As filed with the Securities and Exchange Commission on September 22, 1997
Securities Act Registration No. 33-10451
Investment Company Act Registration No. 811-4920
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 16 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 18 X
(Check appropriate box or boxes)
WASATCH FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
68 SOUTH MAIN STREET
SUITE 400
SALT LAKE CITY, UTAH 84101
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 708-7228
SAMUEL S. STEWART, JR. Copy to:
Wasatch Funds, Inc. Michael J. Radmer, Esq.
68 South Main Street, Suite 400 Dorsey & Whitney LLP
Salt Lake City, Utah 84101 220 South Sixth Street
(Name and Address of Agent for Service) Minneapolis, Minnesota 55402-1498
An indefinite number of shares of each Series of Wasatch Funds, Inc. has been
registered under the Securities Act of 1933 in accordance with the provisions
of Rule 24f-2 under the Investment Company Act of 1940. The Registrant's Rule
24f-2 Notice for the fiscal year ended September 30, 1996 was filed on November
21, 1996.
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b)
( ) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
(X) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
( ) this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
WASATCH FUNDS
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A and
B of Form N-1A).
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
--------------------- --------------------------------------
PART A - INFORMATION REQUIRED IN PROSPECTUS
- -------------------------------------------
1. Cover Page Cover Page
2. Synopsis Annual Fund Operating Expenses
3. Condensed Financial Information *
4. General Description of Registrant Management of the Company; Investment
Objective, Policies and Risks
5. Management of the Fund Management of the Company
6. Capital Stock and Other Securities Organization of the Company; Net
Asset Value and Days of Operation;
Dividends, Capital Gains,
Distributions and Taxes
7. Purchase of Securities Being Offered Purchase of Shares; Exchange
Privilege; Retirement Plans; Net
Asset Value and Days of
Operation
8. Redemption or Repurchase Redemption of Shares; Exchange
Privilege; Net Asset Value and Days
of Operation
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History General Information and History
13. Investment Objectives and Policies Investment Objectives and Policies;
Additional Investment Information
14. Management of the Fund Management of the Company; Principal
Holders of Securities
15. Control Persons and Principal Principal Holders of Securities
Holders of Securities
16. Investment Advisory and Other Investment Advisory and Other
Services Services
17. Brokerage Allocation and Other Brokerage Allocation and Other
Policies Policies
18. Capital Stock and Other Securities Capital Stock and Other
Securities
19. Purchase, Redemption and Pricing of Purchase, Redemption and Pricing of
Securities Being Offered Securities Being Offered
20. Tax Status Tax Status
21. Underwriters *
22. Calculations of Yield Quotations *
of Money Market Funds
23. Financial Statements *
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* Answer negative or inapplicable.
** Complete answer to the Item is contained in the Prospectus.
Amendment No. 18 is being filed in connection with creating the Wasatch Micro-
Cap Value Fund.
WASATCH FUNDS
INVESTMENT INFORMATION
AND PROSPECTUS
FOR THE
WASATCH MICRO-CAP VALUE FUND
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
(LOGO)
WASATCH FUNDS
<PAGE>
TABLE OF CONTENTS
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WELCOME.................................................................. 1
EXPENSE INFORMATION...................................................... 2
Annual Fund Operating Expenses ......................................... 2
WASATCH MICRO-CAP VALUE FUND OVERVIEW.....................................3
Investment Objective ................................................... 3
Investment Process ..................................................... 4
General Policies, Investment Techniques and Risks ...................... 4
Risk Factors ........................................................... 5
SHAREHOLDER'S GUIDE...................................................... 7
To Reach Wasatch Funds by Phone ........................................ 7
To Open a New Account .................................................. 7
Types of Account Ownership ............................................. 7
To Purchase Additional Shares .......................................... 8
Automatic Investment Plan .............................................. 9
To Exchange Shares .................................................... 10
To Redeem Shares ...................................................... 11
Instructions for Written Requests ..................................... 13
Signature Guarantee ................................................... 13
How Fund Shares are Priced ............................................ 14
SHAREHOLDER SERVICES AND ACCOUNT POLICIES............................... 14
Shareholder Reports ................................................... 14
Account Statements .................................................... 15
Involuntary Redemption ................................................ 15
Telephone Transactions ................................................ 15
Unacceptable Account Registrations .....................................15
Registration Changes .................................................. 15
Address Changes ....................................................... 15
MANAGEMENT OF WASATCH FUNDS............................................. 16
Investment Personnel .................................................. 16
Management Fees, Expenses and Expense Limitations ..................... 17
Additional Service Providers .......................................... 18
Organization of Wasatch Funds ......................................... 18
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES........................ 19
GUIDE TO UNDERSTANDING FUND PERFORMANCE................................. 20
GLOSSARY OF INVESTING TERMS............................................. 21
EXPLANATION OF RATING CATEGORIES........................................ 23
<PAGE>
(LOGO)
WASATCH FUNDS, INC.
68 South Main Street
Salt Lake City, UT 84101-1502
1 (800) 551-1700
DECEMBER , 1997
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WELCOME TO THE
WASATCH FUNDS
FAMILY OF
NO-LOAD MUTUAL FUNDS
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No-load means there is no sales charge to purchase, exchange or sell shares in
any of the Wasatch Funds. When you sign up to automatically invest $50 monthly
or $100 quarterly, your minimum initial investment is $1,000. Otherwise, the
minimum initial investment is $2,000. Please see the Shareholder's Guide
beginning on page 7 for complete information on how to purchase, exchange or
redeem shares.
This Prospectus describes the investment opportunities offered by the Micro-
Cap Value Fund (the "Fund"). The Fund is a series of Wasatch Funds, Inc.
("Wasatch Funds") and is managed by Wasatch Advisors, Inc. (the "Manager").
Wasatch Funds is registered with the Securities and Exchange Commission ("SEC")
as an open-end management investment company. This Prospectus contains
information about the Micro-Cap Value Fund that you should consider before
investing. Please read it carefully and keep it for future reference.
Additional information about the Fund is contained in a Statement of
Additional Information ("SAI") filed with the SEC. The SAI dated December __,
1997, is incorporated by reference into this Prospectus. There is no charge to
obtain a copy of the SAI. Please call 1 (800) 551-1700 or write to Wasatch Funds
at P.O. Box 2172, Milwaukee, WI 53201-2172 to request a copy.
The SEC maintains a World Wide Web site (http://www.sec.gov) that contains
reports and information regarding registrants that file electronically with the
SEC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR
OTHER JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN
SUCH STATE OR OTHER JURISDICTION.
<PAGE>
EXPENSE INFORMATION
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The tables and example below are designed to assist you in understanding the
various costs and expenses you will bear directly or indirectly as an investor
in the Fund. Shareholder Transaction Expenses are fees that may be charged
directly to an individual account when shares are bought, sold or exchanged. As
the table below shows, shareholders of the Micro-Cap Value Fund, which is a no-
load fund, do not pay these fees. Annual Fund Operating Expenses are paid out of
the Fund's assets and include fees for portfolio management, maintenance of
shareholder accounts, shareholder servicing, accounting and other services.
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None
Maximum sales load imposed on reinvested dividends None
Deferred sales load None
Exchange fee None
Redemption fee* None
*$7.50 service fee for redemptions by wire.
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ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS)
MANAGEMENT FEES<F1> 1.50%
12B-1 FEES<F2> None
OTHER EXPENSES (net of reimbursement) 0.45%
TOTAL FUND OPERATING EXPENSES<F1><F3> 1.95%
<F1> Such annual rates are higher than the rates paid by most registered
investment companies.
<F2> 12b-1 fees are charged by some mutual fund companies to help cover
advertising expenses. Wasatch Funds has chosen not to charge shareholders
these fees.
<F3> The Manager has voluntarily agreed to limit the operating expenses of the
Fund until at least September 30, 1998. The Fund's expenses are limited to
1.95%. The Manager reimburses the Fund for expenses that exceed the limit.
If the expense reimbursements were eliminated, the Fund estimates that
Other Expenses and Total Fund Operating Expenses would initially be
approximately 1.26% and 2.76%.
<PAGE>
EXAMPLE
The table below illustrates the operating expenses you would indirectly bear
as an investor in the Fund. It assumes you invest $1,000 and redeem at the end
of each time period, and that the Fund's annual return is 5% and its expense
ratio remains as listed above.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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Micro-Cap Value Fund $20 $62 $107 $231
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
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WASATCH MICRO-CAP
VALUE FUND OVERVIEW
- -------------------
It is presently intended that the Micro-Cap Value Fund will close to new
investors when it reaches $200 million in assets. The Fund reserves the right to
reconsider closing to new investors and, once closed, may choose to reopen
although it has no present intention to do so.
To help you decide if the Micro-Cap Value Fund is an appropriate investment
for you, this section looks at the Fund's investment objective, process and the
securities in which it invests. For a discussion of general policies, investment
techniques and the risks associated with certain investment techniques please
see "General Policies, Investment Techniques and Risks," on page 4. Consult the
"Glossary of Investing Terms" on page 21 for a more detailed description of
investment terms used throughout this Prospectus. You should carefully consider
your own investment goals, time horizon and risk tolerance before investing in
this Fund.
The investment objective presented in this section cannot be changed without
shareholder approval. Investment techniques and policies may be changed without
shareholder approval unless otherwise stated in this Prospectus or the SAI.
The Micro-Cap Value Fund is designed for long-term investors who seek growth
of capital and who can tolerate the greater risks associated with common stock
investments.
CO-MANAGERS: Robert Gardiner, CFA and Jeff Cardon, CFA
INVESTMENT OBJECTIVE
- --------------------
The investment objective of this Fund is long-term growth of capital. Income
is a secondary objective to be sought only when consistent with the primary
objective.
The Micro-Cap Value Fund is a non-diversified fund (see page 5 for
definition). In pursuit of its investment objective, the Fund will normally
invest
WASATCH DEFINES A LONG-TERM INVESTOR AS SOMEONE WHO PLANS TO HOLD AN INVESTMENT
FOR A PERIOD OF FIVE YEARS OR LONGER. WITHIN A LONG-TERM INVESTMENT TIME FRAME,
INVESTMENT PERFORMANCE WILL FLUCTUATE. INVESTORS' CAPITAL WILL GROW MORE AT SOME
TIMES, LESS AT OTHER TIMES OR IT MAY DECLINE.
<PAGE>
at least 65% of its total assets in the common stock of companies with market
capitalizations of less than $300 million at the time of initial purchase. Its
strategy is to invest in stocks the Manager believes are temporarily undervalued
but have significant potential for appreciation.
INVESTMENT PROCESS
- ------------------
The Manager initially looks for companies that have stocks with low valuations
or depressed prices. These companies are then subjected to additional
fundamental analysis to determine if they have positive characteristics that
could lead to increases in their stock prices.
The Manager typically expects appreciation of a company's stock price to be
driven by one or more of the following events: 1) attention from Wall Street
analysts; 2) resolution of short-term fundamental issues leading to increased
earnings growth; and 3) exciting new products or services.
The Manager looks for companies that have characteristics which may include:
1) low stock valuations in the form of a low price-to-earnings (P/E) ratio which
is the price of a stock divided by its earnings per share, or a low market
capitalization to revenue ratio; 2) potential for improved earnings growth; 3)
competent top management with a substantial stake in the future of the company;
4) a history of profitable growth; and 5) products or services that may increase
market share.
This Fund is designed for long-term investors. While the Manager believes
investments in undervalued small companies present exceptional opportunities for
capital appreciation, the stock prices of these companies may fluctuate widely.
Investors should assess their tolerance for risk before investing in this Fund.
GENERAL POLICIES, INVESTMENT TECHNIQUES AND RISKS
- -------------------------------------------------
The percentage limitations included in these policies and elsewhere in this
Prospectus apply at the time of purchase of the security. For example, if the
Fund exceeds a limit as a result of market fluctuations or the sale of other
securities, it will not be required to dispose of any securities.
TYPES OF INVESTMENTS
This section is designed to help you understand the types of investments made
by the Fund and the various factors that may have bearing on investment
decisions.
The Wasatch Micro-Cap Value Fund invests primarily in the common stocks of
domestic companies. The Fund will normally invest at least 65% of its total
assets in the common stocks of companies with market capitalizations of less
than $300 million at the time of initial purchase. Up to 15% of the Fund's
investments may be in foreign securities. Securities of foreign issuers which
are publicly traded in the United States, either directly or through American
Depositary Receipts, are not subject to this 15% limitation. The Fund may also
invest in investment grade convertible securities.
It may not always be possible for the Fund to stay fully invested in stocks.
For example, if the Manager is unable to find desirable equity investments, the
Fund may increase its cash position or invest a larger portion of its assets in
interest-bearing securities or cash equivalents such as preferred stocks,
government securities, investment grade debt securities or money market
instruments.
Most often, investments in fixed income, cash equivalents or cash represent
the assets that remain after the Manager has taken full advantage of suitable
stock investments. When the
<PAGE>
Fund increases its position in cash or cash equivalents, it may not participate
in stock or bond market advances or declines to the same extent that it would if
the Fund remained more fully invested in stocks or bonds.
DIVERSIFICATION
The 1940 Act classifies investment companies as either diversified or non-
diversified. The Wasatch Micro-Cap Value Fund is a non-diversified fund.
A diversified fund is required to invest 75% of its assets in accordance with
the following guideline: it may not own more than 10% of the outstanding voting
securities of any issuer or purchase securities of any issuer if such purchase
would cause such fund's holdings of that issuer to amount to more than 5% of
that fund's total assets.
A non-diversified fund is required to invest only 50% of its assets in
accordance with the above guideline.
In addition, neither a diversified fund nor a non-diversified fund may invest
more than 25% of its total assets in any single issuer.
The non-diversified status of the Micro-Cap Value Fund permits the investment
of a greater portion of its assets in the securities of individual companies
than would be permissible if the Fund was diversified. The non-diversified
status of the Fund subjects it to a greater degree of risk.
For a description of the Fund's investment policies and restrictions, please
see "Investment Restrictions" in the SAI.
PORTFOLIO TURNOVER
The Fund generally intends to purchase securities for long-term investment
rather than short-term gains. However, short-term transactions may result from
liquidity needs, securities having reached a price or yield objective, changes
in interest rates or the credit standing of an issuer, or by reason of economic
or other developments not foreseen at the time of the initial investment
decision. Changes are made in the Fund's portfolio whenever the Manager believes
such changes are desirable. Portfolio turnover rates are generally not a factor
in making buy and sell decisions.
To a limited extent, the Fund may purchase securities in anticipation of
relatively short-term price gains. Increased portfolio turnover may result in
higher costs for brokerage commissions, dealer mark-ups and other transaction
costs and may also result in taxable capital gains.
It is presently anticipated that the portfolio turnover rate for the Fund
generally will not exceed 100%.
ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in illiquid investments,
including restricted securities or private placements. An illiquid investment is
a security or other holding that cannot be disposed of quickly in the normal
course of business.
RISK FACTORS
SMALL CAPITALIZATION COMPANIES
While small capitalization ("small-cap") companies generally have potential
for rapid growth, they often involve higher risks because they may lack the
management experience, financial resources, product diversification and
competitive strengths of larger companies. In addition, the frequency and volume
of trading in their stock may be substantially less in many instances than that
typical of larger companies. Therefore, the securities of smaller companies may
be subject to wider price fluctuations. The spreads between the bid and asked
prices of the securities of these companies may be wider than the spreads for
more actively traded securities.
<PAGE>
As a result, a fund that invests in small-cap companies could incur a loss if a
security was sold shortly after buying it. Large sales of the securities of
small-cap companies may require selling portfolio holdings at a discount from
quoted prices or making a series of small sales over a period of time due to the
trading volume of smaller company securities. The values of the shares of small
capitalization companies may move independently of the values of larger
capitalization companies or of general stock market indices such as the Dow
Jones Industrial Average and the Standard & Poor's 500 Stock Index.
SPECIAL SITUATIONS
The Fund may invest up to 10% of its total assets at the time of purchase in
"Special Situations," which the Manager defines as companies in the process of
reorganization or buy-out. Such companies may have limited financial resources
or may be dependent upon a small management group. As a result, their securities
may be subject to more abrupt or erratic market movements.
FOREIGN SECURITIES
The Fund may invest up to 15% of its total assets at the time of purchase in
foreign securities that are traded primarily in foreign markets. Investments in
foreign securities often entail greater risks and may be subject to greater
fluctuation than comparable investments in domestic securities.
ADDITIONAL RISKS OF
FOREIGN SECURITIES
CURRENCY RISK. The value of the assets of a fund as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations. A change in the value of any foreign
currency relative to the U.S. dollar may cause a corresponding change in the
dollar value of a fund's assets that are denominated or traded in that country.
In addition, a fund may incur costs in connection with conversion between
various currencies.
POLITICAL AND ECONOMIC RISK. Foreign investments may be subject to heightened
political and economic risks, particularly in underdeveloped or developing
countries which may have relatively unstable governments and economies based on
only a few industries. In some countries, there is the risk that the government
could seize or nationalize companies, could impose additional withholding taxes
on dividends or interest income payable on securities, impose exchange controls
or adopt other restrictions that could affect a fund's investment.
REGULATORY RISK. Foreign companies not publicly traded in the U.S. are not
subject to the regulatory requirements of U.S. companies. There may be less
publicly available information about such companies. Foreign companies are not
subject to uniform accounting, auditing and financial reporting standards and
requirements comparable to those applicable to U.S. companies.
MARKET RISK. Foreign securities markets, particularly those of underdeveloped
or developing countries, may be less liquid and more volatile than domestic
markets. Certain markets may require payment for securities before delivery and
delays may be encountered in settling securities transactions. In some foreign
markets, there may not be protection against failure by other parties to
complete transactions. There may be limited legal recourse against an issuer in
the event of a default on a debt instrument.
TRANSACTION COSTS. Transaction costs of buying and selling foreign securities,
including brokerage, tax and custody costs, are generally higher than those
involved in domestic transactions.
<PAGE>
CREDIT AND INTEREST RATE RISK
To the extent that the Fund invests in fixed income securities, it will be
subject to credit and interest rate risk.
CREDIT RISK. The risk that the issuer of a debt security will fail to make
payments on the security when due.
INTEREST RATE RISK. The risk that the value of a fixed-rate debt security will
decline due to an increase in market interest rates.
INVESTMENT MINIMUMS
To open a new account with an Automatic Investment Plan..............$1,000
Subsequent Automatic Investments
Monthly .......................................................... $50
Quarterly ........................................................ $100
For a new account without the Automatic Investment Plan..............$2,000
Subsequent Investments ............................................. $100
Individual Retirement Account (IRA)..................................$1,000
SHAREHOLDER'S GUIDE
- -------------------
This section provides information about how to invest in the Fund and the
different types of accounts and services available.
TO REACH WASATCH FUNDS BY PHONE
If you have any questions about the Fund, the Prospectus or opening a new
account, please call one of our Shareholder Services Representatives at 1 (800)
551-1700. They are available to assist you Monday through Friday, 7:00 a.m. to
7:00 p.m. Central Time.
TO OPEN A NEW ACCOUNT
- - Read the Prospectus carefully.
- - Complete and sign the New Account Application included with the Prospectus.
- - Be sure to provide your Social Security or Taxpayer Identification Number on
the New Account Application.
- - New Account Applications are also available from Wasatch Funds and can be
obtained by calling a Shareholder Services Representative at 1 (800) 551-
1700.
- - New accounts are subject to acceptance by Wasatch Funds.
Make your check payable to Wasatch Funds and send it along with your completed
Application to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
To send your check and Application by express or certified mail:
WASATCH FUNDS
207 EAST BUFFALO STREET, SUITE 315
MILWAUKEE, WI 53202-5712
OPENING NEW ACCOUNTS BY WIRE
Please call a Shareholder Services Representative at 1 (800) 551-1700 for
special instructions.
TYPES OF ACCOUNT OWNERSHIP
By completing the New Account Application included with this Prospectus you
can establish one of three types of accounts:
INDIVIDUAL OR JOINT OWNERSHIP. Individual accounts are owned by one person.
Joint accounts are owned by two or more people and are JTWROS (Joint Tenants
with Right of
<PAGE>
Survivorship) unless otherwise specified.
GIFT TO MINOR. This is a custodial account for the benefit of a minor. To open
this type of account you must provide the minor's Social Security Number along
with your own on the New Account Application.
CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY. You must provide the name of
the entity and the Taxpayer Identification Number. The New Account Application
must be signed by an authorized officer of a corporation or other entity or a
trustee.
RETIREMENT ACCOUNTS
If you are eligible, you may set up a Fund account under a tax-sheltered
retirement plan by filling out a special application. To receive an application
and information about the Fund's retirement plans please call 1 (800) 551-1700
or write to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
In general, a retirement plan allows eligible individuals to defer current
income taxes on contributions, dividends and capital gains on investments.
Withdrawals from retirement plans made prior to age 59 1/2 are generally subject
to income tax and may be subject to a penalty for early withdrawal.
INDIVIDUAL RETIREMENT ACCOUNT (IRA). Individuals who receive compensation or
earned income, even if they are active participants in a qualified retirement
plan, may establish their own tax-sheltered IRA. Non-earning spouses of such
individuals may also establish their own tax-sheltered IRA. The minimum initial
investment for an IRA is $1,000.
ROTH IRA. For tax years beginning January 1, 1998, a new type of IRA, called
the Roth IRA will be available. Roth IRAs are different from traditional IRAs in
that contributions are never tax deductible and earnings on amounts held in the
account can be withdrawn tax-free if the funds remain in the IRA for at least
five years and the IRA holder is at least 59 1/2 at the time of the withdrawal.
Roth IRAs are also available for non-earning spouses. The ability to make a
contribution to a Roth IRA is phased out for individuals whose incomes exceed
specific limits.
EDUCATION IRA. For tax years beginning January 1, 1998, individuals can also
establish an IRA to be used for the education expenses of a child. Contributions
are limited to $500 per child per year and are not deductible when made.
Earnings on amounts held in the account can be withdrawn tax-free provided they
are used for undergraduate or graduate education expenses of the child before
the child reaches age 30. The ability to make a contribution to an Education IRA
is phased out for individuals whose incomes exceed specific limits.
SIMPLE IRA. Individuals may establish SIMPLE IRAs through a qualifying
employer.
The Trustee/Custodian for Wasatch Funds' retirement plans is UMB Bank, n.a.
There is no charge to set up an IRA account but there is an annual maintenance
fee of $12.50 per account for accounts under $10,000, with a maximum charge of
$25 per shareholder. Please refer to the IRA Disclosure Statement and Custodial
Agreement for information on additional fees.
SECTION 403(B)(7) PLAN. This plan is designed to allow employees of certain
educational, non-profit, hospital and charitable organizations to invest for
retirement.
TO PURCHASE ADDITIONAL SHARES
Your request to purchase shares will be processed at the next Net Asset Value
("NAV") calculated after the Fund has received and accepted your request.
<PAGE>
- - Checks must be made payable to Wasatch Funds.
- - Purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks.
- - You may add to established Wasatch Funds accounts by making investments of
$100 or more.
- - Cash, credit cards, third party checks and credit card checks will not be
accepted.
- - See "Shareholder Services and Account Policies--Returned Check Policy" on
page 15 for a summary of the Fund's policy regarding checks returned for
insufficient funds.
- - The Fund reserves the right to reject any specific purchase request.
- - Telephone orders are not accepted except from broker/dealers who have been
previously approved by the Fund.
- - There are no sales charges to purchase shares.
- - If a purchase is made by check, and a redemption is requested shortly
thereafter, payment may be delayed for up to seven business days to ensure
that the check has cleared.
- - Shares should be purchased by wire if you intend to redeem them shortly
after purchase. For more information contact a Shareholder Services
Representative at 1 (800) 551-1700.
TO PURCHASE ADDITIONAL SHARES
BY MAIL
Send your remittance to one of the addresses listed previously. Please include
the detachable form from your most recent statement. If you do not have the
form, include a note stating the name of the account and the account number.
TO PURCHASE ADDITIONAL SHARES BY BANK-WIRE
You can purchase shares by wiring money from your bank account to
your Fund account.
WIRING INSTRUCTIONS:
UMB Bank, n.a.
A.B.A. Number 101000695
For credit to Wasatch Funds
Account Number 987-060-9800
For further credit to:
(shareholder account number)
(name or account registration)
(Social Security or Tax Identification Number)
(identify which account to purchase)
AUTOMATIC INVESTMENT PLAN
- - You can choose to make automatic investments for as little as $50 monthly or
$100 quarterly.
- - Selecting this option when you open a new Fund account lowers the minimum
initial investment to $1,000.
- - You may elect to have your automatic investments made on either the 5th or
the 20th day of each month.
- - You can begin investing automatically in an established Fund account by
completing and returning an Automatic Investment Plan Application available
from Wasatch Funds.
- - It takes 10 business days after the receipt of your Application for the Plan
to begin.
- - Send an unsigned, voided check along with your Application.
IMPORTANT!
-------------------------
THE FUND IS REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF DIVIDEND
PAYMENTS, CAPITAL GAINS DISTRIBUTIONS AND REDEMPTION PROCEEDS FOR ANY ACCOUNT ON
WHICH THE OWNER PROVIDES AN INCORRECT TAXPAYER IDENTIFICATION NUMBER.
APPLICATIONS WITHOUT A TAXPAYER IDENTIFICATION NUMBER WILL NOT BE ACCEPTED AND
WILL BE RETURNED ALONG WITH THE PURCHASE CHECK.
<PAGE>
- - The bank or financial institution you designate can then begin debiting a
preauthorized amount from your account on a specified date that will be
used to purchase shares for your Fund account.
- - Your financial institution must be a member of the Automated Clearing House
("ACH").
- - No service fee is currently charged by the Fund for participating in the
Automatic Investment Plan.
- - A $20 service fee will be imposed by the Fund if sufficient funds are not
available in your account at the time of the automatic transaction.
- - If you redeem an account with an Automatic Investment Plan so the balance is
zero, the Plan will be discontinued.
PURCHASING SHARES THROUGH
OTHER INSTITUTIONS
You may buy or sell shares of the Fund through an investment professional,
including a broker who may charge you a transaction fee for this service.
If you want to purchase shares through another institution or service
provider, you should read their materials carefully for any fees that may apply.
Certain features of the Fund, such as the minimum initial investment or
subsequent investment amounts, may be modified or may not be available through
other institutions. Once you have established an account through an investment
professional, any subsequent transactions for that account must be made through
that professional.
The Manager or the Fund may enter into agreements with various brokerage or
other firms pursuant to which such firms provide administrative services with
respect to customers who are beneficial owners of shares of the Fund. The
Manager or the Fund may compensate such firms in amounts based on assets of
customers invested in the Fund.
TO EXCHANGE SHARES
- - Shares of the Fund may be exchanged for shares of any other Wasatch Fund or
Northern U.S. Government Money Market Fund on any day the stock exchange is
open for business. You may obtain a combined Prospectus for the other Funds
by calling Wasatch at 1 (800) 551-1700. Please read the combined Prospectus
carefully before you invest or send money.
- - Exchanges for shares in closed funds (Aggressive Equity and Micro-Cap) may
only be made by shareholders with existing accounts in those Funds.
- - You may open a new account or purchase additional shares by making an
exchange from an existing Fund account.
- - The value of shares being exchanged and the price of shares being purchased
will be at the next NAV calculated after your exchange request has been
received and approved by the Fund.
- - Exchanges can be made by calling a Shareholder Services Representative at 1
(800) 551-1700 (if you have telephone privileges).
- - Exchanges are subject to the minimum initial investment requirements.
- - Additional exchanges may be made for $500 or more.
- - New accounts will have the same registration as existing accounts.
WRITTEN EXCHANGE REQUESTS
- - See "Instructions for Written Requests" on page 13.
TELEPHONE EXCHANGE REQUESTS
- - Call 1 (800) 551-1700 to exchange shares.
- - The Fund does not accept exchange requests made via FAX.
- - It may be difficult to reach the Fund during periods of unusual market
activity. If you are unable to contact
<PAGE>
the Fund by telephone, you may also exchange shares by mail or overnight
express.
EXCHANGES FROM THE FUND TO THE NORTHERN U.S. GOVERNMENT MONEY MARKET FUND
- - You may exchange all or a portion of your investment from the Fund to the
Northern U.S. Government Money Market Fund ("Money Market Fund").
- - Before authorizing any investment in shares of the Money Market Fund you
must obtain a copy of the Northern U.S. Government Money Market Fund
Prospectus, available from Wasatch Funds. Please read it carefully before
investing.
- - Exchanges are subject to the minimum purchase and redemption amounts set
forth in this Prospectus.
- - Exchange requests received in proper order and accepted by the Fund by 3:00
p.m. Central Time, or market close, on a day during which the Fund's NAV is
determined will be effective that day for both the Fund being purchased and
the Fund being redeemed.
- - You will begin accruing income from the Money Market Fund the day following
the exchange.
EXCHANGES FROM THE NORTHERN U.S. GOVERNMENT MONEY MARKET FUND TO THE FUND
- - You may make automatic monthly investments in the Fund by redeeming shares
from your Money Market Fund account.
- - To utilize this option please call the Fund at 1 (800) 551-1700 for an
application form.
- - There is no fee for this service.
- - These transactions must meet the Fund's minimum purchase requirements.
- - Any changes to the automatic exchange must be made 10 business days prior to
the transaction.
- - Exchange requests received in proper order and accepted by the Fund by 3:00
p.m. Central Time on a day during which the Fund's NAV is determined will
be effective that day for both the Fund being purchased and the Fund being
redeemed.
- - Dividends earned in the Money Market Fund are payable at the end of the
month, not at the time of an exchange.
OTHER INFORMATION ABOUT EXCHANGES
- - You may make four exchanges out of the Fund during a calendar year
(excluding automatic monthly exchanges).
- - Exchange requests may be subject to other limitations, including those
relating to frequency, that may be established from time to time to ensure
that exchanges do not disadvantage Fund shareholders or Wasatch Funds.
- - Shareholders will be notified at least 60 days in advance of any changes in
limitations and may obtain the terms of the limitations by writing to:
Wasatch Funds, P.O. Box 2172, Milwaukee, WI 53201-2172.
- - Exchanging shares is considered a taxable event by the Internal Revenue
Service. You could realize a taxable capital gain or loss when you exchange
shares. You may want to consult a tax or other financial adviser before
deciding to make an exchange.
- - Additional documentation may be required for exchange requests if shares are
registered in the name of a corporation, partnership or fiduciary. Contact
Wasatch Funds for additional information.
TO REDEEM SHARES
- - You may request that the Fund redeem all or a portion of your shares.
<PAGE>
- - Your transaction will be processed at the next NAV calculated after your
order is received and accepted by the Fund.
- - Additional documentation and signature guarantees may be required for
redemption requests from corporations, executors, administrators, trustees
and guardians. Please call the Fund at 1 (800) 551-1700 for additional
information.
- - There is no charge for redemption requests submitted directly to the Fund.
- - The Fund reserves the right to reject any redemption request if it believes
it is advisable to do so.
- - If the account is worth less than the amount requested the entire value of
the account will be redeemed.
WRITTEN REDEMPTION REQUESTS
- - See "Instructions for Written Requests" on page 13.
TELEPHONE REDEMPTION REQUESTS
- - You may redeem shares in YOUR account in amounts of $500 up to $50,000, by
calling 1 (800) 551-1700 (if you have telephone privileges).
- - Redemption requests for over $50,000 must be made in writing.
(A signature guarantee is required.)
- - The fund does not accept redemption requests made via FAX.
- - Reaching the fund by telephone during periods of unusual market activity may
be difficult. if this is the case, you may redeem shares by mail or
overnight express.
SYSTEMATIC WITHDRAWAL PLAN
- - You may arrange to make monthly redemptions of $50 or more.
- - Your Fund account balance must be at least $5,000 at the time you begin
participation in the Plan.
- - You may choose either the 5th or the 20th of the month to have systematic
withdrawals distributed to you. If the day falls on a weekend or legal
holiday, the distribution will be made on the next business day.
- - A Systematic Withdrawal Plan Application is available from the Fund.
- - Any changes made to your distribution information must be made in writing
and signed by each account holder.
- - There is no charge to shareholders for using this Plan.
- - You may terminate the Systematic Withdrawal Plan at any time without charge
or penalty.
- - The Fund may terminate or modify the Plan after 60 days' written notice to
shareholders.
- - Changes in banking information require a signature guaranteed letter of
instruction.
- - Distributions can be made monthly, quarterly or annually.
PLEASE NOTE!
Systematic redemptions, like any sale of shares, may result in a capital gain
or loss for federal income tax purposes. Purchases of additional shares
concurrent with withdrawals may have adverse tax consequences for shareholders.
Your account may be depleted if the amount withdrawn under the Plan exceeds the
dividends credited to your account.
PAYMENT OF REDEMPTION PROCEEDS
- - Payment will be mailed within seven days after the Fund has received and
accepted your request.
- - Redemption proceeds can be sent by wire or electronic funds transfer to your
preauthorized bank account.
- - There is a $7.50 fee for wire redemptions which will be deducted from your
proceeds.
- - Payment may be delayed for up to seven business days on redemption requests
for recent purchases made by check in order to ensure that the check has
cleared.
<PAGE>
SUSPENSION OF REDEMPTIONS
- - The right to redeem Fund shares will be suspended for any period during
which the New York Stock Exchange (the "Exchange") is closed because of
financial conditions or any other extraordinary reason.
- - The right to redeem may be suspended for any period during which (a) trading
on the Exchange is restricted pursuant to rules and regulations of the
Securities and Exchange Commission ("SEC"), (b) the SEC has by order
permitted such suspension, or (c) an emergency, as defined by rules and
regulations of the SEC, exists making it impracticable for the Fund to
dispose of portfolio securities or fairly determine the net asset value.
For further information on the right to redeem see "Purchase, Redemption and
Pricing of Securities being Offered" in the SAI.
INSTRUCTIONS FOR WRITTEN REQUESTS
- - You can redeem or exchange shares by writing to Wasatch Funds.
- - Your request should be sent to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
- - Please include:
Your name
The Fund name
Your account number(s)
The dollar amount or number of shares to be redeemed or exchanged
Your telephone number
Signature(s) of all registered account owners. Be sure to sign your request
exactly as your account is registered.
Signature guarantee, if required.
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
- - INDIVIDUAL OR JOINT OWNER. Written instructions must be signed by each
shareholder exactly as the names appear in the account registration.
- - GIFT TO MINOR. Written instructions must be signed by the Custodian exactly
as the name appears in the account registration.
- - CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY. Written instructions must
be signed by the person(s) authorized to act on the account.
- - IRA. Written instructions must be signed by the account owner. If you do not
want federal income tax withheld from your redemption you must state that
you elect not to have such taxes withheld. Please remember that the Internal
Revenue Service imposes a 10% penalty tax, in addition to current income
taxes, on amounts withdrawn before age 591/2 unless the distribution is made
because you are disabled, is paid to your beneficiary because you are
deceased or for other qualified use.
SIGNATURE GUARANTEE
A signature guarantee assures that a signature is genuine. It protects
shareholders and the Fund against fraudulent transactions by unauthorized
persons.
Signature guarantees are required by the Fund in the following cases:
- - To change the bank account or bank address designated to receive redemption
proceeds.
- - Redemption requests in excess of $50,000.
- - To request a wire transfer of redemption proceeds to a person other than the
registered shareholder(s).
- - Requests for redemption proceeds to be mailed to an address other than the
address of record.
- - Accounts involving corporations, executors, administrators, trustees or
guardians.
- - Redemptions made within 30 days of an address change.
- - To change the registered account
holders.
<PAGE>
THE FUND RESERVES THE RIGHT TO REQUIRE A SIGNATURE GUARANTEE UNDER OTHER
CIRCUMSTANCES OR TO REJECT OR DELAY A REDEMPTION ON CERTAIN LEGAL GROUNDS. FOR
MORE INFORMATION ABOUT SIGNATURE GUARANTEES PLEASE CALL 1 (800) 551-1700.
HOW TO OBTAIN A
SIGNATURE GUARANTEE
You may obtain a signature guarantee from a commercial bank or trust company
in the United States, a brokerage firm which is a member of the National
Association of Securities Dealers, Inc. or an eligible guarantor institution
such as a credit union or savings association. Call your financial institution
to see if they have the ability to guarantee a signature.
A SIGNATURE GUARANTEE MAY NOT BE PROVIDED BY A NOTARY PUBLIC.
HOW FUND SHARES ARE PRICED
The Fund's share price, or Net Asset Value (NAV), is calculated by dividing
the value of all securities and other assets owned by the Fund, less the
liabilities charged to the Fund, by the number of the Fund's 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 (normally 3:00 p.m. Central Time).
Shares of the Fund will not be priced on holidays the Exchange observes,
including New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Exchange-traded securities for which there were no transactions are valued at
the current bid prices. Securities traded on only over-the-counter markets are
valued on the basis of closing over-the-counter bid prices. Debt securities
(other than short-term instruments) are valued at prices furnished by a pricing
service, subject to review and possible revision by the Manager. Short-term
securities are valued at either original cost or amortized cost, both of which
approximate current market value. Restricted securities, securities for which
market value quotations are not readily available, and other assets are valued
at fair value by the Manager under the supervision of the Board of Directors.
Since the Fund is no-load, you may purchase, redeem or exchange shares at Net
Asset Value without paying a sales charge. Because the Fund's share prices
change daily, your purchase price will be the next NAV calculated after your
order is received and accepted.
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
SHAREHOLDER REPORTS
Reports are mailed twice a year. Annual reports are dated September 30, which
is the close of the Fund's fiscal year. The annual report contains important
information about the Fund, including portfolio holdings and audited financial
statements. Semi-annual reports are dated March 31 and help keep shareholders
up-to-date on the Fund's performance and portfolio holdings. Financial
statements in the semi-annual reports are unaudited.
To reduce the volume of mail received by shareholders, as well as Fund
expenses, only one copy of most financial reports will be mailed to accounts
listed under the same Social Security Number. Additional copies of shareholder
reports are available by calling the Fund at 1 (800) 551-1700.
<PAGE>
ACCOUNT STATEMENTS
You will receive account statements quarterly. The Fund will send you a
confirmation statement after every transaction that affects your account balance
or your account registration. If you invest through the Automatic Investment
Plan, you will receive quarterly confirmation statements. Information regarding
the tax status of income dividends and capital gains distributions will be
mailed to shareholders on or before January 31. Account tax information will
also be sent to the Internal Revenue Service.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem the shares held in any account if, at
the time of any redemption of shares in the account, the net asset value of the
remaining shares falls below $500. Shareholders will be given at least 60 days'
written notice before involuntary redemptions are made. Shareholders can
prevent involuntary redemptions by making additional investments to restore the
account to the minimum investment amount during the 60 days.
TELEPHONE TRANSACTIONS
You may initiate transactions by telephone. The Fund and its agents will not
be responsible for any losses resulting from unauthorized transactions providing
reasonable procedures to prevent fraudulent transactions have been followed.
The Fund and its agents have implemented procedures designed to reasonably
assure that telephone instructions are genuine. These procedures include
requesting verification of various pieces of personal information, recording
telephone transactions, confirming transactions in writing and restricting
transmittal of redemption proceeds to preauthorized destinations. Other
procedures may be implemented from time to time.
During periods of substantial economic or market change, it may be difficult
to contact the Fund by telephone. If you are unable to contact the Fund by
telephone, please consider sending written instructions.
TEMPORARY SUSPENSION OF SERVICES
The Fund or its agents may, in case of emergency, temporarily suspend
telephone transactions and other shareholder services.
RETURNED CHECK POLICY
When investing in the Fund by check, the Fund reserves the right to cancel the
purchase if a check does not clear your bank. The Fund will charge your account
a $20 service fee and you will be responsible for any losses or fees imposed by
your bank and any losses that may be incurred by the Fund as a result of the
canceled purchase. If you are already a shareholder in the Fund, the Fund may
redeem shares in your account(s) to cover any such losses due to fluctuations in
share price.
UNACCEPTABLE ACCOUNT REGISTRATIONS
The Fund will not accept accounts registered as Power of Attorney ("POA") or
Attorney-in-Fact.
The Fund will not accept accounts with addresses outside the United States.
REGISTRATION CHANGES
To change the name on an account, the shares are generally transferred to a
new account. In some cases, legal documentation may be required. For more
information, call 1 (800) 551-1700.
ADDRESS CHANGES
To change the address on your account, call 1 (800) 551-1700 or send a written
request signed by all account
<PAGE>
owners. Include the name of the Fund, the account number(s), the name(s) on the
account and both the old and new addresses. Certain options, including
redemptions, may be suspended for 30 days following an address change unless a
signature guarantee is provided.
MANAGEMENT
OF WASATCH FUNDS
- ----------------
Wasatch Advisors, Inc. (the "Manager" or "Wasatch Advisors"), which is located
at the same address as Wasatch Funds, serves as the Manager for the Wasatch
Micro-Cap Value Fund. The Manager is responsible for investing the Fund's
assets. In addition, the Manager provides certain administrative services and
manages the Fund's business affairs. Wasatch Advisors has been in the investment
advisory business since 1975 and has assets under management of approximately
$958 million as of October 31, 1996.
The business affairs of Wasatch Funds are supervised by its Board of
Directors. The Board consists of five Directors who are elected each year and
serve for one-year terms and/or until their successors are elected and
qualified.
Dr. Samuel S. Stewart, Jr., is President and Chairman of the Board of Wasatch
Funds and Wasatch Advisors. Dr. Stewart is the only owner of more than 25% of
Wasatch Advisors and is thus deemed to control the Manager. All interested
Directors of Wasatch Funds are also Officers and Directors of Wasatch Advisors.
INVESTMENT PERSONNEL
- --------------------
The Wasatch Micro-Cap Value Fund is co-managed by Robert Gardiner, CFA and
Jeff Cardon, CFA. The following key investment personnel make recommendations to
the Fund.
ROBERT GARDINER, CFA, is a Director of Wasatch Advisors. He is Co-Manager for
the portfolio of the Micro-Cap Value Fund and has been Lead Manager for the
portfolio of the Wasatch Micro-Cap Fund since its inception in 1995. He is a
Senior Research Analyst and member of the Wasatch Advisors' research team. Mr.
Gardiner joined Wasatch Advisors in 1981 and became a securities analyst in
1987. He is a Chartered Financial Analyst and holds Bachelor of Arts and
Bachelor of Science degrees from the University of Utah.
JEFF CARDON, CFA, is Vice President and Director of Wasatch Funds and Wasatch
Advisors. He serves as Co-Manager for the portfolio of the Micro-Cap Value Fund.
He also serves as Lead Manager for the portfolio of the Wasatch Aggressive
Equity Fund. He served as Lead Manager of the Wasatch Growth Fund from 1986
through January 1997. He is a Senior Research Analyst and member of the Wasatch
Advisors' research team. Mr. Cardon joined Wasatch Advisors as a securities
analyst in 1980. He is a Chartered Financial Analyst and holds a Bachelor of
Science degree in Finance from the University of Utah.
SAMUEL S. STEWART, JR., PHD, CFA, is President and Chairman of the Board of
Wasatch Funds and Wasatch Advisors. Dr. Stewart has served as President of
Wasatch Advisors since 1975. Dr. Stewart has also served as the Lead Manager for
the portfolio of the Wasatch Growth Fund since 1997. He served as Lead Manager
of the Wasatch Aggressive Equity Fund from 1986 through January 1997. He earned
a Bachelor of Science in Business Administration degree from Northwestern
University. He went on to earn a Master of Business Administration and a
Doctorate in Finance from Stanford University. Since 1975, Dr. Stewart has
<PAGE>
been a professor of Finance at the University of Utah.
KAREY BARKER, CFA is a Director of Wasatch Advisors and has been Lead Manager
for the portfolio of the Wasatch Mid-Cap Fund since 1994. She is a Senior
Research Analyst and member of the Wasatch Advisors' research team. Ms. Barker
joined Wasatch Advisors as a securities analyst in 1989. She is a Chartered
Financial Analyst and holds Bachelor of Arts and Bachelor of Science degrees
from the University of Utah.
MANAGEMENT FEES, EXPENSES AND EXPENSE LIMITATIONS
- -------------------------------------------------
Under an investment advisory and service contract which is explained in more
detail in the SAI, the Fund pays Wasatch Advisors a monthly management fee which
is computed on the average daily net assets of the Fund.
MONTHLY FEE TOTAL EXPENSE
BASED ON AN LIMITATIONS ON LIMIT INCLUDING
WASATCH FUND ANNUAL RATE OTHER EXPENSES MANAGEMENT FEES
- ---------------------------------------------------------------------------
Micro-Cap Value Fund 1.50% 0.45% 1.95%
The Fund pays all of its own expenses, including, without limitation: the cost
of preparing and printing registration statements required under the Securities
Act of 1933 and the 1940 Act and any amendments thereto; the expense of
registering shares with the SEC and in the various states; printing and
distribution costs of Prospectuses mailed to existing investors, reports to
investors, reports to government authorities and proxy statements; fees paid to
Directors who are not interested persons (as defined in the 1940 Act); interest
charges; taxes; legal expenses; association membership dues; auditing services;
administrative services; insurance premiums; brokerage commissions and expenses
in connection with Fund transactions; fees and expenses of the Custodian of the
Fund's assets; printing and mailing expenses; charges and expenses of dividend
disbursing agents; accounting services agents; registrars and stock transfer
agents; certain expenses incurred by employees of the Manager; and extraordinary
and nonrecurring expenses.
The Manager has voluntarily agreed to limit the expenses of the Fund at least
through September 30, 1998, to the percentage of average net assets computed on
a daily basis shown in the chart above. The Manager will pay all expenses
excluding interest, taxes, extraordinary expenses, brokerage commissions and
transactions costs in excess of such limitations. The Manager may rescind this
voluntary limitation on expenses at any time.
PORTFOLIO TRANSACTIONS
The Manager is responsible for placing orders to purchase and sell securities
for the Fund. In addition, brokerage commissions on portfolio transactions are
negotiated by the Manager. Brokerage firms are selected for their professional
capability to execute the types of transactions required by the Fund. The
Manager also considers the value and quality of services rendered on a
continuing basis. The Manager is authorized to place portfolio transactions
<PAGE>
with brokerage firms participating in the distribution of shares of the Fund if
it reasonably believes that the quality of services and commissions are
comparable to those available from other qualified brokerage firms. The Manager
may pay higher commissions to brokerage firms that provide investment and
research information to Wasatch Advisors than to firms that do not provide these
services if the Manager determines that commissions are reasonable in relation
to the services provided. Investment and research information received from
brokerage firms may be used by the Manager to manage the assets of other
advisory accounts as well as to manage the assets of the Fund.
ADDITIONAL SERVICE PROVIDERS
- ----------------------------
The SAI provides more detailed information concerning the agreements between
Wasatch Funds and the Administrator, Transfer Agent and Custodian.
ADMINISTRATOR
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, WI 53202-5712
TRANSFER AGENT
Sunstone Investor Services, LLC
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202-5712
CUSTODIAN
UMB Bank, n.a.
1010 Grand Blvd.
Kansas City, MO 64106-2008
LEGAL COUNSEL
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402-1498
INDEPENDENT AUDITORS
Arthur Andersen LLP
100 East Wisconsin Ave.
Milwaukee, WI 53202-4107
ORGANIZATION
OF WASATCH FUNDS
- ----------------
Wasatch Funds, Inc. (the "Company"), is a corporation, organized under the
laws of the State of Utah, that was incorporated on November 18, 1986, and is an
open-end, registered management investment company under the Investment Company
Act of 1940 (the "1940 Act").
The Wasatch Micro-Cap Value Fund is newly formed and began offering shares on
the date of this Prospectus.
The Company is comprised of the Micro-Cap Value Fund and six other funds five
of which are publicly offered and contained in a separate prospectus (the
"Funds"), each of which consists of a separate portfolio which issues a separate
class of shares. The Board of Directors is authorized to create new Funds in
addition to those already existing without the approval of the shareholders of
the Company. All shares have equal voting rights; each share is entitled to one
vote per share (with proportionate voting for fractional shares), except that
only shares of the Fund are entitled to vote on matters concerning the Fund.
The assets received by the Company upon the sale of shares of the Micro-Cap
Value Fund and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to the Fund. They
constitute the underlying assets of the Fund, are required to be segregated on
the books of account, and are to be charged with the expenses of the Fund. Any
general expenses of the Company not readily identifiable as belonging to a
particular Fund will be allocated on the basis of each Fund's relative net
assets during the fiscal year.
Each share of the Fund has equal dividend, distribution, liquidation and
voting rights. Each issued and outstanding share is entitled to one vote and to
participate
<PAGE>
equally in dividends and distributions declared by the Fund out of that series
and upon liquidation or dissolution of the series in the net assets remaining
after satisfaction of outstanding liabilities.
The shares of the Fund, when issued, will be fully paid and non-assessable,
have no preference, preemptive, conversion, or exchange or similar rights, and
will be freely transferable.
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES
- ------------------------------------------------
In addition to any increase in the value of shares which the Fund may achieve,
shareholders may receive dividends and capital gains distributions. For more
information please contact a Shareholder Services Representative at 1 (800) 551-
1700.
DIVIDENDS
Dividends from stocks and interest earned from other investments are the
Fund's main source of ordinary income. Substantially all of the income, less
expenses, of the Fund is distributed annually as dividends to shareholders.
CAPITAL GAINS
When the Fund sells portfolio securities it may realize a gain or loss,
depending on whether it sells them for more or less than its cost. Net realized
capital gains, if any, will be distributed at least annually.
Dividends and capital gains distributions from the Fund are automatically
applied to purchase additional shares of the Fund at the Net Asset Value per
share on the payable date unless the shareholder has requested in writing to the
Transfer Agent that payment be made in cash. This option may be changed at any
time by written request to the Transfer Agent. The election is effective for
distributions with a dividend record date on or after the date that the Transfer
Agent receives notice of the election.
TAXES
Dividends paid from the Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether paid
in cash or in additional shares.
Distributions paid from the Fund's long-term capital gains and designated as
capital gains dividends generally are taxable as long-term capital gains in the
hands of shareholders, regardless of the length of time during which they have
held their shares. For individuals, estates, and trusts, the Taxpayer Relief Act
of 1997 (the "1997 Act") has created new "mid-term capital gains" rates that
apply to the sale of capital assets held more than one year but not more than 18
months. Although the 1997 Act has not expressly addressed this issue, it is
expected that IRS regulations issued pursuant to the Act will provide that a
regulated investment company such as the Fund must notify shareholders who are
individuals, estates, or trusts as to whether they must treat capital gains
dividends that they receive as mid-term or long-term capital gains.
Gain or loss upon the sale of shares of the Fund will be treated as a capital
gain or loss, provided that (as is usually the case) the shares represented a
capital asset in the hands of the shareholder. For corporate shareholders, such
gain or loss will be a long-term gain or loss if the shares were held more than
one year. For shareholders who are individuals, estates, or trusts, the gain or
loss will be considered long-term if the shareholder has held the shares for
more than 18 months and mid-term if the shareholder has held the shares for more
than one year but not more than 18 months.
Before investing, prospective shareholders (except for shareholders exempt
from federal income tax, such as tax-
<PAGE>
sheltered retirement plans) should consider the impact of dividends or capital
gains distributions which are expected to be announced, or have been announced
but not paid. Dividends or capital gains distributions paid shortly after a
purchase of shares by an investor prior to the record date will have the effect
of reducing the per share Net Asset Value by the amount of the dividends or
distributions. All or a portion of such dividends or distributions, although in
effect a return of capital, are subject to taxation.
The Fund is required to withhold and remit to the U.S. Treasury 31% of
dividend payments, capital gains distributions, and redemption proceeds for any
account on which the owner provides an incorrect Taxpayer Identification Number.
Applications without a Taxpayer Identification Number will not be accepted and
will be returned along with the purchase check.
TAXATION OF THE FUND
The Fund intends to qualify annually for and elect tax treatment applicable to
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. Because the Fund intends to distribute substantially all of
its net investment income and capital gains to shareholders, it is not expected
that the Fund will be required to pay any federal income taxes.
WHEN YOU WILL RECEIVE
TAX INFORMATION
At the end of each calendar year, shareholders are sent full information on
redemptions, dividends and long-term capital gains distributions for tax
purposes, including information as to the portion taxable as ordinary income and
the portion taxable as long-term capital gains. As discussed above under
"Taxes," it is expected that the Fund will be required to inform shareholders
who are individuals, estates, or trusts of the portions of their capital gains
dividends that should be treated as mid-term gains and as long-term gains.
GUIDE TO UNDERSTANDING FUND PERFORMANCE
- ---------------------------------------
As a mutual fund investor you will frequently see terms that are used to
describe fund performance. In addition, many discussions are based on
comparisons of one fund's performance to that of other mutual funds or
recognized stock market indices. These discussions may appear in reports to
shareholders, newsletters, advertisements and media articles. This section is
designed to help you understand common terms and familiarize you with indices
that may be used to compare the performance of the Fund.
PERFORMANCE QUOTATIONS REPRESENT THE FUND'S PAST PERFORMANCE AND ARE NOT
INDICATIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
CUMULATIVE TOTAL RETURN represents the actual rate of return on an investment
for a specified period. Cumulative total return is generally quoted for more
than one year (usually the life of the Fund). A cumulative total return
does not show interim fluctuations in the value of an investment and assumes
reinvestment of all dividends and distributions.
AVERAGE ANNUAL TOTAL RETURN reflects the average annual percentage change in
the value of an investment in a Fund over a specified period. It is calculated
by taking the cumulative total return for the stated period and determining what
constant annual return would have produced
<PAGE>
the same cumulative return. Average annual returns for more than one year tend
to smooth out variations in a Fund's return and are not the same as actual
annual results.
DOW JONES INDUSTRIAL AVERAGE (THE DOW) is probably the most well known index.
The Dow was developed in 1884 and is the oldest market index in the United
States. Currently, the Dow contains 30 stocks that in the opinion of Dow Jones'
Wall Street Journal editors, are the industrial giants of Wall Street. When the
Dow goes up, conventional wisdom suggests that investors are seeking the
certainty associated with large, well-established companies, especially those
that pay dividends. Typically, therefore, the more large, dividend-paying stocks
a fund owns, the better it will perform when the Dow rises. The stocks of small
companies may perform differently than the Dow.
STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS (S&P 500). While the Dow is
better known, many professionals consider the S&P 500 to be a more accurate
measure of general stock market activity. The Index includes 500 of the nation's
largest stocks from a broad variety of industries. It represents about 80% of
the total market value of all stocks on the New York Stock Exchange. The
performance of the S&P is dominated by the fortunes of its largest stocks. Funds
that invest heavily in the stocks of small companies may not always have
performance that is in line with the S&P 500.
NASDAQ/OTC keeps tabs on the 3,500 or so small- and mid-cap stocks that trade
only on the computerized over-the-counter (OTC) system. Due to their number and
size, technology stocks tend to dominate the direction of the index. Funds that
invest heavily in technology stocks often reflect the performance of the Nasdaq.
RUSSELL 2000 represents the smallest two-thirds of the largest 3,000 publicly
traded companies domiciled in the United States. This index is a popular measure
of the performance of small companies.
LIPPER MICRO-CAP FUNDS INDEX includes the largest 30 funds which, by
prospectus or portfolio practice, normally invest in companies with market
capitalizations less than $300 million at the time of purchase.
GLOSSARY OF INVESTING TERMS
- ---------------------------
This glossary provides definitions of terms as they pertain to investments
made by the Fund. It also provides a more detailed description of some of the
types of securities and other instruments in which the Fund may invest to the
extent permitted by its investment objective and policies. The Fund is not
limited by this discussion and may invest in any other types of instruments not
precluded by the policies discussed elsewhere in this Prospectus. Please refer
to the SAI for a more detailed discussion of certain instruments.
BONDS are debt securities issued by a company, municipality, government or
government agency. The issuer of a bond is required to pay the holder the amount
of the loan (or par value) at a specified maturity and to make scheduled
interest payments.
CERTIFICATES OF DEPOSIT are issued by a bank and usually pay interest.
Maturities range from a few weeks to several years. Interest rates are set by
competitive forces in the marketplace.
COMMERCIAL PAPER is a short-term debt obligation with a maturity ranging from
2 to 270 days and is issued by banks, corporations and other borrowers to
investors with temporarily idle cash. The Fund may purchase commercial paper
issued under Section 4(2) of the Securities Act of 1933.
<PAGE>
COMMON STOCK represents units of ownership (shares) in a public corporation.
Owners of shares of common stock usually have the right to vote on the selection
of directors and other important matters as well as to receive dividends on
their holdings.
CONVERTIBLE SECURITIES are preferred stocks or bonds that pay a fixed dividend
or interest payment and are convertible into common stock at a specified price
or conversion ratio within a specified period of time. By investing in
convertible securities, a fund seeks the opportunity, through the conversion
feature, to participate in a portion of the capital appreciation of the common
stock into which the securities are convertible, while earning higher current
income than is available from the common stock. (Also see Investment Grade Debt
Securities.)
DEPOSITARY RECEIPTS are receipts for shares of a foreign-based corporation
that entitle the holder to dividends and capital gains on the underlying
security. Receipts include those issued by domestic banks (American Depositary
Receipts), foreign banks (Global or European Depositary Receipts) and broker-
dealers (depositary shares.)
EURODOLLARS are U.S. currency held in banks outside the United States, mainly
in Europe, and are commonly used for settling international transactions. Some
securities are issued in Eurodollars--that is, with a promise to pay interest in
dollars deposited in foreign bank accounts.
FIXED INCOME SECURITIES are securities that pay a specified rate of return.
The term generally includes short- and long-term government, corporate and
municipal obligations that pay a specified rate of interest or coupons for a
specified period of time and preferred stock, which pays fixed dividends. Coupon
and dividend rates may be fixed for the life of the issue or, in the case of
adjustable and floating rate securities, for a shorter period.
GOVERNMENT SECURITIES are securities issued by U.S. government agencies.
Although these securities have high credit ratings, they are not considered
government obligations and therefore are not directly backed by the full faith
and credit of the government as U.S. Treasury Securities are.
INVESTMENT GRADE DEBT SECURITIES are debt obligations rated within the four
highest rating categories by Moody's Investors Service, Inc., Standard & Poor's
Corporation, or other nationally recognized rating agencies. They may also be
unrated obligations that are comparable in quality to investment grade debt
securities. Obligations rated in the lowest of the top four ratings, though
considered investment grade, are deemed to have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to lead to
a lower rated security's weakened capacity to make principal and interest
payments than higher rated securities. Subsequent to its purchase by the Fund, a
rated security may cease to be rated or its rating may be reduced below the
minimum rating required for purchase by the Fund. Such an event will be
considered in determining whether the Fund should continue to hold the security.
Securities are expected to be sold promptly if they become non-investment grade
and exceed 5% of the Fund's net assets. (For a more detailed description of
ratings see "Explanation of Rating Categories" on page 24 and 25).
MARKET CAPITALIZATION is used to measure the size and value of a company. It
is calculated by multiplying a company's outstanding shares by the current
market price of a share.
MASTER DEMAND NOTES are demand instruments without a fixed maturity
<PAGE>
that bear interest at rates which are fixed to known lending rates and are
automatically adjusted when such lending rates change.
MONEY MARKET INSTRUMENTS are short-term debt instruments such as negotiable
certificates of deposit (CDs), Eurodollars, commercial paper, banker's
acceptances, Treasury bills, and discount notes of the Federal Home Loan Bank,
Federal National Mortgage Association and Federal Farm Credit System, among
others. These instruments have low risk and liquidity in common.
PREFERRED STOCK generally pays dividends at a specified rate and takes
precedence over common stock in the payment of dividends and in the event a
company must liquidate its assets. Preferred stock generally does not carry
voting rights.
PRICE-TO-EARNINGS RATIO is the price of a stock divided by its earnings per
share.
EXPLANATION OF
RATING CATEGORIES
- -----------------
The following is a description of credit ratings issued by two of the major
credit ratings agencies. Credit ratings evaluate only the safety of principal
and interest payments, not the market value risk of lower quality securities.
Credit rating agencies may fail to change credit ratings to reflect subsequent
events on a timely basis. Although the Manager considers security ratings when
making investment decisions, it also performs its own investment analysis and
does not rely solely on the ratings assigned by credit agencies.
MOODY'S INVESTORS SERVICE, INC.
BOND RATING EXPLANATION
- -------------------------------------------------------------------------------
INVESTMENT GRADE
Aaa Highest quality, smallest degree of investment risk.
Aa High quality; together with Aaa bonds, they compose the high-
grade bond group.
A Upper-medium grade obligations; many favorable investment
attributes.
Baa Medium-grade obligations; neither highly protected nor poorly
secured. Interest and principal appear adequate for the present
but certain protective elements may be lacking or may be
unreliable over any great length of time.
- -------------------------------------------------------------------------------
NON-INVESTMENT GRADE
Ba More uncertain, with speculative elements. Protection of interest
and principal payments not well safeguarded during good and bad
times.
B Lack characteristics of desirable investment; potentially low
assurance of timely interest and principal payments or
maintenance of other contract terms over time.
Caa Poor standing, may be in default; elements of danger with respect
to principal or interest payments.
<PAGE>
MOODY'S INVESTORS SERVICE, INC. (CONTINUED)
BOND RATING EXPLANATION
- -------------------------------------------------------------------------------
NON-INVESTMENT GRADE (CONTINUED)
Ca Speculative in a high degree; could be in default or have other
marked shortcomings.
C Lowest-rated; extremely poor prospects of ever attaining
investment standing.
STANDARD & POOR'S RATINGS SERVICE
BOND RATING EXPLANATION
- -------------------------------------------------------------------------------
INVESTMENT GRADE
AAA Highest rating; extremely strong capacity to pay principal and
interest.
AA High quality; very strong capacity to pay principal and interest.
A Strong capacity to pay principal and interest; somewhat more
susceptible to the adverse effects of changing circumstances and
economic conditions.
BBB Adequate capacity to pay principal and interest; normally exhibit
adequate protection parameters, but adverse economic conditions
or changing circumstances more likely to lead to a weakened
capacity to pay principal and interest than for higher rated
bonds.
- -------------------------------------------------------------------------------
NON-INVESTMENT GRADE
BB, B Predominantly speculative with respect to the issuer's capacity
to meet required interest and principal payments.
CCC, CC, C BB--lower degree of speculation; C--the highest degree of
speculation. Quality and protective characteristics outweighed by
large uncertainties or major risk exposure to adverse conditions.
D In default.
- -------------------------------------------------------------------------------
Unrated securities will be treated as non-investment grade securities unless
the Manager determines that such securities are the equivalent of investment
grade securities. Securities that have received different ratings from more than
one agency are considered investment grade if at least one agency has rated the
security investment grade.
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
WASATCH MICRO-CAP VALUE FUND
68 South Main, Suite 400
Salt Lake City, UT 84101
December , 1997
--
WASATCH FUNDS, INC. ( "Wasatch Funds" or the "Company") is an open-end
management investment company issuing shares of Common Stock in separate series
or "Funds". The Company presently consists of seven Funds, six of which are
publicly offered, which offer a variety of investment opportunities. The
Wasatch Micro-Cap Value Fund (the "Fund") is the most recent addition to the
Wasatch family of funds and is described in this Statement of Additional
Information.
This Statement of Additional Information is not a Prospectus but contains
information in addition to and more detailed than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. A Prospectus
may be obtained without charge by calling (800) 551-1700 or writing Wasatch
Funds at P.O. Box 2172, Milwaukee, Wisconsin 53202-2172. The Statement of
Additional Information and the related Prospectus are both dated
__________________, 1997. Capitalized terms used herein and not defined have
the same meanings as used in the Prospectus.
Information contained herein is subject to completion or amendment. A
registration statement relating to this security has been filed with the
Securities and Exchange Commission. The security may not be sold nor may offers
to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
TABLE OF CONTENTS
- -----------------
General Information and History...........................................2
Investment Objectives and Policies........................................2
Additional Investment Information.........................................2
Description of Corporate Bond Ratings.....................................6
Investment Restrictions...................................................7
Management of the Company.................................................9
Control Persons and Principal Holders of Securities......................11
Investment Advisory and Other Services...................................11
Brokerage Allocation and Other Practices.................................12
Capital Stock and Other Securities.......................................13
Purchase, Redemption and Pricing of Securities Being Offered.............14
Tax Status...............................................................14
Calculation of Performance Data..........................................15
Financial Statements.....................................................16
GENERAL INFORMATION AND HISTORY
Wasatch Funds, Inc. ("Wasatch Funds" or the "Company") was incorporated under
Utah law on November 18, 1986. It is an open-end management investment company
currently offering five separate Funds which are described herein. The Growth
Fund and Wasatch-Hoisington U.S. Treasury Fund are each diversified funds; the
Aggressive Equity Fund, the Micro-Cap Fund and Mid-Cap Fund are each non-
diversified funds. The Growth Fund, Wasatch-Hoisington U.S. Treasury Fund and
Aggressive Equity Fund commenced operations on December 6, 1986, the Mid-Cap
Fund on August 16, 1992, and the Micro-Cap Fund on June 19, 1995.
INVESTMENT OBJECTIVES AND POLICIES
The WASATCH MICRO-CAP VALUE FUND seeks long-term growth of capital. Income is a
secondary objective to be sought only when consistent with the primary
objective. The Micro-Cap Value Fund is a non-diversified fund. The Fund will
normally invest at least 65% of its total assets in the common stock of
companies with a market capitalization of less than $300 million at the time of
initial purchase. It seeks to invest in the stocks of companies the Manager
believes are temporarily undervalued due to short-term factors, companies that
have declined in value and no longer command an investor following and viable
businesses that have not yet become popular.
ADDITIONAL INVESTMENT INFORMATION
MONEY MARKET INSTRUMENTS. The Fund may invest in a variety of money market
instruments for temporary defensive purposes, pending investment, to meet
anticipated redemption requests and/or to retain the flexibility to respond
promptly to changes in market and economic conditions. Commercial paper
represents short-term unsecured promissory notes issued in bearer form by banks
or bank holding companies, corporations and finance companies. Certificates of
deposit are generally negotiable certificates issued against funds deposited in
a commercial bank for a definite period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may
be subject to early withdrawal penalties that vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are classified as "other borrowings" on a bank's
balance sheet, while deposit notes and certificates of deposit are classified as
deposits. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
CONVERTIBLE SECURITIES. The Fund may invest in convertible securities.
Convertible securities entitle the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible securities
mature or are redeemed, converted and exchanged. Prior to conversion,
convertible securities have characteristics similar to ordinary debt securities
or preferred stocks in that they normally provide a stable stream of income with
generally higher yields than those of common stock of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk of loss of principal
than the corporation's common stock.
In selecting convertible securities for the Fund, the Manager will consider
among other factors, its evaluation of the creditworthiness of the issuers of
the securities; the interest or dividend income generated by the securities; the
potential for capital appreciation of the securities and the underlying common
stocks; the prices of the securities relative to other comparable securities and
to the underlying common stocks; whether the securities are entitled to the
benefits of sinking funds or other protective conditions; diversification of the
Fund's portfolio as to issuers; and whether the securities are rated by a rating
agency and, if so, the ratings assigned.
The value of convertible securities is a function of their investment value
(determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common stock
approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.
Capital appreciation for the Fund may result from an improvement in the credit
standing of an issuer whose securities are held in the Fund or from a general
lowering of interest rates, or a combination of both. Conversely, a reduction
in the credit standing of an issuer whose securities are held by the Fund or a
general increase in interest rates may be expected to result in capital
depreciation to the Fund.
FOREIGN SECURITIES. The Fund may invest up to 15% of its total assets at the
time of purchase in foreign securities. (Securities of foreign issuers which
are publicly traded in the United States, either directly or through American
Depository Receipts, are not subject to this 15% limitation.) Investments in
foreign countries involve certain risks which are not typically associated with
U.S. investments. There may be less publicly available information about
foreign companies comparable to reports and ratings published about U.S.
companies. Foreign companies are not generally subject to uniform accounting,
auditing, and financial reporting standards and requirements comparable to those
applicable to U.S. companies. There also may be less government supervision and
regulation of foreign stock exchanges, brokers and listed companies than in the
United States.
Foreign stock markets may have substantially less volume than the New York Stock
Exchange, and securities of comparable U.S. companies. Brokerage commissions
and other transaction costs on foreign securities exchanges generally are higher
than in the United States.
Because investment in foreign companies will usually involve currencies of
foreign countries, and because the Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversion between various currencies. A change in the value of any foreign
currency relative to the U.S. dollar, when the Fund holds that foreign currency
or a security denominated in that foreign currency, will cause a corresponding
change in the dollar value of the Fund assets denominated or traded in that
country.
UNITED STATES GOVERNMENT SECURITIES. To the extent consistent with its
investment objective, the Fund may invest in a variety of U.S. Treasury
obligations consisting of bills, notes and bonds, which principally differ only
in their interest rates, maturities and time of issuance. The Fund may also
invest in other securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Obligations of certain agencies and
instrumentalities, such as the Government National Mortgage Association
("GNMA"), are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Export-Import Bank of the United States, are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association ("FNMA"), are supported
by the discretionary authority of the U.S. government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association ("SLMA"), are supported only by the credit of the
instrumentalities. No assurance can be given that the U.S. government would
provide financial support to its agency or instrumentalities if it is not
obligated to do so by law. Obligations of the International Bank for
Reconstruction and Development (also known as the World Bank) are supported by
subscribed, but unpaid, commitments of its member countries. There is no
assurance that these commitments will be undertaken or complied with in the
future.
Securities guaranteed as to principal and interest by the U.S. government, its
agencies or instrumentalities are deemed to include: (a) securities for which
the payment of principal and interest is backed by an irrevocable letter of
credit issued by the U.S. government or an agency or instrumentality thereof;
and (b) participations in loans made to foreign governments or their agencies
that are so guaranteed. The secondary market for certain of these
participations is limited. Such participations will therefore be regarded as
illiquid. No assurance can be given that the U.S. government would provide
financial support to its agencies or instrumentalities if it is not obligated to
do so by law.
U.S. TREASURY INFLATION-PROTECTION SECURITIES. Inflation-protection securities
are a new type of marketable book-entry security issued by the United States
Department of Treasury ("Treasury") with a nominal return linked to the
inflation rate in prices. Inflation-protection securities will be auctioned and
issued on a quarterly basis on the 15th of January, April, July, and October,
beginning on January 15, 1997. Initially, they will be issued as 10-year notes,
with other maturities added thereafter. The index used to measure inflation
will be the non-seasonally adjusted U.S. City Average All Items Consumer Price
Index for All Urban Consumers ("CPIU").
The value of the principal will be adjusted for inflation, and every six months
the security will pay interest, which will be an amount equal to a fixed
percentage of the inflation-adjusted value of the principal. The final payment
of principal of the security will not be less than the original par amount of
the security at issuance.
The principal of the inflation-protection security will be indexed to the non-
seasonally adjusted CPI-U. To calculate the inflation-adjusted principal value
for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index
ratio for any date is the ratio of the reference CPI applicable to such date to
the reference CPI applicable to the original issue date. Semi-annual coupon
interest is determined by multiplying the inflation-adjusted principal amount by
one-half of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is larger,
will be paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount will be paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal component would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U for the
third preceding calendar month. (For example, the reference CPI for December 1
is the CPI-U reported for September of the same year, which is released in
October.) The reference CPI for any other day of the month is calculated by a
linear interpolation between the reference CPI applicable to the first day of
the month and the reference CPI applicable to the first day of the following
month.
Any revisions the Bureau of Labor Statistics (or successor agency) makes to any
CPI-U number that has been previously released will not be used in calculations
of the value of outstanding inflation-protection securities. In the case that
the CPI-U for a particular month is not reported by the last day of the
following month, the Treasury will announce an index number based on the last
year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the inflation-
protection security is outstanding, the Treasury will, in consultation with the
Bureau of Labor Statistics ( or successor agency), determine an appropriate
substitute index and methodology for linking the discontinued series with the
new price index series. Determinations of the Secretary of the Treasury in this
regard are final.
Inflation-protection securities will be held and transferred in either of two
book-entry systems: the commercial book-entry system (TRADES) and TREASURY
DIRECT. The securities will be maintained and transferred at their original par
amount, i.e., not their inflation-adjusted value. STRIPS components will be
maintained and transferred in TRADES at their value based on their original par
amount of the fully constituted security.
LENDING OF PORTFOLIO SECURITIES. Consistent with applicable regulatory
requirements the Fund may lend its portfolio securities to brokers, dealers and
financial institutions, provided that outstanding loans do not exceed in the
aggregate 33 1/3% of the value of the Fund's total assets and provided that such
loans are callable at any time by the Fund and are at all times secured by cash
or equivalent collateral that is at least equal to the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to receive interest and dividends of the loaned securities, while at
the same time earning interest either directly from the borrower or on the
collateral which will be invested in short-term obligations.
A loan may be terminated by the borrower on one business day's notice or by the
Fund at any time. If the borrower fails to maintain the requisite amount of
collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases loss of rights in the
collateral should the borrower of the securities fail financially. However,
these loans of portfolio securities will only be made to firms determined to be
creditworthy pursuant to procedures approved by the Board of Directors. On
temination of the loan, the borrower is required to return the securities to the
Fund and any gain or loss in the market price during the loan would be borne by
the Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund's investment in the securities
which are the subject of the loan. The Fund will pay reasonable finders,
administrative and custodial fees in connection with a loan of its securities or
may share the interest earned on collateral with the borrower.
REPURCHASE AGREEMENTS. The Fund may agree to purchase portfolio securities from
financial institutions subject to the seller's agreement to repurchase them at a
mutually agreed upon date and price ("repurchase agreements"). Although the
securities subject to a repurchase agreement may bear maturities exceeding one
year, settlement for the repurchase agreement will never be more than one year
after the Fund's acquisition of the securities and normally will be within a
shorter period of time. Securities subject to repurchase agreements are held
either by the Fund's custodian or subcustodian (if any), or in the Federal
Reserve/Treasury Book-Entry System. The seller under a repurchase agreement
will be required to maintain the value of the securities subject to the
agreement in an amount exceeding the repurchase price (including accrued
interest). Repurchase agreements may be considered loans to the seller,
collateralized by the underlying securities. The risk to the Fund is limited to
the ability of the seller to pay the agreed upon sum on the repurchase date; in
the event of default, the repurchase agreement provides that the Fund is
entitled to sell the underlying collateral. If the value of the collateral
declines after the agreement is entered into, however, and if the seller
defaults under a repurchase agreement when the value of the underlying
collateral is less than the repurchase price, the Fund could incur a loss of
both principal and interest. The Fund's Manager monitors the value of the
collateral at the time the action is entered into and at all times during the
term of the repurchase agreement. This is done in an effort to determine that
the value of the collateral always equals or exceeds the agreed upon repurchase
price to be paid to the Fund. If the seller were to be subject to a federal
bankruptcy proceeding, the ability of the Fund to liquidate the collateral could
be delayed or impaired because of certain provisions of the bankruptcy laws.
CALCULATION OF PORTFOLIO TURNOVER RATE. The portfolio turnover rate for the
Fund is calculated by dividing the lesser of purchases or sales of portfolio
investments for the reporting period by the monthly average value of the
portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration dates
at the time of acquistion are one year or less. Portfolio turnover may vary
greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements which
enable the Fund to receive favorable tax treatment. The Fund is not restricted
by policy with regard to portfolio turnover and will make changes in its
investment portfolios from time to time as business and economic conditions as
well as market prices may dictate. It is anticipated the portfolio turnover
rate for the Fund generally will not exceed ___%. However, this should not be
considered as a limiting factor.
DESCRIPTION OF CORPORATE BOND RATINGS
Each Fund may invest in corporate bonds that are rated, at the time of purchase,
in the four highest categories by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Corporation ("S&P") or other nationally recognized rating
agencies or unrated securities deemed by the Manager to be of comparable
quality. The following list describes the various ratings of corporate bonds:
Description of corporate bond ratings of Moody's:
Aaa-Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa-Bonds rated Baa are considered as medium-grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such Bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Description of corporate bond ratings of S&P:
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A-Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
INVESTMENT RESTRICTIONS
The Company has adopted the following restrictions and policies relating to the
investment of assets of the Fund and its activities. These are fundamental
policies and may not be changed without the approval of the holders of a
majority of the outstanding voting shares of the Fund (which for this purpose
and under the Investment Company Act of 1940 means the lesser of (i) 67% of the
shares represented at a meeting at which more than 50% of the outstanding shares
are represented or (ii) more than 50% of the outstanding shares). A change in
policy affecting only one Fund may be effected with the approval of a majority
of the outstanding shares of such Fund.
The Fund may not:
1. Purchase or sell real estate, provided that the Fund may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein. The Fund has no
current intention to invest in securities of this nature.
2. Purchase or sell commodities (including, by the way of example and not by
way of limitation, grains, oilseeds, livestock, meat, food, fiber, metals,
petroleum-based products or natural gas) or futures or options contracts
with respect to physical commodities. This restriction shall not restrict
the Fund from purchasing or selling any financial contracts or instruments
which may be deemed commodities (including, by way of example and not by way
of limitation, options, futures, and options on futures with respect, in
each case, to interest rates, currencies, stock indices, bond indices or
interest indices) or any security which is collateralized or otherwise
backed by physical commodities.
3. Purchase any security on margin, except that the Fund may obtain such short-
term credit as may be necessary for the clearance of transactions.
4. Make short sales of securities.
5. Make loans to other persons, except that it may lend portfolios securities
representing up to one-third of the value of its total assets. (The Fund,
however, may purchase and hold debt instruments and enter into repurchase
agreements in accordance with its investment objective and policies, as in
the opinion of the Manager, these investments do not constitute the making
of loans.)
6. Issue any senior securities (as defined in the 1940 Act) other than as set
forth in restriction number 7 below and except to the extent that using
options may be deemed to constitute issuing a senior security.
7. Borrow money, except for temporary purposes. The amount of such borrowing
may not exceed 10% of the Fund's total assets. The Fund will not borrow
money for leverage purposes. For the purpose of this restriction, the use
of options and futures transactions shall not be deemed the borrowing of
money. (As a non-fundamental policy, the Fund will not make additional
investments while its borrowing exceeds 5% of total assets.)
8. Underwrite securities of other issuers except insofar as the Fund may be
deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
9. Invest more than 25% of its total assets (taken at market value at the time
of each investment) in the securities of issuers in any particular industry.
The following restrictions are non-fundamental and may be changed by the
Company's Board of Director without shareholder vote. The Fund will not:
1. Make investments for the purpose of exercising control or management.
2. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and Exchange
Commission rules and interpretations.
3. Purchase or sell securities in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of issuers
which invest or sponsor such programs.
4. Invest more than 5% of its total assets (taken at market value at the
time of each investment) in "Special Situations", i.e., companies in the
process of reorganization or buy-out.
5. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
the Fund may, as part of its investment in cash items, invest in
securities of other mutual funds which invest primarily in debt
obligations with remaining maturities of 13 months or less, (b) the Fund
may purchase securities as part of a merger, consolidation reorganization
or acquisition of assets, and (c) the Fund may invest in securities of
other registered investment companies to the extent permitted by
applicable Securities and Exchange Commission exemptive relief, no-action
letters, or rules pursuant to the 1940 Act.
Except for restrictions dealing with borrowings and illiquid securities, any
investment restriction or limitation, fundamental or otherwise, appearing in the
Prospectus or Statement of Additional Information, which involves a maximum
percentage of securities or assets shall not be considered to be violated unless
an excess over the percentage occurs immediately after an acquisition of
securities or utilization of assets, and such excess results therefrom.
MANAGEMENT OF THE COMPANY
The Directors and executive officers of the Fund and their principal occupations
for at least the last five years are set forth below. Unless otherwise noted,
the address of each executive officer and Director is 68 South Main, Salt Lake
City, Utah 84101. Wasatch Advisors, Inc. retains proprietary rights to the
Company name.
*Samuel S. Stewart, Jr., Ph.D., CFA - President and Chairman of the Board
President and Chairman of the Board of the Company; President, Chairman
of the Board and Director of Research for the Manager since 1975;
Professor of Finance at the University of Utah since 1975. Age 54.
*Roy S. Jespersen, MBA - Vice President and Director
Vice President and Director of the Company; Vice President and
Portfolio Manager for the Manager since 1983. Age 53.
*Venice F. Edwards, CFA - Secretary/Treasurer
Secretary/Treasurer of the Company; Compliance Officer for the Manager
since 1995; Portfolio Manager for the Manager since 1983. Age 46.
*Jeff S. Cardon, CFA - Vice President and Director
Vice President and Director of the Company; Vice President and Director
of the Manager since 1985; Security Analyst for the Manager since 1980.
Age 39.
James U. Jensen - Director
NPS Pharmaceuticals, Inc.
420 Chipeta Way
Salt Lake City, Utah 84108
Director of the Company; Vice President of Corporate Development and
Legal Affairs, NPS Pharmaceuticals, Inc.; previously Chairman and a
partner at Woodbury, Jensen, Kesler & Swinton, P.C. from 1986 to 1991.
Age 52.
William R. Swinyard - Director
Management Office
660 Tanner Building
Brigham Young University
Provo, Utah 84602
Director of the Company; Professor of Business Management, Brigham
Young University since 1985; Vice President for Struman and Associates,
Inc., a management consulting firm since 1983. Age 56.
* Interested person, as defined in the Investment Company Act of 1940,
of the Company.
The Board of Directors has appointed the officers of the Company to be
responsible for the overall management and day to day operations of the
Company's business affairs between board meetings. The Fund's standard method
of compensating directors is to pay each disinterested director an annual fee of
$6,000 for services rendered, including attending meetings of the Board of
Directors. The Fund also may reimburse its disinterested directors for travel
expenses incurred in order to attend meetings of the Board of Directors.
Officers serve in that capacity without compensation from the Company. The
table below sets forth the compensation paid to the Directors and Officers
during the fiscal year ended September 30, 1997 (exclusive of out-of-pocket
expenses reimbursed).
COMPENSATION TABLE
Aggregate
Name of Person, Compensation Total Compensation From
Position From Company Company Paid to Directors
Samuel S. Stewart, Jr. $0 $0
President and Chairman
of the Board
Roy S. Jespersen,
Vice President and
Director $0 $0
Venice Edwards
Secretary/Treasurer $0 $0
Jeff S. Cardon, Vice
President and Director $0 $0
James U. Jensen
Director $6,000 $6,000
William R. Swinyard
Director $6,000 $6,000
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of _____________, 1997, the Manager owned all of the outstanding shares of
the Fund. Shareholders with a controlling interest could effect the outcome of
proxy voting or the direction of management of the Company.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, Wasatch Advisors, Inc. is the Company's manager
and investment advisor, providing services under the advisory and service
contracts. The Manager was organized in September 1975, has been in the
business of investment management since November 1975, and currently has total
assets under management including the assets of the Funds, of approximately
$___ million as of ______________, 1997.
The principal executive officers and directors of the Manager are Samuel S.
Stewart, Jr., Ph.D., President and Director; Roy S. Jespersen, Vice President
and Director; Mark E. Bailey, Vice President and Director; Jeff S. Cardon, Vice
President and Director; Luana Buhler, Secretary; Karey Barker, Director; Robert
Gardiner, Director and James Milligan, Director. Dr. Samuel S. Stewart, Jr. is
the only owner of the Manager who owns more than 25% of the Manager's
outstanding equity and is deemed to control the Manager.
Under Advisory and Service Contracts, the Fund pays the Manager a monthly fee
computed on average daily net assets at an annual rate of 1.5%. The fee is
higher than those paid by other investment companies. The management fees are
computed and accrued daily and are payable monthly.
The Manager provides an investment program for, and carries out the investment
policy and manages the portfolio assets of, the Fund. The Manager is authorized,
subject to the control of the Board of Directors of the Company, to determine
the selection, quantities and time to buy or sell securities for the Fund. In
addition to providing investment services, the Manager pays for office space and
facilities for the Company. Among other expenses, the Fund pays taxes (if any),
brokerage commissions on portfolio transactions, expenses of issuance and
redemption of shares, charges of custodians and dividend disbursing agents,
proxy material and costs of printing and engraving stock certificates, auditing
and legal expenses, certain expenses of registering and qualifying shares for
sale, fees of directors who are not "interested persons" of the Manager, costs
of typesetting, printing and mailing the Prospectus, Statement of Additional
Information and periodic reports to existing shareholders, and any other charges
or fees not specifically enumerated.
The Manager has voluntarily agreed to limit the Fund expenses to 1.95% of
average net assets calculated on a daily basis and will pay all expenses
excluding interest, taxes, extraordinary expenses, brokerage commissions and
transactions costs in excess of such limitation. The Manager will maintain such
expense limitation at least through September 30, 1998.
GENERAL INFORMATION
- -------------------
Administrator
- -------------
Pursuant to the Adminstration and Fund Accounting Agreement (the
"Administration Agreement"), Sunstone Financial Group, Inc. (the
"Administrator"), 207 East Buffalo Street, Suite 400, Milwaukee, WI 53202-
5712, calculates daily net asset values of the Fund, oversees the Fund's
Custodian and Transfer Agent, prepares and files all federal and state tax
returns and required tax filings (other than those required to be made by the
Fund's Custodian and Transfer Agent), oversees the Fund's insurance
relationships, participates in the preparation of the Fund's registration
statement, proxy statements and reports, prepares compliance filings pursuant to
state securities laws, compiles data for and prepares notices to the Securities
and Exchange Commission (the "SEC"), prepares financial statements for the
annual and semi-annual reports to the SEC and current investors, monitors the
Fund's expense accounts, monitors the Fund's status as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), monitors compliance with the Fund's investment policies and
restrictions and generally assists in the Fund's administrative operations. The
Administrator, at its own expense, and without reimbursement from the Fund,
furnishes office space and all necessary office facilities, equipment, supplies
and clerical and executive personnel for performing the services required to be
performed by it under the Administration Agreement. For the foregoing, the
Administrator receives a fee on the combined value of the Funds computed daily
and payable monthly, at the annual rate of twenty-eight one-hundredths of one
percent (0.28%) on the first $50 million of the average daily net assets,
eighteen one-hundredths of one percent (0.18%) on the next $50 million of the
average daily net assets and thirteen one-hundredths of one percent (0.13%) on
the average daily net assets in excess of $100 million, subject to the following
minimum fee: Micro-Cap Value Fund ($_____).
Custodian and Transfer Agent
- ----------------------------
UMB Bank, n.a. serves as the Fund's Custodian. The Custodian is responsible
for, among other things, safeguarding and controlling the Company's cash and
securities. The Fund pays a monthly fee at the annual rate of .75 basis points
on combined net assets up to $500,000,000, plus .50 basis points on the combined
net assets in excess of $500,000,000. Sunstone Investor Services, LLC., 207
East Buffalo Street, Suite 315, Milwaukee, Wisconsin 53202-2172, is the
Company's Transfer Agent. Sunstone Investor Services, LLC is an affiliate of
Sunstone Financial Group, Inc., the Fund's Administrator. The Transfer Agent
keeps records of all shareholder accounts and transactions. The Fund pays
Sunstone Investor Services, LLC a Transfer Agent fee based on the number of
shareholder accounts subject to a minimum annual fee.
The Company, on behalf of the Fund, has also entered into service agreements
with various brokerage firms pursuant to which the brokers provide certain
administrative services with respect to their customers who are beneficial
owners of shares of the Fund. Pursuant to these service agreements, the Fund
compensates the brokers for the administrative services provided which
compensation is based on the aggregate assets of their customers that are
invested in the Fund.
Counsel
- -------
Michael J. Radmer, Dorsey & Whitney, LLP., 220 South Sixth Street, Minneapolis,
Minnesota 55402-1498, acts as legal counsel to the Company and reviews certain
legal matters for the Company in connection with the shares offered by the
Prospectus.
Independent Auditors
- --------------------
Arthur Andersen LLP, 100 East Wisconsin Avenue, Milwaukee, WI 53202 are the
Company's independent Certified Public Accountants. In this capacity the firm
is responsible for auditing the financial statements of the Company and
reporting thereon.
BROKERAGE ALLOCATION AND OTHER PRACTICES
The Manager is responsible for decisions to buy and sell securities for the
Company and for the placement of its portfolio business and the negotiation of
the commissions paid on such transactions. It is the policy of the Manager to
seek the best security price available with respect to each transaction. Except
to the extent that the Company may pay higher brokerage commissions for
brokerage and research services (as described below) on a portion of its
transactions executed on securities exchanges, the Manager seeks the best
security price at the most favorable commission rate. In selecting dealers and
in negotiating commissions, the Manager considers the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition. When more than one firm is believed to meet these criteria,
preference may be given to firms which also provide research services to the
Company or the Manager.
Pursuant to provisions of the investment advisory agreement, the Company's Board
of Directors has authorized the Manager to cause the Company to incur brokerage
commissions in an amount higher than the lowest available rate in return for the
opinion that the continued receipt of supplemental investment research services
from dealers is essential to its provision of high quality portfolio management
services to the Company. The Manager undertakes that such higher commissions
will not be paid by the Company unless (a) the Manager determines in good faith
that the amount is reasonable in relation to the services in terms of the
particular transaction or in terms of the Manager's overall responsibilities
with respect to the accounts as to which it exercises investment discretion, (b)
such payment is made in compliance with the provisions of Section 28(e) of the
Securities and Exchange Act of 1934 and other applicable state and federal laws,
and (c) in the opinion of the Manager the total commissions paid by the Company
are reasonable in relation to the expected benefits to the Company over the long
term. The investment advisory fee paid by the Fund under the investment
advisory agreement is not reduced as a result of the Manager's receipt of
research services. Consistent with both the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. and such policies as the Board
of Directors may determine, and subject to seeking best execution, the Manager
may consider sales of shares of the Company as a factor in the selection of
dealers to execute portfolio transactions for the Company.
The Manager places portfolio transactions for other advisory accounts. Research
services furnished by firms through which the Company effects its securities
transactions may be used by the Manager in servicing all of its accounts; not
all of such services may be used by the Manager in connection with the Company.
In the opinion of the Manager, the benefits from research services to each of
the accounts (including the Company) managed by the Manager cannot be measured
separately. Because the volume and nature of the trading activities of the
accounts are not uniform, the amount of commissions in excess of the lowest
available rate paid by each account for brokerage and research services will
vary. However, in the opinion of the Manager, such costs to the Company will
not be disproportionate to the benefits received by the Company on a continuing
basis.
The Manager's brokerage practices are monitored on at least an annual basis by
the Board of Directors including the disinterested persons (as defined in the
Investment Company Act of 1940) of the Manager.
CAPITAL STOCK AND OTHER SECURITIES
The Company is authorized to issue shares in separate series, or "Funds." Seven
such Funds have been established:
Series A Common - Aggressive Equity Fund
Series B Common - Growth Fund
Series C Common - Wasatch-Hoisington U.S. Treasury Fund
Series D Common - Mid-Cap Fund
Series E Common - Micro-Cap Fund
Series F Common - World Wide Fund
Series G Common - Micro-Cap Value Fund
See "Organization of the Company" in the Prospectus, for a discussion of the
relative rights and characteristics of the shares.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
The procedures to be followed in the purchase and redemption of shares as well
as the method of determining the net asset value are fully disclosed in the
Prospectus. As indicated in the Prospectus, the net asset value is calculated
each day the New York Stock Exchange is open for trading. The New York Stock
Exchange is closed on the following national holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, and Christmas Day.
Investors may exchange their shares of the Fund for the U.S. Government Money
Market Fund Fund as provided in the prospectus. Sunstone Investor Services,
LLC, in its capacity as transfer agent for the Fund, receives a service fee from
the U.S. Government Money Market Fund Fund at the annual rate of 0.25% of 1% of
the average daily net asset value of the shares exchanged from the Funds into
the U.S. Government Money Market Fund Fund.
The Company has filed a notification of election under Rule 18f-1 of the
Investment Company Act committing itself to pay in cash all requests for
redemption by any shareholder of record, limited in amount with respect to each
shareholder of record during any 90-day period to the lesser of :
(1) $250,000 or
(2) 1% of the net asset value of each Fund at the
beginning of such election period.
The Fund intends to also pay redemption proceeds in excess of such lesser amount
in cash, but reserves the right to pay such excess amount in kind, if it is
deemed in the best interest of the Fund to do so. In making a redemption in
kind, the Fund reserves the right to make a selection from the portfolio holding
of a number of shares which will reflect the portfolio make-up and the value
will approximate as closely as possible the value of the Fund's shares being
redeemed; any shortfall will be made up in cash. Investors receiving an in kind
distribution are advised that they will likely incur a brokerage charge on the
sale of such securities through a broker. The values of portfolio securities
distributed in kind will be the values used for the purpose of calculating the
per share net asset value used in valuing the Fund's shares tendered for
redemption.
TAX STATUS
Reference is made to "Dividends, Capital Gain Distributions and Taxes" in the
Prospectus.
The Fund intends to qualify each year as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). By so qualifying,
the Fund will not be subject to Federal income taxes to the extent that it
distributes its net investment income and realized net capital gains.
Dividends paid to corporate shareholders will qualify for the 70% dividends-
received deduction for corporations to the extent that the dividends are derived
from dividends that the Fund receives from domestic corporations and meet
certain other requirements prescribed by the Code.
Redemption of shares will generally result in a capital gain or loss for income
tax purposes. Such capital gain or loss will be long-term or short-term,
depending upon the holding period. (For shareholders who are individuals,
estates, or trusts, the capital gain will be mid-term if the shares were held
more than one year but no more than 18 months.) However, if a loss is realized
on shares held for six months or less, and the investor received a capital gain
distribution during that period, then such loss is treated as a long-term
capital loss to the extent of the capital gain distribution received. Investors
may also be subject to state and local taxes.
Under the Code, the Fund will be subject to a 4% excise tax on a portion of its
undistributed income if it fails to meet certain distribution requirements by
the end of the calendar year. The Fund intends to make distributions in a
timely manner and accordingly does not expect to be subject to the excise tax.
If the Fund invests in zero coupon bonds upon their issuance, such obligations
will have original issue discount in the hands of the Fund. Generally, the
original issue discount equals the difference between the "stated redemption
price at maturity" of the obligation and its "issue price," as those terms
are defined in the Code. Similarly, if the Fund acquires an already issued zero
coupon bond from another holder, the bond will have original issue discount in
the Fund's hands, equal to the difference between the "adjusted issue price"
of the bond at the time the Fund acquires it (that is, the original issue price
of the bond plus the amount of original issue discount accrued to date) and its
stated redemption price at maturity. In each case, the Fund is required to
accrue as ordinary interest income a portion of the original issue discount even
though it receives no cash currently as interest payment on the obligation.
If the Fund invests in U.S. Treasury inflation protection securities, it will be
required to treat as original issue discount any increase in the principal
amount of the securities that occurs during the course of its taxable year. If
the Fund purchases such inflation protection securities that are issued in
stripped form, either as stripped bonds or coupons, it will be treated as if it
had purchased a newly issued debt instrument having original issue discount.
Because the Fund is required to distribute substantially all of its net
investment income (including accrued original issue discount), if the Fund
invests in either zero coupon bonds or U.S. Treasury inflation protection
securities, it may be required to distribute to shareholders an amount greater
than the total cash income it actually receives. Accordingly, in order to make
the required distributions, the Fund may be required to borrow or to liquidate
securities.
This section is not intended to be a full discussion of present or proposed
federal income tax laws and the effect of such laws on an investor. Investors
are urged to consult with their respective tax advisers for a complete review of
the tax ramifications of an investment in the Fund.
CALCULATION OF PERFORMANCE DATA
The Fund may occasionally advertise performance data such as total return or
yield. To facilitate the comparability of these statistics from one mutual fund
to another, the SEC has developed guidelines for the calculation of these
statistics. The Fund will calculate its performance data in accordance with
these guidelines. The total return for a mutual fund represents the average
annual compounded rate of return over a specified period of time that would
equate the initial amount invested to the value of the investment at the end of
the period of time. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T=[(------)-1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period covered
by the computation of a hypothetical $1,000 payment made
at the beginning of the period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in terms
of years.
The Fund computes its aggregate total return by determining the aggregate
rates of return during specified periods that likewise equate the initial amount
invested to the ending redeemable value of such investment. The formula for
calculating aggregate total return is as follows:
ERV
T=[(------)-1]
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value is determined
by assuming complete redemption of the hypothetical investment and the deduction
of all nonrecurring charges at the end of the period covered by the
computations.
A yield quotation is based upon a 30 day period and is computed by dividing
the net investment income per share earned during a 30-day (or one-month) period
by the net asset value per share on the last day of the period and annualizing
the result on a semiannual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. The Fund's net investment income per share earned during the period
is based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a-b
6
Yield=2[(----+1)-1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Units outstanding during the
period that were entitled to receive dividends.
d = net asset value per share on the last day of the period.
FINANCIAL STATEMENTS
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
a. Financial Statements
The following audited financial statements for the fiscal year ended
September 30, 1996 are included in Parts A and B:
1. Independent Auditors Report
2. Statement of Assets and Liabilities
3. Statement of Operations
4. Schedule of Investments
5. Statement of Changes in Net Assets
6. Financial Highlights
7. Notes to Financial Statements
b. Exhibits:
1a. Articles of Incorporation<F1> - Updated September 1988<F2>
1b. Articles of Correction<F3>
1c. Articles of Restatement of Articles of Incorporation<F11>
1d. Articles of Amendment of Articles of Incorporation<F9>
1e. Articles of Amendment dated April 1995 of Articles of
Incorporation<F11>
1f. Articles of Amendment dated January 1996 of Articles of
Incorporation<F11>
1g. Articles of Amendment dated July 1996 of Articles of
Incorporation<F11>
1h. Form of Articles of Amendment dated September 1997 of Articles of
Incorporation<F13>
2a. Bylaws of Registrant<F1> - Updated January 1988<F2>, September
1988<F2> and August 1991<F4>
2b. Bylaws of Registrant - Updated March 1993<F3>
2c. Bylaws of Registrant - Updated May 1995<F8>
2d. Bylaws of Registrant - Updated May 1996<F11>
3. None
4. Specimen<F6>
5. Advisory Service Contract between Wasatch Funds, Inc. and Wasatch
Advisors, Inc.<F5>
5a. Corporate Resolution - Appendix to the Investment Advisory
Agreements<F4>
5b. Advisory Service Contract between Wasatch Micro-Cap Fund and
Wasatch Advisors, Inc.<F8>
5c. Advisory Service Contract between Wasatch World Wide Fund and
Wasatch Advisors, Inc.<F11>
5d. Advisory Service Contract between Wasatch Micro-Cap Value Fund
and Wasatch Advisors, Inc.<F13>
6. None
7. None
8. Custodian Agreement between Wasatch Mid-Cap Fund and First
Security Bank of Utah, n.a.<F5>
8a. Custodian Agreement between Firstar Trust Company and Wasatch
Funds, Inc.<F8>
8b. Custodian Agreement between Wasatch Funds, Inc. and UMB Bank,
n.a.<F11>
8c. Amendment to Custodian Agreement between Wasatch Funds, Inc. and
UMB Bank, n.a.<F11>
8d. Amendment to Custodian Agreement between Wasatch Funds, Inc. and
UMB Bank, n.a.<F13>
9. Shareholder Servicing Agent Agreement between Wasatch Funds, Inc.
and Firstar Trust Company<F6>
9a. Administration Agreement between Wasatch Funds, Inc. and Sunstone
Financial Group, Inc.<F6>
9b. Transfer Agent Agreement between Wasatch Micro-Cap Fund and
Firstar Trust Company<F8>
9c. Administration Agreement between Wasatch Micro-Cap Fund and
Sunstone Financial Group, Inc.<F8>
9d. Services Agreement between Wasatch Funds, Inc. and Fidelity
Brokerage Services, Inc.<F8>
9e. Operating Agreement between Wasatch Funds, Inc. and Charles
Schwab & Co., Inc.<F8>
9f. Amendment to Administration Agreement between Wasatch Funds, Inc.
and Sunstone Financial Group, Inc.<F11>
9g. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone
Financial Group, Inc.<F11>
9h. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc.
and Sunstone Financial Group, Inc.<F11>
9i. Amendment to Administration Agreement between Wasatch Funds, Inc.
and Sunstone Financial Group, Inc. <F13>
9j. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone
Investor Services, LLC.<F13>
9k. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc.
and Sunstone Investor Services.<F13>
9l. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc.
and Sunstone Investor Services, LLC.<F13>
10. Opinion of Counsel
11. Consent of Arthur Andersen LLP<F13>
12. None
13. None
14. None
15. None
16. Schedule of Computation of Performance Quotation - Aggressive
Equity Fund<F12>
16a. Schedule of Computation of Performance Quotation - Growth
Fund<F12>
16b. Schedule of Computation of Performance Quotation - Wasatch-
Hoisington U.S. Treasury Fund<F12>
16c. Schedule of Computation of Performance Quotation - Mid-Cap
Fund<F12>
16d. Schedule of Computation of Performance Quotation - Micro-Cap
Fund<F12>
16e. Schedule of Computation of Performance Quotation - World Wide
Fund<F12>
16f. Schedule of Computation of Performance Quotation - Micro-Cap
Value Fund<F13>
17. Financial Data Schedules<F12>
18. None
<F1> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Pre-Effective Amendment No. 2 to
the Company's Registration Statement on Form N-1A.
<F2> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to Exhibit 1 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form N-1A.
<F3> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 8 to
the Company's Registration Statement on Form N-1A.
<F4> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form N-1A.
<F5> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 6 to
the Company's Registration Statement on Form N-1A.
<F6> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 7 to
the Company's Registration Statement on Form N-1A.
<F7> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the Company's Rule 24f-2 Notice filed on November 6, 1995.
<F8> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 11 to
the Company's Registration Statement on Form N-1A.
<F9> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 12 to
the Company's Registration Statement on Form N1-A.
<F10> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post Effective Amendment No. 13 to
the Company's Registration Statement on Form N-1A.
<F11> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post Effective Amendment No. 14 to
the Company's Registration Statement on Form N-1A.
<F12> Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post Effective Amendment No. 15 to the
Company's Registration Statement on Form N-1A.
<F13> Filed herewith
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
Registrant is controlled by its Board of Directors. Registrant neither
controls any person or is under common control with any other person.
ITEM 26. NUMBERS OF HOLDERS OF SECURITIES
--------------------------------
Title of Class
-------------- Number of Record
Common Stock, par Holders
value $0.001 per share as of August 31, 1997
Series A - Aggressive Equity Fund 10,139
Series B - Growth Fund 2,910
Series C - Wasatch-Hoisington U.S. Treasury Fund 1,147
Series D - Mid-Cap Fund 4,908
Series E - Micro-Cap Fund 6,676
Series F - World Wide Fund 0
Series G - Micro-Cap Value Fund 0
ITEM 27. INDEMNIFICATION
---------------
Officers and directors of the corporation are indemnified to the full extent
permitted by Utah Corporation Law. However, Article XIII of Registrant's
Articles of Incorporation and Article IX of Registrant's Bylaws preclude the
indemnification of any director or officer for any liability arising by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Indemnification shall only be made when (1) a final decision on the merits by a
court or other body before whom the proceeding was brought that the person to be
indemnified ("indemnitee") was not liable by reason of disabling conduct or,
(2) in the absence of such a decision, a reasonable determination, based upon a
review of the facts, that the indemnitee was not liable by reason of disabling
conduct, by (a) the vote of a majority of a quorum of directors who are neither
"interested persons" of the company as defined in section 2(a)(19) of the 1940
Act nor parties to the proceeding ("disinterested, non-party directors"), or
(b) an independent legal counsel in a written opinion.
Insofar as the conditional advancing of indemnification monies for actions based
upon the Investment Company Act of 1940 may be concerned, such payments will be
made only on the following conditions: (1) the indemnitee shall provide a
security for his undertaking, (2) the investment company shall be insured
against losses arising by reason of any lawful advances, or (3) a majority of a
quorum of the disinterested, non-party directors of the investment company, or
an independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
----------------------------------------------------
As of September 30, 1996, Wasatch, Inc. (the "Manager" of the Registrant)
acted as the investment advisor for employee benefit plans, other tax free plans
including individual retirement accounts, Keoghs, endowments and foundations,
and taxable accounts in addition to the five series of Wasatch Funds, Inc. The
total assets under management were approximately $958 million (including the
Funds) as of October 31, 1996.
Certain information regarding each officer and director of the Manager including
each business, profession, vocation or employment of a substantial nature in
which each such person is or has been engaged at any time during the past two
fiscal years is set forth below.
Other Substantial
Position Business, Profession,
Name with Manager Vocation or Employment
- ---- ------------ ----------------------
Samuel S. Stewart, Jr., Ph.D. President, Chairman of Professor of Finance,
the Board, Director and University of Utah
Director of Research
Roy S. Jespersen Vice President, Director, --
and Portfolio Manager
Jeff S. Cardon Vice President, Director, --
and Securities Analyst
Mark E. Bailey Vice President, Director, --
and Portfolio Manager
Luana Buhler Secretary, Equities Trader --
Karolyn Barker Director and Research Analyst
Robert Gardiner Director and Research Analyst
James Milligan Director and Marketing Manager
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
None
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
1. Wasatch, Inc., 68 South Main Street, Salt Lake City, Utah 84101 (records
relating to its function as investment advisor).
2. UMB Bank, n.a., 928 Grand Avenue, Kansas City, MO 64141 (records
relating to its function as custodian).
3. Sunstone Financial Group, Inc. 207 East Buffalo Street, Suite 400,
Milwaukee, WI 53202 (records relating to its function as administrator
and fund accounting servicing agent).
4. Sunstone Investor Services, LLC, 207 East Buffalo Street, Suite 315,
Milwaukee, WI 53202 (records relating to its function as transfer agent
and shareholder servicing agent).
ITEM 31. MANAGEMENT SERVICES
-------------------
Other than as set forth under the caption "Management of the Company" in the
Prospectus constituting Part A of the Registration Statement and under the
captions "Management of the Fund" and "Investment Advisory and Other
Services" in the Statement of Additional Information constituting Part B of the
Registration Statement, Registrant is not a party to any management-related
service contract.
ITEM 32. UNDERTAKINGS
------------
The Company undertakes to furnish each person to whom a current prospectus is
delivered with a copy of the Company's latest annual report to shareholders,
upon request and without charge. The Company undertakes further to file a post-
effective amendment, using financial statements which need not be certified,
within four to six months from the effective date of the Company's Registration
Statement.
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
Amended Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Salt Lake City, and the State of Utah on
the 16th day of September 1997.
WASATCH FUNDS, INC.
By: /s/ Samuel S. Stewart, Jr., Ph.D
------------------------------
Samuel S. Stewart, Jr., Ph.D.,
President
Pursuant to the requirements of the Securities Act of 1933, this Amended
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ Samuel S. Stewart, Jr., Ph.D President and Director September 16, 1997
- -------------------------------- (principal executive
Samuel S. Stewart, Jr., Ph.D. officer)
/s/Venice Edwards Secretary and Treasurer September 16, 1997
- ---------------- (principal financial
Venice Edwards and accounting officer)
/s/ Roy S. Jespersen Vice President and September 16, 1997
- -------------------- Director
Roy S. Jespersen
/s/ Jeff S. Cardon Vice President and September 16, 1997
- ------------------ Director
Jeff S. Cardon
- ------------------------ Director
James U. Jensen, Esquire
- -------------------- Director
William R. Swinyard
EXHIBIT INDEX
a. Financial Statements
Included in Part A of the Registration Statement:
Financial Highlights
Included in Part B of the Registration Statement:
Financial Statements for the period December 6, 1986
(commencement of operations) through September 30, 1996 for
the Aggressive Equity Fund, Growth Fund, and Wasatch-
Hoisington U.S. Treasury Fund; August 16, 1992
(commencement of operations) through September 30, 1996 for
the Mid-Cap Fund; June 19, 1995 (commencement of operations)
through September 30, 1996 for the Micro-Cap Fund, are
incorporated by reference in the Statement of
Additional Information from the Registrant's Annual Report
dated as of September 30, 1996.
b. Exhibits
1a. Articles of Incorporation<F1> - Updated September 1988<F2>
1b. Articles of Correction<F3>
1c. Articles of Restatement of Articles of Incorporation<F11>
1d. Articles of Amendment of Articles of Incorporation<F9>
1e. Articles of Amendment dated April 1995 of Articles of
Incorporation<F11>
1f. Articles of Amendment dated January 1996 of Articles of
Incorporation<F11>
1g. Articles of Amendment dated July 1996 of Articles of
Incorporation<F11>
1h. Article of Amendment dated September 1997 of Articles of
Incorporation<F13>
2a. Bylaws of Registrant<F1> - Updated January 1988<F2>, September
1988<F2> and August 1991<F4>
2b. Bylaws of Registrant - Updated March 1993<F3>
2c. Bylaws of Registrant - Updated May 1995<F8>
2d. Bylaws of Registrant - Updated May 1996<F11>
3. None
4. Specimen<F6>
5. Advisory Service Contract between Wasatch Funds, Inc. and Wasatch
Advisors, Inc.<F5>
5a. Corporate Resolution - Appendix to the Investment Advisory
Agreements<F4>
5b. Advisory Service Contract between Wasatch Micro-Cap Fund and Wasatch
Advisors, Inc.<F8>
5c. Advisory Service Contract between Wasatch World Wide Fund and Wasatch
Advisors, Inc.<F11>
5d. Advisory Service Contract between Wasatch Micro-Cap Value Fund and
Wasatch Advisors, Inc.<F13>
6. None
7. None
8. Custodian Agreement between Wasatch Mid-Cap Fund and First Security
Bank of Utah, N.A.<F5>
8a. Custodian Agreement between Firstar Trust Company and Wasatch Funds,
Inc.<F8>
8b. Custodian Agreement between Wasatch Funds, Inc., and UMB Bank,
n.a.<F11>
8c. Amendment to Custodian Agreement between Wasatch Funds, Inc. and UMB
Bank, n.a.<F11>
8d. Amendment to Custodian Agreement between Wasatch Funds, Inc. and UMB
Bank, n.a.<F13>
9. Shareholder Servicing Agent Agreement between Wasatch Funds, Inc. and
Firstar Trust Company<F6>
9a. Administration Agreement between Wasatch Funds, Inc. and Sunstone
Financial Group, Inc.<F6>
9b. Transfer Agent Agreement between Wasatch Micro-Cap Fund and Firstar
Trust Company<F8>
9c. Administration Agreement between Wasatch Micro-Cap Fund and Sunstone
Financial Group, Inc.<F8>
9d. Services Agreement between Wasatch Funds, Inc. and Fidelity Brokerage
Services, Inc.<F8>
9e. Operating Agreement between Wasatch Funds, Inc. and Charles Schwab &
Co., Inc.<F8>
9f. Amendment to Administration Agreement between Wasatch Funds, Inc. and
Sunstone Financial Group, Inc.<F11>
9g. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone
Financial Group, Inc.<F11>
9h. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc. and
Sunstone Financial Group, Inc.<F11>
9i. Amendment to Administration Agreement between Wasatch Funds, Inc. and
Sunstone Financial Group, Inc.<F13>
9j. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone
Investor Services, LLC.<F13>
9k. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc. and
Sunstone Investor Services, LLC.<F13>
9l. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc. and
Sunstone Investor Services, LLC. <F13>
10. Opinion of Counsel
11. Consent of Arthur Andersen LLP<F13>
12. None
13. None
14. None
15. None
16. Schedule of Computation of Performance Quotation - Aggressive Equity
Fund<F12>
16a. Schedule of Computation of Performance Quotation - Growth Fund<F12>
16b. Schedule of Computation of Performance Quotation - Wasatch-Hoisington
U.S. Treasury Fund<F12>
16c. Schedule of Computation of Performance Quotation - Mid-Cap Fund<F12>
16d. Schedule of Computation of Performance Quotation - Micro-Cap Fund<F12>
16e. Schedule of Computation of Performance Quotation - World Wide
Fund<F12>
16f. Schedule of Computation of Performance Quotation - Micro-Cap Value
Fund<F13>
17. Financial Data Schedules<F12>
18. None
<F1> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Pre-Effective Amendment No. 2 to
the Company's Registration Statement on Form N-1A.
<F2> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to Exhibit 1 to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form N-1A.
<F3> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 8 to
the Company's Registration Statement on Form N-1A.
<F4> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form N-1A.
<F5> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 6 to
the Company's Registration Statement on Form N-1A.
<F6> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 7 to
the Company's Registration Statement on Form N-1A.
<F7> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the Company's Rule 24f-2 Notice filed on November 6, 1995.
<F8> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 11 to
the Company's Registration Statement to Form N-1A.
<F9> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 12 to
the Company's Registration Statement to Form N-1A.
<F10> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 13 to
the Company's Registration Statement to Form N-1A.
<F11> Incorporated by reference pursuant to Rule 411 under the Securities Act
of 1933 to the same exhibit number in Post-Effective Amendment No. 14 to
the Company's Registration Statement to Form N-1A.
<F12> Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 15 to the
Company's Registration Statement to Form N-1A.
<F13> Filed herewith.
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
WASATCH FUNDS, INC.
1. The name of this Corporation is Wasatch Funds, Inc.
2. Paragraph (a) of Article IV of the Articles of Incorporation of this
Corporation, as previously filed with the Utah Division of Corporations
and Commercial Code on April 21, 1993, and as amended on April 20, 1995,
January 26, 1996, and July 8, 1996 is amended to read as follows:
ARTICLE IV
a. The Corporation is authorized to issue a total of one billion shares
of Common Stock, with a par value of $.001 per share. Seven hundred
million of these shares have been authorized by the Board of Directors
to be issued in seven separate series: one hundred million shares
designated as Series A Common Stock of Wasatch Aggressive Equity Fund,
one hundred million shares designated as Series B Common Stock of Wasatch
Growth Fund, one hundred million shares designated as Series C Common
Stock of Wasatch Hoisington U.S. Treasury Fund, one hundred million
shares designated as Series D Common Stock of Wasatch Mid-Cap Fund, one
hundred million shares designated as Series E Common Stock of Wasatch
Micro-Cap Fund, one hundred million shares designated as Series F Common
Stock of Wasatch World Wide Fund, and two hundred million shares
designated as Series G Common Stock of Wasatch Micro-Cap Value Fund.
There are no restrictions on the transfer of shares.
3. The foregoing amendment to the Articles of Incorporation was adopted on
September 5, 1997, in accordance with the requirements of Sections
16-10a-1001 and 16-10a-1006 of the Utah Revised Business Corporation Act.
4. The foregoing amendment to the Articles of Incorporation has been adopted
by the Corporation's Board of Directors without shareholder action, inasmuch
as shareholder approval is not required for adoption of the amendment
pursuant to Sections 16-10a-601, 16-10a-602 and 16-10a-1002 of the Utah
Revised Business Corporation Act and the Corporation's Articles of
Incorporation.
IN WITNESS WHEREOF, these Articles of Amendment of the Articles of Incorporation
are hereby executed, effective as of this ___ day of September, 1997.
WASATCH FUNDS, INC.
----------------------------
Venice F. Edwards
Secretary/Treasurer
ADVISORY AND SERVICE CONTRACT
between
WASATCH FUNDS, INC. for
the WASATCH MICRO-CAP VALUE FUND
and
WASATCH ADVISORS, INC.
AGREEMENT made ____________, 1997 by and between Wasatch Micro-Cap Value
Fund (the "Fund"), one of seven separate funds of Wasatch Funds, Inc., a Utah
corporation (the "Corporation"), and Wasatch Advisors, Inc., a Utah
corporation (the "Adviser").
In consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser
for and to manage the investment and reinvestment of the assets of the fund in
accordance with the Fund's investment objective and policies and limitations,
and to administer its affairs to the extent requested by and subject to the
supervision of the Board of Directors of the Corporation for the period and upon
the terms herein set forth. The investment of funds shall be subject to all
applicable restrictions of the Articles of Incorporation and Bylaws of the
Corporation as may from time to time be in force.
The Adviser accepts such employment and agrees during such period to render
such services, to furnish office facilities and simple business equipment, to
permit any of its officers to serve without compensation as directors or
officers of the Corporation if elected to such positions and to assume the
obligations herein set forth for the compensation herein provided. The Adviser
shall for all purposes herein provided be deemed to be an independent
contractor, and, unless otherwise expressly provided or authorized, shall have
no authority to act for or represent the Corporation in any way or otherwise be
deemed an agent of the Corporation. It is understood and agreed that the
Adviser, by separate agreement with the Corporation, may also act as Distributor
for Fund.
2. For the services and facilities described in Section 1, the Fund will
pay to the Adviser at the end of each calendar month, an investment management
fee computed at the annual rate of 1.5% of the average daily net assets of the
Fund.
If expenses borne by the Fund in any fiscal year (including the Adviser's
fee, but excluding interest, taxes, fees incurred in acquiring and disposing of
portfolio securities and, to the extent permitted, extraordinary expenses),
exceed those set forth in any statutory or regulatory formula prescribed by any
state in which Fund shares are registered at such time, Wasatch Advisors, Inc.
will reimburse the Fund for any excess.
The net asset value of the Fund shall be calculated as of the close of the
New York Stock Exchange on each day the Exchange is open for trading or as of
such other time or times as the directors may determine in accordance with the
provisions of the Investment Company Act of 1940. On each day when net asset
value is not calculated, the net asset value of a share of common stock of the
Fund shall be deemed to be the net asset value of such a share as of the close
of business on the last day on which such calculation was made for the purpose
of the foregoing computations.
For the month and year in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and year, respectively.
The services of the Adviser to the Fund under this Agreement are not to be
deemed exclusive, and the Adviser shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
3. In addition to the fee of the Adviser, the Fund shall assume and pay
any expenses for services rendered by a custodian for the safekeeping of the
Fund's securities or other property and for any other charges of the custodian.
The Adviser shall not be required to pay and the Fund shall assume and pay the
charges and expenses of its operations, including compensation of the directors
(other than those affiliated with the Adviser), charges and expenses of
independent auditors, of legal counsel, of any transfer or dividend disbursing
agent or any registrar of the Fund, costs of acquiring and disposing of
portfolio securities, interest, if any, on obligations incurred by the Fund,
costs of share certificates and of reports, costs for keeping its books of
account, costs for calculating the net asset value of the Fund as provided in
Articles of Incorporation of Corporation, membership dues in the Investment
Company Institute or any similar organization, costs of reports and notices to
shareholders, other like miscellaneous expenses and all taxes and fees payable
to federal, state or other governmental agencies on account of the registration
of securities issued by the Fund, filing of corporate documents or otherwise.
The Fund shall not pay or incur any obligation for any management or
administrative expenses for which the Fund intends to seek reimbursement from
the Adviser as herein provided without first obtaining the written approval of
the Adviser. The Adviser shall arrange, if desired by the Fund, for officers of
the Adviser to serve, without compensation from the Fund, as directors, officers
or agents of the Fund if duly elected or appointed to such positions and subject
to their individual consent and to any limitations imposed by law.
4. Subject to applicable statutes and regulations, it is understood that
directors, officers, or agents of the corporation are or may be interested in
the Adviser as officers, directors, agents, shareholders or otherwise, and that
the officers, directors, shareholders and agents of the Adviser may be
interested in the Corporation otherwise than as a director, officer or agent.
5. The Adviser shall not be liable for any error of judgment or of law,
or for any loss suffered by the Fund in connection with the matters to which
this agreement relates, except loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Adviser in the performance of its
obligations and duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement.
6. The Adviser has proprietary rights in the Fund's name and the
Corporation's name. The Adviser may withdraw from the Fund or the Corporation
the use of their names. In addition the Adviser reserves the right to grant the
use of a similar name to another investment company or business enterprise.
However, in doing so, the adviser agrees to submit the question of continuing
this investment advisory contract to a vote of the Fund's shareholders at the
time.
7. This Agreement shall become effective on the date hereof and shall
remain in full force until December 31, 1998 unless sooner terminated as
hereinafter provided. This Agreement shall continue in force from year to year
thereafter, but only as long as such continuance is specifically approved at
least annually in the manner required by the Investment Company Act of 1940.
This Agreement shall automatically terminate in the event of its
assignment, and may be terminated at any time without the payment of any penalty
by the Fund or by the Adviser on sixty (60) days' written notice to the other
party. The Fund may effect termination by action of the Board of Directors or
by a vote of a majority of the outstanding shares of common stock of the Fund,
accompanied by appropriate notice.
This Agreement may be terminated at any time without the payment of any
penalty by the Board of Directors or by vote of a majority of the outstanding
shares of common stock of the Fund in the event that it shall have been
established by a court of competent jurisdiction that the Adviser or any officer
or director of the Adviser has taken any action which results in a breach of the
covenants of the adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation described in Section
2 earned prior to such termination.
8. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
9. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for the receipt of such notice.
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year first above written.
Wasatch Funds, Inc. for
the Wasatch Micro-Cap Value Fund
By:
----------------------------
----------------------------
Attest
---------------------------
Wasatch Advisors, Inc.
By:
----------------------------
----------------------------
Attest
---------------------------
APPENDIX B
CUSTODY AGREEMENT
(Amended and Restated , 1997)
---------------------
The following open-end management investment companies ("Funds") are hereby
made parties to the Custody Agreement dated February 16, 1996, with UMB Bank,
n.a. ("Custodian") and Wasatch Funds, Inc., and agree to be bound by all the
terms and conditions contained in said Agreement.
On behalf of the
Wasatch Aggressive Equity Fund
Wasatch Growth Fund
Wasatch-Hoisington U.S. Treasury Fund
(formerly Wasatch Income Fund)
Wasatch Mid-Cap Fund
Wasatch Micro-Cap Fund
Wasatch World Wide Fund
Wasatch Micro-Cap Value Fund
ATTEST: WASATCH FUNDS, INC.
By:
- ----------------------------- ------------------------------
Name:
------------------------------
Title:
------------------------------
Date:
------------------------------
ATTEST: UMB Bank, n.a.
By:
- ----------------------------- ------------------------------
Name: Ralph R. Santoro
------------------------------
Title: Vice President
------------------------------
Date:
------------------------------
AMENDED AND RESTATED
SCHEDULE A
TO THE
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
Intending to be legally bound, the undersigned hereby amend and restate Schedule
A to the aforesaid Agreement to include the following investment portfolios:
MICRO-CAP FUND
AGGRESSIVE EQUITY FUND
MID-CAP FUND
GROWTH FUND
WASATCH-HOISINGTON U.S. TREASURY FUND
WORLD WIDE FUND
MICRO-CAP VALUE FUND
Dated: 1997
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WASATCH FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
------------------------------ ------------------------------
Samuel S. Stewart, Jr. Miriam M. Allison
President President
AMENDED AND RESTATED
SCHEDULE B
TO THE
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
Intending to be legally bound, the undersigned hereby amend and restate Schedule
B to the aforesaid Agreement to include the following fees for the following
investment portfolios.
MINIMUM
ANNUAL FEE
NAME OF FUND PER PORTFOLIO ANNUAL FEES
- ------------ ------------- ------------------------------------------
Micro-Cap Up to $50 Million 28.0 basis points
Aggressive Equity $50 Million to
$100 Million 18.0 basis points
Mid-Cap Over $100 Million 13.0 basis points
Growth
Wasatch-Hoisington
U.S. Treasury
World Wide $35,000
Micro-Cap Value $25,000
The annual fee schedule shall be applied against the combined assets of the
seven portfolios. Minimum annual fees per portfolio shall be applicable to each
portfolio as indicated above irrespective of the total fees paid by the seven
portfolios. Fees for additional portfolios will be separately determined and
agreed upon by the parties hereto and described in an amended Schedule B.
Wasatch shall also pay/reimburse the Administrator's out-of-pocket expenses as
described in the Agreement.
Dated: ,1997
----------------
WASATCH FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
----------------------------- --------------------------------
Samuel S. Stewart, Jr. Miriam M. Allison
President President
TRANSFER AGENCY AGREEMENT
-------------------------
THIS AGREEMENT made as of the 1st day of January, 1997, by and between
Wasatch Funds, Inc., a Utah corporation having its principal place of business
at 68 South Main Street, Salt Lake City, Utah 84101 (the "Corporation"), and
SUNSTONE INVESTOR SERVICES, LLC, a Wisconsin limited liability company, having
its principal place of business at 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202 (the "Sunstone"):
WHEREAS, the Corporation is registered under the Investment Company Act of
1940, as amended (the "1940 Act") as an open-end management investment company
and is authorized to issue shares of common stock ("Shares") in separate
series with each such series representing the interests in a separate portfolio
of securities and other assets;
WHEREAS, the Corporation desires to retain Sunstone to render the transfer
agency and other services contemplated hereby with respect to each of the
investment portfolios of the Corporation as are listed on Schedule A hereto and
any additional investment portfolios the Corporation and Sunstone may agree upon
and include on Schedule A as such Schedule may be amended from time to time
(such investment portfolios and any additional investment portfolios are
individually referred to as a "Fund" and collectively the "Funds"), and
Sunstone is willing to render such services.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto, intending to be legally bound, do
hereby agree as follows:
ARTICLE I
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APPOINTMENT OF TRANSFER AGENT
A. APPOINTMENT. The Corporation hereby constitutes and appoints Sunstone as
transfer agent and dividend disbursing agent of all the Shares of the
Funds during the period of this Agreement, and Sunstone hereby accepts such
appointment as transfer agent and dividend disbursing agent and agrees to
perform the duties thereof as hereinafter set forth.
2. Sunstone shall perform the transfer agent and dividend disbursing
agent services described on Schedule B hereto. To the extent that a Fund
requests Sunstone to perform any additional services in a manner not consistent
with Sunstone's then current utilization of the System or Sunstone's usual
processing procedures, Sunstone and the Fund shall mutually agree as to the
services to be accomplished, the manner of accomplishment and the compensation
to which Sunstone shall be entitled with respect thereto.
3. Sunstone may, in its discretion, appoint in writing other parties
qualified to perform transfer agency and shareholder services reasonably
acceptable to the Funds (individually, a "Sub-transfer Agent") to carry out
some or all of its responsibilities under this Agreement with respect to a Fund;
provided, however, that unless the Fund shall enter into a written agreement
with such Sub-transfer Agent, the Sub-transfer Agent shall be the agent of
Sunstone and not the agent of the Corporation or such Fund and, in such event
Sunstone shall be fully responsible for the acts or omissions of such Sub-
transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
4. Sunstone shall have no duties or responsibilities whatsoever
hereunder except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against Sunstone.
B. DOCUMENTS/RECORDS.
1. In connection with such appointment, the Corporation shall deliver or
cause to be delivered the following documents to Sunstone:
a) A copy of the Articles of Incorporation and By-laws of the
Corporation and all amendments thereto certified by the Secretary of the
Corporation;
b) A copy of the resolutions of the Board of Directors of the
Corporation certified by the Secretary of the Corporation appointing Sunstone
and authorizing the execution of this Transfer Agency Agreement on behalf of the
Funds and designating certain persons to sign stock certificates, if any, and
give written or oral instructions and requests on behalf of the Funds;
c) A certificate signed by the Secretary of the Corporation
specifying: the number of authorized Shares and the number of such authorized
Shares issued and currently outstanding; the names and specimen signatures of
the officers of the Corporation authorized to sign written stock certificates
and the individuals authorized to provide oral instructions and to sign written
instructions and requests; and the name and address of the legal counsel for the
Corporation;
d) In the event the Corporation issues Share certificates, specimen
Share certificates for each Fund in the form approved by the Board of Directors
of the Corporation (and in a format compatible with Sunstone's operating
system), together with a Certificate signed by the Secretary of the Corporation
as to such approval;
e) Copies of the Corporation's Registration Statement, as amended to
date, and the most recently filed Post-Effective Amendment thereto, filed by the
Corporation with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "1933 Act"), and under the 1940 Act, as amended,
together with any applications filed in connection therewith; and
f) Opinion of counsel for the Corporation with respect to the
Corporation's organization and existence under the laws of its state of
organization, the validity of the authorized and outstanding Shares, whether
such Shares are fully paid and non-assessable and the status of such Shares
under the Securities Act of 1933, as amended, and any other applicable federal
law or regulation (i.e., if subject to registration, that they have been
registered and that the Registration Statement has become effective or, if
exempt, the specific grounds therefor.)
2. The Corporation agrees to deliver or to cause to be delivered to
Sunstone in Milwaukee, Wisconsin, at the Corporation's expense, all of its
shareholder account records relating to the Funds in a format acceptable to
Sunstone and all such other documents, records and information as Sunstone may
reasonably request in order for Sunstone to perform its services hereunder.
ARTICLE II
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COMPENSATION & EXPENSES
A. COMPENSATION. In consideration for its services hereunder as transfer
agent and dividend disbursing agent, each Fund will pay to Sunstone such
compensation as shall be set forth in a separate fee schedule to be agreed to by
each Fund and Sunstone from time to time. A copy of the initial fee schedule is
attached hereto as Schedule C.
B. EXPENSES. The Corporation on behalf of each Fund also agrees to promptly
reimburse Sunstone for all reasonable out-of-pocket expenses or disbursements
incurred by Sunstone in connection with the performance of services under this
Agreement including, but not limited to, expenses for postage, express delivery
services, freight charges, envelopes, checks, drafts, forms (continuous or
otherwise), specially requested reports and statements, bank account service
fees and charges, telephone calls, telegraphs, stationery supplies, counsel
fees, outside printing and mailing firms, magnetic tapes, reels or cartridges
(if sent to a Fund or to a third party at a Fund's request) and magnetic tape
handling charges, on-site and off-site record storage, media for storage of
records (e.g., microfilm, microfiche, optical platters, computer tapes and
disks), computer equipment installed at a Fund's request at a Fund's or a third
party's premises, telecommunications equipment, telephone/telecommunication
lines between a Fund and its agents, on one hand, and Sunstone on the other,
proxy soliciting, processing and/or tabulating costs, second site backup
computer facility, transmission of statement data for remote printing or
processing, and transaction fees to the extent any of the foregoing are paid by
Sunstone. Postage is payable in advance and is due at least seven days prior to
the anticipated mail date. Other out-of-pocket expenses are payable in advance
is so requested by Sunstone. In the event Sunstone requests advance payment,
Sunstone shall not be obligated to incur such expenses or perform the related
service(s) until payment is received. In addition to the foregoing, any other
expenses incurred by Sunstone at the request or with the consent of a Fund will
be promptly reimbursed by the respective Fund.
C. PAYMENT PROCEDURES.
1. Amounts due hereunder shall be due and paid by the respective Fund on
or before the thirtieth (30th) day after the date of the statement therefor (the
"Due Date"). Service fees are billed monthly, and out-of-pocket expenses are
billed as incurred (unless prepayment is requested by Sunstone). Sunstone may,
at its option, arrange to have various service providers submit invoices
directly to the Funds for payment of out-of-pocket expenses reimbursable
hereunder. The Corporation is aware that its failure to pay all amounts in a
timely fashion so that they will be received by Sunstone on or before the Due
Date will give rise to costs to Sunstone not contemplated by this Agreement,
including but not limited to carrying, processing and accounting charges.
Accordingly, in the event that any amounts due hereunder are not received by
Sunstone by the Due Date, a Fund shall pay a late charge equal to one and one-
half percent (1.5%) per month or the maximum amount permitted by law, whichever
is less. In addition, the Fund shall pay reasonable attorney's fees and court
costs of Sunstone if any amounts due Sunstone are collected by or through an
attorney. The parties hereby agree that such late charge represents a fair and
reasonable computation of the costs incurred by reason of late payment or
payment of amounts not properly due. Acceptance of such late charge shall in no
event constitute a waiver of the Fund's default or prevent the non-defaulting
party from exercising any other rights and remedies available to it.
2. In the event that any charges are disputed, the Fund shall, on or
before the Due Date, pay all undisputed amounts due hereunder and notify
Sunstone in writing of any disputed charges for out-of-pocket expenses which it
is disputing in good faith. Payment for such disputed charges shall be due on
or before the close of the fifth (5th) business day after the day on which
Sunstone provides to the Fund documentation which an objective observer would
agree reasonably supports the disputed charges (the "Revised Due Date"). Late
charges shall not begin to accrue as to charges disputed in good faith until the
first day after the Revised Due Date.
ARTICLE III
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PROCESSING AND PROCEDURES
A. ISSUANCE, REDEMPTION AND TRANSFER OF SHARES.
1. Sunstone acknowledges that it has received a copy of the Fund's
Prospectus (as hereinafter defined), which Prospectus describes how sales and
redemptions of shares of each Fund shall be made and Sunstone agrees to accept
purchase orders and redemption requests with respect to Fund shares on each Fund
Business Day in accordance with such Prospectus. "Fund Business Day" shall be
deemed to be each day on which the New York Stock Exchange is open for trading,
and "Prospectus" shall mean the last Fund prospectus actually received by
Sunstone from the Fund with respect to which the Fund has indicated a
registration statement under the 1933 Act has become effective, including the
Statement of Additional Information, incorporated by reference therein.
2. On each Fund Business Day Sunstone shall, as of the time at which the
net asset value of the Fund is computed, issue to and redeem from the accounts
specified in a purchase order or redemption request, which in accordance with
the Prospectus is effective on such day, the appropriate number of full and
fractional Shares based on the net asset value per Share of such Fund specified
in an advice received on such Fund Business Day from or on behalf of the Fund.
3. Upon the issuance of any Shares in accordance with this Agreement,
Sunstone shall not be responsible for the payment of any original issue or other
taxes required to be paid by the Fund in connection with such issuance of any
Shares.
4. Sunstone shall not be required to issue any Shares after it has
received from an Officer (as herein defined) of the Fund or from an appropriate
federal or state authority written notification that the sale of Shares has been
suspended or discontinued, and Sunstone shall be entitled to rely upon such
written notification. "Officer" shall be deemed to be the Corporation's
President, any Vice President, Secretary, Treasurer, Controller, any Assistant
Controller, any Assistant Treasurer and any Assistant Secretary of the
Corporation, and any other person duly authorized by the Board of Directors of
the Corporation to execute any certificate, instruction, notice or other
instrument or provide oral instructions on behalf of the Corporation, and
disclosed to Sunstone, as such individuals may be amended from time to time and
disclosed in writing to Sunstone, and any person reasonably believed by Sunstone
to be such a person.
5. Upon receipt of a proper redemption request and monies paid to it by
the Custodian in connection with a redemption of Shares, Sunstone shall cancel
the redeemed Shares and after making appropriate deduction for any withholding
of taxes required of it by applicable law, make payment in accordance with the
Fund's redemption and payment procedures described in the Prospectus.
6. Except as otherwise provided in sub-paragraph (b) of this paragraph,
Shares will be transferred or redeemed upon presentation to Sunstone of Share
certificates, if any, or instructions properly endorsed for transfer or
redemption, accompanied by such documents as Sunstone deems necessary to
evidence the authority of the person making such transfer or redemption, and
bearing satisfactory evidence of the payment of stock transfer taxes. Sunstone
reserves the right to refuse to transfer or redeem Shares until it is satisfied
that the endorsement on the stock certificate, if any, or instructions is valid
and genuine, and for that purpose it will require, unless otherwise instructed
by an authorized officer of the Fund or except as provided in sub-paragraph (b)
of this paragraph, a guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule 17Ad-15. Sunstone also
reserves the right to refuse to transfer or redeem Shares until it is satisfied
that the requested transfer or redemption is legally authorized, and it shall
incur no liability for the refusal, in good faith, to make transfers or
redemptions which Sunstone, in its judgment, deems improper or unauthorized, or
until it is satisfied that there is no basis to any claims adverse to such
transfer or redemption. Sunstone may, in effecting transfers and redemptions of
Shares, rely upon those provisions of the Uniform Act for the Simplification of
Fiduciary Security Transfers or the Uniform Commercial Code, as the same may be
amended from time to time, applicable to the transfer of securities, and the
Corporation shall indemnify Sunstone for any act done or omitted by it in good
faith in reliance upon such laws.
(b) Notwithstanding the foregoing or any other provision contained in
this Agreement to the contrary, Sunstone shall be fully protected by each Fund
in not requiring any instruments, documents, assurances, endorsements or
guarantees, including, without limitation, any signature guarantees, in
connection with a redemption, or transfer, of Shares whenever Sunstone
reasonably believes that requiring the same would be inconsistent with the
transfer and redemption procedures as described in the Prospectus.
7. Notwithstanding any provision contained in this Agreement to the
contrary, Sunstone shall not be required or expected to require, as a condition
to any transfer or redemption of any Shares pursuant to a computer tape or
electronic data transmission, any documents to evidence the authority of the
person requesting the transfer or redemption and/or the payment of any stock
transfer taxes, and shall be fully protected in acting in accordance with the
applicable provisions of this Article.
8. In connection with each purchase and each redemption of Shares,
Sunstone shall send such statements as are prescribed by the Federal securities
laws applicable to transfer agents or as described in the Prospectus. If the
Prospectus indicates that certificates for Shares are available and if
specifically requested in writing by any shareholder, or if otherwise required
hereunder, Sunstone will countersign, issue and mail to such shareholder at the
address set forth in the records of Sunstone a Share certificate for any full
Share requested.
9. On each Fund Business Day Sunstone shall supply the Fund with a
statement specifying with respect to the immediately preceding Fund Business
Day: the total number of Shares of the Fund (including fractional Shares)
issued and outstanding at the opening of business on such day; the total number
of Shares of the Fund sold on such day; the total number of Shares of the Fund
and the dollar amount redeemed from Shareholders by Sunstone on such day; and
the total number of Shares of the Fund issued and outstanding.
10. Procedures for effecting purchase, redemption or transfer
transactions accepted from investors by telephone or other methods shall be
established by mutual agreement between the Funds and Sunstone consistent with
the terms of the Prospectus. Sunstone upon notice to a Fund may establish such
additional procedures, rules and regulations governing the transfer or
registration of Share certificates, if any, or the purchase, redemption or
transfer of Shares, as it may deem advisable and consistent with the Prospectus
and such rules and regulations generally adopted by mutual fund transfer agents.
Sunstone shall not be liable, and shall be held harmless by the Funds, for its
actions or omissions which are consistent with the foregoing procedures.
B. DIVIDENDS AND DISTRIBUTIONS.
1. The Corporation shall furnish to Sunstone a copy of a resolution of
its Board of Directors, certified by the Secretary or any Assistant Secretary,
either (i) setting forth the date of the declaration of a dividend or
distribution, the date of accrual or payment, as the case may be, thereof, the
record date as of which shareholders entitled to payment, or accrual, as the
case may be, shall be determined, the amount per Share of such dividend or
distribution, the payment date on which all previously accrued and unpaid
dividends are to be paid, and the total amount, if any, payable to Sunstone on
such payment date, or (ii) authorizing the declaration of dividends and
distributions on a daily or other periodic basis and authorizing Sunstone to
rely on a certificate of an Officer setting forth the information described in
subsection (i) of this paragraph.
2. In connection with a reinvestment of a dividend or distribution of
Shares of a Fund, Sunstone shall as of each Fund Business Day, as specified in a
certificate or resolution described in paragraph 1, issue Shares of the Fund
based on the net asset value per Share of such Fund specified in an advice
received from or on behalf of the Fund on such Fund Business Day.
3. Upon the mail date specified in such certificate or resolution, as
the case may be, the Fund shall, in the case of a cash dividend or distribution,
cause the Custodian to deposit in an account in the name of Sunstone on behalf
of the Fund, an amount of cash, if any, sufficient for Sunstone to make the
payment, as of the mail date, specified in such Certificate or resolution, as
the case may be, to the Shareholders who were of record on the record date.
Sunstone will, upon receipt of any such cash, make payment of such cash
dividends or distributions to the shareholders of record as of the record date.
Sunstone shall not be liable for any improper payments made in good faith and in
accordance with a certificate or resolution described in the preceding
paragraph. If Sunstone shall not receive from the Custodian sufficient cash to
make payments of any cash dividend or distribution to all shareholders of the
Fund as of the record date, Sunstone shall, upon notifying the Fund, withhold
payment to all shareholders of record as of the record date until sufficient
cash is provided to Sunstone.
4. It is understood that Sunstone in its capacity as transfer agent and
dividend disbursing agent shall in no way be responsible for the determination
of the rate or form of dividends or capital gain distributions due to the
shareholders pursuant to the terms of this Agreement. It is further understood
that Sunstone shall file such appropriate information returns concerning the
payment of dividend and capital gain distributions with the proper federal
authorities as are required by law to be filed by the Funds but shall in no way
be responsible for the collection or withholding of taxes due on such dividends
or distributions due to shareholders, except and only to the extent, required by
applicable law. Sunstone shall file applicable state reports concerning the
payment of dividend and capital gains distributions upon receipt from or on
behalf of the Funds of all information regarding the state filing requirements
in each applicable state (including without limitation the forms required, due
dates, filing procedures and reporting thresholds), and upon receipt of such
compensation as Sunstone and the Funds may mutually agree.
C. AUTHORIZATION AND ISSUANCE OF SHARES; RECAPITALIZATION OR CAPITAL
ADJUSTMENT.
1. Prior to the effective date of any increase or decrease in the total
number of Shares authorized to be issued, or the issuance of any additional
Shares of a Fund pursuant to stock dividends, stock splits or similar
transactions, the Corporation agrees to deliver to Sunstone such documents,
certificates, reports and legal opinions as Sunstone may reasonably request.
2. In the case of any negative stock split, recapitalization or other
capital adjustment requiring a change in the form of Share certificates,
Sunstone will issue Share certificates in the new form in exchange for, or upon
transfer of, outstanding Share certificates in the old form, upon receiving:
(a) A certificate of an Officer authorizing the issuance of the Share
certificates in the new form, a certified copy of any amendment to the Articles
of Incorporation with respect to the change, and such other documents and
information as Sunstone may reasonably request.
(b) In the event the Funds issue Share certificates, specimen Share
certificates for each Fund in the new form approved by the Board of Directors,
with a certificate signed by the Secretary of the Corporation as to such
approval.
3. In the event a Fund issues Share certificates, the Fund at its
expense shall furnish Sunstone with a sufficient supply of blank Share
certificates in the new form and from time to time will replenish such supply
upon the request of Sunstone. Such blank Share certificates shall be compatible
with Sunstone's system and shall be properly signed by facsimile or otherwise by
Officers of the Corporation authorized by law or by the By-Laws to sign Share
certificates and, if required shall bear the corporate Seal or facsimile
thereof. Each Fund agrees to indemnify and exonerate, save and hold Sunstone
harmless, from and against any and all claims or demands that may be asserted
against Sunstone with respect to the genuineness of any Share certificate
supplied to Sunstone.
4. In the event a Fund issues Share certificates, Sunstone may issue new
Share certificates in place of certificates represented to have been lost,
stolen, or destroyed upon receiving written instructions from the shareholder
accompanied by proof of an indemnity or surety bond issued by a recognized
insurance institution specified by the Fund or Sunstone. If Sunstone receives
written notification from the shareholder or broker dealer that the certificate
issued was never received, and such notification is made within 30 days of the
date of issuance, Sunstone may reissue the certificate without requiring a
surety bond. Sunstone may also reissue certificates which are represented as
lost, stolen, or destroyed without requiring a surety bond provided that the
notification is in writing and accompanied by an indemnification signed on
behalf of a member firm of the New York Stock Exchange and signed by an officer
of said firm with the signature guaranteed. Notwithstanding the foregoing,
Sunstone will reissue a certificate upon written authorization from an Officer
of the Fund.
D. RECORDS.
1. Sunstone shall keep such records as are specified in Schedule D
hereto in the form and manner, and for such period, as it may deem advisable but
not inconsistent with the rules and regulations of appropriate government
authorities, in particular Rules 31a-2 and 31a-3 under the 1940 Act. Sunstone
may deliver to the Funds from time to time at its discretion, for safekeeping or
disposition by a Fund in accordance with law, such records, papers and documents
accumulated in the execution of its duties as such transfer agent, as Sunstone
may deem expedient, other than those which Sunstone is itself required to
maintain pursuant to applicable laws and regulations. The Funds shall assume
all responsibility for any failure thereafter to produce any record, paper,
cancelled Share certificate, or other document so returned, if and when
required. To the extent required by Section 31 of the 1940 Act and the rules
and regulations thereunder, the records specified in Schedule D hereto
maintained by Sunstone, which have not been previously delivered to a Fund
pursuant to the foregoing provisions of this paragraph, shall be considered to
be the property of the Fund, shall be made available upon request for inspection
by the officers, employees, and auditors of the Fund, and shall be delivered to
the Fund promptly upon request and in any event upon the date of termination of
this Agreement, in the form and manner kept by Sunstone on such date of
termination or such earlier date as may be requested by the Fund.
2. Sunstone agrees to keep all records and other information relative
to the Funds and their shareholders confidential. In case of any requests or
demands for the inspection of the shareholder records of a Fund, Sunstone will
endeavor to notify the Fund promptly and to secure instructions from an Officer
as to such inspection. Sunstone reserves the right, however, to exhibit the
shareholder records to any person whenever it receives advice from its counsel
that there is a reasonable likelihood that Sunstone will be held liable for the
failure to exhibit the shareholder records to such person; provided, however,
that in connection with any such disclosure Sunstone shall promptly notify the
Fund that such disclosure has been made or is to be made. Notwithstanding the
foregoing, Sunstone may disclose information when requested by a shareholder
concerning an account as to which such shareholder claims a legal or beneficial
interest or when requested by the Funds, the shareholder or the dealer of record
as to such account.
3. Sunstone shall only be responsible for the safekeeping and
maintenance of transfer agency records, cancelled certificates, if any, and
correspondence of a Fund created or produced prior to the time of conversion
which are under its control and acknowledged in a writing to the Fund to be in
its possession. Any expenses or liabilities incurred by Sunstone as a result of
shareholder inquiries, regulatory compliance or audits related to such records
shall be the responsibility of the Funds.
ARTICLE IV
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CONCERNING THE CORPORATION
A. REPRESENTATIONS. The Corporation represents and warrants to Sunstone
that:
(a) It is a corporation duly organized and existing under the laws of
the State of Maryland, it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement, and all
requisite corporate proceedings have been taken to authorize it to enter into
and perform this Agreement.
(b) It is an investment company registered under the 1940 Act.
(c) A registration statement under the 1933 Act with respect to the
Shares is effective. The Corporation shall notify Sunstone if such registration
statement or any state securities registrations have been terminated, lapse or a
stop order has been entered with respect to the Shares.
B. COVENANTS.
1. The Corporation will file with Sunstone copies of all material
amendments to its Articles of Incorporation and By-laws made after the date of
this Agreement. Each copy of the Articles of Incorporation of the Funds and
copies of all amendments thereto shall be certified by the Secretary of the
Corporation. Each copy of the By-Laws and copies of all amendments thereto, and
copies of resolutions of the Board of Directors, shall be certified by the
Secretary of the Corporation.
2. The Corporation shall promptly deliver to Sunstone written notice of
any change in the Officers authorized to sign Share certificates, if any,
notifications or requests, or provide oral instructions, together with a
specimen signature of each new Officer. In the event any Officer who shall have
signed manually or whose facsimile signature shall have been affixed to blank
Share certificates shall die, resign or be removed prior to issuance of such
Share certificates, Sunstone may issue such Share certificates of the Fund
notwithstanding such death, resignation or removal, and the Funds shall promptly
deliver to Sunstone such approval, adoption or ratification as may be required
by law.
3. The Corporation shall deliver to Sunstone the Fund's currently
effective Prospectus and, for purposes of this Agreement, Sunstone shall not be
deemed to have notice of any information contained in such Prospectus until a
reasonable time after it is actually received by Sunstone.
4. All requisite steps will be taken by the Corporation from time to
time when and as necessary to register the Funds' shares for sale in all states
in which Funds' shares shall at the time be offered for sale and require
registration. If at any time a Fund receives notice of any stop order or other
proceeding in any such state affecting such registration or the sale of Fund's
shares, or of any stop order or other proceeding under the federal securities
laws affecting the sale of the Fund's shares, the Fund will give prompt notice
thereof to Sunstone.
5. The Corporation will comply with all applicable requirements of the
1933 Act, the Securities Exchange Act of 1934, as amended, the 1940 Act, blue
sky laws, and any other applicable laws, rules and regulations.
6. The Corporation agrees that prior to effecting any change in the
Prospectus which would increase or alter the duties and obligations of Sunstone
hereunder, it shall advise Sunstone of such proposed change at least 30 days
prior to the intended date of the same, and shall proceed with such change only
if it shall have received the written consent of Sunstone thereto, which shall
not be unreasonably withheld.
ARTICLE V
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CONCERNING THE TRANSFER AGENT
A. REPRESENTATIONS. Sunstone represents and warrants to the Fund that:
(a) It is a limited liability company duly organized and existing under
the laws of the State of Wisconsin, is empowered under applicable law and by its
Operating Agreement to enter into and perform this Agreement, and all requisite
proceedings have been taken to authorize it to enter into and perform this
Agreement.
(b) It is duly registered as a transfer agent under Section 17A of the
Securities Exchange Act of 1934, as amended, to the extent required.
B. LIMITATION OF LIABILITY; INDEMNIFICATION.
1. Sunstone shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable for any loss or
damage, including counsel fees, resulting from its actions or omissions to act
or otherwise, in the absence of its bad faith, willful misfeasance, gross
negligence or reckless disregard of its duties under this agreement.
2. The Corporation, on behalf of the Funds, agrees to indemnify and hold
harmless Sunstone, its employees, agents, directors, officers and nominees from
and against any and all claims, demands, actions and suits, whether groundless
or otherwise, and from and against any and all judgments, liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising out of or in any way relating to Sunstone's actions taken or
nonactions with respect to the performance of services under this Agreement or
based, if applicable, upon reliance on information, records, instructions (oral
or written) or requests given or made to Sunstone by the Funds, its officers,
directors, agents or representatives; provided that this indemnification shall
not apply to actions or omissions of Sunstone in cases of its own willful
misfeasance or gross negligence, and further provided that prior to confessing
any claim against it which may be the subject of this indemnification, Sunstone
shall give the Funds written notice of and reasonable opportunity to defend
against said claim in its own name or in the name of Sunstone. The indemnity
and defense provisions provided hereunder shall indefinitely survive the
termination of this Agreement.
3. Sunstone assumes no responsibility hereunder, and shall not be liable,
for any damage, loss of data, errors, delay or any other loss whatsoever caused
by events beyond its reasonable control. Sunstone will, however, take all
reasonable steps to minimize service interruptions for any period that such
interruption continues beyond Sunstone's control.
4. Sunstone shall not be liable and shall be indemnified in acting upon any
writing or document reasonably believed by it to be genuine and to have been
signed or made by an Officer or verbal instructions which the individual
receiving the instructions on behalf of Sunstone reasonably believes in
good faith to have been given by an Officer, and Sunstone shall not be held to
have any notice of any change of authority of any person until receipt of
written notice thereof from a Fund or such person. Sunstone shall not be liable
to a Fund with respect to any redemption draft on which the signature of the
drawer is forged nor shall Sunstone be liable for any alteration or absence or
forgery of any endorsement, it being understood that Sunstone's sole
responsibility with respect to inspecting redemption drafts is to use reasonable
care to verify the drawer's signature against signatures on file. It shall also
be protected in processing Share certificates, if any, which bear the proper
countersignature of Sunstone and which it reasonably believes to bear the proper
manual or facsimile signature of the Officers.
5. In no event, and under no circumstances shall either party to this
Agreement be liable to anyone, including, without limitation to the other party,
for punitive damages for any act or failure to act under any provision of the
Agreement even if advised of the possibility thereof.
6. At any time Sunstone may request instructions and/or receive directions
from an Officer with respect to any matter arising in connection with Sunstone's
duties and obligations under this Agreement, and Sunstone shall not be liable
for any action taken or permitted by it in good faith in accordance with such
instructions or directions. Such request for instructions by Sunstone may set
forth any action proposed to be taken or omitted by Sunstone with respect to its
duties or obligations under this Agreement and the date on and/or which such
action shall be taken. Sunstone shall not be liable for any action taken or
omitted in accordance with a proposal included in any such request on or after
the date specified therein unless, prior to taking or omitting any such action,
Sunstone has received instructions in response to such application specifying
the action to be taken or omitted. Sunstone may consult counsel of the
Corporation, or upon notice to the Corporation, its own counsel, at the expense
of the Corporation and shall be fully protected with respect to anything done or
omitted by it in good faith in accordance with the advice or opinion of counsel
to the Corporation or its own counsel.
7. Notwithstanding any of the provisions of this Agreement, Sunstone shall
be under no duty or obligation under this Agreement to inquire into, and shall
not be liable for:
(a) The legality of the issue or sale of any Shares, the sufficiency of
the amount to be received therefor, or the authority of a Fund, as the case may
be, to request such sale or issuance;
(b) The legality of a transfer of Shares, or of a redemption of any
Shares, the propriety of the amount to be paid therefor, or the authority of a
Fund, as the case may be, to request such transfer or redemption;
(c) The legality of the declaration of any dividend by a Fund, or the
legality of the issue of any Shares in payment of any stock dividend, or the
legality of any recapitalization or readjustment of Shares
ARTICLE V
----------
TERM
1. This Agreement shall be effective as of February 28, 1998, and remain in
full force and effect for a period of one year from such date and thereafter
shall automatically extend for additional, successive twelve (12) month terms
unless earlier terminated as provided below.
2. Either of the parties hereto may terminate this Agreement by giving to
the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of receipt of such
notice. In the event such notice is given by a Fund, it shall be accompanied by
a copy of a resolution of the Board of Directors of the Corporation, certified
by the Secretary or any Assistant Secretary, electing to terminate this
Agreement and designating the successor transfer agent or transfer agents. In
the event such notice is given by Sunstone, the Fund shall on or before the
termination date, deliver to Sunstone a copy of a resolution of its Board of
Directors certified by the Secretary or any Assistant Secretary designating a
successor transfer agent or transfer agents. In the absence of such designation
by the Fund, the Fund shall upon the date specified in the notice of termination
of this Agreement and delivery of the records maintained hereunder, be deemed to
be its own transfer agent and Sunstone shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement. Fees and out-of-pocket
expenses incurred by Sunstone, but unpaid by a Fund upon such termination, shall
be immediately due and payable upon and notwithstanding such termination.
3. In the event this Agreement is terminated as provided herein, Sunstone,
upon the written request of a Fund, shall deliver the records of the Fund to the
Fund or its successor transfer agent in the form maintained by Sunstone. The
Fund shall be responsible to Sunstone for all out-of-pocket expenses and for the
reasonable costs and expenses associated with the preparation and delivery of
such media, including: (a) any custom programming requested by a Fund in
connection with the preparation of such media; (b) transportation of forms and
other Fund materials used in connection with the processing of Fund transactions
by Sunstone; and (c) transportation of Fund records and files in the possession
of Sunstone. Sunstone shall not reduce the level of service provided to the
Fund following notice of termination by the Fund.
ARTICLE VI
----------
MISCELLANEOUS
A. NOTICES. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to a Fund or the Corporation shall be
sufficiently given if addressed to the Corporation and mailed and delivered to
the President at 68 South Main Street, Salt Lake City, Utah 84101, or at such
other place as a Fund or the Corporation may from time to time designate in
writing. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to Sunstone shall be sufficiently given if addressed
to Sunstone and mailed or delivered to the President at 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin 53202, or at such other place as Sunstone may
from time to time designate in writing.
B. AMENDMENTS/ASSIGNMENTS.
1. This Agreement may not be amended or modified in any manner except by
a written agreement executed by both parties with the formality of this
Agreement.
2. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns. This Agreement shall not
be assignable by either party without the written consent of the other party
except that Sunstone may assign this Agreement to an affiliate with
advance written notice to the Corporation.
C. WISCONSIN LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin. If any part, term or
provision of this Agreement is determined by the courts or any regulatory
authority having jurisdiction over the issue to be illegal, in conflict with any
law or otherwise invalid, the remaining portion or portions shall be considered
severable and not be affected, and the rights and obligations of the parties
shall be construed and enforced as if the Agreement did not contain the
particular part, term or provision held to be illegal or invalid.
D. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
E. BACK-UP FACILITY. During the terms of this Agreement, Sunstone shall
provide a facility capable of safeguarding the transfer agency and dividend
disbursing records of the Fund in case of damage to the primary facility
providing those services (the "Back-Up Facility"). Transfer of the transfer
agency and dividend records of the Fund to the Back-Up Facility shall commence
as soon as practicable after damage to the primary facility results in an
inability to provide the transfer agency and dividend disbursing services.
After the primary facility has recovered, Sunstone shall again utilize it to
provide the transfer agency and dividend disbursing services to the Fund.
Sunstone shall use reasonable efforts to provide the services described in this
Agreement from the Back-Up Facility.
F. PRIOR TRANSFER AGENT(s). Sunstone will endeavor to assist in resolving
shareholder inquiries and errors relating to the period during which prior
transfer agents acted as such for the Fund. Any such inquiries or errors which
cannot be expediently resolved by Sunstone will be referred to the Fund.
G. NON-EXCLUSIVE; OTHER AGREEMENTS. The services of Sunstone hereunder are
not deemed exclusive and Sunstone shall be free to render similar services to
others. Except as specifically provided herein, this Agreement does not in any
way affect any other agreements entered into among the parties hereto and any
actions taken or omitted by any party hereunder shall not affect any rights or
obligations of any other party hereunder.
H. CAPTIONS. The captions in the Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officer, thereunto duly authorized and
their respective corporate seals to be hereunto affixed, as the day and year
first above written.
SUNSTONE INVESTOR SERVICES, LLC WASATCH FUNDS, INC.
By: By:
------------------------------ -------------------------------
(Signature) (Signature)
------------------------------ -------------------------------
(Name) (Name)
------------------------------ -------------------------------
(Title) (Title)
------------------------------ -------------------------------
(Date Signed) (Date Signed)
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, LLC
WASATCH AGGRESSIVE EQUITY FUND
WASATCH MICRO-CAP FUND
WASATCH GROWTH FUND
WASATCH MID-CAP FUND
WASATCH - HOISINGTON U.S. TREASURY FUND
WASATCH WORLD WIDE FUND
SCHEDULE B
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, LLC
SERVICES
- -- MAINTENANCE OF SHAREHOLDER ACCOUNTS
- Maintain records for each shareholder account;
- Scan account documents for electronic storage;
- Issue customer statements;
- Record changes to shareholder account information;
- Maintain account documentation files for each shareholder; and
- Establish and maintain IRA accounts.
- -- SHAREHOLDER SERVICING AND SHAREHOLDER TRANSACTIONS
- Respond to written and telephone (recorded lines) inquiries from
shareholders for information about their accounts;
- Process shareholder purchase and redemption orders, including those of
automatic investment and systematic withdrawal plans;
- Set up account information, including address, dividend options, taxpayer
identification numbers and wire instructions;
- Issue transaction confirmations;
- Process transfers and exchanges; and
- Process dividend payments by check, wire or ACH or purchase new shares
through dividend reinvestment.
- -- COMPLIANCE REPORTING AND PROXY PROCESSING
- Provide required reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the states in which each
fund is registered;
- Prepare and distribute required Internal Revenue Service forms relating
to earned income and capital gains to fund and shareholders;
- Issue tax withholding reports to the Internal Revenue Service; and
- Mail, process and tabulate proxies.
TELEPHONE SERVICE REPRESENTATIVES ON-LINE ACCESS
- Respond to shareholder or dealer inquiries related to:
- Account registration;
- Share balances;
- Account options;
- Dividend and capital gain distribution status;
- Withholding status;
- Transaction dates and types;
- Shares traded;
- Social security number/tax ID number;
- External account number;
- Address;
- Customer or account type;
- Dealer, branch and rep information;
- Dollars available/not available in the account;
- Shares purchased/redeemed today;
- Dividend accrual, current dividend period; and
- Market value of shares.
- Dedicated shareholder services representatives
- -- STANDARD REPORTS
- Shareholder base analysis (monthly)
- New account listing (weekly)
- Purchases, redemptions, exchanges (monthly)
- Servicing summary (monthly)
- Commission and 12b-1 reports for load funds (monthly)
SCHEDULE C
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, LLC
FEE SCHEDULE
- -- ANNUAL BASE FEES FOR FUNDS
Shareholder account fee for equity, fixed income and balanced funds:
$20.00 open accounts
2.50 closed accounts
Minimum annual fee:
Aggressive Equity Fund $22,000
Growth Fund 7,000
Wasatch-Hoisington
U.S. Treasury Fund 5,000
Mid-Cap Fund 7,000
Micro-Cap Fund 5,000
World Wide Fund 7,000*
The base fee assumes a single class of shares, no load or 12b-1 plan;
availability of automatic investment plans and systematic withdrawal plans;
quarterly or less frequent dividend distributions; annual capital gain
distributions; annual tax reporting; telephone privileges and all standard
reports.
- -- ADDITIONAL FEES TO BE ADDED TO BASE FEE
TYPE OF SERVICE OR ANNUAL SHAREHOLDER MINIMUM ANNUAL
FUND FUNCTION ACCOUNT FEE FEE PER FUND
------------- ----------- ------------
Front-end load 1.50 2,000
CDSC, back-end load or
redemption fee 2.00 3,000
12b-1 plan 1.00 1,000
Monthly dividends on
non-money market funds 2.00 2,000
Check writing privilege 2.00 2,000
- ----------------------
* To be effective with respect to World Wide Fund upon commencement of
operations.
- -- ONE-TIME SET-UP FEES
(per Fund Family)
New Fund Set-up (per fund) $2,000
Out-of-pocket expenses At cost
NSCC FundSERV set-up 2,500
NSCC networking 1,500
Asset allocation program 5,000
Remote access set-up (per location) 1,000
Northern Money Market Funds (per Northern Fund) 2,500
VRU 2,000
- -- ACCOUNT MAINTENANCE AND PROCESSING FEES
(per occurrence)
Shareholder account set-up 5.00
AIP/SWP/Automatic Exchange account set-up 1.00
AIP/SWP/Automatic Exchange transaction processing .50
AIP/SWP/Automatic Exchange alternate date transaction processing 1.50
Check writing signature verification 0.50
Omnibus account transaction 2.50
Transaction processing - FundSERV 0.20
Certificate issuance 4.00
Locating lost shareholders 8.00
Taxpayer ID number solicitation 1.25
Telephone exchange fee 5.00
Asset allocation transactions
(purchases, redemptions, rebalancing) 1.00
IRA/SEP processing
Annual maintenance or custodial fee (per account) 12.50
Account termination (transfer or rollover) 15.00
Monthly remote access user charge
First user and password 250.00
Additional users and passwords (each) 100.00
VRU Transaction .25
- -- DEDICATED SHAREHOLDER SERVICES REPRESENTATIVE(S)
Monthly charges per dedicated representative
Sunstone employee 5,000.00
Sunstone intern (10 hours per week) 750.00
(Monthly charges to increase annually by a percentage equal to the then
current consumer price index plus 3%)
Out-of-pocket expenses (e.g. travel, blue sky licenses)
Programming to sort shareholder data 125.00/hr
(quoted on a project basis)
- -- OUT-OF-POCKET EXPENSES
Per check processing (dividend, capital gains, redemption) .25
Per statement and confirm processing .25
Per tax form processing .15
Per label printing for proxy or marketing purposes .05
Production of ad hoc reports 100.00/min.
Bulk mailings/insert handling charge
1 insert .25
2 - 3 inserts (per piece) .20
4 - 5 inserts (per piece) .15
Bank account service fees and any other bank charges At cost
Check stock At cost
Statement paper At cost
Envelopes At cost
Tax forms At cost
Postage and express delivery charges At cost
Telephone and long distance charges At cost
Fax charges At cost
P.O. box rental At cost
800-phone number At cost
Inventory and records storage At cost
FundSERV charges At cost
Travel expenses At cost
Outgoing wire fee At cost
Check writing transaction fees
Stop payments At cost
Non-sufficient funds At cost
Check copy 2.50
Account transcripts older than 2 years
(per year, per fund) 5.00
Non-sufficient funds At cost
- -- MAINTENANCE OF NORTHERN MONEY MARKET FUNDS
An annual fee of $2,000 per Northern Money Market Fund used in connection
with your fund family is added to the base fee of each of your funds.
- -- CUSTOM PROGRAMMING
Additional fees may apply for special programming to meet servicing
requirements or to create custom reports.
SCHEDULE D
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, LLC
RECORDS MAINTAINED BY SUNSTONE
Account applications
Cancelled certificates plus stock powers and supporting documents
Checks including check registers, reconciliation records, any adjustment
records and tax withholding documentation
Indemnity bonds for replacement of lost or missing stock certificates
and checks
Liquidation, redemption, withdrawal and transfer requests including stock
powers, signature guarantees and any supporting documentation
Shareholder correspondence
Shareholder transaction records
Share transaction history of the Funds
AMENDED AND RESTATED
SCHEDULE C
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, INC.
FEE SCHEDULE
Intending to be legally bound, the undersigned hereby amend and restate Schedule
A to the aforesaid Agreement to include the following investment portfolios
effective as of the date hereof:
- -- ANNUAL BASE FEES FOR FUNDS
Shareholder account fee for equity, fixed income and balanced funds:
$ 20.00 open accounts
2.50 closed accounts
Minimum annual fee:
Aggressive Equity Fund $22,000
Growth Fund 7,000
Wasatch-Hoisington
U.S. Treasury Fund 5,000
Mid-Cap Fund 7,000
Micro-Cap Fund 5,000
World Wide Fund 7,000*
Micro-Cap Value Fund 7,000*
The base fee assumes a single class of shares, no load or 12b-1 plan;
availability of automatic investment plans and systematic withdrawal plans;
quarterly or less frequent dividend distributions; annual capital gain
distributions; annual tax reporting; telephone privileges and all standard
reports.
- -- ADDITIONAL FEES TO BE ADDED TO BASE FEE
TYPE OF SERVICE OR ANNUAL SHAREHOLDER MINIMUM ANNUAL
FUND FUNCTION ACCOUNT FEE FEE PER FUND
------------------ ------------------ --------------
Front-end load 1.50 2,000
CDSC, back-end load or
redemption fee 2.00 3,000
12b-1 plan 1.00 1,000
Monthly dividends on
non-money market funds 2.00 2,000
Check writing privilege 2.00 2,000
- -------------------------------
* To be effective with respect to World Wide and Micro-Cap Value Fund upon
commencement of operations.
- -- ONE-TIME SET-UP FEES
(per Fund Family)
New Fund Set-up (per fund) $ 2,000
Out-of-pocket expenses At cost
NSCC FundSERV set-up 2,500
NSCC networking 1,500
Asset allocation program 5,000
Remote access set-up (per location) 1,000
Northern Money Market Funds
(per Northern Fund) 2,500
VRU 2,000
- -- ACCOUNT MAINTENANCE AND PROCESSING FEES
(per occurrence)
Shareholder account set-up 5.00
AIP/SWP/Automatic Exchange account set-up 1.00
AIP/SWP/Automatic Exchange transaction processing .50
AIP/SWP/Automatic Exchange alternate date
transaction processing 1.50
Check writing signature verification 0.50
Omnibus account transaction 2.50
Transaction processing - FundSERV 0.20
Certificate issuance 4.00
Locating lost shareholders 8.00
Taxpayer ID number solicitation 1.25
Telephone exchange fee 5.00
Asset allocation transactions
(purchases, redemptions, rebalancing) 1.00
IRA/SEP processing
Annual maintenance or custodial fee (per account) 12.50
Account termination (transfer or rollover) 15.00
Monthly remote access user charge
First user and password 250.00
Additional users and passwords (each) 100.00
VRU Transaction .25
- -- DEDICATED SHAREHOLDER SERVICES REPRESENTATIVE(S)
Monthly charges per dedicated representative
Sunstone employee 5,000.00
Sunstone intern (10 hours per week) 750.00
(Monthly charges to increase annually by a percentage
equal to the then current consumer price index plus 3%)
Out-of-pocket expenses (e.g. travel, blue sky licenses)
Programming to sort shareholder data 125.00/hr
(quoted on a project basis)
- -- OUT-OF-POCKET EXPENSES
Per check processing (dividend, capital gains, redemption) .25
Per statement and confirm processing .25
Per tax form processing .15
Per label printing for proxy or marketing purposes .05
Production of ad hoc reports 100.00/min.
Bulk mailings/insert handling charge
1 insert .25
2 - 3 inserts (per piece) .20
4 - 5 inserts (per piece) .15
Bank account service fees and any other bank charges At cost
Check stock At cost
Statement paper At cost
Envelopes At cost
Tax forms At cost
Postage and express delivery charges At cost
Telephone and long distance charges At cost
Fax charges At cost
P.O. box rental At cost
800-phone number At cost
Inventory and records storage At cost
FundSERV charges At cost
Travel expenses At cost
Outgoing wire fee At cost
Check writing transaction fees
Stop payments At cost
Non-sufficient funds At cost
Check copy 2.50
Account transcripts older than 2 years
(per year, per fund) 5.00
Non-sufficient funds At cost
- -- MAINTENANCE OF NORTHERN MONEY MARKET FUNDS
An annual fee of $2,000 per Northern Money Market Fund used in connection
with your fund family is added to the base fee of each of your funds.
- -- CUSTOM PROGRAMMING
Additional fees may apply for special programming to meet your servicing
requirements or to create custom reports.
This amended and Restated Schedule C is dated and effective as of
, 1997.
- ---------------
WASATCH FUNDS, INC. SUNSTONE INVESTOR SERVICES, INC.
By: By:
------------------ ------------------
Samuel S. Stewart, Jr. Miriam M. Allison
President President
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BY AND BETWEEN
WASATCH FUNDS, INC.
AND
SUNSTONE INVESTOR SERVICES, LLC
WASATCH AGGRESSIVE EQUITY FUND
WASATCH MICRO-CAP FUND
WASATCH GROWTH FUND
WASATCH MID-CAP FUND
WASATCH-HOISINGTON U.S. TREASURY FUND
WASATCH WORLD WIDE FUND
MICRO-CAP VALUE FUND
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to all references to our
firm included in or made a part of this Form N-1A registration statement for the
Wasatch Micro-Cap Value Fund.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
September 12, 1997.
<TABLE>
<CAPTION>
WASATCH MICRO-CAP VALUE FUND
COMPUTATION OF ONE YEAR HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURN
FORM N-1A PART C ITEM 16E
INITIAL SHARES REINVESTED DIVIDEND RECORD REINVEST
INVESTMENT NAV OUTSTANDING SHARES AMOUNT DATE EX-DATE RATE PRICE
---------- --- ------------ ------ ------ ---- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/1/97 1,000.00 2.00 500.000
1/30/98 1,080.33 2.15 502.478 2.478 25.00 12/30/97 12/31/97 0.05 10.09
</TABLE>
HYPOTHETICAL TOTAL RETURN CALCULATION
n
P(1+T) = ERV
1
1,000(1+T) = 1,080.33
T = 8.03%
