<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from the Investment Adviser ........................................................................................ 1
Wasatch Equity Funds ................................................................................................... 1
Wasatch Fixed Income Fund .............................................................................................. 2
Mid-Cap Fund Portfolio Summary ............................................................................................ 4
Review of the Year ..................................................................................................... 4
Outlook ................................................................................................................ 5
Average Annual Total Returns & Growth of a $10,000 Investment .......................................................... 5
Ten Largest Holdings, Asset Allocation & Sector Breakdown .............................................................. 6
Micro-Cap Fund Portfolio Summary .......................................................................................... 7
Review of the Year ..................................................................................................... 7
Closing the Fund ....................................................................................................... 8
Outlook ................................................................................................................ 8
Average Annual Total Returns & Growth of a $10,000 Investment .......................................................... 8
Ten Largest Holdings, Asset Allocation & Sector Breakdown .............................................................. 9
Aggressive Equity Fund Portfolio Summary .................................................................................. 10
Review of the Year ..................................................................................................... 10
Outlook ................................................................................................................ 11
Average Annual Total Returns & Growth of a $10,000 Investment .......................................................... 11
Ten Largest Holdings, Asset Allocation & Sector Breakdown .............................................................. 12
Growth Fund Portfolio Summary ............................................................................................. 13
Review of the Year ..................................................................................................... 13
Outlook ................................................................................................................ 14
Average Annual Total Returns & Growth of a $10,000 Investment .......................................................... 14
Ten Largest Holdings, Asset Allocation & Sector Breakdown .............................................................. 15
Wasatch-Hoisington U.S. Treasury Fund Portfolio Summary ................................................................... 16
Review of the Year ..................................................................................................... 16
Outlook ................................................................................................................ 16
Average Annual Total Returns & Growth of a $10,000 Investment .......................................................... 17
Holdings/Maturity Date & Asset Allocation .............................................................................. 18
Schedule of Investments ................................................................................................... 20
Statements of Assets and Liabilities ...................................................................................... 34
Statements of Operations .................................................................................................. 36
Statements of Changes in Net Assets ....................................................................................... 38
Financial Highlights ...................................................................................................... 42
Notes to Financial Statements ............................................................................................. 47
Report of Independent Public Accountants .................................................................................. 52
Guide to Understanding Financial Statements ............................................................................... 53
</TABLE>
<PAGE> 2
[WASATCH FUNDS, INC. LETTERHEAD]
LETTER FROM THE INVESTMENT ADVISOR
September 30, 1997
DEAR SHAREHOLDERS:
Once again the market reached new highs, aided in part by a smooth-running
economy. Over the last 12 months, ending September 30, 1997, the Dow Jones
Industrial Average rose more than 2,000 points to climb above the 8,000 mark for
the first time. The S&P 500 Index, Nasdaq Composite and Russell 2000 also posted
record gains.
The past 12 months have been particularly unusual for small company
investors. Until May of this year small company stock prices languished as the
remarkable earnings growth being generated by some large companies took center
stage. Many investors gravitated toward large company stocks because they saw
the opportunity to get "quality" (the strength and stability of a large company)
and earnings growth which was rivaling that of small companies.
Much of the perceived opportunity vanished in recent months as stock prices
of some of the largest blue-chip companies soared and industry commentators
began to question large companies' ability to increase profits at a rate that
would justify their current lofty stock prices.
In the second half of the year, uneasy investors began to shift assets into
small company stocks. They recognized that small companies, as a group, had
greater potential to increase profits and their stock prices were at the most
attractive levels in years.
For the last two quarters small company earnings growth has outpaced that of
large companies and small company stock prices have rallied.
WASATCH EQUITY FUNDS
Renewed investor interest in small company stocks has been good news for the
Wasatch equity funds. As growth investors, we believe earnings growth drives
stock prices. In the short-term investors may be influenced by other factors,
but over the long-term, we think companies that are increasing profits are the
ones investors are most likely to consider desirable. This certainly proved to
be the case in the second half of the year.
To Wasatch the value of investing in small- and mid-size companies is their
ability to increase earnings faster and longer than large companies.
Annual Report 1 --
<PAGE> 3
As always, throughout the fiscal year we followed a disciplined approach for
investing in the small- and mid-size companies we like to call "America's Best
Growth Companies." These are companies we believe may possess an identifiable,
sustainable competitive advantage, are underfollowed, undervalued, well-managed,
and have sufficient "headroom" in their markets to double in size within five
years.
In addition, we had great success purchasing stocks at reasonable prices. To
Wasatch, reasonable means that a company's price-to-earnings (P/E) ratio, which
is the price of a stock divided by its trailing earnings per share, should be
equal to or less than our projection of its five year earnings growth rate.
Early in the year we took advantage of attractive stock prices to invest in
exciting new companies and increase positions in our favorite holdings. In the
second half of the year Wasatch's equity funds came through with solid returns
as companies we invested in exceeded our earnings growth expectations.
Rebounding small company stock prices also contributed significantly to the
equity funds' returns.
OUTLOOK
The Wasatch research team analyzes the earnings growth prospects of
individual companies. While market and economic conditions may affect stock
prices in the short-term, it has been our experience that if companies produce
the earnings growth we seek, over the long-term the stock price will reflect the
the company's growth.
Going into the new fiscal year, the Wasatch equity funds appear
well-positioned with companies that have outstanding earnings growth potential
and are suitable for each Fund's individual investment objectives. Although the
stock prices of many companies held by the Funds have appreciated considerably,
we believe there is still plenty of potential for price appreciation.
Investing in the stock market will always be a bumpy ride, especially for
those who invest in growing small- and mid-size companies. Wasatch has many
years of experience investing in this segment of the market. Although the market
may favor other segments at times, investments in small companies have
historically provided investors with higher returns.
We believe that if we do our homework and make discerning investments in
high-quality, small- and mid-size companies at reasonable prices the Wasatch
equity funds can potentially make valuable contributions to our shareholders'
investment portfolios over the long-term.
WASATCH FIXED INCOME FUND
In contrast to the Wasatch equity funds, the Wasatch-Hoisington U.S. Treasury
Fund (U.S. Treasury) bases its investments on in-depth analysis of national and
international economic and interest rate trends, changes in inflationary
pressures and the value of long Treasury bonds relative to inflation.
Declining inflation was the major factor in the drop in bond yields over the
last 12 months. The bond market fluctuated throughout the year as concerns about
inflation surfaced from time-to-time and tight labor markets worried some
investors.
The Fund's investment strategy is to manage the maturity structure of the
portfolio in an attempt to get higher returns for shareholders. When inflation
is low and the economy is stable like it was in fiscal 1997, the Fund will
typically invest in U.S. Treasury Securities with a maximum maturity of 30
years. Investments in long Treasuries are more sensitive to changes in market
interest
- -- 2 Annual Report
<PAGE> 4
rates which accounts for the Fund's volatility this year.
OUTLOOK
We do not expect news about the economy to be worrisome or surprising this
year. While the bond market may be affected in the short-term by concerns over
tight labor markets, the long-term outlook for bond yields is favorable. We
believe the U.S. Treasury Fund's investments in long Treasuries position it to
do well in the current economic environment.
As long as inflation remains low and economic growth is subdued we expect the
Fund to remain fully invested in long-dated U.S. Treasury Securities. If market,
economic or political conditions change, investments in short-dated Treasuries
may be deemed appropriate.
ADDITIONAL INFORMATION
For an in-depth discussion of the performance of individual Funds, please
see the portfolio summaries beginning on page 4 of this report.
Refer to the current Prospectus for more information about each Fund's
objectives and investment process.
Thank you for your investment in Wasatch Funds. If you have any questions or
comments regarding this report or your investments please call us at 1 (800)
551-1700. We look forward to serving your investment needs.
Sincerely,
/s/ Samuel S. Stewart, Jr.
Samuel S. Stewart, Jr.
Chairman of the Board
Annual Report 3 --
<PAGE> 5
WASATCH MID-CAP FUND-Portfolio Summary
September 30, 1997
[PHOTO OF KAREY BARBER]
The Mid-Cap Fund is the most aggressive Fund in the Wasatch Funds family. The
Fund seeks to invest in companies with the highest growth rates. It has
relatively few holdings which tend to be concentrated in the most dynamic
industries. It is best-suited for investors who plan to hold the Fund for at
least five years.
REVIEW OF THE YEAR
The stocks of high growth companies ended the fiscal year on a strong note
after struggling in 1996 and early in 1997. The Mid-Cap Fund's technology
holdings performed exceptionally well in the latter half of the fiscal year. As
the stock prices of these companies appreciated we profitably trimmed them and
reallocated assets to investments in fast growing health care service companies
that we believe have greater potential for stock price appreciation.
Notable performance among the Fund's technology holdings came from Micrel, a
manufacturer of analog semiconductors for cellular phones and laptop computers;
Microchip Technology, a manufacturer of programmable microcontrollers used in
all types of electronics; and REMEC, a parts supplier to the wireless telecom
industry.
Two technology companies were sold due to fundamental business concerns.
Eltron, a manufacturer of barcode printers, experienced problems with a large
customer; and Legato Systems, a network storage software developer, faced
product transition issues.
Express Scripts, a pharmacy benefits manager, has been the Fund's largest
health care and overall holding for the last two years. The company has
consistently met our earnings growth expectations but its stock price struggled
due to concerns about the loss of a large customer. Our patience was rewarded by
a significant stock price increase in 1997 and we have profitably trimmed our
weight now that the stock price more fairly reflects the company's value.
We built significant positions in two exciting health care companies
that we believe have great potential: Pediatrix Medical Group, a practice
manager for pediatrics physicians; and Medical Manager Corp., a provider of
physician practice management systems.
We were disappointed by Physician's Resource Group. We felt this manager of
opthalmic and optometric practices had considerable opportunity, but appears to
have lost financial control due to extremely high growth.
Business services and consumer stocks met our expectations; however,
financial service companies, while only a small portion of the Fund's holdings,
did not produce the earnings growth we expected.
- -- 4 Annual Report
<PAGE> 6
WASATCH MID-CAP FUND - Portfolio Summary
OUTLOOK
Companies the Fund has invested in, on average, increased earnings over 30%
in the last few quarters versus the same period last year. This is above our
aggressive target of 25%. We think this kind of earnings growth is bound to be
rewarded by the markets over the mid- and long-term and will be reflected in the
stock prices of the Fund's investments.
Looking ahead to 1998 we are excited about the business opportunities of
companies the Fund has invested in. We continue to look to the most dynamic
sectors and handpick the Fund's investments from the fastest growing companies
that we believe have the most outstanding growth prospects.
We are confident that as long as the companies we have invested in produce
the earnings growth we seek, the Fund will be successful.
We appreciate your investment in the Wasatch Mid-Cap Fund.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Wasatch Mid-Cap Fund 21.7% 17.4% 16.8%
- --------------------------------------------------------------------------------
</TABLE>
Past performance is not indicative of future results.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
8/16/92 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C>
Wasatch Mid-Cap Fund $10,000 $ 9,930 $10,511 $11,021 $18,653 $18,179 $22,132
S&P MidCap 400 Index $10,000 $ 9,910 $11,199 $11,612 $15,066 $18,129 $25,461
S&P 500 Composite $10,000 $10,000 $12,404 $12,603 $15,850 $18,069 $25,135
</TABLE>
*Inception: August 16, 1992.
The S&P MidCap 400 Index is an unmanaged capitalization weighted total return
index that measures the performance of the mid-range sector of the U.S. stock
market where the median market capitalization is approximately $700 million.
The S&P 500 Composite is an unmanaged but commonly used measure of common stock
total return performance.
Annual Report 5 --
<PAGE> 7
WASATCH MID-CAP FUND-Portfolio Summary
TEN LARGEST HOLDINGS
1. Aspen Technologies, Inc. 7%
Chemical engineering software
2. Express Scripts, Inc., Class A 5%
Pharmacy benefits manager
3. Micrel, Inc. 5%
Analog semiconductors for cellular
phones and laptop computers
4. Pediatrix Medical Group, Inc. 5%
Practice management for
pediatrics physicians
5. O'Reilly Automotive, Inc. 4%
Automotive parts retailer/distributor
6. Medical Manager Corp. 4%
Physician practice
management systems
7. Parametric Technology Co. 4%
Design automation software
developer
8. Synopsys, Inc. 3%
Software solutions for
electronic design automation
9. Microchip Technology, Inc. 3%
Proprietary chip manufacturer
10. Home Health Corp.
of America 3%
Services and equipment for
home health care
ASSET ALLOCATION SECTOR BREAKDOWN
[PIE CHART] [PIE CHART]
Common Stock 91.5% Technology 33.0%
Cash 8.5% Health Care 26.7%
Business Services 8.8%
Retail 7.4%
Transportation 4.8%
Telecommunications 4.1%
Personal 4.0%
Other 2.7%
- -- 6 Annual Report
<PAGE> 8
WASATCH MICRO-CAP-FUND-Portfolio Summary
September 30, 1997
[PHOTO]
The Micro-Cap Fund invests in relatively tiny companies that we believe can
increase earnings faster and sustain earnings growth longer than their larger
counterparts.
Investing in micro-cap companies can be rewarding. Liquidity issues and wide
stock price fluctuations of tiny companies make the Micro-Cap Fund most suitable
for long-term shareholders.
REVIEW OF THE YEAR
It has been an exciting, eventful year. For the fiscal year ended September
30, 1997, the Fund returned over 44%. Shareholders invested since the Fund's
inception in 1995 have seen their investment more than double. Of course, past
performance is not indicative of future results.
The year has been marked by a strong rebound in the performance of small
company stocks. Earlier in the year, when small company stock prices were low we
made sure the Fund was fully invested. We took larger positions in our
highest-quality holdings and invested in exciting new companies.
This proved to be a good move later in the year as many new holdings made
significant contributions to performance. In particular, several temporary
staffing companies, On Assignment, SOS Staffing Services and StaffMark, were
strong performers. Larger positions in our long-term core holdings, Techne, Fine
Host and Ambassador's International, also performed well.
A cold initial public offering (IPO) market earlier in the year provided an
opportunity to invest in: Complete Business Solutions, a provider of information
technology consulting and programming services to businesses; Deltek, a business
management software developer; and NACT Telecommunications, a provider of
telecom switching systems. All these investments more than doubled from their
IPOprice. Finally, "merger mania" found our small company stocks as Amrion,
Varsity Spirit and Electrostar were acquired by other public companies.
Although the portfolio, as a whole, exceeded our expectations, the stock
price performance of a few companies was disappointing. Friedman's, a jewelry
retailer, stock price declined over worries about customer debt levels. Slower
than anticipated developments have kept Natural Alternatives' stock price flat,
but we believe the company's future is promising.
We attribute the Fund's outstanding performance to buying companies with
strong earnings growth at reasonable prices. On average, companies the Fund
invested in produced earnings growth between 20% and 30%, while our average
price-to-earnings ratio, which is the price of a stock divided by its trailing
earnings per share, remained around 25.
Annual Report 7 --
<PAGE> 9
WASATCH MICRO-CAP FUND-Portfolio Summary
CLOSING THE FUND
Another highlight of fiscal 1997 was closing the Fund to new investors.
Between our announcement in July and August when the Fund closed, several
million dollars of new capital was invested. One of the reasons we closed the
Fund was to curb cash inflows and keep the size of the Fund manageable. While
this new money increased cash levels we anticipate bringing them down as we
invest in high-quality companies at prices we feel comfortable with.
OUTLOOK
We continue to be enthusiastic about micro-cap investing for 1998 and beyond.
We believe small company stocks are still relatively underpriced when compared
to their larger counterparts, and have greater potential for outstanding
returns.
Small company growth investing has been the focus of Wasatch's research team
for over 20 years. Maintaining a manageable asset size, investing in micro-cap
companies with excellent earnings growth prospects and paying reasonable prices
for stocks are some of the ways we look out for our shareholders.
We believe the Micro-Cap Fund provides excellent opportunities for long-term
shareholders to increase their assets. Thank you for your investment in the
Wasatch Micro-Cap Fund.
Thank you for your investment in the Wasatch Micro-CAp Fund.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS SINCE INCEPTION*
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
Wasatch Micro-Cap Fund 44.6% N/A 43.3%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is not indicative of future results.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
8/19/95 9/30/95 9/30/96 9/30/97
<S> <C> <C> <C> <C>
Wasatch Micro-Cap Fund $10,000 $13,600 $15,750 $22,771
Russell 2000 Index $10,000 $11,042 $12,353 $16,638
</TABLE>
*Inception: June 19, 1995.
The Russell 2000 Index is an unmanaged total return index of the smallest 2,000
companies in the Russell 3000 Index, as ranked by total market capitalization.
The Russell 2000 is widely regarded in the industry to accurately capture the
universe of small company stocks.
- -- 8 Annual Report
<PAGE> 10
WASATCH MICRO-CAP FUND-Portfolio Summary
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
<S> <C> <C>
1. Techne Corp. 4%
Disposable products for clinical
research labs and hospitals
2. Day Runner, Inc. 4%
Personal organizers, planners
and accessories
3. National Dentex Corp. 4%
Dental laboratories
4. Micrel, Inc. 3%
Analog semiconductors for cellular
phones and laptop computers
5. Travis Boats & Motors, Inc. 3%
Recreational boats, motors
and marine accessories retailer
6. F.Y.I. Inc. 3%
Document management services
7. First Cash, Inc. 3%
Pawnshop operator
8. Ambassadors 3%
International, Inc.
International educational
travel programs
9. Sunstone Hotel Investors, Inc. 2%
Hotel REIT
10. Fine Host Corp. 2%
Institutional food service management
</TABLE>
ASSET ALLOCATION
[PIE CHART]
Common Stock 81.8%
Cash 18.2%
SECTOR BREAKDOWN
[PIE CHART]
Business 23.1%
Personal 19.5%
Health Care 13.9%
Technology 10.5%
Retail 7.5%
Transportation 2.6%
Real Estate 2.4%
Other 2.3%
Annual Report 9 --
<PAGE> 11
WASATCH AGGRESSIVE EQUITY FUND-Portfolio Summary
September 30, 1997
[PHOTO OF JEFF CARDON -- LEAD MANAGER]
The Aggressive Equity Fund invests in growing small companies. Investing in
this segment of the market has historically achieved higher returns for
investors but requires patience and a long time horizon because small company
stock prices are subject to wide fluctuations.
REVIEW OF THE YEAR
The Fund ended the fiscal year by producing solid returns for shareholders in
the last two quarters. Performance was held back at the beginning of the year by
generally depressed small company stock prices.
As dedicated small company investors, we used stock price weakness to our
advantage by investing in companies with outstanding growth prospects while
prices were at bargain levels.
Companies in a variety of industries made positive contributions to Fund
performance. Notably strong performers were long-time favorites General
Nutrition, Express Scripts, O'Reilly Automotive, National Dentex and Expeditors
International. In addition, newer holdings Micrel, Techne and Gulf South Medical
Supply also performed well.
Our number one holding, National Health Investors, Inc. (NHI), is a real
estate investment trust that we regard as an all-weather investment. While it
hasn't been the Fund's best performer this year, we like it for the stability it
brings to the portfolio and the consistent returns we believe it can continue to
generate in the future.
Several companies experienced stock price declines that affected the Fund's
performance. We are holding these companies because we believe the issues
causing the price declines are not a threat to their long-term earnings growth
prospects. Worries about customer debt levels caused price declines in
Friedman's, a jewelry retailer; Nu Skin Asia Pacific, a natural health care
products network marketing organization, lost ground due to concerns about
currency devaluations in Asia; and Redwood Trust, a real estate investment
trust, faces increased competition for real estate loans.
The average earnings growth of companies in the Fund's portfolio was 19% for
the year ended September 30, 1997. The year-to-year earnings growth accelerated
to 25% during the last two quarters which helps explain the Fund's stronger
performance in the second half of the year. We believe small companies with this
kind of earnings growth potential are the ones most likely to attract investors.
Wasatch tries to invest in growing small companies and hold them as they
become large companies.
You will note on the "Growth of a $10,000 Investment" chart below that we
have added the Russell 2000 Index.
- -- 10 Annual Report
<PAGE> 12
WASATCH AGGRESSIVE EQUITY FUND-Portfolio Summary
We believe the Russell will provide a better comparison for the Aggressive
Equity Fund's performance because it is widely regarded in the industry to
accurately reflect the performance of small company stocks. We plan to drop the
Nasdaq Composite next year because we believe this index, which is now primarily
made up of larger technology stocks, is no longer as relevant for the Fund.
OUTLOOK
The Aggressive Equity Fund's portfolio is vibrant and growing. We believe we
have invested in high-quality small companies with excellent growth potential.
It has been our experience that if the companies we invest in produce the
earnings growth we seek, their stock prices will eventually increase to reflect
the growth.
The Fund appears well-positioned for the coming fiscal year. We are
confident it has the potential to contribute to our shareholders'
wealth-building efforts.
Thank you for your investment in the Wasatch Aggressive Equity Fund.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Wasatch Aggressive Equity Fund 29.5% 20.2% 14.5%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is not indicative of future results.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
12/6/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wasatch Aggressive
Equity Fund $10,000 $11,760 $10,211 $12,365 $11,063 $18,593 $18,165 $24,666 $26,345 $35,615 $35,225 $45,600
Russell 2000 Index $10,000 $12,489 $11,139 $13,533 $ 9,858 $14,303 $15,581 $20,747 $21,302 $28,280 $29,733 $39,600
Nasdaq Composite Index $10,000 $12,356 $10,783 $13,152 $ 9,581 $14,653 $16,221 $21,214 $21,259 $29,022 $34,122 $47,000
S&P 500 Composite $10,000 $13,238 $11,602 $15,431 $14,005 $18,389 $20,399 $23,051 $23,901 $31,010 $37,315 $52,408
</TABLE>
*Inception: December 6, 1986.
The Russell 2000 Index is an unmanaged total return index of the smallest 2,000
companies in the Russell 3000 Index, as ranked by total market capitalization.
The Russell 2000 is widely regarded in the industry to accurately capture the
universe of small company stocks.
The NASDAQ Composite Index is an unmanaged market capitalization price only
index that tracks the performance of domestic common stocks traded on the
regular NASDAQ market as well as National Market System-traded foreign common
stocks and ADRs.
The S&P 500 Composite is an unmanaged but commonly used measure of common stock
total return performance.
Annual Report 11 --
<PAGE> 13
WASATCH AGGRESSIVE EQUITY FUND-Portfolio Summary
<TABLE>
<CAPTION>
<S> <C>
TEN LARGEST HOLDINGS
1. National Health 7%
Investors, Inc.
Nursing home REIT
2. General Nutrition Cos., Inc. 6%
Vitamins, health care and
sports nutrition products
3. Micrel, Inc. 5%
Analog semiconductors for cellular
phones and laptop computers
4. Techne Corp. 4%
Disposable products for clinical
research labs and hospitals
5. Express Scripts, Inc., Class A 4%
Pharmacy benefits manager
6. O'Reilly Automotive, Inc. 4%
Automotive parts retailer/distributor
7. National Dentex Corp. 3%
Dental laboratories
8. Expeditors Int'l of 3%
Washington, Inc.
International air and ocean
freight forwarder
9. Gulf South Medical Supply, Inc. 3%
Products and services for long-term
health care facilities
10. OEA, Inc. 3%
Airbag initiators/inflators
</TABLE>
ASSET ALLOCATION
[PIE GRAPH]
Common Stock 95.9%
Corporate Bonds & Cash 4.1%
SECTOR BREAKDOWN
[PIE GRAPH]
Health Care 18.3%
Business 16.8%
Retail 16.4%
Technology 12.5%
Real Estate 11.2%
Transportation 8.2%
Personal 7.4%
Telecommunications 5.1%
- -- 12 Annual Report
<PAGE> 14
WASATCH GROWTH FUND-Portfolio Summary
September 30, 1997
[PHOTO OF SAMUEL S. STEWART, JR., PHD, CFA -- LEAD MANAGER]
The Growth Fund is the most conservative of all the Wasatch equity funds.
While targeting companies that are increasing earnings two to three times faster
than large companies, we seek to invest in companies we believe are stable and
have a history of consistent earnings growth. Also crucial to the Fund's
investment discipline is to purchase stocks at reasonable prices. We say a stock
is reasonably priced when its price-to-earnings ratio, which is the price of a
stock divided by its trailing earnings per share, is less than our projection of
its five year earnings growth rate. Investing in companies with solid earnings
growth potential and making sure we don't overpay for stocks can help
shareholders benefit from rising stock prices and may afford them some
protection when prices fall.
REVIEW OF THE YEAR
During fiscal 1997 we took advantage of attractive stock prices to invest or
increase our positions in many fine companies that meet the Growth Fund's strict
criteria for growth and stability. We exceeded our earnings growth target this
year. On average, companies the Fund has invested in reported earnings growth
well above our 15% minimum.
The Fund's positive performance came from a well-diversified mix of companies
in a variety of industries. Long-time holdings, characterized by steady demand
for products and services, continued to do well this year. Among the top
performers were: Expeditors International, an international air and ocean
freight forwarder; Express Scripts, a pharmacy benefits manager; O'Reilly
Automotive, an automotive parts retailer and distributor; General Nutrition, a
manufacturer and retailer of vitamins, health care and sports nutrition
products; and Washington Federal, a regional savings and loan.
New additions to the Fund's portfolio also made significant contributions.
Outstanding examples were: Home Health Corp. of America, a provider of home
health care services and equipment; Renter's Choice, a rent-to-own store
operator; First Cash, a pawn shop operator; and Day Runner, a retail
manufacturer of personal organizers.
In the second half of the year we were pleased with the stock price strength
of one of the Fund's few technology holdings, Synopsys, a software developer for
electronics designers.
The Fund experienced disappointing stock price performance from Physicians
Resource Group, a practice manager for optometrists and opthalmologists. We feel
the company lost control of its growth. Concerns about consumer debt levels
caused price declines in Friedman's, a jewelry retailer. Currency
Annual Report 13 --
<PAGE> 15
WASATCH GROWTH FUND-Portfolio Summary
devaluations in Asia hurt the stock price of Nu Skin Asia Pacific, a
personal care and nutrition products network marketing organization.
We may choose to hold companies with short-term issues that don't affect
their long-term growth prospects. We are likely to sell the stocks of companies
with long-term issues.
Overall the Fund had a great year. Attractive small company stock prices in
the first half allowed us to invest in high-quality, stable companies at some of
the best prices we have seen in years. This helped the Fund's performance in the
second half as companies we invested in reported solid earnings growth.
Rebounding small company stock prices also contributed to the stock price
strength of companies in the Fund's portfolio.
OUTLOOK
We are optimistic about the Fund's outlook for next year and beyond. We
believe that if we invest in high-quality, stable companies with consistent
earnings growth at reasonable prices the Fund will continue to be a valuable
contributor to long-term shareholders' investment portfolios.
Thank you for your investment in the Wasatch Growth Fund.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Wasatch Growth Fund 37.6% 22.6% 15.1%
- -----------------------------------------------------------------------------
</TABLE>
Past performance is not indicative of future results.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
12/6/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wasatch Growth Fund $10,000 $11,470 $ 9,934 $12,080 $11,498 $17,466 $16,836 $20,804 $21,584 $30,167 $33,903 $46,643
Lipper Growth Funds Index $10,000 $12,744 $11,375 $14,855 $12,787 $17,452 $18,793 $22,386 $22,786 $29,173 $33,178 $44,665
S&P 500 Composite $10,000 $13,238 $11,602 $15,431 $14,005 $18,369 $20,399 $23,051 $23,901 $31,010 $37,315 $52,408
</TABLE>
*Inception: December 6, 1986.
The Lipper Growth Funds Index includes the largest 30 funds which, by prospectus
or portfolio practice, normally invest in companies whose long-term earnings are
expected to grow significantly faster than the earnings of the stocks
represented in the major unmanaged stock indices.
The S&P 500 Composite is an unmanaged but commonly used measure of common stock
total return performance.
- -- 14 ANNUAL REPORT
<PAGE> 16
WASATCH GROWTH FUND-Portfolio Summary
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
<S> <C>
1. National Health Investors, Inc. 6%
Nursing home REIT
2. O'Reilly Automotive, Inc.
Automotive parts retailer/distributor 6%
3. General Nutrition Cos., Inc. 6%
Vitamins, health care and
sports nutrition products
4. Renter's Choice, Inc. 5%
Operates rent-to-own stores
5. Franklin Covey Co. 5%
Time management and personal productivity through
sales in day planners and seminars
6. Home Health Corp. 5%
of America
Services and equipment for
home health care
7. Marks Brothers Jewelers, Inc. 4%
Fine jewelry retailer
8. Sunstone Hotel 4%
Investors, Inc.
Hotel REIT
9. Washington Federal, Inc. 4%
Regional banking services
10. Friedman's Inc. 4%
Fine jewelry retailer
</TABLE>
ASSET ALLOCATION
[PIE CHART]
Common Stock 96.0%
Cash 4.0%
SECTOR BREAKDOWN
[PIE CHART]
Retail 21.9%
Personal 16.9%
Health Care 16.2%
Business 11.3%
Real Estate 10.1%
Telecommunications 7.2%
Financial Services 6.5%
Technology 3.4%
Transportation 2.5%
Annual Report 15 --
<PAGE> 17
WASATCH-HOISINGTON U.S. TREASURY FUND-Portfolio Summary
September 30, 1997
[PHOTO OF VAN R. HOISINGTON -- LEAD MANAGER]
WASATCH-HOISINGTON
U.S. TREASURY FUND
The U.S. Treasury Fund seeks to provide a rate of return that exceeds the
rate of inflation over a business cycle by investing in U.S. Treasury
Securities.
REVIEW OF THE YEAR
Fiscal 1997 was an eventful year for the Fund. In its first full year as the
Wasatch-Hoisington U.S. Treasury Fund, the Fund's total return surged to 13.2%,
outpacing the Lehman Brothers Government/Corporate Bond Index by 4.3%. The key
to these excellent results was the patient approach followed by the Manager.
When the Federal Reserve Board (Fed) raised the Federal funds rate 0.25% in
March, and market interest rates rose, the Fund continued to be fully invested
in long-dated Treasury Securities. New assets entering the Fund were also
invested in long-term securities, and the Fund attracted a record number of new
shareholders. Accordingly, the Fund's results are now published with the rest of
the Wasatch Funds in publications such as the Wall Street Journal and Barron's.
The 30-year Treasury bond yield fell about 0.5% in the last 12 months, from
6.9% to 6.4%. But, the path to lower rates was uneven since the market was
buffeted by two contradictory factors: falling inflation and the increasingly
tight labor market. The key element that resulted in the drop in bond yields was
inflation, which declined sharply. The core Producer Price Index (PPI) fell for
a record seven consecutive months this year. The core Consumer Price Index (CPI)
rose just 2.2% in fiscal 1997, down from a 3.3% rise in fiscal 1996--the
smallest 12 month increase in more than 30 years. The Gross Domestic Product
(GDP) implicit price deflator also decelerated to its slowest pace in three
decades.
The primary concern for some bond market participants has been the drop in
the unemployment rate to the lowest level in almost a quarter century. While
there is a near-term risk that the Fed will raise short-term rates again due to
concerns over tight labor markets, deflation is a bigger risk to the economy
over the long-term. Excess capacity is massive on an international scale and the
Fed has continued to maintain tight control over money and credit growth. Aiding
the Fed's ability to keep a tight lid on money and credit, the budget deficit
dropped to the lowest percent of GDP since the early 1970s.
OUTLOOK
The long-term outlook for bond yields remains constructive, with fre-
- -- 16 Annual Report
<PAGE> 18
WASATCH-HOISINGTON U.S. TREASURY FUND-Portfolio Summary
quent signs of excess capacity in global markets. Currency devaluations in
Asia mean lower priced goods in the U.S. and other markets, and firms competing
with Asian producers will be forced to reduce prices to hold a market share. In
addition, Asians now have considerably less hard currency income to buy our
exports, so the thrust of Asian currency devaluations is disinflationary, if not
deflationary. While the performance of the bond market may, at times, be
distracted by the perceived risks of tight labor markets, investors in
long-dated Treasury Securities are advised to look beyond this near-term
volatility to the potential gains that bonds are likely to achieve over the next
several years. Should market conditions change dramatically or economic and
political circumstances change, a shift in the portfolio to short-dated
Treasuries could be expected.
The difference between the current yield on the 30-year Treasury and the
core inflation rate is more than 4%. Such a historically high real yield offers
long-term shareholders a considerable cushion for times when Treasury bond
prices are buffeted by the vagaries of short-term influences. We believe that
shareholders able to take such a view will be rewarded in the long run by
investing in the U.S. Treasury Fund.
We appreciate your investment in the U.S. Treasury Fund.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Wasatch-Hoisington U.S. Treasury Fund 13.2% 6.6% 8.8%
- ----------------------------------------------------------------------------
</TABLE>
Past performance is not indicative of future results.
GROWTH OF A $10,000 INVESTMENT
[LINE GRAPH]
<TABLE>
<CAPTION>
12/6/86 9/30/87 9/30/88 9/30/89 9/30/90 9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wasatch-Hoisington U.S.
Treasury Fund $10,000 $10,190 $11,295 $12,707 $13,325 $15,823 $17,158 $17,810 $18,078 $19,970 $20,852 $23,612
Lehman Bros. Gov't./Corp.
Bond Index $10,000 $ 9,700 $10,839 $12,177 $12,999 $15,061 $17,053 $18,994 $18,207 $20,819 $21,758 $23,844
</TABLE>
*Inception: December 6, 1986.
The Lehman Brothers Government/Corporate Bond Index is an unmanaged market value
weighted index measuring both principal price changes of, and income provided
by, the underlying universe of securities that comprise the Index. Securities
included in the Index must meet the following criteria: fixed as opposed to
variable rate; not less than one year to maturity; minimum outstanding principal
value of $50 million; and minimum quality rating of BBB by Standard & Poor's or
Baa by Moody's.
Annual Report 17 --
<PAGE> 19
WASATCH-HOISINGTON U.S. TREASURY FUND-Portfolio Summary
HOLDINGS/MATURITY DATE ASSET ALLOCATION
- ------------------------ ----------------
1. U.S. Treasury Bond 29%
8/15/2023 [PIE CHART]
2. U.S. Treasury Bond 18%
8/15/2025
3. U.S. Treasury Bond 13%
11/15/2024
4. U.S. Treasury Bond 12%
11/15/2026
5. U.S. Treasury Bond 10%
2/15/2027
6. U.S. Treasury Bond 9%
2/15/2026
7. U.S. Treasury Bond 7% U.S. Treasury Bonds 97.4%
8/15/2026 Cash 2.6%
- -- 18 Annual Report
<PAGE> 20
NOTES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Annual Report 19 --
<PAGE> 21
MID-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
-----------------------------------------------------------------------------
COMMON STOCKS 91.5%
<S> <C> <C>
Business Services 8.8%
11,500 Caribiner International, Inc.* $ 468,625
77,000 F.Y.I. Inc.* 2,002,000
37,400 Kent Electronics* 1,477,300
18,450 Sanmina Corp.* 1,597,078
8,000 Sapient Corp.* 407,000
6,750 Technology Solutions Company* 217,688
30,000 Vestcom International, Inc.* 600,000
-----------
6,769,691
-----------
Computer Software 19.8%
145,950 Aspen Technologies, Inc.* 5,126,494
10,500 Nice-Systems Ltd.* 590,625
65,800 Parametric Technology Corp.* 2,903,425
121,550 Phoenix Technologies Ltd.* 1,808,056
118 Platinum Software Corp.* 1,372
46,500 Smallworldwide plc* 953,250
63,500 Synopsys, Inc.* 2,698,750
32,075 Tecnomatix Technologies Ltd.* 1,226,869
-----------
15,308,841
-----------
Health Care Products 10.1%
23,200 HBO & Company 875,800
12,300 Incyte Pharmaceuticals, Inc.* 1,033,200
4,500 Kendle International, Inc.* 84,375
28,000 Medic Computer Systems, Inc.* 959,000
140,000 Medical Manager Corp.* 2,940,000
15,000 SeaMED Corp.* 279,375
135,500 Simione Central Holdings, Inc.* 1,642,937
-----------
7,814,687
-----------
Health Care Services 16.6%
25,000 Curative Health Services, Inc.* 778,125
75,825 Express Scripts, Inc., Class A* 4,085,072
161,475 Home Health Corp. of America, Inc.* 2,099,175
86,450 National Surgery Centers, Inc.* 1,880,287
89,500 Pediatrix Medical Group Inc.* 3,949,187
-----------
12,791,846
-----------
</TABLE>
- -- 20 Annual Report
<PAGE> 22
MID-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Personal Products 2.4%
67,150 Nu Skin Asia Pacific, Inc., Class A* $ 1,296,834
49,000 Racing Champions Corp.* 581,875
------------
1,878,709
------------
Personal Services 1.6%
46,000 Loewen Group, Inc. 1,267,875
------------
Retail 7.4%
19,900 Fine Host Corp.* 771,125
139,900 O'Reilly Automotive, Inc.* 3,182,725
18,000 St. John Knits, Inc. 808,875
22,000 Starbucks Corp.* 919,875
------------
5,682,600
------------
Semiconductors 13.2%
24,300 ANADIGICS, Inc.* 1,198,294
4,500 ASM Lithography Holding N.V.* 444,375
12,000 Asyst Technologies, Inc.* 532,875
22,800 Cymer, Inc.* 624,150
96,200 Micrel, Inc.* 4,070,462
53,000 Microchip Technology, Inc.* 2,393,281
16,000 SpeedFam International, Inc.* 966,000
------------
10,229,437
------------
Telecommunications 4.1%
46,275 REMEC, Inc.* 1,689,038
40,670 United States Cellular Corp.* 1,499,706
------------
3,188,744
------------
Transportation 4.8%
15,700 AirNet Systems, Inc.* 378,763
48,300 Expeditors International of Washington, Inc. 2,022,563
36,900 OEA, Inc. 1,268,438
------------
3,669,764
------------
Other 2.7%
55,000 Cinar Films, Inc., Class B Sub VTG* 2,096,875
------------
Total Common Stocks (cost $51,877,454) 70,699,069
------------
</TABLE>
Annual Report 21 --
<PAGE> 23
MID-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS 9.2%
- -------------------------------------------------------------------------------
(Variable Rate Demand Deposits)
$7,097,790 UMB Bank Money Market Fiduciary, 4.73% $ 7,097,790
- -------------------------------------------------------------------------------
Total Short-Term Investments (cost $7,097,790) 7,097,790
- -------------------------------------------------------------------------------
Total Investments (cost $58,975,244) 100.7% 77,796,859
Liabilities, less Cash and Other Assets (0.7)% (554,123)
- -------------------------------------------------------------------------------
NET ASSETS 100.0% $ 77,242,736
===============================================================================
</TABLE>
*Non-income producing
See notes to financial statements.
- -- 22 Annual Report
<PAGE> 24
MICRO-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS 81.8%
<S> <C> <C>
Business Products 5.2%
105,691 Building Materials Holding Corp.* $ 1,380,589
57,000 Daisytek International Corp.* 2,493,750
12,000 Goddard Industries, Inc.* 48,000
98,900 Keystone Automotive Industries, Inc.* 2,089,263
397,200 Thompson PBE, Inc.* 2,184,600
------------
8,196,202
------------
Business Services 17.9%
52,000 A Consulting Team, Inc. (The)* 624,000
77,600 Altron Inc.* 1,290,100
114,300 Barrett Business Services, Inc.* 1,914,525
150,000 Carnegie Group, Inc.* 1,181,250
84,600 Complete Business Solutions, Inc.* 2,411,100
35,000 Data Processing Resources Corp.* 875,000
155,200 F.Y.I. Inc.* 4,035,200
30,000 Hall, Kinion & Associates, Inc.* 633,750
41,000 IntelliQuest Information Group, Inc.* 861,000
11,000 Lamalie Associates, Inc.* 231,000
5,000 Lason Holdings, Inc.* 138,125
268,850 National Dentex Corp.* 5,713,062
46,000 On Assignment, Inc.* 2,093,000
119,000 RemedyTemp, Inc.* 2,796,500
24,000 RWD Technologies, Inc.* 552,000
75,000 SOS Staffing Services, Inc.* 1,387,500
5,000 Source Services Corp.* 148,750
38,000 StaffMark, Inc.* 1,448,750
------------
28,334,612
------------
Computer Software 2.1%
90,100 Deltek Systems, Inc.* 1,869,575
42,500 OrCAD, Inc.* 618,906
22,300 Tecnomatix Technologies Ltd.* 852,975
------------
3,341,456
------------
Computer Systems & Components 4.3%
75,350 Active Voice Corp.* 1,092,575
99,000 C.P. Clare Corp.* 1,955,250
15,100 Eltron International, Inc.* 518,119
79,200 Pinnacle Systems, Inc.* 2,316,600
42,500 TransAct Technologies Inc.* 828,750
------------
6,711,294
</TABLE>
Annual Report 23 --
<PAGE> 25
MICRO-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Electronics 1.0%
62,500 PCD, Inc.* $ 1,546,875
------------
Energy 0.2%
10,000 UNIFAB International, Inc.* 327,500
------------
Financial Services 0.5%
25,000 First International Bancorp, Inc.* 448,437
32,350 Mountbatten, Inc.* 355,850
------------
804,287
------------
Health Care Products 7.9%
10,000 Anesta Corp.* 232,500
10,000 Biosite Diagnostics, Inc.* 87,500
83,500 CN Biosciences, Inc.* 1,962,250
143,400 ICU Medical, Inc.* 1,523,625
85,000 Minntech Corp. 945,625
69,000 SeaMED Corp.* 1,285,125
180,364 Techne Corp.* 6,402,922
------------
12,439,547
------------
Health Care Services 6.0%
40,000 Castle Dental Centers, Inc.* 560,000
5,000 Coast Dental Services, Inc.* 148,750
88,300 CorVel Corp.* 3,377,475
5,000 First Commonwealth, Inc.* 74,375
83,825 Gulf South Medical Supply, Inc.* 2,242,319
127,000 Laboratory Specialists of America, Inc.* 404,813
58,000 MedCath Inc.* 986,000
48,500 Superior Consultant Holdings Corp.* 1,624,750
------------
9,418,482
------------
Personal Products 11.2%
20,000 Concepts Direct, Inc.* 400,000
161,500 Day Runner, Inc.* 6,217,750
29,500 Market America, Inc.* 210,188
341,100 Natural Alternatives International, Inc.* 2,686,162
122,500 Signature Eyewear, Inc.* 1,225,000
121,900 Successories Inc.* 899,012
208,200 Travis Boats & Motors, Inc.* 4,242,075
85,200 USANA, Inc.* 1,810,500
------------
17,690,687
------------
</TABLE>
- -- 24 Annual Report
<PAGE> 26
MICRO-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Personal Services 8.3%
83,000 Alrenco, Inc.* $ 1,483,625
180,000 Ambassadors International, Inc.* 3,960,000
55,000 CorporateFamily Solutions, Inc.* 928,125
520,000 First Cash, Inc.* 4,095,000
70,000 Rent-Way, Inc.* 1,478,750
77,850 Seattle FilmWorks, Inc.* 846,619
16,550 Travel Services International, Inc.* 343,413
------------
13,135,532
------------
Real Estate 2.4%
217,900 Sunstone Hotel Investors, Inc. REIT 3,840,488
------------
Retail 7.5%
110,300 Buckle, Inc. (The)* 2,688,562
92,700 Fine Host Corp.* 3,592,125
9,900 Hibbett Sporting Goods, Inc.* 275,962
149,150 K & G Men's Center, Inc.* 2,983,000
70,800 Marks Bros. Jewelers, Inc.* 991,200
40,000 PJ America Inc.* 690,000
145,000 Video Update, Inc.* 534,688
------------
11,755,537
------------
Semiconductors 4.1%
52,500 Aetrium Inc.* 1,305,937
123,100 Micrel, Inc.* 5,208,669
------------
6,514,606
------------
Telecommunications 0.6%
62,500 NACT Telecommunications, Inc.* 988,281
------------
Transportation 2.6%
20,500 Simon Transportation Services, Inc.* 484,313
20,000 Smithway Motor Xpress Corp.* 280,000
42,500 Transport Corp. of America, Inc.* 658,750
223,000 USA Truck, Inc.* 2,676,000
------------
4,099,063
------------
Total Common Stocks (cost $98,401,825) 129,144,449
------------
</TABLE>
Annual Report 25 --
<PAGE> 27
MICRO-CAP FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 17.8%
----------------------------
<S> <C> <C>
(Variable Rate Demand Deposits)
$28,118,994 UMB Bank Money Market Fiduciary, 4.73% $ 28,118,994
-------------
Total Short-Term Investments (cost $28,118,994) 28,118,994
-------------
Total Investments (cost $126,520,819) 99.6% 157,263,443
Cash and Other Assets, less Liabilities 0.4% 644,007
-------------
NET ASSETS 100.0% $157,907,450
============
</TABLE>
*Non-income producing
See notes to financial statements.
- -- 26 Annual Report
<PAGE> 28
AGGRESSIVE EQUITY FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- -----------------------------------------------------------------------------
COMMON STOCKS 95.9%
-------------------
<S> <C> <C>
Business Products 3.0%
47,200 American Business Information, Inc.* $ 1,280,300
97,750 Daisytek International Corp.* 4,276,562
21,350 Thompson PBE, Inc.* 117,425
------------
5,674,287
------------
Business Services 13.8%
114,900 Alternative Resources Corp.* 2,714,513
170,000 Altron Inc.* 2,826,250
142,100 Barrett Business Services, Inc.* 2,380,175
52,250 Complete Business Solutions, Inc.* 1,489,125
91,400 Data Processing Resources Corp.* 2,285,000
184,400 F.Y.I. Inc.* 4,794,400
55,975 Lason Holdings, Inc.* 1,546,309
291,300 National Dentex Corp.* 6,190,125
21,650 Sanmina Corp.* 1,874,078
------------
26,099,975
------------
Computer Software 4.8%
54,200 Aspen Technologies, Inc.* 1,903,775
143,800 Deltek Systems, Inc.* 2,983,850
99,350 Synopsys, Inc.* 4,222,375
------------
9,110,000
------------
Computer Systems & Components 0.7%
40,300 Eltron International, Inc.* 1,382,794
------------
Health Care Products 7.6%
63,500 CN Biosciences, Inc.* 1,492,250
94,900 Molecular Devices Corp.* 2,075,938
97,400 Serologicals Corp.* 2,215,850
238,900 Techne Corp.* 8,480,950
------------
14,264,988
------------
Health Care Services 10.7%
142,650 Express Scripts, Inc., Class A* 7,685,269
225,500 Gulf South Medical Supply, Inc.* 6,032,125
153,400 Home Health Corp. of America, Inc.* 1,994,200
206,100 National Surgery Centers, Inc.* 4,482,675
------------
20,194,269
------------
</TABLE>
Annual Report 27 --
<PAGE> 29
AGGRESSIVE EQUITY FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Personal Products 4.0%
74,100 Franklin Covey Co.* $ 2,070,169
123,800 Nu Skin Asia Pacific, Inc., Class A* 2,390,888
42,575 Racing Champions Corp.* 505,578
87,750 Travis Boats & Motors, Inc.* 1,787,906
76,150 Weider Nutrition International, Inc. 885,244
------------
7,639,785
------------
Personal Services 3.4%
53,500 Loewen Group, Inc. 1,474,594
30,000 Mail Boxes Etc.* 855,000
131,000 Renters Choice, Inc.* 2,976,156
100,102 Seattle FilmWorks, Inc.* 1,088,609
------------
6,394,359
------------
Real Estate 11.2%
352,500 National Health Investors, Inc. REIT 13,703,438
111,075 Oasis Residential, Inc. REIT 2,707,453
88,350 Redwood Trust, Inc. REIT 2,683,631
118,450 Sunstone Hotel Investors, Inc. REIT 2,087,681
------------
21,182,203
------------
Retail 16.4%
83,700 Buckle, Inc. (The)* 2,040,188
64,400 Fine Host Corp.* 2,495,500
99,500 Friedman's Inc.* 1,679,063
382,500 General Nutrition Cos., Inc.* 11,140,312
104,125 K & G Men's Center, Inc.* 2,082,500
334,700 O'Reilly Automotive, Inc.* 7,614,425
155,400 Marks Bros. Jewelers, Inc.* 2,175,600
39,850 St. John Knits, Inc. 1,790,759
------------
31,018,347
------------
Semiconductors 7.0%
218,500 Micrel, Inc.* 9,245,281
50,100 Microchip Technology, Inc.* 2,262,328
83,750 SDL, Inc.* 1,695,937
------------
13,203,546
------------
</TABLE>
- -- 28 Annual Report
<PAGE> 30
AGGRESSIVE EQUITY FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- -----------------------------------------------------------------------------
<S> <C> <C>
Telecommunications 5.1%
175,150 Powertel, Inc.* $ 3,327,850
64,250 REMEC, Inc.* 2,345,125
107,090 United States Cellular Corp.* 3,948,944
--------------
9,621,919
--------------
Transportation 8.2%
160,600 AirNet Systems, Inc.* 3,874,475
147,200 Expeditors International of Washington, Inc. 6,164,000
155,900 OEA, Inc. 5,359,062
--------------
15,397,537
--------------
Total Common Stocks (cost $122,704,273) 181,184,009
--------------
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------------------------
CONVERTIBLE BONDS 1.7%
----------------------
<S> <C> <C>
$ 863,000 National HealthCare L.P., 6.00%, 7/1/00 $ 3,208,203
------------
Total Convertible Bonds (cost $1,656,960) 3,208,203
------------
SHORT-TERM INVESTMENTS 2.7%
---------------------------
(Variable Rate Demand Deposits)
5,035,312 UMB Bank Money Market Fiduciary, 4.73% 5,035,312
------------
Total Short-Term Investments (cost $5,035,312) 5,035,312
------------
Total Investments (cost $129,396,545) 100.3% 189,427,524
Liabilities, less Cash and Other Assets (0.3)% (462,439)
------------
NET ASSETS 100.0% $188,965,085
============
*Non-income producing
See notes to financial statements.
</TABLE>
Annual Report 29 --
<PAGE> 31
GROWTH FUND-SCHEDULE OF INVESTMENTS
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS 96.0%
-------------------
<S> <C> <C>
Business Products 4.8%
201,823 Building Materials Holding Corp.* $ 2,636,313
707,600 Thompson PBE, Inc.* 3,891,800
------------
6,528,113
------------
Business Services 6.5%
195,700 Altron Inc.* 3,253,512
187,000 National Dentex Corp.* 3,973,750
65,500 RemedyTemp, Inc.* 1,539,250
------------
8,766,512
------------
Computer Software 2.3%
150 Platinum Software Corp.* 1,744
73,700 Synopsys, Inc.* 3,132,250
------------
3,133,994
------------
Computer Systems & Components 1.1%
41,700 Eltron International, Inc.* 1,430,831
------------
Financial Services 6.5%
133,000 Credit Acceptance Corp.* 1,845,375
5,000 Franklin Savings Assn.* 1
167,737 Washington Federal, Inc. 4,969,208
291,486 World Acceptance Corp.* 1,931,095
------------
8,745,679
------------
Health Care Products 3.1%
39,500 Amgen, Inc.* 1,893,531
64,750 Techne Corp.* 2,298,625
------------
4,192,156
------------
Health Care Services 13.1%
102,925 CorVel Corp.* 3,936,881
46,500 Gulf South Medical Supply, Inc.* 1,243,875
20,100 HealthCare COMPARE Corp.* 1,283,887
475,606 Home Health Corp. of America, Inc.* 6,182,878
87,500 National Surgery Centers, Inc.* 1,903,125
285,000 Physicians Resource Group, Inc. * 3,224,063
------------
17,774,709
------------
</TABLE>
- -- 30 Annual Report
<PAGE> 32
GROWTH FUND-SCHEDULE OF INVESTMENTS
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Personal Products 8.5%
51,600 Day Runner, Inc.* $ 1,986,600
229,400 Franklin Covey Co.* 6,408,862
166,500 Natural Alternatives International, Inc.* 1,311,189
62,000 Nu Skin Asia Pacific, Inc., Class A* 1,197,375
57,200 Weider Nutrition International, Inc. 664,950
------------
11,568,976
------------
Personal Services 8.4%
116,400 Ambassadors International, Inc.* 2,560,800
300,000 First Cash, Inc.* 2,362,500
284,100 Renters Choice, Inc.* 6,454,397
------------
11,377,697
------------
Real Estate 10.1%
220,200 National Health Investors, Inc. REIT 8,560,275
289,300 Sunstone Hotel Investors, Inc. REIT 5,098,912
------------
13,659,187
------------
Retail 21.9%
65,446 Buckle, Inc. (The)* 1,595,246
291,400 Friedman's Inc.* 4,917,375
266,200 General Nutrition Cos., Inc.* 7,753,075
103,000 Hollywood Entertainment Corp.* 1,345,437
5,000 Home Centers (DIY) Ltd.* 33,750
400,000 Marks Bros. Jewelers, Inc.* 5,600,000
347,100 O'Reilly Automotive, Inc.* 7,896,525
34,000 PJ America Inc.* 586,500
------------
29,727,908
------------
Telecommunications 7.2%
96,936 Century Telephone Enterprises, Inc. 4,265,184
10,000 Telecomunicacoes Brasileiras S/A-Telebras 1,287,500
62,200 Telephone and Data Systems, Inc. 2,799,000
40,000 United States Cellular Corp.* 1,475,000
------------
9,826,684
------------
</TABLE>
Annual Report 31 --
<PAGE> 33
GROWTH FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Number
of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Transportation 2.5%
56,000 AirNet Systems, Inc.* $ 1,351,000
165,200 USA Truck, Inc.* 1,982,400
--------------
3,333,400
--------------
Total Common Stocks (cost $104,425,988) 130,065,846
--------------
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------
WARRANTS 0.0%
-------------
<S> <C> <C>
$ 1 Cherokee, Inc. Series C 1
------------
Total Warrants (cost $6) 1
------------
SHORT-TERM INVESTMENTS 5.4%
---------------------------
(Variable Rate Demand Deposits)
7,335,407 UMB Bank Money Market Fiduciary, 4.73% 7,335,407
------------
Total Short-Term Investments (cost $7,335,407) 7,335,407
------------
Total Investments (cost $111,761,401) 101.4% 137,401,254
Liabilities, less Cash and Other Assets (1.4)% (1,964,063)
------------
NET ASSETS 100.0% $135,437,191
============
</TABLE>
*Non-income producing
See notes to financial statements.
- -- 32 Annual Report
<PAGE> 34
U.S. TREASURY FUND-Schedule of Investments
September 30, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
- --------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS 97.4%
---------------------------------
<S> <C> <C>
$3,350,000 U.S. Treasury Bond, 6.25%, 8/15/23 $ 3,251,477
1,300,000 U.S. Treasury Bond, 7.50%, 11/15/24 1,467,375
1,905,000 U.S. Treasury Bond, 6.875%, 8/15/25 2,002,631
1,100,000 U.S. Treasury Bond, 6.00%, 2/15/26 1,032,416
750,000 U.S. Treasury Bond, 6.75%, 8/15/26 777,742
1,290,000 U.S. Treasury Bond, 6.50%, 11/15/26 1,299,185
1,055,000 U.S. Treasury Bond, 6.625%, 2/15/27 1,079,824
------------
Total U.S. Government Obligations (cost $10,378,108) 10,910,650
------------
SHORT-TERM INVESTMENTS 1.3%
---------------------------
(Variable Rate Demand Deposits)
152,053 UMB Bank Money Market Fiduciary, 4.73% 152,053
------------
Total Short-Term Investments (cost $152,053) 152,053
------------
Total Investments (cost $10,530,161) 98.7% 11,062,703
Cash and Other Assets, less Liabilities 1.3% 142,342
------------
NET ASSETS 100.0% $ 11,205,045
============
</TABLE>
See notes to financial statements.
Annual Report 33 --
<PAGE> 35
WASATCH FUNDS-Statements of Assets and Liabilities
September 30, 1997
<TABLE>
<CAPTION>
MID-CAP MICRO-CAP
FUND FUND
- -------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at market value
Nonaffiliated issuers (cost $58,975,244,
$115,330,254, $124,624,332, $95,889,802
and $10,530,161, respectively) $77,796,859 $143,213,305
Affiliated issuers (cost $0, $11,190,565,
$4,772,213, $15,871,599
and $0, respectively) -- 14,050,138
Receivable for investment securities sold -- 1,390,782
Interest and dividends receivable 20,080 171,058
Prepaid expenses and other assets 19,728 17,672
Receivable from adviser -- --
----------- ------------
Total Assets 77,836,667 158,842,955
----------- ------------
Liabilities:
Payable for securities purchased 500,997 790,268
Accrued investment advisory fee 36,121 78,069
Accrued expenses 56,813 67,168
----------- ------------
Total Liabilities 593,931 935,505
----------- ------------
Net Assets $77,242,736 $157,907,450
=========== ============
Net Assets Consist of:
Capital stock 3,535 36,837
Paid-in capital in excess of par 52,454,578 116,065,034
Undistributed net investment income -- --
Undistributed net realized gain (loss)
on investments 5,963,008 11,062,955
Net unrealized appreciation
on investments 18,821,615 30,742,624
----------- ------------
Net Assets $77,242,736 $157,907,450
=========== ============
Capital Stock, $.001 par value:
Authorized 100,000,000 100,000,000
Issued and outstanding 3,534,975 36,837,354
NET ASSET VALUE, REDEMPTION PRICE
AND OFFERING PRICE PER SHARE $21.85 $4.29
=========== ============
</TABLE>
See notes to financial statements.
- -- 34 Annual Report
<PAGE> 36
<TABLE>
<CAPTION>
AGGRESSIVE U.S.
EQUITY GROWTH TREASURY
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
$183,237,399 $120,990,326 $11,062,703
6,190,125 16,410,928 --
434,760 -- --
375,509 281,411 136,657
25,131 20,363 7,674
-- -- 6,609
------------ ------------ -----------
190,262,924 137,703,028 11,213,643
------------ ------------ -----------
1,122,838 2,174,596 --
67,411 40,376 1,447
107,590 50,865 7,151
------------ ------------ -----------
1,297,839 2,265,837 8,598
------------ ------------ -----------
$188,965,085 $135,437,191 $11,205,045
============ ============ ===========
6,356 6,063 989
103,633,994 97,509,586 10,241,622
64,216 159,222 473,945
25,229,540 12,122,467 (44,053)
60,030,979 25,639,853 532,542
------------ ------------ -----------
$188,965,085 $135,437,191 $11,205,045
============ ============ ===========
100,000,000 100,000,000 100,000,000
6,356,637 6,062,835 989,913
$29.73 $22.34 $11.32
============ ============ ===========
</TABLE>
Annual Report 35 --
<PAGE> 37
WASATCH FUNDS-STATEMENTS OF OPERATIONS
For the year ended September 30, 1997
<TABLE>
<CAPTION>
MID-CAP MICRO-CAP
FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Interest $ 92,556 $ 341,707
Dividends--Nonaffiliated issuers 137,860 418,556
----------- -----------
230,416 760,263
----------- -----------
Expenses:
Investment advisory fee 1,060,550 1,774,510
Shareholder servicing fees 283,163 277,319
Fund administration and accounting fees 128,275 134,081
Reports to shareholders 34,136 35,851
Federal and state registration fees 38,452 26,220
Custody fees 32,886 14,722
Audit fees 9,389 8,602
Legal fees 5,157 4,037
Directors' fees 3,301 2,622
Other 13,204 9,489
----------- -----------
Total expenses before reimbursement 1,608,513 2,287,453
Reimbursement of expenses by adviser (123,680) (68,760)
----------- -----------
Net expenses 1,484,833 2,218,693
----------- -----------
Net Investment Income (Loss) (1,254,417) (1,458,430)
----------- -----------
Realized and Unrealized Gain:
Net realized gain (loss) on investments
Nonaffiliated 15,258,686 13,493,997
Affiliated -- (344,106)
----------- -----------
15,258,686 13,149,891
Change in unrealized appreciation/depreciation
on investments 1,592,547 24,309,512
----------- -----------
Net gain on investments 16,851,233 37,459,403
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $15,596,816 $36,000,973
=========== ===========
</TABLE>
See notes to financial statements.
- -- 36 Annual Report
<PAGE> 38
<TABLE>
<CAPTION>
AGGRESSIVE U.S.
EQUITY GROWTH TREASURY
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C>
$ 187,663 $ 302,625 $ 673,024
1,956,778 1,547,602 --
----------- ----------- ----------
2,144,441 1,850,227 673,024
----------- ----------- ----------
1,934,279 954,694 50,068
530,759 215,625 22,835
292,431 144,300 15,186
75,956 38,672 7,670
59,246 36,791 16,576
33,788 10,596 1,155
14,876 11,346 5,392
10,460 5,421 1,423
6,969 2,983 269
24,049 9,864 1,807
----------- ----------- ----------
2,982,813 1,430,292 122,381
(81,327) -- (47,278)
----------- ----------- ----------
2,901,486 1,430,292 75,103
----------- ----------- ----------
(757,045) 419,935 597,921
----------- ----------- ----------
37,193,791 14,559,944 22,912
(5,680,007) (38,750) --
----------- ----------- ----------
31,513,784 14,521,194 22,912
16,058,451 16,863,575 560,378
----------- ----------- ----------
47,572,235 31,384,769 583,290
----------- ----------- ----------
$46,815,190 $31,804,704 $1,181,211
=========== =========== ==========
</TABLE>
Annual Report 37 --
<PAGE> 39
WASATCH FUNDS-STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED SEPTEMBER 30
<TABLE>
<CAPTION>
MID-CAP FUND
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ (1,254,417) $ (1,893,457)
Net realized gain (loss) on
investments 15,258,686 (6,760,269)
Change in unrealized appreciation/
depreciation on investments 1,592,547 5,203,852
------------ ------------
Net increase (decrease) in net assets
resulting from operations 15,596,816 (3,449,874)
Dividends paid from:
Net realized gains (15,375) (1,324,019)
------------ ------------
(15,375) (1,324,019)
Capital share transactions:
Shares sold 31,875,753 182,179,742
Shares issued to holders in
reinvestment of dividends 15,089 1,239,102
------------ ------------
31,890,842 183,418,844
Shares redeemed (98,719,877) (148,760,098)
------------ ------------
Net increase (decrease) (66,829,035) 34,658,746
------------ ------------
Total increase (decrease) in net assets (51,247,594) 29,884,853
Net assets:
Beginning of period 128,490,330 98,605,477
------------ ------------
End of period $ 77,242,736 $128,490,330
============ ============
Undistributed net investment income
included in net assets at end of
period -- --
============ ============
</TABLE>
See notes to financial statements.
-- 38 Annual Report
<PAGE> 40
<TABLE>
<CAPTION>
MICRO-CAP FUND AGGRESSIVE EQUITY FUND
1997 1996 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
$ (1,458,430) $ (1,003,558) $ (757,045) $ (1,849,271)
13,149,891 5,035,561 31,513,784 10,202,825
24,309,512 4,725,256 16,058,451 (13,631,797)
------------ ------------ ------------ ------------
36,000,973 8,757,259 46,815,190 (5,278,243)
(4,659,756) -- (10,767,566) (6,568,893)
------------ ------------ ------------ ------------
(4,659,756) -- (10,767,566) (6,568,893)
91,645,382 98,979,879 16,269,246 67,968,096
4,568,891 -- 10,048,278 6,096,326
------------ ------------ ------------ ------------
96,214,273 98,979,879 26,317,524 74,064,422
(63,651,794) (39,101,525) (126,719,050) (114,209,328)
------------ ------------ ------------ ------------
32,562,479 59,878,354 (100,401,526) (40,144,906)
------------ ------------ ------------ ------------
63,903,696 68,635,613 (64,353,902) (51,992,042)
94,003,754 25,368,141 253,318,987 305,311,029
------------ ------------ ------------ ------------
$157,907,450 $ 94,003,754 $188,965,085 $253,318,987
============ ============ ============ ============
-- -- $64,216 --
============ ============ ============ ============
</TABLE>
Annual Report 39 --
<PAGE> 41
WASATCH FUNDS-STATEMENTS OF CHANGES IN NET ASSETS
For the year ended September 30
<TABLE>
<CAPTION>
GROWTH FUND
1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income $ 419,935 $ 339,182
Net realized gain on
investments 14,521,194 4,300,860
Change in unrealized appreciation/
depreciation on investments 16,863,575 2,666,547
------------- -------------
Net increase in net assets
resulting from operations 31,804,704 7,306,589
Dividends paid from:
Net investment income (342,214) (190,396)
Net realized gains (6,352,213) (1,105,143)
------------- -------------
(6,694,427) (1,295,539)
Capital share transactions:
Shares sold 68,453,640 97,935,584
Shares issued to holders in
reinvestment of dividends 6,494,354 1,219,162
------------- -------------
74,947,994 99,154,746
Shares redeemed (68,857,722) (54,462,619)
------------- -------------
Net increase 6,090,272 44,692,127
------------- -------------
Total increase in net assets 31,200,549 50,703,177
Net assets:
Beginning of period 104,236,642 53,533,465
------------- -------------
End of period $135,437,191 $104,236,642
============= =============
Undistributed net investment income
included in net assets at end of
period $159,222 $204,038
============= =============
</TABLE>
See notes to financial statements.
-- 40 Annual Report
<PAGE> 42
<TABLE>
<CAPTION>
U.S. TREASURY FUND
1997 1996
----------------------------------
<S> <C>
$ 597,921 $ 290,023
22,912 19,162
560,378 (67,058)
------------- -----------
1,181,211 242,127
(194,393) (371,160)
-- --
------------- -----------
(194,393) (371,160)
7,961,845 5,609,929
191,694 359,319
------------- -----------
8,153,539 5,969,248
(5,362,196) (2,448,554)
------------- -----------
2,791,343 3,520,694
------------- -----------
3,778,161 3,391,661
7,426,884 4,035,223
------------- -----------
$11,205,045 $7,426,884
============= ===========
$473,945 $70,417
============= ===========
</TABLE>
Annual Report 41 --
<PAGE> 43
MID-CAP FUND-FINANCIAL HIGHLIGHTS
Year ended September 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 17.95 $ 18.61 $ 11.02 $ 10.51 $ 9.93
Income (loss) from investment operations:
Net investment income (loss) (0.35) (0.26) (0.02) (0.27) (0.07)
Net realized and unrealized
gains (losses) on securities 4.25 (0.21) 7.64 0.78 0.65
Total from investment ---------- --------- ------------- ------------ ----------
operations 3.90 (0.47) 7.62 0.51 0.58
Less distributions:
Distributions from
capital gains -- (0.19) (0.03) -- --
--------- --------- ------------ ------------ ----------
Total distributions -- (0.19) (0.03) -- --
--------- --------- ------------ ------------ ----------
Net asset value,
end of period $ 21.85 $ 17.95 $ 18.61 $ 11.02 $ 10.51
========== ========== ============= ============ ==========
Total return 21.75% (2.54)% 69.24% 4.85% 5.85%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $ 77,243 $ 128,490 $ 98,605 $ 1,091 $ 2,451
Ratio of expenses to average
net assets(1) 1.75% 1.75% 1.75% 1.75% 1.74%
Ratio of net income (loss)
to average net assets(1) (1.48)% (1.27)% (0.71)% (1.19)% (0.86)%
Portfolio turnover rate 103% 121% 46% 213% 113%
Average commission rate
paid on portfolio
investment transactions(2) $ 0.05 $ 0.05 N/A N/A N/A
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses by
adviser, the ratio of expenses to average net assets would be 1.89%, 1.81%,
1.94%, 3.33% and 2.69%, respectively, and the ratio of net income (loss) to
average net assets would be (1.62)%, (1.33)%, (0.90)%, (2.76)% and (1.81)%,
respectively.
(2) Disclosure required by the Securities and Exchange Commission beginning
1996.
See notes to financial statements.
- -- 42 Annual Report
<PAGE> 44
MICRO-CAP FUND-(FINANCIAL HIGHLIGHTS)
Year ended September 30
<TABLE>
<CAPTION>
June 19, 1995(1) through
1997 1996 September 30, 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning
of period $3.15 $2.72 $2.00
Income (loss) from investment operations:
Net investment income (loss) (0.04) (0.03) --
Net realized and unrealized
gains on securities 1.36 0.46 0.72
------ ------- -------
Total from investment
operations 1.32 0.43 0.72
Less distributions:
Distributions from
capital gains (0.18) -- --
------ ------- -------
Total distributions (0.18) -- --
------ ------- -------
Net asset value,
end of period $4.29 $3.15 $2.72
====== ======= =======
Total return(2) 44.58% 15.81% 36.00%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $157,907 $94,004 $25,368
Ratio of expenses to average
net assets(3) 2.50% 2.50% 2.50%(4)
Ratio of net income (loss)
to average net assets(3) (1.64)% (1.53)% (0.76)%(4)
Portfolio turnover rate 99% 84% 0%
Average commission rate
paid on portfolio
investment transactions(5) $0.05 $0.04 N/A
</TABLE>
(1) Commencement of operations.
(2) Not annualized for periods less than a year.
(3) Net of reimbursements by adviser. Absent reimbursement of expenses by
adviser, the ratio of expenses to average net assets would be 2.58%, 2.67%
and 3.40%, respectively, and the ratio of net income (loss) to average net
assets would be (1.72)%, (1.70)% and (1.66)%, respectively.
(4) Annualized.
(5) Disclosure required by the Securities and Exchange Commission beginning
1996.
See notes to financial statements.
- -- 43 Annual Report
<PAGE> 45
AGGRESSIVE EQUITY FUND-(FINANCIAL HIGHLIGHTS)
Year ended September 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $24.17 $25.00 $19.96 $19.75 $15.23
Income (loss) from investment operations:
Net investment income (loss) (0.12) (0.18) (0.04) (0.02) (0.09)
Net realized and unrealized
gains (losses) on securities 6.90 (0.11) 6.59 1.33 5.40
------- ------ ------ ------ -------
Total from investment
operations 6.78 (0.29) 6.55 1.31 5.31
Less distributions:
Distributions from
capital gains (1.22) (0.54) (1.51) (1.10) (0.79)
------- ------ ------ ------ -------
Total distributions (1.22) (0.54) (1.51) (1.10) (0.79)
------- ------ ------ ------ -------
Net asset value,
end of period $29.73 $24.17 $25.00 $19.96 $19.75
======= ======= ====== ====== =======
Total return 29.45% (1.09)% 35.19% 6.85% 35.73%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $ 188,965 $253,319 $305,311 $46,369 $23,293
Ratio of expenses to average
net assets(1) 1.50% 1.50% 1.47% 1.50% 1.50%
Ratio of net income (loss)
to average net assets(1) (0.39)% (0.65)% (0.37)% (0.67)% (0.77)%
Portfolio turnover rate 48% 73% 29% 64% 70%
Average commission rate
paid on portfolio
investment transactions(2) $0.05 $0.05 N/A N/A N/A
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses by
adviser, except for the years ended September 30, 1996 and 1995 where there
were no reimbursements, the ratio of expenses to average net assets for the
years ended September 30, 1997, September 30, 1994 and September 30, 1993
would be 1.54%, 1.52% and 1.64%, respectively, and the ratio of net income
(loss) to average net assets would be (0.43)%, (0.69)% and (0.92)%,
respectively.
(2) Disclosure required by the Securities and Exchange Commission beginning
1996.
See notes to financial statements.
Annual Report 45 --
<PAGE> 46
GROWTH FUND-(FINANCIAL HIGHLIGHTS)
Year ended September 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $17.57 $15.97 $15.30 $15.68 $13.64
Income (loss) from investment operations:
Net investment income (loss) 0.08 0.07 0.02 (0.14) (0.08)
Net realized and unrealized
gains on securities 6.07 1.87 4.59 0.71 3.21
------ ------ ------- ------ -------
Total from investment
operations 6.15 1.94 4.61 0.57 3.13
Less distributions:
Dividends from
net investment income (0.07) (0.05) -- -- --
Distributions from
capital gains (1.31) (0.29) (3.94) (0.95) (1.09)
------ ------ ------- ------ -------
Total distributions (1.38) (0.34) (3.94) (0.95) (1.09)
------ ------ ------- ------ -------
Net asset value,
end of period $22.34 $17.57 $15.97 $15.30 $15.68
======= ======= ======== ======= ========
Total return 37.58% 12.39% 39.76% 3.75% 23.57%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $135,437 $104,237 $53,533 $11,219 $17,619
Ratio of expenses to average
net assets(1) 1.50% 1.50% 1.50% 1.50% 1.50%
Ratio of net income (loss)
to average net assets(1) 0.44% 0.40% 0.29% (0.51)% (0.55)%
Portfolio turnover rate 81% 62% 88% 163% 104%
Average commission rate
paid on portfolio
investment transactions(2) $0.05 $0.05 N/A N/A N/A
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses by
adviser, except for the year ended September 30, 1997 where there were no
reimbursements, the ratio of expenses to average net assets would be 1.51%,
1.58%, 1.64% and 1.61%, respectively, and the ratio of net income (loss) to
average net assets would be 0.39%, 0.21%, (0.64)% and (0.66)%,
respectively.
(2) Disclosure required by the Securities and Exchange Commission beginning
1996.
See notes to financial statements.
-- 45 Annual Report
<PAGE> 47
U.S. TREASURY FUND-FINANCIAL HIGHLIGHTS
Year ended September 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $10.21 $10.50 $10.09 $10.42 $11.17
Income (loss) from investment operations:
Net investment income 0.61 0.44 0.56 0.55 0.55
Net realized and unrealized
gains (losses) on securities 0.73 0.01 0.44 (0.40) (0.17)
------- ------- ------- ------- -------
Total from investment
operations 1.34 0.45 1.00 0.15 0.38
Less distributions:
Dividends from
net investment income (0.23) (0.74) (0.59) (0.46) (0.53)
Distributions from
capital gains -- -- -- (0.02) (0.60)
------- ------- ------- ------- -------
Total distributions (0.23) (0.74) (0.59) (0.48) (1.13)
------- ------- ------- ------- -------
Net asset value,
end of period $11.32 $10.21 $10.50 $10.09 $10.42
======== ======== ======== ======== ========
Total return 13.23% 4.42% 10.46% 1.51% 3.80%
Supplemental data and ratios:
Net assets, end of period
(in thousands) $ 11,205 $7,427 $4,035 $3,250 $3,748
Ratio of expenses to average
net assets(1) 0.75% 0.93% 1.00% 1.00% 1.00%
Ratio of net income
to average net assets(1) 5.97% 5.21% 5.88% 5.15% 4.60%
Portfolio turnover rate 19% 30% 43% 45% 46%
</TABLE>
(1) Net of reimbursements by adviser. Absent reimbursement of expenses by
adviser, the ratio of expenses to average net assets would be 1.22%,
1.67%, 1.59%, 1.39% and 1.35%, respectively, and the ratio of net income
to average net assets would be 5.50%, 4.47%, 5.29%, 4.76% and 4.24%,
respectively.
See notes to financial statements.
- -- 46 Annual Report
<PAGE> 48
WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. ORGANIZATION
Wasatch Funds, Inc. ("Wasatch Funds"), 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 Mid-Cap,
Micro-Cap, and Aggressive Equity Funds are non-diversified portfolios and the
Growth and Wasatch-Hoisington U.S. Treasury ("U.S. Treasury") Funds are
diversified portfolios of Wasatch Funds. The Aggressive Equity Fund, Growth Fund
and Wasatch-Hoisington U.S. Treasury 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 Mid-Cap, Micro-Cap, Aggressive
Equity, Growth and U.S. Treasury Funds (the "Funds") have entered into an
investment advisory agreement with Wasatch Advisors, Inc. (the "Manager") as
investment adviser.
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.
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.
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.
Federal Income Taxes-It is the Funds' policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all taxable income to shareholders.
Annual Report 47 --
<PAGE> 49
WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
Expenses-The Funds are charged for expenses that are directly attributable to
them, such as advisory and custodian fees. Expenses that are not directly
attributable to a portfolio are allocated among the portfolios in proportion to
their respective net assets.
Use of Management Estimates-
The preparation of financial statements in conformity with generally accepted
accounting principles requires that management make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. The reported amounts of revenues and expenses during the reporting
period may also be affected by the estimates and assumptions Management is
required to make. Actual results may differ from those estimates.
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 among paid-in capital in excess of par value, undistributed net
investment income and undistributed net realized gain (loss) on investments.
Accordingly, at September 30, 1997, reclassifications were recorded to
increase/(decrease) undistributed net investment income by $1,254,417,
$1,458,430, $821,261 and ($122,537) and increase/(decrease) undistributed net
realized gain on investments by ($1,254,417), ($1,458,430), ($821,261) and
$122,537, for the Mid-Cap, Micro-Cap, Aggressive Equity and Growth Funds,
respectively.
4. CAPITAL STOCK
Transactions in shares of capital stock were as follows:
<TABLE>
<CAPTION>
Year ended September 30, 1997
Aggresive U.S.
Mid-Cap Micro-Cap Equity Growth Treasury
Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold 1,705,312 24,986,962 661,672 3,579,929 747,986
Dividends
reinvested 817 1,548,777 430,518 385,650 18,067
Shares redeemed (5,329,545) (19,517,552) (5,215,254) (3,836,178) (503,742)
----------- ----------- ---------- ---------- ---------
Net increase (decrease) (3,623,416) 7,020,187 (4,123,064) 129,401 262,311
=========== =========== ========== ========== =========
</TABLE>
- -- 48 Annual Report
<PAGE> 50
WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Year ended September 30, 1996
Aggressive U.S.
Mid-Cap Micro-Cap Equity Growth Treasury
Fund Fund Fund Fund Fund
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold 10,158,198 33,670,987 2,799,772 5,814,862 547,955
Dividends
reinvested 68,459 -- 257,555 76,725 35,305
Shares redeemed (8,365,863) (13,187,618) (4,789,910) (3,309,665) (239,816)
----------- ----------- ----------- ----------- ----------
Net increase (decrease) 1,860,794 20,483,369 (1,732,583) 2,581,922 343,444
=========== =========== =========== ========== ==========
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding U.S. government and
short-term securities, for the year ended September 30, 1997 are summarized
below:
<TABLE>
<CAPTION>
Aggressive U.S.
Mid-Cap Micro-Cap Equity Growth Treasury
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Purchases $ 85,574,890 $89,419,956 $ 92,339,437 $75,633,650 --
Sales 157,018,022 82,694,449 198,438,724 74,168,348 --
</TABLE>
The only purchases and sales of U.S. government securities occurred in the
U.S. Treasury Fund and were $5,029,751 and $1,769,531, respectively. 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. The U.S. Treasury Fund's
basis in investments is the same for income tax and financial reporting
purposes. The Mid-Cap, Micro-Cap, Aggressive Equity, and Growth Funds' tax basis
in their investments is $59,008,133, $126,760,210, $130,209,609 and
$112,017,155, respectively. At September 30, 1997, the U.S. Treasury Fund had an
accumulated net realized capital loss carryover of $8,270 and $35,783 expiring
in 2002 and 2003, respectively. To the extent the U.S. Treasury Fund realizes
future net capital gains, taxable distributions to its shareholders will be
offset by any unused capital loss carryover. For the year ended September 30,
1997, 8.4%, 0.4%, 2.1% and 3.8% of dividends from taxable income, including
short-term capital gains, for the Mid-Cap, Micro-Cap, Aggressive Equity and
Growth Funds, respectively, qualify for the dividends received deduction
available to corporate shareholders.
ANNUAL REPORT 49 --
<PAGE> 51
WASATCH FUNDS-NOTES TO FINACIAL STATEMENTS
September 30, 1997
As of September 30, 1997, gross unrealized appreciation and (depreciation)
for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
Aggressive U.S.
Mid-Cap Micro-Cap Equity Growth Treasury
Fund Fund Fund Fund Fund
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Unrealized
appreciation $19,950,231 $34,934,568 $63,038,955 $28,876,389 $532,542
Unrealized
depreciation (1,161,505) (4,431,335) (4,208,540) (3,492,290) --
Net unrealized
appreciation
(depreciation) $18,788,726 $30,503,233 $58,830,415 $25,384,099 $532,542
</TABLE>
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 year ended
September 30, 1997, management fees for the Mid-Cap, Micro-Cap, Aggressive
Equity, Growth and U.S. Treasury Funds were 1.25%, 2.0%, 1.0%, 1.0% and 0.5% of
the daily net assets of each portfolio, respectively. The Manager has
voluntarily agreed to limit the expenses of the Mid-Cap, Micro-Cap, Aggressive
Equity, Growth and U.S. Treasury Funds to 1.75%, 2.50%, 1.50%, 1.50% and 0.75%
of average net assets computed on a daily basis, respectively. For the year
ended September 30, 1997, the Manager reimbursed $123,680 for the Mid-Cap Fund,
$68,760 for the Micro-Cap Fund, $81,327 for the Aggressive Equity Fund and
$47,278 for the U.S. Treasury Fund.
7. TRANSACTIONS WITH AFFILIATES
The following is an analysis of transactions for the year ended September 30,
1997 in the Micro-Cap, Aggressive Equity and Growth Funds with "affiliated
companies" as defined by the Investment Company Act of 1940:
- -- 50 ANNUAL REPORT
<PAGE> 52
WASATCH FUNDS-NOTES TO FINANCIAL STATEMENTS
September 30, 1997
<TABLE>
<CAPTION>
MICRO-CAP FUND
Amount of
Amount of Gain (Loss)
Dividends Realized
Share Activity Credited on Sale
---------------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 9/30/96 Purchases Sales 9/30/97 1997 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Cash, Inc. -- 520,000 -- 520,000 -- --
National Dentex
Corp. 216,950 51,900 -- 268,850 -- --
Successories Inc. 346,000 37,000 261,100 121,900* -- $(344,106)
Travis Boats
& Motors, Inc. -- 208,200 -- 208,200 -- --
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE EQUITY FUND
Amount of
Amount of Gain (Loss)
Dividends Realized
Share Activity Credited on Sale
------------------------------------------- to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 9/30/96 Purchases Sales 9/30/97 1997 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Active Voice Corp. 260,900 5,000 265,900 -- -- $(1,255,827)
National Dentex
Corp. 228,000 63,300 -- 291,300 -- --
Thompson PBE, Inc. 660,950 -- 639,600 21,350* -- (4,424,180)
</TABLE>
<TABLE>
<CAPTION>
GROWTH FUND
Amount of Gain (Loss)
Dividends Realized
Credited on Sale
Share Activity to Income of Shares
Balance Balance in Fiscal in Fiscal
Security Name 9/30/96 Purchases Sales 9/30/97 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Cash, Inc. -- 300,000 -- 300,000 -- --
Home Health Corp.
of America -- 475,606 -- 475,606 -- --
National Dentex
Corp. 126,700 60,300 -- 187,000 -- --
Thompson PBE, Inc. 240,000 477,600 10,000 707,600 -- $(38,750)
</TABLE>
* No longer an affiliated company as of September 30, 1997.
Annual Report 51 --
<PAGE> 53
WASATCH FUNDS-REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Shareholders and
Board of Directors of
Wasatch Funds, Inc.:
We have audited the accompanying statements of assets and liabilities of Wasatch
Funds, Inc. (a Utah corporation, which includes the Wasatch Mid-Cap Fund,
Wasatch Micro-Cap Fund, Wasatch Aggressive Equity Fund, Wasatch Growth Fund and
Wasatch-Hoisington U.S. Treasury Fund), including the schedules of investments,
as of September 30, 1997, and the related statements of operations for the year
then ended, statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1997, by correspondence with the custodians and brokers. As to
securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out other alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Wasatch Funds, Inc. as of September 30, 1997, and the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the five
years in the period then ended, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Arthur Andersen LLP
Milwaukee, Wisconsin
October 24, 1997
- -- 52 ANNUAL REPORT
<PAGE> 54
GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS
Wasatch Funds provides reports to shareholders twice a year. The Annual
Report is for the Funds' fiscal year which ends September 30th. The Semi-Annual
Report is for the six months ending March 31st. These reports provide
shareholders with important information that will help them evaluate the
management and performance of their investment. It is the desire of Wasatch
Funds to help shareholders stay in tune with their investments. If you have any
questions about the information in this report, a Shareholder Services
Representative will be happy to assist you when you call 1 (800) 551-1700.
SCHEDULE OF INVESTMENTS
The holdings of each Wasatch Fund are detailed in the "Schedule of
Investments." This section of the report provides a snapshot of the securities
each Fund was invested in on the last day of the reporting period. The Wasatch
equity funds invest primarily in Common Stocks of companies which are
categorized under a variety of industries and will typically have only minor
holdings in Short-Term Investments. The Wasatch fixed income fund invests
primarily in U.S. Treasury Securities.
STATEMENTS OF ASSETS AND LIABILITIES
These financial statements show the Assets and Liabilities of a Fund on the
last day of the reporting period. A Fund's Assets include the value of
securities owned, amounts receivable for shareholder subscriptions (purchases of
Fund shares), securities sold, interest and dividends, prepaid expenses and
reimbursements by the Adviser. Liabilities are amounts owed for shareholder
redemptions, securities purchased, investment advisory fees and other expenses.
Totaling up the assets and subtracting the liabilities results in a Fund's Net
Assets.
Net Assets consist of capital stock, paid-in capital in excess of par,
undistributed net investment income, undistributed net realized gain or loss on
investments and net unrealized appreciation or depreciation on investments.
Capital stock is stock authorized by a company's charter and having par value,
stated value or no par value. Par value is set by the company issuing the shares
and has no relation to Net Asset Value. The par value of one share of each
Wasatch Fund is $.001. Paid-in capital in excess of par is capital received from
shareholders in exchange for Fund shares that exceeds the par value of the
shares. For example, if you bought one share of a Fund for $10, $.001 would show
as "Capital stock" on the books of the Fund, and $9.999 would be accounted for
under "Paid-in capital in excess of par." Undistributed net investment income is
the amount of net investment income earned by a Fund since inception that has
not been paid to shareholders as a dividend. Undistributed net realized gain
(loss) on investments is the amount of net realized gains or losses generated by
a Fund since inception that have not been distributed to shareholders in the
form of a capital gains distribution. A gain or loss is realized when a security
is sold by a Fund. Net unrealized appreciation (depreciation) on investments is
the change in value from the purchase price of securities a Fund continues to
hold.
The number of shares a Fund is Authorized to sell can be found under Capital
Stock, $.001 par value. How many of those shares are owned by
ANNUAL REPORT 53 --
<PAGE> 55
GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS
shareholders is indicated as Issued and outstanding.
Net Asset Value (NAV) shows the value of one outstanding share of a Fund on
the date of the report. A Fund's share price (NAV) is calculated by dividing the
value of all securities and other assets owned by a Fund, less the liabilities
charged to that Fund, by the number of Fund shares outstanding. The NAV is
calculated at the close of business of the New York Stock Exchange on each day
the Exchange is open for trading. Please see the current Wasatch Funds
Prospectus for more information about how NAVs are calculated. Information about
how the NAV is affected by a Fund's operation can be found in this section under
"Financial Highlights" on page 55.
STATEMENTS OF OPERATIONS
Statements of Operations show investment income and expenses for each Fund as
well as realized gains or losses from securities sold and the change in
unrealized appreciation or depreciation in the value of a Fund's current
holdings for a specific period of time.
Investment Income shows Interest and Dividends earned from interest-bearing
and dividend-paying securities in a Fund's portfolio.
Expenses show the various fees and expenses paid out of a Fund's assets such
as the fee paid to Wasatch Advisors, the Funds' investment adviser. Additional
fees include shareholder servicing, fund administration and accounting, custody
of fund assets, federal and state registration, legal counsel, auditing and
directors' fees. The Funds also bear the cost of printing and mailing
statements, prospectuses, annual reports and semi-annual reports to
shareholders.
Net Investment Income (Loss) is the amount of dividends and interest income
earned on securities held by a Fund, less the Fund's expenses.
Net realized gain (loss) on investments is the net gain or loss on securities
a Fund has sold. Change in unrealized appreciation/depreciation on investments
is the change in value of securities a Fund continues to hold.
Net gain (loss) on investments is the result of changes in market value of
securities sold and securities held by a Fund.
STATEMENTS OF CHANGES IN NET ASSETS
Net Assets are a Fund's remaining assets after taking into consideration any
liabilities. Statements of Changes in Net Assets show the increase or decrease
in a Fund's net assets during the reporting period. Investment operations,
dividends and capital share transactions affect a Fund's net assets. Operations
is a summary of the Statements of Operations. It includes investment income or
loss, net realized gain or loss on a Fund's investments as well as the change in
unrealized appreciation or depreciation in the value of a Fund's investments.
Dividends are distributed by Wasatch Funds to shareholders when Fund
investments have earned income in excess of net expenses or when capital gains
in excess of capital losses are realized from the sale of securities. Most
shareholders choose to reinvest their dividends and capital gains distributions.
Each Fund is required by Internal Revenue Service (IRS) regulations to
distribute substantially all of its net investment income and capital gains
- -- 54 Annual Report
<PAGE> 56
GUIDE TO UNDERSTANDING FINANCIAL STATEMENTS
to shareholders in order to retain its status as a "regulated investment
company."
Capital share transactions are any transactions involving shares of a Fund,
including the selling of Fund shares, shares issued by a Fund to shareholders
for the reinvestment of dividends and share redemptions.
FINANCIAL HIGHLIGHTS
The Financial Highlights tables contain important historical operating
information that you may find useful in making decisions or understanding the
performance of your Wasatch Funds investment.
Net Asset Value (NAV) is defined in this section under "Statements of Assets
and Liabilities" on page 54. The difference between the Net asset value,
beginning of period and the Net asset value, end of period in the Financial
Highlights tables is the change in value of a Fund's shares over the reporting
period, but not its total return.
Income (loss) from investment operations shows how the NAV was affected by a
Fund's operations on a per share basis. Net investment income (loss) is the per
share amount of dividends and interest income earned on securities held by a
Fund, less the Fund's expenses. Net realized and unrealized gains (losses) on
securities is the per share increase or decrease in value of the securities a
Fund holds and has sold during the reporting period. Gains or (losses) are
realized when securities are sold. Gains or (losses) are unrealized when
securities increase or decrease in value but are not sold.
Distributions are the per share amount that a Fund paid to shareholders from
net investment income and net realized gains.
Total return is the percentage increase or decrease in the value of an
investment over a stated period of time. A total return percentage includes both
changes in unrealized and realized gains and income. For the purposes of
calculating total return, it is assumed that dividends and distributions are
reinvested at the NAV on the day of the distribution. A FUND'S TOTAL RETURN
CANNOT BE COMPUTED DIRECTLY FROM THE FINANCIAL HIGHLIGHTS TABLES.
Supplemental data and ratios are provided to help you better understand your
investment. Net assets, end of period, are the net assets of a Fund on the
reporting date. Ratio of expenses to average net assets is the total of a Fund's
operating expenses divided by its average net assets for the stated period.
Ratio of net income (loss) to average net assets is a Fund's net investment
income (loss) divided by its average net assets for the stated period. Portfolio
turnover rate is a measure of the annual amount of a Fund's buying and selling
activity. It is computed by dividing total purchases or sales, whichever is
less, by the average monthly market value of a Fund's portfolio securities. This
calculation does not include securities held by any Fund with a maturity date of
less than 12 months. Average commission rate paid on portfolio investment
transactions is the average commission rate per share. This number is arrived at
by taking the agency commissions paid on equity securities trades (excluding
initial public offerings (IPOs), secondary offerings and principal trade
amounts) and dividing by the number of shares purchased. Disclosure of
commission rates is required under revised SEC requirements.
ANNUAL REPORT 55 --
<PAGE> 57
NOTES
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- -- 56 Annual Report
<PAGE> 58
NOTES
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Annual Report 57 --
<PAGE> 59
NOTES
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- -- 58 Annual Report
