Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
May 24, 1996
Via EDGAR
- ---------
Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Wasatch Funds, Inc. (the Funds);
Registration Nos.: 33-10451; 811-4920
Gentlemen:
On behalf of the Fund and pursuant to Rule 30b2-1 and Section 24(b) under the
Investment Company Act of 1940, as amended, we hereby file a Semi-Annual Report
to shareholders for the period ended March 31, 1996.
If you have any questions concerning this filing, please do not hesitate to
contact me.
Very Truly Yours,
/s/ Mike Yanke
Mike Yanke
Sunstone Financial Group, Inc.
Client Services and Accounting Manager
MEY/jv
encl.
This may be used as sales literature when preceded or accompanied by a current
prospectus. The prospectus gives details about charges, investment objectives,
risks and operating policies of the Funds. Please read it carefully before
investing.
WASATCH FUNDS
68 South Main Street
Salt Lake City, Utah 84101
(800) 551-1700
LETTER FROM THE INVESTMENT ADVISOR
MARCH 31, 1996
Dear Shareholder:
OVERVIEW
The first quarter of 1996 was a rewarding one for most mutual fund investors.
Almost all categories of stock funds had positive returns. In fact, the strong
quarterly gains have once again set stocks on a pace that might help them
eclipse their historical stock market return of about 10% a year.
Wasatch Funds also did exceptionally well. The Wasatch Growth Fund nearly
doubled the performance of the average stock fund. The Wasatch Aggressive Equity
Fund delivered positive returns gathering momentum near the end of the quarter.
The Wasatch Micro-Cap Fund continued the solid growth it has displayed since its
inception last year. The Wasatch Income Fund had a positive return in an
environment where the average bond fund had a negative return. And, the Wasatch
Mid-Cap Fund, which was named the top performing no-load fund for 1995 by
Fortune magazine, took a little breather but finished the quarter right in line
with other funds that have a similar exposure to technology stocks.
1ST AVERAGE ANNUAL
INDEX QUARTER 1 YEAR 5 YEARS
----- ------- ------ -------
S&P 500 5.4% 32.1% 14.7%
S&P Midcap 400 6.2% 28.5% 15.9%
Russell 2000 5.1% 29.0% 16.0%
Nasdaq Composite Index 4.7% 34.8% 18.0%
Lehman Bros. Gov't./Corp.
Bond Index (2.3)% 10.9% 10.4%
AVERAGE ANNUAL
------------------------------
1ST SINCE
WASATCH FUNDS QUARTER 1 YEAR 5 YEARS COMMENCEMENT<F1>
------------- ------- ------ ------- ------------
Aggressive Equity 3.2% 25.9% 15.6% 14.7%
Micro-Cap 5.0% -- -- 48.5%<F2>
Growth 9.1% 39.1% 15.4% 13.9%
Mid-Cap (0.1)% 38.2% -- 18.5%
Income 0.5% 7.5% 6.8% 7.9%
<F1> Commencement of operations for the Aggressive Equity, Growth and Income
Funds is December 6, 1986; for the Mid-Cap Fund, August 16, 1992; and for the
Micro-Cap Fund, June 19, 1995.
<F2> Cumulative total return since June 19, 1995 (Commencement)
The above past performance is not predictive of future results. The
investment return and principal value of the Funds will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
Many market analysts wonder how long this unprecedented rise in stock prices can
go on. Furthermore, the intensity of the debate seems to increase with each new
market high. Recent volatility of daily stock prices is just another indication
that the market itself isn't quite sure about what direction to take. Let's face
it, there is reason to wonder. By our calculations, we are 14 years into one of
the longest bull markets in history. Doesn't common sense tell us that it's time
to take a rest? Maybe. Unfortunately, a pretty good argument can also be made
that if the bears do have their way, and the market declines, it would go down
in history as nothing more than a classic textbook example of self-fulfilling
prophesy. This is what appears to be causing the confusion. Common sense tells
us we should expect a correction at a time when market conditions don't point to
many excesses.
Let us explain. The economy, the fundamental underpinning of the market, is in
pretty good shape. We are growing sufficiently fast to create new jobs but not
so fast as to generate excesses, including price inflation. Our message to
shareholders has been similar for years. We seem to be in a "rotating" economy
with pockets of strength and pockets of weakness. Fortunately, these pockets
have been relatively isolated and short-lived, and are not spreading into the
excessive strength that ultimately leads to a general recession.
Many worry that the market is overvalued. There is no doubt that some stocks
within the market are overvalued. Clearly, such statistics as price-to-book
ratios are at record highs while dividend yields are at record lows. While we
don't wish to downplay such market measures, our philosophy is to buy stocks one
at a time. Before buying any stock, we carefully assess its value in light of
its potential growth prospects. And, if we can find good values in individual
stocks we will continue to be invested in the market.
LOOKING AHEAD
In our effort to find good companies in which to invest, Wasatch analysts
traveled extensively during the quarter visiting 24 states and three European
countries. We met and had conferences with the top management of over 100
companies. Our optimism is an outgrowth of these meetings. The overall strength
of the companies in which we are investing and the quality of the people running
them takes our focus away from the unanswerable question of what the market
might do in the next month or two and places it where we think wealth is created
in the long-run--finding and investing in "America's Best Growth
Companies."<F3>
We look forward to serving our investors in 1996 and remain committed to helping
them reach their long-term financial goals over the months and years to come.
<F3>These are companies we believe possess an identifiable, sustainable
competitive advantage, are underfollowed, undervalued, well-managed, and have
sufficient "headroom" in their markets to double their size in five years.
WASATCH AGGRESSIVE EQUITY FUND
In July of 1995 we closed the Aggressive Equity Fund to new investors. This
decision was made at a time when new money was being invested into the Fund at
record levels. We knew that the more money the Fund accepted the harder it would
be to invest in the kind of small companies that had contributed to the Fund's
excellent track record since its inception. Maintaining the integrity of the
Fund's investment style was critical in our decision to close. Our premise has
always been that corporate earnings drive stock prices. Smaller companies can
grow their earnings faster than larger ones. Since closing the Fund, the average
size of the company in which the Fund invests has actually decreased. We think
this is a tremendous accomplishment and one that will help us going forward in
providing shareholders with the excellent returns they have come to expect.
The investment strategy of the Aggressive Equity Fund is simple. Find
undiscovered small companies that have the ability to grow and dominate their
markets in the future. Our focus is not as much on how the Fund performs from
month to month as it is on how the companies in which the Fund is invested are
meeting the operating benchmarks we have set for them. If they meet their goals
we know that sooner or later price performance will follow. A case in point is
Nature's Sunshine Products, Inc. (NATR), a direct seller of herbs and vitamins.
We originally purchased the stock two years ago for just over $8 a share (split
adjusted). Twelve months later the price was in the $6 a share range even though
the company was doing an excellent job of executing their business plan. The
Fund continued to buy Nature's shares and just recently other investors finally
began to see what we had seen years before and the stock soared to over $27 a
share.
We increased our holdings of Franklin Quest Co. (FNQ), a time management and
personal productivity company. The company had several quarters of lower-than-
expected earnings growth causing investors to lose confidence in the stock
price. Since Wasatch has followed Franklin Quest closely for a long time, we
believe its fundamentals are still intact and that Wall Street was being overly
harsh. The recently reported quarter boosted investor confidence.
Other good news for the quarter included Duracraft Corp. (DUCR), a manufacturer
of small personal appliances such as fans, space heaters, vaporizers, air
cleaners and humidifiers. Honeywell, Inc. acquired Duracraft, purchasing all
outstanding shares at a price well above its current trading value.
Several of our technology-related stocks experienced some weakness during the
quarter. Active Voice Corp. (ACVC), a producer of software-based, lower-end
automated telephone systems, reported that earnings growth would be less than
expected. The company's long-term fundamentals appear to be stable and we expect
the stock price to rebound in the coming quarters.
Phamis, Inc. (PHAM), is a small company that sells computer systems to large
integrated health care delivery networks. During the quarter, the company
reported disappointing earnings due to customer-requested startup delays.
Wasatch analysts believe this is a short-term issue that is likely be resolved
quickly. The company remains in an excellent position to capitalize on changes
in the health care industry as it moves to control costs through more efficient
operations. Wasatch is taking advantage of temporary stock price weakness to
increase our Phamis holdings.
FTP Software, Inc. (FTPS), and International Imaging Materials, Inc. (IMAK), are
two companies with more serious problems that are not likely to be resolved in
the short-term. After reviewing the fundamentals of both these companies, the
research team decided it was time to sell the stock and move on.
OUTLOOK
We believe that the Aggressive Equity Fund is strategically positioned to
provide shareholders with the kinds of returns they have come to expect. Most
importantly, the fundamentals of the companies in which the Fund invests remain
strong. Furthermore, the Fund continues to find and take positions in exciting
new companies that have the characteristics that qualify them as "America's
Best Growth Companies."
FIVE LARGEST STOCK HOLDINGS - AS OF MARCH 31, 1996
COMPANY INDUSTRY % OF NET ASSETS
------- -------- ---------------
National Health Investors, Inc. REIT Real Estate 5.0%
Franklin Quest Co. Personal Products 4.9%
Century Telephone Enterprises Telecommunications 4.4%
Heilig-Meyers Co. Retail 3.7%
Nature's Sunshine Products, Inc. Health Care Products 3.5%
WASATCH MICRO-CAP FUND
In June 1995, the Fund got off to a great start with a fresh portfolio full of
high-quality Micro-Cap names. Since inception it is up 48.5% and has had a
positive return every quarter. The first quarter of 1996 was no exception, the
Fund was up 5%.
The Micro-Cap Fund is managed in the same style as the Wasatch Aggressive Equity
Fund. Its portfolio is comprised of a blend of core, stable holdings and more
aggressive momentum stocks. The major difference is the size of the companies.
The Fund invests in companies with market capitalizations of under $150 million
at the time of initial purchase. Its strategy is to take advantage of investment
opportunities presented by the earnings growth potential of the smallest
companies.
During the first quarter, the Fund benefited from the strong earnings of many
companies in the portfolio. Wasatch has found that superior earnings growth is
often the result of a Micro-Cap company's excellent underlying fundamentals.
Aspen Technologies, Inc. (AZPN), chemical engineering software, is a good
example. Consumer-oriented stocks like Nature's Sunshine Products, Inc. (NATR),
direct sales of herbs and vitamins; The Buckle, Inc. (BKLE), clothing retailer;
and Seattle Filmworks, Inc. (FOTO), direct mail film processing and sales; also
did well this quarter.
Portfolio companies that experienced weaker performance in the quarter seemed to
fall into one of two categories. The first is that the technology sector of the
market was out of favor beginning in late 1995. Phoenix Technologies Ltd.
(PTEC), PC system software and bios; Pinnacle Systems, Inc. (PCLE), software and
hardware for digital video editing; Micrel, Inc. (MCRL), analog semiconductors
for cellular phones and laptop computers; Cyberoptics Corp. (CYBE), laser vision
systems; and Micro Component Technology, Inc. (MCTI), a semiconductor capital
equipment company; fell into this category. Wasatch analysts believe the long-
run fundamentals of these companies are still intact and long-term earnings
growth prospects look good.
Companies in the second category had some short-term problems but their long-
term fundamentals also remained good. For example, one of our larger holdings,
National Dentex Corp. (NADX), dental laboratories, reported light earnings they
attributed to the East Coast's severe winter. People simply postponed going to
the dentist. We fully expect that National Dentex will make up the loss over the
next few quarters.
For companies in both categories, our experience has been that stock prices will
rebound as short-term problems are worked out and long-run fundamentals come
through.
OUTLOOK
Micro-Cap stocks are proving to be worthwhile investments and there appears to
be no shortage of exciting names within Micro-Cap range. We are also finding a
large number of excellent small companies that are coming public. Wasatch
expects that earnings growth for many Micro-Cap companies will average around
35% this year. We seek to purchase these companies at reasonable prices which to
us means they are selling at a price-to-earnings (P/E) multiple less than their
current growth rate.
It is our intention to control the asset size of the Fund by closing it to new
investors when it reaches $100 million in assets-a limit it is rapidly
approaching.
FIVE LARGEST STOCK HOLDINGS - AS OF MARCH 31, 1996
COMPANY INDUSTRY % OF NET ASSETS
------- -------- ---------------
Sunstone Hotel Investors,
Inc. REIT Real Estate 4.6%
BMC West Corp. Business Products 3.7%
Equity Corporation International Personal Services 3.7%
Techne Corp. Health Care Products 3.7%
Datastream Systems, Inc. Computer Software 3.7%
WASATCH GROWTH FUND
Strong earnings from the high-quality companies in the portfolio were largely
responsible for the Fund's excellent performance in the first quarter.
Investments in companies in the financial and health sectors also helped the
Fund's returns. The Growth Fund invests in high-quality, stable companies
capable of steady growth over many years. Its more conservative profile means
that it typically does not invest in classic technology stocks. While technology
stocks did exceptionally well in 1995, they tended to underperform as 1996 got
underway. The market environment continues to be favorable for the Growth Fund
and Wasatch expects many of the Fund's companies to generate earnings growth
above expectations.
During the quarter, several high-quality, stable growth companies performed
exceptionally well. Nature's Sunshine Products, Inc. (NATR), direct sales of
herbs and vitamins; Green Tree Financial Corp. (GNT), consumer and business
inventory lending; Equity Corporation International (ECII), funeral homes; and
Techne Corp. (TECH), disposable products for health care research; all
contributed positively to the Fund's performance.
We have added several new names that we believe have the potential for rapid
short-term growth as well as stable characteristics that should allow them to
produce steady long-term growth. General Nutrition Co. (GNCI), is a specialty
retailer of vitamin, mineral and sports nutrition supplements as well as
personal care, fitness and other health-related products. GNCI has an
established brand name and sells products through 2,100 stores, including 970
franchised locations, throughout the United States and 11 other countries. GNCI
is positioned to capitalize on the trend toward healthier lifestyles which is
aided, in part, by the aging of America.
Altron, Inc. (ALRN), is an electronics contract manufacturer. ALRN has contracts
with large companies that do not have the equipment or technological expertise
to manufacture in-house. This arrangement allows ALRN's customers to focus on
their core competency. Altron is a good example of the kinds of bets we are
making in technology for the Growth Fund's portfolio. Altron will enjoy the fast
growth of a typical technology company, but is not dependent on the success of a
single product. Rather, Altron represents a diversified bet on the industry as
well as the long-run trend toward outsourcing.
OUTLOOK
We don't expect many changes in the Fund from quarter to quarter. Lower turnover
of companies in the portfolio is consistent with its conservative profile.
Wasatch analysts expect portfolio companies to be on track for producing
consistent earnings growth. In addition, we are finding many new high-quality,
stable growth companies. With the first quarter behind us, 1996 continues to
look like it will be a good environment for the Fund.
FIVE LARGEST STOCK HOLDINGS - AS OF MARCH 31, 1996
COMPANY INDUSTRY % OF NET ASSETS
------- -------- ---------------
National Health Investors,
Inc. REIT Real Estate 5.7%
Franklin Quest Co. Personal Products 5.4%
WorldCom, Inc. Telecommunications 4.2%
Century Telephone Enterprises Telecommunications 4.1%
Sunstone Hotel Investors, Inc. REIT Real Estate 3.9%
WASATCH MID-CAP FUND
Shareholders should continue to expect that the short-term price fluctuations in
the performance of the Mid-Cap Fund will be greater than those of the other
Wasatch Funds. The Fund's strategy is to invest in a portfolio of rapidly
growing companies that have the potential to produce earnings growth in excess
of 25% annually. Achieving this goal is no simple task. The portfolio is
comprised of over 30 companies which means that several companies must grow well
over 25% given that others could fall short of expectations. After a long
stretch of outperformance and an exceptional year in 1995, it's not surprising
that the Fund experienced down performance for the first quarter of 1996. The
good news is that going into the second quarter of 1996, portfolio growth rates
are expected to exceed the targeted 25% range.
The Mid-Cap Fund, while not a technology Fund, has a large percentage of its
holdings in technology-related companies. Overall, technology companies grew at
astounding rates in 1995. In the first quarter of 1996, however, the earnings
growth of some technology companies was down causing the market to lose
confidence in technology stocks in general. Two Mid-Cap companies were affected
and had a significant impact on the Fund's first quarter performance. Both FTP
Software (FTPS), and Active Voice Corp. (ACVC), announced that earnings would be
substantially less than expected. In accordance with the Fund's strict
investment discipline of selling companies that lose earnings growth momentum,
we sold these securities.
Phamis, Inc. (PHAM), reported that earnings growth in the first quarter would be
somewhat less than expected due to customer delays in network startup dates.
Phamis is a small company that sells computer systems to large integrated health
care delivery networks. Wasatch analysts believe Phamis is in an excellent
position to take advantage of changes in the health care industry as it moves to
control costs through more efficient operations. We are holding the stock
because we feel that these customer-requested delays will not represent a
serious loss of earnings momentum.
The Fund's best news this quarter was Duracraft Corp. (DUCR), a manufacturer of
fans, space heaters, vaporizers, air cleaners and humidifiers. Honeywell, Inc.
acquired Duracraft and purchased all outstanding shares at a price substantially
above its current trading value.
We sold HBO & Company (HBOC), hospital information systems and networks; and
Imnet Systems, Inc. (IMNT), optical imaging systems; during the quarter because
we felt their escalating valuation had outstripped their earnings growth
potential. We decided to take advantage of the opportunity to lock in profits.
We also trimmed our positions in Parametric Technology Corp. (PTEC), high-end
design software; and Aspen Technologies, Inc. (AZPN), chemical engineering
software; due to appreciation in stock prices.
The sells and trims made room to purchase new ideas for the Mid-Cap Fund. The
weakness in technology stocks during the quarter presented Wasatch with the
opportunity to buy several companies we really like and have followed for a long
time. Previously, we felt these companies were too expensive. Legato Systems,
Inc. (LGTO), high-end network backup software; and Mercury Interactive Corp.
(MERQ), software that tests software; are two nice additions to the Fund.
Semiconductor stocks were particularly weak. This is partially due to dramatic
price declines in some commodity parts such as basic memory components. Wasatch
analysts believe Wall Street overreacted causing price declines in semiconductor
companies that sell proprietary, less-price sensitive products. Wasatch took
advantage of the weakness to purchase shares in Microchip Technology, Inc.
(MCHP), and Linear Technology Corp. (LLTC), at more reasonable prices.
We also initiated positions in several other high-quality new names that should
help broaden the Fund. General Nutrition Co. (GNCI), a leading supplier of
vitamins and nutritional supplements; Green Tree Financial Corp. (GNT), consumer
and business inventory lending; and Sanmina Corp. (SANM), contract
manufacturing; are companies with the potential to meet the Mid-Cap's rapid
growth requirements.
OUTLOOK
The aggressive nature of the Mid-Cap Fund means that there will typically be
greater highs and lows than other Wasatch Funds. We expect these swings to even
out over the long-run making the Mid-Cap Fund an excellent choice for aggressive
investors with a long time horizon. Fund investors should also expect a higher
turnover of companies in the portfolio. The nature of the Mid-Cap Fund is to
find high-quality companies capable of rapid earnings growth. Companies that
falter will most often be replaced and analysts are always looking for dynamic
new ideas.
The first quarter presented the Mid-Cap Fund with many opportunities to purchase
exciting new names. With so many names capable of producing the rapid earnings
growth we seek, we believe the Fund is well-positioned for the rest of 1996.
FIVE LARGEST STOCK HOLDINGS - AS OF MARCH 31, 1996
COMPANY INDUSTRY % OF NET ASSETS
------- -------- ---------------
WorldCom, Inc. Telecommunications 7.0%
Express Scripts, Inc., Class A Health Care Services 5.9%
Aspen Technologies, Inc. Computer Software 5.8%
Madge Networks, N.V. Communications Products 5.1%
Kent Electronics Corp. Business Services 4.2%
WASATCH INCOME FUND
The Income Fund was up slightly in the first quarter when most income funds were
down. For about a year now, we've held a relatively short maturity position.
Still, during the past 12 months the Income Fund has earned 7.5% for investors.
The short maturity of the portfolio allowed the Fund to weather the poor
performance of the bond market during the first quarter. Now that bond yields
are higher we are finding opportunities to extend the maturity of the portfolio.
Starting in April, the Income Fund will pay monthly dividends on the last market
day of the month. Previously, dividends were paid once a year. If you have any
questions regarding this change, please call Wasatch Funds at 1-800-551-1700.
OUTLOOK
With the rise in interest rates since the end of the quarter, we have extended
the maturity of the portfolio to take advantage of the higher rates that longer
maturities currently offer.
WRAPPING UP
Overall, Wasatch Funds had a solid quarter. The best advice we can give you as
Fund shareholders is to not let short-term market concerns steer you away from
your long-term investment course. Just nine months ago in this same letter we
cautioned shareholders that "markets like this are very unusual and cannot go
on forever. Our experience over the last 20 years clearly tells us that no one
can predict what will happen next quarter, next year, or over the coming five
years. What we can tell you is that if you leave your money invested in both up
and down markets you have a better chance of achieving your long-term investment
goals. Patience and discipline are the key ingredients for a successful
investment program."
Long-term investment focus goes hand-in-hand with our investment philosophy
which is to find and invest in "America's Best Growth Companies." We believe
the key to our success and the success of Fund shareholders lies in our
commitment to finding excellent companies through a consistent and disciplined
process of bottom-up, fundamental research.
Thank you for your confidence in the Wasatch Funds' family of no-load mutual
funds. If you have any questions or if we can help in any way, please call us at
1-800-551-1700. We look forward to building a long-term relationship with you.
Sincerely,
/s/ Samuel S. Stewart, Jr.
Samuel S. Stewart, Jr.
Chairman of the Board
RESULTS OF THE SHAREHOLDER MEETING
The annual meeting of the shareholders of the Funds was held on January 26,
1996. Directors elected by the shareholders at the meeting were as follows:
Samuel S. Stewart, Jr., Roy S. Jespersen, Jeffrey S. Cardon, James U. Jensen,
and William R. Swinyard.
The matters voted on by the shareholders of record as of December 8, 1995 and
the results of the shareholders' vote at the January 26, 1996 meeting were as
follows:
A. Election of Directors
FOR WITHHELD
--- --------
Samuel S. Stewart, Jr.
Aggressive Equity Fund 8,650,669 73,608
Micro-Cap Fund 11,021,473 60,523
Growth Fund 3,065,147 46,648
Mid-Cap Fund 5,579,460 42,505
Income Fund 327,104 5,858
Roy S. Jespersen
Aggressive Equity Fund 8,651,390 72,887
Micro-Cap Fund 11,023,370 58,626
Growth Fund 3,065,559 46,236
Mid-Cap Fund 5,579,840 42,124
Income Fund 327,104 5,858
Jeffrey S. Cardon
Aggressive Equity Fund 8,650,793 73,484
Micro-Cap Fund 11,022,535 59,461
Growth Fund 3,065,581 46,213
Mid-Cap Fund 5,579,830 42,135
Income Fund 327,104 5,858
James U. Jensen
Aggressive Equity Fund 8,650,520 73,757
Micro-Cap Fund 11,022,618 59,378
Growth Fund 3,065,688 46,107
Mid-Cap Fund 5,579,817 42,148
Income Fund 327,104 5,858
William R. Swinyard
Aggressive Equity Fund 8,650,680 73,597
Micro-Cap Fund 11,021,167 60,830
Growth Fund 3,065,688 46,107
Mid-Cap Fund 5,579,641 42,323
Income Fund 327,104 5,858
B. Ratification of the selection of Arthur Andersen LLP as independent
auditors for the Funds
FOR AGAINST ABSTAIN
--- ------- -------
Aggressive Equity Fund 8,572,357 51,236 100,684
Micro-Cap Fund 10,940,652 54,060 87,285
Growth Fund 3,071,930 12,799 27,066
Mid-Cap Fund 5,533,442 32,584 55,938
Income Fund 323,896 1,968 7,098
C. Approval of an amendment to the Company's Articles of Incorporation to
change the name of the Company to "Wasatch Funds, Inc."
FOR AGAINST ABSTAIN
--- ------- -------
Aggressive Equity Fund 8,614,494 36,018 73,766
Micro-Cap Fund 10,935,442 63,598 82,957
Growth Fund 3,079,517 11,452 20,826
Mid-Cap Fund 5,549,182 20,870 51,913
Income Fund 327,207 1,992 5,763
AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 96.4%
BUSINESS PRODUCTS 8.4%
294,300 American Business Information, Inc.<F4> $ 4,708,800
513,912 BMC West Corp.<F4> 8,351,070
156,300 International Imaging Materials, Inc.<F4> 2,774,325
601,700 Merfin Hygienic Products Ltd.<F4> 2,484,264
448,700 Thompson PBE, Inc.<F4> 5,945,275
------------
24,263,734
------------
BUSINESS SERVICES 8.3%
107,300 Altron, Inc.<F4> 3,125,113
259,625 Barrett Business Services, Inc.<F4> 4,543,438
85,000 FYI, Inc. 1,423,750
174,200 Kent Electronics Corp.<F4> 6,162,325
168,200 National Dentex Corp.<F4> 3,679,375
82,200 RTW, Inc.<F4> 3,041,400
72,500 Sanmina Corp. 2,156,875
------------
24,132,276
------------
COMMUNICATIONS PRODUCTS 4.0%
15,000 Digi International, Inc. 412,500
76,900 Hummingbird Communications Ltd.<F4> 2,902,975
204,900 Madge Networks, N.V.<F4> 8,221,612
------------
11,537,087
------------
COMMUNICATIONS SERVICES 1.0%
65,450 Data Transmission Network Corp.<F4> 3,010,700
------------
COMPUTER SOFTWARE 7.7%
149,200 Aspen Technologies, Inc.<F4> 6,415,600
210,650 Datastream Systems, Inc.<F4> 4,581,637
399,100 Phoenix Technologies Ltd.<F4> 5,537,513
141,800 Softkey International, Inc.<F4> 2,853,725
86,950 Synopsys, Inc.<F4> 2,782,400
------------
22,170,875
------------
COMPUTER SYSTEMS & COMPONENTS 2.6%
340,200 Active Voice Corp.<F4> 4,422,600
70,950 Digitran Systems, Inc.<F4><F5> 1
40,000 Drexler Technology Corp.<F4><F5> 412,250
138,185 Pinnacle Systems, Inc.<F4> $ 2,763,700
------------
7,598,551
------------
ELECTRONICS 1.2%
76,000 Cyberoptics Corp.<F4> 2,185,000
98,000 PCD, Inc. 1,163,750
------------
3,348,750
------------
FINANCIAL SERVICES 0.6%
168,286 World Acceptance Corp.<F4> 1,872,182
HEALTH CARE PRODUCTS 7.7%
189,450 Bio-Plexus, Inc.<F4> 1,847,138
230,675 Epitope, Inc.<F4> 3,950,309
538,916 Interpore International<F4> 2,964,038
387,706 Nature's Sunshine Products, Inc.<F4> 9,983,429
149,300 Techne Corp.<F4> 3,620,525
------------
22,365,439
------------
HEALTH CARE SERVICES 6.1%
90,600 Corvel Corp.<F4> 3,171,000
170,050 Express Scripts, Inc., Class A<F4> 7,949,838
61,700 Home Health Corp. of America<F4> 701,837
227,625 Phamis, Inc.<F4> 3,812,719
119,100 Physician Support Systems, Inc. 2,039,587
------------
17,674,981
------------
PERSONAL PRODUCTS 5.5%
521,600 Franklin Quest Co.<F4> 14,083,200
118,324 Varsity Spirit Corp.<F4> 1,863,603
------------
15,946,803
------------
PERSONAL SERVICES 2.4%
139,600 Equity Corporation International<F4> 4,118,200
143,100 Seattle Filmworks, Inc.<F4> 2,790,450
------------
6,908,650
------------
REAL ESTATE 6.0%
448,300 National Health Investors, Inc. REIT<F4> 14,569,750
265,550 Sunstone Hotel Investors, Inc. REIT<F4> 2,721,888
------------
17,291,638
------------
RETAIL 14.2%
123,850 Buckle, Inc. (The)<F4> $ 3,158,175
41,000 Dollar Tree Stores, Inc. 1,804,000
107,800 Doubletree Corp.<F4> 2,951,025
277,600 Friedman's, Inc.<F4> 5,552,000
129,300 General Nutrition Co. 3,232,500
524,390 Heilig-Meyers Co.<F4> 10,815,544
263,150 O'Reilly Automotive, Inc.<F4> 9,144,462
64,675 St. John Knits, Inc.<F4> 4,357,478
------------
41,015,184
------------
SEMICONDUCTORS 4.8%
78,300 Integrated Process Equipment Corp.<F4> 1,370,250
199,000 Lattice Semiconductor Corp.<F4> 5,646,625
383,100 Micrel, Inc.<F4> 5,459,175
7,000 Photronics, Inc. 149,188
39,800 SDL, Inc. 1,263,650
------------
13,888,888
------------
TELECOMMUNICATIONS 11.7%
400,690 Century Telephone Enterprises<F4> 12,721,892
268,650 Intercel, Inc.<F4> 6,044,625
239,590 United States Cellular Corp.<F4> 8,265,855
148,250 WorldCom, Inc.<F4> 6,819,500
------------
33,851,872
------------
TRANSPORTATION 2.0%
17,350 Arrow Transportation Co.<F4> 14,096
225,400 Expeditors International of Washington, Inc. 5,918,062
------------
5,932,158
------------
OTHER 2.2%
27,950 Interline Resources Corp.<F4> 129,268
173,600 OEA, Inc.<F4> 6,336,400
------------
6,465,668
------------
Total Common Stocks
(cost $225,930,823) 279,275,436
------------
PREFERRED STOCK 0.0%
12,500 Digitran Systems, Inc.<F5> $ 1
------------
Total Preferred Stock
(cost $95,729) 1
------------
PRINCIPAL
AMOUNT
------
CONVERTIBLE BONDS 1.3%
$1,550,000 National Health Care LP,
6.00%, 7/1/00 3,774,250
------------
Total Convertible Bonds
(cost $2,976,000) 3,774,250
------------
SHORT-TERM INVESTMENTS 3.3%
(VARIABLE RATE)
9,459,150 UMB Bank Money Market Fiduciary 9,459,150
------------
Total Short-Term Investments
(cost $9,459,150) 9,459,150
------------
Total Investments 101.0%
(cost $238,461,702) 292,508,837
Liabilities, less
Cash and Other Assets (1.0)% (2,846,587)
------------
NET ASSETS 100.0% $289,662,250
============
<F4>Non-income Producing
<F5>Restricted
See notes to financial statements.
MICRO-CAP FUND SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 86.7%
BUSINESS PRODUCTS 7.6%
148,374 BMC West Corp.<F6> $ 2,411,078
31,900 International Imaging Materials, Inc.<F6> 566,225
900 Merfin Hygienic Products Ltd.<F6> 3,716
148,200 Thompson PBE, Inc.<F6> 1,963,650
------------
4,944,669
------------
BUSINESS SERVICES 9.6%
106,275 Barrett Business Services, Inc.<F6> 1,859,812
93,000 FYI, Inc. 1,557,750
95,950 National Dentex Corp.<F6> 2,098,906
19,000 RTW, Inc.<F6> 703,000
------------
6,219,468
------------
COMMUNICATIONS SERVICES 3.1%
43,800 Data Transmission Network Corp.<F6> 2,014,800
------------
COMPUTER SOFTWARE 7.6%
31,000 Aspen Technologies, Inc.<F6> 1,333,000
109,100 Datastream Systems, Inc.<F6> 2,372,925
87,000 Phoenix Technologies Ltd.<F6> 1,207,125
------------
4,913,050
------------
COMPUTER SYSTEMS & COMPONENTS 4.8%
44,750 Active Voice Corp.<F6> 581,750
85,000 Adaptive Solutions, Inc.<F6> 403,750
51,200 Pinnacle Systems, Inc.<F6> 1,024,000
48,000 Spacetec IMC Corp.<F6> 744,000
20,000 Zoom Telephonics, Inc. 325,000
------------
3,078,500
------------
ELECTRONICS 4.5%
62,000 Cyberoptics Corp.<F6> 1,782,500
98,000 PCD, Inc. 1,163,750
------------
2,946,250
------------
FINANCIAL SERVICES 1.0%
39,500 Rockford Industries, Inc. 636,938
------------
HEALTH CARE PRODUCTS 8.8%
74,000 Epitope, Inc.<F6> $ 1,267,250
19,500 Interpore International<F6> 107,250
73,590 Nature's Sunshine Products, Inc.<F6> 1,894,942
99,050 Techne Corp.<F6> 2,401,962
------------
5,671,404
------------
HEALTH CARE SERVICES 11.1%
25,000 Core, Inc. 321,875
62,500 Corvel Corp.<F6> 2,187,500
164,700 Home Health Corp. of America<F6> 1,873,463
70,700 Phamis, Inc.<F6> 1,184,225
94,000 Physician Support Systems, Inc. 1,609,750
------------
7,176,813
------------
PERSONAL PRODUCTS 1.4%
58,987 Varsity Spirit Corp.<F6> 929,045
------------
PERSONAL SERVICES 5.4%
20,000 Ambassadors International, Inc.<F6> 220,000
80,200 Equity Corporation International<F6> 2,365,900
47,350 Seattle Filmworks, Inc.<F6> 923,325
------------
3,509,225
------------
REAL ESTATE 4.6%
289,400 Sunstone Hotel Investors, Inc. REIT<F6> 2,966,350
------------
RETAIL 9.0%
51,800 Buckle, Inc. (The)<F6> 1,320,900
119,575 Eateries, Inc.<F6> 411,039
79,700 Friedman's, Inc.<F6> 1,594,000
29,035 Harold's Stores, Inc.<F6> 471,819
57,600 O'Reilly Automotive, Inc.<F6> 2,001,600
------------
5,799,358
------------
SEMICONDUCTORS 3.9%
15,000 Integrated Measurement Systems, Inc. 234,375
141,500 Micrel, Inc.<F6> 2,016,375
71,000 Micro Component Technology, Inc.<F6> 301,750
------------
2,552,500
------------
TELECOMMUNICATIONS 3.2%
36,200 Intercel, Inc.<F6> $ 814,500
110,000 Rural Cellular Corp., Class A 1,265,000
------------
2,079,500
------------
TRANSPORTATION 1.1%
53,500 USA Truck, Inc.<F6> 722,250
------------
Total Common Stocks
(cost $49,644,088) 56,160,120
------------
PRINCIPAL
AMOUNT
------
SHORT-TERM INVESTMENTS 15.3%
(VARIABLE RATE)
$9,890,129 UMB Bank Money Market Fiduciary 9,890,129
------------
Total Short-Term Investments
(cost $9,890,129) 9,890,129
------------
Total Investments 102.0%
(cost $59,534,217) 66,050,249
Liabilities, less
Cash and Other Assets (2.0)% (1,257,649)
------------
NET ASSETS 100.0% $ 64,792,600
============
<F6>Non-income Producing
See notes to financial statements.
GROWTH FUND SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 93.7%
BUSINESS PRODUCTS 11.0%
60,000 Altron, Inc. $1,747,500
164,875 American Business Information, Inc.<F7> 2,638,000
129,200 BMC West Corp.<F7> 2,099,500
28,100 International Imaging Materials, Inc.<F7> 498,775
112,000 Thompson PBE, Inc.<F7> 1,484,000
------------
8,467,775
------------
BUSINESS SERVICES 6.9%
80,450 Kent Electronics Corp.<F7> 2,845,919
77,200 National Dentex Corp.<F7> 1,688,750
25,000 Sanmina Corp. 743,750
------------
5,278,419
------------
COMPUTER SYSTEMS & COMPONENTS 0.0%
18,100 Digitran Systems, Inc.<F7><F8> 1
------------
FINANCIAL SERVICES 6.7%
5,000 Franklin Savings Assn.<F7> 1
66,550 Green Tree Financial Corp.<F7> 2,287,656
130,489 Washington Federal, Inc.<F7> 2,838,135
------------
5,125,792
------------
HEALTH CARE PRODUCTS 6.4%
40 Cardinal Health, Inc.<F7> 2,570
86,120 Nature's Sunshine Products, Inc.<F7> 2,217,590
109,450 Techne Corp.<F7> 2,654,162
------------
4,874,322
------------
HEALTH CARE SERVICES 5.0%
40,200 Corvel Corp.<F7> 1,407,000
28,200 Express Scripts, Inc., Class A<F7> 1,318,350
66,000 Phamis, Inc.<F7> 1,105,500
------------
3,830,850
------------
PERSONAL PRODUCTS 6.5%
153,100 Franklin Quest Co.<F7> 4,133,700
54,800 Varsity Spirit Corp.<F7> 863,100
------------
4,996,800
------------
PERSONAL SERVICES 5.7%
85,300 Equity Corporation International<F7> $ 2,516,350
27,500 Loewen Group, Inc.<F7> 804,375
55,238 Seattle Filmworks, Inc.<F7> 1,077,131
------------
4,397,856
------------
REAL ESTATE 13.1%
135,000 National Health Investors, Inc. REIT<F7> 4,387,500
115,800 Oasis Residential, Inc.<F7> 2,721,300
290,400 Sunstone Hotel Investors, Inc. REIT<F7> 2,976,600
------------
10,085,400
------------
RETAIL 18.6%
103,300 Buckle, Inc. (The)<F7> 2,634,150
42,600 Doubletree Corp.<F7> 1,166,175
71,100 Friedman's, Inc.<F7> 1,422,000
64,400 General Nutrition Co. 1,610,000
115,100 Heilig-Meyers Co.<F7> 2,373,938
79,950 O'Reilly Automotive, Inc.<F7> 2,778,262
33,900 St. John Knits, Inc.<F7> 2,284,012
------------
14,268,537
------------
TELECOMMUNICATIONS 8.3%
98,638 Century Telephone Enterprises<F7> 3,131,740
70,600 WorldCom, Inc.<F7> 3,247,600
------------
6,379,340
------------
TRANSPORTATION 1.9%
55,800 Expeditors International of Washington, Inc.<F7> 1,464,750
------------
OTHER 3.6%
67,500 OEA, Inc.<F7> 2,463,750
10,000 Speedway Motorsports, Inc. 282,500
------------
2,746,250
------------
Total Common Stocks
(cost $59,282,589) 71,916,092
------------
WARRANTS 0.0%
1 Cherokee, Inc., Series C $ 1
------------
Total Warrants
(cost $6) 1
------------
PRINCIPAL
AMOUNT
CONVERTIBLE BONDS 3.2%
$1,030,000 National Healthcare LP,
6.00%, 7/1/00 2,508,050
------------
Total Convertible Bonds
(cost $2,046,698) 2,508,050
------------
SHORT-TERM INVESTMENTS 5.4%
(VARIABLE RATE)
4,141,723 UMB Bank Money Market Fiduciary 4,141,723
------------
Total Short-Term Investments
(cost $4,141,723) 4,141,723
------------
Total Investments 102.3%
(cost $65,471,015) 78,565,866
Liabilities, less
Cash and Other Assets (2.3)% (1,795,316)
------------
NET ASSETS 100.0% $ 76,770,550
============
<F7>Non-income Producing
<F8>Restricted
See notes to financial statements.
MID-CAP SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 90.9%
BUSINESS SERVICES 11.4%
199,657 Altron, Inc.<F9> $ 5,815,010
214,400 Kent Electronics Corp.<F9> 7,584,400
91,300 RTW, Inc.<F9> 3,378,100
130,000 Sanmina Corp. 3,867,500
------------
20,645,010
------------
COMMUNICATIONS PRODUCTS 7.9%
48,700 Digi International, Inc. 1,339,250
101,000 Hummingbird Communications Ltd.<F9> 3,812,750
228,850 Madge Networks, N.V.<F9> 9,182,606
------------
14,334,606
------------
COMPUTER SOFTWARE 20.1%
245,975 Aspen Technologies, Inc.<F9> 10,576,925
53,000 Legato Systems, Inc. 2,000,750
231,200 Mercury Interactive Corp. 3,699,200
111,200 Parametric Technology Corp.<F9> 4,350,700
421,150 Phoenix Technologies Ltd.<F9> 5,843,456
313,400 Softkey International, Inc.<F9> 6,307,175
108,800 Synopsys, Inc.<F9> 3,481,600
49,000 Touchstone Software Corp.<F9> 263,375
------------
36,523,181
------------
COMPUTER SYSTEMS & COMPONENTS 3.5%
124,500 Adaptive Solutions, Inc.<F9> 591,375
85,000 Drexler Technology Corp.<F9><F10> 876,031
248,300 Pinnacle Systems, Inc.<F9> 4,966,000
------------
6,433,406
------------
FINANCIAL SERVICES 3.2%
170,000 Green Tree Financial Corp.<F9> 5,843,750
------------
HEALTH CARE PRODUCTS 3.4%
239,250 Nature's Sunshine Products, Inc.<F9> 6,160,688
------------
HEALTH CARE SERVICES 8.2%
229,725 Express Scripts, Inc., Class A<F9> 10,739,644
246,200 Phamis, Inc.<F9> 4,123,850
------------
14,863,494
------------
RETAIL 6.2%
174,000 Friedman's, Inc.<F9> $ 3,480,000
165,000 General Nutrition Co. 4,125,000
104,850 O'Reilly Automotive, Inc.<F9> 3,643,538
------------
11,248,538
------------
SEMICONDUCTORS 13.2%
34,500 Altera Corp. 1,927,687
150,000 Atmel Corp.<F9> 3,825,000
153,100 Integrated Process Equipment Corp.<F9> 2,679,250
194,200 Lattice Semiconductor Corp.<F9> 5,510,425
74,100 Linear Technology Corp. 3,093,675
223,600 Micrel, Inc.<F9> 3,186,300
95,000 Microchip Technology, Inc. 2,612,500
33,000 SDL, Inc. 1,047,750
------------
23,882,587
------------
TELECOMMUNICATIONS 12.8%
213,500 Intercel, Inc.<F9> 4,803,750
171,170 United States Cellular Corp.<F9> 5,905,365
272,638 WorldCom, Inc.<F9> 12,541,348
------------
23,250,463
------------
OTHER 1.0%
50,700 OEA, Inc.<F9> 1,850,550
------------
Total Common Stocks
(cost $146,567,825) 165,036,273
------------
SHORT-TERM INVESTMENTS 10.9%
(VARIABLE RATE)
$19,873,635 UMB Bank Money Market Fiduciary $ 19,873,635
------------
Total Short-Term Investments
(cost $19,873,635) 19,873,635
------------
Total Investments 101.8%
(cost $166,441,460) 184,909,908
Liabilities, less
Cash and Other Assets (1.8)% (3,277,856)
------------
NET ASSETS 100.0% $181,632,052
============
<F9>Non-income Producing
<F10>Restricted
See notes to financial statements.
INCOME FUND SCHEDULE OF INVESTMENTS
MARCH 31, 1996 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
------ -----
CORPORATE BONDS 0.5%
$ 25,000 Illinois Bell Telephone Co.,
8.50%, 4/22/26 $ 26,063
------------
Total Corporate Bonds
(cost $26,232) 26,063
------------
U.S. GOVERNMENT OBLIGATIONS 90.7%
2,730,000 U.S. Treasury Bill,
0.00%, 5/9/96 2,714,019
2,000,000 U.S. Treasury Bill,
0.00%, 9/5/96 1,955,022
350,000 U.S. Treasury Note,
9.375%, 2/15/06 425,579
------------
Total U.S. Government Obligations
(cost $5,069,656) 5,094,620
------------
SHORT-TERM INVESTMENTS 9.2%
(VARIABLE RATE)
516,805 UMB Bank Money Market Fiduciary 516,805
------------
Total Short-Term Investments
(cost $516,805) 516,805
------------
Total Investments 100.4%
(cost $5,612,692) 5,637,488
Liabilities, less
Cash and Other Assets (0.4)% (24,418)
------------
NET ASSETS 100.0% $ 5,613,070
============
See notes to financial statements.
<TABLE>
<CAPTION>
WASATCH FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996 (UNAUDITED)
AGGRESSIVE
EQUITY MICRO-CAP GROWTH MID-CAP INCOME
FUND FUND FUND FUND FUND
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at market value
Nonaffiliated issuers (cost $212,677,300,
$59,534,217, $65,471,015, $166,441,460 and
$5,612,692, respectively) $267,146,479 $66,050,249 $78,565,866 $184,909,908 $5,637,488
Affiliated issuers (cost $25,784,402, $0, $0,
$0, and $0, respectively) 25,362,358 -- -- -- --
Cash 69,344 350,623 -- 717,478 14,028
Receivable for investment securities sold 433,239 749,677 -- 261,044 --
Interest and dividends receivable 357,859 26,515 118,759 102,463 9,096
Prepaid expenses and other assets 46,647 23,851 27,033 43,983 11,196
Receivable from adviser -- 11,460 -- -- 6,417
----------- ---------- ---------- ----------- ----------
Total Assets 293,415,926 67,212,375 78,711,658 186,034,876 5,678,225
----------- ---------- ---------- ----------- ----------
LIABILITIES:
Payable for securities purchased 3,437,981 2,355,273 1,704,514 4,294,366 --
Accrued investment advisory fee 86,332 38,245 22,420 67,764 3,010
Dividend payable -- -- -- -- 57,432
Accrued expenses 229,363 26,257 214,174 40,694 4,713
----------- ---------- ---------- ----------- ----------
Total Liabilities 3,753,676 2,419,775 1,941,108 4,402,824 65,155
----------- ---------- ---------- ----------- ----------
NET ASSETS $289,662,250 $64,792,600 $76,770,550 $181,632,052 $5,613,070
=========== ========== ========== =========== ==========
NET ASSETS CONSIST OF:
Capital stock $ 11,754 $ 21,830 $ 4,409 $ 9,936 $ 552
Paid-in-capital in excess of par 234,306,385 57,387,403 63,637,107 167,903,971 5,673,849
Undistributed net realized gain (loss)
on investments 1,296,976 867,335 34,183 (4,750,303) (86,127)
Net unrealized appreciation on investments 54,047,135 6,516,032 13,094,851 18,468,448 24,796
----------- ---------- ---------- ----------- ----------
Net Assets $289,662,250 $64,792,600 $76,770,550 $181,632,052 $5,613,070
=========== ========== ========== =========== ==========
CAPITAL STOCK, $.001 PAR VALUE:
Authorized 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000
Issued and outstanding 11,753,861 21,829,326 4,409,272 9,936,012 551,808
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $24.64 $2.97 $17.41 $18.28 $10.17
=========== ========== ========== =========== ==========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AGGRESSIVE
EQUITY MICRO-CAP GROWTH MID-CAP INCOME
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 261,325 $ 172,313 $ 137,151 $ 531,532 $139,103
Dividends 1,005,752<F11> 74,805 432,131<F12> 24,132 --
----------- ---------- ---------- ----------- ----------
1,267,077 247,118 569,282 555,664 139,103
----------- ---------- ---------- ----------- ----------
EXPENSES:
Investment advisory fee 1,427,853 449,289 316,195 855,876 12,384
Shareholder servicing 316,822 48,894 46,689 108,211 4,629
Fund administration and accounting fees 212,307 33,389 47,007 101,776 3,683
Federal and state registration fees 27,748 13,243 14,730 26,677 10,282
Custody fees 42,347 8,976 7,628 15,929 640
Reports to shareholders 69,857 13,426 14,983 33,049 1,301
Audit fees 8,229 2,659 2,408 3,264 1,266
Legal fees 9,089 1,627 2,164 2,202 557
Other 4,809 814 265 1,573 57
Directors' fees 3,471 469 676 1,420 46
Pricing 1,489 927 803 752 241
----------- ---------- ---------- ----------- ----------
Total expenses before reimbursement 2,124,021 573,713 453,548 1,150,729 35,086
Reimbursement of expenses by advisor -- (11,460) -- -- (10,324)
----------- ---------- ---------- ----------- ----------
Net expenses 2,124,021 562,253 453,548 1,150,729 24,762
----------- ---------- ---------- ----------- ----------
NET INVESTMENT (LOSS) INCOME (856,944) (315,135) 115,734 (595,065) 114,341
----------- ---------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAIN:
Net realized gain (loss) on investments 6,049,596 868,088 506,097 (3,811,681) --
Change in unrealized appreciation
on investments (3,557,190) 4,808,176 6,985,120 6,443,232 (14,426)
----------- ---------- ---------- ----------- ----------
Net gain on investments 2,492,406 5,676,264 7,491,217 2,631,551 (14,426)
----------- ---------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $1,635,462 $5,361,129 $7,606,951 $2,036,486 $ 99,915
=========== ========== ========== =========== ==========
<FN>
<F11> Net of $375 in foreign withholding taxes.
<F12> Net of $206 in foreign withholding taxes.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
AGGRESSIVE EQUITY FUND MICRO-CAP FUND GROWTH FUND
---------------------- -------------- -----------
SIX MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED MARCH 31, 1996 JUNE 19, 1995<F13> MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPT. 30, 1995 (UNAUDITED) TO SEPT. 30, 1995 (UNAUDITED) SEPT. 30, 1995
----------- -------------- ----------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment (loss) income $ (856,944) $ (529,243) $ (315,135) $ (19,989) $ 115,734 $ 57,262
Net realized (loss) gain on
investments 6,049,596 2,696,275 868,088 (753) 506,097 736,267
Change in unrealized
appreciation/
depreciation on investments (3,557,190) 54,953,184 4,808,176 1,707,856 6,985,120 6,268,326
----------- ----------- ----------- ----------- ---------- ----------
Net increase in net
assets resulting
from operations 1,635,462 57,120,216 5,361,129 1,687,114 7,606,951 7,061,855
----------- ----------- ----------- ----------- ---------- ----------
DIVIDENDS PAID FROM:
Net investment income -- -- -- -- (190,396) --
Net realized gains (6,568,917) (4,403,597) -- -- (1,105,143) (2,878,781)
----------- ----------- ----------- ----------- ---------- ----------
(6,568,917) (4,403,597) -- -- (1,295,539) (2,878,781)
----------- ----------- ----------- ----------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Shares sold 36,728,812 246,050,188 48,581,816 24,358,929 38,332,377 40,273,774
Shares issued to holders in
reinvestment of dividends 6,096,326 4,262,844 -- -- 1,219,162 2,805,588
----------- ----------- ----------- ----------- ---------- ----------
42,825,138 250,313,032 48,581,816 24,358,929 39,551,539 43,079,362
Shares redeemed (53,540,462) (44,087,768) (14,518,486) (677,902) (22,625,866) (4,947,865)
----------- ----------- ----------- ----------- ---------- ----------
Net (decrease) increase (10,715,324) 206,225,264 34,063,330 23,681,027 16,925,673 38,131,497
----------- ----------- ----------- ----------- ---------- ----------
TOTAL (DECREASE) INCREASE IN
NET ASSETS (15,648,779) 258,941,883 39,424,459 25,368,141 23,237,085 42,314,571
NET ASSETS:
Beginning of period 305,311,029 46,369,146 25,368,141 -- 53,533,465 11,218,894
----------- ----------- ----------- ----------- ---------- ----------
End of period $289,662,250 $305,311,029 $64,792,600 $25,368,141 $76,770,550 $53,533,465
=========== =========== =========== =========== ========== ==========
Undistributed net
investment income
included in net assets
at end of period -- -- -- -- -- $ 57,262
=========== =========== =========== =========== ========== ==========
<FN>
<F13> Commencement of operations.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
MID-CAP FUND INCOME FUND
------------ -----------
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED MARCH 31, 1996 YEAR ENDED
(UNAUDITED) SEPTEMBER 30, 1995 (UNAUDITED) SEPTEMBER 30, 1995
----------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment (loss) income $ (595,065) $ (135,323) $ 114,341 $ 198,688
Net realized (loss) gain on
investments (3,811,681) 417,714 -- (35,783)
Change in unrealized appreciation/
depreciation on investments 6,443,232 12,017,873 (14,426) 167,864
------------ ----------- ---------- ---------
Net increase in net assets resulting
from operations 2,036,486 12,300,264 99,915 330,769
------------ ----------- ---------- ---------
DIVIDENDS PAID FROM:
Net investment income -- -- (265,893) (183,919)
Net realized gains (1,324,009) (2,697) -- --
------------ ----------- ---------- ---------
(1,324,009) (2,697) (265,893) (183,919)
------------ ----------- ---------- ---------
CAPITAL SHARE TRANSACTIONS:
Shares sold 137,317,830 93,354,746 2,603,035 1,362,975
Shares issued to holders in
reinvestment of dividends 1,239,599 2,678 198,606 179,666
------------ ----------- ---------- ---------
138,557,429 93,357,424 2,801,641 1,542,641
Shares redeemed (56,243,331) (8,140,574) (1,057,816) (904,145)
------------ ----------- ---------- ---------
Net increase 82,314,098 85,216,850 1,743,825 638,496
------------ ----------- ---------- ---------
TOTAL INCREASE IN NET ASSETS 83,026,575 97,514,417 1,577,847 785,346
NET ASSETS:
Beginning of period 98,605,477 1,091,060 4,035,223 3,249,877
------------ ----------- ---------- ---------
End of period $181,632,052 $98,605,477 $ 5,613,070 $4,035,223
============ =========== ========== =========
Undistributed net investment income
included in net assets at end of
period -- -- $ 57,432 $ 151,554
============ =========== ========== =========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
FINANCIAL HIGHLIGHTS
AGGRESSIVE EQUITY FUND
----------------------
SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1995 1994 1993 1992 1991 1990
----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $25.00 $19.96 $19.75 $15.23 $16.42 $ 9.77 $10.92
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment (loss) income (0.12) (0.04) (0.02) (0.09) (0.03) (0.04) 0.01
Net realized and unrealized
gains (losses) on securities 0.30 6.59 1.33 5.40 (0.26) 6.69 (1.16)
------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.18 6.55 1.31 5.31 (0.29) 6.65 (1.15)
Less distributions:
Dividends from net investment income -- -- -- -- -- -- --
Distributions from capital gains (0.54) (1.51) (1.10) (0.79) (0.90) -- --
------ ------ ------ ------ ------ ------ ------
Total distributions (0.54) (1.51) (1.10) (0.79) (0.90) -- --
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period $24.64 $25.00 $19.96 $19.75 $15.23 $16.42 $9.77
====== ====== ====== ====== ====== ====== ======
Total return<F15> 0.83% 35.19% 6.85% 35.73% (2.30)% 68.07% (10.53)%
Supplemental data and ratios:
Net assets, end of
period (in thousands) $289,662 $305,311 $46,369 $23,293 $12,542 $7,588 $2,767
Ratio of expenses to average
net assets<F15><F16> 1.48% 1.47% 1.50% 1.50% 1.51% 1.51% 1.56%
Ratio of net (loss) income to average
net assets<F16> (0.60)% (0.37)% (0.67)% (0.77)% (0.41)% (0.36)% 0.08%
Portfolio turnover rate 37% 29% 64% 70% 32% 41% 74%
Average commission rate paid on portfolio
investment transactions $0.0500 -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
FINANCIAL HIGHLIGHTS (CONT'D)
AGGRESSIVE EQUITY FUND (CONT'D.) MICRO-CAP FUND
-------------------------------- --------------
YEAR ENDED DEC. 6, 1986<F14> SIX MONTHS ENDED JUNE 19, 1995<F14>
SEPTEMBER 30, THROUGH MARCH 31, 1996 THROUGH
1989 1988 SEPT. 30, 1987 (UNAUDITED) SEPT. 30, 1995
---- ---- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.07 $11.76 $10.00 $2.72 $2.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment (loss) income (0.01) 0.03 0.02 (0.02) --
Net realized and unrealized
gains (losses) on securities 1.91 (1.66) 1.74 0.27 0.72
------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.90 (1.63) 1.76 0.25 0.72
LESS DISTRIBUTIONS:
Dividends from net investment income (0.05) (0.01) -- -- --
Distributions from capital gains -- (1.05) -- -- --
------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (1.06) -- -- --
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.92 $ 9.07 $11.76 $ 2.97 $ 2.72
====== ====== ====== ====== ======
TOTAL RETURN<F15> 21.09% (13.17)% 17.60% 9.19% 36.00%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $1,191 $833 $1,266 $64,793 $25,368
Ratio of expenses to average net assets<F15><F16> 1.50% 1.50% 1.26% 2.50% 2.50%
Ratio of net (loss) income to average
net assets<F16> (0.12)% 0.30% 0.16% (1.40)% (0.76)%
Portfolio turnover rate 82% 71% 58% 35% 0%
Average commission rate paid on portfolio
investment transactions -- -- -- $0.0450 --
<FN>
<F14> Commencement of operations
<F15> Not annualized for periods less than a year
<F16> Net of reimbursements by advisor. Absent reimbursement of expenses by advisor, except for the six months ended March 31, 1996
and the year ended September 30, 1995 where there were no reimbursements, the ratio of expenses to average net assets would be
1.52%, 1.64%, 1.69%, 1.67% and 1.75%, respectively, and the ratio of net income (loss) to average net assets would be (0.69)%,
(0.92)%, (0.59)%, (0.52)% and (0.27)%, respectively.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WASATCH FUNDS
FINANCIAL HIGHLIGHTS
GROWTH FUND
-----------
SIX MONTHS ENDED DEC. 6, 1986<F17>
MARCH 31, 1996 YEAR ENDED SEPTEMBER 30, THROUGH
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 SEPT. 30, 1987
----------- ---- ---- ---- ---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $15.97 $15.30 $15.68 $13.64 $15.01 $10.73 $11.39 $ 9.48 $11.47 $10.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) 0.03 0.02 (0.14) (0.08) (0.02) 0.08 0.10 0.13 0.10 0.01
Net realized and unrealized
gains (losses) on securities 1.75 4.59 0.71 3.21 (0.45) 5.16 (0.65) 1.89 (1.67) 1.46
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 1.78 4.61 0.57 3.13 (0.47) 5.24 (0.55) 2.02 (1.57) 1.47
LESS DISTRIBUTIONS:
Dividends from net
investment income (0.05) -- -- -- (0.04) (0.16) (0.11) (0.11) (0.02) --
Distributions from capital gains (0.29) (3.94) (0.95) (1.09) (0.86) (0.80) -- -- (0.40) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.34) (3.94) (0.95) (1.09) (0.90) (0.96) (0.11) (0.11) (0.42) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $17.41 $15.97 $15.30 $15.68 $13.64 $15.01 $10.73 $11.39 $9.48 $11.47
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN<F18> 11.36% 39.76% 3.75% 23.57% (3.61)% 51.90% (4.82)% 21.60% (13.39)% 14.70%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of
period (in thousands) $76,771 $53,533 $11,219 $17,619 $14,243 $11,651 $4,574 $3,378 $2,605 $2,699
Ratio of expenses to
average net assets<F18><F19> 1.43% 1.50% 1.50% 1.50% 1.49% 1.51% 1.87% 1.50% 1.50% 1.25%
Ratio of net income (loss)
to average
net assets<F19> 0.36% 0.29% (0.51)% (0.55)% 0.15% 0.51% 1.45% 1.37% 1.21% 0.18%
Portfolio turnover rate 24% 88% 163% 104% 40% 37% 69% 63% 88% 50%
Average commission rate
paid on portfolio
investment transactions $0.0450 -- -- -- -- -- -- -- -- --
<FN>
<F17>Commencement of operations
<F18>Not annualized for periods less than a year
<F19>Net of reimbursements by advisor. Absent reimbursement of expenses by advisor, except for the six months ended March 31, 1996
where there were no reimbursements, the ratio of expenses to average net assets would be 1.58%, 1.64%, 1.61%, 1.67%, 1.66%, 2.02%,
1.89%, 1.91% and 1.37%, respectively, and the ratio of net income (loss) to average net assets would be 0.21%, (0.64)%, (0.66)%,
(0.03)%, 0.36%, 1.29%, 0.96%, 0.80% and 0.06%, respectively.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION> MID-CAP FUND
------------
SIX MONTHS ENDED AUG. 16, 1992<F20>
MARCH 31, 1996 YEAR ENDED SEPTEMBER 30, THROUGH
(UNAUDITED) 1995 1994 1993 SEPT. 30, 1992
----------- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $18.61 $11.02 $10.51 $9.93 $ 10.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment (loss) income (0.07) (0.02) (0.27) (0.07) --
Net realized and unrealized
(losses) gains on securities (0.07) 7.64 0.78 0.65 (0.07)
-------- ------- ------ ------- -------
TOTAL FROM INVESTMENT OPERATIONS (0.14) 7.62 0.51 0.58 (0.07)
LESS DISTRIBUTIONS:
Dividends from net investment income -- -- -- -- --
Distributions from capital gains (0.19) (0.03) -- -- --
-------- ------- ------ ------- -------
TOTAL DISTRIBUTIONS (0.19) (0.03) -- -- --
-------- ------- ------ ------- -------
NET ASSET VALUE, END OF PERIOD $18.28 $18.61 $11.02 $10.51 $9.93
======== ======= ====== ====== =======
TOTAL RETURN(F21> (0.75)% 69.24% 4.85% 5.85% (0.70)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $181,632 $98,605 $1,091 $2,451 $148
Ratio of expenses to average
net assets<F21><F22> 1.68% 1.75% 1.75% 1.74% 1.56%
Ratio of net (loss) income to average
net assets<F22> (0.87)% (0.71)% (1.19)% (0.86)% (0.38)%
Portfolio turnover rate 41% 46% 213% 113% 40%
Average commission rate paid on portfolio
investment transactions $0.0464 -- -- -- --
<FN>
<F20>Commencement of operations
<F21>Not annualized for periods less than a year
<F22>Net of reimbursements by advisor. Absent reimbursement of expenses by advisor, except for the six months ended March 31, 1996
where there were no reimbursements, the ratio of expenses to average net assets would be 1.94%, 3.33%, 2.69% and 7.65%,
respectively, and the ratio of net loss to average net assets would be (0.90)%, (2.76)%, (1.81)% and (6.47)%, respectively.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION> INCOME FUND
-----------
SIX MONTHS ENDED
MARCH 31, 1996 YEAR ENDED SEPTEMBER 30,
(UNAUDITED) 1995 1994 1993
----------- ---- ---- ----
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.50 $10.09 $10.42 $11.17
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) 0.16 0.56 0.55 0.55
Net realized and unrealized gains (losses)
on securities 0.06 0.44 (0.40) (0.17)
------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.22 1.00 0.15 0.38
LESS DISTRIBUTIONS:
Dividends from net investment income (0.55) (0.59) (0.46) (0.53)
Distributions from capital gains -- -- (0.02) (0.60)
------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.55) (0.59) (0.48) (1.13)
------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.17 $10.50 $10.09 $10.42
====== ====== ====== ======
TOTAL RETURN<F24> 2.16% 10.46% 1.51% 3.80%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (in thousands) $5,613 $4,035 $3,250 $3,748
Ratio of expenses to average net
assets<F24><F25> 1.00% 1.00% 1.00% 1.00%
Ratio of net income (loss) to average
net assets<F25> 4.60% 5.88% 5.15% 4.60%
Portfolio turnover rate -- 43% 45% 46%
</TABLE>
<TABLE>
<CAPTION>
INCOME FUND (CONT'D)
--------------------
DEC. 6, 1986<F23>
YEAR ENDED SEPTEMBER 30, THROUGH
1992 1991 1990 1989 1988 SEPT. 30, 1987
---- ---- ---- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.14 $10.13 $10.61 $10.64 $10.19 $10.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income (loss) (0.03) 0.58 0.69 1.25 0.81 0.39
Net realized and unrealized
gains (losses) on securities 0.94 1.24 (0.19) (0.06) 0.25 (0.20)
------ ------ ------ ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.91 1.82 0.50 1.19 1.06 0.19
LESS DISTRIBUTIONS:
Dividends from net investment income (0.56) (0.81) (0.69) (1.22) (0.61) --
Distributions from capital gains (0.32) -- (0.29) -- -- --
------ ------ ------ ------ ------ ------
TOTAL DISTRIBUTIONS (0.88) (0.81) (0.98) (1.22) (0.61) --
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.17 $11.14 $10.13 $10.61 $10.64 $10.19
====== ====== ====== ====== ====== ======
TOTAL RETURN<F24> 8.44% 18.74% 4.87% 12.50% 10.84% 1.90%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of
period (in thousands) $5,234 $3,540 $1,771 $1,119 $816 $504
Ratio of expenses to average
net assets<F24><F25> 1.00% 1.01% 1.32% 0.99% 0.95% 0.94%
Ratio of net income (loss) to average
net assets<F25> 4.90% 6.79% 10.00% 8.25% 8.47% 5.97%
Portfolio turnover rate 95% 66% 71% 29% 30% --
<FN>
<F23>Commencement of operations
<F24>Not annualized for the period ended September 30, 1987
<F25>Net of reimbursements by advisor. Absent reimbursement of expenses by advisor, the ratio of expenses to average net assets
would be 1.41%, 1.59%, 1.39%, 1.35%, 1.20%, 1.20%, 1.57%, 1.42%, 1.35% and 1.20%, respectively, and the ratio of net income to
average net assets would be 4.19%, 5.29%, 4.76%, 4.24%, 4.71%, 6.59%, 9.75%, 7.82%, 8.06% and 5.70%, respectively.
See notes to financial statements.
</TABLE>
WASATCH FUNDS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
1. ORGANIZATION
Wasatch Funds, Inc.(1) was incorporated on November 18, 1986 under the laws of
the State of Utah and is registered under the Investment Company Act of 1940 as
an open-end management investment company. The Aggressive Equity, Micro-Cap and
Mid-Cap Funds are non-diversified portfolios and the Growth and Income Funds are
diversified portfolios of Wasatch Funds, Inc. The Aggressive Equity Fund,
Growth Fund and Income Fund commenced operations on December 6, 1986. The Mid-
Cap Fund commenced operations on August 16, 1992 and the Micro-Cap Fund
commenced operations on June 19, 1995. The Aggressive Equity, Micro-Cap,
Growth, Mid-Cap and Income Funds (the "Funds") have entered into an investment
advisory agreement with Wasatch Advisors, Inc. (the "Manager") as investment
advisor.
Wasatch Funds, Inc. is authorized to issue 100,000,000 shares of Series A
common stock (Aggressive Equity Fund), 100,000,000 shares of Series B common
stock (Growth Fund), 100,000,000 shares of Series C common stock (Income Fund),
100,000,000 shares of Series D common stock (Mid-Cap Fund) and 100,000,000
shares of Series E common stock (Micro-Cap Fund) all with a par value of $.001
per share.
2. SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Funds conform to generally
accepted accounting principles. The following is a summary of the more
significant of such policies.
A) VALUATION OF SECURITIES - Securities listed or admitted for trading
privileges on the New York Stock Exchange or the American Stock Exchange are
valued at the closing price on the exchange on which the security is traded.
Securities traded in the over-the-counter market are valued at the last sales
price or, if no sales occurred on the valuation date, at the last available bid
price in the over-the-counter market or on the basis of yield equivalents as
obtained from one or more dealers that make markets in these securities. Short-
term securities are valued at either original cost or amortized cost, both of
which approximate current market value. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Funds.
B) INVESTMENT IN SECURITIES - Security transactions are accounted for on the
trade date plus one. Gain or loss from sale of investment securities is
computed on the identified cost basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
(1) Formerly Wasatch Advisors Funds, Inc.
C) 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 of their taxable income to their
shareholders.
D) EXPENSES - The Funds are charged for those expenses that are directly
attributable to it, such as advisory and custodian fees. Expenses that are not
directly attributable to a portfolio are allocated among the portfolios in
proportion to their respective net assets.
3. DISTRIBUTIONS
Dividends from net investment income are declared and paid annually.
Distributions of net realized gains, if any, will be declared at least annually.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income tax
regulations, which may differ from generally accepted accounting principles. To
the extent these book and tax differences are permanent in nature, such amounts
are reclassified to paid-in capital in excess of par value.
4. CAPITAL STOCK
Transactions in shares of capital stock were as follows:
Six Months ended March 31, 1996
Aggressive
Equity Micro-Cap Growth Mid-Cap Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Shares sold 1,555,936 17,741,120 2,416,597 7,730,759 249,977
Shares issued to
holders in
reinvestment of
dividends 257,555 -- 76,725 68,486 19,433
Shares redeemed (2,271,914) (5,245,592) (1,435,562) (3,160,830) (101,760)
----------- ----------- ----------- ----------- ---------
Net increase (458,423) 12,495,528 1,057,760 4,638,415 167,650
=========== =========== =========== =========== =========
Period ended September 30, 1995
Aggressive
Equity Micro-Cap Growth Mid-Cap Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Shares sold 11,583,792 9,592,412 2,724,508 5,698,649 132,150
Shares issued to
holders in
reinvestment of
dividends 223,654 -- 241,652 230 18,774
Shares redeemed (1,917,750) (258,614) (347,867) (500,319) (88,885)
----------- ----------- ----------- ----------- ---------
Net increase 9,889,696 9,333,798 2,618,293 5,198,560 62,039
=========== =========== =========== =========== =========
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding U.S. Government and
short-term securities, for the six months ended March 31, 1996 are summarized
below:
Aggressive
Equity Micro-Cap Growth Mid-Cap Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Purchases $102,421,220 $43,534,566 $34,931,313 $127,929,816 --
Sales 117,757,461 13,842,007 14,061,026 50,523,160 --
There were no purchases of U.S. Government securities in the Funds. Sales of
U.S. Government securities occurred only in the Income Fund and were $400,000.
Net gain or loss on securities sold is determined on the identified cost basis
which is the same as that used for federal income tax reporting.
As of March 31, 1996, gross unrealized appreciation and depreciation for
federal income tax purposes were as follows:
Aggressive
Equity Micro-Cap Growth Mid-Cap Income
Fund Fund Fund Fund Fund
---- ---- ---- ---- ----
Unrealized
appreciation $64,591,321 $9,053,855 $14,183,871 $27,982,352 $29,899
Unrealized
depreciation (10,544,186) (2,537,823) (1,089,020) (9,513,904) (5,103)
----------- ----------- ----------- ----------- ---------
Net unrealized
appreciation $54,047,135 $6,516,032 $13,094,851 $18,468,448 $24,796
=========== =========== =========== =========== =========
6. INVESTMENT ADVISORY
The investment policies of the Funds and the management of the Funds'
portfolios are administered by the Manager. The Manager paid for the Funds'
office space, facilities and certain business equipment in addition to those
provided by the Funds' custodian, administrator and transfer agent. The Manager
also compensates all officers and directors of the Funds, provided such persons
are also employees of the Manager or its affiliates. For the six months ended
March 31, 1996, management fees for the Aggressive Equity Fund, Micro-Cap Fund,
Growth Fund, Mid-Cap Fund and Income Fund were 1.0%, 2.0%, 1.0%, 1.25% and 0.5%
of the daily net assets of each portfolio, respectively. The Manager
voluntarily agreed to reimburse its management fee to the extent that total
expenses exceeded 1.5% of the net assets of the Aggressive Equity Fund, 2.5% of
the net assets of the Micro-Cap Fund, 1.5% of the net assets of the Growth Fund,
1.75% of the net assets of the Mid-Cap Fund, and 1.0% of the net assets of the
Income Fund computed on a daily basis. For the six months ended March 31, 1996,
the Manager reimbursed $11,460 for the Micro-Cap Fund and $10,324 for the Income
Fund.
7. RESTRICTED SECURITIES
Each Fund may invest up to 5% of its total assets or 10% of its net assets in
securities which cannot be readily sold because of legal or contractual
restrictions. At the end of the fiscal year, the Aggressive Equity and Mid-Cap
Funds held the securities of Drexler Technology Corp. (DRXR), a restricted
security, valued at 0.1% and 0.5% of total Fund assets, respectively.
Registration of these securities is currently pending. The security is
currently valued at a discount to market.
The following table summarizes Wasatch Funds' holdings in DRXR:
Fund Acquisition Date Value Cost
---- ---------------- ----- ----
Aggressive Equity Fund 12/27/94 $412,250 $160,000
Mid-Cap Fund 12/27/94 103,062 40,000
Mid-Cap Fund 6/30/95 772,969 300,000
8. TRANSACTIONS WITH AFFILIATES
The following is an analysis of transactions for the six months ended March
31, 1996 in the Aggressive Equity Fund with "affiliated companies" as defined
by the Investment Company Act of 1940:
<TABLE>
<CAPTION>
Amount of
Amount of Gain (Loss)
Dividends Realized on
Share Activity Credited to Sale of
------------------------------------------------------- Income for the Shares for the
Balance Balance Six Months ended Six Months ended
Security Name 9/30/95 Purchases Sales 3/31/96 3/31/96 3/31/96
- ------------- ------- --------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Active Voice Corp. 110,800 229,400 -- 340,200 -- --
BMC West Corp. 316,812 197,100 -- 513,912 -- --
Children's Discovery
Centers of
America, Inc. 492,200 -- 492,200 -- -- (5,173,101)
Interpore
International 562,416 -- 23,500 538,916 -- (100,938)
Mity-Lite, Inc. 157,120 -- 157,120 -- -- (207,166)
National Dentex
Corp. 178,200 7,000 17,000 168,200 -- 91,670
Thompson PBE, Inc. -- 463,700 15,000 448,700 -- (54,650)
</TABLE>
