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: 811-4920 ______________________________________________ WASATCH FUNDS, INC. ______________________________________________________________________________ (Exact name of registrant as specified in charter) 150 SOCIAL HALL AVENUE 4TH FLOOR SALT LAKE CITY, UTAH 84111 ______________________________________________________________________________ (Address of principal executive offices)(Zip code) (Name and Address of Agent for Service) Copy to: Samuel S. Stewart, Jr. Michael J. Radmer, Esq. Wasatch Funds, Inc. Dorsey & Whitney LLP 150 Social Hall Avenue, 4th Floor 50 South Sixth Street, Suite 1500 Salt Lake City, Utah 84111 Minneapolis, Minnesota 55402-1498 Registrant's telephone number, including area code: (801) 533-0777 Date of fiscal year end: September 30 Date of reporting period: September 30, 2003 ITEM 1: REPORT OF SHAREHOLDER FRONT COVER: ANNUAL REPORT September 30, 2003 [Logo: Wasatch Funds] - Core Growth Fund - Global Science & Technology Fund - - International Growth Fund - Micro Cap Fund - Micro Cap Value Fund - - Small Cap Growth Fund - Small Cap Value Fund - Ultra Growth Fund - - Wasatch-Hoisington U.S. Treasury Fund - INSIDE FRONT COVER: Cover Painting, "Upper Provo River" by John Hughes 5082 La Mancha Way, Taylorsville, Utah 84118 www.johnhughesstudio.com TABLE OF CONTENTS LETTER FROM THE INVESTMENT ADVISOR ............................................. 1 Wasatch Equity Funds ....................................................... 2 Wasatch-Hoisington U.S. Treasury Fund ...................................... 3 CORE GROWTH FUND PORTFOLIO SUMMARY ............................................. 4 Review of the Year ......................................................... 4 Average Annual Total Returns & Growth of a $10,000 Investment .............. 5 GLOBAL SCIENCE & TECHNOLOGY FUND PORTFOLIO SUMMARY ............................. 6 Review of the Year ......................................................... 6 Average Annual Total Returns & Growth of a $10,000 Investment .............. 7 INTERNATIONAL GROWTH FUND PORTFOLIO SUMMARY .................................... 8 Review of the Year ......................................................... 8 Average Annual Total Returns & Growth of a $10,000 Investment .............. 9 MICRO CAP FUND PORTFOLIO SUMMARY ............................................... 10 Review of the Year ......................................................... 10 Average Annual Total Returns & Growth of a $10,000 Investment .............. 11 MICRO CAP VALUE FUND PORTFOLIO SUMMARY ......................................... 12 Review Since Inception ..................................................... 12 Average Annual Total Returns & Growth of a $10,000 Investment .............. 13 SMALL CAP GROWTH FUND PORTFOLIO SUMMARY ........................................ 14 Review of the Year ......................................................... 14 Average Annual Total Returns & Growth of a $10,000 Investment .............. 15 SMALL CAP VALUE FUND PORTFOLIO SUMMARY ......................................... 16 Review of the Year ......................................................... 16 Average Annual Total Returns & Growth of a $10,000 Investment .............. 17 ULTRA GROWTH FUND PORTFOLIO SUMMARY ............................................ 18 Review of the Year ......................................................... 18 Average Annual Total Returns & Growth of a $10,000 Investment .............. 19 WASATCH-HOISINGTON U.S. TREASURY FUND PORTFOLIO SUMMARY ........................ 20 Review of the Year ......................................................... 20 Average Annual Total Returns & Growth of a $10,000 Investment .............. 21 FUND DISCLOSURES ............................................................... 22 SCHEDULE OF INVESTMENTS ........................................................ 24 STATEMENTS OF ASSETS AND LIABILITIES ........................................... 72 STATEMENTS OF OPERATIONS ....................................................... 78 STATEMENTS OF CHANGES IN NET ASSETS ............................................ 84 FINANCIAL HIGHLIGHTS ........................................................... 90 NOTES TO FINANCIAL STATEMENTS .................................................. 99 REPORT OF INDEPENDENT AUDITORS ................................................. 114 DIRECTORS AND OFFICERS ......................................................... 116 GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS .................................... 118 Annual Report.......... WASATCH FUNDS, INC. P.O. Box 2172 Milwaukee,WI 53201-2172 800.551.1700 LETTER FROM THE INVESTMENT ADVISOR SEPTEMBER 30, 2003 FELLOW SHAREHOLDERS: On a recent weekend, when I drove up a winding road into the Wasatch mountains to enjoy the brilliant fall colors, I thought about the many twists and turns the stock market has taken during the 40 years I have been investing. I have never been able to predict, with any degree of certainty, which way stock prices will go next. Investment performance over short periods follows the rise and fall of stock prices--a course as erratic as a mountain road. Everyone wants great performance.Fund managers attract a lot of attention when they have outstanding short-term performance. But is performance really what we owe our shareholders? How can we promise great performance when so much of it depends on the whims of the market or economic conditions that we have no ability to control? While short-term performance may be driven by any number of unpredictable forces, we believe that over the long term stock prices are driven by earnings growth. That is why at Wasatch, rather than focus on the direction of stock prices or the economy, we focus on finding and investing in companies we believe have the potential to grow earnings over time. WE BELIEVE WE OWE SHAREHOLDERS A SYSTEMATIC, CAREFUL APPROACH TO PICKING STOCKS THAT IS EXECUTED WITH DISCIPLINE. Wasatch was founded on the premise that investing in small company stocks may offer the potential for above average long-term returns for two reasons. First, we believe small companies can grow faster for a longer time than large companies. Second, the research of most Wall Street analysts is focused on large companies. As a result, there is a general lack of information about small companies that often causes their stocks to be inefficiently priced. In our opinion, it is this growth potential and inefficient pricing that makes small companies attractive investments. While we can't promise performance, we can promise that Wasatch is committed to consistently pursuing the investment strategies of each of our Funds. We believe these strategies are based on sound principles that have the potential to help shareholders achieve their long-term investment goals. There's an ad I've seen recently comparing mail carriers to professional ath- Annual Report 1 letes. Pro athletes often celebrate making a basket or scoring a touchdown--in other words, doing their jobs. On the other hand, the mail carrier doesn't celebrate the act of putting the mail in the box. At Wasatch, we think of ourselves more like mail carriers. We want to do our jobs. We expect to do our jobs well. We can't promise you that the envelope we drop through the slot will contain a check, but you can feel free to celebrate if it does. We won't be celebrating. We were just doing our jobs. WASATCH EQUITY FUNDS What a ride the last 12 months have been! A year ago the stock market was in the doldrums. The war with Iraq was looming, the economy seemed to take two steps back for every one step forward, there was a spate of corporate scandals and fear of SARS was widespread. Over the past 12 months, stock prices have risen dramatically as uncertainties have been resolved. The Wasatch Equity Funds ended the fiscal year with strong gains. We believe this was the result of investing in companies with strong fundamentals early in the year when prices were lower. This meant the Funds were well positioned to benefit from rising stock prices. In the past three months, however, the Equity Funds began to lag their benchmark indices. This is not unusual. Historically, the Funds have typically outperformed in down and moderately up markets. We think this is because we focus on investing in profitable, high quality companies at rational prices. These are the types of companies that shine in a weak environment. In a strong market a rising tide lifts all boats. The stock prices of our holdings tend to rise with the tide, but more speculative stocks usually do better as momentum investors aggressively bid up stock prices. We may lag in momentum driven markets because we do not care to invest in high-priced stocks that do not meet our quality standards. This was the position we found ourselves in at the end of the Funds' fiscal year. In general, we were not invested in the companies--mostly non-profitable technology and biotechnology companies--whose stock prices were being driven up by momentum investors. We were also trimming positions that had appreciated significantly to keep them in line with our assessment of their risk versus reward potential. In some cases, this caused us to miss gains as stock prices continued to rise. We feel our actions were consistent with our efforts to position the Funds to achieve long-term performance. As a result, we are not overly concerned with the short-term underperformance. EQUITY FUNDS OUTLOOK We believe stock prices have run up in anticipation of a strong economic recovery. It is true that economic news generally has been better. Interest rates have been lowered and tax cuts have been enacted to stimulate the economy. However, there is a real possibility that the recovery won't be as strong as these signs indicate. One reason is the level of consumer and corporate debt, which makes consumers and companies sensitive to borrowing. If interest rates increase they will become even more sensitive. Consumers may become hesitant to open their wallets. Ongoing turmoil in the Middle East, the growing budget and trade deficits and the weak job market also weigh on the economy. If the recovery is tepid, stock prices would have to adjust. In nearly 30 years of investing, Wasatch has found that it is not productive to focus our attention on the everchanging direction of stock prices. In our opinion, the best defense for weak- 2 Annual Report ness in the macro environment is to try to invest in the best companies we can find at prices that make sense. The track records for our Equity Funds were achieved by investing consistently in all types of market conditions including the stock market crash of 1987 and the bursting of the Internet bubble in 2000. We believe that adhering to our investment discipline is the best way to achieve long-term results. WASATCH-HOISINGTON U.S. TREASURY FUND For information about the performance and outlook of the U.S. Treasury Fund, please see the portfolio summary beginning on page 20. WORTH NOTING We opened the new Micro Cap Value Fund on July 28, 2003. In its first day of operation, the Fund took in $65 million in assets. This was well above the $20 million at which we planned to close the Fund. On July 29, 2003, we closed the Fund to new investors and existing shareholders. We are working to invest the Fund's assets in companies that we believe will be compatible with our long-term goal of creating wealth for shareholders. Over the past 12 months, we have closed the Core Growth, Micro Cap, Small Cap Growth, Small Cap Value and Ultra Growth Funds to existing shareholders. These Funds were already closed to new investors. We recognize that it may be frustrating to be unable to add to your investments. Please understand, we made this choice in an effort to look after your interests and preserve our potential to produce favorable long-term returns. We expect to reopen these Funds to existing shareholders as soon as capacity permits. If you have any questions about this report, fund closings, or your investments, please visit our web site at www.wasatchfunds.com or call us at 800.551.1700. You can refer to the Wasatch Funds prospectus for more information about each Fund's investment objectives and strategies. Information about the Micro Cap Value Fund's investment objectives and strategies can be found in the Wasatch Micro Cap Value Fund prospectus. We appreciate your investments with Wasatch Funds. We are committed to consistently following a disciplined course for investing your assets. We believe this is the best way we can help you as you strive to achieve your long- term investment objectives. Thank you for investing with Wasatch. Sincerely, /s/ Samuel S. Stewart - ------------------------------ Samuel S. Stewart, Jr. Chairman of the Board Annual Report 3 CORE GROWTH FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF SAMUEL S. STEWART] SAMUEL S. STEWART, JR, PHD, CFA-- LEAD MANAGER, JB TAYLOR--CO-MANAGER The Wasatch Core Growth Fund seeks long-term growth of capital through investments in stable companies that we believe are high quality and have the potential to grow steadily for long periods of time. In addition, we seek to invest in these companies at reasonable prices. The Core Growth Fund is the most conservative of the Wasatch Equity Funds. However, the Fund will experience volatility and is best suited for long-term investors. REVIEW OF THE YEAR The Core Growth Fund gained 31.68% in the fiscal year ended September 30, 2003 compared to a gain of 36.50% for the Russell 2000 Index, a widely used measure for the performance of small company stocks. While we underperformed the Index over the past 12 months, the Fund's long-term track record is much better than that of the Index. The Fund's average annual return for five years was 19.86% while the Index gained 7.46%. Over 10 years, the Fund averaged 16.43% annually compared to 8.28% for the Index. We are not terribly concerned to be lagging the Index at the end of our fiscal year particularly when we compare the fundamentals of companies that have been driving up the Index in the last three months to the fundamentals of companies held by the Fund. Earlier in the year amid volatile market conditions, we took advantage of price opportunities to sell some holdings and replace them with companies that we believed were better quality. The Fund was well positioned when stock prices began to rise in a market rally sparked by renewed optimism for the economy and the winding down of the war with Iraq. The Fund was helped by the rise in market valuations overall, but also by a return to stronger earnings growth in the companies we held. We also added to the number of holdings over the past 12 months, going from about 50 to 70, as we have added new baskets of small positions in industries we find intriguing. The Fund's most heavily weighted sectors--consumer discretionary, financial services and health care--made significant contributions to performance. Technology, while not heavily weighted in the Fund, was the third biggest contributor to performance led by UTStarcom, Inc., a telecommunications network equipment provider. With the exception of consumer staples, every sector represented in the Fund made a positive contribution to performance. The Fund was significantly over-weighted in the consumer discretionary sector compared to the Russell 2000 Index. Our holdings outperformed those in the Index. The individual stock that contributed the most to performance was our largest holding, Rent-A-Center, Inc., a rent-to-own store operator. Other consumer discretionary holdings that made significant contributions included SCP Pool Corp., O'Reilly 4 Annual Report CORE GROWTH FUND-PORTFOLIO SUMMARY Automotive, Inc., Sonic Automotive, Inc. and Group 1 Automotive, Inc. The Fund was slightly overweighted in financial services compared to the Index and our holdings outperformed. United Rentals, Inc., a mid to heavy equipment rental company, was the biggest contributor to performance from this sector. Health care was significantly over weighted in the Fund compared to the Index. Our health care sector underperformed primarily because our health care service providers could not keep pace with the biotechnology-related companies that drove the performance of this sector of the Index. The Fund's cash position is slightly higher than a year ago, as the market rally has given us attractive opportunities to take profits. We look to carefully invest the cash in companies we believe offer the potential for better returns. OUTLOOK While the Fund may continue to underperform the Russell 2000 Index in the short term, we believe it is well positioned to produce the long-term results we seek. It has been our experience that when stable companies consistently produce strong earnings growth they have the potential to be rewarding investments over time. Thank you for your investment in the Wasatch Core Growth Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- WASATCH CORE GROWTH FUND(1) 31.68% 19.86% 16.43% ----- ----- ----- * (1) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 Index Wasatch Core Growth Fund 9/30/93 10000 10000 9/30/94 10262 10382 9/30/95 12663 14500 9/30/96 14326 16296 9/30/97 19081 22420 9/30/98 15452 18500 9/30/99 18399 23547 9/30/00 22703 32848 9/30/01 17888 40281 9/30/02 16224 34749 9/30/03 22146 45759 The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. You cannot invest in the Index. Annual Report 5 GLOBAL SCIENCE & TECHNOLOGY FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF AJAY KRISHNAN] AJAY KRISHNAN, CFA--CO-MANAGER WITH KAREY BARKER, CFA The Global Science & Technology Fund seeks long-term growth of capital by investing primarily in technology companies in the United States and at least two other countries. The Fund is designed for aggressive long-term investors willing to accept greater risk for the potential of higher returns. REVIEW OF THE YEAR The Global Science & Technology Fund ended the fiscal year on September 30, 2003 with a gain of 68.34%, while the Russell 2000 Growth Index, a widely used measure for the performance of growth-oriented small company stocks, gained 41.73%. The Russell 2000 Technology Index, the component of the Russell 2000 Index that tracks the performance of technology-related stocks, gained 90.52% and the technology-laden Nasdaq Composite Index gained 53.15%. Since inception, the Fund has gained an average of 3.34% per year compared to the Russell 2000 Growth Index, which lost an average of 4.84%, the Russell 2000 Technology Index, which lost 17.31%, and the Nasdaq, which lost 12.56%. Stock prices on world markets and in the United States, particularly in the technology sector, have risen dramatically from depressed levels a year ago. In the U.S., this rally has been fueled by improving economic news, the official end of the war with Iraq and diminished fear of SARS. We were able to accomplish two things early in the fiscal year that we believe positioned the Fund to benefit from the rally. We invested in companies that our analysis indicated to be of high quality and we took advantage of opportunities to invest at relatively low prices. Overall, our holdings were strong performers throughout the year. The Russell 2000 Technology Index outperformed the Fund primarily because the gains of more speculative non-profitable issues surpassed those of our holdings in the last three months of the period. In addition, trimming or selling holdings whose stock prices had appreciated significantly captured profits but raised the Fund's cash level and created a drag on performance compared to the Russell 2000 Technology Index. The industries that made the biggest contributions to the Fund's 12-month return were computer services, software and systems led by strong performance from Cognizant Technology Solutions Corp., semiconductors and components led by O2Micro International Ltd., communications technology led by UTStarcom, Inc. and commercial services led by Wireless Facilities, Inc. Health care services was the Fund's worst performing industry. The Fund's largest holding, Accredo Health, Inc., reported lower than expected earnings growth as the company struggled with increased competition and the integration of a large acquisition. We continue to regard the company's long term prospects as favorable. 6 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-PORTFOLIO SUMMARY OUTLOOK The market rally has caused the stocks of many interesting companies to become overvalued making investing more challenging than it was a year ago. We are taking our time to carefully analyze the risk versus reward potential of each prospective investment as we work to invest the Fund's cash. We believe our hands-on, fundamental research process is well suited to finding companies that are high quality at prices that have room to appreciate. Our focus is to invest in the types of companies that we believe have the potential to help you achieve your long-term investment objectives. We appreciate your investment in the Global Science & Technology Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS SINCE INCEPTION ** ------ ------- ------------------ WASATCH GLOBAL SCIENCE & TECHNOLOGY FUND(2) 68.34% N/A 3.34% ------ ------ ---- * (2) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 NASDAQ Russell 2000 Wasatch Global Science & Growth Index Composite Index Technology Index Technology Fund 12/19/2000 10000 10000 10000 10000 9/30/2001 7510 5725 5098 8020 9/30/2002 6146 4494 3092 6510 9/30/2003 8710 6882 5891 10959 **Inception: December 19, 2000. The Russell 2000 Growth Index measures the performance of those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index is an unmanaged total return index of the small- est 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. The Russell 2000 Technology Index is a capitalization-weighted index of companies that serve the electronics and computer industries or that manufacture products based on the latest applied science. The Nasdaq Composite Index is unmanaged and measures all Nasdaq domestic and non-U.S. based common stocks listed on The Nasdaq Stock Market. The Index is market-value weighted. This means each company's security affects the Index in proportion to its market value. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Due to their number and size, technology stocks tend to dominate the direction of the Index. You cannot invest in these indexes. Annual Report 7 INTERNATIONAL GROWTH FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF MIKE GERDING] MIKE GERDING, CFA--LEAD MANAGER The International Growth Fund seeks long-term growth of capital by investing in foreign companies in at least three different developed countries. The Fund is designed for aggressive long-term investors who can tolerate greater risks and volatility. REVIEW OF THE YEAR The International Growth Fund gained 36.27% in the 12 months ended September 30, 2003. Despite this strong showing, the Fund failed to keep pace with the MSCI World Ex-U.S. Small-Cap Index, a widely used measure for the performance of foreign small company stocks, which gained 41.53%. World markets experienced a dramatic turnaround similar to what has occurred in the U.S. Over the course of a year, markets around the world rose as global economic news improved. There were two primary reasons for the Fund's underperformance of the Index. The first was being underweighted in the Japanese market. Our weighting was less than half that of the Index despite increasing our Japanese holdings significantly during the year. On September 30, Japan was the most heavily represented country in the Fund. Our low exposure held back the Fund's performance relative to the Index as Japan was one of the world's best performing major markets over the past 12 months. Holding too much cash in a rising market was the second reason for the Fund's underperformance. The Fund's cash position was the result of trimming holdings that had appreciated in value and our desire to invest in companies that we believe have superior growth potential at rational prices. We believe our long-term results will potentially be better for following our discipline than if we had invested for the sake of using up cash. The Fund is well diversified. As of September 30, we held about 80 companies in 22 countries. In addition to Japan, other large country weights were Canada, the United Kingdom and Germany. In many areas of the world our holdings have seen accelerating revenue and earnings growth. They remain attractive investments as we believe strong fundamentals will support higher stock prices. We are also finding emerging markets in Asia and elsewhere to be great hunting grounds for growing small companies. Compared to the Index, the Fund was notably overweighted in health care and consumer discretionary. Typically, we will be underweighted in the financials, industrials and materials sectors because we generally find companies with better growth potential in other sectors. It is worth noting that every sector in the Fund contributed positively to performance. Our health care holdings significantly outperformed led by Elekta AB, a Swedish company that provides radiation treatment equipment, and Powder-Ject Pharmaceuticals Plc, a United Kingdom biotechnology company. The Fund's consumer discretionary sector also did better than that of the 8 Annual Report INTERNATIONAL GROWTH FUND-PORTFOLIO SUMMARY Index. Our largest holding, Puma AG, a German shoe and apparel company, was the biggest contributor to performance. Many of our information technology holdings performed well throughout the year. Tandberg ASA and Celarem Technology Inc. were the notable exceptions and were the primary reason this sector of the Fund did not do as well as that of the Index. These two investments have been sold. Many of the world's currencies strengthened against the U.S. dollar throughout the 12-month period. This benefited the Fund's holdings that were denominated in those currencies. OUTLOOK We feel that the companies held by the Fund are among the best small companies in the world. We are confident that our intensive research process is well suited to identifying companies that have the potential to successfully compete and expand their markets around the world. It has been our experience that these types of companies have the potential to reward shareholders over time. We look forward to serving you as you work toward your long-term investment objectives. Thank you for investing in the Wasatch International Growth Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS SINCE INCEPTION ** ------ ------- ------------------ WASATCH INTERNATIONAL GROWTH FUND(3) 36.27% N/A 16.02% ----- --- ----- *(3) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT MSCI World Ex-U.S. Wasatch International Small-Cap Index Growth Fund 6/28/2002 10000 10000 6/30/2002 10146 10000 9/30/2002 8505 8850 12/31/2002 8530 9430 3/31/2003 8295 8610 6/30/2003 10370 10510 9/30/2003 12037 12060 ** Inception: June 28, 2002. The MSCI World Ex-U.S. Small-Cap Index is an unmanaged index that measures the performance of stocks with market capitalizations between U.S. $200 million and $800 million across 23 developed markets, excluding the United States. You cannot invest in the Index. Anuual Report 9 MICRO CAP FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF ROBERT GARDINER] ROBERT GARDINER, CFA--LEAD MANAGER The Micro Cap Fund seeks long-term growth of capital through investments in growing companies with market capitalizations of less than $1 billion at the time of purchase. The Fund is best suited for long-term investors who can tolerate the greater risks and volatility that are inherent with investments in micro cap stocks. REVIEW OF THE YEAR In the fiscal year ended September 30, 2003, the Micro Cap Fund returned 50.28% compared to 36.50% for the Russell 2000 Index, a widely used measure for the performance of small company stocks. Over the past five years, the Fund has averaged 31.22% annually compared to the Index's 7.46%. Since inception in 1995, the Fund has averaged 28.69% annually compared to the Index's 8.26% average annual return over the same period. The Fund benefited from our efforts to invest in high quality companies at low prices early in the fiscal year. Stock prices rebounded from depressed levels as economic news improved and the uncertainties of war and SARS lifted. We tend to agree with concerns that market sentiment has swung from being unreasonably pessimistic 12 months ago to being overly optimistic in the last three months. Companies that recently have driven the performance of the Russell 2000 Index generally are lower quality than companies we like to invest in. While our insistence on quality kept us out of these companies, it also caused the Fund to slightly lag the Index in the three months ended September 30. On a related note, we ended the fiscal year with more cash than usual as the result of trimming strong performing holdings and because it has become harder to find high quality companies at reasonable prices. We expect to invest the cash but we think it is wise to take our time to find companies that meet our quality and valuation criteria. Throughout the year, we drew upon the knowledge of our International Team to help us find attractive growth companies at reasonable prices outside the United States. As a result, we have increased the Fund's international holdings to around 10%, including American Depositary Receipts (ADRs) and foreign securities listed in the U.S. The Fund's performance over the past 12 months was driven primarily by three sectors--technology, consumer discretionary and health care, although every sector in the Fund made a positive contribution to performance. The comeback of technology stocks over the past 12 months illustrates the dramatic shift in market sentiment. The Fund was overweighted in technology compared to the Index. While the technology sector was the biggest contributor to the Fund's performance our holdings slightly underperformed those of the Index. We were overweighted compared to the Index in the consumer discretionary 10 Annual Report MICRO CAP FUND-PORTFOLIO SUMMARY sector and our holdings substantially outperformed led by a couple of business services companies and the majority of our retailers, which continued to do well. Our average weighting in health care was nearly three times that of the Index and contributed over 10% to the Fund's performance. However, the Fund's health care holdings did not do as well as those in the Index. The biggest detractor from the Fund's performance was ICU Medical, Inc., a maker of disposable connectors for intravenous therapy. The biggest contributor was American Healthways, Inc., a provider of disease management services. OUTLOOK While the Fund may continue to lag in the near future if stock prices continue to run up, we believe this will be of little consequence over the long-term. We believe that long-term results will be most heavily influenced by how successful we are at investing in high quality companies at reasonable prices. We believe that paying strict attention to the quality and valuation of the companies we invest in is the best way we can help you as you strive to achieve your long-term investment goals. We appreciate your investment in the Wasatch Micro Cap Fund. AVERAGE ANNUAL TOTAL RETURNS * 1 YEAR 5 YEARS SINCE INCEPTION ** ------ ------- ------------------ WASATCH MICRO CAP FUND(4) 50.28% 31.22% 28.69% ----- ----- ----- *(4) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 Index Wasatch Micro Cap Fund 6/19/95 10000 10000 9/30/95 11042 13600 9/30/96 12492 15750 9/30/97 16638 22771 9/30/98 13474 20779 9/30/99 16044 28619 9/30/00 19796 46900 9/30/01 15598 54556 9/30/02 14147 53788 9/30/03 19310 80832 ** Inception: June 19, 1995. The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. You cannot invest in the Index. Annual Report 11 MICRO CAP VALUE FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF JOHN MALOOLY AND BRIAN BYTHROW] JOHN MALOOLY, CFA AND BRIAN BYTHROW, CFA-- CO-MANAGERS WITH ROBERT GARDINER, CFA The Micro Cap Value Fund seeks long-term growth of capital through investments in companies with market capitalizations of less than $750 million whose stocks are selling at a substantial discount to what we believe is the company's underlying value. The Fund is designed for long-term investors who have assessed their tolerance for risk and volatility. REVIEW SINCE INCEPTION The Micro Cap Value Fund gained 4.50% since inception on July 28, 2003 through September 30, 2003 compared to a gain of 3.16% for the Fund's benchmark, the Russell 2000 Index, a widely used measure for the performance of small company stocks. While this is too short a time period to be a meaningful indicator of long-term performance, we are pleased to have gotten off to a good start particularly in a rising market that made finding undervalued micro cap companies a challenge. On July 28, the Fund's first day of operation, we took in over $65 million in assets. On July 29, we closed the Fund to new investors and existing shareholders to control the asset level. The Micro Cap Value Fund's approach to investing applies Wasatch's philosophy of using intensive fundamental research to understand the prospects of individual companies and assess their investment potential. The distinguishing feature of this Fund is that we are more sensitive to valuation than the other Wasatch Equity Funds with the exception of the Small Cap Value Fund. As of September 30, we had invested 65% of the Fund's assets. The Fund was underweighted in all sectors compared to the Russell 2000 Index as we worked steadily throughout the period to invest the Fund's assets. We have chosen the Russell 2000 Index rather than the Russell 2000 Value Index as a benchmark for the Fund because while we will focus on investing in micro cap companies that we believe to be undervalued, we do not expect to invest a significant portion of the Fund's portfolio in traditional value sectors such as basic industries. Rather, we expect to focus on finding undervalued growth stocks in sectors where the Wasatch Research Team has traditionally invested--health care, technology and consumer discretionary. We believe we can find undervalued companies in these sectors, as micro caps traditionally have lower trading volume and/or lack coverage by Wall Street analysts. We have identified four general categories that describe the types of companies we may find attractive. First, we expect to invest significant assets in companies where new product cycles or growth opportunities are not fully reflected in the stock price. Second, we look for companies with solid balance sheets and strong growth prospects that have fallen out of favor due to conditions in the macro environment. Third, we research growing micro cap compa- 12 Annual Report MICRO CAP VALUE FUND-PORTFOLIO SUMMARY nies to determine whether they have positive attributes that could attract institutional ownership--implying price appreciation once discovered. Fourth, we expect to invest a small percentage of the Fund's assets in companies whose stock prices have been unreasonably beaten down due to market events and low trading volume. It is interesting to note that we are finding good values on micro cap companies overseas and expect investments in non-U.S. listed securities to be close to the Fund's 15% limitation. In fact, three of the Fund's 20 top contributors since inception were foreign securities. OUTLOOK The stock prices of small and micro cap companies have risen considerably in 2003 making it more challenging to find undervalued micro cap companies. Nevertheless, we believe our bottom-up investment discipline is equal to this task. We are working hard to find micro cap companies with the potential to be rewarding long-term investments. We appreciate the trust you have shown by investing in this new Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS SINCE INCEPTION** ------ ------- ----------------- WASATCH MICRO CAP VALUE FUND(4) N/A N/A 4.50% --- --- ---- *(4) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 Index Wasatch Micro Cap Value Fund 7/28/2003 10000 10000 7/31/2003 10049 10000 8/31/2003 10510 10250 9/30/2003 10316 10450 **Inception: July 28, 2003. Return since inception is not annualized. The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. You cannot invest in the Index. Annual Report 13 SMALL CAP GROWTH FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF JEFF CARDON] JEFF CARDON, CFA--LEAD MANAGER The Small Cap Growth Fund is best suited for long-term investors who can tolerate the greater risks and volatility that are inherent with investments in small company stocks. REVIEW OF THE YEAR The Small Cap Growth Fund gained 36.15% in the 12 months ended September 30. The Russell 2000 Index, a widely recognized measure for the performance of small company stocks, gained 36.50%. Over the past five years, the Fund gained an average of 20.72% annually while the Index gained 7.46%. Over 10 years, the Fund gained an average of 14.39% annually, while the Index gained 8.28%. Twelve months ago, the stock market had fallen precipitously providing many opportunities to invest in high quality companies at reasonable prices. Over the course of the year, the Fund has been rewarded for holding such companies as stock prices rose dramatically in virtually every sector. The Fund's most heavily weighted sectors-technology, consumer discretionary and health care-were the biggest contributors to performance. At the beginning of our fiscal year we were overweight the technology sector as investors were frightened away by a weakening economy and poor order visibility. Today's environment is very different, as technology stocks have had a phenomenal run. In truth, we are a little unnerved at the price movements in non-profitable technology companies. As a result of this exuberance (we won't call it irrational yet!), we are notably underweight in technology today. We were overweight in the consumer discretionary sector and our stocks performed well. A number of the Fund's retail holdings were strong performers. The Fund's largest holding, O'Reilly Automotive, Inc., an auto parts retailer/ distributor, was the best contributor. Increasing our position in O'Reilly when prices were weak earlier in the year paid off as the company's fundamentals stayed strong and the stock rebounded. A couple of women's retailers and dollar discount stores were also among the top performers. The Fund benefited from a sizeable allocation to health care where we continue to find attractive investments. The Fund's health care sector did not perform as well as that of the Index. The performance of the Index's health care sector was driven by unprofitable companies, an arena we generally avoid. From among our health care holdings, Odyssey Healthcare, Inc., a hospice care provider, was the best contributor to performance. On the negative side, per- formance was hurt by a few health care companies that saw some weakness in demand. Accredo Health, Inc., CTI Molecular Imaging, and ICU Medical, Inc. are the most prominent examples. We believe all three companies are high quality and have promising futures. The Fund is usually underweight in financial services because we typically 14 Annual Report SMALL CAP GROWTH FUND-PORTFOLIO SUMMARY find better growth potential in other sectors. Not only were we under-weight, but our small holdings also underperformed. OUTLOOK As we look at the small stock universe, our biggest challenge will be to find and invest in companies with attractive valuations. Alternatively, we feel good about the quality of the companies we hold and we believe the economic backdrop will be strong enough to support very good earnings growth. During the last quarter, we began to see momentum investors aggressively bid up stock prices. This means the Fund may see a period of underperformance relative to the Russell 2000 Index because we have little interest in investing in stocks we deem too expensive. Instead of chasing performance, we are going to pursue our time tested discipline of buying great companies at rational prices. Hopefully, these observations will give you insight as you plan your financial future. On a final note, during the quarter, the Small Cap Growth Fund closed to existing shareholders. We know this may be frustrating, but we think it pre- serves our potential to deliver strong long run performance. We appreciate your business and will continue working hard to earn your trust. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- WASATCH SMALL CAP GROWTH FUND(1) 36.15% 20.72% 14.39% ----- ----- ----- *(1) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 Index Wasatch Small Cap Growth Fund 9/30/93 10000 10000 9/30/94 10262 10685 9/30/95 12663 14445 9/30/96 14326 14287 9/30/97 19081 18495 9/30/98 15452 14956 9/30/99 18399 22278 9/30/00 22703 33334 9/30/01 17888 30463 9/30/02 16224 28169 9/30/03 22146 38352 The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. You cannot invest in the Index. Annual Report 15 SMALL CAP VALUE FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF JIM LARKINS AND JOHN MAZANEC] JIM LARKINS, MBA AND JOHN MAZANEC, MBA-- CO-MANAGERS WITH SAM STEWART, PHD, CFA The Small Cap Value Fund seeks long-term growth of capital through investments in companies with market capitalizations of less than $2.5 billion whose stocks are selling at a substantial discount to what we believe is the company's underlying value. The Fund is designed for long-term investors who have assessed their tolerance for risk and volatility. REVIEW OF THE YEAR In the 12 months ended September 30, 2003, the Small Cap Value Fund gained 43.93%, while the Russell 2000 Value Index, a widely recognized measure for the performance of value-oriented small company stocks, gained 31.66%. While we are pleased with these results, we are more focused on the long-term. The Fund's average annual total return for five years was 24.69% and was well above the Index's return of 10.84% over the same period. Over the past 12 months, the Fund's performance was driven primarily by two factors. The first, for which we can take no credit, was that stock prices generally appreciated as economic news improved and concerns such as the Iraq war and SARS lessened. The second we believe was due to our diligent research to uncover outstanding small companies whose stock prices were unreasonably beaten down earlier in the year. The Fund benefited from these investments as their stock prices rose to more fully reflect what we believed to be the value of the underlying companies. Performance in the fiscal year was broadbased with every sector repre- sented in the Fund making a positive contribution. The biggest contributors were consumer discretionary and financial services, the Fund's most heavily weighted sectors. The Fund's average weighting in the consumer discretionary sector was over 30% compared to the Russell 2000 Value Index's average weighting of nearly 16%. Our holdings, led by a number of retailers, did much better than those in the Index. Our best contributor in this sector was The Finish Line, Inc., an athletic and outdoor shoe retailer. This sector also held the Fund's biggest detractor, Bally Total Fitness Holding Corp., a health club operator. We were underweighted in the financial services sector and our holdings performed better than those of the Index. The biggest contributor to the Fund's performance was Friedman, Billings, Ramsey Group, Inc., a mortgage real estate investment trust (REIT) with an investment banking subsidiary. Other income producing securities were also strong performers. Technology stocks gained momentum throughout the year. With an average weighting of nearly 7%, we were slightly under the Russell 2000 Value Index's average weighting of about 8.5%. Our technology holdings significantly out- performed those of the Index. Our semiconductor holdings drove the per- 16 Annual Report SMALL CAP VALUE FUND-PORTFOLIO SUMMARY formance of this sector. Strong performance over the past year meant that many of the Fund's holdings became fully valued. We trimmed or sold these positions and have added to or taken new positions in companies that we believe remain undervalued but have significant potential for price appreciation. In some cases, the stock prices of holdings we trimmed continued to rise. While we may have missed some gains, we felt it was prudent to control their position sizes. Our desire is to maintain a well-diversified portfolio in keeping with our conservative view of the market's near-term prospects. OUTLOOK We believe we may be entering a period where stock price gains may be more difficult to achieve than they were over the past year, particularly if the economic recovery loses steam or corporate earnings are weaker than expected. Rather than become overly concerned with macro conditions, we remain focused on finding and investing in the kinds of undervalued small companies that we believe will help you achieve your long-term investment objectives. Thank you for your investment in the Small Cap Value Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS SINCE INCEPTION** ------ ------- ----------------- WASATCH SMALL CAP VALUE FUND(1) 43.93% 24.69% 18.81% ----- ----- ----- *(1) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2000 Value Index Wasatch Small Cap Value Fund 12/17/1997 10000 10000 9/30/1998 8767 9000 9/30/1999 9278 12150 9/30/2000 10703 18218 9/30/2001 11303 21505 9/30/2002 11138 18849 9/30/2003 14664 27128 **Inception: December 17, 1997. The Russell 2000 Value Index measures the performance of those Russell 2000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 2000 Index is an unmanaged total return index of the smallest 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks.You cannot invest in the Index. Annual Report 17 ULTRA GROWTH FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF KAREY BARKER] KAREY BARKER, CFA--LEAD MANAGER AJAY KRISHNAN, CFA--CO-MANAGER The Ultra Growth Fund seeks to invest in rapidly growing companies in fast growing sectors of the economy. It pursues an aggressive investment strategy designed for long-term investors who can tolerate greater risks and volatility. REVIEW OF THE YEAR Over the past 12 months, the Ultra Growth Fund gained 53.93% and did much better than the 41.73% return of Russell 2000 Growth Index, a widely used measure for the performance of growth-oriented small company stocks. The Fund gained an average of 20.49% annually over five years com- pared to the Russell 2000 Growth Index's gain of 2.75%. Over 10 years, the Fund gained an average of 15.34% annually compared to the Russell 2000 Growth Index's gain of 4.45%. During the past 12 months a dramatic shift in market sentiment has occurred. Early on, the looming war with Iraq, weak economic data and fear of SARS caused the outlook for stocks to be bleak. As the war concluded, economic news improved and the SARS scare faded, enthusiasm for stocks returned. Technology stock prices rose from beaten down levels to levels approaching those of the dot-com craze. The Fund was well positioned for this shift because we invested in fast growing companies, particularly in the technology sector, at relatively low prices earlier in the year. In the last three months, however, we feel that stock prices may have gotten unrealistically high. In keeping with our discipline of holding rationally priced companies, we trimmed strong performers including many technology holdings. This reduced our technology weighting from over 35% a year ago to just over 25% at September 30. Trimming caused us to miss some gains as stock prices continued to rise. This increased the amount of cash we held and meant the Fund slightly underperformed the Russell 2000 Growth Index in the latest three month period. Over the past 12 months, the technology sector was the biggest contributor to the Fund's performance. The Fund was significantly overweighted in technology compared to the Index. Despite the strong performance of our holdings, they fell behind toward the end of the period, as more speculative non-profitable issues began to drive the performance of the Index's technology sector. The health care sector was the second best contributor to the Fund's performance. Our health care weighting was nearly twice that of the Index. Our holdings underperformed primarily due to weakness in our largest holding, Accredo Health, Inc., a provider of services for individuals with chronic diseases. While we view the company's long-term prospects as favorable, Accredo struggled with increased competition and the integration of a large acquisition. The consumer discretionary sector was the third biggest contributor to the Fund's performance. We were under- 18 Annual Report ULTRA GROWTH FUND-PORTFOLIO SUMMARY weighted in this sector compared to the Index and our holdings significantly outperformed led by a strong showing from our retailers. The Fund's less heavily weighted sectors, except for financial services, made positive contributions to performance. OUTLOOK The Ultra Growth Fund may continue to underperform the Russell 2000 Growth Index in the near future if companies that do not meet our quality or valuation criteria continue to drive the Index's performance. We are willing to accept short-term underperformance as we seek to invest in companies with strong earnings growth at rational prices. We believe these types of companies offer the best potential for achieving long-term gains. We expect that, as a result of pursuing our strategy of investing in fast growing companies, the Fund will remain overweighted in the technology and health care sectors. Thank you for your investment in the Ultra Growth Fund. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- WASATCH ULTRA GROWTH FUND(1) 53.93% 20.49% 15.34% ----- ----- ----- *(1) Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Russell 2500 Growth Index Russell 2000 Growth Index Wasatch Ultra Growth Fund 9/30/93 10000 10000 10000 9/30/94 10211 10086 10485 9/30/95 13293 12931 17746 9/30/96 15420 14561 17295 9/30/97 19414 17962 21056 9/30/98 14689 13501 16410 9/30/99 20543 17906 22951 9/30/00 29786 23218 33660 9/30/01 17013 13331 29993 9/30/02 14027 10910 27071 9/30/03 19841 15462 41671 The Russell 2000 Growth Index measures the performance of those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index is an unmanaged total return index of the small- est 2,000 companies in the Russell 3000 Index, as ranked by total market capitalization. The Russell 2000 Index is widely regarded in the industry as accurately capturing the universe of small company stocks. The Russell 2500 Growth Index measures the performance of those Russell 2500 Index companies with higher price-to- book ratios and higher forecasted growth values. You cannot invest in these indexes. Annual Report 19 WASATCH-HOISINGTON U.S. TREASURY FUND-PORTFOLIO SUMMARY SEPTEMBER 30, 2003 [PHOTO OF VAN R. HOISINGTON] VAN R. HOISINGTON--LEAD MANAGER The U.S. Treasury Fund seeks to provide a rate of return that exceeds the rate of inflation over a business cycle by investing in U.S. Treasury securities with an emphasis on both income and capital appreciation. REVIEW OF THE YEAR The Fund returned 2.17% in the 2003 fiscal year, below the 5.41% gain of the Lehman Brothers Aggregate Index. The Fund's average annual return of 8.58% for the past two years was much better than the Aggregate Index's average annual return of 6.99%. The Fund returned an average of 10.00% over the last three years, out- performing the Aggregate Index by an average of 1.06% per year. For the last 10 years, the Fund's average annual return was a handsome 7.97%, outpacing the Aggregate Index's average annual return of 6.92%. These positive results notwithstanding, the 2003 market for long term Treasury securities (maturities longer than 20 years) did not run true to form. In approximately 80% of the calendar years since the Treasury market was decontrolled in the early 1950s, long Treasury bond yields have moved in the same direction as the inflation rate. Over the past 12 months, inflation declined--in some cases to historically low levels--but bond yields rose slightly. The core personal consumption expenditures deflator illustrates the decline in inflation as the deflator registered a slim 1.3% year-over-year rise, matching the smallest increase in four decades.The fall in the inflation rate reflected recession- like labor and production markets. In spite of lower inflation, on September 30 the long Treasury bond yield closed at 4.9%, up slightly from 4.7% a year earlier. Thus, the mild rise in bond yields meant that the market value of the Fund's portfolio declined slightly. When the multi-year trend points to moderating inflation, our strategy is to position the Fund on the long end of the Treasury curve to capture capital gains possibilities and lock in attractive yields on coupons, but counter trend market movements are frequent, as we experienced over the past 12 months. OUTLOOK The U.S. economy remains beset with structural, rather than cyclical problems. The private sector is deeply in debt. All major measures of consumer debt are worse now than at the end of 2002. Increased borrowing has coincided with further depletion of pent-up demand for vehicles and homes. For healthy, long-term growth to be established, debt needs to be repaid by both the business and consumer sectors. Unfortunately, debt repayment will divert funds from the spending stream. This means that any benefits from "reflationary" monetary and fiscal policies will be fleeting and modest. In such an environment, unemployment will 20 Annual Report WASATCH-HOISINGTON U.S. TREASURY FUND-PORTFOLIO SUMMARY continue to move higher. Debt repayment, combined with the current excess labor and capital resources, will continue to push the inflation rate down- ward. This means there is a continuing risk that the present disinflationary environment can turn into deflation. Large amounts of excess plant capacity suggest that capital spending will remain weak for a considerable number of years. Although consumer spending will get a boost from larger than normal income tax refunds in the first quarter of next year, this boost will be transitory. Foreign inroads into the U.S. economy are likely to persist, thus curtailing job growth and income expansion. With this headwind of debt repayment, the resultant slow growth in the economy means that the persistent trend to lower inflation and interest rates will be sustained. Accordingly, your Fund continues to be invested in long-term Treasury bonds and zero coupon Treasuries. We believe this is the appropriate stance as we continue to focus on achieving the Fund's objective of providing income and capital appreciation to shareholders over the long-term. AVERAGE ANNUAL TOTAL RETURNS* 1 YEAR 5 YEARS 10 YEARS ------ ------- -------- WASATCH-HOISINGTON U.S. TREASURY FUND 2.17% 5.48% 7.97% ---- ---- ---- *Please refer to Fund disclosures on page 22. GROWTH OF A $10,000 INVESTMENT Lehman Brothers Aggregate Index Wasatch-Hoisington U.S. Treasury Fund 9/30/93 10000 10000 9/30/94 9678 10151 9/30/95 11038 11213 9/30/96 11579 11708 9/30/97 12704 13258 9/30/98 14166 16479 9/30/99 14114 14724 9/30/00 15101 16172 9/30/01 17057 18256 9/30/02 18523 21065 9/30/03 19526 21522 The Lehman Brothers Aggregate Index covers the U.S. investment grade fixed rate bond market, including government and corporate securities, agency mortgage pass-through securities, and asset-backed securities. To be included in the index the security must meet the following criteria: must have at least one year to final maturity, regardless of call features; must have at least $100 million par amount outstanding; must be rated investment grade or better by Moody's Investors Service, Standard & Poor's, or Fitch Investor's Service; must be fixed rate, although it can carry a coupon that steps up or changes to a predetermined schedule; must be dollar-denominated and must be nonconvertible. All corporate and asset-backed securities must be registered with the SEC; and must be publicly issued. You cannot invest in the Index. Annual Report 21 FUND DISCLOSURES *PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.You should realize that the principal value and investment return of an investment will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. The "Average Annual Total Returns" tables on the preceding pages do not reflect the deduction of taxes that you would pay on fund distributions or the redemption of fund shares. The Advisor has absorbed, currently or in the past, certain fund expenses, without which total returns would have been lower. (1) Investments in small cap funds can be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. (2) Investments in concentrated funds can be more volatile and loss of principal could be greater than investing in more diversified funds. Investing in foreign securities entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus. (3) Investing in foreign securities entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus. Investments in small cap funds can be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. (4) Investments in micro cap funds can be more volatile and loss of principal could be greater than investing in large cap or more diversified funds. Investing in foreign securities entails special risks, such as currency fluctuations and political uncertainties, which are described in more detail in the prospectus. THIS MATERIAL MUST BE ACCOMPANIED OR PRECEDED BY A PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST. WASATCH FUNDS ARE DISTRIBUTED BY ALPS DISTRIBUTORS, INC. 22 Annual Report (This page intentionally left blank.) Annual Report 23 CORE GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMMON STOCKS 93.1% AIR TRANSPORT 0.4% 157,900 Expeditors International of Washington, Inc. $ 5,433,339 ------------- BANKS--OUTSIDE NEW YORK CITY 4.1% 645,920 Commerce Bancorp, Inc. 30,946,027 304,625 Doral Financial Corp. 14,317,375 194,750 TCF Financial Corp. 9,338,263 ------------- 54,601,665 ------------- BIOTECHNOLOGY RESEARCH AND PRODUCTION 0.4% 151,825 Charles River Laboratories International, Inc.* 4,659,509 ------------- CHEMICALS 0.9% 201,140 Cabot Microelectronics Corp.* 11,211,544 ------------- COMMUNICATIONS TECHNOLOGY 1.1% 470,825 UTStarcom, Inc.* 14,976,943 ------------- COMPUTER SERVICES SOFTWARE AND SYSTEMS 1.8% 73,300 CACI International, Inc., Class A* 3,140,905 173,274 Cognizant Technology Solutions Corp.* 6,319,303 281,825 Macrovision Corp.* 5,205,308 249,125 SRA International, Inc., Class A* 9,324,749 ------------- 23,990,265 ------------- DRUGS AND PHARMACEUTICALS 0.6% 391,400 Inveresk Research Group, Inc.* 7,769,290 19,400 Priority Healthcare Corp.* 398,476 ------------- 8,167,766 ------------- EDUCATION SERVICES 0.5% 159,275 Bright Horizons Family Solutions, Inc.* 6,363,036 ------------- ELECTRONICS--SEMICONDUCTORS/COMPONENTS 0.9% 387,060 Integrated Circuit Systems, Inc.* 11,627,282 ------------- ENTERTAINMENT 0.9% 611,535 Movie Gallery, Inc.* 12,016,663 ------------- FINANCE COMPANIES 2.1% 435,475 Accredited Home Lenders Holding Co.* 9,454,162 1,063,125 Saxon Capital, Inc.* 18,221,963 ------------- 27,676,125 ------------- 24 Annual Report CORE GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- FINANCE--SMALL LOAN 2.7% 3,423,581 AmeriCredit Corp.*+++ $ 35,262,884 ------------- FINANCIAL--MISCELLANEOUS 2.6% 913,458 Fidelity National Financial, Inc. 27,458,547 126,700 Triad Guaranty, Inc.* 6,218,436 ------------- 33,676,983 ------------- FOODS 1.0% 562,900 NBTY, Inc.* 13,143,715 ------------- HEALTH CARE FACILITIES 4.2% 202,400 Laboratory Corporation of America Holdings* 5,808,880 518,500 Pharmaceutical Product Development, Inc.* 12,438,815 653,050 Renal Care Group, Inc.* 22,301,657 552,565 Sunrise Senior Living, Inc.* 14,493,780 ------------- 55,043,132 ------------- HEALTH CARE MANAGEMENT SERVICES 10.2% 710,525 AMERIGROUP Corp.* 31,710,731 1,534,995 First Health Group Corp.* 40,140,119 2,151,136 Orthodontic Centers of America, Inc.* 16,950,951 997,775 Pediatrix Medical Group, Inc.* 45,947,539 ------------- 134,749,340 ------------- HEALTH CARE SERVICES 7.2% 692,350 Accredo Health, Inc.* 19,378,877 1,406,400 Apria Healthcare Group Inc.* 38,507,232 392,949 Express Scripts, Inc.* 24,028,831 345,100 Lincare Holdings Inc.* 12,647,915 ------------- 94,562,855 ------------- HOME BUILDING 4.1% 579,900 D.R. Horton, Inc. 18,962,730 323,512 M.D.C. Holdings, Inc. 17,469,648 37,483 NVR, Inc.* 17,485,820 ------------- 53,918,198 ------------- HOUSEHOLD FURNISHINGS 0.2% 109,100 Select Comfort Corp.* 2,891,150 ------------- Annual Report 25 CORE GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- INSURANCE--MULTI-LINE 2.5% 517,225 Brown & Brown, Inc. $ 15,920,186 538,550 Hilb Rogal & Hamilton Co. 16,716,592 ------------- 32,636,778 ------------- INVESTMENT MANAGEMENT COMPANIES 1.3% 1,069,800 MCG Capital Corp. 16,699,578 ------------- LEISURE TIME 3.5% 1,666,230 SCP Pool Corp.* 46,354,533 ------------- MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 1.2% 570,963 ICU Medical, Inc.* 15,535,903 ------------- MEDICAL SERVICES 0.5% 312,165 Covance, Inc.* 6,986,253 ------------- REAL ESTATE INVESTMENT TRUSTS (REIT) 11.6% 1,140,925 American Financial Realty Trust 16,087,043 1,192,950 Annually Mortgage Management, Inc. 19,588,239 1,984,575 Anworth Mortgage Asset Corp.++ 28,339,731 584,800 Capital Automotive 17,842,248 423,875 IMPAC Mortgage Holdings, Inc. 6,862,536 590,775 iStar Financial Inc. 23,010,686 669,775 MFA Mortgage Investments, Inc. 6,376,258 119,175 Novastar Financial, Inc. 6,848,987 1,112,800 Thornburg Mortgage, Inc. 28,187,224 ------------- 153,142,952 ------------- RENTAL AND LEASING SERVICES--COMMERCIAL 0.6% 498,325 United Rentals, Inc.* 8,018,049 ------------- RENTAL AND LEASING SERVICES--CONSUMER 6.8% 2,773,070 Rent-A-Center, Inc.* 89,570,161 ------------- 26 Annual Report CORE GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - ----------- -------------- RETAIL 14.0% 260,812 Christopher & Banks Corp. $ 6,222,974 337,745 Dollar Tree Stores, Inc.* 11,314,457 420,600 Global Imaging Systems, Inc.* 10,346,760 854,625 Group 1 Automotive, Inc.* 29,518,748 258,245 Men's Wearhouse, Inc. (The)* 6,623,984 279,875 Michaels Stores, Inc. 11,407,705 1,704,030 O'Reilly Automotive, Inc.* 62,657,183 1,512,045 Sonic Automotive, Inc. 36,379,803 13,076,000 Texwinca Holdings Ltd. 10,298,988 -------------- 184,770,602 -------------- SERVICES--COMMERCIAL 4.8% 2,635,021 Copart, Inc.* 28,458,227 365,150 FTI Consulting, Inc.* 6,335,352 372,025 Waste Connections, Inc.* 13,054,357 661,020 West Corp.* 15,725,666 -------------- 63,573,602 -------------- UTILITIES--TELECOMMUNICATIONS 0.4% 299,250 Nextel Communications, Inc., Class A* 5,892,233 -------------- TOTAL COMMON STOCKS (COST $1,052,128,504) 1,227,153,038 -------------- Annual Report 27 CORE GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 PRINCIPAL AMOUNT VALUE - ----------- -------------- SHORT-TERM INVESTMENTS 7.5% REPURCHASE AGREEMENT 7.5% $99,377,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $81,140,000 of United States Treasury Bonds 6.875% due 8/15/2025; value: $101,373,070; proceeds: $99,378,380 (cost $99,377,000) $ 99,377,000 -------------- TOTAL SHORT-TERM INVESTMENTS (COST $99,377,000) 99,377,000 -------------- TOTAL INVESTMENTS (COST $1,151,505,504) 100.6% 1,326,530,038 LIABILITIES LESS OTHER ASSETS (0.6)% (8,188,625) -------------- NET ASSETS 100.0% $1,318,341,413 ============== NUMBER OF CONTRACTS VALUE - --------- -------------- CALL OPTIONS WRITTEN 0.0% 3,000 AmeriCredit Corp., expiring 10/18/03, exercise price $10.00 (premium $457,965) $ 255,000 ============== *Non-income producing ++Affiliated company (see Note 9). +++All or a portion of this security has been committed as collateral for open short positions, written options or purchase commitments. See notes to financial statements. 28 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMMON AND PREFERRED STOCKS 79.5% BIOTECHNOLOGY RESEARCH AND PRODUCTION 4.3% 5,000 Cephalon, Inc.* $ 229,600 9,200 Ciphergen Biosystems, Inc.* 113,620 12,625 Diversa Corp.* 97,844 67,300 Harvard Bioscience, Inc.* 499,366 6,450 Neurochem, Inc.* (Canada) 77,851 49,300 QIAGEN N.V.* (Netherlands) 523,566 12,250 Taro Pharmaceutical Industries* (Israel) 690,410 ------------- 2,232,257 ------------- CASINOS AND GAMBLING 0.7% 14,250 Shuffle Master, Inc.* 387,315 ------------- CHEMICALS 3.6% 33,775 Cabot Microelectronics Corp.* 1,882,619 ------------- COMMERCIAL SERVICES AND SUPPLIES 1.1% 15,500 Icon Plc ADR* (Ireland) 587,140 ------------- COMMUNICATIONS TECHNOLOGY 5.7% 49,625 Remec, Inc.* 506,175 220,750 Sirenza Microdevices, Inc.* 889,623 47,725 UTStarcom, Inc.*+++ (China) 1,518,132 6,528 Xtera Communications, Inc.*+ 7,076 ------------- 2,921,006 ------------- COMPUTER SERVICES SOFTWARE AND SYSTEMS 11.7% 56,350 Cognizant Technology Solutions Corp.* 2,055,085 54,017 EPIQ Systems, Inc.* 916,128 10,000 Macrovision Corp.* 184,700 12,150 Manhattan Associates, Inc.* 314,564 77,220 Nassda Corp.* 607,721 39,250 OPNET Technologies, Inc.* 489,840 23,850 PDF Solutions, Inc.* 268,313 53,778 PEC Solutions, Inc.* 793,763 3,700 QLogic Corp.* 173,937 6,800 SRA International, Inc., Class A* 254,524 ------------- 6,058,575 ------------- COMPUTER TECHNOLOGY 1.5% 60,300 Verisity Ltd.* (Israel) 753,750 ------------- Annual Report 29 GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMPUTERS AND PERIPHERALS 0.5% 10,600 Komplett ASA (Norway) $ 251,765 ------------- DRUGS AND PHARMACEUTICALS 3.7% 4,800 Able Laboratories, Inc.* 89,808 3,175 Angiotech Pharmaceuticals, Inc.* (Canada) 138,589 11,775 Atrix Laboratories, Inc.* 242,447 7,050 Axcan Pharma, Inc.* (Canada) 96,303 25,550 Connetics Corp.* 461,433 14,050 ILEX Oncology, Inc.* 233,370 6,400 Inveresk Research Group, Inc.* 128,107 7,000 Northwest Biotherapeutics, Inc.*+ 1,680 1,775 Priority Healthcare Corp.* 36,459 21,650 Shire Pharmaceuticals Group Plc ADR* (United Kingdom) 478,682 ------------- 1,906,878 ------------- ELECTRICAL AND ELECTRONICS 1.0% 18,475 Plexus Corp.* 287,102 6,100 Power Integrations, Inc.* 202,764 ------------- 489,866 ------------- ELECTRONIC EQUIPMENT AND COMPONENTS 0.8% 28,525 Flextronics International Ltd.* (Singapore) 404,485 ------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS 2.3% 14,800 BW Technologies Ltd.* (Canada) 246,511 350,000 Innovalues Precision Ltd. (Singapore) 301,532 369,000 Unisteel Technology Ltd. (Singapore) 264,562 31,000 Venture Corporation Ltd. (Singapore) 358,485 ------------- 1,171,090 ------------- ELECTRONICS 2.0% 107,025 Sanmina-SCI Corp.* 1,038,143 ------------- ELECTRONICS--INSTRUMENTS, GAUGES AND METERS 0.3% 27,925 Intest Corp.* 157,218 ------------- ELECTRONICS--MEDICAL SYSTEMS 0.3% 12,500 Endocardial Solutions, Inc.* 62,500 4,575 Possis Medical, Inc.* 71,370 ------------- 133,870 ------------- 30 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- ELECTRONICS--SEMICONDUCTORS/COMPONENTS 8.0% 19,875 ASE Test Ltd.* (Singapore) $ 172,714 31,000 Genus, Inc.* 127,720 5,850 Integrated Circuit Systems, Inc.*+++ 175,734 126,175 LogicVision, Inc.* 415,116 51,500 Micrel, Inc.* 627,785 68,475 Monolithic System Technology, Inc.* 575,875 3,150 Nova Measuring Instruments Ltd.* (Israel) 14,332 102,300 O2Micro International Ltd.* (Cayman Islands) 1,478,235 47,350 PLX Technology, Inc.* 300,009 20,100 PSi Technologies Holdings, Inc. ADR* (Philippines) 33,567 42,750 SiRF Technology Holdings, Inc., Series H*+ 222,300 ------------- 4,143,387 ------------- FOOD AND DRUG RETAILING 0.6% 5,000 Sugi Pharmacy Co. Ltd. (Japan) 293,313 ------------- HEALTH CARE EQUIPMENT AND SUPPLIES 0.5% 2,450 Straumann Holding AG (Switzerland) 255,884 ------------- HEALTH CARE FACILITIES 2.5% 23,350 American Healthways, Inc.* 980,467 12,200 Pharmaceutical Product Development, Inc.* 292,678 ------------- 1,273,145 ------------- HEALTH CARE MANAGEMENT SERVICES 0.5% 13,600 Computer Programs & Systems, Inc.* 245,208 ------------- HEALTH CARE SERVICES 7.3% 119,518 Accredo Health, Inc.*+++ 3,345,309 14,225 Chronimed, Inc.* 129,874 4,975 Express Scripts, Inc.* 304,221 ------------- 3,779,404 ------------- MACHINERY--SPECIALTY 0.3% 10,450 ASML Holding N.V.* (Netherlands) 137,209 ------------- Annual Report 31 GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 6.6% 15,755 American Medical Systems Holdings, Inc.* $ 341,883 8,900 Biosite, Inc.* 252,582 31,275 CTI Molecular Imaging, Inc.* 461,932 3,400 Cyberonics, Inc.* 104,924 49,600 ICU Medical, Inc.* 1,349,616 3,950 Medamicus, Inc.* 41,119 17,775 Molecular Devices Corp.* 309,640 12,925 Techne Corp.* 410,886 6,225 Thoratec Corp.* 105,763 ------------- 3,378,345 ------------- MISCELLANEOUS MATERIALS AND COMMODITIES 2.2% 51,825 Symyx Technologies, Inc.* 1,116,311 ------------- MISCELLANEOUS TECHNOLOGY 0.4% 11,025 RADWARE Ltd.* (Israel) 200,104 ------------- PHARMACEUTICALS 1.0% 2,150 Actelion Ltd.* (Switzerland) 184,279 4,200 Dr Reddy's Laboratories Ltd. ADR (India) 98,490 117,000 United Drug Plc (Ireland) 265,783 ------------- 548,552 ------------- PRODUCTION TECHNOLOGY EQUIPMENT 2.0% 23,850 August Technology Corp.* 339,624 7,475 Nanometrics, Inc.* 90,597 30,875 Rudolph Technologies, Inc.* 596,196 ------------- 1,026,417 ------------- SCIENTIFIC EQUIPMENT AND SUPPLIERS 1.3% 27,425 Biacore International AB ADR (Sweden) 658,474 ------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS 2.9% 18,525 SEZ Holding AG* (Switzerland) 534,173 69,120 Taiwan Semiconductor Manufacturing Company Ltd. ADR*(Taiwan) 748,569 48,572 United Microelectronics Corp. ADR* (Taiwan) 219,060 ------------- 1,501,802 ------------- SERVICES--COMMERCIAL 2.9% 12,525 Kroll, Inc.* 232,965 72,750 Management Network Group, Inc. (The)* 181,875 91,726 Wireless Facilities, Inc.* 1,091,539 ------------- 1,506,379 ------------- 32 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- TELECOMMUNICATIONS EQUIPMENT 0.2% 1,850 Vimpel-Communications ADR* (Russian Federation) $ 112,591 ------------- UTILITIES--TELECOMMUNICATIONS 0.8% 14,625 Nextel Communications, Inc., Class A* 287,966 15,300 Nextel Partners, Inc., Class A* 120,105 ------------- 408,071 ------------- TOTAL COMMON AND PREFERRED STOCKS (COST $38,011,700) 40,960,573 ------------- WARRANTS 0.0% 4,275 SiRF Technology Holdings, Inc.*+ -- ------------- TOTAL WARRANTS (COST $0) -- ------------- PRINCIPAL AMOUNT VALUE - ----------- ------------- U.S. GOVERNMENT OBLIGATIONS 1.0% $ 503,000 U.S. Treasury Bond, 5.25%, 11/15/28+++ $ 521,116 ------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $500,801) 521,116 ------------- SHORT-TERM INVESTMENTS 19.8% REPURCHASE AGREEMENT 19.8% 10,216,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $8,380,000 of United States Treasury Bonds 6.75% due 8/15/2026; value: $10,422,625; proceeds: $10,216,142 (cost $10,216,000) 10,216,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $10,216,000) 10,216,000 ------------- TOTAL INVESTMENTS (COST $48,728,501) 100.3% 51,697,689 Annual Report 33 GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 PRINCIPAL AMOUNT VALUE - --------- ------------- LIABILITIES LESS OTHER ASSETS (0.3)% $ (180,621) ------------- NET ASSETS 100.0% $ 51,517,068 ============= NUMBER OF SHARES VALUE - --------- ------------- SECURITIES SOLD SHORT 2,800 NetScreen Technologies, Inc.* $ 62,244 7,325 Semiconductor HOLDRs Trust 251,980 7,825 Nasdaq-100 Index Tracking Stock* 253,687 ------------- TOTAL SECURITIES SOLD SHORT (PROCEEDS $572,836) $ 567,911 ============= *Non-income producing +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). +++All or a portion of this security has been committed as collateral for open short positions, written options or purchase commitments. ADR American Depositary Receipt See notes to financial statements. 34 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 At September 30, 2003, Wasatch Global Science & Technology Fund's investments, excluding short-term investments, were in the following countries: COUNTRY % - ------------------ ----- Canada 1.3 Cayman Islands 3.6 China 3.7 India 0.2 Ireland 2.1 Israel 4.0 Japan 0.7 Netherlands 1.6 Norway 0.6 Philippines 0.1 Russian Federation 0.3 Singapore 3.6 Sweden 1.6 Switzerland 2.3 Taiwan 2.3 United Kingdom 1.2 United States 70.8 ----- TOTAL 100.0% ===== Annual Report 35 INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMMON STOCKS 89.3% AIRLINES 2.1% 52,350 WestJet Airlines Ltd.* (Canada) $ 941,707 ------------- AUTOMOBILES 3.7% 10,300 Gulliver International Co. Ltd. (Japan) 632,865 16,700 USS Co. Ltd. (Japan) 1,033,592 ------------- 1,666,457 ------------- BANKS 0.8% 16,780 HDFC Bank Ltd. ADR (India) 360,770 ------------- BANKS--OUTSIDE NEW YORK CITY 0.7% 7,050 Doral Financial Corp. (Puerto Rico) 331,350 ------------- BEVERAGES 1.7% 18,940 Baron de Ley* (Spain) 761,213 ------------- BIOTECHNOLOGY RESEARCH AND PRODUCTION 2.4% 5,150 Neurochem, Inc.* (Canada) 62,161 40,000 QIAGEN N.V.* (Netherlands) 424,800 10,000 Taro Pharmaceuticals Industries Ltd.* (Israel) 563,600 ------------- 1,050,561 ------------- BUILDING PRODUCTS 0.5% 11,095 Munters AB (Sweden) 240,527 ------------- COMMERCIAL SERVICES AND SUPPLIES 4.1% 13,000 Icon Plc ADR* (Ireland) 492,440 37,700 Park24 Co. Ltd. (Japan) 710,141 35,400 Techem AG* (Germany) 609,103 ------------- 1,811,684 ------------- COMMUNICATIONS TECHNOLOGY 1.4% 20,250 UTStarcom, Inc.* (China) 644,153 ------------- COMPUTERS AND PERIPHERALS 2.0% 120,000 Advantech Co. Ltd. (Taiwan) 188,528 138,800 Gemplus International SA* (Luxembourg) 239,309 10,750 Komplett ASA (Norway) 255,328 6,000 Logitech International SA* (Switzerland) 186,634 ------------- 869,799 ------------- 36 Annual Report INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- CONSTRUCTION MATERIALS 0.4% 131,638 Aggregate Industries Plc (United Kingdom) $ 186,534 ------------- DIVERSIFIED FINANCIAL SERVICES 0.8% 15,500 AWD Holding AG (Germany) 348,495 ------------- DIVERSIFIED TELECOMMUNICATION SERVICES 0.4% 30,500 Colt Telecom Group Plc ADR* (United Kingdom) 186,050 ------------- ELECTRICAL EQUIPMENT 2.1% 378,000 TechTronic Industries Co., Limited (Hong Kong) 922,451 ------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS 3.5% 25,000 BW Technologies Ltd.* (Canada) 416,404 275,000 Unisteel Technology Ltd. (Singapore) 197,167 81,280 Venture Corporation Ltd. (Singapore) 939,925 ------------- 1,553,496 ------------- ELECTRONICS--SEMICONDUCTORS/COMPONENTS 2.0% 44,500 ASE Test Ltd.* (Singapore) 386,705 19,400 ASM International N.V.* (Netherlands) 286,150 15,100 O2Micro International Ltd.* (Cayman Islands) 218,195 ------------- 891,050 ------------- FINANCIAL--MISCELLANEOUS 1.6% 38,500 Home Capital Group Inc., Class B (Canada) 723,915 ------------- FOOD AND DRUG RETAILING 2.3% 32,200 Shoppers Drug Mart Corp.* (Canada) 642,403 6,300 Sugi Pharmacy Co. Ltd. (Japan) 369,574 ------------- 1,011,977 ------------- FOOD PRODUCTS 1.5% 54,810 Coolbrands International, Inc.* (Canada) 646,351 ------------- HEALTH CARE EQUIPMENT AND SUPPLIES 5.1% 62,000 Elekta AB, Class B* (Sweden) 992,064 9,450 Straumann Holding AG (Switzerland) 986,983 15,000 Terumo Corp. (Japan) 289,949 ------------- 2,268,996 ------------- HEALTH CARE PROVIDERS AND SERVICES 0.8% 17,800 MEDIDEP SA* (France) 378,434 ------------- Annual Report 37 INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- HOTELS, RESTAURANTS AND LEISURE 0.9% 14,875 Fairmont Hotels & Resorts Inc. (Canada) $ 383,093 ------------- HOUSEHOLD DURABLES 3.4% 13,000 Citizen Electronics Company, Ltd. (Japan) 979,504 17,975 Dorel Industries Inc., Class B* (Canada) 519,217 ------------- 1,498,721 ------------- HOUSEHOLD PRODUCTS 1.7% 22,520 KOSE Corp. (Japan) 743,361 ------------- INTERNET SOFTWARE AND SERVICES 0.9% 1,025,000 Accord Customer Care Solutions Ltd.* (Singapore) 400,043 ------------- LEISURE EQUIPMENT AND PRODUCTS 3.1% 111,400 Bloomsbury Publishing Plc (United Kingdom) 470,329 15,000 Hockey Co. Holdings, Inc. (The)* (Canada) 196,987 18,350 Zapf Creation AG (Germany) 705,222 ------------- 1,372,538 ------------- MACHINERY 1.9% 9,200 Disco Corp. (Japan) 438,193 20,100 Singulus Technologies* (Germany) 410,708 ------------- 848,901 ------------- MEDIA 4.2% 30,100 Alliance Atlantis Communications, Inc. Class B* (Canada) 474,612 151,775 HIT Entertainment Plc (United Kingdom) 602,951 21,200 JC Decaux SA* (France) 298,092 122 SKY Perfect Communications, Inc.* (Japan) 147,733 6,100 TOEI ANIMATION Co., Ltd. (Japan) 339,238 ------------- 1,862,626 ------------- MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 0.4% 51,125 Trinity Biotech Plc ADR* (Ireland) 188,651 ------------- MULTILINE RETAIL 0.8% 160 Can Do Co. Ltd. (Japan) 353,052 ------------- OFFICE ELECTRONICS 1.1% 10,350 Neopost SA (France) 479,878 ------------- 38 Annual Report INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- OIL AND GAS 3.1% 99,720 Cairn Energy Plc* (United Kingdom) $ 600,861 159,850 Soco International Plc* (United Kingdom) 786,480 ------------- 1,387,341 ------------- PERSONAL PRODUCTS 0.9% 24,500 Mega Bloks, Inc.* (Canada) 418,052 ------------- PHARMACEUTICALS 7.4% 12,200 Actelion Ltd.* (Switzerland) 1,045,675 15,500 Angiotech Pharmaceuticals, Inc.* (Canada) 675,031 18,850 Dr. Reddy's Laboratories Ltd. ADR (India) 442,033 16,000 Patheon, Inc.* (Canada) 162,268 8,100 Stada Arzneimittel AG (Germany) 434,060 231,000 United Drug Plc (Ireland) 520,018 ------------- 3,279,085 ------------- REAL ESTATE 0.9% 4,835 Unibail (Union du Credit-Bail Immobilier) (France) 380,196 ------------- SCIENTIFIC EQUIPMENT AND SUPPLIERS 0.9% 17,500 Biacore International AB ADR (Sweden) 420,175 ------------- SEMICONDUCTOR EQUIPMENT AND PRODUCTS 1.1% 17,195 SEZ Holding AG* (Switzerland) 495,822 ------------- SOFTWARE 1.7% 75,000 Autonomy Corp Plc* (United Kingdom) 260,550 65 Works Applications Co. Ltd.* (Japan) 482,756 ------------- 743,306 ------------- SPECIALTY RETAIL 3.7% 5,640 Bijou Brigitte AG (Germany) 224,705 43,600 Carpetright Plc (United Kingdom) 570,354 12,905 Rodriguez Group (France) 838,128 ------------- 1,633,187 ------------- TELECOMMUNICATIONS EQUIPMENT 0.5% 3,550 Vimpel-Communications ADR* (Russian Federation) 216,053 ------------- Annual Report 39 INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- TEXTILES, APPAREL AND LUXURY GOODS 6.3% 272,500 Esprit Holdings Ltd. (Hong Kong) $ 828,604 2,483,000 Linmark Group Ltd. (Hong Kong) 833,566 9,000 Puma AG Rudolf Dassler Sport (Germany) 1,139,566 ------------- 2,801,736 ------------- TRADING COMPANIES AND DISTRIBUTORS 0.5% 5,600 Medion AG (Germany) 219,523 ------------- UTILITIES--WATER 1.0% 425,000 Hyflux Ltd. (Singapore) 454,611 ------------- WIRELESS TELECOMMUNICATION SERVICES 3.0% 318,240 Carphone Warehouse Group Plc (United Kingdom) 624,195 14,250 Mobistar SA* (Belgium) 716,977 ------------- 1,341,172 ------------- TOTAL COMMON STOCKS (COST $32,385,447) 39,717,093 ------------- RIGHTS 0.0% PHARMACEUTICALS 0.0% 8,100 Stada Arzneimittel AG* (Germany) 18,117 ------------- TOTAL RIGHTS (COST $0) 18,117 ------------- PRINCIPAL AMOUNT VALUE - ---------- ------------- SHORT-TERM INVESTMENTS 12.2% REPURCHASE AGREEMENT 12.2% $5,430,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $4,055,000 of United States Treasury Bonds 7.625% due 11/15/2022; value: $5,540,144; proceeds: $5,430,075 (cost $5,430,000) $ 5,430,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $5,430,000) 5,430,000 ------------- 40 Annual Report INTERNATIONAL GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- TOTAL INVESTMENTS (COST $37,815,447) 101.5% $ 45,165,210 LIABILITIES LESS OTHER ASSETS (1.5)% (683,341) ------------- NET ASSETS 100.0% $ 44,481,869 ============= *Non-income producing ADR American Depositary Receipt See notes to financial statements. At September 30, 2003, Wasatch International Growth Fund's investments, excluding short-term investments, were in the following countries: COUNTRY % - ------------------ ----- Belgium 1.8 Canada 15.8 Cayman Islands 0.6 China 1.6 France 6.0 Germany 10.4 Hong Kong 6.5 India 2.0 Ireland 3.0 Israel 1.4 Japan 16.4 Luxembourg 0.6 Netherlands 1.8 Norway 0.6 Puerto Rico 0.8 Russian Federation 0.5 Singapore 6.0 Spain 1.9 Sweden 4.2 Switzerland 6.8 Taiwan 0.5 United Kingdom 10.8 ----- TOTAL 100.0% ===== Annual Report 41 MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMMON STOCKS 88.0% AEROSPACE 0.4% 96,085 Allied Defense Group, Inc. (The)* $ 2,028,354 ------------- AUTO PARTS--AFTER MARKET 0.4% 94,000 Keystone Automotive Industries, Inc.* 2,039,800 ------------- BANKS 0.5% 92,000 Canadian Western Bank 2,383,684 ------------- BANKS--OUTSIDE NEW YORK CITY 1.6% 95,000 CommerceWest Bank*++ 1,311,000 172,912 Commercial Capital Bancorp, Inc.* 2,702,622 133,975 First State Bancorporation 3,967,000 21,200 Pacific Crest Capital, Inc. 450,055 ------------- 8,430,677 ------------- BIOTECHNOLOGY RESEARCH AND PRODUCTION 0.5% 400,000 Savient Pharmaceuticals, Inc.* 2,020,000 96,000 United-Guardian, Inc. 758,400 ------------- 2,778,400 ------------- CHEMICALS 2.9% 275,500 Cabot Microelectronics Corp.* 15,356,370 ------------- COMMERCIAL INFORMATION SERVICES 1.2% 150,525 Encore Capital Group, Inc.* 1,761,143 372,200 SM&A* 4,284,022 ------------- 6,045,165 ------------- COMMERCIAL SERVICES AND SUPPLIES 1.6% 217,900 Icon Plc ADR* 8,254,052 ------------- COMMUNICATIONS TECHNOLOGY 1.3% 543,425 FARGO Electronics, Inc.* 6,847,155 ------------- COMPUTER SERVICES SOFTWARE AND SYSTEMS 2.8% 73,900 IMPAC Medical Systems, Inc.* 1,322,071 216,725 Moldflow Corp.* 2,035,048 755,744 Nassda Corp.* 5,947,705 75,625 Opnet Technologies, Inc.* 943,800 160,625 PEC Solutions, Inc.* 2,370,825 264,650 SYKES Enterprises, Inc.* 1,751,983 ------------- 14,371,432 ------------- 42 Annual Report MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- COMPUTER TECHNOLOGY 1.4% 270,350 Qualstar Corp.* $ 1,473,408 440,825 Verisity Ltd.* 5,510,312 ------------- 6,983,720 ------------- COMPUTERS AND PERIPHERALS 0.4% 78,125 Komplett ASA 1,855,582 ------------- CONSTRUCTION 0.2% 111,375 Shaw Group, Inc. (The)* 1,170,551 ------------- CONSUMER PRODUCTS 0.6% 119,550 Yankee Candle Co., Inc.* 3,046,134 ------------- CONTAINERS AND PACKAGING--METAL AND GLASS 0.2% 47,475 Mobile Mini, Inc.* 915,793 ------------- COSMETICS 0.2% 102,125 CCA Industries, Inc. 781,256 ------------- DRUGS AND PHARMACEUTICALS 1.4% 89,025 Bradley Pharmaceuticals, Inc.* 2,425,931 209,150 Inveresk Research Group, Inc.* 4,151,628 186,350 Paladin Labs, Inc.* 724,238 ------------- 7,301,797 ------------- ELECTRONIC EQUIPMENT AND INSTRUMENTS 1.2% 298,175 BW Technologies Ltd.* 4,966,456 2,000,000 Unisteel Technology Ltd. 1,433,941 ------------- 6,400,397 ------------- ELECTRONICS 1.2% 249,050 NU Horizons Electronics Corp.* 2,169,226 219,200 Supertex, Inc.* 3,932,448 ------------- 6,101,674 ------------- ELECTRONICS--INSTRUMENTS, GAUGES AND METERS 1.0% 615,575 Computer Access Technology Corp.* 2,597,727 444,975 inTest Corp.*++ 2,505,209 ------------- 5,102,936 ------------- Annual Report 43 MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- ELECTRONICS--MEDICAL SYSTEMS 1.9% 703,341 Endocardial Solutions, Inc.* $ 3,516,705 719,850 IRIDEX Corp.*++ 3,203,333 198,717 Possis Medical, Inc.* 3,099,985 ------------- 9,820,023 ------------- ELECTRONICS--SEMICONDUCTORS/COMPONENTS 9.3% 364,500 Advanced Power Technology, Inc.* 3,251,340 435,450 Excel Technology, Inc.* 10,886,250 792,825 Genus, Inc.* 3,266,439 768,450 LogicVision, Inc.* 2,528,200 160,775 Micrel, Incorporated* 1,959,847 589,350 Monolithic System Technology, Inc.* 4,956,434 106,825 Nova Measuring Instruments Ltd.* 486,054 1,057,875 O2Micro International Ltd.* 15,286,294 567,250 PLX Technology, Inc.* 3,594,096 1,021,975 PSi Technologies Holdings, Inc. ADR*++ 1,706,698 ------------- 47,921,652 ------------- FINANCE COMPANIES 1.2% 80,000 Saxon Capital, Inc.* 1,371,200 357,850 World Acceptance Corp.* 4,848,868 ------------- 6,220,068 ------------- FINANCIAL DATA PROCESSING SERVICES AND SYSTEMS 0.1% 133,525 Atlantic Data Services, Inc.* 428,615 ------------- FINANCIAL--MISCELLANEOUS 2.2% 33,900 First Cash Financial Services, Inc.* 679,017 352,975 Home Capital Group Inc., Class B 6,636,980 169,650 Portfolio Recovery Associates, Inc.* 4,312,503 ------------- 11,628,500 ------------- FOOD PRODUCTS 0.7% 300,000 Coolbrands International, Inc.* 3,537,773 ------------- HEALTH CARE FACILITIES 1.0% 126,375 American Healthways, Inc.* 5,306,486 ------------- 44 Annual Report MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- HEALTH CARE MANAGEMENT SERVICES 9.0% 68,675 AMERIGROUP Corp.* $ 3,064,965 592,325 AmSurg Corp.* 19,540,802 99,800 Centene Corp.* 3,032,922 165,000 Computer Programs & Systems, Inc.* 2,974,950 435,406 CorVel Corp.* 15,478,683 494,239 VitalWorks Inc.* 2,594,755 ------------- 46,687,077 ------------- HEALTH CARE SERVICES 4.5% 268,725 Accredo Health, Inc.* 7,521,613 825,000 Covalent Group, Inc.*++ 2,004,750 156,500 Molina Healthcare, Inc.* 4,342,875 315,725 Odyssey HealthCare, Inc.* 9,414,919 ------------- 23,284,157 ------------- HOME BUILDING 0.5% 58,300 Meritage Corp.* 2,754,675 ------------- HOUSEHOLD EQUIPMENT AND PRODUCTS 0.1% 67,150 Napco Security Systems, Inc.* 585,347 ------------- HOUSEHOLD FURNISHINGS 0.2% 30,075 Hooker Furniture Corp. 1,051,723 ------------- JEWELRY, WATCHES AND GEMSTONES 0.4% 154,075 Friedman's, Inc., Class A 2,149,346 ------------- LEISURE TIME 1.2% 222,225 SCP Pool Corp.* 6,182,300 ------------- MACHINERY--OIL WELL EQUIPMENT AND SERVICES 0.5% 180,800 Gulf Island Fabrication, Inc.* 2,719,232 ------------- Annual Report 45 MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 8.8% 146,700 American Medical Systems Holdings, Inc.* $ 3,183,390 109,950 Biosite Inc.* 3,120,381 182,300 CTI Molecular Imaging, Inc.* 2,692,571 95,250 Cyberonics* 2,939,415 233,075 Encision, Inc.*++ 839,070 200,000 Encision, Inc.*+ ++ 648,000 617,840 ICU Medical, Inc.* 16,811,425 60,000 Invivo Corp.* 941,400 97,950 Medamicus, Inc.* 1,024,557 399,925 Molecular Devices Corp.* 6,966,693 103,550 Trinity Biotech Plc ADR* 382,100 178,675 Young Innovations, Inc. 5,719,387 ------------ 45,268,389 ------------ MEDICAL SERVICES 2.2% 100,000 America Service Group, Inc.* 2,100,000 62,750 Exactech, Inc.* 1,025,963 283,575 RehabCare Group, Inc.* 4,834,954 283,512 U.S. Physical Therapy, Inc.* 3,467,635 ------------ 11,428,552 ------------ METALS FABRICATING 0.1% 25,975 Intermagnetics General Corp.* 580,801 ------------ MISCELLANEOUS MATERIALS AND COMMODITIES 0.8% 194,025 Symyx Technologies* 4,179,299 ------------ PRODUCTION TECHNOLOGY EQUIPMENT 1.7% 148,300 August Technology Corp.* 2,111,792 293,150 Nanometrics, Inc.* 3,552,978 162,900 Rudolph Technologies, Inc.* 3,145,599 ------------ 8,810,369 ------------ REAL ESTATE INVESTMENT TRUSTS (REIT) 0.7% 182,425 Anworth Mortgage Asset Corp. 2,605,029 132,350 MFA Mortgage Investments, Inc. 1,259,972 ------------ 3,865,001 ------------ RENTAL AND LEASING SERVICES--CONSUMER 0.5% 404,400 Rainbow Rentals, Inc.*++ 2,584,116 ------------ 46 Annual Report MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ RETAIL 10.2% 107,125 AC Moore Arts & Crafts, Inc.* $ 2,386,745 1,037,850 Big 5 Sporting Goods Corp.* 15,858,348 105,475 Cato Corp. (The), Class A 2,127,431 148,107 Christopher & Banks Corp. 3,533,833 141,650 Global Imaging Systems, Inc.* 3,484,590 210,650 Guitar Center, Inc.* 6,774,504 166,162 Hibbett Sporting Goods, Inc.* 3,974,595 122,125 Lithia Motors, Inc., Class A 2,438,836 73,675 MarineMax, Inc.* 1,069,024 271,525 O'Reilly Automotive, Inc.* 9,983,974 41,900 School Specialty, Inc.* 1,181,999 ------------ 52,813,879 ------------ SAVINGS AND LOANS 0.3% 25,900 Great Southern Bancorp, Inc. 1,008,028 18,200 Harbor Florida Bancshares, Inc. 485,212 ------------ 1,493,240 ------------ SEMICONDUCTOR EQUIPMENT AND PRODUCTS 0.4% 75,240 SEZ Holding AG* 2,169,563 ------------ SERVICES--COMMERCIAL 4.4% 127,750 AMN Healthcare Services, Inc.* 2,074,660 341,700 Charles River Associates, Inc.* 9,748,701 78,775 Management Network Group, Inc.* 196,938 382,650 Resources Connection, Inc.* 9,339,721 37,603 StarTek, Inc. 1,203,296 ------------ 22,563,316 ------------ SHOES 1.5% 141,325 Finish Line, Class A* 3,716,848 282,975 Maxwell Shoe Co., Class A* 4,063,521 ------------ 7,780,369 ------------ SPECIALTY RETAIL 0.7% 85,000 Bijou Brigitte AG 3,386,509 ------------ Annual Report 47 MICRO CAP FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- TRUCKERS 1.9% 134,200 Knight Transportation, Inc.* $ 3,364,394 75,675 PAM Transportation Services* 1,552,851 426,600 USA Truck, Inc.* 4,995,486 ------------- 9,912,731 ------------- TOTAL COMMON STOCKS (COST $320,462,984) 455,308,037 ------------- PRINCIPAL AMOUNT VALUE - ------------ ------------- SHORT-TERM INVESTMENTS 12.5% REPURCHASE AGREEMENT 12.5% $ 64,639,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $45,140,000 of United States Treasury Bonds from 8.875% to 9.00% due from 8/15/2017 to 11/15/2018; value: $65,939,784; proceeds: $64,639,898 (cost $64,639,000) $ 64,639,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $64,639,000) 64,639,000 ------------- TOTAL INVESTMENTS (COST $385,101,984) 100.5% 519,947,037 LIABILITIES LESS OTHER ASSETS (0.5)% (2,767,889) ------------- NET ASSETS 100.0% $ 517,179,148 ============= *Non-income producing +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). ++Affiliated company (see Note 9). ADR American Depositary Receipt See notes to financial statements. 48 Annual Report MICRO CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ---------- COMMON STOCKS 65.5% AEROSPACE 0.8% 25,000 Allied Defense Group, Inc. (The)* $ 527,750 ---------- AUTO PARTS--AFTER MARKET 0.9% 30,000 Keystone Automotive Industries, Inc.* 651,000 ---------- BANKS 1.1% 30,000 Canadian Western Bank 777,288 ---------- BANKS--OUTSIDE NEW YORK CITY 2.6% 37,500 Bridge Bank National Association* 375,750 45,000 Franklin Bank Corp.*+ 551,250 40,000 Wilshire State Bank* 928,000 ---------- 1,855,000 ---------- BIOTECHNOLOGY RESEARCH AND PRODUCTION 2.4% 70,000 Harvard Bioscience, Inc.* 519,400 160,000 Savient Pharmaceuticals, Inc.* 808,000 50,000 United-Guardian, Inc. 395,000 ---------- 1,722,400 ---------- COMMERCIAL INFORMATION SERVICES 1.4% 37,200 Encore Capital Group, Inc.* 435,240 50,000 SM&A* 575,500 ---------- 1,010,740 ---------- COMMERCIAL SERVICES AND SUPPLIES 1.0% 19,575 Icon Plc ADR* 741,501 ---------- COMMUNICATIONS TECHNOLOGY 0.9% 50,000 FARGO Electronics, Inc.* 630,000 ---------- COMPUTER SERVICES SOFTWARE AND SYSTEMS 1.4% 83,142 Nassda Corp.* 654,328 50,000 TechTeam Global, Inc.* 305,500 ---------- 959,828 ---------- COMPUTER TECHNOLOGY 0.5% 60,000 Qualstar Corp.* 327,000 ---------- COMPUTERS AND PERIPHERALS 1.2% 35,000 Komplett ASA 831,301 ---------- Annual Report 49 MICRO CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ----------- CONSTRUCTION 1.1% 75,000 Shaw Group, Inc. (The)* $ 788,250 ----------- CONTAINERS AND PACKAGING--METAL AND GLASS 0.8% 30,000 Mobile Mini, Inc.* 578,700 ----------- COSMETICS 0.9% 84,000 CCA Industries, Inc. 642,600 ----------- DRUGS AND PHARMACEUTICALS 0.3% 60,000 Paladin Labs, Inc.* 233,187 ----------- ELECTRICAL EQUIPMENT AND COMPONENTS 0.1% 5,400 Image Sensing Systems, Inc.* 39,636 ----------- ELECTRONIC EQUIPMENT AND INSTRUMENTS 4.0% 117,175 BW Technologies Ltd.* 1,951,688 1,200,000 Unisteel Technology Ltd. 860,364 ----------- 2,812,052 ----------- ELECTRONICS 1.2% 40,000 Nu Horizons Electronics Corp.* 348,400 50,000 Richardson Electronics Ltd. 530,000 ----------- 878,400 ----------- ELECTRONICS--INSTRUMENTS, GAUGES AND METERS 2.2% 120,000 Computer Access Technology Corp.* 506,400 123,550 Intest Corp.* 695,586 95,950 Precis, Inc.* 325,271 ----------- 1,527,257 ----------- ELECTRONICS--MEDICAL SYSTEMS 1.4% 111,000 Endocardial Solutions, Inc.* 555,000 96,800 IRIDEX Corp.* 430,760 ----------- 985,760 ----------- ELECTRONICS--SEMICONDUCTORS/COMPONENTS 5.3% 61,000 Advanced Power Technology, Inc.* 544,120 200,000 Genus, Inc.* 824,000 511,875 LogicVision, Inc.* 1,684,069 30,900 Peak International Ltd.* 168,096 80,000 PLX Technology, Inc.* 506,880 ----------- 3,727,165 ----------- 50 Annual Report MICRO CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ----------- FINANCE COMPANIES 2.0% 100,000 E-Loan, Inc.* $ 363,000 60,000 Saxon Capital, Inc.* 1,028,400 ----------- 1,391,400 ----------- FINANCIAL--MISCELLANEOUS 2.0% 76,800 Home Capital Group, Inc., Class B 1,444,068 ----------- FOOD PRODUCTS 0.7% 40,000 Coolbrands International, Inc.* 471,703 ----------- HEALTH CARE FACILITIES 0.2% 74,150 Novamed Eyecare, Inc.* 147,559 ----------- HEALTH CARE MANAGEMENT SERVICES 1.6% 61,000 Computer Programs & Systems, Inc.* 1,099,830 ----------- HEALTH CARE SERVICES 1.3% 182,500 Covalent Group, Inc.* 443,475 30,000 Healthcare Services Group 495,000 ----------- 938,475 ----------- HOME BUILDING 0.9% 16,110 Dominion Homes, Inc.* 414,510 20,000 Orleans Homebuilders, Inc.* 236,400 ----------- 650,910 ----------- HOUSEHOLD EQUIPMENT AND PRODUCTS 0.2% 20,000 Napco Security Systems, Inc.* 174,340 ----------- HOUSEHOLD FURNISHINGS 1.2% 20,000 Chromcraft Revington, Inc.* 247,000 25,000 Craftmade International, Inc. 587,750 ----------- 834,750 ----------- MACHINERY--INDUSTRIAL/SPECIALTY 0.8% 50,000 Petroleum Development Corp.* 599,000 ----------- MACHINERY--OIL WELL EQUIPMENT AND SERVICES 0.9% 40,000 Gulf Island Fabrication, Inc.* 601,600 ----------- Annual Report 51 MICRO CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ----------- MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 7.7% 220,000 Bovie Medical Corp.* $ 737,000 21,400 Encision, Inc.* 77,040 133,334 Encision, Inc.*+ 432,002 85,000 Encore Medical Corp.* 578,085 38,700 ICU Medical, Inc.* 1,053,027 30,000 Invivo Corp.* 470,700 145,300 Medamicus, Inc.* 1,519,838 107,775 Medical Technology Systems, Inc.* 495,765 31,242 Zevex International, Inc.* 115,283 ----------- 5,478,740 ----------- MEDICAL SERVICES 2.0% 50,000 America Service Group, Inc.* 1,050,000 30,000 U.S. Physical Therapy, Inc.* 366,930 ----------- 1,416,930 ----------- MULTILINE RETAIL 0.6% 8,000 GiFi 444,079 ----------- PRODUCTION TECHNOLOGY EQUIPMENT 1.0% 60,000 Nanometrics, Inc.* 727,200 ----------- REAL ESTATE INVESTMENT TRUSTS (REIT) 0.8% 50,525 Hanover Capital Mortgage Holdings, Inc. 533,039 ----------- RENTAL AND LEASING SERVICES--CONSUMER 0.6% 67,100 Rainbow Rentals, Inc.* 428,769 ----------- RETAIL 3.6% 55,000 Big 5 Sporting Goods Corp.* 840,400 150,000 Danka Business Systems Plc ADR* 363,300 25,000 Mothers Work, Inc.* 758,750 50,000 Whitehall Jewellers, Inc.* 560,500 ----------- 2,522,950 ----------- SERVICES--COMMERCIAL 3.1% 35,000 4Kids Entertainment, Inc.* 738,500 19,000 Charles River Associates, Inc.* 542,070 200,000 Management Network Group, Inc.* 500,000 30,000 Navigant International, Inc.* 420,300 ----------- 2,200,870 ----------- 52 Annual Report MICRO CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ----------- SPECIALTY RETAIL 1.2% 21,000 Bijou Brigitte AG $ 836,667 ----------- TRUCKERS 0.8% 50,000 USA Truck, Inc.* 585,500 ----------- UTILITIES--TELECOMMUNICATIONS 0.8% 40,000 Yak Communications USA, Inc.* 534,000 ----------- TOTAL COMMON STOCKS (COST $43,090,005) 46,309,194 ----------- PRINCIPAL AMOUNT VALUE - ------------ ------------- SHORT-TERM INVESTMENTS 35.6% U.S. GOVERNMENT OBLIGATIONS 31.8% $ 22,507,000 U.S. Treasury Bill, 0.76%, 10/2/03 $ 22,506,527 ------------ REPURCHASE AGREEMENT 3.8% 2,663,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $2,110,000 of United States Treasury Bonds 7.25% due 8/15/2022; value: $2,719,537; proceeds: $2,663,037 (cost $2,663,000) 2,663,000 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $25,169,527) 25,169,527 ------------ TOTAL INVESTMENTS (COST $68,259,532) 101.1% 71,478,721 LIABILITIES LESS OTHER ASSETS (1.1)% (772,743) ------------ NET ASSETS 100.0% $ 70,705,978 ============ *Non-income producing +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). ADR American Depositary Receipt See notes to financial statements. Annual Report 53 SMALL CAP GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ COMMON AND PREFERRED STOCKS 91.3% AIR TRANSPORT 0.7% 219,655 Expeditors International of Washington, Inc. $ 7,558,329 ------------ AIRLINES 1.1% 719,500 WestJet Airlines Ltd.* 12,942,851 ------------ BANKS--OUTSIDE NEW YORK CITY 2.1% 179,600 Doral Financial Corp. 8,441,200 288,600 Prosperity Bancshares, Inc. 6,150,066 195,975 TCF Financial Corp. 9,397,001 ------------ 23,988,267 ------------ BEVERAGE--SOFT DRINKS 0.2% 122,950 Peet's Coffee & Tea, Inc.* 2,403,672 ------------ BIOTECHNOLOGY RESEARCH AND PRODUCTION 5.6% 379,125 Charles River Laboratories International, Inc.* 11,635,346 768,325 Myriad Genetics, Inc.* 8,728,172 1,137,825 QIAGEN N.V.* 12,083,702 317,800 SICOR, Inc.* 6,127,184 441,825 Taro Pharmaceutical Industries Ltd.* 24,901,257 ------------ 63,475,661 ------------ CHEMICALS 2.5% 514,425 Cabot Microelectronics Corp.* 28,674,049 ------------ COMMERCIAL SERVICES AND SUPPLIES 1.4% 431,975 Icon Plc ADR* 16,363,213 ------------ COMMUNICATIONS TECHNOLOGY 1.8% 634,975 UTStarcom, Inc.* 20,198,555 ------------ COMPUTER SERVICES SOFTWARE AND SYSTEMS 6.6% 130,650 CACI International, Inc., Class A* 5,598,353 485,073 Cognizant Technology Solutions Corp.* 17,690,612 695,225 Macrovision Corp.* 12,840,805 475,750 Manhattan Associates, Inc.* 12,317,168 889,350 Nassda Corp.* 6,999,185 541,248 PEC Solutions, Inc.* 7,988,820 293,950 SRA International, Inc., Class A* 11,002,549 ------------ 74,437,492 ------------ 54 Annual Report SMALL CAP GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ COMPUTER TECHNOLOGY 1.1% 967,600 Verisity Ltd.* $ 12,095,000 ------------ CONSUMER PRODUCTS 1.3% 586,175 Yankee Candle Co., Inc.* 14,935,739 ------------ DRUGS AND PHARMACEUTICALS 4.7% 868,275 ILEX Oncology, Inc.* 14,422,048 1,056,517 Inveresk Research Group, Inc.* 20,971,862 153,525 Medicis Pharmaceutical Corp., Class A* 8,996,565 419,380 Priority Healthcare Corp.* 8,614,065 ------------ 53,004,540 ------------ EDUCATION SERVICES 0.3% 142,150 Renaissance Learning, Inc.* 3,354,740 ------------ ELECTRONICS 1.0% 217,575 Flir Systems, Inc.* 5,574,271 297,925 Semtech Corp.* 5,499,696 ------------ 11,073,967 ------------ ELECTRONICS--SEMICONDUCTORS/COMPONENTS 5.5% 335,225 Cree, Inc.* 6,208,367 404,905 Integrated Circuit Systems, Inc.* 12,163,346 1,603,775 Micrel, Inc.* 19,550,017 481,400 Monolithic System Technology, Inc.* 4,048,574 1,301,000 O2Micro International Ltd.* 18,799,450 402,480 SiRF Technology Holdings, Inc., Series H*+ 2,092,896 ------------ 62,862,650 ------------ ENTERTAINMENT 1.0% 574,775 Movie Gallery, Inc.* 11,294,329 ------------ FINANCIAL INFORMATION SERVICES 1.2% 295,875 FactSet Research Systems Inc. 13,122,056 ------------ FINANCIAL--MISCELLANEOUS 0.1% 9,600 Chicago Mercantile Exchange Holdings, Inc. 660,576 ------------ HEALTH CARE FACILITIES 3.0% 320,050 American Healthways, Inc.* 13,438,899 839,700 Pharmaceutical Product Development, Inc.* 20,144,403 ------------ 33,583,302 ------------ Annual Report 55 SMALL CAP GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ HEALTH CARE MANAGEMENT SERVICES 6.2% 498,450 AMERIGROUP Corp.* $ 22,245,824 1,011,659 AmSurg Corp.*++ 33,374,630 623,250 Orthodontic Centers of America, Inc.* 4,911,210 207,875 Pediatrix Medical Group, Inc.* 9,572,644 ------------ 70,104,308 ------------ HEALTH CARE SERVICES 5.1% 701,050 Accredo Health, Inc.* 19,622,389 236,550 Lincare Holdings Inc.* 8,669,558 999,543 Odyssey Healthcare, Inc.* 29,806,372 ------------ 58,098,319 ------------ HOME BUILDING 3.0% 188,325 Meritage Corp.* 8,898,356 39,635 NVR, Inc.* 18,489,728 217,400 Toll Brothers, Inc.* 6,613,308 ------------ 34,001,392 ------------ INSURANCE--MULTI-LINE 1.0% 195,975 Brown & Brown, Inc. 6,032,111 187,875 Hilb Rogal & Hamilton Co. 5,831,640 ------------ 11,863,751 ------------ MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 5.2% 272,176 American Medical Systems Holdings, Inc.* 5,906,219 908,825 CTI Molecular Imaging, Inc.* 13,423,345 578,115 ICU Medical, Inc.* 15,730,509 754,063 Techne Corp.* 23,971,663 ------------ 59,031,736 ------------ MEDICAL SERVICES 0.3% 217,850 RehabCare Group, Inc.* 3,714,343 ------------ MISCELLANEOUS MATERIALS AND COMMODITIES 0.8% 421,939 Symyx Technologies, Inc.* 9,088,566 ------------ REAL ESTATE INVESTMENT TRUSTS (REIT) 2.2% 348,650 American Financial Realty Trust 4,915,965 677,775 Capital Automotive 20,678,915 ------------ 25,594,880 ------------ 56 Annual Report SMALL CAP GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- -------------- RENTAL AND LEASING SERVICES--CONSUMER 0.8% 268,812 Rent-A-Center, Inc.* $ 8,682,644 -------------- RETAIL 14.6% 318,314 99 Cents Only Stores* 10,294,274 605,425 Big 5 Sporting Goods Corp.* 9,250,894 592,873 Chico's FAS, Inc.* 18,165,629 776,275 Christopher & Banks Corp.* 18,521,922 1,188,294 Dollar Tree Stores, Inc.* 39,807,849 491,566 Hibbett Sporting Goods, Inc.* 11,758,259 1,577,122 O'Reilly Automotive, Inc.* 57,990,776 -------------- 165,789,603 -------------- SAVINGS AND LOANS 0.6% 242,968 Harbor Florida Bancshares, Inc. 6,477,527 -------------- SERVICES--COMMERCIAL 6.3% 415,019 Charles River Associates Inc.* 11,840,492 610,650 Copart, Inc.* 6,595,020 167,550 CoStar Group, Inc.* 4,356,300 618,005 FTI Consulting, Inc.* 10,722,387 274,775 Kroll, Inc.* 5,110,815 566,755 Resources Connection, Inc.* 13,833,356 822,900 West Corp.* 19,576,791 -------------- 72,035,161 -------------- TRANSPORTATION--MISCELLANEOUS 0.6% 190,725 C.H. Robinson Worldwide, Inc. 7,096,877 -------------- TRUCKERS 1.7% 786,862 Knight Transportation, Inc.* 19,726,630 -------------- UTILITIES--CABLE TV AND RADIO 0.6% 945,467 Mediacom Communications Corp.* 6,334,629 -------------- UTILITIES--TELECOMMUNICATIONS 1.1% 1,524,375 Nextel Partners, Inc., Class A* 11,966,344 -------------- TOTAL COMMON STOCKS (COST $866,662,886) 1,035,635,698 -------------- Annual Report 57 SMALL CAP GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- --------------- WARRANTS 0.0% 40,248 SiRF Technology Holdings, Inc.*+ $ -- ---------- TOTAL WARRANTS (COST $0) -- ---------- PRINCIPAL AMOUNT VALUE - ------------ --------------- U.S. GOVERNMENT OBLIGATIONS 0.5% $ 5,027,000 U.S. Treasury Bond, 5.25%, 11/15/28+++ $ 5,208,052 --------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $5,005,024) 5,208,052 --------------- SHORT-TERM INVESTMENTS 8.0% REPURCHASE AGREEMENT 8.0% $ 91,009,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $66,665,000 of United States Treasury Bonds 8.125% due 8/15/2019; value: $92,831,013; proceeds: $91,010,264 (cost $91,009,000) 91,009,000 --------------- TOTAL SHORT-TERM INVESTMENTS (COST $91,009,000) 91,009,000 --------------- TOTAL INVESTMENTS (COST $962,676,910) 99.8% 1,131,852,750 OTHER ASSETS LESS LIABILITIES 0.2% 2,545,166 --------------- NET ASSETS 100.0% $ 1,134,397,916 =============== *Non-income producing +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). ++Affiliated company (see Note 9). +++All or a portion of this security has been committed as collateral for open short positions, written options or purchase commitments. ADR American Depositary Receipt See notes to financial statements. 58 Annual Report SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ COMMON STOCKS 94.7% AEROSPACE 1.5% 849,521 HEICO Corp., Class A+++ $ 9,514,635 ------------ AUTO AND TRUCK PARTS 0.1% 143,000 Supreme Industries, Inc., Class A* 815,100 ------------ AUTO PARTS--AFTER MARKET 2.6% 465,375 Aftermarket Technology Corp.* 5,309,929 534,709 Keystone Automotive Industries, Inc.* 11,603,185 ------------ 16,913,114 ------------ AUTOMOBILES 0.4% 77,150 America's Car Mart, Inc.* 2,310,642 ------------ BANKS--OUTSIDE NEW YORK CITY 3.9% 511,388 Commercial Capital Bancorp, Inc.* 7,992,986 71,225 First Community Bancorp 2,385,325 140,250 First State Bancorporation 4,152,803 247,650 Nara Bancorp, Inc. 4,242,245 132,675 TCF Financial Corp. 6,361,766 ------------ 25,135,125 ------------ COMMERCIAL INFORMATION SERVICES 1.0% 561,875 SM&A* 6,467,181 ------------ COMPUTER SERVICES SOFTWARE AND SYSTEMS 0.4% 164,650 SPSS, Inc.* 2,777,645 ------------ CONSUMER PRODUCTS 1.2% 84,300 Jarden Corp.* 3,182,325 249,550 RC2 Corp.* 4,793,856 ------------ 7,976,181 ------------ CONTAINERS AND PACKAGING--METAL AND GLASS 2.2% 730,437 Mobile Mini, Inc.*++ 14,090,130 ------------ DRUGS AND PHARMACEUTICALS 1.0% 454,475 Chattem, Inc.* 6,308,113 ------------ ELECTRONICS 2.2% 488,550 Nu Horizons Electronics Corp.* 4,255,270 560,925 Supertex, Inc.* 10,062,995 ------------ 14,318,265 ------------ Annual Report 59 SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ ELECTRONICS--SEMICONDUCTORS/COMPONENTS 2.6% 202,675 Cypress Semiconductor Corp.* $ 3,583,294 224,100 Excel Technology, Inc.* 5,602,500 118,350 Integrated Device Technology, Inc.* 1,469,907 143,475 LSI Logic Corp.* 1,289,840 148,650 Micrel, Inc.* 1,812,044 536,025 Peak International Ltd.* 2,915,976 ------------ 16,673,561 ------------ ENTERTAINMENT 1.2% 391,900 Movie Gallery, Inc.* 7,700,835 ------------ FINANCE COMPANIES 5.3% 395,425 Accredited Home Lenders Holding Co.* 8,584,676 1,204,150 Saxon Capital, Inc.* 20,639,131 194,825 United PanAm Financial Corp.* 3,391,903 131,461 World Acceptance Corp.* 1,781,297 ------------ 34,397,007 ------------ FINANCE--SMALL LOAN 1.1% 703,025 AmeriCredit Corp.* 7,241,157 ------------ FINANCIAL--MISCELLANEOUS 0.7% 156,870 Fidelity National Financial, Inc. 4,715,512 ------------ FOOD PRODUCTS 0.8% 443,525 Coolbrands International, Inc.* 5,230,302 ------------ FOODS 2.5% 710,906 NBTY, Inc.* 16,599,655 ------------ HEALTH CARE FACILITIES 1.1% 262,050 Sunrise Senior Living, Inc.* 6,873,571 ------------ HEALTH CARE MANAGEMENT SERVICES 1.6% 229,900 Centene Corp.* 6,986,661 65,325 Pacificare Health Systems* 3,187,860 ------------ 10,174,521 ------------ HEALTH CARE SERVICES 2.9% 480,625 Apria Healthcare Group Inc.* 13,159,513 203,100 Molina Healthcare, Inc.* 5,636,025 ------------ 18,795,538 ------------ 60 Annual Report SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ HOME BUILDING 3.7% 34,504 Beazer Homes USA, Inc.* $ 2,912,138 88,825 M.D.C. Holdings, Inc. 4,796,550 146,000 Meritage Corp.* 6,898,500 11,490 NVR, Inc.* 5,360,085 142,400 Toll Brothers, Inc.* 4,331,808 ------------ 24,299,081 ------------ HOTEL/MOTEL 0.7% 306,725 Orient-Express Hotels Ltd., Class A* 4,784,910 ------------ HOUSEHOLD FURNISHINGS 0.5% 90,775 Hooker Furniture Corp. 3,174,402 ------------ INSURANCE--PROPERTY AND CASUALTY 0.6% 158,900 Direct General Corp.* 3,983,623 ------------ INSURANCE--MULTI-LINE 0.9% 353,125 Hub International Ltd. 5,791,250 ------------ INVESTMENT MANAGEMENT COMPANIES 1.6% 663,375 MCG Capital Corp. 10,355,284 ------------ JEWELRY, WATCHES AND GEMSTONES 1.7% 808,605 Friedman's, Inc., Class A 11,280,040 ------------ LEISURE TIME 2.2% 541,725 Action Performance Companies, Inc. 13,239,759 164,800 Bally Total Fitness Holding Corp.*+++ 1,425,520 ------------ 14,665,279 ------------ MEDICAL SERVICES 1.7% 252,650 America Service Group, Inc.* 5,305,650 55,175 RehabCare Group, Inc.* 940,734 392,650 U.S. Physical Therapy, Inc.* 4,802,502 ------------ 11,048,886 ------------ OIL--CRUDE PRODUCERS 0.8% 195,300 Plains Exploration & Production Co.* 2,435,391 223,800 Plains Resources, Inc.* 2,786,310 ------------ 5,221,701 ------------ OIL--INTEGRATED INTERNATIONAL 1.5% 674,025 Core Laboratories N.V.* 9,470,051 ------------ Annual Report 61 SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ PRODUCTION TECHNOLOGY EQUIPMENT 0.5% 255,225 Nanometrics Inc.* $ 3,093,327 ------------ REAL ESTATE 1.0% 158,725 LNR Property Corp. 6,499,789 ------------ REAL ESTATE INVESTMENT TRUSTS (REIT) 10.6% 713,000 American Financial Realty Trust 10,053,300 383,550 Anworth Mortgage Asset Corp. 5,477,094 75,025 Arbor Realty Trust, Inc.* **+ 5,645,631 394,775 Capital Automotive 12,044,585 396,625 Hanover Capital Mortgage Holdings, Inc. 4,184,394 103,175 Health Care Property Investors, Inc. 4,818,273 382,875 MFA Mortgage Investments, Inc. 3,644,970 282,750 Nationwide Health Properties, Inc. 4,945,297 360,250 Newcastle Investment Corp. 8,282,148 238,950 Redwood Trust, Inc. 10,131,480 ------------ 69,227,172 ------------ RECREATIONAL VEHICLES AND BOATS 1.0% 67,700 Thor Industries, Inc. 3,657,154 67,000 Winnebago Industries, Inc. 2,986,860 ------------ 6,644,014 ------------ RENTAL AND LEASING SERVICES--COMMERCIAL 1.3% 514,298 MicroFinancial Inc. 1,563,466 421,900 United Rentals, Inc.* 6,788,371 ------------ 8,351,837 ------------ RENTAL AND LEASING SERVICES--CONSUMER 2.1% 259,750 Rainbow Rentals, Inc.* 1,659,802 373,963 Rent-A-Center, Inc.* 12,078,989 ------------ 13,738,791 ------------ RETAIL 15.4% 660,125 Big 5 Sporting Goods Corp.* 10,086,710 431,650 Cato Corp. (The), Class A 8,706,380 107,752 Danka Business Systems Plc ADR* 260,975 243,450 Genesco Inc.* 3,909,807 682,200 Global Imaging Systems, Inc.* 16,782,120 250,075 Group 1 Automotive, Inc.* 8,637,590 662,075 Lithia Motors, Inc., Class A 13,221,638 Annual Report 62 SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- RETAIL (CONTINUED) 484,800 MarineMax, Inc.* $ 7,034,448 196,650 O'Reilly Automotive, Inc.* 7,230,821 214,700 School Specialty, Inc.* 6,056,687 401,692 Sonic Automotive, Inc., Class A 9,664,710 805,568 Whitehall Jewellers, Inc.*++ 9,030,417 ------------- 100,622,303 ------------- SAVINGS AND LOANS 0.5% 124,350 Washington Federal, Inc. 3,134,863 ------------- SECURITIES BROKERAGE AND SERVICES 2.0% 746,711 Friedman, Billings, Ramsey Group, Inc., Class A 12,880,765 ------------- SERVICES--COMMERCIAL 4.9% 418,075 Adminstaff, Inc.* 3,716,687 359,100 AMN Healthcare Services, Inc.* 5,831,784 218,026 Coinstar, Inc.* 2,932,450 81,300 Monro Muffler, Inc.* 2,406,480 666,110 Navigant International, Inc.* 9,332,201 235,925 RemedyTemp, Inc., Class A* 2,831,100 181,175 World Fuel Services Corp. 5,085,582 ------------- 32,136,284 ------------- SHOES 1.1% 195,325 Casual Male Retail Group, Inc.* 1,443,452 153,300 Finish Line, Inc. (The), Class A* 4,031,790 140,625 Maxwell Shoe Co., Class A* 2,019,375 ------------- 7,494,617 ------------- TRUCKERS 1.3% 315,487 Transport Corporation of America, Inc.* 1,927,625 472,250 USA Truck, Inc.*++ 5,530,048 38,375 Yellow Corp.* 1,146,645 ------------- 8,604,318 ------------- UTILITIES--TELECOMMUNICATIONS 0.8% 653,975 Nextel Partners, Inc., Class A* 5,133,704 ------------- TOTAL COMMON STOCKS (COST $507,953,123) 616,664,081 ------------- Annual Report 63 SMALL CAP VALUE FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 PRINCIPAL AMOUNT VALUE - ------------ ------------- SHORT-TERM INVESTMENTS 5.4% REPURCHASE AGREEMENT 5.4% $ 35,351,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $28,865,000 of United States Treasury Bonds 6.875% due 8/15/2025; value: $36,062,776; proceeds: $35,351,491 (cost $35,351,000) $ 35,351,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $35,351,000) 35,351,000 ------------- TOTAL INVESTMENTS (COST $543,304,123) 100.1% 652,015,081 LIABILITIES LESS OTHER ASSETS (0.1)% (754,226) ------------- NET ASSETS 100.0% $ 651,260,855 ============= NUMBER OF SHARES VALUE - --------- ----------- SECURITIES SOLD SHORT 100,000 HEICO Corp. (proceeds $838,487) $ 1,360,000 =========== *Non-income producing **Each unit consists of five shares of common stock and one warrant. +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). ++Affiliated company (see Note 9). +++All or a portion of this security has been committed as collateral for open short positions, written options or purchase commitments. ADR American Depositary Receipt See notes to financial statements. 64 Annual Report ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ COMMON AND PREFERRED STOCKS 89.7% BANKS--OUTSIDE NEW YORK CITY 1.1% 64,825 Commerce Bancorp, Inc. $ 3,105,766 88,350 Commercial Capital Bancorp, Inc.* 1,380,910 29,575 Doral Financial Corp. 1,390,025 10,000 Wilshire State Bank* 232,000 ------------ 6,108,701 ------------ BIOTECHNOLOGY RESEARCH AND PRODUCTION 3.2% 59,050 Cephalon, Inc.* 2,711,576 149,700 Diversa Corp.* 1,160,175 70,850 Neurochem, Inc.* 855,159 369,350 QIAGEN N.V.* 3,922,497 150,380 Taro Pharmaceutical Industries Ltd.* 8,475,417 ------------ 17,124,824 ------------ CASINOS AND GAMBLING 1.0% 206,000 Shuffle Master, Inc.* 5,599,080 ------------ CHEMICALS 4.3% 412,200 Cabot Microelectronics Corp.* 22,976,028 ------------ COMMERCIAL INFORMATION SERVICES 0.8% 286,525 Encore Capital Group, Inc.* 3,352,342 98,825 SM&A* 1,137,476 ------------ 4,489,818 ------------ COMMUNICATIONS TECHNOLOGY 4.4% 266,975 Remec, Inc.* 2,723,145 1,188,275 Sirenza Microdevices, Inc.* 4,788,748 507,100 UTStarcom, Inc.* 16,130,851 91,388 Xtera Communications, Inc.*+ 99,065 ------------ 23,741,809 ------------ Annual Report 65 ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ COMPUTER SERVICES SOFTWARE AND SYSTEMS 11.3% 541,480 Cognizant Technology Solutions Corp.* $ 19,747,775 665,379 EPIQ Systems, Inc.* 11,284,828 138,650 Manhattan Associates, Inc.* 3,589,649 629,678 Nassda Corp.* 4,955,566 466,475 OPNET Technologies, Inc.* 5,821,608 259,725 PDF Solutions, Inc.* 2,921,906 604,705 PEC Solutions, Inc.* 8,925,446 24,000 QLogic Corp.* 1,128,240 73,000 SRA International, Inc., Class A* 2,732,390 ------------ 61,107,408 ------------ COMPUTER TECHNOLOGY 1.4% 594,334 Verisity Ltd.* 7,429,175 ------------ DRUGS AND PHARMACEUTICALS 3.9% 141,450 Atrix Laboratories, Inc.* 2,912,455 33,900 Angiotech Pharmaceuticals, Inc.* 1,479,735 149,167 Connetics Corp.* 2,693,956 85,875 ILEX Oncology, Inc.* 1,426,384 153,250 Inveresk Research Group, Inc.* 3,042,012 29,000 Northwest Biotherapeutics, Inc.*+ 6,960 60,375 Priority Healthcare Corp.* 1,240,103 360,577 Shire Pharmaceuticals Group Plc ADR* 7,972,357 ------------ 20,773,962 ------------ EDUCATION SERVICES 1.2% 141,308 Career Education Corp.* 6,401,252 ------------ ELECTRICAL AND ELECTRONICS 0.4% 136,900 Plexus Corp.* 2,127,426 ------------ ELECTRICAL EQUIPMENT AND COMPONENTS 0.7% 281,925 Flextronics International Ltd.* 3,997,697 ------------ ELECTRONIC EQUIPMENT AND INSTRUMENTS 0.4% 134,000 BW Technologies Ltd.* 2,231,928 ------------ ELECTRONICS 0.8% 423,050 Sanmina-SCI Corp.* 4,103,585 ------------ ELECTRONICS--MEDICAL SYSTEMS 0.4% 145,725 Possis Medical, Inc.* 2,273,310 ------------ 66 Annual Report ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ ELECTRONICS--SEMICONDUCTORS/COMPONENTS 5.9% 75,925 Integrated Circuit Systems, Inc.* $ 2,280,787 292,075 LogicVision, Inc.* 960,926 561,700 Micrel, Inc.* 6,847,123 493,675 Monolithic System Technology, Inc.* 4,151,807 1,188,675 O2Micro International Ltd.* 17,176,354 124,000 SiRF Technology Holdings, Inc., Series H*+ 644,800 ------------ 32,061,797 ------------ FINANCIAL--MISCELLANEOUS 0.5% 97,050 Portfolio Recovery Associates, Inc.* 2,467,011 ------------ HEALTH CARE FACILITIES 4.5% 277,408 American Healthways, Inc.* 11,648,362 100,675 LifePoint Hospitals, Inc.* 2,421,234 104,775 Pharmaceutical Product Development, Inc.* 2,513,552 267,150 United Surgical Partners International, Inc.* 7,560,345 ------------ 24,143,493 ------------ HEALTH CARE MANAGEMENT SERVICES 7.8% 380,611 AmSurg Corp.* 12,556,357 195,600 Centene Corp.* 5,944,284 516,375 Pediatrix Medical Group, Inc.* 23,779,069 ------------ 42,279,710 ------------ HEALTH CARE SERVICES 14.4% 1,428,720 Accredo Health, Inc.* 39,989,873 96,875 Chronimed, Inc.* 884,469 183,625 Express Scripts, Inc.* 11,228,669 855,937 Odyssey Healthcare, Inc.* 25,524,041 ------------ 77,627,052 ------------ HOUSEHOLD FURNISHINGS 0.3% 66,700 Select Comfort Corp.* 1,767,550 ------------ INSURANCE--MULTI-LINE 0.7% 45,775 Hilb Rogal & Hamilton Co. 1,420,856 140,150 Hub International Ltd. 2,298,460 ------------ 3,719,316 ------------ MACHINERY--SPECIALTY 0.3% 117,000 ASML Holding N.V.* 1,536,210 ------------ Annual Report 67 ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------ MEDICAL AND DENTAL INSTRUMENTS AND SUPPLIES 3.7% 113,714 American Medical Systems Holdings, Inc.* $ 2,467,594 108,175 Biosite, Inc.* 3,070,006 382,825 CTI Molecular Imaging, Inc.* 5,654,325 46,700 Cyberonics, Inc.* 1,441,162 134,775 Molecular Devices Corp.* 2,347,781 123,000 Techne Corp.* 3,910,170 70,500 Thoratec Corp.* 1,197,795 ------------ 20,088,833 ------------ MISCELLANEOUS MATERIALS AND COMMODITIES 2.2% 556,650 Symyx Technologies, Inc.* 11,990,241 ------------ MISCELLANEOUS TECHNOLOGY 0.3% 74,375 RADWARE Ltd.* 1,349,906 ------------ PRODUCTION TECHNOLOGY EQUIPMENT 0.9% 263,325 Rudolph Technologies, Inc.* 5,084,806 ------------ RETAIL 4.4% 139,350 99 Cents Only Stores* 4,506,579 295,707 Christopher & Banks Corp.* 7,055,569 206,049 Dollar Tree Stores, Inc.* 6,902,641 135,975 HOT Topic, Inc.* 3,064,877 60,700 O'Reilly Automotive, Inc.* 2,231,939 ------------ 23,761,605 ------------ SCIENTIFIC EQUIPMENT AND SUPPLIERS 1.3% 282,250 Biacore International AB ADR 6,776,823 ------------ SEMICONDUCTOR EQUIPMENT AND PRODUCTS 0.1% 147,382 United Microelectronics Corp. ADR* 664,693 ------------ 68 Annual Report ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 NUMBER OF SHARES VALUE - --------- ------------- SERVICES--COMMERCIAL 6.5% 57,475 Advisory Board Co. (The)* $ 2,612,239 604,500 AMN Healthcare Services, Inc.* 9,817,080 54,525 Corporate Executive Board Co.* 2,559,949 44,000 IQ4HIRE, Inc.*+ 440 139,000 Kroll, Inc.* 2,585,400 767,744 Management Network Group, Inc. (The)* 1,919,360 88,200 Resources Connection, Inc.* 2,152,785 1,111,574 Wireless Facilities, Inc.* 13,227,731 ------------- 34,874,984 ------------- UTILITIES--TELECOMMUNICATIONS 0.6% 387,100 Nextel Partners, Inc., Class A* 3,038,735 ------------- TOTAL COMMON AND PREFERRED STOCKS (COST $413,366,985) 483,718,768 ------------- WARRANTS 0.0% 12,400 SiRF Technology Holdings, Inc.*+ $ -- ------------- TOTAL WARRANTS (COST $0) -- ------------- Annual Report 69 ULTRA GROWTH FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 PRINCIPAL AMOUNT VALUE - ------------ ------------- U.S. GOVERNMENT OBLIGATIONS 0.9% $ 4,525,000 U.S. Treasury Bond, 5.25%, 11/15/28+++ $ 4,687,972 ------------- TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $4,505,219) 4,687,972 ------------- SHORT-TERM INVESTMENTS 10.8% REPURCHASE AGREEMENT 10.8% 58,185,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $46,745,000 of United States Treasury Bonds from 6.75% to 7.125% due from 2/15/2023 to 8/15/2026; value: $59,358,007; proceeds: $58,185,808 (cost $58,185,000) 58,185,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $58,185,000) 58,185,000 ------------- TOTAL INVESTMENTS (COST $476,057,204) 101.4% 546,591,740 LIABILITIES LESS OTHER ASSETS (1.4)% (7,652,434) ------------- NET ASSETS 100.0% $ 538,939,306 ============= *Non-income producing +Security purchased in a private placement transaction or under Rule 144A of the Securities Act of 1933 (see Note 10). +++All or a portion of this security has been committed as collateral for open short positions, written options or purchase commitments. ADR American Depositary Receipt See notes to financial statements. 70 Annual Report U.S. TREASURY FUND-SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2003 PRINCIPAL AMOUNT VALUE - ------------ ------------ U.S. GOVERNMENT OBLIGATIONS 96.2% $ 5,430,000 U.S. Treasury Bond, 7.50%, 11/15/24 $ 7,276,623 2,755,000 U.S. Treasury Bond, 6.875%, 8/15/25 3,460,969 1,750,000 U.S. Treasury Bond, 6.75%, 8/15/26 2,176,290 540,000 U.S. Treasury Bond, 6.50%, 11/15/26 652,957 3,170,000 U.S. Treasury Bond, 6.625%, 2/15/27 3,890,928 800,000 U.S. Treasury Bond, 6.375%, 8/15/27 954,656 4,300,000 U.S. Treasury Bond, 6.125%, 11/15/27 4,980,441 10,500,000 U.S. Treasury Bond, 5.25%, 11/15/28 10,878,168 6,050,000 U.S. Treasury Bond, 5.375%, 2/15/31 6,492,406 30,100,000 U.S. Treasury Strip, principal only, 11/15/21 11,623,416 10,100,000 U.S. Treasury Strip, principal only, 8/15/25 3,128,990 32,915,000 U.S. Treasury Strip, principal only, 11/15/27 9,039,084 ------------ TOTAL U.S. GOVERNMENT OBLIGATIONS (COST $59,381,375) 64,554,928 ------------ SHORT-TERM INVESTMENTS 3.1% REPURCHASE AGREEMENT 3.1% 2,078,000 Repurchase Agreement dated 9/30/2003, 0.50% due 10/1/2003 with State Street Bank and Trust Co. collateralized by $1,450,000 of United States Treasury Bonds 8.75% due 8/15/2020; value: $2,122,438; proceeds: $2,078,029 (cost $2,078,000) 2,078,000 ------------ TOTAL SHORT-TERM INVESTMENTS (COST $2,078,000) 2,078,000 ------------ TOTAL INVESTMENTS (COST $61,459,375) 99.3% 66,632,928 OTHER ASSETS LESS LIABILITIES 0.7% 500,892 ------------ NET ASSETS 100.0% $ 67,133,820 ============ See notes to financial statements. Annual Report 71 WASATCH FUNDS-STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2003 CORE GLOBAL SCIENCE INTERNATIONAL GROWTH & TECHNOLOGY GROWTH FUND FUND FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- ASSETS: Investments, at cost Nonaffiliated issuers $ 1,023,067,064 $ 38,512,501 $ 32,385,447 Affiliated issuers 29,061,440 -- -- Repurchase agreements 99,377,000 10,216,000 5,430,000 ---------------- ---------------- ---------------- $ 1,151,505,504 $ 48,728,501 $ 37,815,447 ================ ================ ================ Investments, at value Nonaffiliated issuers $ 1,198,813,307 $ 41,481,689 $ 39,735,210 Affiliated issuers 28,339,731 -- -- Repurchase agreements 99,377,000 10,216,000 5,430,000 Cash 5,842 995 578 Foreign currency on deposit (cost of $0, $0 and $74,353, respectively) -- -- 74,406 Receivable for investment securities sold 4,399,164 4,537,691 -- Receivable from broker for securities sold short -- 576,125 -- Capital shares receivable 839,792 269,941 219,416 Interest and dividends receivable 1,201,867 10,575 15,787 Unrealized appreciation on foreign currency contracts -- -- 2,685 Prepaid expenses and other assets 18,403 8,221 9,035 ---------------- ---------------- ---------------- Total Assets 1,332,995,106 57,101,237 45,487,117 ---------------- ---------------- ---------------- LIABILITIES: Call options written, at value (premiums of $457,965, $0 and $0, respectively) 255,000 -- -- Securities sold short, at value (proceeds of $0, $572,836 and $0, respectively) -- 567,911 -- Payable for securities purchased 11,240,190 4,795,241 915,139 Capital shares payable 1,633,820 129,813 5,158 Payable to Advisor 1,111,669 49,608 52,831 Unrealized depreciation on foreign currency contracts -- -- 415 Accrued expenses 413,014 41,596 31,705 ---------------- ---------------- ---------------- Total Liabilities 14,653,693 5,584,169 1,005,248 ---------------- ---------------- ---------------- NET ASSETS $ 1,318,341,413 $ 51,517,068 $ 44,481,869 ================ ================ ================ NET ASSETS CONSIST OF: Capital stock $ 393,085 $ 48,010 $ 36,870 Paid-in capital in excess of par 1,228,280,777 50,616,759 38,600,936 Undistributed net investment loss -- (632) (2,271) Undistributed net realized loss on investments and foreign currency translations (85,561,585) (2,121,182) (1,502,967) Net unrealized appreciation on investments and foreign currency translations 175,229,136 2,974,113 7,349,301 ---------------- ---------------- ---------------- Net Assets $ 1,318,341,413 $ 51,517,068 $ 44,481,869 ================ ================ ================ CAPITAL STOCK, $.01 PAR VALUE: Authorized 10,000,000,000 10,000,000,000 10,000,000,000 Issued and outstanding 39,308,535 4,801,013 3,686,985 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $ 33.54 $ 10.73 $ 12.06 ================ ================ ================ See notes to financial statements. Annual Report 72 & 73 WASATCH FUNDS-STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2003 MICRO MICRO CAP SMALL CAP CAP VALUE GROWTH FUND FUND FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- ASSETS: Investments, at cost Nonaffiliated issuers $ 298,378,771 $ 65,596,532 $ 853,750,434 Affiliated issuers 22,084,213 -- 17,917,476 Repurchase agreements 64,639,000 2,663,000 91,009,000 ---------------- ---------------- ---------------- $ 385,101,984 $ 68,259,532 $ 962,676,910 ================ ================ ================ Investments, at value Nonaffiliated issuers $ 440,505,861 $ 68,815,721 $ 1,007,469,120 Affiliated issuers 14,802,176 -- 33,374,630 Repurchase agreements 64,639,000 2,663,000 91,009,000 Cash 358,030 836,146 666 Receivable for investment securities sold 105,529 150,605 6,609,837 Capital shares receivable 7,354 -- 2,543,092 Interest and dividends receivable 51,986 2,537 258,835 Prepaid expenses and other assets 13,299 16,272 16,191 ---------------- ---------------- ---------------- Total Assets 520,483,235 72,484,281 1,141,281,371 ---------------- ---------------- ---------------- LIABILITIES: Payable for securities purchased 2,025,259 1,591,597 4,573,524 Capital shares payable 253,176 45,950 976,953 Payable to Advisor 877,326 96,661 974,336 Accrued expenses 148,326 44,095 358,642 ---------------- ---------------- ---------------- Total Liabilities 3,304,087 1,778,303 6,883,455 ---------------- ---------------- ---------------- NET ASSETS $ 517,179,148 $ 70,705,978 $ 1,134,397,916 ================ ================ ================ NET ASSETS CONSIST OF: Capital stock $ 741,247 $ 337,657 $ 349,759 Paid-in capital in excess of par 340,120,581 67,171,029 962,708,793 Undistributed net investment loss -- (21,897) -- Undistributed net realized gain on investments and foreign currency translations 41,472,267 -- 2,163,524 Net unrealized appreciation on investments and foreign currency translations 134,845,053 3,219,189 169,175,840 ---------------- ---------------- ---------------- Net Assets $ 517,179,148 $ 70,705,978 $ 1,134,397,916 ================ ================ ================ CAPITAL STOCK, $.01 PAR VALUE: Authorized 10,000,000,000 10,000,000,000 10,000,000,000 Issued and outstanding 74,124,707 33,765,664 34,975,903 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $ 6.98 $ 2.09 $ 32.43 ================ ================ ================ See notes to financial statements. Annual Report 74 & 75 WASATCH FUNDS-STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2003 SMALL CAP ULTRA U.S. VALUE GROWTH TREASURY FUND FUND FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- ASSETS: Investments, at cost Nonaffiliated issuers $ 482,711,669 $ 417,872,204 $ 59,381,375 Affiliated issuers 25,241,454 -- -- Repurchase agreements 35,351,000 58,185,000 2,078,000 ---------------- ---------------- ---------------- $ 543,304,123 $ 476,057,204 $ 61,459,375 ================ ================ ================ Investments, at value Nonaffiliated issuers $ 588,013,486 $ 488,406,740 $ 64,554,928 Affiliated issuers 28,650,595 -- -- Repurchase agreements 35,351,000 58,185,000 2,078,000 Cash 579 678 829 Receivable for investment securities sold 57,781,361 1,784,634 -- Receivable from broker for securities sold short 910,479 -- -- Capital shares receivable 376,517 121,651 61,519 Interest and dividends receivable 900,749 102,363 588,955 Prepaid expenses and other assets 19,333 14,717 10,039 ---------------- ---------------- ---------------- Total Assets 712,004,099 548,615,783 67,294,270 ---------------- ---------------- ---------------- LIABILITIES: Securities sold short, at value (proceeds of $838,487, $0 and $0, respectively) 1,360,000 -- -- Payable for securities purchased 57,795,635 8,423,400 -- Capital shares payable 542,281 462,783 108,711 Payable to Advisor 823,124 584,714 11,204 Accrued expenses 222,204 205,580 40,535 ---------------- ---------------- ---------------- Total Liabilities 60,743,244 9,676,477 160,450 ---------------- ---------------- ---------------- NET ASSETS $ 651,260,855 $ 538,939,306 $ 67,133,820 ================ ================ ================ NET ASSETS CONSIST OF: Capital stock $ 1,410,919 $ 211,923 $ 49,059 Paid-in capital in excess of par 541,516,075 470,772,585 66,555,520 Undistributed net investment income -- -- 2,503,722 Undistributed net realized gain (loss) on investments and foreign currency translations 144,416 (2,579,738) (7,148,034) Net unrealized appreciation on investments and foreign currency translations 108,189,445 70,534,536 5,173,553 ---------------- ---------------- ---------------- Net Assets $ 651,260,855 $ 538,939,306 $ 67,133,820 ================ ================ ================ CAPITAL STOCK, $.01 PAR VALUE: Authorized 10,000,000,000 10,000,000,000 10,000,000,000 Issued and outstanding 141,091,873 21,192,307 4,905,941 NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $ 4.62 $ 25.43 $ 13.68 ================ ================ ================ See notes to financial statements. Annual Report 76 & 77 WASATCH FUNDS-STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2003 CORE GLOBAL SCIENCE INTERNATIONAL GROWTH & TECHNOLOGY GROWTH FUND FUND FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- INVESTMENT INCOME: Interest $ 360,721 $ 20,790 $ 15,688 Dividends(1) 13,300,701 4,884 170,143 ---------------- ---------------- ---------------- 13,661,422 25,674 185,831 ---------------- ---------------- ---------------- EXPENSES: Investment advisory fee 11,125,512 491,000 335,475 Shareholder servicing fees 1,411,335 80,670 51,863 Fund administration and accounting fees 860,152 56,061 37,930 Reports to shareholders 243,860 17,101 10,447 Custody fees 51,703 6,823 32,212 Federal and state registration fees 63,853 18,168 19,516 Legal fees 79,777 4,695 2,678 Directors' fees 28,500 755 533 Audit fees 18,042 18,042 17,958 Other 51,643 3,209 5,050 ---------------- ---------------- ---------------- Total expenses before reimbursement 13,934,377 696,524 513,662 Reimbursement of expenses by Advisor -- (56,945) (76,716) Waiver of administration fees by Advisor (33,826) (975) (632) Waiver of fees by Accounting Agent (10,538) (304) (197) ---------------- ---------------- ---------------- Net expenses 13,890,013 638,300 436,117 ---------------- ---------------- ---------------- NET INVESTMENT LOSS (228,591) (612,626) (250,286) ---------------- ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on investments+ (76,727,660) 82,567 (1,299,298) Net realized gain on short positions -- 11,415 -- Change in unrealized appreciation (depreciation) on investments and foreign currency translations 385,705,494 15,374,035 9,025,174 ---------------- ---------------- ---------------- Net gain on investments 308,977,834 15,468,017 7,725,876 ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 308,749,243 $ 14,855,391 $ 7,475,590 ================ ================ ================ (1) Net of $4,265, $2,731 and $20,097 in foreign withholding taxes, respectively. + See Note 9 for information on affiliated issuers. See notes to financial statements. Annual Report 78 & 79 WASATCH FUNDS-STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2003 MICRO MICRO CAP SMALL CAP CAP VALUE GROWTH FUND FUND* FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- INVESTMENT INCOME: Interest $ 130,750 $ 36,669 $ 398,840 Dividends(1) 340,136 28,225 1,218,047 ---------------- ---------------- ---------------- 470,886 64,894 1,616,887 ---------------- ---------------- ---------------- EXPENSES: Investment advisory fee 8,189,431 242,914 9,031,886 Shareholder servicing fees 406,806 30,397 1,129,605 Fund administration and accounting fees 384,866 5,659 718,068 Reports to shareholders 66,832 7,978 221,382 Custody fees 41,716 1,188 64,496 Federal and state registration fees 39,498 21,151 59,977 Legal fees 28,648 12,500 62,206 Directors' fees 9,989 275 22,066 Audit fees 18,042 9,500 18,042 Other 18,144 527 39,398 ---------------- ---------------- ---------------- Total expenses before reimbursement 9,203,972 332,089 11,367,126 Reimbursement of expenses by Advisor -- (28,446) -- Waiver of administration fees by Advisor (12,593) -- (28,005) Waiver of fees by Accounting Agent (3,923) -- (8,724) ---------------- ---------------- ---------------- Net expenses 9,187,456 303,643 11,330,397 ---------------- ---------------- ---------------- NET INVESTMENT LOSS (8,716,570) (238,749) (9,713,510) ---------------- ---------------- ---------------- REALIZED AND UNREALIZED GAIN: Net realized gain on investments+ 51,800,078 192,165 16,297,720 Change in unrealized appreciation (depreciation) on investments and foreign currency translations 120,439,212 3,219,189 268,022,826 ---------------- ---------------- ---------------- Net gain on investments 172,239,290 3,411,354 284,320,546 ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 163,522,720 $ 3,172,605 $ 274,607,036 ================ ================ ================ *Inception date of the Fund was July 28, 2003. (1)Net of $12,081, $5,459 and $10,080 in foreign withholding taxes, respectively. +See Note 9 for information on affiliated issuers. See notes to financial statements. Annual Report 80 & 81 WASATCH FUNDS-STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2003 SMALL CAP ULTRA U.S. VALUE GROWTH TREASURY FUND FUND FUND - -------------------------------------------------------------- ---------------- ---------------- ---------------- INVESTMENT INCOME: Interest $ 149,450 $ 223,151 $ 4,029,805 Dividends(1) 6,762,687 83,166 -- ---------------- ---------------- ---------------- 6,912,137 306,317 4,029,805 ---------------- ---------------- ---------------- EXPENSES: Investment advisory fee 7,660,092 5,146,266 371,961 Shareholder servicing fees 687,919 628,133 111,629 Fund administration and accounting fees 458,517 383,757 111,394 Reports to shareholders 155,964 165,182 16,025 Custody fees 35,229 27,062 6,020 Federal and state registration fees 49,252 57,164 25,671 Legal fees 36,477 31,750 7,042 Directors' fees 12,205 9,728 2,146 Audit fees 18,043 18,042 17,813 Other 22,472 18,645 5,308 ---------------- ---------------- ---------------- Total expenses before reimbursement 9,136,170 6,485,729 675,009 Reimbursement of expenses by Advisor -- -- (114,198) Waiver of administration fees by Advisor (16,068) (12,526) (2,193) Waiver of fees by Accounting Agent (5,005) (3,902) (683) ---------------- ---------------- ---------------- Net expenses 9,115,097 6,469,301 557,935 ---------------- ---------------- ---------------- NET INVESTMENT INCOME (LOSS) (2,202,960) (6,162,984) 3,471,870 ---------------- ---------------- ---------------- REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain on investments+ 1,455,467 7,732,983 628,994 Net realized gain on options written 304,716 -- -- Net realized gain on short positions -- 113,726 -- Change in unrealized appreciation (depreciation) on investments and foreign currency translations 189,122,055 161,519,635 (3,356,730) ---------------- ---------------- ---------------- Net gain (loss) on investments 190,882,238 169,366,344 (2,727,736) ---------------- ---------------- ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 188,679,278 $ 163,203,360 $ 744,134 ================ ================ ================ (1) Net of $7,945, $13,041 and $0 in foreign withholding taxes, respectively. +See Note 9 for information on affiliated issuers. See notes to financial statements. Annual Report 82 & 83 WASATCH FUNDS-STATEMENTS OF CHANGES IN NET ASSETS CORE GROWTH FUND YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 - ----------------------------------------- ------------------ ------------------ OPERATIONS: Net investment loss $ (228,591) $ (247,355) Net realized gain (loss) on investments (76,727,660) 9,783,089 Net realized gain on short positions -- -- Change in unrealized appreciation (depreciation) on investments 385,705,494 (256,247,684) ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 308,749,243 (246,711,950) DIVIDENDS PAID FROM: Net realized gains -- (69,235,847) ------------------ ------------------ -- (69,235,847) CAPITAL SHARE TRANSACTIONS: Shares sold 294,903,790 869,576,985 Shares issued to holders in reinvestment of dividends -- 65,814,411 Shares redeemed (348,335,931) (549,711,813) Redemption fees 79,906 277,880 ------------------ ------------------ Net increase (decrease) (53,352,235) 385,957,463 ------------------ ------------------ TOTAL INCREASE IN NET ASSETS 255,397,008 70,009,666 NET ASSETS: Beginning of period 1,062,944,405 992,934,739 ------------------ ------------------ End of period $ 1,318,341,413 $ 1,062,944,405 ================== ================== Undistributed net investment loss included in net assets at end of period -- -- ================== ================== GLOBAL SCIENCE & TECHNOLOGY FUND INTERNATIONAL GROWTH FUND YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002* - ----------------------------------------- ------------------ ------------------ ------------------ ------------------ OPERATIONS: Net investment loss $ (612,626) $ (499,821) $ (250,286) $ (56,572) Net realized gain (loss) on investments 82,567 (1,990,071) (1,299,298) (205,925) Net realized gain on short positions 11,415 -- -- -- Change in unrealized appreciation (depreciation) on investments 15,374,035 (8,949,752) 9,025,174 (1,675,873) ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 14,855,391 (11,439,644) 7,475,590 (1,938,370) DIVIDENDS PAID FROM: Net realized gains -- (250,799) -- -- ------------------ ------------------ ------------------ ------------------ -- (250,799) -- -- CAPITAL SHARE TRANSACTIONS: Shares sold 31,899,054 48,305,025 29,443,047 22,263,074 Shares issued to holders in reinvestment of dividends -- 246,587 -- -- Shares redeemed (16,089,720) (26,786,154) (10,538,025) (2,256,827) Redemption fees 41,099 87,841 13,571 19,799 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) 15,850,433 21,853,299 18,918,593 20,026,046 ------------------ ------------------ ------------------ ------------------ TOTAL INCREASE IN NET ASSETS 30,705,824 10,162,856 26,394,183 18,087,676 NET ASSETS: Beginning of period 20,811,244 10,648,388 18,087,686 10 ------------------ ------------------ ------------------ ------------------ End of period $ 51,517,068 $ 20,811,244 $ 44,481,869 $ 18,087,686 ================== ================== ================== ================== Undistributed net investment loss included in net assets at end of period $ (632) -- $ (2,271) -- ================== ================== ================== ================== *Inception date of the Fund was June 28, 2002. See notes to financial statements. Annual Report 84 & 85 WASATCH FUNDS-STATEMENTS OF CHANGES IN NET ASSETS MICRO CAP FUND YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 - ----------------------------------------- ------------------ ------------------ OPERATIONS: Net investment loss $ (8,716,570) $ (9,333,660) Net realized gain (loss) on investments 51,800,078 40,208,415 Change in unrealized appreciation (depreciation) on investments 120,439,212 (36,785,111) ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 163,522,720 (5,910,356) DIVIDENDS PAID FROM: Net realized gains (22,295,887) (35,303,570) ------------------ ------------------ (22,295,887) (35,303,570) CAPITAL SHARE TRANSACTIONS: Shares sold 97,787,052 110,625,684 Shares issued to holders in reinvestment of dividends 21,092,296 33,474,821 Shares redeemed (70,506,908) (98,909,527) Redemption fees 32,043 31,055 ------------------ ------------------ Net increase 48,404,483 45,222,033 ------------------ ------------------ TOTAL INCREASE IN NET ASSETS 189,631,316 4,008,107 NET ASSETS: Beginning of period 327,547,832 323,539,725 ------------------ ------------------ End of period $ 517,179,148 $ 327,547,832 ================== ================== Undistributed net investment loss included in net assets at end of period -- -- ================== ================== MICRO CAP VALUE FUND SMALL CAP GROWTH FUND PERIOD ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003* SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 - ----------------------------------------- -------------------- ------------------ ------------------ OPERATIONS: Net investment loss $ (238,749) $ (9,713,510) $ (10,771,290) Net realized gain (loss) on investments 192,165 16,297,720 (4,423,588) Change in unrealized appreciation (depreciation) on investments 3,219,189 268,022,826 (101,070,863) -------------------- ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 3,172,605 274,607,036 (116,265,741) DIVIDENDS PAID FROM: Net realized gains -- (34,010) (9,829,740) -------------------- ------------------ ------------------ -- (34,010) (9,829,740) CAPITAL SHARE TRANSACTIONS: Shares sold 67,827,227 305,478,301 528,078,202 Shares issued to holders in reinvestment of dividends -- 32,547 9,359,244 Shares redeemed (294,977) (181,150,831) (229,454,786) Redemption fees 1,123 48,034 113,378 -------------------- ------------------ ------------------ Net increase 67,533,373 124,408,051 308,096,038 -------------------- ------------------ ------------------ TOTAL INCREASE IN NET ASSETS 70,705,978 398,981,077 182,000,557 NET ASSETS: Beginning of period -- 735,416,839 553,416,282 -------------------- ------------------ ------------------ End of period $ 70,705,978 $ 1,134,397,916 $ 735,416,839 ==================== ================== ================== Undistributed net investment loss included in net assets at end of period $ (21,897) -- -- ==================== ================== ================== *Inception date of the Fund was July 28, 2003. See notes to financial statements. Annual Report 86 & 87 WASATCH FUNDS-STATEMENTS OF CHANGES IN NET ASSETS SMALL CAP VALUE FUND YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 - ----------------------------------------- ------------------ ------------------ OPERATIONS: Net investment income (loss) $ (2,202,960) $ (2,663,791) Net realized gain (loss) on investments 1,455,467 (1,360,956) Net realized gain on options written 304,716 -- Net realized gain on short positions -- -- Change in unrealized appreciation (depreciation) on investments 189,122,055 (78,709,569) ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 188,679,278 (82,734,316) DIVIDENDS PAID FROM: Net investment income -- -- Net realized gains -- (12,959,896) ------------------ ------------------ -- (12,959,896) CAPITAL SHARE TRANSACTIONS: Shares sold 192,079,847 305,503,553 Shares issued to holders in reinvestment of dividends -- 12,179,592 Shares redeemed (157,672,444) (281,090,835) Redemption fees 91,867 89,200 ------------------ ------------------ Net increase (decrease) 34,499,270 36,681,510 ------------------ ------------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 223,178,548 (59,012,702) NET ASSETS: Beginning of period 428,082,307 487,095,009 ------------------ ------------------ End of period $ 651,260,855 $ 428,082,307 ================== ================== Undistributed net investment income included in net assets at end of period -- -- ================== ================== ULTRA GROWTH FUND U.S. TREASURY FUND YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 SEPTEMBER 30, 2003 SEPTEMBER 30, 2002 - ----------------------------------------- ------------------ ------------------ ------------------ ------------------ OPERATIONS: Net investment income (loss) $ (6,162,984) $ (4,133,844) $ 3,471,870 $ 3,396,742 Net realized gain (loss) on investments 7,732,983 (2,784,246) 628,994 (404,110) Net realized gain on options written -- -- -- -- Net realized gain on short positions 113,726 -- -- -- Change in unrealized appreciation (depreciation) on investments 161,519,635 (81,358,019) (3,356,730) 6,246,564 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) in net assets resulting from operations 163,203,360 (88,276,109) 744,134 9,239,196 DIVIDENDS PAID FROM: Net investment income -- -- (3,484,505) (3,600,125) Net realized gains -- (4,518,749) -- -- ------------------ ------------------ ------------------ ------------------ -- (4,518,749) (3,484,505) (3,600,125) CAPITAL SHARE TRANSACTIONS: Shares sold 221,989,430 397,328,346 47,192,794 45,591,240 Shares issued to holders in reinvestment of dividends -- 4,240,123 3,362,861 3,477,679 Shares redeemed (123,834,632) (117,780,106) (64,698,707) (37,089,979) Redemption fees 177,068 313,641 138,699 65,965 ------------------ ------------------ ------------------ ------------------ Net increase (decrease) 98,331,866 284,102,004 (14,004,353) 12,044,905 ------------------ ------------------ ------------------ ------------------ TOTAL INCREASE (DECREASE) IN NET ASSETS 261,535,226 191,307,146 (16,744,724) 17,683,976 NET ASSETS: Beginning of period 277,404,080 86,096,934 83,878,544 66,194,568 ------------------ ------------------ ------------------ ------------------ End of period $ 538,939,306 $ 277,404,080 $ 67,133,820 $ 83,878,544 ================== ================== ================== ================== Undistributed net investment income included in net assets at end of period -- -- $ 2,503,722 $ 2,516,357 ================== ================== ================== ================== See notes to financial statements. Annual Report 88 & 89 CORE GROWTH FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 25.46 $ 31.57 $ 28.08 $ 20.62 $ 17.00 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.01) (0.01) (0.15) (0.18) (0.21) Net realized and unrealized gains (losses) on securities(1) 8.09 (3.96) 5.96 8.12 4.55 ----------- ----------- --------- --------- --------- TOTAL FROM INVESTMENT OPERATIONS 8.08 (3.97) 5.81 7.94 4.34 LESS DISTRIBUTIONS: Distributions from net realized gains -- (2.14) (2.32) (0.48) (0.72) ----------- ----------- --------- --------- --------- TOTAL DISTRIBUTIONS -- (2.14) (2.32) (0.48) (0.72) ----------- ----------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 33.54 $ 25.46 $ 31.57 $ 28.08 $ 20.62 =========== =========== ========= ========= ========= TOTAL RETURN 31.68% (13.73)% 22.63% 39.50% 27.28% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 1,318,341 $ 1,062,944 $ 992,935 $ 290,705 $ 173,118 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.25% 1.29% 1.32% 1.38% 1.44% Expenses, before waivers and reimbursements 1.25% 1.29% 1.32% 1.38% 1.44% Net investment loss, net of waivers and reimbursements (0.02)% (0.02)% (0.66)% (0.86)% (1.07)% Net investment loss, before waivers and reimbursements (0.02)% (0.02)% (0.66)% (0.86)% (1.07)% Portfolio turnover rate 47% 76% 51% 75% 79% (1) For 2002 and 2001, includes $0.01 and $0.01 in redemption fees, respectively (see Note 2). See notes to financial statements. 90 Annual Report GLOBAL SCIENCE & TECHNOLOGY FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001(1) ---- ---- ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 6.38 $ 8.02 $ 10.00 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.13) (0.15) (0.07) Net realized and unrealized gains (losses) on securities+ 4.48 (1.31) (1.91) -------- ---------- ---------- TOTAL FROM INVESTMENT OPERATIONS 4.35 (1.46) (1.98) LESS DISTRIBUTIONS: Distributions from net realized gains -- (0.18) -- -------- ---------- ---------- TOTAL DISTRIBUTIONS -- (0.18) -- -------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 10.73 $ 6.38 $ 8.02 ======== ========== ========== TOTAL RETURN(2) 68.34% (18.83)% (19.80)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 51,517 $ 20,811 $ 10,648 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.95% 1.95% 1.95%(3) Expenses, before waivers and reimbursements 2.13% 2.42% 3.58%(3) Net investment loss, net of waivers and reimbursements (1.87)% (1.90)% (1.50)%(3) Net investment loss, before waivers and reimbursements (2.05)% (2.37)% (3.13)%(3) Portfolio turnover rate(2) 88% 95% 94% + For 2003, 2002 and 2001, includes $0.01, $0.03 and $0.02 in redemption fees, respectively (see Note 2). (1)Inception date of the Fund was December 19, 2000. (2)Not annualized for periods less than a year. (3)Annualized. See notes to financial statements. Annual Report 91 INTERNATIONAL GROWTH FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002(1) ---- ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 10.00 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.07) (0.03) Net realized and unrealized gains (losses) on securities+ 3.28 (1.12) -------- ---------- TOTAL FROM INVESTMENT OPERATIONS 3.21 (1.15) LESS DISTRIBUTIONS: Distributions from net realized gains -- -- -------- ---------- TOTAL DISTRIBUTIONS -- -- -------- ---------- NET ASSET VALUE, END OF PERIOD $ 12.06 $ 8.85 ======== ========== TOTAL RETURN(2) 36.27% (11.50)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 44,482 $ 18,088 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.95% 1.95%(3) Expenses, before waivers and reimbursements 2.30% 4.26%(3) Net investment loss, net of waivers and reimbursements (1.12)% (1.39)%(3) Net investment loss, before waivers and reimbursements (1.47)% (3.70)%(3) Portfolio turnover rate(2) 62% 3% + For 2002, includes $0.01 in redemption fees (see Note 2). (1)Inception date of the Fund was June 28, 2002. (2)Not annualized for periods less than a year. (3)Annualized. See notes to financial statements. 92 Annual Report MICRO CAP FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 5.01 $ 5.64 $ 6.53 $ 4.41 $ 3.59 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.12) (0.14) (0.08) (0.09) (0.09) Net realized and unrealized gains on securities 2.43 0.11 0.74 2.63 1.27 -------- -------- ---------- ---------- --------- TOTAL FROM INVESTMENT OPERATIONS 2.31 (0.03) 0.66 2.54 1.18 LESS DISTRIBUTIONS: Distributions from net realized gains (0.34) (0.60) (1.55) (0.42) (0.36) -------- -------- ---------- ---------- --------- TOTAL DISTRIBUTIONS (0.34) (0.60) (1.55) (0.42) (0.36) -------- -------- ---------- ---------- --------- NET ASSET VALUE, END OF PERIOD $ 6.98 $ 5.01 $ 5.64 $ 6.53 $ 4.41 ======== ======== ========== ========== ========= TOTAL RETURN 50.28% (1.41)% 16.32% 63.88% 37.73% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $517,179 $327,548 $ 323,540 $ 244,444 $ 144,875 Ratio to average net assets of: Expenses, net of waivers and reimbursements 2.24% 2.28% 2.32% 2.38% 2.46% Expenses, before waivers and reimbursements 2.24% 2.28% 2.32% 2.38% 2.46% Net investment loss, net of waivers and reimbursements (2.13)% (2.21)% (1.76)% (1.76)% (2.22)% Net investment loss, before waivers and reimbursements (2.13)% (2.21)% (1.76)% (1.76)% (2.22)% Portfolio turnover rate 50% 62% 58% 69% 57% See notes to financial statements. Annual Report 93 MICRO CAP VALUE FUND-FINANCIAL HIGHLIGHTS PERIOD ENDED SEPTEMBER 30 2003(1) ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 2.00 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.01) Net realized and unrealized gains on securities 0.10 ---------- TOTAL FROM INVESTMENT OPERATIONS 0.09 LESS DISTRIBUTIONS: Distributions from net realized gains -- ---------- TOTAL DISTRIBUTIONS -- ---------- NET ASSET VALUE, END OF PERIOD $ 2.09 ========== TOTAL RETURN(2) 4.50% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 70,706 Ratio to average net assets of: Expenses, net of waivers and reimbursements(3) 2.50% Expenses, before waivers and reimbursements(3) 2.73% Net investment loss, net of waivers and reimbursements(3) (1.97)% Net investment loss, before waivers and reimbursements(3) (2.20)% Portfolio turnover rate(2) 4% (1)Inception date of the Fund was July 28, 2003. (2)Not annualized for periods less than a year. (3)Annualized. See notes to financial statements. 94 Annual Report SMALL CAP GROWTH FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 23.83 $ 26.18 $ 34.89 $ 26.01 $ 20.79 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.28) (0.35) (0.15) (0.23) (0.20) Net realized and unrealized gains (losses) on securities+ 8.88 (1.55) (2.71) 11.82 8.49 ----------- ----------- ----------- ----------- ----------- TOTAL FROM INVESTMENT OPERATIONS 8.60 (1.90) (2.86) 11.59 8.29 LESS DISTRIBUTIONS: Distributions from net realized gains --(1) (0.45) (5.85) (2.71) (3.07) ----------- ----------- ----------- ----------- ----------- TOTAL DISTRIBUTIONS -- (0.45) (5.85) (2.71) (3.07) ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE, END OF PERIOD $ 32.43 $ 23.83 $ 26.18 $ 34.89 $ 26.01 =========== =========== =========== =========== =========== TOTAL RETURN 36.15% (7.53)% (8.61)% 49.63% 48.96% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 1,134,398 $ 735,417 $ 553,416 $ 237,812 $ 145,915 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.25% 1.31% 1.36% 1.38% 1.44% Expenses, before waivers and reimbursements 1.25% 1.31% 1.36% 1.38% 1.44% Net investment loss, net of waivers and reimbursements (1.08)% (1.25)% (0.83)% (0.84)% (0.79)% Net investment loss, before waivers and reimbursements (1.08)% (1.25)% (0.83)% (0.84)% (0.79)% Portfolio turnover rate 63% 51% 40% 72% 46% +For 2001, includes $0.02 in redemption fees (see Note 2). (1)Less than $0.005. See notes to financial statements. Annual Report 95 SMALL CAP VALUE FUND-FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 3.21 $ 3.76 $ 3.51 $ 2.43 $ 1.80 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.02) (0.02) -- (0.02) (0.04) Net realized and unrealized gains (losses) on securities 1.43 (0.43) 0.56 1.19 0.67 --------- --------- --------- --------- --------- TOTAL FROM INVESTMENT OPERATIONS 1.41 (0.45) 0.56 1.17 0.63 LESS DISTRIBUTIONS: Distributions from net realized gains -- (0.10) (0.31) (0.09) -- --------- --------- --------- --------- --------- TOTAL DISTRIBUTIONS -- (0.10) (0.31) (0.09) -- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD $ 4.62 $ 3.21 $ 3.76 $ 3.51 $ 2.43 ========= ========= ========= ========= ========= TOTAL RETURN 43.93% (12.35)% 18.04% 49.94% 35.00% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 651,261 $ 428,082 $ 487,095 $ 46,470 $ 16,770 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.78% 1.81% 1.92% 1.95% 1.95% Expenses, before waivers and reimbursements 1.78% 1.81% 1.92% 2.09% 2.18% Net investment loss, net of waivers and reimbursements (0.43)% (0.44)% (0.31)% (1.02)% (1.54)% Net investment loss, before waivers and reimbursements (0.43)% (0.44)% (0.31)% (1.16)% (1.77)% Portfolio turnover rate 69% 69% 41% 67% 106% See notes to financial statements. 96 Annual Report ULTRA GROWTH FUND - FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 16.52 $ 19.15 $ 27.17 $ 20.02 $ 15.10 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss (0.29) (0.25) (0.21) (0.25) (0.34) Net realized and unrealized gains (losses) on securities+ 9.20 (1.46) (2.42) 8.87 6.00 ---------- ---------- ---------- ---------- ---------- TOTAL FROM INVESTMENT OPERATIONS 8.91 (1.71) (2.63) 8.62 5.66 LESS DISTRIBUTIONS: Distributions from net realized gains -- (0.92) (5.39) (1.47) (0.74) ---------- ---------- ---------- ---------- ---------- TOTAL DISTRIBUTIONS -- (0.92) (5.39) (1.47) (0.74) ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 25.43 $ 16.52 $ 19.15 $ 27.17 $ 20.02 ========== ========== ========== ========== ========== TOTAL RETURN 53.93% (9.74)% (10.89)% 46.66% 39.86% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 538,939 $ 277,404 $ 86,097 $ 56,282 $ 41,205 Ratio to average net assets of: Expenses, net of waivers and reimbursements 1.57% 1.71% 1.75% 1.75% 1.75% Expenses, before waivers and reimbursements 1.57% 1.71% 1.79% 1.82% 1.78% Net investment loss, net of waivers and reimbursements (1.50)% (1.67)% (1.39)% (1.19)% (1.49)% Net investment loss, before waivers and reimbursements (1.50)% (1.67)% (1.43)% (1.26)% (1.52)% Portfolio turnover rate 76% 78% 123% 135% 77% +For 2003, 2002 and 2001, includes $0.01, $0.02 and $0.07 in redemption fees, respectively (see Note 2). See notes to financial statements. Annual Report 97 U.S. TREASURY FUND - FINANCIAL HIGHLIGHTS YEAR ENDED SEPTEMBER 30 2003 2002 2001 2000 1999 ---- ---- ---- ---- ---- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.04 $ 12.97 $ 12.00 $ 11.68 $ 13.42 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.72 0.66 0.65 0.66 0.61 Net realized and unrealized gains (losses) on securities+ (0.45) 1.18 0.88 0.39 (2.01) ---------- ---------- ---------- ---------- ---------- TOTAL FROM INVESTMENT OPERATIONS 0.27 1.84 1.53 1.05 (1.40) LESS DISTRIBUTIONS: Dividends from net investment income (0.63) (0.77) (0.56) (0.73) (0.28) Distributions from net realized gains -- -- -- -- (0.06) ---------- ---------- ---------- ---------- ---------- TOTAL DISTRIBUTIONS (0.63) (0.77) (0.56) (0.73) (0.34) ---------- ---------- ---------- ---------- ---------- NET ASSET VALUE, END OF PERIOD $ 13.68 $ 14.04 $ 12.97 $ 12.00 $ 11.68 ========== ========== ========== ========== ========== TOTAL RETURN 2.17% 15.38% 12.89% 9.84% (10.65)% SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period (in thousands) $ 67,134 $ 83,879 $ 66,195 $ 58,198 $ 76,999 Ratio to average net assets of: Expenses, net of waivers and reimbursements 0.75% 0.75% 0.75% 0.75% 0.75% Expenses, before waivers and reimbursements 0.91% 0.98% 0.95% 0.97% 0.95% Net investment income, net of waivers and reimbursements 4.67% 5.51% 5.34% 5.35% 4.96% Net investment income, before waivers and reimbursements 4.51% 5.28% 5.14% 5.13% 4.76% Portfolio turnover rate 37% 22% 41% 16% 39% +For 2003, 2002 and 2001, includes $0.03, $0.01 and $0.01 in redemption fees, respectively (see Note 2). See notes to financial statements. 98 Annual Report WASATCH FUNDS - NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 1. ORGANIZATION Wasatch Funds, Inc. (the "Funds") is an open-end, registered management investment company under the Investment Company Act of 1940. The Core Growth, Global Science & Technology (formerly Global Technology), International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value and Ultra Growth Funds (collectively the "Equity Funds") are non-diversified portfolios and the Wasatch-Hoisington U.S. Treasury ("U.S. Treasury") Fund is a diversified portfolio of Wasatch Funds. Each of the Funds maintains its own investment objective. The Funds have entered into an investment advisory agreement with Wasatch Advisors, Inc. (the "Advisor") as investment advisor. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The following is a summary of the more significant of such policies. VALUATION OF SECURITIES-Securities are valued as of the close of the New York Stock Exchange (generally 3:00 p.m. Central Time) on the valuation date. Equity securities are valued at the latest quoted sales price or official closing price taken from the primary market in which each security trades. Securities for which there were no transactions are valued at the closing bid price. Debt securities (other than short-term instruments) are valued at current market value by a commercial pricing service, or by using the last sale or bid price. Short-term securities, which mature in 60 days or less, are valued at amortized cost, which approximates market value. Fair value is determined by a designated Pricing Committee under the supervision of the Board of Directors, in accordance with pricing procedures approved by the Board for restricted securities, private placements and other illiquid securities, and other securities for which market value quotations are not readily available or when events or circumstances are identified that may affect the value of securities between the closing of their principal market and the time the Funds' securities are valued. FOREIGN CURRENCY TRANSLATIONS-Values of investments denominated in foreign currencies are converted into U.S. dollars using the current exchange rate. Purchases and sales of investments and dividend income are translated into U.S. dollars using the current exchange rate prevailing on the respective dates of such transactions. The effect of changes in foreign exchange rates on realized and unrealized security gains or losses is reflected as a component of such gains or losses. Foreign denominated assets may involve greater risks than domestic transactions, including currency, political and economic, regulatory and market risks. INVESTMENT IN SECURITIES-Security transactions are accounted for on the trade date. Gains or losses on securities sold are determined on the identified cost basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income is recorded on the accrual basis. SHORT SALES-To a limited extent, the Equity Funds may make short sales of securities. A short sale means a Fund Annual Report 99 WASATCH FUNDS - NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 sells a security it does not own in anticipation of a decline in the stock's price. The Fund must borrow the security to deliver to the buyer upon settlement of the short sale. The Fund is then obligated to replace the borrowed security by purchasing it at a later date. The Fund will experience a loss if the market price of the security increases between the date of the short sale and the date the security is replaced. All short sales must be fully collateralized. The Funds designate collateral consisting of cash, U.S. government securities or other liquid assets sufficient to collateralize the market value of short positions. OPTION TRANSACTIONS-The Equity Funds may buy and sell put and call options, write covered put and call options on portfolio securities and write over-the-counter options where the completion of the obligation is dependent upon the credit standing of another party. The risk in writing a call option is that a Fund gives up the opportunity for profit if the market price of the security increases. The risk in writing a put option is that a Fund may incur a loss if the market price of the security decreases and the option is exercised. The risk in buying an option is that a Fund pays a premium whether or not the option is exercised. A Fund also has the additional risk of not being able to enter into a closing transaction if a liquid secondary market does not exist. Option contracts are valued daily and unrealized appreciation or depreciation is recorded. A Fund will realize a gain or loss upon expiration or closing of the option transaction. When an option is exercised, the proceeds on sales for a written call option, the purchase cost for a written put option, or the cost of a security for a purchased put or call option is adjusted by the amount of premium received or paid. FEDERAL INCOME TAXES-It is the Funds' policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all taxable income to shareholders. Accordingly, no provision for federal income taxes has been made. EXPENSES-The Funds are charged for expenses that are directly attributable to them, such as advisory and custodian fees. Expenses that are not directly attributable to a Fund are generally allocated among the Funds in proportion to their respective net assets. Directors fees and expenses are paid to the independent Directors of the Funds. USE OF MANAGEMENT ESTIMATES-The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported changes in net assets during the reporting period. Actual results could differ from those estimates. REDEMPTION FEES-The Funds will deduct a fee of 2.00% from redemption proceeds on shares of the Funds held two months or less. The redemption fee is treated as additional paid-in capital. 3. DISTRIBUTIONS Dividends from net investment income are declared and paid at least annually. Distributions of net realized gains, if any, will be declared and paid at least annually. The amount of dividends 100 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 and distributions from net investment income and net realized gains are deter- mined in accordance with federal income tax regulations, which may differ from generally accepted accounting principles. The Funds may utilize earnings and profits distributed to share-holders on redemption of shares as part of the dividends paid deduction. To the extent these book and tax differences are permanent in nature, such amounts are reclassified among paid-in capital in excess of par value, undistributed net investment income and undistributed net realized gain (loss) on investments. Accordingly, at September 30, 2003, reclassifications were recorded to increase (decrease) paid-in capital in excess of par by $(1,005,105), $(612,626), $(250,271), $962,483, $(24,687), $(831,042), $(2,119,131), $0 and $0, increase undistributed net investment income by $228,591, $611,994, $248,015, $8,716,570, $216,852, $9,713,510, $2,202,960, $6,162,984 and $0 and increase (decrease) undistributed net realized gain (loss) by $776,514, $632, $2,256, $(9,679,053), $(192,165), $(8,882,468), $(83,829), $(6,162,984) and $0, for the Core Growth, Global Science & Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds, respectively. 4. CAPITAL STOCK Transactions in shares of capital stock were as follows: YEAR ENDED SEPTEMBER 30, 2003 CORE GLOBAL SCIENCE INTERNATIONAL MICRO GROWTH & TECHNOLOGY GROWTH CAP FUND FUND FUND FUND ---- ---- ---- ---- Shares sold 10,414,773 3,419,237 2,761,196 16,929,258 Dividends reinvested -- -- -- 4,859,976 Shares redeemed (12,861,353) (1,879,780) (1,118,048) (13,017,963) ---------- --------- --------- ---------- Net increase (decrease) (2,446,580) 1,539,457 1,643,148 8,771,271 ========= ========= ========= ========== MICRO SMALL SMALL ULTRA U.S. CAP VALUE CAP GROWTH CAP VALUE GROWTH TREASURY FUND* FUND FUND FUND FUND ---- ---- ---- ---- ---- Shares sold 33,909,091 10,711,482 53,599,577 10,725,440 3,512,714 Dividends reinvested -- 1,241 -- -- 259,080 Shares redeemed (143,427) (6,604,251) (46,012,597) (6,321,373) (4,839,225) ---------- ---------- ----------- ---------- --------- Net increase (decrease) 33,765,664 4,108,472 7,586,980 4,404,067 (1,067,431) ========== ========== =========== ========== ========== *Inception date of the Fund was July 28, 2003. Annual Report 101 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 CORE GLOBAL SCIENCE INTERNATIONAL MICRO GROWTH & TECHNOLOGY GROWTH CAP FUND FUND FUND* FUND ---- ---- ---- ---- Shares sold 25,736,941 4,717,678 2,287,064 18,440,759 Dividends reinvested 2,098,403 27,973 -- 6,140,099 Shares redeemed (17,535,543) (2,811,617) (243,227) (16,551,410) ----------- ---------- --------- ----------- Net increase 10,299,801 1,934,034 2,043,837 8,029,448 =========== ========== ========= =========== SMALL SMALL ULTRA U.S. CAP GROWTH CAP VALUE GROWTH TREASURY FUND FUND FUND FUND ---- ---- ---- ---- Shares sold 17,362,623 72,717,440 17,913,935 3,532,936 Dividends reinvested 339,016 3,261,583 210,301 296,730 Shares redeemed (7,972,814) (72,187,448) (5,831,801) (2,959,772) ---------- ----------- ---------- ---------- Net increase 9,728,825 3,791,575 12,292,435 869,894 ========== ========== ========== ========= *Inception date of the Fund was June 28, 2002. 5. PURCHASES AND SALES OF SECURITIES Purchases and sales of investment securities, excluding U.S. government and short-term securities, for the year ended September 30, 2003 are summarized below: CORE GLOBAL SCIENCE INTERNATIONAL MICRO GROWTH & TECHNOLOGY GROWTH CAP FUND FUND FUND FUND ---- ---- ---- ---- Purchases $ 492,196,057 $ 31,093,998 $ 29,728,043 $ 190,368,610 Sales $(616,175,811) $(25,476,825) $(12,171,076) $(234,666,397) MICRO SMALL SMALL ULTRA CAP VALUE CAP GROWTH CAP VALUE GROWTH FUND* FUND FUND FUND ---- ---- ---- ---- Purchases $ 44,465,297 $ 569,550,199 $ 347,705,571 $ 322,672,475 Sales $ (1,567,231) $(523,519,734) $(334,261,859) $(281,807,535) *Inception date of the Fund was July 28, 2003. Purchases of U.S. Government securities in the Global Science & Technology, Small Cap Growth and Ultra Growth Funds were $500,801, $5,005,024 and $4,505,219, respectively. Purchases and sales of U.S. Government securities in the U.S. Treasury Fund were $26,862,076 and $40,165,025, respectively. 102 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 6. OPTION CONTRACTS WRITTEN The premium amount and the number of option contracts written during the year ended September 30, 2003, were as follows: PREMIUM NUMBER OF AMOUNT CONTRACTS ------ --------- CORE GROWTH FUND Options outstanding at September 30, 2002 $ -- -- Options written 457,965 3,000 Options closed -- -- Options expired -- -- --------- ------ Options outstanding at September 30, 2003 $ 457,965 3,000 GLOBAL SCIENCE & TECHNOLOGY FUND Options outstanding at September 30, 2002 $ -- -- Options written 41,648 310 Options closed (41,648) (310) Options expired -- -- --------- ------ Options outstanding at September 30, 2003 $ -- -- SMALL CAP VALUE FUND Options outstanding at September 30, 2002 $ -- -- Options written 310,354 2,445 Options closed (129,636) (895) Options expired (180,718) (1,550) --------- ------ Options outstanding at September 30, 2003 $ -- -- Annual Report 103 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 7. FEDERAL INCOME TAX INFORMATION At September 30, 2003, the cost of securities, excluding written options and securities sold short, on a tax basis and gross unrealized appreciation and (depreciation) of investments for federal income tax purposes were as follows: CORE GLOBAL SCIENCE INTERNATIONAL GROWTH & TECHNOLOGY GROWTH FUND FUND FUND --------------- --------------- -------------- Cost of Investments $ 1,152,822,315 $ 48,917,071 $ 37,815,606 =============== =============== ============== Gross unrealized appreciation $ 289,345,652 $ 6,648,397 $ 7,764,383 Gross unrealized (depreciation) (115,637,929) (3,867,779) (414,779) --------------- --------------- -------------- Net unrealized appreciation on investments $ 173,707,723 $ 2,780,618 $ 7,349,604 =============== =============== ============== MICRO MICRO CAP SMALL CAP CAP VALUE GROWTH FUND FUND FUND ------------- ------------- ------------- Cost of Investments $ 385,194,662 $ 68,259,532 $ 963,871,208 ============= ============= ============= Gross unrealized appreciation $ 153,021,998 $ 4,167,495 $ 240,601,208 Gross unrealized (depreciation) (18,269,623) (948,306) (72,619,666) ------------- ------------- ------------- Net unrealized appreciation on investments $ 134,752,375 $ 3,219,189 $ 167,981,542 ============= ============= ============= SMALL CAP ULTRA U.S. VALUE GROWTH TREASURY FUND FUND FUND -------------- -------------- -------------- Cost of Investments $ 543,159,707 $ 480,626,958 $ 61,459,375 ============= ============= ============= Gross unrealized appreciation $ 138,185,818 $ 96,238,552 $ 5,323,844 Gross unrealized (depreciation) (29,330,444) (30,273,770) (150,291) ------------- ------------- ------------- Net unrealized appreciation on investments $ 108,855,374 $ 65,964,782 $ 5,173,553 ============= ============= ============= The difference between cost amounts for financial statement and federal income tax purposes is due primarily to timing differences in recognizing certain gains and losses in security transactions. 104 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 As of September 30, 2003, the components of accumulated earnings on a tax basis were as follows: CORE GLOBAL SCIENCE INTERNATIONAL GROWTH & TECHNOLOGY GROWTH FUND FUND FUND ------------- ------------- ------------- Undistributed ordinary income $ -- $ -- $ -- Undistributed long-term capital gains -- -- -- ------------- ------------- ------------- Accumulated earnings -- -- -- Accumulated capital and other losses (84,244,774) (1,932,612) (1,502,809) Other undistributed ordinary losses -- (632) -- Net unrealized appreciation on investments, securities sold short, derivative and foreign currency denominated assets and liabilities 173,912,325 2,785,543 7,346,872 ------------- ------------- ------------- Total accumulated earnings $ 89,667,551 $ 852,299 $ 5,844,063 ============= ============= ============= MICRO MICRO CAP SMALL CAP CAP VALUE GROWTH FUND FUND FUND ------------- ------------- ------------- Undistributed ordinary income $ 2,759,020 $ -- $ -- Undistributed long-term capital gains 38,805,925 -- 5,914,927 ------------- ------------- ------------- Accumulated earnings 41,564,945 -- 5,914,927 Accumulated capital and other losses -- -- (2,557,105) Other undistributed ordinary losses -- (21,897) -- Net unrealized appreciation on investments, securities sold short, derivative and foreign currency denominated assets and liabilities 134,752,375 3,219,189 167,981,542 ------------- ------------- ------------- Total accumulated earnings $ 176,317,320 $ 3,197,292 $ 171,339,364 ============= ============= ============= Annual Report 105 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 SMALL CAP ULTRA U.S. VALUE GROWTH TREASURY FUND FUND FUND ------------ ------------ ------------ Undistributed ordinary income $ -- $ 103,222 $ 2,503,722 Undistributed long-term capital gains -- 3,599,548 -- ------------ ------------ ------------ Accumulated earnings -- 3,702,770 2,503,722 Accumulated capital and other losses -- (1,712,754) (7,148,034) Other undistributed ordinary losses -- -- -- Net unrealized appreciation on investments, securities sold short, derivative and foreign currency denominated assets and liabilities 108,333,861 65,964,782 5,173,553 ------------ ------------ ------------ Total accumulated earnings $108,333,861 $ 67,954,798 $ 529,241 ============ ============ ============ As of September 30, 2003, the Core Growth, Global Science & Technology, International Growth and U.S. Treasury Funds had federal income tax capital loss carryforwards of $46,940,430, $546,501, $226,990 and $7,148,034, respectively. Federal income tax capital loss carryforwards for the U.S. Treasury Fund expire as follows: $1,997,575 in 2008, $4,318,964 in 2009 and $831,495 in 2010. The entire federal income tax capital loss carryforward for the Core Growth, Global Science & Technology and International Growth Funds expires in 2011. To the extent future gains are offset by capital loss carryforwards, such gains will not be distributed. 106 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2002 As of September 30, 2003, the Core Growth, Global Science & Technology, International Growth, Small Cap Growth and Ultra Growth Funds had $37,304,344, $1,386,111, $1,275,819, $2,557,104 and $1,712,753, respectively, of post-October capital losses, which are deferred until 2004 for tax purposes. Also, the Global Science & Technology Fund had $632 of post-October currency losses, which are deferred until 2004 for tax purposes. Net capital losses incurred after October 31, and within the taxable year are deemed to arise on the first day of the Fund's next taxable year. The tax character of distributions paid during the fiscal year ended September 30, 2003 and fiscal year ended September 30, 2002 was as follows: CORE GROWTH GLOBAL SCIENCE FUND & TECHNOLOGY FUND ----------------------------- ---------------------------- Year Ended Year Ended Year Ended Year Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Ordinary income $ -- $ 17,852,286 $ -- $ 250,799 Net long-term capital gains -- 51,383,561 -- -- ------------- ------------- ------------- ------------- Total $ -- $ 69,235,847 $ -- $ 250,799 ============= ============= ============= ============= INTERNATIONAL GROWTH MICRO CAP FUND FUND ----------------------------- ---------------------------- Year Ended Period Ended Year Ended Year Ended September 30, September 30, September 30, September 30, 2003 2002* 2003 2002 ------------- ------------- ------------- ------------- Ordinary income $ -- $ -- $ -- $ 1,484,719 Net long-term capital gains -- -- 22,295,887 33,818,851 ------------- ------------- ------------- ------------- Total $ -- $ -- $ 22,295,887 $ 35,303,570 ============= ============= ============= ============= MICRO CAP SMALL CAP SMALL CAP VALUE FUND GROWTH FUND VALUE FUND ------------- ---------------------------- ---------------------------- Period Ended Year Ended Year Ended Year Ended Year Ended September 30, September 30, September 30, September 30, September 30, 2003** 2003 2002 2003 2002 ------------- ------------- ------------- ------------- ------------- Ordinary income $ -- $ -- $ -- $ -- $ 5,990,110 Net long-term capital gains -- 34,010 9,829,740 -- 6,969,786 ------------- ------------- ------------- ------------- ------------- Total $ -- $ 34,010 $ 9,829,740 $ -- $ 12,959,896 ============= ============= ============= ============= ============= * Inception date of the Fund was June 28, 2002. ** Inception date of the Fund was July 28, 2003. Annual Report 107 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 ULTRA GROWTH U.S. TREASURY FUND FUND ---------------------------- ---------------------------- Year Ended Year Ended Year Ended Year Ended September 30, September 30, September 30, September 30, 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Ordinary income $ -- $ -- $ 3,484,505 $ 3,600,125 Net long-term capital gains -- 4,518,749 -- -- ------------- ------------- ------------- ------------- Total $ -- $ 4,518,749 $ 3,484,505 $ 3,600,125 ============= ============= ============= ============= The Funds hereby designate approximately $23,192,789 and $39,924 as a capital gain dividend for the Micro Cap and Small Cap Growth Funds, respectively, for the purpose of the dividends paid deduction (unaudited). For the fiscal year ended September 30, 2003 certain dividends paid by each Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Complete information will be reported in conjunction with your 2003 Form 1099-DIV (unaudited). 8. ADVISORY AND ADMINISTRATION FEES AND EXPENSE WAIVERS ADVISOR FEES-As the Funds' investment advisor, the Advisor receives a monthly fee calculated on average daily net assets. For the year ended September 30, 2003, management fees for the Core Growth, Global Science & Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds were 1.00%, 1.50%, 1.50%, 2.00%, 2.00%, 1.00%, 1.50%, 1.25% and 0.50% of the average daily net assets of each Fund, respectively. The Advisor has voluntarily agreed to limit the expenses of the Core Growth, Global Science & Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds to 1.50%, 1.95%, 1.95%, 2.50%, 2.50%, 1.50%, 1.95%, 1.75% and 0.75% of average daily net assets, respectively. For the year ended September 30, 2003, the Advisor reimbursed $56,945 for the Global Science & Technology Fund, $76,716 for the International Growth Fund and $114,198 for the U.S. Treasury Fund. For the period July 28, 2003 to September 30, 2003, the Advisor reimbursed $28,446 for the Micro Cap Value Fund. ADMINISTRATION FEES--Effective June 1, 2003, the Funds entered into an administration services agreement with the Advisor. Pursuant to this agreement, the Funds pay the Advisor an administration fee at an annual rate of .425% of the first $2.7 billion of the Funds' average daily net assets and then a decreasing rate for average daily net assets exceeding that level. For the period June 1 through September 30, 2003, the Core Growth, Global Science & 108 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds paid administration fees to the Advisor of $110,606, $3,812, $2,690, $42,409, $4,160, $95,794, $54,050, $45,058 and $5,375, respectively. The Advisor voluntarily waived administration fees of $33,826, $975, $632, $12,593, $0, $28,005, $16,068, $12,526 and $2,193 for the Core Growth, Global Science & Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds, respectively. OTHER EXPENSE WAIVERS--The Funds' custodian and accounting agent voluntarily waived accounting fees of $10,538, $304, $197, $3,923, $0, $8,724, $5,005, $3,902 and $683 for the Core Growth, Global Science & Technology, International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value, Ultra Growth and U.S. Treasury Funds, respectively. 9. TRANSACTIONS WITH AFFILIATES The following is an analysis of transactions for the year ended September 30, 2003 in the Core Growth, Micro Cap, Small Cap Growth, Small Cap Value and Ultra Growth Funds with "affiliated companies" as defined by the Investment Company Act of 1940: Annual Report 109 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 CORE GROWTH FUND AMOUNT OF AMOUNT OF DIVIDENDS GAIN (LOSS) CREDITED TO REALIZED ON SHARE ACTIVITY INCOME SALE OF SHARES ------------------------------------------- FOR THE FOR THE BALANCE BALANCE YEAR ENDED YEAR ENDED SECURITY NAME 9/30/02 PURCHASES SALES 9/30/03 9/30/03 9/30/03 - ---------------------- --------- --------- --------- ---------- ----------- ------------- AmeriCredit Corp. 5,325,531 1,799,550 3,701,500 3,423,581* -- $ (13,290,017) Anworth Mortgage Asset Corp. -- 1,984,575 -- 1,984,575 $ 548,134 -- Metris Companies Inc. 5,419,312 -- 5,419,312 --* $ 28,191 $ (60,629,751) Orthodontic Centers of America, Inc. 3,214,756 296,750 1,360,370 2,151,136* -- $ (10,174,905) Pediatrix Medical Group Inc. 1,683,500 27,550 713,275 997,775* -- $ 7,009,433 Rent-A-Center, Inc.(1) 4,649,250 91,000 1,967,180 2,773,070* -- $ 30,832,387 SCP Pool Corp.(2) 1,909,480 -- 243,250 1,666,230* -- $ 5,322,646 Sonic Automotive, Inc. 1,812,570 228,900 529,425 1,512,045* $ 151,205 $ 5,813,272 United Rentals, Inc. 4,805,725 -- 4,307,400 498,325* -- $ (28,164,740) *No longer affiliated as of September 30, 2003. (1) Adjusted for 5-for-2 split on September 2, 2003. (2) Adjusted for 3-for-2 split on September 15, 2003. MICRO CAP FUND AMOUNT OF AMOUNT OF DIVIDENDS GAIN (LOSS) CREDITED TO REALIZED ON SHARE ACTIVITY INCOME SALE OF SHARES ------------------------------------------- FOR THE FOR THE BALANCE BALANCE YEAR ENDED YEAR ENDED SECURITY NAME 9/30/02 PURCHASES SALES 9/30/03 9/30/03 9/30/03 - ---------------------- --------- --------- --------- ---------- ----------- -------------- CommerceWest Bank -- 95,000 -- 95,000 -- -- CorVel Corp. 513,838 35,600 114,032 435,406* -- $ 1,659,982 Covalent Group, Inc. -- 825,000 -- 825,000 -- -- Encision, Inc. 40,075 193,000 -- 233,075 -- -- Encision, Inc. -- 200,000 -- 200,000 -- -- InTest Corp. 433,050 11,925 -- 444,975 -- -- IRIDEX Corp. 715,150 14,700 10,000 719,850 -- $ (72,855) Nanometrics Inc. 912,675 5,000 624,525 293,150* -- $ (3,494,901) PSi Technologies Holdings, Inc. ADR 1,021,975 -- -- 1,021,975 -- -- Rainbow Rentals, Inc. 390,000 14,400 -- 404,400 -- -- * No longer affiliated as of September 30, 2003. 110 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 SMALL CAP GROWTH FUND AMOUNT OF AMOUNT OF DIVIDENDS GAIN (LOSS) CREDITED TO REALIZED ON SHARE ACTIVITY INCOME SALE OF SHARES ------------------------------------------- FOR THE FOR THE BALANCE BALANCE YEAR ENDED YEAR ENDED SECURITY NAME 9/30/02 PURCHASES SALES 9/30/03 9/30/03 9/30/03 - ---------------------- --------- --------- --------- ---------- ----------- ------------- AmSurg Corp. 955,575 66,859 10,775 1,011,659 -- $ (11,374) SMALL CAP VALUE FUND AMOUNT OF AMOUNT OF DIVIDENDS GAIN (LOSS) CREDITED TO REALIZED ON SHARE ACTIVITY INCOME SALE OF SHARES ------------------------------------------- FOR THE FOR THE BALANCE BALANCE YEAR ENDED YEAR ENDED SECURITY NAME 9/30/02 PURCHASES SALES 9/30/03 9/30/03 9/30/03 - ---------------------- --------- --------- --------- ---------- ----------- -------------- Friedman's, Inc., Class A 1,120,470 28,950 340,815 808,605* $ 81,745 $ 1,486,803 Maxwell Shoe Co., Class A 768,000 -- 627,375 140,625* -- $ 1,918,368 MicroFinancial Inc. 1,051,900 116,900 654,502 514,298* $ 52,595 $ (6,025,175) Mobile Mini, Inc. 792,850 118,725 181,138 730,437 -- $ (138,683) Nara Bancorp, Inc.(1) 644,400 -- 396,750 247,650* $ 70,955 $ 1,519,725 PCD Inc. 316,964 -- 316,964 --* -- $ (2,003,772) Peak International Ltd. 729,400 -- 193,375 536,025* -- $ (198,977) USA Truck, Inc. 317,375 159,900 5,025 472,250 -- $ (12,889) Whitehall Jewellers, Inc. 607,393 198,175 -- 805,568 -- -- *No longer affiliated as of September 30, 2003. (1) Adjusted for 2-for-1 split on March 18, 2003. Annual Report 111 WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 ULTRA GROWTH FUND AMOUNT OF AMOUNT OF DIVIDENDS GAIN (LOSS) CREDITED TO REALIZED ON SHARE ACTIVITY INCOME SALE OF SHARES ------------------------------------------- FOR THE FOR THE BALANCE BALANCE YEAR ENDED YEAR ENDED SECURITY NAME 9/30/02 PURCHASES SALES 9/30/03 9/30/03 9/30/03 - -------------------------------------------------------------------------------------------------- Wireless Facilities, Inc. 2,682,944 -- 1,571,370 1,111,574* -- $ 2,504,947 *No longer affiliated as of September 30, 2003. 10. RESTRICTED SECURITIES The Funds may own investments that were purchased through private placement transactions (or under Rule 144A as noted) and cannot be sold without prior registration under the Securities Act of 1933 or may be limited due to certain restrictions. The costs of registering such securities are paid by the issuer. At September 30, 2003, the Funds held restricted preferred stocks (or common stocks or warrants as noted) as follows: VALUE AS ACQUISITION ACQUISITION FAIR % OF DATE COST VALUE NET ASSETS ---------------------------------------------- GLOBAL SCIENCE & TECHNOLOGY FUND Northwest Biotherapeutics, Inc.(1) 6/13/01 $ 35,000 $ 1,680 -- SiRF Technology Holdings, Inc., Series H 12/20/01 $ 277,875 222,300 0.43% SiRF Technology Holdings, Inc.(2) 1/11/02 -- -- -- Xtera Communications, Inc. 9/3/03 $ 7,076 7,076 0.01% ---------------- $231,056 0.44% - ----------------------------------------------------------------------------------- MICRO CAP FUND Encision, Inc.(1) 7/30/03 $ 600,000 $648,000 0.13% - ----------------------------------------------------------------------------------- MICRO CAP VALUE FUND Franklin Bank Corp.(3) 9/24/03 $ 551,250 $551,250 0.78% Encision, Inc.(1) 7/30/03 $ 400,002 432,002 0.61% -------- ------ $983,252 1.39% (1) Common stock. (2) Warrants. (3) Common stock. Rule 144A Security. 112 Annual Report WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2003 VALUE AS ACQUISITION ACQUISITION FAIR % OF DATE COST VALUE NET ASSETS - ----------------------------------------------------------------------------------------- SMALL CAP GROWTH FUND SiRF Technology Holdings, Inc., Series H 12/20/01 $ 2,616,120 $2,092,896 0.18% SiRF Technology Holdings, Inc. (2) 1/11/02 -- -- -- ---------- ------- $2,092,896 0.18% - -------------------------------------------------------------------------------------- SMALL CAP VALUE FUND Arbor Realty Trust, Inc.(3) 6/26/03 $ 5,626,875 5,645,631 0.87% - -------------------------------------------------------------------------------------- ULTRA GROWTH FUND IQ4Hire, Inc. 9/7/00 $ 110,000 $ 440 -- Northwest Biotherapeutics, Inc.(1) 6/13/01 $ 145,000 6,960 -- SiRF Technology Holdings, Inc., Series H 12/20/01 $ 806,000 644,800 0.12% SiRF Technology Holdings, Inc. (2) 1/11/02 -- -- -- Xtera Communications, Inc. 9/3/03 $ 99,065 99,065 0.02% ---------- ------- $ 751,265 0.14% (1) Common stock. (2) Warrants. (3) Common stock. Rule 144A Security. 11. SUBSEQUENT EVENT--DISTRIBUTION TO SHAREHOLDERS The Funds declared a capital gains distribution in the Micro Cap, Small Cap Growth and Ultra Growth Funds which was paid on October 10, 2003, to shareholders of record on October 9, 2003, in the amount of $0.561786, $0.168445 and $0.175098 per share, respectively. 12. PURCHASE COMMITMENTS The Global Science & Technology, Small Cap Growth and Ultra Growth Funds have entered into subscription agreements to acquire limited partnership interests in Montagu Newhall Global Partners II, L.P. in the amounts of $500,000, $5,000,000 and $4,500,000, respectively. U.S. Government securities held by the Funds have been designated to meet these purchase commitments. Annual Report 113 WASATCH FUNDS-REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Wasatch Funds, Inc.: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Wasatch Core Growth Fund, Wasatch Global Science & Technology Fund, Wasatch International Growth Fund, Wasatch Micro Cap Fund, Wasatch Micro Cap Value Fund, Wasatch Small Cap Growth Fund, Wasatch Small Cap Value Fund, Wasatch Ultra Growth Fund and the Wasatch-Hoisington U.S. Treasury Fund (hereafter referred to as the "Funds") at September 30, 2003, and the results of each of their operations for the year then ended, the changes in each of their net assets and their financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at September 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Funds as of September 30, 2001 and for the periods then ended and prior were audited by other independent accountants whose report dated October 17, 2001 expressed an unqualified opinion on those financial statements. PRICEWATERHOUSECOOPERS LLP Milwaukee, Wisconsin October 30, 2003 114 Annual Report (This page intentionally left blank.) Annual Report 115 WASATCH FUNDS-DIRECTORS AND OFFICERS SEPTEMBER 30, 2003 NAME, ADDRESS, POSITION(S) HELD TERM OF OFFICE AND AND AGE WITH FUND LENGTH OF TIME SERVED - ------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS: JAMES U. JENSEN, J.D., MBA Director Indefinite NPS Pharmaceuticals, Inc. Served as Director 420 Chipeta Way since 1986 Salt Lake City, UT 84108 Age: 59 WILLIAM R. SWINYARD, PH.D. Director Indefinite Marriott School of Management Served as Director 624 Tanner Building since 1986 Brigham Young University Provo, UT 84602 Age: 63 JONATHAN F. ZESCHIN, CFPt(TM) Director Indefinite 1777 S. Harrison Street Served as Director Skydeck since June 2002 Denver, CO 80210 Age: 50 - ------------------------------------------------------------------------------------- INTERESTED DIRECTORS*: SAMUEL S. STEWART, JR., PH.D., CFA President, Chairman Indefinite 150 Social Hall Avenue of the Board and Served as President, 4th Floor Director Chairman of the Salt Lake City, UT 84111 Board and Director Age: 61 since 1986 JEFF S. CARDON, CFA Vice President Indefinite 150 Social Hall Avenue and Director Served as Vice 4th Floor President and Director Salt Lake City, UT 84111 since 1986 Age: 46 - ------------------------------------------------------------------------------------- OFFICER: VENICE F. EDWARDS, CFA Secretary/Treasurer Indefinite 150 Social Hall Avenue Served as 4th Floor Secretary/Treasurer Salt Lake City, UT 84111 since 1996 Age: 53 - ------------------------------------------------------------------------------------- 116 Annual Report WASATCH FUNDS-DIRECTORS AND OFFICERS SEPTEMBER 30, 2003 NUMBER OF PORTFOLIOS IN PRINCIPAL OCCUPATION(S) COMPLEX OVERSEEN OTHER DIRECTORSHIPS DURING PAST 5 YEARS BY DIRECTOR HELD BY DIRECTOR - ------------------------------------------------------------------------------------------------------- Vice President, Corporate Development 9 Private companies and and Legal Affairs, and Secretary, NPS foundations only. Pharmaceuticals, Inc. since 1991. Professor of Business Management and 9 None Holder of the Fred G. Meyer Chair of Marketing, Brigham Young University since 1978. President and Founder of ESSENTIAL 9 Board of Trustees Advisers, Inc., a wealth management and ICON Funds investment advisory firm; prior to founding ESSENTIAL was Managing Partner at JZ Partners LLC, a business consulting firm; President of Founders Asset Management from 1995 - 1998. - ------------------------------------------------------------------------------------------------------- Chairman of the Board and Director 9 None of Research for Wasatch Advisors, Inc. (the "Advisor") since 1975; Professor of Finance at the University of Utah from 1975 - 2000. President and Treasurer for the Advisor 9 None since 1999; Director of the Advisor since 1985; Security Analyst for the Advisor since 1980. - ------------------------------------------------------------------------------------------------------- Director of Compliance for the Advisor N/A None since 1995 and Secretary of the Advisor since 1999; Portfolio Manager for the Advisor from 1983 - 1995. - ------------------------------------------------------------------------------------------------------- * INTERESTED DIRECTORS SERVE AS DIRECTORS AND OFFICERS OF WASATCH ADVISORS, INC. Additional information about the Funds' directors is provided in the Statement of Additional Information and is available, without charge, upon request, by calling 800.551.1700. Annual Report 117 GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS Wasatch Funds provides reports to shareholders twice a year. The Annual Report is for the Funds' fiscal year which ends September 30. The Semi-Annual Report is for the six months ending March 31. These reports provide shareholders with important information that will help them evaluate the management and performance of their investments. It is the desire of Wasatch Funds to help shareholders stay in tune with their investments. If you have any questions about the information in this report, a Shareholder Services Representative will be happy to assist you when you call 800.551.1700. SCHEDULE OF INVESTMENTS The holdings of each Wasatch Fund are detailed in the "Schedule of Investments." This section provides a snapshot of the securities each Fund was invested in on the last day of the reporting period. The Wasatch Equity Funds invest primarily in COMMON STOCKS of companies which are grouped together by industry. The Wasatch-Hoisington U.S. Treasury Fund invests primarily in U.S. Treasury securities. The Equity Funds will typically have only minor holdings in SHORT-TERM INVESTMENTS. At times the Funds may take temporary defensive positions by increasing cash or holdings in short-term investments. Please see the prospectus under "Other Investment Strategies and Their Risks." STATEMENTS OF ASSETS AND LIABILITIES These financial statements show the ASSETS and LIABILITIES of a Fund on the last day of the reporting period. A Fund's ASSETS include the value of securities owned, amounts receivable for purchases of Fund shares (capital shares receivable), securities sold, interest and dividends, prepaid expenses and other assets. LIABILITIES are amounts owed for shareholder redemptions (capital shares payable), securities purchased, investment advisory fees and other expenses. Totaling up the assets and subtracting the liabilities results in a Fund's NET ASSETS. NET ASSETS consist of capital stock, paid-in capital in excess of par, undistributed net investment income, undistributed net realized gain or loss on investments and net unrealized appreciation or depreciation on investments. CAPITAL STOCK is stock authorized by a company's charter and having par value, stated value or no par value. Par value is set by the company issuing the shares and has no relation to Net Asset Value. The par value of one share of each Wasatch Fund is $.01. PAID-IN CAPITAL IN EXCESS OF PAR is capital received from shareholders in exchange for Fund shares that exceeds the par value of the shares. For example, if you bought one share of a Fund for $10, $.01 would show as "Capital stock" on the books of the Fund, and $9.99 would be accounted for under "Paid-in capital in excess of par." UNDISTRIBUTED NET INVESTMENT INCOME is the amount of net investment income earned by a Fund since inception that has not been paid to shareholders as a dividend. UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON INVESTMENTS is the amount of net realized gains or losses generated by a Fund since inception that have not been distributed to shareholders in the form of a capital gain distribution. A gain or loss is realized when a security is sold by a Fund. NET UNREALIZED APPRECIATION 118 Annual Report GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS (DEPRECIATION) ON INVESTMENTS is the change in value from the purchase price of securities a Fund continues to hold. The number of shares a Fund is AUTHORIZED to sell can be found under CAPITAL STOCK, $.01 PAR VALUE. How many of those shares are owned by shareholders is indicated as ISSUED AND OUTSTANDING. NET ASSET VALUE (NAV), REDEMPTION PRICE AND OFFERING PRICE PER SHARE shows the value of one outstanding share of a Fund on the date of the report. A Fund's share price (NAV) is calculated by dividing the value of all securities and other assets owned by a Fund, less the liabilities charged to that Fund, by the number of Fund shares outstanding. The NAV is calculated at the close of business of the New York Stock Exchange on each day the Exchange is open for trading. Please see Wasatch Funds' prospectus for more information about how NAVs are calculated. Information about how the NAV is affected by a Fund's operation can be found under "Financial Highlights" on page 120. STATEMENTS OF OPERATIONS STATEMENTS OF OPERATIONS show investment income and expenses for each Fund as well as realized gains or losses from securities sold and the appreciation or depreciation in the value of a Fund's holdings during the reporting period. INVESTMENT INCOME shows INTEREST and DIVIDENDS earned from interest- bearing and dividend-paying securities in a Fund's portfolio. EXPENSES show the various fees and expenses paid out of a Fund's assets such as the fee paid to Wasatch Advisors, the Funds' investment advisor. Additional fees include shareholder servicing, fund administration and accounting, custody of fund assets, federal and state registration, legal counsel, auditing and directors' fees. The Funds pay for printing and mailing statements, prospectuses, annual reports and semi-annual reports to shareholders. NET INVESTMENT INCOME (LOSS) is the amount of dividends and interest income earned on securities held by a Fund, less the Fund's expenses. NET REALIZED GAIN (LOSS) ON INVESTMENTS is the net gain or loss on securities a Fund has sold. CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS is the change in value of securities a Fund continues to hold. NET GAIN (LOSS) ON INVESTMENTS is the result of changes in market value of securities a Fund has sold and securities it continues to hold. STATEMENTS OF CHANGES IN NET ASSETS NET ASSETS are a Fund's remaining assets after taking into consideration any liabilities. STATEMENTS OF CHANGES IN NET ASSETS show the increase or decrease in a Fund's net assets during the reporting period. Investment operations, dividends and capital share transactions affect a Fund's net assets. OPERATIONS is a summary of the STATEMENTS OF OPERATIONS. It includes investment income or loss, net realized gain or loss on investments a Fund has sold as well as the change in appreciation or depreciation in the value of investments a Fund continues to hold. DIVIDENDS are distributed by Wasatch Funds to shareholders when Fund investments have earned income in Annual Report 119 GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS excess of net expenses or when capital gains in excess of capital losses are realized from the sale of securities. Most shareholders choose to reinvest their dividends and capital gain distributions. Each Fund is required by Internal Revenue Service (IRS) regulations to distribute substantially all of its net investment income and capital gains to shareholders in order to retain its status as a "regulated investment company." CAPITAL SHARE TRANSACTIONS are any transactions involving shares of a Fund, including the selling of Fund shares, shares issued by a Fund to shareholders for the reinvestment of dividends, and share redemptions. FINANCIAL HIGHLIGHTS The FINANCIAL HIGHLIGHTS contain important historical operating information that you may find useful in making decisions or understanding the performance of your investment. NET ASSET VALUE (NAV) is defined under "Statements of Assets and Liabilities" on pages 118 to 119. The difference between the Net asset value, beginning of period and the Net asset value, end of period in the Financial Highlights is the change in value of a Fund's shares over the reporting period, but not its total return. INCOME (LOSS) FROM INVESTMENT OPERATIONS shows how the NAV was affected by a Fund's operations on a per share basis. NET INVESTMENT INCOME (LOSS) is the per share amount of dividends and interest income earned on securities held by a Fund, less the Fund's expenses. NET REALIZED AND UNREALIZED GAINS (LOSSES) ON SECURITIES is the per share increase or decrease in the value of securities a Fund holds or has sold during the reporting period. Gains or (losses) are realized when securities are sold. Gains or (losses) are unrealized when securities increase or decrease in value but are not sold. DISTRIBUTIONS are the per share amount that a Fund paid to shareholders from net investment income and net realized gains. TOTAL RETURN is the percentage increase or decrease in the value of an investment over a stated period of time. A total return percentage includes both changes in unrealized and realized gains and income. For the purposes of calculating total return, it is assumed that dividends and distributions are reinvested at the NAV on the payable day of the distribution. A FUND'S TOTAL RETURN CANNOT BE COMPUTED DIRECTLY FROM THE FINANCIAL HIGHLIGHTS. SUPPLEMENTAL DATA AND RATIOS are provided to help you better understand your investment. NET ASSETS, END OF PERIOD, are the net assets of a Fund on the reporting date. RATIO TO AVERAGE NET ASSETS OF: EXPENSES shows the total of a Fund's operating expenses divided by its average net assets for the stated period before and after waivers and reimbursements by the Advisor. RATIO TO AVERAGE NET ASSETS OF: NET INVESTMENT INCOME shows a Fund's net investment income (loss) divided by its average net assets for the stated period before and after waivers and reimbursements by the Advisor. PORTFOLIO TURNOVER RATE measures a Fund's buying and selling activity during the reporting period. It is computed by dividing total purchases or sales, whichever is less, by the average monthly market value of a Fund's portfolio securities. This calculation does not include securities with a maturity date of less than 12 months. 120 Annual Report NOTES ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Annual Report 121 BACK COVER: Wasatch(TM) Funds P.O. Box 2172 Milwaukee, WI 53201-2172 www.wasatchfunds.com 800.551.1700 ITEM 2: CODE OF ETHICS (a) Wasatch Funds, Inc. (the "Company") has adopted a Code of Ethics that applies to the Company's principal executive officer and principal financial officer. (c) There have been no amendments to the Company's Code of Ethics during the reporting period for Form N-CSR. (d) There have been no waivers granted by the Company to individuals covered by the Company's Code of Ethics during the reporting period for Form N-CSR. (f) A copy of the Company's Code of Ethics is attached as an exhibit to this Form N-CSR. ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT (a) (1) The Board of Directors of Wasatch Funds, Inc. (the "Company") has determined that the Company has one member serving on the Company's Audit Committee that possesses the attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as "audit committee financial expert." (2) The name of the audit committee financial expert is Jonathan Zeschin. Mr. Zeschin has been deemed to be "independent" as that term is defined in Item 3(a)(2) of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not required. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END INVESTMENT COMPANIES. Not applicable. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c)) are effective, as of a date within 90 days of the filing date of this Form N-CSR based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS (a)(1) Code of Ethics is attached hereto. (a)(2) The certifications required by Rule 30a-2 of the 1940 Act are attached hereto. (b) The certifications required by Rule 30a-2(b) of the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. 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. WASATCH FUNDS, INC. By: /s/ Samuel S. Stewart, Jr. -------------------------- Samuel S. Stewart, Jr. President (principal executive officer) of Wasatch Funds, Inc. Date: November 26, 2003 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: /s/ Samuel S. Stewart, Jr. -------------------------- Samuel S. Stewart, Jr. President (principal executive officer) of Wasatch Funds, Inc. Date: November 26, 2003 By: /s/ Venice F. Edwards -------------------------- Venice F. Edwards Secretary/Treasurer (principal financial and accounting officer) of Wasatch Funds, Inc. Date: November 26, 2003