UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-4920 ---------------------------------------------- WASATCH FUNDS, INC. ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) 150 SOCIAL HALL AVENUE 4TH FLOOR SALT LAKE CITY, UTAH 84111 ------------------------------------------------------------------------------ (Address of principal executive offices)(Zip code) (Name and Address of Agent for Service) Copy to: Samuel S. Stewart, Jr. Michael J. Radmer, Esq. Wasatch Funds, Inc. Dorsey & Whitney LLP 150 Social Hall Avenue, 4th Floor 50 South Sixth Street, Suite 1500 Salt Lake City, Utah 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