      1,384,080
 

First Community Bancshares, Inc.

  35,796      1,009,447
 

First Regional Bancorp*

  60,400      338,844
 

First Security Group, Inc.

  106,900      596,502
 

First South Bancorp, Inc.+

  43,306      557,781
 

Gateway Financial Holdings, Inc.+

  87,654      672,306
 

Green Bankshares, Inc.+

  119,919      1,681,264
 

Guaranty Federal Bancshares, Inc.

  62,556      1,266,759
 

Integra Bank Corp.

  78,402      613,888
 

Intervest Bancshares Corp., Class A

  62,565      320,333
 

Irwin Financial Corp.

  99,359      267,276
 

Lakeland BanCorp, Inc.

  200,304      2,439,703
 

Lakeland Financial Corp.

  77,388      1,476,563
 

MainSource Financial Group, Inc.

  143,600      2,225,800
 

Mercantile Bank Corp.

  89,372      641,691
 

Merchants Bancshares, Inc.

  933      20,946
 

MidWestOne Financial Group, Inc.

  36,681      474,652
 

NewBridge Bancorp

  47,313      326,460
 

Nexity Financial Corp.*

  225,600      1,049,040
 

Northeast Bancorp

  4,700      52,170
 

Oriental Financial Group+

  239,900      3,420,974
 

PAB Bankshares, Inc.+

  71,400      586,194
 

Pacific Mercantile Bancorp

  71,000      543,150
 

Pacific State Bancorp*+

  26,386      214,518
 

Pennsylvania Commerce Bancorp, Inc.*

  27,751      667,412
 

Peoples Bancorp, Inc.

  75,600      1,434,888
 

Pinnacle Financial Partners, Inc.*+

  127,700      2,565,493
 

Republic First Bancorp, Inc.*

  75,971      551,549
 

SCBT Financial Corp.

  33,883      967,698
 

Seacoast Banking Corp.+

  195,369      1,516,063
 

Shore Bancshares, Inc.+

  95,455      1,786,918
 

Sierra Bancorp+

  75,000      1,237,500
 

Smithtown Bancorp, Inc.+

  70,730      1,149,362
 

Southcoast Financial Corp.*

  5,059      69,106
 

Southern Community Financial Corp.

  66,700      410,205
 

Southside Bancshares, Inc.+

  107,670      1,985,435
 

State Bancorp, Inc.

  34,500      431,250
 

Sterling Bancorp

  183,400      2,191,630

 

42   Annual Report  |  June 30, 2008


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Banks (continued)

 

Suffolk Bancorp

  42,800    $ 1,257,464
 

Sun Bancorp, Inc.*

  62,967      639,115
 

Superior Bancorp*+

  109,025      925,622
 

Tennessee Commerce Bancorp, Inc.*+

  46,300      766,265
 

Union Bankshares Corp.

  8,099      120,594
 

United Security Bancshares+

  100,700      1,464,178
 

Univest Corp. of Pennsylvania+

  57,865      1,149,199
 

Washington Trust Bancorp, Inc.

  54,577      1,075,167
 

West Bancorporation, Inc.+

  131,378      1,142,989
          
         63,824,720

Beverages - 0.45%

 

Central European Distribution Corp.*+

  9,900      734,085
 

Green Mountain Coffee Roasters, Inc.*+

  55,400      2,081,378
 

Peet’s Coffee & Tea, Inc.*+

  17,400      344,868
 

Craft Brewers Alliance, Inc.

  23,000      106,030
          
         3,266,361

Biotechnology - 3.13%

 

Affymax, Inc.*+

  29,303      466,211
 

Anesiva, Inc.*+

  150,464      443,869
 

Avigen, Inc.*

  298,900      863,821
 

Dendreon Corp.*+

  185,100      823,695
 

Discovery Laboratories, Inc.*+

  1,083,000      1,786,950
 

Dynavax Technologies Corp.*

  115,719      168,950
 

Entremed, Inc.*

  207,612      114,187
 

Exact Sciences Corp.*

  595,200      1,071,360
 

Immunogen, Inc.*+

  423,217      1,295,044
 

Immunomedics, Inc.*+

  416,148      886,395
 

Maxygen, Inc.*

  214,876      728,430
 

Repligen Corp.*

  41,134      194,152
 

Sangamo Biosciences, Inc.*+

  370,100      3,682,495
 

Seattle Genetics, Inc.*+

  373,255      3,157,737
 

StemCells, Inc.*+

  602,800      735,416
 

Third Wave Technologies, Inc.*

  449,000      5,010,840
 

Vical, Inc.*+

  337,600      1,137,712
          
         22,567,264
Industry   Company   Shares    Value

Building Materials - 0.24%

 

AAON, Inc.

  28,100    $ 541,206
 

Comfort Systems USA, Inc.

  43,900      590,016
 

US Home Systems, Inc.*

  145,600      572,208
          
         1,703,430

Chemicals - 1.71%

 

Aceto Corp.

  128,044      978,256
 

American Pacific Corp.*

  35,524      612,434
 

American Vanguard Corp.+

  152,000      1,869,600
 

Balchem Corp.

  89,975      2,081,122
 

Landec Corp.*

  205,000      1,326,350
 

NewMarket Corp.

  29,200      1,933,916
 

Penford Corp.

  11,592      172,489
 

Quaker Chemical Corp.

  99,700      2,658,002
 

Symyx Technologies, Inc.*

  96,894      676,320
 

Tronox, Inc., Class A

  16,600      52,456
          
         12,360,945

Coal - 0.43%

 

James River Coal Co.*+

  52,374      3,073,830

Commercial Services - 4.52%

 

Bankrate, Inc.*+

  83,885      3,277,387
 

Carriage Services, Inc.*

  134,500      887,700
 

Corvel Corp.*

  75,433      2,554,916
 

Edgewater Technology, Inc.*

  100,000      481,000
 

Franklin Covey Co.*

  192,400      1,670,032
 

Geo Group, Inc.*

  48,863      1,099,417
 

Healthcare Services Group+

  53,325      811,073
 

Hill International, Inc.*

  75,000      1,233,000
 

HMS Holdings Corp.*

  218,000      4,680,460
 

Intersections, Inc.*

  178,900      1,955,377
 

Kendle International, Inc.*

  22,390      813,429
 

Learning Tree International, Inc.*

  10,737      183,603
 

Multi-Color Corp.

  88,704      1,861,897
 

National Research Corp.+

  40,300      1,066,741
 

On Assignment, Inc.*

  173,500      1,391,470
 

PRG-Schultz International, Inc.*

  6,770      63,706
 

RCM Technologies, Inc.*

  170,459      734,678
 

Standard Parking Corp.*

  162,200      2,952,040
 

Team, Inc.*

  131,200      4,502,784
 

The Hackett Group, Inc.*

  65,614      376,624
          
         32,597,334

Computers - 2.68%

 

Cogo Group, Inc.*

  36,492      332,442
 

Dot Hill Systems Corp.*

  516,068      1,305,652
 

Immersion Corp.*+

  273,226      1,860,669
 

Integral Systems, Inc.+

  62,056      2,401,567

 

www.bridgeway.com   43


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Computers (continued)

 

InterVoice, Inc.*

  268,300    $ 1,529,310
 

LaserCard Corp.*+

  146,775      700,117
 

Magma Design Automation, Inc.*

  220,300      1,337,221
 

Netscout Systems, Inc.*

  236,500      2,525,820
 

Radiant Systems, Inc.*

  141,800      1,521,514
 

RadiSys Corp.*

  187,900      1,702,374
 

SI International, Inc.*

  76,700      1,606,098
 

TechTeam Global, Inc.*

  190,370      2,035,055
 

Tier Technologies, Inc., Class B*

  54,700      438,147
          
         19,295,986

Distribution/Wholesale - 0.52%

 

Building Material Holding Corp.

  67,150      118,856
 

Chindex International, Inc.*+

  80,550      1,181,668
 

DEI Holdings, Inc.*+

  336,700      572,390
 

Infosonics Corp.*

  430,900      323,175
 

Navarre Corp.*

  223,644      366,776
 

Rentrak Corp.*

  83,800      1,179,904
          
         3,742,769

Diversified Financial Services - 1.30%

 

AeroCentury Corp.*+(a)

  85,700      934,987
 

Consumer Portfolio Services*+

  332,800      489,216
 

Cowen Group, Inc.*

  32,158      248,260
 

Encore Capital Group, Inc.*

  85,986      759,256
 

Federal Agricultural Mortgage Corp., Class C+

  83,900      2,079,042
 

International Assets Holding Corp.*

  11,886      357,293
 

TradeStation Group, Inc.*

  245,974      2,496,636
 

Westwood Holdings Group, Inc.

  51,200      2,037,760
          
         9,402,450

Electric Utilities - 0.25%

 

Central Vermont Public Service Corp.

  81,600      1,580,592
 

Unitil Corp.

  9,400      254,834
          
         1,835,426

Electrical Components & Equipment - 0.32%

 

American Superconductor Corp.*+

  62,300      2,233,455
 

TII Network Technologies, Inc.*

  59,599      95,358
          
         2,328,813
Industry   Company   Shares    Value

Electronics - 1.93%

 

Advanced Photonix, Inc., Class A*+

  156,350    $ 267,359
 

Axsys Technologies, Inc.*

  86,887      4,521,599
 

Frequency Electronics, Inc.

  14,600      96,214
 

Measurement Specialties, Inc.*

  104,500      1,838,155
 

Napco Security Systems, Inc.*

  113,934      516,121
 

OYO Geospace Corp.*

  13,700      807,478
 

Stoneridge, Inc.*

  199,200      3,398,352
 

UQM Technologies, Inc.*+

  191,100      420,420
 

Vicon Industries, Inc.*

  132,800      694,544
 

Zygo Corp.*

  135,646      1,333,400
          
         13,893,642

Energy-Alternative Sources - 0.32%

 

Evergreen Solar, Inc.*+

  56,090      543,512
 

Plug Power, Inc.*+

  736,900      1,731,715
          
         2,275,227

Engineering & Construction - 1.14%

 

Layne Christensen Co.*

  161,900      7,089,601
 

Michael Baker Corp.*

  51,700      1,131,196
          
         8,220,797

Entertainment - 0.73%

 

Canterbury Park Holding Corp.

  59,400      540,540
 

Dover Motorsports, Inc.

  159,500      811,855
 

Elixir Gaming Technologies, Inc.*+

  375,500      450,600
 

Great Wolf Resorts, Inc.*

  337,900      1,476,623
 

Progressive Gaming International Corp.*

  498,500      623,125
 

Silverleaf Resorts, Inc.*

  388,800      874,800
 

Steinway Musical Instruments*

  18,314      483,490
          
         5,261,033

Environmental Control - 1.02%

 

CECO Environmental Corp.*

  60,575      356,787
 

Darling International, Inc.*

  424,600      7,014,392
          
         7,371,179

Food - 3.96%

 

Cal-Maine Foods, Inc.+

  312,700      10,315,973
 

Imperial Sugar Co.+

  121,316      1,884,038
 

Lifeway Foods, Inc.*+

  156,302      1,858,431
 

M&F Worldwide Corp.*+

  106,598      4,190,367
 

Rocky Mountain Chocolate Factory, Inc.

  113,543      1,093,419

 

44   Annual Report  |  June 30, 2008


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Food (continued)

 

Spartan Stores, Inc.

  343,650    $ 7,903,950
 

Village Super Market, Class A

  24,600      949,068
 

Zapata Corp.*

  57,600      402,624
          
         28,597,870

Forest Products & Paper - 0.03%

 

Xerium Technologies, Inc.

  62,373      246,997

Gas - 0.42%

 

Chesapeake Utilities Corp.

  33,988      874,171
 

EnergySouth, Inc.+

  44,232      2,170,022
          
         3,044,193

Hand/Machine Tools - 0.29%

 

K-Tron International, Inc.*

  10,600      1,373,760
 

LS Starrett Co., Class A

  29,200      690,288
          
         2,064,048

Healthcare - Products - 4.85%

 

Abaxis, Inc.*

  80,400      1,940,052
 

Arrhythmia Research Technology*

  109,100      640,417
 

Atrion Corp.

  39,148      3,751,161
 

BioLase Technology, Inc.*

  89,621      306,504
 

Bovie Medical Corp.*

  286,900      2,051,335
 

Cantel Medical Corp.*

  64,599      653,742
 

Cardiac Science Corp.*

  6,607      54,178
 

Cerus Corp.*

  181,815      743,623
 

CryoLife, Inc.*

  356,000      4,072,640
 

Endologix, Inc.*+

  589,800      1,362,438
 

Hanger Orthopedic Group, Inc.*

  146,317      2,412,767
 

Merit Medical Systems, Inc.*

  17,500      257,250
 

Natus Medical, Inc.*

  138,600      2,902,284
 

NMT Medical, Inc.*

  171,100      799,037
 

NxStage Medical, Inc.*+

  110,591      424,670
 

Orthologic Corp.*

  441,899      441,899
 

Osteotech, Inc.*

  10,215      58,123
 

Palomar Medical Technologies, Inc.*

  74,000      738,520
 

Rochester Medical Corp.*+

  128,000      1,333,760
 

Span-America Medical Systems, Inc.

  96,900      1,085,280
 

Utah Medical Products, Inc.

  49,900      1,426,641
 

Vnus Medical Technologies, Inc.*

  106,000      2,121,060
 

Zoll Medical Corp.*

  160,200      5,393,934
          
         34,971,315

Healthcare - Services - 2.06%

 

Alliance Imaging, Inc.*

  335,992      2,913,051
 

Almost Family, Inc.*

  11,600      308,560
Industry   Company   Shares    Value

Healthcare - Services (continued)

 

Amedisys, Inc.*

  133,460    $ 6,729,053
 

America Service Group, Inc.*

  93,000      850,950
 

Five Star Quality Care, Inc.*

  171,900      813,087
 

NovaMed, Inc.*+

  194,400      732,888
 

Psychiatric Solutions, Inc.*

  67,000      2,535,280
          
         14,882,869

Holding Companies - Diversified - 0.37%

 

GSC Acquisition Co.*

  122,592      1,151,139
 

Resource America, Inc., Class A

  164,800      1,535,936
          
         2,687,075

Home Builders - 0.55%

 

Amrep Corp.+

  17,100      813,789
 

M/I Homes, Inc.

  75,909      1,194,049
 

Nobility Homes, Inc.

  16,300      259,985
 

Skyline Corp.

  72,600      1,706,100
          
         3,973,923

Home Furnishings - 0.70%

 

Audiovox Corp., Class A*

  103,227      1,013,689
 

Cobra Electronics Corp.

  170,300      464,919
 

DTS, Inc.*

  112,000      3,507,840
 

Koss Corp.

  4,138      64,636
          
         5,051,084

Household Products/Wares - 0.15%

 

Nashua Corp.*

  38,600      386,000
 

Russ Berrie & Co., Inc.*

  90,400      720,488
          
         1,106,488

Housewares - 0.35%

 

National Presto Industries, Inc.

  38,804      2,490,441

Insurance - 1.98%

 

21st Century Holding Co.

  150,500      1,229,585
 

American Independence Corp.*

  45,135      288,864
 

Amerisafe, Inc.*

  108,900      1,735,866
 

Donegal Group, Inc., Class A

  53,750      853,013
 

Investors Title Co.

  56,432      2,744,852
 

Meadowbrook Insurance Group, Inc.

  370,400      1,963,120
 

Mercer Insurance Group, Inc.

  144,257      2,510,072
 

Penn Treaty American Corp.*

  162,300      785,532
 

SeaBright Insurance Holdings, Inc.*

  150,350      2,177,068
          
         14,287,972

 

www.bridgeway.com   45


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Internet - 4.04%

 

1-800-FLOWERS.COM, Inc.*

  247,000    $ 1,593,150
 

A.D.A.M., Inc.*

  125,700      935,837
 

ActivIdentity Corp.*

  453,900      1,239,147
 

Aladdin Knowledge Systems, Ltd.*

  51,974      701,649
 

Art Technology Group, Inc.*

  586,137      1,875,638
 

Cybersource Corp.*

  103,452      1,730,752
 

Drugstore.Com*

  819,834      1,557,685
 

I-many, Inc.*

  184,475      184,475
 

Insure.com, Inc.*

  30,400      100,320
 

Jupitermedia Corp.*

  164,000      229,600
 

Keynote Systems, Inc.*

  147,400      1,898,512
 

Knot, Inc.*+

  186,800      1,826,904
 

Lionbridge Technologies, Inc.*

  516,595      1,332,815
 

LookSmart, Ltd.*

  515,000      2,070,300
 

Napster, Inc.*

  1,118,900      1,588,838
 

Network Engines, Inc.*

  850,400      994,968
 

New Motion, Inc.*+

  168,139      699,458
 

Online Resources Corp.*

  165,400      1,381,090
 

Perficient, Inc.*

  186,138      1,798,093
 

SumTotal Systems, Inc.*

  429,730      2,011,136
 

TheStreet.com, Inc.

  335,500      2,184,105
 

Zix Corp.*+

  437,600      1,216,528
          
         29,151,000

Iron/Steel - 0.30%

 

Friedman Industries

  98,300      786,400
 

Great Northern Iron Ore Property+

  12,000      1,349,040
          
         2,135,440

Leisure Time - 0.58%

 

Aldila, Inc.

  97,779      560,274
 

Cybex International, Inc.*+

  162,100      552,761
 

GameTech International, Inc.*

  222,600      1,057,350
 

Town Sports International Holdings, Inc.*+

  216,900      2,025,846
          
         4,196,231

Lodging - 0.32%

 

Interstate Hotels & Resorts, Inc.*

  372,266      964,169
 

Monarch Casino & Resort, Inc.*

  2,185      25,783
 

Red Lion Hotels Corp.*

  166,600      1,327,802
          
         2,317,754
Industry   Company   Shares    Value

Machinery - Diversified - 1.67%

 

Gehl Co.*

  165,150    $ 2,442,569
 

Hurco Cos, Inc.*+

  126,434      3,905,546
 

Twin Disc, Inc.

  272,800      5,709,704
          
         12,057,819

Media - 0.91%

 

Acacia Research Corp.

  9,500      42,560
 

ADDvantage Technologies Group, Inc.*

  194,100      593,946
 

DG FastChannel, Inc.*+

  126,484      2,181,849
 

Global Traffic Network, Inc.*

  65,316      583,925
 

Gray Television, Inc.

  76,066      218,309
 

Martha Stewart Living Omnimedia, Inc., Class A*+

  115,752      856,565
 

Nexstar Broadcasting Group, Inc., Class A*+

  154,307      631,116
 

Outdoor Channel Holdings, Inc.*+

  91,431      638,188
 

PRIMEDIA, Inc.

  179,866      838,176
          
         6,584,634

Metal Fabrication - Hardware - 1.49%

 

Ampco-Pittsburgh Corp.

  89,800      3,994,304
 

Furmanite Corp.*

  151,200      1,206,576
 

Ladish Co., Inc.*

  20,132      414,518
 

LB Foster Co. Class A*

  95,300      3,163,960
 

Northwest Pipe Co.*

  11,347      633,163
 

Sun Hydraulics Corp.

  41,349      1,334,332
          
         10,746,853

Mining - 0.62%

 

United States Lime & Minerals, Inc.*

  53,700      2,124,909
 

Uranerz Energy Corp.*+

  686,100      2,291,574
 

Vista Gold Corp.*+

  11,300      41,245
          
         4,457,728

Miscellaneous Manufacturing - 1.33%

 

AZZ, Inc.*+

  68,000      2,713,200
 

Ceradyne, Inc.*

  54,025      1,853,057
 

EnPro Industries, Inc.*

  13,600      507,824
 

Flanders Corp.*

  85,183      515,357
 

Park-Ohio Holdings Corp.*

  98,597      1,455,292
 

Raven Industries, Inc.

  35,600      1,166,968
 

Spire Corp.*+

  111,400      1,390,272
          
         9,601,970

Oil & Gas - 4.34%

 

American Oil & Gas, Inc.*

  192,550      754,796
 

ATP Oil & Gas Corp.*+

  29,600      1,168,312

 

46   Annual Report  |  June 30, 2008


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Oil & Gas (continued)

 

Brigham Exploration Co.*

  388,500    $ 6,149,955
 

Callon Petroleum Co.*

  156,600      4,284,576
 

Cano Petroleum, Inc.*

  327,800      2,602,732
 

Clayton Williams Energy, Inc.*+

  82,500      9,070,875
 

Contango Oil & Gas Co.*

  10,000      929,200
 

Royale Energy, Inc.*+

  93,856      1,176,016
 

Teton Energy Corp.*+

  234,500      1,170,155
 

Vaalco Energy, Inc.*

  473,100      4,007,157
          
         31,313,774

Oil & Gas Services - 2.77%

 

Bolt Technology Corp.*+

  311,263      7,025,206
 

Dawson Geophysical Co.*

  15,799      939,409
 

Lufkin Industries, Inc.

  95,742      7,973,394
 

Matrix Service Co.*

  65,232      1,504,250
 

Omni Energy Services Corp.*+

  266,105      1,705,733
 

TGC Industries, Inc.*

  96,027      854,640
          
         20,002,632

Packaging & Containers - 0.15%

 

AEP Industries, Inc.*

  63,000      1,094,310

Pharmaceuticals - 3.75%

 

Adolor Corp.*

  157,918      865,391
 

Anika Therapeutics, Inc.*

  197,639      1,697,719
 

Array Biopharma, Inc.*

  83,514      392,516
 

Auxilium Pharmaceuticals, Inc.*+

  98,855      3,323,505
 

Caraco Pharmaceutical Laboratories, Ltd.*

  42,300      558,360
 

EPIX Pharmaceuticals, Inc.*+

  210,060      363,404
 

Indevus Pharmaceuticals, Inc.*+

  480,300      754,071
 

Inspire Pharmaceuticals, Inc.*

  334,070      1,429,820
 

Integrated Biopharma, Inc.*

  54,100      134,709
 

Introgen Therapeutics, Inc.*+

  98,980      153,419
 

Mannatech, Inc.+

  90,680      493,299
 

Matrixx Initiatives, Inc.*

  41,319      688,374
 

MiddleBrook Pharmaceuticals, Inc.*+

  242,982      821,279
 

Omega Protein Corp.*

  14,960      223,652
 

Pain Therapeutics, Inc.*+

  114,000      900,600
 

Quigley Corp.*+

  124,000      638,600
 

Reliv International, Inc.+

  206,200      1,127,914
 

Rigel Pharmaceuticals, Inc.*+

  220,562      4,997,935
 

Sciclone Pharmaceuticals, Inc.*+

  677,800      1,037,034
 

Sciele Pharma, Inc.+

  212,800      4,117,680
 

Spectrum Pharmaceuticals, Inc.*+

  463,400      644,126
 

Theragenics Corp.*

  459,131      1,666,645
          
         27,030,052
Industry   Company   Shares    Value

Real Estate - 0.34%

 

Consolidated-Tomoka Land Co.+

  43,800    $ 1,842,228
 

Meruelo Maddux Properties, Inc.*

  18,401      40,114
 

Stratus Properties, Inc.*+

  32,300      561,697
          
         2,444,039

Retail - 5.19%

 

Allion Healthcare, Inc.*

  314,500      1,792,650
 

America’s Car-Mart, Inc.*+

  154,500      2,768,640
 

Buffalo Wild Wings, Inc.*+

  95,000      2,358,850
 

Build-A-Bear Workshop, Inc.*

  48,400      351,868
 

EZCORP, Inc., Class A*

  294,600      3,756,150
 

Famous Dave’s of America, Inc.*

  172,400      1,327,480
 

Frisch’s Restaurants, Inc.

  47,800      1,100,834
 

GTSI Corp.*

  17,086      129,341
 

Hastings Entertainment, Inc.*

  79,800      639,198
 

Haverty Furniture Cos., Inc.+

  26,500      266,060
 

Hot Topic, Inc.*

  375,258      2,030,146
 

Krispy Kreme Doughnuts, Inc.*+

  555,700      2,772,943
 

Luby’s, Inc.*

  252,700      1,541,470
 

O’ Charley’s, Inc.

  26,998      271,600
 

PC Connection, Inc.*

  152,438      1,419,198
 

PC Mall, Inc.*

  182,200      2,470,632
 

PetMed Express, Inc.*+

  211,999      2,596,988
 

Pricesmart, Inc.+

  126,200      2,496,236
 

Rush Enterprises, Inc., Class A*

  65,400      785,454
 

Rush Enterprises, Inc., Class B*

  65,400      710,244
 

Sport Supply Group, Inc., Class A

  178,000      1,828,060
 

The Finish Line, Inc. Class A*

  240,324      2,090,819
 

The Walking Co. Holdings, Inc.*+

  147,000      826,140
 

Zones, Inc.*

  136,767      1,070,885
          
         37,401,886

Savings & Loans - 4.31%

 

Abington Bancorp, Inc.

  251,680      2,295,322
 

American Bancorp of New Jersey

  183,800      1,891,302
 

Berkshire Hills Bancorp, Inc.

  57,500      1,359,875
 

Citizens Community Bancorp, Inc.

  90,400      723,200
 

Citizens First Bancorp, Inc.

  157,300      943,800
 

Clifton Savings Bancorp, Inc.+

  127,300      1,239,902
 

ESSA Bancorp, Inc.

  4,138      51,808
 

Fidelity Bancorp, Inc.

  47,512      592,000

 

www.bridgeway.com   47


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Savings & Loans (continued)

 

First Financial Holdings, Inc.

  73,072    $ 1,255,377
 

First Financial Northwest, Inc.

  34,723      344,799
 

First Pactrust Bancorp, Inc.

  53,800      694,020
 

First Place Financial Corp.

  134,000      1,259,600
 

Harrington West Financial Group, Inc.

  86,320      330,606
 

HMN Financial, Inc.

  36,213      559,491
 

Home Federal Bancorp, Inc.

  90,425      891,590
 

Indiana Community Bancorp

  14,076      230,846
 

Legacy Bancorp, Inc.

  81,700      942,001
 

LSB Corp.

  76,350      1,117,000
 

OceanFirst Financial Corp.

  159,400      2,877,170
 

Pacific Premier Bancorp, Inc.*

  28,400      146,260
 

Provident Financial Holdings, Inc.

  41,100      387,984
 

Pulaski Financial Corp.

  113,193      1,075,333
 

Rainier Pacific Financial Group, Inc.

  61,400      586,370
 

Rockville Financial, Inc.

  78,200      982,192
 

Rome Bancorp, Inc.

  36,219      402,031
 

Teche Holding Co.

  11,400      418,038
 

Timberland Bancorp, Inc.

  120,609      967,284
 

United Community Financial Corp.+

  478,704      1,795,140
 

United Financial Bancorp, Inc.

  86,641      967,780
 

United Western Bancorp, Inc.

  59,600      748,576
 

Westfield Financial, Inc.

  279,800      2,532,190
 

Willow Financial Bancorp, Inc.

  900      7,335
 

WSB Holdings, Inc.

  95,850      503,213
          
         31,119,435

Semiconductors - 3.15%

 

Amtech Systems, Inc.*

  22,546      242,144
 

Anadigics, Inc.*+

  255,258      2,514,291
 

AXT, Inc.*

  354,800      1,486,612
 

Bookham, Inc.*+

  967,100      1,634,399
 

Catalyst Semiconductor, Inc.*

  240,100      1,042,034
 

CEVA, Inc.*

  186,900      1,489,593
 

Diodes, Inc.*+

  47,237      1,305,631
 

Integrated Silicon Solution, Inc.*

  297,741      1,655,440
 

IXYS Corp.*

  45,110      538,613
 

Kopin Corp.*

  445,000      1,277,150
 

Leadis Technology, Inc.*

  403,300      645,280
 

Microtune, Inc.*

  289,700      1,002,362
 

Pericom Semiconductor Corp.*

  249,600      3,704,064
Industry   Company   Shares    Value

Semiconductors (continued)

 

QuickLogic Corp.*

  352,900    $ 589,343
 

Ramtron International Corp.*

  410,000      1,726,100
 

Techwell, Inc.*

  154,000      1,897,280
          
         22,750,336

Software - 2.79%

 

Actuate Corp.*

  652,030      2,549,437
 

American Software, Inc., Class A

  236,538      1,334,074
 

Bottomline Technologies, Inc.*

  227,800      2,216,494
 

Callidus Software, Inc.*

  250,100      1,250,500
 

CAM Commerce Solutions, Inc.

  35,649      1,415,622
 

Captaris, Inc.*

  337,052      1,365,060
 

Concur Technologies, Inc.*

  56,900      1,890,787
 

Digi International, Inc.*

  112,936      886,548
 

Double-Take Software, Inc.*+

  82,231      1,129,854
 

Ebix, Inc.*+

  7,287      566,346
 

Innodata Isogen, Inc.*

  191,306      535,657
 

Interactive Intelligence, Inc.*

  168,700      1,963,668
 

Quality Systems, Inc.+

  46,100      1,349,808
 

SeaChange International, Inc.*

  237,200      1,698,352
          
         20,152,207

Telecommunications - 3.20%

 

Anaren, Inc.*

  55,312      584,648
 

Applied Signal Technology, Inc.

  12,673      173,113
 

Avanex Corp.*

  123,730      139,815
 

Aware, Inc.*

  193,310      583,796
 

Comarco, Inc.*+

  12,100      44,044
 

Communications Systems, Inc.

  7,000      75,250
 

Globecomm Systems, Inc.*

  256,800      2,121,168
 

HickoryTech Corp.

  5,895      48,752
 

Hypercom Corp.*

  420,200      1,848,880
 

Knology, Inc.*

  229,700      2,524,403
 

KVH Industries, Inc.*

  208,100      1,733,473
 

MRV Communications, Inc.*

  924,835      1,100,553
 

Oplink Communications, Inc.*

  188,600      1,810,560
 

Orbcomm, Inc.*+

  287,000      1,635,900
 

Parkervision, Inc.*+

  208,100      2,066,433
 

Soapstone Networks, Inc.*

  345,601      1,323,652
 

SureWest Communications

  64,503      543,760
 

Telular Corp.*+

  240,200      917,564
 

Tessco Technologies, Inc.*

  111,500      1,525,320
 

USA Mobility, Inc.

  96,034      725,057
 

Warwick Valley Telephone Co.

  4,400      46,464

 

48   Annual Report  |  June 30, 2008


LOGO

Bridgeway Ultra-Small Company Market Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Telecommunications (continued)

 

Westell Technologies, Inc., Class A*

  544,900    $ 735,615
 

WPCS International, Inc.*+

  139,000      785,350
          
         23,093,570

Textiles - 0.09%

 

Culp, Inc.*

  94,400      662,688

Transportation - 1.72%

    
 

Celadon Group, Inc.*

  256,275      2,560,187
 

HUB Group, Inc., Class A*

  253,600      8,655,368
 

Patriot Transportation Holding, Inc.*

  15,300      1,224,000
          
         12,439,555

Water - 0.69%

    
 

Connecticut Water Service, Inc.

  48,900      1,095,360
 

Middlesex Water Co.

  64,957      1,077,637
 

Southwest Water Co.+

  183,500      1,838,670
 

York Water Co.

  68,550      998,773
          
         5,010,440
          

TOTAL COMMON STOCKS - 93.53%

     674,754,821
          

(Cost $549,714,368)

  

 

MONEY MARKET FUNDS - 4.91%

    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    35,432,293      35,432,293
           

TOTAL MONEY MARKET FUNDS - 4.91%

     35,432,293
           

(Cost $35,432,293)

       

TOTAL INVESTMENTS - 98.44%

   $ 710,187,114

(Cost $585,146,661)

       

Other Assets in Excess of Liabilities - 1.56%

     11,224,487
           

NET ASSETS - 100.00%

      $ 721,411,601
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $156,993,337 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.

 

 

(a) Affiliated Company. An affiliated company is a company in which the Fund has ownership of at least 5% of the voting securities. Transactions during the year with companies which are or were affiliates are as follows:

 

Name of
Issuer

  Shares
Held
as of
Beginning
of Year
  Gross
Additions
  Gross
Reductions
  Income   Shares
Held as
of End
of Year
  Value
as of
End of
Year
AeroCentury Corp.   143,800   $     -   $ 647,329   $     -   85,700   $ 934,987
                               
  143,800   $ -   $ 647,329   $ -   85,700   $ 934,987
                               

See Notes to Financial Statements.

 

www.bridgeway.com   49


LOGO

Micro-Cap Limited Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Micro-Cap Limited Fund Shareholder,

For the quarter ending June 30, 2008, our Fund increased by 2.32% and outperformed our primary benchmark, the CRSP Cap-Based Portfolio 9 Index, which actually lost 2.79% for the quarter. We beat our other two performance benchmarks as well: the Russell 2000 Index of small companies climbed 0.58% and the Lipper Small-Cap Stock Funds Index rose 1.78%. Our Fund withstood the onslaught of negative news surrounding the economy, the financial services sector, and threats of inflation from the continued increases in food and energy prices. We have now outperformed our primary market benchmark three quarters out of the last four, and we are quite pleased.

For the full fiscal year ending June 30, 2008, Micro-Cap Limited Fund declined a significant 17.58%, as the economic news was especially hard on some of the markets’ micro-cap stocks. Nevertheless, we provided a cushion of more than seven percentage points relative to our primary market benchmark of micro-cap companies, the CRSP 9 Index—exactly what we hope to do in a bear market decline. Smaller and mid-size companies as a whole were not hit as hard; consequently, our performance lagged the Russell 2000 Index of small companies (down 16.19%) as well as the Lipper Small-Cap Stock Funds (down 12.67%).

Stepping back from the short-term performance picture, we still lag the five-year record of our primary market benchmark by 0.7% per year, but lead it since inception by more than five percent per year. Market and peer-beating returns over the long haul remain one of our firms’ top goals. The table below presents our June quarter, one-year, five-year, ten-year and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance since inception.

 

     

June Qtr.

4/1/08

to 6/30/08

  

1 Year

7/1/07

to 6/30/08

  

5 Year

7/1/03

to 6/30/08

  

10 Year

7/1/98

to 6/30/08

  

Life-to-Date

6/30/98
to 6/30/08

Micro-Cap Limited Fund

   2.32%    -17.58%    6.93%    12.84%    12.84%

CRSP Cap-Based Portfolio 9 Index

   -2.79%    -24.97%    7.63%    7.59%    7.59%

Lipper Small-Cap Stock Funds Index

   1.78%    -12.67%    11.22%    5.59%    5.59%

Russell 2000 Index (small stocks)

   0.58%    -16.19%    10.29%    5.53%    5.53%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Lipper Small-Cap Stock Funds Index is an index of small-company funds compiled by Lipper, Inc. The Russell 2000 Index is an unmanaged, market value weighted index, which measures performance of the 2,000 companies that are between the 1,000th and 3,000th largest in the market with dividends reinvested. The CRSP Cap-Based Portfolio 9 Index is an unmanaged index of 644 publicly traded U.S. micro-cap stocks (with dividends reinvested), as reported by the Center for Research on Security Prices. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc., for the period ended June 30, 2008, the Micro-Cap Limited Fund ranked 21st of 97 micro-cap funds for the last twelve months ended June 30, 2008, 53rd of 66 such funds for the last five years, 5th of 38 funds for the last 10 years and 5th of 40 funds since inception in June, 1998. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

50   Annual Report  |  June 30, 2008


LOGO

Micro-Cap Limited Fund

MANAGER’S COMMENTARY (continued)

 

 

Micro-Cap Limited Fund vs. CRSP 9 Index & Lipper Small Company Funds Index & Russell 2000 Index 6/30/98 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  With eight industries in six sectors represented in the list of top performers, the Fund found winners in a variety of places during the quarter. The share prices of four holdings actually increased greater than 50% during the three-month period and contributed over three percent to the return of the Fund.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

T-3 Energy Services Inc

  

Oil & Gas Services

   86.7%
2   

General Steel Holdings Inc

  

Iron/Steel

   67.8%
3   

Superior Essex Inc

  

Electrical Components & Equipment

   59.0%
4   

Fushi Copperweld Inc

  

Electrical Components & Equipment

   57.8%
5   

Systemax Inc

  

Retail

   46.4%
6   

Chart Industries Inc

  

Machinery-Diversified

   43.7%
7   

Olympic Steel Inc

  

Iron/Steel

   41.0%
8   

eResearchTechnology Inc

  

Internet

   40.4%
9   

Darwin Professional Underwriters Inc

  

Insurance

   36.9%
10   

Arena Resources Inc

  

Oil & Gas

   36.5%
                

There’s no place like home. While we seek out quality companies all across the U.S. (and some international companies trading on U.S. exchanges), it’s always nice to find good ones right in our own backyard. Houston, Texas-based T-3 Energy Services was the Fund’s top performer of the quarter and contributed over one percent to the overall return. The company provides products and services to energy-related firms engaged in the drilling and completion of oil and gas wells. As energy prices continued to soar during the period, exploration and production companies began investing additional capital in drilling opportunities, and T-3 reaped the rewards of additional demand for its products. In May, the company reported higher than expected earnings and credited two recent acquisitions (Energy Equipment Corp. and HP&T Products) as major contributors. T-3 has also been expanding it global footprint by bringing in new business from Russia and the Middle East. Its stock price moved to a new 52-week high at the end of the quarter.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Much of the negative economic news revolved around financial companies, and two of the poorest performers came from that sector. These cost the Fund just under half a percent in return. Six different sectors were represented in the list of worst performers, and all ten of these holdings lost over 20% during the past three months.

 

www.bridgeway.com   51


LOGO

Micro-Cap Limited Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

BioScrip Inc

  

Pharmaceuticals

   -61.7%
2   

Pier 1 Imports Inc

  

Retail

   -53.0%
3   

Bidz.com Inc

  

Internet

   -34.1%
4   

Administradora de Fondos de Pensiones Prov

  

Investment Companies

   -31.1%
5   

Providence Service Corp/The

  

Commercial Services

   -29.6%
6   

Pricesmart Inc

  

Retail

   -28.6%
7   

1-800-FLOWERS.COM Inc

  

Internet

   -28.3%
8   

Epicor Software Corp

  

Software

   -28.1%
9   

Columbus McKinnon Corp/NY

  

Machinery-Diversified

   -22.3%
10   

Oriental Financial Group Inc

  

Banks

   -21.4%
                

Pier 1 Imports is a home furnishing retailer that has been affected both by the weakness in housing and the ongoing nervousness among consumers leading to reduced buying activity. Its stock was the Fund’s second poorest performer for the quarter and lost over 50% of its value during the three-month period. In June, the company made an $88 million dollar bid for specialty retailer Cost Plus, which management felt would offer a nice complement to its existing product lines. However, a few days later, Pier 1 announced quarterly earnings that were well below Wall Street’s (and its own) projections. The company also reported declining sales in May. By late June, it withdrew its offer for Cost Plus, and many analysts agreed the timing of such a move would not prove beneficial. For the quarter, Pier 1 cost the Fund over half a percent in return, but we are still holding this one. (or…”our models have not yet signaled a sell” but let’s not say that we’re “sitting on it”)

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Four industrial companies highlighted the list of top performers during the twelve-month period. Some of these companies benefited from international business (where a weak dollar proved helpful). Combined, the five holdings contributed over two percent to the Fund’s return. While many micro-cap companies struggled during the fiscal year, nine of our holdings increased by over 50% for the three-month period.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

T-3 Energy Services Inc

  

Oil & Gas Services

   102.4%
2   

Chart Industries Inc

  

Machinery-Diversified

   82.5%
3   

Darling International Inc

  

Environmental Control

   80.7%
4   

EDO Corp

  

Aerospace/Defense

   71.1%
5   

Cal-Maine Foods Inc

  

Food

   68.5%
6   

General Steel Holdings Inc

  

Iron/Steel

   63.2%
7   

eResearchTechnology Inc

  

Internet

   59.3%
8   

Arena Resources Inc

  

Oil & Gas

   52.8%
9   

Open Text Corp

  

Software

   52.2%
10   

Fushi Copperweld Inc

  

Electrical Components & Equipment

   47.4%
                

Judging by the number of breakfast burrito wrappers (we’re in Texas) left on the Bridgeway trading floor, it is obvious that eggs are in hot demand these days. (Just kidding; we on the portfolio management side are going to pay for that comment!) Cal-Maine Foods is the largest domestic egg producer and was among the Fund’s best performers of the fiscal year. In January, the company announced that revenues had skyrocketed by over 60%, with strong exports contributing to another solid quarter. In April, it announced another strong quarter, and demand continued to grow worldwide, despite the record high prices of eggs. The company also announced a lucrative (for shareholders) variable dividend policy and will pay out a

 

52   Annual Report  |  June 30, 2008


LOGO

Micro-Cap Limited Fund

MANAGER’S COMMENTARY (continued)

 

 

third of its income each quarter. In June, the egg giant got even bigger as it acquired a majority interest in Zephyr Eggs, a regional company with a stronghold on the Florida market. For the twelve-month period, Cal-Maine rose almost 70% and contributed about three-quarters of a percent to the Fund’s return.

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  The good news: The Fund managed to avoid the worst of the financial crisis, as no related company made the list of poor performers. The bad news: The negativity prompted caution among consumers and five related companies (cyclical and noncyclical) made the list of poor performers for the fiscal year. Combined, these five holdings cost the Fund over three percent in return. Further, other industries have been impacted by the slowdown in activity. All told, seven firms owned by the Fund during the twelve-month period lost over 50% in value.

These are the ten stocks that performed the worst in the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

China Fire & Security Group Inc

  

Miscellaneous Manufacturing

   -71.8%
2   

BioScrip Inc

  

Pharmaceuticals

   -68.8%
3   

Novatel Wireless Inc

  

Telecommunications

   -55.2%
4   

Hardinge Inc

  

Hand/Machine Tools

   -53.0%
5   

Pier 1 Imports Inc

  

Retail

   -53.0%
6   

Astronics Corp

  

Aerospace/Defense

   -51.8%
7   

Kforce Inc

  

Commercial Services

   -50.1%
8   

Spartan Stores Inc

  

Food

   -47.6%
9   

Perry Ellis International Inc

  

Apparel

   -47.0%
10   

Shutterfly Inc

  

Internet

   -46.9%
                

Broadband provider Novatel Wireless was one such holding that dropped over 50% during the fiscal year and cost the Fund about one percent in return. Throughout much of 2007, the demand for wireless services skyrocketed, and the firm benefited from escalating sales. However, in more recent months, the weaker economy and lackluster consumer activity have prompted a slowdown in the growth of the wireless market. In February, the company warned that first quarter results may be weaker than expected. The stock price took it on the chin and we KO’d it out of the Fund.

Top Ten Holdings as of June 30, 2008

 

Only two of the Fund’s top holdings at the end of the fiscal year were also on our list of top performers for the quarter: T-3 Energy Services and Chart Industries. While our top holding accounted for over four and one-half percent of the net assets, no other stock represented greater than three percent of the Fund.

 

Rank    Description    Industry    % of Net Assets
1   

Axsys Technologies, Inc.

  

Electronics

   4.7%
2   

Darling International, Inc.

  

Environmental Control

   3.0%
3   

Cal-Maine Foods, Inc.

  

Food

   2.9%
4   

Gulfmark Offshore, Inc.

  

Transportation

   2.6%
5   

Hill International, Inc.

  

Commercial Services

   2.6%
6   

T-3 Energy Services, Inc.

  

Oil & Gas Services

   2.3%
7   

Life Sciences Research, Inc.

  

Healthcare-Services

   2.0%
8   

PriceSmart, Inc.

  

Retail

   2.0%
9   

Hawaiian Holdings, Inc.

  

Airlines

   1.9%
10   

Chart Industries, Inc.

  

Machinery-Diversified

   1.8%
                
         25.8%

 

www.bridgeway.com   53


LOGO

Micro-Cap Limited Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Our Fund’s concentration in industrial stocks (as well as their superior performance) contributed nicely to the June quarter success. Similarly, dramatic underweighting among financial stocks helped our relative performance, as these were a significant drag in performance of our benchmarks. Major changes since last quarter were an increase in industrial stocks and a decrease in both technology and consumer non-cyclicals.

 

      % of Net Assets    % S&P
Small-Cap Index
   Difference

Basic Materials

   7.8%    3.0%    4.8%

Communications

   6.6%    3.7%    2.9%

Consumer, Cyclical

   10.5%    13.6%    -3.1%

Consumer, Non-cyclical

   17.9%    18.4%    -0.5%

Energy

   6.4%    11.1%    -4.7%

Financial

   4.7%    15.3%    -10.6%

Industrial

   37.1%    19.3%    17.8%

Technology

   6.3%    10.3%    -4.0%

Utilities

   1.0%    5.3%    -4.3%

Cash

   1.7%    0.0%    1.7%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

The Fund is subject to very high, above market risk (volatility) and is not an appropriate investment for short-term investors. Investments in micro-cap companies generally carry greater risk than is customarily associated with larger companies and even “small companies” for various reasons such as narrower markets (fewer investors), limited financial resources and greater trading difficulty.

Conclusion

 

Micro-Cap Limited Fund remains closed to new shareholders, but is open to your additional investments. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

54   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

www.bridgeway.com   55


LOGO

Bridgeway Micro-Cap Limited Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 98.29%

Airlines - 1.87%

 

Hawaiian Holdings, Inc.*

  102,800    $ 714,460

Banks - 1.89%

 

Oriental Financial Group

  10,900      155,434
 

Park National Corp.+

  6,600      355,740
 

Republic Bancorp, Inc., Class A

  8,495      208,977
          
         720,151

Building Materials - 1.03%

 

NCI Building Systems, Inc.*

  10,700      393,011

Chemicals - 4.23%

 

Innophos Holdings, Inc.+

  9,200      293,940
 

NewMarket Corp.

  4,700      311,281
 

Quaker Chemical Corp.

  24,000      639,840
 

Stepan Co.

  8,100      369,522
          
         1,614,583

Commercial Services - 7.61%

 

CBIZ, Inc.*

  32,200      255,990
 

Corvel Corp.*

  12,500      423,375
 

Exponent, Inc.*

  12,300      386,343
 

Hill International, Inc.*

  59,200      973,248
 

ICF International, Inc.*

  31,400      521,868
 

Providence Service Corp.*

  7,100      149,881
 

TNS, Inc.*

  8,000      191,680
          
         2,902,385

Computers - 1.01%

 

Manhattan Associates, Inc.*

  16,200      384,426

Electrical Components & Equipment - 3.77%

 

Capstone Turbine Corp.*

  111,700      468,023
 

Fushi Copperweld, Inc.*+

  13,500      320,355
 

Graham Corp.

  6,200      459,482
 

Insteel Industries, Inc.

  10,300      188,593
          
         1,436,453

Electronics - 6.96%

 

Axsys Technologies, Inc.*

  34,300      1,784,972
 

Badger Meter, Inc.

  4,200      212,226
 

OSI Systems, Inc.*

  8,300      177,786
 

Stoneridge, Inc.*

  28,100      479,386
          
         2,654,370

Engineering & Construction - 1.87%

 

Layne Christensen Co.*

  4,400      192,676
 

Stanley, Inc.*

  15,500      519,560
          
         712,236
Industry   Company   Shares    Value

Environmental Control - 4.27%

 

Calgon Carbon Corp.*+

  30,000    $ 463,800
 

Darling International, Inc.*

  70,400      1,163,008
          
         1,626,808

Food - 2.89%

 

Cal-Maine Foods, Inc.+

  33,400      1,101,866

Forest Products & Paper - 0.94%

 

Glatfelter

  26,500      358,015

Gas - 1.04%

 

The Laclede Group, Inc.

  9,800      395,626

Hand/Machine Tools - 1.26%

 

K-Tron International, Inc.*

  3,700      479,520

Healthcare - Products - 1.09%

 

Hanger Orthopedic Group, Inc.*

  600      9,894
 

Somanetics Corp.*

  19,200      407,040
          
         416,934

Healthcare - Services - 2.04%

 

Life Sciences Research, Inc.*

  27,600      779,424

Insurance - 2.16%

 

Navigators Group, Inc.*

  8,000      432,400
 

Tower Group, Inc.

  18,400      389,896
          
         822,296

Internet - 3.97%

 

1-800-FLOWERS.COM, Inc., Class A*

  46,619      300,693
 

Bidz.com, Inc.*+

  31,400      273,494
 

EarthLink, Inc.*+

  48,600      420,390
 

eResearchTechnology, Inc.*

  29,900      521,456
          
         1,516,033

Investment Companies - 0.65%

 

Administradora de Fondos de Pensiones Provida SA - Sponsored ADR

  9,700      247,641

Iron/Steel - 2.66%

 

General Steel Holdings, Inc.*+

  29,800      468,456
 

Olympic Steel, Inc.

  7,200      546,624
          
         1,015,080

Machinery - Diversified - 4.04%

 

Altra Holdings, Inc.*

  11,400      191,634
 

Chart Industries, Inc.*

  14,000      680,960

 

56   Annual Report  |  June 30, 2008


LOGO

Bridgeway Micro-Cap Limited Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Machinery - Diversified (continued)

 

Columbus McKinnon Corp.*

  6,900    $ 166,152
 

Gerber Scientific, Inc.*

  7,100      80,798
 

Tecumseh Products Co., Class A*

  12,800      419,584
          
         1,539,128

Metal Fabrication - Hardware - 3.95%

 

Ampco-Pittsburgh Corp.

  6,800      302,464
 

CIRCOR International, Inc.

  3,700      181,263
 

Furmanite Corp.*

  57,225      456,655
 

Northwest Pipe Co.*

  4,100      228,780
 

Sun Hydraulics Corp.

  10,400      335,608
          
         1,504,770

Miscellaneous Manufacturing - 4.23%

 

AZZ, Inc.*

  10,200      406,980
 

Koppers Holdings, Inc.

  13,400      561,058
 

LSB Industries, Inc.*+

  32,600      645,480
          
         1,613,518

Oil & Gas - 1.33%

 

Arena Resources, Inc.*

  9,600      507,072

Oil & Gas Services - 5.11%

 

Dawson Geophysical Co.*

  5,500      327,030
 

Gulf Island Fabrication, Inc.

  9,400      459,942
 

North American Energy Partners, Inc.*

  13,700      297,016
 

T-3 Energy Services, Inc.*

  10,900      866,223
          
         1,950,211

Pharmaceuticals - 4.17%

 

BioScrip, Inc.*

  117,800      305,102
 

Neogen Corp.*

  16,462      376,815
 

Omega Protein Corp.*

  25,700      384,215
 

Questcor Pharmaceuticals, Inc.*

  112,700      522,928
          
         1,589,060

Retail - 8.64%

 

EZCORP, Inc., Class A*

  52,382      667,870
 

PC Connection, Inc.*

  49,400      459,914
 

PetMed Express, Inc.*

  40,400      494,900
 

Pier 1 Imports, Inc.*+

  52,900      181,976
 

Pricesmart, Inc.

  38,000      751,640
 

Systemax, Inc.+

  31,800      561,270
 

The Wet Seal, Inc., Class A*

  37,500      178,875
          
         3,296,445

Semiconductors - 0.37%

 

Pericom Semiconductor Corp.*

  9,500      140,980
Industry   Company   Shares    Value

Software - 4.92%

 

CSG Systems International, Inc.*

  15,900    $ 175,218
 

Ebix, Inc.*

  6,000      466,320
 

JDA Software Group, Inc.*

  27,600      499,560
 

Open Text Corp.*+

  10,500      337,050
 

Tyler Technologies, Inc.*

  29,500      400,315
          
         1,878,463

Telecommunications - 2.61%

 

Harmonic, Inc.*

  47,200      448,872
 

Sierra Wireless, Inc.*+

  24,000      350,400
 

UTStarcom, Inc.*

  35,600      194,732
          
         994,004

Transportation - 5.29%

 

Gulfmark Offshore, Inc.*

  17,298      1,006,398
 

Pacer International, Inc.

  20,300      436,653
 

Ultrapetrol (Bahamas) Ltd.*

  30,200      380,822
 

Universal Truckload Services, Inc.*

  8,800      193,776
          
         2,017,649

Trucking & Leasing - 0.42%

 

TAL International Group, Inc.

  7,100      161,454
          

TOTAL COMMON STOCKS - 98.29%

     37,484,072
          

(Cost $34,538,200)

  

 

MONEY MARKET FUNDS - 0.63%

    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    238,444      238,444
           

TOTAL MONEY MARKET FUNDS - 0.63%

     238,444
           

(Cost $238,444)

  

TOTAL INVESTMENTS - 98.92%

   $ 37,722,516

(Cost $34,776,644)

  

Other Assets in Excess of Liabilities - 1.08%

     412,991
           

NET ASSETS - 100.00%

        $ 38,135,507
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $6,074,877 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.
ADR - American Depositary Receipt

See Notes to Financial Statements.

 

www.bridgeway.com   57


LOGO

Small-Cap Growth Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Small-Cap Growth Fund Shareholder,

For the quarter ending June 30, 2008, our Fund increased by 3.26%, outperforming our peer benchmark, the Lipper Small-Cap Growth Funds Index (up 2.50%), but underperforming our primary market benchmark, the Russell 2000 Growth Index (up 4.47%). Small-cap growth stocks held up better than most corners of the market in the midst of an onslaught of negative economic news. It was a decent quarter on an absolute basis, but a “mixed” (mediocre) quarter overall.

For the full fiscal year ending June 30, 2008, Small-Cap Growth Fund declined a significant 12.87% as the economic news took its toll on small-cap stocks. Similar to the quarter, we outperformed the Lipper Small-Cap Growth Funds Index (down 13.60%), but underperformed the Russell 2000 Growth Index (down 10.83%).

As we approach the five-year anniversary of the Fund, we continue to apply our quantitative strategies with discipline and diligence. Focusing on the long term will remain a key objective of our firm. We look forward to reporting our first five-year returns later this year.

The table presents our June quarter, one-year, and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance since inception.

 

     

June Qtr.

4/1/08

to 6/30/08

  

1 Year

7/1/07

to 6/30/08

  

Life-to-Date

10/31/03

to 6/30/08

Small-Cap Growth Fund

   3.26%    -12.87%    7.40%

Russell 2000 Growth Index

   4.47%    -10.83%    6.89%

Lipper Small-Cap Growth Funds Index

   2.50%    -13.60%    5.31%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Russell 2000 Growth Index is an unmanaged index which consists of stocks in the Russell 2000 Index with higher price-to-book ratios and higher forecasted growth values with dividends reinvested. The Lipper Small-Cap Growth Funds Index is an index of small-company, growth-oriented funds compiled by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Small-Cap Growth Fund ranked 270th of 604 small cap growth funds for the twelve-month period ended June 30, 2008 and 114th of 412 such funds since inception in October, 2003. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

58   Annual Report  |  June 30, 2008


LOGO

Small-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Small-Cap Growth Fund vs. Russell 2000 Growth Index & Lipper Small-Cap Growth Funds Index 10/31/03 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  The Fund enjoyed the almost-daily rise in share prices of commodity-related securities. Five energy-related companies were included in the list of top performers over the quarter, together contributing over two-and-a-half percent to the return of the Fund. For the three-month period, 22 companies experienced returns of greater than 20%, with the two top performers gaining over 50%.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

GrafTech International Ltd

  

Electrical Components & Equipment

   65.5%
2   

Gardner Denver Inc

  

Machinery-Diversified

   53.1%
3   

Fuel Systems Solutions Inc

  

Auto Parts & Equipment

   47.5%
4   

Alpha Natural Resources Inc

  

Coal

   42.6%
5   

Natural Gas Services Group Inc

  

Oil & Gas Services

   39.5%
6   

Superior Energy Services

  

Oil & Gas Services

   39.2%
7   

Strayer Education Inc

  

Commercial Services

   37.1%
8   

CommScope Inc

  

Telecommunications

   35.8%
9   

FMC Technologies Inc

  

Oil & Gas Services

   35.2%
10   

Arena Resources Inc

  

Oil & Gas

   33.0%
                

How about a little high priced coal in that holiday stocking? Alpha Natural Resources was the Fund’s fourth best performer. The company is the leading domestic exporter of metallurgical coal, which is used in the production of steel. With demand for coal (and steel) skyrocketing in emerging markets like China and India, Alpha Resources reported that its earnings tripled in the first-quarter, and some analysts predict soaring profitability through at least 2010. High natural gas prices and the weak dollar contributed to the strong global demand, which helped push the company’s stock price to an all-time high in late-June. For the quarter, the company contributed about three-quarters of a percent to the overall return of the Fund.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Industrial companies highlighted the Fund’s poor performers during the quarter. While financials continue to get most of the economic news, the negative ramifications of a slowing economy have moved into the manufacturing sector as well. Likewise, consumers have grown more cautious during the sluggish times, and five related companies (cyclical and noncyclical) were among the worst performers for the quarter.

 

www.bridgeway.com   59


LOGO

Small-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

AAR Corp

  

Aerospace/Defense

   -50.4%
2   

CROCS Inc

  

Apparel

   -40.3%
3   

Fresh Del Monte Produce Inc

  

Food

   -35.3%
4   

Infinera Corp

  

Telecommunications

   -35.2%
5   

Middleby Corp

  

Machinery-Diversified

   -29.6%
6   

Pricesmart Inc

  

Retail

   -28.6%
7   

Owens-Illinois Inc

  

Packaging & Containers

   -26.1%
8   

Air Methods Corp

  

Healthcare-Services

   -25.9%
9   

Iconix Brand Group Inc

  

Apparel

   -24.6%
10   

Dynamic Materials Corp

  

Metal Fabricate/Hardware

   -23.7%
                

The skies aren’t quite so friendly for flying these days. AAR Corp. sells new and used parts, primarily to commercial airlines and defense companies. Early in the year, American Airlines, Delta and others were forced to cancel hundreds of scheduled flights because of safety concerns over aircraft wiring and other maintenance issues. In April, the Federal Aviation Administration (FAA) issued a warning to AAR about landing gear that the agency believed had been improperly maintained. Despite a track record of good earnings since 2004, the company’s stock price hit a three-year low in June, as analysts grew concerned about the overall airline industry. Others contend that AAR is primed to benefit from the need for repairs and maintenance of the aging airlines’ fleets, even if the industry continues to struggle in this high fuel price environment. Fortunately, we had sold about eighty percent of our position earlier in the year; we are in a holding pattern on the remaining shares.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Despite its poor performance for the fiscal year, the Fund had several success stories as twelve holdings increased by over 40% during the period, including the top seven that climbed by more than 50%. As has become the norm these days, energy companies highlighted the list, and three oil and gas holdings contributed about one and one-quarter percent to the Fund’s return.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

FMC Technologies Inc

  

Oil & Gas Services

   94.2%
2   

EDO Corp

  

Aerospace/Defense

   73.9%
3   

Arena Resources Inc

  

Oil & Gas

   70.3%
4   

priceline.com Inc

  

Internet

   68.0%
5   

GrafTech International Ltd

  

Electrical Components & Equipment

   66.4%
6   

Lifecell Corp

  

Biotechnology

   65.5%
7   

Strayer Education Inc

  

Commercial Services

   57.8%
8   

Integral Systems Inc/MD

  

Computers

   48.5%
9   

Fuel Systems Solutions Inc

  

Auto Parts & Equipment

   47.5%
10   

Natural Gas Services Group Inc

  

Oil & Gas Services

   43.4%
                

The rise in energy prices is well-documented, and the Fund’s oil and gas holdings certainly benefited from the run-up. Outside of that industry, priceline.com was another excellent performer and contributed over one-quarter of a percent to the Fund’s performance. The online travel company actually benefited from the ailing economy, as travelers sought out any and all discounts and promotions for their trips. When Star Trek’s Captain Kirk…aka William Shatner…talks, people listen (though a few Bridgeway traders are more partial to Captain Picard in The Next Generation). The company’s tag line “name your own price” attracted consumers and business travelers alike to its site in search of discounted flights, hotels, rental cars, and full packages as priceline.com outperformed its key competitors: Orbitz and Expedia. For the summer, priceline.com’s management initiated a new creative promotion called “Sunshine Guaranteed” in which travelers who book through the website can get refunds should poor weather conditions ruin vacation plans.

 

60   Annual Report  |  June 30, 2008


LOGO

Small-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  Nine companies lost over 50% during the fiscal year. They represented five different sectors, as the credit crisis spread from housing to financials to other areas of the economy. Combined, the worst ten holdings cost the Fund about four percent in return.

These are the ten stocks that performed the worst in the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

CROCS Inc

  

Apparel

   -75.7%
2   

Ceradyne Inc

  

Miscellaneous Manufacturing

   -60.8%
3   

Novatel Wireless Inc

  

Telecommunications

   -58.7%
4   

Flotek Industries Inc

  

Oil & Gas Services

   -56.1%
5   

Sigma Designs Inc

  

Semiconductors

   -54.0%
6   

Zoran Corp

  

Semiconductors

   -52.0%
7   

NutriSystem Inc

  

Internet

   -51.1%
8   

RF Micro Devices Inc

  

Telecommunications

   -50.4%
9   

JOS A Bank Clothiers Inc

  

Retail

   -50.4%
10   

LSB Industries Inc

  

Miscellaneous Manufacturing

   -47.4%
                

Long-term shareholders and readers of these reports know that the Fund has ridden the popularity of CROCS footwear. In fact, most of our “trendy” partners have sported a pair of these comfortable, colorful shoes at one time or another. While the company started the fiscal year strong with a gain of about 60% in the September 2007 quarter, it all went downhill from there. In October, management reported another strong quarter and even issued favorable guidance for the rest of the year. However, analysts were looking for an even better outlook, and investors sold on the news with the stock plunging over 36% in one day. Some naysayers believed CROCS to be a passing fad and took the opportunity to sell at the first sign of anything but outstanding news. In April, the company found itself caught up in the economic downturn that was impacting consumer activity, and management cut its estimates for the quarter. Recently CROCS announced some cost-cutting measures and is consolidating its production facilities. For the twelve-month period, the company cost the Fund about a third of a percent in return.

Top Ten Holdings as of June 30, 2008

 

Three energy companies were among our top holdings at fiscal year-end and also were on the Fund’s list of top performers for the quarter: Superior Energy, Arena Resources, and Alpha Natural Resources. Those holdings represented about 7.5% of the assets of the Fund. The top 10 holdings accounted for just less than 25% of the Fund’s net assets with no one holding making up over four percent.

 

Rank    Description    Industry    % of Net Assets
1   

Guess ?, Inc.

  

Retail

   3.4%
2   

OSI Pharmaceuticals, Inc.

  

Pharmaceuticals

   3.0%
3   

Superior Energy Services

  

Oil & Gas Services

   2.6%
4   

Arena Resources, Inc.

  

Oil & Gas Services

   2.5%
5   

Alpha Natural Resources, Inc.

  

Coal

   2.3%
6   

BMC Software, Inc.

  

Software

   2.3%
7   

Compass Minerals International, Inc.

  

Mining

   2.3%
8   

General Cable Corp.

  

Electrical Components & Equipment

   1.9%
9   

Axsys Technologies, Inc.

  

Electronics

   1.9%
10   

Baldor Electric Co.

  

Hand/Machine Tools

   1.9%
                
 Total          24.1%

 

www.bridgeway.com   61


LOGO

Small-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Two allocation decisions contributed to the positive return of the Fund during the past quarter. We were overweight basic materials and benefited from the run-up in energy and other commodities prices. We were significantly underweight in financials and avoided some of the hardships faced by companies engaged in subprime lending, mortgage-related securities investing, and other ramifications of the ongoing credit crisis. We were also overweight in industrials, and unfortunately some of those holdings were among our worst performers for the quarter.

 

      % of Net Assets    % of S&P
Small Cap Index
   Difference

Basic Materials

   5.3%    3.0%    2.3%

Communications

   6.4%    3.7%    2.7%

Consumer, Cyclical

   10.4%    13.6%    -3.2%

Consumer, Non-cyclical

   23.2%    18.4%    4.8%

Energy

   17.5%    11.1%    6.4%

Financial

   0.4%    15.3%    -14.9%

Industrial

   24.7%    19.3%    5.4%

Technology

   10.4%    10.3%    0.1%

Utilities

   0.0%    5.3%    -5.3%

Cash

   1.7%    0.0%    1.7%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

Market volatility can significantly impact short-term performance. The Fund is not an appropriate investment for short-term investors. Investments in small companies generally carry greater risk than is customarily associated with larger companies. This additional risk is attributable to a number of factors, including the relatively limited financial resources that are typically available to small companies, and the fact that small companies often have comparatively limited product lines. In addition, the stock of small companies tends to be more volatile than the stock of large companies, particularly in the short term and particularly in the early stages of an economic or market downturn. Shareholders of the Fund, therefore, are taking on more risk than they would if they invested in the stock market as a whole.

Conclusion

 

Thank you for your continued investment in Small-Cap Growth Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

62   Annual Report  |  June 30, 2008


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www.bridgeway.com   63


LOGO

Bridgeway Small-Cap Growth Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 98.30%

Aerospace/Defense - 0.11%

 

AAR Corp.*

  11,629    $ 157,340

Auto Parts & Equipment - 1.54%

 

Fuel Systems Solutions, Inc.*+

  57,700      2,221,450

Beverages - 0.45%

 

Boston Beer Co., Inc.*

  16,000      650,880

Biotechnology - 3.91%

 

Invitrogen Corp.*

  32,800      1,287,728
 

OSI Pharmaceuticals, Inc.*

  105,800      4,371,656
          
         5,659,384

Chemicals - 2.98%

 

Albemarle Corp.

  18,000      718,380
 

Lubrizol Corp.

  6,000      277,980
 

NewMarket Corp.

  31,500      2,086,245
 

Quaker Chemical Corp.

  46,200      1,231,692
          
         4,314,297

Coal - 3.63%

 

Alpha Natural Resources, Inc.*+

  32,400      3,378,996
 

Penn Virginia GP Holdings LP

  57,200      1,876,160
          
         5,255,156

Commercial Services - 8.54%

 

FTI Consulting, Inc.*

  6,065      415,210
 

Geo Group, Inc.*

  109,000      2,452,500
 

Hill International, Inc.*

  100,000      1,644,000
 

ICF International, Inc.*

  33,000      548,460
 

MPS Group, Inc.*

  109,500      1,163,985
 

PAREXEL International Corp.*

  51,200      1,347,072
 

Strayer Education, Inc.

  6,227      1,301,879
 

TeleTech Holdings, Inc.*

  135,300      2,700,588
 

Transcend Services, Inc.*

  10,000      89,200
 

Watson Wyatt Worldwide, Inc., Class A

  13,000      687,570
          
         12,350,464

Computers - 4.69%

 

Cognizant Technology Solutions Corp., Class A*

  72,880      2,369,329
 

Integral Systems, Inc.

  59,400      2,298,780
 

Manhattan Associates, Inc.*

  89,490      2,123,597
          
         6,791,706
Industry   Company   Shares    Value

Distribution/Wholesale - 1.05%

 

LKQ Corp.*+

  83,900    $ 1,516,073

Diversified Financial Services - 0.44%

 

IntercontinentalExchange, Inc.*

  5,600      638,400

Electrical Components & Equipment - 3.66%

 

General Cable Corp.*+

  46,200      2,811,270
 

GrafTech International, Ltd.*

  92,322      2,476,999
          
         5,288,269

Electronics - 1.92%

 

Axsys Technologies, Inc.*

  53,500      2,784,140

Engineering & Construction - 1.04%

 

Layne Christensen Co.*

  6,200      271,498
 

VSE Corp.

  44,900      1,234,750
          
         1,506,248

Environmental Control - 2.79%

 

Calgon Carbon Corp.*+

  84,300      1,303,278
 

Metalico, Inc.*+

  156,400      2,740,128
          
         4,043,406

Food - 3.46%

 

Cal-Maine Foods, Inc.+

  74,560      2,459,734
 

Fresh Del Monte Produce, Inc.*

  107,900      2,543,203
          
         5,002,937

Hand/Machine Tools - 1.90%

 

Baldor Electric Co.+

  78,400      2,742,432

Healthcare - Products - 3.19%

 

CryoLife, Inc.*

  53,663      613,905
 

Hologic, Inc.*+

  60,000      1,308,000
 

Intuitive Surgical, Inc.*

  4,200      1,131,480
 

Qiagen NV*+

  77,256      1,555,163
          
         4,608,548

Healthcare - Services - 1.53%

 

Almost Family, Inc.*

  66,800      1,776,880
 

Life Sciences Research, Inc.*

  15,386      434,501
          
         2,211,381

Internet - 3.45%

 

eResearchTechnology, Inc.*

  92,000      1,604,480
 

Interwoven, Inc.*

  181,300      2,177,413
 

Priceline.Com, Inc.*+

  10,500      1,212,330
          
         4,994,223

 

64   Annual Report  |  June 30, 2008


LOGO

Bridgeway Small-Cap Growth Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Iron/Steel - 0.01%

 

Schnitzer Steel Industries, Inc., Class A

  100    $ 11,460

Machinery - Diversified - 3.39%

 

Gardner Denver, Inc.*

  40,000      2,272,000
 

Key Technology, Inc.*

  34,000      1,081,540
 

Middleby Corp.*+

  35,200      1,545,632
          
         4,899,172

Metal Fabrication - Hardware - 3.60%

 

Dynamic Materials Corp.+

  58,100      1,914,395
 

LB Foster Co., Class A*

  31,600      1,049,120
 

Valmont Industries, Inc.+

  21,500      2,242,235
          
         5,205,750

Mining - 2.28%

 

Compass Minerals International, Inc.

  40,900      3,294,904

Miscellaneous Manufacturing - 2.10%

 

AZZ, Inc.*

  15,303      610,590
 

Trinity Industries, Inc.

  70,050      2,430,034
          
         3,040,624

Oil & Gas - 4.04%

 

Arena Resources, Inc.*

  67,400      3,560,068
 

GeoResources, Inc.*+

  118,000      2,173,560
 

Gulfport Energy Corp.*

  6,965      114,714
          
         5,848,342

Oil & Gas Services - 9.72%

 

Bolt Technology Corp.*+

  119,277      2,692,082
 

Dawson Geophysical Co.*

  12,000      713,520
 

Dril-Quip, Inc.*

  18,300      1,152,900
 

FMC Technologies, Inc.*

  14,030      1,079,328
 

Gulf Island Fabrication, Inc.

  34,500      1,688,085
 

Mitcham Industries, Inc.*

  77,800      1,328,824
 

Natural Gas Services Group, Inc.*

  20,300      618,744
 

Oceaneering International, Inc.*

  13,000      1,001,650
 

Superior Energy Services*

  68,600      3,782,604
          
         14,057,737

Packaging & Containers - 0.46%

 

Owens-Illinois, Inc.*

  16,100      671,209

Pharmaceuticals - 2.09%

 

Omega Protein Corp.*

  97,600      1,459,120
 

Questcor Pharmaceuticals, Inc.*

  337,700      1,566,928
          
         3,026,048
Industry   Company   Shares    Value

Pipelines - 0.09%

 

Enbridge Energy Management LLC*

  2,536    $ 129,716

Retail - 7.80%

 

Aeropostale, Inc.*

  15,900      498,147
 

Cash America International, Inc.

  49,800      1,543,800
 

EZCORP, Inc., Class A*

  5,000      63,750
 

Guess?, Inc.+

  132,600      4,965,870
 

Gymboree Corp.*

  43,100      1,727,017
 

MSC Industrial Direct Co., Class A+

  30,200      1,332,122
 

Pricesmart, Inc.

  58,500      1,157,130
          
         11,287,836

Semiconductors - 2.29%

 

Amkor Technology, Inc.*

  177,550      1,848,296
 

NVIDIA Corp.*

  78,600      1,471,392
          
         3,319,688

Software - 3.42%

 

BMC Software, Inc.*

  92,500      3,330,000
 

Informatica Corp.*

  101,900      1,532,576
 

SkillSoft PLC - ADR*

  9,679      87,498
          
         4,950,074

Telecommunications - 2.99%

 

Comtech Telecommunications Corp.*

  16,687      817,663
 

Infinera Corp.*+

  135,500      1,195,110
 

JDS Uniphase Corp.*+

  98,900      1,123,504
 

Knology, Inc.*

  31,053      341,273
 

Tekelec*

  57,720      849,061
          
         4,326,611

Transportation - 3.64%

 

Gulfmark Offshore, Inc.*

  15,050      875,609
 

Kirby Corp.*+

  44,000      2,112,000
 

Tidewater, Inc.+

  35,000      2,276,050
          
         5,263,659

Trucking & Leasing - 0.10%

 

TAL International Group, Inc.

  6,325      143,831
          

TOTAL COMMON STOCKS - 98.30%

     142,213,395
          

(Cost $119,896,749)

  

 

www.bridgeway.com   65


LOGO

Bridgeway Small-Cap Growth Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

    Rate^    Shares    Value

MONEY MARKET FUNDS - 0.01%

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    9,413    $ 9,413
           

TOTAL MONEY MARKET FUNDS - 0.01%

     9,413
           

(Cost $9,413)

  

TOTAL INVESTMENTS - 98.31%

   $ 142,222,808

(Cost $119,906,162)

  

Other Assets in Excess of Liabilities - 1.69%

     2,444,946
           

NET ASSETS - 100.00%

   $ 144,667,754
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $42,471,034 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.
LLC - Limited Liability Co.
LP - Limited Partnership
PLC - Public Liability Co.
ADR - American Depositary Receipt

See Notes to Financial Statements.

 

66   Annual Report  |  June 30, 2008


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www.bridgeway.com   67


LOGO

Small-Cap Value Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Small-Cap Value Fund Shareholder,

For the quarter ending June 30, 2008, our Fund increased by 2.65% and outperformed our performance benchmarks by significant margins. The Russell 2000 Value Index declined 3.55%, and the Lipper Small-Cap Stock Funds Index declined 1.89%. Posting a positive return in a down market is quite pleasing to us.

For the full fiscal year ending June 30, 2008, Small-Cap Value Fund declined a significant 15.37%, as the economic news took its toll on small-cap stocks. Nevertheless, we provided a cushion of more than 6% relative to our primary market benchmark and more than 4% relative to our peer benchmark, the Lipper Small-Cap Value Funds Index. As we approach the five-year anniversary of the Fund, we continue to apply our quantitative strategies with discipline and diligence. Focusing on the long term will remain a key objective of our firm. We look forward to reporting our first five-year returns later this year.

The table below presents our June quarter, one-year, and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance since inception.

 

     

June Qtr.

4/1/08

to 6/30/08

  

1 Year

7/1/07

to 6/30/08

  

Life-to-Date

10/31/03

to 6/30/08

Small-Cap Value Fund

   2.65%    -15.37%    10.39%

Russell 2000 Value Index

   -3.55%    -21.63%    7.20%

Lipper Small-Cap Value Funds Index

   -1.89%    -19.38%    8.10%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Russell 2000 Value Index is an unmanaged index which consists of stocks in the Russell 2000 Index with higher price-to-book ratios and higher forecasted growth values with dividends reinvested. The Lipper Small-Cap Value Funds Index is an index of small-company, value-oriented funds compiled by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Small-Cap Value Fund ranked 72nd of 314 small-cap value funds for the twelve-month period ended June 30, 2008 and 33rd of 211 such funds since inception in October, 2003. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

68   Annual Report  |  June 30, 2008


LOGO

Small-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Small-Cap Value Fund vs. Russell 2000 Value Index & Lipper Small-Cap Value Funds Index 10/31/03 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  Five industrial companies highlighted the list of top performers for the quarter, contributing over three and a half percent to the return of the Fund. Two retailers made the positive list, revealing that while consumer activity may be down in the weak economy, certain related companies are still performing well for their shareholders (and our models are finding them). Five stocks rose by more than 50% for the three-month period.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Cleveland-Cliffs Inc

  

Iron/Steel

   91.1%
2   

Metalico Inc

  

Environmental Control

   79.0%
3   

Superior Essex Inc

  

Electrical Components & Equipment

   58.7%
4   

Gardner Denver Inc

  

Machinery-Diversified

   53.1%
5   

Robbins & Myers Inc

  

Machinery-Diversified

   52.7%
6   

Multi-Fineline Electronix Inc

  

Electronics

   47.4%
7   

Systemax Inc

  

Retail

   46.4%
8   

Big Lots Inc

  

Retail

   40.1%
9   

Terra Industries Inc

  

Chemicals

   38.9%
10   

Dril-Quip Inc

  

Oil & Gas Services

   32.6%
                

Cleveland-Cliffs was the Fund’s best performer and nearly doubled in value during the quarter. The company has long been among the leading iron ore miners in the country and recently made significant inroads into the coal industry as well. Last year, it acquired PinnOak Resources and has been able to take advantage of the escalating price of coal ever since. The company has also expanded its reach internationally and is engaged in mining activity in both Brazil and Australia. The company’s stock price moved to an all-time high late in the quarter.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  While financials continue to get most of the bad economic news, the negative ramifications of a slowing economy have moved into other areas as well, as six different sectors were represented in the list of poor performers during the quarter. Likewise, consumers have grown more cautious during the sluggish times, and five related companies (cyclical and noncyclical) were among the worst performers for the quarter.

 

www.bridgeway.com   69


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Small-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Pier 1 Imports Inc

  

Retail

   -52.4%
2   

AAR Corp

  

Aerospace/Defense

   -50.4%
3   

OM Group Inc

  

Chemicals

   -42.9%
4   

Chindex International Inc

  

Distribution/Wholesale

   -41.7%
5   

BioScrip Inc

  

Pharmaceuticals

   -40.5%
6   

Chiquita Brands International Inc

  

Food

   -35.1%
7   

SureWest Communications

  

Telecommunications

   -31.8%
8   

Penford Corp

  

Chemicals

   -31.5%
9   

Nasdaq OMX Group

  

Diversified Financial Services

   -31.3%
10   

Goodyear Tire & Rubber Co

  

Auto Parts & Equipment

   -30.9%
                

Pier 1 Imports is a home furnishing retailer that has been affected both by the weakness in housing and the ongoing nervousness among consumers, leading to reduced buying activity. Its stock was the Fund’s poorest performer for the quarter and lost over 50% of its value during the three-month period. In June, the company made an $88 million dollar bid for specialty retailer Cost Plus, which management felt would offer a nice complement to its existing product lines. However, a few days later, Pier 1 announced quarterly earnings that were well below Wall Street’s (and its own) projections. The company also reported declining sales in May. By late June, it withdrew its offer for Cost Plus, and many analysts agreed the timing of such a move would not prove beneficial. For the quarter, Pier 1 cost the Fund over half a percent in return, but our models have not yet signaled a sell.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Commodities continued to surge during the twelve-month period, and companies within industries that deal with natural resources and related products performed best. Our top- performer list was comprised entirely of energy, basic materials, and industrial companies, many of which engage in some commodities-driven operations. Despite the overall negative performance of the Fund, these ten performers contributed over ten percent to the return over the fiscal year, providing a nice cushion in a bear market.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Cleveland-Cliffs Inc

  

Iron/Steel

   102.1%
2   

Terra Industries Inc

  

Chemicals

   94.1%
3   

Robbins & Myers Inc

  

Machinery-Diversified

   87.7%
4   

Steel Dynamics Inc

  

Iron/Steel

   86.5%
5   

AK Steel Holding Corp

  

Iron/Steel

   84.6%
6   

Metalico Inc

  

Environmental Control

   73.6%
7   

Superior Essex Inc

  

Electrical Components & Equipment

   59.2%
8   

Stone Energy Corp

  

Oil & Gas

   51.4%
9   

Hornbeck Offshore Services Inc

  

Oil & Gas Services

   39.2%
10   

Dril-Quip Inc

  

Oil & Gas Services

   37.0%
                

The industry may not be glamorous, but it’s working these days. Terra Industries is a fertilizer manufacturer that has benefited greatly from the rising prices in agricultural goods like wheat and grains. The need for fertilizer among farmers escalated further when the floods in the Midwest damaged crops and brought an even greater imbalance between supply and demand. Institutional investors such as hedge funds have begun buying related firms, and analysts continue to increase earnings expectations. While Terra Industries has benefited from the industry-wide trends, management also has engaged in cost-cutting measures that have helped boast profits dramatically over the past year. Though its stock price almost doubled during the fiscal year, some analysts claim that the stock price is still cheap relative to its surging earnings. Time will tell.

 

70   Annual Report  |  June 30, 2008


LOGO

Small-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  The good news: The Fund managed to avoid the worst of the crisis among financials, as no related company made the list of poor performers. The bad news: The negativity moved into other sectors of the economy as well. Four industrial and five consumer-related (cyclical and non-cyclical) companies highlighted the list of worst performers. These nine companies combined to cost the Fund over seven and one-half percent in return. In fact, all ten companies on the list lost over 50% in value during the twelve-month period.

These are the ten stocks that performed the worst in the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

WellCare Health Plans Inc

  

Healthcare-Services

   -75.6%
2   

Hardinge Inc

  

Hand/Machine Tools

   -63.0%
3   

Ceradyne Inc

  

Miscellaneous Manufacturing

   -60.8%
4   

AAR Corp

  

Aerospace/Defense

   -59.0%
5   

Michael Baker Corp

  

Engineering & Construction

   -58.4%
6   

Penford Corp

  

Chemicals

   -56.6%
7   

Pier 1 Imports Inc

  

Retail

   -52.4%
8   

Cooper Tire & Rubber Co

  

Auto Parts & Equipment

   -52.2%
9   

Onyx Pharmaceuticals Inc

  

Pharmaceuticals

   -50.6%
10   

Imperial Sugar Co

  

Food

   -50.4%
                

WellCare Health Plans was our Fund’s worst performer for the fiscal year. This managed care provider offers government-sponsored healthcare and prescription drug programs through Medicare and Medicaid. In late October 2007, federal officials began investigating the company for fraud-related claims. The company’s stock price plummeted over 70% in one day on the news of the investigation. Additionally, reports surfaced that corporate executives had sold a sizable number of shares in advance of the decline, prompting concerns about insider trading and other illegal activities. Fortunately, as a smaller diversifying position, it cost the Fund less than a percentage point of return.

Top Ten Holdings as of June 30, 2008

 

Four of the Fund’s top holdings at fiscal year end were also among the best performers for the quarter: Robbins & Myers, Cleveland-Cliff, Terra Industries, and Gardner Denver. Diversification is evident, with the top ten holdings representing just over 20% of the Fund’s net assets and no one company accounting for more than 3.2%.

 

Rank   Description   Industry   % of Net Assets
1  

Robbins & Myers, Inc.

 

Machinery-Diversified

  3.2%
2  

Cleveland-Cliffs, Inc.

 

Iron/Steel

  3.1%
3  

Amkor Technology, Inc.

 

Semiconductors

  2.4%
4  

Hornbeck Offshore Services, Inc.

 

Oil & Gas Services

  2.4%
5  

General Cable Corp.

 

Electrical Components & Equipment

  2.1%
6  

Terra Industries, Inc.

 

Chemicals

  2.0%
7  

Gardner Denver, Inc.

 

Machinery-Diversified

  1.9%
8  

AK Steel Holding Corp.

 

Iron/Steel

  1.8%
9  

Warnaco Group, Inc.

 

Apparel

  1.7%
10  

McMoRan Exploration Co.

 

Oil & Gas

  1.6%
             
 Total       22.2%

 

www.bridgeway.com   71


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Small-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Major changes since last quarter in the industry sector representation of our Fund were an increase in energy and industrial stocks and a decrease in consumer non-cyclicals. Our strong weighting in basic materials (relative to the S&P Small Cap Index) was particularly effective, as it added more than five percentage points of return on a relative basis. Being “light” on financials was also helpful.

 

      % of Net Assets    % of S&P
Small Cap Index
   Difference

Basic Materials

   12.7%    3.0%    9.7%

Communications

   2.4%    3.7%    -1.3%

Consumer, Cyclical

   13.7%    13.6%    0.1%

Consumer, Non-cyclical

   13.6%    18.4%    -4.8%

Energy

   11.4%    11.1%    0.3%

Financial

   7.3%    15.3%    -8.0%

Industrial

   29.1%    19.3%    9.8%

Technology

   4.4%    10.3%    -5.9%

Utilities

   4.5%    5.3%    -0.8%

Cash

   0.9%    0.0%    0.9%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

Market volatility can significantly impact short-term performance. The Fund is not an appropriate investment for short-term investors. Investments in small companies generally carry greater risk than is customarily associated with larger companies. This additional risk is attributable to a number of factors, including the relatively limited financial resources that are typically available to small companies, and the fact that small companies often have comparatively limited product lines. In addition, the stock of small companies tends to be more volatile than the stock of large companies, particularly in the short term and particularly in the early stages of an economic or market downturn. Shareholders of the Fund, therefore, are taking on more risk than they would if they invested in the stock market as a whole.

Conclusion

 

Thank you for your continued investment in Small-Cap Value Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

72   Annual Report  |  June 30, 2008


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www.bridgeway.com   73


LOGO

Bridgeway Small-Cap Value Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 99.07%

Aerospace/Defense - 0.82%

 

AAR Corp.*

  186,600    $ 2,524,698
 

SIFCO Industries, Inc.*

  20,500      207,050
          
         2,731,748

Airlines - 0.81%

 

Hawaiian Holdings, Inc.*

  386,500      2,686,175

Apparel - 2.79%

 

G-III Apparel Group, Ltd.*

  17,420      214,963
 

Quiksilver, Inc.*

  341,300      3,351,566
 

Warnaco Group, Inc.*

  129,100      5,689,437
          
         9,255,966

Auto Parts & Equipment - 0.75%

 

ATC Technology Corp.*

  105,000      2,444,400
 

Goodyear Tire & Rubber Co.*+

  2,100      37,443
          
         2,481,843

Biotechnology - 2.09%

 

Applera Corp. - Celera Group*

  338,300      3,843,088
 

Invitrogen Corp.*

  78,600      3,085,836
          
         6,928,924

Building Materials - 1.69%

 

Comfort Systems USA, Inc.

  178,780      2,402,803
 

NCI Building Systems, Inc.*

  87,100      3,199,183
          
         5,601,986

Chemicals - 4.27%

 

A. Schulman, Inc.

  141,600      3,261,048
 

Hercules, Inc.

  70,000      1,185,100
 

OM Group, Inc.*

  55,700      1,826,403
 

Penford Corp.

  95,497      1,420,995
 

Terra Industries, Inc.+

  131,300      6,479,655
          
         14,173,201

Commercial Services - 3.01%

 

HealthSpring, Inc.*

  196,000      3,308,480
 

ICF International, Inc.*

  115,846      1,925,361
 

MAXIMUS, Inc.+

  61,000      2,124,020
 

MPS Group, Inc.*

  246,500      2,620,295
          
         9,978,156

Distribution/Wholesale - 0.00%

 

Chindex International, Inc.*

  1,057      15,506
Industry   Company   Shares    Value

Diversified Financial Services - 2.80%

 

Knight Capital Group, Inc., Class A*

  165,600    $ 2,977,488
 

LaBranche & Co., Inc.*

  705,200      4,992,816
 

NASDAQ OMX Group, Inc.*

  49,660      1,318,473
          
         9,288,777

Electric Utilities - 3.47%

 

Central Vermont Public Service Corp.

  117,010      2,266,484
 

El Paso Electric Co.*

  130,500      2,583,900
 

Hawaiian Electric Industries, Inc.+

  126,100      3,118,453
 

MGE Energy, Inc.

  96,300      3,141,306
 

Portland General Electric Co.

  17,284      389,235
          
         11,499,378

Electrical Components & Equipment - 6.23%

 

Belden, Inc.

  50,000      1,694,000
 

Capstone Turbine Corp.*

  801,000      3,356,190
 

Encore Wire Corp.+

  185,100      3,922,269
 

General Cable Corp.*+

  112,200      6,827,370
 

Superior Essex, Inc.*

  108,600      4,846,818
          
         20,646,647

Electronics - 2.16%

 

Multi-Fineline Electronix, Inc.*+

  157,600      4,360,792
 

Stoneridge, Inc.*

  165,200      2,818,312
          
         7,179,104

Engineering & Construction - 2.15%

 

EMCOR Group, Inc.*

  161,000      4,593,330
 

Perini Corp.*+

  76,400      2,525,020
          
         7,118,350

Environmental Control - 1.06%

 

Metalico, Inc.*+

  200,000      3,504,000

Food - 4.54%

 

Cal-Maine Foods, Inc.+

  147,900      4,879,221
 

Chiquita Brands International, Inc.*+

  133,900      2,031,263
 

Corn Products International, Inc.

  75,000      3,683,250
 

Spartan Stores, Inc.

  193,300      4,445,900
          
         15,039,634

Forest Products & Paper - 1.42%

 

Glatfelter

  212,300      2,868,173
 

Rock-Tenn Co., Class A

  61,797      1,853,292
          
         4,721,465

 

74   Annual Report  |  June 30, 2008


LOGO

Bridgeway Small-Cap Value Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Gas - 0.96%

 

The Laclede Group, Inc.

  79,000    $ 3,189,230

Hand/Machine Tools - 0.67%

 

Regal-Beloit Corp.

  52,500      2,218,125

Healthcare - Services - 2.58%

 

AMERIGROUP Corp.*

  115,700      2,406,560
 

Kindred Healthcare, Inc.*

  125,900      3,620,884
 

Triple-S Management Corp., Class B*+

  155,600      2,544,060
          
         8,571,504

Insurance - 4.53%

 

American Physicians Capital, Inc.

  88,500      4,286,940
 

Amerisafe, Inc.*

  109,701      1,748,634
 

AmTrust Financial Services, Inc.

  176,600      2,225,160
 

Navigators Group, Inc.*

  81,700      4,415,885
 

Tower Group, Inc.

  110,000      2,330,900
          
         15,007,519

Internet - 1.15%

 

FTD Group, Inc.

  285,800      3,809,714

Iron/Steel - 6.98%

 

AK Steel Holding Corp.

  85,000      5,865,000
 

Cleveland-Cliffs, Inc.

  87,200      10,393,368
 

Olympic Steel, Inc.

  52,300      3,970,616
 

Steel Dynamics, Inc.

  74,800      2,922,436
          
         23,151,420

Leisure Time - 0.76%

 

Callaway Golf Co.+

  213,300      2,523,339

Machinery - Diversified - 6.90%

 

Columbus McKinnon Corp.*

  111,100      2,675,288
 

Gardner Denver, Inc.*

  112,400      6,384,320
 

Robbins & Myers, Inc.

  214,000      10,672,180
 

Tecumseh Products Co., Class A*

  96,500      3,163,270
          
         22,895,058

Miscellaneous Manufacturing - 1.21%

 

Koppers Holdings, Inc.

  74,000      3,098,380
 

LSB Industries, Inc.*

  47,000      930,600
          
         4,028,980
Industry   Company   Shares    Value

Oil & Gas - 5.75%

 

Callon Petroleum Co.*

  75,040    $ 2,053,094
 

McMoRan Exploration Co.*+

  193,400      5,322,368
 

Rosetta Resources, Inc.*

  114,900      3,274,650
 

Stone Energy Corp.*

  77,100      5,081,661
 

Swift Energy Co.*

  50,700      3,349,242
          
         19,081,015

Oil & Gas Services - 5.65%

 

Dril-Quip, Inc.*

  76,000      4,788,000
 

Hornbeck Offshore Services, Inc.*

  138,200      7,809,682
 

Oil States International, Inc.*

  53,300      3,381,352
 

Trico Marine Services, Inc.*+

  75,500      2,749,710
          
         18,728,744

Packaging & Containers - 1.01%

 

Greif, Inc., Class A+

  52,200      3,342,366

Pharmaceuticals - 1.40%

 

Perrigo Co.+

  146,000      4,638,420

Retail - 5.42%

 

Big Lots, Inc.*

  128,500      4,014,340
 

EZCORP, Inc., Class A*

  396,000      5,049,000
 

Pier 1 Imports, Inc.*+

  416,800      1,433,792
 

Systemax, Inc.+

  199,650      3,523,823
 

The Children’s Place Retail Stores, Inc.*

  109,600      3,956,560
          
         17,977,515

Semiconductors - 2.39%

 

Amkor Technology, Inc.*+

  760,700      7,918,887

Software - 2.04%

 

Compuware Corp.*

  375,100      3,578,454
 

SYNNEX Corp.*

  126,500      3,173,885
          
         6,752,339

Telecommunications - 1.30%

 

Anixter International, Inc.*+

  18,000      1,070,820
 

iPCS, Inc.*

  109,100      3,232,633
          
         4,303,453

Textiles - 1.46%

 

UniFirst Corp.

  108,300      4,836,678

Toys/Games/Hobbies - 1.73%

 

Hasbro, Inc.

  95,900      3,425,548
 

JAKKS Pacific, Inc.*

  105,300      2,300,805
          
         5,726,353

 

www.bridgeway.com   75


LOGO

Bridgeway Small-Cap Value Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Transportation - 5.12%

 

Gulfmark Offshore, Inc.*

  64,945    $ 3,778,500
 

HUB Group, Inc., Class A*

  107,400      3,665,562
 

Kirby Corp.*+

  110,200      5,289,600
 

Ryder System, Inc.

  43,000      2,961,840
 

Tidewater, Inc.+

  20,000      1,300,600
          
         16,996,102
          

TOTAL COMMON STOCKS - 99.07%

     328,547,621
          

(Cost $287,921,168)

  

 

MONEY MARKET FUNDS - 9.44%

 

    Rate^    Shares    Value  

BlackRock Liquidity Funds TempFund Portfolio #24

  2.57%    14,724,596      14,724,596  

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    16,594,017      16,594,017  
             

TOTAL MONEY MARKET FUNDS - 9.44%

     31,318,613  
             

(Cost $31,318,613)

       

TOTAL INVESTMENTS - 108.51%

   $ 359,866,234  

(Cost $319,239,781)

  

Liabilities in Excess of Other Assets - (8.51)%

     (28,217,968 )
             

NET ASSETS - 100.00%

        $ 331,648,266  
             

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $67,236,125 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.

See Notes to Financial Statements.

 

76   Annual Report  |  June 30, 2008


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www.bridgeway.com   77


LOGO

Large-Cap Growth Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Large-Cap Growth Fund Shareholder,

For the quarter ending June 30, 2008, our Fund increased 3.54%, exceeding the returns of both our performance benchmarks. The Russell 1000 Growth Index appreciated 1.25% and the Lipper Large-Cap Growth Funds Index appreciated 1.04%. It was a very good quarter overall.

Likewise, our Fund outperformed its benchmarks for the full fiscal year, though it ended the twelve-month period in negative territory. Our Fund declined by 2.50%, while the Russell 1000 Growth Index fell by 5.96% and the Lipper Large-Cap Growth Funds Index dropped by 4.21%. Providing a nice “cushion” in a market downturn is a favorable result as we remain roughly fully invested—ready for a future market upturn.

We apply our quantitative strategies in a disciplined manner in both good times and bad, both strong and weak markets. Focusing on the long term will remain a key objective of our firm. The information below bears out our historical success as we approach our five-year anniversary.

The table below presents our June quarter, one-year, and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance since inception.

 

     

June Qtr.

4/1/08

to 6/30/08

  

1 Year

7/1/07

to 6/30/08

  

Life-to-Date

10/31/03

to 6/30/08

Large-Cap Growth Fund

   3.54%    -2.50%    7.17%

Russell 1000 Growth Index

   1.25%    -5.96%    5.74%

Lipper Large-Cap Growth Funds Index

   1.04%    -4.21%    5.71%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Russell 1000 Growth Index is an unmanaged index which consists of stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values with dividends reinvested. The Lipper Large-Cap Growth Funds Index is an index of large-company, growth-oriented funds compiled by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Large-Cap Growth Fund ranked 125th of 493 multi-cap growth funds for the twelve-month period ended June 30, 2008 and 153rd of 331 such funds since inception in October, 2003. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

78   Annual Report  |  June 30, 2008


LOGO

Large-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Large-Cap Growth Fund vs. Russell 1000 Growth Index & Lipper Large-Cap Growth Funds Index 10/31/03 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  Oil, that is…Black Gold…Texas Tea. With oil prices surging to new record highs through quarter end, the Fund enjoyed the rise in share prices of related securities. Seven oil and gas companies were included in the list of top performers over the quarter and combined to contribute over 2.5% to the return of the Fund. Two chemical companies that are engaged in the fertilizer business also made the list.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

National Oilwell Varco Inc

  

Oil & Gas Services

   52.0%
2   

Potash Corp of Saskatchewan

  

Chemicals

   47.3%
3   

Mosaic Co

  

Chemicals

   41.0%
4   

Noble Energy Inc

  

Oil & Gas

   38.1%
5   

Schering-Plough Corp

  

Pharmaceuticals

   36.6%
6   

FMC Technologies Inc

  

Oil & Gas Services

   35.2%
7   

Cameron International Corp

  

Oil & Gas Services

   32.9%
8   

Noble Corp

  

Oil & Gas

   30.8%
9   

Smith International Inc

  

Oil & Gas Services

   29.4%
10   

Baker Hughes Inc

  

Oil & Gas Services

   27.5%
                

National Oilwell Varco was the Fund’s top performer and the only stock that rose in excess of 50% during the three-month period. The company is the largest global provider of drilling rig equipment and got even bigger this quarter with the completion of its $7 billion acquisition of Grant Prideco. In April, the company announced earnings that beat expectations and its stock price rose to an all-time high in June. National Oilwell contributed over half a percent to the return of the Fund.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Industrial companies highlighted the Fund’s poor performers during the quarter, as five related holdings made the list. While financials continue to get most of the bad economic news, the negative ramifications of a slowing economy have moved into the manufacturing sector as well. The five industrial companies cost the Fund almost 3% in performance during the three-month period.

 

www.bridgeway.com   79

 

`


LOGO

Large-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Bank of America Corp

  

Banks

   -37.0%
2   

Owens-Illinois Inc

  

Packaging & Containers

   -26.1%
3   

AGCO Corp

  

Machinery-Diversified

   -24.1%
4   

GameStop Corp

  

Retail

   -21.9%
5   

State Street Corp

  

Banks

   -19.0%
6   

Rockwell Automation Inc/DE

  

Machinery-Diversified

   -18.9%
7   

Intuitive Surgical Inc

  

Healthcare-Products

   -16.9%
8   

L-3 Communications Holdings Inc

  

Aerospace/Defense

   -16.9%
9   

Pfizer Inc

  

Pharmaceuticals

   -16.5%
10   

General Electric Co

  

Miscellaneous Manufacturing

   -16.1%
                

Owens-Illinois is the largest glass manufacturer in the world and sells containers and related products throughout North and South America, Asia, and Europe. The company has produced excellent fundamental results including four straight quarters of better than expected earnings reports. However, after hitting an all-time high in April, Owens-Illinois took a step back and lost over 25% of its value during the quarter. What’s a “step back?” While the company has benefited from strong international demand (70% of its revenue come from overseas), management warned about the effects that rising energy and raw materials costs may have on future sales. The company cost the Fund about 0.6% for the three-month period, but our models have not yet given the sell signal.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Five energy-related and three other commodities-related (chemicals) companies in the top ten added significantly to the Fund’s return, as oil and other commodities continued to soar over the past twelve months. These eight companies contributed over 9% to the performance of the Fund. Six top performers each climbed over 50% during the past twelve months.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Mosaic Co

  

Chemicals

   150.9%
2   

Potash Corp of Saskatchewan

  

Chemicals

   90.8%
3   

Monsanto Co

  

Chemicals

   75.4%
4   

National Oilwell Varco Inc

  

Oil & Gas Services

   70.2%
5   

Noble Energy Inc

  

Oil & Gas

   61.2%
6   

Cameron International Corp

  

Oil & Gas Services

   54.9%
7   

XTO Energy Inc

  

Oil & Gas

   42.5%
8   

Smith International Inc

  

Oil & Gas Services

   39.7%
9   

Gilead Sciences Inc

  

Biotechnology

   36.5%
10   

Apple Inc

  

Computers

   35.9%
                

Potash Corp. of Saskatchewan nearly doubled in price during the past twelve months and represented almost 2% of the Fund’s return. The Canadian-based company produces and markets fertilizer and related products across the globe. As the population in many emerging markets becomes more affluent, demand for different foods and other materials has increased dramatically, thus, enhancing the farmers’ needs for fertilizer. Additionally, natural disasters like the floods that devastated the Midwest earlier in the year also contributed to the shrinking supply (and rising demand) for grains, foods, and other products. Two other top performers (Mosaic, Monsanto) are also chemical-related, and their stories are similar to that of Potash Corp.

 

80   Annual Report  |  June 30, 2008


LOGO

Large-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  While financials received much of the negative economic news over the past twelve months, the weaker economy impacted companies within other sectors as well. Five distinct industries were represented in our list of worst performers for the fiscal year with consumer-related companies (both cyclical and non-cyclical) placing four on the list. The three lowest performing stocks each declined by half, and combined they cost the Fund just under 2% in return.

These are the ten stocks that performed the worst in the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

SanDisk Corp

  

Computers

   -54.0%
2   

Bank of America Corp

  

Banks

   -51.2%
3   

CB Richard Ellis Group Inc

  

Real Estate

   -51.1%
4   

Sunpower Corp

  

Energy-Alternate Sources

   -43.1%
5   

Wynn Resorts Ltd

  

Lodging

   -41.1%
6   

Coach Inc

  

Apparel

   -39.1%
7   

Sun Microsystems Inc

  

Computers

   -37.3%
8   

E*Trade Financial Corp

  

Diversified Financial Services

   -35.4%
9   

Schering-Plough Corp

  

Pharmaceuticals

   -35.2%
10   

UnitedHealth Group Inc

  

Healthcare-Services

   -34.9%
                

Bank of America, the giant Charlotte, North Carolina-based financial holding company, lost over 50% of its value during the past twelve months and cost the Fund just under half a percent in performance. As the credit crisis continued to worsen, Bank of America played “white knight” and agreed to purchase Countrywide Financial for an estimated $4 billion. Once the country’s largest mortgage lender, Countrywide had become the poster child for the subprime debacle, and investors became leery that the acquisition would hurt Bank of America’s future earnings and ongoing operations. Countrywide’s shareholders approved the purchase in June, though the value had declined to about $2.6 billion because of the drop in stock price. The transaction was completed on July 1 (just after the end of the fiscal year) and Bank of America is now the country’s largest mortgage lender and servicer (a title that doesn’t bring great bragging rights these days) and we are still holding.

Top Ten Holdings as of June 30, 2008

 

The top two holdings of the Fund, Mosaic and Potash Corp, were also the top two performers for the fiscal year (and numbers two and three in terms of returns for the quarter). Both companies are involved in the fertilizer business and have reaped the benefits of the rise in commodities prices. The Fund remains well-diversified with none of its holdings representing greater than 4% of its assets. In fact, the top 10 holdings account for less than 25% of the net assets of the Fund.

 

Rank    Description    Industry    Percent of
Net Assets
1   

Mosaic Co.

  

Chemicals

   3.9%
2   

Potash Corp. of Saskatchewan, Inc.

  

Chemicals

   3.2%
3   

Apple, Inc.

  

Computers

   2.4%
4   

Monsanto Co.

  

Chemicals

   2.4%
5   

Gilead Sciences, Inc.

  

Pharmaceuticals

   2.1%
6   

Oracle Corp.

  

Software

   2.0%
7   

Intuitive Surgical, Inc.

  

Healthcare-Products

   2.0%
8   

EOG Resources, Inc.

  

Oil & Gas

   2.0%
9   

Bristol-Myers Squibb Co.

  

Pharmaceuticals

   1.9%
10   

Microsoft Corp.

  

Software

   1.8%
                
 Total          23.7%

 

www.bridgeway.com   81


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Large-Cap Growth Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

Two significant allocation decisions greatly contributed to the success of the Fund during the past quarter. We were overweight in basic materials and benefited from the run-up in commodities prices. We were underweight financials and avoided some of the hardships faced by companies engaged in subprime lending, mortgage-related securities investing, and other ramifications of the ongoing credit crisis.

 

      % of Net Assets    % of S&P 500 Index    Difference

Basic Materials

   12.0%    3.9%    8.1%

Communications

   10.8%    11.0%    -0.2%

Consumer, Cyclical

   2.9%    7.1%    -4.2%

Consumer, Non-cyclical

   22.7%    20.6%    2.1%

Energy

   16.4%    16.3%    0.1%

Financial

   5.3%    14.0%    -8.7%

Industrial

   10.7%    11.5%    -0.8%

Technology

   16.1%    11.6%    4.5%

Utilities

   0.7%    3.9%    -3.2%

Diversified

   0.0%    0.1%    -0.1%

Cash

   2.4%    0.0%    2.4%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and may not be indicative of future performance.

The Fund is subject to market risk (volatility) and is not an appropriate investment for short-term investors.

Conclusion

 

Thank you for your continued investment in Large-Cap Growth Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

82   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

www.bridgeway.com   83


LOGO

Bridgeway Large-Cap Growth Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 97.64%

Aerospace/Defense - 0.61%

 

L-3 Communications Holdings, Inc.

  2,000    $ 181,740
 

Rockwell Collins, Inc.

  18,300      877,668
          
         1,059,408

Apparel - 0.58%

 

Coach, Inc.*

  35,320      1,020,042

Banks - 2.45%

 

Bank of America Corp.

  23,700      565,719
 

State Street Corp.

  22,700      1,452,573
 

US Bancorp

  81,000      2,259,090
          
         4,277,382

Beverages - 2.38%

 

Coca-Cola Co.

  59,300      3,082,414
 

PepsiCo., Inc.

  16,900      1,074,671
          
         4,157,085

Biotechnology - 5.54%

 

Biogen Idec, Inc.*

  50,200      2,805,678
 

Celgene Corp.*

  24,900      1,590,363
 

Genentech, Inc.*

  21,400      1,624,260
 

Gilead Sciences, Inc.*

  69,240      3,666,258
          
         9,686,559

Chemicals - 11.22%

 

CF Industries Holdings, Inc.

  20,500      3,132,400
 

Monsanto Co.

  32,700      4,134,588
 

Mosaic Co.*

  47,300      6,844,310
 

Potash Corp. of Saskatchewan, Inc.

  24,100      5,508,537
          
         19,619,835

Commercial Services - 2.73%

 

MasterCard, Inc., Class A+

  10,000      2,655,200
 

Paychex, Inc.+

  68,000      2,127,040
          
         4,782,240

Computers - 8.75%

 

Apple, Inc.*

  25,200      4,219,488
 

EMC Corp.*

  178,400      2,620,696
 

Hewlett-Packard Co.

  68,600      3,032,806
 

International Business Machines Corp.

  24,000      2,844,720
 

Research In Motion, Ltd.*

  22,000      2,571,800
          
         15,289,510
Industry   Company   Shares    Value

Cosmetics/Personal Care - 0.63%

 

Procter & Gamble Co.

  18,232    $ 1,108,688

Diversified Financial Services - 2.83%

 

Charles Schwab Corp.

  136,400      2,801,656
 

Interactive Brokers Group, Inc., Class A*

  63,000      2,024,190
 

IntercontinentalExchange, Inc.*

  1,000      114,000
          
         4,939,846

Electric Utilities - 0.66%

 

Allegheny Energy, Inc.

  22,900      1,147,519

Electronics - 0.55%

 

Waters Corp.*

  14,900      961,050

Engineering & Construction - 1.00%

 

Jacobs Engineering Group, Inc.*

  21,600      1,743,120

Healthcare - Products - 5.73%

 

CR Bard, Inc.

  1,800      158,310
 

Intuitive Surgical, Inc.*

  12,900      3,475,260
 

Johnson & Johnson

  27,300      1,756,482
 

Medtronic, Inc.

  4,400      227,700
 

St. Jude Medical, Inc.*

  48,100      1,966,328
 

Stryker Corp.

  38,800      2,439,744
          
         10,023,824

Internet - 4.86%

 

Amazon.com, Inc.*+

  41,900      3,072,527
 

eBay, Inc.*

  100,200      2,738,466
 

Google, Inc., Class A*

  5,100      2,684,742
          
         8,495,735

Machinery - Diversified - 3.33%

 

AGCO Corp.*+

  41,100      2,154,051
 

Deere & Co.

  22,700      1,637,351
 

Flowserve Corp.

  14,800      2,023,160
          
         5,814,562

Media - 0.59%

 

Walt Disney Co.

  33,200      1,035,840

Metal Fabrication - Hardware - 1.31%

 

Precision Castparts Corp.

  23,700      2,283,969

Mining - 0.85%

 

Southern Copper Corp.+

  14,000      1,492,820

 

84   Annual Report  |  June 30, 2008


LOGO

Bridgeway Large-Cap Growth Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Miscellaneous Manufacturing - 1.60%

 

Danaher Corp.

  14,800    $ 1,144,040
 

Dover Corp.

  15,700      759,409
 

Illinois Tool Works, Inc.

  19,000      902,690
          
         2,806,139

Oil & Gas - 9.70%

 

ConocoPhillips

  3,607      340,465
 

EOG Resources, Inc.

  26,100      3,424,320
 

Exxon Mobil Corp.

  33,800      2,978,794
 

Noble Corp.+

  39,700      2,578,912
 

Noble Energy, Inc.

  17,900      1,800,024
 

Plains Exploration & Production Co.*

  37,300      2,721,781
 

XTO Energy, Inc.

  45,332      3,105,695
          
         16,949,991

Oil & Gas Services - 6.80%

 

Baker Hughes, Inc.

  22,700      1,982,618
 

Cameron International Corp.*

  41,800      2,313,630
 

FMC Technologies, Inc.*

  30,900      2,377,137
 

National Oilwell Varco, Inc.*

  30,400      2,697,088
 

Smith International, Inc.

  30,200      2,510,828
          
         11,881,301

Packaging & Containers - 1.61%

 

Owens-Illinois, Inc.*

  67,400      2,809,906

Pharmaceuticals - 5.68%

 

Bristol-Myers Squibb Co.

  162,700      3,340,231
 

Express Scripts, Inc.*

  35,900      2,251,648
 

Merck & Co., Inc.

  50,800      1,914,652
 

Pfizer, Inc.

  7,200      125,784
 

Schering-Plough Corp.

  116,800      2,299,792
          
         9,932,107

Retail - 2.34%

 

CVS Caremark Corp.

  3,340      132,164
 

GameStop Corp., Class A*

  41,400      1,672,560
 

Staples, Inc.+

  25,890      614,887
 

Tiffany & Co.

  41,200      1,678,900
          
         4,098,511

Semiconductors - 2.66%

 

MEMC Electronic Materials, Inc.*

  29,100      1,790,814
 

Texas Instruments, Inc.+

  101,790      2,866,406
          
         4,657,220
Industry   Company   Shares    Value

Software - 4.65%

 

Adobe Systems, Inc.*

  10,000    $ 393,900
 

BMC Software, Inc.*

  5,000      180,000
 

CA, Inc.

  35,000      808,150
 

Microsoft Corp.

  116,200      3,196,662
 

Oracle Corp.*

  169,200      3,553,200
          
         8,131,912

Telecommunications - 5.30%

 

AT&T, Inc.

  83,800      2,823,222
 

Cisco Systems, Inc.*

  119,200      2,772,592
 

Corning, Inc.

  59,300      1,366,865
 

Harris Corp.

  22,100      1,115,829
 

Juniper Networks, Inc.*

  53,900      1,195,502
          
         9,274,010

Transportation - 0.70%

 

CH Robinson Worldwide, Inc.

  22,200      1,217,448
          

TOTAL COMMON STOCKS - 97.64%

     170,697,579
          

(Cost $147,839,015)

  

 

MONEY MARKET FUNDS - 2.23%

    Rate^    Shares    Value

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    3,892,546      3,892,546
           

TOTAL MONEY MARKET FUNDS - 2.23%

     3,892,546
           

(Cost $3,892,546)

  

TOTAL INVESTMENTS - 99.87%

   $ 174,590,125

(Cost $151,731,561)

  

Other Assets in Excess of Liabilities - 0.13%

     222,478
           

NET ASSETS - 100.00%

   $ 174,812,603
           

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $14,534,265 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.

See Notes to Financial Statements.

 

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Large-Cap Value Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Large-Cap Value Fund Shareholder,

Along with the large-cap value segment of the stock market, our Fund continued to suffer the ill-effects of the ongoing credit crisis and economic downturn. For the quarter ending June 30, 2008, the Fund declined 4.22%, beating its primary benchmark, the Russell 1000 Value Index, which fell 5.31%. Our peer benchmark, however, dropped by a smaller 3.40%. While certain growth stocks experienced a bit of a rebound during the period, investors avoided value-oriented companies. It was a mixed (mediocre to poor) quarter on a relative return basis.

For the full fiscal year ended June 30, 2008, Large-Cap Value Fund declined a significant 16.46%, as the economic news took its toll on value stocks. Nevertheless, we did provide some “cushion” against the downturn, outperforming both our benchmarks. The Russell 1000 Value Index declined 18.78% and the Lipper Large-Cap Value Funds Index dropped 16.53% during the period.

As presented in the table below, we are pleased to report that Large-Cap Value Fund has also outperformed each of its benchmarks since inception in October 2003. We apply our quantitative strategies in a disciplined manner in both good times and bad, both strong and weak markets. Focusing on the long term will remain a key objective of our firm. The information below bears out our historical success as we approach our five year anniversary.

The table below presents our June quarter, one-year, and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance since inception.

 

      June Qtr.
4/1/08
to 6/30/08
   1 Year
7/1/07
to 6/30/08
   Life-to-Date
10/31/03
to 6/30/08

Large-Cap Value Fund

   -4.22%    -16.46%    8.55%

Russell 1000 Value Index

   -5.31%    -18.78%    7.73%

Lipper Large-Cap Value Funds Index

   -3.40%    -16.53%    6.71%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Russell 1000 Value Index is an unmanaged index which consists of stocks in the Russell 1000 Index with higher price-to-book ratios and higher forecasted growth values with dividends reinvested. The Lipper Large-Cap Value Funds Index is an index of large-company, value-oriented funds compiled by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Large-Cap Value Fund ranked 173rd of 431 multi-cap value funds for the twelve-month period ended June 30, 2008 and 58th of 262 such funds since inception in October, 2003. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

86   Annual Report  |  June 30, 2008


LOGO

Large-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Large-Cap Value Fund vs. Russell 1000 Value Index & Lipper Large-Cap Value Funds Index 10/31/03 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  Energy companies were the saving grace for the Fund over the past three months, as five oil and gas holdings headlined our list of top performers. Combined these stocks contributed about 2% to the Fund’s return. However, only one holding climbed by more than 30% during the quarter, and four of our top performing stocks earned single-digit returns.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Chesapeake Energy Corp

  

Oil & Gas

   42.9%
2   

Western Digital Corp

  

Computers

   27.7%
3   

ConocoPhillips

  

Oil & Gas

   23.9%
4   

Freeport-McMoRan Copper & Gold Inc

  

Mining

   21.8%
5   

Chevron Corp

  

Oil & Gas

   16.1%
6   

Marathon Oil Corp

  

Oil & Gas

   13.8%
7   

Medco Health Solutions Inc

  

Pharmaceuticals

   7.8%
8   

Time Warner Inc

  

Media

   5.6%
9   

Goldman Sachs Group Inc

  

Diversified Financial Services

   4.4%
10   

Exxon Mobil Corp

  

Oil & Gas

   4.2%
                

Exploration and production company Chesapeake Energy was the Fund’s top performer over the three-month period. During the quarter, the company engaged in a series of transactions, as management positioned it to take advantage of the continued rise in energy prices. In May, Chesapeake announced the sale of several producing properties, including some older gas reserves for over $600 million. It also advanced its position in the shale market by partnering on some developing properties with Goodrich Petroleum in Louisiana. The company announced a first quarter loss; however, once hedging costs were removed from the equation, its adjusted earnings far exceeded Wall Street expectations. For the quarter, the company contributed about 0.7% to the return of the Fund.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  The financial services industry continued to struggle through the credit crisis. Banks and investment firms wrote-down significant assets and sought out capital infusions from various sources to shore up their balance sheets. Four of our lowest performing companies of the quarter (including the two worst performers) were in that industry. Combined, they cost the Fund slightly less than 1.8% in terms of performance.

 

www.bridgeway.com   87


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Large-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Wachovia Corp

  

Banks

   -42.5%
2   

Bank of America Corp

  

Banks

   -37.0%
3   

Goodyear Tire & Rubber Co

  

Auto Parts & Equipment

   -30.9%
4   

Owens-Illinois Inc

  

Packaging & Containers

   -26.1%
5   

JPMorgan Chase & Co

  

Diversified Financial Services

   -20.1%
6   

Avnet Inc

  

Electronics

   -18.9%
7   

Pepsi Bottling Group Inc

  

Beverages

   -17.7%
8   

Pfizer Inc

  

Pharmaceuticals

   -16.1%
9   

Expedia Inc

  

Internet

   -16.0%
10   

US Bancorp

  

Banks

   -13.8%
                

North Carolina-based Wachovia is the nation’s fourth largest bank. Unfortunately, management’s decision to purchase Golden West Financial, a California-based mortgage company, in 2006 contributed greatly to many of the financial hardships the bank has incurred. In May, Wachovia reported a loss of $708 million in the first quarter and was forced to cut its dividend and seek additional capital through the issuance of new common and preferred stock. The company also became the target of an SEC investigation and related class-action lawsuits over its role in misrepresenting certain auction-rate securities. In June, CEO Ken Thompson became the latest financial executive victim as he “chose” to step down, just a few weeks after he relinquished his Chairman title. We continue to hold this stock for now.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  One look at the Fund’s numbers for the fiscal year reveals that not much worked during the period. However, some of our energy and commodities (mining) companies performed quite well for the Fund. Additionally, some good picks from outside of these two hot industries also resulted in strong returns for certain stocks, and six different sectors were represented in the list of top performers.

These are the ten best performers for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Chesapeake Energy Corp

  

Oil & Gas

   90.6%
2   

Western Digital Corp

  

Computers

   29.8%
3   

Freeport-McMoRan Copper & Gold Inc

  

Mining

   27.4%
4   

Express Scripts Inc

  

Pharmaceuticals

   22.3%
5   

Medco Health Solutions Inc

  

Pharmaceuticals

   20.7%
6   

ConocoPhillips

  

Oil & Gas

   20.2%
7   

Chevron Corp

  

Oil & Gas

   17.7%
8   

Southern Copper Corp

  

Mining

   13.1%
9   

Berkshire Hathaway Inc

  

Insurance

   11.3%
10   

Parker Hannifin Corp

  

Miscellaneous Manufacturing

   9.3%
                

Western Digital Corp. was the Fund’s number two performer during the fiscal year and contributed over 0.2% to the overall return. During the year, the hard-drive manufacturer reported consecutive quarters of positive earnings surprises, and revenues jumped over 50% in its most recent report. While computer makers have struggled given the sluggish economy, the demand for digital storage has been expanding, and some analysts claim that such content is more important than the hardware it resides on. Our models gave us the buy signal for this stock in late January, and it has paid off so far.

 

88   Annual Report  |  June 30, 2008


LOGO

Large-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  Financials and consumer-related companies highlighted the list of the Fund’s worst performers for the fiscal year. As the credit crisis pushes forward, the losses, write-downs, and general negativity are starting to impact other sectors of the economy, particularly those reliant on consumer activity. Three financial companies and four consumer-oriented (cyclical and non-cyclical) holdings comprise this list and cost the Fund about 4% in returns. The two biggest losers were major banks, and both declined in excess of 50% during the fiscal year.

These are the ten stocks that performed the worst in the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Wachovia Corp

  

Banks

   -60.4%
2   

Bank of America Corp

  

Banks

   -50.6%
3   

CNA Financial Corp

  

Insurance

   -40.6%
4   

Qwest Communications International Inc

  

Telecommunications

   -38.4%
5   

Expedia Inc

  

Internet

   -37.6%
6   

Bristol-Myers Squibb Co

  

Pharmaceuticals

   -34.7%
7   

Kla-Tencor Corp

  

Semiconductors

   -33.4%
8   

Goodyear Tire & Rubber Co/The

  

Auto Parts & Equipment

   -33.1%
9   

Cigna Corp

  

Healthcare-Services

   -32.2%
10   

Pepsi Bottling Group Inc

  

Beverages

   -31.9%
                

Bank of America, the giant Charlotte, North Carolina-based financial holding company, lost over 50% of its value during the past twelve months and cost the Fund over three-quarters of a percent in performance. As the credit crisis continued to worsen, Bank of America played “white knight” and agreed to purchase Countrywide Financial for an estimated $4 billion. Once the country’s largest mortgage lender, Countrywide had become the poster child for the subprime debacle, and investors became leery that the acquisition would hurt Bank of America’s future earnings and ongoing operations. Countrywide’s shareholders approved the purchase in June, though the value had declined to about $2.6 billion because of the drop in stock price. The transaction was completed on July 1 (just after the end of the fiscal year) and Bank of America is now the country’s largest mortgage lender and servicer (not such a desired position to be in these days). We are still in a holding pattern with Bank of America.

Top Ten Holdings as of June 30, 2008

 

Four of the Fund’s largest positions at the end of the fiscal year were also among the top performers for the quarter; it’s not surprising that three of those holdings were oil and gas companies: ConocoPhillips, Exxon Mobil, and Chevron. No single position accounted for over 5% of the net assets and, as a whole, the top 10 holdings made up less than 40% of the Fund.

 

Rank    Description    Industry    Percent of
Net Assets
1   

Hewlett-Packard Co.

  

Computers

   4.9%
2   

AT&T, Inc.

  

Telecommunications

   4.1%
3   

Berkshire Hathaway, Inc.

  

Insurance

   3.8%
4   

ConocoPhillips

  

Oil & Gas

   3.8%
5   

Exxon Mobil Corp.

  

Oil & Gas

   3.5%
6   

Medco Health Solutions, Inc.

  

Pharmaceuticals

   3.5%
7   

Verizon Communications, Inc.

  

Telecommunications

   3.5%
8   

Chevron Corp.

  

Oil & Gas

   3.4%
9   

Lockheed Martin Corp.

  

Aerospace/Defense

   3.3%
10   

International Business Machines Corp.

  

Computers

   3.2%
                
 Total          37.0%

 

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Large-Cap Value Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

The underweighting in the consumer sectors (both cyclical and non-cyclical) proved to be a successful strategy as the sluggish economy continued to hinder consumer activity. However, the Fund was overweight financials which, as the media reminds us about daily, remains the hardest hit sector.

 

      % of Net Assets    % of S&P 500 Index    Difference

Basic Materials

   8.1%    3.9%    4.2%

Communications

   12.8%    11.0%    1.8%

Consumer, Cyclical

   1.7%    7.1%    -5.4%

Consumer, Non-cyclical

   16.2%    20.6%    -4.4%

Energy

   18.1%    16.3%    1.8%

Financial

   16.8%    14.0%    2.8%

Industrial

   11.7%    11.5%    0.2%

Technology

   9.7%    11.6%    -1.9%

Utilities

   4.9%    3.9%    1.0%

Cash

   0.0%    0.1%    -0.1%
                

Total

   100.0%    100.0%   

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

The Fund is subject to market risk (volatility) and is not an appropriate investment for short-term investors.

Conclusion

 

Thank you for your continued investment in Large-Cap Value Fund. We encourage your feedback; your reactions and concerns are important to us.

Sincerely,

Your Investment Management Team

 

90   Annual Report  |  June 30, 2008


THIS PAGE INTENTIONALLY LEFT BLANK

 

 

 

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Bridgeway Large-Cap Value Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 100.00%

Aerospace/Defense - 5.41%

 

Lockheed Martin Corp.

  18,300    $ 1,805,478
 

Raytheon Co.

  20,000      1,125,600
          
         2,931,078

Auto Parts & Equipment - 0.88%

 

Goodyear Tire & Rubber Co.*

  26,800      477,844

Banks - 3.18%

 

Bank of America Corp.

  27,508      656,616
 

US Bancorp

  27,000      753,030
 

Wachovia Corp.+

  20,000      310,600
          
         1,720,246

Beverages - 0.92%

 

Pepsi Bottling Group, Inc.

  17,900      499,768

Chemicals - 3.77%

 

Dow Chemical Co.

  12,400      432,884
 

EI Du Pont de Nemours & Co.

  37,500      1,608,375
          
         2,041,259

Commercial Services - 1.64%

 

RR Donnelley & Sons Co.

  30,000      890,700

Computers - 9.72%

 

Hewlett-Packard Co.

  60,000      2,652,600
 

International Business Machines Corp.

  14,800      1,754,244
 

Western Digital Corp.*+

  24,800      856,344
          
         5,263,188

Diversified Financial Services - 2.79%

 

Goldman Sachs Group, Inc.

  1,000      174,900
 

JPMorgan Chase & Co.

  38,950      1,336,374
          
         1,511,274

Electric Utilities - 4.91%

 

American Electric Power Co., Inc.

  24,000      965,520
 

Duke Energy Corp.

  26,100      453,618
 

Reliant Energy, Inc.*

  33,600      714,672
 

Southern Co.

  15,050      525,546
          
         2,659,356

Healthcare - Services - 3.06%

 

Aetna, Inc.

  22,600      915,978
 

CIGNA Corp.

  21,000      743,190
          
         1,659,168
Industry   Company   Shares    Value

Insurance - 10.82%

 

Aflac, Inc.

  15,000    $ 942,000
 

Berkshire Hathaway, Inc., Class B*

  510      2,046,120
 

Chubb Corp.

  25,100      1,230,151
 

MetLife, Inc.

  31,100      1,641,147
          
         5,859,418

Internet - 1.07%

 

Expedia, Inc.*

  31,500      578,970

Machinery - Diversified - 1.02%

 

AGCO Corp.*+

  10,500      550,305

Media - 3.26%

 

Time Warner, Inc.

  20,400      301,920
 

Walt Disney Co.

  46,900      1,463,280
          
         1,765,200

Mining - 4.33%

 

Freeport-McMoRan Copper & Gold, Inc., Class B

  8,156      955,802
 

Southern Copper Corp.+

  13,000      1,386,190
          
         2,341,992

Miscellaneous Manufacturing - 4.27%

 

Honeywell International, Inc.

  20,000      1,005,600
 

Parker Hannifin Corp.

  5,250      374,430
 

Textron, Inc.

  19,400      929,842
          
         2,309,872

Oil & Gas - 18.09%

 

Chesapeake Energy Corp.+

  22,000      1,451,120
 

Chevron Corp.

  18,514      1,835,293
 

ConocoPhillips

  21,600      2,038,824
 

Exxon Mobil Corp.

  21,600      1,903,608
 

Hess Corp.+

  6,900      870,711
 

Marathon Oil Corp.

  21,200      1,099,644
 

Noble Energy, Inc.

  5,900      593,304
          
         9,792,504

Packaging & Containers - 1.00%

 

Owens-Illinois, Inc.*

  13,000      541,970

Pharmaceuticals - 10.53%

 

Bristol-Myers Squibb Co.

  75,000      1,539,750
 

Express Scripts, Inc.*

  15,000      940,800
 

Medco Health Solutions, Inc.*

  40,000      1,888,000
 

Pfizer, Inc.

  76,200      1,331,214
          
         5,699,764

 

92   Annual Report  |  June 30, 2008


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Bridgeway Large-Cap Value Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value  

Common Stocks (continued)

 

Retail - 0.84%

 

 

CVS Caremark Corp.

  11,480    $ 454,264  

Telecommunications - 8.49%

 

 

AT&T, Inc.

  65,292      2,199,687  
 

Corning, Inc.

  22,600      520,930  
 

Verizon Communications, Inc.+

  53,030      1,877,262  
            
         4,597,879  
            

TOTAL COMMON STOCKS - 100.00%

     54,146,019  
            

(Cost $46,947,038)

  

TOTAL INVESTMENTS - 100.00%

   $ 54,146,019  

(Cost $46,947,038)

  

Liabilities in Excess of Other Assets - 0.00%

     (2,431 )
            

NET ASSETS - 100.00%

   $ 54,143,588  
            

 

* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $6,750,451 at June 30, 2008.

See Notes to Financial Statements.

 

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Blue Chip 35 Index Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Blue Chip 35 Index Fund Shareholder,

For the six months ending June 30, 2008, our Fund declined sharply, 14.57%, a steeper decline than either our primary market or peer benchmark. By comparison, the S&P 500 Index was down 11.91%, and the Lipper Large-Cap Core Funds Index was down 10.80%. Our own proprietary index, the Bridgeway Ultra-Large 35 Index, declined 14.89% during the past six months, slightly more than our Fund (even after considering our expense ratio). Accounting for the benchmark-lagging performance were the facts that a) mid-size companies strongly outperformed our ultra-large ones during the period, and b) we had slightly stronger representation among financial stocks, some of which were among those particularly hard hit in the credit crisis. Except for the favorable operational execution against our own index, this was a poor six-month period.

Based on the negative performance drag of the recent six-month period, our Fund declined a similar 14.28% for the fiscal year ending June 30, 2008, underperforming the S&P 500 Index by 1.16% and the Lipper Large-Cap Core Funds Index by 2.90%.

The table below presents our six month, one-year, five-year, ten-year and life-to-date financial results according to the formula required by the SEC. See the next page for a graph of performance from inception. We are now “dead even” with the S&P 500 Index over the last ten years and lead by a bit since inception.

 

     

Six Months

1/1/08
to 6/30/08

  

1 Year

7/1/07
to 6/30/08

  

5 Year

7/1/03
to 6/30/08

  

10 Year

7/1/98
to 6/30/08

  

Life-to-Date

7/31/97

to 6/30/08

Blue Chip 35 Index Fund

   -14.57%    -14.28%    4.63%    2.88%    4.53%

S&P 500 Index

   -11.91%    -13.12%    7.58%    2.88%    4.40%

Bridgeway Ultra-Large 35 Index

   -14.89%    -14.59%    4.55%    2.97%    4.61%

Lipper Large-Cap Core Funds Index

   -10.80%    -11.38%    6.94%    2.32%    3.85%

Performance figures quoted in the table above and graph below represent past performance and are no guarantee of future results. The table above and the graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks with dividends reinvested. The Bridgeway Ultra-Large 35 Index is an index comprised of very large, “blue chip” U.S. stocks, excluding tobacco; it is compiled by the adviser of the Fund. The Lipper Large-Cap Core Funds Index reflects the aggregate record of domestic large-cap core mutual funds as reported by Lipper, Inc. It is not possible to invest directly in an index. Periods longer than one year are annualized.

According to data from Lipper, Inc. as of June 30, 2008, Blue-Chip 35 Index Fund ranked 565th of 817 large-cap core funds for the twelve months ending June 30, 2008, 497th of 574 over the last five years, 137th of 323 over the last ten years, and 83rd of 270 since inception in July 1997. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

 

94   Annual Report  |  June 30, 2008


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Blue Chip 35 Index Fund

MANAGER’S COMMENTARY (continued)

 

 

Blue Chip 35 Index Fund vs. S&P 500 Index & Bridgeway Ultra-Large 35 Index & Lipper Large-Cap Core Funds Index Inception (7/31/97) to 6/30/08

 

LOGO

Six-Month Performance

 

The Short Version:  Being pure “ultra-large,” that is, focusing on the market’s largest companies, did not help in the last six-month period. Our financial stocks also hurt performance.

As reported in our December 2007 report, “The shift toward larger company stocks is clearly evident during the one-year timeframe and shorter. The most recent quarter [December 2007] indicates things could be shifting back in the “bulls-eye” of our Fund.” We were certainly off the mark on this last statement. (One more reason we don’t take action to time the market with our funds at Bridgeway; it’s nearly impossible to predict short-term market movements with accuracy. Not only did things shift back in favor of mid-cap companies (absent from our Fund but present in our primary market and peer benchmarks), but it happened in a strongly down-trending market—rather unusual based on a study of the last eight decades of stock market data. The second column in the table below shows statistically that we had a “size disadvantage” relative to our performance benchmarks that have some exposure to the companies in size deciles 2-5, which our Fund does not.

 

CRSP Decile1    Six-months
to 6/30/08
   Fiscal Year
to 6/30/08
   (82 years)
12/31/1925
to 6/30/08

(ultra-large) 1

   -12.1%    -11.0%    9.4%

2

   -11.2%    -13.2%    10.7%

3

   -6.8%    -13.0%    11.1%

4

   -7.0%    -13.9%    10.9%

5

   -6.2%    -13.1%    11.5%

6

   -10.6%    -15.3%    11.5%

7

   -12.8%    -20.3%    11.3%

8

   -11.5%    -21.1%    11.5%

9

   -15.0%    -25.0%    11.6%

10

   -15.1%    -27.3%    13.2%

 

1

The CRSP Cap-Based Portfolio Indexes are unmanaged indexes of the publicly traded U.S. stocks with dividends reinvested, grouped by the market capitalization, as reported by the Center for Research in Security Prices. Past performance is no guarantee of future results.

In addition to the size disadvantage for the six-month period, financial stocks were a major part of our performance problem, as detailed more fully in the next section.

Fiscal Year Performance

 

The Short Version:  Relative to the S&P 500 Index, our blue chip fund has a higher concentration of finance stocks and too many of the ones that did particularly poorly. We were a bit under concentrated in energy, basic materials, and utility companies.

 

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Blue Chip 35 Index Fund

MANAGER’S COMMENTARY (continued)

 

 

Unlike the last six-month period described above, the six-month period from July through December 2007 was quite favorable to our staple of ultra-large companies. Indeed, according to the table above, the CRSP 1 group of ultra-large companies outperformed the next smaller group by more than two percentage points for the full fiscal year ending June 30, 2008. Alas, this favorable factor was swamped by the other unfavorable factors below.

The table below tells much of the story behind our negative (and benchmark-lagging) returns over the twelve months of fiscal year 2008. First of all, two companies declined by more than 50%. We wondered if this had ever happened before, and we checked through our Fund’s history. It has. In fiscal year 2001, the second year of the worst bear market since the Great Depression, seven Fund companies declined more than 50%. While interesting, somehow that fact doesn’t seem to provide much comfort.

Second, while our Fund was only overweight by one percentage point in financial companies relative to the S&P 500 Index at the end of the fiscal year, the largest financial companies in the marketplace were particularly hard hit. Indeed, all four of the worst-performing companies on the list below hailed from the financial sector. In aggregate, these four companies accounted for about half of our negative performance for the fiscal year—seven percentage points of return. Ouch.

Third, our “roughly equal weighting strategy,” (we generally seek to own equal amounts of each of our index stocks), worked against us over the last few quarters. Our analysis indicates that, over time, equal weighting helps manage Fund risk, but it doesn’t work as well in environments where there are major market trends, such as the technology boom of the late nineties or the financial debacle over the last year.

Fourth, the three sectors of the economy that actually had positive returns over the last year were basic materials (especially chemical companies), utilities, and energy—areas where our Index of the largest companies was absent or “light.” For example, on average during the June quarter our Fund held about nine and a half percent of net assets in energy companies, but the S&P 500 Index held fourteen and a half percent in this sector. Since this has been a “boom” part of the economy—with double digit positive returns—our underweighting cost about two percentage points of returns on a relative basis.

In total, a lot was working against us. Our informal internal goal is to outperform the market about three of every four years.

Total Return for Blue Chip 35 Index Fund Stocks for the Fiscal Year Ended June 30, 2008

 

 

Rank    Company    Industry    % Change
1   

ConocoPhillips

  

Oil & Gas

   18.0%
2   

Wal-Mart Stores Inc

  

Retail

   14.1%
3   

Chevron Corp

  

Oil & Gas

   13.3%
4   

International Business Machines Corp

  

Computers

   8.2%
5   

Genentech Inc

  

Biotechnology

   3.3%
6   

Oracle Corp

  

Software

   2.7%
7   

Exxon Mobil Corp

  

Oil & Gas

   1.8%
8   

Berkshire Hathaway Inc

  

Insurance

   0.8%
9   

Johnson & Johnson

  

Healthcare-Products

   0.1%
10   

Google Inc

  

Internet

   -0.4%
11   

Applied Materials Inc

  

Semiconductors

   -1.2%
12   

Coca-Cola Co

  

Beverages

   -3.8%
13   

Procter & Gamble Co

  

Cosmetics/Personal Care

   -5.9%
14   

PepsiCo Inc

  

Beverages

   -6.2%
15   

Intel Corp

  

Semiconductors

   -7.2%
16   

Microsoft Corp

  

Software

   -8.5%
17   

Dell Inc

  

Computers

   -9.2%
18   

United Parcel Service Inc

  

Transportation

   -11.0%
19   

AT&T Inc

  

Telecommunications

   -11.5%

 

96   Annual Report  |  June 30, 2008


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Blue Chip 35 Index Fund

MANAGER’S COMMENTARY (continued)

 

 

Rank    Company    Industry    % Change
20   

Verizon Communications Inc

  

Telecommunications

   -11.6%
21   

Eli Lilly & Co

  

Pharmaceuticals

   -14.3%
22   

United Technologies Corp

  

Aerospace/Defense

   -14.8%
23   

Cisco Systems Inc

  

Telecommunications

   -14.8%
24   

Texas Instruments Inc

  

Semiconductors

   -14.9%
25   

3M Co

  

Miscellaneous Manufacturing

   -15.6%
26   

Time Warner Inc

  

Media

   -15.8%
27   

Merck & Co Inc

  

Pharmaceuticals

   -16.7%
28   

JPMorgan Chase & Co

  

Diversified Financial Services

   -20.7%
29   

General Electric Co

  

Miscellaneous Manufacturing

   -22.9%
30   

Wells Fargo & Co

  

Banks

   -24.2%
31   

Pfizer Inc

  

Pharmaceuticals

   -24.4%
32   

Home Depot Inc

  

Retail

   -26.5%
33   

Bank of America Corp

  

Banks

   -42.8%
34   

Citigroup Inc

  

Diversified Financial Services

   -47.7%
35   

Wachovia Corp

  

Banks

   -52.7%
36   

American International Group Inc

  

Insurance

   -54.0%
                

Rebalancing Bridgeway Ultra-Large 35 Index

 

Our most significant restructuring of the Ultra-Large 35 Index takes place every two to three years, at which point we add and remove between five and ten stocks to stay in line with the Index strategy of investing in the largest “blue chip” U.S. stocks. Changing the constituents is not done in a straightforward way: by simply ranking stocks by their market capitalization. We also implement a number of restrictions and rules looking for diversification at the industry and sector level. Our last rebalancing was three years ago. We made the following changes to the Index on June 30, 2008 (and consequently made the same changes to the Fund):

 

Added to the Index    Industry
Apple Inc    Computers
Abbott Laboratories    Pharmaceuticals
CVS/Caremark Corp    Retail
Halliburton Co    Oil & Gas Services
Hewlett-Packard Co    Computers
Monsanto Co    Chemicals
Occidental Petroleum Corp    Oil & Gas
Visa Inc    Commercial Services

 

Dropped from the Index    Industry
Applied Materials Inc    Semiconductors
Dell Inc    Computers
Home Depot Inc    Retail
Eli Lilly & Co    Pharmaceuticals
3M Co    Miscellaneous Manufacturers
Time Warner Inc    Media
Texas Instruments Inc    Semiconductors
Wachovia Corp    Banks

Not Destroying Value in the Recomposition Process

 

One of the studies that had an impact on John Montgomery’s (and later, Bridgeway’s) overall investment philosophy (or “contrarian leanings”) had to do with the investment industry’s first index fund. This fund was constructed for a pension fund with the idea that what you give up (performance) with active management, you save in lower transaction costs and operating

 

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                                    [GRAPHIC]

                                        

Blue Chip 35 Index Fund

MANAGER’S COMMENTARY (continued)

 

 

costs. It was a really good idea except for, as it turns out on the margin, human intervention. Ah, you may have thought human intervention was completely taken out of the investment process with indexing. Almost, but not quite.

One of the principles applied to this first index fund was the “prudent man rule.” This rule directs trustees to “observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but . . . also considering the safety of the capital to be invested.” The first implementers of index investing decided that even in indexing, a prudent man should eliminate the dozen or so companies that a . . . prudent man (apparently women didn’t invest in 1830 when this rule was born) would avoid, i.e. those that are probably going out of business. So, more than a dozen companies were “skipped” in the construction of the fund. Some years later, a researcher came up with the idea of checking how these “dogs” of the index actually did in the ensuing years. Indeed, not all the companies survived, but those that did carry the day and the group as a whole actually outperformed the index. A classical contrarian result.

When designing our own proprietary index, we at Bridgeway wanted to make sure that nothing we did would destroy value by picking stocks we simply thought were particularly good (or avoiding ones we thought were particularly bad), lest we end up with returns somewhat less that the universe of stocks from which we were sampling. Unless you are on your guard, emotion creeps into the process in difficult to detect and insidious ways.

Since it’s now been more than ten years since the construction of Bridgeway Ultra-Large 35 Index, and since this is the fourth time we have recomposed our Index, we thought it would be appropriate to evaluate how well we’ve done. Elena Khoziaeva, a member of Bridgeway’s Investment Management Team recently compiled the list of all the stocks coming out of the Index and all the ones going in. (drum roll please)

We’re happy to report that, in aggregate, our new companies moving into the Index have outperformed the ones coming out. We have a well constructed process to identify the stocks coming in and out. My favorite example is Google, which came in three and a half years ago. Elena’s reaction when we added it was, “This stock is way too expensive. I can’t believe we’re adding it to a blue chip fund. So, now we have to buy it anyway.”

Oh, we almost forgot the punch line. In the fiscal years since adding it, Google has ranked, among all 35+ Index companies: first, twelfth, and (above) tenth. This makes it our second best performing company since adding it to the Fund.

Industry Sector Representation as of June 30, 2008

 

Technology represented the largest sector allocation dispersion (+9.6%) between our Fund and the S&P 500 Index. Energy was next (-5.7%), as reported below. Both of these “gaps” closed some with our “recomposed” Ultra-Large 35 Index (see “recomposition” above.) The second column below reflects actual Fund holdings, which approximate the weights in Bridgeway’s Ultra-Large 35 Index before recomposition. The second column reflects the Index post recomposition; these weights became the target for our Fund beginning July 1, 2008.

 

      % of Fund    % Newly
Recomposed Index
   % S&P 500

Basic Materials

   0.0%    2.7%    3.9%

Communications

   15.3%    11.1%    11%

Consumer, Cyclical

   5.4%    5.5%    7.1%

Consumer, Non-cyclical

   22.2%    25.1%    20.6%

Energy

   10.6%    14.0%    16.3%

Financial

   14.9%    16.7%    14%

Industrial

   10.0%    8.2%    11.5%

Technology

   21.2%    16.7%    11.6%

Utilities

   0.0%    0.0%    3.9%

Diversified

   0.0%    0.0%    0.1%

Cash

   0.4%    0.0%    0.0%
                

Total

   100.0%    100.0%    100.0%

 

98   Annual Report  |  June 30, 2008


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Blue Chip 35 Index Fund

MANAGER’S COMMENTARY (continued)

 

 

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views, including those of market sectors or individual stocks, are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of the quarter end, June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

The Fund is subject to above average market risk (volatility) and is not an appropriate investment for short-term investors.

Conclusion

 

Thank you for your continued investment in Blue Chip 35 Index Fund. This Fund remains open to both current and new investors. As always, we appreciate your feedback.

Sincerely,

Your Investment Management Team

 

www.bridgeway.com   99


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Bridgeway Blue Chip 35 Index Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 99.59%

Aerospace/Defense - 2.91%

 

United Technologies Corp.

  118,480    $ 7,310,216

Banks - 5.56%

 

Bank of America Corp.

  185,008      4,416,141
 

Wachovia Corp.+

  260,135      4,039,897
 

Wells Fargo & Co.+

  231,559      5,499,526
          
         13,955,564

Beverages - 5.19%

 

Coca-Cola Co.

  121,257      6,302,939
 

PepsiCo., Inc.

  105,650      6,718,283
          
         13,021,222

Biotechnology - 2.80%

 

Genentech, Inc.*

  92,515      7,021,888

Computers - 5.79%

 

Dell, Inc.*+

  342,944      7,503,615
 

International Business Machines Corp.

  59,342      7,033,807
          
         14,537,422

Cosmetics/Personal Care - 2.83%

 

Procter & Gamble Co.

  116,826      7,104,189

Diversified Financial Services - 4.64%

 

Citigroup, Inc.+

  348,049      5,833,301
 

JPMorgan Chase & Co.

  169,695      5,822,236
          
         11,655,537

Healthcare - Products - 3.18%

 

Johnson & Johnson

  123,952      7,975,072

Insurance - 4.73%

 

American International Group, Inc.

  164,036      4,340,393
 

Berkshire Hathaway, Inc., Class B*

  1,880      7,542,560
          
         11,882,953

Internet - 3.52%

 

Google, Inc., Class A*

  16,770      8,828,063

Media - 3.03%

 

Time Warner, Inc.+

  513,630      7,601,724

Miscellaneous Manufacturing - 5.07%

 

3M Co.

  94,328      6,564,285
 

General Electric Co.

  230,443      6,150,524
          
         12,714,809
Industry   Company   Shares    Value

Oil & Gas - 10.60%

 

Chevron Corp.

  89,895    $ 8,911,291
 

ConocoPhillips

  100,915      9,525,367
 

Exxon Mobil Corp.

  92,787      8,177,318
          
         26,613,976

Pharmaceuticals - 8.24%

 

Eli Lilly & Co.+

  151,395      6,988,393
 

Merck & Co., Inc.

  204,835      7,720,231
 

Pfizer, Inc.

  342,644      5,985,991
          
         20,694,615

Retail - 5.36%

 

Home Depot, Inc.

  211,030      4,942,322
 

Wal-Mart Stores, Inc.

  151,319      8,504,128
          
         13,446,450

Semiconductors - 8.84%

 

Applied Materials, Inc.+

  373,965      7,138,992
 

Intel Corp.

  390,443      8,386,716
 

Texas Instruments, Inc.+

  236,690      6,665,190
          
         22,190,898

Software - 6.53%

 

Microsoft Corp.

  282,345      7,767,311
 

Oracle Corp.*

  410,613      8,622,873
          
         16,390,184

Telecommunications - 8.78%

 

AT&T, Inc.

  232,025      7,816,922
 

Cisco Systems, Inc.*

  301,804      7,019,961
 

FairPoint Communications, Inc.+

  2,823      20,354
 

Verizon Communications, Inc.+

  202,889      7,182,271
          
         22,039,508

Transportation - 1.99%

 

United Parcel Service, Inc., Class B

  81,163      4,989,090
          

TOTAL COMMON STOCKS - 99.59%

     249,973,380
          

(Cost $274,333,161)

  

 

100   Annual Report  |  June 30, 2008


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Bridgeway Blue Chip 35 Index Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

    Rate^    Shares    Value

MONEY MARKET FUNDS - 0.23%

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    573,927    $ 573,927
           

TOTAL MONEY MARKET FUNDS - 0.23%

     573,927
           

(Cost $573,927)

  

TOTAL INVESTMENTS - 99.82%

   $ 250,547,307

(Cost $274,907,088)

  

Other Assets in Excess of Liabilities - 0.18%

     440,545
           

NET ASSETS - 100.00%

   $ 250,987,852
           

 

+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $37,211,798 at June 30, 2008.
* Non Income Producing Security.
^ Rate disclosed is as of June 30, 2008.

See Notes to Financial Statements.

 

www.bridgeway.com   101


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Balanced Fund

MANAGER’S COMMENTARY

 

 

June 30, 2008

Dear Fellow Balanced Fund Shareholder:

For the quarter ending June 30, 2008, Balanced Fund bounced back from a rough first quarter ended March 31, 2008, to increase by 1.62% and outperform each of its benchmarks, which declined over the three-month period: Balanced Benchmark (-1.69%), S&P 500 (-2.73%), Bloomberg/EFFAS US Government 1-3 year Total Return Bond (-0.99%), and Lipper Balanced Funds Index (-1.07%). Our Fund ended in positive territory, despite the onslaught of negative news surrounding the economy, the financial services sector, and threats of inflation. We are generally pleased with the turnaround quarter and our absolute and relative performance. As always, our investment objective is to manage a conservative, low risk balanced portfolio with less than or equal to 40% of the volatility of the S&P index (i.e., 60% less risk).

Unfortunately the results were not quite as favorable for the full fiscal year ending June 30, 2008. The Fund dropped in value by 1.57% and slightly trailed the Balanced Benchmark, which declined by 0.87%. The Fund also underperformed the Bloomberg/EFFAS US Government 1-3 Year Total Return Bond Index, which rose by 7.29% during the 12-month period. Bond-only funds and indexes benefited during the period as economic and stock market concerns led to a flight-to-quality from certain equities into fixed income. On the other hand, Balanced Fund handily beat the equity-only S&P 500 Index (-13.12%) and the Lipper Balanced Funds Index (-5.59%). From a longer-term perspective, we are pleased to report that the Fund has rewarded our shareholders by outperforming each of the benchmarks since inception in July 2001; such long-term results will remain a key objective of our firm.

Our hybrid total-return Fund invests in both equity and fixed income securities, while incorporating an options strategy designed to produce a conservative, lower volatility balanced portfolio. During very favorable equity market conditions, the Fund often under-performs many of the more aggressive benchmarks. On the other hand, when stocks struggle and investors seek the safe haven of more conservative bonds, Balanced Fund tends to perform better than the equity-only indexes.

The table below presents our June quarter, one-year, five-year and life-to-date financial results according to the formula required by the SEC. A graph of quarterly performance since inception appears on the following page.

 

     

June Qtr.

4/1/08
to 6/30/08

  

1 Year

7/1/07
to 6/30/08

   5 Year
7/1/03
to 6/30/08
  

Life-to-Date

6/30/01
to 6/30/08

Balanced Fund

   1.62%    -1.57%    6.37%    4.77%

Bloomberg/ EFFAS U.S. Government

1-3 Year Total Return Bond Index

   -0.99%    7.29%    3.20%    3.94%

Balanced Benchmark

   -1.69%    -0.87%    5.04%    3.36%

S&P 500 Index

   -2.73%    -13.12%    7.58%    2.45%

Lipper Balanced Funds Index

   -1.07%    -5.59%    7.07%    4.34%

Performance figures quoted in the table above and graph on the next page represent past performance and are no guarantee of future results. The table above and graph below do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

The Lipper Balanced Funds Index is an index of balanced funds compiled by Lipper, Inc. Balanced Benchmark is a combined index of which 40% reflects the S&P 500 Index (an unmanaged index of large companies with dividends reinvested) and 60% reflects the Bloomberg/ EFFAS U.S. Government 1-3 year Total Return Bond Index (transparent benchmark for the total return of the 1-3 year U.S. Government bond market).

According to data from Lipper, Inc. as of June 30, 2008, the Balanced Fund ranked 55th of 462 Mixed-Asset Moderate funds for the calendar year ended June 30, 2008, 123rd of 239 for the past five years and 58th of 180 funds since inception on June 30, 2001. Lipper, Inc. is an independent mutual fund rating service that ranks funds in various fund categories by making comparative calculations using total returns.

According to data from Morningstar as of June 30, 2008, the Balanced Fund ranked 204th of 637 Conservative Allocation funds for the calendar year ended June 30, 2008 and 39th out of 278 funds for five years. Morningstar ranks funds in various fund categories by making comparative calculations using total returns.

 

102   Annual Report  |  June 30, 2008


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Balanced Fund

MANAGER’S COMMENTARY (continued)

 

 

Balanced Fund vs. S&P 500 Index & Bloomberg/EFFAS Bond Index & Lipper Balanced Funds Index & Balanced Benchmark 6/30/01 to 6/30/08

 

LOGO

Detailed Explanation of Quarterly Performance—What Worked Well

 

The Short Version:  Energy stocks highlighted our list of top performers for the quarter, as the continued surge in oil, gas, and other commodity prices prompted an increase in many related securities. A total of five energy companies made the list and, combined, they contributed just under three-quarters of a percent to the Fund’s return. Three holdings, two of which were energy-related, climbed over 50% during the three-month period.

These are the ten best-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Peabody Energy Corp

  

Coal

   72.7%
2   

Safeco Corp

  

Insurance

   53.1%
3   

National Oilwell Varco Inc

  

Oil & Gas Services

   52.0%
4   

United States Steel Corp

  

Iron/Steel

   45.7%
5   

Hess Corp

  

Oil & Gas

   43.1%
6   

Sprint Nextel Corp

  

Telecommunications

   42.0%
7   

Nabors Industries Ltd

  

Oil & Gas

   38.2%
8   

Halliburton Co

  

Oil & Gas Services

   34.9%
9   

Fluor Corp

  

Engineering & Construction

   31.8%
10   

Anheuser-Busch Cos Inc

  

Beverages

   30.9%
                

These days, a lump of coal in the old holiday stocking actually would be a pretty good thing. Peabody Energy Corp, whose stock price surged by over 70% in the June quarter, was the Fund’s top performer. The company is among the world’s largest coal producers and continued to benefit from soaring commodity prices that have been driven by the increased demand in emerging markets like China and India. In April, Peabody increased its earnings targets for the fiscal year while high natural gas prices and the weak dollar contributed to the strong global demand. By late-June, the company’s stock price had climbed to an all-time high.

Detailed Explanation of Quarterly Performance—What Didn’t Work

 

The Short Version:  Much of the negative economic news revolved around financial companies, and our Fund was not immune this quarter. Five of the poorest performers came from that sector (including four banks) and cost the Fund about one and a quarter percent in return. Consumers also felt the strain of the ongoing economic weakness, and three-related companies (all consumer cyclicals) also made the worst-performing list.

 

www.bridgeway.com   103


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Balanced Fund

MANAGER’S COMMENTARY (continued)

 

 

These are the ten worst-performing stocks for the quarter ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

Keycorp

  

Banks

   -50.0%
2   

Wachovia Corp

  

Banks

   -42.5%
3   

International Game Technology

  

Entertainment

   -37.9%
4   

Bank of America Corp

  

Banks

   -36.6%
5   

SunTrust Banks Inc

  

Banks

   -34.3%
6   

Whirlpool Corp

  

Home Furnishings

   -28.9%
7   

General Electric Co

  

Miscellaneous Manufacturing

   -27.9%
8   

Sears Holdings Corp

  

Retail

   -27.9%
9   

Ciena Corp

  

Telecommunications

   -24.9%
10   

Principal Financial Group Inc

  

Insurance

   -24.7%
                

Bank of America, the giant Charlotte, North Carolina-based bank holding company, was one such financial services company that cost the Fund during the past three months and lost over 35% of its value. As the credit crisis continued to worsen, Bank of America played “white knight” and agreed to purchase Countrywide Financial for an estimated $4 billion. Once the country’s largest mortgage lender, Countrywide had become one of the poster children for the subprime debacle, and some investors became leery that the acquisition would hurt Bank of America’s future earnings and ongoing operations. Despite speculation that the deal may not go through, Countrywide’s shareholders approved it in June, though the value had declined to about $2.6 billion because of the drop in stock price. The transaction was completed on July 1 (just after the end of the fiscal year) and Bank of America is now the country’s largest mortgage lender and servicer.

Detailed Explanation of Fiscal Year Performance—What Worked Well

 

The Short Version:  Commodities continued to surge during the fiscal year, and companies within industries that deal with natural resources and related products performed best. Many of these holdings derive income from international sources and benefited from the weak dollar. Our top performer list was comprised entirely of energy, basic materials, and industrial companies, many of which engage in some commodities-driven operations. These ten performers contributed about two percent to the return over the fiscal year.

Here are the ten best-performing companies for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Gain
1   

Hess Corp

  

Oil & Gas

   96.1%
2   

Monsanto Co

  

Chemicals

   87.2%
3   

EOG Resources Inc

  

Oil & Gas

   79.6%
4   

United States Steel Corp

  

Iron/Steel

   69.9%
5   

Fluor Corp

  

Engineering & Construction

   67.1%
6   

Mosaic Co/The

  

Chemicals

   59.6%
7   

Potash Corp of Saskatchewan

  

Chemicals

   57.7%
8   

Occidental Petroleum Corp

  

Oil & Gas

   56.4%
9   

Apache Corp

  

Oil & Gas

   54.6%
10   

Peabody Energy Corp

  

Coal

   54.1%
                

Potash Corp. of Saskatchewan is one of our chemical holdings that performed quite well for our Fund, as its stock price increased by over 50% during the fiscal year. The Canadian-based company produces and markets fertilizer and related products across the globe. As the population in many emerging markets become more affluent, demand for food and other materials has increased dramatically, thus, enhancing the farmers’ needs for fertilizer. Additionally, natural disasters like the floods that devastated the Midwest earlier in the year also contributed to the shrinking supply (and rising demand) for grains, foods, and other products. In June, one noted analyst increased his long-term price target to $340 (its stock closed the fiscal year at $228), claiming that market fundamentals look strong for the next five years and beyond. Monsanto and Mosaic were two other related chemical holdings with similar performance stories as Potash Corp’s. Combined, these three holdings contributed over three-quarters of a percent to the Fund’s performance.

 

104   Annual Report  |  June 30, 2008


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Balanced Fund

MANAGER’S COMMENTARY (continued)

 

 

Detailed Explanation of Fiscal Year Performance—What Didn’t Work

 

The Short Version:  Seven financial services companies were among the Fund’s worst performers, and another three consumer-related stocks (all retailers) also made the list. Each of these holdings declined in value by over 50% and, combined, they cost the Fund over two percent in return.

These are the ten worst-performing stocks for the fiscal year ended June 30, 2008:

 

Rank    Description    Industry    % Loss
1   

E*Trade Financial Corp

  

Diversified Financial Services

   -85.8%
2   

Wachovia Corp

  

Banks

   -68.7%
3   

Keycorp

  

Banks

   -68.0%
4   

SLM Corp

  

Diversified Financial Services

   -66.4%
5   

OfficeMax Inc

  

Retail

   -64.6%
6   

Office Depot Inc

  

Retail

   -63.9%
7   

Merrill Lynch & Co Inc

  

Diversified Financial Services

   -62.1%
8   

Circuit City Stores Inc

  

Retail

   -60.4%
9   

CIT Group Inc

  

Diversified Financial Services

   -60.0%
10   

Lehman Brothers Holdings Inc

  

Diversified Financial Services

   -59.9%
                

North Carolina-based Wachovia is the nation’s fourth largest bank and the Fund’s second worst performer for the fiscal year. Unfortunately, management’s decision to purchase Golden West Financial, a California-based mortgage company, in 2006 contributed greatly to the financial hardships the bank has incurred over the past 12 months. In May, Wachovia reported a loss of $708 million in the first quarter and was forced to cut its dividend and seek additional capital through the issuance of new common and preferred stock. The company also became the target of an SEC investigation and related class-action lawsuits over its role in misrepresenting certain auction-rate securities.

Background on Fixed Income Securities Strategy

 

This fiscal year saw a flight-to-quality from equities and other investments into fixed-income securities. We see this clearly as the Bloomberg/EFFAS U.S. Government 1-3 Year Total Return Bond Index rose a very strong 7.29%. Our fixed income holdings remain largely in short term U.S. Treasury Bills and Notes and as such, the Fund did not participate in this significant rally. While that may be disappointing in the short run, our fixed income positions are very much in line with our desire to not take on significant credit and interest rate risk. This strategy is dictated by the quantitative work we did during the creation of this fund where we learned that fixed income needed to be the anchor of the fund and not the sail. This has served us well on a long term basis as we have out performed the Bloomberg/EFFAS U.S. Government 1-3 Year Total Return Bond Index for 5 years (6.37% to 3.20%) and since inception (4.77% to 3.94%).

Top Ten Equity Holdings as of June 30, 2008

 

Diversification remains a key objective of the Balanced Fund. In fact, our top ten holdings combined to account for only around 12.5% of the Fund. Banks, pharmaceuticals, and chemical companies contributed two stocks each to our top equity holdings list.

 

Rank    Description    Industry    % of Net Assets
1   

Bristol-Myers Squibb Co.

  

Pharmaceuticals

   2.0%
2   

US Bancorp

  

Banks

   1.5%
3   

AT&T, Inc.

  

Telecommunications

   1.5%
4   

Dow Chemical Co.

  

Chemicals

   1.4%
5   

Bank of America Corp.

  

Banks

   1.2%
6   

Apple, Inc.

  

Computers

   1.2%
7   

AGCO Corp.

  

Machinery-Diversified

   1.0%
8   

CF Industries Holdings, Inc.

  

Chemicals

   1.0%
9   

CBS Corp.

  

Media

   0.9%
10   

OSI Pharmaceuticals, Inc.

  

Pharmaceuticals

   0.8%
                
         12.5%

 

www.bridgeway.com   105

 

 


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Balanced Fund

MANAGER’S COMMENTARY (continued)

 

 

Industry Sector Representation as of June 30, 2008

 

As of June 30, 2008, equities comprised about 57% of the Fund’s allocation, while U.S. government obligations made up just over 35% of its net assets. Financials and consumer non-cyclicals represented the two largest equity allocations within the Fund. Both sectors struggled as the subprime debacle became a full-fledged credit crisis. While non-cyclical stocks often fare better than their cyclical counterparts, consumer-related companies in general suffered over the past three (and twelve) months. These factors prompted some losses during both the quarterly and annual time frames and cost us in terms of absolute performance. Still, the models generated some excellent stock picks that propelled the Fund’s return into positive territory last quarter, while each of the benchmarks lagged behind.

 

Common Stock

   57.4%

Basic Materials

   4.4%

Communications

   7.3%

Consumer, Cyclical

   3.2%

Consumer, Non-cyclical

   12.1%

Energy

   7.4%

Financial

   10.3%

Industrial

   6.4%

Technology

   4.5%

Utilities

   1.8%

U.S. Government Obligations

   35.8%

Corporate Notes

   2.7%

Covered Call Options Written

   -0.1%

Put Options Written

   -0.1%

Money Market Funds

   5.2%

Liabilities in Excess of Other Assets

   -0.9%
      

Total

   100.0%

Disclaimer

 

The following is a reminder from the friendly folks at your Fund who worry about liability. The views expressed here are exclusively those of Fund management. These views, including those of market sectors or individual stocks, are not meant as investment advice and should not be considered predictive in nature. Any favorable (or unfavorable) description of a holding applies only as of the quarter end, June 30, 2008, unless otherwise stated. Security positions can and do change thereafter. Discussions of historical performance do not guarantee and are not indicative of future performance.

Market volatility can significantly affect short-term performance. The Fund is not an appropriate investment for short-term investors. Investments in the small companies within this multi-cap fund generally carry greater risk than is customarily associated with larger companies. This additional risk is attributable to a number of factors, including the relatively limited financial resources that are typically available to small companies, and the fact that small companies often have comparatively limited product lines. In addition, the stock of small companies tends to be more volatile than the stock of large companies, particularly in the short term and particularly in the early stages of an economic or market downturn. The Fund’s use of options, futures, and leverage can magnify the risk of loss in an unfavorable market, and the Fund’s use of short-sale positions can, in theory, expose shareholders to unlimited loss. Shareholders of the Fund, therefore, are taking on more risk than they would if they invested in the stock market as a whole. The Fund uses an option writing strategy in which the Fund may sell covered calls or secured put options. Up to 75% of Fund assets may be invested in options. Options are subject to special risks and may not fully protect the Fund against declines in the value of its stocks. In addition, an option writing strategy limits the upside profit potential normally associated with stocks. Finally, the Fund’s fixed-income holdings are subject to three types of risk. Interest rate risk is the chance that bond prices overall will decline as interest rates rise. Credit risk is the chance a bond issuer will fail to pay interest and principal. Prepayment risk is the chance a mortgage-backed bond issuer will repay a higher yielding bond, resulting in a lower paying yield.

 

106   Annual Report  |  June 30, 2008


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Balanced Fund

MANAGER’S COMMENTARY (continued)

 

 

Conclusion

 

In closing, we would like to thank you for your continued investment in Balanced Fund. We appreciate your feedback, so please call or write us with any questions or comments. We work for you and value your input.

Sincerely,

Your Investment Management Team

 

www.bridgeway.com   107


LOGO

Bridgeway Balanced Fund

SCHEDULE OF INVESTMENTS

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

COMMON STOCKS - 57.36%

Advertising - 0.12%

 

Omnicom Group, Inc.#

  2,000    $ 89,760

Aerospace/Defense - 1.06%

 

General Dynamics Corp.

  1,400      117,880
 

Goodrich Corp.

  1,800      85,428
 

Lockheed Martin Corp.#

  3,470      342,350
 

Northrop Grumman Corp.

  2,200      147,180
 

United Technologies Corp.

  1,740      107,358
          
         800,196

Agriculture - 0.70%

 

Archer-Daniels-Midland Co.

  15,600      526,500

Apparel - 0.30%

 

Coach, Inc.*+

  4,600      132,848
 

NIKE, Inc., Class B

  1,600      95,376
          
         228,224

Auto Parts & Equipment - 0.13%

 

Johnson Controls, Inc.#

  2,340      67,111
 

WABCO Holdings, Inc.

  600      27,876
          
         94,987

Banks - 4.73%

 

Bank of America Corp.#

  39,100      933,317
 

Bank of New York Mellon
Corp.

  8,032      303,851
 

KeyCorp.

  5,400      59,292
 

Northern Trust Corp.

  2,900      198,853
 

State Street Corp.

  3,300      211,167
 

SunTrust Banks, Inc.#

  3,200      115,904
 

US Bancorp#+

  40,300      1,123,967
 

Wachovia Corp.#+

  27,389      425,351
 

Wells Fargo & Co.#+

  8,200      194,750
          
         3,566,452

Beverages - 1.10%

 

Anheuser-Busch Cos., Inc.

  2,000      124,240
 

Brown-Forman Corp., Class B

  1,800      136,026
 

Coca-Cola Co.

  3,900      202,722
 

Pepsi Bottling Group, Inc.

  4,400      122,848
 

PepsiCo., Inc.

  3,800      241,642
          
         827,478

Biotechnology - 1.83%

 

Biogen Idec, Inc.*#

  2,200      122,958
 

Genzyme Corp.*

  1,800      129,636
 

Gilead Sciences, Inc.*

  9,800      518,910
 

OSI Pharmaceuticals, Inc.*#

  14,700      607,404
          
         1,378,908
Industry   Company   Shares    Value

Chemicals - 3.83%

 

CF Industries Holdings, Inc.#

  5,000    $ 764,000
 

Dow Chemical Co.#

  30,000      1,047,300
 

Monsanto Co.#

  4,700      594,268
 

NewMarket Corp.#

  2,500      165,575
 

Sherwin-Williams Co.#

  3,500      160,755
 

Sigma-Aldrich Corp.

  2,900      156,194
          
         2,888,092

Coal - 0.20%

 

Peabody Energy Corp.+

  1,700      149,685

Commercial Services - 0.57%

 

Automatic Data Processing, Inc.#

  3,700      155,030
 

Equifax, Inc.

  2,600      87,412
 

Moody’s Corp.+

  800      27,552
 

Paychex, Inc.+

  2,200      68,816
 

Robert Half International, Inc.

  600      14,382
 

Western Union Co.

  3,000      74,160
          
         427,352

Computers - 2.34%

 

Apple, Inc.*#

  5,200      870,688
 

Hewlett-Packard Co.#

  7,800      344,838
 

International Business Machines Corp.

  1,000      118,530
 

NCR Corp.*

  6,300      158,760
 

NetApp, Inc.*

  5,800      125,628
 

Teradata Corp.*#+

  6,300      145,782
          
         1,764,226

Cosmetics/Personal Care - 0.82%

 

Colgate-Palmolive Co.

  4,400      304,040
 

Estee Lauder Cos., Inc., Class A

  1,600      74,320
 

Procter & Gamble Co.#

  4,000      243,240
          
         621,600

Distribution/Wholesale - 0.05%

 

WW Grainger, Inc.

  500      40,900

Diversified Financial Services - 2.65%

 

Ameriprise Financial, Inc.

  2,780      113,063
 

Charles Schwab Corp.#

  16,300      334,802
 

Citigroup, Inc.#

  35,100      588,276
 

Discover Financial Services

  1,550      20,413
 

E*Trade Financial Corp.*+

  11,400      35,796
 

Franklin Resources, Inc.#

  2,800      256,620
 

Goldman Sachs Group, Inc.#

  1,100      192,390
 

Merrill Lynch & Co., Inc.#

  1,600      50,736
 

Morgan Stanley#+

  3,000      108,210

 

108   Annual Report  |  June 30, 2008


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Bridgeway Balanced Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Diversified Financial Services (continued)

 

SLM Corp.*#

  810    $ 15,674
 

T Rowe Price Group, Inc.

  5,000      282,350
          
         1,998,330

Electric Utilities - 1.31%

 

AES Corp.*#

  14,100      270,861
 

Allegheny Energy, Inc.

  2,300      115,253
 

Dominion Resources, Inc.

  5,620      266,894
 

Exelon Corp.

  1,100      98,956
 

Public Service Enterprise Group, Inc.#

  5,100      234,243
          
         986,207

Electrical Components & Equipment - 0.24%

 

Emerson Electric Co.

  3,600      178,020

Electronics - 0.38%

 

Agilent Technologies, Inc.*#

  4,500      159,930
 

Thermo Fisher Scientific, Inc.*+

  2,300      128,179
          
         288,109

Engineering & Construction - 0.20%

 

Fluor Corp.+

  800      148,864

Entertainment - 0.04%

 

International Game Technology#

  1,200      29,976

Environmental Control - 0.09%

 

Allied Waste Industries, Inc.*#

  5,200      65,624

Food - 0.75%

 

Campbell Soup Co.+

  3,200      107,072
 

Kraft Foods, Inc., Class A

  3,400      96,730
 

Kroger Co.

  3,800      109,706
 

Safeway, Inc.

  8,700      248,385
          
         561,893

Forest Products & Paper - 0.14%

 

International Paper Co.

  4,500      104,850

Gas - 0.52%

 

Nicor, Inc.

  1,200      51,108
 

Sempra Energy#+

  6,000      338,700
          
         389,808

Healthcare - Products - 1.79%

 

Baxter International, Inc.#+

  6,500      415,610
 

Becton Dickinson & Co.

  3,420      278,046
 

CR Bard, Inc.

  2,600      228,670
Industry   Company   Shares    Value

Healthcare - Products (continued)

 

Medtronic, Inc.

  1,000    $ 51,750
 

St. Jude Medical, Inc.*

  1,080      44,150
 

Stryker Corp.

  5,260      330,749
          
         1,348,975

Healthcare - Services - 0.57%

 

Aetna, Inc.

  1,800      72,954
 

CIGNA Corp.

  2,700      95,553
 

Humana, Inc.*

  1,000      39,770
 

Laboratory Corp. of America Holdings*

  800      55,704
 

Quest Diagnostics, Inc.

  1,500      72,705
 

UnitedHealth Group, Inc.#

  3,600      94,500
          
         431,186

Home Furnishings - 0.05%

 

Whirlpool Corp.#

  600      37,038

Household Products/Wares - 0.32%

    
 

Clorox Co.

  1,530      79,866
 

Kimberly-Clark Corp.

  2,700      161,406
          
         241,272

Insurance - 2.89%

 

ACE, Ltd.

  1,400      77,126
 

Aflac, Inc.

  800      50,240
 

Allstate Corp.#

  1,000      45,590
 

AON Corp.#

  3,500      160,790
 

Berkshire Hathaway, Inc., Class B*

  120      481,440
 

Chubb Corp.

  4,500      220,545
 

Genworth Financial, Inc., Class A

  2,600      46,306
 

Hartford Financial Services Group, Inc.

  900      58,113
 

MetLife, Inc.+

  4,600      242,742
 

Principal Financial Group, Inc.#

  4,700      197,259
 

Progressive Corp.#

  5,520      103,335
 

Prudential Financial, Inc.

  1,200      71,688
 

Safeco Corp.

  3,420      229,687
 

Travelers Cos., Inc.#

  4,500      195,300
          
         2,180,161

Internet - 1.00%

 

Amazon.com, Inc.*+

  3,100      227,323
 

eBay, Inc.*#

  6,900      188,577
 

Google, Inc., Class A*

  600      315,852
 

Yahoo!, Inc.*

  1,000      20,660
          
         752,412

Iron/Steel - 0.34%

 

United States Steel Corp.

  1,400      258,692

 

www.bridgeway.com   109


LOGO

Bridgeway Balanced Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares    Value

Common Stocks (continued)

Leisure Time - 0.14%

 

Harley-Davidson, Inc.#

  2,900    $ 105,154

Lodging - 0.16%

 

Marriott International, Inc., Class A#

  4,500      118,080

Machinery - Construction & Mining - 0.18%

 

Terex Corp.*#

  2,700      138,699

Machinery - Diversified - 1.24%

 

AGCO Corp.*#

  15,000      786,150
 

Deere & Co.

  2,100      151,473
          
         937,623

Media - 2.21%

 

CBS Corp., Class B#

  33,200      647,068
 

Comcast Corp., Class A#

  10,950      207,721
 

McGraw-Hill Cos., Inc.+

  4,000      160,480
 

News Corp., Class A

  14,000      210,560
 

Time Warner, Inc.

  15,900      235,320
 

Walt Disney Co.#

  6,700      209,040
          
         1,670,189

Mining - 0.08%

 

Alcoa, Inc.#

  1,600      56,992

Miscellaneous Manufacturing - 1.98%

 

Cooper Industries, Ltd., Class A

  5,200      205,400
 

Danaher Corp.

  2,400      185,520
 

Eaton Corp.

  2,200      186,934
 

General Electric Co.

  6,000      160,140
 

Honeywell International, Inc.

  3,900      196,092
 

Illinois Tool Works, Inc.

  2,000      95,020
 

Parker Hannifin Corp.#

  4,350      310,242
 

Textron, Inc.

  3,200      153,376
          
         1,492,724

Office/Business Equipment - 0.07%

 

Pitney Bowes, Inc.

  1,600      54,560

Oil & Gas - 5.49%

 

Anadarko Petroleum Corp.#

  5,300      396,652
 

Apache Corp.

  1,700      236,300
 

Chevron Corp.#

  5,478      543,034
 

ConocoPhillips#

  5,987      565,113
 

EOG Resources, Inc.

  2,400      314,880
 

Exxon Mobil Corp.#

  6,500      572,845
 

Hess Corp.#+

  3,660      461,855
 

Marathon Oil Corp.

  4,000      207,480
 

Nabors Industries, Ltd.*

  4,400      216,612
Industry   Company   Shares    Value

Oil & Gas (continued)

 

Occidental Petroleum Corp.#+

  5,300    $ 476,258
 

Valero Energy Corp.

  3,700      152,366
          
         4,143,395

Oil & Gas Services - 1.38%

 

Baker Hughes, Inc.#

  1,200      104,808
 

Halliburton Co.#

  11,000      583,770
 

National Oilwell Varco, Inc.*

  4,000      354,880
          
         1,043,458

Packaging & Containers - 0.06%

 

Pactiv Corp.*#

  2,100      44,583

Pharmaceuticals - 3.70%

 

Allergan, Inc.+

  1,900      98,895
 

Bristol-Myers Squibb Co.#

  72,400      1,486,372
 

Cardinal Health, Inc.

  2,100      108,318
 

Express Scripts, Inc.*

  3,000      188,160
 

Hospira, Inc.*#

  7,700      308,847
 

Medco Health Solutions, Inc.*#

  7,000      330,400
 

Merck & Co., Inc.

  3,700      139,453
 

Pfizer, Inc.

  7,600      132,772
          
         2,793,217

Pipelines - 0.34%

 

El Paso Corp.

  5,000      108,700
 

Spectra Energy Corp.

  5,250      150,885
          
         259,585

Retail - 2.19%

 

Autozone, Inc.*

  1,700      205,717
 

Costco Wholesale Corp.+

  1,000      70,140
 

CVS Caremark Corp.#

  9,600      379,872
 

Dillard’s, Inc., Class A#

  1,500      17,355
 

JC Penney Co., Inc.#

  1,000      36,290
 

Limited Brands, Inc.

  2,000      33,700
 

Nordstrom, Inc.

  5,000      151,500
 

Office Depot, Inc.*#

  4,300      47,042
 

OfficeMax, Inc.#

  1,500      20,850
 

Sears Holdings Corp.*#+

  1,200      88,392
 

Staples, Inc.+

  3,950      93,813
 

Starbucks Corp.*#

  3,700      58,238
 

Wal-Mart Stores, Inc.

  6,600      370,920
 

Walgreen Co.#+

  2,500      81,275
          
         1,655,104

Semiconductors - 0.70%

 

Applied Materials, Inc.#+

  10,700      204,263
 

NVIDIA Corp.*

  5,000      93,600
 

Texas Instruments, Inc.

  8,070      227,251
          
         525,114

 

110   Annual Report  |  June 30, 2008


LOGO

Bridgeway Balanced Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Industry   Company   Shares        
Value

Common Stocks (continued)

Software - 1.43%

 

Adobe Systems, Inc.*#

  7,000    $ 275,730
 

BMC Software, Inc.*#

  3,920      141,120
 

Citrix Systems, Inc.*

  4,300      126,463
 

IMS Health, Inc.

  2,800      65,240
 

Intuit, Inc.*#

  5,600      154,392
 

Novell, Inc.*

  5,400      31,806
 

Oracle Corp.*

  13,660      286,860
          
         1,081,611

Telecommunications - 3.93%

 

AT&T, Inc.#

  32,700      1,101,663
 

Ciena Corp.*#+

  5,942      137,676
 

Cisco Systems, Inc.*+

  14,900      346,574
 

Corning, Inc.+

  7,500      172,875
 

Motorola, Inc.#+

  5,300      38,902
 

QUALCOMM, Inc.#

  11,800      523,566
 

Sprint Nextel Corp.#+

  12,800      121,600
 

Verizon Communications, Inc.#+

  14,700      520,380
          
         2,963,236

Toys/Games/Hobbies - 0.05%

 

Mattel, Inc.#

  2,200      37,664

Transportation - 0.97%

 

CSX Corp.#

  5,400      339,174
 

Norfolk Southern Corp.

  1,900      119,073
 

Union Pacific Corp.#

  2,800      211,400
 

United Parcel Service, Inc., Class B

  1,000      61,470
          
         731,117
          

TOTAL COMMON STOCKS - 57.36%

     43,257,882
          

(Cost $38,560,489)

  

 

CORPORATE NOTES - 2.65%

Due Date   Discount Rate
or Coupon Rate
  Principal
Amount
   Value

Holding Companies - Diversified - 2.65%

Leucadia National Corp.

    

8/15/2013

  7.750%   $ 2,000,000    $   2,000,000
          

TOTAL CORPORATE NOTES - 2.65%

     2,000,000
          

(Cost $2,058,123)

 

  

U.S. GOVERNMENT OBLIGATIONS - 35.78%

Due Date   Discount Rate
or Coupon Rate
  Principal
Amount
   Value

U.S. Treasury Bills - 20.44%

  

7/10/2008

  3.222%     2,500,000      2,499,495

7/31/2008

  1.425%     3,000,000      2,995,839
Maturity Date   Discount Rate
or Coupon Rate
  Principal
Amount
  Value

U.S. Treasury Bills (continued)

 

9/18/2008

  2.061%   $ 2,000,000   $ 1,992,130

10/30/2008

  1.715%     3,000,000     2,981,346

11/20/2008

  1.903%     3,000,000     2,976,096

12/26/2008

  2.281%     2,000,000     1,979,036
         
        15,423,942

U.S. Treasury Notes - 15.34%

8/31/2008

  4.875%     300,000     301,453

10/15/2008

  3.125%     200,000     200,781

11/15/2008

  3.375%     200,000     200,953

4/15/2009

  3.125%     300,000     301,805

4/30/2009

  4.500%     300,000     305,320

6/15/2009

  4.000%     300,000     304,570

8/15/2009

  3.500%     200,000     202,547

10/15/2009

  3.375%     300,000     304,055

11/15/2009

  3.500%     200,000     203,125

11/30/2009

  3.125%     300,000     303,117

12/31/2009

  3.250%     200,000     202,391

2/15/2010

  3.500%     300,000     305,063

4/15/2010

  4.000%     300,000     307,641

6/15/2010

  3.625%     500,000     510,078

7/15/2010

  3.875%     500,000     512,578

10/15/2010

  4.250%     500,000     517,695

3/31/2011

  4.750%     1,000,000     1,049,297

4/30/2011

  4.875%     2,000,000     2,108,282

7/31/2011

  4.875%     1,000,000     1,056,484

8/31/2011

  4.625%     300,000     314,531

4/30/2012

  4.500%     300,000     314,484

11/30/2012

  3.375%     300,000     301,313

12/31/2012

  3.625%     200,000     203,047

6/30/2013

  3.375%     500,000     500,898

11/15/2013

  4.250%     200,000     208,719

2/15/2015

  4.000%     200,000     205,578

5/15/2017

  4.500%     300,000     312,469
         
        11,558,274
         

TOTAL U.S. GOVERNMENT OBLIGATIONS - 35.78%

    26,982,216
         

(Cost $26,589,890)

 

 

PURCHASED CALL OPTIONS - 0.08%

Company   Number
of Contracts
  Value

Pfizer, Inc.
Expiring January, 2010 at $20.00

  550   $        61,875
       

TOTAL PURCHASED CALL OPTIONS - 0.08%

    61,875
       

(Cost $115,234)

   

 

www.bridgeway.com   111


LOGO

Bridgeway Balanced Fund

SCHEDULE OF INVESTMENTS (continued)

 

Showing percentage of net assets as of June 30, 2008

 

    Rate^    Shares    Value  

MONEY MARKET FUNDS - 5.22%

 

BlackRock Liquidity Funds TempFund Portfolio #24

  2.57%    1,228,474    $ 1,228,474  

BlackRock Temp Cash Liquidity Fund Institutional Shares #21

  2.61%    2,712,092      2,712,092  
             

TOTAL MONEY MARKET FUNDS - 5.22%

     3,940,566  
             

(Cost $3,940,566)

  

TOTAL INVESTMENTS - 101.09%

   $ 76,242,539  

(Cost $71,264,302)

  

Liabilities in Excess of Other Assets - (1.09)%

     (825,262 )
             

NET ASSETS - 100.00%

   $ 75,417,277  
             

 

# Security subject to call option written by the Fund.
* Non Income Producing Security.
+ This security or a portion of the security is out on loan at June 30, 2008. Total loaned securities had a market value of $5,634,924 at June 30, 2008.
^ Rate disclosed is as of June 30, 2008.

See Notes to Financial Statements.

 

112   Annual Report  |  June 30, 2008


LOGO

Bridgeway Balanced Fund

SCHEDULE OF OPTIONS WRITTEN

 

Showing percentage of net assets as of June 30, 2008

 

Company   Number
of Contracts
  Value  

COVERED CALL OPTIONS WRITTEN - (.69)%

 

Adobe Systems, Inc.

 

Expiring July, 2008 at $40.00

  40   $ (3,400 )

AES Corp.

 

Expiring August, 2008 at $20.00

  65     (4,063 )

AGCO Corp.

 

Expiring July, 2008 at $60.00

  150     (5,625 )

Agilent Technologies, Inc.

 

Expiring August, 2008 at $32.50

  15     (5,588 )

Agilent Technologies, Inc.

 

Expiring August, 2008 at $35.00

  15     (2,978 )

Alcoa, Inc.

 

Expiring July, 2008 at $37.50

  8     (736 )

Allied Waste Industries, Inc.

 

Expiring September, 2008 at $15.00

  18     (360 )

Allstate Corp.

 

Expiring July, 2008 at $50.00

  5     (62 )

Anadarko Petroleum Corp.

 

Expiring August, 2008 at $80.00

  15     (3,788 )

Aon Corp.

 

Expiring July, 2008 at $47.50

  15     (750 )

Apple, Inc.

 

Expiring July, 2008 at $130.00

  15     (56,738 )

Applied Materials, Inc.

 

Expiring July, 2008 at $22.50

  25     (188 )

AT&T, Inc.

 

Expiring July, 2008 at $40.00

  182     (455 )

Expiring October, 2008 at $42.50

  80     (800 )

Automatic Data Processing, Inc.

 

Expiring August, 2008 at $45.00

  10     (425 )

Baker Hughes, Inc.

 

Expiring July, 2008 at $75.00

  6     (7,530 )

Bank of America Corp.

 

Expiring August, 2008 at $27.50

  70     (5,915 )

Expiring August, 2008 at $37.50

  200     (900 )

Expiring August, 2008 at $35.00

  71     (497 )

Expiring November, 2008 at $35.00

  50     (1,500 )

Baxter International, Inc.

 

Expiring August, 2008 at $65.00

  15     (2,513 )

Biogen Idec, Inc.

 

Expiring July, 2008 at $70.00

  11     (27 )

BMC Software, Inc.

 

Expiring August, 2008 at $40.00

  9     (540 )

Bristol-Myers Squibb Co.

 

Expiring September, 2008 at $20.00

  200     (27,600 )

Expiring September, 2008 at $22.50

  300     (13,050 )
Company   Number
of Contracts
  Value  

CBS Corp. Class B

 

Expiring September, 2008 at $20.00

  232   $ (22,040 )

Expiring September, 2008 at $22.50

  50     (1,125 )

CF Industries Holdings, Inc.

 

Expiring July, 2008 at $140.00

  50     (81,000 )

Charles Schwab Corp.

 

Expiring September, 2008 at $25.00

  80     (2,800 )

Chevron Corp.

 

Expiring September, 2008 at $100.00

  20     (8,800 )

Ciena Corp.

 

Expiring July, 2008 at $35.00

  20     (50 )

Citigroup, Inc.

 

Expiring August, 2008 at $20.00

  150     (6,375 )

Expiring September, 2008 at $22.50

  150     (4,650 )

Comcast Corp.

 

Expiring July, 2008 at $22.50

  76     (190 )

ConocoPhillips

 

Expiring August, 2008 at $95.00

  15     (5,738 )

CSX Corp.

 

Expiring August, 2008 at $70.00

  10     (1,175 )

CVS Caremark Corp.

 

Expiring August, 2008 at $45.00

  20     (450 )

Dillard’s, Inc., Class A

 

Expiring August, 2008 at $22.50

  15     (75 )

Dow Chemical Co.

 

Expiring September, 2008 at $40.00

  76     (3,040 )

eBay, Inc.

 

Expiring July, 2008 at $32.50

  20     (170 )

Exxon Mobil Corp.

 

Expiring July, 2008 at $100.00

  15     (37 )

Franklin Resources, Inc.

 

Expiring July, 2008 at $100.00

  28     (2,380 )

Goldman Sachs Group, Inc.

 

Expiring July, 2008 at $200.00

  5     (122 )

Halliburton Co.

 

Expiring July, 2008 at $42.50

  25     (26,750 )

Expiring July, 2008 at $50.00

  30     (11,100 )

Harley-Davidson, Inc.

 

Expiring August, 2008 at $40.00

  10     (875 )

Hess Corp.

 

Expiring August, 2008 at $120.00

  9     (11,835 )

Hewlett-Packard Co.

 

Expiring August, 2008 at $50.00

  18     (405 )

 

www.bridgeway.com   113


LOGO

Bridgeway Balanced Fund

SCHEDULE OF OPTIONS WRITTEN (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Company   Number
of Contracts
  Value  

Covered Call Options Written (continued)

 

Hospira, Inc.

 

Expiring August, 2008 at $45.00

  20   $ (900 )

International Game Technology

 

Expiring August, 2008 at $30.00

  12     (390 )

International Paper Co.

 

Expiring July, 2008 at $27.50

  45     (112 )

Intuit, Inc.

 

Expiring July, 2008 at $30.00

  25     (250 )

JC Penney Co., Inc.

 

Expiring August, 2008 at $40.00

  5     (575 )

Johnson Controls, Inc.

 

Expiring August, 2008 at $35.00

  10     (175 )

Lockheed Martin Corp.

 

Expiring September, 2008 at $115.00

  8     (480 )

Marriott International, Inc.

 

Expiring July, 2008 at $40.00

  15     (37 )

Mattel, Inc.

 

Expiring July, 2008 at $20.00

  22     (220 )

Medco Health Solutions, Inc.

 

Expiring July, 2008 at $45.00

  15     (4,125 )

Merrill Lynch & Co., Inc.

 

Expiring July, 2008 at $50.00

  16     (24 )

Monsanto Co.

 

Expiring July, 2008 at $135.00

  15     (3,113 )

Morgan Stanley

 

Expiring July, 2008 at $45.00

  15     (37 )

Motorola, Inc.

 

Expiring July, 2008 at $10.00

  25     (62 )

NewMarket Corp.

 

Expiring July, 2008 at $75.00

  25     (1,500 )

Occidental Petroleum Corp.

 

Expiring August, 2008 at $80.00

  12     (14,340 )

Office Depot, Inc.

 

Expiring July, 2008 at $12.50

  43     (645 )

OfficeMax, Inc.

 

Expiring August, 2008 at $20.00

  7     (35 )

Omnicom Group, Inc.

 

Expiring July, 2008 at $50.00

  10     (25 )

OSI Pharmaceuticals, Inc.

 

Expiring July, 2008 at $35.00

  147     (94,815 )

Pactiv Corp.

 

Expiring August, 2008 at $25.00

  21     (473 )

Parker Hannifin Corp.

 

Expiring August, 2008 at $80.00

  10     (1,075 )

Principal Financial Group, Inc.

 

Expiring July, 2008 at $55.00

  22     (110 )

Procter & Gamble Co.

 

Expiring July, 2008 at $72.50

  20     (50 )
Company   Number
of Contracts
  Value  

Progressive Corp.

 

Expiring August, 2008 at $17.50

  25   $ (4,500 )

Public Service Enterprise Group

 

Expiring September, 2008 at $50.00

  20     (1,750 )

QUALCOMM, Inc.

 

Expiring July, 2008 at $45.00

  30     (3,540 )

Sears Holdings Corp.

 

Expiring August, 2008 at $80.00

  12     (3,030 )

Sempra Energy

 

Expiring July, 2008 at $60.00

  15     (188 )

Sherwin-Williams Co.

 

Expiring September, 2008 at $55.00

  10     (550 )

SLM Corp.

 

Expiring July, 2008 at $22.50

  8     (360 )

Sprint Nextel Corp.

 

Expiring August, 2008 at $8.00

  60     (10,500 )

Starbucks Corp.

 

Expiring October, 2008 at $17.00

  37     (3,663 )

SunTrust Banks, Inc.

 

Expiring August, 2008 at $45.00

  32     (3,040 )

Teradata Corp.

 

Expiring July, 2008 at $22.50

  30     (3,225 )

Terex Corp.

 

Expiring July, 2008 at $75.00

  8     (20 )

The Travelers Cos, Inc.

 

Expiring July, 2008 at $50.00

  15     (112 )

U.S. Bancorp

 

Expiring August, 2008 at $30.00

  75     (6,563 )

Expiring December, 2008 at $32.50

  75     (7,500 )

Union Pacific Corp.

 

Expiring August, 2008 at $77.50

  10     (3,400 )

UnitedHealth Group, Inc.

 

Expiring September, 2008 at $35.00

  36     (810 )

Verizon Communications, Inc.

 

Expiring July, 2008 at $37.50

  50     (800 )

Expiring July, 2008 at $40.00

  25     (62 )

Wachovia Corp.

 

Expiring July, 2008 at $27.50

  100     (250 )

Expiring July, 2008 at $32.50

  73     (182 )

Expiring October, 2008 at $30.00

  100     (1,750 )

Walgreen Co.

 

Expiring August, 2008 at $35.00

  10     (400 )

Walt Disney Co. (The)

 

Expiring July, 2008 at $32.50

  20     (650 )

Wells Fargo & Co.

 

Expiring July, 2008 at $32.50

  62     (155 )

 

114   Annual Report  |  June 30, 2008


LOGO

Bridgeway Balanced Fund

SCHEDULE OF OPTIONS WRITTEN (continued)

 

Showing percentage of net assets as of June 30, 2008

 

Company   Number
of Contracts
  Value  

Covered Call Options Written (continued)

 

Whirlpool Corp.

 

Expiring September, 2008 at $75.00

  6   $ (690 )
         

TOTAL COVERED CALL OPTIONS WRITTEN

    (518,468 )
         

(Premiums received $(729,973))

   

PUT OPTIONS WRITTEN - (.74)%

   

Alpha Natural Resources, Inc.

 

Expiring July, 2008 at $65.00

  120     (900 )

Expiring July, 2008 at $85.00

  25     (1,937 )

Expiring August, 2008 at $90.00

  50     (20,250 )

Bristol-Myers Squibb Co.

 

Expiring September, 2008 at $20.00

  200     (21,100 )

Bucyrus International, Inc.

 

Expiring July, 2008 at $70.00

  50     (9,375 )

Expiring August, 2008 at $70.00

  100     (46,500 )

CF Industries Holdings, Inc.

 

Expiring July, 2008 at $130.00

  20     (2,550 )

Compass Minerals International, Inc.

 

Expiring July, 2008 at $70.00

  40     (2,100 )

Expiring August, 2008 at $75.00

  100     (34,500 )

Dow Chemical Co.

 

Expiring September, 2008 at $35.00

  100     (19,000 )

Massey Energy Co.

 

Expiring July, 2008 at $85.00

  25     (5,688 )

Expiring August, 2008 at $80.00

  75     (28,500 )

Expiring August, 2008 at $85.00

  75     (40,500 )
Company   Number
of Contracts
  Value  

Owens-Illinois, Inc.

 

Expiring July, 2008 at $50.00

  100   $ (82,500 )

Expiring August, 2008 at $50.00

  100     (86,500 )

Pfizer, Inc.

 

Expiring December, 2008 at $20.00

  250     (82,500 )

Potash Corp. of Saskatchewan

 

Expiring July, 2008 at $180.00

  80     (1,800 )

Expiring July, 2008 at $210.00

  10     (3,025 )

Southwestern Energy Co.

 

Expiring July, 2008 at $40.00

  60     (900 )

The Mosaic Co.

 

Expiring July, 2008 at $115.00

  40     (1,900 )

Expiring July, 2008 at $140.00

  25     (13,000 )

Expiring August, 2008 at $140.00

  50     (54,250 )
         

TOTAL PUT OPTIONS WRITTEN

      (559,275 )
         

(Premiums received $(594,878))

   

TOTAL OPTIONS WRITTEN

    $ (1,077,743 )
         

(Premiums received $(1,324,851))

   

See Notes to Financial Statements

 

www.bridgeway.com   115


STATEMENTS OF ASSETS AND LIABILITIES

 

June 30, 2008

 

ASSETS      Aggressive
Investors 1
     Aggressive
Investors 2
     Ultra-Small
Company
     Ultra-Small
Company Market

Unaffiliated investments at value

     $ 328,590,009      $ 876,741,582      $ 92,267,692      $ 709,252,127

Affiliated investments at value

       -        -        -        934,987
                                     

Total Investments at value

       328,590,009        876,741,582        92,267,692        710,187,114
                                     

Cash

       9        17        -        3,990

Receivables:

             

Portfolio securities sold

       23,835,258        27,413,184        4,859,970        21,545,026

Fund shares sold

       59,290        2,756,635        -        731,202

Dividends and interest

       186,253        276,829        171,344        968,089

Reclaims receivable

       1,406        2,113        -        -

Deposits with Brokers

       -        -        -        -

Total return swap

       50,624        -        -        -

Prepaid expenses

       35,144        68,235        8,600        62,949
                                     

Total assets

       352,757,993        907,258,595        97,307,606        733,498,370
                                     

LIABILITIES

             

Payables:

             

Portfolio securities purchased

       12,810,522        20,411,269        2,133,837        9,824,576

Fund shares redeemed

       227,408        575,230        136,430        1,603,275

Total return swap

       -        -        -        -

Due to Custodian

       -        -        -        -

Accrued Liabilities:

             

Investment advisor fees

       897,033        922,080        73,258        337,753

Administration fees

       5,298        13,745        1,506        12,447

Directors’ fees and expenses

       1,452        2,734        517        4,078

Other

       101,390        257,487        29,464        304,640

Covered call options written at value

       -        -        -        -

Put options written at value

       -        -        -        -
                                     

Total liabilities

       14,043,103        22,182,545        2,375,012        12,086,769
                                     

NET ASSETS

     $ 338,714,890      $ 885,076,050      $ 94,932,594      $ 721,411,601
                                     

NET ASSETS REPRESENT

             

Paid-in capital

     $ 260,613,805      $ 727,534,759      $ 97,823,937      $ 560,863,805

Accumulated net investment income (loss)

       (50,624 )      -        113,772        6,894,753

Accumulated net realized gain (loss) on investments

       1,841,439        (15,315,025 )      (7,791,467 )      28,612,590

Net unrealized appreciation (depreciation) on investments

       76,310,270        172,856,316        4,786,352        125,040,453
                                     

NET ASSETS

     $ 338,714,890      $ 885,076,050      $ 94,932,594      $ 721,411,601
                                     

Shares of common stock outstanding of $.001 par value*

       6,277,383        42,809,467        3,860,501        47,050,553
                                     

Net asset value per share

     $ 53.96      $ 20.67      $ 24.59      $ 15.33
                                     

Unaffiliated investments at cost

     $ 252,330,363      $ 703,885,266      $ 87,481,340      $ 583,934,030

Affiliated investments at cost

     $ -      $ -      $ -      $ 1,212,631
                                     

Total investments at cost

     $ 252,330,363      $ 703,885,266      $ 87,481,340      $ 585,146,661

Premiums received on covered call options written

     $ -      $ -      $ -      $ -

Premiums received on put options written

     $ -      $ -      $ -      $ -

 

* See Note 1 - Organization in the Notes to Financial Statements for shares authorized for each Fund.

See Notes to Financial Statements

 

116   Annual Report  |  June 30, 2008


LOGO

  

 

 

Micro-Cap
Limited
    Small-Cap
Growth
    Small-Cap
Value
    Large-Cap
Growth
    Large-Cap
Value
    Blue Chip 35
Index
    Balanced  
$ 37,722,516     $ 142,222,808     $ 359,866,234     $ 174,590,125     $ 54,146,019     $ 250,547,307     $ 76,242,539  
  -       -       -       -       -       -       -  
                                                     
  37,722,516       142,222,808       359,866,234       174,590,125       54,146,019       250,547,307       76,242,539  
                                                     
  -       -       -       1       -       -       1,375  
           
  2,227,398       3,269,232       3,648,524       -       243,900       269,162       -  
  562       207,058       380,827       1,608,701       10,207       637,872       105,562  
  49,191       106,494       365,047       131,046       42,152       206,654       233,781  
  -       -       -       -       -       -       -  
  -       -       -       -       -       -       11,263  
  -       -       70,547       -       -       -       -  
  11,620       16,377       31,913       20,400       10,140       29,842       16,129  
                                                     
  40,011,287       145,821,969       364,363,092       176,350,273       54,452,418       251,690,837       76,610,649  
                                                     
           
           
  1,727,667       852,766       31,651,849       1,330,210       -       448,009       -  
  51,536       66,594       761,892       59,470       97,376       199,991       39,100  
  -       85,602       -       -       -       -       -  
  -       -       -       -       152,938       -       -  
           
  71,175       78,083       175,914       78,858       25,804       5,282       37,916  
  587       2,301       4,904       2,748       870       4,007       1,173  
  214       578       1,171       701       365       537       454  
  24,601       68,291       119,096       65,683       31,477       45,159       36,986  
  -       -       -       -       -       -       518,468  
  -       -       -       -       -       -       559,275  
                                                     
  1,875,780       1,154,215       32,714,826       1,537,670       308,830       702,985       1,193,372  
                                                     
$ 38,135,507     $ 144,667,754     $ 331,648,266     $ 174,812,603     $ 54,143,588     $ 250,987,852     $ 75,417,277  
                                                     
           
$ 41,066,492     $ 132,260,865     $ 301,164,628     $ 159,843,700     $ 47,808,999     $ 276,463,698     $ 69,039,041  
  76,496       85,256       223,087       288,948       364,938       2,911,094       1,415,470  
  (5,953,353 )     (9,909,411 )     (10,436,449 )     (8,178,609 )     (1,229,330 )     (4,027,159 )     (262,579 )
  2,945,872       22,231,044       40,697,000       22,858,564       7,198,981       (24,359,781 )     5,225,345  
                                                     
$ 38,135,507     $ 144,667,754     $ 331,648,266     $ 174,812,603     $ 54,143,588     $ 250,987,852     $ 75,417,277  
                                                     
  5,411,246       10,369,726       20,912,812       12,734,962       3,971,053       34,819,731       5,994,007  
                                                     
$ 7.05     $ 13.95     $ 15.86     $ 13.73     $ 13.63     $ 7.21     $ 12.58  
                                                     
$ 34,776,644     $ 119,906,162     $ 319,239,781     $ 151,731,561     $ 46,947,038     $ 274,907,088     $ 71,264,302  
$ -     $ -     $ -     $ -     $ -     $ -       -  
                                                     
$ 34,776,644     $ 119,906,162     $ 319,239,781     $ 151,731,561     $ 46,947,038     $ 274,907,088     $ 71,264,302  
$ -     $ -     $ -     $ -     $ -     $ -     $ 729,973  
$ -     $ -     $ -     $ -     $ -     $ -     $ 594,878  

 

www.bridgeway.com   117


STATEMENTS OF OPERATIONS

 

Year Ended June 30, 2008

 

        Aggressive
Investors 1
     Aggressive
Investors 2
     Ultra-Small
Company
     Ultra-Small
Company Market
 

INVESTMENT INCOME

             

Dividends from unaffiliated issuers

     $ 2,230,927      $ 4,963,537      $ 678,947      $ 9,314,285  

Less: foreign taxes withheld

       (30,644 )      (50,806 )      -        (10,536 )

Interest

       -        -        -        -  

Securities lending

       445,819        1,003,647        669,660        4,735,309  
                                       

Total Investment Income

       2,646,102        5,916,378        1,348,607        14,039,058  
                                       

EXPENSES

             

Investment advisory fees - Base fees

       3,144,607        6,717,896        1,041,253        4,851,695  

Investment advisor fees - Performance adjustment

       2,529,670        955,798        -        -  

Administration fees

       65,612        144,952        21,442        179,019  

Accounting fees

       37,812        40,667        38,145        41,640  

Transfer Agent fees

       73,799        210,033        32,285        196,009  

Professional fees

       53,416        103,767        21,478        139,371  

Custody fees

       16,898        49,669        16,483        87,591  

Blue sky fees

       18,752        26,433        2,055        30,281  

Directors’ and officers’ fees and expenses

       21,860        43,863        7,668        62,667  

Shareholder servicing fees

       130,758        381,245        14,738        279,221  

Reports to shareholders

       71,996        190,971        24,844        391,853  

Interest expense

       51,289        27,232        1,050        1,364  

Miscellaneous expenses

       47,118        84,614        17,454        134,031  
                                       

Total expenses

       6,263,587        8,977,140        1,238,895        6,394,742  
                                       

Less investment advisory fees waived

       -        -        -        -  

Less other expense reimbursements

       (9,245 )      (25,957 )      (4,079 )      (30,787 )
                                       

Net Expenses

       6,254,342        8,951,183        1,234,816        6,363,955  
                                       

NET INVESTMENT INCOME (LOSS)

       (3,608,240 )      (3,034,805 )      113,791        7,675,103  
                                       

NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS

             

Realized Gain (Loss) on:

             

Unaffiliated investments

       8,510,418        3,780,613        (7,791,457 )      40,256,880  

Affiliated investments

       -        -        -        (701,078 )

Written options

       (298,848 )      655,897        -        -  

Futures contracts

       4,036,783        8,068,727        -        (1,469,435 )

Swaps

       (145,540 )      -        -        -  
                                       

Net realized gain (loss)

       12,102,813        12,505,237        (7,791,457 )      38,086,367  
                                       

Change in Unrealized Appreciation (Depreciation) on:

             

Investments in unaffiliated companies

       4,441,155        30,649,595        (24,568,770 )      (279,292,385 )

Investments in affiliated companies

       -        -        -        1,289,957  

Written options

       -        -        -        -  

Futures contracts

       -        -        -        (850,120 )

Swaps

       57,916        -        -        -  
                                       

Net change in unrealized appreciation (depreciation)

       4,499,071        30,649,595        (24,568,770 )      (278,852,548 )
                                       

Net realized and unrealized gain (loss) on investments

       16,601,884        43,154,832        (32,360,227 )      (240,766,181 )
                                       

INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS

     $ 12,993,644      $ 40,120,027      $ (32,246,436 )    $ (233,091,078 )
                                       

See Notes to Financial Statements

 

118   Annual Report  |  June 30, 2008


LOGO

  

 

 

Micro-Cap
Limited
    Small-Cap
Growth
    Small-Cap
Value
    Large-Cap
Growth
    Large-Cap
Value
    Blue Chip 35
Index
    Balanced  
           
$ 308,652     $ 564,363     $ 2,400,002     $ 1,765,496     $ 1,479,168     $ 4,490,013     $ 1,068,336  
  (247 )     -       -       (723 )     -       -       (45 )
  -       -       -       -       -       -       1,503,914  
  234,204       457,975       623,755       114,312       51,180       109,285       44,763  
                                                     
  542,609       1,022,338       3,023,757       1,879,085       1,530,348       4,599,298       2,616,968  
                                                     
           
  506,261       922,526       1,805,935       856,079       353,825       147,081       506,941  
  (282,254 )     16,084       81,195       18,202       5,960       -       -  
  9,074       28,523       56,482       32,552       12,960       34,899       15,768  
  37,817       39,003       41,467       41,973       39,475       37,776       46,792  
  19,617       104,660       125,577       50,718       22,925       28,975       36,183  
  15,008       26,873       44,697       33,813       15,201       34,254       18,606  
  8,375       20,125       27,098       9,712       10,275       8,868       28,222  
  14,474       19,456       22,051       21,850       18,986       18,127       14,714  
  3,523       10,698       21,048       12,023       4,583       12,367       5,988  
  13,113       79,301       135,313       78,055       26,753       27,076       19,920  
  11,707       45,060       71,777       37,773       18,319       30,864       19,128  
  2,400       5,223       12,430       5,104       20,233       4,260       10,562  
  8,300       21,598       56,581       18,183       11,570       15,416       21,680  
                                                     
  367,415       1,339,130       2,501,651       1,216,037       561,065       399,963       744,504  
                                                     
  -       -       -       -       -       (119,915 )     -  
  (1,176 )     (4,485 )     (14,517 )     (4,800 )     (2,434 )     (3,775 )     (5,442 )
                                                     
  366,239       1,334,645       2,487,134       1,211,237       558,631       276,273       739,062  
                                                     
  176,370       (312,307 )     536,623       667,848       971,717       4,323,025       1,877,906  
                                                     
           
           
  (4,043,124 )     5,435,393       (9,454,165 )     (3,357,393 )     (660,976 )     (1,205,950 )     (1,736,340 )
  -       -       -       -       -       -       -  
  -       -       -       -       -       -       3,875,766  
  -       -       -       -       -       -       1,419,600  
  -       (395,445 )     (394,632 )     -       -       -       -  
                                                     
  (4,043,124 )     5,039,948       (9,848,797 )     (3,357,393 )     (660,976 )     (1,205,950 )     3,559,026  
                                                     
           
  (6,420,717 )     (26,428,783 )     (42,566,978 )     (3,367,261 )     (12,527,611 )     (39,474,739 )     (6,777,109 )
  -       -       -       -       -       -       -  
    -       -       -       -       -       103,357  
  -       -       -       -       -       -       -  
  -       (87,081 )     142,849       -       -       -       -  
                                                     
  (6,420,717 )     (26,515,864 )     (42,424,129 )     (3,367,261 )     (12,527,611 )     (39,474,739 )     (6,673,752 )
                                                     
  (10,463,841 )     (21,475,916 )     (52,272,926 )     (6,724,654 )     (13,188,587 )     (40,680,689 )     (3,114,726 )
                                                     
$ (10,287,471 )   $ (21,788,223 )   $ (51,736,303 )   $ (6,056,806 )   $ (12,216,870 )   $ (36,357,664 )   $ (1,236,820 )
                                                     

 

www.bridgeway.com   119


STATEMENTS OF CHANGES IN NET ASSETS

 

 

    

Aggressive Investors 1

   

Aggressive Investors 2

 
     Year Ended
June 30,
    Year Ended
June 30,
 
      2008     2007     2008     2007  

OPERATIONS:

        

Net investment income/(loss)

   $ (3,608,240 )   $ (2,879,612 )   $ (3,034,805 )   $ (2,250,598 )

Net realized gain/(loss) on investments

     12,102,813       63,389,624       12,505,237       (7,746,640 )

Net change in unrealized appreciation/(depreciation) on investments

     4,499,071       (25,083,021 )     30,649,595       100,819,182  
                                  

Net increase/(decrease) in net assets resulting from operations

     12,993,644       35,426,991       40,120,027       90,821,944  
                                  

DISTRIBUTIONS:

        

From net investment income

     -       -       -       -  

From net realized gains

     (59,135,745 )     (38,922,847 )     (21,016,161 )     (12,277,639 )
                                  

Net decrease in net assets from distributions

     (59,135,745 )     (38,922,847 )     (21,016,161 )     (12,277,639 )
                                  

SHARE TRANSACTIONS:

        

Proceeds from sale of shares

     22,693,076       25,500,417       373,518,838       257,748,964  

Reinvestment of distributions

     52,129,569       33,935,405       19,724,944       11,193,522  

Cost of shares redeemed

     (57,923,516 )     (126,574,282 )     (178,210,882 )     (281,809,367 )

Redemption fees

     -       -       -       -  
                                  

Net increase/(decrease) in net assets from share transactions

     16,899,129       (67,138,460 )     215,032,900       (12,866,881 )
                                  

Net increase/(decrease) in net assets

     (29,242,972 )     (70,634,316 )     234,136,766       65,677,424  

NET ASSETS:

        

Beginning of year

     367,957,862       438,592,178       650,939,284       585,261,860  
                                  

End of year*

   $ 338,714,890     $ 367,957,862     $ 885,076,050     $ 650,939,284  
                                  

SHARES ISSUED & REDEEMED

        

Issued

     404,802       449,096       18,346,826       14,911,236  

Distributions reinvested

     933,553       613,217       936,476       647,402  

Redeemed

     (1,005,484 )     (2,202,942 )     (8,935,188 )     (16,441,911 )
                                  

Net increase/(decrease)

     332,871       (1,140,629 )     10,348,114       (883,273 )

Outstanding at beginning of year

     5,944,512       7,085,141       32,461,353       33,344,626  
                                  

Outstanding at end of year

     6,277,383       5,944,512       42,809,467       32,461,353  
                                  

*    Including accumulated net investment income (loss) of:

   $ (50,624 )   $ 7,292     $ -     $ -  

See Notes to Financial Statements

 

120   Annual Report  |  June 30, 2008


LOGO

  

 

 

Ultra-Small Company

   

Ultra-Small Company Market

   

Micro-Cap Limited

 
Year Ended
June 30,
    Year Ended
June 30,
    Year Ended
June 30,
 
2008     2007     2008     2007     2008     2007  
         
$ 113,791     $ 408,100     $ 7,675,103     $ 6,105,627     $ 176,370     $ (61,758 )
  (7,791,457 )     25,260,501       38,086,367       51,335,453       (4,043,124 )     (1,910,229 )
  (24,568,770 )     (14,050,480 )     (278,852,548 )     55,403,853       (6,420,717 )     (780,270 )
                                             
  (32,246,436 )     11,618,121       (233,091,078 )     112,844,933       (10,287,471 )     (2,752,257 )
                                             
         
  (394,094 )     -       (2,258,281 )     (4,933,248 )     (99,874 )     -  
  (15,085,229 )     (25,378,384 )     (34,714,496 )     (22,318,728 )     -       (14,955,401 )
                                             
  (15,479,323 )     (25,378,384 )     (36,972,777 )     (27,251,976 )     (99,874 )     (14,955,401 )
                                             
         
  1,223,204       2,892,005       256,154,976       368,886,509       2,320,692       2,149,314  
  14,780,752       24,602,886       35,539,226       25,618,053       91,033       14,435,520  
  (10,581,496 )     (8,691,768 )     (462,864,797 )     (405,818,662 )     (16,132,953 )     (17,343,613 )
  -       -       229,578       387,659       -       -  
                                             
  5,422,460       18,803,123       (170,941,017 )     (10,926,441 )     (13,721,228 )     (758,779 )
                                             
  (42,303,299 )     5,042,860       (441,004,872 )     74,666,516       (24,108,573 )     (18,466,437 )
         
  137,235,893       132,193,033       1,162,416,473       1,087,749,957       62,244,080       80,710,517  
                                             
$ 94,932,594     $ 137,235,893     $ 721,411,601     $ 1,162,416,473     $ 38,135,507     $ 62,244,080  
                                             
         
  44,362       76,935       14,573,622       19,173,707       314,887       235,605  
  516,990       683,778       2,044,835       1,315,771       11,582       1,651,661  
  (346,232 )     (231,431 )     (26,658,714 )     (20,839,119 )     (2,182,900 )     (1,892,871 )
                                             
  215,120       529,282       (10,040,257 )     (349,641 )     (1,856,431 )     (5,605 )
  3,645,381       3,116,099       57,090,810       57,440,451       7,267,677       7,273,282  
                                             
  3,860,501       3,645,381       47,050,553       57,090,810       5,411,246       7,267,677  
                                             
$ 113,772     $ 394,075     $ 6,894,753     $ 2,258,267     $ 76,496     $ -  

 

www.bridgeway.com   121


STATEMENTS OF CHANGES IN NET ASSETS

 

 

   

Small-Cap Growth

   

Small-Cap Value

 
    Year Ended
June 30,
    Year Ended
June 30,
 
     2008     2007     2008     2007  

OPERATIONS:

       

Net investment income/(loss)

  $ (312,307 )   $ (599,494 )   $ 536,623     $ (524,387 )

Net realized gain/(loss) on investments

    5,039,948       (11,045,092 )     (9,848,797 )     4,920,957  

Net change in unrealized appreciation/(depreciation) on investments

    (26,515,864 )     18,709,955       (42,424,129 )     29,678,491  
                                 

Net increase/(decrease) in net assets resulting from operations

    (21,788,223 )     7,065,369       (51,736,303 )     34,075,061  
                                 

DISTRIBUTIONS:

       

From net investment income

    -       -       -       -  

From net realized gains

    -       -       -       -  
                                 

Net decrease in net assets from distributions

    -       -       -       -  
                                 

SHARE TRANSACTIONS:

       

Proceeds from sale of shares

    41,766,427       48,904,578       212,944,988       93,045,370  

Reinvestment of distributions

    -       -       -       -  

Cost of shares redeemed

    (47,705,114 )     (158,852,967 )     (109,736,945 )     (207,064,202 )
                                 

Net increase/(decrease) in net assets from share transactions

    (5,938,687 )     (109,948,389 )     103,208,043       (114,018,832 )
                                 

Net increase/(decrease) in net assets

    (27,726,910 )     (102,883,020 )     51,471,740       (79,943,771 )

NET ASSETS:

       

Beginning of year

    172,394,664       275,277,684       280,176,526       360,120,297  
                                 

End of year*

  $ 144,667,754     $ 172,394,664     $ 331,648,266     $ 280,176,526  
                                 

SHARES ISSUED & REDEEMED

       

Issued

    2,834,069       3,426,645       12,592,357       5,710,836  

Distributions reinvested

    -       -       -       -  

Redeemed

    (3,230,062 )     (11,322,443 )     (6,630,990 )     (13,240,019 )
                                 

Net increase/(decrease)

    (395,993 )     (7,895,798 )     5,961,367       (7,529,183 )

Outstanding at beginning of year

    10,765,719       18,661,517       14,951,445       22,480,628  
                                 

Outstanding at end of year

    10,369,726       10,765,719       20,912,812       14,951,445  
                                 

*    Including accumulated net investment income (loss) of:

  $ 85,256     $ (2,867 )   $ 223,087     $ 70,914  

See Notes to Financial Statements

 

122   Annual Report  |  June 30, 2008


LOGO

  

 

 

Large-Cap Growth

   

Large-Cap Value

   

Blue Chip 35 Index

   

Balanced

 
Year Ended
June 30,
    Year Ended
June 30,
    Year Ended
June 30,
    Year Ended
June 30,
 
2008     2007     2008     2007     2008     2007     2008     2007  
             
$ 667,848     $ 271,736     $ 971,717     $ 949,079     $ 4,323,025     $ 1,363,198     $ 1,877,906     $ 1,859,563  
  (3,357,393 )     486,313       (660,976 )     2,784,881       (1,205,950 )     (232,846 )     3,559,026       (3,724,855 )
  (3,367,261 )     16,911,227       (12,527,611 )     11,542,582       (39,474,739 )     10,307,323       (6,673,752 )     6,819,420  
                                                             
  (6,056,806 )     17,669,276       (12,216,870 )     15,276,542       (36,357,664 )     11,437,675       (1,236,820 )     4,954,128  
                                                             
             
  (501,206 )     (357,354 )     (935,231 )     (819,616 )     (2,216,904 )     (1,021,236 )     (1,132,035 )     (1,860,754 )
  -       -       (2,259,581 )     -       -       -       -       (1,041,917 )
                                                             
  (501,206 )     (357,354 )     (3,194,812 )     (819,616 )     (2,216,904 )     (1,021,236 )     (1,132,035 )     (2,902,671 )
                                                             
             
  85,463,022       53,352,870       15,647,493       38,671,336       223,052,529       64,503,705       21,256,530       26,839,294  
  403,318       304,098       3,077,813       794,313       2,117,136       985,385       1,075,310       2,766,204  
  (42,633,298 )     (36,692,288 )     (35,265,212 )     (55,545,831 )     (34,689,544 )     (19,293,804 )     (31,601,455 )     (29,941,283 )
                                                             
  43,233,042       16,964,680       (16,539,906 )     (16,080,182 )     190,480,121       46,195,286       (9,269,615 )     (335,785 )
                                                             
  36,675,030       34,276,602       (31,951,588 )     (1,623,256 )     151,905,553       56,611,725       (11,638,470 )     1,715,672  
             
  138,137,573       103,860,971       86,095,176       87,718,432       99,082,299       42,470,574       87,055,747       85,340,075  
                                                             
$ 174,812,603     $ 138,137,573     $ 54,143,588     $ 86,095,176     $ 250,987,852     $ 99,082,299     $ 75,417,277     $ 87,055,747  
                                                             
             
  5,974,190       4,091,823       986,625       2,461,638       27,202,745       8,004,336       1,647,886       2,108,086  
  27,587       23,573       195,790       49,771       252,040       121,644       82,336       220,590  
  (3,047,431 )     (2,908,564 )     (2,255,334 )     (3,556,554 )     (4,267,847 )     (2,381,492 )     (2,457,847 )     (2,354,584 )
                                                             
  2,954,346       1,206,832       (1,072,919 )     (1,045,145 )     23,186,938       5,744,488       (727,625 )     (25,908 )
  9,780,616       8,573,784       5,043,972       6,089,117       11,632,793       5,888,305       6,721,632       6,747,540  
                                                             
  12,734,962       9,780,616       3,971,053       5,043,972       34,819,731       11,632,793       5,994,007       6,721,632  
                                                             
$ 288,948     $ 121,549     $ 364,938     $ 425,557     $ 2,911,094     $ 804,973     $ 1,415,470     $ 826,873  

 

www.bridgeway.com   123


FINANCIAL HIGHLIGHTS

 

(for a share outstanding throughout the year indicated)

 

              Income from
Investment Operations
 
        Net Asset
Value,
Beginning
of Year
     Net
Investment
Income (Loss)(a)
     Net Realized
and Unrealized
Gain\(Loss)
     Total from
Investment
Operations
 
AGGRESSIVE INVESTORS 1                

Year Ended June 30, 2008

     $ 61.90      $ (0.59 )    $ 3.14      $ 2.55  

Year Ended June 30, 2007

       61.90        (0.43 )      6.41        5.98  

Year Ended June 30, 2006

       56.60        (0.42 )      12.23        11.81  

Year Ended June 30, 2005

       49.43        (0.26 )      7.43        7.17  

Year Ended June 30, 2004

       39.94        (0.58 )      10.07        9.49  
                                       
AGGRESSIVE INVESTORS 2                

Year Ended June 30, 2008

       20.05        (0.08 )      1.27        1.19  

Year Ended June 30, 2007

       17.55        (0.07 )      2.94        2.87  

Year Ended June 30, 2006

       14.72        (0.05 )      3.22        3.17  

Year Ended June 30, 2005

       12.75        (0.04 )      2.01        1.97  

Year Ended June 30, 2004

       10.28        (0.09 )      2.56        2.47  
                                       
ULTRA-SMALL COMPANY                

Year Ended June 30, 2008

       37.65        0.03        (8.67 )      (8.64 )

Year Ended June 30, 2007

       42.42        0.12        3.37        3.49  

Year Ended June 30, 2006

       38.44        (0.15 )      9.23        9.08  

Year Ended June 30, 2005

       40.97        (0.10 )      6.69        6.59  

Year Ended June 30, 2004

       32.93        (0.33 )      13.66        13.33  
                                       
ULTRA-SMALL COMPANY MARKET                

Year Ended June 30, 2008

       20.36        0.14        (4.49 )      (4.35 )

Year Ended June 30, 2007

       18.94        0.10        1.76        1.86  

Year Ended June 30, 2006

       16.96        0.05        2.48        2.53  

Year Ended June 30, 2005

       16.14        0.02        0.97        0.99  

Year Ended June 30, 2004

       10.98        0.02        5.16        5.18  
                                       
MICRO-CAP LIMITED                

Year Ended June 30, 2008

       8.56        0.03        (1.53 )      (1.50 )

Year Ended June 30, 2007

       11.10        (0.01 )      (0.32 )      (0.33 )

Year Ended June 30, 2006

       11.09        (0.13 )      1.81        1.68  

Year Ended June 30, 2005

       10.75        (0.13 )      2.45        2.32  

Year Ended June 30, 2004

       9.36        (0.17 )      2.49        2.32  
                                       

See Notes to Financial Statements

 

124   Annual Report  |  June 30, 2008


LOGO

  

 

 

Less Distributions
to Shareholders from:
                  Ratios & Supplemental Data  
Net
Realized
Gain
    Net
Investment
Income
    Total
Distributions
    Paid in Capital
from
Redemption
Fees(a)
  Net Asset
Value,
End of
Year
  Total
Return
    Net Assets
End of Year
(000’s)
  Expenses Before
Waivers and
Reimbursements
    Expenses After
Waivers and
Reimbursements
    Net Investment
Income (Loss)
After Waivers and
Reimbursements
    Portfolio
Turnover
Rate
 
                   
$ (10.49 )   $ -     $ (10.49 )   $ -   $ 53.96   3.54 %(d)   $ 338,715   1.78 %   1.78 %   (1.03 %)   142 %
  (5.98 )     -       (5.98 )     -     61.90   10.79 %     367,958   1.72 %   1.72 %   (0.75 %)   115 %
  (6.51 )     -       (6.51 )     -     61.90   21.79 %     438,592   1.58 %   1.58 %   (0.69 %)   128 %
  -       -       -       -     56.60   14.51 %     368,886   1.58 %   1.58 %   (0.51 %)   155 %
  -       -       -       -     49.43   23.76 %     353,684   1.74 %   1.74 %   (1.24 %)   151 %
                                                                     
                   
  (0.57 )     -       (0.57 )     -     20.67   5.88 %(d)     885,076   1.17 %   1.17 %   (0.40 %)   127 %
  (0.37 )     -       (0.37 )     -     20.05   16.68 %     650,939   1.22 %   1.22 %   (0.38 %)   124 %
  (0.34 )     -       (0.34 )     -     17.55   21.65 %     585,262   1.12 %   1.12 %   (0.26 %)   89 %
  -       -       -       -     14.72   15.45 %     156,053   1.37 %   1.37 %   (0.33 %)   148 %
  -       -       -       -     12.75   24.03 %     110,395   1.58 %   1.58 %   (1.13 %)   152 %
                                                                     
                   
  (4.31 )     (0.11 )     (4.42 )     -     24.59   (24.59 %)(d)     94,933   1.07 %   1.07 %   0.10 %   102 %
  (8.26 )     -       (8.26 )     -     37.65   9.12 %     137,236   1.09 %   1.09 %   0.31 %   106 %
  (5.10 )     -       (5.10 )     -     42.42   25.58 %     132,193   1.09 %   1.09 %   (0.37 %)   101 %
  (9.12 )     -       (9.12 )     -     38.44   15.37 %     110,634   1.12 %   1.12 %   (0.25 %)   86 %
  (5.29 )     -       (5.29 )     -     40.97   40.88 %     101,233   1.15 %   1.15 %   (0.84 %)   71 %
                                                                     
                   
  (0.65 )     (0.04 )     (0.69 )     0.01     15.33   (21.72 %)(d)     721,412   0.66 %   0.66 %   0.79 %   29 %
  (0.37 )     (0.08 )     (0.45 )     0.01     20.36   10.08 %     1,162,416   0.67 %   0.67 %   0.53 %   34 %
  (0.53 )     (0.03 )     (0.56 )     0.01     18.94   15.13 %     1,087,750   0.65 %   0.65 %   0.27 %   27 %
  (0.15 )     (0.03 )     (0.18 )     0.01     16.96   6.12 %     593,883   0.73 %   0.73 %   0.15 %   13 %
  (0.04 )     -       (0.04 )     0.02     16.14   47.41 %     816,748   0.67 %   0.67 %   0.11 %   19 %
                                                                     
                   
  -       (0.01 )     (0.01 )     -     7.05   (17.49 %)(d)     38,136   0.75 %   0.75 %   0.36 %   147 %
  (2.21 )     -       (2.21 )     -     8.56   (3.37 %)     62,244   0.84 %   0.84 %   (0.09 %)   133 %
  (1.67 )     -       (1.67 )     -     11.10   14.72 %     80,711   1.60 %   1.60 %   (1.05 %)   125 %
  (1.98 )     -       (1.98 )     -     11.09   22.94 %     66,637   1.75 %   1.75 %   (1.27 %)   87 %
  (0.93 )     -       (0.93 )     -     10.75   24.30 %     57,750   1.79 %   1.79 %   (1.50 %)   98 %
                                                                     

 

www.bridgeway.com   125


FINANCIAL HIGHLIGHTS (continued)

 

(for a share outstanding throughout the period indicated)

 

          Income from
Investment Operations
 
      Net Asset
Value,
Beginning
of Period
   Net
Investment
Income (Loss)(a)
    Net Realized
and Unrealized
Gain\(Loss)
    Total from
Investment
Operations
 
SMALL-CAP GROWTH          

Year Ended June 30, 2008

   $ 16.01    $ (0.03 )   $ (2.03 )   $ (2.06 )

Year Ended June 30, 2007

     14.75      (0.04 )     1.30       1.26  

Year Ended June 30, 2006

     12.08      (0.03 )     2.70       2.67  

Year Ended June 30, 2005

     10.84      (0.07 )     1.31       1.24  

Period from October 31, 2003
to June 30, 2004(e)

     10.00      (0.05 )     0.89       0.84  
                                 
SMALL-CAP VALUE          

Year Ended June 30, 2008

     18.74      0.03       (2.91 )     (2.88 )

Year Ended June 30, 2007

     16.02      (0.03 )     2.75       2.72  

Year Ended June 30, 2006

     12.78      -       3.24       3.24  

Year Ended June 30, 2005

     10.46      (0.02 )     2.34       2.32  

Period from October 31, 2003
to June 30, 2004(e)

     10.00      (0.03 )     0.49       0.46  
                                 
LARGE-CAP GROWTH          

Year Ended June 30, 2008

     14.12      0.06       (0.41 )     (0.35 )

Year Ended June 30, 2007

     12.11      0.03       2.02       2.05  

Year Ended June 30, 2006

     11.00      0.04       1.07       1.11  

Year Ended June 30, 2005

     10.63      -       0.37       0.37  

Period from October 31, 2003
to June 30, 2004(e)

     10.00      (0.01 )     0.64       0.63  
                                 
LARGE-CAP VALUE          

Year Ended June 30, 2008

     17.07      0.22       (2.94 )     (2.72 )

Year Ended June 30, 2007

     14.41      0.17       2.64       2.81  

Year Ended June 30, 2006

     12.70      0.17       1.69       1.86  

Year Ended June 30, 2005

     11.11      0.14       1.55       1.69  

Period from October 31, 2003
to June 30, 2004(e)

     10.00      0.03       1.08       1.11  
                                 
BLUE CHIP 35 INDEX          

Year Ended June 30, 2008

     8.52      0.19       (1.39 )     (1.20 )

Year Ended June 30, 2007

     7.21      0.16       1.26       1.42  

Year Ended June 30, 2006

     6.86      0.14       0.32       0.46  

Year Ended June 30, 2005

     7.02      0.14       (0.18 )     (0.04 )

Year Ended June 30, 2004

     6.14      0.10       0.83       0.93  
                                 
BALANCED          

Year Ended June 30, 2008

     12.95      0.29       (0.49 )     (0.20 )

Year Ended June 30, 2007

     12.65      0.28       0.44       0.72  

Year Ended June 30, 2006

     11.92      0.22       0.73       0.95  

Year Ended June 30, 2005

     11.30      0.14       0.66       0.80  

Year Ended June 30, 2004

     10.05      0.06       1.24       1.30  
                                 

 

(a) Per share amounts calculated based on the average daily shares outstanding during the period.
(b) Annualized
(c) Total returns for periods less than one year are not annualized.
(d) Total return may have been lower had various fees not been waived during the period.
(e) Fund commenced operations on October 31, 2003

See Notes to Financial Statements

 

126   Annual Report  |  June 30, 2008


LOGO

  

 

 

Less Distributions
to Shareholders from:
              Ratios & Supplemental Data(b)  
Net
Realized
Gain
    Net
Investment
Income
    Total
Distributions
    Net Asset
Value,
End of
Period
  Total
Return(c)
    Net Assets
End of Period
(000’s)
  Expenses Before
Waivers and
Reimbursements
    Expenses After
Waivers and
Reimbursements
    Net Investment
Income (Loss)
After Waivers and
Reimbursements
    Portfolio
Turnover
Rate
 
                 
$ -     $ -     $ -     $ 13.95   (12.87 %)(d)   $ 144,668   0.87 %   0.87 %   (0.20 %)   63 %
  -       -       -       16.01   8.54 %     172,395   0.92 %   0.92 %   (0.31 %)   37 %
  -       -       -       14.75   22.10 %     275,278   0.81 %   0.81 %   (0.19 %)   41 %
  -       -       -       12.08   11.44 %(d)     55,704   1.08 %   0.94 %   (0.68 %)   51 %
 
 
    
-
 
 
    -       -       10.84   8.40 %(d)     37,968   1.25 %(b)   0.94 %(b)   (0.74 %)(b)   17 %
                                                               
                 
  -       -       -       15.86   (15.37 %)(d)     331,648   0.83 %   0.83 %   0.18 %   73 %
  -       -       -       18.74   16.98 %     280,177   0.88 %   0.88 %   (0.19 %)   58 %
  -       -       -       16.02   25.35 %     360,120   0.77 %   0.77 %   (0.03 %)   49 %
  -       -       -       12.78   22.18 %(d)     68,545   1.07 %   0.94 %   (0.32 %)   57 %
 
 
    
-
 
 
    -       -       10.46   4.60 %(d)     28,193   1.49 %(b)   0.94 %(b)   (0.42 %)(b)   21 %
                                                               
                 
  -       (0.04 )     (0.04 )     13.73   (2.50 %)(d)     174,813   0.71 %   0.71 %   0.39 %   37 %
  -       (0.04 )     (0.04 )     14.12   16.98 %     138,138   0.78 %   0.78 %   0.25 %   39 %
  -       -       -       12.11   10.09 %     103,861   0.82 %   0.82 %   0.31 %   26 %
  -       -       -       11.00   3.48 %(d)     42,988   1.03 %   0.84 %   (0.04 %)   20 %
 
 
    
-
 
 
    -       -       10.63   6.30 %(d)     39,532   1.13 %(b)   0.84 %(b)   (0.09 %)(b)   7 %
                                                               
                 
  (0.51 )     (0.21 )     (0.72 )     13.63   (16.46 %)(d)     54,144   0.80 %   0.79 %   1.38 %   28 %
  -       (0.15 )     (0.15 )     17.07   19.57 %     86,095   0.79 %   0.79 %   1.08 %   34 %
  -       (0.15 )     (0.15 )     14.41   14.69 %(d)     87,718   0.86 %   0.84 %   1.18 %   23 %
  -       (0.10 )     (0.10 )     12.70   15.22 %(d)     27,476   1.10 %   0.84 %   1.24 %   30 %
 
 
    
-
 
 
    -       -       11.11   11.10 %(d)     20,598   1.52 %(b)   0.84 %(b)   0.86 %(b)   11 %
                                                               
                 
  -       (0.11 )     (0.11 )     7.21   (14.28 %)(d)     250,988   0.22 %   0.15 %   2.35 %   12 %
  -       (0.11 )     (0.11 )     8.52   19.81 %(d)     99,082   0.35 %   0.15 %   1.98 %   11 %
  -       (0.11 )     (0.11 )     7.21   6.64 %(d)     42,471   0.47 %   0.15 %   1.90 %   41 %
  -       (0.12 )     (0.12 )     6.86   (0.59 %)(d)     34,612   0.56 %   0.15 %   2.07 %   20 %
  -       (0.05 )     (0.05 )     7.02   15.20 %(d)     35,960   0.58 %   0.15 %   1.64 %   5 %
                                                               
                 
  -       (0.17 )     (0.17 )     12.58   (1.57 %)(d)     75,417   0.88 %   0.88 %   2.23 %   44 %
  (0.15 )     (0.27 )     (0.42 )     12.95   5.87 %(d)     87,056   0.98 %   0.94 %   2.16 %   27 %
  (0.11 )     (0.11 )     (0.22 )     12.65   8.01 %     85,340   0.94 %   0.94 %   1.81 %   51 %
  (0.10 )     (0.08 )     (0.18 )     11.92   7.15 %(d)     42,264   1.19 %   0.94 %   1.20 %   126 %
  -       (0.05 )     (0.05 )     11.30   12.94 %(d)     23,212   1.51 %   0.94 %   0.60 %   124 %
                                                               

 

www.bridgeway.com   127


LOGO

NOTES TO FINANCIAL STATEMENTS

 

June 30, 2008

 

1. Organization:

 

Bridgeway Funds, Inc. (“Bridgeway”) was organized as a Maryland corporation on October 19, 1993, and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

Bridgeway is organized as a series fund, which currently has 11 investment funds (collectively, the “Funds”): Aggressive Investors 1, Aggressive Investors 2, Ultra-Small Company, Ultra-Small Company Market, Micro-Cap Limited, Small-Cap Growth, Small-Cap Value, Large-Cap Growth, Large-Cap Value, Blue Chip 35 Index, and Balanced Funds.

Bridgeway is authorized to issue 1,000,000,000 shares of common stock at $0.001 per share. 15,000,000 shares have been classified into the Aggressive Investors 1 Fund. 130,000,000 shares each have been classified into the Aggressive Investors 2 and Blue Chip 35 Index Funds. 5,000,000 shares have been classified into the Ultra-Small Company Fund. 100,000,000 shares have been classified in the Ultra-Small Company Market Fund. 10,000,000 shares have been classified in the Micro-Cap Limited Fund. 100,000,000 shares each have been classified into the Small-Cap Growth, Small-Cap Value, Large-Cap Growth, and Large-Cap Value Funds. 50,000,000 shares have been classified into the Balanced Fund. All shares outstanding currently represent Class N shares.

The Aggressive Investors 1 Fund and the Micro-Cap Limited Fund are closed to new investors. The Ultra-Small Company Fund is closed to all investors.

All of the Funds are no-load, diversified funds.

The Aggressive Investors 1 and 2 Funds seek to exceed the stock market total return (primarily through capital appreciation) at a level of total risk roughly equal to that of the stock market over longer periods of time (three years or more).

The Ultra-Small Company, Ultra-Small Company Market, Micro-Cap Limited, Small-Cap Growth, Small-Cap Value, and Large-Cap Growth Funds seek to provide a long-term total return of capital, primarily through capital appreciation.

The Blue Chip 35 Index and Large-Cap Value Funds seek to provide long-term total return of capital, primarily through capital appreciation but also some income.

The Balanced Fund seeks to provide a high current return with short-term risk less than or equal to 40% of the stock market.

Bridgeway Capital Management, Inc. (the “Adviser”) is the investment adviser for all of the Funds.

2 . Significant Accounting Policies:

 

The following summary of significant accounting policies, followed in the preparation of the financial statements of the Funds, are in conformity with accounting principles generally accepted in the United States of America.

Securities, Options, Futures and Other Investments Valuation  Other than options, portfolio securities that are principally traded on a national securities exchange are valued at their last sale price on the principal exchange on which they are traded prior to the close of the New York Stock Exchange (“NYSE”), on each day the NYSE is open for business. Portfolio securities other than options that are principally traded on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”) are valued at the NASDAQ Official Closing Price (“NOCP”). In the absence of recorded sales on their home exchange or NOCP in the case of NASDAQ traded securities, the security will be valued as follows: bid prices for long positions and ask prices for short positions.

Short-term fixed income securities having a remaining maturity of 60 days or less are valued at amortized cost, which approximates market value. Options are valued at the average of the best bid and best asked quotations. Other investments for which no sales are reported are valued at the latest bid price in accordance with the pricing policy established by the Board of Directors.

Investments in open-end registered investment companies and closed-end registered investment companies that do not trade on an exchange are valued at the end of day net asset value per share.

 

128   Annual Report  |  June 30, 2008


LOGO

NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

Investments in closed-end registered investment companies that trade on an exchange are valued at the last sales price as of the close of the customary trading session on the exchange where the security is principally traded.

When market quotations are not readily available or when events occur that make established valuation methods unreliable, securities of the Funds may be valued at fair value as determined in good faith by or under the direction of the Board of Directors. The valuation assigned to fair valued securities for purposes of calculating the Funds’ NAVs may differ from the security’s most recent closing market price and from the prices used by other mutual funds to calculate their NAVs.

Securities Lending  Upon lending its securities to third parties, the Fund receives compensation in the form of fees. The Fund also continues to receive dividends on the securities loaned. The loans are secured by collateral at least equal to the fair value of the securities loaned plus accrued interest. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be for the account of the Fund. The Fund has the right under the lending agreement to recover the securities from the borrower on demand. Additionally, the Fund does not have the right to sell or repledge collateral received in the form of securities unless the borrower goes into default. The risks to the Fund of securities lending are that the borrower may not provide additional collateral when required or return the securities when due.

As of June 30, 2008, the Funds had securities on loan and related collateral with values shown below:

 

Bridgeway Fund    Securities on
Loan Value
     Value of
Securities
Received as
Collateral
       

Aggressive Investors 1

   $ 53,026,296      $ 55,333,498

Aggressive Investors 2

   $ 129,946,137      $ 134,184,146

Ultra-Small Company

   $ 18,095,257      $ 19,232,590

Ultra-Small Company Market

   $ 156,993,337      $ 168,736,391

Micro-Cap Limited

   $ 6,074,877      $ 6,310,408

Small-Cap Growth

   $ 42,471,034      $ 44,433,424

Small-Cap Value

   $ 67,236,125      $ 70,680,471

Large-Cap Growth

   $ 14,534,265      $ 15,180,866

Large-Cap Value

   $ 6,750,451      $ 6,849,100

Blue Chip 35 Index

   $ 37,211,798      $ 39,144,456

Balanced

   $ 5,634,924      $ 5,803,040

It is the Fund’s policy to obtain additional collateral from or return excess collateral to the borrower by the end of the next business day, following the valuation date of the securities loaned. Therefore, the value of the collateral held may be temporarily less than that required under the lending contract.

Federal Income Taxes  It is the Funds’ policy to continue to comply with the provisions of the Internal Revenue Code applicable to registered investment companies and to distribute income to the extent necessary so that the Funds are not subject to federal income tax. Therefore, no federal income tax provision is required.

Use of Estimates in Financial Statements  In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Risks and Uncertainties  The Funds provide for various investment options, including stocks and call and put options. Such investments are exposed to various risks, such as interest rate, market and credit risks. Due to the risks involved, it is at least reasonably possible that changes in risks in the near term would materially affect shareholders’ account values and the amounts reported in the financial statements and financial highlights.

 

www.bridgeway.com   129


LOGO

NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

Security Transactions, Expenses, Gains and Losses and Allocations  Fund expenses that are not series specific are allocated to each series based upon its relative proportion of net assets to the Funds’ total net assets or other appropriate basis.

Security transactions are accounted for as of the trade date, the date the order to buy or sell is executed. Realized gains and losses are computed on the identified cost basis. Dividend income is recorded on the ex-dividend date, and interest income is recorded on the accrual basis from settlement date. Particularly related to the Balanced Fund, discounts and premiums are accreted/amortized on the effective interest method.

Futures Contracts  A futures contract is an agreement between two parties to buy or sell a financial instrument at a set price on a future date. Upon entering into such a contract a Fund is required to pledge to the broker an amount of cash or U.S. government securities equal to the minimum “initial margin” requirements of the exchange on which the futures contract is traded. The contract amount reflects the extent of a Fund’s exposure in these financial instruments. The Fund’s participation in the futures markets involves certain risks, including imperfect correlation between movements in the price of futures contracts and movements in the price of the securities hedged or used for cover. The Fund’s activities in the futures contracts are conducted through regulated exchanges that do not result in counterparty credit risks on a periodic basis. Pursuant to a contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the fluctuation in value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the Fund as unrealized appreciation or depreciation. When a contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. As of June 30, 2008, the Funds had no open futures contracts.

Options  An option is a contract conveying a right to buy or sell a financial instrument at a specified price during a stipulated period. The premium paid by a Fund for the purchase of a call or a put option is included in the Fund’s Schedule of Investments as an investment and subsequently marked to market to reflect the current market value of the option. When a Fund writes a call or a put option, an amount equal to the premium received by the Fund is included in the Fund’s Statement of Assets and Liabilities as a liability and is subsequently marked to market to reflect the current market value of the option written. If an option which a Fund has written either expires on its stipulated expiration date, or if the Fund enters into a closing purchase transaction, the Fund realizes a gain (or a loss if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such options is extinguished. If a call option that a Fund has written is assigned, the Fund realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are increased by the premium originally received. If a put option that a Fund has written is assigned, the amount of the premium originally received reduces the cost of the security that the Fund purchased upon exercise of the option. Buying calls increases a Fund’s exposure to the underlying security to the extent of any premium paid. Buying puts on a stock market index tends to limit a Fund’s exposure to a stock market decline. All options purchased by the Funds were listed on exchanges and considered liquid positions with readily available market quotes.

Covered Call Options and Secured Puts  The Aggressive Investors 1, Aggressive Investors 2, and Balanced Funds may write call options on a covered basis, that is, the Fund will own the underlying security, or the Fund may write secured puts. The principal reason for writing covered calls and secured puts on a security is to attempt to realize income, through the receipt of premiums. The option writer has, in return for the premium, given up the opportunity for profit from a substantial price increase in the underlying security so long as the obligation as a writer continues, but has retained the risk of loss should the price of the security decline. All options were listed on exchanges and considered liquid positions with readily available market quotes. Only the Balanced Fund had outstanding written options as of June 30, 2008.

 

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NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

A summary of the options transactions written by each of the Funds is as follows:

 

     Aggressive Investors 1 Fund        Aggressive Investors 2 Fund  
    

Written Call Options

       Written Call Options  
     

Contracts

      

Premiums

       Contracts        Premiums  
                 

Outstanding, June 30, 2007

   -        $ -        -        $ -  

Positions Opened

   3,805          1,517,307        7,087          3,017,163  

Exercised

   (1,110 )        (617,126 )      -          -  

Closed

   (2,695 )        (900,181 )      (7,087 )        (3,017,163 )
                                       

Outstanding, June 30, 2008

   -        $ -        -        $ -  
                                       

Market Value, June 30, 2008

        $ -             $ -  
                                       
     Balanced Fund        Balanced Fund  
     Written Call Options        Written Put Options  
      Contracts        Premiums        Contracts        Premiums  
                 

Outstanding, June 30, 2007

   3,906        $ 515,704        3,140        $ 413,618  

Positions Opened

   24,311          4,737,869        16,993          4,424,594  

Exercised

   (2,314 )        (955,095 )      (4,395 )        (797,248 )

Expired

   (9,103 )        (1,523,105 )      (3,919 )        (1,168,749 )

Closed

   (12,577 )        (2,045,400 )      (10,124 )        (2,277,337 )
                                       

Outstanding, June 30, 2008

   4,223        $ 729,973        1,695        $ 594,878  
                                       

Market Value, June 30, 2008

        $ 518,468             $ 559,275  
                                       

 

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Swaps.  Each Fund may enter into total return swaps. Total return swaps are agreements that provide a Fund with a return based on the performance of an underlying asset, in exchange for fee payments to a counterparty based on a specified rate. The difference in the value of these income streams is recorded daily by the Funds, and is settled in cash at the end of each month. The fee paid by a Fund will typically be determined by multiplying the face value of the swap agreement by an agreed upon interest rate. In addition, if the underlying asset declines in value over the term of the swap, the Fund would also be required to pay the dollar value of that decline to the counterparty. Total return swaps could result in losses if the underlying asset does not perform as anticipated by the Adviser. A Fund may use its own net asset value as the underlying asset in a total return swap. This strategy serves to reduce cash drag (the impact of cash on a Fund’s overall return) by replacing it with the impact of market exposure based upon the Fund’s own investment holdings. The following total return swaps were open as of June 30, 2008:

 

Portfolio    Swap
Counterparty
   Notional
Principal
   Maturity
Date
   Net Unrealized
Gain\(Loss)
 
           

Aggressive Investors 1

   ReFlow Management Co.    $ 3,154,606    July 1, 2008    $ 50,624  

Small-Cap Growth

   ReFlow Management Co.      2,531,074    July 1, 2008      (85,602 )

Small-Cap Value

   ReFlow Management Co.      16,620,072    July 1, 2008      70,547  

Indemnification  Under the Company’s organizational documents, the Funds’ officers, directors, employees and agents are indemnified against certain liabilities that may arise out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of indemnification clauses. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts.

 

3. Management Fees, Other Related Party Transactions and Contingencies:

 

The Funds have entered into management agreements with the Adviser. As compensation for the advisory services rendered, facilities furnished, and expenses borne by the Adviser, the Funds pay the Adviser a fee pursuant to each Fund’s management agreement, as described below.

Aggressive Investors 1:  A total advisory fee is paid by the Fund to the Adviser that is comprised of a Base Fee and a Performance Adjustment. The Base Fee equals the Base Fee Rate times the average daily net assets of the Fund. The Base Fee Rate is based on the following annual rates: 0.90% of the first $250 million of the Fund’s average daily net assets, 0.875% of the next $250 million and 0.85% of any excess over $500 million.

The Performance Adjustment equals 4.67% times the difference in cumulative total return between the Fund and the Standard and Poor’s 500 Index with dividends reinvested (hereinafter “Index”) over a rolling five-year performance period. The Performance Adjustment Rate varies from a minimum of –0.70% to a maximum of +0.70%. However, the Performance Adjustment Rate is zero if the difference between the cumulative Fund performance and the Index performance is less than or equal to 2%.

Aggressive Investors 2:  A total advisory fee is paid by the Fund to the Adviser that is comprised of a Base Fee and a Performance Adjustment. The Base Fee equals the Base Fee Rate times the average daily net assets of the Fund. The Base Fee rate is based on the following annual rates: 0.90% of the first $250 million of the Fund’s average daily net assets, 0.875% of the next $250 million, 0.85% from $500 million to $1 billion, and 0.80% over $1 billion.

The Performance Adjustment equals 2.00% times the difference in cumulative total return between the Fund and the Standard and Poor’s 500 Index with dividends reinvested (hereinafter “Index”) over a rolling five-year performance period. The Performance Adjustment Rate varies from a minimum of -0.30% to a maximum of +0.30%. However, the Performance Adjustment Rate is zero if the difference between the cumulative Fund performance and the Index performance is less than or equal to 2%.

Ultra-Small Company:  The Fund pays management fees based on the following annual rates: 0.90% of the first $250 million of the Fund’s average daily net assets, 0.875% of the next $250 million and 0.85% of any excess over $500 million. The

 

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NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

management fees are computed daily and are payable monthly. However, during any quarter that the Fund’s net assets range from $27,500,000 to $55,000,000, the advisory fee will be determined as if the Fund had $55,000,000 under management. This is limited to a maximum annualized expense ratio of 1.49% of average net assets.

Ultra-Small Company Market:  The Fund’s management fee is a flat 0.50% of the value of the Fund’s average daily net assets, computed daily and payable monthly.

Micro-Cap Limited:  A total advisory fee is paid by the Fund to the Adviser that is comprised of a Base Fee and a Performance Adjustment. The Base Fee equals the Base Fee Rate times the average daily net assets of the Fund. The Base Fee Rate is based on the following annual rates: 0.90% of the first $250 million of the Fund’s average daily net assets, 0.875% of the next $250 million and 0.85% of any excess over $500 million. However, during any quarter that the Fund’s net assets range from $27,500,000 to $55,000,000, the advisory fee will be determined as if the Fund had $55,000,000 under management. This is limited to a maximum annualized expense ratio of 1.49% of the net assets in the quarter the advisory fee is determined.

The Performance Adjustment equals 2.87% times the difference in cumulative total return between the Fund and the CRSP Cap-based Portfolio 9 Index with dividends reinvested (hereinafter “Index”) over a rolling five-year performance period. The Performance Adjustment Rate varies from a minimum of –0.70% to a maximum of +0.70%. However, the Performance Adjustment Rate is zero if the difference between the cumulative Fund performance and the Index performance is less than or equal to 2%.

Small-Cap Growth and Small-Cap Value:  A total advisory fee is paid by each Fund to the Adviser that is comprised of a Base Fee and a Performance Adjustment. The Base Fee equals the Base Fee Rate times the average daily net assets of the Fund. The Base Fee Rate is based on the annual rate of 0.60% of the value of the Fund’s average daily net assets.

The Performance Adjustment equals 0.33% times the difference in cumulative total return between the Fund and the Russell 2000 Growth Index for Small-Cap Growth Fund and the Russell 2000 Value Index for Small-Cap Value Fund, with dividends reinvested (hereinafter “Index”) over a rolling five-year performance period. Since each Fund does not have a five-year operating history, the Performance Adjustment Rate will be calculated as follows during the initial five-year period: (a) From inception through September 30, 2004, the Performance Adjustment Rate was inoperative thus the Advisory Fee was calculated based on the Base Advisory Fee Rate times the average daily net assets of the Funds only; (b) From September 30, 2004 through September 30, 2008, the Performance Adjustment Rate will be calculated based upon a comparison of the investment performance of the Fund and the Index over the number of quarters that have elapsed since the Fund’s inception. Each time the Performance Adjustment Rate 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. The Performance Adjustment Rate varies from a minimum of -0.05% to a maximum of +0.05%. However, the Performance Adjustment Rate is zero if the difference between the cumulative Fund’s performance and the Index performance is less than or equal to 2%.

Large-Cap Growth and Large-Cap Value:  A total advisory fee is paid by each Fund to the Adviser that is comprised of a Base Fee and a Performance Adjustment. The Base Fee equals the Base Fee Rate times the average daily net assets of the Fund. The Base Fee Rate is based on the annual rate of 0.50% of the value of the Fund’s average daily net assets.

The Performance Adjustment equals 0.33% times the difference in cumulative total return between the Fund and the Russell 1000 Growth Index for Large-Cap Growth Fund and the Russell 1000 Value Index for the Large-Cap Value Fund, with dividends reinvested (hereinafter “Index”) over a rolling five-year performance period. Since each Fund does not have a five-year operating history, the Performance Adjustment Rate will be calculated as follows during the initial five-year period: (a) From inception through September 30, 2004, the Performance Adjustment Rate was inoperative thus the Advisory Fee was calculated based on the Base Advisory Fee Rate times the average daily net assets of the Funds only; (b) From September 30, 2004 through September 30, 2008, the Performance Adjustment Rate will be calculated based upon a comparison of the investment performance of the Fund and the Index over the number of quarters that have elapsed since the Fund’s inception. Each time the Performance Adjustment Rate 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. The Performance Adjustment Rate varies from a minimum of -0.05% to a maximum of +0.05%. However, the Performance Adjustment Rate is zero if the difference between the cumulative Fund’s performance and the Index performance is less than or equal to 2%.

 

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June 30, 2008

 

Blue Chip 35 Index:  The Fund’s management fee is a flat 0.08% of the value of the Fund’s average daily Net Assets, computed daily and payable monthly.

Balanced:  The Fund’s management fee is a flat 0.60% of the value of the Funds average daily Net Assets, computed daily and payable monthly.

Expense limitations:  At a special meeting on March 31, 2005, shareholders of the Funds approved amendments to the Management Agreements detailing expense limitations. The Adviser agrees to reimburse the Funds for operating expenses and management fees above the expense limitations, which are shown as a ratio of net expenses to average net assets, for each Fund, for the fiscal year ended June 30, 2008. All expense limitations and total reimbursements for the fiscal year ended June 30, 2008, are shown below.

           Total Waivers and
Reimbursements for
Fiscal Year Ending
06/30/08
Bridgeway Fund    Expense
Limitation
    Adviser
Waived and
Reimbursed
   Other*
Reimbursements
       

Aggressive Investors 1

   1.80 %   $ -    $ 9,245

Aggressive Investors 2

   1.75 %     -      25,957

Ultra-Small Company

   2.00 %     -      4,079

Ultra-Small Company Market

   0.75 %     -      30,787

Micro-Cap Limited

   1.85 %     -      1,176

Small-Cap Growth

   0.94 %     -      4,485

Small-Cap Value

   0.94 %     -      14,517

Large-Cap Growth

   0.84 %     -      4,800

Larch-Cap Value

   0.84 %     -      2,434

Blue Chip 35 Index

   0.15 %     119,915      3,775

Balanced

   0.94 %     -      5,442

 

* The Funds’ accounting agent voluntarily reimbursed certain expenses during the fiscal year ended June 30, 2008.

Other Related Party Transactions:  The Adviser entered into an Administrative Services Agreement with Bridgeway Funds pursuant to which the Adviser provides various administrative services to the Funds including, but not limited to: (i) supervising and managing various aspects of the Funds’ business and affairs; (ii) selecting, overseeing and/or coordinating activities with other service providers to the Funds; (iii) providing reports to the Board as requested from time to time; (iv) assisting and/or reviewing amendments and updates to the Funds’ registration statement and other filings with the SEC; (v) providing certain shareholder services; (vi) providing administrative support in connection with meetings of the Board of Directors; and (vii) providing certain recordkeeping services. For its services to the Funds, the Adviser is paid an aggregate annual fee of $635,000 payable in equal monthly installments.

One director of the Funds, John Montgomery, is an owner and director of the Adviser. Another director of the Fund, Michael Mulcahy, is an executive and director of the Adviser. Under the Investment Company Act of 1940 definitions, each is considered to be an “affiliated person” of the Adviser and an “interested person” of the Adviser and of the Funds. Compensation for Mr. Montgomery and Mr. Mulcahy is borne by the Adviser rather than the Funds.

Board of Directors Compensation  Independent Directors are paid an annual retainer of $8,000 with an additional retainer of $2,500 paid to the Independent Chairman of the Board and an additional retainer of $1,000 paid to the Nominating and Corporate Governance Committee Chair. Independent Director meeting fees are $6,000 per meeting.

The Independent Directors receive this compensation in the form of shares of Bridgeway Funds, credited to his or her account. Such Directors are reimbursed for any expenses incurred in attending meetings and conferences and expenses for subscriptions or printed materials. During the fiscal year ended June 30, 2008, total reimbursements made, across all of the Funds, was $3,028. The amount of directors’ fees attributable to each Fund is disclosed in the Statements of Operations.

 

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NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

4. Distribution and Shareholder Servicing Fees:

 

Foreside Fund Services, LLC acts as distributor of the Funds’ shares pursuant to a restated and amended Distribution Agreement dated July 1, 2007. The Adviser pays all costs and expenses associated with distribution of the Funds’ shares pursuant to a protective plan adopted by shareholders pursuant to Rule 12b-1.

5. Purchases and Sales of Investment Securities:

 

Purchases and sales of investments, other than short-term securities, for each Bridgeway Fund for fiscal year ended June 30, 2008 were as follows:

 

     Purchases    Sales
Bridgeway Fund    U.S. Government    Other    U.S. Government    Other
           

Aggressive Investors 1

     -    $ 495,686,577      -    $ 545,330,449

Aggressive Investors 2

     -    $ 1,157,120,039      -    $ 962,875,354

Ultra-Small Company

     -    $ 113,893,599      -    $ 126,942,230

Ultra-Small Company Market

     -    $ 276,427,193      -    $ 489,612,135

Micro-Cap Limited

     -    $ 70,114,092      -    $ 82,422,920

Small-Cap Growth

     -    $ 95,443,763      -    $ 103,677,345

Small-Cap Value

     -    $ 317,704,107      -    $ 216,545,333

Large-Cap Growth

     -    $ 101,927,702      -    $ 61,448,692

Large-Cap Value

     -    $ 19,505,681      -    $ 37,469,447

Blue Chip 35 Index

     -    $ 213,845,243      -    $ 21,325,970

Balanced

   $ 1,497,405    $ 28,653,308    $ 5,386,602    $ 23,346,461

6. Federal Income Taxes

 

Unrealized Appreciation and Depreciation on Investments (Tax Basis)  The amount of net unrealized appreciation/depreciation and the cost of investment securities for tax purposes, including short-term securities at June 30, 2008, were as follows:

 

      Aggressive Investors 1     Aggressive Investors 2     Ultra-Small Company  

As of June 30, 2008

      

Gross appreciation (excess of value over tax cost)

   $ 86,632,389     $ 206,381,418     $ 15,821,999  

Gross depreciation (excess of tax cost over value)

     (10,399,388 )     (33,525,102 )     (11,789,926 )
                          

Net unrealized appreciation

   $ 76,233,001     $ 172,856,316     $ 4,032,073  
                          

Cost of investments for income tax purposes

   $ 252,357,008     $ 703,885,266     $ 88,235,619  
                          

 

     Ultra-Small
Company Market
    Micro-Cap Limited     Small-Cap Growth     Small-Cap Value  

As of June 30, 2008

       

Gross appreciation (excess of value over tax cost)

  $ 249,405,311     $ 6,062,439     $ 29,773,072     $ 64,991,335  

Gross depreciation (excess of tax cost over value)

    (124,497,660 )     (3,261,055 )     (7,456,426 )     (24,364,882 )
                                 

Net unrealized appreciation

  $ 124,907,651     $ 2,801,384     $ 22,316,646     $ 40,626,453  
                                 

Cost of investments for income tax purposes

  $ 585,279,463     $ 34,921,132     $ 119,906,162     $ 319,239,781  
                                 

 

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NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

      Large-Cap Growth     Large-Cap Value     Blue Chip 35 Index     Balanced  

As of June 30, 2008

        

Gross appreciation (excess of value over tax cost)

   $ 33,390,642     $ 11,105,212     $ 15,668,685     $ 10,988,469  

Gross depreciation (excess of tax cost over value)

     (10,617,124 )     (3,906,231 )     (41,359,242 )     (6,003,960 )
                                  

Net unrealized appreciation

   $ 22,773,518     $ 7,198,981     $ (25,690,557 )   $ 4,984,509  
                                  

Cost of investments for income tax purposes

   $ 151,816,607     $ 46,947,038     $ 276,237,864     $ 70,180,287  
                                  

The differences between book and tax net unrealized appreciation are primarily due to wash sale loss deferrals.

Classifications of Distributions  Net investment income (loss) and net realized gain (loss) may differ for financial statement and tax purposes. The character of distributions made during the year from net investment income or net realized gains may differ from its ultimate characterization for federal income tax purposes.

The difference between book and tax components of net assets and the resulting reclassifications were primarily a result of the differing book/tax treatment of net operating losses and certain expenses.

The tax character of the distributions paid by the Funds during the last two fiscal years ended June 30, 2008 and June 30, 2007, respectively are as follows:

 

        Aggressive Investors 1      Aggressive Investors 2
        Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007
     Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007

Distributions paid from:

                   

Long Term Capital Gain

     $ 59,135,745      $ 38,922,847      $ 21,016,161      $ 12,277,639
                                     

Total

     $ 59,135,745      $ 38,922,847      $ 21,016,161      $ 12,277,639
                                     
        Ultra-Small Company      Ultra-Small Company Market
       

Year

Ended
June 30, 2008

     Year
Ended
June 30, 2007
     Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007

Distributions paid from:

                   

Ordinary income

     $ 394,104      $ 1,877,630      $ 2,258,281      $ 4,933,248

Long Term Capital Gain

       15,085,219        23,500,754        34,714,496        22,318,728
                                     

Total

     $ 15,479,323      $ 25,378,384      $ 36,972,777      $ 27,251,976
                                     
        Micro-Cap Limited      Large-Cap Growth
        Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007
     Year
Ended
June 30, 2008
    

Year

Ended
June 30, 2007

Distributions paid from:

                   

Ordinary income

     $ 99,874      $ 1,475      $ 501,206      $ 357,354

Long Term Capital Gain

       -        14,953,926        -        -
                                     

Total

     $ 99,874      $ 14,955,401      $ 501,206      $ 357,354
                                     

 

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                                    [GRAPHIC]

                                        

NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

        Large-Cap Value      Blue Chip 35 Index
        Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007
     Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007

Distributions paid from:

                   

Ordinary income

     $ 935,266      $ 819,616      $ 2,216,904      $ 1,021,236

Long Term Capital Gain

       2,259,546        -        -        -
                                     

Total

     $ 3,194,812      $ 819,616      $ 2,216,904      $ 1,021,236
                                     
        Balanced        
        Year
Ended
June 30, 2008
     Year
Ended
June 30, 2007
               

Distributions paid from:

                   

Ordinary income

     $ 1,132,035      $ 2,182,831          

Long Term Capital Gain

       -        719,840          
                                     

Total

     $ 1,132,035      $ 2,902,671          
                                     

At June 30, 2008, the Funds had available for tax purposes, capital loss carryovers as follows:

 

     Ultra-Small
Company
  Micro-Cap Limited   Small-Cap Growth   Small-Cap Value
Expiring 6/30/2013     -     -     -   $ 948,551
6/30/2015     -   $ 1,910,229   $ 9,909,411     -
6/30/2016   $ 3,822,016     1,720,318     -     1,491,117
     Large-Cap Growth   Blue Chip 35 Index   Balanced          
Expiring 6/30/2009     -   $ 100,306     -    
6/30/2010     -     429,064     -    
6/30/2011     -     337,509     -    
6/30/2012     -     327,296     -    
6/30/2013   $ 2,323,531     282,192     -    
6/30/2014     2,412,639     402,963     -    
6/30/2015     -     418,882   $ 21,741    
6/30/2016     1,302,044     31,461     -    

Components of Net Assets (Tax Basis)  As of June 30, 2008, the components of net assets on a tax basis were:

 

     Aggressive Investors 1   Aggressive Investors 2     Ultra-Small Company  

Accumulated Net Investment Income (Loss)

  $ -   $ -     $ 113,762  

Accumulated Net Realized Gain (Loss) on Investments

    1,868,083     (15,315,025 )*     (7,037,178 )*

Net unrealized appreciation/depreciation of investments

    76,233,001     172,856,316       4,032,073  
                       

Total

  $ 78,101,084   $ 157,541,291     $ (2,891,343 )
                       

 

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                                    [GRAPHIC]

                                        

NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

     Ultra-Small
Company Market
    Micro-Cap Limited     Small-Cap Growth  

Accumulated Net Investment Income (Loss)

  $ 6,894,753     $ 76,496     $ -  

Accumulated Net Realized Gain (Loss) on Investments

    28,745,392       (5,808,865 )*     (9,909,411 )

Net unrealized appreciation/depreciation of investments

    124,907,651       2,801,384       22,316,646  

Other Book/Tax Differences

    -       -       (346 )
                         

Total

  $ 160,547,796     $ (2,930,985 )   $ 12,406,889  
                         
     Small-Cap Value     Large-Cap Growth     Large-Cap Value  

Accumulated Net Investment Income (Loss)

  $ 293,980     $ 289,288     $ 365,278  

Accumulated Net Realized Gain (Loss) on Investments

    (10,436,449 )*     (8,093,563 )*     (1,229,330 )*

Net unrealized appreciation/depreciation of investments

    40,626,453       22,773,518       7,198,981  

Other Book/Tax Differences

    (346 )     (340 )     (340 )
                         

Total

  $ 30,483,638     $ 14,968,903     $ 6,334,589  
                         
     Blue Chip 35 Index     Balanced         
Accumulated Net Investment Income (Loss)   $ 2,911,094     $ 1,415,470    
Accumulated Net Realized Gain (Loss) on Investments     (2,696,383 )*     (21,743 )  
Net unrealized appreciation/depreciation of investments     (25,690,557 )     4,984,509    
                         
Total   $ (25,475,846 )   $ 6,378,236    
                         

 

* Includes losses incurred in the period November 1, 2007 through June 30, 2008 which the Fund has elected to defer to its fiscal year ending June 30, 2008. Post October Losses - Under current tax law, capital losses realized after October 31 of a Fund’s fiscal year may be deferred and treated as occurring on the first business day of the following fiscal year for tax purposes. The Aggressive Investors 2 Fund, The Ultra-Small Company Fund, The Micro-Cap Limited Fund, The Small-Cap Value Fund, The Large-Cap Growth Fund, The Large-Cap Value Fund and The Blue-Chip 35 Index Fund had deferred post October losses of $15,315,025, $3,215,162, $2,178,318, $7,996,781, $2,055,350, $1,229,330, and $366,710 respectively.

For the year ended June 30, 2008, the Funds recorded the following reclassifications to the accounts listed below:

 

      Increase (Decrease)  
      Aggressive Investors 1     Aggressive Investors 2     Ultra-Small Company  

Paid-in-Capital

   $ (1,913,438 )   $ (3,977,951 )   $ 1  

Accumulated Net Investment Income (Loss)

     3,550,324       3,034,805       -  

Accumulated Net Realized Gain (Loss)

     (1,636,886 )     943,146       (1 )
                          
      Ultra-Small
Company Market
    Micro-Cap Limited     Small-Cap Growth  

Paid-in-Capital

   $ 10,177,548     $ -     $ (795,875 )

Accumulated Net Investment Income (Loss)

     (780,336 )     -       400,430  

Accumulated Net Realized Gain (Loss)

     (9,397,212 )     -       395,445  
                          
      Small-Cap Value     Large-Cap Growth     Large-Cap Value  

Paid-in-Capital

   $ (10,182 )   $ (757 )   $ 97,070  

Accumulated Net Investment Income (Loss)

     (384,450 )     757       (97,105 )

Accumulated Net Realized Gain (Loss)

     394,632       -       35  
                          
      Blue Chip 35 Index     Balanced         

Paid-in-Capital

   $ (106,811 )   $ 157,274    

Accumulated Net Investment Income (Loss)

     -       (157,274 )  

Accumulated Net Realized Gain (Loss)

     106,811       -    
                          

The difference between book and tax components of net assets and the resulting reclassifications were primarily a result of the differing book/tax treatment of net operating losses, the deduction of equalization debits for tax purposes, and certain expenses.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), was issued. The Funds implemented the provisions of FIN 48, which prescribe a minimum threshold for financial

 

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NOTES TO FINANCIAL STATEMENTS (continued)

 

June 30, 2008

 

statement recognition of the benefit of a tax position taken in a tax return. As of June 30, 2008, Fund management has determined that the Fund did not have any unrecognized tax benefits as a result of tax positions taken in the current or prior periods that would require reporting under FIN 48.

7. Bank Borrowings

 

Certain Bridgeway Funds established a line of credit agreement (“Facility”) with PNC Bank, N.A. (the “Bank” or “Lender”) which matures on October 9, 2008 and is renewable annually at the Bank’s option, to be used for temporary or emergency purposes, primarily for financing redemption payments. At a meeting held August 15, 2008 the Board of Directors approved and authorized officers of the Bridgeway Funds to renew this Facility for an additional one year period. Any and all advances under this Facility would be at the sole discretion of the Lender based on the merits of the specific transaction. Advances under the Facility are limited to $5,000,000 in total for all Funds (except Aggressive Investors 1 and Aggressive Investors 2 Funds), or 33 1/3% of a Fund’s net assets. Borrowings under the line of credit bear interest based on the Lender’s Prime Rate. Principal is due fifteen days after each advance and at Maturity. Interest is payable monthly in arrears. No Fund had borrowings under the Facility during the year ended June 30, 2008.

During the fiscal year ended June 30, 2008 each of the Funds engaged in short-term borrowings from PFPC Trust Company, the Funds’ Custodian. Interest on the borrowings was charged at 1.25 times the Federal Fund Rate. The average daily loan balance during the period for which loans were outstanding and the weighted average interest rate was:

 

Bridgeway Fund      Average Borrowing        Average Rate  
         

Aggressive Investors 1

     ($ 2,322,769 )      4.78 %

Aggressive Investors 2

       (3,093,110 )      5.59  

Ultra-Small Company

       (455,088 )      5.57  

Ultra-Small Company Market

       (1,239,901 )      5.83  

Micro-Cap Limited

       (180,197 )      4.21  

Small-Cap Growth

       (650,585 )      4.97  

Small-Cap Value

       (1,667,508 )      4.34  

Large-Cap Growth

       (1,160,726 )      3.60  

Large-Cap Value

       (714,942 )      4.31  

Blue Chip 35 Index

       (484,952 )      5.06  

Balanced

       (1,283,390 )      5.25  

8. Redemption Fees:

 

In Ultra-Small Company Market Fund a 2.00% redemption fee may be charged on shares held less than six months or for redemptions in a down market, subject to a maximum combined redemption fee of 2%. In Blue Chip 35 Index Fund a 1.00% redemption fee may be charged on redemptions in a down market.

At a Board Meeting held on August 15, 2008, the Board of Directors elected to eliminate the redemption fee for redemptions in a down market for both the Ultra-Small Company Fund and Blue Chip 35 Index Fund effective October 31, 2008.

9. New Accounting Pronouncements

 

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS No. 157), “Fair Value Measurements.” This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of June 30, 2008, the Funds do not believe the adoption of SFAS No. 157 will impact the financial statement amounts, however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period.

In March 2008, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. SFAS No. 161 requires enhanced disclosures about the Funds’ derivative and hedging activities, including how such activities are accounted for and their effect on the Funds’ financial position, performance and cash flows. Management is currently evaluating the impact the adoption of SFAS No. 161 will have, if any, on the Fund’s financial statements and related disclosures.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Shareholders and

Board of Directors of

Bridgeway Funds, Inc.

We have audited the accompanying statements of assets and liabilities of Aggressive Investors 1 Fund, Aggressive Investors 2 Fund, 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, Large-Cap Value Fund, Blue Chip 35 Index Fund, and Balanced Fund, each a series of Bridgeway Funds, Inc., including the schedules of investments, as of June 30, 2008, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two year period then ended, and the financial highlights for each of the years in the four year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended June 30, 2004 were audited by other auditors whose report dated August 30, 2004 expressed an unqualified opinion on such financial highlights.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of June 30, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Aggressive Investors 1 Fund, Aggressive Investors 2 Fund, 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, Large-Cap Value Fund, Blue Chip 35 Index Fund, and Balanced Fund as of June 30, 2008, the results of their operations for the year then ended, and the changes in their net assets for each of the years in the two year period then ended, and financial highlights for each of the years in the four year period then ended, in conformity with accounting principles generally accepted in the United States of America.

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BRIGGS, BUNTING & DOUGHERTY, LLP

Philadelphia, Pennsylvania

August 28, 2008

 

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OTHER INFORMATION

 

June 30, 2008 (unaudited)

 

1. Shareholder Tax Information

 

Certain tax Information regarding the Funds is required to be provided to shareholders based upon each Fund’s income and distributions for the taxable year ended June 30, 2008. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2007.

During the fiscal year ended June 30, 2008, the following percentages of dividends paid by each Fund from net investment income qualified for the corporate dividends received deduction and met the requirements regarding qualified dividend income:

 

      Ultra-Small
Company
   Ultra-Small
Company Market
   Micro-Cap
Limited
   Large-Cap
Growth

Corporate Dividends Received Deduction

   24.86%    95.14%    100.00%    100.00%

Qualified Dividend Income

   24.66%    95.06%    100.00%    100.00%

Qualified Interest Related Dividends

   0.00%    4.13%    0.00%    0.00%
      Large-Cap
Value
   Blue Chip
35 Index
   Balanced      

Corporate Dividends Received Deduction

   96.94%    71.65%    36.50%   

Qualified Dividend Income

   96.94%    71.64%    36.56%   

Qualified Interest Related Dividends

   0.73%    2.13%    69.40%   

During the fiscal year ended June 30, 2008, the Funds paid distributions from ordinary income and long-term capital gain which included equalization debits as summarized below:

 

      Aggressive
Investors 1
   Aggressive
Investors 2
   Ultra-Small
Company
   Ultra-Small
Company Market
   Micro-Cap
Limited

Ordinary Income Distributions

   $ -    $ -    $ 394,104    $ 2,258,281    $ 99,874

Equalization Debits Included in Ordinary Income Distributions

     -      -      -      766,084      -

Long-Term Capital Gain Distributions

     59,135,745      21,016,161      15,085,219      34,714,496      -

Equalization Debits Included in Long-Term Capital Gain Distributions

     -      -      -      9,411,460      -
      Large-Cap
Growth
   Large-Cap
Value
   Blue Chip
35 Index
   Balanced      

Ordinary Income Distributions

   $ 501,206    $ 935,266    $ 2,216,904    $ 1,132,035   

Equalization Debits Included in Ordinary Income Distributions

     -      97,070      -      157,274   

Long-Term Capital Gain Distributions

     -      2,259,546      -      -   

See Note 6 of Notes to Financial Statements for distributions paid during the fiscal year.

2. Proxy Voting

 

Fund policies and procedures used in determining how to vote proxies relating to the Funds’ securities and a summary of proxies voted by the Funds for the period ended June 30, 2008 are available without a charge, upon request, by contacting Bridgeway Funds at 1-800-661-3550 and on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.

 

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OTHER INFORMATION (continued)

 

June 30, 2008 (unaudited)

 

3. Fund Holdings

 

The complete schedules of the Funds’ holdings for the second and fourth quarters of each fiscal year are contained in the Funds’ Semi-Annual and Annual shareholder reports, respectively.

The Bridgeway Funds file complete schedules of the Funds’ holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q within 60 days after the end of the period. Copies of the Funds’ Form N-Q are available without charge, upon request, by contacting Bridgeway Funds at 1-800-661-3550 and on the SEC’s website at http://www.sec.gov. You may also review and copy Form N-Q at the SEC’s Public Reference Room in Washington, D.C. For more information about the operation of the Public Reference Room, please call 1-800-SEC-0330.

4. Investment Advisory Agreement Approval

 

At a meeting held on June 13, 2008 (the “Meeting”), the Board of Directors (“Board”), including a majority of the non-interested or independent Directors (hereinafter, “Directors”), approved the renewal of the investment management agreement (the “Advisory Agreement”) between Bridgeway Capital Management, Inc. (the “Adviser”) and each Fund.

In reaching its decisions to approve the continuation of the Advisory Agreement for each Fund, the Board considered information provided specifically in relation to the renewal of the Advisory Agreement for the Meeting. In response to specific requests from the independent Directors in connection with the Meeting, the Adviser furnished, and the Board considered, information including, but not limited to, the following: (1) the nature, extent and quality of services provided by the Adviser to the Funds, including investment advisory and certain administrative services to the Funds; (2) the actual management and other fees paid by each Fund to the Adviser and a comparison of those fees to a comparable group of funds; (3) the performance of each Fund over various time periods and a comparison of that performance to a comparable group of funds; (4) the profitability of the Adviser from the relationship with the Funds; and (5) any “fall out” or ancillary benefits that accrue to the Adviser as a result of the relationship with each Fund. In addition to evaluating, among other things, the written information provided by the Adviser, the Board also evaluated the answers to questions posed by the independent Directors to representatives of the Adviser at the Meeting.

In considering the information and materials described above, the independent Directors received assistance from and met separately with independent legal counsel and were provided with a written description of their statutory responsibilities and the legal standards that are applicable to approvals of advisory agreements. Although the Advisory Agreement for all of the Funds was considered at the same Board Meeting, the Directors addressed each Fund separately during the Meeting.

Based on all of the information presented, the Board, including a majority of its independent Directors, determined on a Fund-by-Fund basis that the fees charged under the Advisory Agreement are reasonable in relation to the services that are provided under the Advisory Agreement. In view of the broad scope and variety of factors and information, the Directors did not find it practicable to, and did not, assign relative weights to the specific factors considered in reaching their conclusions and determinations to approve the continuance of the Advisory Agreement for each Fund. Rather, the approval determinations were made on the basis of each Director’s business judgment after consideration of all of the factors taken in their entirety.

Although not meant to be all-inclusive, the following discusses some of the factors relevant to the Board’s decisions to approve the continuance of the Advisory Agreement for each Fund.

Nature, Extent and Quality of Services.  The independent Directors were pleased that the Funds continue to have access to the Adviser’s specialized skills in quantitative analysis and active and passive investment management and trading, and viewed those skills as relatively unique within the investment industry. The Directors were satisfied that staffing levels and plans for growth at the Adviser were adequate and appropriate in view of the Funds’ operations. The Directors noted that the Adviser devotes most of its personnel time to managing the Funds, as they are the largest part of the Adviser’s business operations. There have been no changes in personnel that provide services to the Funds other than the addition of a new partner to the investment management team during the past year. In addition to providing investment management services to the Funds, the Adviser has undertaken extensive responsibility to review and implement policies and procedures to ensure that the Funds comply with regulatory initiatives. Finally, the Directors considered that the Adviser provides certain administrative services under the Administrative Services Agreement approximately at cost to the Funds.

 

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OTHER INFORMATION (continued)

 

June 30, 2008 (unaudited)

 

Investment Performance.  The independent Directors reviewed performance information through March 31, 2008 for each Fund and noted the following. The Aggressive Investors 1 Fund has outperformed its peer funds and benchmark by considerable margins over shorter periods and since inception. The Aggressive Investors 2 Fund has outperformed its peer funds for the past three and five year periods and has outperformed its benchmark index for the past three and five year periods as well as since inception. The Ultra-Small Company Fund and the Ultra-Small Company Market Fund have outperformed peer funds for the past five year period but have lagged their benchmark index during the same period. In addition, the Ultra-Small Company Fund and Ultra-Small Company Market Fund have outperformed their benchmark index for the past ten year period as well as since inception. The Micro-Cap Limited Fund has slightly lagged its peer funds and benchmark for the past 5 years but has outperformed its benchmark since inception. The Blue Chip 35 Index Fund has slightly lagged its peer funds and benchmark for the past 5 years but has outperformed its benchmark over the past ten year period as well as since inception. The Balanced Fund has outperformed its peer funds for the past three and five year periods and has outperformed its benchmark index over the past five year period as well as since inception. The Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth Fund and Large-Cap Value Fund have each outperformed their respective peer funds and benchmark indexes for the past three year period and since inception each fund has outperformed its benchmark. The independent Directors were satisfied with each Fund’s relative investment performance.

Fees and Expenses.  The independent Directors were satisfied with the reasonableness of the management fees and favorable overall expense levels of each of the Funds, and believed that the fee and expense levels were consistent with the Adviser’s long-standing goal of providing low cost funds. The management fees of the Aggressive Investors 1 Fund, Aggressive Investors 2 Fund and Micro-Cap Limited Fund are performance-based fees that adjust higher or lower in a range in response to investment results. As a result of the performance fees and their long-term investment success, the Aggressive Investors 1 Fund and Aggressive Investors 2 Fund paid higher management fees than fees paid by peers. Overall expenses were slightly higher for Aggressive Investors 1 Fund but slightly lower for Aggressive Investors 2 Fund as compared to peers. Due to the fact that the Micro-Cap Limited Fund is currently in a negative performance fee adjustment, the management fees and overall expenses of the Micro-Cap Limited Fund were significantly lower than the fees paid by peers. The Ultra-Small Company Fund has no performance fee and both the management fee and overall expenses were significantly lower than peers.

The Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth Fund and Large-Cap Value Fund also have performance-based fees, but each Fund’s management fees and overall expenses were significantly lower than its peers.

The passively managed Ultra-Small Company Market Fund’s management fee was higher than the average of other passively-managed funds, but the Board recognized that the fee was warranted because the Fund was relatively unique among index funds based on its ultra small focus. In any event, the overall expenses of the Fund were slightly lower than its peers. The Blue Chip 35 Index Fund has no performance fee and both the management fee and overall expenses were significantly lower than peer funds, primarily due to fee waivers by the Adviser. The Balanced Fund has no performance fee and its management fee is lower than peers and overall expenses were significantly lower than peer funds.

In addition, the Board acknowledged that the Adviser agreed to contractual expense limitation agreements for each of the Funds to ensure that overall expense levels do not increase above certain levels, and noted that each Fund’s non-management expense levels were lower or comparable to peer group expenses.

Profitability and Economies of Scale.  The Board reviewed profitability information for the Adviser in the aggregate for each of the past two years as well as profitability information presented by the Adviser at the Meeting comparing the Adviser’s profitability to other investment advisers. The Board noted that, as a business matter, the Adviser was entitled to earn reasonable profits for its services to the Funds.

With regard to economies of scale, the Board noted that the Aggressive Investors 1 and 2 Funds have each reached a size so that they already benefit from a reduced base management fee rate. The Micro-Cap Limited and Ultra-Small Company Funds also had fee breakpoints that had not yet been met. Although the Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth Fund and Large-Cap Value Fund do not have fee breakpoints, the Adviser indicated that the Funds were priced low relative to peers and ahead of the economies of scale curve at launch. In particular, these Funds’ management fees were aggressively priced from launch as if they had assets of $1 billion (in the case of the Small-Cap Growth and Small-Cap Value Funds) and $5 billion (in the case of the Large-Cap Growth and Large-Cap Value Funds). However, these

 

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OTHER INFORMATION (continued)

 

June 30, 2008 (unaudited)

 

four Funds had assets that were significantly below the $1 billion and $5 billion levels, as the case may be, at the time of the Meeting. Although the Ultra-Small Company Market Fund does not have fee breakpoints, the Adviser noted that it believes that the Fund does not exhibit significant economies of scale because it involves intensive and time-consuming portfolio and trading management because trades are small and oftentimes less liquid and may take longer to execute. As a result, the Adviser indicated that an increase in assets does not necessarily lead to economies of scale. With regard to both the Blue Chip 35 Index Fund and Balanced Fund, the Adviser noted that although neither Fund has fee breakpoints, each Fund was priced low relative to peers and ahead of the economies of scale curve at launch. In view of asset sizes and fee structure, the Board was satisfied that shareholders were not missing the opportunity to benefit from economies of scale if they were available.

The Directors also reviewed the fees the Adviser charged to other funds and separate accounts and evaluated the differences.

Ancillary Benefits.  In terms of potential ancillary benefits to the Adviser due to its position as manager of the Funds, the Adviser continues to use no soft dollars and its administrative services to the Funds are structured to approximate an at-cost relationship.

Overall, the Directors were pleased to renew the Advisory Agreement with respect to each Fund. The Directors valued access by the Funds to the Adviser’s proprietary quantitative investment management services, excellent investment performance and favorable fee levels and concluded that renewal of the Advisory Agreement was in the best interests of the Funds and their shareholders. They also expressed appreciation for the integrity and level of commitment of the Adviser’s personnel.

 

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DISCLOSURE OF FUND EXPENSES

 

June 30, 2008 (unaudited)

 

As a shareholder of the Fund, you will not incur sales charges (loads) on purchases, on reinvest dividends, or on other distributions. There are no exchange fees. Shareholders are subject to redemption fees on the Ultra-Small Company Market and Blue Chip 35 Index Funds under certain circumstances. However, as a shareholder of the Fund, you will incur ongoing costs, including management fees and other Fund expenses. The following examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on January 1, 2008 and held until June 30, 2008.

Actual Return.  The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading “Expense Paid During the Period” to estimate the expenses you paid on your account during the period.

Hypothetical 5% Return.  The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear In the shareholder reports of other funds.

The expenses shown in the table are meant to highlight ongoing Fund costs only. Therefore, the second line of the table Is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds, because other funds may also have transaction costs, such as sales charges, redemption fees or exchange fees.

 

     Beginning Account
Value at 1/1/08
  Ending Account
Value at 6/30/08
 

Expense Ratio

During Period
1/1/08 - 6/30/08

  Expense Paid
During Period*
1/1/08 - 6/30/08
Bridgeway Aggressive Investors 1        
                       

Actual Fund Return

  $ 1,000.00   $ 935.30   1.81%   $ 8.71

Hypothetical Fund Return

  $ 1,000.00   $ 1016.00   1.81%   $ 9.07
Bridgeway Aggressive Investors 2        
                       

Actual Fund Return

  $ 1,000.00   $ 948.60   1.16%   $ 5.62

Hypothetical Fund Return

  $ 1,000.00   $ 1,019.23   1.16%   $ 5.82
Bridgeway Ultra Small Company Fund        
                       

Actual Fund Return

  $ 1,000.00   $ 821.60   1.07%   $ 4.85

Hypothetical Fund Return

  $ 1,000.00   $ 1,019.68   1.07%   $ 5.37
Bridgeway Ultra Small Company Market Fund        
                       

Actual Fund Return

  $ 1,000.00   $ 862.20   0.66%   $ 3.06

Hypothetical Fund Return

  $ 1,000.00   $ 1,021.72   0.66%   $ 3.32
Bridgeway Micro-Cap Limited Fund        
                       

Actual Fund Return

  $ 1,000.00   $ 869.30   1.07%   $ 4.97

Hypothetical Fund Return

  $ 1,000.00   $ 1,019.68   1.07%   $ 5.37

 

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DISCLOSURE OF FUND EXPENSES (continued)

 

June 30, 2008 (unaudited)

 

      Beginning Account
Value at 1/1/08
   Ending Account
Value at 6/30/08
  

Expense Ratio

During Period
1/1/08 - 6/30/08

   Expense Paid
During Period*
1/1/08 - 6/30/08
Bridgeway Small-Cap Growth Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 914.80    0.88%    $ 4.19

Hypothetical Fund Return

   $ 1,000.00    $ 1020.62    0.88%    $ 4.42
Bridgeway Small-Cap Value Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 917.80    0.85%    $ 4.05

Hypothetical Fund Return

   $ 1,000.00    $ 1,020.77    0.85%    $ 4.27
Bridgeway Large-Cap Growth Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 915.90    0.73%    $ 3.48

Hypothetical Fund Return

   $ 1,000.00    $ 1021.37    0.73%    $ 3.67
Bridgeway Large-Cap Value Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 857.80    0.84%    $ 3.88

Hypothetical Fund Return

   $ 1,000.00    $ 1,020.82    0.84%    $ 4.22
Bridgeway Blue Chip 35 Index Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 854.30    0.15%    $ 0.69

Hypothetical Fund Return

   $ 1,000.00    $ 1,024.25    0.15%    $ 0.75
Bridgeway Balanced Fund            
                           

Actual Fund Return

   $ 1,000.00    $ 953.80    0.85%    $ 4.13

Hypothetical Fund Return

   $ 1,000.00    $ 1,020.77    0.85%    $ 4.27

 

* Expenses are equal to the average account value times the Fund’s annualized expense ratio multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year.

 

146   Annual Report  |  June 30, 2008


LOGO

DIRECTORS & OFFICERS

 

June 30, 2008 (unaudited)

 

Independent Directors
Name, Address
and Age1
   Position
Held with
Bridgeway
Funds
   Term of
Office and
Length of
Time Served
   Principal Occupation(s)
During Past Five Years
   No. of Bridgeway
Funds Overseen
by Director
   Other Directorships
Held by Director

Kirbyjon Caldwell

Age 54

   Director   

Term: 1 Year

Length:

2001 to Present.

   Senior Pastor of Windsor Village United Methodist Church, since 1982.    Eleven    Continental Airlines, Inc., American Church Mortgage Company, Reliant Energy, Amegy Bancshares Advisory Board

Karen S. Gerstner

Age 53

   Director   

Term: 1 Year

Length:

1994 to Present.

  

Principal, Karen S. Gerstner & Associates, P.C., 2004 to present.

Attorney and Partner,

Davis, Ridout, Jones and

Gerstner LLP, 1999 to 2003.

   Eleven    None

Miles Douglas Harper, III*

Age 45

   Director   

Term: 1 Year

Length:

1994 to Present.

  

Partner, 10/1998 to

present, Gainer, Donnelly, Desroches, LLP.

   Eleven   

Calvert Social Investment Fund

(8 Portfolios) Calvert Social Index Series, Inc. (1 Portfolio) Calvert Impact Fund2

(4 Portfolios) Calvert World Values Fund

(3 Portfolios), Founders Bank, SSB

Evan Harrel

Age 47

   Director   

Term: 1 Year

Length:

2006 to Present.

   Executive Director, Small Steps Nurturing Center, 8/2004 to present. Senior Portfolio Manager, AIM Capital Management, 1998 to 2003.    Eleven    None

 

www.bridgeway.com   147


LOGO

DIRECTORS & OFFICERS (continued)

 

June 30, 2008 (unaudited)

 

“Interested” or Affiliated Directors
Name, Address
and Age1
   Position(s)
Held with
Bridgeway
Funds
   Term of
Office and
Length of
Time Served
   Principal Occupation(s)
During Past Five Years
   No. of Bridgeway
Funds Overseen
by Director
   Other Directorships
Held by Director

Michael D. Mulcahy3

Age 44

   President and Director   

Term: 1 Year Length:

2003 to Present.

   President, Bridgeway Funds, 6/2005 to present. Director, Secretary and Vice President, Bridgeway Capital Management, Inc., 12/2002 to present.    Eleven    None

John N. R. Montgomery4

Age 52

   Vice President and Director   

Term: 1 Year Length:

1993 to Present.

  

Vice President, Bridgeway

Funds, 6/2005 to present. President, Bridgeway Funds, 11/1993 - 6/2005. President, Bridgeway Capital Management

Inc., 7/1993 to present.

   Eleven    None
Officers

Richard P. Cancelmo, Jr.

Age 50

   Vice President   

Term: 1 Year Length:

2004 to Present.

  

Vice-President, Bridgeway

Funds, 11/2004 to present. Staff member, Bridgeway Capital Management, Inc.,

2000 to present.

        None

Linda G. Giuffré

Age 46

   Treasurer and Chief Compliance Officer   

Term: 1 Year Length:

2004 to Present.

  

Chief Compliance Officer,

Bridgeway Capital Management, Inc., 5/2004 to present. Staff member, Bridgeway Capital Management, Inc., 5/2004 to present. Vice President - Compliance, Capstone Asset Management

Company, 1998 - 2004.

        None

Deborah L. Hanna

Age 43

   Secretary    Term: 1 Year Length: 2/16/2007 to Present.    Self-employed, accounting and related projects for various organizations, 2001 - Present.         None

 

* Independent Chairman

1

The address of all of the Directors and Officers of Bridgeway Funds is 5615 Kirby Drive, Suite 518, Houston, Texas, 77005-2448.

2

The Calvert Large-Cap Growth Fund is sub-advised by Bridgeway Capital Management, Inc., the Adviser to Bridgeway Funds.

3

Michael Mulcahy is a director and officer of Bridgeway Capital Management, Inc., and therefore an interested person of Bridgeway Funds.

4

John Montgomery is president, director and majority shareholder of Bridgeway Capital Management, Inc., and therefore an interested person of Bridgeway Funds.

The overall management of the business and affairs of Bridgeway Funds is vested with its Board of Directors (the “Board”). The Board approves all significant agreements between Bridgeway Funds and persons or companies furnishing services to it, including agreements with its Adviser and Custodian. The day-to-day operations of Bridgeway Funds are delegated to its officers, subject to its investment objectives and policies and general supervision by the Board.

The Funds’ Statement of Additional Information includes additional information about the Funds’ Board and is available, without charge, upon request by calling 1-800-661-3550.

 

148   Annual Report  |  June 30, 2008


 

BRIDGEWAY FUNDS, INC.

Citi Fund Services, LLC

PO Box 182218

Columbus, OH 43218-2218

(713) 661-3500 (800)-661-3550

CUSTODIAN

PFPC Trust Company

8800 Tinicum Blvd., 4th Floor

Philadelphia, PA 19153

DISTRIBUTOR

Foreside Fund Services, LLC

Three Canal Plaza, Suite 100

Portland, ME 04101

 

You can review and copy information about our Funds (including the SAI) at the SEC’s Public Reference Room in Washington, D.C. To find out more about this public service, call the SEC at 800-SEC-0330. Reports and other information about the Funds is also available on the SEC’s website at www.sec.gov. You can receive copies of this information, for a fee, by writing the Public Reference Section, Securities and Exchange Commission, Washington, D.C. 20549-0102 or by sending an electronic request to the following email address: publicinfo@sec.gov

 


Item 2. Code of Ethics.

(a) The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. This code of ethics is included as an Exhibit.

(b) During the period covered by the report, with respect to the registrant’s code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions; there have been no amendments to, nor any waivers granted from, a provision that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item 2.

(c) Amendments were made to state that approvals or waivers sought by the Company’s Chief Compliance Officer with respect to the registrant’s code of ethics that applies to its President and Treasurer would be considered by the Company’s Audit Committee and that the Company’s Audit Committee will be responsible for granting waivers to this code of ethics.

 

Item 3. Audit Committee Financial Expert.

3(a)(1) The registrant’s board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee.

3(a)(2) The audit committee financial expert is Miles Douglas Harper, III, who is “independent” for purposes of this Item 3 of Form N-CSR.


Item 4. Principal Accountant Fees and Services.

 

     Current Year    Previous Year

Audit Fees

   $ 224,000    $ 213,000

Audit-Related Fees

     54,000      0

Tax Fees

     23,000      22,000

All Other Fees

     0      0

 

(e) (1) Audit Committee Pre-Approval Policies and Procedures: The Registrant’s Audit Committee has adopted an Audit Committee Charter that provides that the Audit Committee shall approve, prior to appointment, the engagement of the auditor to provide audit services to the Registrant and non-audit services to the Registrant, its investment advisor or any entity controlling, controlled by or under common control with the investment adviser that provides on-going services to the Registrant if the engagement relates directly to the operations and financial reporting of the Registrant.

 

(e) (2) No services described in paragraphs (b) through (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) None.

(g) None

(h) Not applicable.

 

Item 5. Audit Committee of Listed Registrants.

Not applicable.

 

Item 6. Schedule of Investments.

Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

 

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

There has been no material change to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors.

 

Item 11. Controls and Procedures.

(a)The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.


(b)There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that have materially affected or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

Item 12. Exhibits.

(a)(1) The code of ethics that is the subject of the disclosure required by Item 2 is attached hereto.

(a)(2) Certifications pursuant to Rule 30a-2(a) are attached hereto.

(a)(3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) are furnished herewith.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

(Registrant) Bridgeway Funds, Inc.

 

By (Signature and Title)*  

/s/ Michael D. Mulcahy

  Michael D. Mulcahy
  President and Principal Executive Officer

Date 8/28/08

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*  

/s/ Michael D. Mulcahy

  Michael D. Mulcahy
  President and Principal Executive Officer

Date 8/28/08

 

By (Signature and Title)*  

/s/ Linda Giuffre

  Linda Giuffre
  Treasurer and Principal Financial Officer

Date 8/28/08