Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
January 30, 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 Funds and pursuant to Rule 30b2-1 and Section 24(b) under the
Investment Company Act of 1940, as amended, we hereby file a Quarterly Report to
shareholders for the period ended December 31, 1995.
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.
Wasatch Funds
Quarterly Report
December 31, 1995
Wasatch Funds
68 South Main Street
Salt Lake City, Utah 84101
(800) 551-1700
Letter from the Investment Advisor
December 31, 1995
Dear Shareholder:
Overview
Some years are harder to say good-bye to than others. 1995 was one of those
years. Shareholders and investment advisors alike have found it difficult to bid
1995 farewell and will fondly remember it as a great year for stocks. To give
you an idea of the 1995 stock market performance, the Dow Jones Industrial
Average surged 33%, the S&P 500 climbed over 37% and the now large-cap, high
technology-laden Nasdaq soared nearly 40% for the year. The Russell 2000 small-
cap benchmark gained over 28% and the equally weighted Value Line Index, a good
indicator of what the average stock price did, was up 19%.
4th AVERAGE Annual
Index Quarter 1 Year 5 Years
-------------- ------- ------- -------
S&P 500 6.0% 37.6% 16.6%
S&P Midcap 400 1.4% 30.9% 19.3%
Russell 2000 2.2% 28.4% 21.0%
Nasdaq Composite Index 0.8% 39.9% 23.0%
Lehman Bros. Gov't./Corp.
Bond Index 4.7% 19.2% 10.9%
Wasatch Funds' small- to mid-cap companies performed impressively in 1995 even
though the market tended to favor large-cap and high technology stocks. The
Wasatch Aggressive Equity Fund was up 28% for the year. While high technology
stocks were one of the hottest sectors, the Aggressive Equity Fund's performance
came from investments in a variety of high-quality companies. The Wasatch Micro-
Cap Fund has returned an impressive 41.5% since its inception in June 1995. The
Micro-Cap Fund's investments in the smallest companies show great promise for
the future. The Wasatch Growth Fund, with its stable earnings profile, fully
participated in 1995's bull market. The Growth Fund returned 40% for the year, a
figure that compares favorably to the 31% average return for the Lipper
Analytical Services Growth Fund Index. The Wasatch Mid-Cap Fund had the most
exciting performance of all the Wasatch Funds, up 59% for the year. The Mid-Cap
Fund's performance was driven by its exposure to momentum stocks in dynamic
growth sectors such as computer systems, software and semiconductors.
AVERAGE ANNUAL
--------------------------------
4th Since
Wasatch Funds Quarter 1 Year 5 Years Commencement<F1>
----------------- ------- ------ ------- ------------
Aggressive Equity (2.3)% 28.1% 21.1% 14.7%
Micro-Cap 4.0% - - 41.5% <F2>
Growth 2.1% 40.4% 18.8% 13.2%
Mid-Cap (0.7)% 58.8% - 20.0%
Income 1.6% 11.5% 7.0% 8.1%
<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.
Looking back it's easy to realize that 1995's returns will not come along every
year. Many factors including strong earnings growth, an optimistic economic
outlook, favorable interest rates and serious talk of fiscal restraint from
Washington all contributed to 1995's market performance. Shareholders who were
invested in 1995 captured exceptional returns that will enhance their long-term
investment results.
THE LONGER TERM
Looking ahead, many of the positive forces that drove 1995's performance are
still in place and the bull market appears to be sustainable for the present
time. No matter what the market does, Wasatch will continue its pursuit of
finding and investing in high-quality companies capable of strong earnings
growth. The Wasatch research team looks for companies with excellent
fundamentals that Wasatch can buy at reasonable prices, meaning that the price-
to-earnings ratio does not exceed the company's projected five year growth rate.
Hands-on analysis allows our analysts to find companies before they are
discovered by Wall Street and their stock prices begin to climb. Over the years,
the practice of investing in high-quality companies at reasonable prices has
enabled Wasatch to capture strong earnings growth that rewards shareholders in
up markets and sustains them in down markets.
Whenever a bull market continues for as long as the present one has, some
economists begin predicting a correction and many investors get the jitters. We
believe, based on many years of investing experience, that investors should stay
with their long-term investment strategy. Our philosophy is that earnings growth
drives stock prices. Wasatch views corrections as a natural process that serves
to bring stock prices back in line with earnings growth.
We believe shareholders should judge the performance of their investments based
on a time horizon of five years or longer and not react to market fluctuations
by trying to trade in and out of the market. Market timing is a practice that
most often hurts, rather than helps, an investor's long-term returns. The only
way investors can ensure that they will be rewarded with the market's biggest
gains is by staying fully invested. Finally, as you may have already noticed,
there is a growing trend toward investing in mutual funds. For many baby
boomers, mutual funds have become the investment vehicle of choice as they begin
to think about their financial future and make plans for retirement. This trend
was especially evident in 1995 as thousands of mutual fund shareholders invested
their money in equity funds. Wasatch Funds is part of this trend and we welcome
shareholders to our no-load family of mutual funds. We believe we offer mutual
fund investors the service, commitment to intensive research and quality
management that will help make investing in Wasatch Funds a satisfying
experience.
WASATCH AGGRESSIVE EQUITY FUND
QUARTERLY REVIEW
Note: The Wasatch Aggressive Equity Fund closed to new investors in July 1995.
The Wasatch Aggressive Equity Fund had a strong year overall, returning 28% for
1995. Since we judge the Fund's performance on a time horizon of five to ten
years we are not overly concerned that it was down slightly in the fourth
quarter. You are likely aware that prices of small-cap stocks are subject to
greater short-term fluctuations. We encourage investors to focus on their long-
term investment goals and ride out short-term volatility. Given that small-cap
stocks' historical annual returns average around 10% to 15%, the Aggressive
Equity Fund's return of 28% for the year is wonderful news.
The Aggressive Equity Fund invests in small-cap companies by creating a blend of
more aggressive momentum stocks and core investments in more stable holdings. We
are excited about the fourth quarter performance of several of the Fund's
substantial holdings. Madge Networks, N.V. (MADGF), the world's fifth largest
vendor of products for corporate local area networks, returned 40%; National
Health Investors, Inc. (NHI), a real estate investment trust that owns nursing
home properties, was up 10%; Express Scripts, Inc. (ESRX), a pharmacy benefits
manager, was up 16%; and Nature's Sunshine Products, Inc. (NATR), a company
specializing in the direct sales of herbs and vitamins, was up 12%. Note
that the Fund's performance came from a variety of sources reflecting
Wasatch's bottom-up strategy of investing in high-quality companies.
We sold several companies during the quarter. We made the profitable decision to
sell CMG Information Services, Inc. (CMGI), when we felt the stock had become
too speculative. CMGI, as with many companies selling Internet-related products,
saw its stock price soar, far outstripping its projected earnings growth rate.
We sold Medicine Shoppe International, Inc. (MSII), after it was acquired by
Cardinal Health, Inc. Cardinal is an excellent company but does not fit the
Aggressive Equity Fund's size and growth criteria. Selling MSII is an example of
Wasatch's commitment to following the Fund's discipline of investing in small-
cap companies. Cincinnati Microwave, Inc. (CNMW), a company specializing in
cellular telephones and radar detectors, was sold when management announced
disappointing earnings. Wasatch believes CNMW's problems of higher-than-expected
expenses and reduced demand for radar detectors caused by an increase in the
national speed limit, will hinder growth for some time.
OUTLOOK
The Aggressive Equity Fund remains committed to finding and investing in -
"America's Best Growth Companies" (ABGCs) within small-cap range. ABGCs are
central to Wasatch's investment philosophy because when you invest with Wasatch
you are really buying a piece of a business and we want that business to have
the attributes necessary for success. A broad definition of ABGCs is companies
that have an identifiable, sustainable competitive advantage, are underfollowed,
undervalued, well-managed, and have sufficient "headroom" in their markets to
double in size within five years.
There are many small-cap companies with excellent growth prospects that are
underfollowed or undiscovered by Wall Street. Wasatch analysts carefully review
companies' fundamentals and make personal visits to the company and meet with
top management. Wasatch has made new investments in several companies for the
Aggressive Equity Fund. They have exceptional growth potential and we look
forward to following their progress as they grow from small-cap to large-cap.
Cyberoptics Corp. (CYBE), is a company that builds and markets high technology
laser vision systems used by industries for dimension measurement and process
control applications. Datastream Systems, Inc. (DSTM), is positioned to cap-
italize on the trend of using personal computers on the factory floor with its
Microsoft Windows-based software for industrial automation. Micrel, Inc. (MCRL),
focuses on power control applications for cellular phones and laptop computers.
Seattle Filmworks, Inc. (FOTO), specializes in mail order marketing of 35mm film
and photofinishing. Thompson PBE, Inc. (THOM), is the largest independent
distributor of paints and supplies to the auto collision repair industry. These
and other companies we have added to the Aggressive Equity Fund's portfolio are
positive forces that will help drive performance in 1996.
Wasatch is excited about the new companies in your portfolio as well as the
continued positive earnings growth of your older holdings. We continue to look
for companies with excellent bottom lines and earnings growth potential in a
variety of industries. We believe our ABGCs combine for a well-balanced
portfolio that can help to maximize performance and minimize risk in the
Aggressive Equity Fund.
FIVE LARGEST STOCK HOLDINGS - As of December 31, 1995
Company Industry % of Net Assets
------------------------------------ ------------------- ---------------
Century Telephone Enterprises Telecommunications 5.2%
National Health Investors, Inc. REIT Real Estate 4.5%
Express Scripts, Inc., Class A Health Care Services 3.8%
Heilig-Meyers Co. Retail 3.4%
Madge Networks, N.V. Communications Products 3.4%
WASATCH MICRO-CAP FUND
The Wasatch Micro-Cap Fund had a solid quarter. Its return of 4% was ahead of
its primary benchmark the Russell 2000, which was up 2.2% for the quarter. This
performance was on top of a very strong prior quarter. The Fund's 41.5% return
since inception a little over six months ago is, to say the least, extremely
pleasing to us.
Of particular note, National Dentex Corp. (NADX), our largest holding at the
beginning of the quarter (5.8% of the Fund), was up 40% in the quarter. We
continue to hold approximately 5% of the Fund's net assets in NADX. While NADX
was definitely the largest contributor to our overall performance during the
quarter, you might be interested to know that one of our smaller positions (0.3%
of the Fund), CMG Information Services, Inc. (CMGI), was our best performer. It
began the quarter at $28.50. We sold the entire position mid-quarter at
approximately $42.50 for a 49% return. We were early-the stock closed the year
at $92.875! As you've probably guessed, CMGI is an Internet-related stock.
Other large holdings that had solid performance were Data Transmission Network
Corp. (DTLN), an information services and communication company; Corvel Corp.
(CRVL), a worker's compensation services company; and Phoenix Technologies Ltd.
(PTEC), a PC software company. Several companies announced disappointing
earnings during the quarter: Children's Discovery Centers of America, Inc.
(CDCR); Duracraft Corp. (DUCR); Varsity Spirit Corp. (VARS); and Touchstone
Software Corp. (TSSW). We are hanging on to VARS and DUCR because we feel their
setbacks are only temporary and we still like the companies' long-run outlook.
We're less optimistic about CDCR and TSSW and have decided to move on.
We would like to make note of selling Hummingbird Communications Ltd. (HUMCF).
Because of strong performance in 1995 and a secondary offering of stock during
the year, HUMCF's market cap in 1995 went from $150 million to as high as $700
million at one point during the fourth quarter. We still like HUMCF and own it
in other Wasatch Funds. We sold it in the Micro-Cap Fund because it no longer
meets our parameters for a Micro-Cap stock. Part of our investment strategy in
the Micro-Cap Fund is to maintain a median market cap near $100 million. We
intend to sell most stocks before they reach $500 million. HUMCF's story is an
indication that our fundamental growth strategy is working and we hope to report
more HUMCF-type stories to you in the future.
OUTLOOK
Those of you who have followed Wasatch for a long time know that we do NOT make
many significant quarterly changes in strategy. The Micro-Cap Fund is no
different. The Fund's portfolio is managed in the same time-tested style as the
Wasatch Aggressive Equity Fund and we don't anticipate any changes in strategy
for the foreseeable future. We continue to seek companies with strong growth
prospects based on a sustainable competitive advantage and strong market growth.
We buy a blend of stable core stocks mixed with more aggressive momentum stocks.
We attempt to buy them at attractive valuations. To us that means buying at a
price-to-earnings ratio (P/E) at or below the company's projected five year
growth rate.
The only difference from our Aggressive Equity Fund strategy is in terms of the
size and maturity of the companies in the portfolio. The Micro-Cap Fund invests
heavily in the smallest companies. They have smaller market caps, are not as
mature and tend to have less proven managements than companies in the Aggressive
Equity Fund. While these factors can result in somewhat greater risk, the
advantage is that they have the potential to grow faster because of their
smaller size.
A substantial majority of the publicly traded stocks are within Micro-Cap range.
With such a large base to choose from we are optimistic that we can find many
undiscovered opportunities that meet our market cap parameters. During the
quarter we found quite a few new companies that meet the requirements for the
Micro-Cap Fund including: Thompson PBE, Inc. (THOM), the largest company that
acquires paint distributors to the auto body shop industry; First Commonwealth,
Inc. (FCWI), the largest dental health maintenance organization in the Chicago
area; Home Health Corp. of America (HHCA), a regionally dominant home health
care provider; Datastream Systems, Inc. (DSTM), the market leader in the
computerized maintenance software industry; and Micrel, Inc. (MCRL), a
semiconductor company that sells products that go into cellular phones and
notebook computers. These five companies have an average P/E of approximately 28
and their expected 1996 growth rate is around 42%. The relationship between the
P/E and the projected growth rate of these companies is exactly what Wasatch
looks for when purchasing stock for the Micro-Cap Fund. As long as we can find
great growth companies like these we continue to be optimistic for the prospects
of the Micro-Cap Fund.
FIVE LARGEST STOCK HOLDINGS - As of December 31, 1995
Company Industry % of Net Assets
----------------------------------- -----------------------------------
National Dentex Corp. Business Services 5.2%
Equity Corp. International Personal Services 4.9%
Nature's Sunshine Products, Inc. Health Care Products 4.7%
Sunstone Hotel Investors, Inc. REIT Real Estate 4.7%
Corvel Corp. Health Care Products 3.7%
WASATCH GROWTH FUND
Because the Wasatch Growth Fund focuses on growth stocks with stable earnings
profiles, we typically expect the Fund to match or even underperform its peer
group during the kind of explosive bull market experienced in 1995. Happily, we
have done much better than expected by generating a 40% return for Growth Fund
shareholders in 1995. The fourth quarter was an average quarter for the Growth
Fund but still contributed to the overall positive performance.
The Growth Fund's performance came from stocks in a wide variety of stable
demand industries. Our investments in companies such as National Health
Investors, Inc. REIT (NHI), nursing home properties; National Dentex Corp.
(NADX), dental laboratories; Techne Corp. (TECH), disposable products for health
care research; Green Tree Financial Corp. (TREE), consumer lending; and Nature's
Sunshine Products, Inc. (NATR), herbs and vitamins, are prime examples of stable
growth stocks that did well for Wasatch Fund shareholders during 1995.
The Growth Fund has no exposure to the classic technology sectors of software,
computer hardware and semiconductors. Technology stocks topped the performance
charts over the past year but our experience has been that these stocks tend to
be more volatile. While they are appropriate for the Mid-Cap Fund's aggressive
investment style, they don't fit the Growth Fund's strategy of capturing
consistent earnings growth over the long-run.
OUTLOOK
Anyone familiar with the history of the stock market recognizes that the high
level of returns enjoyed in 1995 are not sustainable. Over long periods of time,
market returns from equities tend to hover in the low- to mid-teens. The Growth
Fund's strategy is to invest in high-quality growth stocks that can provide
investors with superior long-run returns versus the overall market.
Going into 1996, we believe the Growth Fund is positioned for continued healthy
performance. As anxiety over economic growth builds, the Growth Fund's ability
to deliver solid earnings growth should stand out in periods when corporate
earnings become sporadic. Wasatch is committed to finding high-quality companies
that can consistently deliver strong earnings growth for the Growth Fund
portfolio. To that end, Wasatch analysts spend considerable time and effort to
properly identify stable growth stocks. Over the years, hands-on analysis has
proven to be our forte and is one reason the Growth Fund was able to deliver
impressive returns in 1995 without depending on the hottest sectors of the
market.
There weren't any major new positions added to the Growth Fund in the fourth
quarter. The Fund's stable profile means that typically there will not be a high
turnover of names. While we constantly analyze potential new names we are strict
in our discipline of only adding names that fit the Growth Fund's philosophy. We
will stay with those names as long as the company's fundamentals remain sound
and they deliver the targeted earnings growth minimum of 15% a year.
FIVE LARGEST STOCK HOLDINGS - As of December 31, 1995
Company Industry % of Net Assets
------------------------------------ -------------- ---------------
National Health Investors, Inc. REIT Real Estate 6.7%
Century Telephone Enterprises Telecommunications 4.9%
Equity Corp. International Personal Services 4.9%
Kent Electronics Corp. Electronics 4.7%
Franklin Quest Co. Business Products 4.3%
WASATCH MID-CAP FUND
Over the past year the Mid-Cap Fund has done exceptionally well, returning an
impressive 59%. The Mid-Cap Fund's 1995 returns were driven by the strong
performance of technology stocks as well as the overall strength of earnings
growth by companies in your Mid-Cap Fund portfolio. Fourth quarter returns were
down slightly due to weakening prices of some technology stocks.
The investment style of the Mid-Cap Fund is to invest in companies with the
potential to produce earnings growth of 25% or more a year. The Mid-Cap Fund's
stocks tend to be more volatile than the stocks in other Wasatch Fund portfolios
because the Mid-Cap Fund aggressively seeks momentum growth companies in some of
the hottest sectors of the market. Don't think, however, that the Mid-Cap Fund
invests randomly in whatever happens to be hot. Companies in the Mid-Cap Fund
are carefully chosen for their excellent fundamentals such as clear competitive
advantage and experienced top management as well as their potential to provide
fast-paced earnings growth. Stocks in the Mid-Cap Fund are closely monitored. If
a company shows signs of weakness, loss of focus or a slowdown in momentum it
will be replaced. This typically means that the Mid-Cap Fund has a higher
turnover of companies in its portfolio than those of other Wasatch Funds.
It is worth noting the fourth quarter performance of two of the Mid-Cap Fund's
largest holdings. Madge Networks, N.V. (MADGF), a company that manufactures
products for corporate local area networks, was up 40% and Kent Electronics
Corp. (KNT), a contract manufacturer and distributor of electronic components,
was up 33%.
Changes in the Mid-Cap Fund during the fourth quarter were in keeping with the
Mid-Cap's investment discipline. The Mid-Cap Fund will take profits by selling
or trimming our holdings when we feel the valuation has become excessive. For
this reason, we made profitable adjustments in several holdings. Stratacom, Inc.
(STRM), Hummingbird Communications Ltd. (HUMCF), and Imnet Systems, Inc.
(IMNT), are all excellent companiess that have seen their stock prices soar
beyond their projected five year earnings growth rates. The Mid-Cap Fund was
happy to sell the stocks at a profit and will wait to re-buy when the companies'
stock prices come back in line with their earnings growth.
The fourth quarter also presented some buying opportunities and the Mid-Cap Fund
took advantage of reasonable stock prices to purchase stock in several companies
such as Altron, Inc. (ALRN), an electronics contract manufacturer of printed
circuit boards; Atmel Corp. (ATML), a manufacturer of semiconductor products;
and Micrel, Inc. (MCRL), a provider of power control applications for cellular
phones and laptop computers.
Two companies in the Mid-Cap Fund experienced drops in their stock prices due to
lack of confidence by Wall Street. However, Wasatch has carefully evaluated the
business fundamentals of these companies and maintains optimism that they are
still on track to reach their earnings growth targets. Duracraft Corp. (DUCR), a
supplier of fans, heaters and humidifiers, had some production problems that
Wasatch believes will be short-lived. Wall Street was put off by Softkey
International, Inc.'s (SKEY) aggressive acquisitions which caused the stock
price to go down. Wasatch has chosen to ride out SKEY's fluctuations because we
are confident that the company can still reach the Mid-Cap Fund's required
earnings growth minimum of 25% a year.
Several companies announced changes in outlook and earnings disappointments.
Wasatch sold these companies because they have failed to sustain the momentum
needed to fit the Mid-Cap Fund's requirements. One example is Wabash National
Corp. (WNC), a manufacturer of customized truck trailers. The company
experienced production difficulties and weakening demand for their product,
causing us to lose confidence in their ability to continue producing the
necessary earnings growth. Another is Cincinnati Microwave, Inc. (CNMW), a
company with two distinct product lines. CNMW has exciting prospects for its
cellular telephones but has encountered difficulties in its radar detection
business due, in part, to an increase in the national speed limit. We found that
the radar business was creating a drag on the entire company. Last is Children's
Discovery Centers of America, Inc. (CDCR). We sold the company when it proved to
be unable to carry out its business plan of profitably acquiring day care
centers.
OUTLOOK
Keep in mind that the Mid-Cap Fund aggressively invests in rapidly growing
companies in the hottest sectors of the market. Companies in the Fund have the
potential to do extremely well, or occasionally they may stumble and miss their
targets. When compared to other Wasatch Funds, the Mid-Cap Fund expects a higher
turnover of companies in its portfolio.
During 1995, the companies in the Mid-Cap Fund that have reached or exceeded
their earnings growth targets have more than offset the disappointments. Stock
purchases in the fourth quarter show us that there are still many excellent,
momentum growth companies that fit the Mid-Cap Fund's parameters. The Fund will
continue to pursue its strategy of finding and investing in companies capable of
the highest growth rates and we will attempt to purchase them at reasonable
prices. We will maintain our strict discipline of selling companies that falter
and we will constantly look for better ideas. With the Mid-Cap Fund's
exceptional 1995 performance behind us we look forward to 1996 with continued
optimism.
FIVE LARGEST STOCK HOLDINGS - As of December 31, 1995
Company Industry % of Net Assets
------------------------------ ---------------------- ---------------
Express Scripts, Inc., Class A Health Care Services 7.3%
Madge Networks, N.V. Communications Products 5.6%
WorldCom., Inc. Telecommunications 5.5%
FTP Software, Inc. Computer Software 5.5%
Aspen Technologies Computer Software 5.2%
WASATCH INCOME FUND
The Wasatch Income Fund returned just over 11% for the year. During
most of the year we held, and continue to hold, a relatively short
maturity position because long-term rates are not attractive to us at
the present time.
OUTLOOK
We are comfortable holding short-term maturities until long-term rates
become more attractive.
WRAPPING UP
Congratulations! Your investments with Wasatch Funds have captured the
performance of one of the market's truly great years. Even though we know that
1995's spectacular returns will not happen every year, we can take pleasure in
the fact that we have done well this year. Wasatch encourages you to look ahead,
past the returns of a quarter or a year, and stay with your long-term investment
plan. Cumulative market wisdom suggests and common sense indicates that the only
way to ensure that you will be rewarded by the gains of years like 1995 is to
stay invested. No one can predict the future, but Wasatch's commitment to
discovering and investing in "America's Best Growth Companies" is one reason
our Funds have done so well in the past. We believe in our investment philosophy
and process and will stay focused on our business of selecting high-quality
companies for Wasatch Fund portfolios.
As always, we appreciate 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 serving you in 1996 and for many
years to come.
Sincerely,
/s/ Samuel S. Stewart, Jr.
Samuel S. Stewart, Jr.
Chairman of the Board
Aggressive Equity Fund Schedule of Investments
DECEMBER 31, 1995 (UNAUDITED)
NUMBER
OF SHARES VALUE
--------- -------
COMMON STOCKS 95.3%
Business Products 7.3%
163,750 American Business Information, Inc. <F3> $ 3,172,656
390,712 BMC West Corp. <F3> 5,763,002
241,600 International Imaging Materials, Inc. <F3> 6,100,400
657,125 Merfin Hygienic Products Ltd. <F3> 2,648,727
137,120 Mity-Lite, Inc. <F3> 1,011,260
207,000 Thompson PBE, Inc. <F3> 2,898,000
------------
21,594,045
------------
Business Services 5.7%
104,300 Altron, Inc. <F3> 3,129,000
211,125 Barrett Business Services, Inc. <F3> 3,114,094
50,000 Carnegie Group, Inc. <F3> 487,500
70,600 Kent Electronics Corp. <F3> 4,121,275
161,200 National Dentex Corp. <F3> 3,949,400
69,700 RTW, Inc. <F3> 1,829,625
------------
16,630,894
------------
Communications Products 8.6%
286,600 FTP Software, Inc. <F3> 8,311,400
116,700 Hummingbird Communications Ltd. <F3> 4,726,350
221,900 Madge Networks, N.V. <F3> 9,930,025
32,750 Stratacom, Inc. 2,407,125
------------
25,374,900
------------
Communications Services 1.1%
66,850 Data Transmission Network Corp. <F3> 3,292,362
------------
Computer Software 6.8%
156,500 Aspen Technologies, Inc. <F3> 5,281,875
119,300 Datastream Systems, Inc. <F3> 2,266,700
391,100 Phoenix Technologies Ltd. <F3> 6,159,825
92,500 Softkey International, Inc. <F3> 2,139,062
84,950 Synopsys, Inc. <F3> 3,228,100
233,500 Touchstone Software Corp. <F3> 934,000
------------
20,009,562
Computer Systems & Components 2.4%
135,000 Active Voice Corp. <F3> 3,712,500
70,950 Digitran Systems, Inc. <F3><F4> 1
40,000 Drexler Technology Corp. <F3> 518,500
114,385 Pinnacle Systems, Inc. <F3> 2,831,029
------------
7,062,030
------------
Electronics 0.5%
206,000 Cincinnati Microwave, Inc. <F3> 927,000
16,000 Cyberoptics Corp. <F3> 636,000
------------
1,563,000
------------
Financial Services 1.0%
246,400 World Acceptance Corp. <F3> 2,772,000
------------
Health Care Products 8.1%
193,150 Bio-Plexus, Inc. <F3> 1,979,786
58,521 Cardinal Health, Inc. 3,204,025
217,075 Epitope, Inc. <F3> 3,581,737
538,916 Interpore International<F3> 2,761,944
378,104 Nature's Sunshine Products, Inc. 9,547,126
135,600 Techne Corp. <F3> 2,728,950
------------
23,803,568
------------
Health Care Services 7.1%
56,700 Corvel Corp. 2,161,687
219,075 Express Scripts, Inc., Class A<F3> 11,172,825
61,700 Home Health Corp. of America<F3> 678,700
233,225 Phamis, Inc. <F3> 6,938,444
------------
20,951,656
------------
Personal Products 4.5%
160,750 Duracraft Corp. <F3> 4,038,844
379,400 Franklin Quest Co. <F3> 7,398,300
118,062 Varsity Spirit Corp. 1,652,868
------------
13,090,012
------------
Personal Services 4.0%
219,350 Barefoot, Inc. 2,303,175
231,900 Children's Discovery Centers of America, Inc. <F3> 1,188,487
139,600 Equity Corp. International<F3> 3,315,500
134,700 Loewen Group, Inc. 3,409,593
70,000 Seattle Filmworks, Inc. <F3> 1,452,500
------------
11,669,255
------------
Real Estate 5.6%
394,700 National Health Investors, Inc. REIT $ 13,074,437
330,550 Sunstone Hotel Investors, Inc. REIT 3,388,138
------------
16,462,575
------------
Retail 11.9%
123,850 Buckle, Inc. (The) <F3> 2,198,338
132,800 Doubletree Corp. <F3> 3,486,000
40,461 Eateries, Inc. <F3> 111,268
266,600 Friedman's, Inc. <F3> 5,132,050
542,890 Heilig-Meyers Co. 9,975,604
299,850 O'Reilly Automotive, Inc. <F3> 8,695,650
99,275 St. John Knits, Inc. 5,273,984
------------
34,872,894
------------
Semiconductors 4.8%
78,300 Integrated Process Equipment Corp. <F3> 1,840,050
196,000 Lattice Semiconductor Corp. <F3> 6,394,500
294,000 Micrel, Inc. <F3> 5,733,000
10,500 Speedfam International, Inc. <F3> 118,125
------------
14,085,675
------------
Telecommunications 11.5%
480,890 Century Telephone Enterprises 15,268,242
289,150 Intercel, Inc. <F3> 4,915,550
292,590 United States Cellular Corp. <F3> 9,874,913
109,150 WorldCom, Inc. <F3> 3,847,538
------------
33,906,243
------------
Transportation 2.6%
84,850 Arrow Transportation Co. <F3> 106,062
230,950 Expeditors International of Washington, Inc. 6,033,569
72,000 M.S. Carriers, Inc. <F3> 1,440,000
------------
7,579,631
------------
Other 1.8%
158,450 FLIR Systems, Inc. <F3> 1,941,013
89,550 Interline Resources Corp. <F3> 391,781
101,150 OEA, Inc. 3,021,856
------------
5,354,650
------------
Total Common Stocks
(cost $237,696,214) 280,074,952
------------
CONVERTIBLE BONDS 1.3%
1,550,000 National Health Care LP,
6.00%, 7/1/00 $ 3,975,750
------------
Total Convertible Bonds
(cost $2,976,000) 3,975,750
------------
PREFERRED STOCK 0.0%
12,500 Digitran Systems, Inc. <F4> 1
------------
Total Preferred Stock
(cost $95,729) 1
------------
PRINCIPAL
AMOUNT
- -----------
DEMAND NOTES 3.7%
(variable rate)
$ 231,249 American Family Financial Services 231,249
2,174,750 General Mills, Inc. 2,174,750
684 Lilly (Eli) & Co. 684
1,268,288 Pitney-Bowes, Inc. 1,268,288
6,137,033 Sara Lee Corp. 6,137,033
610,957 Southwestern Bell Telephone Co. 610,957
1,358 Warner-Lambert Co. 1,358
329,260 Wisconsin Electric Power Co. 329,260
------------
Total Demand Notes
(cost $10,753,579) 10,753,579
------------
Total Investments 100.3%
(cost $251,521,522) 294,804,282
Liabilities, less
Cash and Other Assets (0.3)% (780,766)
------------
NET ASSETS 100.0% $294,023,516
============
<F3> Non-income Producing
<F4> Restricted Security
Micro-Cap Fund Schedule of Investments
DECEMBER 31, 1995 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 82.3%
Business Products 9.4%
45,600 BMC West Corp. <F3> $ 672,600
42,600 International Imaging Materials, Inc. <F3> 1,075,650
159,450 Merfin Hygienic Products Ltd. <F3> 642,708
62,220 Mity-Lite, Inc. <F3> 458,873
107,500 Thompson PBE, Inc. <F3> 1,505,000
------------
4,354,831
------------
Business Services 9.2%
96,375 Barrett Business Services, Inc. <F3> 1,421,531
97,950 National Dentex Corp. <F3> 2,399,775
17,000 RTW, Inc. <F3> 446,250
------------
4,267,556
------------
Communications Services 2.9%
26,700 Data Transmission Network Corp. <F3> 1,314,975
------------
Computer Software 5.5%
31,000 Aspen Technologies, Inc. <F3> 1,046,250
19,000 Datastream Systems, Inc. <F3> 361,000
65,000 Phoenix Technologies Ltd. <F3> 1,023,750
25,900 Touchstone Software Corp. <F3> 103,600
------------
2,534,600
------------
Computer Systems & Components 5.0%
34,850 Active Voice Corp. <F3> 958,375
15,900 Adaptive Solutions, Inc. <F3> 85,462
28,000 Pinnacle Systems, Inc. <F3> 693,000
50,000 Spacetec IMC Corp. <F3> 587,500
------------
2,324,337
------------
Electronics 3.1%
36,000 Cyberoptics Corp. <F3> 1,431,000
------------
Health Care Equipment 0.1%
11,000 Infrasonics, Inc. <F3> 66,000
------------
Health Care Products 8.4%
13,000 Bio-Plexus, Inc. <F3> 133,250
12,200 Epitope, Inc. <F3> 201,300
19,500 Interpore International<F3> 99,938
86,060 Nature's Sunshine Products, Inc. 2,173,015
62,050 Techne Corp. <F3> 1,248,756
------------
3,856,259
------------
Health Care Services 11.6%
44,500 Corvel Corp. <F3> 1,696,563
35,500 First Commonwealth, Inc. <F3> 923,000
142,000 Home Health Corp. of America<F3> 1,562,000
35,000 Medplus, Inc. <F3> 301,875
29,500 Phamis, Inc. <F3> 877,625
------------
5,361,063
------------
Personal Products 2.2%
17,000 Duracraft Corp. <F3> 427,125
42,487 Varsity Spirit Corp. 594,818
------------
1,021,943
------------
Personal Services 7.3%
3,500 Advantage Cos., Inc. <F3> 63,000
20,000 Ambassadors International<F3> 195,000
95,200 Equity Corp. International<F3> 2,261,000
41,000 Seattle Filmworks, Inc. <F3> 850,750
------------
3,369,750
------------
Real Estate 4.6%
209,400 Sunstone Hotel Investors, Inc. REIT 2,146,350
------------
Retail 6.8%
39,500 Buckle, Inc. (The) <F3> 701,125
119,575 Eateries, Inc. <F3> 328,831
44,700 Friedman's, Inc. <F3> 860,475
1,200 Harold's Stores, Inc. <F3> 14,550
42,100 O'Reilly Automotive, Inc. <F3> 1,220,900
------------
3,125,881
------------
Semiconductors 4.5%
87,000 Micrel, Inc. <F3> 1,696,500
56,000 Micro Component Technology, Inc. <F3> 371,000
------------
2,067,500
------------
Telecommunications 0.8%
21,200 Intercel, Inc. <F3> 360,400
------------
Transportation 0.9%
39,500 USA Truck, Inc. <F3> 424,625
------------
Total Common Stocks
(cost $34,305,065) 38,027,070
------------
PRINCIPAL
AMOUNT
---------
DEMAND NOTES 18.7%
(variable rate)
$ 326,543 American Family Financial Services 326,543
2,058,758 General Mills, Inc. 2,058,758
952,439 Lilly (Eli) & Co. 952,439
383,398 Pitney-Bowes, Inc. 383,398
1,692,576 Sara Lee Corp. 1,692,576
593,935 Southwestern Bell Telephone Co. 593,935
1,793,392 Warner-Lambert Co. 1,793,392
853,534 Wisconsin Electric Power Co. 853,534
------------
Total Demand Notes
(cost $8,654,575) 8,654,575
------------
Total Investments 101.0%
(cost $42,959,640) 46,681,645
------------
Liabilities, less
Cash and Other Assets (1.0)% (482,833)
------------
NET ASSETS 100.0% $ 46,198,812
============
<F3> Non-income Producing
<F4> Restricted Security
Growth Fund Schedule of Investments
DECEMBER 31, 1995 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 92.5%
Business Products 10.4%
115,475 American Business Information, Inc. <F3> $2,237,328
113,000 BMC West Corp. <F3> 1,666,750
52,100 International Imaging Materials, Inc. <F3> 1,315,525
85,650 Thompson PBE, Inc. <F3> 1,199,100
------------
6,418,703
------------
Business Services 7.8%
49,725 Kent Electronics Corp. <F3> 2,902,697
77,200 National Dentex Corp. <F3> 1,891,400
------------
4,794,097
------------
Computer Systems & Components 0.0%
18,100 Digitran Systems, Inc. <F3><F4> 1
------------
Financial Services 4.6%
5,000 Franklin Savings Assn. <F3> 1
44,650 Green Tree Financial Corp. 1,177,644
81,787 Mercury Finance Co. 1,083,678
21,990 Washington Federal, Inc. 563,494
------------
2,824,817
------------
Health Care Products 8.4%
16,040 Cardinal Health, Inc. 878,190
97,580 Nature's Sunshine Products, Inc. 2,463,895
90,750 Techne Corp. <F3> 1,826,343
------------
5,168,428
------------
Health Care Services 5.2%
40,200 Corvel Corp. <F3> 1,532,625
33,500 Express Scripts, Inc., Class A<F3> 1,708,500
------------
3,241,125
------------
Personal Products 5.3%
136,100 Franklin Quest Co. <F3> 2,653,950
45,300 Varsity Spirit Corp. 634,200
------------
3,288,150
------------
Personal Services 9.2%
52,200 Barefoot, Inc. 548,100
44,500 Children's Discovery Centers of America, Inc. <F3> 228,061
126,800 Equity Corp. International<F3> 3,011,500
46,100 Loewen Group, Inc. 1,166,906
33,825 Seattle Filmworks, Inc. <F3> 701,868
------------
5,656,435
------------
Real Estate 14.5%
124,500 National Health Investors, Inc. REIT 4,124,063
115,800 Oasis Residential, Inc. 2,634,450
213,600 Sunstone Hotel Investors, Inc. REIT 2,189,400
------------
8,947,913
------------
Retail 14.7%
63,000 Buckle, Inc. (The) <F3> 1,118,250
42,600 Doubletree Corp. <F3> 1,118,250
71,100 Friedman's, Inc. <F3> 1,368,675
115,100 Heilig-Meyers Co. 2,114,962
79,950 O'Reilly Automotive, Inc. <F3> 2,318,550
19,900 St. John Knits, Inc. 1,057,188
------------
9,095,875
------------
Telecommunications 8.2%
95,938 Century Telephone Enterprises 3,046,016
57,200 WorldCom, Inc. <F3> 2,016,300
------------
5,062,316
------------
Transportation 4.2%
46,500 Expeditors International of Washington, Inc. 1,214,811
69,500 M.S. Carriers, Inc. <F3> 1,390,000
------------
2,604,811
------------
Total Common Stocks
(cost $50,492,347) 57,102,671
------------
CONVERTIBLE BONDS 3.8%
919,000 National Healthcare LP,
6.00%, 7/1/00 2,357,235
------------
Total Convertible Bonds
(cost $1,764,480) 2,357,235
------------
PRINCIPAL
AMOUNT VALUE
- --------- -----
WARRANTS 0.0%
$ 1 Cherokee, Inc., Series C $ 1
------------
Total Warrants
(cost $6) 1
------------
DEMAND NOTES 3.4%
(variable rate)
451,231 American Family Financial Services 451,231
515,779 General Mills, Inc. 515,779
246 Lilly (Eli) & Co. 246
180,000 Pitney-Bowes, Inc. 180,000
285,159 Sara Lee Corp. 285,159
5,058 Southwestern Bell Telephone Co. 5,058
680,084 Wisconsin Electric Power Co. 680,084
------------
Total Demand Notes
(cost $2,117,557) 2,117,557
------------
Total Investments 99.7%
(cost $54,374,390) 61,577,464
Cash and Other Assets,
less Liabilities 0.3% 161,604
------------
NET ASSETS 100.0% $61,739,068
============
<F3> Non-income Producing
<F4> Restricted Security
Mid-Cap Fund Schedule of Investments
DECEMBER 31, 1995 (UNAUDITED)
NUMBER
OF SHARES VALUE
- --------- -----
COMMON STOCKS 89.3%
Business Services 8.3%
90,000 Altron, Inc. <F3> $ 2,700,000
7,500 Barrett Business Services, Inc. <F3> 110,625
97,200 Kent Electronics Corp. <F3> 5,674,050
91,300 RTW, Inc. <F3> 2,396,625
------------
10,881,300
------------
Communications Products 13.8%
246,000 FTP Software, Inc. <F3> 7,134,000
86,000 Hummingbird Communications Ltd. <F3> 3,483,000
163,850 Madge Networks, N.V. <F3> 7,332,288
------------
17,949,288
------------
Computer Software 19.9%
200,975 Aspen Technologies, Inc. 6,782,906
100,600 Parametric Technology Corp. <F3> 6,689,900
352,450 Phoenix Technologies Ltd. <F3> 5,551,088
165,200 Softkey International, Inc. <F3> 3,820,250
64,200 Synopsys, Inc. <F3> 2,439,600
166,000 Touchstone Software Corp. <F3> 664,000
------------
25,947,744
------------
Computer Systems & Components 6.9%
188,900 Active Voice Corp. <F3> 5,194,750
124,500 Adaptive Solutions, Inc. <F3> 669,188
85,000 Drexler Technology Corp. <F3><F4> 1,101,812
79,900 Pinnacle Systems, Inc. <F3> 1,977,525
------------
8,943,275
------------
Electronics 0.4%
107,375 Cincinnati Microwave, Inc. <F3> 483,187
------------
Health Care Products 2.9%
149,500 Nature's Sunshine Products, Inc. 3,774,875
------------
Health Care Services 12.4%
186,025 Express Scripts, Inc., Class A<F3> 9,487,275
20,000 HBO & Company 1,532,500
82,200 Imnet Systems, Inc. <F3> 1,972,800
107,800 Phamis, Inc<F3> 3,207,050
------------
16,199,625
------------
Personal Products 2.7%
142,650 Duracraft Corp. <F3> 3,584,081
------------
Personal Services 0.2%
51,365 Children's Discovery Centers of America, Inc. <F3> 263,246
------------
Retail 3.5%
124,000 Friedman's, Inc. <F3> 2,387,000
77,400 O'Reilly Automotive, Inc. <F3> 2,244,600
------------
4,631,600
------------
Semiconductors 9.0%
50,000 Atmel Corp. <F3> 1,118,750
106,000 Integrated Process Equipment Corp. <F3> 2,491,000
166,200 Lattice Semiconductor Corp. <F3> 5,422,275
139,200 Micrel, Inc. <F3> 2,714,400
------------
11,746,425
------------
Telecommunications 9.3%
85,500 Intercel, Inc. <F3> 1,453,500
104,700 United States Cellular Corp. <F3> 3,533,625
203,900 WorldCom, Inc. <F3> 7,187,475
------------
12,174,600
------------
Total Common Stocks
(cost $104,583,662) 116,579,246
------------
PRINCIPAL
AMOUNT VALUE
- --------- -----
DEMAND NOTES 11.6%
(variable rate)
$ 715,000 American Family Financial Services 715,000
2,679,253 General Mills, Inc. 2,679,253
400,088 Lilly (Eli) & Co. 400,088
3,561,429 Pitney-Bowes, Inc. 3,561,429
2,597,679 Sara Lee Corp. 2,597,679
3,483,443 Southwestern Bell Telephone Co. 3,483,443
206,683 Warner-Lambert Co. 206,683
1,466,797 Wisconsin Electric Power Co. 1,466,797
------------
Total Demand Notes
(cost $15,110,372) 15,110,372
------------
Total Investments 100.9%
(cost $119,694,034) 131,689,618
Liabilities, less
Cash and Other Assets (0.9)% (1,201,168)
------------
NET ASSETS 100.0% $130,488,450
============
<F3> Non-income Producing
<F4> Restricted Security
Income Fund Schedule of Investments
DECEMBER 31, 1995 (UNAUDITED)
PRINCIPAL
AMOUNT VALUE
- -------- -----
CORPORATE BONDS 0.5%
$ 25,000 Illinois Bell Telephone Co.,
8.50%, 4/22/26 $ 26,156
----------
Total Corporate Bonds
(cost $26,232) 26,156
----------
U.S. GOVERNMENT OBLIGATIONS 63.8%
2,700,000 U.S. Treasury Bill,
5.56%, 2/8/96 2,685,855
350,000 U.S. Treasury Note,
9.375%, 2/15/06 450,345
----------
Total U.S. Government Obligations
(cost $3,080,127) 3,136,200
----------
DEMAND NOTES 35.1%
(variable rate)
137,660 American Family Financial Services 137,660
245,321 General Mills, Inc. 245,321
210,507 Lilly (Eli) & Co. 210,507
245,062 Pitney-Bowes, Inc. 245,062
232,083 Sara Lee Corp. 232,083
232,871 Southwestern Bell Telephone Co. 232,871
236,290 Warner-Lambert Co. 236,290
186,159 Wisconsin Electric Power Co. 186,159
----------
Total Demand Notes
(cost $1,725,953) 1,725,953
----------
Total Investments 99.4%
(cost $4,832,312) 4,888,309
Cash and Other Assets,
less Liabilities 0.6% 30,053
----------
NET ASSETS 100.0% $4,918,362
==========
