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
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WASATCH FUNDS, INC.
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(Exact name of registrant as specified in charter)
150 SOCIAL HALL AVENUE
4TH FLOOR
SALT LAKE CITY, UTAH 84111
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(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 84101 Minneapolis, Minnesota 55402-1498
Registrant's telephone number, including area code: (801) 553-0777
Date of fiscal year end: September 30
Date of reporting period: September 30, 2004
ITEM 1: REPORT OF SHAREHOLDER
ANNUAL REPORT
SEPTEMBER 30, 2004
[(WASATCH FUNDS LOGO)]
CORE GROWTH FUND * GLOBAL SCIENCE & TECHNOLOGY FUND *
HERITAGE 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
Cover Painting: "Backside of Timpanogos"
by John Hughes
5082 La Mancha Way
Taylorsiville, UT 84118
www.johnhughesstudio.com
WASATCH FUNDS, INC.
P.O. Box 2172
Milwaukee, WI 53201-2172
www.wasatchfunds.com
800.551.1700
TABLE OF CONTENTS
LETTER TO SHAREHOLDERS ..................................... 2
CORE GROWTH FUND ........................................... 4
Management Discussion .................................... 4
Portfolio Summary ........................................ 5
GLOBAL SCIENCE & TECHNOLOGY FUND ........................... 6
Management Discussion .................................... 6
Portfolio Summary ........................................ 7
HERITAGE GROWTH FUND ....................................... 8
Management Discussion .................................... 8
Portfolio Summary ........................................ 9
INTERNATIONAL GROWTH FUND .................................. 10
Management Discussion .................................... 10
Portfolio Summary ........................................ 11
MICRO CAP FUND ............................................. 12
Management Discussion .................................... 12
Portfolio Summary ........................................ 13
MICRO CAP VALUE FUND ....................................... 14
Management Discussion .................................... 14
Portfolio Summary ........................................ 15
SMALL CAP GROWTH FUND ...................................... 16
Management Discussion .................................... 16
Portfolio Summary ........................................ 17
SMALL CAP VALUE FUND ....................................... 18
Management Discussion .................................... 18
Portfolio Summary ........................................ 19
ULTRA GROWTH FUND .......................................... 20
Management Discussion .................................... 20
Portfolio Summary ........................................ 21
WASATCH-HOISINGTON U.S. TREASURY FUND ...................... 22
Management Discussion .................................... 22
Portfolio Summary ........................................ 23
OPERATING EXPENSES ......................................... 24
SCHEDULE OF INVESTMENTS .................................... 26
STATEMENTS OF ASSETS AND LIABILITIES ....................... 50
STATEMENTS OF OPERATIONS ................................... 52
STATEMENTS OF CHANGES IN NET ASSETS ........................ 54
FINANCIAL HIGHLIGHTS ....................................... 58
NOTES TO FINANCIAL STATEMENTS .............................. 63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..... 72
DIRECTORS AND OFFICERS ..................................... 73
PROXY VOTING POLICIES AND PROCEDURES ....................... 74
QUARTERLY PORTFOLIO HOLDINGS DISCLOSURE ON FORM N-Q ........ 74
GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS ................ 75
HOW TO CONTACT WASATCH ..................................... 76
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.
1
LETTER TO SHAREHOLDERS
[PHOTO OF SAMUEL S. STEWART, JR.,]
Samuel S. Stewart, Jr., PhD, CFA Chairman of Wasatch Funds
FELLOW SHAREHOLDERS:
Six months ago in our semi-annual report, I said that 2004 would be a
difficult year for stocks. Wasatch's fund managers, myself included, felt like
stocks were generally overpriced as we entered the new year. As the year
progressed, stocks experienced wide price swings as factors in the macro
environment put a damper on investors' high expectations. Economic growth has
been hindered by high oil prices, weak consumer spending, rising short-term
interest rates and less than robust job creation. A close presidential race,
terrorism concerns and escalating conflict in Iraq also contributed to stock
price volatility.
With so much going on in the macro environment, the risks of investing
were magnified. Investors were extremely sensitive to issues that might affect a
company's ability to meet their high expectations. As a result, they were quick
to sell the stocks of companies that had negative news or even rumors of
weakness. Investors also focused intensely on companies' quarterly earnings
reports. Companies that reported even mildly disappointing short-term results
suffered dramatic stock price declines. In contrast, the stock prices of
companies that exceeded expectations rose even if they were already overvalued.
Given our approach, this just didn't make sense to us. We stayed focused on the
long-term prospects of our companies, adhered to our investment discipline of
bottom-up fundamental research and paid close attention to valuations within our
Funds' portfolios.
When price levels in the small cap market are high like they were at the
beginning of 2004, we feel it is even more important than usual to invest at
rational prices. We also are careful to trim or sell positions that appear to be
overvalued in an effort to minimize the risk that holding overpriced stocks
might pose to our Funds. This valuation strategy is an important component of
our research process and one that has served us well over time.
At the forefront of our research process is our people. Over the years, I
believe Wasatch has hired some exceptional people who work well together. In the
past 12 months, we have hired new analysts we believe offer outstanding insight.
This provides added support for our "multiple eyes" culture; we believe that the
more eyes that view every investment, the better our investment decision will
be. In addition, each month, every research team member reviews one of the
Funds, questioning every holding and every weighting. This process gives fund
managers fresh perspectives from which to evaluate their portfolios.
The outcome of the work we have done on every Fund has been renewed
confidence that, overall, the companies held by each of the Wasatch Funds have
the potential to help you achieve your long-term investment goals. In addition,
we believe that our new analysts make our research team better, stronger and
more insightful than it was a year ago.
WASATCH FUNDS
Wasatch typically does well in markets underpinned by uncertainty when
investors most often forsake high-priced investments for the safety of
reasonably priced investments. This was the type of market we found ourselves in
during the past 12 months, but we did not do as well as we would have expected.
Over the course of the year, the market was driven by current events and
quarterly earnings and high priced stocks continued to rise if the companies met
high expectations. Our sensitivity to the risks of overpriced stocks generally
kept us out of these companies. Some of our holdings experienced short-term
setbacks and were punished severely even though our research indicated that
their long-term prospects were undiminished.
The most striking examples of this occurred in the Funds' health care
sector. Investors seemed to be more sensitive than usual to the risks of
investing in health care companies. One of these risks is reimbursement. This is
the risk that government programs such as Medicare may change how much or
whether they will reimburse a company for the products or services it provides
to patients covered by these programs. Possible changes in government
reimbursement policies affected some of our health care companies and caused
their stock prices to decline significantly. We consider reimbursement risk when
we invest in a health care company and we try to minimize it by controlling the
size of the position we take.
Most of the Funds were heavily weighted in the health care sector over the
past 12 months, as this sector has often been a refuge from high priced stocks
and an area where we've found growing companies. While many of our health care
holdings were strong performers during the year, the
2
SEPTEMBER 30, 2004
health care sector as a whole did not do as well for us as it has done in the
past. Despite a few recent issues, we believe we have invested in health care
companies with outstanding long-term growth potential and that their growth is
also supported by a powerful demographic trend--the aging of the U.S.
population. We have taken care to invest at rational prices and feel that this
gives our health care holdings significant upside potential.
The Funds' performance relative to their benchmarks in the past 12 months
also was influenced by sectors and industries in which we had few or no
holdings. The stocks of many companies within the energy and materials and
processing sectors made surprising gains due to rising oil, gas and commodities
prices. Wasatch typically has few holdings within these sectors because, in
general, we feel that most companies' financial results depend too heavily on
unpredictable commodities prices and we rarely find companies in these sectors
that meet our standards for growth or quality.
OUTLOOK
Although we have been disappointed with the results of our Funds this
year, we take heart in the fact that the majority of our holdings posted strong
earnings growth throughout the 12-month period. To us this indicates that the
Funds' long-term prospects remain bright. As in any year when performance does
not measure up to our expectations, we have done a lot of extra due diligence.
In addition to monitoring our investments even more closely, we have reviewed
our process to make sure that we are gathering the information we need to make
sound investment decisions. After the additional digging, we're convinced that
our process remains viable and that our philosophy--earnings growth drives
stock prices over the long run--still rings true. We believe that if we
continue to capture earnings growth at rational prices, the Funds will be well
positioned with the potential to help you achieve your long-term investment
objectives.
WASATCH-HOISINGTON U.S. TREASURY FUND
For information about the performance and outlook of the Fund, please see
the management discussion and portfolio summary on pages 22 and 23.
Thank you for investing with Wasatch Funds.
Sincerely,
/s/ Samuel S. Stewart, Jr.
- --------------------------
Samuel S. Stewart, Jr.
Chairman of the Board
3
CORE GROWTH FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF SAMUEL S. STEWART, Jr.,][PHOTO OF JB TAYLOR]
REVIEW OF THE YEAR
The Wasatch Core Growth Fund gained 14.80% in the year ended September 30,
2004 and under-performed the Russell 2000 Index, which gained 18.77%.
We're disappointed that we have trailed our benchmark this year, and we
have looked closely at where we may have missed the mark. Our underperformance
is largely explained by three factors. First, we held a good portion of the Fund
in consumer discretionary stocks that did not perform as well as the market.
Second, our buys in depressed technology stocks turned out to be too early. The
single largest cause of underperformance, however, was that the Fund had no
holdings in the energy sector and few holdings in the materials and processing
sector. These sectors were among the strongest performers in the Index, and
contributed nearly one third of the Russell 2000's return over the last 12
months.
Our strategy remains one of capturing consistent earnings growth while
paying reasonable prices for stocks. We look for businesses with defensible
franchises, solid management teams and good prospects for steady earnings
growth. We recognize that this strategy will miss some opportunities as
different economic sectors may heat up over the short term.
Over the past 12 months, the prices of energy and materials and processing
stocks rose dramatically due to sharp increases in the prices of oil and
commodities. This was largely driven by instability in the Middle East and
China's insatiable appetite for goods. Companies with business models tied to
oil or commodity prices did extremely well during the period. Historically,
attempting to capture returns in these types of companies has not been one of
our core strategies. In our view, these businesses typically lack competitive
advantages. They operate in non-growth industries, generate unattractive returns
on capital over entire business cycles, and are vulnerable to unpredictable
swings in commodity prices. We scour all economic sectors to find companies that
meet our long-term earnings growth criteria, but to-date we have not found many
suitable candidates in these sectors.
This summer, expectations for technology companies in general soured, and
our investments in names like UTStarcom, National Semiconductor, ASE Test and
Integrated Circuit Systems hurt the Fund's performance. We believe we initiated
these positions at good prices and that these holdings can add to the Fund's
long-term results.
The U.S. consumer is being impacted by higher prices at the fuel pump,
higher energy costs, fears over terrorism and the ongoing conflict in the Middle
East, and the threat of higher interest rates. Retail sales were disappointing
as consumers, especially those in the moderate to low income bracket, retreated
from spending. Rent-A-Center, an operator of rent-to-own stores that caters to
low-income customers, struggled with slowing sales. This produced disappointing
results and caused the company to detract from the Fund's performance. Dollar
Tree Stores, another company catering to this segment, also experienced
disappointing sales. We maintain our positions in consumer-focused companies
because we believe they have solid franchises and will be able to manage through
this challenging period and generate the long-term earnings growth we seek.
The bright spot in the Fund was our performance in financial services. The
financial services sector was the strongest performing sector in the Index, and
we were overweight in this sector and our holdings performed better than those
in the Index. Over the past 12 months, interest rates have remained low overall,
but were volatile from quarter to quarter due to economic indicators that made
it hard to determine the direction and growth of the economy. Over the last two
years, the yield on 10-year Treasury notes has hovered around 5%, which is lower
than at any time during the prior decade. This environment proved to be
favorable for financial services companies. A number of our investments
benefited from strong mortgage and refinancing activity. We are also pleased by
the turnaround in AmeriCredit, one of our long-time holdings. A couple of years
ago, investors questioned this subprime auto lender's financial viability. The
company restructured, made some aggressive changes and began to produce strong
earnings growth. AmeriCredit was the biggest contributor to the Fund's
performance.
Our homebuilders also contributed to the Fund's performance as low
interest rates attracted new homebuyers in record numbers.
The health care sector also made a positive contribution to the Fund's
performance despite holding one of our worst performing stocks. We
underestimated new competitive forces in the health benefits industry and sold
our position in First Health Group when we realized the company would not likely
regain its competitive advantage. This loss was more than offset by strong
performance from Pediatrix, Inveresk and Renal Care. We like our health care
companies for their steady earnings streams and the favorable demographic
backdrop of an aging population.
OUTLOOK
We believe we have invested in stable companies with good business models,
strong market positions and earnings that are not solely tied to
difficult-to-predict events, such as wars, elections, interest rates or
commodity prices. We believe our companies have the potential to achieve
long-term earnings growth through varying economic conditions.
As of September 30, we estimated the weighted average annual earnings
growth for companies held by the Fund to be approximately 18% and the trailing
price-to-earnings (P/E) ratio to be about 17. In the past, we have found that
these characteristics combined with the quality of our holdings often created a
favorable environment for achieving long-term returns.
Thank you for investing in the Wasatch Core Growth Fund.
4
CORE GROWTH FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
WASATCH CORE GROWTH FUND 14.80% 17.41% 17.60%
Russell 2000 Index 18.77% 7.41% 9.87%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
TICKER COMPANY % OF FUND
- ------ ------- ---------
FNF FIDELITY NATIONAL FINANCIAL,INC. 4%
Title insurance.
ORLY O'REILLY AUTOMOTIVE, INC. 4%
Automotive parts retailer/
distributor.
ACF AMERICREDIT CORP. 4%
Subprime automobile lender.
RCII RENT-A-CENTER, INC. 3%
Rent-to-own store operator.
DRL DORAL FINANCIAL CORP. 2%
Puerto Rican bank.
CPRT COPART, INC. 2%
Vehicle salvage services.
DLTR DOLLAR TREE STORES, INC. 2%
Dollar discount stores.
SAXN SAXON CAPITAL, INC. 2%
Subprime mortgage REIT.
AGP AMERIGROUP CORP. 2%
Health care services to
Medicaid recipients.
MDC M.D.C. HOLDINGS, INC. 2%
Homebuilder.
* Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
FINANCIAL SERVICES 36.8%
CONSUMER DISCRETIONARY 24.8%
HEALTH CARE 17.2%
TECHNOLOGY 9.0%
PRODUCER DURABLES 6.3%
CONSUMER STAPLES 2.0%
FINANCIALS 1.2%
UTILITIES 1.2%
AUTOS & TRANSPORTATION 1.0%
MATERIALS & PROCESSING 0.5%
**Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
DATE WASATCH CORE GROWTH FUND RUSSELL 2000 INDEX
---- ------------------------ ------------------
9/30/1994 10,000 10,000
9/30/1995 13,967 12,340
9/30/1996 15,697 13,961
9/30/1997 21,595 18,594
9/30/1998 17,819 15,058
9/30/1999 22,681 17,930
9/30/2000 31,640 22,124
9/30/2001 38,800 17,432
9/30/2002 33,471 15,810
9/30/2003 44,076 21,581
9/30/2004 50,597 25,633
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.
5
GLOBAL SCIENCE & TECHNOLOGY FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF AJAY KRISHNAN]
REVIEW OF THE YEAR
The Wasatch Global Science & Technology Fund lost 5.49% in the fiscal year
ended September 30, 2004. Over the same 12-month period, the Lipper Science &
Technology Index gained 0.97%, the Russell 2000 Technology Index lost 9.15%, the
Nasdaq Composite Index gained 6.71%, and the Russell 2000 Growth Index gained
11.92%.
As we mentioned in the semi-annual report, we added the Lipper Science &
Technology Index because we believe it is a better benchmark for the Fund than
the Russell 2000 Growth Index, which we plan to drop as a Fund benchmark.
In the six months ended September 30, 2004, the Fund relinquished the gains
made in the first half of the fiscal year. Factors contributing to the Fund's
loss included poor stock price performance from some of our holdings, signs of a
weakening economy, as well as a slowdown in technology spending and a buildup of
inventory in the semiconductor industry that led to significant declines in
technology stock prices. Several of our large positions--Wireless Facilities,
UTStarcom, Cabot Microelectronics, National Semiconductor and O2Micro--
detracted the most from the Fund's performance.
Opinions are mixed regarding the inventory buildup in the semiconductor
industry. We tend to agree with those who think that the inventory level should
adjust in about three months and do not see the buildup as the start of a
prolonged downturn. On the other hand, some think the inventory level may take
longer to adjust, especially since there are no clear signs indicating that
technology spending, particularly by corporations, will pick up. Efforts to slow
China's economic growth have also impacted this industry since China is
responsible for 25% of the global demand for semiconductors.
Our investments in National Semiconductor and O2Micro were affected by the
downturn in semiconductor stock prices, as was our investment in Cabot
Microelectronics, a supplier of chemicals to the semiconductor industry. While
the stock prices of these companies may continue to be volatile given the
challenges facing the technology sector, our research indicates that they are
solid companies capable of managing this downturn and producing the long-term
growth we expect.
Over 36% of the Fund's assets were invested in electronic technology,
which includes semiconductor and telecommunications equipment companies. Despite
this heavy weighting, the Fund was underweight relative to the Lipper Science &
Technology Index, of which electronic technology comprises nearly 52%. Our
significant underweighting and the weaker performance of our holdings
contributed to the Fund's underperformance of the Lipper Index. UTStarcom was a
large position that detracted substantially from the Fund's performance. While
the company is profitable and reported strong earnings growth, revenues and
expected margins were weaker due to increased competition in its handset
markets. As a result, management announced that future earnings would be below
expectations. We think the company has promising long-term growth potential, but
we have lowered our position to reflect this change in outlook.
Wireless Facilities, a provider of services to the telecommunications
industry, was primarily responsible for the Fund's underperformance of the
Lipper Index in commercial services. The company's stock price declined earlier
in the year after it made a distribution of shares to venture capital investors
that were subsequently sold on the market and later in the summer when it was
caught in the technology downdraft. The company reported strong earnings growth
throughout the year and we are optimistic about its long-term growth prospects.
Our health services holdings made the best contribution to performance
relative to the Lipper Index largely due to our investment in American
Healthways, a provider of disease management services. The Fund also did better
than the Lipper Index in health technology led by our investment in Straumann, a
Swiss manufacturer of dental implants.
The Fund was significantly underweighted in technology services, which
includes software and Internet companies. Our lack of exposure to these types of
companies hurt our performance relative to the Lipper Index. We typically expect
to have few investments in software companies as our research has not turned up
many that we feel have solid businesses and we do not think the trend toward
leasing software will be beneficial for these companies. While we had few
investments in Internet companies over the past 12 months, we have committed
more time to researching this area in an effort to find survivors of the
Internet bubble that have good business models and long-term growth potential.
We have generally avoided investing in franchise names such as Yahoo!,
Amazon.com and eBay because we consider their stocks to be too expensive most of
the time. However, we feel these companies are high quality technology leaders
and we would consider investing in them if their stocks become more rationally
priced in the future.
OUTLOOK
We are finding interesting companies in India and other developing
countries. India is attractive to us for three reasons. It has one of the
world's fastest growing economies. Companies are locating there to access
India's skilled, educated and affordable workforce. In addition, technology
industries that may not be considered growth industries in the U.S. often have
significant growth opportunity in developing nations like India.
In the short-term, technology stocks will be affected by the strength or
weakness of global economies, consumer and corporate spending, and other
developments. In the long term, the proliferation of technology is a powerful
force. We see significant opportunities to invest in the technology leaders of
today and well-managed companies with cutting edge products that have the
potential to be the leaders of tomorrow.
Thank you for investing in the Wasatch Global Science & Technology Fund.
6
GLOBAL SCIENCE & TECHNOLOGY FUND -- PORTFOLIO SUMMARY SEPTEMBER 30,2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1YEAR 5 YEARS 12/19/00
----- ------- --------
WASATCH GLOBAL SCIENCE & TECHNOLOGY FUND -5.49% N/A 0.93%
Lipper Science & Technology Index 0.97% N/A -17.63%
Russell 2000 Technology Index -9.15% N/A -15.22%
Nasdaq Composite Index 6.71% N/A -7.83%
Russell 2000 Growth Index 11.92% N/A -0.67%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
TICKER COMPANY % OF FUND
- ------ ------- ---------
OIIM 02MICRO INTERNATIONAL LTD. 4%
(Cayman Islands) Semiconductors to
increase power efficiency.
UTSI UTSTARCOM, INC. (China) 3%
Telecommunications network equipment.
ACDO ACCREDO HEALTH, INC. 3%
Services for individuals with chronic diseases.
QLGC QLOGIC CORP. 2%
Semiconductors and systems for storage networking.
MCRL MICREL, INC. 2%
Analog semiconductors for cell phones and laptops.
CTSH COGNIZANT TECHNOLOGY 2%
SOLUTIONS CORP., CLASS A
Professional technology services.
NSM NATIONAL SEMICONDUCTOR 2%
CORP.
Analog semiconductors.
TSRA TESSERA TECHNOLOGIES, INC. 2%
Semiconductor packaging technology.
AMHC AMERICAN HEALTHWAYS, INC. 2%
Disease management services.
TSM TAIWAN SEMICONDUCTOR 2%
MANUFACTURING CO. LTD.
ADR (Taiwan)
Semiconductor contract manufacturer.
* Portfolio Holdings are subject to change at any time, references to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
Technology 40.4%
Health Care 25.1%
Producer Durables 11.8%
Information Technology 7.5%
Consumer Discretionary 4.6%
Materials & Processing 3.2%
Utilities 3.1%
Energy 1.6%
Other 1.5%
Industrials 1.2%
** Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[PERFORMANCE GRAPH]
WASATCH GLOBAL SCIENCE & LIPPER SCIENCE & NASDAQ COMPOSITE RUSSELL 2000 RUSSELL 2000
DATE TECHNOLOGY FUND TECHNOLOGY INDEX INDEX TECHNOLOGY INDEX GROWTH INDEX
---- --------------- ---------------- ----- ---------------- ------------
12/19/2000 10,000 10,000 10,000 10,000 10,000
9/30/2001 8,020 4,537 5,725 5,098 7,510
9/30/2002 6,510 3,040 4,494 3,092 6,146
9/30/2003 10,959 4,752 6,882 5,891 8,710
9/30/2004 10,357 4,798 7,343 5,352 9,749
+ INCEPTION: December 19, 2000. THE LIPPER SCIENCE & TECHNOLOGY INDEX is a
composite of mutual funds that invest in science and technology companies and
have investment objectives similar to those of the Fund. 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-US, 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. 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 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 THESE INDEXES
7
HERITAGE GROWTH FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF CHRIS BOWEN] [PHOTO OF RYAN SNOW]
Chris Bowen Ryan Snow
Portfolio Manager Portfolio Manager
REVIEW SINCE INCEPTION
The Wasatch Heritage Growth Fund lost 1.40% since the Fund's inception on
June 18,2004 through September 30, 2004. Over the same period, the Russell
Midcap Growth Index, a widely used measure for the performance of mid-cap growth
stocks, lost 2.36%
With just slightly over one quarter's worth of performance, the Heritage
Growth Fund, aided by an investment approach that pays close attention to
captured earnings growth and seeks to invest at reasonable prices, outperformed
its primary benchmark, the Russell Midcap Growth Index. Our belief that
increases in stock prices over the long term are highly correlated to earnings
growth is an investment philosophy that has guided Wasatch's small cap growth
investment process since 1975. We have taken the same approach with the Heritage
Growth Fund and are applying it to industry leaders and what we call "Wasatch
Graduates" -- companies whose businesses and growth prospects we have tracked
for a long time but whose market capitalizations are generally too large to be
held in our small cap growth funds.
Like the other Wasatch Funds, the Heritage Growth Fund uses a process of
bottom-up fundamental analysis to research the investment potential of
individual companies. We do not make allocations to specific sectors or
industries. Rather, sector weightings result from the number of companies we
find that meet our standards for quality and long-term growth potential.
Long-term interest rates remained low and this was seen as being positive
for homebuilders. The producer durables sector of the Fund is comprised mostly
of homebuilders and our investments benefited from the favorable environment. In
fact, three of the top five contributors to the Fund's performance since
inception were homebuilders including NVR, Pulte Homes, and D.R. Horton. We
believe they are still attractively valued based on our assessment of their
historical and projected financial results. We believe that the homebuilders we
have invested in are solid, well-managed companies with dominant positions in
their markets. The growth of publicly traded homebuilders, in general, is
supported by favorable demographics including population growth, immigration and
the creation of new households. In addition, we believe that the homebuilders we
hold are well positioned to increase their market share, reduce costs by gaining
economies of scale and purchase land in desirable locations.
Within the technology sector we were heavily weighted in analog
semiconductor companies with investments in Linear Technology, Maxim Integrated
Products and National Semiconductor. In the past, some of our small cap funds
invested in Linear Technology and Maxim Integrated Products but these companies
outgrew the market capitalization parameters of those funds. The Heritage Growth
Fund invested in these companies as they have emerged as leaders in the analog
space. We believe these companies continue to have outstanding growth potential
given the important role analog semiconductors play in the proliferation of
technology, a powerful long-term trend.
Our research has identified a number of financial services companies with
favorable growth characteristics and in some cases attractive dividend yields.
Strong performers included Doral Financial, Puerto Rico's dominant mortgage
lender, and North Fork Bancorp, an operator of New York City banks that serve
small businesses. The financial services sector was the most heavily weighted
sector in the Fund.
In the consumer discretionary sector where we have several investments in
retailers, our investments in two education companies detracted from
performance. Corinthian Colleges, an operator of schools for post-secondary
education, reported that earnings would be lower than expected, and the stock
price of Apollo Group, a provider of higher education for working adults, was
dragged down due to poor results reported by similar companies.
While we are optimistic about the long-term prospects for our health care
holdings, a number of companies experienced short-term issues. WellPoint Health
Networks, a managed health care company suffered a stock price decline when
California's Department of Insurance moved to block a proposed acquisition by
Anthem.
OUTLOOK
We believe that Wasatch's intensive research process is well suited to
finding growing companies regardless of changing market or economic dynamics. We
encourage you to remain focused on your long-term investment goals and we will
do our part by striving to invest in growing companies at reasonable prices.
Thank you for investing in the Wasatch Heritage Growth Fund.
8
HERITAGE GROWTH FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1 YEAR 5 YEARS 6/18/04*
------ ------- --------
WASATCH HERITAGE GROWTH FUND N/A N/A -1.40%
Russell Midcap Growth Index N/A N/A -2.36%
S&P 500(R) Index N/A N/A -1.06%
Russell Midcap Index N/A N/A 1.46%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
Equity investing involves risks, including potential loss of the principal
amount invested. Being non-diversified, the Fund can invest a larger portion of
its assets in the stocks of a limited number of companies than a diversified
fund. Non-diversification increases the risk of loss to the Fund if the values
of these securities decline.
*Returns less than a year are not annualized.
TOP 10 EQUITY HOLDINGS**
TICKER COMPANY % OF FUND
- ------ ------- ---------
WSH WILLIS GROUP HOLDINGS LTD. 3%
Insurance broker.
AZO AUTOZONE, INC. 3%
Discount auto parts retailer.
TEVA TEVA PHARMACEUTICAL INDUSTRIES LTD. Adr Pharmaceuticals. 3%
NVR NVR, INC. 3%
Homebuilder.
DRL DORAL FINANCIAL CORP. 3%
Puerto Rican bank.
WLP WELLPOINT HEALTH NETWORKS, INC. 3%
Health maintenance organization.
PHM PULTE HOMES, INC. 2%
Homebuilder.
DHI D.R. HORTON, INC. 2%
Homebuilder.
NFB NORTH FORK BANCORPORATION, INC. 2%
Regional bank.
APOL APOLLO GROUP, INC., CLASS A 2%
Higher education for working adults.
** Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN+
[PIE CHART]
Financial Services 30.5%
Health Care 21.3%
Consumer Discretionary 18.7%
Technology 10.0%
Producer Durables 9.3%
Utilities 3.6%
Autos & Transportation 3.4%
Other 2.4%
Materials & Processing 0.8%
+Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[PERFORMANCE GRAPH]
WASATCH HERITAGE RUSSELL MIDCAP RUSSELL MIDCAP S&P
DATE GROWTH FUND INDEX GROWTH INDEX 500 INDEX
---- ----------- ----- ------------ ---------
6/18/2004 10,000 10,000 10,000 10,000
6/30/2004 10,030 10,232 10,206 10,083
7/31/2004 9,470 9,784 9,530 9,749
8/31/2004 9,450 9,827 9,412 9,788
9/30/2004 9,860 10,146 9,764 9,894
++INCEPTION: June 18, 2004. THE RUSSELL MIDCAP GROWTH INDEX measures the
performance of those Russell Midcap Index companies with higher price-to-book
ratios and higher forecasted growth values. THE RUSSELL MIDCAP INDEX is an
unmanaged total return index of the 800 smallest companies in the Russell 1000'
Index, as ranked by total market capitalization. The stocks in the Russell
Midcap Growth Index are also members of the Russell 1000 Growth Index. THE S&P
500 INDEX includes 500 of the United States' largest stocks from a broad variety
of industries. The Index is unmanaged but is a commonly used measure of common
stock total return performance. YOU CANNOT INVEST DIRECTLY IN THESE INDEXES.
9
INTERNATIONAL GROWTH FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF MIKE GERDING]
Mike Gerding, CFA
Portfolio Manager
REVIEW OF THE YEAR
During the year ended September 30, 2004, the Wasatch International Growth
Fund gained 21.97%. Despite producing positive results, the Fund underperformed
the MSCI World Ex-U.S.A. Small Cap Index, which gained 26.58%.
As of September 30, the Fund owned 87 companies in 23 countries. The
Fund's weighted average market capitalization was $1.33 billion, while the
median market cap was $ 638 million. The estimated average annual earnings
growth of our holdings for the next three years is over 21%, and at the end of
the period the average price-to-earnings ratio was about 15.
Japan was our largest country weight, with 16% of the Fund's long-term
investments in Japanese companies. This was still well under the Index weight of
approximately 28%. Of our other large country weights, we were overweighted and
outperformed the Index in Canada, Germany, Switzerland and France. We were
underweighted and underperformed the Index in Japan and the United Kingdom.
Performance across the world was mixed over the last year. In the
developed markets, Hong Kong, Japan, Spain and the United Kingdom were strong.
In addition, Scandinavian markets were quite strong, largely due to the increase
in oil prices. The laggards in the larger markets included Germany and France,
as their economies continue to struggle and earnings growth was very low. The
emerging markets were also mixed, but helped the Fund throughout the year. As of
September 30, the Fund had nearly 14% invested in emerging market countries. Our
largest emerging market exposure was in India, which accounted for about 4% of
the Fund. The Indian market made a positive contribution to the Fund as it
recovered after the post election decline in the second quarter of 2004.
The Fund's largest sector weights were in consumer discretionary,
industrials, health care and information technology. We were overweighted and
outperformed the Index in consumer discretionary, health care and information
technology. We were underweighted and underperformed the Index in industrials,
but the biggest factor in our underperformance of the Index was our substantial
underweighting in the materials and financials sectors.
We added several companies to the Fund over the last year, both in
emerging and established markets around the world. Two Indian companies we added
were Pantaloon, a diversified retailer in India, and Bharat Forge, a
manufacturer of auto parts. Another retailer, Bijou Brigitte out of Germany, was
one of our best performing stocks in the last 12 months.
Some of our largest holdings were among the best performers including
Cairn Energy, a United Kingdom oil and gas company, Puma, a German shoe and
apparel company, Straumann, a Swiss-based manufacturer of dental implants, Home
Capital Group, a Canadian alternative mortgage lender and PARK24, a Japanese
parking lot operator.
The Fund's performance was hurt by the stock price declines of several
significant holdings including Rodriguez Group, a French yacht builder, Zapf
Creation, a German doll manufacturer, UTStarcom, a telecom company with most of
its business in China, and Taro Pharmaceutical, an Israeli generic drug company.
OUTLOOK
Many of the world's economies seem to be in good shape for 2005, but the
biggest concern is the sustainability of economic conditions, particularly in
the face of historically high oil prices. The U.S. economy is on a moderately
strong path, with expectations for gross domestic product (GDP) growth of around
3% for next year. This seems reasonable to us, but we are concerned about the
potentially negative impact from high oil prices, higher interest rates and a
relatively anemic job market. The consumer in the U.S. has been stronger than
expected throughout the last several years, in spite of economic difficulties.
Spending has been sustained by increased consumer debt, a drop in the savings
rate and windfalls from mortgage refinancing. This has clearly benefited many of
our companies that manufacture and export products to the U.S., but we wonder
how long this can be maintained. Asian economies in particular are sensitive to
the U.S. consumer, and if spending by U.S. consumers continues to slow, this
will negatively impact many Asian businesses.
Japanese economic growth is still stronger than it has been in many years
but has slowed a bit from the first half of 2004. Unlike U.S. consumers,
spending by Japanese consumers has been conservative over the last several years
due to deflation and falling income. We believe Japanese consumers need to
increase spending for Japan's economy to grow on a sustained basis. It is only
through growth that the Japanese government can deal with the serious issues
facing the country's banking systems. Recent growth has quieted the discussion
about the banking problems but has not eliminated them.
Continental Europe will likely continue to be the economic laggard. We
believe that structural problems, including the strong presence of unions and
onerous work rules in countries such as France and Germany, will be forces that
dampen economic growth in these countries. The long-term good news for Europe is
the dynamic economies that are evolving in Eastern Europe. Not only are the
economies in Poland, Hungary and the Czech Republic growing, but also Romania,
Bulgaria and Slovenia are becoming increasingly significant contributors to the
European economy. With less regulation and lower wage rates, these countries are
attracting companies from around the globe that want to compete in Europe. They
are also attracting new investments from companies in more mature European
economies such as France and Germany that are looking for dynamic, educated and
affordable work forces. This development could be significant for many years to
come.
We continue to find growing small companies outside the United States that
we believe are high quality, and we believe the Fund is in a position to benefit
from the potential growth of these businesses over the long-term.
Thank you for investing in the Wasatch International Growth Fund.
10
INTERNATIONAL GROWTH FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1 YEAR 5 YEARS 6/28/02
------ ------- -------
WASATCH INTERNATIONAL GROWTH FUND 21.97% N/A 18.63%
MSCI World Ex-U.S.A. Small-Cap Index 26.58% N/A 20.45%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
TICKER COMPANY % OF FUND
- ------ ------- ---------
CNELN CAIRN ENERGY PIC 3%
(United Kingdom) Oil and gas developer.
PUMGR PUMA AG RUDOLF DASSLER SPORT 3%
(Germany) Shoe and apparel manufacturer.
STMNSW STRAUMANN HOLDING AG 2%
(Switzerland) Dental implants.
EKTABSS ELEKTA AB, CLASS B 2%
(Sweden) Radiology equipment.
ORPFP ORPEA (France) 2%
Nursing homes.
SIALN SOCO INTERNATIONAL Plc 2%
(United Kingdom) Oil and gas developer.
SEEN SW SAIA-BURGESS ELECTRONICS AG 2%
(Switzerland) Electronic components
for automobiles.
4666 JP PARK24 CO. LTD. (Japan) 2%
Parking lot operator.
HCG CN HOME CAPITAL GROUP, Inc. 2%
(Canada) Mortgage lender.
4732 JP USS CO. LTD. (Japan) 2%
Used car auctions.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
CONSUMER DISCRETIONARY 24.7%
HEALTH CARE 19.9%
INFORMATION TECHNOLOGY 13.6%
INDUSTRIALS 12.0%
OTHER 7.5%
CONSUMER STAPLES 5.3%
ENERGY 5.0%
FINANCIAL SERVICES 4.8%
FINANCIALS 4.5%
TECHNOLOGY 2.7%
**Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[PERFORMANCE GRAPH]
WASATCH
INTERNATIONAL MSCI WORLD EX-U.S.A.
DATE GROWTH FUND SMALL-CAP INDEX
---- ----------- ---------------
6/28/2002 10,000 10,000
6/30/2002 10,000 10,146
9/30/2002 8,850 8,505
12/31/2002 9,430 8,530
3/31/2003 8,610 8,295
6/30/2003 10,510 10,370
9/30/2003 12,060 12,037
12/31/2003 13,670 13,802
3/31/2004 14,760 15,403
6/30/2004 15,030 15,435
9/30/2004 14,710 15,236
+INCEPTION: June 28, 2002. THE MSCI WORLD EX-U.S.A. SMALL-CAP INDEX is an
unmanaged index that measures the performance of stocks with market
capitalizations between U.S. $200 million and $1.5 billion across 22 developed
markets, excluding the United States. YOU CANNOT INVEST IN THE INDEX.
11
MICRO CAP FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF ROBERT GARDINER] [PHOTO OF DANIEL CHACE]
Robert Gardiner CFA Daniel Chace
Portfolio Manager Portfolio Manager
REVIEW OF THE YEAR
In the year ended September 30, the Wasatch Micro Cap Fund gained 9.96%
compared to a gain of 18.77% for the Russell 2000 Index. The Fund significantly
underperformed the Index even though the majority of our holdings produced
strong earnings growth throughout the year.
Much of the underperformance had to do with the Fund's weightings in
certain sectors compared to the Index, and in some sectors our holdings did not
do as well as those in the Index. We use a bottom-up approach to investing,
which means we analyze the investment potential of individual companies. As a
result, our sector weightings may be quite different from those of the Index.
This was the case in the materials and processing sector where the Fund
historically has been underweighted compared to the Index. The securities in the
Index were up substantially in the past 12 months and this sector made a
positive contribution to the Index's performance. In contrast, our materials and
processing holdings were down and this sector of the Fund detracted from our
performance. Our investment in Cabot Microelectronics, a supplier of chemicals
to the semiconductor industry, had the greatest negative impact on the Fund's
performance. Cabot's stock price was affected by concerns over the company's
competitive position and broader declines among semiconductor stocks.
The stock prices of most companies in the energy sector have risen
dramatically this year due to significant increases in the prices of oil and
natural gas. The Fund had far less exposure to this sector than did the Index.
The energy sector made a negligible contribution to the Fund's performance but
was one of the Index's top contributors. We do not preclude ourselves from
investing in this sector but we have historically had difficulty finding
attractive long-term investments given the dependence of most energy companies
on unpredictable commodity prices.
As of September 30, the Fund's weighting in the financial services sector
was less than half that of the Index's, despite selectively adding growing
financial services companies throughout the year. While our holdings were up
significantly more than the Index, our underweighting meant this sector did not
contribute as much to the Fund's performance as it did to the Index's. In the
first six months of the year, expectations of a strong economy created concern
that the Fed would raise interest rates considerably. Financial services
companies are generally perceived to be sensitive to rising interest rates and
this caused broad stock price declines within the sector. Increasing economic
uncertainty accompanied by the expectation that interest rates would rise slowly
made financial services stocks more attractive to investors in the past six
months and the Fund's financial services holdings benefited. The biggest
positive contributor to the Fund's performance in this sector was Home Capital
Group, a Canadian mortgage lender to below prime customers.
Twelve months ago, technology stocks were generally priced in anticipation
of strong economic growth. When this did not materialize, expectations and stock
prices were reset at lower levels. In recent months, technology stock prices
tumbled again as concerns emerged over rising semiconductor inventories and
evolved to include worries over the strength of demand for technology products
in the back to school and upcoming holiday seasons. As it has done historically,
the Fund carried a significant overweight in the technology sector compared to
the Index given the number of interesting micro cap companies we have been able
to find there. Despite the stock price weakness of our holdings, we continue to
believe that we have invested in many high quality companies with above average
growth prospects.
The consumer discretionary sector made the best contribution to the Fund's
performance over the past 12 months. However, in the last six months, slowing
consumer spending has affected many companies in this sector. The largest
contribution to the Fund's performance came from Big 5 Sporting Goods, a
sporting goods retailer. Big 5's stock price rose as the company reported strong
financial results and decreased its debt. Another noteworthy performer was Bijou
Brigitte, a German-based retailer of costume jewelry and accessories. Bijou
Brigitte combined strong business momentum with an attractively priced stock.
Health care is a sector where we have traditionally done well but this was
not the case in the past year. While this sector made a positive contribution to
the Fund's performance and most of our holdings reported strong earnings growth,
we had more companies than usual experience short-term setbacks. An example was
Icon, a United Kingdom-based research organization that manages clinical trials
for pharmaceutical companies. Icon's results were hurt when some clinical trials
were postponed. We still believe this is a high quality business with good
long-term growth potential.
In recent years, Wasatch has added international expertise that we have
been able to successfully leverage for the Fund. Our international investments
had a positive impact on performance during the year. Two examples are Home
Capital Group and Bijou Brigitte mentioned earlier.
OUTLOOK
The U.S. economy still faces many challenges including global unrest,
rising energy prices, weakening consumer spending and less than robust job
creation. Despite a disappointing year, we are confident the Fund is invested in
high quality companies with above average growth prospects, and that we have
acquired their stocks at generally reasonable prices. Market volatility like
that of the past year can prove to be an opportunity, as high quality stocks
often will trade at attractive prices. Beyond this, we continue to cover the
waterfront seeking to invest in the next generation of great growth companies,
both domestically and internationally.
Thank you for investing in the Wasatch Micro Cap Fund.
12
MICRO CAP FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1YEAR 5 YEARS 6/19/95
----- ------- -------
WASATCH MICRO CAP FUND 9.96% 25.44% 26.53%
Russell 2000 Index 18.77% 7.41% 9.34%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
TICKER COMPANY % OF FUND
- ------ ------- ---------
AMSG AMSURG CORP. 4%
Outpatient surgery centers.
BGFV BIG 5 SPORTING GOODS CORP. 3%
Sporting goods retailer.
CRAI CHARLES RIVER ASSOCIATES, INC. 2%
Economic and business consulting.
OIIM 02MICRO INTERNATIONAL LTD. 2%
Semiconductors to increase power efficiency.
BIJGR BIJOU BRIGITTE AG 2%
Costume jewelry retailer.
HCG CN HOME CAPITAL GROUP, INC. 2%
Alternative mortgage lender.
ICUI ICU MEDICAL, INC. 2%
Disposable connectors for intravenous therapy.
GTRC GUITAR CENTER, INC. 2%
Music stores.
MCRL MICREL, INC. 2%
Analog semiconductors for cell phones
and laptops.
AHS AMN HEALTHCARE SERVICES, INC. 2%
Health care staffing.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
HEALTH CARE 27.5%
CONSUMER DISCRETIONARY 24.7%
TECHNOLOGY 19.0%
FINANCIAL SERVICES 12.9%
PRODUCER DURABLES 8.5%
AUTOS & TRANSPORTATION 3.4%
MATERIALS & PROCESSING 1.5%
OTHER 1.2%
INDUSTRIALS 0.7%
INFORMATION TECHNOLOGY 0.6%
**Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[PERFORMANCE GRAPH]
DATE WASTACH MICRO CAP FUND RUSSELL 2000 INDEX
---- ---------------------- ------------------
6/19/1995 10,000 10,000
9/30/1995 13,600 11,042
9/30/1996 15,750 12,492
9/30/1997 22,771 16,638
9/30/1998 20,779 13,474
9/30/1999 28,619 16,044
9/30/2000 46,900 19,796
9/30/2001 54,556 15,598
9/30/2002 53,788 14,147
9/30/2003 80,832 19,310
9/30/2004 88,880 22,935
+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.
13
MICRO CAP VALUE FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO] [PHOTO] [PHOTO]
Robert Gardiner, CFA John Malooly, CFA Brian Bythrow, CFA
Portfolio Manager Portfolio Manager Portfolio Manager
REVIEW OF THE YEAR
In its first full fiscal year of operation, the Wasatch Micro Cap Value
Fund gained 23.06% and outperformed the Russell 2000 Index, which gained 18.77%.
It was tougher to find undervalued micro cap companies during the first
six months of the fiscal year given the popularity and subsequent rise in the
prices of micro cap stocks during 2003. In this environment, we took profits in
our high priced micro cap stocks as we looked for opportunities to invest in
companies that met our growth and value criteria. As economic uncertainty caused
stock prices to decline over the past six months, finding undervalued micro cap
companies has been a bit less challenging. This environment provided
opportunities to take new positions and reinvest in some positions that we sold
earlier in the year.
In both environments, we believe our hands-on research process helped us
identify companies with the potential to contribute to the long-term track
record we are striving to build. Our research was rewarded as the Fund's largest
positions generally aided our performance during the year.
Apparently we weren't the only ones who believed our names held good value
as Endocardial Solutions, Rainbow Rentals, BW Technologies and Computer Access
Technologies were acquired by other companies during the year.
We were surprised at how many growing micro cap companies we found
overseas. The micro cap market is less developed abroad than in the United
States and many foreign micro cap companies have yet to be discovered by
investors. As a result, we believe that some of these companies may be
significantly undervalued despite having attractive growth characteristics.
The Fund's largest holding as of September 30 and one of the best
contributors to performance was Bijou Brigitte, a German-based retailer of
costume jewelry. Bijou Brigitte is an excellent example of the characteristics
we require for a company to be heavily weighted in the Fund -- an expe-rienced
management team, strong growth prospects and a stock priced below what we think
the company is worth.
On average, our holdings in the financial services sector reported strong
earnings growth throughout the year and made the largest contribution to the
Fund's performance. The Fund's investments in regional banks did well. One
strong performer was Wilshire Bancorp, a Los Angeles-based bank focused on
serving Korean and Hispanic populations. Another was Home Capital Group, a
Canadian mortgage lender that provides residential mortgages to populations,
such as immigrants and the self-employed, that are not well served by major
banks. The Fund was underweighted in the financial services sector compared to
the Index, yet with holdings like Wilshire and Home Capital Group, we
outperformed the Index.
Unlike large health care conglomerates with hundreds of products, micro
cap health care companies generally have just one or two products. The
entrepreneurs who run them typically develop products or technologies that fill
a specialized niche within a certain medical industry. A large part of our
research focuses on understanding how successful these innovative health care
products are likely to be in their markets. A possible outcome for successful
micro cap companies is that larger health care companies acquire them. An
example is Endocardial Solutions, a company that developed a system to map
cardiac arrhythmia, which enables a surgical cure for atrial fibrillation. St.
Jude Medical recently acquired Endocardial Solutions at a substantial premium,
making it one of the largest contributors to the Fund's performance over the
past 12 months.
Similar to the health care sector, a lot of micro cap companies in the
technology sector focus on developing processes and applications for specific
industries. We hold a number of companies that develop measuring systems to
detect defects in semiconductor chip manufacturing processes. We like their
long-term prospects as we noted that these systems have become increasingly
important in meeting the demand for smaller semiconductors that hold more
information. However, the semiconductor industry hit a soft spot during the year
and caused our investments in Nassda and August Technology to detract from the
Fund's performance. In addition, general weakness in the technology sector
affected our investments in CorVu and iPass, which also detracted from the
Fund's performance.
The Fund did not perform as well as the Index in sectors where we were
underweighted including the consumer discretionary, materials and processing,
energy and autos and transportation sectors. Aside from consumer discretionary,
these sectors are generally not a focus for the Fund. A significant detractor
from the Fund's performance in the autos and transportation sector was Norwegian
Air Shuttle. The company was affected by issues that plagued the airline
industry throughout the year including rising fuel costs, high fixed expenses
and overcapacity.
OUTLOOK
We feel good about the Fund's positioning going into the new fiscal year.
The micro cap companies in which we invested have the potential to grow well and
we believe that the prices we paid leave room for their stocks to appreciate. We
continue to look for micro cap companies that provide a favorable mix of
quality, growth potential and value. We believe that if we continue to be
disciplined in executing our investment strategies, the Fund will have the
potential to help you achieve your long-term investment goals.
Thank you for investing in the Wasatch Micro Cap Value Fund.
14
MICRO CAP VALUE FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1YEAR 5 YEARS 7/28/03
----- ------- ---------------
WASATCH MICRO CAP VALUE FUND 23.06% N/A 23.81%
Russell 2000 Index 18.77% N/A 18.77%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
Ticker Company % of Fund Ticker Company % of Fund
- ------ -------- ---------------------------------- --------- ------ --------------------------------------------- ---------
BIJGR BIJOU BRIGITTE AG (Germany) 3% ECSI ENDOCARDIAL SOLUTIONS, INC. 2%
Costume jewelry retailer Systems to map cardiac arrhythmia.
ISTA ISTA PHARMACEUTICALS, INC. 2% ICUI ICU MEDICAL, INC. 2%
Pharmaceuticals for opthalmology. Disposable connectors for intravenous therapy
NPTH ENPATH MEDICAL, INC. 2% PLXT PLX TECHNOLOGY, INC. 2%
Advanced vascular delivery products. Semiconductors to accelerate
and manage data transfer.
WIBC WILSHIRE BANCORP, INC. 2% APTI ADVANCED POWER TECHNOLOGY, INC. 2%
Regional bank. High performance power semiconductors.
INTT INTEST CORP. 2%
Products used in equipment to automatically OHB ORLEANS HOMEBUILDERS, Inc. 2%
test integrated circuits. Homebuilder.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[SECTOR BREAKDOWN PIE CHART]
[ ] HEALTHCARE 29.1%
[ ] FINANCIAL SERVICES 21.7%
[ ] PRODUCER DURABLES 14.0%
[ ] CONSUMER DISCRETIONARY 12.3%
[ ] TECHNOLOGY 11.6%
[ ] AUTOS & TRANSPORTATION 3.6%
[ ] OTHER 2.6%
[ ] INDUSTRIALS 2.5%
[ ] MATERIALS 1.5%
[ ] ENERGY 1.1%
**EXCLUDES SHORT-TERM INVESTMENTS, IF ANY.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
DATE WASATCH MICRO CAP VALUE FUND RUSSELL 2000 INDEX
7/28/2003 10,000 10,000
9/30/2003 10,450 10,316
12/31/2003 12,059 11,814
3/31/2004 13,610 12,553
6/30/2004 13,460 12,613
9/30/2004 12,860 12,252
+ INCEPTION: July 28, 2003. 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.
15
SMALL CAP GROWTH FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO]
Jeff Cardon, CFA
Portfolio Manager
REVIEW OF THE YEAR
The Wasatch Small Cap Growth Fund gained 8.27% in the fiscal year ended
September 30,2004. The Fund underperformed the Russell 2000 Index, a widely used
measure for the performance of small company stocks, which gained 18.77%.
While the Fund's 12-month performance was disappointing, we are pleased by our
long-term results. Please see the portfolio summary on the next page.
As we stated in our semi-annual report, during the first six months of our
fiscal year, the Russell 2000 Index's returns were driven by big price gains in
companies that do not meet our quality criteria. Market winners during this
period tended to be the stocks of very small companies, companies without
profits, and companies with significant debt on their balance sheets. Our belief
was that these kinds of stocks would not be able to sustain superior market
performance once the market returned to normalcy.
The market did turn away from low quality stocks over the past six months.
In fact, the kind of market environment we saw from March through September 2004
was one in which we have historically done well. Our strategy of investing in
high quality companies at rational prices usually shines during a period of
uncertainty and generally declining stock prices like that of the past six
months. Uncharacteristically, we have not performed as well as anticipated
during this recent phase of the market. In the second half of our fiscal year,
the Fund lost 3.24% while the Russell 2000 Index lost 2.40%.
Although the earnings growth of our portfolio companies has been stellar
and growing at a greater than 20% clip, a handful of companies with weak short
run earnings hindered performance. Even though the number of earnings slowdowns
was not abnormally high, the market reaction was unusually severe. Taro
Pharmaceutical, Cabot Microelectronics, Integrated Circuit Systems and Dollar
Tree Stores were examples of companies with disappointing stock price
performance. While these companies detracted from the Fund's performance during
the past 12 months, we continue to hold them because we believe their long-term
growth prospects remain bright.
In addition to these stock specific setbacks, our underperformance
relative to the Russell 2000 Index was due to strong sector gains in the energy,
minerals, industrial services, producer manufacturing and the financial sectors
of the market. Over the years, we have noted that the Small Cap Growth Fund is
traditionally underweight in these sectors because we can't find very many
growth companies in these slower growing industries. We believe our focus on
investing in companies in faster growing industries such as technology, health
services, business services, and health technology will serve our investors well
over the long run. The downside to this strategy is that we will experience
periods of underperformance when the stocks of cyclical, slower growing
industries are in favor. We think this is a reasonable tradeoff given our focus
on investing in companies with long run growth opportunities.
OUTLOOK
We are disappointed in our recent performance. As stated above, six months
ago we entered a market where we should have delivered stronger performance to
our shareholders. Historically, our shareholders have endured similar periods of
underperformance and we have responded with favorable results. As you know,
there are no guarantees of better performance ahead though we remain confident
in our ability to identify and invest in the stocks of high quality growth
companies and have a strong conviction that sticking to our discipline is the
proper long and short run strategy.
Importantly, the outlook for the fundamentals of our portfolio companies
remains solid and supports our belief that, despite this period of
underperformance, the Fund has invested in companies that have superior long run
earnings growth potential. We believe that over time earnings growth drives
stock prices and that our strategy of investing in growing small companies has
the potential to help you achieve your long-term investment objectives.
We remain committed to working hard for you and we are mindful of the
assets you have entrusted to us.
Thank you for investing in the Wasatch Small Cap Growth Fund.
16
SMALL CAP GROWTH FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
1YEAR 5 YEARS 10 YEARS
----- ------- --------
WASATCH SMALL CAP GROWTH FUND 8.27% 13.26% 14.54%
Russell 2000 Index 18.77% 7.41% 9.87%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY HE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
Ticker Company % of Fund Ticker Company % of Fund
- ------ --------------------------------------------- --------- ------ -------------------------------------------- ---------
ORLY O'REILLY AUTOMOTIVE, INC. 4% AGP AMERIGROUP CORP. 2%
Automotive parts retailer/distributor. Health care services to Medicaid recipients.
KNGT KNIGHT TRANSPORTATION,INC. 3% NXTP NEXTEL PARTNERS, INC., CLASS A 2%
Long haul trucking and logistic services. Wireless service provider.
AMSG AMSURG CORP. 3% MCRL MICREL, INC. 2%
Outpatient surgery centers Analog semiconductors for cell phones and
laptops.
TECH TECHNE CORP. 3% CARS CAPITAL AUTOMOTIVE 2%
Complex, disposable research kits for biotech Specialized REIT.
AMHC AMERICAN HEALTHWAYS, INC. 2% YCC YANKEE CANDLE CO., INC. 2%
Disease management services. Scented candle manufacturer.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
HEALTH CARE 26.7%
CONSUMER DISCRETIONARY 25.1%
TECHNOLOGY 20.6%
FINANCIAL SERVICES 11.6%
PRODUCER DURABLES 5.8%
AUTOS & TRANSPORTATION 3.6%
UTILITIES 2.2%
MATERIALS & PROCESSING 1.8%
OTHER 1.5%
FINANCIALS 1.1%
**EXCLUDES SHORT-TERM INVESTMENTS, if any.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
DATE WASATCH SMALL CAP GROWTH FUND RUSSELL 2000 INDEX
- --------- ----------------------------- ------------------
9/30/1994 10,000 10,000
9/30/1995 13,519 12,340
9/30/1996 13,371 13,961
9/30/1997 17,309 18,594
9/30/1998 13,997 15,058
9/30/1999 20,849 17,930
9/30/2000 31,196 22,124
9/30/2001 28,509 17,432
9/30/2002 26,362 15,810
9/30/2003 35,893 21,581
9/30/2004 38,862 25,633
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.
17
SMALL CAP VALUE FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO] [PHOTO]
Jim Larkins, MBA John Mazanec, MBA
Portfolio Manager Portfolio Manager
REVIEW OF THE YEAR
The Wasatch Small Cap Value Fund gained 19.73% in the 12 months ended
September 30, 2004. The Fund underperformed the Russell 2000 Value Index, a
widely used measure for the performance of value-oriented small company stocks,
which gained 25.66% over the same period.
The underperformance relative to the Index was caused primarily by the
Fund's investments, or lack thereof we should say, in the materials and
processing and energy sectors as well as the relatively poor performance of our
investments in the consumer discretionary sector.
Consistent with our history, the Fund was considerably underweight in the
materials and processing and energy sectors. Many of the companies in these two
sectors are heavily influenced by commodity prices, possess significant
operating leverage and are often burdened with large debt loads. In a favorable
operating environment, the combination of these three attributes can lead to
very strong financial results. For example, over the past year, worldwide demand
for many of the products and commodities produced by these companies has
increased, the prices paid by consumers for these products have risen
dramatically, and interest rates have remained low. As a result, many of these
companies have been able to sell more units at higher prices while incurring
less interest expense. In short, the macro environment for these companies has
been very favorable over the past year.
However, when the operating environment is not as hospitable, the earnings
and cash flow of these companies can be small to non-existent and the debt loads
can be unmanageable. It is also difficult to find companies in these sectors
with predictable three to five year growth prospects given the volatility of
commodity prices. While we like to invest in companies that are supported by
favorable operating environments, we prefer environments that have exhibited
more stability than those of these two sectors. We also try to invest in
companies that have some control over their own destiny should the operating
environment deteriorate. Executing this investment thesis is obviously easier
said than done. We do not want to make excuses for being underinvested in these
two sectors over the past year, but we do want to help our shareholders
understand our investment philosophy and how it affects our decisions.
While higher fuel prices have been good for the energy sector, they have
contributed to a marked slowdown in consumer spending over the past six months.
The slowdown had a significant negative impact on our holdings in the consumer
discretionary sector, where we were heavily invested in retail companies. For
example, one detractor from the Fund's performance due to weaker than
anticipated sales was Casual Male, a chain of clothing stores that cater to big
and tall consumers. We think the company is still an attractive investment and
view a recent acquisition as favorable for its long-term growth prospects.
Some of our consumer discretionary investments were in companies facing
short-term challenges that we believed were manageable. During the year, though,
the increasingly uncertain economic environment made the desired "turnarounds"
difficult to achieve. This was the case with Action Performance, a developer and
marketer of die cast model racing cars and other racing related memorabilia,
which was the biggest detractor from the Fund's performance. We are monitoring
developments at Action Performance as we believe growth may be slower than
originally anticipated.
The sector that contributed the most to the Fund's positive results over
the past 12 months was financial services. We invested in many of our financial
services holdings when their stock prices were depressed due to concerns that
strong economic growth would trigger rising interest rates. The favorable
characteristics we saw in the companies in which we invested included strong
business fundamentals and, in many cases, attractive dividend yields. With
economic growth not as robust as predicted, the fear of sharply rising interest
rates dissipated and our holdings benefited as financial services companies once
again became attractive investments. A number of the Fund's top contributors to
performance were financial services companies including Saxon Capital, Redwood
Trust, Commercial Capital, AmeriCredit and Accredited Home Lenders.
Our health care holdings also contributed positively to the Fund's results
led by Chattem, a maker of over-the-counter health care products. Chattem's
stock price rose as the company resolved liability issues, settled lawsuits and
developed profitable extensions of existing products. While Chattem is an
exception, current economic weakness generally has not been favorable for our
fallen angels strategy of investing in companies with a history of profitable
growth that have hit a bump in the road. We seek to invest in fallen angels at
low prices and capture stock price appreciation as they resume their earnings
growth track. Fallen angels generally have an easier time getting back on track
when the economy is strengthening.
OUTLOOK
Although some companies have detracted from the Fund's results over the
past 12 months, we think our current holdings may offer good upside potential
over the next 12 to 24 months. In addition, as stock prices have come down we
have been fine-tuning the Fund by investing in higher quality companies that we
believe are undervalued. Presently, we are finding attractive pockets of
opportunity among financial services and technology companies, homebuilders,
auto dealers and selected retailers. We believe the Fund is well positioned with
the potential to help you achieve your long-term investment objectives.
Thank you for investing in the Wasatch Small Cap Value Fund.
18
SMALL CAP VALUE FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
SINCE INCEPTION
1 YEAR 5 YEARS 12/17/97
------ ------- --------
WASATCH SMALL CAP VALUE FUND 19.73% 21.73% 18.95%
Russell 2000 Value Index 25.66% 14.71% 9.41%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
Ticker Company % of Fund Ticker Company % of Fund
- ------ ----------------------------------------------- --------- ------ ----------------------------------- ---------
GISX GLOBAL IMAGING SYSTEMS, INC. 3% NCT NEWCASTLE INVESTMENT CORP. 2%
Office imaging equipment sales and service. Real estate REIT.
SAXN SAXON CAPITAL, INC. 3% KEYS KEYSTONE AUTOMOTIVE INDUSTRIES, 2%
Subprime mortgage REIT. Aftermarket auto replacement parts.
NTY NBTY, INC. 3% DRCT DIRECT GENERAL CORP. 2%
Nutritional supplements manufacturer /retailer. Non-standard auto insurance.
RWT REDWOOD TRUST, INC. 3% ACF AMERICREDIT CORP. 2%
Jumbo ARM mortgage REIT Subprime automobile lender.
CCBI COMMERCIAL CAPITAL BANCORP,INC. 2% FBR FRIEDMAN, BILLINGS, RAMSEY GROUP, 2%
Regional bank specializing in multifamily INC., CLASS A
residential loans. Mortgage REIT.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
[ ] FINANCIAL SERVICES 43.0%
[ ] CONSUMER DISCRETIONARY 22.9%
[ ] AUTOS & TRANSPORTATION 7.6%
[ ] TECHNOLOGY 6.8%
[ ] PRODUCER DURABLES 6.4%
[ ] HEALTH CARE 4.8%
[ ] CONSUMER STAPLES 2.7%
[ ] OTHER 2.7%
[ ] MATERIALS & PROCESSING 1.7%
[ ] ENERGY 1.4%
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
DATE WASATCH SMALL CAP VALUE FUND RUSSELL 2000 VALUE INDEX
- ---------- ---------------------------- ------------------------
12/17/1997 10,000 10,000
9/30/1998 9,000 8,767
9/30/1999 12,150 9,278
9/30/2000 18,218 10,703
9/30/2001 21,505 11,303
9/30/2002 18,849 11,138
9/30/2003 27,128 14,664
9/30/2004 32,481 18,426
+ 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 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.
19
ULTRA GROWTH FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF KAREY BARKER] [PHOTO OF AJAY KRISHNAN]
Karey Barker, CFA Ajay Krishnan, CFA
Portfolio Manager Portfolio Manager
REVIEW OF THE YEAR
The Wasatch Ultra Growth Fund lost 4.44% in the 12 months ended September
30, 2004. The Fund substantially underperformed the Russell 2000 Growth Index,
which gained 11.92%, and the Russell 2500 Growth Index, which gained 11.69%.
Between September 2003 and March 2004, we moved to position the Fund more
conservatively in the face of what we considered to be a generally overvalued
market by increasing the Fund's exposure to health care and decreasing our
exposure to technology. Although the Fund's results for this six-month period
were positive, we significantly underperformed the Russell 2000 Growth Index. As
we stated in the semi-annual report, we were not invested in the best performing
companies in the Index because we considered them to be largely speculative
investments. While we are never happy with poor performance, our
underperformance of the benchmark in this six month period was not unusual given
our sensitivity to the risks posed by overpriced stocks.
From April through September 2004, the market was down. Although we felt
we had moved to a more defensive posture, this did not generate the type of
performance we would have expected. The Fund gave back the gains made in the
first half of the year and fell into negative territory. This was attributable
to the weak stock price performance of many of our holdings and specific issues
at a few portfolio companies. Investors, jittery about high stock prices and
economic uncertainty, were easily disappointed and quick to sell stocks on
rumors of weakness or negative news. This exacerbated already challenging
conditions.
Our holdings in the health care sector, which was substantially
overweighted compared to the Index, usually carry us through these types of
environments. That was clearly not the case this year. A higher than usual
number of health care services companies experienced short-term setbacks. Two
significant detractors were Accredo Health and Odyssey HealthCare. Accredo's
stock price declined when investors became concerned about how the profits of
companies like Accredo would be affected by changes in government reimbursement
rates. The company's management provided future earnings guidance based on what
they believe is a worst-case reimbursement scenario. We think management's
actions reset expectations and allowed for future upside potential. Odyssey's
earnings fell below expectations due to a reduction in patient care days that
were deemed eligible for government reimbursement. While we continue to believe
in the growth of the specialty drug distribution and hospice industries, we have
reduced our exposure to both companies given that these issues are outside of
their operational control. We are monitoring both companies closely and will
increase or decrease our positions as we gain more clarity on their situations.
Over the past six months, we selectively added to positions in technology
companies when we saw opportunities to invest at better prices. Unfortunately,
technology stock prices continued to fall as we increased our overall technology
weighting. Semiconductor stocks suffered an additional hit when investors became
concerned about rising inventories. This caused National Semiconductor and Cabot
Microelectronics to detract significantly from the Fund's performance. However,
UTStarcom was the largest detractor. While the company is profitable and
reported strong earnings growth, revenues and expected margins were weaker due
to increased competition in its handset markets. As a result, management
announced that future earnings would be below expectations. We think the company
has promising long-term growth potential, but we have lowered our position to
reflect substantial near term risk.
The Fund's consumer discretionary holdings also contributed to the Fund's
loss. Our retail holdings were generally weak in response to the slowdown in
consumer spending. Wireless Facilities, a provider of services to the
telecommunications industry, hurt the Fund's performance. Despite reporting
strong earnings growth throughout the year, its stock price was caught in the
technology downdraft. We continue to be optimistic about the demand for wireless
phone usage and our wireless communication stocks.
Over the past 12 months, we were underweighted in the financial services
sector compared to the Index and our holdings were up significantly more than
those in the Index. Our producer durables holdings made a slight contribution to
the Fund during the last 12 months.
We are pleased that the market for initial public offerings (IPOs) has
revived. A vibrant IPO market is essential as it provides a fresh supply of new
growth companies for us to consider for investment. We invested in a number of
IPOs during the year and several have become material holdings.
OUTLOOK
We are cautious in our expectations for the Fund's returns over the
short-term as challenging issues in the macro environment may impact investment
performance and most sectors of the Russell 2000 Growth Index still feel
somewhat expensive to us. On a positive note, the recent market correction in
certain sectors has created better opportunities to invest in high quality
companies at prices that are more rational than we have seen in quite some time.
In addition, we believe that many of our companies that experienced setbacks
have gotten back on track and now have the potential to renew their growth and
regain investor confidence. We believe that investing at rational prices in
fast-growing companies in dynamic sectors such as health care and technology
continues to have the potential to help you reach your long-term investment
goals.
Thank you for investing in the Wasatch Ultra Growth Fund.
20
ULTRA GROWTH FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
WASATCH ULTRA GROWTH FUND -4.44% 11.65% 14.28%
Russell 2000 Growth Index 11.92% -0.68% 5.54%
Russell 2500 Growth Index 11.69% 1.53% 8.06%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
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.
TOP 10 EQUITY HOLDINGS*
TICKER COMPANY % OF FUND
- ------ ------- ---------
USPI UNITED SURGICAL PARTNERS
INTERNATIONAL, INC. 4%
Short-stay surgical centers.
AMHC AMERICAN HEALTHWAYS, INC. 4%
Disease management services.
ACDO ACCREDO HEALTH, INC. 4%
Services for individuals with chronic diseases.
AMSG AMSURG CORP. 3%
Outpatient surgery centers.
KCI KINETIC CONCEPTS, INC. 3%
Devices for wound treatment.
NSM NATIONAL SEMICONDUCTOR CORP. 2%
Analog semiconductors.
DLTR DOLLAR TREE STORES, INC. 2%
Dollar discount stores.
MCRL MICREL, INC. 2%
Analog semiconductors for cell phones and laptops.
OIIM 02MICRO INTERNATIONAL LTD. 2%
Semiconductors to increase power efficiency.
WFII WIRELESS FACILITIES, INC. 2%
Telecommunications industry services.
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
SECTOR BREAKDOWN**
[PIE CHART]
HEALTH CARE 35.3%
TECHNOLOGY 27.4%
CONSUMER DISCRETIONARY 15.3%
FINANCIAL SERVICES 10.0%
PRODUCER DURABLES 4.6%
MATERIALS & PROCESSING 3.4%
UTILITIES 1.7%
TREASURY NOTES & BONDS 1.2%
FINANCIALS 0.8%
OTHER 0.3%
**Excludes short-term investments, if any.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
WASATCH ULTRA RUSSELL 2000 RUSSELL 2500
DATE GROWTH FUND GROWTH INDEX GROWTH INDEX
- --------------------------------------------------------------------------------
9/30/1994 10,000 10,000 10,000
9/30/1995 16,924 12,821 13,018
9/30/1996 16,495 14,437 15,101
9/30/1997 20,082 17,809 19,013
9/30/1998 15,650 13,386 14,386
9/30/1999 21,888 17,754 20,119
9/30/2000 32,102 23,020 29,171
9/30/2001 28,605 13,217 16,662
9/30/2002 25,818 10,817 13,737
9/30/2003 39,743 15,330 19,431
9/30/2004 37,980 17,158 21,703
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
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. 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.
21
U.S. TREASURY FUND -- MANAGEMENT DISCUSSION SEPTEMBER 30, 2004
[PHOTO OF VAN R. HOISINGTON]
Van R. Hoisington
Portfolio Manager
REVIEW OF THE YEAR
In the 12 months ended September 30, 2004, the Wasatch-Hoisington U.S.
Treasury Fund returned 6.27%, well above the 3.68% gain for the Lehman Brother's
Aggregate Bond Index. The Fund's return was achieved by investing in U.S.
Treasury securities, the highest quality debt instruments.
On September 30, 2004, the yield on long-dated U.S. Treasury bonds
(maturities longer than 20 years) was down slightly from a year earlier. The
slight drop in bond yields meant that the market value of the Fund's portfolio
of investments rose. The zero coupon securities held in the Fund registered the
largest price appreciation.
When inflation is moderating, we seek to position the Fund on the long end
of the Treasury yield curve attempting to capture capital gains and lock in
attractive yields on coupons. The Fund's results over the past 10 years reflect
that long Treasury bond yields declined as the inflation rate fell and as the
long-dated Treasury securities rose in value.
The long-term Treasury bond market performed well because the inflation
rate remained low, even though oil prices jumped 91%. This experience
demonstrates that inflation is macro, not micro determined. Other commodities
also rose, including copper, steel, cattle, soybeans and gold. Compared with the
level a year earlier, the Commodity Research Bureau's Futures Price Index jumped
almost 17%.
But, as the past year demonstrates, price increases on individual items
are not always the same as the general rate of inflation. Simply put, inflation
occurs when too much money is chasing too few goods. In the last 12 months,
money as measured by M2 money supply(1) expanded only 3.7%, close to the slowest
pace in 10 years, and far below the long-term average growth rate of 6.3%. Thus,
there appears to be constrained money growth.
Meanwhile, ample excess capacity was evident in many sectors including
labor markets, manufacturing, office buildings and rental apartments. Moreover,
substantial excess production capacity in major foreign markets has resulted in
an unrelenting flow of low priced goods from overseas. Indeed, too many goods
and not enough money--the definition of falling inflation--best describes the
current macro conditions. Thus, when oil and other prices surged, overall prices
rose, but only temporarily. In the last three months, the overall Consumer Price
Index (CPI) rose at a 0.8% annual rate and the core CPI at an even slower 0.6%
pace. In this environment, bond yields were able to work lower and the Fund
benefited as bond prices rose.
OUTLOOK
The U.S. economy is headed for sharply lower growth over the next year.
While rising, the odds of a recession in 2005 are not yet at 50%. In the most
recent period, it appears that, due to record discounts and incentives, vehicle
sales surged in the third quarter, resulting in a growth rate above 4%. However,
real after-tax income grew less than 2% and the household saving rate was
virtually the lowest it has been in 70 years, suggesting slower spending in the
quarters ahead.
Leading sectors of the economy faltered badly over the late summer. The
Index of Leading Economic Indicators has already decreased for three consecutive
months. The leading index developed by the Economic Cycle Research Institute was
recently in slightly negative territory, down from a peak of 12 first recorded
in November 2003 and again in January 2004. Also, the OECD's World Leading
Economic Index softened as indicators of manufacturing and service sector
activity weakened significantly in the U.S. and Europe.
Five different considerations indicate elevated risks to the continued
growth of the economy: 1) monetary conditions have tightened; 2) consumers and
businesses worldwide have experienced the fifth oil shock since the 1970s; 3)
structural imbalances such as the record level of private debt to income and the
low saving rate (0.9% of disposable income); 4) the tax cuts of the past three
years have been spent, and without another tax cut after-tax incomes are too
weak to sustain recent rates of increase in consumer spending; and 5) foreign
economic conditions are wavering, suggesting that the U.S. economy will be
barraged with even more intense foreign competition.
With a slowdown looming, the persistent trend toward lower inflation and
interest rates should be sustained. Accordingly, the Fund continues to be
invested in long-term Treasury bonds and zero coupon Treasuries. We believe that
this is the appropriate stance for the Fund's objective of providing a rate of
return that exceeds the rate of inflation over a business cycle.
(1)M2 money supply consists of overnight repurchase agreements issued by
commercial banks, overnight Eurodollars, savings accounts, time deposits under
$100,000 and money market mutual fund shares.
22
U.S. TREASURY FUND -- PORTFOLIO SUMMARY SEPTEMBER 30, 2004
AVERAGE ANNUAL TOTAL RETURNS
1 YEAR 5 YEARS 10 YEARS
WASATCH-HOISINGTON U.S. TREASURY FUND 6.27% 9.21% 8.46%
Lehman Bros. Aggregate Bond Index 3.68% 7.48% 7.66%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NOT
INDICATIVE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE QUOTED. YOU SHOULD REALIZE THAT PRINCIPAL VALUE AND INVESTMENT
RETURN WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THE ORIGINAL COST. THE TABLE ABOVE DOES 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. TO OBTAIN THE MOST RECENT MONTH-END
PERFORMANCE, PLEASE CALL 800.551.1700 OR VISIT WWW.WASATCHFUNDS.COM.
TOP 10 HOLDINGS*
MATURITY %OF
HOLDING DATE FUND
- ----------------------------------------------------------------------------
U.S. TREASURY STRIP, PRINCIPAL ONLY 11/15/21 28%
U.S. TREASURY BOND, 7.50% 11/15/24 16%
U.S. TREASURY STRIP, PRINCIPAL ONLY 11/15/27 12%
U.S. TREASURY BOND, 6.125% 11/15/27 8%
U.S. TREASURY BOND, 6.875% 8/15/25 8%
U.S. TREASURY STRIP, PRINCIPAL ONLY 8/15/25 6%
U.S. TREASURY BOND, 6.75% 8/15/26 5%
U.S. TREASURY BOND, 5.50% 8/15/28 5%
U.S. TREASURY BOND, 6.625% 2/15/27 4%
U.S. TREASURY BOND, 5.375% 2/15/31 2%
*Portfolio holdings are subject to change at any time. References to specific
securities should not be construed as recommendations by the Funds or their
Advisor.
INVESTMENT & CASH
[PIE CHART OF INVESTMENT & CASH]
Treasury Notes & Bonds 98.2%
Short-Term Investments 1.8%
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
WASATCH-HOISINGTON LEHMAN BOTHERS AGGREGATE
DATE U.S. TREASURY FUND BOND INDEX
- ---------------------------------------------------------------------------
9/30/1994 10,000 10,000
9/30/1995 11,046 11,406
9/30/1996 11,534 11,965
9/30/1997 13,061 13,127
9/30/1998 16,234 14,638
9/30/1999 14,505 14,585
9/30/2000 15,931 15,604
9/30/2001 17,985 17,625
9/30/2002 20,751 19,141
9/30/2003 21,202 20,176
9/30/2004 22,531 20,918
THE LEHMAN BROTHERS AGGREGATE BOND 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.
23
WASATCH FUNDS -- OPERATING EXPENSES
EXPENSE EXAMPLE
As a shareholder of Wasatch Funds, you incur two types of costs: (1)
transaction costs, including redemption fees and (2) ongoing costs, including
management fees and other fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in a Wasatch Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of S1,000.00 invested at the
beginning of the period and held for the entire six month period ended September
30, 2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual
account values and actual expenses, based upon the actual total return of the
fund during the most recent six month period ended (March 31 or September 30).
You may use the information in this line, together with the amount you invested,
to estimate the expenses you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.6), then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
In addition, the Funds charge a $15.00 IRA distribution fee, a $12.50 IRA
annual maintenance fee and a $7.50 fee for redemptions paid by wire. To the
extent these fees apply to your account, your expenses paid during the period
would be higher and your ending account value would be lower than the amounts
shown in the table below.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on a fund's actual expense ratio
and an assumed rate of return of 5% per year before expenses, which is not the
fund's actual return, for a six month period of time. The hypothetical account
values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to
compare the ongoing costs of investing in a Wasatch Fund and other funds. To do
so, compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds.
In addition, the Funds charge a $15.00 IRA distribution fee, a $12.50 IRA
annual maintenance fee and a $7.50 fee for redemptions paid by wire. To the
extent these fees apply to your account, your expenses paid during the period
would be higher and your ending account value would be lower than the amounts
shown in the table below. If another fund's fees differ from those listed above,
your expenses paid and your ending account value could be higher or lower than
those of other funds.
Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs, such as
redemption fees. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included,
your costs would have been higher.
24
SEPTEMBER 30, 2004 (UNAUDITED)
ACCOUNT VALUE
---------------------------------------- EXPENSES EXPENSE
BEGINNING OF PERIOD END OF PERIOD PAID RATIO
APRIL 1, 2004 SEPTEMBER 30, 2004 DURING PERIOD* DURING PERIOD*
CORE GROWTH FUND
Actual return $ 1,000.00 $ 955.60 $ 5.87 1.20%
Hypothetical return before expenses $ 1,000.00 $ 1,019.00 $ 6.06 1.20%
GLOBAL SCIENCE & TECHNOLOGY FUND
Actual return $ 1,000.00 $ 844.40 $ 8.99 1.95%
Hypothetical return before expenses $ 1,000.00 $ 1,015.25 $ 9.82 1.95%
HERITAGE GROWTH FUND(1)
Actual return $ 1,000.00 $ 986.00 $ 1.08 0.95%
Hypothetical return before expenses $ 1,000.00 $ 1,013.25 $ 1.10 0.95%
INTERNATIONAL GROWTH
Actual return $ 1,000.00 $ 996.60 $ 9.48 1.90%
Hypothetical return before expenses $ 1,000.00 $ 1,015.50 $ 9.57 1.90%
MICRO CAP FUND
Actual return $ 1,000.00 $ 925.20 $10.49 2.18%
Hypothetical return before expenses $ 1,000.00 $ 1,014.10 $10.98 2.18%
MICRO CAP VALUE FUND
Actual return $ 1,000.00 $ 944.90 $10.94 2.25%
Hypothetical return before expenses $ 1,000.00 $ 1,013.75 $11.33 2.25%
SMALL CAP GROWTH FUND
Actual return $ 1,000.00 $ 967.60 $ 5.90 1.20%
Hypothetical return before expenses $ 1,000.00 $ 1,019.00 $ 6.06 1.20%
SMALL CAP VALUE FUND
Actual return $ 1,000.00 $ 942.10 $ 8.35 1.72%
Hypothetical return before expenses $ 1,000.00 $ 1,016.40 $ 8.67 1.72%
ULTRA GROWTH FUND
Actual return $ 1,000.00 $ 851.10 $ 6.90 1.49%
Hypothetical return before expenses $ 1,000.00 $ 1,017.54 $ 7.52 1.49%
U.S. TREASURY FUND
Actual return $ 1,000.00 $ 1,011.00 $ 3.77 0.75%
Hypothetical return before expenses $ 1,000.00 $ 1,021.25 $ 3.79 0.75%
*Expenses paid during the period are equal to the Fund's annualized expense
ratio as indicated, multiplied by the average account value over the period,
multiplied by the number of days in the most recent fiscal half-year (183)
divided by the number of days in the fiscal year (366).
(1)Fund inception date was June 18, 2004.
25
CORE GROWTH FUND -- SCHEDULE OF INVESTMENTS
SHARES VALUE
------ -----
COMMON STOCKS 98.6%
AIR TRANSPORT 0.5%
157,900 Expeditors International of
Washington, Inc. $ 8,163,430
-----------
AUTO PARTS -- AFTER MARKET 0.5%
580,125 Aftermarket Technology Corp.* 7,297,973
-----------
BANKS 1.2%
1,340,075 HDFC Bank Ltd. 11,753,739
2,355,925 UTI Bank Ltd. 6,665,631
-----------
18,419,370
-----------
BANKS -- OUTSIDE NEW YORK
CITY 4.7%
527,545 Commerce Bancorp, Inc. 29,120,484
896,475 Doral Financial Corp. 37,176,818
114,350 First Community Bancorp 4,688,350
-----------
70,985,652
-----------
CHEMICALS 0.5%
215,365 Cabot Microelectronics Corp.* 7,806,981
-----------
COMMUNICATIONS TECHNOLOGY 0.8%
775,500 UTStarcom, Inc.* 12,493,305
-----------
COMPUTER SERVICES SOFTWARE
AND SYSTEMS 2.3%
151,075 CACI International, Inc., Class A* 7,973,739
320,925 QLogic Corp.* 9,502,589
334,375 SRA International, Inc., Class A* 17,240,375
-----------
34,716,703
-----------
CONSUMER ELECTRONICS 0.2%
354,100 United Online, Inc.* 3,406,442
-----------
DIVERSIFIED FINANCIAL SERVICES 1.2%
1,272,775 U.S.I. Holdings Corp.* 17,373,379
-----------
DIVERSIFIED FINANCIALS 0.7%
779,050 Housing Development Finance
Corp. Ltd. 10,355,106
-----------
EDUCATION SERVICES 0.3%
73,250 Bright Horizons Family Solutions, Inc.* 3,976,743
-----------
ELECTRONICS 0.9%
702,025 Semtech Corp.* 13,457,819
-----------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 4.9%
879,699 AMIS Holdings, Inc.* 11,893,530
3,135,479 ASE Test Ltd.* 16,461,265
852,875 Integrated Circuit Systems, Inc.* 18,336,812
1,689,475 National Semiconductor Corp.* 26,169,968
-----------
72,861,575
-----------
FINANCE COMPANIES 1.1%
425,050 Accredited Home Lenders Holding Co.* 16,372,926
26,950 United PanAm Financial Corp.* 485,235
-----------
16,858,161
-----------
FINANCE -- SMALL LOAN 3.8%
2,687,156 AmeriCredit Corp.* 56,107,817
-----------
FINANCIAL DATA PROCESSING SERVICES
AND SYSTEMS 1.3%
658,000 Fair Isaac Corp. 19,213,600
-----------
FINANCIAL -- MISCELLANEOUS 5.4%
1,584,406 Fidelity National Financial, Inc. $60,365,869
92,925 First American Corp. 2,864,878
281,825 New Century Financial Corp. 16,971,501
-----------
80,202,248
-----------
FOOD AND DRUG RETAILING 0.5%
250,000 Shoppers Drug Mart Corp.* 6,781,140
-----------
FOODS 1.5%
1,049,450 NBTY, Inc.* 22,626,142
-----------
HEALTH CARE FACILITIES 3.7%
635,275 Pharmaceutical Product Development, Inc.* 22,869,900
473,525 Renal Care Group, Inc.* 15,261,711
270,390 Sunrise Senior Living, Inc.* 9,496,097
224,450 United Surgical Partners
International, Inc.* 7,709,857
-----------
55,337,565
-----------
HEALTH CARE MANAGEMENT
SERVICES 6.0%
566,100 AMERIGROUP Corp.* 31,843,125
747,025 Pacificare Health Systems* 27,415,817
405,875 Pediatrix Medical Group, Inc.* 22,262,244
178,075 Sierra Health Services, Inc.* 8,535,135
-----------
90,056,321
-----------
HEALTH CARE SERVICES 5.4%
692,350 Accredo Health, Inc.* 16,318,690
829,100 Apria Healthcare Group, Inc.* 22,592,975
289,574 Express Scripts, Inc.* 18,920,765
419,550 Inveresk Research Group, Inc.* 15,477,199
249,000 Lincare Holdings Inc.* 7,397,790
-----------
80,707,419
-----------
HOME BUILDING 6.2%
899,500 D.R. Horton, Inc. 29,782,445
233,875 Hovnanian Enterprises, Inc., Class A* 9,378,388
422,933 M.D.C. Holdings, Inc. 30,916,402
41,658 NVR, Inc.* 22,953,558
-----------
93,030,793
-----------
HOUSEHOLD FURNISHINGS 0.2%
177,725 Select Comfort Corp.* 3,234,595
-----------
INSURANCE -- MULTI-LINE 1.0%
335,500 Brown & Brown, Inc. 15,332,350
-----------
INVESTMENT MANAGEMENT
COMPANIES 2.6%
936,700 Apollo Investment Corp. 13,254,305
600 Brantley Mezzanine Finance, LLC* ** *** + 60,000
1,069,800 MCG Capital Corp. 18,571,728
228,275 SEI Investments Co. 7,688,302
-----------
39,574,335
-----------
LEISURE TIME 1.8%
984,620 SCP Pool Corp. 26,328,739
-----------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 1.8%
446,063 ICU Medical, Inc.* 11,615,481
1,576,975 PSS World Medical, Inc.* 15,832,829
-----------
27,448,310
-----------
26
SEPTEMBER 30, 2004
SHARES VALUE
------ -----
REAL ESTATE INVESTMENT TRUSTS
(REIT) 12.2%
430,650 Annaly Mortgage Management, Inc. $ 7,377,035
2,156,200 Anworth Mortgage Asset Corp. 24,537,556
1,251,075 Bimini Mortgage Management,Inc.*** + + + 18,507,637
883,025 Fieldstone Investment Corp.*** + 15,011,425
1,308,825 Friedman, Billings, Ramsey Group,
Inc., Class A 24,998,557
658,400 MortgageIT Holdings, Inc.* 9,513,880
504,000 Provident Senior Living Trust* *** + 7,560,000
224,550 Redwood Trust, Inc. 14,016,411
1,630,500 Saxon Capital, Inc.* 35,055,750
873,025 Thornburg Mortgage, Inc. 25,326,455
--------------
181,904,706
--------------
RENTAL AND LEASING SERVICES--
CONSUMER 3.4%
1,985,695 Rent-A-Center, Inc.* 51,350,073
--------------
RESTAURANTS 0.5%
273,050 Ruby Tuesday, Inc. 7,609,903
--------------
RETAIL 12.3%
1,316,245 Dollar Tree Stores, Inc.* 35,472,803
577,675 Global Imaging Systems, Inc.* 17,954,139
756,875 Group 1 Automotive, Inc.* 20,647,550
311,275 Lithia Motors, Inc., Class A 6,617,707
376,450 Michaels Stores, Inc. 22,289,604
1,478,005 O' Reilly Automotive, Inc.* 56,592,811
548,795 Sonic Automotive, Inc. 11,003,340
7,796,000 Texwinca Holdings Ltd. 6,599,407
220,650 Tuesday Morning Corp.* 6,822,498
--------------
183,999,859
--------------
SAVINGS AND LOANS 2.2%
892,773 Commercial Capital Bancorp, Inc. 20,257,019
650,550 W Holding Co., Inc. 12,360,450
--------------
32,617,469
--------------
SERVICES -- COMMERCIAL 5.4%
1,921,446 Copart, Inc.* 36,372,973
724,262 Waste Connections, Inc.* 22,944,620
432,000 WCA Waste Corp.* 3,797,280
576,445 West Corp.* 16,791,843
--------------
79,906,716
--------------
TEXTILES -- APPAREL
MANUFACTURERS 0.5%
262,225 Carter's, Inc.* 7,261,010
--------------
UTILITIES-- TELECOMMUNICATIONS 1.1%
1,027,650 Nextel Partners, Inc., Class A* 17,038,437
--------------
TOTAL COMMON STOCKS
(COST $1,222,188,036) 1,475,842,186
--------------
PRINCIPAL
AMOUNT VALUE
- --------- -----
CORPORATE BONDS 0.2%
INVESTMENT MANAGEMENT
COMPANIES 0.2%
$ 3,000,000 Brantley Mezzanine Finance,
LLC, 10.00%, 9/21/09*** + $ 2,940,183
--------------
TOTAL CORPORATE BONDS
(COST $2,940,183) 2,940,183
--------------
SHORT-TERM INVESTMENTS 3.0%
REPURCHASE AGREEMENT 3.0%
45,215,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co. collateralized by $43,250,000
of United States Treasury Bonds 5.25% due
11/15/28; value: $46,122,060; repurchase
proceeds: $45,216,319 (cost $45,215,000) 45,215,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(COST $45,215,000) 45,215,000
--------------
TOTAL INVESTMENTS
(COST $1,270,343,219) 101.8% 1,523,997,369
--------------
LIABILITIES LESS OTHER ASSETS (1.8)% (27,028,501)
--------------
NET ASSETS 100.0% $1,496,968,868
==============
*Non-income producing.
**Common units.
***Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
+Security purchased in a private or placement transaction under Rule 144A of the
Securities Act of 1933 (see Note 9).
++Affiliated company (see Note 8).
See notes to financial statements.
27
GLOBAL SCIENCE & TECHNOLOGY FUND-- SCHEDULE OF INVESTMENTS
SHARES VALUE
- ------ -----
COMMON AND PREFERRED
STOCKS 92.9%
AEROSPACE 1.0%
26,000 MTC Technologies, Inc. $ 718,380
----------
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 2.5%
10,400 Corgentech, Inc.* 177,528
17,275 Isolagen, Inc.* 163,249
56,525 ISTA Pharmaceuticals, Inc.* 689,040
19,425 Neurochem, Inc.* (Canada) 333,333
29,175 QIAGEN N.V.* (Netherlands) 334,053
----------
1,697,203
----------
CASINOS AND GAMBLING 0.3%
5,975 Shuffle Master, Inc.* 223,824
----------
CHEMICALS 1.8%
34,175 Cabot Microelectronics Corp.* 1,238,844
----------
COMMUNICATIONS EQUIPMENT 0.6%
10,725 Funkwerk AG (Germany) 389,937
----------
COMMUNICATIONS TECHNOLOGY 2.7%
109,255 UTStarcom, Inc.* (China) 1,760,098
20,383 Vyyo, Inc.* 114,960
6,528 Xtera Communications, Inc.* *** + 7,076
----------
1,882,134
----------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 11.9%
47,200 Cognizant Technology Solutions Corp.,
Class A* 1,440,072
29,575 Concord Communications, Inc.* 263,957
54,017 EPIQ Systems, Inc.* 841,585
60,725 iPass, Inc.* 363,743
22,750 Kintera, Inc.* 214,760
105,100 Kintera, Inc. PIPE* *** + 870,309
67,200 LivePerson, Inc.* 219,744
20,475 Manhattan Associates, Inc.* 499,999
32,550 Opnet Technologies, Inc.* 333,963
36,375 PDF Solutions, Inc.* 441,956
53,825 QLogic Corp.* 1,593,758
13,975 SRA International, Inc., Class A* 720,551
60,300 Verisity Ltd.* (Israel) 419,085
----------
8,223,482
----------
COMPUTER TECHNOLOGY 0.6%
50,250 Dot Hill Systems Corp.* 403,005
----------
DRUGS AND PHARMACEUTICALS 4.5%
10,750 Able Laboratories, Inc.* 205,970
19,159 Acusphere, Inc. PIPE* *** + 95,828
39,450 Angiotech Pharmaceuticals, Inc.* (Canada) 799,651
37,125 Connetics Corp.* 1,003,117
14,050 ILEX Oncology, Inc.* 353,639
21,725 Ligand Pharmaceuticals, Inc., Class B* 217,685
20,625 NeoPharm, Inc.* 176,550
7,000 Northwest Biotherapeutics, Inc.* 210
12,250 Taro Pharmaceuticals Industries
Ltd.* (Israel) 286,405
----------
3,139,055
----------
ELECTRICAL AND ELECTRONICS 1.8%
18,475 Plexus Corp.* 203,964
36,250 Power Integrations, Inc.* 740,587
34,575 TTM Technologies, Inc.* 307,372
----------
1,251,923
----------
ELECTRICAL EQUIPMENT AND
COMPONENTS 2.7%
29,300 Cherokee International Corp.* $ 245,827
23,900 Cohu, Inc. 353,242
1,683,000 Unisteel Technology Ltd.(Singapore) 1,289,579
-----------
1,888,648
-----------
ELECTRONIC EQUIPMENT AND
INSTRUMENTS 3.1%
2,330,000 Innovalues Precision Ltd.(Singapore) 906,507
3,475 Samsung Electronics Co., Ltd. GDR (Korea) 688,050
61,000 Venture Corp. Ltd. (Singapore) 597,844
-----------
2,192,401
-----------
ELECTRONICS 1.0%
60,525 Nu Horizons Electronics Corp.* 384,334
15,525 Semtech Corp.* 297,614
-----------
681,948
-----------
ELECTRONICS -- MEDICAL SYSTEMS 1.1%
57,425 Endocardial Solutions, Inc.* 664,407
4,550 EPIX Medical, Inc.* 87,861
-----------
752,268
-----------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 18.3%
84,125 Advanced Power Technology, Inc.* 715,904
18,725 Altera Corp.* 366,448
33,450 AMIS Holdings, Inc.* 452,244
123,250 ASE Test Ltd.* (Taiwan) 647,062
17,450 Cree, Inc.* 532,748
15,975 DSP Group, Inc.* 336,274
38,100 Integrated Circuit Systems, Inc.* 819,150
152,425 Micrel, Inc.* 1,586,744
92,350 National Semiconductor Corp.* 1,430,501
234,975 O2Micro International Ltd.*
(Cayman Islands) 2,523,632
149,275 PLX Technology, Inc.* 1,076,273
46,250 PSi Technologies Holdings, Inc.
ADR* (Philippines) 92,038
20,300 Silicon Laboratories, Inc.* 671,727
140,600 Sirenza Microdevices, Inc.* 596,144
7,225 SiRF Technology Holdings, Inc.* 102,812
42,750 SiRF Technology Holdings, Inc.* *** + 592,921
4,950 Xilinx, Inc. 133,650
-----------
12,676,272
-----------
ELECTRONICS -- TECHNOLOGY 0.8%
77,350 EFJ, Inc.* 518,245
-----------
FOOD AND DRUG RETAILING 0.5%
10,000 Sugi Pharmacy Co. Ltd. (Japan) 313,836
-----------
HEALTH CARE EQUIPMENT AND
SUPPLIES 1.2%
3,975 Straumann Holding AG (Switzerland) 844,965
-----------
HEALTH CARE FACILITIES 2.8%
46,700 American Healthways, Inc.* 1,359,437
16,900 Pharmaceutical Product
Development, Inc.* 608,400
-----------
1,967,837
-----------
HEALTH CARE MANAGEMENT
SERVICES 0.4%
13,600 Computer Programs & Systems, Inc. 272,816
-----------
HEALTH CARE SERVICES 3.3%
74,518 Accredo Health, Inc.* 1,756,389
15,500 Icon Plc ADR* (Ireland) 510,105
-----------
2,266,494
-----------
28
SEPTEMBER 30, 2004
SHARES VALUE
- ------ ------------
IT CONSULTING AND SERVICE 1.4%
26,100 Infosys Technologies Ltd. (India) $ 963,308
------------
MACHINERY 1.2%
279,500 Vanguard Response Systems,
Inc.* (Canada) 798,033
------------
MACHINERY -- OIL WELL EQUIPMENT
AND SERVICES 1.5%
43,000 Pason Systems, Inc. (Canada) 1,059,611
------------
MEDIA 0.8%
408,500 Astro All Asia Networks Plc*
(United Kingdom) 524,600
------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 6.1%
22,900 Abaxis, Inc.* 297,929
6,975 Biosite, Inc.* 341,496
32,050 Cyberonics, Inc.* 655,743
92,425 Enpath Medical, Inc.* 845,689
46,075 ICU Medical, Inc.* 1,199,793
17,775 Molecular Devices Corp.* 418,957
12,925 Techne Corp.* 493,476
------------
4,253,083
------------
MISCELLANEOUS MATERIALS AND
COMMODITIES 1.2%
36,550 Symyx Technologies, Inc.* 860,752
------------
PHARMACEUTICALS 1.6%
14,589 Docpharma N.V.* (Belgium) 635,057
119,078 United Drug Plc (Ireland) 461,804
------------
1,096,861
------------
PRODUCTION TECHNOLOGY
EQUIPMENT 7.3%
39,300 August Technology Corp.* 269,991
165,900 Genus, Inc.* 364,980
62,850 inTEST Corp.* 488,973
96,100 Intevac, Inc.* 603,508
275,075 LogicVision, Inc.* 464,877
32,500 Nanometrics, Inc.* 370,825
3,150 Nova Measuring Instruments Ltd.* (Israel) 9,922
39,850 Rudolph Technologies, Inc.* 667,089
18,525 SEZ Holding AG* (Switzerland) 420,533
63,550 Tessera Technologies, Inc.* 1,404,455
------------
5,065,153
------------
SCIENTIFIC EQUIPMENT AND
SUPPLIERS 0.9%
43,200 Biacore International AB (Sweden) 601,795
------------
SEMICONDUCTOR EQUIPMENT AND
PRODUCTS 1.9%
189,064 Taiwan Semiconductor Manufacturing
Co. Ltd. ADR (Taiwan) 1,349,917
------------
SERVICES -- COMMERCIAL 3.2%
21,525 CoStar Group, Inc.* 1,058,815
168,001 Wireless Facilities, Inc.* 1,170,967
------------
2,229,782
------------
UTILITIES -- TELECOMMUNICATIONS 2.9%
44,025 Nextel Communications, Inc., Class A* 1,049,556
59,525 Nextel Partners, Inc., Class A* 986,925
------------
2,036,481
------------
TOTAL COMMON AND PREFERRED
STOCKS (COST $68,238,117) 64,382,893
------------
LIMITED PARTNERSHIP INTEREST 0.1%
Biotechnology Research and
Production 0.1%
Montagu Newhall Global
Partners II-B, L.P.* *** + $ 41,272
------------
TOTAL LIMITED PARTNERSHIP
INTEREST (COST $47,144) 41,272
------------
WARRANTS 0.0%
DRUGS AND PHARMACEUTICALS 0.0%
3,832 Acusphere, Inc.* *** + --
------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 0.0%
4,275 SiRF Technology Holdings, Inc.* *** + 32,208
------------
TOTAL WARRANTS (COST $0) 32,208
------------
PRINCIPAL
AMOUNT VALUE
- --------- ------------
U.S. GOVERNMENT
OBLIGATIONS 0.8%
$ 503,000 U.S. Treasury Bond, 5.25%, 11/15/28 $ 523,159
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (COST $500,845) 523,159
------------
SHORT-TERM INVESTMENTS 8.0%
Repurchase Agreement 8.0%
5,565,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co. collateralized by $4,095,000
of United States Treasury Bonds 8.125% due
8/15/19; value: $5,681,813; repurchase
proceeds: $5,565,162+++ (cost $5,565,000) 5,565,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $5,565,000) 5,565,000
------------
TOTAL INVESTMENTS
(cost $74,351,106) 101.8% 70,544,532
LIABILITIES LESS OTHER ASSETS (1.8)% (1,243,242)
------------
NET ASSETS 100.0% $ 69,301,290
============
*Non-income producing.
***Security was fair valued under procedures adopted by the Board of
Directors (see Note 2).
+ Security purchased in a private placement transaction or under Rule 144A of
the Securities Act of 1933 (see Note 9).
+++ All or a portion of this security has been designated as collateral for open
short positions or purchase commitments.
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
PIPE Private Investment in a Public Equity.
See notes to financial statements.
29
GLOBAL SCIENCE & TECHNOLOGY FUND -- SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2004
At September 30, 2004, Wasatch Global Science & Technology Fund's investments,
excluding short-term investments, were in the following countries:
COUNTRY %
- ------- -----
Belgium 1.0
Canada 4.6
Cayman Islands 3.9
China 2.7
Germany 0.6
India 1.5
Ireland 1.5
Israel 1.1
Japan 0.5
Korea 1.1
Netherlands 0.5
Philippines 0.1
Singapore 4.3
Sweden 0.9
Switzerland 1.9
Taiwan 3.1
United Kingdom 0.8
United States 69.9
-----
TOTAL 100.0%
=====
30
HERITAGE GROWTH FUND -- SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004
SHARES VALUE
- ------ ------------
COMMON STOCKS 87.9%
AIR TRANSPORT 0.9%
52,950 JetBlue Airways Corp.* $ 1,107,714
------------
BANKS -- NEW YORK CITY 0.6%
35,375 New York Community Bancorp, Inc. 726,602
------------
BANKS -- OUTSIDE NEW YORK CITY 7.1%
28,200 Commerce Bancorp, Inc. 1,556,640
77,400 Doral Financial Corp. 3,209,778
65,700 North Fork Bancorporation, Inc. 2,920,365
45,000 TCF Financial Corp. 1,363,050
------------
9,049,833
------------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 3.6%
5,850 Adobe Systems, Inc. 289,400
22,575 Infosys Technologies Ltd. ADR 1,277,745
31,100 NAVTEQ Corp.* 1,108,404
63,650 QLogic Corp.* 1,884,676
------------
4,560,225
------------
COMPUTER TECHNOLOGY 1.3%
29,225 Affiliated Computer Services, Inc., Class A* 1,626,956
------------
CONSTRUCTION 2.1%
57,000 Lennar Corp., Class A 2,713,200
------------
DIVERSIFIED FINANCIALS 2.0%
48,000 Countrywide Financial Corp. 1,890,720
52,000 Housing Development Finance Corp. Ltd. 691,182
------------
2,581,902
------------
DRUGS AND PHARMACEUTICALS 4.0%
22,150 Forest Laboratories, Inc.* 996,307
47,750 Mylan Laboratories, Inc. 859,500
127,700 Teva Pharmaceutical Industries Ltd. ADR 3,313,815
------------
5,169,622
------------
EDUCATION SERVICES 2.9%
39,750 Apollo Group, Inc., Class A* 2,916,458
56,000 Corinthian Colleges, Inc.* 754,880
------------
3,671,338
------------
ELECTRONICS -- MEDICAL SYSTEMS 1.3%
33,000 Medtronic, Inc. 1,712,700
------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 5.2%
53,000 Linear Technology Corp. 1,920,720
46,575 Maxim Integrated Products, Inc. 1,969,657
180,500 National Semiconductor Corp.* 2,795,945
------------
6,686,322
------------
FINANCE COMPANIES 2.0%
34,425 Capital One Financial Corp. 2,544,007
------------
FINANCE -- SMALL LOAN 0.1%
3,500 SLM Corp. 156,100
------------
FINANCIAL DATA PROCESSING
SERVICES AND SYSTEMS 1.8%
38,575 Fiserv, Inc.* 1,344,725
40,325 Sun Card Data Systems, Inc.* 958,525
------------
2,303,250
------------
FINANCIAL INFORMATION SERVICES 0.4%
7,600 Moody's Corp. 556,700
------------
FINANCIAL -- MISCELLANEOUS 2.7%
70,500 Fidelity National Financial, Inc. $ 2,686,050
13,375 New Century Financial Corp. 805,443
------------
3,491,493
------------
HEALTH CARE EQUIPMENT AND
SUPPLIES 0.5%
3,300 Straumann Holding AG 701,480
------------
HEALTH CARE FACILITIES 1.7%
107,850 Health Management Associates,
Inc., Class A 2,203,375
------------
HEALTH CARE MANAGEMENT
SERVICES 5.5%
32,800 Caremark Rx, Inc.* 1,051,896
77,000 Pacificare Health Systems* 2,825,900
30,500 WellPoint Health Networks, Inc.* 3,205,245
------------
7,083,041
------------
HEALTH CARE SERVICES 2.2%
26,875 Charles River Laboratories
International, Inc.* 1,230,875
24,425 Express Scripts, Inc.* 1,595,929
------------
2,826,804
------------
HOME BUILDING 7.3%
90,050 D.R. Horton, Inc. 2,981,556
5,875 NVR, Inc.* 3,237,125
51,050 Pulte Homes, Inc. 3,132,938
------------
9,351,619
------------
INSURANCE -- MULTI-LINE 4.0%
18,550 Brown & Brown, Inc. 847,735
113,000 Willis Group Holdings Ltd. 4,226,200
------------
5,073,935
------------
INVESTMENT MANAGEMENT
COMPANIES 0.6%
20,925 SEI Investments Co. 704,754
------------
JEWELERY, WATCHES AND
GEMSTONES 0.3%
12,000 Tiffany & Co. 368,880
------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 1.5%
8,400 Patterson Companies, Inc.* 643,104
8,725 St. Jude Medical, Inc.* 656,731
8,300 Zimmer Holdings, Inc.* 656,032
------------
1,955,867
------------
MEDICAL SERVICES 1.9%
27,000 Quest Diagnostics, Inc. 2,381,940
------------
PRODUCTION TECHNOLOGY
EQUIPMENT 0.9%
28,100 KLA-Tencor Corp.* 1,165,588
------------
REAL ESTATE INVESTMENT TRUSTS
(REIT) 2.9%
85,000 Friedman, Billings, Ramsey Group,
Inc., Class A 1,623,500
32,175 iStar Financial, Inc. 1,326,575
53,500 Provident Senior Living Trust* *** + 802,500
------------
3,752,575
------------
RECREATIONAL VEHICLES AND BOATS 2.1%
46,000 Harley-Davidson, Inc. 2,734,240
------------
RESTAURANTS 0.3%
7,700 Starbucks Corp.* 350,042
------------
31
HERITAGE GROWTH FUND -- SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2004
SHARES VALUE
- ------ ------------
RETAIL 11.8%
16,150 Amazon.com, Inc.* $ 659,889
49,375 AutoZone, Inc.* 3,814,219
51,175 Bed Bath & Beyond, Inc.* 1,899,104
34,000 Best Buy Co., Inc. 1,844,160
14,000 CarMax, Inc.* 301,700
21,875 CDW Corp. 1,269,406
19,150 Chico's FAS, Inc.* 654,930
102,875 Dollar Tree Stores, Inc.* 2,772,481
30,175 lAC/InterActiveCorp* 664,454
25,500 Ross Stores, Inc. 597,720
27,075 TJX Companies, Inc. 596,733
------------
15,074,796
------------
SAVINGS AND LOANS 1.3%
15,425 Golden West Financial Corp. 1,711,404
------------
SERVICES -- COMMERCIAL 0.7%
10,200 Corporate Executive Board Co. 624,648
3,200 eBay, Inc.* 294,208
------------
918,856
------------
TEXTILES -- APPAREL
MANUFACTURERS 0.7%
21,000 Coach, Inc.* 890,820
------------
TEXTILES, APPAREL AND LUXURY
GOODS 0.5%
2,500 Puma AG Rudolf Dassler Sport 670,350
------------
UTILITIES -- TELECOMMUNICATIONS 3.2%
54,000 Nextel Communications, Inc., Class A* 1,287,360
164,825 Nextel Partners, Inc., Class A* 2,732,799
------------
4,020,159
------------
TOTAL COMMON STOCKS
(COST $111,920,953) 112,598,489
------------
PRINCIPAL
AMOUNT VALUE
- --------- ------------
SHORT-TERM INVESTMENTS 15.9%
REPURCHASE AGREEMENT 15.9%
$20,430,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co. collateralized by $19,545,000
of United States Treasury Bonds 5.25% due
11/15/28; value: $20,842,905; repurchase
proceeds: $20,430,596 (cost $20,430,000) $ 20,430,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $20,430,000) 20,430,000
------------
TOTAL INVESTMENTS
(COST $132,350,953) 103.8% 133,028,489
LIABILITIES LESS OTHER ASSETS (3.8)% (4,892,944)
------------
NET ASSETS 100.0% $128,135,545
============
* Non-income producing.
*** Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
+ Security purchased in a private placement transaction or under Rule 144A of
the Securities Act of 1933 (see Note 9).
ADR American Depositary Receipt.
See notes to financial statements.
32
INTERNATIONAL GROWTH FUND -- SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004
SHARES VALUE
- ------ ------------
COMMON STOCKS 91.4%
AIR TRANSPORT 1.0%
100,000 Gol Linhas Aereas Inteligentes
S.A. ADR* (Brazil) $ 2,030,000
------------
AIRLINES 0.7%
128,100 Westjet Airlines Ltd.* (Canada) 1,336,015
------------
AUTOMOBILES 2.9%
22,270 Gulliver International Co. Ltd.(Japan) 2,246,651
45,730 USS Co. Ltd. (Japan) 3,456,893
------------
5,703,544
------------
BANKS 1.3%
297,500 HDFC Bank Ltd. (India) 2,609,359
------------
BANKS -- OUTSIDE NEW YORK CITY 1.6%
15,000 DenizBank A.S. GDR*** (Turkey) 288,150
67,200 Doral Financial Corp. (Puerto Rico) 2,786,784
------------
3,074,934
------------
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 1.9%
63,000 Neurochem, Inc.* (Canada) 1,081,080
234,625 QIAGEN N.V.* (Netherlands) 2,686,456
------------
3,767,536
------------
COMMERCIAL SERVICES AND
SUPPLIES 4.3%
2,000,000 Asiatravel.com Holdings Ltd.(Singapore) 409,848
427,200 Bloomsbury Publishing Plc (United Kingdom) 1,942,687
120,600 Park24 Co. Ltd. (Japan) 3,554,480
94,825 Techem AG* (Germany) 2,610,765
------------
8,517,780
------------
COMMUNICATIONS EQUIPMENT 2.4%
65,950 Funkwerk AG (Germany) 2,397,794
1,130,250 Zyxel Communications Corp. (Taiwan) 2,411,510
------------
4,809,304
------------
COMMUNICATIONS TECHNOLOGY 0.7%
82,890 UTStarcom, Inc.* (China) 1,335,358
------------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 0.6%
197,200 Mphasis BFL Ltd. (India) 1,278,387
------------
COMPUTERS AND PERIPHERALS 2.2%
48,900 Logitech International S.A.* (Switzerland) 2,373,120
3,022,000 TPV Technology Ltd. (Hong Kong) 1,908,929
------------
4,282,049
------------
CONSTRUCTION 0.5%
25,000 Takeuchi Manufacturing Co. Ltd. (Japan) 986,992
------------
DIVERSIFIED FINANCIAL SERVICES 2.7%
101,000 AWD Holding AG (Germany) 3,344,466
450,000 Nissin Co Ltd. (Japan) 970,163
450,000 Nissin Co Ltd. Bonus Shares* (Japan) 970,163
------------
5,284,792
------------
DRUGS AND PHARMACEUTICALS 2.5%
155,225 Angiotech Pharmaceuticals, Inc.* (Canada) 3,146,727
120,000 Sun Pharmaceutical Industries Ltd.* (India) 1,123,449
24,825 Taro Pharmaceuticals Industries Ltd.* (Israel) 580,408
------------
4,850,584
------------
EDUCATION SERVICES 0.6%
18,000 Acadomia Group (France) 1,096,326
------------
ELECTRICAL EQUIPMENT 3.1%
6,625 SAIA-Burgess Electronics AG (Switzerland) $ 3,852,825
1,133,000 Techtronic Industries Company
Ltd. (Hong Kong) 2,230,630
------------
6,083,455
------------
ELECTRICAL EQUIPMENT AND
COMPONENTS 0.7%
1,781,700 Unisteel Technology Ltd. (Singapore) 1,365,206
------------
ELECTRONIC EQUIPMENT AND
INSTRUMENTS 1.3%
257,280 Venture Corp. Ltd. (Singapore) 2,521,529
------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 1.6%
98,400 ASE Test Ltd.* (Taiwan) 516,600
47,400 ASM International N.V.* (Netherlands) 629,472
150,000 CSR Plc* (United Kingdom) 964,756
105,750 O2Micro International Ltd.*
(Cayman Islands) 1,135,755
------------
3,246,583
------------
FINANCIAL -- MISCELLANEOUS 1.8%
187,450 Home Capital Group, Inc. (Canada) 3,539,822
------------
FOOD AND DRUG RETAILING 2.4%
74,000 Shoppers Drug Mart Corp.* (Canada) 2,007,217
88,000 Sugi Pharmacy Co. Ltd. (Japan) 2,761,758
------------
4,768,975
------------
HEALTH CARE EQUIPMENT AND
SUPPLIES 4.5%
177,750 Elekta AB, Class B* (Sweden) 4,317,991
21,025 Straumann Holding AG (Switzerland) 4,469,278
------------
8,787,269
------------
HEALTH CARE SERVICES 3.2%
68,475 Icon Plc ADR* (Ireland) 2,253,512
145,625 Orpea* (France) 4,056,478
------------
6,309,990
------------
HOTELS, RESTAURANTS AND LEISURE 1.4%
104,175 Fairmont Hotels & Resorts, Inc. (Canada) 2,858,750
------------
HOUSEHOLD DURABLES 2.6%
33,200 Citizen Electronics Co. Ltd. (Japan) 1,751,660
115,000 Desarrolladora Homex, S.A. de
C.V. ADR* (Mexico) 2,374,750
1,325,200 HTL International Holdings Ltd.
(Singapore) 976,061
------------
5,102,471
------------
HOUSEHOLD PRODUCTS 1.0%
72,700 Milbon Co. Ltd. (Japan) 1,894,711
------------
INTERNET AND CATALOG RETAIL 1.3%
960,315 Carphone Warehouse Group Plc
(United Kingdom) 2,592,375
------------
INTERNET SOFTWARE AND SERVICES 2.6%
7,186,900 Accord Customer Care Solutions Ltd.*
(Singapore) 3,009,572
1,250 En-Japan, Inc. (Japan) 2,035,386
------------
5,044,958
------------
IT CONSULTING AND SERVICE 1.2%
185,915 Indra Sistemas, S.A. (Spain) 2,477,311
------------
33
INTERNATIONAL GROWTH FUND -- SCHEDULE OF INVESTMENTS (CONTINUED)
SHARES VALUE
- ------ ------------
MACHINERY 2.8%
57,908 Bharat Forge Ltd. (India) $ 1,021,239
71,900 Disco Corp. (Japan) 2,930,155
79,650 Singulus Technologies* (Germany) 1,124,697
154,950 Vanguard Response Systems,
Inc.* (Canada) 442,416
------------
5,518,507
------------
MEDIA 3.5%
107,300 Alliance Atlantis Communications,
Inc., Class B* (Canada) 2,372,625
489,375 HIT Entertainment Plc (United Kingdom) 2,083,567
61,575 JC Decaux S.A.* (France) 1,400,641
892 SKY Perfect Communications, Inc. (Japan) 1,046,739
------------
6,903,572
------------
MULTI-LINE RETAIL 1.9%
385 Can Do Co. Ltd. (Japan) 840,535
1,434,000 Wumart Stores, Inc.* (China) 2,832,429
------------
3,672,964
------------
OFFICE ELECTRONICS 1.4%
42,050 Neopost S.A. (France) 2,702,264
------------
OIL AND GAS 4.6%
191,520 Cairn Energy Plc* (United Kingdom) 5,031,298
634,000 Soco International Plc* (United Kingdom) 3,945,608
------------
8,976,906
------------
PERSONAL PRODUCTS 1.0%
126,000 Mega Bloks, Inc.* (Canada) 1,873,736
------------
PHARMACEUTICALS 6.2%
26,610 Actelion Ltd.* (Switzerland) 2,732,186
775,000 Ark Therapeutics Group Plc*
(United Kingdom) 1,102,223
13,250 Docpharma N.V.* (Belgium) 576,771
375 EPS Co., Ltd. (Japan) 1,258,756
65,600 Sawai Pharmaceutical Co. Ltd. (Japan) 2,076,667
1,300,000 SkyePharma Plc* (United Kingdom) 1,366,058
785,256 United Drug Plc (Ireland) 3,045,349
------------
12,158,010
------------
PRODUCTION TECHNOLOGY
EQUIPMENT 0.9%
80,595 SEZ Holding AG* (Switzerland) 1,829,574
------------
REAL ESTATE 1.5%
4,000,000 Far East Consortium International Ltd.
(Cayman Islands) 959,380
17,235 Unibail (Union du Credit-Bail
Immobilier) (France) 2,076,971
------------
3,036,351
------------
RETAIL 2.1%
25,640 Bijou Brigitte AG (Germany) 2,693,060
29,025 GiFi (France) 1,430,496
------------
4,123,556
------------
SPECIALTY RETAIL 2.5%
2,823,400 Bonjour Holdings Ltd. (Cayman Islands) 1,149,755
71,600 Carpetright Plc (United Kingdom) 1,364,667
1,262,650 Convenience Retail Asia Ltd. (Hong Kong) 412,964
39,555 Rodriguez Group (France) 1,971,592
------------
4,898,978
------------
TELECOMMUNICATIONS
EQUIPMENT 0.5%
8,900 Vimpel-Communications ADR* (Russia) 968,320
------------
TEXTILES, APPAREL AND LUXURY
GOODS 6.0%
567,000 Esprit Holdings Ltd. (Hong Kong) $ 2,901,651
6,163,000 Linmark Group Ltd. (Hong Kong) 2,114,487
206,000 Pantaloon Retail India Ltd. (India) 1,935,539
18,450 Puma AG Rudolf Dassler Sport (Germany) 4,947,184
------------
11,898,861
------------
UTILITIES -- ELECTRICAL 0.9%
100,000 Red Electrica de Espana (Spain) 1,820,996
------------
WIRELESS TELECOMMUNICATIONS
SERVICES 1.0%
28,260 Mobistar S.A.* (Belgium) 2,019,814
------------
TOTAL COMMON STOCKS
(COST $155,970,153) 179,958,774
------------
WARRANTS 0.0%
MACHINERY 0.0%
1,379 Bharat Forge Ltd.* *** (India) --
------------
TOTAL WARRANTS (COST $0) --
------------
PRINCIPAL
AMOUNT VALUE
- --------- ------------
SHORT-TERM INVESTMENTS 8.9%
REPURCHASE AGREEMENT 8.9%
$17,560,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co. collateralized by $16,800,000
of United States Treasury Bonds 5.25% due
11/15/28; value: $17,915,621; repurchase
proceeds: $17,560,512 (cost $17,560,000) $ 17,560,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $17,560,000) 17,560,000
------------
TOTAL INVESTMENTS
(COST $173,530,153) 100.3% 197,518,774
LIABILITIES LESS OTHER ASSETS (0.3)% (528,824)
------------
NET ASSETS 100.0% $196,989,950
============
* Non-income producing.
*** Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
ADR American Depositary Receipt.
GDR Global Depositary Receipt.
See notes to financial statements.
34
SEPTEMBER 30, 2004
At September 30, 2004, Wasatch International Growth Fund's investments,
excluding short-term investments, were in the following countries:
COUNTRY %
- --------- -------
Belgium 1.4
Brazil 1.1
Canada 10.4
Cayman Islands 1.8
China 2.3
France 8.2
Germany 9.5
Hong Kong 5.3
India 4.4
Ireland 3.0
Israel 0.3
Japan 16.0
Mexico 1.3
Netherlands 1.9
Puerto Rico 1.6
Russia 0.5
Singapore 4.6
Spain 2.4
Sweden 2.4
Switzerland 8.5
Taiwan 1.6
Turkey 0.2
United Kingdom 11.3
-----
TOTAL 100.0%
=====
35
MICRO CAP FUND -- SCHEDULE OF INVESTMENTS
SHARES VALUE
- -------- -----------
COMMON STOCKS 98.1%
AEROSPACE 0.6%
111,800 MTC Technologies, Inc.* $ 3,089,034
-----------
AUTO PARTS -- AFTER MARKET 1.0%
196,575 Aftermarket Technology Corp.* 2,472,914
117,300 Keystone Automotive Industries, Inc.* 2,580,600
-----------
5,053,514
-----------
BANKS -- NEW YORK CITY 0.4%
69,475 Signature Bank* 1,858,456
-----------
BANKS -- OUTSIDE NEW YORK CITY 3.1%
86,050 Bank of the Ozarks, Inc. 2,558,267
61,275 Canadian Western Bank 2,174,768
79,000 First State Bancorporation 2,490,870
182,950 Franklin Bank Corp.* 3,119,297
257,925 Placer Sierra Bancshares* 5,416,425
20,375 Valley Bancorp* 475,756
-----------
16,235,383
-----------
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 1.4%
686,700 Discovery Partners International, Inc.* 3,296,160
282,800 ISTA Pharmaceuticals, Inc.* 3,447,332
51,500 United-Guardian, Inc. 339,900
-----------
7,083,392
-----------
CHEMICALS 1.0%
147,425 Cabot Microelectronics Corp.* 5,344,156
-----------
COMMUNICATIONS TECHNOLOGY 0.2%
161,225 Vyyo, Inc.* 909,309
-----------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 2.6%
190,325 EPIQ Systems, Inc.* 2,965,263
240,475 Kintera, Inc.* 2,270,084
144,050 Kintera, Inc. PIPE* *** + 1,192,845
742,444 Nassda Corp.* 2,635,676
123,750 Opnet Technologies, Inc.* 1,269,675
440,825 Verisity Ltd.* 3,063,734
-----------
13,397,277
-----------
COMPUTER TECHNOLOGY 1.6%
234,975 Dot Hill Systems Corp.* 1,884,500
496,725 FARGO Electronics, Inc.* 4,813,265
294,950 Qualstar Corp.* 1,858,185
-----------
8,555,950
-----------
CONSUMER PRODUCTS 0.5%
94,825 Yankee Candle Co., Inc.* 2,746,132
-----------
DIVERSIFIED FINANCIAL SERVICES 1.4%
288,225 Rewards Network, Inc.* 1,922,461
404,936 U.S.I. Holdings Corp.* 5,527,376
-----------
7,449,837
-----------
EDUCATION SERVICES 0.7%
58,925 Acadomia Group 3,588,946
-----------
ELECTRICAL AND ELECTRONICS 0.9%
111,525 Power Integrations, Inc.* 2,278,456
263,725 TTM Technologies, Inc.* 2,344,515
-----------
4,622,971
-----------
ELECTRICAL EQUIPMENT AND
COMPONENTS 0.8%
161,350 Cohu, Inc. 2,384,753
2,462,000 Unisteel Technology Ltd. 1,886,478
-----------
4,271,231
-----------
ELECTRONIC EQUIPMENT AND
INSTRUMENTS 0.6%
6,446,625 MFS Technology Ltd. $ 3,216,516
-----------
ELECTRONICS 2.1%
520,425 Nu Horizons Electronics Corp.* 3,304,698
137,175 Semtech Corp.* 2,629,645
247,525 Supertex, Inc.* 4,809,411
-----------
10,743,754
-----------
ELECTRONICS -- MEDICAL SYSTEMS 2.4%
408,991 Endocardial Solutions, Inc.* 4,732,026
91,300 EPIX Medical, Inc.* 1,763,003
551,300 IRIDEX Corp.* ++ 3,484,216
175,717 Possis Medical, Inc.* 2,751,728
-----------
12,730,973
-----------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 9.7%
654,250 Advanced Power Technology, Inc.* ++ 5,567,667
453,025 ASE Test Ltd.* 2,378,381
211,150 Excel Technology, Inc.* 5,451,893
142,000 Integrated Circuit Systems, Inc.* 3,053,000
940,975 Micrel, Inc.* 9,795,550
1,103,650 O2Micro International Ltd.* 11,853,201
113,375 Pericom Semiconductor Corp.* 1,095,203
1,146,225 PLX Technology, Inc.* 8,264,282
1,001,445 PSi Technologies Holdings, Inc. ADR* ++ 1,992,876
48,700 SiRF Technology Holdings, Inc.* 693,001
-----------
50,145,054
-----------
ELECTRONICS -- TECHNOLOGY 0.8%
624,650 EFJ, Inc.* 4,185,155
-----------
FINANCE COMPANIES 1.4%
225,875 United PanAm Financial Corp.* 4,066,879
147,150 World Acceptance Corp.* 3,421,238
-----------
7,488,117
-----------
FINANCIAL -- MISCELLANEOUS 3.9%
250,547 Encore Capital Group, Inc.* 4,722,811
50,850 First Cash Financial Services, Inc.* 1,018,525
566,000 Home Capital Group, Inc. 10,688,393
123,050 Portfolio Recovery Associates, Inc.* 3,616,440
-----------
20,046,169
-----------
HEALTH CARE FACILITIES 1.8%
252,750 American Healthways, Inc.* 7,357,553
469,125 Capital Senior Living Corp.* 2,251,800
-----------
9,609,353
-----------
HEALTH CARE MANAGEMENT
SERVICES 7.8%
64,325 AMERIGROUP Corp.* 3,618,281
916,725 AmSurg Corp.* 19,416,235
56,775 Centene Corp.* 2,417,480
165,000 Computer Programs & Systems, Inc. 3,309,900
281,781 CorVel Corp.* 8,363,260
39,225 IMPAC Medical Systems, Inc.* 523,654
75,000 Molina Healthcare, Inc.* 2,662,500
-----------
40,311,310
-----------
HEALTH CARE SERVICES 4.4%
222,675 Accredo Health, Inc.* 5,248,450
258,225 Icon Pic ADR* 8,498,185
496,475 Odyssey Healthcare, Inc.* 8,812,431
-----------
22,559,066
-----------
36
SEPTEMBER 30, 2004
SHARES VALUE
------ -----
HOME BUILDING 1.3%
85,725 Meritage Homes Corp.* $ 6,737,985
------------
HOUSEHOLD FURNISHINGS 0.8%
121,625 Kirkland's Inc.* 1,143,275
154,250 Select Comfort Corp.* 2,807,350
------------
3,950,625
------------
MACHINERY 0.7%
1,243,575 Vanguard Response Systems, Inc.* ++ 3,550,676
------------
MACHINERY -- OIL WELL EQUIPMENT
AND SERVICES 0.5%
112,375 Gulf Island Fabrication, Inc. 2,505,962
------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 6.5%
173,425 Abaxis, Inc.* 2,256,259
American Medical Systems
79,700 Holdings, Inc.* 2,890,719
52,850 Biosite, Inc.* 2,587,536
178,450 Cyberonics, Inc.* 3,651,087
375,125 Encision, Inc.* ++ 866,539
310,200 Enpath Medical, Inc.* ++ 2,838,330
392,090 ICU Medical, Inc.* 10,210,024
193,550 Molecular Devices Corp.* 4,561,973
110,775 Young Innovations, Inc. 3,655,575
------------
33,518,042
------------
MEDICAL SERVICES 1.8%
948,500 Covalent Group, Inc.* ++ 2,750,650
492,012 U.S. Physical Therapy, Inc.* 6,686,443
------------
9,437,093
------------
MISCELLANEOUS MATERIALS AND
COMMODITIES 0.5%
102,100 Symyx Technologies, Inc.* 2,404,455
------------
PHARMACEUTICALS 0.8%
101,038 Docpharma N.V.* 4,398,171
------------
PRODUCTION TECHNOLOGY
EQUIPMENT 5.6%
130,075 ADE Corp.* 2,215,828
330,825 August Technology Corp.* 2,272,768
509,075 inTEST Corp.* ++ 3,960,603
675,600 Intevac, Inc.* 4,242,768
710,500 LogicVision, Inc.* 1,200,745
249,325 Nanometrics, Inc.* 2,844,798
105,425 Nova Measuring Instruments Ltd.* 332,089
243,100 Rudolph Technologies, Inc.* 4,069,494
79,178 SEZ Holding AG* 1,797,407
275,200 Tessera Technologies, Inc.* 6,081,920
------------
29,018,420
------------
REAL ESTATE INVESTMENT TRUSTS
(REIT) 1.7%
187,550 Bimini Mortgage Management, Inc.* 2,955,788
174,075 Fieldstone Investment Corp.*** + 2,959,275
131,200 Saxon Capital, Inc.* 2,820,800
------------
8,735,863
------------
RECREATIONAL VEHICLES AND BOATS
0.5%
218,000 National R.V. Holdings, Inc.* 2,709,740
------------
RENTAL AND LEASING SERVICES --
CONSUMER 0.2%
75,150 easyhome Ltd. 780,794
------------
RETAIL 14.1%
114,625 AC Moore Arts & Crafts, Inc.* $ 2,834,676
739,650 Big 5 Sporting Goods Corp.* 16,864,020
106,975 Bijou Brigitte AG 11,235,962
125,600 Cato Corp. (The), Class A 2,794,600
68,773 GiFi 3,389,475
141,650 Global Imaging Systems, Inc.* 4,402,482
233,525 Guitar Center, Inc.* 10,111,632
202,668 Hibbett Sporting Goods, Inc.* 4,152,667
122,125 Lithia Motors, Inc., Class A 2,596,377
59,650 MarineMax, Inc.* 1,343,318
250,350 O'Reilly Automotive, Inc.* 9,585,902
96,950 School Specialty, Inc.* 3,820,800
------------
73,131,911
------------
SAVINGS AND LOANS 0.7%
140,282 Commercial Capital Bancorp, Inc. 3,182,999
18,200 Harbor Florida Bancshares, Inc. 566,020
------------
3,749,019
------------
SCIENTIFIC EQUIPMENT AND
SUPPLIERS 0.7%
277,700 Biacore International AB 3,868,484
------------
SERVICES -- COMMERCIAL 7.8%
815,235 AMN Healthcare Services, Inc.* 9,742,058
317,000 Charles River Associates, Inc.* 12,137,930
163,575 Management Network Group, Inc.* 327,150
124,975 Monro Muffler, Inc.* 2,730,704
108,500 Providence Service Corp. (The)* 2,101,645
198,375 Resources Connection, Inc.* 7,494,608
854,700 SM&A* 5,974,353
------------
40,508,448
------------
SPECIALTY RETAIL 0.4%
5,937,875 Convenience Retail Asia Ltd. 1,942,050
------------
TRUCKERS 1.9%
136,450 Knight Transportation, Inc.* 2,922,759
75,675 PAM Transportation Services* 1,449,933
430,100 USA Truck, Inc.* 5,247,220
------------
9,619,912
------------
WHOLESALERS 0.5%
167,500 Beacon Roofing Supply, Inc.* 2,747,000
------------
TOTAL COMMON STOCKS
(COST $403,783,839) 508,555,705
------------
37
MICRO CAP FUND -- SCHEDULE OF INVESTMENTS (CONTINUED) SEPTEMBER 30, 2004
PRINCIPAL
AMOUNT VALUE
------ -----
SHORT-TERM INVESTMENTS 2.1%
REPURCHASE AGREEMENT 2.1%
$10,940,000 Repurchase Agreement dated
9/30/04, 1.05% due 10/1/04 with
State Street Bank
and Trust Co. collateralized by
$10,465,000 of United States
Treasury Bonds 5.25% due
11/15/28; value: $11,159,939;
repurchase proceeds: $10,940,319
(cost $10,940,000) $ 10,940,000
-------------
TOTAL SHORT-TERM INVESTMENTS
(COST $10,940,000) 10,940,000
-------------
TOTAL INVESTMENTS
(COST $414,723,839) 100.2% 519,495,705
LIABILITIES LESS OTHER ASSETS
(0.2)% (1,204,979)
-------------
NET ASSETS 100.0% $ 518,290,726
-------------
*Non-income producing.
*** Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
+ Security purchased in a private placement transaction or under Rule 144A of
the Securities Act of 1933 (see Note 9).
++ Affiliated company (see Note 8). ADR American Depositary Receipt.
See notes to financial statements.
38
MICRO CAP VALUE FUND -- SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004
SHARES VALUE
------ -----
COMMON STOCKS 94.2%
AIR TRANSPORT 0.5%
275,000 Norwegian Air Shuttle ASA* (Norway) $ 401,060
-------------
AIRLINES 1.0%
50,000 Transat A.T., Inc.* (Canada) 856,565
-------------
AUTO PARTS -- AFTER MARKET 1.5%
50,000 Aftermarket Technology Corp.* 629,008
132,775 IMPCO Technologies, Inc.* 650,598
-------------
1,279,598
-------------
BANKS -- OUTSIDE NEW YORK
CITY 10.0%
40,000 BFC Financial Corp.,Class A* 440,000
44,300 CoBiz, Inc. 732,279
60,000 CommerceWest Bank* 900,000
60,500 Franklin Bank Corp.* *** 1,010,894
39,500 Franklin Bank Corp.* 673,475
25,000 Oriental Financial Group, Inc. 676,500
55,000 Placer Sierra Bancshares* 1,155,000
53,000 Security Business Bank of San
Diego* 747,300
6,525 Valley Bancorp* 152,359
65,000 Wilshire Bancorp, Inc.* 1,961,700
-------------
8,449,507
-------------
BIOTECHNOLOGY RESEARCH
AND PRODUCTION 4.5%
13,000 Corgentech, Inc.* 221,910
203,200 Discovery Partners
International, Inc.* 975,360
172,700 ISTA Pharmaceuticals, Inc.* 2,105,213
74,100 United-Guardian, Inc. 489,060
-------------
3,791,543
-------------
COMMUNICATIONS TECHNOLOGY 0.2%
37,425 Vyyo, Inc.* 211,077
-------------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS
666,667 CorVu Corp.* 200,000
45,000 Isra Vision Systems AG* (Germany) 626,472
69,075 Opnet Technologies, Inc.* 708,712
-------------
1,535,182
-------------
COMPUTER TECHNOLOGY 0.4%
50,000 Qualstar Corp.* 315,000
-------------
DRUGS AND PHARMACEUTICALS 1.7%
35,819 Acusphere, Inc. PIPE* *** + 179,157
33,500 Ligand Pharmaceuticals, Inc.,
Class B* 335,670
25,000 NeoPharm, Inc.* 214,000
30,000 Taro Pharmaceuticals Industries
Ltd.* 701,400
-------------
1,430,227
-------------
EDUCATION SERVICES 1.4%
20,000 Acadomia Group (France) 1,218,140
-------------
ELECTRICAL AND ELECTRONICS 0.5%
50,000 TTM Technologies, Inc.* $ 444,500
-------------
ELECTRICAL EQUIPMENT AND
COMPONENTS 0.7%
800,000 Unisteel Technology Ltd.(Singapore) 612,990
-------------
ELECTRONICS 1.1%
70,000 Nu Horizons Electronics Corp.* 444,500
50,000 Richardson Electronics Ltd. 480,500
ELECTRONICS -- INSTRUMENTS,
GAUGES AND METERS 0.7%
101,400 Computer Access Technology
Corp.* 601,302
-------------
ELECTRONICS -- MEDICAL SYSTEMS 3.3%
150,000 Endocardial Solutions, Inc.* 1,735,500
170,000 IRIDEX Corp.* 1,074,400
-------------
2,809,900
-------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 4.7%
173,000 Advanced Power Technology, Inc.* 1,472,230
105,550 Peak International Ltd.* (Bermuda) 548,860
36,700 Pericom Semiconductor Corp.* 354,522
210,000 PLX Technology, Inc.* 1,514,100
57,550 PSi Technologies Holdings, Inc. ADR*
(Philippines) 114,524
-------------
4,004,236
-------------
ELECTRONICS -- TECHNOLOGY 1.5%
25,000 Digital Theater Systems, Inc.* 456,250
70,000 EFJ, Inc.* 469,000
100,000 Iteris Holdings, Inc.* 325,000
-------------
1,250,250
-------------
FINANCE COMPANIES 1.3%
50,000 Nicholas Financial, Inc.(Canada) 446,500
34,675 United PanAm Financial Corp.* 624,323
FINANCIAL -- MISCELLANEOUS 3.2%
40,000 Encore Capital Group, Inc.* 754,000
50,000 First Cash Financial Services,
Inc.* 1,001,500
50,000 Home Capital Group, Inc. (Canada) 944,204
-------------
2,699,704
-------------
FOODS 0.1%
12,865 Geopharma, Inc.* 53,004
-------------
HEALTH CARE FACILITIES 0.5%
90,150 Capital Senior Living Corp.* 432,720
-------------
HEALTH CARE MANAGEMENT SERVICES 1.6%
50,000 Computer Programs & Systems, Inc. 1,003,000
25,000 IMPAC Medical Systems, Inc.* 333,750
-------------
1,336,750
-------------
HEALTH CARE SERVICES 0.6%
30,000 Healthcare Services Group 538,800
-------------
HOME BUILDING 2.3%
20,000 Levitt Corp. 469,200
65,000 Orleans Homebuilders, Inc.* 1,463,800
-------------
1,933,000
-------------
HOUSEHOLD DURABLES 0.9%
1,000,000 HTL International Holdings Ltd.
(Singapore) 736,539
-------------
HOUSEHOLD FURNISHINGS 0.6%
40,000 Chromcraft Revington, Inc.* 512,000
-------------
39
MICRO CAP VALUE FUND -- SCHEDULE OF INVESTMENTS (CONTINUED)
SHARES VALUE
- ------------------------------------------------------------
INSURANCE -- PROPERTY AND
CASUALTY 0.8%
50,000 American Safety Insurance
Holdings Ltd.* (Bermuda) $ 685,000
-----------
MACHINERY 1.3%
400,000 Vanguard Response Systems,
Inc.* (Canada) 1,142,087
-----------
MACHINERY -- OIL WELL EQUIPMENT
AND SERVICES 1.0%
35,000 Pason Systems, Inc. (Canada) 862,474
-----------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 11.3%
250,000 Bioject Medical Technologies, 270,000
Inc.*
250,000 BSD Medical Corp* 395,000
40,000 Cyberonics, Inc.* 818,400
164,734 Encision, Inc.* 380,535
219,600 Enpath Medical, Inc.* 2,009,340
50,000 E-Z-EM, Inc. 897,500
63,075 ICU Medical, Inc.* 1,642,473
325,690 MacroPore Biosurgery, Inc.* 1,060,662
30,000 Molecular Devices Corp.* 707,100
205,300 MTS Medication Technologies* 1,389,881
-----------
9,570,891
-----------
MEDICAL SERVICES 2.6%
225,000 Covalent Group, Inc.* 652,500
140,000 Life Sciences Research, Inc.* 994,000
293,285 Patient Infbsystems, Inc.* 527,913
-----------
2,174,413
-----------
METAL MINING 1.4%
2,000,000 EuroZinc Mining Corp.* 1,221,399
-----------
PHARMACEUTICALS 1.3%
25,955 Docpharma N.V.* (Belgium) 1,129,818
-----------
PRODUCTION TECHNOLOGY
EQUIPMENT 10.2%
28,575 ADE Corp.* 486,775
50,000 August Technology Corp.* 343,500
369,300 Genus, Inc.* 812,460
239,000 inTEST Corp.* 1,859,420
116,575 Intevac, Inc.* 732,091
574,000 LogicVision, Inc.* 970,060
60,000 Mykrolis Corp.* 604,200
85,000 Nanometrics, Inc.* 969,850
136,000 Nova Measuring Instruments Ltd.* 428,400
(Israel)
85,000 Rudolph Technologies, Inc.* 1,422,900
-----------
8,629,656
-----------
REAL ESTATE INVESTMENT TRUSTS
(REIT) 4.1%
71,600 Bimini Mortgage Management,
Inc.** + 1,059,207
48,425 Fieldstone Investment Corp.*** + 823,225
36,250 Medical Properties Trust, Inc.**** + 362,500
55,000 Saxon Capital, Inc.* 1,182,500
-----------
3,427,432
-----------
RECREATIONAL VEHICLES AND BOATS
0.8%
55,000 National R.V. Holdings, Inc.* 683,650
-----------
RENTAL AND LEASING SERVICES --
CONSUMER 1.3%
105,000 easyhome Ltd. (Canada) 1,090,931
-----------
RESTAURANTS 0.3%
250,000 Steakhouse Partners, Inc.* + 262,500
-----------
RETAIL 5.4%
50,000 Big 5 Sporting Goods Corp.* $1,140,000
25,000 Bijou Brigitte AG (Germany) 2,625,838
17,000 GiFi (France) 837,844
-----------
4,603,682
-----------
SAVINGS AND LOANS 1.2%
85,000 Pacific Premier Bancorp, Inc.* 1,005,550
-----------
SERVICES -- COMMERCIAL 2.6%
15,000 Charles River Associates, Inc.* 574,350
120,000 Management Network Group, Inc.* 240,000
40,000 Monro Muffler, Inc.* 874,000
75,000 SM&A* 524,250
-----------
2,212,600
-----------
SPECIALTY RETAIL 0.9%
1,796,600 Bonjour Holdings Ltd. (Cayman
Islands) 731,618
-----------
TRUCKERS 0.6%
45,000 USA Truck, Inc.* 549,000
-----------
WHOLESALERS 0.5%
27,250 Beacon Rooting Supply, Inc.* 446,900
-----------
TOTAL COMMON STOCKS
(COST $71,044,237) 79,879,018
-----------
WARRANTS 0.0%
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 0.0%
200,000 CorVu Corp.* *** + --
-----------
DRUGS AND PHARMACEUTICALS 0.0%
7,164 Acusphere, Inc.* *** + --
-----------
TOTAL WARRANTS (COST $0) --
-----------
40
SEPTEMBER 30, 2004
PRINCIPAL
AMOUNT VALUE
------ -----
SHORT-TERM INVESTMENTS 4.9%
REPURCHASE AGREEMENT 4.9%
$4,178,000 Repurchase Agreement dated
9/30/04, 1.05% due 10/1/04 with State
Street Bank and Trust Co. collateralized by
$2,905,000 of United States Treasury Bonds
8.75% due 8/15/20; value: $4,264,903;
repurchase proceeds: $4,178,122+++ (cost $4,178,000) $ 4,178,000
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,178,000) 4,178,000
------------
TOTAL INVESTMENTS
(COST $75,222,237) 99.1% 84,057,018
OTHER ASSETS LESS LIABILITIES
0.9% 778,284
------------
NET ASSETS 100.0% $ 84,835,302
============
At September 30, 2004, Wasatch Micro Cap Value Fund's investments, excluding
short-term investments, were in the following countries:
*Non-income producing.
***Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
+Security purchased in a private placement transaction or under Rule 144A of
the Securities Act of 1933 (see Note 9).
++Affiliated company (see Note 8).
+++ All or a portion or this security has been designated as collateral for open
short positions or purchase commitments.
ADR American Depositary Receipt.
PIPE Private Investment in a Public Equity.
COUNTRY %
------- -----
Belgium 1.3
Bermuda 1.5
Canada 6.4
Cayman Islands 0.9
France 2.4
Germany 3.9
Israel 1.3
Norway 0.5
Philippines 0.1
Singapore 1.6
United States 80.1
-----
TOTAL 100.0%
=====
See notes to financial statements.
41
SMALL CAP GROWTH FUND-- Schedule of Investments
SHARES VALUE
- ------ -----
COMMON AND PREFERRED STOCKS 98.2%
AIR TRANSPORT 0.6%
129,205 Expediters International of
Washington, Inc. $ 6,679,899
------------
AIRLINES 0.8%
889,650 WestJet Airlines Ltd.* 9,278,580
------------
BANKS -- OUTSIDE NEW YORK CITY
4.2%
307,400 Bank of the Ozarks, Inc. 9,139,002
289,650 Doral Financial Corp. 12,011,786
198,700 First Community Bancorp 8,146,700
394,400 HDFC Bank Ltd. ADR 13,389,880
288,600 Prosperity Bancshares, Inc. 7,711,392
------------
50,398,760
------------
BEVERAGE -- SOFT DRINKS 0.2%
122,950 Feet's Coffee & Tea, Inc.* 2,875,801
------------
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 2.1%
166,975 Corgentech, Inc.* 2,850,263
577,175 Myriad Genetics, Inc.* 9,869,693
219,075 Neurochem, Inc.* 3,759,327
753,400 QIAGEN N.V.* 8,626,430
------------
25,105,713
------------
CHEMICALS 1.3%
427,525 Cabot Microelectronics Corp.* 15,497,781
------------
COMMUNICATIONS TECHNOLOGY 0.4%
280,325 UTStarcom, Inc.* 4,516,036
------------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 8.5%
201,100 CACI International, Inc., Class A* 10,614,058
594,946 Cognizant Technology Solutions
Corp., Class A* 18,151,802
747,075 iPass, Inc.* 4,474,979
755,450 Kintera, Inc. PIPE* *** + 6,255,706
315,675 Macrovision Corp.* 7,601,454
325,125 Manhattan Associates, Inc.* 7,939,553
844,100 Nassda Corp.* 2,996,555
336,550 NAVTEQ Corp.* 11,994,642
345,825 SRA International, Inc., Class A* 17,830,737
192,450 Verint Systems, Inc.* 7,089,858
827,600 Verisity Ltd.* 5,751,820
------------
100,701,164
------------
CONSUMER PRODUCTS 1.9%
771,925 Yankee Candle Co., Inc.* 22,354,948
------------
DRUGS AND PHARMACEUTICALS 3.2%
394,598 ILEX Oncology, Inc.* 9,932,032
369,150 Ligand Pharmaceuticals, Inc.,
Class B* 3,698,883
113,050 Medicines Company (The) 2,729,027
324,150 Medicis Pharmaceutical Corp.,
Class A 12,654,816
184,500 NeoPharm, Inc.* 1,579,320
318,700 Taro Pharmaceuticals Industries
Ltd.* 7,451,206
------------
38,045,284
------------
EDUCATION SERVICES 0.2%
24,075 Strayer Education, Inc. 2,768,866
------------
ELECTRICAL AND ELECTRONICS 1.2%
725,500 Power Integrations, Inc.* 14,821,965
------------
ELECTRONICS 2.1%
147,183 Flir Systems, Inc.* 8,610,205
845,775 Semtech Corp.* 16,213,507
------------
24,823,712
------------
ELECTRONICS -- MEDICAL SYSTEMS
0.6%
721,275 CTI Molecular Imaging, Inc.* $ 5,820,689
1,620,220 Zonare Medical Systems, Inc.*
*** + 1,500,080
------------
7,320,769
------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 7.7%
849,600 AMIS Holdings, Inc.* 11,486,592
165,325 Cree, Inc.* 5,047,372
924,505 Integrated Circuit Systems,
Inc.* 19,876,858
2,334,775 Micrel, Inc.* 24,305,008
1,323,650 O2Micro International Ltd.* 14,216,001
607,525 PLX Technology, Inc.* 4,380,255
172,025 Silicon Laboratories, Inc.* 5,692,307
107,425 SiRF Technology Holdings, Inc.* 1,528,658
402,480 SiRF Technology Holdings, Inc.*
*** + 5,582,199
------------
92,115,250
------------
ELECTRONICS-- TECHNOLOGY 0.4%
271,825 Digital Theater Systems, Inc.* 4,960,806
------------
FINANCIAL INFORMATION SERVICES
1.4%
337,900 Factset Research Systems, Inc. 16,286,780
------------
HEALTH CARE FACILITIES 4.5%
968,650 American Healthways, Inc.* 28,197,401
Pharmaceutical Product
342,575 Development, Inc.* 12,332,700
371,850 United Surgical Partners
International, Inc.* 12,773,048
------------
53,303,149
------------
HEALTH CARE MANAGEMENT
SERVICES 5.5%
457,350 AMERIGROUP Corp.* 25,725,938
1,535,263 AmSurg Corp.* ++ 32,516,870
143,725 Pediatrix Medical Group, Inc.* 7,883,316
------------
66,126,124
------------
HEALTH CARE SERVICES 4.6%
466,200 Accredo Health, Inc.* 10,988,334
262,200 Charles River Laboratories
International, Inc.* 12,008,760
478,725 Icon Pic ADR* 15,754,840
935,418 Odyssey Healthcare, Inc.* 16,603,669
------------
55,355,603
------------
HOME BUILDING 4.0%
243,400 Meritage Homes Corp.* 19,131,240
35,535 NVR, Inc.* 19,579,785
191,400 Toll Brothers, Inc.* 8,867,562
------------
47,578,587
------------
HOUSEHOLD DURABLES 0.3%
200,550 Desarrolladora Homex, S.A. de
C.V. ADR* 4,141,358
------------
HOUSEHOLD FURNISHINGS 0.7%
426,750 Select Comfort Corp.* 7,766,850
------------
INSURANCE -- MULTI-LINE 2.2%
455,350 Brown & Brown, Inc. 20,809,495
165,875 Hilb Rogal & Hamilton Co. 6,007,992
------------
26,817,487
------------
INSURANCE -- PROPERTY AND
CASUALTY 0.5%
197,300 Direct General Corp. 5,705,916
------------
42
SEPTEMBER 30, 2004
SHARES VALUE
- ------ -------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 5.7%
396,752 Abaxis, Inc.* $ 5,161,744
526,265 ICU Medical, Inc.* 13,703,941
127,350 Kinetic Concepts, Inc.* 6,692,242
103,675 ResMed, Inc.* 4,935,967
818,463 Techne Corp.* 31,248,917
249,875 Wright Medical Group, Inc.* 6,276,860
-------------
68,019,671
-------------
MISCELLANEOUS MATERIALS AND
COMMODITIES 0.5%
253,539 Symyx Technologies, Inc.* 5,970,843
-------------
PRODUCTION TECHNOLOGY
EQUIPMENT 1.8%
392,025 Rudolph Technologies, Inc.* 6,562,499
647,625 Tessera Technologies, Inc.* 14,312,512
-------------
20,875,011
-------------
REAL ESTATE INVESTMENT TRUSTS
(REIT) 3.1%
771,100 Capital Automotive 24,112,297
200,950 Redwood Trust, Inc. 12,543,299
-------------
36,655,596
-------------
RETAIL 13.6%
227,464 99 Cents Only Stores* 3,236,813
509,100 Big 5 Sporting Goods Corp.* 11,607,480
137,225 Blue Nile, Inc.* 4,621,738
437,573 Chico's FAS, Inc.* 14,964,997
278,850 Cost Plus, Inc* 9,865,713
698,094 Dollar Tree Stores, Inc.* 18,813,633
167,800 Fred's, Inc. 3,013,688
377,225 Guitar Center, Inc.* 16,333,842
541,436 Hibbett Sporting Goods, Inc.* 11,094,024
114,156 Jos. A. Bank Clothiers, Inc.* 3,159,838
1,295,272 O'Reilly Automotive, Inc.* 49,595,965
507,275 Tuesday Morning Corp.* 15,684,943
-------------
161,992,674
-------------
SAVINGS AND LOANS 0.6%
242,968 Harbor Florida Bancshares, Inc. 7,556,305
-------------
SERVICES -- COMMERCIAL 7.8%
409,369 Charles River Associates, Inc.* 15,674,739
761,075 Copart, Inc.* 14,407,149
96,100 Corporate Executive Board Co. 5,885,164
143,325 CoStar Group, Inc.* 7,050,157
290,325 Jackson Hewitt Tax Service, Inc. 5,873,275
374,325 LECG Corp.* 6,329,836
550,455 Resources Connection, Inc.* 20,796,190
578,950 West Corp.* 16,864,813
-------------
92,881,323
-------------
TEXTILES -- APPAREL MANUFACTURERS'A
0.8%
328,500 Carter's, Inc.* 9,096,165
-------------
TRUCKERS 3.0%
1,689,543 Knight Transportation, Inc.* 36,190,011
-------------
UTILITIES -- CABLE TV AND RADIO
0.1%
163,675 Knology, Inc.* 679,251
-------------
UTILITIES -- TELECOMMUNICATIONS
2.1%
1,524,375 Nextel Partners, Inc., Class A* 25,274,138
-------------
TOTAL COMMON AND PREFERRED
STOCKS (COST $926,647,515) 1,170,538,176
=============
SHARES VALUE
- ---------- -------------
LIMITED PARTNERSHIP INTEREST 0.1%
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 0.1%
Montagu Newhall Global Partners
II-B, L.P.* ***+ $ 412,715
-------------
TOTAL LIMITED PARTNERSHIP INTEREST
(COST $471,435) 412,715
-------------
WARRANTS 0.0%
ELECTRONICS -- MEDICAL SYSTEMS 0.0%
243,033 Zonare Medical Systems, Inc.* *** + $ --
-------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 0.0%
40,248 SiRF Technology Holdings, Inc.* *** + 303,235
-------------
TOTAL WARRANTS (COST $0) 303,235
-------------
PRINCIPAL
AMOUNT VALUE
- ---------- --------------
U.S. GOVERNMENT OBLIGATIONS 0.4%
$5,027,000 U.S. Treasury Bond, 5.25%, 11/15/28 $ 5,228,472
--------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (COST $5,005,460) 5,228,472
--------------
SHORT-TERM INVESTMENTS 1.7%
REPURCHASE AGREEMENT 1.7%
19,933,000 Repurchase Agreement dated
9/30/04, 1.05% due 10/1/04
with State Street Bank and
Trust Co. collateralized by
$18,680,000 of United
States Treasury Bonds 5.50%
due 8/15/28; value:
$20,332,022; repurchase
proceeds: $19,933,581+++
(cost $19,933,000) 19,933,000
--------------
TOTAL SHORT-TERM
INVESTMENTS (COST $19,933,000) 19,933,000
TOTAL INVESTMENTS (COST
$952,057,410) 100.4% 1,196,415,598
LIABILITIES LESS OTHER
ASSETS (0.4)% (4,713,326)
--------------
NET ASSETS 100.0% $1,191,702,272
==============
* Non-income producing.
*** Security was fair valued under procedures adopted by the Board
of Directors (see Note 2).
+ Security purchased in a private placement transaction or under
Rule 144A of the Securities Act of 1933 (see Note 9).
++ Affiliated company (see Note 8).
+++ All or a portion of this security has been designated as
collateral for open short positions or purchase commitments.
ADR American Depositary Receipt.
See notes to financial statements.
43
SMALL CAP VALUE FUND -- SCHEDULE OF INVESTMENTS
SHARES VALUE
- ---------- --------------
COMMON STOCKS 99.0%
AEROSPACE 0.9%
510,093 HEICO Corp., Class A+++ $ 6,876,054
--------------
AUTO PARTS -- AFTER MARKET 3.6%
899,789 Aftermarket Technology Corp.* 11,319,346
672,159 Keystone Automotive Industries, Inc.* 14,787,498
--------------
26,106,844
--------------
BANKS 0.5%
1,238,722 UTI Bank Ltd. 3,504,723
--------------
BANKS -- OUTSIDE NEW YORK CITY
4.1%
315,600 Doral Financial Corp. 13,087,932
661,650 Franklin Bank Corp.* 11,281,133
273,625 Placer Sierra Bancshares* 5,746,125
--------------
30,115,190
--------------
COMMERCIAL INFORMATION
SERVICES 0.3%
606,766 Integrated Alarm Services Group,
Inc.* 2,493,808
--------------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 0.8%
411,300 Concord Communications, Inc.* 3,670,852
150,775 SPSS, Inc.* 2,009,831
--------------
5,680,683
--------------
CONSUMER PRODUCTS 0.6%
127,500 Jarden Corp.* 4,652,475
--------------
CONTAINERS AND PACKAGING --
METAL AND GLASS 1.7%
512,887 Mobile Mini, Inc.* 12,719,598
--------------
DIVERSIFIED FINANCIAL SERVICES
3.1%
688,437 Hub International Ltd. 12,446,941
694,050 Rewards Network, Inc.* 4,629,314
394,325 U.S.I. Holdings Corp.* 5,382,536
--------------
22,458,791
--------------
DIVERSIFIED FINANCIALS 0.5%
272,850 Housing Development Finance Corp. Ltd. 3,626,713
--------------
ELECTRICAL AND ELECTRONICS 0.6%
461,950 TTM Technologies, Inc.* 4,106,736
--------------
ELECTRONICS 2.3%
633,475 Nu Horizons Electronics Corp.* 4,022,566
672,225 Supertex, Inc.* " 13,061,332
--------------
17,083,898
--------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 3.1%
656,025 ASE Test Ltd.* 3,444,131
176,950 Excel Technology, Inc.* 4,568,849
432,700 Micrel, Inc.* 4,504,407
557,900 Pericom Semiconductor Corp.* 5,389,314
870,925 SIPEX Corp.* 4,572,356
--------------
22,479,057
--------------
FINANCE COMPANIES 4.3%
337,950 Accredited Home Lenders Holding Co.* 13,017,834
331,150 JER Investors Trust, Inc.* *** + 4,967,250
493,500 United PanAm Financial Corp.* 8,885,467
191,011 World Acceptance Corp.* 4,441,006
--------------
31,311,557
--------------
FINANCE -- SMALL LOAN 2.0%
687,100 AmeriCredit Corp.* +++ $ 14,346,648
--------------
FINANCIAL -- MISCELLANEOUS 2.4%
314,979 Fidelity National Financial, Inc. 12,000,700
92,225 New Century Financial Corp. 5,553,789
--------------
17,554,489
--------------
FOODS 2.7%
919,056 NBTY, Inc.* 19,814,847
--------------
HEALTH CARE FACILITIES 0.4%
624,925 Capital Senior Living Corp.* 2,999,640
--------------
HEALTH CARE MANAGEMENT
SERVICES 2.1%
190,625 Molina Healthcare, Inc.* 6,767,188
238,400 Pacificare Health Systems* 8,749,280
--------------
15,516,468
--------------
HEALTH CARE SERVICES 0.6%
151,875 Apria Healthcare Group, Inc.* 4,138,594
--------------
HOME BUILDING 4.8%
123,767 M.D.C. Holdings, Inc. 9,047,368
146,000 Meritage Homes Corp.* 11,475,600
15,165 NVR, Inc.* 8,355,915
142,400 Toll Brothers, Inc.* 6,597,392
--------------
35,476,275
--------------
HOTEL/MOTEL 0.5%
234,900 Orient-Express Hotels Ltd., Class A 3,838,266
--------------
HOUSEHOLD FURNISHINGS 0.5%
417,562 Kirkland's, Inc.* 3,925,083
--------------
INSURANCE -- LIFE 0.5%
182,400 Scottish Re Group Ltd. 3,861,408
--------------
INSURANCE -- PROPERTY AND
CASUALTY 2.0%
508,025 Direct General Corp. 14,692,083
--------------
INVESTMENT MANAGEMENT
COMPANIES 2.8%
566,550 Apollo Investment Corp. 8,016,683
400 Brantley Mezzanine Finance, LLC*
** *** + 40,000
477,000 MCG Capital Corp. 8,280,720
288,400 Technology Investment Capital
Corp. 4,037,600
--------------
20,375,003
--------------
LEISURE TIME 0.4%
291,725 Action Performance Companies,Inc. 2,955,174
--------------
MACHINERY 0.2%
565,350 Vanguard Response Systems, Inc.* 1,614,197
--------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 0.8%
289,125 Sola International, Inc.* 5,507,831
--------------
MEDICAL SERVICES 0.9%
482,125 U.S. Physical Therapy, Inc.* 6,552,079
--------------
OIL -- CRUDE PRODUCERS 2.1%
291,375 Harvest Natural Resources, Inc.* 4,836,825
608,325 Mission Resources Corp.* 3,826,364
270,000 Plains Exploration & Production
Co.* 6,442,200
--------------
15,105,389
--------------
PRODUCTION TECHNOLOGY
EQUIPMENT 0.6%
395,550 Nanometrics, Inc.* 4,513,226
--------------
44
SEPTEMBER 30, 2004
SHARES VALUE
- ---------- --------------
REAL ESTATE INVESTMENT TRUSTS
(REIT) 18.3%
202,175 American Home Mortgage
Investment Corp. $ 5,650,791
568,800 Arbor Realty Trust, Inc. 12,627,360
642,325 Bimini Mortgage Management,
Inc.*** + 9,502,162
1,011,725 Falcon Financial Investment Trust++ 8,184,855
443,050 Fieldstone Investment Corp.*** + 7,531,850
697,236 Friedman, Billings, Ramsey
Group, Inc., Class A 13,317,208
360,000 KKR Financial Corp.* *** + 3,690,000
325,500 Medical Properties Trust, Inc.**** + 3,255,000
420,075 MortgagelT Holdings, Inc.* 6,070,084
494,800 Newcastle Investment Corp. 15,190,360
500,000 Provident Senior Living Trust* *** + 7,500,000
314,450 Redwood Trust, Inc. 19,627,969
938,000 Saxon Capital, Inc.* 20,167,000
79,800 Thornburg Mortgage, Inc. 2,314,998
--------------
134,629,637
--------------
RECREATIONAL VEHICLES AND BOATS
0.3%
181,050 National R.V. Holdings, Inc.* 2,250,451
--------------
RENTAL AND LEASING SERVICES --
COMMERCIAL 0.2%
480,398 MicroFinancial, Inc.* 1,820,708
--------------
RENTAL AND LEASING SERVICES --
CONSUMER 1.5%
433,062 Rent-A-Center, Inc.* 11,198,983
--------------
RETAIL 13.4%
89,275 America's Car-Mart, Inc.* 3,013,031
447,100 Big 5 Sporting Goods Corp.* 10,193,880
1,455,600 Casual Male Retail Group, Inc.* 7,627,344
136,675 Dollar Tree Stores, Inc.* 3,683,391
654,025 Global Imaging Systems, Inc.* 20,327,097
279,075 Group 1 Automotive, Inc.* 7,613,166
624,800 Lithia Motors, Inc., Class A 13,283,248
97,750 MarineMax, Inc.* 2,201,330
167,675 O'Reilly Automotive, Inc.* 6,420,276
213,525 School Specialty, Inc.* 8,415,020
441,817 Sonic Automotive, Inc. 8,858,431
845,568 Whitehall Jewellers, Inc.* + + 6,789,911
--------------
98,426,125
--------------
SAVINGS AND LOANS 2.3%
741,169 Commercial Capital Bancorp, Inc. 16,817,125
--------------
SERVICES -- COMMERCIAL 5.2%
385,475 Administaff, Inc.* 4,510,058
743,652 AMN Healthcare Services, Inc.* 8,886,641
359,756 Monro Muffler, Inc.* 7,860,669
174,310 Navigant International, Inc.* 2,846,482
188,625 RemedyTemp, Inc., Class A* 1,969,245
622,950 SM&A* 4,354,420
220,850 World Fuel Services Corp. 7,906,430
--------------
38,333,945
--------------
TRANSPORTATION -- MISCELLANEOUS
0.6%
668,100 Quality Distribution, Inc.* 4,082,091
--------------
TRUCKERS 2.7%
222,875 Swift Transportation Co., Inc.* 3,748,758
315,642 Transport Corporation of America, Inc.* 2,480,946
472,250 USA Truck, Inc.* +++ 5,761,450
535,475 Vitran Corp., Inc.* 7,962,513
--------------
19,953,667
--------------
UTILITIES -- CABLE TV AND RADIO
0.2%
326,050 Knology, Inc.* 1,353,107
--------------
UTILITIES -- TELECOMMUNICATIONS 1.1%
503,025 Nextel Partners, Inc., Class A* $ 8,340, 154
--------------
WHOLESALERS 0.5%
235,775 Beacon Roofing Supply, Inc.* 3,866,710
--------------
TOTAL COMMON STOCKS
(COST $599,220,826) 727,075,530
--------------
PRINCIPAL
AMOUNT VALUE
- ---------- --------------
CORPORATE BONDS 0.3%
INVESTMENT MANAGEMENT
COMPANIES 0.3%
$2,000,000 Brantley Mezzanine Finance,
LLC, 10.00%,
9/21/09***+ $ 1,960,122
--------------
TOTAL CORPORATE BONDS
(COST $1,960,122) 1,960,122
--------------
SHORT-TERM INVESTMENTS 0.7%
REPURCHASE AGREEMENT 0.7%
5,328,000 Repurchase Agreement dated
9/30/04, 1.05% due 10/1/04
with State Street Bank and
Trust Co. collateralized by
$3,920,000 of United States
Treasury Bonds 8.125% due
8/15/19; value: $5,439,000;
repurchase proceeds:
$5,328,155 (cost
$5,328,000) 5,328,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,328,000) 5,328,000
--------------
TOTAL INVESTMENTS (COST
$606,508,948) 100.0% 734,363,652
--------------
LIABILITIES LESS OTHER
ASSETS (0.0) % (97,398)
--------------
NET ASSETS 100.0% $ 734,266,254
==============
SHARES VALUE
- ---------- --------------
SECURITIES SOLD SHORT
44,700 HEICO Corp. (proceeds $360,222) $ 790,296
==============
*Non-income producing.
**Common units.
***Security was fair valued under procedures adopted by the Board
of Directors (see Note 2).
+Security purchased in a private placement transaction or under Rule
144A of the Securities Act of 1933 (see Note 9).
++Affiliated company (see Note 8).
+++All or a portion of this security has been designated as
collateral for open short positions or purchase commitments.
See notes to financial statements.
45
ULTRA GROWTH FUND -- SCHEDULE OF INVESTMENTS
SHARES VALUE
- --------------------------------------------------------------------------
COMMON AND PREFERRED STOCKS 94.49%
AEROSPACE 1 .0%
145,450 MTC Technologies, Inc.* $ 4,018,783
-----------
AUTO PARTS -- AFTER MARKET 0.3%
230,000 IMPCO Technologies, Inc.* 1,127,000
-----------
AUTO PARTS -- ORIGINAL
EQUIPMENT 0.2%
188,000 Quantum Fuel Systems Technologies
Worldwide, Inc.* 1,024,600
-----------
BANKS -- OUTSIDE NEW YORK CITY 2.5%
159,537 Doral Financial Corp. 6,615,999
92,450 HDFC Bank Ltd. ADR 3,138,678
31,300 Wilshire Bancorp, Inc.* 944,634
-----------
10,699,311
-----------
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 1.3%
74,350 Corgentech, Inc.* 1,269,155
152,450 Isolagen, Inc.* 1,440,652
145,375 Neurochem, Inc.* 2,494,635
82,675 Xcyte Therapies, Inc.* 260,426
-----------
5,464,868
-----------
CASINOS AND GAMBLING 0.4%
44,775 Shuffle Master, Inc.* 1,677,272
-----------
CHEMICALS 1.9%
224,975 Cabot Microelectronics Corp.* 8,155,344
-----------
COMMUNICATIONS TECHNOLOGY 1.0%
268,600 UTStarcom, Inc.* 4,327,146
91,388 Xtera Communications, Inc.**** + 99,065
-----------
4,426,211
-----------
COMPUTER SERVICES SOFTWARE AND
SYSTEMS 9.9%
201,835 Cognizant Technology Solutions
Corp., Class A* 6,157,986
345,804 EPIQ Systems, Inc.* 5,387,626
672,121 Kintera, Inc.* 6,344,822
102,525 Kintera, Inc. PIPE* *** 848,986
309,850 Lionbridge Technologies, Inc.* 2,661,612
42,950 Manhattan Associates, Inc.* 1,048,839
449,878 Nassda Corp.* 1,597,067
61,600 NAVTEQ Corp.* 2,195,424
174,100 Opnet Technologies, Inc.* 1,786,266
220,100 PDF Solutions, Inc.* 2,674,215
152,984 SRA International, Inc., Class A* 7,887,855
515,334 Verisity Ltd.* 3,581,571
-----------
42,172,269
-----------
COMPUTER TECHNOLOGY 1 .0%
79,675 Affiliated Computer Services, Inc.,
Class A* 4,435,507
-----------
DIVERSIFIED FINANCIAL SERVICES 0.6%
140,150 Hub International Ltd. 2,533,912
-----------
DRUGS AND PHARMACEUTICALS 1.6%
67,800 Angiotech Pharmaceuticals, Inc.* 1,374,306
40,667 Connetics Corp.* 1,098,822
86,250 Hi-Tech Pharmacal Co., Inc.* 1,373,100
151,725 Ligand Pharmaceuticals, Inc., Class B* 1,520,285
181,775 NeoPharm, Inc.* 1,555,994
29,000 Northwest Biotherapeutics, Inc.* 870
-----------
6,923,377
-----------
EDUCATION SERVICES 0.3%
171,550 Princeton Review, Inc. (The)* 1,286,625
-----------
ELECTRICAL AND ELECTRONICS 0.9%
86,925 Plexus Corp.* $ 959,652
147,425 Power Integrations, Inc.* 3,011,893
-----------
3,971,545
-----------
ELECTRICAL EQUIPMENT AND
COMPONENTS 1.0%
245,450 Cherokee International Corp.* 2,059,325
168,450 Flextronics International Ltd.* 2,231,963
-----------
4,291,288
-----------
ELECTRONICS 1.3%
13,575 Flir Systems, Inc.* 794,137
239,150 Semtech Corp.* 4,584,506
-----------
5,378,643
-----------
ELECTRONICS -- MEDICAL SYSTEMS 1.1%
119,075 EPIX Medical, Inc.* 2,299,338
206,044 NXStage Medical, Inc. PIPE* *** + 1,500,000
1,080,146 Zonare Medical Systems, Inc.* *** + 1,000,053
-----------
4,799,391
-----------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 12.1%
197,425 ASE Test Ltd.* 1,036,481
81,625 Cree, Inc.* 2,492,011
257,425 Integrated Circuit Systems, Inc.* 5,534,637
98,475 Jabil Circuit, Inc.* 2,264,925
1,001,325 Micrel, Inc.* 10,423,793
120,600 Microchip Technology, Inc. 3,236,904
685,225 National Semiconductor Corp.* 10,614,135
966,675 O2 Micro International Ltd,* 10,382,090
650,100 Sirenza Microdevices, Inc.* 2,756,424
18,650 SiRF Technology Holdings, Inc.* 265,390
124,000 SiRF Technology Holdings, Inc.* *** 1,719,819
160,425 STATS ChipPAC Ltd. ADR* 959,342
-----------
51,685,951
-----------
FINANCIAL DATA PROCESSING SERVICES
AND SYSTEMS 1.0%
106,100 iPayment Holdings, Inc.* 4,260,976
-----------
FINANCIAL -- MISCELLANEOUS 1.7%
236,975 Encore Capital Group, Inc.* 4,466,979
97,050 Portfolio Recovery Associates, Inc.* 2,852,299
-----------
7,319,278
-----------
HEALTH CARE FACILITIES 8.6%
552,366 American Healthways, Inc.* 16,079,374
65,425 Pharmaceutical Product Development, Inc.* 2,355,300
529,825 United Surgical Partners International, Inc.* 18,199,489
-----------
36,634,163
-----------
HEALTH CARE MANAGEMENT
SERVICES 6.0%
565,629 AmSurg Corp.* 11,980,022
127,850 Centene Corp.* 5,443,853
151,250 Pediatrix Medical Group, Inc.* 8,296,063
-----------
25,719,938
-----------
HEALTH CARE SERVICES 7.9%
643,405 Accredo Health, Inc.* 15,165,056
95,625 Express Scripts, Inc.* 6,248,137
123,525 Icon Plc ADR* 4,065,208
450,812 Odyssey Healthcare, Inc.* 8,001,913
-----------
33,480,314
-----------
HOUSEHOLD FURNISHINGS 1.2%
274,150 Select Comfort Corp.* 4,989,530
-----------
INSURANCE -- PROPERTY AND
CASUALTY 1.3%
194,933 Direct General Corp. 5,637,462
-----------
46
SEPTEMBER 30, 2004
SHARES VALUE
- ---------------------------------------------------------------------------
MEDICAL AND DENTAL INSTRUMENTS
AND SUPPLIES 5.1%
58,725 Biosite, Inc.* $ 2,875,176
219,950 Kinetic Concepts, Inc.* 11,558,373
113,775 Molecular Devices Corp.* 2,681,677
57,700 SurModics, Inc.* 1,370,375
30,575 Techne Corp.* 1,167,353
81,500 Wright Medical Group, Inc.* 2,047,280
------------
21,700,234
------------
MISCELLANEOUS MATERIALS AND
COMMODITIES 1.3%
234,975 Symyx Technologies, Inc.* 5,533,661
------------
PRODUCTION TECHNOLOGY
EQUIPMENT 2.4%
268,625 Rudolph Technologies, Inc.* 4,496,782
265,725 Tessera Technologies, Inc. * 5,872,523
------------
10,369,305
------------
RETAIL 5.6%
393,249 Dollar Tree Stores, Inc.* 10,598,061
71,193 Jos. A. Bank Clothiers, Inc.* 1,970,622
191,500 O'Reilly Automotive, Inc.* 7,332,535
194,725 Pacific Sunwear of California, Inc.* 4,098,961
------------
24,000,179
------------
SAVINGS AND LOANS 1.9%
291,775 Commercial Capital Bancorp, Inc. 6,620,375
71,500 W Holding Co., Inc, 1,358,500
------------
7,978,875
------------
SCIENTIFIC EQUIPMENT AND
SUPPLIERS 0.9%
283,575 Biacore International AB 3,950,326
------------
SERVICES -- COMMERCIAL 9.5%
269,800 Advisory Board Co. (The)* 9,065,280
344,230 AMN Healthcare Services, Inc.* 4,113,549
57,325 Corporate Executive Board Co. 3,510,583
89,775 CoStar Group, Inc.* 4,416,032
44,000 IQ4HIRE, Inc.* *** + 440
50,800 Jackson Hewitt Tax Service, Inc. 1,027,684
245,175 LECG Corp.* 4,145,909
61,800 Resources Connection, Inc.* 2,334,804
384,475 SM&A* 2,687,480
1,311,299 Wireless Facilities, Inc.* 9,139,754
------------
40,441,515
------------
UTILITIES -- TELECOMMUNICATIONS 1.6%
420,875 Ncxtel Partners, Inc., Class A* 6,978,107
------------
TOTAL COMMON AND PREFERRED
Stocks (cost $369,517,226) 403,065,760
------------
LIMITED PARTNERSHIP INTEREST 0.1%
BIOTECHNOLOGY RESEARCH AND
PRODUCTION 0.1%
Montagu Newhall Global Partners
II-B, L.P.* *** + 371,444
------------
TOTAL LIMITED PARTNERSHIP
INTEREST (COST $424,292) 371,444
------------
WARRANTS 0.0%
ELECTRONICS -- MEDICAL SYSTEMS 0.0%
162,021 Zonare Medical Systems, Inc.* *** + $ --
------------
ELECTRONICS -- SEMICONDUCTORS/
COMPONENTS 0.0%
12,400 SiRF Technology Holdings, Inc.* *** + 93,424
------------
TOTAL WARRANTS (COST $0) 93,424
------------
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 1.1%
$4,525,000 U.S. Treasury Bond, 5.25%, 11/15/28 $ 4,706,353
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $4,505,611) 4,706,353
------------
SHORT-TERM INVESTMENTS 3.7%
REPURCHASE AGREEMENT 3.7%
15,631,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co, collateralized by $14,650,000
of United States Treasury Bonds 5.50% due
8/15/28; value: $15,945,617; repurchase
proceeds: $15,631,456 (cost $15,631,000) 15,631,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $15,631,000) 15,631,000
------------
TOTAL INVESTMENTS
(COST $390,078,129) 99.3% 423,867,981
OTHER ASSETS LESS LIABILITIES 0.7% 3,144,731
------------
NET ASSETS 100.0% $427,012,712
============
*Non-income producing.
***Security was fair valued under procedures adopted by the Board of Directors
(see Note 2).
+Security purchased in a private placement transaction or under Rule 144A of
the Securities Act of 1933 (see Note 9).
+++All or a portion of this security has been designated as collateral for
open short positions or purchase commitments.
ADR American Depositary Receipt.
PIPE Private Investment In a Public Equity.
See notes to financial statements.
47
STATE STREET LEGAL
U.S. TREASURY FUND -- SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2004
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 97.5%
$1,050,000 U.S. Treasury Bond, 5.375%, 2/15/31 $ 1,124,813
2,000,000 U.S. Treasury Bond, 5.50%, 8/15/28 2,149,922
3,300,000 U.S. Treasury Bond, 6.125%, 11/15/27 3,831,095
800,000 U.S. Treasury Bond, 6.375%, 8/15/27 955,406
540,000 U.S. Treasury Bond, 6.50%, 11/15/26 652,978
1,470,000 U.S. Treasury Bond, 6.625%, 2/15/27 1,802,817
1,750,000 U.S. Treasury Bond, 6.75%, 8/15/26 2,173,554
2,755,000 U.S. Treasury Bond, 6.875%, 8/15/25 3,458,495
5,430,000 U.S. Treasury Bond, 7.50%, 11/15/24 7,243,321
30,100,000 U.S. Treasury Strip, principal only, 11/15/21 12,581,439
17,415,000 U.S. Treasury Strip, principal only, 11/15/27 5,242,612
8,100,000 U.S. Treasury Strip, principal only, 8/15/25 2,746,176
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(COST $39,256,570) 43,962,628
------------
SHORT-TERM INVESTMENTS 1.8%
REPURCHASE AGREEMENT 1.8%
826,000 Repurchase Agreement dated 9/30/04,
1.05% due 10/1/04 with State Street Bank
and Trust Co. collateralized by $575,000
of United States Treasury Bonds 8.75%
due 8/15/20; value: $844,172; repurchase
proceeds: $826,024 (cost $826,000) 826,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $826,000) 826,000
------------
TOTAL INVESTMENTS
(COST $40,082,570) 99.3% 44,788,628
OTHER ASSETS LESS LIABILITIES 0.7% 299,406
------------
NET ASSETS 100.0% $ 45,088,034
============
See notes to financial statements.
48
This page intentionally left blank.
49
WASATCH FUNDS -- STATEMENTS OF ASSETS AND LIABILITIES
CORE GLOBAL SCIENCE HERITAGE
GROWTH & TECHNOLOGY GROWTH
FUND FUND FUND
---------------- ---------------- ----------------
ASSETS:
Investments, at cost
Unaffiliated issuers $ 1,206,362,094 $ 68,786,106 $ 111,920,953
Affiliated issuers 18,766,125 -- --
Repurchase agreements 45,215,000 5,565,000 20,430,000
---------------- ---------------- ----------------
$ 1,270,343,219 $ 74,351,106 $ 132,350,953
================ ================ ================
Investments, at market value
Unaffiliated issuers $ 1,460,274,732 $ 64,979,532 $ 112,598,489
Affiliated issuers 18,507,637 -- --
Repurchase agreements 45,215,000 5,565,000 20,430,000
---------------- ---------------- ----------------
1,523,997,369 70,544,532 133,028,489
Cash 43,759 290 476
Foreign currency on deposit (cost of $0, $0, $255,463, $0, $0,
$0, $0, $0, $0, and $0, respectively) -- -- 258,411
Receivable for investment securities sold 8,030,268 422,486 611,395
Receivable from broker for securities sold short -- -- --
Capital shares receivable 517,763 64,669 492,205
Interest and dividends receivable 2,333,200 14,060 68,928
Prepaid expenses and other assets 37,377 12,288 16,716
Unrealized appreciation on foreign currency contracts 18,089 -- --
---------------- ---------------- ----------------
Total Assets 1,534,977,825 71,058,325 134,476,620
---------------- ---------------- ----------------
LIABILITIES:
Securities sold short, at value (proceeds of $0, $0, $0, $0, $0,
$0, $0, $360,222, $0, and $0, respectively) -- -- --
Payable for securities purchased 35,466,247 1,540,103 6,171,276
Payable to broker for short sale cover -- -- --
Capital shares payable 813,917 36,280 117,314
Accrued investment advisory fees 1,229,865 79,298 10,535
Accrued fund administration fees 41,710 1,897 3,256
Accrued expenses and other liabilities 456,917 99,457 38,675
Unrealized depreciation on foreign currency contracts 301 -- 19
---------------- ---------------- ----------------
Total Liabilities 38,008,957 1,757,035 6,341,075
---------------- ---------------- ----------------
NET ASSETS $ 1,496,968,868 $ 69,301,290 $ 128,135,545
================ ================ ================
NET ASSETS CONSIST OF:
Capital stock $ 388,880 $ 68,273 $ 129,989
Paid-in capital in excess of par 1,213,198,325 75,035,253 127,356,273
Undistributed net investment income (loss) 2,732,242 (1,649) 41,723
Undistributed net realized gain (loss) on investments
and foreign currency translations 26,997,337 (1,955,727) (68,954)
Net unrealized appreciation (depreciation) on investments
and foreign currency translations 253,652,084 (3,844,860) 676,514
---------------- ---------------- ----------------
Net Assets $ 1,496,968,868 $ 69,301,290 $ 128,135,545
================ ================ ================
CAPITAL STOCK, $.01 PAR VALUE:
Authorized 10,000,000,000 10,000,000,000 10,000,000,000
Issued and outstanding 38,887,963 6,827,286 12,998,881
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING
PRICE PER SHARE $ 38.49 $ 10.15 $ 9.86
================ ================ ================
See notes to financial statements.
50
SEPTEMBER 30,2004
INTERNATIONAL MICRO MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
GROWTH CAP VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND FUND FUND
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 155,970,153 $ 376,382,736 $ 69,741,127 $ 913,801,667 $ 570,836,855 $ 374,447,129 $ 39,256,570
-- 27,401,103 1,303,110 18,322,743 30,344,093 -- --
17,560,000 10,940,000 4,178,000 19,933,000 5,328,000 15,631,000 826,000
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 173,530,153 $ 414,723,839 $ 75,222,237 $ 952,057,410 $ 606,508,948 $ 390,078,129 $ 40,082,570
================ ================ ================ ================ ================ ================ ================
$ 179,958,774 $ 483,544,148 $ 78,869,218 $ 1,143,965,728 $ 695,238,104 $ 408,236,981 $ 43,962,628
-- 25,011,557 1,009,800 32,516,870 33,797,548 -- --
17,560,000 10,940,000 4,178,000 19,933,000 5,328,000 15,631,000 826,000
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
197,518,774 519,495,705 84,057,018 1,196,415,598 734,363,652 423,867,981 44,788,628
434 935 128,747 1,044,073 717,126 6,694 968
-- -- -- -- -- -- --
-- 815,017 720,862 1,362,268 7,285,224 5,207,005 --
-- -- 212,908 -- -- -- --
203,711 12,948 1,000 520,073 325,988 2,272,036 43,481
120,869 44,178 65,272 286,596 1,381,368 94,923 322,939
13,531 20,643 12,654 31,796 28,584 20,682 10,287
7 -- -- -- -- -- --
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
197,857,326 520,389,426 85,198,461 1,199,660,404 744,101,942 431,469,321 45,166,303
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
-- -- -- -- 790,296 -- --
307,212 802,323 178,452 5,379,760 7,166,392 2,831,698 --
-- -- -- -- 24,753 -- --
52,938 308,694 5,000 1,213,898 689,266 993,019 19,945
233,172 834,918 127,179 964,616 897,920 430,031 20,192
5,274 14,210 2,315 32,775 20,330 11,723 1,251
268,780 138,555 50,213 367,083 246,731 190,138 36,881
-- -- -- -- -- -- --
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
867,376 2,098,700 363,159 7,958,132 9,835,688 4,456,609 78,269
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 196,989,950 $ 518,290,726 $ 84,835,302 $ 1,191,702,272 $ 734,266,254 $ 427,012,712 $ 45,088,034
================ ================ ================ ================ ================ ================ ================
$ 133,937 $ 735,102 $ 330,099 $ 341,088 $ 1,326,272 $ 177,377 $ 32,745
172,629,015 337,085,479 65,819,391 921,527,739 502,200,031 383,353,180 45,706,145
(1,006) -- (17,356) -- -- -- 1,573,440
402,438 75,697,584 9,868,165 25,475,258 103,315,321 9,692,303 (6,930,353)
23,825,566 104,772,561 8,835,003 244,358,187 127,424,630 33,789,852 4,706,057
- ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------
$ 196,989,950 $ 518,290,726 $ 84,835,302 $ 1,191,702,272 $ 734,266,254 $ 427,012,712 $ 45,088,034
================ ================ ================ ================ ================ ================ ================
10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000 10,000,000,000
13,393,664 73,510,175 33,009,883 34,108,802 132,627,191 17,737,688 3,274,493
$ 14.71 $ 7.05 $ 2.57 $ 34.94 $ 5.54 $ 24.07 $ 13.77
================ ================ ================ ================ ================ ================ ================
51
WASATCH FUNDS -- STATEMENTS OF OPERATIONS
CORE GLOBAL SCIENCE HERITAGE
GROWTH & TECHNOLOGY GROWTH
FUND FUND FUND*
---------------- ---------------- ----------------
INVESTMENT INCOME:
Interest $ 292,289 $ 56,930 $ 29,283
Dividends(1)
Unaffiliated issuers 18,176,325 165,554 216,052
Affiliated issuers+ 4,503,998 -- --
---------------- ---------------- ----------------
Total investment income 22,972,612 222,484 245,335
---------------- ---------------- ----------------
EXPENSES:
Investment advisory fees 14,852,654 1,135,157 182,126
Shareholder servicing fees 1,855,832 207,559 48,128
Fund administration fees 488,435 24,094 8,821
Fund accounting fees 162,469 18,004 5,337
Reports to shareholders 233,341 31,231 19,271
Custody fees 139,764 22,983 13,556
Federal and state registration fees 44,183 20,412 21,032
Legal fees 84,327 4,049 14,153
Directors' fees 26,621 1,273 249
Audit fees 18,042 19,543 11,035
Other 68,512 3,253 4,230
---------------- ---------------- ----------------
Total expenses before reimbursement 17,974,180 1,487,558 327,938
Reimbursement of expenses by Advisor -- (11,836) (80,767)
---------------- ---------------- ----------------
Net Expenses 17,974,180 1,475,722 247,171
---------------- ---------------- ----------------
NET INVESTMENT INCOME (LOSS) 4,998,432 (1,253,238) (1,836)
---------------- ---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain (loss) on investments
Unaffiliated issuers 111,984,785 263,985 (70,009)
Affiliated issuers+ (590,029) -- --
Net realized gain (loss) on short positions -- (96,963) --
Change in unrealized appreciation (depreciation) on
investments and foreign currency translations 78,422,948 (6,818,973) 676,514
---------------- ---------------- ----------------
Net gain (loss) on investments 189,817,704 (6,651,951) 606,505
---------------- ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 194,816,136 $ (7,905,189) $ 604,669
================ ================ ================
*Fund inception date was June 18, 2004.
(1)Net of $46,994, $29,929, $1,662, $133,880, $93,474, $24,127, $15,155,
$30,666, $28,800 and $0 in foreign withholding taxes, respectively.
+See Note 8 for information on affiliated issuers.
See notes to financial statements.
52
FOR THE YEAR OR PERIOD ENDED SEPTEMBER 30, 2004
INTERNATIONAL MICRO MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
GROWTH CAP VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND FUND FUND
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 88,413 $ 123,807 $ 53,747 $ 553,624 $ 87,132 $ 310,137 $ 2,656,797
1,088,490 1,183,565 378,791 3,057,638 9,959,370 291,703 --
-- -- -- -- 969,111 -- --
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,176,903 1,307,372 432,538 3,611,262 11,015,613 601,840 2,656,797
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,064,989 11,064,726 1,696,866 12,340,419 11,243,840 6,745,254 253,055
287,122 572,831 157,508 1,467,014 1,017,775 809,115 136,228
45,673 181,577 28,404 405,309 245,716 176,694 16,747
25,689 69,090 17,896 137,024 87,620 64,779 7,735
49,666 60,618 26,390 238,603 145,386 125,571 11,179
110,400 51,848 29,938 49,034 64,746 43,140 3,682
26,843 23,696 19,246 34,693 46,225 28,913 19,097
4,899 32,281 26,783 77,698 48,064 35,370 5,642
1,697 10,211 1,473 22,948 13,421 10,638 1,070
18,043 18,042 17,507 18,043 18,042 19,543 17,829
3,596 26,562 4,648 59,384 39,010 27,802 3,549
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,638,617 12,111,482 2,026,659 14,850,169 12,969,845 8,086,819 475,813
-- -- (97,451) -- -- -- (96,231)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2,638,617 12,111,482 1,929,208 14,850,169 12,969,845 8,086,819 379,582
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(1,461,714) (10,804,110) (1,496,670) (11,238,907) (1,954,232) (7,484,979) 2,277,215
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
1,885,610 88,358,081 11,829,205 29,266,940 109,157,680 29,431,438 217,681
-- 4,962,974 -- -- 2,612,356 -- --
-- -- 33,575 -- (526,153) -- --
16,476,265 (30,072,492) 5,615,814 75,182,347 19,235,185 (36,744,684) (467,496)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
18,361,875 63,248,563 17,478,594 104,449,287 130,479,068 (7,313,246) (249,815)
- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 16,900,161 $ 52,444,453 $ 15,981,924 $ 93,210,380 $ 128,524,836 $ (14,798,225) $ 2,027,400
============= ============= ============= ============= ============= ============= =============
53
WASATCH FUNDS -- STATEMENTS OF CHANGES IN NET ASSETS
CORE GROWTH GLOBAL SCIENCE & TECHNOLOGY
FUND FUND
YEAR OR PERIOD ENDED SEPTEMBER 30 2004 2003 2004 2003
- --------------------------------- --------------- --------------- ------------ ------------
OPERATIONS:
Net investment income (loss) $ 4,998,432 $ (228,591) $ (1,253,238) $ (612,626)
Net realized gain (loss) on investments 111,394,756 (76,727,660) 263,985 82,567
Net realized gain (loss) on short positions -- -- (96,963) 11,415
Change in unrealized appreciation (depreciation) on
investments and foreign currency translations 78,422,948 385,705,494 (6,818,973) 15,374,035
--------------- --------------- ------------ ------------
Net increase (decrease) in net assets resulting from operations 194,816,136 308,749,243 (7,905,189) 14,855,391
DIVIDENDS PAID FROM:
Net investment income (849,650) -- -- --
Net realized gains -- -- -- --
--------------- --------------- ------------ ------------
(849,650) -- -- --
CAPITAL SHARE TRANSACTIONS:
Shares sold 214,099,994 294,903,790 52,986,102 31,899,054
Shares issued to holders in reinvestment of dividends 794,356 -- -- --
Shares redeemed (230,240,862) (348,335,931) (27,341,053) (16,089,720)
Redemption fees 7,481 79,906 44,362 41,099
--------------- --------------- ------------ ------------
Net increase (decrease) (15,339,031) (53,352,235) 25,689,411 15,850,433
--------------- --------------- ------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 178,627,455 255,397,008 17,784,222 30,705,824
NET ASSETS:
Beginning of period 1,318,341,413 1,062,944,405 51,517,068 20,811,244
--------------- --------------- ------------ ------------
End of period $ 1,496,968,868 $ 1,318,341,413 $ 69,301,290 $ 51,517,068
=============== =============== ============ ============
Undistributed net investment income (loss) included in
net assets at end of period $ 2,732,242 $ -- $ (1,649) $ (632)
=============== =============== ============ ============
CAPITAL SHARE TRANSACTIONS--SHARES:
Shares sold 5,660,062 10,414,773 4,456,739 3,419,237
Shares issued to holders in reinvestment of dividends 21,847 -- -- --
Shares redeemed (6,102,481) (12,861,353) (2,430,466) (1,879,780)
--------------- --------------- ------------ ------------
Net increase (decrease) in shares outstanding (420,572) (2,446,580) 2,026,273 1,539,457
=============== =============== ============ ============
*Fund inception date was June 18, 2004.
See notes to financial statements.
54
SEPTEMBER 30, 2004
HERITAGE GROWTH INTERNATIONAL GROWTH MICRO CAP
FUND FUND FUND
2004* 2004 2003 2004 2003
- --------------- -------------- -------------- -------------- -------------
$ (1,836) $ (1,461,714) $ (250,286) $ (10,804,110) $ (8,716,570)
(70,009) 1,885,610 (1,299,298) 93,321,055 51,800,078
-- -- -- -- --
676,514 16,476,265 9,025,174 (30,072,492) 120,439,212
- ------------- ------------- ------------- ------------- -------------
604,669 16,900,161 7,475,590 52,444,453 163,522,720
-- -- -- -- --
-- -- -- (43,612,165) (22,295,887)
- ------------- ------------- ------------- ------------- -------------
-- -- -- (43,612,165) (22,295,887)
130,882,450 161,710,415 29,443,047 21,906,796 97,787,052
-- -- -- 41,226,753 21,092,296
(3,387,411) (26,165,271) (10,538,025) (70,859,439) (70,506,908)
35,837 62,776 13,571 5,180 32,043
- ------------- ------------- ------------- ------------- -------------
127,530,876 135,607,920 18,918,593 (7,720,710) 48,404,483
- ------------- ------------- ------------- ------------- -------------
128,135,545 152,508,081 26,394,183 1,111,578 189,631,316
-- 44,481,869 18,087,686 517,179,148 327,547,832
- ------------- ------------- ------------- ------------- -------------
$ 128,135,545 $ 196,989,950 $ 44,481,869 $ 518,290,726 $ 517,179,148
============= ============= ============= ============= =============
$ 41,723 $ (1,006) $ (2,271) -- $ --
============= ============= ============= ============= =============
13,356,843 11,557,271 2,761,196 3,065,146 16,929,258
-- -- -- 6,190,303 4,859,976
(357,962) (1,850,592) (1,118,048) (9,869,981) (13,017,963)
- ------------- ------------- ------------- ------------- -------------
12,998,881 9,706,679 1,643,148 (614,532) 8,771,271
============= ============= ============= ============= =============
55
WASATCH FUNDS -- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
MICRO CAP VALUE SMALL CAP GROWTH
FUND FUND
YEAR OR PERIOD ENDED SEPTEMBER 30 2004 2003* 2004 2003
- --------------------------------- ------------ ------------ --------------- --------------
OPERATIONS:
Net investment income (loss) $ (1,496,670) $ (238,749) $ (11,238,907) $ (9,713,510)
Net realized gain on investments 11,829,205 192,165 29,266,940 16,297,720
Net realized gain (loss) on short positions 33,575 -- -- --
Net realized gain on options written -- -- -- --
Change in unrealized appreciation (depreciation) on
investments and foreign currency translations 5,615,814 3,219,189 75,182,347 268,022,826
------------ ------------ --------------- --------------
Net increase (decrease) in net assets resulting from operations 15,981,924 3,172,605 93,210,380 274,607,036
DIVIDENDS PAID FROM:
Net investment income -- -- -- --
Net realized gains (59,072) -- (5,914,707) (34,010)
------------ ------------ --------------- --------------
(59,072) -- (5,914,707) (34,010)
CAPITAL SHARE TRANSACTIONS:
Shares sold 3,673,219 67,827,227 189,892,968 305,478,301
Shares issued to holders in reinvestment of dividends 57,934 -- 5,653,646 32,547
Shares redeemed (5,524,778) (294,977) (225,544,787) (181,150,831)
Redemption fees 97 1,123 6,856 48,034
------------ ------------ --------------- --------------
Net increase (decrease) (1,793,528) 67,533,373 (29,991,317) 124,408,051
------------ ------------ --------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 14,129,324 70,705,978 57,304,356 398,981,077
NET ASSETS:
Beginning of period 70,705,978 -- 1,134,397,916 735,416,839
------------ ------------ --------------- --------------
End of period $ 84,835,302 $ 70,705,978 $ 1,191,702,272 $1,134,397,916
============ ============ =============== ==============
Undistributed net investment income (loss) included in
net assets at end of period $ (17,356) $ (21,897) $ -- $ --
============ ============ =============== ==============
CAPITAL SHARE TRANSACTIONS--SHARES:
Shares sold 1,412,827 33,909,091 5,360,289 10,711,482
Shares issued to holders in reinvestment of dividends 24,548 -- 166,382 1,241
Shares redeemed (2,193,156) (143,427) (6,393,772) (6,604,251)
------------ ------------ --------------- --------------
Net increase (decrease) in shares outstanding (755,781) 33,765,664 (867,101) 4,108,472
============ ============ =============== ==============
*Fund inception date was July 28, 2003.
See notes to financial statements.
56
SEPTEMBER 30, 2004
SMALL CAP VALUE ULTRA GROWTH U.S. TREASURY
FUND FUND FUND
2004 2003 2004 2003 2004 2003
- -------------- -------------- -------------- -------------- ------------ ------------
$ (1,954,232) $ (2,202,960) $ (7,484,979) $ (6,162,984) $ 2,277,215 $ 3,471,870
111,770,036 1,455,467 29,431,438 7,732,983 217,681 628,994
(526,153) -- -- 113,726 -- --
-- 304,716 -- -- -- --
19,235,185 189,122,055 (36,744,684) 161,519,635 (467,496) (3,356,730)
- ------------- ------------- ------------- ------------- ------------ ------------
128,524,836 188,679,278 (14,798,225) 163,203,360 2,027,400 744,134
-- -- -- -- (3,207,497) (3,484,505)
(221,337) -- (5,447,072) -- -- --
- ------------- ------------- ------------- ------------- ------------ ------------
(221,337) -- (5,447,072) -- (3,207,497) (3,484,505)
77,278,907 192,079,847 58,791,862 221,989,430 13,425,517 47,192,794
210,971 -- 5,113,842 -- 3,120,826 3,362,861
(122,799,314) (157,672,444) (155,598,165) (123,834,632) (37,444,987) (64,698,707)
11,336 91,867 11,164 177,068 32,955 138,699
- ------------- ------------- ------------- ------------- ------------ ------------
(45,298,100) 34,499,270 (91,681,297) 98,331,866 (20,865,689) (14,004,353)
- ------------- ------------- ------------- ------------- ------------ ------------
83,005,399 223,178,548 (111,926,594) 261,535,226 (22,045,786) (16,744,724)
651,260,855 428,082,307 538,939,306 277,404,080 67,133,820 83,878,544
- ------------- ------------- ------------- ------------- ------------ ------------
$ 734,266,254 $ 651,260,855 $ 427,012,712 $ 538,939,306 $ 45,088,034 $ 67,133,820
============= ============= ============= ============= ============ ============
$ -- $ -- $ -- $ -- $ 1,573,440 $ 2,503,722
============= ============= ============= ============= ============ ============
14,270,988 53,599,577 2,140,610 10,725,440 1,013,525 3,512,714
40,494 -- 191,012 -- 239,879 259,080
(22,776,164) (46,012,597) (5,786,241) (6,321,373) (2,884,852) (4,839,225)
- ------------- ------------- ------------- ------------- ------------ ------------
(8,464,682) 7,586,980 (3,454,619) 4,404,067 (1,631,448) (1,067,431)
============= ============= ============= ============= ============ ============
57
WASATCH FUNDS -- FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2004
CORE GROWTH FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- ----------- ----------- ------------- ------------- -------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 33.54 $ 25.46 $ 31.57 $ 28.08 $ 20.62
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income (loss) 0.13 (0.01) (0.01) (0.15) (0.18)
Net realized and unrealized gains (losses)
on securities 4.84 8.09 (3.97) 5.95 8.12
----------- ----------- ------------- ------------- -------------
TOTAL FROM INVESTMENT OPERATIONS 4.97 8.08 (3.98) 5.80 7.94
REDEMPTION FEES (see Note 2) (1) (1) 0.01 0.01 --
LESS DISTRIBUTIONS:
Dividends from net investment income (0.02) -- -- -- --
Distributions from net realized gains -- -- (2.14) (2.32) (0.48)
----------- ----------- ------------- ------------- -------------
TOTAL DISTRIBUTIONS (0.02) -- (2.14) (2.32) (0.48)
----------- ----------- ------------- ------------- -------------
NET ASSET VALUE, END OF PERIOD $ 38.49 $ 33.54 $ 25.46 $ 31.57 $ 28.08
=========== =========== ============= ============= =============
TOTAL RETURN 14.80% 31.68% (13.73)% 22.63% 39.50%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 1,496,969 $ 1,318,341 $ 1,062,944 $ 992,935 $ 290,705
Ratio of expenses to average net assets 1.21% 1.25% 1.29% 1.32% 1.38%
Ratio of net investment income (loss) to
average net assets 0.34% (0.02)% (0.02)% (0.66)% (0.86)%
Portfolio turnover rate 47% 47% 76% 51% 75%
GLOBAL SCIENCE & TECHNOLOGY FUND Year or Period Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001(2)
- ----------------------------------------------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.73 $ 6.38 $ 8.02 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.18) (0.13) (0.15) (0.07)
Net realized and unrealized gains (losses)
on securities (0.41) 4.47 (1.34) (1.93)
---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS (0.59) 4.34 (1.49) (2.00)
REDEMPTION FEES (see Note 2) 0.01 0.01 0.03 0.02
LESS DISTRIBUTIONS:
Distributions from net realized gains -- -- (0.18) --
---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS -- -- (0.18) --
---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 10.15 $ 10.73 $ 6.38 $ 8.02
========== ========== ========== ==========
TOTAL RETURN(3) (5.49)% 68.34% (18.83)% (19.80)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 69,301 $ 51,517 $ 20,811 $ 10,648
Ratio of expenses to average net assets:
Net of waivers and reimbursements(4) 1.95% 1.95% 1.95% 1.95%
Before waivers and reimbursements(4) 1.97% 2.13% 2.42% 3.58%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements(4) (1.66)% (1.87)% (1.90)% (1.50)%
Before waivers and reimbursements(4) (1.68)% (2.05)% (2.37)% (3.13)%
Portfolio turnover rate(3) 55% 88% 95% 94%
(1)Represents amounts less than $.005 per share.
(2)Fund inception date was December 19, 2000.
(3)Not annualized for periods less than one year.
(4)Annualized.
See notes to financial statements.
58
WASATCH FUNDS -- FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2004
HERITAGE GROWTH FUND Period Ended September 30
(for a share outstanding throughout the period) 2004(1)
- ----------------------------------------------- -------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
LOSS FROM INVESTMENT OPERATIONS:
Net investment loss(2) --
Net realized and unrealized losses
on securities (0.14)
-----------
TOTAL FROM INVESTMENT OPERATIONS (0.14)
REDEMPTION FEES (see Note 2) --(2)
LESS DISTRIBUTIONS:
Distributions from net realized gains --
-----------
TOTAL DISTRIBUTIONS --
-----------
NET ASSET VALUE, END OF PERIOD $ 9.86
===========
TOTAL RETURN(3) (1.40)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 128,136
Ratio of expenses to average net assets:
Net of waivers and reimbursements(4) 0.95%
Before waivers and reimbursements(4) 1.26%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements(4) (0.01)%
Before waivers and reimbursements(4) (0.32)%
Portfolio turnover rate(3) 5%
INTERNATIONAL GROWTH FUND Year or Period Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002(5)
- ---------------------------------------------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.06 $ 8.85 $ 10.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.11) (0.07) (0.03)
Net realized and unrealized gains (losses)
on securities 2.76 3.28 (1.13)
----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 2.65 3.21 (1.16)
REDEMPTION FEES (see Note 2) --(2) --(2) 0.01
LESS DISTRIBUTIONS:
Distributions from net realized gains -- -- --
----------- ----------- -----------
TOTAL DISTRIBUTIONS -- -- --
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.71 $ 12.06 $ 8.85
=========== =========== ===========
TOTAL RETURN(3) 21.97% 36.27% (11.50)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 196,990 $ 44,482 $ 18,008
Ratio of expenses to average net assets:
Net of waivers and reimbursements(4) 1.92% 1.95% 1.95%
Before waivers and reimbursements(4) 1.92% 2.30% 4.26%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements(4) (1.06)% (1.12)% (1.39)%
Before waivers and reimbursements(4) (1.06)% (1.47)% (3.70)%
Portfolio turnover rate(3) 31% 62% 3%
(1)Fund inception date was June 18, 2004.
(2)Represents amounts less than $.005 per share.
(3)Not annualized for periods less than one year.
(4)Annualized.
(5)Fund inception date was June 28, 2002.
See notes to financial statements.
59
WASATCH FUNDS -- FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2004
MICRO CAP FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.98 $ 5.01 $ 5.64 $ 6.53 $ 4.41
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.15) (0.12) (0.14) (0.08) (0.09)
Net realized and unrealized gains
on securities 0.81 2.43 0.11 0.74 2.63
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.66 2.31 (0.03) 0.66 2.54
REDEMPTION FEES (see Note 2) --(1) --(1) --(1) --(1) --
LESS DISTRIBUTIONS:
Distributions from net realized gains (0.59) (0.34) (0.60) (1.55) (0.42)
----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS (0.59) (0.34) (0.60) (1.55) (0.42)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.05 $ 6.98 $ 5.01 $ 5.64 $ 6.53
=========== =========== =========== =========== ===========
TOTAL RETURN 9.96% 50.28% (1.41)% 16.32% 63.88%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 518,291 $ 517,179 $ 327,548 $ 323,540 $ 244,444
Ratio of expenses to average net assets 2.19% 2.24% 2.28% 2.32% 2.38%
Ratio of net investment loss to average net assets (1.95)% (2.13)% (2.21)% (1.76)% (1.76)%
Portfolio turnover rate 56% 50% 62% 58% 69%
MICRO CAP VALUE FUND Year or Period Ended September 30
(for a share outstanding throughout the period) 2004 2003(2)
- ----------------------------------------------- ------------- ---------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.09 $ 2.00
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.05) (0.01)
Net realized and unrealized gains
on securities 0.53 0.10
---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.48 0.09
REDEMPTION FEES (see Note 2) --(1) --(1)
LESS DISTRIBUTIONS:
Distributions from net realized gains --(1) --
----------
TOTAL DISTRIBUTIONS -- --
---------- ----------
NET ASSET VALUE, END OF PERIOD $ 2.57 $ 2.09
========== ==========
TOTAL RETURN(3) 23.06% 4.50%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 84,835 $ 70,706
Ratio of expenses to average net assets:
Net of waivers and reimbursements(4)(5) 2.27% 2.50%
Before waivers and reimbursements(4) 2.38% 2.73%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements(4) (1.76)% (1.97)%
Before waivers and reimbursements(4) (1.87)% (2.20)%
Portfolio turnover rate(3) 101% 4%
(1)Represents amounts less than $.005 per share.
(2)Fund inception date was July 28, 2003.
(3)Not annualized for periods less than a year.
(4)Annualized.
(5) On February 1, 2004, the Advisor reduced the contractual expense limitation
from 2.50% to 2.25% through January 31, 2005. As a result, the effective expense
ratio net of waivers and reimbursements for the period ended September 30, 2004
was 2.27%.
See notes to financial statements.
60
WASATCH FUNDS -- FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2004
SMALL CAP GROWTH FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- ---------- ---------- ----------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 32.43 $ 23.83 $ 26.18 $ 34.89 $ 26.01
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.33) (0.28) (0.35) (0.15) (0.23)
Net realized and unrealized gains (losses)
on securities 3.01 8.88 (1.55) (2.73) 11.82
---------- ---------- ----------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 2.68 8.60 (1.90) (2.88) 11.59
REDEMPTION FEES (See Note 2) --(1) --(1) --(1) 0.02 --
LESS DISTRIBUTIONS:
Distributions from net realized gains (0.17) --(1) (0.45) (5.85) (2.71)
---------- ---------- ----------- ---------- ----------
TOTAL DISTRIBUTIONS (0.17) -- (0.45) (5.85) (2.71)
---------- ---------- ----------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 34.94 $ 32.43 $ 23.83 $ 26.18 $ 34.89
========== ========== =========== ========== ==========
TOTAL RETURN 8.27% 36.15% (7.53)% (8.61)% 49.63%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $1,191,702 $1,134,398 $ 735,417 $ 553,416 $ 237,812
Ratio of expenses to average net assets 1.20% 1.25% 1.31% 1.36% 1.38%
Ratio of net investment loss to average net assets (0.91)% (1.08)% (1.25)% (0.83)% (0.84)%
Portfolio turnover rate 41% 63% 51% 40% 72%
SMALL CAP VALUE FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 4.62 $ 3.21 $ 3.76 $ 3.51 $ 2.43
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.01) (0.02) (0.02) -- (0.02)
Net realized and unrealized gains (losses)
on securities 0.93 1.43 (0.43) 0.56 1.19
----------- ----------- ----------- ----------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.92 1.41 (0.45) 0.56 1.17
REDEMPTION FEES (See Note 2) --(1) --(1) --(1) --(1) --
LESS DISTRIBUTIONS:
Distributions from net realized gains --(1) -- (0.10) (0.31) (0.09)
----------- ----------- ----------- ----------- -----------
TOTAL DISTRIBUTIONS -- -- (0.10) (0.31) (0.09)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 5.54 $ 4.62 $ 3.21 $ 3.76 $ 3.51
=========== =========== =========== =========== ===========
TOTAL RETURN 19.73% 43.93% (12.35)% 18.04% 49.94%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 734,266 $ 651,261 $ 428,082 $ 487,095 $ 46,470
Ratio of expenses to average net assets:
Net of waivers and reimbursements 1.73% 1.78% 1.81% 1.92% 1.95%
Before waivers and reimbursements 1.73% 1.78% 1.81% 1.92% 2.09%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements (0.26)% (0.43)% (0.44)% (0.31)% (1.02)%
Before waivers and reimbursements (0.26)% (0.43)% (0.44)% (0.31)% (1.16)%
Portfolio turnover rate 56% 69% 69% 41% 67%
(1)Represents amounts less than $.005 per share.
See notes to financial statements.
61
WASATCH FUNDS -- FINANCIAL HIGHLIGHTS SEPTEMBER 30, 2004
ULTRA GROWTH FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- --------- --------- ----------- -------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 25.43 $ 16.52 $ 19.15 $ 27.17 $ 20.02
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment loss (0.42) (0.29) (0.25) (0.21) (0.25)
Net realized and unrealized gains (losses)
on securities (0.68) 9.19 (1.48) (2.49) 8.87
--------- --------- ----------- -------- ---------
TOTAL FROM INVESTMENT OPERATIONS (1.10) 8.90 (1.73) (2.70) 8.62
REDEMPTION FEES (see Note 2) --(1) 0.01 0.02 0.07 --
LESS DISTRIBUTIONS:
Distributions from net realized gains (0.26) -- (0.92) (5.39) (1.47)
--------- --------- ----------- -------- ---------
TOTAL DISTRIBUTIONS (0.26) -- (0.92) (5.39) (1.47)
--------- --------- ----------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 24.07 $ 25.43 $ 16.52 $ 19.15 $ 27.17
========= ========= =========== ======== =========
TOTAL RETURN (4.44)% 53.93% (9.74)% (10.89)% 46.66%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 427,013 $ 538,939 $ 277,404 $ 86,097 $ 56,282
Ratio of expenses to average net assets:
Net of waivers and reimbursements 1.50% 1.57% 1.71% 1.75% 1.75%
Before waivers and reimbursements 1.50% 1.57% 1.71% 1.79% 1.82%
Ratio of net investment loss to average net assets:
Net of waivers and reimbursements (1.39)% (1.50)% (1.67)% (1.39)% (1.19)%
Before waivers and reimbursements (1.39)% (1.50)% (1.67)% (1.43)% (1.26)%
Portfolio turnover rate 67% 76% 78% 123% 135%
U.S. TREASURY FUND Year Ended September 30
(for a share outstanding throughout the period) 2004 2003 2002 2001 2000
- ----------------------------------------------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.68 $ 14.04 $ 12.97 $ 12.00 $ 11.68
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.70 0.72 0.66 0.65 0.66
Net realized and unrealized gains (losses)
on securities 0.11 (0.48) 1.17 0.87 0.39
---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 0.81 0.24 1.83 1.52 1.05
REDEMPTION FEES (see Note 2) 0.01 0.03 0.01 0.01 --
LESS DISTRIBUTIONS:
Distributions from net investment income (0.73) (0.63) (0.77) (0.56) (0.73)
---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.73) (0.63) (0.77) (0.56) (0.73)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 13.77 $ 13.68 $ 14.04 $ 12.97 $ 12.00
========== ========== ========== ========== ==========
TOTAL RETURN 6.27% 2.17% 15.38% 12.89% 9.84%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $ 45,088 $ 67,134 $ 83,879 $ 66,195 $ 58,198
Ratio of expenses to average net assets:
Net of waivers and reimbursements 0.75% 0.75% 0.75% 0.75% 0.75%
Before waivers and reimbursements 0.94% 0.91% 0.98% 0.95% 0.97%
Ratio of net investment income to average net assets:
Net of waivers and reimbursements 4.50% 4.67% 5.51% 5.34% 5.35%
Before waivers and reimbursements 4.31% 4.51% 5.28% 5.14% 5.13%
Portfolio turnover rate 4% 37% 22% 41% 16%
(1)Represents amounts less than $.005 per share.
See notes to financial statements.
62
WASATCH FUNDS -- NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2004
1. ORGANIZATION
Wasatch Funds, Inc. is a Minnesota corporation registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company and consists of 10 series or "funds" (each a "Fund" and collectively the
"Funds"). The Core Growth, Global Science & Technology, Heritage Growth,
International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap
Value and Ultra Growth Funds (collectively the "Equity Funds") are
non-diversified funds and the Wasatch-Hoisington U.S. Treasury Fund ("U.S.
Treasury Fund") is a diversified fund. Each Fund 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 United
States of America generally accepted accounting principles ("GAAP"). The
following is a summary of the more significant of such policies which were
followed consistently during the period.
VALUATION OF SECURITIES -- Securities are valued as of the close of the
New York Stock Exchange (generally 4:00 p.m. Eastern Time) on the valuation
date. Equity securities are valued using a commercial pricing service at the
latest quoted sales price or official closing price taken from the primary
market in which each security trades. Securities traded in the over-the-counter
market and listed 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. Restricted
securities, private placements, other illiquid securities and other securities
for which market value quotations are not readily available are valued at fair
value as determined by a designated Pricing Committee, comprised of personnel of
the Advisor, under the supervision of the Board of Directors, in accordance with
pricing procedures approved by the Board. Fair value is defined as the amount
the owner of a security might reasonably expect to receive upon a current sale.
For each applicable investment that is fair valued, the Pricing Committee
considers, to the extent applicable, various factors including, but not limited
to, the financial condition of the company or limited partnership, operating
results, prices paid in follow-on rounds, comparable companies in the public
market, the nature and duration of the restrictions for holding the securities,
and other relevant factors.
Additionally, a Fund's investments will be valued at fair value by the
Pricing Committee if the Advisor determines that an event impacting the value of
an investment occurred between the closing time of a security's primary market
or exchange (for example, a foreign exchange or market) and the time the Fund's
share price is calculated. Significant events include, but are not limited to
the following: significant fluctuations in domestic markets, foreign markets or
foreign currencies; occurrences not directly tied to the securities markets such
as natural disasters, armed conflicts or significant governmental actions; and
major announcements affecting a single issuer or an entire market or market
sector. In responding to a significant event, the Pricing Committee would
determine the fair valued of affected securities considering factors including,
but not limited to: index options and futures traded subsequent to the close;
ADRs, GDRs or other related receipts; currency spot or forward markets that
trade after pricing of the foreign exchange; other derivative securities traded
after the close such as WEBs and SPDRs; and alternative market quotes on the
affected securities.
As of September 30, 2004, the aggregate amount of fair valued securities
as a percentage of net assets for the Funds was as follows:
Core Growth Fund 2.94%
Global Science & Technology Fund 2.37%
Heritage Growth Fund 0.63%
International Growth Fund 0.15%
Micro Cap Fund 0.80%
Micro Cap Value Fund 4.05%
Small Cap Growth Fund 1.14%
Small Cap Value Fund 5.24%
Ultra Growth Fund 1.32%
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 transaction date.
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.
Transactions in foreign denominated assets may involve greater risks than
domestic transactions, including currency, political, economic, regulatory and
market risks. The Funds do not hold foreign currency balances routinely. Foreign
currencies may be held to the extent related open security purchases failed to
settle timely.
At September 30, 2004, the Heritage Growth Fund held Swiss Francs (cost
$150,417, value $152,173) and Euros (cost $105,046 and $106,238).
INVESTMENT IN SECURITIES AND RELATED INVESTMENT INCOME -- 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 except that
certain dividends from foreign securities may be recorded after the ex-dividend
date based on when the Fund is informed of the dividend. Interest income and
estimated expenses are accrued daily. Bond discount and premium are amortized
using the interest method. To the extent dividends received from Real Estate
Investment Trust securities include return of capital distributions, such
distributions are recorded as a reduction in cost basis. Returns of capital in
excess of cost basis, if any, are recorded as capital gains.
SHORT SALES -- To a limited extent, the Equity Funds may enter into short
sales whereby a fund sells a security it generally does not own (the security is
borrowed), in anticipation of a decline in the security's price. The initial
amount
63
WASATCH FUNDS -- NOTES TO FINANCIAL STATEMENTS(CONTINUED)
of a short sale is recorded as a liability which is marked to market daily.
Fluctuations in the value of the short liability are recorded as unrealized
gains or losses. If a fund shorts a security when also holding a long position
in the security (a "short against the box"), as the security price declines, the
short position increases in value, offsetting the long position's decrease in
value. The opposite effect occurs if the security price rises. A fund realizes a
gain or loss upon closing of the short sale (returning the security to the
counterparty by way of purchase or delivery of a long position owned). The Funds
are liable to the buyer for any dividends payable on securities while those
securities are in a short position. These dividends are an expense of the Funds.
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, including over-the-counter options,
on portfolio securities 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.
REPURCHASE AGREEMENTS -- The Funds may engage in repurchase transactions.
Under the terms of a typical repurchase agreement, a fund takes possession of an
underlying debt obligation subject to an obligation of the seller to repurchase,
and the fund to resell, the obligation at an agreed-upon price and time. The
market value of the collateral must be equal at all times to the total amount of
the repurchase obligations, including interest. Generally, in the event of
counterparty default, the fund has the right to use the collateral to offset
losses incurred.
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 or excise taxes has been made.
EXPENSES -- The Funds contract for various services mostly on a collective
basis. Most expenses are directly attributable to each Fund and therefore are
charged accordingly. Expenses that are not directly attributable to one or more
Funds are allocated among applicable Funds on an equitable and consistent basis
considering such things as the nature and type of expense and the relative net
assets of the Funds.
USE OF MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with GAAP 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.
GUARANTEES AND INDEMNIFICATIONS -- In the normal course of business, the
Funds enter into contracts that contain a variety of representations and
warranties which provide general indemnifications. The maximum exposure under
these arrangements is unknown, as this would involve future claims that may be
made against the Funds and/or its affiliates that have not yet occurred. Based
on experience, however, the risk of loss is expected to be remote.
REDEMPTION FEES -- The Funds deduct a fee of 2.00% from redemption
proceeds on shares of the Funds held two months or less. Redemption fees
retained by the Funds are credited to additional paid-in capital.
64
SEPTEMBER 30, 2004
3. DISTRIBUTIONS
Dividends from net investment income and net realized gains, if any, are
declared and paid at least annually. The amount of dividends and distributions
from net investment income and net realized gains are determined in accordance
with federal income tax regulations, which may differ from GAAP. The Funds may
utilize earnings and profits distributed to shareholders on redemption of shares
as part of the dividend-paid deduction (tax equalization).
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 (loss) and undistributed net realized gain
(loss) on investments. Accordingly, at September 30, 2004, reclassifications
were recorded as follows:
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO
GROWTH TECHNOLOGY GROWTH GROWTH CAP
FUND FUND FUND FUND FUND
----------- ----------- -------- ------------- -----------
Increase (decrease)
paid-in capital in
excess of par $ 252,374 $(1,250,654) $(44,614) $(1,482,774) $ 4,679,463
Increase (decrease)
undistributed net
investment income
(loss) (1,416,540) 1,252,221 43,559 1,462,979 10,804,110
Increase (decrease)
undistributed net
realized gain (loss) 1,164,166 (1,567) 1,055 19,795 (15,483,573)
MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND
----------- ------------ ----------- ------------ --------
Increase (decrease)
paid-in capital in
excess of par $ 434,332 $(11,198,408) $ 5,897,409 $ 4,223,985 --
Increase (decrease)
undistributed net
investment income
(loss) 1,501,211 11,238,907 1,954,232 7,484,979 --
Increase (decrease)
undistributed net
realized gain (loss) (1,935,543) (40,499) (7,851,641) (11,708,964) --
4. PURCHASES AND SALES OF SECURITIES
Cost of investment securities purchased and proceeds from sales of
investment securities, excluding U.S. government and short-term securities for
the year or period ended September 30, 2004 are summarized below:
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO
GROWTH TECHNOLOGY GROWTH GROWTH CAP
FUND FUND FUND FUND FUND
------------- ------------ ------------- ------------- -------------
Purchases $ 736,283,296 $ 67,769,214 $ 116,496,904 $ 160,370,081 $ 296,122,130
Sales (673,414,775) (37,761,862) (4,506,997) (38,696,379) (306,062,728)
MICRO CAP SMALL CAP SMALL CAP ULTRA
VALUE GROWTH VALUE GROWTH
FUND FUND FUND FUND
------------ ------------- ------------- -------------
Purchases $ 90,393,975 $ 510,605,643 $ 407,535,103 $ 349,507,929
Sales (74,263,110) (479,230,029) (426,075,584) (422,189,835)
Purchases and sales of U.S. Government securities in the U.S. Treasury
Fund were $2,222,578 and $(23,679,670) respectively.
5. OPTIONS CONTRACTS WRITTEN
Options written activity for the Core Growth Fund during the year ended
September 30, 2004 was as follows:
OPTIONS OPTIONS
OUTSTANDING AT OUTSTANDING AT
BEGINNING OF YEAR WRITTEN CLOSED EXERCISED EXPIRED END OF YEAR
----------------- -------- ------ --------- ------- --------------
Premium amount $457,965 $446,379 -- $(904,344) -- --
No. of contracts 3,000 2,000 -- (5,000) -- --
65
WASATCH FUNDS -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL INCOME TAX INFORMATION
The following information is presented on a federal income tax basis as of
or for the period ended September 30, 2004.
SECURITIES, EXCLUDING SECURITIES SOLD SHORT AS OF SEPTEMBER 30, 2004:
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO
GROWTH TECHNOLOGY GROWTH GROWTH CAP
FUND FUND FUND FUND FUND
--------------- ------------ ------------- ------------- -------------
Cost $ 1,270,482,239 $ 74,501,129 $ 132,383,081 $ 173,539,408 $ 414,813,418
=============== ============ ============= ============= =============
Gross
appreciation $ 319,191,858 $ 8,448,688 $ 5,767,634 $ 35,137,822 $ 147,586,127
Gross
(depreciation) (65,676,728) (12,405,285) (5,122,226) (11,158,456) (42,903,840)
--------------- ------------ ------------- ------------- -------------
Net
appreciation
(depreciation) $ 253,515,130 $ (3,956,597) $ 645,408 $ 23,979,366 $ 104,682,287
=============== ============ ============= ============= =============
MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND
------------ -------------- ------------- ------------- ------------
Cost $ 75,237,077 $ 952,925,369 $ 606,920,959 $ 391,275,098 $ 40,082,570
============ ============= ============= ============= ============
Gross
appreciation $ 14,695,631 $ 307,451,631 $ 165,904,152 $ 67,579,623 $ 4,776,125
Gross
(depreciation) (5,875,690) (63,961,402) (38,461,459) (34,986,740) (70,067)
------------ ------------- ------------- ------------- ------------
Net
appreciation
(depreciation) $ 8,819,941 $ 243,490,229 $ 127,442,693 $ 32,592,883 $ 4,706,058
============ ============= ============= ============= ============
The difference between cost amounts for financial statement and federal
income tax purposes is due primarily to timing differences in recognizing
certain securities gains and losses.
COMPONENTS OF ACCUMULATED EARNINGS:
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO
GROWTH TECHNOLOGY GROWTH GROWTH CAP
FUND FUND FUND FUND FUND
------------ ----------- --------- ------------- ------------
Undistributed
ordinary income $ 2,732,242 $ -- $ 45,178 $ -- $ 3,216,219
Undistributed
capital gains 27,136,357 -- -- 411,691 72,570,944
------------ ----------- --------- ------------ ------------
Accumulated
earnings 29,868,599 -- 45,178 411,691 75,787,163
Accumulated
capital and other
losses -- (1,805,704) (36,826) -- --
Other undistributed
ordinary losses -- (1,649) (3,455) (1,006) --
Net unrealized
appreciation* 253,513,064 (3,994,883) 644,386 23,816,313 104,682,982
------------ ----------- --------- ------------ ------------
Total accumulated
earnings $283,381,663 $(5,802,236) $ 649,283 $ 24,226,998 $180,470,145
============ =========== ========= ============ ============
MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND
------------ ------------ ------------ ----------- -----------
Undistributed
ordinary income $ 8,935,866 $ -- $ 25,398,110 $ -- $ 1,573,440
Undistributed
capital gains 947,139 26,343,219 78,329,221 10,889,272 --
------------ ------------ ------------ ----------- -----------
Accumulated
earnings 9,883,005 26,343,219 103,727,331 10,889,272 1,573,440
Accumulated
capital and other
losses -- -- -- -- (6,930,353)
Other undistributed
ordinary losses (17,356) -- -- -- --
Net unrealized
appreciation* 8,820,163 243,490,226 127,012,620 32,592,883 4,706,057
------------ ------------ ------------ ----------- -----------
Total accumulated
earnings $ 18,685,812 $269,833,445 $230,739,951 $43,482,155 $ (650,856)
============ ============ ============ =========== ===========
*on investments, securities sold short, derivative and foreign currency
denominated assets and liabilities.
CAPITAL LOSS CARRYFORWARDS EXPIRE SEPTEMBER 30:
GLOBAL
SCIENCE & U.S.
TECHNOLOGY TREASURY
FUND FUND
-------------- ----------
2008 $ -- $1,779,894
2009 -- 4,318,964
2010 -- 831,495
2011 546,501 --
2012 1,001,036 --
Capital loss carryforwards are available through the date specified above
to offset future realized net capital gains. To the extent allowable by law,
future gains are offset by capital loss carryforwards and will not be
distributed.
66
SEPTEMBER 30, 2004
POST-OCTOBER LOSSES THAT ARE DEFERRED UNTIL TAX YEAR ENDED SEPTEMBER 30, 2005:
The Global Science & Technology Fund and the Heritage Growth Fund had
$258,168 and $36,826, respectively, of post-October capital losses. The
International Growth Fund had $1,005 of post-October currency losses. Net
capital losses incurred after October 31 and within the taxable year are deemed
to arise on the first day of the following tax year.
TAX CHARACTER OF DISTRIBUTIONS PAID DURING THE YEAR OR PERIOD ENDED SEPTEMBER
30:
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO
GROWTH TECHNOLOGY GROWTH GROWTH CAP
2004 FUND FUND FUND* FUND FUND
- --------------- -------- ---------- -------- ------------- -----------
Ordinary income $849,650 $ -- $ -- $ -- $ 2,759,023
Capital gain -- -- -- -- 40,853,142
-------- ---- ---- ---- -----------
Total $849,650 $ -- $ -- $ -- $43,612,165
======== ==== ==== ===== ===========
MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
VALUE GROWTH VALUE GROWTH TREASURY
2004 FUND FUND FUND FUND FUND
- --------------- --------- ---------- ---------- ---------- ----------
Ordinary income $ 59,072 $ -- $ -- $ 103,222 $3,207,497
Capital gain -- 5,914,707 221,337 5,343,850 --
--------- ---------- ---------- ---------- ----------
Total $ 59,072 $5,914,707 $ 221,337 $5,447,072 $3,207,497
========= ========== ========== ========== ==========
*Inception date of the Fund was June 18, 2004.
GLOBAL
CORE SCIENCE INTERNATIONAL MICRO MICRO CAP
GROWTH & TECHNOLOGY GROWTH CAP VALUE
2003 FUND FUND FUND FUND FUND*
- --------------- ------ ------------ ------------- ----------- ---------
Ordinary income $ -- $ -- $ -- $ -- $ --
Capital gain -- -- -- 22,295,887 --
---- ---- ---- ----------- ----
Total $ -- $ -- $ -- $22,295,887 $ --
==== ==== ==== =========== ====
SMALL CAP SMALL CAP ULTRA U.S.
GROWTH VALUE GROWTH TREASURY
2003 FUND FUND FUND FUND
- --------------- ---------- --------- ------ ----------
Ordinary income $ -- $ -- $ -- $3,484,505
Capital gain 34,010 -- -- --
---------- ---- ---- ----------
Total $ 34,010 $ -- $ -- $3,484,505
========== ==== ==== ==========
*Inception date of the Fund was July 28, 2003.
The tax character of distributions paid may differ from that shown in the
Statements of Changes in Net Assets due to short-term gains being treated as
ordinary income for tax purposes.
SUPPLEMENTAL TAX INFORMATION (UNAUDITED):
The Funds hereby designate approximately $229,288, $45,334,196, $41,696,
$6,265,697, $4,673,881 and $10,138,774 as a capital gain dividend for the Core
Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap Value and Ultra
Growth Funds, respectively, for the purpose of the dividends paid deduction.
These amounts include earnings and profits on redemptions of shares.
For the fiscal year ended September 30, 2004 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 the shareholder's 2004 Form 1099-DIV. The amount
designated for the year ended September 30, 2004, will be the highest allowable
amount permitted by law.
Corporate shareholders should note for the year ended September 30, 2004,
the percentage of the Core Growth and Small Cap Value Funds' investment income
(i.e., net investment income plus short-term capital gains) that qualified for
the corporate dividends received deductions were 100.00% and 10.83%,
respectively.
67
WASATCH FUNDS -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENT ADVISORY FEES, EXPENSE LIMITATIONS, FUND ADMINISTRATION FEES
INVESTMENT ADVISORY FEES -- As the Fund's investment advisor, the Advisor
receives a monthly fee calculated on average daily net assets. The Advisor has
contractually agreed to waive its fees and/or reimburse a Fund should a Fund's
operating expenses exceed a specified annual limitation through at least January
31, 2005. Investment Advisory fees and fees waived, if any, for the year or
period ended September 30, 2004 are disclosed in the Statements of Operations.
Investment advisory fee and expense limitation annual rates are shown below.
GLOBAL
CORE SCIENCE & HERITAGE INTERNATIONAL MICRO MICRO CAP SMALL CAP SMALL CAP ULTRA U.S.
GROWTH TECHNOLOGY GROWTH GROWTH CAP VALUE GROWTH VALUE GROWTH TREASURY
FUND FUND FUND FUND FUND FUND FUND FUND FUND FUND
------ ---------- -------- ------------- ----- --------- --------- --------- ------ --------
Advisory Fee 1.00% 1.50% 0.70% 1.50% 2.00% 2.00% 1.00% 1.50% 1.25% 0.50%
Expense Limitation 1.50% 1.95% 0.95% 1.95% 2.50% 2.25%* 1.50% 1.95% 1.75% 0.75%
*On February 1, 2004, the Advisor reduced the contractual expense limitation
from 2.50% to 2.25% through January 31, 2005. As a result, the effective expense
ratio net of waivers and reimbursements for the period ended September 30, 2004
was 2.27%.
FUND ADMINISTRATION FEES -- As the Funds' Administrator, the Advisor
provides or arranges certain fund administration services to the Funds and
receives a monthly fee at the annual rate of .0425% of the first $3.0 billion of
the Funds' total average daily net assets and then a decreasing rate for average
daily net assets above that level. Fund administration fees for the year or
period ended September 30, 2004 are disclosed in the Statements of Operations.
68
SEPTEMBER 30, 2004
8. TRANSACTIONS WITH AFFILIATES
The following funds conducted transactions during the year ended September
30, 2004 with "affiliated companies" as defined by the Investment Company Act
of 1940:
AMOUNT OF AMOUNT OF
DIVIDENDS GAIN (LOSS)
CREDITED REALIZED ON
SHARE ACTIVITY TO INCOME FOR SALE OF SHARES FOR
--------------------------------------------------- THE YEAR OR THE YEAR OR
BALANCE BALANCE PERIOD ENDED PERIOD ENDED
9/30/03 PURCHASES SALES 9/30/04 9/30/04 9/30/04
--------- --------- --------- --------- ------------- ------------------
CORE GROWTH FUND
Anworth Mortgage Asset Corp. 1,984,575 627,000 455,375 2,156,200* $2,714,961 $ (590,029)
Bimini Mortgage Management, Inc. -- 1,251,075 -- 1,251,075 1,789,037 --
---------- -----------
$4,503,998 $ (590,029)
MICRO CAP FUND
Advanced Power Technology, Inc. 364,500 289,750 -- 654,250 $ -- $ --
CommerceWest Bank 95,000 -- 95,000 --* -- 327,679
Computer Access Technology Corp. 615,575 720,045 1,335,620 --* -- 2,315,327
Covalent Group, Inc. 825,000 123,500 -- 948,500 -- --
Encision, Inc. 433,075 -- 57,950 375,125 -- 9,603
Enpath Medical, Inc. 97,950 212,250 -- 310,200 -- --
in TEST Corp. 444,975 64,100 -- 509,075 -- --
IRIDEX Corp. 719,850 27,100 195,650 551,300 -- 54,848
PSi Technologies Holdings, Inc. ADR 1,021,975 -- 20,530 1,001,445 -- (349,063)
Rainbow Rentals, Inc. 404,400 -- 404,400 --* -- 2,604,581
Vanguard Response Systems, Inc. -- 1,243,575 -- 1,243,575 -- --
---------- -----------
$ -- $ 4,962,974
MICRO CAP VALUE FUND
Steakhouse Partners, Inc. -- 250,000 -- 250,000 $ -- $ --
Security Business Bank of San Diego -- 53,000 -- 53,000 -- --
---------- -----------
$ -- $ --
SMALL CAP GROWTH FUND
AmSurg Corp.(1) 1,517,488 17,775 -- 1,535,263 $ -- $ --
SMALL CAP VALUE FUND
Bimini Mortgage Management, Inc. -- 642,325 -- 642,325* $ 918,525 $ --
Falcon Financial Investment Trust -- 1,011,725 -- 1,011,725 50,586 --
Mobile Mini, Inc. 730,437 119,625 337,175 512,887* -- 2,612,356
Supertex, Inc. 560,925 111,300 -- 672,225 -- --
USA Truck, Inc. 472,250 -- -- 472,250 -- --
Whitehall Jewellers, Inc. 805,568 40,000 -- 845,568 -- --
---------- -----------
$ 969,111 $ 2,612,356
*No longer affiliated as of September 30, 2004.
(1) Adjusted for 3-for-2 split on March 25, 2004.
69
WASATCH FUNDS -- NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. RESTRICTED SECURITIES
The Funds may own investments that were purchased through private
placement transactions (or under Rule 144A) and cannot be sold without prior
registration under the Securities Act of 1933 or may be limited due to certain
restrictions. If and when such securities are registered, the costs of
registering such securities are paid by the issuer. At September 30, 2004, the
Funds held the following restricted securities:
VALUE AS
SECURITY ACQUISITION ACQUISITION FAIR % OF
TYPE DATE COST VALUE NET ASSETS
--------------- ------------------ ----------- ----------- ----------
CORE GROWTH FUND
Bimini Mortgage Management, Inc. Common Stock 12/15/03 - 1/29/04 $18,766,125 $18,507,637 1.24%
Brantley Mezzanine Finance, LLC Common Units 9/21/04 60,000 60,000 --
Brantley Mezzanine Finance,
LLC, 10.00%, 9/21/09 Corporate Bond 9/21/04 2,940,000 2,940,183 0.20%
Fieldstone Investment Corp. Common Stock 11/10/03- 11/11/03 13,355,388 15,011,425 1.00%
Provident Senior Living Trust Common Stock 7/26/04 7,560,000 7,560,000 0.51%
----------- ----------- ----
$69,141,513 $44,079,245 2.95%
GLOBAL SCIENCE & TECHNOLOGY FUND
Acusphere, Inc. PIPE Common Stock 7/29/04 $ 119,744 $ 95,828 0.14%
Acusphere, Inc. Warrants 7/29/04 -- -- --
Kintera, Inc. PIPE Common Stock 7/12/04 840,800 870,309 1.26%
Montagu Newhall Global Partners II-B, L.P. LP Interest 10/10/03 - 3/10/04 47,144 41,272 0.06%
SiRF Technology Holdings, Inc. Common Stock 12/20/01 277,875 592,921 0.86%
SiRF Technology Holdings, Inc. Warrants 1/11/02 -- 32,208 0.05%
Xtera Communications, Inc. Preferred Stock 9/3/03 7,076 7,076 0.01%
----------- ----------- ----
$ 1,292,639 $ 1,639,614 2.38%
HERITAGE GROWTH FUND
Provident Senior Living Trust Common Stock 7/26/04 $ 802,500 $ 802,500 0.63%
MICRO CAP FUND
Fieldstone Investment Corp. Common Stock 11/10/03- 11/11/03 $ 2,632,803 $ 2,959,275 0.57%
Kintera, Inc. PIPE Common Stock 7/12/04 1,152,400 1,192,845 0.23%
----------- ----------- ----
$ 3,785,203 $ 4,152,120 0.80%
MICRO CAP VALUE FUND
Acusphere, Inc. PIPE Common Stock 7/29/04 $ 223,869 $ 179,157 0.21%
Acusphere, Inc. Warrants 7/29/04 -- -- --
Bimini Mortgage Management, Inc. Common Stock 12/15/03 - 1/29/04 1,074,000 1,059,207 1.25%
CorVu Corp. Warrants 11/17/03 -- -- --
Fieldstone Investment Corp. Common Stock 11/10/03- 11/11/03 732,436 823,225 0.97%
Franklin Bank Corp. Common Stock 9/24/03 - 10/20/03 742,675 1,010,894 1.19%
Medical Properties Trust, Inc. Common Stock 3/31/04 362,500 362,500 0.43%
----------- ----------- ----
$ 3,135,480 $ 3,434,983 4.05%
SMALL CAP GROWTH FUND
Kintera, Inc. PIPE Common Stock 7/12/04 $ 6,043,600 $ 6,255,706 0.52%
Montagu Newhall Global Partners II-B, L.P. LP Interest 10/10/03 - 3/10/04 471,435 412,715 0.03%
SiRF Technology Holdings, Inc. Common Stock 12/20/01 2,616,120 5,582,199 0.47%
SiRF Technology Holdings, Inc. Warrants 1/11/02 -- 303,235 0.03%
Zonare Medical Systems, Inc. Preferred Stock 6/30/04 1,500,000 1,500,080 0.13%
Zonare Medical Systems, Inc. Warrants 6/30/04 -- -- --
----------- ----------- ----
$10,631,155 $14,053,935 1.18%
70
SEPTEMBER 30, 2004
RESTRICTED SECURITIES (CONTINUED)
VALUE AS
SECURITY ACQUISITION ACQUISITION FAIR % OF
TYPE DATE COST VALUE NET ASSETS
--------------- ------------------- ----------- ----------- ----------
SMALL CAP VALUE FUND
Bimini Mortgage Management, Inc. Common Stock 12/15/03 - 1/29/04 $ 9,634,875 $ 9,502,162 1.29%
Brantley Mezzanine Finance, LLC Common Units 9/21/04 40,000 40,000 0.01%
Brantley Mezzanine Finance,
LLC, 10.00%, 9/21/09 Corporate Bond 9/21/04 1,960,000 1,960,122 0.27%
Fieldstone Investment Corp. Common Stock 11/10/03 - 11/11/03 6,700,984 7,531,850 1.03%
JER Investors Trust, Inc. Common Stock 5/27/04 4,967,250 4,967,250 0.68%
KKR Financial Corp. Common Stock 8/5/04 3,600,000 3,690,000 0.50%
Medical Properties Trust, Inc. Common Stock 3/31/04 3,255,000 3,255,000 0.44%
Provident Senior Living Trust Common Stock 7/26/04 7,500,000 7,500,000 1.02%
----------- ----------- ----
$37,658,109 $38,446,384 5.24%
ULTRA GROWTH FUND
IQ4HIRE, Inc. Preferred Stock 9/7/00 $ 110,000 $ 440 --
Kintera, Inc. PIPE Common Stock 7/12/04 820,200 848,986 0.20%
Montagu Newhall Global Partners II-B, L.P. LP Interest 10/10/03 - 3/10/04 424,292 371,444 0.09%
NXStage Medical, Inc. PIPE Common Stock 8/18/04 1,500,000 1,500,000 0.35%
SiRF Technology Holdings, Inc. Common Stock 12/20/01 806,000 1,719,819 0.40%
SiRF Technology Holdings, Inc. Warrants 1/11/02 -- 93,424 0.02%
Xtera Communications, Inc. Preferred Stock 9/3/03 99,065 99,065 0.02%
Zonare Medical Systems, Inc. Preferred Stock 6/30/04 1,000,000 1,000,053 0.23%
Zonare Medical Systems, Inc. Warrants 6/30/04 -- -- --
----------- ----------- ----
$ 4,759,557 $ 5,633,231 1.31%
PIPE Private Investment in a Public Equity
LP Limited Partnership Interest
10. PURCHASE COMMITMENTS
In September 2003, the Global Science & Technology, Small Cap Growth and
Ultra Growth Funds entered into subscription agreements to acquire limited
partnership interests in Montagu Newhall Global Partners II, L.P. The remaining
commitment amounts at September 30, 2004 are $450,000, $4,500,000 and
$4,050,000, respectively. Securities held by the Funds have been designated to
meet these purchase commitments.
In July 2004, the Global Science & Technology and Micro Cap Value Funds
entered into subscription agreements to acquire shares of Acusphere, Inc. PIPE.
The remaining commitment amounts at September 30, 2004 are $24,006 and $44,881,
respectively. Securities held by the Funds have been designated to meet these
purchase commitments.
11. SUBSEQUENT EVENT -- DISTRIBUTION TO SHAREHOLDERS
The Funds declared a capital gain distribution in the Core Growth,
International Growth, Micro Cap, Micro Cap Value, Small Cap Growth, Small Cap
Value and Ultra Growth Funds which was paid on October 15, 2004, to shareholders
of record on October 14, 2004, in the amount of $0.700109, $0.030054, $l.04197,
$0.299571, $0.77386, $0.784914, $0.620913 per share, respectively.
71
WASATCH FUNDS -- REPORT OF INDEPENDENT REGISTERED SEPTEMBER 30, 2004
PUBLIC ACCOUNTING FIRM
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 Heritage Growth 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 Wasatch-Hoisington U.S.
Treasury Fund (constituting Wasatch Funds, Inc., hereafter referred
to as the "Funds") at September 30, 2004, the results of each of
their operations for the year then ended and the changes in each of
their net assets and the financial highlights for each of the
periods presented, 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 the standards of the
Public Company Accounting Oversight Board (United States). Those
standards 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, 2004 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
Kansas City, MO
November 4, 2004
72
WASATCH FUNDS -- DIRECTORS AND OFFICERS
NUMBER OF OTHER
PORTFOLIOS DIRECTOR
POSITION(S) IN COMPLEX -SHIPS HELD
NAME, ADDRESS HELD TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) OVERSEEN BY BY
AND AGE WITH FUND LENGTH OF TIME SERVED DURING PAST 5 YEARS DIRECTOR DIRECTOR
- ----------------------------------- -------------- --------------------- ------------------------------ ----------- -----------
INDEPENDENT DIRECTORS:
JAMES U. JENSEN, J.D., MBA Director Indefinite Co-founder and Chairman of the 10 Private
44 North Wolcott Served as Director Board of Rapidmapper, Inc. (a companies
Salt Lake City, UT 84103 since 1986 company designed for use by and
Age: 59 the landscape, architecture, foundations
construction, engineering only
and design industries) since
2004; Consultant on corporate
growth and technology transfer
since 2004; Vice President,
Corporate Development, Legal
Affairs and General Counsel
and Secretary, NPS
Pharmaceuticals, Inc. 1991 -
2004.
WILLIAM R. SWINYARD, PH.D. Director Indefinite Professor of Business 10 None
Marriott School of Management Served as Director Management and Holder of the
624 Tanner Building since 1986 Fred G. Meyer Chair of
Brigham Young University Marketing, Brigham Young
Provo, UT 84602 University since 1978.
Age: 64
JONATHAN F. ZESCHIN, CFP(1) Director Indefinite President and Founder of 10 Board
1777 S.Harrison Street Served as Director ESSENTIAL Advisers, Inc., a of
Skydeck since June 2002 wealth management and Trustees
Denver, CO 80210 investment advisory firm; ICON
Age: 51 prior to founding ESSENTIAL Funds
was Managing Partner at JZ
Partners LLC, a business
consulting firm; President of
Founders Asset Management from
1995 - 1998.
INTERESTED DIRECTORS(2) :
SAMUEL S. STEWART, JR., PH.D., CFA President, Indefinite Chairman of the Board and 10 None
150 Social Hall Avenue Chairman of Served as President, Director of Research for
4th Floor the Board and Chairman of the Wasatch Advisors, Inc. (the
Salt Lake City, UT 84111 Director Board and Director "Advisor") since 1975;
Age: 62 since 1986 Professor of Finance at the
University of Utah from 1975 -
2000.
JEFF S. CARDON, CFA Vice President Indefinite President and Treasurer of the 10 None
150 Social Hall Avenue and Director Served as Vice Advisor since 1999; Director
4th Floor President and of the Advisor since 1985;
Salt Lake City, UT 84111 Director since 1986 Security Analyst for the
Age: 47 Advisor since 1980.
OFFICERS:
VENICE F. EDWARDS, CFA Vice President Indefinite Chief Compliance Officer for N/A None
150 Social Hall Avenue and Treasurer Served as Treasurer the Advisor since 2004;
4th Floor since 1996 and Vice Director of Compliance for the
Salt Lake City, UT 84111 President since Advisor from 1995 - 2004 and
Age: 54 September 2004 Secretary of the Advisor since
1999; Portfolio Manager for
the Advisor from 1983 - 1995.
ANGELA PALMER Chief Indefinite Chief Compliance Officer for N/A None
150 Social Hall Avenue Compliance Served as Chief the Funds since 2004; Director
4th Floor Officer/ Compliance Officer/ of Compliance for the Advisor
Salt Lake City, UT 84111 Secretary/ Secretary/ Assistant since 2004; Senior Compliance
Age: 32 Assistant Treasurer since Administrator for the Advisor
Treasurer September 2004 from 2003 - 2004;
Administration Services
Manager at UMB Fund Services,
Inc. ("UMB") from 1999 - 2003;
Senior Financial Analyst at
UMB from 1998 - 1999.
(1)Mr. Zeschin resigned from the Board of Directors effective September 30,
2004.
(2)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.
73
WASATCH FUNDS -- PROXY VOTING AND HOLDINGS DISCLOSURE SEPTEMBER 30, 2004
PROXY VOTING POLICIES, PROCEDURES AND RECORD
A description of the policies and procedures that Wasatch uses to vote
proxies related to the Funds' portfolio securities is set forth in the Funds'
Statement of Additional Information which is available without charge, upon
request, on the Funds' web site at WWW.WASATCHFUNDS.COM or by calling
800.551.1700 and on the Securities and Exchange Commission's (SEC) web site at
WWW.SEC.GOV.
Beginning in 2004, Wasatch Funds' proxy voting record will be available on
the Funds' web site at WWW.WASATCHFUNDS.COM and the SEC's web site at
WWW.SEC.GOV no later than August 31 for the prior 12 months ending June 30.
QUARTERLY PORTFOLIO HOLDINGS DISCLOSURE ON FORM N-Q
The Funds file their complete schedules of investments with the SEC for
their first and third fiscal quarters of each fiscal year, commencing with the
quarter ended December 31, 2004, on Form N-Q. The Funds' Form N-Q will be
available on the SEC's web site at WWW.SEC.GOV, and may be viewed at the SEC's
Public Reference Room in Washington, D.C. (information on the operation of the
Public Reference Room may be obtained by calling 800.SEC.0330).
74
WASATCH FUNDS -- GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS SEPTEMBER 30, 2004
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 or period 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 or loss, 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 OR
LOSS is the amount of net investment income or loss of 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
(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. ISSUED AND OUTSTANDING indicates the number of
shares owned by shareholders.
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 share price 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
share prices are calculated. Information about how the share price is affected
by a Fund's operation can be found under "Financial Highlights" on page 76.
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 real-
75
WASATCH FUNDS -- GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS SEPTEMBER 30, 2004
ized 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 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 Code 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 page 75. 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 share price 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 share price on the ex-dividend 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, if any. 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, if any. 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.
HOW TO CONTACT WASATCH
ONLINE
WWW.WASATCHFUNDS.COM
EMAIL
SHAREHOLDERSERVICE@WASATCHFUNDS.COM
Our email correspondence department responds to emails Monday
through Friday, from 8:00 a.m. to 4:00 p.m. Central Time (CT).
TELEPHONE
800.551.1700
Shareholder services representatives are available Monday through
Friday, from 7:00 a.m. to 7:00 p.m. Central Time (CT).
Our automated teleresponse service is available 24 hours a day.
U.S. MAIL
WASATCH FUNDS
P.O. Box 2172
Milwaukee, WI 53201-2172
OVERNIGHT DELIVERY
WASATCH FUNDS
803 West Michigan Street, Suite A
Milwaukee, WI 53233-2301
76
[(WASATCH FUNDS LOGO)]
WWW.WASATCHFUNDS.COM
800.551.1700
WASATCH FUNDS
P.O. BOX 2172
Milwaukee, WI 53201-2172
ITEM 2: CODE OF ETHICS
(a) Wasatch Funds, Inc. (the "Registrant") has adopted a Code of Ethics that
applies to the Registrant's principal executive officer and principal
financial officer.
(b) No disclosures are required by this Item 2(b).
(c) There have been no material amendments to the Registrant's Code of Ethics
during the reporting period for Form N-CSR.
(d) There have been no waivers granted by the Registrant to individuals
covered by the Registrant's Code of Ethics during the reporting period for
Form N-CSR.
(e) Not applicable.
(f) A copy of the Registrant'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 the Registrant has determined that the
Registrant has one member serving on the Registrant'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) For the reporting period, the name of the audit committee financial
expert was Jonathan Zeschin. Mr. Zeschin was deemed to be
"independent" as that term is defined in Item 3(a)(2) of Form N-CSR.
Effective as of September 30, 2004, Mr. Zeschin resigned as Director
of the Registrant.
The name of the current audit committee financial expert is James U.
Jensen. Mr. Jensen 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.
(a) Audit Fees - The aggregate fees billed for professional services rendered
by the independent registered public accounting firm for the audit of the
Registrant's annual financial statements or services normally provided in
connection with statutory and regulatory filings or engagements for the last two
fiscal years ended September 30, 2004 and September 30, 2003 were $131,601 and
$122,501, respectively.
(b) Audit Related Fees - The Registrant was billed $1,350 by the independent
registered public accounting firm for the fiscal year ended September 30, 2003
for the Registrant for assurance and related services that were reasonably
related to the performance of the audit of the Registrant's financial
statements. The Registrant was not billed any fees by the independent registered
public accounting firm for the fiscal year ended September 30, 2004 for
assurance and related services rendered by the independent registered public
accounting firm to the Registrant that are reasonably related to the performance
of the audit of the Registrant's financial statements and are not reported under
paragraph (a) of this Item 4.
During the fiscal years ended September 30, 2004 and 2003, no fees for assurance
and related services that relate directly to the operations and financial
reporting of the Registrant were billed by the independent registered public
accounting firm to the Registrant's investment adviser or any other entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the Registrant.
(c) Tax Fees - The aggregate fees billed for professional services rendered by
the independent registered public accounting firm to the Registrant for tax
compliance, tax advice, tax planning and tax return preparation for the for the
last two fiscal years ended September 30, 2004 and September 30, 2003 were
$40,111 and $31,175, respectively. These services consisted of the independent
registered public accounting firm reviewing the Registrant's excise tax returns,
distribution requirements and RIC tax returns, as well as consultations
regarding the tax consequences of specific investments.
During the fiscal years ended September 30, 2004 and 2003, no fees for tax
compliance, tax advice or tax planning services that relate directly to the
operations and financial reporting of the Registrant were billed by the
independent registered public accounting firm to the Registrant's investment
adviser or any other entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the Registrant.
(d) All Other Fees - There were no fees billed for the fiscal years ended
September 30, 2004 and September 30, 2003, respectively, for products and
services provided by the independent registered public accounting firm to the
Registrant, other than the services reported in paragraph (a) - (c) of this Item
4.
During the fiscal years ended September 30, 2004 and 2003, no fees for other
services that relate directly to the operations and financial reporting of the
Registrant were billed by the independent registered public accounting firm to
the Registrant's investment adviser or any other entity controlling, controlled
by, or under common control with the investment adviser that provides ongoing
services to the Registrant.
(e) Pre-Approval Policies and Procedures
(1) Pursuant to the registrant's Audit Committee Charter, the Audit Committee
shall evaluate the independence of the independent public accountants, including
evaluating whether the independent public accountants provide audit services or
consulting services to the Registrant or consulting services to the investment
adviser, and to receive the specific representations of the independent
registered public accounting firm as to their independence. Specifically, the
Audit Committee will be responsible for evaluating the provision of non-audit
services to the Registrant as required by Section 201 of the Sarbanes-Oxley Act
(the "Act"), any pre-approval requests submitted by the independent registered
public accounting firm as required by Section 203 of that Act, and shall monitor
the conflict of interest requirements in Section 206 of that Act, and the
prohibitions on improper influence on the conduct of audits in Section 303 of
that Act. The Audit Committee shall pre-approve any engagement of the
independent registered public accounting firm to provide any services (other
than prohibited non-audit services) including the fees and other compensation to
be paid to the independent registered public accounting firm.
The independent registered public accounting firm is authorized by the Audit
Committee to provide non-audit services to the extent allowable under the
Sarbanes-Oxley Act of 2002 for the Registrant provided that (i) the fees payable
with respect to such services do not exceed $5,000 in any calendar quarter and
(ii) such fees are ratified by the Audit Committee at its next meeting. The fees
payable with respect to non-audit services may be increased by the affirmative
vote of a majority of the members of the Audit Committee.
(2) There were no pre-approval requirements waived for the services provided
to the Registrant described in paragraphs (b)-(d) of Item 4 by the Audit
Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (the
"De Minimis Rule"). There were no fees billed for services provided to the
investment adviser described in paragraphs (b)-(d) of Item 4 that were required
to be pre-approved by the Audit Committee as described in paragraph (e)(1) of
Item 4.
(f) No disclosures are required by this Item 4(f).
(g) The independent registered public accounting firm did not bill the
Registrant for any other non-audit services for the fiscal years ended
September 30, 2004 and 2003 for the Registrant other than as disclosed
above.
(h) No disclosures are required by this Item 4(h).
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as a part of the report to shareholders
filed under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors has not adopted procedures by which shareholders may
recommend nominees to the Board.
ITEM 11. 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 Securities Exchange Act of 1934 (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 12. 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.
(a)(3) Not applicable.
(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 24, 2004
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 24, 2004
By: /s/ Venice F. Edwards
-------------------------
Venice F. Edwards
Vice President/Treasurer (principal financial and accounting officer) of
Wasatch Funds, Inc.
Date: November 24, 2004