<PAGE> 1
As filed with the Securities and Exchange Commission on December 18, 2000
Securities Act Registration No. 33-10451
Investment Company Act Registration No. 811-4920
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Post-Effective Amendment No. 22 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 24 X
(Check appropriate box or boxes)
WASATCH FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
150 SOCIAL HALL AVENUE
4TH FLOOR
SALT LAKE CITY, UTAH 84111
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (800) 708-7228
SAMUEL S. STEWART, JR. Copy to:
Wasatch Funds, Inc. Michael J. Radmer, Esq.
10 Social Hall Avenue, 4th Floor Dorsey & Whitney LLP
Salt Lake City, Utah 84101 220 South Sixth Street
(Name and Address of Agent for Service) Minneapolis, Minnesota 55402-1498
It is proposed that this filing will become effective:
( X ) immediately upon filing pursuant to paragraph (b)
( ) on (date) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) on (date) pursuant to paragraph (a)(1)
( ) 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.
<PAGE> 2
TABLE OF CONTENTS
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<TABLE>
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OBJECTIVE, STRATEGIES AND RISKS OF THE WASATCH GLOBAL TECHNOLOGY FUND . . . . . . . . . . . . . . . .2
FEES AND EXPENSES OF THE WASATCH GLOBAL TECHNOLOGY FUND . . . . . . . . . . . . . . . . . . . . . . 4
MORE ABOUT THE WASATCH GLOBAL TECHNOLOGY FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PRINCIPAL RISKS OF INVESTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
MANAGEMENT OF WASATCH FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management Fees and Expense Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Co-Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
Research Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Additional Service Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SHAREHOLDER'S GUIDE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
To Open a New Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Individual Retirement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
To Purchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Automatic Investment Plan (AIP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
To Exchange Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
To Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Signature Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
How Fund Shares are Priced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
SHAREHOLDER SERVICES AND ACCOUNT POLICIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
Online Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shareholder Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Account Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Telephone Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Registration Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Address Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . .25
GUIDE TO UNDERSTANDING FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
GLOSSARY OF INVESTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
OTHER IMPORTANT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
</TABLE>
Not part of the Prospectus
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WASATCH FUNDS, INC.
150 SOCIAL HALL AVENUE
SALT LAKE CITY, UTAH 84111
1 (800) 551-1700
................................................................................
WASATCH GLOBAL TECHNOLOGY FUND
DECEMBER 18, 2000
This prospectus is designed to provide you with important information about
the Wasatch Global Technology Fund, a no-load mutual fund offered by Wasatch
Funds. Before you invest, please read the prospectus carefully, paying
particular attention to the risks involved. Keep the prospectus for future
reference.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
To aid your understanding we have provided a "Glossary of Investing Terms"
that can be found on page 28 of this prospectus. Words that are italicized
within the text of the prospectus are defined in the glossary.
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus 1
<PAGE> 4
WASATCH GLOBAL TECHNOLOGY FUND
OBJECTIVE
LONG TERM GROWTH OF CAPITAL.
STRATEGY
INVEST IN DOMESTIC AND FOREIGN TECHNOLOGY COMPANIES.
Under normal market conditions, the Fund will invest primarily in the
common stocks of technology companies based in at least three countries
including the United States.
We define technology companies as companies whose primary business involves
the application of science or technology to commerce or industry. Typically,
these will be companies that develop, produce or distribute products or services
in the computer, software, semiconductor, electronics, communications and
chemical industries as well as medical technology companies in the
biotechnology, pharmaceutical and medical products industries.
Typically, the Fund will invest a significant portion of its assets in
the securities of U.S. companies. Globally, the Fund may invest in securities
of companies in countries with established or emerging securities markets.
Wasatch analysts will use a process of "bottom-up" fundamental analysis to
invest in individual companies of any size. However, because technology is a
rapidly changing sector, we expect a significant portion of the Fund's assets to
be invested in early stage, small and mid-size companies.
The Fund may invest in other securities including preferred stocks,
warrants and securities that can be converted into common or preferred stocks
(convertible securities). The Fund may also participate in initial public
offerings (IPOs).
PRINCIPAL RISKS
The main risk to you as a shareholder is that it is possible to lose money
by investing in the Fund.
MARKET RISK. As with all funds that invest in common stocks, the Fund is
subject to market risk. This is the risk that stock prices may decline
significantly over short or extended periods of time.
FOREIGN SECURITIES. Investing in the stocks of foreign companies involves
risks not associated with investments in U.S. companies. These may include
currency fluctuation and conversion costs, local withholding and other taxes,
different financial reporting practices and regulatory standards, higher trading
costs, changes in political conditions, expropriation, investment and
repatriation restrictions and settlement and custody risks.
EMERGING SECURITIES MARKETS. The Fund may also invest in companies that are
based in, or do a significant amount of business in, countries with emerging
economies and securities markets. These investments may be subject to greater
risks than investments in foreign countries with more established economies
and securities markets.
SMALL COMPANIES. Although the Fund may invest in companies of any size, we
expect a significant percentage of the Fund's assets to be invested in small
companies. These companies may lack the financial resources, product
diversification and competitive strengths of larger companies. The stocks of
small companies may not trade as readily as the stocks of large companies and
their share prices may fluctuate more widely.
EARLY STAGE COMPANIES. The Fund may invest in companies that are in the
early stages of development. These companies are subject to the risks listed
above for small companies. In addition, early stage companies may be more risky
because they may not be currently profitable. There is no guarantee that they
2 Prospectus
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will become profitable or will be able to obtain necessary financing. They
may rely on largely untested business plans. They may not be successful in
developing markets for their products and services.
TECHNOLOGY COMPANIES. Although the Fund does not limit its investments to
specific industries, its focus on technology means that companies in which it
invests will often react similarly to certain market or economic pressures.
In general, the technology sector tends to be extremely competitive. Rapid
new developments could cause a company's products or services to fall out of
favor or become obsolete in a short period of time.
Many technology companies are sensitive to global and domestic economic
conditions and, for some companies, earnings growth may be tied to product
cycles within their specific industries. Some companies may have relatively
short product cycles and many products may not become commercially successful.
The Fund may also invest in medical technology companies. These companies
are subject to many of the same risks as other technology companies. In
addition, they may be subject to government regulations and may rely on
governments for reimbursement or approval of products and services.
INITIAL PUBLIC OFFERINGS (IPOS). Investing in IPOs involves a higher degree
of risk not normally associated with offerings of more seasoned companies.
Companies involved in IPOs may have limited operating histories and their
prospects for future profitability may be uncertain. Prices of IPOs may be
unstable due to the absence of a prior public market, the small number of shares
available for trading and limited investor information.
NON-DIVERSIFICATION. The Fund is non-diversified. This means it can invest
a larger portion of its assets in the stocks of a limited number of companies
than a diversified fund. Non-diversification increases the risk of loss to the
Fund if the values of these securities decline.
WHO SHOULD INVEST
The Fund pursues an aggressive investment strategy designed for long term
investors who can tolerate the greater risks and volatility that are inherent
with global investments in technology companies.
PERFORMANCE
Ordinarily, this section of a prospectus contains information that would
allow you to evaluate the Fund's performance using several different measures
such as yearly changes in performance, best and worst quarterly returns and
average annual total returns compared to a relevant benchmark. However, the
Wasatch Global Technology Fund is newly formed and has no history that can be
used by investors to evaluate performance.
Prospectus 3
<PAGE> 6
FEES AND EXPENSES OF THE WASATCH GLOBAL TECHNOLOGY FUND
................................................................................
The following table describes the fees and expenses you may pay if you buy
and hold shares of the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
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Maximum Sales Charge (Load) Imposed on Purchases None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends and other Distributions None
Redemption Fee (on shares held less than two months) 2.00%
Wire Redemption Fee $7.50 each
Annual IRA Maintenance Fee(1) $12.50 per account
IRA Distribution Fee(2) $15.00 each
Exchange Fee None
Maximum Account Fee None
</TABLE>
(1) Wasatch Funds IRAs of $10,000 or more are exempt. Fee is capped at $25.00
per Social Security Number, per account type.
(2) Includes rollovers, direct transfers and recharacterizations. Excludes
systematic withdrawal plans.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE FUND'S
ASSETS)
<TABLE>
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MANAGEMENT FEES 1.50%
DISTRIBUTION (12B-1) FEES None
OTHER EXPENSES(1) 0.88%
TOTAL ANNUAL FUND OPERATING EXPENSES(1) 2.38%
</TABLE>
(1) Other Expenses and Total Annual Fund Operating Expenses are based on
estimated Fund expenses for its first fiscal year before any reimbursements
by the Advisor. The Advisor has voluntarily agreed to reimburse the Fund
for Total Annual Fund Operating Expenses in excess of 1.95% until at least
September 30, 2001. See "Management Fees and Expense Limitations" on page
11. Taking into account expense reimbursements, Management Fees and Total
Annual Fund Operating Expenses for the Fund are estimated to be 1.07% and
1.95%, respectively.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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<S> <C> <C>
Global Technology Fund $241 $742
</TABLE>
The above example does not reflect any voluntary reimbursements by the Advisor.
4 Prospectus
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MORE ABOUT THE WASATCH GLOBAL TECHNOLOGY FUND
More information about the investment objective, principal investment
strategies and principal risks of the Wasatch Global Technology Fund is provided
below. The Fund's principal investment strategies are those that we believe are
most likely to be important in trying to achieve the Fund's investment
objective. You should note that the Fund may also employ strategies and invest
in securities that are not described below. Please see the Statement of
Additional Information (SAI) for a discussion of these strategies,securities and
their risks.
INVESTMENT PROCESS
Stocks for the Wasatch Global Technology Fund are recommended by an
experienced in-house research team. The Fund's Co-Managers ensure that
investments are compatible with the Fund's investment objective and strategies.
The Wasatch Research Team uses a "bottom-up" process of fundamental
securities analysis. This means the team seeks to identify individual companies
with outstanding investment potential.
The research process includes prescreening potential investments using
databases and industry contacts, analyzing annual reports and financial
statements, making onsite company visits, meeting with top management,
evaluating the competitive environment, looking at distribution channels and
identifying areas of potential growth.
CASH POSITION
If the research team is unable to locate attractive investment
opportunities, or when we consider market conditions to be unfavorable for
profitable investing, the Fund may temporarily increase its cash position or
invest a larger portion of its assets in money market instruments. In other
words, the Fund does not always stay fully invested in stocks. As a temporary
defensive position, the Fund may invest up to 100% of its assets in cash or
money market instruments.
When the Fund increases its position in cash or money market instruments,
it may not participate in stock market advances or declines to the same extent
that it would if the Fund remained more fully invested in stocks. The Fund may
not achieve its investment objective when invested in cash.
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, 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
Co-Managers believe such changes are desirable. Portfolio turnover rates are
generally not a factor in making decisions to buy or sell securities.
To a lesser 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.
WASATCH GLOBAL TECHNOLOGY FUND
CO-MANAGERS: Ajay Krishnan, CFA and Karey Barker, CFA
INVESTMENT OBJECTIVE
The investment objective of the Wasatch Global Technology Fund is long term
growth of capital.
Prospectus 5
<PAGE> 8
PRINCIPAL INVESTMENT STRATEGIES
UNDER NORMAL MARKET CONDITIONS, WE WILL:
o Invest at least 65% of the Fund's total assets in the equity securities of
technology companies based in at least three countries including the United
States. We define technology companies as companies whose primary business
involves the application of science or technology to commerce or industry.
Typically, these will be companies that develop, produce or distribute
products or services in the computer, software, semiconductor, electronics,
communications and chemical industries as well as medical technology
companies in the biotechnology, pharmaceutical and medical products
industries.
o Typically invest a significant portion of the Fund's assets in the
securities of U.S. companies. Globally, the Fund may invest in securities
of companies in countries with established or emerging securities markets.
o Use a process of "bottom-up" fundamental analysis to invest in individual
companies of any size. However, because technology is a rapidly changing
sector, we expect a significant portion of the Fund's assets to be invested
in early stage, small and mid-size companies.
O Invest in other securities which may include preferred stocks, warrants and
securities that can be converted into common or preferred stocks
(convertible securities). The Fund may also participate in initial public
offerings.
BUYING STOCKS
We have defined two broad categories that we believe are critical to
identifying technology companies with outstanding investment potential. The
first is companies that possess valuable intellectual property. The second is
companies that provide products or services related to science or technology.
IN SEEKING COMPANIES THAT POSSESS VALUABLE INTELLECTUAL PROPERTY, WE LOOK FOR:
o Companies that have developed, invented or otherwise own or control
patented, proprietary or leading technologies.
o Technology that we believe has feasible applications with significant
economic potential.
o Superior management that we believe will be able to capitalize on the
technology's potential value.
o Management that has a substantial ownership interest in the company.
o Stocks that we believe are rationally priced based on our assessment of the
technology's future prospects.
IN SEEKING COMPANIES THAT PROVIDE PRODUCTS OR SERVICES RELATED TO SCIENCE OR
TECHNOLOGY, WE LOOK FOR:
o Companies that are applying new technologies or using technology to gain a
competitive advantage.
o Companies that, in our opinion, have outstanding growth potential and can
increase sales and earnings significantly faster than average companies.
O Companies that are market leaders or potential market leaders in their
industries.
O Superior management that we believe will be successful in applying science
or technology to gain a competitive advantage.
O Management that has a substantial ownership interest in the company.
O Superior financial characteristics and controls including high return on
capital, strong cash flow and low use of debt.
O Stocks that we believe are rationally priced based on our assessment of
current sales, earnings and growth rates.
6 Prospectus
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SELLING STOCKS
WE ARE LIKELY TO SELL A STOCK WHEN:
o the rationale we used to buy the stock is no longer valid
o the stock becomes overpriced
o we believe another stock has better investment potential
OTHER INVESTMENT STRATEGIES
The Fund may borrow from banks for various purposes including buying
securities. Borrowing to buy securities is known as leveraging. The Fund does
not expect borrowings to exceed 10% of net assets.
To a limited extent, the Fund's equity investments may include illiquid
securities such as private placements and derivatives such as options, futures
and forwards. The Fund's derivative instruments may be used for hedging
purposes or for non-hedging purposes such as seeking to enhance return.
To a limited degree, the Fund may engage in short sales of securities.
The risks of these investments and strategies are discussed in the
following section and in the SAI.
PRINCIPAL RISKS OF INVESTING
The following discussion is intended to help you better understand the
risks associated with the Wasatch Global Technology Fund's principal investment
strategies. It is designed to make you aware of factors that have the potential
to adversely affect the Fund's net asset value and its total return. Please read
this section carefully.
RISKS OF FOREIGN SECURITIES
The Fund's global focus means it will invest in the stocks of companies
based outside the United States. Investments in foreign companies involve
certain risks not typically associated with investments in U.S. companies.
FOREIGN MARKET RISK. Foreign securities markets may be less liquid and
their prices may be more volatile than domestic markets. There also may be less
government supervision and regulation of foreign stock exchanges, brokers and
listed companies than in the U.S. 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.
CURRENCY RISK. The U.S. dollar value of the Fund's assets may be affected
by foreign currency exchange rates and exchange control regulations. A change in
the value of any foreign currency may change the U.S. dollar value of the Fund's
assets that are denominated or traded in that country. In addition, the Fund may
incur costs in connection with conversions between various currencies.
POLITICAL AND ECONOMIC RISK. Foreign investments may be subject to
heightened political and economic risks, particularly in countries with emerging
economies and securities markets 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, impose additional
withholding taxes on dividends or interest income payable on securities, impose
exchange controls or adopt other restrictions that could affect the Fund's
investments.
REGULATORY RISK. Foreign companies that are not publicly traded in the U.S.
are not subject to uniform accounting and financial reporting standards and
requirements comparable to those U.S. companies must meet. In addition, there
may be less information publicly available about such companies.
Prospectus 7
<PAGE> 10
FOREIGN TAX RISK. The Fund's income from foreign issuers may be subject to
non-U.S. withholding taxes. The Fund may also be subject to taxes on trading
profits or on transfers of securities in some countries. To the extent foreign
income taxes are paid by the Fund, shareholders may be entitled to a credit or
deduction for U.S. tax purposes.
TRANSACTION COSTS. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody costs, are generally higher
than those for domestic transactions.
EMERGING SECURITIES MARKETS
The Fund may also invest in companies that are based in, or do a
significant amount of business in, countries with emerging economies and
securities markets. These investments are subject to the same risks as other
foreign securities and may be subject to greater risks than investments in
foreign countries with more established economies and securities markets. Risks
of investing in these countries may include political or social instability,
economies based on only a few industries, unstable currencies, runaway
inflation, highly volatile securities markets, unpredictable shifts in policies
relating to foreign investments, lack of protection for investors against
parties who fail to complete transactions, greater potential for government
seizure of assets or nationalization of companies.
MARKET RISK
The Wasatch Global Technology Fund invests in common stocks. Stock prices
may decline significantly over short or extended periods of time. Price changes
may affect markets worldwide, or only foreign or domestic markets, or only
certain stocks such as growth or value stocks, or only a particular company,
industry, or sector of the market.
COMPANY RISK
The Fund invests in individual stocks. Individual stocks can perform
differently than the overall market. This may be a result of specific factors
such as changes in corporate profitability due to the success or failure of
specific products or management strategies, or it may be due to changes in
investors' perceptions regarding a company.
SMALL COMPANIES
The Wasatch Global Technology Fund may invest in the common stocks of small
companies. Small companies 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 stocks may
be substantially less than that typical of larger companies. Therefore, the
prices of small company stocks may be subject to wider and more erratic
fluctuations.
The spread between the bid and asked prices of small company stocks may be
wider than the spread for more actively traded securities. As a result, if a
small company stock is sold shortly after purchase, a loss may be incurred by
the Fund solely due to the size of the bid-asked spread. Large sales of small
company stocks may require selling them at a discount from quoted prices and/or
making a series of small sales over a period of time.
Small company stocks are often traded over-the-counter and may not have the
trading volume typical of stocks traded on a national securities exchange. The
values of their shares may move independently of the values of shares of large
companies or of general stock market indexes such as the Dow Jones Industrial
Average or the S&P 500(R) Index.
EARLY STAGE COMPANIES
The Fund may invest in companies that are in the early stages of develop-
8 Prospectus
<PAGE> 11
ment. These companies are subject to the risks listed above for small companies.
In addition, they may not be profitable now and there is no guarantee that they
will become profitable or be able to obtain necessary financing. They may rely
on untested business plans. They may not be successful in developing markets for
their products and services. They may remain an insignificant part of their
industry. They may be illiquid or they may not be publicly traded. Investments
in early stage companies tend to be more volatile and somewhat more speculative
than investments in more established companies.
RISKS OF GROWTH STOCKS
The Fund invests in "growth stocks."These "growth stocks" typically trade
at higher price-to-earnings ratios (P/Es) than other stocks. Therefore,their
prices may be more sensitive to changes in current or expected earnings than the
prices of other stocks. If the Advisor's assessment of a company's earnings
growth prospects is wrong, or if the Advisor's judgment about how other
investors will value a company's earnings growth is wrong, then the company's
stock may fail to achieve the expected price appreciation.
HIGH GROWTH COMPANIES
The Fund may invest a significant portion of its assets in the stocks of
high growth companies. We define high growth companies as those that are
increasing earnings at a rate that is significantly faster than the average
company. Companies growing this aggressively often have high price-to-earnings
ratios (P/Es) and are considered more risky because the challenge to meet growth
expectations is greater. The stock prices of high growth companies are more
volatile than the prices of other common stocks.
TECHNOLOGY COMPANIES
Although the Fund does not limit its investments to specific industries or
sectors, its focus on technology means that companies in which it invests will
often react similarly to certain market or economic pressures. Investments may
include companies in the computer, software, semiconductor, electronics,
communications and chemical industries as well as medical technology companies
in the biotechnology, pharmaceutical and medical products industries.
In general, these companies operate in an extremely competitive environment
where rapid new developments could have a dramatic impact on a company's
earnings growth potential. In addition, many of these companies are sensitive to
global and domestic economic conditions and, for some companies, earnings growth
may be tied to product cycles within their specific industries. If technology
continues to advance at an accelerated rate and the number of companies and
product offerings continues to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
The Fund's investments in medical technology companies are subject to many
of the same risks as other technology companies. In addition, certain
companies, such as pharmaceutical, biotechnology and medical device companies,
rely on government agencies such as the Food & Drug Administration (FDA) for
approval of their products and services before they can be brought to market.
The financial success of certain medical products and services may depend
on approval for reimbursement from government programs such as Medicare. In
addition, many medical technology companies are subject to government
regulations. The rise of managed health
Prospectus 9
<PAGE> 12
care has resulted in increased price pressure throughout the industry.
Many products and services of medical technology companies may become
rapidly obsolete due to technological and scientific advances.
INITIAL PUBLIC OFFERINGS (IPOS)
The Fund's investments may include common stocks purchased in Initial
Public Offerings (IPOs). Most IPOs involve a higher degree of risk not normally
associated with offerings of more seasoned companies. Companies involved in IPOs
generally have limited operating histories and their prospects for future
profitability are uncertain. Prices of IPOs may also be unstable due to the
absence of a prior public market, the small number of shares available for
trading and limited investor information. IPOs may be sold within 12 months of
purchase. This may result in increased short term capital gains, which will be
taxable to shareholders as ordinary income.
NON-DIVERSIFICATION RISK
The Wasatch Gobal Technology Fund is a non-diversified fund which means it
can invest a larger portion of its assets in the stocks of a limited number of
companies than a diversified fund. Funds that invest in the stocks of a few
companies have more exposure to the price movements of a single security or
small group of securities than funds that diversify their investments among many
companies.
RISKS OF OTHER INVESTMENT STRATEGIES
LEVERAGING
Borrowing to purchase securities is known as leveraging. The Fund may
borrow from banks for temporary or emergency purposes, clearing transactions or
to invest. Leveraging increases the effect of changes in the market value of the
Fund's portfolio. Leveraging may expose the Fund to greater risk and increased
costs. Interest paid on borrowed funds may have the effect of lowering the
Fund's return. In addition, the Fund may have to sell securities it would
normally keep in order to make interest payments.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities,
including "restricted" securities and private placements for which there is no
public market value. The fair value of these securities will be determined by a
designated Pricing Committee under the supervision of the Board of Directors in
accordance with Board-approved Pricing Procedures. Given the inherent
uncertainties of determining fair market value, there can be no assurance that
the value we place on a security will be appropriate in terms of how the
security may be ultimately valued on the public market. These securities may
never be publicly traded and the Fund may not be able to easily liquidate its
position in these securities.
The Fund also may invest in securities that are less liquid than the
securities of large established companies. These less liquid securities may
include the securities of smaller U.S. companies, convertible securities,
foreign securities and emerging markets securities. The Fund may experience a
loss if it is unable to sell a security at a time and price that would be most
beneficial.
DERIVATIVES
To a limited extent, the Fund may use derivatives such as futures and
options to hedge against certain risks like adverse movements in securities
prices. The Fund may also use derivatives for
10 Prospectus
<PAGE> 13
non-hedging purposes such as seeking to enhance returns.
The goal of using derivatives will be to benefit the Fund. However, using
derivatives could hurt the Fund's performance if the Advisor incorrectly judges
such factors as the direction of securities prices. Risks associated with using
derivatives are described in the SAI.
CURRENCY HEDGING
The Fund may also use a variety of currency hedging techniques, including
forward currency exchange contracts, to manage currency risk.
The goal of using these techniques will be to benefit the Fund's
performance. However, using these techniques could be detrimental to performance
if the Advisor incorrectly judges the direction of exchange rates.
SHORT SALES
To a limited extent, the Fund may make short sales of securities listed on
one or more U.S. or foreign securities exchanges or on NASDAQ or EASDAQ. A short
sale means the Fund sells a security it does not own in anticipation of a
decline in the stock's price. The Fund must borrow the security to deliver to
the buyer upon the short sale. The Fund is then obligated to replace the
borrowed security by purchasing it at a later date. The Fund will experience a
loss if the market price of the security increases between the date of the short
sale and the date the security is replaced. The Fund will not engage in short
sales when these transactions would cause the market value of all the Fund's
securities sold short to exceed 15% of its net assets. Short sales may reduce
the Fund's returns or increase volatility.
MANAGEMENT OF WASATCH FUNDS
The investment advisor (Advisor) for Wasatch Funds is Wasatch Advisors,
Inc. The Advisor and Wasatch Funds are located at 150 Social Hall Avenue, Salt
Lake City, Utah 84111. The Advisor has been in the investment advisory business
since 1975. As of October 31, 2000, the Advisor had approximately $1.8 billion
in assets under management.
The Advisor is responsible for investing the Wasatch Global Technology
Fund's assets, placing orders to buy and sell securities and negotiating
brokerage commissions on portfolio transactions. In addition, the Advisor
provides certain administrative services and manages the Fund's business
affairs.
MANAGEMENT FEES AND EXPENSE LIMITATIONS
The Fund has agreed to pay the Advisor a monthly management fee computed on
average daily net assets of the Fund at the annual rate of 1.50%. More detailed
information about the Advisor's investment advisory and service contracts with
Wasatch Funds can be found in the SAI.
The Advisor has voluntarily agreed to limit the total expenses of the Fund at
least through September 30, 2001, to 1.95% of average net assets computed on a
daily basis. The Advisor will pay all expenses excluding interest, taxes and
extraordinary expenses in excess of such limitations. The Advisor may rescind
these voluntary limitations on expenses any time after September 30, 2001.
CO-MANAGERS
AJAY KRISHNAN, CFA, is Co-Manager of the Wasatch Global Technology and
Ultra Growth Funds. Mr. Krishnan
Prospectus 11
<PAGE> 14
joined the Wasatch Research Team as a securities analyst in 1994. He is a
Chartered Financial Analyst and holds a Master's degree in business from Utah
State University and a Bachelor of Science degree in physics with a minor in
mathematics from Bombay University.
KAREY BARKER, CFA, is a Director of Wasatch Advisors and is Co-Manager of
the Wasatch Global Technology Fund. In addition, she is Lead Manager of the
Wasatch Ultra Growth Fund. Ms. Barker joined the Wasatch Research Team as a
securities analyst in 1989. She is a Chartered Financial Analyst and holds a
Bachelor of Arts degree in French and a Bachelor of Science degree in finance
from the University of Utah.
RESEARCH TEAM
Prior to 1995 the Wasatch Equity Funds were managed by the Wasatch Research
Team, a team of analysts. In 1995 the team approach was modified and Lead or
Co-Managers were named for each of Wasatch's Equity Funds. Currently, the
Wasatch Research Team consists of four Lead Managers, three Co-Managers, and
eight securities analysts. The Lead and Co-Managers are responsible for making
investment decisions for their respective Funds in accordance with each Fund's
primary investment objective and strategies. The Wasatch Research Team is
responsible for analyzing securities and making investment recommendations.
SAMUEL S. STEWART, JR., PHD, CFA, has served as President and Chairman of
the Board of Wasatch Funds since 1986 and Chairman of the Board of the Advisor
since 1975. Dr. Stewart is Lead Manager of the Wasatch Core Growth Fund. In
addition, he is Co-Manager of the Wasatch Small Cap Value Fund. He earned a
Bachelor of Science in Business Administration 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 also served as a professor
of finance at the University of Utah.
JEFF CARDON, CFA, is Vice President and Director of Wasatch Funds and
President and Director of the Advisor. He is Lead Manager of the Wasatch Small
Cap Growth Fund. Mr. Cardon joined the Wasatch Research Team 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.
ROBERT GARDINER, CFA, is a Director of the Advisor and Lead Manager of the
Wasatch Micro Cap Fund. In addition, he is Co-Manager of the Wasatch Small Cap
Value Fund. Mr. Gardiner joined the Wasatch Research Team as a securities
analyst in 1987. He is a Chartered Financial Analyst. Mr. Gardiner is a graduate
of the University of Utah where he earned a Bachelor of Arts degree in physics
with a minor in French and a Bachelor of Science degree in mathematics with a
minor in chemistry.
JIM LARKINS, MBA, is Co-Manager of the Wasatch Small Cap Value Fund. Mr.
Larkins joined the Wasatch Research Team as a securities analyst in 1995. He
holds a Master's degree in business and a Bachelor of Arts degree in economics
from Brigham Young University.
JB TAYLOR is Co-Manager of the Wasatch Core Growth Fund. Mr. Taylor joined
the Wasatch Research Team as a securities analyst in 1996. Prior to joining
Wasatch, Mr. Taylor was a full time student. He holds a Bachelor of Science
degree in industrial engineering from Stanford University.
12 Prospectus
<PAGE> 15
ADDITIONAL SERVICE PROVIDERS
ADMINISTRATOR
Sunstone Financial Group, Inc.
803 West Michigan Street, Suite A
Milwaukee, WI 53233-2301
TRANSFER AGENT
Sunstone Financial Group, Inc.
803 West Michigan Street, Suite A
Milwaukee, WI 53233-2301
CUSTODIAN
UMB Bank, n.a.
1010 Grand Boulevard
Kansas City, MO 64106-2008
LEGAL COUNSEL
Michael J. Radmer
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, MN 55402-1498
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
100 East Wisconsin Ave., Suite 1900
Milwaukee, WI 53202-4107
Prospectus 13
<PAGE> 16
INVESTMENT MINIMUMS
<TABLE>
<S> <C>
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
</TABLE>
SHAREHOLDER'S GUIDE
This section provides information about how to invest in the Fund and the
different types of accounts and services available through Wasatch Funds.
TO REACH WASATCH FUNDS BY PHONE
If you have any questions about Wasatch Funds, 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 REACH WASATCH FUNDS ONLINE
We offer a number of services on our web site at WWW.WASATCHFUNDS.COM. From
any computer with Internet access you can:
o Download a current prospectus, new account application and other documents.
o Open certain types of new accounts and make online transactions. For more
information see "Online Transactions" on page 24.
o Review current account information, check the past year's account history
and make address changes or corrections when you fill out the appropriate
online form and submit it electronically to Wasatch Funds.
o Sign up to receive quarterly statements, confirmations, annual and
semi-annual reports and prospectuses via e-mail by filling out the online
consent form.
o Review the Fund's daily Net Asset Value (NAV) and performance.
o Check the Fund's Top 10 Holdings as of the most recent calendar quarter
end.
o E-mail us your questions and comments.
TO OPEN A NEW ACCOUNT
o Read the prospectus carefully.
o Complete and sign the new account application included with the prospectus.
o See chart above for investment minimums.
o Be sure to provide your Social Security or Taxpayer Identification Number
on the new account application.
o New account applications are also available directly from Wasatch Funds by
calling a Shareholder Services Representative at 1 (800) 551-1700 or by
visiting our web site at WWW.WASATCHFUNDS.COM.
o Certain types of new accounts may be opened online. For more information
see "To Purchase Shares Online" on page 17.
o 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
14 Prospectus
<PAGE> 17
To send your check and application by express or certified mail:
WASATCH FUNDS
803 WEST MICHIGAN STREET, SUITE A
MILWAUKEE, WI 53233-2301
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 a new account application 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 Survivorship) unless otherwise specified.
GIFT TO MINOR. This is a custodial account managed 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 the corporation or other
entity or a trustee. To open a corporate account, a corporate resolution must be
provided with the application. Certain account privileges require additional
documentation. Please call a Shareholder Services Representative at 1(800)
551-1700 for more information. Accounts for corporations, partnerships, trusts
or other entities may not be opened online.
INDIVIDUAL RETIREMENT ACCOUNTS
If you are eligible, you may set up your Wasatch Funds account under a
tax-sheltered retirement plan. To request a Wasatch Funds IRA Information Kit
and application, please call 1 (800) 551-1700 or write to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
Wasatch Funds' minimum initial investment for an IRA is $1,000. 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
Social Security Number, per account type.
IRA accounts may not be opened online. However, additions to existing IRA
accounts may be made online. The following is a short description of common
types of IRA accounts offered by Wasatch Funds. Please refer to the Disclosure
Statement and Custodial Agreement found in the IRA Information Kit for more
detailed information on these retirement plans.
TRADITIONAL IRA. Anyone under age 70 1/2 who earns compensation can
contribute to a traditional IRA. You can also fund an IRA for your non-wage
earning spouse. The key benefits:
o Depending on your income and whether you participate in a company
retirement plan, all or part of your contribution may be tax-deductible.
o Taxes on your earnings and on any deductible contributions aren't imposed
until you begin making withdrawals. That gives your earnings the potential
to grow faster than in taxable accounts.
o Current tax law has also made it easier to withdraw from a traditional IRA
without paying penalties, especially for first-time home purchases and
expenses for higher education.
ROTH IRA. Roth IRAs are different from traditional IRAs in several
important ways:
o Contributions are not tax deductible.
o Earnings on amounts held in the
Prospectus 15
<PAGE> 18
account can be withdrawn tax-free if the assets remain in the IRA for at least
five years and the IRA holder is at least 59 1/2, or meets other conditions, at
the time of the withdrawal.
o Contributions can be withdrawn anytime without tax or penalty.
Roth IRAs are also available for non-wage earning spouses. The ability to
make a contribution to a Roth IRA is phased out for individuals whose income
exceeds specific limits.
SIMPLE IRA. Individuals may establish SIMPLE IRAs through a qualifying
employer. 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.
Please call a Shareholder Services Representative at 1 (800) 551-1700 to
ask about other retirement plans.
TO PURCHASE SHARES
The price of your shares will be determined the next time the Net Asset
Value (NAV) is calculated after the Transfer Agent has received your request in
good order.
o Purchase requests should be sent to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE,WI 53201-2172
o Purchase requests sent to Wasatch Funds' headquarters in Salt Lake City
will be forwarded to the Transfer Agent in Milwaukee, but the effective
date of the purchase will be delayed until the request is received in good
order by the Transfer Agent.
o Checks must be made payable to Wasatch Funds and must meet minimum purchase
requirements (see Investment Minimums on page 14).
o There are no sales charges to purchase shares.
o Purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks.
o You may add to established Wasatch Funds accounts by making investments of
$100 or more.
o Cash, credit cards, third party checks and credit card checks will not be
accepted.
o See "Returned Check/Insufficient Funds Policy" on page 25 for Wasatch
Funds' policy regarding checks or electronic transfers returned unpaid.
o Wasatch Funds reserves the right to reject any specific purchase request.
o Telephone orders will only be accepted via electronic funds transfer from
the Automated Clearing House (ACH), corporate accounts and broker-dealers
who have been previously approved by Wasatch Funds.
o If a purchase is made by check, and a redemption is requested shortly
there-after, payment may be delayed for up to seven business days to
ensure that the check has cleared.
o 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.
o Keep in mind that redeeming shares held less than two months will trigger
the redemption fee. For more information see "Redemption Fee" on page 20.
o Selling or exchanging shares is considered a taxable event by the Internal
Revenue Service. When you make these transactions you could realize a
taxable capital gain or loss. You may want to consult your tax or other
financial advisor for information about possible tax consequences prior to
making one of these transactions. When you hold mutual fund shares any
dividends or distributions you receive are taxable. Please see "Taxes"on
page 26 for more information about the taxation of dividends and
distributions.
16 Prospectus
<PAGE> 19
IMPORTANT!
WASATCH FUNDS IS REQUIRED TO WITHHOLD AND REMIT TO THE U.S.TREASURY 31% OF
DIVIDEND PAYMENTS, CAPITAL GAIN 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.
TO PURCHASE ADDITIONAL SHARES BY MAIL
Send your remittance to one of the addresses listed previously. 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 SHARES ONLINE
You can purchase shares online at our web site at WWW.WASATCHFUNDS.COM.
o Online purchases must meet the minimum investment requirements.
o You may add to existing accounts in amounts of $100 or more.
o To open a new account online, please download a current prospectus and read
it carefully before you invest.
o Complete the appropriate online application and submit it electronically to
Wasatch Funds.
o When the Transfer Agent receives your online application, the amount you
would like to invest will be withdrawn from your bank. You will receive a
reference number for your transaction when you submit your application. A
verification of your request will also be sent to your e-mail address and
we will mail a transaction confirmation to you when we have processed your
online application. (Also see "To Open a New Account"on page 14 and "How
Fund Shares are Priced" on page 23.)
o The price of your shares will be determined the next time the Net Asset
Value (NAV) is calculated after the Transfer Agent has received your
request in good order.
o See "Returned Check/Insufficient Funds Policy" on page 25 for the Funds'
policy regarding electronic transfers returned unpaid.
o Individual Retirement Accounts (IRAs) may not be opened online. However,
you may make online purchases of additional shares for existing Wasatch
Funds IRAs.
o Accounts for third parties, trusts, corporations, partnerships and other
entities may not be opened online and are not eligible for online
transactions.
TO PURCHASE SHARES BY BANK-WIRE
You can purchase shares by wiring money from your bank account to your
Wasatch Funds 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 Fund to purchase)
To establish a new account by bank-wire please contact a Shareholder
Services Representative at 1 (800) 551-1700 for instructions.
AUTOMATIC INVESTMENT PLAN (AIP)
o You can choose to make automatic investments for as little as $50 monthly
or $100 quarterly.
o Selecting this option when you open a new Fund account lowers the minimum
initial investment to $1,000.
Prospectus 17
<PAGE> 20
o You may elect to have your automatic investments made on the 5th and/or the
20th day of each month. If these dates fall on a weekend or holiday,
purchases will be made on the next business day.
o You can begin investing automatically in an established Fund account by
completing and returning an Automatic Investment Plan application,
available from Wasatch Funds.
o It takes 15 business days after the receipt of your application for the
plan to begin.
o Send an unsigned, voided check or deposit slip along with your application.
o Your financial institution must be a member of the Automated Clearing
House.
o 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.
o No service fee is currently charged by Wasatch Funds for participating in
the AIP.
o A $20 service fee will be imposed if your automatic investment withdrawal
is returned unpaid for any reason.
o If you redeem an account with an AIP to a zero balance, the plan will be
discontinued.
PURCHASING SHARES THROUGH OTHER INSTITUTIONS
o 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.
o If you want to purchase shares through another institution or service
provider, you should read their materials carefully for any fees that may
apply.
o Certain features offered by Wasatch Funds, such as the minimum initial
investment or subsequent investment amounts, may be modified or may not be
available through other institutions.
o Once you have established an account through an investment professional,
any subsequent transactions for, or questions about, that account must be
made through your investment professional.
o The Advisor 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 Advisor or the Fund may compensate such firms in amounts based on
assets of customers invested in the Fund.
TO EXCHANGE SHARES
o Shares of the Fund may be exchanged for shares of any other Wasatch Fund or
the Northern U.S. Government Money Market Fund ("Money Market Fund") on any
day the New York Stock Exchange (the "Exchange") is open for business.
o Before authorizing any investment in shares of other Wasatch Funds or the
Money Market Fund you must obtain a copy of the Wasatch Funds prospectus or
the Northern U.S. Government Money Market Fund prospectus, available from
Wasatch Funds. Please read the prospectus carefully before investing.
o Exchanges for shares in closed Funds may only be made by shareholders with
existing accounts in those Funds. O You may open a new account or purchase
additional shares by making an exchange from an existing Fund account.
o New accounts opened by exchange will have the same registration as
18 Prospectus
<PAGE> 21
existing accounts and are subject to the minimum initial investment
requirements.
o Additional exchanges may be made for $500 or more.
o Keep in mind that exchanging shares held less than two months will trigger
the redemption fee. For more information see "Redemption Fee" on page 20.
o The price of shares being exchanged or purchased will be determined the
next time the NAV is calculated after the Transfer Agent has received your
exchange request in good order. For more information see "How Fund Shares
are Priced" on page 23.
o Exchanges can be made by calling a Shareholder Services Representative
at 1 (800) 551-1700 (if you have telephone privileges).
o Exchanges can also be made online at our web site WWW.WASATCHFUNDS.COM.
o Accounts are automatically eligible for the telephone exchange option,
unless you specify otherwise.
WRITTEN EXCHANGE REQUESTS
o See "Instructions for Written Requests" on page 22.
TELEPHONE EXCHANGE REQUESTS
o Call 1 (800) 551-1700 to exchange shares (if you have telephone
privileges).
o Accounts are automatically eligible for the telephone exchange option,
unless you specify otherwise.
o Wasatch Funds does not accept exchange requests made via FAX.
o It may be difficult to reach Wasatch Funds during periods of unusual market
activity. If you are unable to contact the Funds by telephone, you may also
exchange shares by mail, overnight express delivery or online at our web
site WWW.WASATCHFUNDS.COM.
EXCHANGES BETWEEN WASATCH FUNDS AND THE NORTHERN U.S. GOVERNMENT MONEY
MARKET FUND
o You may exchange all or a portion of your investment from the Money Market
Fund to Wasatch Funds, or from Wasatch Funds to the Money Market Fund.
o 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.
o Exchanges are subject to the minimum purchase and redemption amounts set
forth in this prospectus.
o There is a redemption fee for exchanging Wasatch Funds shares held less
than two months. For more information see "Redemption Fee" on page 20.
o You may make automatic monthly investments in Wasatch Funds by redeeming
shares from your Money Market Fund account.
o To utilize this option please call Wasatch Funds at 1 (800) 551-1700 for an
application form.
o There is no fee for this service.
o Any changes to the automatic exchange must be made 10 business days prior
to the transaction.
o Exchange requests will be effective the day the Transfer Agent receives
them in good order by 3:00 p.m. Central Time, or market close on days the
Funds calculate the NAV, unless it is a bank holiday. Requests made on bank
holidays will be processed the following business day. This applies to the
Fund being redeemed and the Fund being purchased. For more information see
"How Fund Shares are Priced"on page 23.
o You will begin accruing income from the Money Market Fund the day
Prospectus 19
<PAGE> 22
following the exchange.
o 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
o You may make four exchanges out of each Fund during a calendar year
(excluding automatic monthly exchanges).
o Exchange requests may be subject to other limitations, including those
relating to frequency, that Wasatch Funds may establish to ensure that
exchanges do not disadvantage shareholders or the Funds.
o 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.
o 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 advisor before
deciding to make an exchange.
o Additional documentation and signature guarantees may be required for
exchange requests if shares are registered in the name of a corporation,
partnership or fiduciary. Contact Wasatch Funds for more information.
TO REDEEM SHARES
o You may request that Wasatch Funds redeem all or a portion of your shares.
o The share price of your transaction will be determined the next time the
NAV is calculated after the Transfer Agent has received your request in
good order. For more information see "How Fund Shares are Priced" on page
23.
o Redemption requests should be sent to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
o Redemption requests sent to Wasatch Funds' headquarters in Salt Lake City
will be forwarded to the Transfer Agent in Milwaukee, but the effective
date of the redemption will be delayed until the request is received in
good order by the Transfer Agent.
o Additional documentation and signature guarantees may be required for
redemption requests from corporations, executors, administrators, trustees
and guardians. Please call Wasatch Funds at 1 (800) 551-1700 for additional
information.
o If the account is worth less than the amount requested, the entire value of
the account will be redeemed.
o Dividends earned in the Money Market Fund are payable at the end of the
month, not at the time of a redemption.
o Wasatch Funds reserves the right to redeem in kind.
o Redeeming shares is considered a taxable event by the Internal Revenue
Service. When you redeem shares you could realize a taxable capital gain or
loss. You may want to consult your tax or other financial advisor prior to
redeeming shares.
REDEMPTION FEE
o Wasatch Funds will deduct a fee of 2.00% from redemption proceeds on Fund
shares held less than two months.
o This redemption fee is paid directly to the Fund and is designed to offset
brokerage commissions, market impact and other costs associated with
fluctuations in Fund asset levels and cash flow caused by short term
shareholder trading.
o If you bought shares on different days, the shares you held longest will be
redeemed first for purposes of determining whether the redemption fee
applies.
20 Prospectus
<PAGE> 23
o The redemption fee does not apply to shares that were acquired through
reinvestment of distributions.
o 401(k) plans are exempt from the redemption fee.
WRITTEN REDEMPTION REQUESTS
o See "Instructions for Written Requests" on page 22.
o A signature guarantee is required for redemptions over $50,000. See "How to
Obtain a Signature Guarantee" on page 23.
TELEPHONE REDEMPTION REQUESTS
o 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).
o Accounts are automatically eligible for the telephone redemption option,
unless you specify otherwise.
o Redemption requests for over $50,000 must be made in writing. (A signature
guarantee is required.)
o Wasatch Funds does not accept redemption requests made via FAX.
o Reaching Wasatch Funds by telephone during periods of unusual market
activity may be difficult. If this is the case, you may redeem shares by
mail, overnight express delivery or online.
ONLINE REDEMPTION REQUESTS
o You may redeem shares in your Wasatch Funds account(s) in amounts of $500
up to $50,000 online at WWW.WASATCHFUNDS.COM.
SYSTEMATIC WITHDRAWAL PLAN
o You may arrange to make monthly, quarterly or annual redemptions of $50 or
more.
o Your Fund account balance must be at least $5,000 at the time you begin
participation in the plan.
o 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.
o A Systematic Withdrawal Plan application is available from Wasatch Funds by
calling 1 (800) 551-1700.
o Any changes made to your distribution information must be made in writing
and signed by each account holder.
o There is no charge to shareholders for using this plan.
o You may terminate the Systematic Withdrawal Plan at any time without charge
or penalty.
o Wasatch Funds may terminate or modify the plan after 60 days' written
notice to shareholders.
o Changes in banking information require a signature guaranteed letter of
instruction.
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
o Payment will be mailed within seven days after the Transfer Agent receives
your request in good order.
o Redemption proceeds can be sent by wire or electronic funds transfer to
your preauthorized bank account.
o There is a $7.50 fee for wire redemptions which will be deducted from
your proceeds.
o Wasatch Funds will deduct a fee of 2.00% from redemption proceeds on Fund
shares held less than two months. 401(k) plans are exempt from the
redemption fee. For more information see "Redemption Fee" on page 20.
Prospectus 21
<PAGE> 24
o 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.
SUSPENSION OF REDEMPTIONS
o The right to redeem Fund shares will be suspended for any period during
which the Exchange is closed because of financial conditions or any other
extraordinary reason.
o 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 the rules and
regulations of the SEC, exists making it impracticable for Wasatch Funds to
dispose of portfolio securities or fairly determine the Net Asset Value.
INSTRUCTIONS FOR WRITTEN REQUESTS
o You can redeem or exchange shares by writing to Wasatch Funds.
o Your request should be sent to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE,WI 53201-2172
o Please include:
Your name
The Fund(s) name
Your account number(s)
The dollar amount or number of shares to be redeemed or exchanged Your
daytime 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
o INDIVIDUAL OR JOINT OWNER. Written instructions must be signed by each
shareholder exactly as the names appear on the account registration.
o GIFT TO MINOR. Written instructions must be signed by the Custodian exactly
as the name appears on the account registration.
o CORPORATION, PARTNERSHIP,TRUST OR OTHER ENTITY. Written instructions must
be signed by the person(s) authorized to act on the account. Additional
documentation may be required. Call 1(800) 551-1700 for information.
o INDIVIDUAL RETIREMENT ACCOUNTS. Written instructions must be signed by the
account owner. Please see the Wasatch Funds IRA Information Kit for more
detailed information, or call a Shareholder Services Representative at
1 (800) 551-1700.
SIGNATURE GUARANTEE
A signature guarantee assures that a signature is genuine. It is intended to
protect shareholders and Wasatch Funds against fraudulent transactions by
unauthorized persons.
Signature guarantees are required by Wasatch Funds in the following cases:
o To change your designated bank account or bank address.
o To request a redemption in excess of $50,000 (must be made in writing).
o To request a wire transfer of redemption proceeds to a person other than
the registered shareholder(s).
o Requests for redemption proceeds to be mailed to an address other than the
address of record.
o Certain transactions on accounts involving executors, administrators,
trustees or guardians.
o Redemptions made within 30 days of an address change.
22 Prospectus
<PAGE> 25
o To change the registered account holders.
o To add telephone privileges.
WASATCH FUNDS 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 that 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
o The Fund's share price changes daily, so the price of your shares will be
determined the next time the NAV is calculated after the Transfer Agent
receives your request in good order.
o A 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.
o The NAV is calculated each day the Exchange is open for trading. The NAV is
determined as of the close of trading (generally 3:00 p.m. Central Time)
or, if different, the close of the Exchange.
o 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.
o Securities traded on a recognized stock exchange are valued at the last
sale price on the exchange on which the securities are primarily traded or
at the last sale price on the national securities market.
o Securities for which there were no transactions are valued at the closing
bid price.
o The Fund may hold portfolio securities that trade on weekends or other days
when the Fund does not price its shares. Therefore, the value of the Fund's
shares may change on days when shareholders will not be able to purchase or
redeem shares.
o Debt securities (other than short-term instruments) are valued at prices
furnished by a pricing service, subject to review and possible revision by
the Advisor.
o Short-term securities are valued at either original cost or amortized cost,
both of which approximate current market value.
o Restricted securities,private placements and other illiquid securities for
which market value quotations are not readily available are valued at fair
market value as determined by a designated Pricing Committee under the
supervision of the Board of Directors and in accordance with Board-approved
Pricing Procedures.
SHAREHOLDER SERVICES AND ACCOUNT POLICIES
WASATCH FUNDS AUTOMATED TELERESPONSE SERVICE
o Call 1 (800) 551-1700 and follow the instructions.
o Available 24 hours a day.
Prospectus 23
<PAGE> 26
ONLINE TRANSACTIONS
The following transactions can be made online at Wasatch Funds' web site at
WWW.WASATCHFUNDS.COM, by filling out the appropriate online form and submitting
it electronically to Wasatch Funds:
o Add to your existing account in amounts of $100 or more. (Also see "To
Purchase Shares Online" on page 17.)
o Exchange shares from one Wasatch Funds account into another in amounts of
$500 or more. Exchange shares to open a new account. (Also see "To Exchange
Shares" on page 18.)
o Redeem shares in your Wasatch Funds account(s) in amounts of $500 up to
$50,000. (Also see "To Redeem Shares" on page 20.)
The following accounts may be opened online and are eligible for online
transactions: individual, joint and Uniform Gift to Minor (UGMA) or Uniform
Transfer to Minor (UTMA).
O When the Transfer Agent receives your new account application
electronically, the amount you would like to invest will be drawn from your
bank. You will receive a reference number for your transaction when you
submit your application. A verification of your request will also be sent
to your e-mail address and we will mail a transaction confirmation to you
when we have processed your online application. (Also see "To Open a New
Account" on page 14 and "How Fund Shares are Priced" on page 23.)
o Individual Retirement Accounts (IRAs) may not be opened online. However,
you may make online purchases of additional shares for existing Wasatch
Funds IRAs.
o Accounts for third parties, trusts, corporations, partnerships and other
entities may not be opened online and are not eligible for online
transactions.
SHAREHOLDER REPORTS
Reports are mailed twice a year. You may elect to receive annual and
semi-annual reports and prospectuses via e-mail by filling out the online
consent form on Wasatch Funds' web site at WWW.WASATCHFUNDS.COM.
Annual reports are dated September 30th, which is the close of Wasatch
Funds' fiscal year. The annual report contains important information about the
Fund, including portfolio holdings and audited financial statements. Semi-annual
reports are dated March 31st and help keep shareholders up-to-date on the Fund's
performance and portfolio holdings. Financial statements in the semi-annual
report 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 Wasatch Funds at 1 (800) 551-1700 or you may
download them from our web site at WWW.WASATCHFUNDS.COM.
ACCOUNT STATEMENTS
Account statements will be mailed quarterly. You may elect to receive
quarterly statements via e-mail by filling out the online consent form on the
Funds' web site at WWW.WASATCHFUNDS.COM. Wasatch Funds 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 confirmation of your purchases quarterly. Information
regarding the tax status of income dividends and capital gain distributions will
be mailed to shareholders on or before January 31st. Account tax information
will also be sent to the Internal Revenue Service.
24 Prospectus
<PAGE> 27
INVOLUNTARY REDEMPTION
Wasatch Funds reserves the right to redeem shares held in any account if
the Net Asset Value of the shares falls below $500 unless the account is an
Automatic Investment Plan. Your account will not be closed if the drop is due
to share price fluctuations.
Shareholders will be given at least 60 days' written notice before
involuntary redemptions are made. Shareholders can prevent involuntary
redemptions by restoring the account to the minimum investment amount during the
60 days.
TELEPHONE PROCEDURES
You may initiate transactions by telephone. Wasatch Funds and its agents
will not be responsible for any losses resulting from unauthorized transactions
providing reasonable procedures to prevent fraudulent transactions have been
followed.
Wasatch Funds 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 or online
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 Wasatch Funds by telephone. If you are unable to contact
the Funds by telephone, please consider sending written instructions.
TEMPORARY SUSPENSION OF SERVICES
Wasatch Funds or its agents may, in case of emergency, temporarily suspend
telephone transactions and other shareholder services.
RETURNED CHECK/INSUFFICIENT FUNDS POLICY
Wasatch Funds reserves the right to cancel a purchase if a check or
electronic transfer does not clear your bank. The Funds 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 Funds as a result of the
canceled purchase. If you are already a shareholder in the Funds, the Funds may
redeem shares in your account(s) to cover losses due to fluctuations in share
price.
REGISTRATION CHANGES
To change the name on an account, the shares are generally transferred to a
new account. Legal documentation and a signature guarantee are required. For
more information, call 1 (800) 551-1700.
ADDRESS CHANGES
To change the address on your account, call 1 (800) 551-1700, visit our web
site at WWW.WASATCHFUNDS.COM or send a written request signed by all account
owners. Include the name of your Fund(s), 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.
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
In addition to any increase in the value of shares which a Fund may
achieve, you may receive dividends and capital gain distributions from the Fund.
DIVIDENDS
Dividends from stocks and interest
Prospectus 25
<PAGE> 28
earned from other investments are the Fund's main sources of ordinary income.
Substantially all of the Fund's income, less expenses, is distributed at least
annually as dividends to shareholders.
CAPITAL GAINS
When the Fund sells portfolio securities it may realize a capital gain or
loss, depending on whether the security is sold for more or less than its
adjusted cost basis. Net realized capital gains, if any, will be distributed at
least annually.
REINVESTMENT OF DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Dividends and capital gain distributions from a Fund are automatically
applied to purchase additional shares of the Fund at the Net Asset Value per
share on the payable date unless you have made a request 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 record date on or after the date 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 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 gain distributions generally are taxable as long term capital gains,
regardless of the length of time you held your shares. The Fund expects that, as
a result of its objective and strategies, its distributions will consist
primarily of capital gains.
Dividends or capital gain 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, is subject to taxation.
Gain or loss upon the sale of shares of the Fund will be treated as capital
gain or loss, provided that (as is usually the case) the shares represented a
capital asset in the hands of the shareholder. The gain or loss will be
considered long term if the shareholder has held the shares for more than one
year. The gain or loss on shares held for one year or less will be considered
short term and is taxed at the same rates as ordinary income.
Wasatch Funds is required to withhold and remit to the U.S.Treasury 31% of
dividend payments, capital gain distributions, and redemption proceeds for any
account for which withholding is required.
The Fund may be required to pay withholding and other taxes imposed by
foreign countries. If the Fund has more than 50% of its total assets invested in
securities of foreign corporations at the end of its taxable year, it may make
an election that will permit you either to claim a foreign tax credit with
respect to foreign taxes paid by the Fund or to deduct those amounts as an
itemized deduction on your tax return. If the Fund makes this election, you will
be notified and provided with sufficient information to calculate your foreign
tax credit or the amount you may deduct as foreign taxes paid.
WHEN YOU WILL RECEIVE TAX INFORMATION
After the end of each calendar year, you will be sent information on
redemptions, dividends and long term capital gain distributions for tax
purposes, including information as to the portion taxable as ordinary income and
the portion taxable as long term capital gains.
26 Prospectus
<PAGE> 29
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 or bond market indexes. 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 indexes that may be used to compare the Fund's performance.
PERFORMANCE QUOTATIONS REPRESENT A FUND'S PAST PERFORMANCE AND ARE NOT
INDICATIVE OF FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN A 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 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.
YIELD shows the rate of income a Fund earns on its investments as a
percentage of the Fund's share price. It is calculated by dividing a Fund's net
investment income for a 30-day period by the average number of shares entitled
to receive dividends and dividing the result by the Fund's NAV per share at the
end of the 30-day period. Yield does not include changes in NAV.
Yields are calculated according to standardized SEC formulas and may not
equal the income on an investor's account. Yield is usually quoted on an
annualized basis. An annualized yield represents the amount you would earn if
you remained in a Fund for a year and that Fund continued to have the same yield
for the entire year.
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 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. Funds that invest in the
stocks of small and mid-size companies may perform differently than the Dow.
NASDAQ COMPOSITE INDEX keeps tabs on the stocks of 3,500 or so small and
mid-size companies 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 large technology stocks
often reflect the performance of the Nasdaq.
PSE TECHNOLOGY INDEX.R The PSE Technology 100 is a price-weighted,
broad-based index comprised of 100
Prospectus 27
<PAGE> 30
listed and over-the-counter stocks from 15 industries (including computer
hardware and software development, semi-conductors, networking, communications,
and data storage and processing). The PSE is a leading market indicator used by
mutual fund rating services, analysts, asset managers and private investors to
gauge the performance of the technology sector of the U.S. equity market.
RUSSELL 2000 INDEX 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 company stocks.
RUSSELL 2000 TECHNOLOGY INDEX is a capitalization-weighted index of
companies that serve the electronics and computer industries or that manufacture
products based on the latest applied science.
S&P 500(R) INDEX. 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 500 is
dominated by the fortunes of its largest stocks. Funds that invest heavily in
the stocks of small and mid-size companies may not always have performance
that is in line with the S&P 500.
GLOSSARY OF INVESTING TERMS
This glossary provides definitions of terms as they pertain to investments
made by the Fund. It also provides more detailed descriptions 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 or in the SAI.
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.
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.
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.
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
28 Prospectus
<PAGE> 31
European Depositary Receipts) and broker-dealers (depositary shares.)
DERIVATIVES are financial instruments whose value is based on another
security. For example, an option is a derivative instrument because its value
derives from an underlying stock, stock index or future.
EARNINGS GROWTH is a measure of a company's profitability. Earnings per
share is the portion of the company's profits allocated to each outstanding
share of common stock. Over the long-term, earnings growth is an important
factor in stock price appreciation.
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.
FORWARD CONTRACT is the purchase or sale of a specific quantity of a
commodity, government security, foreign currency, or other financial
instrument at the current or cash price, with delivery and settlement at a
specified future date. Because it is a completed contract--as opposed to an
options contract, where the owner has the choice of completing or not
completing--a forward contract can be a cover for the sale of a futures
contract.
FUTURES CONTRACT is an agreement to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date. The price is established between buyer and seller on the floor of a
commodity exchange, using the open outcry system. A futures contract obligates
the buyer to purchase the underlying commodity and the seller to sell it, unless
the contract is sold to another before settlement date, which may happen if a
trader waits to take a profit or cut a loss. This contrasts with options
trading, in which the option buyer may choose whether or not to exercise the
option by the exercise date.
HEDGE/HEDGING are techniques used to offset investment risk. Some hedging
strategies used by the Fund may include futures contracts, put and call options,
forward contracts and short selling. More information about the risks of using
these techniques are included in the "Principal Risks of Investing" on page 7 of
the prospectus and in the SAI.
ILLIQUID SECURITIES. Under SEC rules, an investment in a security is
generally deemed to be "illiquid" if it cannot be disposed of within seven days
in the ordinary course of business at approximately the amount at which such
security is valued by the Fund.
LEVERAGING is the practice of borrowing to purchase securities. The Global
Technology Fund may borrow from banks for this purpose.
LIQUIDITY means that a particular stock has enough shares outstanding to
allow large transactions without a substantial drop in price. Large company
stocks typically have more liquidity than small company stocks.
MARKET CAPITALIZATION is used to measure the size and value of a company.
It is calculated by multiplying the number of a company's outstanding shares by
the current market price of a share.
MONEY MARKET INSTRUMENTS are short term debt instruments such as negotiable
certificates of deposit (CDs),
Prospectus 29
<PAGE> 32
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.
OPTIONS. In general, an OPTION is the right to buy or sell a security at an
agreed upon price. If the right is not exercised within a specified time period,
the option expires and the buyer forfeits the money. There are two types of
options commonly used by investors. A CALL OPTION gives a buyer the right to buy
shares of an underlying security at a fixed price before a specified date. The
option buyer pays the option seller a premium for this right. The option buyer
speculates that the underlying securities will increase in value within the
specified time period. If the securities decrease in value and the buyer
allows the call option to expire, the buyer forfeits the premium. A PUT OPTION
is the opposite of a call option. By paying a premium, a put option buyer
acquires the right to sell a specified number of shares of an underlying
security at a specified price within a specified time period. Put option buyers
speculate that the price of the underlying security will fall. If the price of
the security rises, the put option buyer allows the option to expire and
forfeits the premium. Options traders can write covered options which means they
own the underlying security, or more risky uncovered (naked) options which means
they do not own the underlying security.
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 (P/E) is the price of a stock divided by its
earnings per share. The P/E ratio may either use the reported earnings from the
latest year (trailing P/E) or may use an analyst's forecast of next year's
earnings (forward P/E). The price-to-earnings ratio, also known as the multiple,
gives investors an idea of how much they are paying for a company's earning
power. The higher the P/E, the more investors pay, and therefore the more
earnings growth they expect.
REPURCHASE AGREEMENTS involve the purchase of a security with the condition
that after a stated period of time the original seller (a member bank of the
Federal Reserve System or a recognized securities dealer) will buy back the same
security at a predetermined price or yield.
SHORT SELLING involves the sale of a security not owned by the seller. It
is an attempt to take advantage of an anticipated decline in the stock's price.
Once a security is sold short, the seller has the obligation to replace the
borrowed security. A profit results if the seller can replace the stock later at
a lower price. The seller experiences a loss if the stock must be replaced at a
higher price. The Fund's ability to make short sales is limited. For more
information regarding the risks of short selling please see "Principal Risks of
Investing" on page 7 of the prospectus or refer to the SAI.
SELLING SHORT AGAINST THE BOX is when the stock being sold short is
actually owned rather than borrowed by the seller but is held in safekeeping
(the box).
U.S. TREASURY SECURITIES are direct obligations of the United States
Treasury such as bonds, notes and bills. Treasury bills are issued on a discount
rate basis and have a maturity of one year or less. Longer-dated Treasury
securities are issued with interest paid semi-annually to holders. Notes are
generally issued in maturities of 10 years and shorter, and bonds are currently
issued with a maturity of 30 years.
30 Prospectus
<PAGE> 33
WARRANTS are securities, typically issued with preferred stocks or bonds,
that give the holder the right to buy a proportionate amount of common stock at
a specified price, usually at a price that is higher than the market price at
the time of issuance of the warrant. The right may last for a period of years or
indefinitely.
................................................................................
OTHER IMPORTANT INFORMATION
The following documents contain important information about Wasatch Funds
and are available free of charge.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI supplements the information provided in this prospectus. It has
been filed with the Securities and Exchange Commission (SEC). The SAI is legally
part of this prospectus and is incorporated into it by reference.
ANNUAL/SEMI-ANNUAL REPORTS
Additional information about the Fund's investments will be available in
Wasatch Funds' next semi-annual report dated March 31, 2001 and annual report
dated September 30, 2001.
The annual report will contain a discussion of the market conditions and
investment strategies that significantly affected the Fund's performance during
Wasatch Funds' last fiscal year.
To request a free copy of the Fund's SAI or, when they become available,
the Fund's annual or semi-annual reports, or to obtain other information please
call a Shareholder Services Representative at:
1 (800) 551-1700
Monday - Friday 7:00 a.m. to 7:00 p.m. Central Time
or you can write to:
WASATCH FUNDS
P.O. BOX 2172
MILWAUKEE, WI 53201-2172
The SAI and other information is available from Wasatch Funds via e-mail or
on our web site at WWW.WASATCHFUNDS.COM.
You can go to the SEC's web site (http://www.sec.gov) to view reports and
other information that Wasatch Funds has filed electronically with the SEC.
Copies of this information may be obtained for the cost of duplicating by
writing to the Public Reference Section of the Commission, Washington, D.C.
20549-0102. Information about the Funds can be reviewed and copied at the
Commission's Public Reference Room in Washington, D.C. or by electronic
request at the following e-mail address: [email protected].
Call the Commission at (202) 942-8090 for information.
QUESTIONS ABOUT THIS PROSPECTUS
If you have any questions about information contained in this prospectus
please call a Shareholder Services Representative at 1 (800) 551-1700. They are
available to assist you from 7:00 a.m. to 7:00 p.m. Central Time. You can also
e-mail your questions or comments via the Wasatch Funds web site at
WWW.WASATCHFUNDS.COM.
Investment Company Act File Number:
811-4920
Prospectus 31
<PAGE> 34
STATEMENT OF ADDITIONAL INFORMATION
WASATCH GLOBAL TECHNOLOGY FUND
WASATCH FUNDS, INC.
150 Social Hall Avenue
Salt Lake City, UT 84111
December 18, 2000
WASATCH FUNDS, INC. ("Wasatch Funds" or the "Company") is an open-end management
investment company issuing shares of Common Stock in seven separate series or
"Funds," six of which are described in a separate Statement of Additional
Information: Micro Cap Fund, Small Cap Value Fund (formerly Micro-Cap Value
Fund), Small Cap Growth Fund (formerly Aggressive Equity Fund), Core Growth Fund
(formerly Growth Fund), Ultra Growth Fund (formerly Mid Cap Fund) and
Wasatch-Hoisington U.S. Treasury Fund. This Statement of Additional Information
describes the Wasatch Global Technology Fund.
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 1 (800) 551-1700 or writing to Wasatch
Funds at P.O. Box 2172, Milwaukee, Wisconsin 53202-2172. The Statement of
Additional Information and the related Prospectus are both dated December 18,
2000. Capitalized terms used herein and not defined have the same meanings as
those used in the Prospectus.
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TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
General Information and History................................................................. 2
Investment Objective and Strategies............................................................. 2
Strategies and Risks............................................................................ 2
Fund Restrictions and Policies..................................................................13
Management of the Company.......................................................................15
Control Persons and Principal Holders of Securities.............................................17
Code of Ethics..................................................................................17
Investment Advisory and Other Services..........................................................17
Brokerage Allocation and Other Practices........................................................19
Capital Stock and Other Securities..............................................................19
Purchase, Redemption and Pricing of Securities Being Offered....................................20
Tax Status......................................................................................22
Calculation of Performance Data.................................................................22
</TABLE>
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<PAGE> 36
GENERAL INFORMATION AND HISTORY
Wasatch Funds, Inc. ("Wasatch Funds" or the "Company") was incorporated under
Utah law on November 18, 1986 and reincorporated as a Minnesota Corporation in
January 1998. The Global Technology Fund (the "Fund") commenced operations on
December 18, 2000.
INVESTMENT OBJECTIVE AND STRATEGIES
Wasatch Funds is an open-end management investment company currently offering
seven separate Funds, one of which, the Wasatch Global Technology Fund, is
described herein. The Fund is a non-diversified fund.
While the Fund is "non-diversified", which means that it is permitted to invest
its assets in a more limited number of issuers than other investment companies,
the Fund intends to diversify its assets to the extent necessary to qualify for
tax treatment as a regulated investment company under the Internal Revenue Code
of 1986, as amended ("Code"). To so qualify (i) not more than 25% of the total
value of the Fund's assets may be invested in securities of any one issuer
(other than U.S. government securities and the securities of other regulated
investment companies) or of any two or more issuers controlled by the Fund,
which, pursuant to the regulations under the Code, may be deemed to be engaged
in the same, similar, or related trades or businesses, and (ii) with respect to
50% of the total value of the Funds assets (a) not more than 5% of its total
assets may be invested in the securities of any one issuer (other than U.S.
government securities and the securities of other regulated investment
companies) and (b) the Fund may not own more than 10% of the outstanding voting
securities of any one issuer (other than U.S. government securities and the
securities of other regulated investment companies).
WASATCH GLOBAL TECHNOLOGY FUND. The Wasatch Global Technology Fund seeks long
term growth of capital. In pursuit of its objective, the Fund will invest
primarily in the equity securities of technology companies based in at least
three countries including the United States. Wasatch Advisors, Inc., (either the
"Advisor" or "Wasatch") uses a process of "bottom-up" fundamental analysis to
identify companies that may benefit from the application of science and
technology to commerce or industry. Typically, these will be companies that
develop, produce or distribute products or services in the computer,
semi-conductor, electronics, communications, health care, biotechnology and
other industries. The Fund may invest in companies of any size. However, because
technology is a rapidly changing sector, the Advisor expects a significant
portion of the Fund's assets to be invested in early stage, small and mid-size
companies.
STRATEGIES AND RISKS
The Fund's principal investment strategies and the risks associated with those
strategies are described in the Prospectus. The following section describes in
more detail the investment strategies, and the associated risks, that may be
used by the Fund.
FOREIGN SECURITIES. The Fund may invest in foreign securities. Investments in
foreign countries involve certain risks which are not typically associated with
U.S. investments.
ADDITIONAL RISKS OF FOREIGN SECURITIES.
FOREIGN SECURITIES MARKETS. Trading volume on foreign country and, in
particular, emerging market stock exchanges is substantially less than that on
the New York Stock Exchange. Further, securities of some foreign and in
particular emerging market companies are less liquid and more volatile than
securities of comparable U.S. companies. Fixed commissions on foreign exchanges
are generally higher than negotiated
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<PAGE> 37
commissions on U.S. exchanges. The Fund endeavors to achieve the most favorable
net results on its portfolio transactions and may be able to purchase the
securities in which the Fund may invest on other stock exchanges where
commissions are negotiable. Foreign stock exchanges, brokers and listed
companies are generally subject to less government supervision and regulation
than in the United States. The customary settlement time for foreign securities
may be longer that the five day customary settlement time for U.S. securities.
Companies in foreign countries are not generally subject to uniform accounting,
auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about a foreign company than
about a U.S. company. 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.
CURRENCY RISK. 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. 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 the Fund's assets that are denominated or traded in that
country. In addition, the 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 the 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.
FOREIGN TAX RISK. The Fund's income from foreign issuers may be subject
to non-U.S. withholding taxes. The Fund may also be subject to taxes on trading
profits or on transfers of securities in some countries. To the extent foreign
income taxes are paid by the Fund, shareholders may be entitled to a credit or
deduction for U.S. tax purposes.
TRANSACTION COSTS. Transaction costs of buying and selling foreign
securities, including brokerage, tax and custody charges are generally higher
than those involved in domestic transactions.
EMERGING COUNTRY AND EMERGING SECURITIES MARKETS. The Fund may invest
in securities in emerging markets. Investing in securities in countries with
emerging securities markets may entail greater risks than investing in
securities in countries with more mature securities markets. These risks may
include (i) less social, political and economic stability; (ii) small current
size of markets for such securities and low or nonexistent trading volume, which
result in lack of liquidity and greater price volatility; (iii) certain national
policies which may restrict the Fund's investment opportunities, including
restrictions on investments in issuers or industries deemed sensitive to
national interests; (iv) foreign taxation; and (v) the absence of developed
structures governing private or foreign investment or allowing for judicial
redress for injury to private property.
BORROWING TO PURCHASE SECURITIES (LEVERAGING). The Fund may use leverage, that
is, borrow money to purchase securities. Leverage increases both investment
opportunity and investment risk. If the investment
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<PAGE> 38
gains on securities purchased with borrowed money exceed the borrowing costs
(including interest), the net asset value of the Fund will rise. On the other
hand, if the investment gains fail to cover the borrowing costs or if there are
losses, the net asset value of the Fund will decrease.
The Fund may borrow money only if, immediately after the borrowing, the value of
its net assets are at least 300% of the amount of the borrowing. If, the Fund
fails to meet this asset coverage test for any reason including adverse market
conditions, it will be required to reduce borrowings within three business days
to the extent necessary to meet the test. This requirement may make it necessary
to sell a portion of the Fund's securities at a time when it is disadvantageous
to do so. The amount the Fund can borrow may also be limited by applicable
margin limitations of the Federal Reserve Board. Briefly, these provide that
banks subject to the Federal Reserve Act may not make loans for the purpose of
buying or carrying margin stocks if the loan is secured directly or indirectly
by a margin stock; to the extent that the loan is greater than the maximum loan
value of the collateral securing the loan..
ILLIQUID SECURITIES. Under SEC rules, an investment in a security is generally
deemed to be "illiquid" if it cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which such security
is valued by the Fund.
The Board of Directors has authorized the Advisor to make liquidity
determinations with respect to certain securities, including Rule 144A
securities. A foreign security that may be freely traded on or through the
facilities of an offshore exchange or other established offshore securities
market is not deemed to be an illiquid security.
The Fund may invest up to 15% of its net assets in illiquid securities including
"restricted" securities and private placements for which there is no public
market value. These securities will be valued by the Advisor, under the
supervision of the Board of Directors, using measures the Advisor believes to be
appropriate. Given the inherent uncertainties of estimating fair market value,
there can be no assurance that the value we place on a security will be
appropriate in terms of how the security may be ultimately valued on the public
market. These securities may never be publicly traded and the Fund may not be
able to easily liquidate its position in these securities.
If illiquid securities exceed 15% of the Fund's net assets after the time of
purchase, the Fund will take steps to reduce in an orderly fashion its holdings
of illiquid securities. Because illiquid securities may not be readily
marketable, the Advisor may not be able to dispose of them in a timely manner.
As a result, the Fund may be forced to hold illiquid securities while their
price depreciates. Depreciation in the price of illiquid securities may cause
the net asset value of the Fund to decline.
FOREIGN CURRENCY TRANSACTIONS. The Fund may hold foreign currency deposits from
time to time and may convert dollars and foreign currencies in the foreign
exchange markets. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged. Currencies may be exchanged on a
spot (i.e., cash) basis, or by entering into forward contracts to purchase or
sell foreign currencies at a future date and price. Forward contracts generally
are traded in an interbank market conducted directly between currency traders
(usually large commercial banks) and their customers. The parties to a forward
contract may agree to offset or terminate the contract before its maturity, or
may hold the contract to maturity and complete the contemplated currency
exchange.
The Fund may use currency forward contracts to manage currency risks and to
facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Fund.
5
<PAGE> 39
In connection with purchases and sales of securities denominated in foreign
currencies, the Fund may enter into currency forward contracts to fix a definite
price for the purchase or sale in advance of the trade's settlement date. This
technique is sometimes referred to as a "settlement hedge" or "transaction
hedge." The Advisor expects to enter into settlement hedges in the normal course
of managing the Fund's foreign investments. The Fund could also enter into
forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency, even if
the specific investments have not yet been selected by the Advisor.
The Fund may also use forward contracts to hedge against a decline in the value
of existing investments denominated in foreign currency. For example, if the
Fund owned securities denominated in pounds sterling, it could enter into a
forward contract to sell pounds sterling in return for U.S. dollars to hedge
against possible declines in the pound's value. Such a hedge, sometimes referred
to as a "position hedge," would tend to offset both positive and negative
currency fluctuations but would not offset changes in security values caused by
other factors. The Fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling -- for example, by
entering into a forward contract to sell European Currency Units in return for
U.S. dollars. This type of hedge, sometimes referred to as a "proxy hedge,"
could offer advantages in terms of cost, yield, or efficiency, but generally
would not hedge currency exposure as effectively as a simple hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to hedge does
not perform similarly to the currency in which the hedged securities are
denominated.
SEC guidelines require mutual funds to set aside appropriate liquid assets in a
segregated custodial account to cover currency forward contracts.
Successful use of forward currency contracts will depend on the Advisor's skill
in analyzing and predicting currency values. Forward contracts may substantially
change the Fund's investment exposure to changes in currency exchange rates, and
could result in losses to the Fund if currencies do not perform as the Advisor
anticipates. For example, if a currency's value rose at a time when the Advisor
had hedged the Fund by selling that currency in exchange for dollars, the Fund
would be unable to participate in the currency's appreciation. If the Advisor
hedges currency exposure through proxy hedges, the Fund could realize currency
losses from the hedge and the security position at the same time if the two
currencies do not move in tandem. Similarly, if the Advisor increases the Fund's
exposure to a foreign currency, and that currency's value declines, the Fund
will realize a loss. There is no assurance that the Advisor's use of forward
currency contracts will be advantageous to the Fund or that it will hedge at an
appropriate time. The policies described in this section are non-fundamental
policies of the Fund.
FUTURES CONTRACTS. The Fund may enter into futures contracts. Futures contracts
are standardized, exchange-traded contracts that require delivery of the
underlying financial instrument (such as a bond, currency or stock index) at a
specified price, on a specified future date. The buyer of the futures contract
agrees to buy the underlying financial instruments from the seller at a fixed
purchase price upon the expiration of the contract. The seller of the futures
contract agrees to sell the underlying financial instrument to the buyer at
expiration at the fixed sales price. In most cases, delivery never takes place.
Instead, both the buyer and the seller, acting independently of each other,
usually liquidate their long and short positions before the contract expires;
the buyer sells futures and the seller buys futures.
The value of a futures contract tends to increase and decrease in tandem with
the value of its underlying instrument. Therefore, purchasing futures contracts
will tend to increase the Fund's exposure to positive and negative price
fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When the Fund sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
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<PAGE> 40
Futures may be used for hedging (i.e., to protect against adverse future price
movements in the Fund's portfolio securities, or in securities the Fund intends
to purchase). For example, a portfolio manager who thinks that the stock market
might decline could sell stock index futures to safeguard the Fund's portfolio.
If the market declines as anticipated, the value of stocks in the Fund's
portfolio would decrease, but the value of the Fund's futures contracts would
increase. Futures contracts may also be used to speculate on the market. For
example, a portfolio manager might buy stock index futures on the expectation
that the value of the particular index will rise, even though the stocks
comprising the index are unrelated to stocks held or intended to be purchased by
the Fund. Using futures for speculation, however, involves significant risk
since futures contracts are highly leveraged instruments. When a portfolio
manager enters into a futures contract, the manager needs to put up only a small
fraction of the value of the underlying contract as collateral, yet gains or
losses will be based on the full value of the contract.
The use of futures contracts would expose the Fund to additional investment
risks and transaction costs. Risks include: the risk that securities prices will
not move in the direction that the Advisor anticipates; an imperfect correlation
between the price of the futures contract and movements in the prices of any
securities being hedged; the possible absence of a liquid secondary market for
any particular futures contract and possible exchange-imposed price fluctuation
limits; and leverage risk, which is the risk that adverse price movements in a
futures contract can result in a loss substantially greater than the Fund's
initial investment in that contract.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless the
contract is held until the delivery date. However, both the purchaser and seller
are required to deposit "initial margin" with a futures broker, known as a
futures commission merchant (FCM), when the contract is entered into. Initial
margin deposits are typically equal to a percentage of the contract's value. If
the value of either party's position declines, that party will be required to
make additional "variation margin" payments to settle the change in value on a
daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. Initial and variation margin payments do not constitute
purchasing securities on margin for purposes of the Fund's investment
limitations. In the event of the bankruptcy of an FCM that holds margin on
behalf of the Fund, the Fund may be entitled to return of margin owed to it only
in proportion to the amount received by the FCM's other customers, potentially
resulting in losses to the Fund.
PUT AND CALL OPTIONS. The Fund may purchase and write put and call options. A
put option gives the purchaser the right to sell a security or other instrument
to the writer of the option at a stated price during the term of the option. A
call option gives the purchaser the right to purchase a security or other
instrument from the writer of the option at a stated price during the term of
the option. The Fund may use put and call options for a variety of purposes. For
example, if a portfolio manager wishes to hedge a security the Fund owns against
a decline in price, the manager may purchase a put option on the underlying
security; i.e., purchase the right to sell the security to a third party at a
stated price. If the underlying security then declines in price, the manager can
exercise the put option, thus limiting the amount of loss resulting from the
decline in price. Similarly, if the manager intends to purchase a security at
some date in the future, the manager may purchase a call option on the security
today in order to hedge against an increase in its price before the intended
purchase date. Put and call options also can be used for speculative purposes.
For example, if a portfolio manager believes that the price of stocks generally
is going to rise, the manager may purchase a call option on a stock index, the
components of which are unrelated to the stocks held or intended to be
purchased.
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<PAGE> 41
PURCHASING PUT AND CALL OPTIONS. The Fund may purchase put and call
options. By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike price.
In return for this right, the Fund pays the current market price for the option
(known as the option premium). Options have various types of underlying
instruments, including specific securities, indexes of securities prices and
futures contracts. The Fund may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. If the option is
allowed to expire, the Fund will lose the entire premium it paid. If the Fund
exercises the option, it completes the sale of the underlying instrument at the
strike price. The Fund may also terminate a put option position by closing it
out in the secondary market at its current price, if a liquid secondary market
exists.
The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if security prices do
not rise sufficiently to offset the cost of the option.
The Fund will not invest more than 10% of the value of its net assets in
purchased options.
WRITING PUT AND CALL OPTIONS. The Fund may write (i.e., sell) put and
call options. When the Fund writes a put option, it takes the opposite side of
the transaction from the option's purchaser. In return for receipt of the
premium, the Fund assumes the obligation to pay the strike price for the
option's underlying instrument if the other party to the option chooses to
exercise it. When writing an option on a futures contract the Fund would be
required to make margin payments to an FCM as described above for futures
contracts. The Fund may seek to terminate its position in a put option it writes
before exercise by closing out the option in the secondary market at its current
price. If the secondary market is not liquid for a put option the Fund has
written, however, the Fund must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position. If security prices rise, a put writer
would generally expect to profit, although its gain would be limited to the
amount of the premium it received.
If security prices remain the same over time, it is likely that the writer will
also profit, because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.
Writing a call option obligates the Fund to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The Fund will write only covered put and call options.
OTC OPTIONS. The Fund may engage in OTC options transactions. Unlike
exchange-traded options, which are standardized with respect to the underlying
instrument, expiration date, contract size, and strike
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<PAGE> 42
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Fund greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges where they are traded.
RISKS OF OPTIONS AND FUTURES CONTRACTS
LACK OF CORRELATION OF PRICE CHANGES. Because there are a limited
number of types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match the Fund's current or
anticipated investments exactly. A Fund may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures prices can also diverge from the prices of their underlying
instruments, even if the underlying instruments match the Fund's investments
well. Options and futures prices are affected by such factors as current and
anticipated short-term interest rates, changes in volatility of the underlying
instrument, and the time remaining until expiration of the contract, which may
not affect security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and the
securities markets, from structural differences in how options and futures and
securities are traded, or from imposition of daily price fluctuation limits or
trading halts. The Fund may purchase or sell options and futures contracts with
a greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Fund's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or futures
contract at any particular time. Options may have relatively low trading volume
and liquidity if their strike prices are not close to the underlying
instrument's current price. In addition, exchanges may establish daily price
fluctuation limits for options and futures contracts, and may halt trading if a
contract's price moves upward or downward more than the limit in a given day. On
volatile trading days when the price fluctuation limit is reached or a trading
halt is imposed, it may be impossible for the Fund to enter into new positions
or close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the Fund to
continue to hold a position until delivery or expiration regardless of changes
in its value. As a result, the Fund's access to other assets held to cover its
options or futures positions could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. The Fund may engage in
options and futures transactions related to foreign currencies. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to options and
futures relating to securities or indexes, as discussed above. The Fund may
purchase and sell currency futures and may purchase and write
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<PAGE> 43
currency options to increase or decrease its exposure to different foreign
currencies. The Fund may also purchase and write currency options in conjunction
with each other or with currency futures or forward contracts. Currency futures
and options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the Fund's investments. A
currency hedge, for example, should protect a yen-denominated security from a
decline in the yen, but will not protect a Fund against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Fund's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Fund's investments exactly over
time.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Fund will comply with
guidelines established by the Securities and Exchange Commission with respect to
coverage of options and futures strategies by mutual funds, and if the
guidelines so require will set aside appropriate liquid assets in a segregated
custodial account in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund has filed a notice of
eligibility for exclusion from the definition of the term "commodity pool
operator" with the Commodity Futures Trading Commission (CFTC) and the National
Futures Association, which regulate trading in the futures markets. The Fund
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Fund can commit assets to
initial margin deposits and option premiums.
The above limitation on the Fund's investments in futures contracts and options,
and the Fund's policies regarding futures contracts and options discussed
elsewhere in this Statement of Additional Information may be changed as
regulatory agencies permit. With respect to positions in commodity futures or
commodity option contracts which do not come within the meaning and intent of
bona fide hedging in the CFTC rules, the aggregate initial margin and premiums
required to establish such positions will not exceed 5% of the liquidation value
of the qualifying entity's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into; and,
provided further, that in the case of an option that is in-the-money amount may
be excluded in computing such 5%.
SHORT SALES. Short sales are transactions in which the Fund sells a security it
does not own, in anticipation of a decline in the market value of that security.
The Fund must borrow the security to deliver to the buyer upon the short sale.
The Fund is then obligated to replace the borrowed security by purchasing it at
a later date. The Fund will recognize a loss if the market price of the security
increases between the date of the short sale and the date on which the security
is replaced, or a gain if the security declines in value between those dates.
The Fund may only engage in short sale transactions in securities listed on one
or more U.S. or foreign securities exchanges or on EASDAQ or Nasdaq.
A short sale provides a possible hedge against the market risk of the value of
other investments and protects the Fund in a declining market. However, the Fund
could suffer both a loss on the purchase or retention of one security if its
price declines, and a loss on a short sale of another security if the price
increases. When a short position is closed out, it may result in a short-term
capital gain or loss for federal income tax purposes. In a generally rising
market, if the Fund maintains short positions in securities rising with the
market, the net asset value of the Fund would increase to a lesser extent than
had it not engaged in short sales. Among the factors which the Advisor may
consider in making short sales are a decreasing demand for a company's products,
lower profit margins, lethargic management and a belief that a disparity exists
between the price of the security and its underlying assets or other values.
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<PAGE> 44
The Fund will not engage in a short sale transaction if it would cause the
aggregate market value of all securities sold short to exceed 15% of the value
of the Fund's net assets. The value of the securities of any one issuer that may
be shorted by the Fund is limited to the lesser of 5% of the value of the Fund's
net assets or 5% of the securities of any class of the issuer. All short sales
must be fully collateralized. The Fund maintains the collateral in a segregated
account with its custodian. The collateral consists of cash, U.S. government
securities or any other liquid securities equal to the market value of the
securities at the time of the short sale. The Fund will thereafter maintain, on
a daily basis, the collateral to ensure that it is equal to the current market
value of the securities sold short. The Fund may also sell short "against the
box," i.e., the Fund owns securities identical to those sold short. Short sales
against the box are not subject to the 15% limitation. A capital gain or loss is
recognized immediately upon the sale of a short against the box.
PREFERRED STOCK. The Fund may invest in preferred stock. Preferred stock, unlike
common stock, offers a stated dividend rate payable from a corporation's
earnings. Such preferred stock dividends may be cumulative or non-cumulative,
participating or auction rate. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stocks may have mandatory sinking fund provisions, as well
as call/redemption provisions prior to maturity, a negative feature when
interest rates decline. Dividends on some preferred stock may be "cumulative,"
requiring all or a portion of prior unpaid dividends to be paid before dividends
are paid on the issuer's common stock. Preferred stock also generally has a
preference over common stock on the distribution of a corporation's assets in
the event of liquidation of the corporation, and may be "participating," which
means that it may be entitled to a dividend exceeding the stated dividend in
certain cases. The rights of preferred stocks on the distribution of a
corporation's assets in the event of a liquidation are generally subordinate to
the rights associated with a corporation's debt securities.
WARRANTS. A warrant entitles the holder to buy a security at a set price during
a set period of time. The Fund invests in warrants to participate in an
anticipated increase in the market value of the security. If such market vale
increases, the warrants may be exercised and sold at a gain. A loss will be
incurred if the market value decreases or if the term of the warrant expires
before it is exercised. Warrants convey no rights to dividends or voting. The
Fund may invest up to 5% of its net assets in warrants; however, warrants not
listed on a national exchange may not exceed 2% of net assets. This limitation
does not include warrants acquired by the Fund by attachment to a security.
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 or 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 Advisor 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
11
<PAGE> 45
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.
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 Advisor 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.
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
termination 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.
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<PAGE> 46
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.
MONEY MARKET INSTRUMENTS. The Fund may invest in a variety of money market
instruments for pending investments, 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.
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 acquisition 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. The Fund is not
restricted by policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
as well as market prices may dictate.
FUND RESTRICTIONS AND POLICIES
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).
The Fund may not:
1. Purchase or sell real estate. 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.
2. Purchase or sell physical commodities (including, by way of example and
not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, 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
13
<PAGE> 47
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 rate indices) or any security which is collateralized or
otherwise backed by physical commodities.
3. Purchase securities from brokers on margin, except that the Fund may
obtain such short-term credit as may be necessary for the clearance of
transactions.
4. Make loans to other persons, except that it may lend portfolio
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.)
5. Issue any senior securities (as defined in the 1940 Act) other than as
set forth in restriction number 6 below. This limitation shall not
prohibit the Fund from making deposits of assets to margin or guarantee
positions in futures, options or forward contracts or similar
transactions.
6. Borrow money, from others, or banks if the amount will cause the
Fund's net assets (including amounts borrowed) to be less than 300% of
the borrowings. If the Fund's net assets become less than 300% of the
borrowings, the Fund must reduce its borrowings to the extent required
to restore such 300% coverage, within three business days.
7. 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.
8. 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 restrictions and may be changed
by the Company's Board of Directors without shareholder vote.
The Fund will not:
1. Make investments for the purpose of exercising control or management.
2. Invest more than 5% of its net assets in other investment companies.
3. 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.
4. Purchase or sell interests in oil, gas or other mineral exploration or
development programs, although it may invest in the securities of
issuers which invest in or sponsor such programs.
5. Invest more than 10% 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.
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.
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<PAGE> 48
MANAGEMENT OF THE COMPANY
The business affairs of Wasatch Funds are supervised by its Board of Directors.
The Board consists of five directors who are elected and serve until their
successors are elected and qualified.
Dr. Samuel S. Stewart, Jr., is President and Chairman of the Board of Wasatch
Funds and Chairman of the Board of Wasatch Advisors.
The directors and executive officers of the Funds 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 150
Social Hall Avenue, Salt Lake City, Utah 84111. 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; Chairman of
the Board and Director of Research for the Advisor since 1975;
Professor of Finance at the University of Utah since 1975. Age
58.
*Roy S. Jespersen, MBA - Vice President and Director
Vice President and Director of the Company; Vice President,
Director of Client Services and Marketing for the Advisor since
1983. Age 57.
*Venice F. Edwards, CFA - Secretary/Treasurer
Secretary/Treasurer of the Company; Compliance Officer for the
Advisor since 1995; Portfolio Advisor for the Advisor since
1983. Age 50.
*Jeff S. Cardon, CFA -Executive Vice President and Director
Vice President and Director of the Company; President since 1999
and Director of the Advisor since 1985; Security Analyst for the
Advisor since 1980. Age 43.
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 56.
William R. Swinyard - Director
Management Office
680 Tanner Building
Brigham Young University
Provo, Utah 84602
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<PAGE> 49
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 60.
* 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 a retainer of $8,000 per year for services rendered and a
fee of $500 for each meeting attended. 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
Company's Directors and Officers during the fiscal year ended September 30, 2000
(exclusive of out-of-pocket expenses reimbursed).
COMPENSATION TABLE
<TABLE>
<CAPTION>
Aggregate
Name of Person, Compensation Total Compensation From
Position From Company Company Paid to Directors
--------------- ------------ -------------------------
<S> <C> <C>
Samuel S. Stewart, Jr. $0 $0
President and Chairman
of the Board
Roy S. Jespersen, Vice $0 $0
President and Director
Venice Edwards $0 $0
Secretary/Treasurer
Jeff S. Cardon, Vice $0 $0
President
and Director
James U. Jensen $10,500 $10,500
Director
William R. Swinyard $10,500 $10,500
Director
</TABLE>
16
<PAGE> 50
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 18, 2000, Wasatch Advisors owned all of the outstanding shares of
the Fund. As of December 18, 2000, the directors and officers of the Fund as a
group owned less than 1% of the outstanding shares of the Fund.
CODE OF ETHICS
Rule 17j-1 under the Investment Company Act is designed to prevent abuses that
could occur as a result of conflicts of interest arising out of personal trading
by persons involved with or with access to information about a fund's investment
activities. The Fund and the Advisor have adopted a detailed Code of Ethics
regarding personal investing by their personnel pursuant to Rule 17j-1 under the
Investment Company Act. The Code of Ethics requires personnel who are "access
persons" of the Fund within the meaning of Rule 17j-1 to comply with the Code of
Ethics adopted pursuant to Rule 17j-1, subject to sanctions by the Advisor in
the event of non-compliance.
The Code of Ethics places certain restrictions on the trading activities of its
access persons. Access Persons are required to pre-clear by memo approved by the
Advisor's Investment Committee each personal transaction in a non-exempt
security. The pre-clearance process is designed to prevent transactions that
conflict with the Fund's interests. Access Persons are also required to report
their non-exempt personal securities transactions on a quarterly basis.
INVESTMENT ADVISORY AND OTHER SERVICES
As described above and in the Prospectus, Wasatch Advisors, Inc. is responsible
for making investment decisions and providing services for Wasatch Funds under
an advisory and service contract. The Advisor, 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 $1.8 billion as of October 31, 2000.
The principal executive officers and directors of the Advisor are Samuel S.
Stewart, Jr., Ph.D., Chairman of the Board; Jeff S. Cardon, President and
Director; Roy S. Jespersen, Vice President and Director; Venice F. Edwards,
Secretary; Karey Barker, Director; and Robert Gardiner, Director. Dr. Samuel S.
Stewart, Jr. is the only owner of the Advisor who owns more than 25% of the
Advisor's outstanding equity and is deemed to control the Advisor.
Under an Advisory and Service Contract, the Fund pays the Advisor a monthly fee
computed on average daily net assets of the Fund at the annual rate of 1.50%.
This fee is higher than those paid by some investment companies. The management
fee is computed and accrued daily and is payable monthly.
The Advisor provides an investment program for, and carries out the investment
policy and manages the portfolio assets of, the Fund. The Advisor is authorized,
subject to the control of the Board of Directors of the Company, to determine
the selection, quantity and time to buy or sell securities for the Fund. In
addition to providing investment services, the Advisor pays for office space and
facilities for the Company.
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; costs of typesetting,
printing and mailing the Prospectus, Statement of Additional Information and
reports to shareholders; reports to government authorities and proxy statements;
fees paid to directors who are not interested persons (as defined
17
<PAGE> 51
in the 1940 Act); interest charges; taxes; legal expenses; association
membership dues; auditing services; administrative services; insurance premiums;
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 Advisor; and extraordinary and non-recurring expenses.
The Advisor has voluntarily agreed to total expenses of the Fund at least
through September 30, 2001, to 1.95% of average net assets computed on a daily
basis. The Advisor may rescind these limitations on expenses at any time. In the
event of rescission the terms of the Advisory and Service Contract would govern.
GENERAL INFORMATION
ADMINISTRATOR AND TRANSFER AGENT. Pursuant to Administration and Fund Accounting
Agreements (the "Administration Agreements"), Sunstone Financial Group, Inc.
("Sunstone"), 803 West Michigan Street, Suite A, Milwaukee, WI 53233, calculates
daily net asset values of the Fund, oversees the Fund's Custodian, 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), 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, prepares financial statements
for the annual and semi-annual reports to the Securities and Exchange Commission
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. As Administrator, Sunstone, 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, Sunstone receives a fee on the combined value of
the Fund computed daily and payable monthly, at the annual rate of twenty-two
hundredths of one percent (0.22%) on the first $50 million of the average daily
net assets, and decreasing as assets reach certain levels, subject to a minimum
fee of $55,000.
Sunstone also acts as the Fund's Transfer Agent. As Transfer Agent, Sunstone
keeps records of shareholder accounts and transactions. The Fund pays Sunstone a
Transfer Agent fee based on the number of shareholder accounts, subject to a
minimum annual fee.
CUSTODIAN. 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 0.75
basis points on combined net assets up to $500,000,000, plus 0.50 basis points
on the combined net assets in excess of $500,000,000.
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.
LEGAL 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.
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<PAGE> 52
INDEPENDENT AUDITORS. Arthur Andersen LLP, 100 East Wisconsin Avenue, Suite
1900, Milwaukee, WI 53202-4107 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 Advisor is responsible for selecting the broker or dealer to execute
transactions for the Fund, and for negotiating and determining any commission
rates to be paid for such transactions. The Advisor has no affiliated
broker-dealer. The Advisor will use its best efforts to have transactions
executed at prices that are advantageous to the Fund and at commission rates
that are reasonable in relation to the benefits received. The Advisor may
consider a number of factors when selecting a broker or dealer to effect a
transaction, including its financial strength and stability, its reputation and
access to the markets for the security being traded, the efficiency with which
the transaction will be effected, and the value of research products and
services that a broker lawfully may provide to assist the Advisor in the
exercise of its investment decision-making responsibilities. The Company's Board
of Directors has authorized the Advisor to pay a broker who provides research
services commissions that are competitive but that are higher than the lowest
available rate that another broker might have charged, if the Advisor determines
in good faith that the commissions are reasonable in relation to the value of
the brokerage and research services provided. Payment of higher commissions in
exchange for research services will be made in compliance with the provisions of
Section 28 (e) of the Securities Exchange Act of 1934 and other applicable state
and federal laws.
Research products and services provided to the Advisor by broker-dealers may
include proprietary research, written or oral, computer equipment or terminals,
software and databases which provide access to data and analysis of market data,
statistical information and securities data, analysis and pricing.
Consistent with both the Conduct Rules of the National Association of Securities
Dealers, Inc. and such other policies as the Board of Directors may determine,
and subject to seeking best execution, the Advisor may consider sales of shares
of the Company as a factor in the selection of dealers to execute portfolio
transactions for the Company.
The Advisor 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 Advisor in servicing all of its accounts; not
all of such services may be used by the Advisor in connection with the Company.
In the opinion of the Advisor, the benefits from research services to each of
the accounts (including the Company) managed by the Advisor 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 Advisor, such costs to the Company will not
be disproportionate to the benefits received by the Company on a continuing
basis.
The Advisor'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 Advisor.
There are no commission or stated markups on principal transactions of the
Company. The purchases are executed at the ask price net and the sales are
executed at the bid price net.
CAPITAL STOCK AND OTHER SECURITIES
Wasatch Funds was incorporated under Utah law on November 18, 1986, and
reincorporated as a Minnesota corporation in January 1998. The Company is an
open-end, registered management investment company under the 1940 Act.
19
<PAGE> 53
The Company is authorized to issue shares in separate series, or "Funds." Seven
such Funds have been established:
Series A Common - Small Cap Growth Fund
Series B Common - Core Growth Fund
Series C Common - Wasatch-Hoisington U.S. Treasury Fund
Series D Common - Ultra Growth Fund
Series E Common - Micro Cap Fund
Series F Common - Global Technology Fund
Series G Common - Small Cap Value Fund
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 of each respective Fund have equal voting rights; each share is entitled
to one vote per share (with proportionate voting for fractional shares). Only
shareholders of a Fund are entitled to vote on matters concerning that Fund.
The assets received by the Company upon the sale of shares of each Fund and all
income, earnings, profits and proceeds thereof, subject only to the rights of
creditors, are specifically allocated to such Fund. They constitute the
underlying assets of each Fund, are required to be segregated on the books of
account, and are to be charged with the expenses of such 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 a Fund has equal dividend, distribution, liquidation and voting
rights with other shares of that Fund. Each issued and outstanding share is
entitled to participate equally in dividends and distributions declared by the
Fund and upon liquidation or dissolution of the series in the net assets
remaining after satisfaction of outstanding liabilities.
The shares of each 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.
SHAREHOLDER MEETINGS. Reincorporating the Company in Minnesota means that the
Company is no longer required to hold annual meetings of shareholders as they
were under Utah law. Minnesota bylaws provide for addressing important issues at
specially scheduled shareholder meetings.
Wasatch Funds is always happy to meet with shareholders. We communicate
important information about the Funds through Annual and Semi-Annual Reports,
newsletters, special mailings and other events throughout the year.
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, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The Fund will deduct a fee of 2.00% from redemption proceeds on Fund shares held
less than two months. This redemption fee is paid directly to the Fund and is
designed to offset brokerage commissions, market impact and other costs
associated with fluctuations in Fund asset levels and cash flow caused by short
term shareholder trading. If a shareholder bought shares on different days, the
shares held longest will be redeemed
20
<PAGE> 54
first for purposes of determining whether the redemption fee applies. The
redemption fee does not apply to shares that were acquired through reinvestment
of dividends.
Investors may exchange their shares of the Fund for the Northern U.S. Government
Money Market Fund as provided in the Prospectus. Sunstone, in its capacity as
Transfer Agent for the Fund, receives a service fee from the U.S. Government
Money Market 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.
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 Company 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 Company to do so. In making a redemption
in kind, the Company reserves the right to make a selection from each portfolio
holding of a number of shares which will reflect the portfolio makeup 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 Funds' shares tendered for
redemption.
TAX STATUS
Reference is made to "Dividends, Capital Gain Distributions and Taxes" in the
Prospectus.
The Fund will be treated as a separate entity for Federal income tax purposes.
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of 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.
For Federal income tax purposes, distributions paid from net investment income
and from any realized net short-term capital gain are taxable to shareholders as
ordinary income, whether received in cash or in additional shares. Dividends are
taxable as ordinary income, whereas capital gain distributions are taxable as
long-term capital gains. The 70% dividends-received deduction for corporations
will apply only to the proportionate share of the dividend attributable to
dividends received by the Fund from domestic corporations.
Any dividend or capital gain distribution paid shortly after a purchase of
shares of the Fund will have the effect of reducing the per share net asset
value of such shares by the amount of the dividend or distribution. Furthermore,
even if the net asset value of the shares of the Fund immediately after a
dividend or distribution is less than the cost of such shares to the investor,
the dividend or distribution will be taxable to the investor.
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. 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.
21
<PAGE> 55
The Fund is required to withhold federal income tax at a rate of 31% ("backup
withholding") from dividend payments and redemption and exchange proceeds if an
investor fails to furnish the Fund with his Social Security Number or other Tax
Identification Number or fails to certify under penalty of perjury that such
number is correct or that he is not subject to backup withholding due to the
underreporting of income. The certification form is included as part of the
share purchase application and should be completed when the account is opened.
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.
Under the Code, any dividend declared by a regulated investment company in
October, November or December of any calendar year and payable to shareholders
of record on a specified date in such month shall be deemed to have been
received by each shareholder on such date, and to have been paid by such company
on such date if such dividend is actually paid by the company before February 1
of the following calendar year.
Income received from sources within foreign countries may be subject to
withholding and other taxes imposed by such countries. Tax conventions between
certain countries and the United States may reduce or eliminate such taxes. It
is impossible to determine the effective rate of foreign tax applicable to such
income in advance since the precise amount of the Fund's assets to be invested
in various countries is not known. Any amount of taxes paid by the Fund to
foreign countries will reduce the amount of income available to the Fund for
distributions to shareholders.
If the Fund is liable for foreign taxes, although it may meet the requirements
of the Code for passing through to its shareholders foreign taxes paid, there
can be no assurance that it will be able to do so. Under the Code, if more than
50% of the value of the Fund's total assets at the close of its taxable year
consist of stock or securities of foreign corporations, the Fund may file an
election with the Internal Revenue Service to pass through to the Fund's
shareholders the amount of foreign taxes paid by the Fund. Pursuant to this
election, shareholders will be required to: (i) include in gross income their
pro rata share of the foreign taxes paid by the Fund; (ii) treat their pro rata
share of foreign taxes as paid by them; and (iii) either deduct their pro rata
share of foreign taxes in computing their taxable income or use their share as a
foreign tax credit against U.S. income taxes. No deduction for foreign taxes may
be claimed by a shareholder who does not itemize deductions. Each shareholder
will be notified within 60 days after the close of the Fund's taxable year
whether the foreign taxes paid by the Fund will pass through for that year.
Under the Code, the amount of foreign taxes for which a shareholder may claim a
foreign tax credit is subject to limitation based on certain categories
applicable to the income subjected to foreign tax. Specifically, the available
foreign tax credit must be determined separately with respect to nine categories
of income. The Fund may have foreign source income allocable to the four
following categories: (i) passive income; (ii) high withholding tax interest;
(iii) dividends from a non-controlled foreign corporation pursuant to Section
902 of the Code; and (iv) other income not specifically categorized. Of these
categories, a substantial part of Fund income is likely to constitute passive
income. However, in the absence of specific regulatory guidance on the
application of the income categories, the Fund cannot assure shareholders of the
correctness of any allocation made.
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 advisors for a complete review of
the tax ramifications of an investment in the Fund.
22
<PAGE> 56
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 Securities and Exchange Commission has developed guidelines for
the calculation of these statistics. The Fund will calculate 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 returns 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 semi-annual 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
23
<PAGE> 57
Yield=2[(----+1)6 -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.
24
<PAGE> 58
PART C
OTHER INFORMATION
ITEM 23 EXHIBITS
<TABLE>
<S> <C>
a. Articles of Incorporation of Wasatch Funds, Inc. dated November 3, 1997(5)
b-1 Bylaws of Wasatch Funds, Inc. dated November 3, 1997(5)
b-2. Bylaws of Wasatch Funds, Inc. dated September 25, 2000(7)
c. None
d-1. Advisory and Service Contract dated January 27, 1998(5)
d-2. Expense Reimbursement Agreement dated January 16, 1997(5)
d-3 Expense Reimbursement Agreement dated December 15, 2000(8)
e. None
f. None
g-1 Custodian Agreement between Wasatch Funds, Inc. and UMB Bank, n.a. dated
February 16, 1996(2)
g-2. Amendment to Custodian Agreement between Wasatch Funds, Inc. and UMB
Bank, n.a. dated July 14, 1996(2)
g-3. Amendment to Custodian Agreement between Wasatch Funds, Inc. and UMB
Bank, n.a. dated December 12, 1997(3)
h-1. Administration and Fund Accounting Agreement between Wasatch Funds, Inc.
and Sunstone Financial Group, Inc. dated December 8, 1995(1)
h-2. Amendment to Administration and Fund Accounting Agreement between
Wasatch Funds, Inc. and Sunstone Financial Group, Inc. dated October 1, 1996(2)
h-3. Amendment to Administration and Fund Accounting Agreement between Wasatch
Funds, Inc. and Sunstone Financial Group, Inc. dated December 5, 1997(3)
h-4. Administration and Fund Accounting Agreement between Wasatch Funds, Inc.
and Sunstone Financial Group, Inc., dated March 1, 2000.(6)
h-5. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone Financial
Group, Inc. dated January 1, 1997(3)
h-6. Amendment to Transfer Agent Agreement between Wasatch Funds, Inc. and
Sunstone Investor Services, LLC. dated December 17, 1997(3)
h-7. Transfer Agent Agreement between Wasatch Funds, Inc. and Sunstone Financial
Group, Inc. dated March 1, 2000(6)
h-8 Amended Schedules A and C to the Administration and Fund Accounting
Agreement between Wasatch Funds, Inc. and Sunstone Financial Group, Inc.
dated March 1, 2000.(8)
h-9 Amended Schedules A and C to the Transfer Agent Agreement between Wasatch
Funds, Inc. and Sunstone Financial Group, Inc. dated March 1, 2000.(8)
i. Opinion of Counsel(8)
j. None
k. None
l. None
m. None
n. None.
p. Code of Ethics of Wasatch Advisors, Inc., and Wasatch Funds, Inc.(7)
</TABLE>
-------------------------
<PAGE> 59
(1) 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.
(2) 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.
(3) Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 16 to the
Company's Registration Statement on Form N-1A.
(4) Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 17 to the
Company's Registration Statement on Form N-1A.
(5) Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 18 to the
Company's Registration Statement on Form N-1A.
(6) Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 19 to the
Company's Registration Statement on Form N-1A.
(7) Incorporated by reference pursuant to Rule 411 under the Securities Act of
1933 to the same exhibit number in Post-Effective Amendment No. 20 to the
Company's Registration Statement on Form N-1A.
(8) Filed herewith.
ITEM 24. 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 25. INDEMNIFICATION
The Registrant's Articles of Incorporation provide that the Registrant shall
indemnify such persons for such expenses and liabilities, in such manner, under
such circumstances, and to the full extent as permitted by Section 302A.521 of
the Minnesota Statutes, as now enacted or hereafter amended; provided, however,
that no such indemnification may be made if it would be in violation of Section
17(h) of the Investment Company Act of 1940, as now enacted or hereafter
amended.
Section 302A.521 of the Minnesota Statutes, as now enacted, provides that a
corporation shall indemnify a person made or threatened to be made a party to a
proceeding by reason of the former or present official capacity of the person
against judgments, penalties, fines, settlements and reasonable expenses,
including attorneys fees and disbursements, incurred by the person in connection
with the proceeding if, with respect to the acts or omissions of the person
complained of in the proceeding, the person has not been indemnified by another
organization for the same judgments, penalties, fines, settlements, and
reasonable expenses incurred by the person in connection with the proceeding
with respect to the same acts or omissions; acted in good faith, received no
improper personal benefit, and the Minnesota Statutes dealing with directors
conflicts of interest, if applicable, have been satisfied; in the case of a
criminal proceeding,
<PAGE> 60
had no reasonable cause to believe that the conduct was unlawful; and reasonably
believed that the conduct was in the best interests of the corporation or, in
certain circumstances, reasonably believed that the conduct was not opposed to
the best interests of the corporation.
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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR
As of October 31, 2000, Wasatch Advisors, 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 six series of Wasatch Funds, Inc. The
total assets under management were approximately $1.8 billion (including the
Funds) as of October 31, 2000.
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.
<TABLE>
<CAPTION>
Other Substantial
Position Business, Profession, Vocation
Name with Manager or Employment
---- ------------ ------------------------------
<S> <C> <C>
Samuel S. Stewart, Jr., Ph.D. President, Chairman of the Board, Professor of Finance,
Director and Director of Research University of Utah
</TABLE>
<PAGE> 61
<TABLE>
<S> <C> <C>
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
Jeff H. Collings Secretary, Treasurer --
Karolyn Barker Director and Research Analyst --
Robert Gardiner Director and Research Analyst --
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS
None
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
1. Wasatch Advisors, Inc., 150 Social Hall Avenue, Salt Lake City, Utah
84111 (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. 803 West Michigan Street, Suite A,
Milwaukee, WI 53233 (records relating to its function as administrator
and fund accounting servicing agent).
4. Sunstone Financial Group, Inc. 803 West Michigan Street, Suite A,
Milwaukee, WI 53233 (records relating to its function as transfer
agent and shareholder servicing agent).
ITEM 29. 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
None.
<PAGE> 62
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration statement under Rule 485(b)
under the Securities Act, as amended and 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
12th day of December 2000.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/Samuel S. Stewart, Jr., Ph.D. President and Director December 12, 2000
-------------------------------- (principal executive officer)
Samuel S. Stewart, Jr., Ph.D.
/s/Venice Edwards Secretary and Treasurer December 12, 2000
----------------- (principal financial and
Venice Edwards accounting officer)
/s/Roy S. Jesperson Vice President and Director December 14, 2000
-------------------
Roy S. Jespersen
/s/Jeff S. Cardon Vice President and Director December 14, 2000
-----------------
Jeff S. Cardon
------------------------ Director
James U. Jensen, Esquire
------------------------ Director
William R. Swinyard
</TABLE>
