As filed with the Securities and Exchange Commission on December 1, 1995.
Securities Act Registration No. 33-98358
Investment Company Act Registration No. 811-9116
__________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. 1 [x]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 1 [x]
(Check appropriate box or boxes)
VAN WAGONER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
207 E. Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: 414-271-5885
Garrett R. Van Wagoner
207 E. Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Copy to:
Richard L. Teigen, Esq.
Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Approximate Date of Proposed Public Offering: As soon as possible after
this Registration Statement becomes effective. In accordance with Rule
24f-2(a)(1) under the Investment Company Act of 1940, Registrant hereby
declares that an indefinite number of shares or amount of its Common Stock
is being registered by this Registration Statement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
Page 1 of __; Exhibit Index is located at page __ of the sequential
numbering system.
<PAGE>
VAN WAGONER FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts
A and B of Form N-1A).
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Information Fund Performance
4. General Description of Registrant HX Funds, Inc.; Investment
Objectives, Policies and
Risk Considerations;
Investment Limitations
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund *
Performance
6. Capital Stock and Other Securities Capital Structure; Dividends
and Distributions; Taxes;
Shareholder Reports and
Information
7. Purchase of Securities Being How to Purchase Shares;
Offered Pricing of Fund Shares; How
to Exchange Shares;
Retirement Plans; Service
and Distribution Plan
8. Redemption or Repurchase How to Redeem Shares;
Pricing of Fund Shares; How
to Exchange Shares
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History * *
13. Investment Objectives and Additional Investment
Policies Information; Investment
Restrictions
14. Management of the Fund Additional Company
Information; Shareholder
Meetings
15. Control Persons and Principal Additional Company
Holders of Securities Information
16. Investment Advisory and Other Additional Company
Services Information
17. Brokerage Allocation and Other Portfolio Transactions and
Policies Brokerage
18. Capital Stock and Other Description of Shares
Securities
19. Purchase, Redemption and Pricing Included in the Prospectus
of Securities Being Offered under the heading "How to
Purchase Shares," "Pricing
of Shares" and "How to
Redeem Shares" and in the
Statement of Additional
Information under the
headings "Individual
Retirement Accounts" and
"Determination of Net Asset
Value"
20. Tax Status Included in the Prospectus
under the headings "Taxes"
and "Dividends and
Distributions" and in the
Statement of Additional
Information under the
heading "Taxes" and
Additional Investment
Information
21. Underwriters Distribution of Shares
22. Calculation of Performance Data Included in the Prospectus
under the heading "Fund
Performance" and in the
Statement of Additional
Information under the
heading "Performance
Information"
23. Financial Statements Financial Statements
___________________
* Answer negative or inapplicable.
** Complete answer to Item is contained in the Prospectus.
<PAGE>
PROSPECTUS DECEMBER 31, 1995
VAN WAGONER FUNDS, INC.
The Van Wagoner Funds, Inc. (the "Company") is a no-load, open-end
management investment company, commonly known as a mutual fund. The
Company presently consists of three diversified investment portfolios
designed to offer investors a range of equity-oriented investment
opportunities. Each investment portfolio is individually referred to as a
"Fund" and collectively as the "Funds."
Van Wagoner Capital Management, Inc. serves as the investment adviser to
the Funds. Garrett R. Van Wagoner, founder and President of Van Wagoner
Capital Management, Inc., manages the investment program of the Funds and
is primarily responsible for the day-to-day management of each Fund s
portfolio.
Van Wagoner Micro-Cap Fund seeks capital appreciation. The Micro-Cap Fund
invests primarily in equity securities of companies with market
capitalizations of less than $350 million.
Van Wagoner Emerging Growth Fund seeks long-term capital appreciation.
The Emerging Growth Fund invests primarily in equity securities of
companies believed by the Fund's investment adviser to have the potential
for above-average long-term growth in market value. The Emerging Growth
Fund invests in companies of all sizes.
Van Wagoner Mid-Cap Fund seeks capital appreciation. The Mid-Cap Fund
invests primarily in equity securities of companies with market
capitalizations between $500 million and $5 billion.
This Prospectus sets forth concisely the information about the Funds that
you should know before investing. You are advised to read this Prospectus
carefully and keep it for future reference.
A Statement of Additional Information, dated December 31, 1995, which is
incorporated herein by reference, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information, which may
be revised from time to time, contains further information about the Funds
and is available, without charge, by writing to the Funds at 207 East
Buffalo Street, Suite 400, Milwaukee, WI 53202, or calling 1-800-228-2121.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Expense Summary . . . . . . . . . . . . . . . . . 2
Van Wagoner Funds, Inc. . . . . . . . . . . . . . 4
Investment Objectives, Policies and
Risk Considerations . . . . . . . . . . . . . . 4
Investment Limitations . . . . . . . . . . . . . 10
Management of the Funds . . . . . . . . . . . . . 11
Pricing of Fund Shares . . . . . . . . . . . . . 14
How to Purchase Shares . . . . . . . . . . . . . 15
How to Exchange Shares . . . . . . . . . . . . . 17
How to Redeem Shares . . . . . . . . . . . . . . 18
Shareholder Reports and Information . . . . . . . 20
Retirement Plans . . . . . . . . . . . . . . . . 21
Service and Distribution Plan . . . . . . . . . . 21
Taxes . . . . . . . . . . . . . . . . . . . . . . 22
Capital Structure . . . . . . . . . . . . . . . . 22
Dividends and Distributions . . . . . . . . . . . 23
Transfer and Dividend Disbursing Agent,
Custodian and Independent Certified
Public Accountants . . . . . . . . . . . . . . 24
Fund Performance . . . . . . . . . . . . . . . . 24
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Funds. The Prospectus does not constitute an offering
by the Funds in any jurisdiction in which such offering may not lawfully
be made.
<PAGE>
EXPENSE SUMMARY
The following table is designed to assist you in understanding the
expenses you will bear directly or indirectly as a shareholder of Van
Wagoner Funds, Inc. Shareholder Transaction Expenses are charges that you
pay when buying or selling shares of a Fund. Annual Fund Operating
Expenses are paid out of a Fund's assets and include fees for portfolio
management, maintenance of shareholder accounts, general Fund
administration, shareholder servicing, accounting and other services. The
Annual Operating Expenses are the expenses expected to be incurred by each
Fund during the current fiscal year. Actual total operating expenses may
be higher or lower than those indicated. An example based on the summary
is also shown.
Micro-Cap Emerging Mid-Cap
Fund Growth Fund Fund
Shareholder Transaction Expenses
Maximum Sales Load Imposed on
Purchases None None None
Maximum Sales Load Imposed on
Reinvested Dividends None None None
Deferred Sales Load Imposed on
Redemptions None None None
Redemption Fees(1) None None None
Exchange Fees(2) $5.00 $5.00 $5.00
Annual Operating Expenses (as a
percentage of average net assets)
Management Fees 1.50% 1.25% 1.00%
12b-1 Fees(3) 0.25% 0.25% 0.25%
Other Expenses (net of 0.20% 0.45% 0.70%
reimbursement)(4)(5)
Total Operating Expenses (net of
reimbursement)(5) 1.95% 1.95% 1.95%
Example
Based on the foregoing table, you
would pay the following expenses on
a $1,000 investment, assuming (i)
a 5% annual return and (ii)
redemption at the end of each time
period:
One Year $20 $20 $20
Three Years $22 $22 $22
_________________________
(1) A fee of $10.00 is charged for each wire redemption.
(2) A fee of $5.00 is charged for telephone exchanges but no fee is
charged for written exchange requests.
(3) The maximum level of distribution expenses is 0.25% per annum of each
Fund's average net assets. See "Service and Distribution Plan" for
further details. The distribution expenses for long-term
shareholders may total more than the maximum sales charge that would
have been permissible if imposed entirely as an initial sales charge.
(4) Such expenses include custodian, transfer agency and administration
fees and other customary Fund expenses.
(5) The Funds' investment adviser has voluntarily agreed to limit the
total operating expenses of the Micro-Cap, Emerging Growth and Mid-
Cap Funds (excluding interest, taxes, brokerage and extraordinary
expense) to an annual rate of 1.95%, 1.95% and 1.95%, respectively,
of each Fund's average net assets until January 1, 1997. After such
date, the expense limitation may be terminated or revised at any
time. The Funds estimate that absent the limitation, other expenses
of the Micro-Cap, Emerging Growth and Mid-Cap Funds would initially
be approximately .90%, .90% and .90%, respectively, and the total
annual operating expenses of the Funds would initially be
approximately 2.65%, 2.40% and 2.15%, respectively.
The examples shown above should not be considered representations of past
or future expenses or rates of return. The Van Wagoner Funds are new and
actual operating expenses and investment return may be more or less than
those shown. Information about the actual performance of the Funds will
be contained in the Funds' future annual reports to shareholders, which
may be obtained without charge when they become available.
<PAGE>
VAN WAGONER FUNDS, INC.
Van Wagoner Funds, Inc. (the "Company") is a no-load, open-end management
investment company, commonly known as a mutual fund, which is registered
under the Investment Company Act of 1940 (the "1940 Act"). The Company
presently consists of three diversified investment portfolios: Van
Wagoner Micro-Cap Fund, Van Wagoner Emerging Growth Fund and Van Wagoner
Mid-Cap Fund (each investment portfolio is individually referred to as a
"Fund" and collectively as the "Funds"). The Funds offer a range of
equity-oriented investment opportunities.
Van Wagoner Capital Management, Inc. (the "Adviser") serves as the
investment adviser to the Funds. Garrett R. Van Wagoner, founder and
President of the Adviser, is primarily responsible for the day-to-day
management of each Fund's investment portfolio. Mr. Van Wagoner has had
over 17 years of experience as a securities analyst and portfolio manager
including serving as the portfolio manager of the Govett Smaller Companies
Fund from March 1993 until December 1995. See "Management of the Funds."
Each Fund obtains its assets by continuously selling its shares to the
public. Proceeds from such sales are invested by the Fund in securities
of other companies. The resources of many investors are thus combined and
each individual investor has an interest in every one of the securities
owned, thereby providing diversification in a variety of industries. The
Adviser furnishes professional management to select and watch over its
investments. As an open-end investment company, the Fund will redeem any
of its outstanding shares on demand of the owner at the next determined
net asset value. Registration of the Funds under the 1940 Act does not
involve supervision of the Funds' management or policies by the Securities
and Exchange Commission.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
General
The investment objective of each of the Funds is to seek capital
appreciation. Each Fund pursues its investment objective by investing
primarily in equity securities subject to certain separate investment
policies described below. Equity securities are common stocks, preferred
stocks, warrants to purchase common stocks or preferred stocks, and
securities convertible into common or preferred stocks. When selecting
securities, the Adviser will consider certain criteria including, but not
limited to, (1) the prospects for a company's product, (2) the potential
for the company's industry, (3) management ability, (4) the relationship
of the price of the security to its estimated value, and (5) relevant
market, economic and political considerations. Securities in which the
Funds may invest may still be in the development stage, may be older
companies that appear to be entering a new era of growth due to management
changes, development of new technology or other events, or may be
companies with high growth rates.
Because shares of each Fund represent an investment in securities with
fluctuating market prices, you should understand that the net asset value
per share of each Fund will vary as the aggregate value of a Fund's
portfolio securities increases or decreases. An investment in the Fund
should be considered a long-term investment. The Funds are not designed
to meet investors' short-term financial needs, nor is any single Fund or a
combination of the Funds intended to provide a complete or balanced
investment program.
The investment objectives, policies and practices of each Fund, unless
otherwise specifically stated, are not fundamental and may be changed by
the Board of Directors without shareholder approval. See "Investment
Limitations." Because of the risks inherent in all investments, there can
be no assurance that the objectives of the Funds will be met. The
descriptions that follow are designed to help you choose the Fund that
best fits your investment objectives.
Micro-Cap Fund
The investment objective of the Micro-Cap Fund is capital appreciation.
The Fund seeks to achieve this investment objective by investing, under
normal market conditions, at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have market
capitalizations of less than $350 million. The Adviser will focus
generally on investments in companies that have strong management teams
and the Adviser perceives to have the ability to grow significantly over
the next several years. These companies may still be in the developmental
stage and may have limited product lines. See "Other Investment Policies
and Risks."
Emerging Growth Fund
The investment objective of the Emerging Growth Fund is long-term capital
appreciation. The Fund seeks to achieve this objective by investing in
companies that the Adviser believes to have the potential for above-
average long-term growth in market value. The Adviser will focus
generally on investments in companies that have innovative new products
and services, strong management teams, and strong financial condition.
The Adviser will also focus on companies which have a unique capability,
whether it be new product development, research and development expertise
or marketing advantage which the Adviser believes should provide the
potential for the company to sustain its growth rate over several years.
In selecting investments for the Emerging Growth Fund, the Adviser is not
limited as to the size of the companies in which it may invest and may
therefore invest in companies of all sizes. See "Other Investment
Policies and Risks."
Mid-Cap Fund
The investment objective of the Mid-Cap Fund is capital appreciation. In
seeking to achieve this investment objective the Fund will invest, under
normal market conditions, at least 65% of its total assets in equity
securities of companies that, at the time of purchase, have market
capitalizations between $500 million and $5 billion. The Adviser will
focus on companies that are more established than those in the Micro-Cap
Fund, but are still undergoing growth due to a new, improved or upgraded
product, service or business operation. See "Other Investment Policies
and Risks."
Other Investment Policies and Risks
In addition to the investment policies described above (and subject to
certain restrictions described below), each of the Funds may invest in the
following securities and may employ some or all of the following
investment techniques, some of which may present special risks as
described below. A more complete discussion of certain of these
securities and investment techniques and the associated risks is contained
in the Statement of Additional Information.
Smaller Capitalization Companies. Each Fund may invest a substantial
portion of its assets in companies with modest capitalization, as well as
start-up companies. While the Adviser believes that small- and medium-
sized companies as well as start-up companies can provide greater growth
potential than larger, more mature companies, investing in the securities
of such companies also involves greater risk, potential price volatility
and cost. These companies often involve higher risks because they lack
the management experience, financial resources, product diversification,
markets, distribution channels and competitive strengths of larger
companies. In addition, in many instances, the frequency and volume of
their trading is substantially less than is typical of larger companies.
Therefore, the securities of smaller companies as well as start-up
companies may be subject to wider price fluctuations. The spreads between
the bid and asked prices of the securities of these companies in the U.S.
over-the-counter market typically are larger than the spreads for more
actively-traded securities. As a result, a Fund could incur a loss if it
determined to sell such a security shortly after its acquisition. When
making large sales, a Fund may have to sell portfolio holdings at
discounts from quoted prices or may have to make a series of small sales
over an extended period of time due to the trading volume of smaller
company securities.
Investors should be aware that, based on the foregoing factors, an
investment in the Funds may be subject to greater price fluctuations than
an investment in a fund that invests primarily in larger, more established
companies. The Adviser's research efforts may also play a greater role in
selecting securities for the Funds than in a fund that invests in larger,
more established companies. Each Fund may invest in securities of issuers
which, together with any predecessor entity, have a record of less than
three years of continuous operation.
Foreign Securities. Each Fund may invest without limitation in foreign
securities. Foreign securities will be limited to sponsored and
unsponsored American depository receipts ("ADRs"). ADRs typically are
issued by a U.S. bank or trust company and evidence ownership of
underlying securities issued by a foreign corporation. Unsponsored ADRs
differ from sponsored ADRs in that the establishment of unsponsored ADRs
are not approved by the issuer of the underlying securities. As a result,
available information concerning the issuer may not be as current or
reliable as the information for sponsored ADRs, and the price of
unsponsored ADRs may be more volatile.
Investments in foreign securities involve special risks and costs and
opportunities which are in addition to those inherent in domestic
investments. Political, economic or social instability of the issuer or
the country of issue, the possibility of expropriation or confiscatory
taxation, limitations on the removal of assets or diplomatic developments,
and the possibility of adverse changes in investment or exchange control
regulations are among the inherent risks. Foreign companies are not
subject to the regulatory requirements of U.S. companies and, as such,
there may be less publicly available information about such companies.
Moreover, foreign companies are not subject to uniform accounting,
auditing and financial reporting standards and requirements comparable to
those applicable to U.S. companies. Dividends and interest payable on a
Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions
allowed to investors under U.S. federal income tax law, such taxes may
reduce the net return to shareholders. See "Taxes" in the Statement of
Additional Information. Because of these and other factors, securities of
foreign companies acquired by the Funds may be subject to greater
fluctuation than securities of domestic companies.
Hedging Strategies. The Funds may use various hedging strategies to
attempt to reduce the overall level of risk for an individual security, or
group of securities, or to reduce the investment risk of the Funds. There
can be no assurance that such efforts will succeed. Each Fund may write
(i.e. sell) covered call and secured put options, and buy put or call
options for hedging purposes. These options may relate to particular
securities or stock indices, and may or may not be listed on a securities
exchange and may or may not be issued by the Options Clearing Corporation.
Each Fund will not purchase put and call options where the aggregate
premiums on its outstanding options exceed 5% of its net assets at the
time of purchase, and will not write options on more than 25% of the value
of its net assets (measured at the time an option is written). Options
trading is a highly specialized activity that entails greater than
ordinary investment risks. In addition, unlisted options are not subject
to the protections afforded purchasers of listed options issued by the
Options Clearing Corporation, which performs the obligations of its
members if they default. The primary risks associated with the use of
options are: (a) the imperfect correlation between the change in market
value of the instruments held by a Fund and the price of the option; (b)
possible lack of a liquid secondary market; (c) losses caused by
unanticipated market movements; and (d) the Adviser's ability to predict
correctly the direction of securities prices and economic factors. For
further discussion of risks involved with the use of options, see
"Additional Investment Information - Hedging Strategies" in the Statement
of Additional Information.
Warrants and Rights. Each Fund may invest up to 5% of its net assets in
warrants or rights, valued at the lower of cost or market, which entitle
the holder to buy equity securities during a specific period of time. A
Fund will make such investments only if the underlying equity securities
are deemed appropriate by the Adviser for inclusion in a Fund's portfolio.
Included in the 5% amount, but not to exceed 2% of net assets, are
warrants and rights whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants and rights acquired by
a Fund in units or attached to securities are not subject to these
restrictions.
Convertible Securities. Each Fund may invest in convertible securities.
A convertible security may be converted either at a stated price or rate
within a specified period of time into a specified number of shares of
common stock. 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. Typically, the convertible debt securities in
which the Funds will invest will be of a quality less than investment
grade (so-called "junk bonds"). The Funds will, however, limit their
investment in non-investment grade convertible debt securities to no more
than 5% of their net assets at the time of purchase and will not acquire
convertible debt securities rated below B by Moody's or S&P, or unrated
securities deemed by the Adviser to be of comparable quality. Securities
rated B are considered predominantly speculative and generally lack the
characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the bond over any
long period of time may be small. Subsequent to its purchase by a Fund, a
rated security may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by a Fund. The Adviser will
consider such an event in determining whether the Fund should continue to
hold the security. The Adviser expects, however, to sell promptly any
convertible debt securities that fall below a B rating quality as a result
of these events. See the Statement of Additional Information for a
description of applicable debt ratings.
Money Market Instruments. In times when the Adviser believes that adverse
economic or market conditions justify such actions, each Fund may invest
temporarily up to 100% of its assets in short-term, high quality money
market instruments. The Funds may also invest in such instruments pending
investment, to meet anticipated redemption requests, and/or to retain the
flexibility to respond promptly to changes in market and economic
conditions. It is impossible to predict when or for how long the Adviser
may employ these strategies.
Each of the Funds may invest in commercial paper and other cash
equivalents rated A-1 or A-2 by Standard & Poor's Corporation ("S&P") or
Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"),
commercial paper master notes (which are demand instruments bearing
interest at rates which are fixed to known lending rates and automatically
adjusted when such lending rates change) of issuers whose commercial paper
is rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by Moody's, and unrated
debt securities which are deemed by the Adviser to be of comparable
quality. Each of the Funds may also invest in United States Treasury
Bills and Notes, certificates of deposit of domestic branches of U.S.
banks and corporate bonds with remaining maturities of thirteen months or
less. For debt obligations other than commercial paper, these securities
are limited to those rated at least Aa by Moody's or AA by S&P, or unrated
but deemed by the Adviser to be of comparable quality.
Each Fund's investment in money market instruments for the foregoing
reasons may also include securities issued by other investment companies
that invest in high quality, short-term debt securities (i.e., money
market instruments). In addition to the advisory fees and other expenses
a Fund bears directly in connection with its own operations, as a
shareholder of another investment company, a Fund would bear its pro rata
portion of the other investment company's advisory fees and other
expenses, and such fees and other expenses will be borne indirectly by the
Fund's shareholders.
In addition to the foregoing, each Fund may enter into repurchase
agreements. In a repurchase agreement, a Fund buys an interest-bearing
security at one price and simultaneously agrees to sell it back at a
mutually agreed upon time and price. The repurchase price reflects an
agreed-upon interest rate during the time the Fund's money is invested in
the security. Since the security purchased constitutes security for the
repurchase obligation, a repurchase agreement can be considered as a loan
collateralized by the security purchased. The Fund's risk is the ability
of the seller to pay the agreed-upon price on the delivery date. If the
seller defaults, the Fund may incur costs in disposing of the collateral,
which would reduce the amount realized thereon. If the seller seeks
relief under the bankruptcy laws, the disposition of the collateral may be
delayed or limited. To the extent the value of the security decreases,
the Fund could experience a loss. Repurchase agreements will be acquired
in accordance with procedures established by the Company's Board of
Directors which are designed to evaluate the creditworthiness of the other
parties to the repurchase agreements.
Portfolio Turnover and Brokerage Allocation. In order to achieve each
Fund's investment objective, the Adviser will generally purchase and sell
securities without regard to the length of time the security has been held
and, accordingly, it can be expected that the rate of portfolio turnover
may be substantial. The Adviser intends to purchase a given security
whenever it believes it will contribute to the stated objective of a Fund,
even if the same security has only recently been sold. In selling a given
security, the Adviser keeps in mind that profits from sales of securities
held less than three months must be limited in order to meet the
requirements of Subchapter M of the Internal Revenue Code. Subject to the
foregoing, the Funds may sell a given security, no matter for how long or
for how short a period it has been held in the portfolio, and no matter
whether the sale is at a gain or loss, if the Adviser believes that it is
not fulfilling its purpose. Since investment decisions are based on the
anticipated contribution of the security in question to the applicable
Fund's objectives, the rate of portfolio turnover is irrelevant when the
Adviser believes a change is in order to achieve those objectives, and
each of the Fund's annual portfolio turnover rate may vary from year to
year.
High portfolio turnover in any year will result in the payment by a Fund
of above-average transaction costs and could result in the payment by
shareholders of above-average amounts of taxes on realized investment
gains.
Miscellaneous. Each of the Funds may invest up to 5% of its net assets in
illiquid securities. Securities eligible to be resold pursuant to Rule
144A under the Securities Act may be considered liquid. In addition, if a
Fund anticipates that a price of a security will decline, it may engage in
short sales if, at the time of the short sale, the Fund owns or has the
right to acquire an equal amount of the security being sold short at no
additional cost (so-called "short sales against the box.")
INVESTMENT LIMITATIONS
Each Fund has adopted certain fundamental investment restrictions that may
be changed only with the approval by a majority of a Fund's outstanding
shares. The following description summarizes several of the Fund s
fundamental restrictions which have been adopted to maintain portfolio
diversification and reduce risk.
No Fund may:
1. purchase the securities of any issuer if the purchase would cause
more than 5% of the value of a Fund's total assets to be invested
in securities of any one issuer (except securities of the U.S.
government or any agency or instrumentality thereof), or purchase
more than 10% of the outstanding voting securities of any one
issuer, except that up to 25% of a Fund's total assets may be
invested without regard to these limitations;
2. invest 25% or more of its total assets at the time of purchase in
securities of issuers whose principal business activities are in
the same industry; and
3. borrow money except for temporary purposes in amounts up to
33 1/3% of the value of its total assets at the time of borrowing.
A list of the Funds' objectives, policies and restrictions, both
fundamental and nonfundamental, is set forth in the Statement of
Additional Information. In order to provide a degree of flexibility, the
Funds' investment objectives, as well as other policies which are not
deemed fundamental, may be modified by the Board of Directors without
shareholder approval. Any change in a Fund's investment objectives may
result in the Fund having investment objectives different from the
objectives which the shareholder considered appropriate at the time of
investment in the Fund. However, each Fund will not change its investment
objective without written notice to shareholders sent at least 30 days in
advance of any such change.
MANAGEMENT OF THE FUNDS
As a Maryland corporation, the business affairs of the Company are managed
by its Board of Directors. The Company, on behalf of each of the Funds,
has entered into investment advisory agreements with Van Wagoner Capital
Management, Inc., _______________________ (the "Investment Advisory
Agreements"). Pursuant to such Investment Advisory Agreements, the
Adviser furnishes continuous investment advisory services to each of the
Funds.
Investment Adviser
The Adviser was organized on October 24, 1995 as a California corporation
to become the investment adviser to the Funds. Garrett R. Van Wagoner,
the President and a director of the Adviser, is the sole shareholder of
the Adviser, and is the portfolio manager for each of the Funds. Mr. Van
Wagoner has had over 17 years of experience as a securities analyst and
portfolio manager. Mr. Van Wagoner served as the portfolio manager of the
Govett Smaller Companies Fund, a portfolio of The Govett Funds, Inc., from
March 1993 until December 1995. Prior thereto, he was Senior Vice
President at Bessemer Trust, N.A., since 1982, where he was responsible
for its emerging growth stock investment program.
As portfolio manager of the Govett Smaller Companies Fund, Mr. Van Wagoner
was responsible for its day-to-day management and the selection of its
investments. Average annual returns for the one-year period ended
December 31, 1995 and for the entire period during which Mr. Van Wagoner
managed the Govett Smaller Companies Fund compared with the performance of
the Nasdaq Composite Index and the Lipper Small Company Growth Fund Index
were:
Nasdaq
Govett Smaller Composite
Companies Fund(1) Index(2) S&P 500(3)
One Year ____% ____% ____%
March 1, 1993 through
December 31, 1995 ____% ____% ____%
__________________________
(1) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund
expenses. The expense ratio of the Govett Smaller Companies Fund was
capped at 1.95% for the period March 1, 1993 through December 31,
1995. The expense ratio of the Micro-Cap, Emerging Growth and Mid-
Cap Funds will be capped initially at 1.95%, for each Fund.
(2) The Nasdaq Composite Index is a broad-based, unmanaged index that
represents the general performance of the stocks of smaller
companies. It does not include any commissions or fees that would be
paid by an investor purchasing the securities it represents. The
Index is adjusted to reflect reinvestment of dividends.
(3) The S&P 500 is an unmanaged index of 500 selected stocks, most of
which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalization and
represents approximately two-thirds of the total market value of all
domestic stocks.
The foregoing is provided to illustrate past performance of Mr. Van
Wagoner in managing a portfolio similar to the Emerging Growth Fund. The
foregoing information is considered relevant because the Govett Smaller
Companies Fund was managed by Mr. Van Wagoner, the portfolio manager of
the Emerging Growth Fund, using the same investment objective and
substantially similar policies and restrictions as those to be used by the
Emerging Growth Fund. Unlike the Emerging Growth Fund, which is not
limited as to the capitalization of portfolio securities, the Govett
Smaller Companies Fund was required to invest at least 65% of its total
assets in companies with individual market capitalizations which would, at
the time of purchase, place them in the same size range as companies
included in the Nasdaq Composite Index, excluding its top 75 companies.
Of course, past performance is no guarantee of future performance and
investment returns will fluctuate reflecting market conditions and changes
in company-specific fundamentals of portfolio securities. Mr. Van Wagoner
has also managed other accounts with investment objectives similar to the
Emerging Growth Fund but did not manage such accounts until June 1994.
Pursuant to the Investment Advisory Agreements between the Adviser and the
Company on behalf of the Funds, the Adviser furnishes continuous
investment advisory services and management to each of the Funds. Prior
to its organization in October, 1995, the Adviser had no prior operating
history. Although the Adviser, as a recently formed entity, has had no
prior experience advising a registered investment company, Mr. Van
Wagoner, who is the sole shareholder of the Adviser and who is the founder
and President of the Adviser, has had 17 years of experience as a
securities analyst and portfolio manager, including approximately three
years during which he served as the portfolio manager of the Govett
Smaller Companies Fund, a mutual fund with a similar investment objective
to the Emerging Growth Fund.
The Adviser supervises and manages the investment portfolios of the Funds,
and subject to such policies as the Board of Directors of the Company may
determine, directs the purchase or sale of investment securities in the
day-to-day management of the Funds' investment portfolios. Under the
Agreement, the Adviser, at its own expense and without reimbursement from
the Funds, furnishes office space and all necessary office facilities,
equipment and executive personnel for making the investment decisions
necessary for managing the Funds and maintaining its organization, and
will pay the salaries and fees of all officers and directors of the Funds
(except the fees paid to disinterested directors). For the foregoing, the
Adviser will receive a monthly fee of 1/12 of 1.50%, 1.25% and 1.00% on
the average daily net assets of the Micro-Cap, Emerging Growth and Mid-Cap
Funds, respectively. The rate of the advisory fee is higher than that
paid by most mutual funds.
Administration
Pursuant to an Administration and Fund Accounting Agreement (the
"Administration Agreement"), Sunstone Financial Group, Inc. (the
"Administrator" or "Sunstone"), 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, acts as administrator for the Funds. The
Administrator, at its own expense and without reimbursement from the
Funds, 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 its administrative services (which include clerical,
compliance, regulatory, fund accounting and other services), the
Administrator receives from the Funds a fee, computed daily and payable
monthly, based on the Funds' aggregate average net assets at the annual
rate of 0.225 of 1.0% on the first $50,000,000 of average net assets,
0.150 of 1.0% on the next $50,000,000 of average net assets, 0.10 of 1.0%
on the next $150,000,000 of average net assets, and 0.075 of 1.0% on
average net assets in excess of $250,000,000, subject to an annual minimum
of $185,000, plus out-of-pocket expenses. In addition, the Administrator
received from the Funds $___________ for organizational services provided
by the Administrator. In addition to the foregoing services and fees,
Sunstone acts as the transfer agent and dividend disbursing agent for the
Funds pursuant to a Transfer Agent Agreement by and between the Company on
behalf of the Funds, and Sunstone. See "Transfer and Dividend Disbursing
Agent and Information."
Distribution
Sunstone acts as distributor for the Funds pursuant to a Distribution
Agreement between Sunstone and the Company. Shares also may be sold by
authorized dealers who have entered into dealer agreements with Sunstone
or the Company. Pursuant to the Distribution Agreement, the Funds will
(1) pay Sunstone a fee, payable monthly, at the annual rate of 0.025% of
each Fund's average daily net assets, subject to a minimum annual fee of
$25,000, and (2) reimburse Sunstone's out-of-pocket expenses; provided,
however, that if during any annual period, such compensation and
reimbursement payments and other payments under the Service and
Distribution Plan exceed 0.25% of a Fund's average daily net assets,
Sunstone will rebate such excess to the Fund. See "Service and
Distribution Plan."
Expenses
The Funds pay all of their own expenses, including without limitation, the
cost of preparing and printing their registration statements required
under the Securities Act of 1933 and the Investment Company Act of 1940
and any amendments thereto, the expense of registering their shares with
the Securities and Exchange Commission and in the various states, the
printing and distribution costs of prospectuses mailed to existing
investors, reports to investors, reports to government authorities and
proxy statements, fees paid to directors who are not interested persons of
the Adviser, interest charges, taxes, legal expenses, association
membership dues, auditing services, insurance premiums, brokerage
commissions and expenses in connection with portfolio transactions, fees
and expenses of the custodian of the Funds' assets, printing and mailing
expenses and charges and expenses of dividend disbursing agents,
accounting services agents, registrars and stock transfer agents.
PRICING OF FUND SHARES
The price you pay when buying a Fund's shares, and the price you receive
when selling (redeeming) a Fund's shares, is the net asset value of the
shares next determined after receipt of a purchase or redemption request
in proper form. No front end sales charge or commission of any kind is
added by the Fund upon a purchase and no charge is deducted upon a
redemption. The Funds currently charge a $10 fee for each redemption made
by wire. See "How to Redeem Shares."
The per share net asset value of a Fund is determined by dividing the
total value of its net assets (meaning its assets less its liabilities) by
the total number of its shares outstanding at that time. The net asset
value is determined as of the close of regular trading (currently 4:00
p.m. Eastern time) on the New York Stock Exchange on each day the New York
Stock Exchange is open for trading. This determination is applicable to
all transactions in shares of the Fund prior to that time and after the
previous time as of which the net asset value was determined.
Accordingly, Purchase Applications accepted or redemption requests
received in proper form prior to the close of regular trading on a day the
New York Stock Exchange is open for trading will be valued as of the close
of trading, and Purchase Applications accepted or redemption requests
received in proper form after that time will be valued as of the close of
the next trading day.
Securities which are traded on a recognized stock exchange are valued at
the last sale price on the securities exchange on which such securities
are primarily traded or at last sale price on the national securities
market. Exchange-traded securities for which there were no transactions
are valued at the closing bid prices. Securities traded on only over-the-
counter markets are valued on the basis of closing over-the-counter bid
prices. Debt securities (other than short-term instruments) are valued at
prices furnished by a pricing service, subject to review and possible
revision by the Funds' Adviser. Any modification of the price of a debt
security furnished by a pricing service is made pursuant to procedures
adopted by the Company's Board of Directors. Debt instruments maturing
within 60 days are valued by the amortized cost method. Any securities
for which market quotations are not readily available are valued at their
fair value as determined in good faith by the Adviser pursuant to
guidelines established by the Company's Board of Directors.
HOW TO PURCHASE SHARES
All of the Funds are 100% no-load, so you may purchase, redeem or exchange
shares directly at net asset value without paying a sales charge. Because
the Funds' net asset value changes daily, your purchase price will be the
next net asset value determined after the Funds receive and accept your
purchase order. See "Pricing of Fund Shares."
Initial Minimum Additional Minimum
Type of Account Investment Investment
Regular $1,000 $50
Automatic Investment
Plan $500 $50
Individual Retirement
Account $500 $50
Gift to Minors $500 $50
Each Fund reserves the right to reject any order for the purchase of its
shares or to limit or suspend, without prior notice, the offering of its
shares. The required minimum investments may be waived in the case of
qualified retirement plans.
How to Open Your Account by Mail. A Purchase Application is included with
this Prospectus. You can obtain additional copies of the Purchase
Application and a copy of the IRA Purchase Application from the Funds by
calling 1-800-228-2121. (Please note that you must use a different form
for an IRA.)
Your completed Purchase Application To purchase shares by overnight or
should be mailed directly to: express mail, please use the
Van Wagoner Funds, Inc. following street address:
P.O. Box ______, Van Wagoner Funds, Inc.
Milwaukee, WI 53202 207 East Buffalo Street, Suite 400
Milwaukee, WI 53202
All applications must be accompanied by payment in the form of a check
made payable to "HX Funds." All purchases must be made in U.S. dollars
and checks must be drawn on U.S. banks. No cash, credit cards or third
party checks will be accepted. When a purchase is made by check and a
redemption is made shortly thereafter, the Funds' Transfer Agent will
delay the mailing of a redemption check until the purchase check has
cleared your bank, which may take up to 15 calendar days from the purchase
date. If you contemplate needing access to your investment shortly after
purchase, you should purchase the shares by wire as discussed below.
How to Open Your Account by Wire. To avoid redemption delays, you may
make purchases by direct wire transfers. To ensure proper credit to your
account, please call the Funds' Transfer Agent at 1-800-228-2121 for
instructions prior to wiring funds. Funds should be wired through the
Federal Reserve System as follows:
Park Bank
A.B.A. Number ______________
For credit to Van Wagoner Funds
Account Number _______________________
For further credit to:
(investor account number)
(name or account registration)
(Social Security or tax identification number)
(identify which Fund to purchase)
You must promptly complete a Purchase Application and mail it to the
Funds' Transfer Agent at the following address: Van Wagoner Funds, P.O.
Box _________, Milwaukee, WI 53202. Shares will not be redeemed until the
Transfer Agent receives a properly completed and executed Purchase
Application. The Funds reserve the right to refuse a telephone
transaction if they believe it advisable to do so.
If you have any questions, call the Funds' Transfer Agent at 1-800-228-
2121.
How to Add to Your Account. You may make additional investments by mail
or by wire in the minimums listed above. When adding to an account by
mail, you should send the Transfer Agent your check, together with the
additional investment form from a recent statement. If this form is
unavailable, you should send a signed note giving the full name of the
account and the account number. For additional investments made by wire
transfer, you should use the wiring instructions listed above. Be sure to
include your account number.
Automatic Investment Plan. You may make purchases of shares of each Fund
automatically on a regular, monthly basis ($50 minimum per transaction).
You must meet the Automatic Investment Plan's ("the Plan") minimum
initial investment of $500 before the Plan may be established. Under the
Plan, your designated bank or other financial institution debits a
preauthorized amount on your account each month and applies the amount to
the purchase of Fund shares. The Plan can be implemented with any
financial institution that is a member of the Automated Clearing House.
No service fee is currently charged by the Funds for participation in the
Plan. You will receive a statement on a quarterly basis showing the
purchases made under the Plan. A $20 fee will be imposed by the Transfer
Agent if sufficient funds are not available in your account or your
account has been closed at the time of the automatic transaction. You may
obtain an application to establish the Automatic Investment Plan from the
Funds' Transfer Agent at 1-800-228-2121. In the event you discontinue
participation in the Plan, the Funds reserve the right to redeem your fund
account involuntarily, upon sixty days' written notice, if the account s
net asset value is $1,000 or less.
Purchasing Shares Through Other Institutions. If you purchase shares
through a program of services offered or administered by a broker-dealer,
financial institution, or other service provider, you should read the
program materials, including information relating to fees, in addition to
the Funds' Prospectus. Certain services of a Fund may not be available or
may be modified in connection with the program of services provided. The
Funds may only accept requests to purchase additional shares into a
broker-dealer street name account from the broker-dealer.
Certain broker-dealers, financial institutions, or other service providers
that have entered into an agreement with the Company may enter purchase
orders on behalf of their customers by phone, with payment to follow
within several days as specified in the agreement. The Funds may effect
such purchase orders at the net asset value next determined after receipt
of the telephone purchase order. It is the responsibility of the broker-
dealer, financial institution, or other service provider to place the
order with the Funds on a timely basis. If payment is not received within
the time specified in the agreement, the broker-dealer, financial
institution, or other service provider could be held liable for any
resulting fees or losses.
Miscellaneous. The Funds will charge a $20 service fee against your
account for any check, wire or electronic funds transfer that is returned
unpaid. You will also be responsible for any losses suffered by the Funds
as a result. In order to relieve you of responsibility for the
safekeeping and delivery of stock certificates, the Funds do not issue
certificates.
HOW TO EXCHANGE SHARES
Shares of any Van Wagoner Fund may be exchanged for shares of another Van
Wagoner Fund at any time. This exchange offer is available only in states
where shares of such other Fund may be legally sold. Each exchange is
subject to the minimum initial investment required for each Fund. You may
make additional exchanges for $500 or more. You may open a new account or
purchase additional shares by making an exchange from an existing Van
Wagoner Fund account. New accounts will have the same registration as the
existing accounts. Exchanges may be made either in writing or by
telephone; however, a $5.00 fee will be charged by the transfer agent to
your account for each exchange made by telephone. This fee will be
charged to the account from which the Funds are being withdrawn. To
exchange by telephone, you must follow the instructions below under "How
to Redeem by Telephone."
In addition to the ability to exchange among Van Wagoner Funds,
shareholders may exchange all or a portion of their investment in the Van
Wagoner Funds in the Northern U.S. Government Money Market Fund (the "U.S.
Government Money Market Fund"). This exchange feature is subject to the
minimum purchase and redemption amounts set forth in this Prospectus
($1,000 minimum, $500 subsequent). You must obtain a copy of the U.S.
Government Money Market Fund prospectus from the Funds, and you are
advised to read it carefully, before authorizing any investment in shares
of the U.S. Government Money Market Fund.
The value to be exchanged and the price of the shares being purchased will
be the net asset value next determined after receipt and acceptance of
proper instructions for the exchange. An exchange from one Fund to
another or to the U.S. Government Money Market Fund is treated the same as
an ordinary sale and purchase for federal income tax purposes.
Because of the risks associated with common stock investments, the Funds
are intended to be long-term investment vehicles and not designed to
provide investors with a means of speculating on short-term stock market
movements. In addition, because excessive trading can hurt the Funds'
performance and shareholders, the Funds reserve the right to temporarily
or permanently terminate, with or without advance notice, the exchange
privilege of any investor who makes excessive use of the exchange
privilege (e.g. more than five exchanges per calendar year). Your
exchanges may be restricted or refused if a Fund receives or anticipates
simultaneous orders affecting significant portions of a Fund's assets. In
particular, a pattern of exchanges with a "market timer" strategy may be
disruptive to the Funds.
Additional documentation may be required for exchange requests if shares
are registered in the name of a corporation, partnership or fiduciary.
Contact the Transfer Agent for additional information concerning the
exchange privilege.
Automatic Exchange Plan
You may make automatic monthly exchanges from one Van Wagoner Fund account
to another or from one Money Market Fund account to a Fund account ($50
minimum per transaction). An exchange from one Fund to another is treated
the same as an ordinary sale and purchase for federal income tax purposes
and generally, you will realize a capital gain or loss. You must meet the
Funds' minimum initial investment requirements before this plan is
established. You may adopt the plan at the time an account is opened by
completing the appropriate section of the Purchase Application. You may
obtain an application to establish the Automatic Exchange Plan after an
account is open by calling the Transfer Agent at 1-800-228-2121.
HOW TO REDEEM SHARES
You may redeem shares of the Funds at any time. The price at which the
shares will be redeemed is the net asset value per share next determined
after proper redemption instructions are received by the Transfer Agent.
See "Pricing of Fund Shares." There are no charges for the redemption of
shares except that a fee of $10 is charged for each wire redemption.
Depending upon the redemption price you receive, you may realize a capital
gain or loss for federal income tax purposes.
How to Redeem by Mail. To redeem shares by mail, simply send an
unconditional written request to the Transfer Agent specifying the number
of shares or dollar amount to be redeemed, the name of the Fund, the
name(s) on the account registration and the account number. A request for
redemption must be signed exactly as the shares are registered. If the
amount requested is greater than $25,000, the proceeds are to be sent to a
person other than the recordholder or to a location other than the address
of record, each signature must be guaranteed by a commercial bank or trust
company in the United States, a member firm of the National Association of
Securities Dealers, Inc. or other eligible guarantor institution. A
notary public is not an acceptable guarantor. Guarantees must be signed
by an authorized signatory of the bank, trust company, or member firm and
"Signature Guaranteed" must appear with the signature. Additional
documentation may be required for the redemption of shares held in
corporate, partnership or fiduciary accounts. In case of any questions,
contact the Transfer Agent in advance.
The Funds will mail payment for redemption within seven days after it
receives proper instructions for redemption. However, the Funds will
delay payment for ten calendar days on redemptions of recent purchases
made by check. This allows the Funds to verify that the check will not be
returned due to insufficient funds and is intended to protect the
remaining investors from loss.
How to Redeem by Telephone. To redeem shares by telephone, you must
select this option on the Purchase Application. Once this feature has
been requested, shares may be redeemed by calling the Transfer Agent at 1-
800-228-2121. Proceeds redeemed by telephone will be mailed to your
address, or wired or credited to your preauthorized bank account as shown
on the records of the Transfer Agent. Telephone redemptions must be in
amounts of $1,000 or more.
In order to arrange for telephone redemptions after your account has been
opened or to change the bank account or address designated to receive
redemption proceeds, you must send a written request to the Transfer
Agent. The request must be signed by each registered holder of the
account with the signatures guaranteed by a commercial bank or trust
company in the United States, a member firm of the National Association of
Securities Dealers, Inc. or other eligible guarantor institution. A
notary public is not an acceptable guarantor. Further documentation may
be requested from corporations, executors, administrators, trustees and
guardians.
Payment of the redemption proceeds for Fund shares redeemed by telephone
where you request wire payment will normally be made in federal funds on
the next business day. The Funds reserve the right to delay payment for a
period of up to seven days after receipt of the redemption request. There
is currently a $10 fee for each wire redemption. It will be deducted from
your account.
The Funds reserve the right to refuse a telephone redemption or exchange
transaction if it believes it is advisable to do so. Procedures for
redeeming or exchanging shares of the Funds by telephone may be modified
or terminated by the Funds at any time. In an effort to prevent
unauthorized or fraudulent redemption or exchange requests by telephone,
the Funds and the Transfer Agent have implemented procedures designed to
reasonably assure that telephone instructions are genuine. These
procedures include: requesting verification of certain personal
information; recording telephone transactions; confirming transactions in
writing; and restricting transmittal of redemption proceeds to
preauthorized designations. Other procedures may be implemented from time
to time. If reasonable procedures are not implemented, the Funds and/or
the Transfer Agent may be liable for any loss due to unauthorized or
fraudulent transactions. In all other cases, you are liable for any loss
for unauthorized transactions.
You should be aware that during periods of substantial economic or market
change, telephone or wire redemptions may be difficult to implement. If
you are unable to contact the Transfer Agent by telephone, you may also
redeem shares by delivering or mailing the redemption request to The Van
Wagoner Funds, Inc., P.O. Box ______, 207 East Buffalo Street, Suite 400,
Milwaukee, WI 53202.
The Funds reserve the right to suspend or postpone redemptions during any
period when: trading on the New York Stock Exchange ("Exchange") is
restricted, as determined by the Securities and Exchange Commission
("SEC"), or that the Exchange is closed for other than customary weekend
and holiday closing; the SEC has by order permitted such suspension; or an
emergency, as determined by the SEC, exists, making disposal of portfolio
securities or valuation of net assets of a Fund not reasonably
practicable.
Due to the relatively high cost of maintaining small accounts, if your
account balance falls below the $1,000 minimum as a result of a redemption
or exchange or if you discontinue the Automatic Investment Plan before
your account balance reaches the required minimum, you will be given a 60-
day notice to reestablish the minimum balance or activate an Automatic
Investment Plan. If this requirement is not met, your account may be
closed and the proceeds sent to you.
SHAREHOLDER REPORTS AND INFORMATION
The Funds will provide the following statements and reports to keep you
current regarding the status of your investment account:
Confirmation Statements After each transaction that affects the
account balance or account registration, you
will receive a confirmation statement.
Participants in the Automatic Investment Plan
will receive quarterly confirmations of all
automatic transactions.
Account Statements All shareholders will receive quarterly
account statements.
Financial Reports At least semiannually. Annual reports will
include audited financial statements. To
reduce Fund expenses, one copy of each report
will be mailed to each taxpayer identification
number even though the investor may have more
than one account in a Fund.
If you need information on your account with the Funds or if you wish to
submit any applications, redemption requests, inquiries or notifications,
you should contact the Van Wagoner Funds, Inc., P.O. Box _____, Milwaukee,
Wisconsin 53202 or call 1-800-228-2121. If you wish to send the
information via overnight delivery, you may send it to the Van Wagoner
Funds, Inc., 207 East Buffalo Street, Suite 400, Milwaukee, Wisconsin
53202.
RETIREMENT PLANS
The Funds have a program under which you may establish an Individual
Retirement Account ("IRA") with the Funds' Transfer Agent and purchase
shares through such account. The minimum initial investment in each Fund
for an IRA is $500. You may obtain additional information regarding
establishing such an account by calling the Transfer Agent at 1-800-228-
2121.
The Funds may be used as investment vehicles for established defined
contribution plans, including simplified employee (including SAR-SEPs),
401(k), profit-sharing and money purchase pension plans ("Retirement
Plans"). For details concerning Retirement Plans, please call 1-800-228-
2121.
SERVICE AND DISTRIBUTION PLAN
The Funds have adopted a Service and Distribution Plan (the Plan) pursuant
to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Funds in connection with the distribution of their shares at an annual
rate, as determined from time to time by the Board of Directors, of up to
0.25% of a Fund's average daily net assets.
Payments may be made by each Fund under the Plan for the purpose of
financing any activity primarily intended to result in the sales of shares
of the Fund as determined by the Board of Directors. Such activities
include advertising, compensation to Sunstone in its capacity as
distributor, compensation for sales and sales marketing activities of
financial institutions and others, such as dealers or other distributors,
shareholder account servicing, production and dissemination of
prospectuses and sales and marketing materials, and capital or other
expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead. To the extent any activity is one which a Fund may
finance without a Plan, the Fund may also make payments to finance such
activity outside of the Plan and not subject to its limitations. Payments
under the Plan are not tied exclusively to actual distribution and service
expenses, and the payments may exceed distribution and service expenses
actually incurred.
TAXES
Each Fund intends to qualify for treatment as a regulated investment
company under the Code. In each taxable year that a Fund so qualifies,
such Fund (but not its shareholders) will be relieved of federal income
tax on that part of its investment company taxable income and net capital
gain that is distributed to shareholders.
Dividends from a Fund's investment company taxable income (whether paid in
cash or reinvested in additional shares) are taxable to its shareholders
as ordinary income to the extent of the Fund's earnings and profits.
Distributions of a Fund's net capital gain, when designated as such, are
taxable to its shareholders as long-term capital gain, regardless of how
long they have held their Fund shares and whether such distributions are
paid in cash or reinvested in additional Fund shares. Each Fund provides
federal tax information to its shareholders annually, including
information about dividends and other distributions paid during the
preceding year.
The Funds will be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption and exchange
proceeds if you fail to complete the certification form included as part
of the Purchase Application at the back of this Prospectus.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders. See
"Taxes" in the Statement of Additional Information for further discussion.
There may be other federal, state or local tax considerations applicable
to you as an investor. You therefore are urged to consult your tax
adviser regarding any tax-related issues.
CAPITAL STRUCTURE
The Funds constitute a single corporation (the Company) that was organized
as a Maryland corporation on October 18, 1995. The Company's authorized
capital consists of a single class of 500,000,000 shares of Common Stock,
$0.0001 par value. The Common Stock is divisible into an unlimited number
of "series," each of which is a separate Fund. Each share of a Fund
represents an equal proportionate interest in that Fund. As a
shareholder, you will be entitled: (i) to one vote per full share of
Common Stock; (ii) to such distributions as may be legally declared by the
Company's Board of Directors; and (iii) upon liquidation, to share in the
assets available for distribution. There are no conversion or sinking
fund provisions applicable to the shares, and shareholders have no
preemptive rights and may not cumulate their votes in the election of
directors. Consequently the holders of more than 50% of the shares of
Common Stock voting for the election of directors can elect the entire
Board of Directors, and in such event, the holders of the remaining shares
voting for the election of directors will not be able to elect any person
or persons to the Board of Directors. Unless it is required by the
Investment Company Act of 1940 (the "1940 Act") it will not be necessary
for the Funds to hold annual meetings of shareholders. As a result,
shareholders may not consider each year the election of directors or the
appointment of auditors. The Company, however, has adopted provisions in
its Bylaws for the removal of directors by the shareholders. See
"Shareholder Meetings" in the Statement of Additional Information.
Shares of Common Stock are redeemable and are transferable. All shares
issued and sold by the Funds will be fully paid and nonassessable.
Fractional shares of Common Stock entitle the holder to the same rights as
whole shares of Common Stock. The Funds will not issue certificates
evidencing shares of Common Stock purchased. Instead, your account will
be credited with the number of shares purchased, relieving you of
responsibility for safekeeping of certificates and the need to deliver
them upon redemption. The Transfer Agent will issue written confirmations
for all purchases of Common Stock.
The Board of Directors may classify or reclassify any unissued shares of
the Funds and may designate or redesignate the name of any outstanding
class of shares of the Funds. As a general matter, shares are voted in
the aggregate and not by class, except where class voting would be
required by Maryland law or the 1940 Act (e.g., a change in investment
policy or approval of an investment advisory agreement). All
consideration received from the sale of shares of any class of the Funds'
shares, together with all income, earnings, profits and proceeds thereof,
would belong to that class and would be charged with the liabilities in
respect of that class and of that class' shares of the general liabilities
of the Funds in the proportion that the total net assets of the class bear
to the total net assets of all classes of the Funds' shares. The net
asset value of a share of any class would be based on the assets belonging
to that class less the liabilities charged to that class, and dividends
could be paid on shares of any class of Common Stock only out of lawfully
available assets belonging to that class. In the event of liquidation or
dissolution of the Funds, the holders of each class would be entitled, out
of the assets of the Funds available for distribution, to the assets
belonging to that class. As of the date of this Prospectus, Mr. Van
Wagoner, President of the Company and the Adviser, owned all of the
outstanding shares of each Fund and therefore controlled each Fund.
DIVIDENDS AND DISTRIBUTIONS
The Funds intend to pay dividends from net investment income annually and
distribute substantially all net realized capital gains at least annually.
Each Fund may make additional distributions if necessary to avoid
imposition of a 4% excise tax or other tax on undistributed income and
gains. You may elect to reinvest all income dividends and capital gains
distributions in shares of a Fund or in cash as designated on the Purchase
Application. You may change your election at any time by sending written
notification to the Transfer Agent. The election is effective for
distributions with a dividend record date on or after the date that the
Transfer Agent receives notice of the election. If you do not specify an
election, all income dividends and capital gains distributions will
automatically be reinvested in full and fractional shares of the Fund.
Shares will be purchased at the net asset value in effect on the business
day after the dividend record date and will be credited to your account on
such date. Reinvested dividends and distributions receive the same tax
treatment as those paid in cash. Dividends and capital gains
distributions, if any, will reduce the net asset value of a Fund by the
amount of the dividend or capital gains distribution.
TRANSFER AND DIVIDEND DISBURSING AGENT, CUSTODIAN AND
CERTIFIED PUBLIC ACCOUNTANTS
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202, has been retained to act as each Fund's
Transfer and Dividend Disbursing Agent. Sunstone also serves as the
Funds' Administrator. See "Management of the Funds - Administration."
United Missouri Bank, n.a., which has its principal address at 928 Grand
Avenue, Kansas City, Missouri, 64141, has been retained to act as
Custodian of the Funds' investments. Neither the Transfer and Dividend
Disbursing Agent nor the Custodian has any part in deciding the Funds'
investment policies or which securities are to be purchased or sold for
the Funds' portfolios. Price Waterhouse LLP, 100 East Wisconsin Avenue,
Milwaukee, Wisconsin, 53202, has been selected to serve as independent
certified public accountants of the Company for the fiscal year ending
December 31, 1996.
FUND PERFORMANCE
From time to time, the Funds may advertise their average annual total
return over various periods of time. An average annual total return
refers to the rate of return which, if applied to an initial investment at
the beginning of a stated period and compounded over the period, would
result in the redeemable value of the investment at the end of the stated
period assuming reinvestment of all dividends and distributions and
reflecting the effect of all recurring fees. An investor's principal in
each Fund and the Fund's return are not guaranteed and will fluctuate
according to market conditions. When considering "average" total return
figures for periods longer than one year, you should note that a Fund's
annual total return for any one year in the period might have been greater
or less than the average for the entire period. Each Fund also may use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in the Fund for a specific
period (again reflecting changes in the Fund's share price and assuming
reinvestment of dividends and distributions).
Each Fund may quote the Fund's average annual total and/or aggregate total
return for various time periods in advertisements or communications to
shareholders. The Fund may also compare its performance to that of other
mutual funds with similar investment objectives and to stock and other
relevant indices or to rankings prepared by independent services or
industry publications. For example, a Fund's total return may be compared
to data prepared by Lipper Analytical Services, Inc., Morningstar, Value
Line Mutual Fund Survey and CDA Investment Technologies, Inc. Total
return data as reported in such national financial publications as The
Wall Street Journal, The New York Times, Investor's Business Daily, USA
Today, Barron's, Money, and Forbes as well as in publications of a local
or regional nature, may be used in comparing Fund performance.
The Fund's total return may also be compared to such indices as the Dow
Jones Industrial Average, Standard & Poor's 500 Composite Stock Price
Index, NASDAQ Composite OTC Index or Nasdaq Industrials Index, Consumer
Price Index, and Russell 2000 Index. Further information on performance
measurement may be found in the Statement of Additional Information.
Performance quotations of a Fund represent the Fund's past performance and
should not be considered as representative of future results. The
investment return and principal value of an investment in a Fund will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. The methods used to compute a Fund's
total return and yield are described in more detail in the Statement of
Additional Information.
<PAGE>
VAN WAGONER FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
for the
Micro-Cap Fund
Emerging Growth Fund
Mid-Cap Fund
This Statement of Additional Information dated December 31, 1995, is
meant to be read in conjunction with the Van Wagoner Funds' Prospectus
dated December 31, 1995, for the Micro-Cap Fund, Emerging Growth Fund, and
Mid-Cap Fund (collectively referred to as the "Funds") and is incorporated
by reference in its entirety into the Prospectus. Because this Statement
of Additional Information is not itself a prospectus, no investment in
shares of these Funds should be made solely upon the information contained
herein. Copies of the Prospectus for the Funds may be obtained by writing
Van Wagoner Funds, Inc., P.O. Box ____, Milwaukee, Wisconsin 53202-____.
Capitalized terms used but not defined herein have the same meanings as in
the Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
ADDITIONAL INVESTMENT INFORMATION . . . . . . . . . . 3
INVESTMENT RESTRICTIONS . . . . . . . . . . . . . . . 12
ADDITIONAL COMPANY INFORMATION . . . . . . . . . . . 15
Directors and Officers . . . . . . . . . . . . . 15
Principal Shareholder . . . . . . . . . . . . . 16
Investment Adviser . . . . . . . . . . . . . . . 16
Administrator . . . . . . . . . . . . . . . . . 17
Custodian, Transfer Agent and
Dividend Paying Agent . . . . . . . . . . . . 18
Legal Counsel . . . . . . . . . . . . . . . . . 18
Independent Accountants . . . . . . . . . . . . 18
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . 18
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . 19
TAXES . . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . 23
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . 24
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . 25
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . 25
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES;
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . 28
OTHER INFORMATION . . . . . . . . . . . . . . . . . . 28
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 29
APPENDIX A (Description of Securities Ratings) . . . A-1
________________
No person has been authorized to give any information or to make any
representations not contained in this Statement of Additional Information
or in the Prospectus in connection with the offering made by the
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Funds. The Prospectus
does not constitute an offering by the Funds in any jurisdiction in which
such offering may not lawfully be made.
<PAGE>
ADDITIONAL INVESTMENT INFORMATION
The following supplements the investment objectives and policies of
the Funds as set forth in the Prospectus.
Van Wagoner Micro-Cap Fund seeks capital appreciation. The Micro-Cap
Fund invests primarily in equity securities of companies with market
capitalizations of less than $350 million.
Van Wagoner Emerging Growth Fund seeks long-term capital
appreciation. The Emerging Growth Fund invests primarily in equity
securities of companies believed by the Adviser to have the potential for
above-average long-term growth in market value. The Emerging Growth Fund
may invest in companies of all sizes.
Van Wagoner Mid-Cap Fund seeks capital appreciation. The Mid-Cap
Fund invests primarily in equity securities of companies with market
capitalizations between $500 million and $5 billion.
Money Market Instruments. Each Fund may invest in a variety of money
market instruments for temporary defensive purposes, pending investment,
to meet anticipated redemption requests and/or to retain the flexibility
to respond promptly to changes in market and economic conditions.
Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are generally negotiable
certificates issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return. Bankers
acceptances are negotiable drafts or bills of exchange, normally drawn by
an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time
deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties
that vary depending upon market conditions and the remaining maturity of
the obligation. There are no contractual restrictions on the right to
transfer a beneficial interest in a fixed time deposit to a third party,
although there is no market for such deposits. Bank notes and bankers'
acceptances rank junior to deposit liabilities of the bank and pari passu
with other senior, unsecured obligations of the bank. Bank notes are
classified as "other borrowings" on a bank's balance sheet, while deposit
notes and certificates of deposit are classified as deposits. Bank notes
are not insured by the Federal Deposit Insurance Corporation or any other
insurer. Deposit notes are insured by the Federal Deposit Insurance
Corporation only to the extent of $100,000 per depositor per bank.
Repurchase Agreements. Each 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 a 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 Funds'
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 a 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 a 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, a
Fund could incur a loss of both principal and interest. The Adviser
monitors the value of the collateral at the time the agreement is entered
into and at all times during the term of the repurchase agreement in an
effort to determine that the value of the collateral always equals or
exceeds the agreed upon repurchase price to be paid to a Fund. If the
seller were to be subject to a federal bankruptcy proceeding, the ability
of a Fund to liquidate the collateral could be delayed or impaired because
of certain provisions of the bankruptcy laws.
United States Government Obligations. Each of the Funds may invest
in Treasury securities which differ only in their interest rates,
maturities and times of issuance. Treasury Bills have initial maturities
of one year or less; Treasury Notes have initial maturities of one to ten
years; and Treasury Bonds generally have initial maturities of greater
than ten years.
Illiquid Securities. Each of the Funds may invest up to 5% of its
net assets in illiquid securities (i.e., securities that cannot be
disposed of within seven days in the normal course of business at
approximately the amount at which the Fund has valued the securities).
The Board of Directors or its delegate has the ultimate authority to
determine which securities are liquid or illiquid for purposes of this
limitation. Certain securities exempt from registration or issued in
transactions exempt from registration ("restricted securities") under the
Securities Act of 1933, as amended ("Securities Act") that may be resold
pursuant to Rule 144A or Regulation S under the Securities Act, may be
considered liquid. The Board has delegated to the Adviser the day-to-day
determination of the liquidity of a security, although it has retained
oversight and ultimate responsibility for such determinations. Although
no definite quality criteria are used, the Board has directed the Adviser
to consider such factors as (i) the nature of the market for a security
(including the institutional private or international resale market), (ii)
the terms of these securities or other instruments allowing for the
disposition to a third party or the issuer thereof (e.g., certain
repurchase obligations and demand instruments), (iii) the availability of
market quotations (e.g., for securities quoted in PORTAL system), and (iv)
other permissible relevant factors. Certain securities are deemed
illiquid by the Securities and Exchange Commission including repurchase
agreements maturing in greater than seven days and options not listed on a
securities exchange or not issued by the Options Clearing Corporation.
These securities will be treated as illiquid and subject to the Funds
limitation on illiquid securities.
Restricted securities may be sold in privately negotiated or other
exempt transactions, qualified non-U.S. transactions, such as under
Regulation S, or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable time may elapse between the decision to sell
and the sale date. If, during such period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith by the Board.
If through the appreciation of illiquid securities or the
depreciation of illiquid securities, a Fund should be in a position where
more than 5% of the value of its net assets are invested in illiquid
assets, including restricted securities which are not readily marketable,
the Fund will take such steps as it deems advisable, if any, to reduce the
percentage of such securities to 5% or less of the value of its net
assets.
Hedging Strategies. The Funds may engage in hedging activities.
They may utilize a variety of financial instruments, including options, in
an attempt to reduce the investment risks of the Funds.
Hedging instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that a Fund
owns or intends to acquire. Hedging instruments on stock indices, in
contrast, generally are used to hedge against price movements in broad
equity market sectors in which a Fund has invested or expects to invest.
The use of hedging instruments is subject to applicable regulations of the
Securities and Exchange Commission (the "SEC"), the several options
exchanges upon which they are traded and various state regulatory
authorities. In addition, a Fund's ability to use hedging instruments
will be limited to tax considerations.
Options. General. Each Fund may purchase and write (i.e. sell) put
and call options. Such options may relate to particular securities or
stock indices, and may or may not be listed on a domestic or foreign
securities exchange and may or may not be issued by the Options Clearing
Corporation. Options trading is a highly specialized activity that
entails greater than ordinary investment risk. Options may be more
volatile than the underlying instruments, and therefore, on a percentage
basis, an investment in options may be subject to greater fluctuation than
an investment in the underlying instruments themselves.
A call option for a particular security gives the purchaser of the
option the right to buy, and the writer (seller) the obligation to sell,
the underlying security at the stated exercise price at any time prior to
the expiration of the option, regardless of the market price of the
security. The premium paid to the writer is in consideration for
undertaking the obligation under the option contract. A put option for a
particular security gives the purchaser the right to sell the security at
the stated exercise price at any time prior to the expiration date of the
option, regardless of the market price of the security.
Stock index options are put options and call options on various stock
indexes. In most respects, they are identical to listed options on common
stocks. The primary difference between stock options and index options
occurs when index options are exercised. In the case of stock options,
the underlying security, common stock, is delivered. However, upon the
exercise of an index option, settlement does not occur by delivery of the
securities comprising the index. The option holder who exercises the
index option receives an amount of cash if the closing level of the stock
index upon which the option is based is greater than, in the case of a
call, or less than, in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the
closing price of the stock index and the exercise price of the option
expressed in dollars times a specified multiple. A stock index fluctuates
with changes in the market value of the stocks included in the index. For
example, some stock index options are based on a broad market index, such
as the Standard & Poor's 500 or the Value Line Composite Index or a
narrower market index, such as the Standard & Poor's 100. Indexes may
also be based on an industry or market segment, such as the AMEX Oil and
Gas Index or the Computer and Business Equipment Index. Options on stock
indexes are currently traded on the following exchanges: the Chicago
Board Options Exchange, the New York Stock Exchange, the American Stock
Exchange, the Pacific Stock Exchange, and the Philadelphia Stock Exchange.
A Fund's obligation to sell an instrument subject to a call option
written by it, or to purchase an instrument subject to a put option
written by it, may be terminated prior to the expiration date of the
option by the Fund's execution of a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e.,
same underlying instrument, exercise price and expiration date) as the
option previously written. A closing purchase transaction will ordinarily
be effected to realize a profit on an outstanding option, to prevent an
underlying instrument from being called, to permit the sale of the
underlying instrument or to permit the writing of a new option containing
different terms on such underlying instrument. The cost of such a
liquidation purchase plus transactions costs may be greater than the
premium received upon the original option, in which event the Fund will
have incurred a loss in the transaction. There is no assurance that a
liquid secondary market will exist for any particular option. An option
writer, unable to effect a closing purchase transaction, will not be able
to sell the underlying instrument or liquidate the assets held in the
segregated account until the option expires or the optioned instrument is
delivered upon exercise with the result that the writer in such
circumstances will be subject to the risk of market decline or
appreciation in the instrument during such period.
If an option purchased by a Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If a Fund enters into a
closing sale transaction on an option purchased by it, the Fund will
realize a gain if the premium received by the Fund on the closing
transaction is more than the premium paid to purchase the option, or a
loss if it is less. If an option written by a Fund expires on the
stipulated expiration date or if a Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing
purchase transaction exceeds the net premium received when the option is
sold). If an option written by a Fund is exercised, the proceeds of the
sale will be increased by the net premium originally received and the Fund
will realize a gain or loss.
Federal Tax Treatment of Options. Certain option transactions have
special tax results for the Funds. Expiration of a call option written by
a Fund will result in short-term capital gain. If the call option is
exercised, the Fund will realize a gain or loss from the sale of the
security covering the call option and, in determining such gain or loss,
the option premium will be included in the proceeds of the sale.
If a Fund writes options other than "qualified covered call options,"
as defined in Section 1092 of the Internal Revenue Code of 1986, as
amended (the "Code"), or purchases puts, any losses on such options
transactions, to the extent they do not exceed the unrealized gains on the
securities covering the options, may be subject to deferral until the
securities covering the options have been sold.
In the case of transactions involving "nonequity options," as defined
in Code Section 1256, the Funds will treat any gain or loss arising from
the lapse, closing out or exercise of such positions as 60% long-term and
40% short-term capital gain or loss as required by Section 1256 of the
Code. In addition, such positions must be marked-to-market as of the last
business day of the year, and gain or loss must be recognized for federal
income tax purposes in accordance with the 60%/40% rule discussed above
even though the position has not been terminated. A "nonequity option"
includes options involving stock indexes such as the Standard & Poor's 500
and 100 indexes.
Certain Risks Regarding Options. There are several risks associated
with transactions in options. For example, there are significant
differences between the securities and options markets that could result
in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid
secondary market for particular options, whether traded over-the-counter
or on an exchange, may be absent for reasons which include the following:
there may be insufficient trading interest in certain options;
restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series
of options or underlying securities or currencies; unusual or unforeseen
circumstances may interrupt normal operations on an exchange; the
facilities of an exchange or the Options Clearing Corporation may not at
all times be adequate to handle current trading value; or one or more
exchanges could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a particular
class or series of options), in which event the secondary market on that
exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
Successful use by the Funds of options on stock indexes will be
subject to the ability of the Adviser to correctly predict movements in
the directions of the stock market. This requires different skills and
techniques than predicting changes in the prices of individual securities.
In addition, a Fund's ability to effectively hedge all or a portion of the
securities in its portfolio, in anticipation of or during a market
decline, through transactions in put options on stock indexes, depends on
the degree to which price movements in the underlying index correlate with
the price movements of the securities held by a Fund. Inasmuch as a
Fund's securities will not duplicate the components of an index, the
correlation will not be perfect. Consequently, each Fund will bear the
risk that the prices of its securities being hedged will not move in the
same amount as the prices of its put options on the stock indexes. It is
also possible that there may be a negative correlation between the index
and a Fund's securities which would result in a loss on both such
securities and the options on stock indexes acquired by the Fund.
The hours of trading for options may not conform to the hours during
which the underlying securities are traded. To the extent that the
options markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
markets that cannot be reflected in the options markets. The purchase of
options is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary
portfolio securities transactions. The purchase of stock index options
involves the risk that the premium and transaction costs paid by a Fund in
purchasing an option will be lost as a result of unanticipated movements
in prices of the securities comprising the stock index on which the option
is based.
There is no assurance that a liquid secondary market on an options
exchange will exist for any particular option, or at any particular time,
and for some options no secondary market on an exchange or elsewhere may
exist. If a Fund is unable to close out a call option on securities that
it has written before the option is exercised, the Fund may be required to
purchase the optioned securities in order to satisfy its obligation under
the option to deliver such securities. If a Fund is unable to effect a
closing sale transaction with respect to options on securities that is has
purchased, it would have to exercise the option in order to realize any
profit and would incur transaction costs upon the purchase and sale of the
underlying securities.
Cover for Options Positions. Transactions using options (other than
options that a Fund has purchased) expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless it
owns either (1) an offsetting ("covered") position in securities or other
options or (2) cash, receivables and short-term debt securities with a
value sufficient at all times to cover its potential obligations not
covered as provided in (1) above. Each Fund will comply with Securities
and Exchange Commission (the "SEC") guidelines regarding cover for these
instruments and, if the guidelines so require, set aside cash, U.S.
government securities or other liquid, high-grade debt securities in a
segregated account with its Custodian in the prescribed amount. Under
current SEC guidelines, the Funds will segregate assets to cover
transactions in which the Funds write or sell options.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding futures contract or option is
open, unless they are replaced with similar assets. As a result, the
commitment of a large portion of a Fund's assets to cover or segregated
accounts could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Investment Companies. Each Fund currently intends to limit its
investments in securities issued by other investment companies so that, as
determined immediately after a purchase of such securities is made: (a)
not more than 5% of the value of the Fund's total assets will be invested
in the securities of any one investment company; (b) not more than 10% of
the value of its total assets will be invested in the aggregate in
securities of investment companies as a group; and (c) not more than 3% of
the outstanding voting stock of any one investment company will be owned
by the Fund or by the Company as a whole.
Warrants. The Funds may purchase warrants and similar rights, which
are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a
specified price during a specific period of time. The purchase of
warrants involves the risk that a Fund could lose the purchase value of a
warrant if the right to subscribe to additional shares is not exercised
prior to the warrant's expiration. Also, the purchase of warrants
involves the risk that the effective price paid for the warrant added to
the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in
the level of the underlying security. A Fund will not invest more than 5%
of its total assets, taken at market value, in warrants, or more than 2%
of its total assets, taken at market value, in warrants not listed on the
New York or American Stock Exchanges or a major foreign exchange.
Warrants attached to other securities acquired by a Fund are not subject
to this restriction.
Convertible Securities. Convertible securities entitle the holder to
receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible securities mature or are redeemed, converted
and exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities or preferred stock 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 Funds, the Adviser will
consider among other factors, its evaluation of the creditworthiness of
the issuers of the securities; the interest or dividend income generated
by the securities; the potential for capital appreciation of the
securities and the underlying common stocks; the prices of the securities
relative to other comparable securities and to the underlying common
stocks; whether the securities are entitled to the benefits of sinking
funds or other protective conditions; diversification of the Fund s
portfolio as to issuers; and whether the securities are rated by a rating
agency and, if so, the ratings assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a
conversion privilege) and their conversion value (their worth, at market
value, if converted into the underlying common stock). The investment
value of convertible securities is influenced by changes in interest
rates, with investment value declining as interest rates increase and
increasing as interest rates decline, and by the credit standing of the
issuer and other factors. The conversion value of convertible securities
is determined by the market price of the underlying common stock. If the
conversion value is low relative to the investment value, the price of the
convertible securities is governed principally by their investment value.
To the extent the market price of the underlying common stock approaches
or exceeds the conversion price, the price of the convertible securities
will be increasingly influenced by their conversion value. In addition,
convertible securities generally sell at a premium over their conversion
value determined by the extent to which investors place value on the right
to acquire the underlying common stock while holding fixed income
securities.
Capital appreciation for a 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 a Fund or a general increase in interest rates may
be expected to result in capital depreciation to the Fund.
Typically, the convertible debt securities in which the Funds will
invest will be of a quality less than investment grade (so-called "junk
bonds"). The Funds will, however, limit their investment in non-
investment grade convertible debt securities to no more than 5% of the
respective net assets at the time of purchase and will not acquire
convertible debt securities rated below B by Moody's or S&P, or unrated
securities deemed by the Adviser to be of comparable quality. Junk bonds,
while generally offering higher yields than investment grade securities
with similar maturities, involve greater risks, including the possibility
of default or bankruptcy. They are regarded as predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal.
The special risk considerations in connection with investments in these
securities are discussed below. Refer to Appendix A of this Statement of
Additional Information for a discussion of securities ratings.
Effect on Interest Rates and Economic Changes. The junk bond market
is relatively new and its growth has paralleled a long economic expansion.
As a result, it is not clear how this market may withstand a prolonged
recession or economic downturn. Such an economic downturn could severely
disrupt the market for and adversely affect the value of such securities.
All interest-bearing securities typically experience appreciation
when interest rates decline and depreciation when interest rates rise.
The market values of junk bond securities tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Junk bond securities also tend to be more sensitive to
economic conditions than are higher-rated categories. During an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of junk bond securities may experience financial stress and may
not have sufficient revenues to meet their payment obligations. The risk
of loss due to default by an issuer of these securities is significantly
greater than issuers of higher-rated securities because such securities
are generally unsecured and are often subordinated to other creditors.
Further, if the issuer of a junk bond security defaulted, a Fund might
incur additional expenses to seek recovery. Periods of economic
uncertainty and changes would also generally result in increased
volatility in the market prices of these securities and thus in a Fund s
net asset value.
As previously stated, the value of a junk bond security will
generally decrease in a rising interest rate market, and accordingly so
will a Fund's net asset value. If a Fund experiences unexpected net
redemptions in such a market, it may be forced to liquidate a portion of
its portfolio securities without regard to their investment merits. Due
to the limited liquidity of junk bond securities, a Fund may be forced to
liquidate these securities at a substantial discount. Any such
liquidation would reduce a Fund's asset base over which expenses could be
allocated and could result in a reduced rate of return for the Fund.
Payment Expectations. Junk bond securities typically contain
redemption, call or prepayment provisions which permit the issuer of such
securities containing such provisions to redeem the securities at its
discretion. During periods of falling interest rates, issuers of these
securities are likely to redeem or prepay the securities and refinance
them with debt securities with a lower interest rate. To the extent an
issuer is able to refinance the securities, or otherwise redeem them, a
Fund may have to replace the securities with a lower yielding security,
which could result in a lower return for the Fund.
Credit Ratings. Credit ratings issued by credit-rating agencies
evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of junk
bond securities and, therefore may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make
timely changes in a rating to reflect changes in the economy or in the
condition of the issuer that affect the market value of the security.
Consequently, credit ratings are used only as a preliminary indicator of
investment quality. Investments in junk bond securities will be more
dependent on the Adviser's credit analysis than would be the case with
investments in investment grade debt securities. The Adviser employs its
own credit research and analysis, which includes a study of existing debt,
capital structure, ability to service debt and to pay dividends, the
issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Adviser continually monitors each Fund s
investments and carefully evaluates whether to dispose of or to retain
junk bond securities whose credit ratings or credit quality may have
changed.
Liquidity and Valuation. A Fund may have difficulty disposing of
certain junk bond securities because there may be a thin trading market
for such securities. Because not all dealers maintain markets in all junk
bond securities there is no established retail secondary market for many
of these securities. The Funds anticipate that such securities could be
sold only to a limited number of dealers or institutional investors. To
the extent a secondary trading market does exist, it is generally not as
liquid as the secondary market for higher-rated securities. The lack of a
liquid secondary market may have an adverse impact on the market price of
the security. The lack of a liquid secondary market for certain
securities may also make it more difficult for a Fund to obtain accurate
market quotations for purposes of valuing the Fund. Market quotations are
generally available on many junk bond issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of junk
bond securities, especially in a thinly traded market.
New and Proposed Legislation. Recent legislation has been adopted,
and from time to time, proposals have been discussed, regarding new
legislation designed to limit the use of certain junk bond securities by
certain issuers. It is not currently possible to determine the impact of
the recent legislation or the proposed legislation on the junk bond
securities market. However, it is anticipated that if additional
legislation is enacted or proposed, it could have a material affect on the
value of these securities and the existence of a secondary trading market
for the securities.
In general, investments in non-investment grade convertible
securities are subject to a significant risk of a change in the credit
rating or financial condition of the issuing entity. Investments in
convertible securities of medium or lower quality are also likely to be
subject to greater market fluctuations and to greater risk of loss of
income and principal due to default than investments of higher-rated fixed
income securities. Such lower-rated securities generally tend to reflect
short-term corporate and market developments to a greater extent than
higher-rated securities, which react more to fluctuations in the general
level of interest rates. A Fund will generally reduce risk to the
investor by diversification, credit analysis and attention to current
developments in trends of both the economy and financial markets.
However, while diversification reduces the effect on a Fund of any single
investment, it does not reduce the overall risk of investing in lower-
rated securities.
Calculation of Portfolio Turnover Rate. The portfolio turnover rate
for the Funds 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 and by requirements which enable the Funds to receive favorable
tax treatment. The Funds are not restricted by policy with regard to
portfolio turnover and will make changes in their investment portfolios
from time to time as business and economic conditions as well as market
prices may dictate. It is anticipated the portfolio turnover rate for the
Micro-Cap, Emerging Growth and Mid-Cap Funds generally will not exceed
150%, 125%, and 150%, respectively. However, these should not be
considered as limiting factors.
INVESTMENT RESTRICTIONS
Consistent with each Fund's investment objective, each Fund has
adopted certain investment restrictions. The following restrictions
supplement those set forth in the Prospectus. Unless otherwise noted,
whenever an investment restriction states a maximum percentage of a Fund's
assets that may be invested in any security or other asset, such
percentage restriction will be determined immediately after and as a
result of the Fund's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other
circumstances will not be considered when determining whether the
investment complies with the Fund's investment limitations except with
respect to the Fund's restrictions on borrowings as set forth in
restriction 8 below.
A Fund's fundamental restrictions cannot be changed without the
approval of the holders of the lesser of: (i) 67% of the Fund's shares
present or represented at a shareholders meeting at which the holders of
more than 50% of such shares are present or represented; or (ii) more than
50% of the outstanding shares of the Fund.
The following are the Funds' fundamental investment restrictions.
Each Fund may not:
1. Issue senior securities, except as permitted under the
Investment Company Act of 1940 (the "Investment Company Act"); provided,
however, a Fund may engage in transactions involving options, futures and
options on futures contracts.
2. Lend money or securities (except by purchasing debt securities
or entering into repurchase agreements or lending portfolio securities).
3. With respect to seventy-five percent (75%) of its total assets,
purchase (a) the securities of any issuer (except securities of the U.S.
government or any agency or instrumentality thereof), if such purchase
would cause more than five percent (5%) of the value of the Fund's total
assets to be invested in securities of any one issuer or (b) more than ten
percent (10%) of the outstanding voting securities of any one issuer.
4. Purchase the securities of any issuer if, as a result, 25% or
more of the value of its total assets, determined at the time an
investment is made, exclusive of U.S. government securities, are in
securities issued by companies primarily engaged in the same industry.
5. Act as an underwriter or distributor of securities other than
shares of the Funds except to the extent that a Fund's participation as
part of a group in bidding or by bidding alone, for the purchase or
permissible investments directly from an issuer or selling shareholders
for the Fund's own portfolio may be deemed to be an underwriting, and
except to the extent that a Fund may be deemed an underwriter under the
Securities Act, by virtue of disposing of portfolio securities.
6. Purchase or sell real estate (but this shall not prevent the
Fund from investing in securities that are backed by real estate or issued
by companies that invest or deal in real estate or in participation
interests in pools of real estate mortgage loans exclusive of investments
in real estate limited partnerships).
7. Borrow money, except that a Fund may borrow money from a bank
for temporary or emergency purposes (not for leveraging) in an amount not
exceeding 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings that
exceed 33 1/3% of the Fund's total assets by reason of a decline in net
asset value will be reduced within three days to the extent necessary to
comply with the 33 1/3% limitation. Transactions involving options,
futures and options on futures, will not be deemed to be borrowings if
properly covered by a segregated account where appropriate.
8. Purchase or sell physical commodities or commodities contracts
unless acquired as a result of ownership of securities or other
instruments (but this shall not prevent the Fund from engaging in
transactions involving foreign currencies, futures contracts, options on
futures contracts or options, or from investing in securities or other
instruments backed by physical commodities).
The following investment restrictions are not fundamental, and may be
changed without shareholder approval.
Each Fund may not:
1. Purchase warrants, valued at the lower of cost or market, in
excess of 5% of a Fund's net assets. Included in that amount, but not to
exceed 2% of net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants acquired by
the Fund in units or attached to securities are not subject to these
restrictions.
2. Purchase securities of other investment companies except to the
extent permitted by the Investment Company Act and the rules and
regulations thereunder.
3. Make investments for the purpose of exercising control or
management of any company except that a Fund may vote portfolio securities
in the Fund's discretion.
4. Invest in securities of issuers which have a record of less than
three (3) years continuous operation, including the operation of any
predecessor business of a company which came into existence as a result of
a merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business, if such purchase would cause
the value of the Fund's investments in all such companies to exceed 5% of
the value of its total assets.
5. Acquire illiquid securities if, as a result of such investments,
more than five percent (5%) of the Fund's net assets (taken at market
value at the time of each investment) would be invested in illiquid
securities. "Illiquid securities" means securities that cannot be
disposed of within seven days in the normal course of business at
approximately the amount at which the Fund has valued the securities.
6. Purchase securities on margin (except to obtain such short-term
credits as are necessary for the clearance of purchases and sales of
securities) or participate in a joint trading account; provided, however,
the Fund may (i) purchase or sell futures contracts, (ii) make initial and
variation margin payments in connection with purchases or sales of futures
contracts or options on futures contracts, (iii) write or invest in put or
call options on securities and indexes, and (iv) engage in foreign
currency transactions. (The "bunching" of orders for the sale or purchase
of marketable portfolio securities with other accounts under the
management of the Adviser to save brokerage costs or average prices among
them is not deemed to result in a securities trading account.)
7. Borrow money except for temporary bank borrowings (not in excess
of five percent (5%) of the value of its total assets) for emergency or
extraordinary purposes, or engage in reverse repurchase agreements, or
pledge any of its assets except to secure borrowings and only to an extent
not greater than ten percent (10%) of the value of the Fund's net assets;
provided, however, a Fund may engage in transactions involving options.
Each Fund will not purchase any security while borrowings representing
more than 5% of its total assets are outstanding.
8. Purchase any interest in any oil, gas or any other mineral
exploration or development program, including any oil, gas or mineral
leases.
Each Fund may make commitments more restrictive than the
restrictions listed above so as to permit the sale of shares of the Fund
in certain states. Should a Fund determine that a commitment is no longer
in the best interest of the Fund and its shareholders, the Fund reserves
the right to revoke the commitment by terminating the sale of Fund shares
in the state involved.
In determining industry classification with respect to the
Funds, the Adviser intends to use the industry classification titles in
the Standard Industrial Classification Manual.
A guarantee of a security is not deemed to be a security issued
by the guarantor when the value of all securities issued and guaranteed by
the guarantor, and owned by a Fund, does not exceed 10% of the value of
the Fund's total assets.
ADDITIONAL COMPANY INFORMATION
Directors and Officers. Information regarding the Board of Directors
and officers of the Funds, including their principal business occupations
during at least the last five years, is set forth below. Each director
who is an "interested person," as defined in the 1940 Act, is indicated by
an asterisk. Except where otherwise indicated, each of the individuals
below has served in his or her present capacity with the Company since
November 1995. The address of each of the officers and directors is c/o
Van Wagoner Funds, _________________________, San Francisco, California,
_____.
*Garrett R. Van Wagoner, President, Treasurer, Secretary and Director
Mr. Van Wagoner is the President, Treasurer, Secretary, Director and
sole shareholder of the Adviser, and has served in such capacities since
the organization of the Adviser in October 1995. He was the portfolio
manager of the Govett Smaller Companies Fund, a portfolio of The Govett
Funds, Inc., from March 1993 until December 31, 1995. Prior thereto, he
was Senior Vice President at Bessemer Trust, N.A., since 1982, where he
was responsible for its emerging growth stock investment program.
Larry P. Arnold, Director
Larry P. Arnold, c/o Sunstone Financial Group, Inc., 207 East Buffalo
Street, Suite 400, Milwaukee, WI 53202. Private investor since 1993.
Founder and Managing General Partner of Wessels Arnold & Henderson from
June 1986 to January 1993. Senior Vice President of Piper Jaffray &
Hopwood from 1979 to March 1986.
Robert S. Colman, Director
Robert S. Colman, c/o Sunstone Financial Group, Inc., 207 East
Buffalo Street, Suite 400, Milwaukee, WI 53202. Founding Partner of
Colman Furlong & Co. from February 1991 to present. Partner of Colman
Helfet & Co. from August 1989 to January 1991. Sole proprietor of R.S.
Colman Company from January 1989 until July 1989. Partner of Robertson,
Colman & Stephens from November 1978 to December 1988. Director of Access
HealthNet, Inc., Cleveland-Cliffs, Inc., HealthCare COMPARE Corp. and New
Image Industries, Inc.
The Director of the Company who is an officer of the Adviser receives
no remuneration from the Funds. Each of the other Directors is paid a fee
of $500 for each meeting attended and is reimbursed for the expenses of
attending meetings.
Principal Shareholder. As of November 30, 1995, the Adviser owned
all of the outstanding shares of each of the Funds. Shareholders with a
controlling interest could effect the outcome of proxy voting or the
direction of management of the Company.
Investment Adviser. The investment adviser to the Funds is Van
Wagoner Capital Management, Inc. (the "Adviser"). Mr. Van Wagoner is the
founder and President of the Adviser and owns all of the outstanding
common stock of the Adviser. As such, he controls the Adviser. Pursuant
to Investment Advisory Agreements entered into between the Company on
behalf of each of the Funds and the Adviser (the "Investment Advisory
Agreements"), the Adviser provides continuous investment advisory services
to the Funds. The Adviser also provides the Funds with office space,
equipment and personnel necessary to operate and administer the Funds'
business and to supervise the provision of services by third parties.
The Investment Advisory Agreements are dated as of December 31, 1995.
The Investment Advisory Agreements have an initial term of two years and
thereafter are required to be approved annually by the Board of Directors
of the Company or by vote of a majority of the respective Fund's
outstanding voting securities (as defined in the 1940 Act). Each annual
renewal must also be approved by the vote of a majority of the respective
Fund's directors who are not parties to the Investment Advisory Agreement
or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval. Each Investment
Advisory Agreement was approved by the vote of a majority of the Directors
who are not parties to the respective Investment Advisory Agreement or
interested persons of any such party on December __, 1995 and by the
initial shareholder of each Fund on December ___, 1995. The Investment
Advisory Agreements are terminable without penalty with respect to a Fund,
on 60 days' written notice by the Directors, by vote of a majority of a
Fund's outstanding voting securities, or by the Adviser, and will
terminate automatically in the event of its assignment.
As compensation for its services, each Fund pays to the Adviser a
monthly advisory fee at the annual rate specified in the Prospectus. From
time to time, the Adviser may voluntarily waive all or a portion of its
fee for one or more Funds. The organizational expenses of the Funds were
advanced by the Adviser and will be reimbursed by each Fund over a period
of not more than 60 months.
The Investment Advisory Agreements require the Adviser to reimburse a
Fund in the event that the expenses and charges payable by the Fund in any
fiscal year, including the advisory fee but excluding taxes, interest,
brokerage commissions, and similar fees, exceed a percentage of the
average net asset value of the Fund for such year which is the most
restrictive percentage provided by the state laws of the various states in
which the Funds' common stock is qualified for sale. As of the date of
this Statement of Additional Information, the percentage applicable to
each Fund is 2 1/2% on the first $30,000,000 of its average net assets, 2%
on the next $70,000,000 of its average net assets and 1 1/2% on net assets
in excess of $100,000,000. Additionally, the Adviser voluntarily agreed
to reimburse each Fund to the extent aggregate annual operating expenses
as described above exceeded 1.95% of the average daily net assets of the
Micro-Cap, Emerging Growth and Mid-Cap Funds, respectively, for each
Fund's first twelve months of operation. The Adviser may voluntarily
continue to waive all or a portion of the advisory fees otherwise payable
by the Funds. Such a waiver may be terminated at any time in the
Adviser's discretion. Reimbursement of expenses in excess of the
applicable limitation will be made on a monthly basis and will be paid to
each Fund by reducing the Adviser's fee, subject to later adjustment,
month by month, for the remainder of each Fund's fiscal year. The Adviser
may from time to time voluntarily absorb expenses for one or more Funds in
addition to the reimbursement of expenses in excess of the foregoing.
Each Investment Advisory Agreement provides that the Adviser shall
not be liable to the respective Fund or its shareholders for any error of
judgment or mistake of law or for anything other than willful misfeasance,
bad faith, gross negligence or reckless disregard of its obligations or
duties. The Investment Advisory Agreements also provide that nothing
therein shall limit the freedom of the Adviser and its affiliates to
render investment supervisory and corporate administrative services to
other investment companies, to act as investment adviser or investment
counselor to other persons, firms or corporations, or to engage in other
business activities.
Administrator. Sunstone Financial Group, Inc. (the "Administrator"
or "Sunstone") provides various administrative and fund accounting
services to the Funds (which includes clerical, compliance, regulatory,
fund accounting and other services) pursuant to an Administration and Fund
Accounting Agreement with the Company on behalf of the Funds. The
Administration and Fund Accounting Agreement will remain in effect for an
initial 1 year term ending December 31, 1996 and thereafter as long as its
continuance is specifically approved at least annually by the Board of
Directors of the Company and the Administrator. The Administration and
Fund Accounting Agreement may be terminated on not less than 90 days
notice after the expiration of the initial term, without the payment of
any penalty, by the Board of Directors of the Company or by the
Administrator. Under the Administration and Fund Accounting Agreement,
the Administrator is not liable for any loss suffered by the Funds or
their shareholders in connection with the performance of the
Administration and Fund Accounting Agreement, except a loss resulting from
bad faith or gross negligence on the part of the Administrator in the
performance of its duties. The Administration and Fund Accounting
Agreement also provides that the Funds will indemnify the Administrator
against certain liabilities under certain circumstances and that the
Administrator may provide similar services to others including other
investment companies.
Custodian, Transfer Agent and Dividend Paying Agent. United Missouri
Bank, n.a. serves as the custodian and Sunstone serves as the transfer and
dividend paying agent for the Funds. Under the terms of the respective
agreements, United Missouri Bank, n.a. is responsible for the receipt and
delivery of each Fund's securities and cash, and Sunstone is responsible
for processing purchase and redemption requests for the securities of each
Fund as well as the recordkeeping of ownership of each Fund's securities,
payment of dividends as declared by the Directors and the issuance of
confirmations of transactions and annual statements to shareholders.
United Missouri Bank, n.a. and Sunstone do not exercise any supervisory
functions over the management of the Funds or the purchase and sale of
securities.
Legal Counsel. Foley & Lardner, with offices at 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, serves as counsel to the Funds.
Independent Accountants. Price Waterhouse LLP are the independent
accountants for the Funds. They are responsible for performing an audit
of each Fund's year-end financial statements as well as providing
accounting and tax advice to the management of the Funds.
DISTRIBUTION OF SHARES
Sunstone acts as distributor for the Funds pursuant to a Distribution
Agreement. The Distribution Agreement, which may be terminated by either
party, without penalty, on 60 days notice, provides that the Funds will
indemnify Sunstone against certain liabilities under certain circumstances
and that Sunstone may provide similar services to others including other
investment companies.
As set forth in the Prospectus, the Funds have adopted a Service and
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act.
The Plan authorizes payments by the Funds in connection with the
distribution of their shares at an annual rate, as determined from time to
time by the Board of Directors, of up to 0.25% of each Fund's average
daily net assets.
The Plan was adopted in anticipation that the Funds will benefit from
the Plan through increased sales of shares of each Fund, thereby reducing
each Fund's expense ratio and providing an asset size that allows the
Adviser greater flexibility in management. The Plan may be terminated at
any time by a vote of the directors of the Funds who are not interested
persons of the Funds and who have no direct or indirect financial interest
in the Plan or any agreement related thereto (the "Rule 12b-1 Directors")
or by a vote of a majority of the outstanding shares of Common Stock.
Messrs. Arnold and Colman are currently the Rule 12b-1 Directors. Any
change in the Plan that would materially increase the distribution
expenses of the Funds provided for in the Plan requires approval of the
shareholders and the Board of Directors, including the Rule 12b-1
Directors.
While the Plan is in effect, the selection and nomination of
directors who are not interested persons of the Funds will be committed to
the discretion of the directors of the Funds who are not interested
persons of the Funds. The Board of Directors must review the amount and
purposes of expenditures pursuant to the Plan quarterly as reported to it
by the officers of the Company. Unless otherwise terminated, the Plan
will continue in effect for as long as its continuance is specifically
approved at least annually by the Board of Directors, including the Rule
12b-1 Directors.
PORTFOLIO TRANSACTIONS AND BROKERAGE
The Adviser is responsible for decisions to buy and sell securities
for each Fund, for the placement of its portfolio business and the
negotiation of the commissions to be paid on such transactions, subject to
the supervision of the Company's Board of Directors. It is the policy of
the Adviser to seek the best execution at the best security price
available with respect to each transaction, in light of the overall
quality of brokerage and research services provided to the Adviser.
The Adviser will place orders pursuant to its investment
determination for the Funds either directly with the issuer or with any
broker or dealer. In executing portfolio transactions and selecting
brokers or dealers, the Adviser will use its best effort to seek on behalf
of a Fund the best overall terms available. In selecting brokers and
assessing the best overall terms available for any transaction, the
Adviser shall consider all factors that it deems relevant, including the
breadth of the market in the security, the price of the security, the
financial condition and execution capability of the broker or dealer, and
reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. The most favorable price to a Fund
means the best net price without regard to the mix between purchase or
sale price and commission, if any. Over-the-counter securities are
generally purchased or sold directly with principal market makers who
retain the difference in their cost in the security and its selling price.
In some instances, the Adviser may determine that better prices are
available from non-principal market makers who are paid commissions
directly.
In evaluating the best overall terms available, and in selecting the
broker-dealer to execute a particular transaction, the Adviser may also
consider the brokerage and research services (as those terms are defined
in Section 28(e) of the Securities Exchange Act of 1934) provided to the
Funds and/or other accounts over which the Adviser or an affiliate of the
Adviser exercises investment discretion. While the Adviser believes these
services have substantial value, they are considered supplemental to its
own efforts in the performance of its duties. Other clients of the
Adviser may indirectly benefit from the availability of these services to
the Adviser, and the Funds may indirectly benefit from services available
to the Adviser as a result of transactions for other clients. The Adviser
is authorized to pay to a broker or dealer who provides such brokerage and
research services a commission for executing a portfolio transaction for a
Fund which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if, but only if,
the Adviser determines in good faith that such commission was reasonable
in relation to the value of the brokerage and research services provided
by such broker or dealer - viewed in terms of that particular transaction
or in terms of the overall responsibilities the Adviser has to the Funds.
In no instance, however, will portfolio securities be purchased from or
sold to the Adviser, or any affiliated person of either the Company or the
Adviser, acting as principal in the transaction, except to the extent
permitted by the Securities and Exchange Commission through rules,
regulations, decisions and no-action letters.
The Adviser may retain advisory clients in addition to the Funds and
place portfolio transactions for these accounts. Research services
furnished by firms through which the Funds effect their securities
transactions may be used by the Adviser in servicing all of its accounts;
not all of such services may be used by the Adviser in connection with the
Funds. In the opinion of the Adviser, it will not be possible to
separately measure the benefits from research services to each of the
accounts (including the Funds) to be managed by the Adviser. Because the
volume and nature of the trading activities of the accounts will not be
uniform, the amount of commissions in excess of those charged by another
broker paid by each account for brokerage and research services will vary.
However, such costs to the Funds will not, in the opinion of the Adviser,
be disproportionate to the benefits to be received by the Funds on a
continuing basis.
The Adviser intends to seek to allocate portfolio transactions
equitably among its accounts whenever concurrent decisions are made to
purchase or sell securities by a Fund and another advisory account. In
some cases, this procedure could have an adverse effect on the price or
the amount of securities available to a Fund. In making such allocations
between a Fund and other advisory accounts, if any, the main factors to be
considered by the Adviser will be the respective investment objectives,
the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for recommending the investment.
TAXES
General
In order to qualify for treatment as a regulated investment company
("RIC") under the Code, each Fund must distribute to its shareholders for
each taxable year at least 90% of its investment company taxable income
(consisting generally of net investment income, net short-term capital
gain and net gains from certain foreign currency transactions)
("Distribution Requirement") and must meet several additional
requirements. With respect to each Fund, these requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options, futures
or forward contracts) derived with respect to its business of investing in
securities or those currencies ("Income Requirement"); (2) the Fund must
derive less than 30% of its gross income each taxable year from the sale
or other disposition of securities, or any of the following, that were
held for less than three months -- options, futures or forward contracts
(other than those on foreign currencies), or foreign currencies (or
options, futures or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in securities (or
options and futures with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Fund's taxable year,
at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. government securities, securities of other RICs, and
other securities, with these other securities limited, with respect to any
one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities; and (4) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. government
securities or the securities of other RICs) of any one issuer.
Dividends and other distributions declared by a Fund in, and payable
to shareholders of record as of a date in, October, November or December
of any year will be deemed to have been paid by the Fund and received by
the shareholders on December 31 of that year if the distributions are paid
by the Fund during the following January. Accordingly, those
distributions will be taxed to shareholders for the year in which that
December 31 falls.
A portion of the dividends from a Fund's investment company taxable
income (whether paid in cash or reinvested in additional Fund shares) may
be eligible for the dividends-received deduction allowed to corporations.
The eligible portion may not exceed the aggregate dividends received by a
Fund from U.S. corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received
deduction are subject to the alternative minimum tax.
If shares of a Fund are sold at a loss after being held for six
months or less, the loss will be treated as long-term, instead of short-
term, capital loss to the extent of any capital gain distributions
received on those shares. Investors also should be aware that if shares
are purchased shortly before the record date for any distribution, the
shareholder will pay full price for the shares and receive some portion of
the price back as a taxable dividend or capital gain distribution.
Each Fund will be subject to a nondeductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain
net income for the one-year period ending on October 31 of that year, plus
certain other amounts.
Foreign Taxes
Dividends and interest received by the Funds may be subject to
income, withholding, or other taxes imposed by foreign countries that
would reduce the yield on each Fund's portfolio securities. Tax
conventions between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
impose taxes on capital gains in respect of investments by foreign
investors. If more than 50% of the value of a Fund's total assets at the
close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to, and may, file an election with the Internal
Revenue Service that will enable its shareholders, in effect, to receive
the benefit of the foreign tax credit with respect to any foreign income
taxes paid by it. Pursuant to the election, the Fund will treat those
taxes as dividends paid to its shareholders and each shareholder will be
required to (1) include in gross income, and treat as paid by him, his
proportionate share of those taxes, (2) treat his share of those taxes and
of any dividend paid by the Fund that represents income from foreign
sources as his own income from those sources, and (3) either deduct the
taxes deemed paid by him in computing his taxable income or,
alternatively, use the foregoing information in calculating the foreign
tax credit against his federal income tax. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of
the Fund's income from sources within, and taxes paid to, foreign
countries if it makes this election.
Passive Foreign Investment Companies
If a Fund acquires stock in certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources
(such as sources that produce interest, dividends, rental, royalty or
capital gain income) or hold at least 50% of their assets in such passive
sources ("passive foreign investment companies"), the Fund could be
subject to federal income tax and additional interest charges on "excess
distributions" received from such companies or gains from the sale of
stock in such companies, even if all income or gain actually received by
the Fund is timely distributed to its shareholders. The Fund would not be
able to pass through to its shareholders any credit or deduction for such
tax. In some cases, elections may be available that would ameliorate
these adverse tax consequences, but such elections would require the Fund
to include certain amounts as income or gain (subject to the distribution
requirements described above) without a concurrent receipt of cash and
could result in the conversion of capital gain to ordinary income. A Fund
may limit its investments in passive foreign investment companies or
dispose of such investments if potential adverse tax consequences are
deemed material in particular situations.
Non U.S. Shareholders
Distributions of net investment income by a Fund to a shareholder
who, as to the United States, is a nonresident alien individual,
nonresident alien fiduciary of a trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder") will be subject to U.S.
withholding tax at a rate of 30% (or lower treaty rate). Withholding will
not apply if a dividend paid by a Fund to a foreign shareholder is
"effectively connected with the conduct of a U.S. trade or business," in
which case the reporting and withholding requirements applicable to
domestic taxpayers will apply. Distributions of net capital gain are not
subject to withholding, but in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be
subject to U.S. income tax at a rate of 30% (or lower treaty rate) if the
individual is physically present in the United States for more than 182
days during the taxable year and the distributions are attributable to a
fixed place of business maintained by an individual in the United States.
The foregoing is a general and abbreviated summary of certain U.S.
federal income tax considerations affecting such Fund and its
shareholders. Investors are urged to consult their own tax advisers for
more detailed information and for information regarding any foreign, state
and local taxes applicable to distributions received from a Fund.
DESCRIPTION OF SHARES
The Fund is an open-end management investment company organized as a
Maryland corporation on October 18, 1995. The Company's Charter
authorizes the Board of Directors to issue up to 500,000,000 shares of
common stock, par value $0.0001 per share. One hundred million shares of
the Company's authorized common stock have been initially allocated to
each of the Funds. Each share of the Funds has equal voting, dividend,
distribution and liquidation rights.
Shares of the Funds have no preemptive rights and only such
conversion or exchange rights as the Board may grant in its discretion.
When issued for payment as described in the Prospectus, the Company s
shares will be fully paid and non-assessable.
Shareholders are entitled to one vote for each full share held, and
fractional votes for fractional shares held, and will vote in the
aggregate and not by class or series except as otherwise required by the
1940 Act or the Maryland General Corporation Law.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an
investment company such as the Funds shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding
shares of each fund affected by the matter. A Fund is affected by a
matter unless it is clear that the interests of each Fund in the matter
are substantially identical or that the matter does not affect any
interest of the Funds. Under Rule 18f-2 the approval of an investment
advisory agreement or 12b-1 distribution plan or any change in a
fundamental investment policy would be effectively acted upon with respect
to a Fund only if approved by a majority of the outstanding shares of such
Fund. However, the rule also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts and the election of directors may be effectively acted upon by
shareholders of the Company voting without regard to particular Funds.
Notwithstanding any provision of the Maryland General Corporation Law
requiring for any purpose the concurrence of a proportion greater than a
majority of all votes entitled to be cast at a meeting at which a quorum
is present, the affirmative vote of the holders of a majority of the total
number of shares of the Funds outstanding (or of a class or series of the
Funds, as applicable) will be effective, except to the extent otherwise
required by the 1940 Act and rules thereunder. In addition, the Articles
of Incorporation provide that, to the extent consistent with the General
Corporation Law of Maryland and other applicable law, the By-Laws may
provide for authorization to be given by the affirmative vote of the
holders of less than a majority of the total number of shares of the Funds
outstanding (or of a class or series).
SHAREHOLDER MEETINGS
The Maryland Statutes permit registered investment companies, such as
the Funds, to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the 1940
Act. The Company has adopted the appropriate provisions in its By-Laws
and may, at its discretion, not hold an annual meeting in any year in
which the election of directors is not required to be acted on by
shareholders under the 1940 Act.
The Company's By-Laws also contain procedures for the removal of
directors by its shareholders. At any meeting of shareholders, duly
called and at which a quorum is present, the shareholders may, by the
affirmative vote of the holders of a majority of the votes entitled to be
cast thereon, remove any director or directors from office and may elect a
successor or successors to fill any resulting vacancies for the unexpired
terms of removed directors.
Upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting, the Secretary of the Fund shall promptly call a special meeting
of shareholders for the purpose of voting upon the question of removal of
any director. Whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least
$25,000 or at least one percent (1%) of the total outstanding shares,
whichever is less, shall apply to the Company's Secretary in writing,
stating that they wish to communicate with other shareholders with a view
to obtaining signatures to submit a request for a meeting as described
above and accompanied by a form of communication and request which they
wish to transmit, the Secretary shall within five business days after such
application either: (1) afford to such applicants access to a list of the
names and addresses of all shareholders as recorded on the books of the
Funds; or (2) inform such applicants as to the approximate number of
shareholders of record and the approximate cost of mailing to them the
proposed communication and form of request.
If the Secretary elects to follow the course specified in clause (2)
of the last sentence of the preceding paragraph, the Secretary, upon the
written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall,
with reasonable promptness, mail such material to all shareholders of
record at their addresses as recorded on the books unless within five
business days after such tender the Secretary shall mail to such
applicants and file with the SEC, together with a copy of the material to
be mailed, a written statement signed by at least a majority of the Board
of Directors to the effect that in their opinion either such material
contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in
violation of applicable law, and specifying the basis of such opinion.
After opportunity for hearing upon the objections specified in the
written statement so filed, the SEC may, and if demanded by the Board of
Directors or by such applicants shall, enter an order either sustaining
one or more of such objections or refusing to sustain any of them. If the
SEC shall enter an order refusing to sustain any of such objections, or
if, after the entry of an order sustaining one or more of such objections,
the SEC shall find, after notice and opportunity for hearing, that all
objections so sustained have been met, and shall enter an order so
declaring, the Secretary shall mail copies of such material of all
shareholders with reasonable promptness after the entry of such order and
the renewal of such tender.
INDIVIDUAL RETIREMENT ACCOUNTS
Individuals who receive compensation or earned income, even if they
are active participants in a qualified retirement plan (or certain similar
retirement plans), may establish their own tax-sheltered Individual
Retirement Account ("IRA"). The Funds offer a prototype IRA plan which
may be adopted by individuals. There is currently no charge for
establishing an account, although there is an annual maintenance fee.
Earnings on amounts held in an IRA are not taxed until withdrawal.
However, the amount of deduction, if any, allowed for IRA contributions is
limited for individuals who are active participants in an employer-
maintained retirement plan and whose incomes exceed specific limits.
A description of applicable service fees and certain limitations on
contributions and withdrawals, as well as application forms, are available
from the transfer agent upon request at 1-800-228-2121. The IRA documents
contain a disclosure statement which the Internal Revenue Service requires
to be furnished to individuals who are considering adopting the IRA.
Because a retirement program involves commitments covering future years,
it is important that the investment objective of the Funds be consistent
with the participant's retirement objectives. Premature withdrawals from
a retirement plan will result in adverse tax consequences. Consultation
with a competent financial and tax adviser regarding the foregoing
retirement plans is recommended.
PERFORMANCE INFORMATION
The Funds may from time to time advertise performance data such as
"average annual total return" and "total return." To facilitate the
comparability of historical performance data from one mutual fund to
another, the SEC has developed guidelines for the calculation of average
annual total return.
The average annual total return for a Fund for a specific period is
found by first taking a hypothetical $10,000 investment ("initial
investment") in the Fund's shares on the first day of the period and
computing the "redeemable value" of that investment at the end of the
period. The redeemable value is then divided by the initial investment,
and this quotient is taken to the Nth root (N representing the number of
years in the period) and 1 is subtracted from the result, which is then
expressed as a percentage. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset
value on the reinvestment dates during the period. This calculation can
be expressed as follows:
N
P(1 + T) = ERV
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.
Total return performance for a specific period is calculated by first
taking an investment ("initial investment") in a Fund's shares on the
first day of the period and computing the "ending value" of that
investment at the end of the period. The total return percentage is then
determined by subtracting the initial investment from the ending value and
dividing the remainder by the initial investment and expressing the result
as a percentage. The calculation assumes that all income and capital
gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be
shown as the increased dollar value of the investment over the period or
as a cumulative total return which represents the change in value of an
investment over a stated period and may be quoted as a percentage or as a
dollar amount.
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.
The Funds' performance figures will be based upon historical results
and will not necessarily be indicative of future performance. The Funds'
returns and net asset value will fluctuate and the net asset value of
shares when sold may be more or less than their original cost. Any
additional fees charged by a dealer or other financial services firm would
reduce the returns described in this section.
From time to time, in marketing and other literature, the Funds'
performance may be compared to the performance of other mutual funds in
general or to the performance of particular types of mutual funds with
similar investment goals, as tracked by independent organizations. Among
these organizations, Lipper Analytical Services, Inc. ("Lipper"), a widely
used independent research firm which ranks mutual funds by overall
performance, investment objective and assets, may be cited. Lipper
performance figures are based on changes in net asset value, with all
income and capital gains dividends reinvested. Such calculations do not
include the effect of any sales charges imposed by other funds. The Funds
will be compared to Lipper's appropriate fund category, that is, by fund
objective and portfolio holdings.
The Funds' performance may also be compared to the performance of
other mutual funds by Morningstar, Inc., which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five
stars (highest) to one star (lowest) and represent Morningstar's
assessment of the historical risk level and total return of a fund as a
weighted average for 3, 5, and 10 year periods. Ranking are not absolute
or necessarily predictive of future performance.
Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning the Funds, including reprints of or
selections from, editorials or articles about the Funds. Sources for Fund
performance and articles about the Funds may include publications such as
Money, Forbes, Kiplinger's, Financial World, Business Week, U.S. News and
World Report, the Wall Street Journal, Barron's and a variety of
investment newsletters.
The Funds may compare their performance to a wide variety of indices
and measures of inflation including the Standard & Poor's Index of 500
Stocks and the NASDAQ Over-the-Counter Composite Index. There are
differences and similarities between the investments that the Funds may
purchase for their respective portfolios and the investments measured by
these indices.
Occasionally statistics may be used to specify a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare a
Fund's net asset value or performance relative to a market index. One
measure of volatility is beta. Beta is the volatility of a fund relative
to the total market as represented by the Standard & Poor's 500 Stock
Index. A beta of more than 1.00 indicates volatility greater than the
market, and a beta of less than 1.00 indicates volatility less than the
market. Another measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net asset value or
total return around an average, over a specified period of time. The
premise is that greater volatility connotes greater risk undertaken in
achieving performance.
Marketing and other Company literature may include a description of
the potential risks and rewards associated with an investment in the
Funds. The description may include a "risk/return spectrum" which
compares a Fund to other Van Wagoner Funds or broad categories of funds,
such as money market, bond or equity funds, in terms of potential risks
and returns. Risk/return spectrums also may depict funds that invest in
both domestic and foreign securities or a combination of bond and equity
securities. Money market funds are designed to maintain a constant $1.00
share price and have a fluctuating yield. Share price, yield and total
return of a bond fund will fluctuate. The share price and return of an
equity fund also will fluctuate. The description may also compare a Fund
to bank products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. government
and offer a fixed rate of return.
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES;
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus, the net asset value of the Funds will
be determined as of the close of trading on each day the New York Stock
Exchange is open for trading. The New York Stock Exchange is open for
trading Monday through Friday except New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. Additionally, if any of the aforementioned holidays falls
on a Saturday, the New York Stock Exchange will not be open for trading on
the preceding Friday, and when any such holiday falls on a Sunday, the New
York Stock Exchange will not be open for trading on the following Monday
unless unusual business conditions exist, such as the ending of a monthly
or the yearly accounting period.
Shares of the Funds may be exchanged for shares of the Northern U.S.
Government Money Market Fund as provided in the Prospectus. Sunstone
Financial Group, Inc. receives a service fee from the Northern 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 of the Fund exchanged into the
Northern U.S. Government Money Market Fund.
OTHER INFORMATION
It is possible that conditions may exist in the future which would,
in the opinion of the Board of Directors, make it undesirable for a Fund
to pay for redemptions in cash. In such cases the Board may authorize
payment to be made in portfolio securities of a Fund. However, the Funds
have obligated themselves under the 1940 Act to redeem for cash all shares
presented for redemption by any one shareholder up to $250,000 (or 1% of a
Fund's net assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions are valued at the same value assigned
to them in computing the net asset value per share. Shareholders
receiving such securities generally will incur brokerage costs when
selling such securities.
Payment for shares of a Fund may, in the discretion of the Adviser,
be made in the form of securities that are permissible investments for the
Fund as described in the Prospectus. For further information about this
form of payment, contact the Transfer Agent. In connection with an in-
kind securities payment, the Funds will require, among other things, that
the securities be valued on the day of purchase in accordance with the
pricing methods used by the Fund and that the Fund receive satisfactory
assurances that it will have good and marketable title to the securities
received by it; that the securities be in proper form for transfer to the
Fund; and that adequate information be provided concerning the basis and
other tax matters relating to the securities. In addition, so long as
shares in a Fund are offered or sold in Texas, any securities that are
accepted as payment for the shares of the Fund will be limited to
securities that are issued in transactions that involve a bona fide
reorganization or statutory merger, or will be limited to other
acquisitions of portfolio securities that: (a) meet the investment
objective and policies of the Funds; (b) are acquired for investment and
not for resale; (c) are liquid securities that are not restricted as to
transfer either by law or liquidity of market; and (d) have a value that
is readily ascertainable (and not established only by valuation
procedures) as evidenced by a listing on the American Stock Exchange, New
York Stock Exchange or NASDAQ or as evidenced by their status as U.S.
Government Securities, bank certificates of deposit, banker's acceptances,
corporate and other debt securities that are actively traded, money market
securities and other like securities with a readily ascertainable value.
The Prospectus and this Statement of Additional Information do not
contain all the information included in the Registration Statement filed
with the Commission under the Securities Act with respect to the
securities offered by the Funds' Prospectus. Certain portions of the
Registration Statement have been omitted from the Prospectus and this
Statement of Additional Information, pursuant to the rules and regulations
of the Commission. The Registration Statement including the exhibits
filed therewith may be examined at the office of the Commission in
Washington, D.C.
Statements contained in the Prospectus or in this Statement of
Additional Information as to the contents of any contract or other
documents referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as
an exhibit to the Registration Statement of which the Prospectus and this
Statement of Additional Information form a part, each such statement being
qualified in all respects by such reference.
FINANCIAL STATEMENTS
The following financial statement has been audited and is attached hereto:
1. Report of Independent Accountants.
2. Statement of Assets and Liabilities as of November 27, 1995.
3. Notes to Financial Statement.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of Directors of
Van Wagoner Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Van
Wagoner Funds, Inc. (the "Fund") at November 27, 1995, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted
our audit of this financial statement in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Milwaukee, Wisconsin
November 30, 1995
<PAGE>
Van Wagoner Funds, Inc.
Statement of Assets and Liabilities
November 27, 1995
Micro-Cap Emerging Mid-Cap
ASSETS Fund Growth Fund Fund
Cash $33,333 $33,334 $33,333
Unamortized organization costs 22,420 22,420 22,420
Prepaid initial registration
expenses 13,818 13,819 13,818
------- ------ ------
Total Assets 69,571 69,573 69,571
------- ------ ------
LIABILITIES
Accrued professional fees 21,170 21,170 21,170
Accounts payable 14,318 14,319 14,318
Payable to Adviser 750 750 750
------- ------- ------
Total Liabilities 36,238 36,239 36,238
------- ------- -------
NET ASSETS $33,333 $33,334 $33,333
======= ======= =======
Capital shares, $0.0001 par value;
100,000,000 shares authorized
per portfolio $33,333 $33,334 $33,333
======= ======= =======
Shares outstanding 3,333 3,333 3,333
----- ----- -----
Net asset value, redemption price
and offering price per share (net
assets/shares outstanding) $10.00 $10.00 $10.00
------ ------ ------
The accompanying notes to financial statement are an integral part of this
statement
<PAGE>
Van Wagoner Funds, Inc.
Notes to Financial Statement
November 27, 1995
(1) Organization
Van Wagoner Funds, Inc. (the "Funds") was organized in October, 1995
as a Maryland corporation and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company issuing its shares in series, each
series representing a distinct portfolio with its own investment
objectives and policies. The only series presently authorized are
the Micro-Cap Fund, the Emerging Growth Fund and the Mid-Cap Fund.
The Funds have had no operations other than those relating to
organizational matters, including the sale of 10,000 shares to
capitalize the Funds, which were sold to Van Wagoner Capital
Management, Inc. (the "Adviser") on November 27, 1995 for cash in the
amount of $100,000.
(2) Significant Accounting Policies
(a) Organization Costs
Costs incurred by the Funds in connection with their
organization, registration and the initial public offering of
shares have been deferred and will be amortized over the period
of benefit, but not to exceed five years from the date upon
which the Funds commence their investment activities. If any of
the original shares of a Fund purchased by the Adviser are
redeemed by any holder thereof prior to the end of the
amortization period, the redemption proceeds will be reduced by
the pro rata share of the unamortized expenses as of the date of
redemption. The pro rata share by which the proceeds are
reduced will be derived by dividing the number of original
shares of the Funds being redeemed by the total number of
original shares outstanding at the time of redemption.
(b) Federal Income Taxes
Each Fund intends to comply with the requirements of the
Internal Revenue Code necessary to qualify as a regulated
investment company and to make the requisite distributions of
income to its shareholders which will be sufficient to relieve
it from all or substantially all Federal income taxes.
(3) Investment Adviser
The Funds have an agreement with the Adviser to furnish investment
advisory services to the Funds. Under the terms of this agreement,
the Adviser is compensated at the following percentage of average
daily net assets for each Fund: 1.50% for the Micro-Cap Fund, 1.25%
for the Emerging Growth Fund and 1.00% for the Mid-Cap Fund. The
Adviser has agreed to voluntarily reduce fees for expenses (exclusive
of brokerage, interest, taxes and extraordinary expenses) that exceed
the expense limitation of 1.95% for each Fund until January 1, 1997.
(4) Service and Distribution Plan
Pursuant to Rule 12b-1 under the 1940 Act, the Funds have adopted a
Service and Distribution Plan (the "Plan"). Under the Plan, each
Fund is authorized to pay expenses incurred for the purpose of
financing activities intended to result in the sale of shares of the
Funds at an annual rate of up to 0.25% of each Fund's average daily
net assets.
<PAGE>
APPENDIX A
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current assessment
of the likelihood of timely payment of debt having an original maturity of
no more than 365 days. The following summarizes the rating categories
used by Standard & Poor's for commercial paper in which the Funds may
invest:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics
are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues
designated "A-1."
Moody's commercial paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating
categories used by Moody's for commercial paper in which the Funds may
invest:
"Prime-1" - Issuer or related supporting institutions are considered
to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following capacities: leading market positions in well-established
industries; high rates of return on funds employed; conservative
capitalization structures with moderate reliance on debt and ample asset
protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range
of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered
to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and
coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternative liquidity is
maintained.
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps
employs three designations, "Duff 1+," "Duff 1" and "Duff 1-," within the
highest rating category. The following summarizes the rating categories
used by Duff & Phelps for commercial paper in which the Funds may invest:
"Duff 1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access
to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"Duff 1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental
protection factors. Risk factors are minor.
"Duff 1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"Duff 2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
funding need may enlarge total financing requirements, access to capital
markets is good.
Fitch short-term ratings apply to debt obligations that are payable
on demand or have original maturities of up to three years. The highest
rating category of Fitch for short-term obligations is "F-1." Fitch
employs two designations, "F-1+" and "F-1," within the highest category.
The following summarizes the rating categories used by Fitch for short-
term obligations in which the Funds may invest:
"F-1+" - Securities possess exceptionally strong credit quality.
Issues assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated "F-1+."
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely or incomplete payment of principal or interest of unsubordinated
instruments having a maturity of one year or less which are issued by a
bank holding company or an entity within the holding company structure.
The following summarizes the ratings used by Thomson BankWatch in which
the Funds may invest:
"TBW-1" - This designation represents Thomson BankWatch's highest
rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - this designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes
the rating categories used by IBCA for short-term debt ratings in which
the Funds may invest:
"A1" - Obligations are supported by the highest capacity for timely
repayment. Where issues possess a particularly strong credit feature, a
rating of A1+ is assigned.
"A2" - Obligations are supported by a good capacity for timely
repayment.
Corporate Long-Term Debt Ratings
Standard & Poor's Debt Ratings
A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers, or lessees. The debt rating is not a
recommendation to purchase, sell, or hold a security, inasmuch as it does
not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished by the issuer
or obtained by S&P from other sources it considers reliable. S&P does not
perform an audit in connection with any rating and may, on occasion, rely
on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment
of principal in accordance with the terms of the
obligation.
2. Nature of and provisions of the obligation.
3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or
other arrangement under the laws of bankruptcy and other
laws affecting creditors' rights.
Investment Grade
AAA - Debt rated 'AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small
degree.
A - Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated 'BBB' is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of
speculation and 'C' the highest. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rated 'BB' has less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely interest
and principal payments. The 'BB' rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied 'BBB-'
rating.
B - Debt rated 'B' has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay principal.
The 'B' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'BB' or 'BB-' rating.
CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial, or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
'CCC' rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied 'B' or 'B-' rating.
CC - Debt rated 'CC' typically is applied to debt subordinated to
senior debt that is assigned an actual or implied 'CCC' rating.
C - Debt rated 'C' typically is applied to debt subordinated to
senior debt which is assigned an actual or implied 'CCC-' debt rating.
The 'C' rating may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are continued.
CI - The rating 'CI' is reserved for income bonds on which no
interest is being paid.
D - Debt rated 'D' is in payment default. The 'D' rating cateogy is
used when interest payments or principal payments are not made on the date
due even if the applicable grace period has not expired, unless S&P
believes that such payments will be made during such period. The 'D'
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Moody's Long-Term Debt Ratings
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
some time in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes Bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with respect
to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Fitch Investors Service, Inc. Bond Ratings
Fitch investment grade bond ratings provide a guide to investors in
determing the credit risk associated with a particular security. The
ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt in a timely manner.
The rating takes into consideration special features of the issue,
its relationship to other obligations of the issuer, the current and
prospective financial condition and operating performance of the issuer
and any guarantor, as well as the economic and political environment that
might affect the issuer's future financial strength and credit quality.
Fitch ratings do not reflect any credit enhancement that may be
provided by insurance policies or financial guaranties unless otherwise
indicated.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect
small differences in the degrees of credit risk.
Fitch ratings are not recommendations to buy, sell, or hold any
security. Ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt
nature of taxability of payments made in respect of any security.
Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to
be reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result
of changes in, or the unavailability of, information or for other reasons.
AAA Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated 'AAA.' Because bonds rated in the 'AAA' and 'AA'
categories are not significantly vulnerable to foreseeable
future developments, short-term debt of the issuers is generally
rated 'F-1+.'
A Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.
Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The
ratings ('BB to 'C') represent Fitch's assessment of the likelihood of
timely payment of principal and interest in accordance with the terms of
obligation for bond issues not in default. For defaulted bonds, the
rating ('DDD' to 'D') is an assessment of the ultimate recovery value
through reorganization or liquidation.
The rating takes into consideration special features of the issue,
its relationship to other obligations of the issuer, the current and
prospective financial condition and operating performance of the issuer
and any guarantor, as well as the economic and political environment that
might affect the issuer's future financial strength.
Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect
the differences in the degrees of credit risk. Moreover, the character of
the risk factor varies from industry to industry and between corporate,
health care and municipal obligations.
BB Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and
interest reflects the obligor's limited margin of safety and the
need for reasonable business and economic activity throughout
the life of the issue.
CCC Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations
requires an advantageous business and economic environment.
CC Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C Bonds are in imminent default in payment of interest or
principal.
DDD, DD
and D Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued
on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor.
Duff & Phelps, Inc. Long-Term Debt Ratings
These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks
related to such factors as competition, government action, regulation,
technological obsolescence, demand shifts, cost structure, and management
depth and expertise. The projected viability of the obligor at the trough
of the cycle is a critical determination.
Each rating also takes into account the legal form of the security
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.).
The extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the
different security classes in the capital structure, the overall credit
strength of the issuer, and the nature of covenant protection. Review of
indenture restrictions is important to the analysis of a company s
operating and financial constraints.
The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of BBB- and higher
fall within the definition of investment grade securities, as defined by
bank and insurance supervisory authorities.
Rating Scale Definition
AAA Highest credit quality. The risk factors are
negligible, being only slightly more than for risk-
free U.S. Treasury debt.
AA+ High credit quality. Protection factors are
AA strong. Risk is modest, but may vary slightly from
AA- time to time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and greater
A- in periods of economic areas.
BBB+ Below average protection factors but still
BBB considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic
cycles.
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according
to industry conditions or company fortunes.
Overall quality may move up or down frequently
within this category.
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according
to economic cycles.
CCC Well below investment grade securities.
Considerable uncertainty exists as to timely
payment of principal, interest or preferred
dividends. Protection factors are narrow and risk
can be substantial with unfavorable
economic/industry conditions, and/or with
unfavorable company developments.
DD Default debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements (all included in Part B):
Report of Independent Accountants.
Statement of Assets and Liabilities as of November 27, 1995.
Notes to Financial Statement.
b. Exhibits
1.1 Registrant's Articles of Incorporation.
1.2 Articles of Amendment.
2. Registrant's By-Laws.
3. None.
4. None.
5. Investment Advisory Agreements by and between Registrant on
behalf of each of the Funds and Van Wagoner Capital
Management, Inc.
6. Distribution Agreement by and between Registrant and
Sunstone Financial Group, Inc.
7. None.
8. Custodian Agreement by and between Registrant and United
Missouri Bank, N.A.
9.1 Administration and Fund Accounting Agreement by and between
Registrant and Sunstone Financial Group, Inc.
9.2 Transfer Agency Agreement by and between Registrant and
Sunstone Financial Group, Inc.
10. Opinion of Foley & Lardner, counsel for Registrant.
11. Consent of Independent Accountants.
12. None.
13.1 Subscription Agreement.
13.2 Organizational Expenses Agreement.
14. Form of Individual Retirement Custodial Account Agreement
and Disclosure Statement.
15. Registrant's Service and Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940.
16. Computation of Performance Figures (incorporated by
reference to Exhibit 16 of Registrant's Registration
Statement on Form N-1A).
17. Financial Data Schedule.
18. None.
Item 25. Persons Controlled by or Under Common Control with Registrant.
Registrant neither controls any person nor is under common control
with any other person.
Item 26. Number of Holders of Securities.
Number of Record
Title of Class Holders as of November 30, 1995
Common Stock, $0.0001 par value 1
Item 27. Indemnification.
Pursuant to the authority of the Maryland General Corporation Law,
particularly Section 2-418 thereof, Registrant's Board of Directors has
adopted the following bylaw which is in full force and effect and has not
been modified or cancelled:
<PAGE>
Article VII
GENERAL PROVISIONS
Section 7. Indemnification.
A. The Corporation shall indemnify all of its corporate
representatives against expenses, including attorneys fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves the
corporate representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if there has been a
reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who are not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committe of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by judgement,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall create a rebuttable presumption that the person was
guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in Section 2-418(F) of the Maryland General Corporation Law upon
receipt of: (i) an undertaking by or on behalf of the corporate
representative to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw; and (ii) a written affirmation by the
corporate representative of the corporate representative's good faith
belief that the standard of conduct necessary for indemnification by the
corporation has been met.
E. The indemnification provided by this bylaw shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under these bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person subject to the limitations imposed from
time to time by the Investment Company Act of 1940, as amended.
F. This corporation shall have the power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by his or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify his or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or was a
director, officer, agent or employee of the corporation or who serves or
served another corporation, partnership, joint venture, trust or other
enterprise in one of these capacities at the request of the corporation
and who, by reason of his or her position, is, was, or is threatened to be
made, a party to a proceeding described herein.
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, 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 a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser.
The Adviser was organized in October 1995 for the purpose of
providing investment supervisory services for the Registrant. The Adviser
is not, nor has it been, engaged in any other business since its
inception. Certain information regarding the director and officer of the
Adviser including any business, profession, vocation or employment in
which such person is or has been at any time during the past two fiscal
years engaged for his or her own account or in the capacity of director,
officer, employee, partner or trustee, is set forth under "MANAGEMENT OF
THE FUND" in the Prospectus and under "ADDITIONAL COMPANY INFORMATION" in
the Statement of Additional Information and is incorporated herein by
reference.
Item 29. Principal Underwriters
(a) Sunstone Financial Group, Inc. currently serves as administrator
and distributor of the shares of The Haven Capital Management Trust, First
Omaha Funds, Inc. and Northern Funds Trust.
(b) To the best of Registrant's knowledge, the directors and
executive officers of Sunstone Financial Group, Inc., distributor for
Registrant, are as follows:
Name and Principal Positions and Offices with Positions and
Business Address Sunstone Financial Group, Offices
Inc. with Registrant
Miriam M. Allison President and Director None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Daniel S. Allison Secretary and Director None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Theresa A. Ladwig Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Mary M. Tenwinkel Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Randy M. Pavlick Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Anita M. Zagrodnik Vice President None
207 E. Buffalo Street
Suite 400
Milwaukee, WI 53202
Item 30. Location of Accounts and Records.
All accounts, books or other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules
promulgated thereunder are in the possession of the Registrant, at
Registrant's corporate offices, except (1) records held and maintained by
United Missouri Bank, n.a. relating to its functions as custodian and (2)
records held and maintained by Sunstone Financial Group, Inc., 207 East
Buffalo Street, Suite 400, Milwaukee, Wisconsin, 53202, relating to its
functions as administrator, fund accountant and transfer agent.
Item 31. Management Services.
All management-related service contracts entered into by Registrant
are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
(a) Registrant undertakes to provide its Annual Report upon request
without charge to any recipient of a Prospectus.
(b) Registrant undertakes to file a post-effective amendment to this
Registration Statement within four to six months of the effective date of
this Registration Statement which will contain financial statements (which
need not be certified) as of and for the time period reasonably close or
as soon as practicable to the date of such post-effective amendment.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant hereby certifies that it
has duly caused this Amended Registration Statement on Form N-1A to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Francisco, State of California, on the 29th day of November,
1995.
VAN WAGONER FUNDS, INC.
(Registrant)
By: /s/ Garrett Van Wagoner
Garrett R. Van Wagoner
President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement on Form N-1A has been signed below by the
following persons in the capacities and on the dates indicated.
Name Title Date
/s/Garrett Van Wagoner President; Director November 29, 1995
Garrett R. Van Wagoner (principal executive officer
and principal financial and
accounting officer)
/s/ Larry Arnold Director November 29, 1995
Larry Arnold
/s/ Robert Colman Director November 29, 1995
Robert Colman
<PAGE>
VAN WAGONER FUNDS, INC.
EXHIBITS TO THE REGISTRATION STATEMENT
ON FORM N-1A
EXHIBIT INDEX
1.1 Registrant's Articles of Incorporation.
1.2 Articles of Amendment.
2. Registrant's By-Laws.
3. None.
4. None.
5. Investment Advisory Agreements by and between Registrant on behalf of
each of the Funds and Van Wagoner Capital Management, Inc.
6. Distribution Agreement by and between Registrant and Sunstone
Financial Group, Inc.
7. None.
8. Custodian Agreement by and between Registrant and United Missouri
Bank, n.a.
9.1 Administration and Fund Accounting Agreement by and between
Registrant and Sunstone Financial Group, Inc.
9.2 Transfer Agency Agreement by and between Registrant and Sunstone
Financial Group, Inc.
10. Opinion of Foley & Lardner, counsel for Registrant.
11. Consent of Independent Accountants.
12. None.
13.1 Subscription Agreement.
13.2 Organizational Expenses Agreement.
14. Form of Individual Retirement Custodial Account Agreement and
Disclosure Statement.
15. Registrant's Service and Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940.
16. Computation of Performance Figures (incorporated by reference to
Exhibit 16 of Registrant's Registration Statement on Form N-1A).
17. Financial Data Schedule.
18. None.
EXHIBIT 1.1
ARTICLES OF INCORPORATION
OF
HX FUNDS, INC.
The undersigned sole incorporator, being at least eighteen years
of age, hereby adopts the following Articles of Incorporation for the
purpose of forming a Maryland corporation under the general laws of the
State of Maryland:
ARTICLE I
The name of the corporation (hereinafter called "Corporation")
is:
HX FUNDS, INC.
ARTICLE II
The period of existence shall be perpetual.
ARTICLE III
The purposes for which the Corporation is formed are to engage
in any lawful business for which corporations may be organized under the
Maryland General Corporation Law.
ARTICLE IV
A. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is Five Hundred Million
(500,000,000) shares, all with a par value of One Hundredth of a Cent
($0.0001) per share, to be known and designated as "Common Stock." The
aggregate par value of the authorized shares of the Corporation is Fifty
Thousand Dollars ($50,000). The Board of Directors of the Corporation may
increase or decrease the aggregate number of authorized shares of Common
Stock pursuant to Section 2-105 of the Maryland General Corporation Law or
any successor provision thereto. The Board of Directors of the
Corporation may classify or reclassify any unissued shares of Common Stock
and may designate or redesignate the name of any class of outstanding
Common Stock. The Board of Directors may fix the number of shares of
Common Stock in any such class and, except as specifically set forth in
these Articles of Incorporation, may set or change the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms or conditions of redemption of any
class of unissued shares of Common Stock. A total of Three Hundred
Million (300,000,000) shares of Common Stock shall initially be classified
as follows:
Class Fund Shares
A Micro-Cap Fund* 100,000,000
B Emerging Growth Fund* 100,000,000
C Mid-Cap Fund* 100,000,000
_________________
* or such other name designated by the Corporation's Board of Directors.
B. Notwithstanding the authority granted to the Board of
Directors of the Corporation with respect to the designation,
classification and reclassification of the unissued shares of Common Stock
of the Corporation, each class of Common Stock shall have the following
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption:
1. Each holder of shares of Common Stock of the
Corporation, irrespective of the class, shall be entitled to one
(1) vote for each full share (and a fractional vote for each
fractional share) then standing in his or her name on the books
of the Corporation; provided, however, that shares of any class
of Common Stock owned, other than in a fiduciary capacity, by
the Corporation or by another corporation in which the
Corporation owns shares entitled to cast a majority of all the
votes entitled to be cast by all shares outstanding and entitled
to vote of such corporation, shall not be voted at any meeting
of stockholders. On any matter submitted to a vote of
stockholders all shares of the Corporation's Common Stock then
issued and outstanding and entitled to vote, irrespective of the
class, shall be voted in the aggregate and not by class, except
that: (a) when otherwise expressly provided by the Maryland
General Corporation Law, the Investment Company Act of 1940 and
the regulations thereunder, or other applicable law, shares
shall be voted by individual class; and (b) when the matter to
be acted upon does not affect any interest of a particular class
of the Corporation's Common Stock, then only shares of the
affected class shall be entitled to vote thereon. At all
elections of directors of the Corporation, each stockholder
shall be entitled to vote the shares owned of record by him for
as many persons as there are directors to be elected, but shall
not be entitled to exercise any right of cumulative voting.
2. All consideration received by the Corporation for the
issue or sale of shares of any class of the Corporation's Common
Stock, together with all assets in which such consideration is
invested and reinvested, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any such funds or payments derived
from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to the class of the
Corporation's Common Stock with respect to which such assets,
payments or funds were received by the Corporation for all
purposes, subject only to the rights of creditors, and shall be
so handled upon the books of account of the Corporation. Such
consideration, assets, income, earnings, profits and proceeds
thereof, including any proceeds derived from the sale, exchange
or liquidation thereof, and any assets derived from any
reinvestment of such proceeds in whatever form, are herein
referred to as "assets belonging to" such class. Any assets,
income, earnings, profits and proceeds thereof, funds or
payments which are not readily attributable to any particular
class of the Corporation's Common Stock shall be allocable among
any one or more of the classes of the Corporation's Common Stock
in such manner and on such basis as the Board of Directors, in
its sole discretion, shall deem fair and equitable. The power
to make such allocations may be delegated by the Board of
Directors from time to time to one or more of the officers of
the Corporation.
3. The assets belonging to any class of the Corporation's
Common Stock shall be charged with the liabilities in respect of
such class of the Corporation's Common Stock, and shall also be
charged with the share of the general liabilities of the
Corporation allocated to such class determined as hereinafter
provided. The determination of the Board of Directors shall be
conclusive as to: (a) the amount of such liabilities, including
the amount of accrued expenses and reserves; (b) any allocation
of the same to a given class; and (c) whether the same are
allocable to one or more classes. The liabilities so allocated
to a class are herein referred to as "liabilities belonging to"
such class. Any liabilities which are not readily attributable
to any particular class of the Corporation's Common Stock shall
be allocable among any one or more of the classes of the
Corporation's Common Stock in such manner and on such basis as
the Board of Directors, in its sole discretion, shall deem fair
and equitable. The power to make such allocations may be
delegated by the Board of Directors from time to time to one or
more of the officers of the Corporation.
4. Shares of a class of the Corporation's Common Stock
shall be entitled to such dividends and distributions, in stock
or in cash or both, as may be declared from time to time by the
Board of Directors, acting in its sole discretion, with respect
to such class; provided, however, that dividends and
distributions on shares of a class of the Corporation's Common
Stock shall be paid only out of the lawfully available "assets
belonging to" such class as such phrase is defined in this
Article IV.
5. In the event of the liquidation or dissolution of the
Corporation, stockholders of a class of the Corporation's Common
Stock shall be entitled to receive, as a class, out of the
assets of the Corporation available for distribution to
stockholders, but other than general assets not belonging to any
particular class, the assets belonging to such class, and the
assets so distributable to the holders of any class of the
Corporation's Common Stock shall be distributed among such
holders in proportion to the number of shares of such class of
the Corporation's Common Stock held by them and recorded on the
books of the Corporation. In the event that there are any
general assets not belonging to any particular class of the
Corporation's Common Stock and available for distribution, such
distribution shall be made to the holders of all classes of the
Corporation's Common Stock in proportion to the net asset value
of the respective class of the Corporation's Common Stock
determined as set forth in the Bylaws of the Corporation.
6. Each share of each class of Common Stock of the
Corporation now or hereafter issued shall be subject to
redemption by the stockholders of the Corporation and, subject
to the suspension of such right of redemption as provided in the
Bylaws, each holder of shares of any class of Common Stock of
the Corporation, upon request to the Corporation accompanied by
surrender of the appropriate stock certificate or certificates,
if any, in proper form for transfer and after complying with any
other redemption procedures established by the Board of
Directors, shall be entitled to require the Corporation to
redeem all or any part of the shares of such class of Common
Stock standing in the name of such holder on the books of the
Corporation at the net asset value of such shares. In the event
that no certificates have been issued to the holder, the Board
of Directors may require the submission of a stock power with an
appropriate signature guarantee. All shares of any class of its
Common Stock redeemed by the Corporation shall be deemed to be
cancelled and restored to the status of authorized but unissued
shares. The method of computing the net asset value of shares
of each class of Common Stock of the Corporation for purposes of
the issuance and sale, or redemption, thereof, as well as the
time as of which such net asset value shall be computed, shall
be as set forth in the Bylaws. Payment of the net asset value
of each share of each class of Common Stock of the Corporation
surrendered to it for redemption shall be made by the
Corporation within seven (7) days after surrender of such stock
to the Corporation for such purpose, or within such other
reasonable period as may be determined from time to time by the
Board of Directors. The Board of Directors of the Corporation
may, upon reasonable notice to the stockholders of the
Corporation, impose a fee for the privilege of redeeming shares,
such fee to be not in excess of one percent (1.0%) of the
proceeds of any such redemption. The Board shall have
discretionary authority to rescind the imposition of any such
fee and to reimpose the redemption fee from time to time upon
reasonable notice. Any fee so imposed shall be uniform as to
all stockholders.
7. If, at any time when a request for transfer or
redemption of the shares of any class of Common Stock is
received by the Corporation or its agent, the value (computed as
set forth in the Bylaws) of the shares of such class in a
stockholder's account is less than One Thousand Dollars
($1000.00), after giving effect to such transfer or redemption,
the Corporation may cause the remaining shares of such class in
such stockholder's account to be redeemed in accordance with
such procedures as the Board of Directors shall adopt.
8. Each holder of shares of the Corporation's Common
Stock, irrespective of the class, may, upon request to the
Corporation accompanied by surrender of the appropriate stock
certificate or certificates, if any, in proper form for transfer
and after complying with any other conversion procedures
established by the Board of Directors, convert such shares into
shares of any other class of the Corporation's Common Stock on
the basis of their relative net asset values (determined in
accordance with the Bylaws of the Corporation) less a conversion
charge or discount determined by the Board of Directors. Any
fee so imposed shall be uniform as to all stockholders.
9. No holder of shares of any class of Common Stock of
the Corporation shall, as such holder, have any right to
purchase or subscribe for any shares of any class of the Common
Stock of the Corporation which it may issue or sell (whether out
of the number of shares authorized by these Articles of
Incorporation, or out of any shares of any class of Common Stock
of the Corporation acquired by it after the issue thereof, or
otherwise) other than such right, if any, as the Board of
Directors, in its discretion, may determine.
ARTICLE V
The number of directors constituting the Board of Directors
shall initially be two (2), and the names of the initial directors are
Miriam M. Allison and Randy M. Pavlick. Thereafter, the number of
directors shall be such number as is fixed from time to time by the
Bylaws.
ARTICLE VI
The Corporation reserves the right to enter into, from time to
time, investment advisory and administration agreements providing for the
management and supervision of the investments of the Corporation, the
furnishing of advice to the Corporation with respect to the desirability
of investing in, purchasing or selling securities or other property and
the furnishing of clerical and administrative services to the Corporation.
Such agreements shall contain such other terms, provisions and conditions
as the Board of Directors of the Corporation may deem advisable and as are
permitted by the Investment Company Act of 1940.
The Corporation may designate custodians, transfer agents,
registrars and/or disbursing agents for the stock and assets of the
Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such custodian, transfer agent,
registrar and/or disbursing agent.
ARTICLE VII
The following provisions define, limit and regulate the powers
of the Corporation, the Board of Directors and the stockholders:
A. The Corporation may issue and sell shares of any class of
its own Common Stock in such amounts and on such terms and conditions, for
such purposes and for such amount or kind of consideration now or
hereafter permitted by the laws of the State of Maryland, the Bylaws and
these Articles of Incorporation, as its Board of Directors may determine;
provided, however, that the consideration per share to be received by the
Corporation upon the sale of any shares of any class of its Common Stock
shall not be less than the net asset value per share of such class of
Common Stock outstanding at the time as of which the computation of said
net asset value shall be made.
B. The Board of Directors may, in its sole and absolute
discretion, reject in whole or in part orders for the purchase of shares
of any class of Common Stock and may, in addition, require such orders to
be in such minimum amounts as it shall determine.
C. The holders of any fractional shares of any class Common
Stock shall be entitled to the payment of dividends on such fractional
shares, to receive the net asset value thereof upon redemption, to share
in the assets of the Corporation upon liquidation and to exercise voting
rights with respect thereto.
D. The Board of Directors shall have full power in accordance
with good accounting practice: (a) to determine what receipts of the
Corporation shall constitute income available for payment of dividends and
what receipts shall constitute principal and to make such allocation of
any particular receipt between principal and income as it may deem proper;
and (b) from time to time, in its discretion (i) to determine whether any
and all expenses and other outlays paid or incurred (including any and all
taxes, assessments or governmental charges which the Corporation may be
required to pay or hold under any present or future law of the United
States of America or of any other taxing authority therein) shall be
charged to or paid from principal or income or both, and (ii) to apportion
any and all of said expenses and outlays, including taxes, between
principal and income.
E. The Board of Directors shall have the power to determine
from time to time whether and to what extent and at what time and places
and under what conditions and regulations the books, accounts and
documents of the Corporation or any of them, shall be open to the
inspection of stockholders, except as otherwise provided by applicable
law; and except as so provided, no stockholder shall have any right to
inspect any book, account or document of the Corporation unless authorized
to do so by resolution of the Board of Directors.
ARTICLE VIII
The address of the principal office of the Corporation in
Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202.
ARTICLE IX
The address of the initial registered office is c/o The
Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202.
ARTICLE X
The name of the initial registered agent at such address is The
Corporation Trust, Incorporated, a Maryland corporation.
ARTICLE XI
The name and address of the sole incorporator is:
Name Address
Richard L. Teigen c/o Foley & Lardner
777 East Wisconsin Avenue
Milwaukee, WI 53202
IN WITNESS WHEREOF, the undersigned incorporator who executed
the foregoing Articles of Incorporation hereby acknowledges the same to be
his act and further acknowledges that, to the best of his knowledge, the
matters and facts set forth therein are true in all material respects
under the penalties of perjury.
Dated this 17th day of October, 1995.
/s/ Richard L. Teigen
Richard L. Teigen
Sole Incorporator
EXHIBIT 1.2
ARTICLES OF AMENDMENT
TO ARTICLES OF INCORPORATION OF
HX FUNDS, INC.
The undersigned officer of HX FUNDS, INC., a corporation duly
organized and existing under the Maryland General Corporation Law (the
"Corporation"), does hereby certify:
FIRST: That the name of the Corporation is HX FUNDS, INC.
SECOND: That Article I of the Corporation's Articles of
Incorporation is amended in its entirety to read as follows:
ARTICLE I
The name of the corporation (hereinafter called
"Corporation") is:
VAN WAGONER FUNDS, INC.
THIRD: That the amendment to the Corporation's Articles of
Incorporation (the "Amendment") was approved by a majority of the entire
Board of Directors of the Corporation.
FOURTH: That the Amendment is limited to a change expressly
permitted by Section 2-605 of the Maryland General Corporation Law to be
made without action by the stockholders of the Corporation.
FIFTH: That the Corporation is registered as an open-end
investment company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, the undersigned officer of the Corporation
who executed the foregoing Articles of Amendment hereby acknowledges the
same to be his act and further acknowledges that, to the best of his
knowledge, information and belief, the matters set forth herein are true
in all material respects under the penalties for perjury.
Dated this 29th day of November, 1995.
HX FUNDS, INC.
By: /s/ Randy M. Pavlick
Randy M. Pavlick
President
Attest: /s/ Miriam M. Allison
Miriam M. Allison
Secretary
EXHIBIT 2
BYLAWS
OF
HX FUNDS, INC.
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1. Place of Meetings. All meetings of stockholders shall be
held at such location as the Board of Directors shall direct.
Section 2. Annual Meeting.
(a) The annual meeting of stockholders for the election of
directors and the transaction of such other business as may properly come
before it, if the annual meeting shall be held, shall be held during the
month of April of each year (or during such other month as the Board of
Directors shall determine), commencing in 1997, at such date and time as
shall be fixed by the Board of Directors and stated in the notice of such
meeting, but in no event more than one hundred twenty (120) days after the
occurrence of the event requiring the meeting to elect directors. Any
business of the corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business
as is specifically required by statute to be stated in the notice.
(b) The corporation shall not be required to hold an annual
meeting in any year in which the election of directors is not required to
be acted on by stockholders under the Investment Company Act of 1940.
Section 3. Special Meeting. Special meetings of the stockholders may
be called by the board of directors, the president, any vice president, or
the secretary, and shall be called by the secretary upon the written
request of the holders of shares entitled to not less than ten percent
(10%) of all the votes entitled to be cast at such meeting; provided that
such holders prepay the costs to the corporation of preparing and mailing
the notice of the meeting. The business transacted at any special meeting
of stockholders shall be limited to the purposes stated in the notice.
Section 4. Notice of Meeting. Not less than ten (10) days nor more
than ninety (90) days before the date of every stockholders' meeting, the
secretary shall give to each stockholder entitled to vote at such meeting
and to each other stockholder entitled to notice of such meeting under
applicable law, written or printed notice stating the time and place of
the meeting, and in the case of a special meeting (or where required by
applicable law) the purpose or purposes for which the meeting is called,
either by mail, by presenting it to him personally or by leaving it at his
residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to
the stockholder at his post office address as it appears on the records of
the corporation, with postage thereon prepaid.
Section 5. Quorum. At any meeting of stockholders the presence in
person or by proxy of stockholders entitled to cast a majority of the
votes thereat shall constitute a quorum; but this section shall not affect
any requirement under statute or under the charter for the vote necessary
for the adoption of any measure. If at any meeting a quorum is not
present or represented, the chairman of the meeting or the holders of a
majority of the stock present or represented may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until
a quorum is present or represented. At such adjourned meeting at which a
quorum is present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Stock Entitled to Vote. Each issued share of each class of
stock shall be entitled to vote at any meeting of stockholders except
shares owned, other than in a fiduciary capacity, by the corporation or by
another corporation in which the corporation owns shares entitled to cast
a majority of all the votes entitled to be cast by all shares outstanding
and entitled to vote of such corporation.
Section 7. Voting. Each outstanding share of each class of stock
entitled to vote at a meeting of stockholders shall be entitled to one
vote on each matter submitted to a vote. In all elections for directors
every stockholder shall have the right to vote the shares of each class
owned of record by him for as many persons as there are directors to be
elected, but shall not be entitled to exercise any right of cumulative
voting. A stockholder may vote the shares owned of record by him either
in person or by proxy executed in writing by the stockholder or by his
authorized attorney-in-fact. No proxy shall be valid after eleven (11)
months from its date unless otherwise provided in the proxy. At all
meetings of stockholders, unless the voting is conducted by inspectors,
all questions relating to the qualification of voters, the validity of
proxies and the acceptance or rejection of votes shall be decided by the
chairman of the meeting. A majority of the votes cast at a meeting of
stockholders, duly called and at which a quorum is present, shall be
sufficient to take or authorize any action which may properly come before
the meeting, unless a greater number is required by statute or by the
charter.
Section 8. Informal Action. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, if a
consent in writing, setting forth such action, is signed by all the
stockholders entitled to vote on the subject matter thereof and such
consent is filed with the records of the corporation.
ARTICLE II
DIRECTORS
Section 1. Number. The number of directors of the corporation shall
be five (5). By vote of a majority of the entire board of directors, the
number of directors fixed by the charter or by these bylaws may be
increased or decreased from time to time to not more than fifteen nor less
than three, but the tenure of office of a director shall not be affected
by any decrease in the number of directors so made by the board.
Section 2. Election and Qualification. Until the first annual meeting
of stockholders and until successors are duly elected and qualify, the
board of directors shall consist of the persons named as such in the
charter. At the first annual meeting of stockholders, the stockholders
shall elect directors to hold office until their successors are elected
and qualify. A director need not be a stockholder of the corporation, but
must be eligible to serve as a director of a registered investment company
under the Investment Company Act of 1940.
Section 3. Vacancies. Any vacancy on the board of directors occurring
between stockholders' meetings called for the purpose of electing
directors may be filled, if immediately after filling any such vacancy at
least two-thirds of the directors then holding office shall have been
elected to such office at an annual or special meeting of stockholders, in
the following manner: (i) for a vacancy occurring other than by reason of
an increase in directors, by a majority of the remaining members of the
board, although such majority is less than a quorum; and (ii) for a
vacancy occurring by reason of an increase in the number of directors, by
action of a majority of the entire board. A director elected by the board
to fill a vacancy shall be elected to hold office until the next annual
meeting of stockholders or until his successor is elected and qualifies.
If by reason of the death, disqualification or bona fide resignation of
any director or directors, more than sixty percent (60%) of the members of
the board of directors are interested persons of the corporation, as
defined in the Investment Company Act of 1940, such vacancy shall be
filled within thirty (30) days if it may be filled by the board, or within
sixty (60) days if a vote of stockholders is required to fill such
vacancy; provided that such vacancy may be filled within such longer
period as the Securities and Exchange Commission may prescribe by rules
and regulations, upon its own motion or by order upon application. In the
event that at any time less than a majority of the directors were elected
by the stockholders, the board or proper officer shall forthwith cause to
be held as promptly as possible, and in any event within sixty (60) days,
a meeting of the stockholders for the purpose of electing directors to
fill any existing vacancies in the board, unless the Securities and
Exchange Commission shall by order extend such period.
Section 4. Powers. The business and affairs of the corporation shall
be managed under the direction of the board of directors, which may
exercise all of the powers of the corporation, except such as are by law
or by the charter or by these bylaws conferred upon or reserved to the
stockholders.
Section 5. Removal.
(a) At any meeting of stockholders, duly called and at which a
quorum is present, the stockholders may, by the affirmative vote of the
holders of a majority of the votes entitled to be cast thereon, remove any
director or directors from office and may elect a successor or successors
to fill any resulting vacancies for the unexpired terms of removed
directors.
(b) Notwithstanding any other provisions of these bylaws, the
secretary of the corporation shall promptly call a special meeting of
stockholders for the purpose of voting upon the question of removal of any
director upon the written request of the holders of shares entitled to not
less than ten percent (10%) of all the votes entitled to be cast at such
meeting.
(c) Whenever ten or more stockholders of record who have been
such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least
$25,000 or at least one percent (1%) of the total outstanding shares,
whichever is less, shall apply to the corporation's secretary in writing,
stating that they wish to communicate with other stockholders with a view
to obtaining signatures to a request for a meeting pursuant to subsection
(b) above and accompanied by a form of communication and request which
they wish to transmit, the secretary shall within five business days after
such application either: (1) afford to such applicants access to a list
of the names and addresses of all stockholders as recorded on the books of
the corporation; or (2) inform such applicants as to the approximate
number of stockholders of record and the approximate cost of mailing to
them the proposed communication and form of request.
(d) If the secretary elects to follow the course specified in
clause (2) of subsection (c) above, the secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all stockholders of record at their
addresses as recorded on the books, unless within five (5) business days
after such tender the secretary shall mail to such applicants and file
with the Securities and Exchange Commission, together with a copy of the
material to be mailed, a written statement signed by at least a majority
of the board of directors to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or
would be in violation of applicable law, and specifying the basis of such
opinion.
(e) After opportunity for hearing upon the objections specified
in the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the board of directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the secretary shall mail
copies of such material to all shareholders with reasonable promptness
after the entry of such order and the renewal of such tender.
Section 6. Place of Meetings. Meetings of the board of directors,
regular or special, may be held at any place in or out of the State of
Maryland as the board may from time to time determine or as may be
specified in the notice of meeting.
Section 7. First Meeting of Newly Elected Board. The first meeting of
each newly elected board of directors shall be held without notice
immediately after and at the same general place as the annual meeting of
the stockholders, for the purpose of organizing the board, electing
officers and transacting any other business that may properly come before
the meeting.
Section 8. Regular Meetings. Regular meetings of the board of
directors may be held without notice at such time and place as shall from
time to time be determined by the board.
Section 9. Special Meetings. Special meetings of the board of
directors may be called at any time either by the board, the president, a
vice president or a majority of the directors in writing with or without a
meeting. Notice of special meetings shall either be mailed by the
secretary to each director at least three (3) days before the meeting or
shall be given personally or telegraphed to each director at least one (1)
day before the meeting. Such notice shall set forth the time and place of
such meeting but need not, unless otherwise required by law, state the
purposes of the meeting.
Section 10. Quorum and Vote Required for Action. At all meetings of
the board of directors a majority of the entire board shall constitute a
quorum for the transaction of business, and the action of a majority of
the directors present at any meetings at which a quorum is present shall
be the action of the board of directors unless the concurrence of a
greater proportion is required for such action by statute, the articles of
incorporation or these bylaws. If at any meeting a quorum is not present,
a majority of the directors present may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a
quorum is present. Members of the board of directors or a committee of
the board may participate in a meeting by means of a conference telephone
or similar communications equipment if all persons participating in the
meeting can hear each other at the same time; provided, however, that a
director may not participate in a meeting by means of a conference
telephone or similar communications equipment if the purpose of the
meeting is to approve the corporation's investment advisory agreement
and/or to approve the selection of the corporation's auditors, or if
participation in such a manner would otherwise violate the Investment
Company Act of 1940 or other applicable laws. Except as set forth in the
preceding sentence, participation in a meeting by these means constitutes
presence in person at the meeting.
Section 11. Executive and Other Committees. The board of directors may
appoint from among its members an executive and other committees composed
of two (2) or more directors. The board may delegate to such committees in
the intervals between meetings of the board any of the powers of the board
to manage the business and affairs of the corporation, except the power
to: (i) declare dividends or distributions upon the stock of the
corporation; (ii) issue stock of the corporation; (iii) recommend to the
stockholders any action which requires stockholder approval; (iv) amend
the bylaws; (v) approve any merger or share exchange which does not
require stockholder approval; or (vi) take any action required by the
Investment Company Act of 1940 to be taken by the independent directors of
the corporation or by the full board of directors.
Section 12. Informal Action. Except as set forth in the following
sentence, any action required or permitted to be taken at any meeting of
the board of directors or of a committee of the board may be taken without
a meeting, if a written consent to such action is signed by all members of
the board or the committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the board or committee.
Notwithstanding the preceding sentence, no action may be taken by the
board of directors pursuant to a written consent with respect to the
approval of the corporation's investment advisory agreement, the approval
of the selection of the corporation's auditors, or any action required by
the Investment Company Act of 1940 or other applicable law to be taken at
a meeting of the board of directors to be held in person.
ARTICLE III
OFFICERS AND EMPLOYEES
Section 1. Election and Qualification. At the first meeting of each
newly elected board of directors there shall be elected a president, one
or more vice presidents, a secretary and a treasurer. The board may also
elect one or more assistant secretaries and assistant treasurers. No
officer need be a director. Any two or more offices, except the offices
of president and vice president, may be held by the same person but no
officer shall execute, acknowledge or verify any instrument in more than
one capacity, if such instrument is required by law, charter or these
bylaws to be executed, acknowledged or verified by two or more officers.
Each officer must be eligible to serve as an officer of a registered
investment company under the Investment Company Act of 1940. Nothing
herein shall preclude the employment of other employees or agents by the
corporation from time to time without action by the board.
Section 2. Term, Removal and Vacancies. The officers shall be elected
to serve until the next first meeting of a newly elected board of
directors and until their successors are elected and qualify. Any officer
may be removed by the board, with or without cause, whenever in its
judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. A vacancy in any office shall be filled by the
board for the unexpired term.
Section 3. Bonding. Each officer and employee of the corporation who
singly or jointly with others has access to securities or funds of the
corporation, either directly or through authority to draw upon such funds,
or to direct generally the disposition of such securities shall be bonded
against larceny and embezzlement by a reputable fidelity insurance
company. Each such bond, which may be in the form of an individual bond,
a schedule or blanket bond covering the corporation's officers and
employees and the officers and employees of the investment adviser to the
corporation and other corporations to which said investment adviser also
acts as investment adviser, shall be in such form and for such amount
(determined at least annually) as the board of directors shall determine
in compliance with the requirements of Section 17(g) of the Investment
Company Act of 1940, as amended from time to time, and the rules,
regulations or orders of the Securities and Exchange Commission
thereunder.
Section 4. President. The president shall be the principal executive
officer of the corporation. He shall preside at all meetings of the
stockholders and directors, have general and active management of the
business of the corporation, see that all orders and resolutions of the
board of directors are carried into effect, and execute in the name of the
corporation all authorized instruments of the corporation, except where
the signing shall be expressly delegated by the board to some other
officer or agent of the corporation.
Section 5. Vice Presidents. The vice president, or if there be more
than one, the vice presidents in the order determined by the board of
directors, shall, in the absence or disability of the president, perform
the duties and exercise the powers of the president, and shall have such
other duties and powers as the board may from time to time prescribe or
the president delegate.
Section 6. Secretary and Assistant Secretaries. The secretary shall
give notice of, attend and record the minutes of meetings of stockholders
and directors, keep the corporate seal and, when authorized by the board,
affix the same to any instrument requiring it, attesting to the same by
his signature, and shall have such further duties and powers as are
incident to his office or as the board may from time to time prescribe.
The assistant secretary, if any, or, if there be more than one, the
assistant secretaries in the order determined by the board, shall in the
absence or disability of the secretary, perform the duties and exercise
the powers of the secretary, and shall have such other duties and powers
as the board may from time to time prescribe or the secretary delegate.
Section 7. Treasurer and Assistant Treasurers. The treasurer shall be
the principal financial and accounting officer of the corporation. He
shall be responsible for the custody and supervision of the corporation's
books of account and subsidiary accounting records, and shall have such
further duties and powers as are incident to his office or as the board of
directors may from time to time prescribe. The assistant treasurer, if
any, or, if there be more than one, the assistant treasurers in the order
determined by the board, shall in the absence or disability of the
treasurer, perform all duties and exercise the powers of the treasurer,
and shall have such other duties and powers as the board may from time to
time prescribe or the treasurer delegate.
ARTICLE IV
RESTRICTIONS ON COMPENSATION
TRANSACTIONS AND INVESTMENTS
Section 1. Salary and Expenses. Directors and executive officers as
such shall not receive any salary for their services or reimbursement for
expenses from the corporation; provided that the corporation may pay fees
in such amounts and at such times as the board of directors shall
determine to directors who are not interested persons of the corporation
for attendance at meetings of the board of directors. Clerical employees
shall receive compensation for their services from the corporation in such
amounts as are determined by the board of directors.
Section 2. Compensation and Profit from Purchase and Sales. No
affiliated person of the corporation, as defined in the Investment Company
Act of 1940, or affiliated person of such person, shall, except as
permitted by Section 17(e) of the Act, or the rules, regulations or orders
of the Securities and Exchange Commission thereunder, (i) acting as agent,
accept from any source any compensation for the purchase or sale of any
property or securities to or for the corporation or any controlled company
of the corporation, as defined in such Act, or (ii) acting as a broker, in
connection with the sale of securities to or by the corporation or any
controlled company of the corporation, receive from any source a
commission, fee or other remuneration for effecting such transaction. The
investment adviser to the corporation shall not profit directly or
indirectly from sales of securities to or from the corporation.
Section 3. Transactions with Affiliated Person. No affiliated person
of the corporation, as defined in the Investment Company Act of 1940, or
affiliated person of such person shall knowingly (i) sell any security or
other property to the corporation or to any company controlled by the
corporation, as defined in the Act, except shares of stock of the
corporation or securities of which such person is the issuer and which are
part of a general offering to the holders of a class of its securities,
(ii) purchase from the corporation or any such controlled company any
security or property except shares of stock of the corporation or
securities of which such person is the issuer, (iii) borrow money or other
property from the corporation or any such controlled company, or (iv)
acting as a principal effect any transaction in which the corporation or
controlled company is a joint or joint and several participant with such
person; provided, however, that this section shall not apply to any
transaction permitted by Sections 17(a), (b), (c), (d) or 21(b) of the
Investment Company Act of 1940 or the rules, regulations or orders of the
Securities and Exchange Commission thereunder, and shall not prohibit the
joint participation by the corporation and an affiliate in a fidelity bond
arrangement.
Section 4. Investment Adviser. The corporation shall employ one or
more investment advisers, the employment of which shall be pursuant to
written agreements in accordance with Section 15 of the Investment Company
Act of 1940, as amended from time to time.
ARTICLE V
STOCK CERTIFICATES AND TRANSFER BOOKS
Section 1. Certificates. Each holder of shares of any class of stock
of the corporation shall be entitled to a certificate or certificates, in
such form as the board of directors shall from time to time approve,
representing and certifying the number of shares of such class of stock
owned by him in the corporation. Each certificate shall be signed,
manually or by facsimile signature, by the president or a vice president,
countersigned, manually or by facsimile signature, by the secretary, an
assistant secretary, the treasurer or an assistant treasurer and sealed
with the corporate seal or facsimile thereof. In case any officer who has
signed any certificate, or whose facsimile signature appears thereon,
ceases to be an officer of the corporation before the certificate is
issued, the certificate may nevertheless be issued with the same effect as
if the officer had not ceased to be such officer as of the date of its
issue. Each certificate shall contain on its face or back a full
statement or summary of the designations and any preferences, conversion
and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms of each class of stock of the
corporation or shall state that the corporation will furnish such
information to the stockholder on request and without charge. Any
certificate representing stock which is restricted or limited as to
transferability also shall have a full statement of such restriction or
limitation plainly stated thereon or shall state that the corporation will
furnish such information to the stockholder on request and without charge.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost, stolen, destroyed or mutilated (or may delegate such authority to
one or more officers of the corporation) upon the making of an affidavit
of that fact by the person claiming the certificate to be lost, stolen,
destroyed or mutilated. The board or such officer may, in its or his
discretion, require the owner of such certificate or his legal
representative to give bond with sufficient surety to the corporation to
indemnify it against any loss or claim which may arise or expense which
may be incurred by reason of the issuance of a new certificate.
Section 3. Stock Ledger. The corporation shall maintain at its office
in San Francisco, California, or at the office of its principal transfer
agent, if any, an original or duplicate stock ledger containing the names
and addresses of all stockholders and the number of shares of each class
of stock held by each stockholder.
Section 4. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as
such, as the owner of shares for all purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not it shall have express or
other notice thereof, except as other provided by the laws of Maryland.
Section 5. Transfer Agent and Registrar. The corporation may maintain
one or more transfer offices or agencies, each in charge of a transfer
agent designated by the board of directors, where the shares of each class
of stock of the corporation shall be transferable. The corporation may
also maintain one or more registry offices, each in charge of a registrar
designated by the board, where the shares of such classes of stock shall
be registered.
Section 6. Transfers of Stock. Upon surrender to the corporation or a
transfer agent of a certificate for shares of any class duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 7. Fixing of Record Dates and Closing of Transfer Books. The
board of directors may fix, in advance, a date as the record date for the
purpose of determining stockholders entitled to notice of, or to vote at,
any meeting of stockholders, or stockholders entitled to receive payment
of any dividend or the allotment of any rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in
any case, shall be not more than ninety (90) days, and in case of a
meeting of stockholders not less than ten (10) days, prior to the date on
which the particular action requiring such determination of stockholders
is to be taken. In lieu of fixing a record date, the board may provide
that the stock transfer books shall be closed for a stated period but not
to exceed, in any case, twenty (20) days. If the stock transfer books are
closed or a record date is fixed for the purpose of determining
stockholders entitled to vote at a meeting of stockholders, such books
shall be closed for at least ten (10) days immediately preceding such
action.
ARTICLE VI
ACCOUNTS, REPORTS, CUSTODIAN AND INVESTMENT ADVISER
Section 1. Inspection of Books. The board of directors shall
determine from time to time whether, and, if allowed, when and under what
conditions and regulations the accounts and books of the corporation
(except such as may by statute be specifically open to inspection) or any
of them, shall be open to the inspection of the stockholders, and the
stockholders' rights in this respect are and shall be limited accordingly.
Section 2. Reliance on Records. Each director and officer shall, in
the performance of his duties, be fully protected in relying in good faith
on the books of account or reports made to the corporation by any of its
officials or by an independent public accountant.
Section 3. Preparation and Maintenance of Accounts, Records and
Statements. The president, a vice president or the treasurer shall
prepare or cause to be prepared annually, a full and correct statement of
the affairs of the corporation, including a balance sheet or statement of
financial condition and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
the stockholders and filed within twenty (20) days thereafter at the
principal office of the corporation in the State of California. If the
corporation is not required to hold an annual meeting of stockholders, the
statement of affairs shall be placed on file at the corporation's
principal office within one hundred twenty (120) days after the end of the
fiscal year. The proper officers of the corporation shall also prepare,
maintain and preserve or cause to be prepared, maintained and preserved
the accounts, books and other documents required by Section 2-111 of the
Maryland General Corporation Law and Section 31 of the Investment Company
Act of 1940 and shall prepare and file or cause to be prepared and filed
the reports required by Section 30 of such Act. No financial statement
shall be filed with the Securities and Exchange Commission unless the
officers or employees who prepared or participated in the preparation of
such financial statement have been specifically designated for such
purpose by the board of directors.
Section 4. Auditors. No independent public accountant shall be
retained or employed by the corporation to examine, certify or report on
its financial statements for any fiscal year unless such selection: (i)
shall have been approved by a majority of the entire board of directors
within thirty (30) days before or after the beginning of such fiscal year
or before the annual ratification by the stockholders; (ii) shall have
been ratified by the stockholders, provided that any vacancy occurring
between such annual ratification due to the death or resignation of such
accountant may be filled by the board of directors; and (iii) shall
otherwise meet the requirements of Section 32 of the Investment Company
Act of 1940.
Section 5. Custodianship. All securities owned by the corporation and
all cash, including, without limiting the generality of the foregoing, the
proceeds from sales of securities owned by the corporation and from the
issuance of shares of the capital stock of the corporation, payments of
principal upon securities owned by the corporation, and distributions in
respect of securities owned by the corporation which at the time of
payment are represented by the distributing corporation to be capital
distributions, shall be held by a custodian or custodians which shall be a
bank, as that term is defined in the Investment Company Act of 1940,
having capital, surplus and undivided profits aggregating not less than
$2,000,000. The terms of custody of such securities and cash shall
include provisions to the effect that the custodian shall deliver
securities owned by the corporation only (a) upon sales of such securities
for the account of the corporation and receipt by the custodian of payment
therefor, (b) when such securities are called, redeemed or retired or
otherwise become payable, (c) for examination by any broker selling any
such securities in accordance with "street delivery" custom, (d) in
exchange for or upon conversion into other securities alone or other
securities and cash whether pursuant to any plan of merger, consolidation,
reorganization, recapitalization or readjustment, or otherwise, (e) upon
conversion of such securities pursuant to their terms into other
securities, (f) upon exercise of subscription, purchase or other similar
rights represented by such securities, (g) for the purpose of exchanging
interim receipts or temporary securities for definitive securities, (h)
for the purpose of redeeming in kind shares of the capital stock of the
corporation, or (i) for other proper corporate purposes. Such terms of
custody shall also include provisions to the effect that the custodian
shall hold the securities and funds of the corporation in a separate
account or accounts and shall have sole power to release and deliver any
such securities and draw upon any such account, any of the securities or
funds of the corporation only on receipt by such custodian of written
instruction from one or more persons authorized by the board of directors
to give such instructions on behalf of the corporation, and that the
custodian shall deliver cash of the corporation required by this Section 5
to be deposited with the custodian only upon the purchase of securities
for the portfolio of the corporation and the delivery of such securities
to the custodian, for the purchase or redemption of shares of the capital
stock of the corporation, for the payment of interest, dividends, taxes,
management or supervisory fees or operating expenses, for payments in
connection with the conversion, exchange or surrender of securities owned
by the corporation, or for other proper corporate purposes. Upon the
resignation or inability to serve of any such custodian the corporation
shall (a) use its best efforts to obtain a successor custodian, (b)
require the cash and securities of the corporation held by the custodian
to be delivered directly to the successor custodian, and (c) in the event
that no successor custodian can be found, submit to the stockholders of
the corporation, before permitting delivery of such cash and securities to
anyone other than a successor custodian, the question whether the
corporation shall be dissolved or shall function without a custodian;
provided, however, that nothing herein contained shall prevent the
termination of any agreement between the corporation and any such
custodian by the affirmative vote of the holders of a majority of all the
shares of the capital stock of the corporation at the time outstanding and
entitled to vote. Upon its resignation or inability to serve, the
custodian may deliver any assets of the corporation held by it to a
qualified bank or trust company selected by it, such assets to be held
subject to the terms of custody which governed such retiring custodian,
pending action by the corporation as set forth in this Section 5.
Section 6. Termination of Custodian Agreement. Any employment
agreement with a custodian shall be terminable on not more than sixty (60)
days' notice in writing by the board of directors or the custodian and
upon any such termination the custodian shall turn over only to the
succeeding custodian designated by the board of directors all funds,
securities and property and documents of the corporation in its
possession.
Section 7. Checks and Requisitions. Except as otherwise authorized by
the board of directors, all checks and drafts for the payment of money
shall be signed in the name of the corporation by a custodian, and all
requisitions or orders for the payment of money by a custodian or for the
issue of checks and drafts therefore, all promissory notes, all
assignments of stock or securities standing in the name of the
corporation, and all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee, or for the
execution of powers to transfer the same, shall be signed in the name of
the corporation by not less than two persons (who shall be among those
persons, not in excess of five, designated for this purpose by the board
of directors) at least one of which shall be an officer. Promissory
notes, checks or drafts payable to the corporation may be endorsed only to
the order of a custodian or its nominee by the treasurer or president or
by such other person or persons as shall be thereto authorized by the
board of directors.
Section 8. Investment Advisory Contract. Any investment advisory
contract in effect after the first annual meeting of stockholders of the
corporation, to which the corporation is or shall become a party, whereby,
subject to the control of the board of directors of the corporation, the
investment portfolio with respect to any class of Common Stock of the
corporation shall be managed or supervised by the other party to such
contract, shall be effective and binding only upon the affirmative vote of
a majority of the outstanding voting securities of such class of Common
Stock of the corporation (as defined in the Investment Company Act of
1940), and the investment advisory contract currently in effect with
respect to any class of Common Stock shall be submitted to the holders of
shares of such class of Common Stock for ratification by the affirmative
vote of such majority. Any investment advisory contract to which the
corporation shall be a party whereby, subject to the control of the board
of directors of the corporation, the investment portfolio with respect to
any class of Common Stock of the corporation shall be managed or
supervised by the other party to such contract, shall provide, among other
things, that such contract cannot be assigned. Such investment advisory
contract shall prohibit the other party thereto from making short sales of
shares of capital stock of the corporation; and such investment advisory
contract shall prohibit such other party from purchasing shares otherwise
than for investment, and shall require such other party to advise the
corporation of any sales of shares of the capital stock of the corporation
made by such person or organization less than two months after the date of
any purchase by him or it of shares of the capital stock of the
corporation. Unless any such contract shall expressly otherwise provide,
any provisions therein for the termination thereof by action of the board
of directors of the corporation shall be construed to require that such
termination can be accomplished only upon the vote of a majority of the
entire board.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Offices. The registered office of the corporation in the
State of Maryland shall be in the City of Baltimore. The corporation
shall also have an office in San Francisco, California. The corporation
may also have offices at such other places within and without the State of
Maryland as the board of directors may from time to time determine. Except
as otherwise required by statute, the books and records of the corporation
may be kept outside the State of Maryland.
Section 2. Seal. The corporate seal shall have inscribed thereon the
name of the corporation, and the words "Corporate Seal" and "Maryland".
The seal may be used by causing it or a facsimile thereof to be impressed,
affixed, reproduced or otherwise.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by the board of directors.
Section 4. Notice of Waiver of Notice. Whenever any notice of the
time, place or purpose of any meeting of stockholders or directors is
required to be given under the statute, the charter or these bylaws, a
waiver thereof in writing, signed by the person or persons entitled to
such notice and filed with the records of the meeting, either before or
after the holding thereof, or actual attendance at the meeting of
stockholders in person or by proxy or at the meeting of directors in
person, shall be deemed equivalent to the giving of such notice to such
person. No notice need be given to any person with whom communication is
made unlawful by any law of the United States or any rule, regulation,
proclamation or executive order issued by any such law.
Section 5. Voting of Stock. Unless otherwise ordered by the board of
directors, the president shall have full power and authority, in the name
and on behalf of the corporation, (i) to attend, act and vote at any
meeting of stockholders of any company in which the corporation may own
shares of stock of record, beneficially (as the proxy or attorney-in-fact
of the record holder) or of record and beneficially, and (ii) to give
voting directions to the record stockholder of any such stock beneficially
owned. At any such meeting, he shall possess and may exercise any and all
rights and powers incident to the ownership of such shares which, as the
holder or beneficial owner and proxy of the holder thereof, the
corporation might possess and exercise if personally present, and may
delegate such power and authority to any officer, agent or employee of the
corporation.
Section 6. Dividends. Dividends upon any class of stock of the
corporation, subject to the provisions of the charter, if any, may be
declared by the board of directors in any lawful manner. The source of
each dividend payment shall be disclosed to the stockholders receiving
such dividend, to the extent required by the laws of the State of Maryland
and by Section 19 of the Investment Company Act of 1940 and the rules and
regulations of the Securities and Exchange Commission thereunder.
Section 7. Indemnification.
A. The corporation shall indemnify all of its corporate
representatives against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by
them in connection with the defense of any action, suit or proceeding, or
threat or claim of such action, suit or proceeding, whether civil,
criminal, administrative, or legislative, no matter by whom brought, or in
any appeal in which they or any of them are made parties or a party by
reason of being or having been a corporate representative, if the
corporate representative acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation
and with respect to any criminal proceeding, if he had no reasonable cause
to believe his conduct was unlawful provided that the corporation shall
not indemnify corporate representatives in relation to matters as to which
any such corporate representative shall be adjudged in such action, suit
or proceeding to be liable for gross negligence, willful misfeasance, bad
faith, reckless disregard of the duties and obligations involved in the
conduct of his office, or when indemnification is otherwise not permitted
by the Maryland General Corporation Law.
B. In the absence of an adjudication which expressly absolves
the corporate representative, or in the event of a settlement, each
corporate representative shall be indemnified hereunder only if there has
been a reasonable determination based on a review of the facts that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in paragraph A. Such
determination shall be made: (i) by the board of directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding, or if such a quorum cannot be obtained, then
by a majority vote of a committee of the board consisting solely of two or
more directors, not, at the time, parties to the action, suit or
proceeding and who were duly designated to act in the matter by the full
board in which the designated directors who are parties to the action,
suit or proceeding may participate; or (ii) by special legal counsel
selected by the board of directors or a committee of the board by vote as
set forth in (i) of this paragraph, or, if the requisite quorum of the
full board cannot be obtained therefor and the committee cannot be
established, by a majority vote of the full board in which directors who
are parties to the action, suit or proceeding may participate.
C. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall create a rebuttable presumption that the person
was guilty of willful misfeasance, bad faith, gross negligence or reckless
disregard to the duties and obligations involved in the conduct of his or
her office, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his or her conduct was unlawful.
D. Expenses, including attorneys' fees, incurred in the
preparation of and/or presentation of the defense of a civil or criminal
action, suit or proceeding may be paid by the corporation in advance of
the final disposition of such action, suit or proceeding as authorized in
the manner provided in Section 2-418(F) of the Maryland General
Corporation Law upon receipt of: (i) an undertaking by or on behalf of
the corporate representative to repay such amount unless it shall
ultimately be determined that he or she is entitled to be indemnified by
the corporation as authorized in this bylaw; and (ii) a written
affirmation by the corporate representative of the corporate
representative's good faith belief that the standard of conduct necessary
for indemnification by the corporation has been met.
E. The indemnification provided by this bylaw shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under these bylaws, any agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person subject to the limitations
imposed from time to time by the Investment Company Act of 1940, as
amended.
F. This corporation shall have power to purchase and maintain
insurance on behalf of any corporate representative against any liability
asserted against him or her and incurred by him or her in such capacity or
arising out of his or her status as such, whether or not the corporation
would have the power to indemnify him or her against such liability under
this bylaw provided that no insurance may be purchased or maintained to
protect any corporate representative against liability for gross
negligence, willful misfeasance, bad faith or reckless disregard of the
duties and obligations involved in the conduct of his or her office.
G. "Corporate Representative" means an individual who is or
was a director, officer, agent or employee of the corporation or who
serves or served another corporation, partnership, joint venture, trust or
other enterprise in one of these capacities at the request of the
corporation and who, by reason of his or her position, is, was, or is
threatened to be made, a party to a proceeding described herein.
Section 8. Amendments.
A. These bylaws may be altered, amended or repealed and new
bylaws may be adopted by the stockholders by affirmative vote of not less
than a majority of the shares of all classes of stock present or
represented at any annual or special meeting of the stockholders at which
a quorum is in attendance.
B. These bylaws may also be altered, amended or repealed and
new bylaws may be adopted by the Board of Directors by affirmative vote of
a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no bylaw adopted by the stockholders shall be
amended or repealed by the Board of Directors if the bylaws so adopted so
provides.
C. Any action taken or authorized by the stockholders or by
the Board of Directors, which would be inconsistent with the bylaws then
in effect but is taken or authorized by affirmative vote of not less than
the number of shares or the number of directors required to amend the
bylaws so that the bylaws would be consistent with such action, shall be
given the same effect as though the bylaws had been temporarily amended or
suspended so far, but only so far, as was necessary to permit the specific
action so taken or authorized.
Section 9. Reports to Stockholders. The books of account of the
corporation shall be examined by an independent firm of public accountants
at the close of each annual fiscal period of the corporation and at such
other times, if any, as may be directed by the Board of Directors of the
corporation. A report to the stockholders based upon each such
examination shall be mailed to each stockholder of the corporation of
record on such date with respect to each report as may be determined by
the Board of Directors at his address as the same appears on the books of
the corporation. Each such report shall include the financial information
required to be transmitted to stockholders by rules or regulations of the
Securities and Exchange Commission under the Investment Company Act of
1940 and shall be in such form as the Board of Directors shall determine
pursuant to rules and regulations of the Securities and Exchange
Commission.
Section 10. Information to Accompany Dividends. At the time of the
payment by the corporation of any dividend to the holders of any class of
stock of the corporation, each stockholder to whom such dividend is paid
shall be notified of the account or accounts from which it is paid and the
amount thereof paid from each such account.
ARTICLE VIII
SALES, REDEMPTION AND
NET ASSET VALUE OF SHARES
Section 1. Sales of Shares. Shares of any class of Common Stock of
the corporation shall be sold by it for the net asset value per share of
such class of Common Stock outstanding at the time as of which the
computation of said net asset value shall be made as hereinafter provided
in these bylaws.
Section 2. Periodic Investment and Dividend Reinvestment Plans. The
corporation acting by and through the Board of Directors shall have the
right to adopt and to offer to the holders of each class of stock and to
the public a periodic investment plan and an automatic reinvestment of
dividend plan subject to the limitations and restrictions imposed thereon
and as set forth in the Investment Company Act of 1940 and any rule or
regulation adopted or issued thereunder.
Section 3. Shares Issued for Securities. In the case of shares of any
class of stock of the corporation issued in whole or in part in exchange
for securities, there may, at the discretion of the board of directors of
the corporation, be included in the value of said securities, for the
purpose of determining the number of shares of such class stock of the
corporation issuable in exchange therefor, the amount, if any, of
brokerage commissions (not exceeding an amount equal to the rates payable
in connection with the purchase of comparable securities on the New York
Stock Exchange) or other similar costs of acquisition of such securities
paid by the holder of said securities in acquiring the same.
Section 4. Redemption of Shares. Each share of each class of Common
Stock of the corporation now or hereafter issued shall be subject to
redemption, as provided in the Articles of Incorporation of the
corporation.
Section 5. Suspension of Right of Redemption. The Board of Directors
of the corporation may suspend the right of the holders of any class of
Common Stock of the corporation to require the corporation to redeem
shares of such class:
(1) for any period (a) during which the New York Stock
Exchange is closed other than customary weekend and holiday
closings, or (b) during which trading on the New York Stock
Exchange is restricted;
(2) for any period during which an emergency, as defined
by rules of the Securities and Exchange Commission or any
successor thereto, exists as a result of which (a) disposal by
the corporation of securities owned by it is not reasonably
practicable, or (b) it is not reasonably practicable for the
corporation fairly to determine the value of its net assets; or
(3) for such other periods as the Securities and Exchange
Commission or any successor thereto may by order permit for the
protection of security holders of the corporation.
Section 6. Computation of Net Asset Value. For purposes of these
bylaws, the following rules shall apply:
A. The net asset value of each share of each class of
Common Stock of the corporation shall be determined at such time
or times as may be disclosed in the then currently effective
Prospectus relating to such class of Common Stock of this
corporation. The Board of Directors may also, from time to time
by resolution, designate a time or times intermediate of the
opening and closing of trading on the New York Stock Exchange on
each day that said Exchange is open for trading as of which the
net asset value of each share of each class of Common Stock of
the corporation shall be determined or estimated.
Any determination or estimation of net asset value as
provided in this subparagraph A shall be effective at the time
as of which such determination or estimation is made.
The net asset value of each share of each class of Common
Stock of the corporation for purposes of the issue of such class
of Common Stock shall be the net asset value which becomes
effective as provided in this Subparagraph A, next succeeding
receipt of the subscription to such share of such class Common
Stock. The net asset value of each share of each class of
Common Stock of the corporation tendered for redemption shall be
the net asset value which becomes effective as provided in this
Subparagraph A, next succeeding the tender of such share of such
class of Common Stock for redemption.
B. The net asset value of each share of each class of
Common Stock of the corporation, as of the close of business on
any day, shall be the quotient obtained by dividing the value at
such close of the net assets belonging to such class (meaning
the assets belonging to such class and any other assets
allocated to such class less the liabilities belonging to such
class and any other liabilities allocated to such class
excluding capital and surplus) of the corporation by the total
number of shares of such class outstanding at such close.
(i) The assets belonging to any class of Common
Stock shall be that portion of the total assets of the
corporation as determined in accordance with the
provisions of Article IV of the Articles of
Incorporation of the corporation. The assets of the
corporation shall be deemed to include (a) all cash on
hand, on deposit, or on call, (b) all bills and notes
and accounts receivable, (c) all shares of stock and
subscription rights and other securities owned or
contracted for by the corporation, other than its own
common stock, (d) all stock and cash dividends and
cash distributions, to be received by the corporation,
and not yet received by it but declared to
stockholders of record on a date on or before the date
as of which the net asset value is being determined,
(e) all interest accrued on any interest-bearing
securities owned by the corporation, and (f) all other
property of every kind and nature including prepaid
expenses; the value of such assets to be determined in
accordance with the corporation's registration
statement filed with the Securities and Exchange
Commission.
(ii) The liabilities belonging to any class of
Common Stock shall be that portion of the total
liabilities of the corporation as determined in
accordance with the provisions of Article IV of the
Articles of Incorporation of the corporation. The
liabilities of the corporation shall be deemed to
include (a) all bills and notes and accounts payable,
(b) all administration expenses payable and/or accrued
(including investment advisory fees), (c) all
contractual obligations for the payment of money or
property including the amount of any unpaid dividend
declared upon the corporation's stock and payable to
stockholders of record on or before the day as of
which the value of the corporation's stock is being
determined, (d) all reserves, if any, authorized or
approved by the Board of Directors for taxes,
including reserves for taxes at current rates based on
any unrealized appreciation in the value of the assets
of the corporation, and (e) all other liabilities of
the corporation of whatever kind and nature except
liabilities represented by outstanding capital stock
and surplus of the corporation.
(iii) For the purposes hereof: (a) shares of
each class of Common Stock subscribed for shall be
deemed to be outstanding as of the time of acceptance
of any subscription and the entry thereof on the books
of the corporation and the net price thereof shall be
deemed to be an asset belonging to such class; and (b)
shares of each class of Common Stock surrendered for
redemption by the corporation shall be deemed to be
outstanding until the time as of which the net asset
value for purposes of such redemption is determined or
estimated.
C. The net asset value of each share of each class of
Common Stock of the corporation, as of any time other than the
close of business on any day, may be determined by applying to
the net asset value as of the close of business on the preceding
business day, computed as provided in Paragraph B of this
Section of these bylaws, such adjustments as are authorized by
or pursuant to the direction of the Board of Directors and
designed reasonably to reflect any material changes in the
market value of securities and other assets held and any other
material changes in the assets or liabilities of the corporation
and in the number of its outstanding shares which shall have
taken place since the close of business on such preceding
business day.
D. In addition to the foregoing, the Board of Directors
is empowered, in its absolute discretion, to establish other
bases or times, or both, for determining the net asset value of
each share of each class of the Common Stock of the corporation.
EXHIBIT 5
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of December, 1995 between Van
Wagoner Funds, Inc., a Maryland corporation (the "Company"), and Van
Wagoner Capital Management, Inc., a California corporation (the
"Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
initially of three series, the Van Wagoner Micro-Cap Fund, (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund")
and the Van Wagoner Mid-Cap Fund (the "Mid-Cap Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Micro-Cap Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Micro-Cap Fund
for the period and on the terms set forth in this Agreement. The Adviser
hereby accepts such employment for the compensation herein provided and
agrees during such period to render the services and to assume the
obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Micro-Cap Fund, and, subject to
such policies as the board of directors of the Company may determine,
direct the purchase and sale of investment securities in the day to day
management of the Micro-Cap Fund. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for
or represent the Company or the Micro-Cap Fund in any way or otherwise be
deemed an agent of the Company or the Micro-Cap Fund. However, one or
more shareholders, officers, directors or employees of the Adviser may
serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company
to take any action contrary to its Articles of Incorporation, as amended,
restated or supplemented from time to time, or any applicable statute or
regulation, or to relieve or deprive the board of directors of the Company
of its responsibility for and control of the affairs of the Micro-Cap
Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Micro-Cap Fund, shall furnish office
space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Micro-Cap Fund. The Adviser
shall not be required to pay any expenses of the Micro-Cap Fund except as
provided herein if the total expenses borne by the Micro-Cap Fund,
including the Adviser's fee and the fees paid to the Micro-Cap Fund's
Administrator but excluding all federal, state and local taxes, interest,
brokerage commissions and extraordinary items, in any year exceed that
percentage of the average net assets of the Micro-Cap Fund for such year,
as determined by valuations made as of the close of each business day,
which is the most restrictive percentage provided by the state laws of the
various states in which the Micro-Cap Fund's shares are qualified for sale
or, if the states in which the Micro-Cap Fund's shares are qualified for
sale impose no such restrictions, 2%. The expenses of the Micro-Cap
Fund's operations borne by the Micro-Cap Fund include by way of
illustration and not limitation, directors fees paid to those directors
who are not officers of the Company, the costs of preparing and printing
registration statements required under the Securities Act of 1933 and the
Act (and amendments thereto), the expense of registering its shares with
the Securities and Exchange Commission and in the various states, the
printing and distribution cost of prospectuses mailed to existing
shareholders, the cost of stock certificates (if any), director and
officer liability insurance, reports to shareholders, reports to
government authorities and proxy statements, interest charges, taxes,
legal expenses, salaries of administrative and clerical personnel,
association membership dues, auditing and accounting services, insurance
premiums, brokerage and other expenses connected with the execution of
portfolio securities transactions, fees and expenses of the custodian of
the Micro-Cap Fund's assets, expenses of calculating the net asset value
and repurchasing and redeeming shares, printing and mailing expenses,
charges and expenses of dividend disbursing agents, registrars and stock
transfer agents and the cost of keeping all necessary shareholder records
and accounts.
The Company shall monitor the expense ratio of the Micro-Cap
Fund on a monthly basis. If the accrued amount of the expenses of the
Micro-Cap Fund exceeds the expense limitation established herein, the
Company shall create an account receivable from the Adviser in the amount
of such excess. In such a situation the monthly payment of the Adviser's
fee will be reduced by the amount of such excess, subject to adjustment
month by month during the balance of the Company's fiscal year if accrued
expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be
rendered by the Adviser hereunder, the Company, through and on behalf of
the Micro-Cap Fund, shall pay to the Adviser an advisory fee, paid
monthly, based on the average net assets of the Micro-Cap Fund, as
determined by valuations made as of the close of each business day of the
month. The monthly advisory fee shall be 1/12 of 1.50% (1.50% per annum)
on the average daily net assets of the Micro-Cap Fund. For any month in
which this Agreement is not in effect for the entire month, such fee shall
be reduced proportionately on the basis of the number of calendar days
during which it is in effect and the fee computed upon the average net
asset value of the business days during which it is so in effect.
5. Ownership of Shares of the Micro-Cap Fund. The Adviser
shall not take an ownership position in the Micro-Cap Fund, and shall not
permit any of its shareholders, officers, directors or employees to take a
long or short position in the shares of the Micro-Cap Fund, except for the
purchase of shares of the Micro-Cap Fund for investment purposes at the
same price as that available to the public at the time of purchase or in
connection with the initial capitalization of the Micro-Cap Fund.
6. Exclusivity. The services of the Adviser to the Micro-Cap
Fund hereunder are not to be deemed exclusive and the Adviser shall be
free to furnish similar services to others as long as the services
hereunder are not impaired thereby. Although the Adviser has agreed to
permit the Micro-Cap Fund and the Company to use the name "Van Wagoner",
if they so desire, it is understood and agreed that the Adviser reserves
the right to use and to permit other persons, firms or corporations,
including investment companies, to use such name, and that the Micro-Cap
Fund and the Company will not use such name if the Adviser ceases to be
the Micro-Cap Fund's sole investment adviser. During the period that this
Agreement is in effect, the Adviser shall be the Micro-Cap Fund's sole
investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Micro-Cap Fund or to any shareholder of the Micro-Cap
Fund for any act or omission in the course of, or connected with,
rendering services hereunder, or for any losses that may be sustained in
the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser, subject to the control
and direction of the Company's Board of Directors, shall have authority
and discretion to select brokers and dealers to execute portfolio
transactions for the Micro-Cap Fund and for the selection of the markets
on or in which the transactions will be executed. The Adviser may cause
the Micro-Cap Fund to pay a broker-dealer which provides brokerage and
research services, as such services are defined in Section 28(e) of the
Securities Exchange Act of 1934 (the "Exchange Act"), to the Adviser a
commission for effecting a securities transaction in excess of the amount
another broker-dealer would have charged for effecting such transaction,
if the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of brokerage and research services
provided by the executing broker-dealer viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion (as defined in
Section 3(a)(35) of the Exchange Act). The Adviser shall provide such
reports as the Company's Board of Directors may reasonable request with
respect to the Micro-Cap Fund's total brokerage and the manner in which
that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the Act and has
provided the Company with a copy of the code of ethics and evidence of its
adoption. Upon the written request of the Company, the Adviser shall
permit the Company to examine any reports required to be made by the
Adviser pursuant to Rule 17j-1(c)(1) under the Act.
10. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Company in
the manner required by the Act, and by the vote of the majority of the
outstanding voting securities of the Micro-Cap Fund, as defined in the
Act.
11. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the
Company or by a vote of the majority of the outstanding voting securities
of the Micro-Cap Fund, as defined in the Act, upon giving sixty (60) days'
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time upon the giving of sixty (60) days' written notice to
the Company. This Agreement shall terminate automatically in the event of
its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for an initial period beginning as of the date hereof and ending
December, 1997 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by
(i) the board of directors of the Company or by the vote of the majority
of the outstanding voting securities of the Micro-Cap Fund, as defined in
the Act, and (ii) the board of directors of the Company in the manner
required by the Act, provided that any such approval may be made effective
not more than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
VAN WAGONER CAPITAL MANAGEMENT
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of December, 1995 between Van
Wagoner Funds, Inc., a Maryland corporation (the "Company"), and Van
Wagoner Capital Management, Inc., a California corporation (the
"Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
initially of three series, the Van Wagoner Micro-Cap Fund, (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund")
and the Van Wagoner Mid-Cap Fund (the "Mid-Cap Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Emerging Growth Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Emerging
Growth Fund for the period and on the terms set forth in this Agreement.
The Adviser hereby accepts such employment for the compensation herein
provided and agrees during such period to render the services and to
assume the obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Emerging Growth Fund, and, subject
to such policies as the board of directors of the Company may determine,
direct the purchase and sale of investment securities in the day to day
management of the Emerging Growth Fund. The Adviser shall for all
purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to
act for or represent the Company or the Emerging Growth Fund in any way or
otherwise be deemed an agent of the Company or the Emerging Growth Fund.
However, one or more shareholders, officers, directors or employees of the
Adviser may serve as directors and/or officers of the Company, but without
compensation or reimbursement of expenses for such services from the
Company. Nothing herein contained shall be deemed to require the Company
to take any action contrary to its Articles of Incorporation, as amended,
restated or supplemented from time to time, or any applicable statute or
regulation, or to relieve or deprive the board of directors of the Company
of its responsibility for and control of the affairs of the Emerging
Growth Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Emerging Growth Fund, shall furnish
office space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Emerging Growth Fund. The
Adviser shall not be required to pay any expenses of the Emerging Growth
Fund except as provided herein if the total expenses borne by the Emerging
Growth Fund, including the Adviser's fee and the fees paid to the Emerging
Growth Fund's Administrator but excluding all federal, state and local
taxes, interest, brokerage commissions and extraordinary items, in any
year exceed that percentage of the average net assets of the Emerging
Growth Fund for such year, as determined by valuations made as of the
close of each business day, which is the most restrictive percentage
provided by the state laws of the various states in which the Emerging
Growth Fund's shares are qualified for sale or, if the states in which the
Emerging Growth Fund's shares are qualified for sale impose no such
restrictions, 2%. The expenses of the Emerging Growth Fund's operations
borne by the Emerging Growth Fund include by way of illustration and not
limitation, directors fees paid to those directors who are not officers of
the Company, the costs of preparing and printing registration statements
required under the Securities Act of 1933 and the Act (and amendments
thereto), the expense of registering its shares with the Securities and
Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the
cost of stock certificates (if any), director and officer liability
insurance, reports to shareholders, reports to government authorities and
proxy statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Emerging Growth
Fund's assets, expenses of calculating the net asset value and
repurchasing and redeeming shares, printing and mailing expenses, charges
and expenses of dividend disbursing agents, registrars and stock transfer
agents and the cost of keeping all necessary shareholder records and
accounts.
The Company shall monitor the expense ratio of the Emerging
Growth Fund on a monthly basis. If the accrued amount of the expenses of
the Emerging Growth Fund exceeds the expense limitation established
herein, the Company shall create an account receivable from the Adviser in
the amount of such excess. In such a situation the monthly payment of the
Adviser's fee will be reduced by the amount of such excess, subject to
adjustment month by month during the balance of the Company's fiscal year
if accrued expenses thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be
rendered by the Adviser hereunder, the Company, through and on behalf of
the Emerging Growth Fund, shall pay to the Adviser an advisory fee, paid
monthly, based on the average net assets of the Emerging Growth Fund, as
determined by valuations made as of the close of each business day of the
month. The monthly advisory fee shall be 1/12 of 1.25% (1.25% per annum)
on the average daily net assets of the Emerging Growth Fund. For any
month in which this Agreement is not in effect for the entire month, such
fee shall be reduced proportionately on the basis of the number of
calendar days during which it is in effect and the fee computed upon the
average net asset value of the business days during which it is so in
effect.
5. Ownership of Shares of the Emerging Growth Fund. The
Adviser shall not take an ownership position in the Emerging Growth Fund,
and shall not permit any of its shareholders, officers, directors or
employees to take a long or short position in the shares of the Emerging
Growth Fund, except for the purchase of shares of the Emerging Growth Fund
for investment purposes at the same price as that available to the public
at the time of purchase or in connection with the initial capitalization
of the Emerging Growth Fund.
6. Exclusivity. The services of the Adviser to the Emerging
Growth Fund hereunder are not to be deemed exclusive and the Adviser shall
be free to furnish similar services to others as long as the services
hereunder are not impaired thereby. Although the Adviser has agreed to
permit the Emerging Growth Fund and the Company to use the name "Van
Wagoner", if they so desire, it is understood and agreed that the Adviser
reserves the right to use and to permit other persons, firms or
corporations, including investment companies, to use such name, and that
the Emerging Growth Fund and the Company will not use such name if the
Adviser ceases to be the Emerging Growth Fund's sole investment adviser.
During the period that this Agreement is in effect, the Adviser shall be
the Emerging Growth Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Emerging Growth Fund or to any shareholder of the
Emerging Growth Fund for any act or omission in the course of, or
connected with, rendering services hereunder, or for any losses that may
be sustained in the purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser, subject to the control
and direction of the Company's Board of Directors, shall have authority
and discretion to select brokers and dealers to execute portfolio
transactions for the Emerging Growth Fund and for the selection of the
markets on or in which the transactions will be executed. The Adviser may
cause the Emerging Growth Fund to pay a broker-dealer which provides
brokerage and research services, as such services are defined in Section
28(e) of the Securities Exchange Act of 1934 (the "Exchange Act"), to the
Adviser a commission for effecting a securities transaction in excess of
the amount another broker-dealer would have charged for effecting such
transaction, if the Adviser determines in good faith that such amount of
commission is reasonable in relation to the value of brokerage and
research services provided by the executing broker-dealer viewed in terms
of either that particular transaction or his overall responsibilities with
respect to the accounts as to which he exercises investment discretion (as
defined in Section 3(a)(35) of the Exchange Act). The Adviser shall
provide such reports as the Company's Board of Directors may reasonable
request with respect to the Emerging Growth Fund's total brokerage and the
manner in which that brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the Act and has
provided the Company with a copy of the code of ethics and evidence of its
adoption. Upon the written request of the Company, the Adviser shall
permit the Company to examine any reports required to be made by the
Adviser pursuant to Rule 17j-1(c)(1) under the Act.
10. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Company in
the manner required by the Act, and by the vote of the majority of the
outstanding voting securities of the Emerging Growth Fund, as defined in
the Act.
11. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the
Company or by a vote of the majority of the outstanding voting securities
of the Emerging Growth Fund, as defined in the Act, upon giving sixty (60)
days' written notice to the Adviser. This Agreement may be terminated by
the Adviser at any time upon the giving of sixty (60) days' written notice
to the Company. This Agreement shall terminate automatically in the event
of its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for an initial period beginning as of the date hereof and ending
December, 1997 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by
(i) the board of directors of the Company or by the vote of the majority
of the outstanding voting securities of the Emerging Growth Fund, as
defined in the Act, and (ii) the board of directors of the Company in the
manner required by the Act, provided that any such approval may be made
effective not more than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
VAN WAGONER CAPITAL MANAGEMENT
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of December, 1995 between Van
Wagoner Funds, Inc., a Maryland corporation (the "Company"), and Van
Wagoner Capital Management, Inc., a California corporation (the
"Adviser").
W I T N E S S E T H:
WHEREAS, the Company is in the process of registering with the
Securities and Exchange Commission under the Investment Company Act of
1940 (the "Act") as an open-end management investment company consisting
initially of three series, the Van Wagoner Micro-Cap Fund, (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund")
and the Van Wagoner Mid-Cap Fund (the "Mid-Cap Fund"); and
WHEREAS, the Company desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940,
as the investment adviser for the Mid-Cap Fund.
NOW, THEREFORE, the Company and the Adviser do mutually promise
and agree as follows:
1. Employment. The Company hereby employs the Adviser to
manage the investment and reinvestment of the assets of the Mid-Cap Fund
for the period and on the terms set forth in this Agreement. The Adviser
hereby accepts such employment for the compensation herein provided and
agrees during such period to render the services and to assume the
obligations herein set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Mid-Cap Fund, and, subject to such
policies as the board of directors of the Company may determine, direct
the purchase and sale of investment securities in the day to day
management of the Mid-Cap Fund. The Adviser shall for all purposes herein
be deemed to be an independent contractor and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent the Company or the Mid-Cap Fund in any way or otherwise be
deemed an agent of the Company or the Mid-Cap Fund. However, one or more
shareholders, officers, directors or employees of the Adviser may serve as
directors and/or officers of the Company, but without compensation or
reimbursement of expenses for such services from the Company. Nothing
herein contained shall be deemed to require the Company to take any action
contrary to its Articles of Incorporation, as amended, restated or
supplemented from time to time, or any applicable statute or regulation,
or to relieve or deprive the board of directors of the Company of its
responsibility for and control of the affairs of the Mid-Cap Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Mid-Cap Fund, shall furnish office
space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Mid-Cap Fund. The Adviser
shall not be required to pay any expenses of the Mid-Cap Fund except as
provided herein if the total expenses borne by the Mid-Cap Fund, including
the Adviser's fee and the fees paid to the Mid-Cap Fund's Administrator
but excluding all federal, state and local taxes, interest, brokerage
commissions and extraordinary items, in any year exceed that percentage of
the average net assets of the Mid-Cap Fund for such year, as determined by
valuations made as of the close of each business day, which is the most
restrictive percentage provided by the state laws of the various states in
which the Mid-Cap Fund's shares are qualified for sale or, if the states
in which the Mid-Cap Fund's shares are qualified for sale impose no such
restrictions, 2%. The expenses of the Mid-Cap Fund's operations borne by
the Mid-Cap Fund include by way of illustration and not limitation,
directors fees paid to those directors who are not officers of the
Company, the costs of preparing and printing registration statements
required under the Securities Act of 1933 and the Act (and amendments
thereto), the expense of registering its shares with the Securities and
Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the
cost of stock certificates (if any), director and officer liability
insurance, reports to shareholders, reports to government authorities and
proxy statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Mid-Cap Fund's
assets, expenses of calculating the net asset value and repurchasing and
redeeming shares, printing and mailing expenses, charges and expenses of
dividend disbursing agents, registrars and stock transfer agents and the
cost of keeping all necessary shareholder records and accounts.
The Company shall monitor the expense ratio of the Mid-Cap Fund
on a monthly basis. If the accrued amount of the expenses of the Mid-Cap
Fund exceeds the expense limitation established herein, the Company shall
create an account receivable from the Adviser in the amount of such
excess. In such a situation the monthly payment of the Adviser's fee will
be reduced by the amount of such excess, subject to adjustment month by
month during the balance of the Company's fiscal year if accrued expenses
thereafter fall below the expense limitation.
4. Compensation of the Adviser. For the services to be
rendered by the Adviser hereunder, the Company, through and on behalf of
the Mid-Cap Fund, shall pay to the Adviser an advisory fee, paid monthly,
based on the average net assets of the Mid-Cap Fund, as determined by
valuations made as of the close of each business day of the month. The
monthly advisory fee shall be 1/12 of 1.00% (1.00% per annum) on the
average daily net assets of the Mid-Cap Fund. For any month in which this
Agreement is not in effect for the entire month, such fee shall be reduced
proportionately on the basis of the number of calendar days during which
it is in effect and the fee computed upon the average net asset value of
the business days during which it is so in effect.
5. Ownership of Shares of the Mid-Cap Fund. The Adviser shall
not take an ownership position in the Mid-Cap Fund, and shall not permit
any of its shareholders, officers, directors or employees to take a long
or short position in the shares of the Mid-Cap Fund, except for the
purchase of shares of the Mid-Cap Fund for investment purposes at the same
price as that available to the public at the time of purchase or in
connection with the initial capitalization of the Mid-Cap Fund.
6. Exclusivity. The services of the Adviser to the Mid-Cap
Fund hereunder are not to be deemed exclusive and the Adviser shall be
free to furnish similar services to others as long as the services
hereunder are not impaired thereby. Although the Adviser has agreed to
permit the Mid-Cap Fund and the Company to use the name "Van Wagoner", if
they so desire, it is understood and agreed that the Adviser reserves the
right to use and to permit other persons, firms or corporations, including
investment companies, to use such name, and that the Mid-Cap Fund and the
Company will not use such name if the Adviser ceases to be the Mid-Cap
Fund's sole investment adviser. During the period that this Agreement is
in effect, the Adviser shall be the Mid-Cap Fund's sole investment
adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Mid-Cap Fund or to any shareholder of the Mid-Cap Fund
for any act or omission in the course of, or connected with, rendering
services hereunder, or for any losses that may be sustained in the
purchase, holding or sale of any security.
8. Brokerage Commissions. The Adviser, subject to the control
and direction of the Company's Board of Directors, shall have authority
and discretion to select brokers and dealers to execute portfolio
transactions for the Mid-Cap Fund and for the selection of the markets on
or in which the transactions will be executed. The Adviser may cause the
Mid-Cap Fund to pay a broker-dealer which provides brokerage and research
services, as such services are defined in Section 28(e) of the Securities
Exchange Act of 1934 (the "Exchange Act"), to the Adviser a commission for
effecting a securities transaction in excess of the amount another
broker-dealer would have charged for effecting such transaction, if the
Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of brokerage and research services
provided by the executing broker-dealer viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion (as defined in
Section 3(a)(35) of the Exchange Act). The Adviser shall provide such
reports as the Company's Board of Directors may reasonable request with
respect to the Mid-Cap Fund's total brokerage and the manner in which that
brokerage was allocated.
9. Code of Ethics. The Adviser has adopted a written code of
ethics complying with the requirements of Rule 17j-1 under the Act and has
provided the Company with a copy of the code of ethics and evidence of its
adoption. Upon the written request of the Company, the Adviser shall
permit the Company to examine any reports required to be made by the
Adviser pursuant to Rule 17j-1(c)(1) under the Act.
10. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Company in
the manner required by the Act, and by the vote of the majority of the
outstanding voting securities of the Mid-Cap Fund, as defined in the Act.
11. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the
Company or by a vote of the majority of the outstanding voting securities
of the Mid-Cap Fund, as defined in the Act, upon giving sixty (60) days'
written notice to the Adviser. This Agreement may be terminated by the
Adviser at any time upon the giving of sixty (60) days' written notice to
the Company. This Agreement shall terminate automatically in the event of
its assignment (as defined in Section 2(a)(4) of the Act). Subject to
prior termination as hereinbefore provided, this Agreement shall continue
in effect for an initial period beginning as of the date hereof and ending
December, 1997 and indefinitely thereafter, but only so long as the
continuance after such initial period is specifically approved annually by
(i) the board of directors of the Company or by the vote of the majority
of the outstanding voting securities of the Mid-Cap Fund, as defined in
the Act, and (ii) the board of directors of the Company in the manner
required by the Act, provided that any such approval may be made effective
not more than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
VAN WAGONER CAPITAL MANAGEMENT
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
EXHIBIT 6
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this 31st day of December, 1995, by and
between Van Wagoner Funds, Inc., a Maryland corporation (the
"Corporation") and Sunstone Financial Group, Inc., a Wisconsin corporation
(the "Distributor").
W I T N E S S E T H :
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company and is authorized to issue shares of common stock
("Shares") in separate series with each such series representing the
interests in a separate portfolio of securities and other assets;
WHEREAS, the Distributor is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"); and
WHEREAS, the Corporation and Distributor desire to enter into an
agreement pursuant to which Distributor shall be the distributor of the
Shares of the Corporation representing the investment portfolios listed on
Schedule A hereto and any additional investment portfolios the Corporation
and Distributor may agree upon and include on Schedule A as such Schedule
may be amended from time to time (such investment portfolios and any
additional investment portfolios are individually referred to as a "Fund"
and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Appointment of the Distributor.
The Corporation hereby appoints the Distributor as agent for the
distribution of the Shares, on the terms and for the period set forth in
this Agreement. Distributor hereby accepts such appointment as agent for
the distribution of the Shares on the terms and for the period set forth
in this Agreement.
2. Services and Duties of the Distributor.
2.1 Distributor will act as agent for the distribution of Shares in
accordance with the instructions of the Corporation's Board of Directors
and the registration statement and prospectuses then in effect with
respect to the Funds under the Securities Act of 1933, as amended (the
"1933 Act").
2.2 Subject to the terms of Section 4.2, Distributor may finance
appropriate activities which it deems reasonable which are primarily
intended to result in the sale of Shares, including, but not limited to,
advertising, the printing and mailing of prospectuses to other than
current shareholders, and the printing and mailing of sales literature.
Distributor may enter into servicing and/or selling agreements with
qualified broker/dealers and other persons with respect to the offering of
Shares to the public, and if it so chooses Distributor will act only on
its own behalf as principal. The Distributor shall not be obligated to
sell any certain number of Shares of any Fund.
2.3 All Shares of the Funds offered for sale by Distributor shall be
offered for sale to the public at a price per unit (the "offering price")
equal to their net asset value (determined in the manner set forth in the
Funds' then current prospectus).
2.4 Distributor shall act as distributor of the Shares in compliance
with all applicable laws, rules and regulations, including, without
limitation, all rules and regulations made or adopted pursuant to the 1940
Act, by the Securities and Exchange Commission (the "Commission") and the
NASD. Distributor shall provide to the Corporation's Board of Directors,
at least quarterly, a report of its expenses incurred pursuant to this
Agreement.
3. Duties and Representations of the Corporation.
3.1 The Corporation represents that it is registered as an open-end
management investment company under the 1940 Act and that it has and will
continue to act in conformity with the Articles of Incorporation, By-Laws,
its registration statement as may be amended from time to time and
resolutions and other instructions of its Board of Directors and has and
will continue to comply with all applicable laws, rules and regulations
including without limitation the 1933 Act, the 1934 Act, the 1940 Act, the
laws of the states in which shares of the Funds are offered and sold, and
the rules and regulations thereunder.
3.2 The Corporation shall take all necessary action to register and
maintain the registration of the Shares under the 1933 Act for sale as
herein contemplated and shall pay all costs and expenses in connection
with the registration of Shares under the 1933 Act, and be responsible for
all expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data to
be furnished by the Corporation hereunder.
3.3 The Corporation shall execute any and all documents and furnish
any and all information and otherwise take all actions which may be
reasonably necessary in the discretion of the Corporation's officers in
connection with the qualification of the Shares for sale in such states as
Distributor and the Corporation may approve, shall maintain the
registration of a sufficient number or amount of shares thereunder, and
shall pay all expenses which may be incurred in connection with such
qualification.
3.4 The Corporation shall, at its expense, keep the Distributor
fully informed with regard to its affairs. In addition, the Corporation
shall furnish Distributor from time to time, for use in connection with
the sale of Shares, such information with respect to the Corporation and
the Shares as Distributor may reasonably request, and the Corporation
warrants that the statements contained in any such information shall be
true and correct. The Corporation also shall furnish Distributor upon
request with: (a) annual audited reports of books and accounts with
respect to each of the Funds, made by independent public accountants
regularly retained by the Corporation, (b) semi-annual reports with
respect to each of the Funds, and (c) from time to time such additional
information regarding the Corporation's financial condition as Distributor
may reasonably request.
3.5 The Corporation represents to Distributor that all registration
statements and prospectuses of the Corporation filed or to be filed with
the Commission under the 1933 Act with respect to the Shares have been and
will be prepared in conformity with the requirements of the 1933 Act, the
1940 Act, and the rules and regulations of the Commission thereunder. As
used in this Agreement the terms "registration statement" and "prospectus"
shall mean any registration statement and prospectus (together with the
related statement of additional information) at any time now or hereafter
filed with the Commission with respect to any of the Shares and any
amendments and supplements thereto which at any time shall have been or
will be filed with said Commission. The Corporation represents and
warrants to Distributor that any registration statement and prospectus,
when such registration statement becomes effective, will contain all
statements required to be stated therein in conformity with the 1933 Act,
the 1940 Act and the rules and regulations of the Commission; that all
statements of fact contained in the registration statement and prospectus
will be true and correct in all material respects when such registration
statement becomes effective; and that neither the registration statement
nor any prospectus when such registration statement becomes effective will
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of Shares. The Corporation agrees
to file from time to time such amendments, supplements, reports and other
documents as may be necessary in order to comply with the 1933 Act and the
1940 Act and in order that there may be no untrue statement of a material
fact in a registration statement or prospectus, or necessary in order that
there may be no omission to state a material fact in the registration
statement or prospectus which omission would make the statements therein
misleading. If the Corporation shall not propose an amendment or
amendments and/or supplement or supplements within fifteen days after
receipt by the Corporation of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Corporation
shall not file any amendment to the registration statement or supplement
to any prospectus without giving Distributor reasonable notice thereof in
advance; provided, however, that nothing contained in this Agreement shall
in any way limit the Corporation's right to file at any time such
amendments to any registration statement and/or supplements to any
prospectus, of whatever character, as the Corporation may deem advisable,
such right being in all respects absolute and unconditional.
3.6 Whenever in their judgment such action is warranted by market,
economic or political conditions, or by circumstances of any kind, the
Corporation's officers may decline to accept any orders for, or make any
sales of, any Shares until such time as they deem it advisable to accept
such orders and to make such sales and the Corporation shall advise
Distributor promptly of such determination.
3.7 The Corporation agrees to advise the Distributor promptly in
writing:
(i) of any request by the Commission for amendments to the
registration statement or prospectuses;
(ii) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or
prospectuses then in effect or the initiation of any proceeding for that
purpose;
(iii) of the happening of any event which makes untrue any
statement of a material fact made in the registration statement or
prospectuses or which requires the making of a change in such registration
statement or prospectuses in order to make the statements therein not
misleading; and
(iv) of all actions taken by the Commission with respect to any
amendments to any registration statement or prospectus which may from time
to time be filed with the Commission.
4. Compensation.
4.1 For the services provided pursuant to this Agreement, and
subject to the limitations contained in Section 4.3 below, the Funds will
pay to the Distributor a fee, payable monthly in arrears, at the annual
rate of 0.025% per annum of each Fund's average daily net assets;
provided, however, that such compensation shall be subject to an aggregate
minimum annual fee of $25,000.
4.2 In addition to the compensation payable pursuant to Section 4.1,
the Funds will reimburse the Distributor or pay directly, at the
Distributor's discretion, the Distributor's (i) out-of-pocket expenses
incurred in connection with activities primarily intended to result in the
sale of Shares including, without limitation, typesetting, printing and
distribution of prospectuses and shareholder reports, production, printing
and distribution of sales materials and forms, placement of media
advertising, engagement of designers, free lance writers and public
relation firms, long distance telephone lines, services and charges,
postage, overnight delivery charges, storage of inventory, regulatory
filing fees and travel, lodging and meals, and (ii) amounts paid by
Distributor to dealers or other persons entering into a selling or
servicing agreement with Distributor.
4.3 Subject to and calculated in accordance with the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., if
during any annual period the total of
(i) the compensation payable under Sections 4.1 and 4.2 to the
Distributor when added to
(ii) any amount paid by the Funds, which payment was primarily
intended to result in the sale of shares pursuant to the Corporation's
service and distribution plan adopted under Rule 12b-1 of the 1940 Act and
which was approved by the Distributor,
exceeds 0.25% of a Funds' average daily net assets, the Distributor will
rebate that portion of its fee necessary to result in the total of (i) and
(ii) above not exceeding .25% of the Fund's average daily net assets. The
payment of compensation and reimbursement of expenditures is authorized
pursuant to the Corporation's Service and Distribution Plan under Rule
12b-1 under the 1940 Act.
5. Indemnification.
5.1(a) The Corporation authorizes Distributor to use any prospectus,
in the form furnished to Distributor from time to time, in connection with
the sale of Shares. The Corporation shall indemnify, defend and hold the
Distributor, and each of its present or former directors, officers,
employees, representatives and any person who controls or previously
controlled the Distributor within the meaning of Section 15 of the 1933
Act, free and harmless from and against any and all losses, claims,
demands, liabilities, damages and expenses (including the costs of
investigating or defending any alleged losses, claims, demands,
liabilities, damages or expenses and any counsel fees incurred in
connection therewith) which Distributor, each of its present and former
directors, officers, employees or representatives or any such controlling
person, may incur under the 1933 Act, the 1934 Act, any other statute
(including Blue Sky laws) or any rule or regulation thereunder, or under
common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in
the registration statement or any prospectus, as from time to time amended
or supplemented, or an annual or interim report to shareholders, or
arising out of or based upon any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the
Corporation's obligation to indemnify Distributor and any of the foregoing
indemnitees shall not be deemed to cover any losses, claims, demands,
liabilities, damages or expenses arising out of any untrue statement or
alleged untrue statement or omission or alleged omission made in the
registration statement, prospectus, or annual or interim report in
reliance upon and in conformity with information relating to the
Distribution or to the Corporation's financial statement information
prepared by the Distributor (and not audited by the Corporation's
independent accountants) and furnished to the Corporation or its counsel
by Distributor for the purpose of, and used in, the preparation thereof;
and provided further that the Corporation's agreement to indemnify
Distributor and any of the foregoing indemnitees shall not be deemed to
cover any liability to the Corporation or its shareholders to which
Distributor would otherwise be subject by reason of its willful
misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement. The Corporation's agreement to indemnify the
Distributor, and any of the foregoing indemnitees, as the case may be,
with respect to any action, is expressly conditioned upon the Corporation
being notified of such action brought against Distributor, or any of the
foregoing indemnitees, within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall
have been served upon the Distributor, or such person, such notification
to be given by letter or by telegram addressed to the Corporation's
President, but the failure so to notify the Corporation of any such action
shall not relieve the Corporation from any liability which the Corporation
may have to the person against whom such action is brought by reason of
any such untrue, or alleged untrue, statement or omission, or alleged
omission, otherwise than on account of the Corporation's indemnity
agreement contained in this Section 5.1.
5.1(b) The Corporation shall be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such loss, claim, demand, liability, damage or
expense, but if the Corporation elects to assume the defense, such defense
shall be conducted by counsel chosen by the Corporation and approved by
the Distributor, which approval shall not be unreasonably withheld. In
the event the Corporation elects to assume the defense of any such suit
and retain such counsel, the indemnified defendant or defendants in such
suit shall bear the fees and expenses of any additional counsel retained
by them. If the Corporation does not elect to assume the defense of any
such suit, or in case the Distributor does not, in the exercise of
reasonable judgment, approve of counsel chosen by the Corporation, the
Corporation will reimburse the indemnified person or persons named as
defendant or defendants in such suit, for the fees and expenses of any
counsel retained by Distributor and them. The Corporation's
indemnification agreement contained in this Section 5.1 and the
Corporation's representations and warranties in this Agreement shall
remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Distributor, and each of its
present or former directors, officers, employees, representatives or any
controlling person, and shall survive the delivery of any Shares and the
termination of this Agreement. This Agreement of indemnity will inure
exclusively to the Distributor's benefit, to the benefit of each of its
present or former directors, officers, employees or representatives or to
the benefit of any controlling persons and their successors. The
Corporation agrees promptly to notify Distributor of the commencement of
any litigation or proceedings against the Corporation or any of its
officers or directors in connection with the issue and sale of any of the
Shares.
5.2(a) Distributor shall indemnify, defend and hold the Corporation,
and each of its present or former directors, officers, employees,
representatives, and any person who controls or previously controlled the
Corporation within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all losses, claims, demands,
liabilities, damages and expenses (including the costs of investigating or
defending any alleged losses, claims, demands, liabilities, damages or
expenses, and any counsel fees incurred in connection therewith) which the
Corporation, and each of its present or former directors, officers,
employees, representatives, or any such controlling person, may incur
under the 1933 Act, the 1934 Act, any other statute (including Blue Sky
laws) or any rule or regulation thereunder, or under common law or
otherwise, arising out of or based upon any untrue, or alleged untrue,
statement of a material fact contained in the Corporation's registration
statement or any prospectus, as from time to time amended or supplemented,
or annual or interim report to shareholders or the omission, or alleged
omission, to state therein a material fact required to be stated therein
or necessary to make the statement not misleading, but only if such
statement or omission was made in reliance upon, and in conformity with,
information relating to the Distributor or to the Corporation's financial
statement information prepared by Distributor (and not audited by the
Corporation's independent accountants) and furnished to the Corporation or
its counsel by the Distributor for the purpose of, and used in, the
preparation thereof. Distributor's agreement to indemnify the Corporation
and any of the foregoing indemnitees shall not be deemed to cover any
liability to Distributor to which the Corporation would otherwise be
subject by reason of its willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties, under this Agreement. The
Distributor's Agreement to indemnify the Corporation, and any of the
foregoing indemnitees, is expressly conditioned upon the Distributor's
being notified of any action brought against the Corporation, and any of
the foregoing indemnitees, such notification to be given by letter or
telegram addressed to Distributor's President, within a reasonable time
after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Corporation or such
person, but the failure so to notify Distributor of any such action shall
not relieve Distributor from any liability which Distributor may have to
the person against whom such action is brought by reason of any such
untrue, or alleged untrue, statement or omission, otherwise than on
account of Distributor's indemnity agreement contained in this Section
5.2(a).
5.2(b) In case any action shall be brought against the Corporation,
and each of its present or former directors, officers, employees,
representatives, or controlling persons, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights
and duties given to the Corporation, and the Corporation and each person
so indemnified shall have the rights and duties given to the Distributor
by the provisions of Section 5.1(b).
6. Offering of Shares.
6.1 No Shares shall be offered by either Distributor or the
Corporation under any of the provisions of this Agreement and no orders
for the purchase or sale of such Shares hereunder shall be accepted by the
Corporation if and so long as the effectiveness of the registration
statement then in effect or any necessary amendments thereto shall be
suspended under any of the provisions of the 1933 Act, or if and so long
as current prospectus as required by Section 10 of the 1933 Act, as
amended, are not on file with the Commission; provided, however, that
nothing contained in this paragraph 6 shall in any way restrict or have an
application to or bearing upon the Corporation's obligation to repurchase
Shares from any shareholder in accordance with the provisions of the
prospectus or Articles of Incorporation.
7. Term.
7.1 This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date hereof and, with respect to
each Fund not in existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed. Unless
sooner terminated as provided herein, this Agreement shall continue in
effect with respect to each Fund until December 31, 1996. Thereafter, if
not terminated, this Agreement shall continue automatically in effect as
to each Fund for successive annual periods, provided such continuance is
specifically approved at least annually by (i) the Corporation's Board of
Directors or (ii) the vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of a Fund, and provided that in either
event the continuance is also approved by a majority of the Corporation's
Board of Directors who are not "interested persons" (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval.
7.2 This Agreement may be terminated without penalty with respect to
a particular Fund (1) through a failure to renew this Agreement at the end
of a term, (2) upon mutual consent of the parties, or (3) on no less than
sixty (60) days' written notice, by the Corporation's Board of Directors,
by vote of a majority (as defined with respect to voting securities in the
1940 Act) of the outstanding voting securities of a Fund, or by the
Distributor (which notice may be waived by the party entitled to such
notice). The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by a
written instrument signed by the Distributor and the Corporation. This
Agreement will also terminate automatically in the event of its assignment
(as defined in the 1940 Act).
8. Miscellaneous.
8.1 The services of the Distributor rendered to the Funds are not
deemed to be exclusive. The Distributor may render such services and any
other services to others, including other investment companies. The
Corporation recognizes that from time to time directors, officers, and
employees of the Distributor may serve as directors, trustees, officers
and employees of other corporations or trusts (including other investment
companies), that such other entities may include the name of the
Distributor as part of their name and that the Distributor or its
affiliates may enter into distribution, administration, fund accounting,
transfer agent or other agreements with such other corporations or trusts.
8.2 Distributor agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Corporation all
records and other information relative to the Funds and prior, present or
potential shareholders of the Funds (and clients of said shareholders),
and not to use such records and information for any purpose other than
performance of Distributor's responsibilities and duties hereunder, except
after prior notification to and approval in writing by the Corporation,
which approval shall not be unreasonably withheld and may not be withheld
when the Distributor is subject to regulatory audit or inspection, when
Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Corporation.
8.3 This Agreement shall be governed by Wisconsin law. To the
extent that the applicable laws of the State of Wisconsin, or any of the
provisions herein, conflict with the applicable provisions of the 1940
Act, the latter shall control, and nothing herein shall be construed in a
manner inconsistent with the 1940 Act or any rule or order of the
Commission thereunder. Any provision of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
8.4 Any notice required or to be permitted to be given by either
party to the other shall be in writing and shall be deemed to have been
given when hand delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, as follows: Notice to the Distributor
shall be sent to Sunstone Financial Group, Inc., 207 East Buffalo Street,
Suite 400, Milwaukee, Wisconsin, 53202, Attention: Miriam M. Allison, and
notice to the Corporation shall be sent to Garrett R. Van Wagoner at
_________________________________________.
8.5 This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original agreement but such
counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer as of the day and year first
above written.
VAN WAGONER FUNDS, INC.
(the "Corporation")
By:____________________________________
SUNSTONE FINANCIAL GROUP, INC.
("Distributor")
By: /s/ Miriam M. Allison
Miriam M. Allison
President
<PAGE>
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BY AND BETWEEN
VAN WAGONER FUNDS, INC.
AND
SUNSTONE FINANCIAL GROUP, INC.
DECEMBER 31, 1995
Micro-Cap Fund
Emerging Growth Fund
Mid-Cap Fund
SUNSTONE FINANCIAL GROUP, INC. VAN WAGONER FUNDS, INC.
By:_______________________________ By:_______________________________
EXHIBIT 8
MUTUAL FUND
CUSTODY AGREEMENT
Dated , 1995
Between
UMB BANK, n.a.
and
VANWAGONER FUNDS, INC.
on behalf of its
VANWAGONER EMERGING GROWTH FUND,
VANWAGONER MIDCAP FUND, and
VANWAGONER MICROCAP FUND.
<PAGE>
Table of Contents
SECTION PAGE
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 1
(c) Instructions and Special Instructions 1
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic
Subcustodian 3
(a) Safekeeping 3
(b) Manner of Holding Securities 3
(c) Free Delivery of Assets 4
(d) Exchange of Securities 5
(e) Purchases of Assets 5
(f) Sales of Assets 5
(g) Options 6
(h) Futures Contracts 6
(i) Segregated Accounts 7
(j) Depositary Receipts 7
(k) Corporate Actions, Put Bonds, Called
Bonds, Etc. 8
(l) Interest Bearing Deposits 8
(m) Foreign Exchange Transactions Other
than as Principal 8
(n) Pledges or Loans of Securities 9
(o) Stock Dividends, Rights, Etc. 9
(p) Routine Dealings 9
(q) Overdrafts 10
(r) Collections 10
(s) Dividends, Distributions and Redemptions 10
(t) Proceeds from Shares Sold 11
(u) Proxies and Notices; Compliance with the
Shareholders Communication Act of 1985 11
(v) Books and Records 11
(w) Opinion of Fund's Independent Certified
Public Accountants 11
(x) Reports by Independent Certified
Public Accountants 12
(y) Bills and Others Disbursements 12
5. Subcustodians 12
(a) Domestic Subcustodians 12
(b) Foreign Subcustodians 12
(c) Interim Subcustodians 13
(d) Special Subcustodians 13
(e) Supervision of Subcustodians 14
(f) Termination of a Subcustodian 14
(g) Certification Regarding Foreign Subcustodians 14
6. Standard of Care 14
(a) General Standard of Care 14
(b) Actions Prohibited by Applicable Law,
Events Beyond Custodian's Control, War,
Sovereign Risk, Etc. 14
(c) Mitigation by Custodian 15
(d) Liability for Past Records 15
(e) Advice of Counsel 15
(f) Advice of the Fund and Others 15
(g) Instructions Appearing to be Genuine 16
(h) Exceptions from Liability 16
7. Liability of the Custodian for Actions of Others 16
(a) Domestic Subcustodians 16
(b) Liability for Acts and Omissions of Foreign
Subcustodians 16
(c) Interim Subcustodians, Special Subcustodians,
Securities Systems, Securities Depositories
and Clearing Agencies 17
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 17
(e) Reimbursement of Expenses 17
8. Indemnification 17
(a) Indemnification by Fund 17
(b) Indemnification by Custodian 17
9. Compensation 18
10. Termination and Assignment 18
11. Notices 18
12. Miscellaneous 18
<PAGE>
CUSTODY AGREEMENT
This agreement made as of this day of ,
1993, between UMB Bank, N.A., a national banking association with its
principal place of business located at Kansas City, Missouri (hereinafter
"Custodian"), and VanWagoner Funds, Inc., a registered investment company
located in San Francisco, CA, on behalf of each of the mutual funds listed
on the cover page hereof, together with such additional mutual funds as
shall be made a party to this Agreement by the execution of a separate
signature page hereto, each of which said mutual funds are located in San
Francisco, CA. This document evidences a separate Agreement between the
Custodian and each such mutual fund (hereinafter "Fund").
WITNESSETH:
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by each such Fund
which Assets are to be held in such accounts as each such Fund may
establish from time to time; and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually
covenant and agree as follows:
1. APPOINTMENT OF CUSTODIAN.
Each Fund hereby constitutes and appoints the Custodian as custodian
of Assets belonging to each such Fund which have been or may be from time
to time deposited with the Custodian. Custodian accepts such appointment
as a custodian and agrees to perform the duties and responsibilities of
Custodian as set forth herein on the conditions set forth herein.
2. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights, scrip, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as securities and other instruments or
obligations.
(b) "Assets" shall mean Securities and monies held by the
Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested
telex, a written (including, without limitation, facsimile transmission)
request, direction, instruction or certification signed or initialed by or
on behalf of the Fund by an Authorized Person; (ii) a telephonic or other
oral communication from an Authorized Person; or (iii) a communication
effected directly between an electro-mechanical or electronic device or
system (including, without limitation, computers) on behalf of a Fund.
Instructions in the form of oral communications shall be confirmed by the
appropriate Fund by tested telex or in writing in the manner set forth in
clause (i) above, but the lack of such confirmation shall in no way affect
any action taken by the Custodian in reliance upon such oral Instructions
prior to the Custodian's receipt of such confirmation. Each Fund and the
Custodian are hereby authorized to record any and all telephonic or other
oral Instructions communicated to the Custodian.
(2) "Special Instructions", as used herein, shall mean
Instructions countersigned or confirmed in writing by the Treasurer or any
Assistant Treasurer of a Fund or any other person designated by the
Treasurer of such Fund in writing, which countersignature or confirmation
shall be included on the same instrument containing the Instructions or on
a separate instrument relating thereto.
(3) Instructions and Special Instructions shall be delivered to
the Custodian at the address and/or telephone, facsimile transmission or
telex number agreed upon from time to time by the Custodian and each Fund.
(4) Where appropriate, Instructions and Special Instructions
shall be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles
of incorporation, articles of association or bylaws and all required
corporate action to authorize the execution and delivery of this Agreement
has been taken.
Each Fund has delivered or will deliver to the Custodian, copies of a
Resolution of its Board of Directors or Trustees and all amendments or
supplements thereto, properly certified or authenticated, designating
certain officers or employees of each such Fund who will have continuing
authority to certify to the Custodian: (a) the names, titles, signatures
and scope of authority of all persons authorized to give Instructions or
any other notice, request, direction, instruction, certificate or
instrument on behalf of each such Fund, and (b) the names, titles and
signatures of those persons authorized to countersign or confirm Special
Instructions on behalf of each such Fund (in both cases collectively, the
"Authorized Persons" and individually, an "Authorized Person"). Such
Resolutions and certificates may be accepted and relied upon by the
Custodian as conclusive evidence of the facts set forth therein and shall
be considered to be in full force and effect until delivery to the
Custodian of a similar Resolution or certificate to the contrary. Upon
delivery of a certificate which deletes or does not include the name(s) of
a person previously authorized to give Instructions or to countersign or
confirm Special Instructions, such persons shall no longer be considered
an Authorized Person authorized to give Instructions or to countersign or
confirm Special Instructions. Unless the certificate specifically
requires that the approval of anyone else will first have been obtained,
the Custodian will be under no obligation to inquire into the right of the
person giving such Instructions or Special Instructions to do so.
Notwithstanding any of the foregoing, no Instructions or Special
Instructions received by the Custodian from a Fund will be deemed to
authorize or permit any director, trustee, officer, employee, or agent of
such Fund to withdraw any of the Assets of such Fund upon the mere receipt
of such authorization, Special Instructions or Instructions from such
director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4.
For purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed
pursuant to Section 5(a).
(a) Safekeeping.
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time.
(b) Manner of Holding Securities.
(1) The Custodian shall at all times hold Securities of a Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or
(ii) in book-entry form by a Securities System (as hereinafter defined) in
accordance with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities
which have been delivered to it in physical form, by registering the same
in the name of a Fund or its nominee, or in the name of the Custodian or
its nominee, for whose actions such Fund and Custodian, respectively,
shall be fully responsible. Upon the receipt of Instructions, the
Custodian shall hold such Securities in street certificate form, so
called, with or without any indication of fiduciary capacity. However,
unless it receives Instructions to the contrary, the Custodian will
register all such portfolio Securities in the name of the Custodian's
authorized nominee. All such Securities shall be held in an account of
the Custodian containing only assets of the Fund or only assets held by
the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such
Securities are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic
Securities owned by a Fund in, and each Fund hereby approves use of: (a)
The Depository Trust Company; (b) The Participants Trust Company; and (c)
any book-entry system as provided in (i) Subpart O of Treasury Circular
No. 300, 31 CFR 306.115, (ii) Subpart B of Treasury Circular Public Debt
Series No. 27-76, 31 CFR 350.2, or (iii) the book-entry regulations of
federal agencies substantially in the form of 31 CFR 306.115. Upon the
receipt of Special Instructions, the Custodian may deposit and/or maintain
domestic securities owned by a Fund in any other domestic clearing agency
registered with the Securities and Exchange Commission ("SEC") under
Section 17A of the Securities Exchange Act of 1934 (or as may otherwise be
authorized by the SEC to serve in the capacity of depository or clearing
agent for the securities or other assets of investment companies) which
acts as a securities depository. Each of the foregoing shall be referred
to in this Agreement as a "Securities System", and all such Securities
Systems shall be listed on the attached Appendix A. Use of a Securities
System shall be in accordance with applicable Federal Reserve Board and
SEC rules and regulations, if any, and subject to the following
provisions:
(i) The Custodian may deposit the Securities directly or
through one or more agents or Subcustodians which are
also qualified to act as custodians for investment
companies.
(ii) The Custodian shall deposit and/or maintain the Securities
in a Securities System, provided that such Securities
are represented in an account ("Account") of the
Custodian in the Securities System that includes only
assets held by the Custodian as a fiduciary, custodian
or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to a Fund which
are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the
account of a Fund only upon (a) receipt of advice from
the Securities System that such Securities have been
transferred to the Account of the Custodian in
accordance with the rules of the Securities System,
and (b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the
account of such Fund. The Custodian shall transfer
Securities sold for the account of a Fund only upon
(a) receipt of advice from the Securities System that
payment for such Securities has been transferred to
the Account of the Custodian in accordance with the
rules of the Securities System, and (b) the making of
an entry on the records of the Custodian to reflect
such transfer and payment for the account of such
Fund. Copies of all advices from the Securities
System relating to transfers of Securities for the
account of a Fund shall identify the Fund, and shall
be maintained for such Fund by the Custodian. The
Custodian shall deliver to each Fund on the next
succeeding business day daily transaction reports
which shall include each day's transactions in the
Securities System for the account of such Fund. Such
transaction reports shall be delivered to such Fund or
any agent designated by such Fund pursuant to
Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, within a reasonable time provide such
Fund with reports obtained by the Custodian or any
Subcustodian with respect to a Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in
the Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf
of a Fund as promptly as practicable and shall take
all actions reasonably practicable to safeguard the
securities of such Fund maintained with such
Securities System.
(c) Free Delivery of Assets.
Notwithstanding any other provision of this Agreement and except
as provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided
such Assets are on hand and available, in connection with a Fund's
transactions and to transfer such Assets to such broker, dealer,
Subcustodian, bank, agent, Securities System or otherwise as specified in
such Special Instructions.
(d) Exchange of Securities.
Upon receipt of Instructions, the Custodian will exchange
portfolio Securities held by it for a Fund for other securities or cash
paid in connection with any reorganization, recapitalization, merger,
consolidation, or conversion of convertible securities, and will deposit
any such Securities in accordance with the terms of any reorganization or
protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form,
to surrender Securities for transfer into a name or nominee name as
permitted in Section 4(b)(2), to effect an exchange of shares in a stock
split or when the par value of the stock is changed, to sell any
fractional shares, and, upon receiving payment therefor, to surrender
bonds or other securities held by it at maturity or call.
(e) Purchases of Assets.
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
securities out of monies held for the Fund's account for which the
purchase was made, but only insofar as monies are available therein for
such purpose, and receive the portfolio Securities so purchased. Such
payment will be made only upon receipt of Securities by the Custodian, a
clearing corporation of a national securities exchange of which the
Custodian is a member, or a Securities System in accordance with the
provisions of Section 4(b)(3) hereof. Notwithstanding the foregoing, upon
receipt of Instructions: (i) in connection with a repurchase agreement,
the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities
underlying such repurchase agreement have been transferred by book-entry
into the Account maintained with such Securities System by the Custodian,
provided that the Custodian's instructions to the Securities System
require that the Securities System may make payment of such funds to the
other party to the repurchase agreement only upon transfer by book-entry
of the securities underlying the repurchase agreement into such Account;
and (ii) in the case of Interest Bearing Deposits, currency deposits, and
other deposits, foreign exchange transactions, futures contracts or
options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the
Custodian may make payment therefore on the basis of receipt of oral
advice of transaction to be followed by written confirmation.
(2) Other Assets Purchased. Upon receipt of Instructions and
except as otherwise provided herein, the Custodian shall pay for and
receive other Assets for the account of a Fund as provided in
Instructions.
(f) Sales of Assets.
(1) Securities Sold. In accordance with Instructions, the
Custodian will, with respect to a sale, deliver or cause to be delivered
the Securities thus designated as sold to the broker or other person
specified in the Instructions relating to such sale, such delivery to be
made only upon receipt of payment therefor in the form of: (a) cash,
certified check, bank cashier's check, bank credit, or bank wire transfer;
(b) credit to the account of the Custodian with a clearing corporation of
a national securities exchange of which the Custodian is a member; or (c)
credit to the Account of the Custodian with a Securities System, in
accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding
the foregoing, Securities held in physical form may be delivered and paid
for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps
to ensure prompt collection of the payment for, or return of, such
Securities by the broker or its clearing agent, and provided further that
the Custodian shall not be responsible for the selection of or the failure
or inability to perform of such broker or its clearing agent.
(2) Other Assets Sold. Upon receipt of Instructions and except
as otherwise provided herein, the Custodian shall receive payment for and
deliver other Assets for the account of a Fund as provided in
Instructions.
(g) Options.
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall: (a) receive
and retain confirmations or other documents, if any, evidencing the
purchase or writing of the option by a Fund; (b) if the transaction
involves the sale of a covered call option, deposit and maintain in a
segregated account the Securities (either physically or by book-entry in a
Securities System) subject to the covered call option written on behalf of
such Fund; and (c) pay, release and/or transfer such Securities, cash or
other Assets in accordance with any notices or other communications
evidencing the expiration, termination or exercise of such options which
are furnished to the Custodian by the Options Clearing Corporation (the
"OCC"), the Securities or Options Exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a
naked option (including stock index and commodity options), the Custodian,
the appropriate Fund and the broker-dealer shall enter into an agreement
to comply with the rules of the OCC or of any registered national
securities exchange or similar organizations(s). Pursuant to that
agreement and such Fund's Instructions, the Custodian shall: (a) receive
and retain confirmations or other documents, if any, evidencing the
writing of the option; (b) deposit and maintain in a segregated account,
Securities (either physically or by book-entry in a Securities System),
cash and/or other Assets; and (c) pay, release and/or transfer such
Securities, cash or other Assets in accordance with any such agreement and
with any notices or other communications evidencing the expiration,
termination or exercise of such option which are furnished to the
Custodian by the OCC, the Securities or Options Exchanges on which such
options were traded, or such other organization as may be responsible for
handling such option transactions. Such Fund and the broker-dealer shall
be responsible for determining the quality and quantity of assets held in
any segregated account established in compliance with applicable margin
maintenance requirements and the performance of other terms of any option
contract.
(h) Futures Contracts.
Upon receipt of Instructions, the Custodian shall enter into a
futures margin procedural agreement among the appropriate Fund, the
Custodian and the designated futures commission merchant (a "Procedural
Agreement"). Under the Procedural Agreement the Custodian shall: (a)
receive and retain confirmations, if any, evidencing the purchase or sale
of a futures contract or an option on a futures contract by such Fund; (b)
deposit and maintain in a segregated account cash, Securities and/or other
Assets designated as initial, maintenance or variation "margin" deposits
intended to secure such Fund's performance of its obligations under any
futures contracts purchased or sold, or any options on futures contracts
written by such Fund, in accordance with the provisions of any Procedural
Agreement designed to comply with the provisions of the Commodity Futures
Trading Commission and/or any commodity exchange or contract market (such
as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or transfer Assets
into such margin accounts only in accordance with any such Procedural
Agreements. Such Fund and such futures commission merchant shall be
responsible for determining the type and amount of Assets held in the
segregated account or paid to the broker-dealer in compliance with
applicable margin maintenance requirements and the performance of any
futures contract or option on a futures contract in accordance with its
terms.
(i) Segregated Accounts.
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf
of a Fund, into which account or accounts may be transferred Assets of
such Fund, including Securities maintained by the Custodian in a
Securities System pursuant to Paragraph (b)(3) of this Section 4, said
account or accounts to be maintained (i) for the purposes set forth in
Sections 4(g), 4(h) and 4(n) and (ii) for the purpose of compliance by
such Fund with the procedures required by the SEC Investment Company Act
Release Number 10666 or any subsequent release or releases relating to the
maintenance of segregated accounts by registered investment companies, or
(iii) for such other purposes as may be set forth, from time to time, in
Special Instructions. The Custodian shall not be responsible for the
determination of the type or amount of Assets to be held in any segregated
account referred to in this paragraph.
(j) Depositary Receipts.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered Securities to the depositary used for such Securities by
an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter referred to, collectively, as "ADRs"), against a
written receipt therefor adequately describing such Securities and written
evidence satisfactory to the organization surrendering the same that the
depositary has acknowledged receipt of instructions to issue ADRs with
respect to such Securities in the name of the Custodian or a nominee of
the Custodian, for delivery in accordance with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause
to be surrendered ADRs to the issuer thereof, against a written receipt
therefor adequately describing the ADRs surrendered and written evidence
satisfactory to the organization surrendering the same that the issuer of
the ADRs has acknowledged receipt of instructions to cause its depository
to deliver the Securities underlying such ADRs in accordance with such
instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
Upon receipt of Instructions, the Custodian shall: (a) deliver
warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof (or to the agent of such issuer or trustee) for the
purpose of exercise or sale, provided that the new securities, cash or
other Assets, if any, acquired as a result of such actions are to be
delivered to the Custodian; and (b) deposit securities upon invitations
for tenders thereof, provided that the consideration for such securities
is to be paid or delivered to the Custodian, or the tendered securities
are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to
the contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of
security ownership, and shall promptly notify the appropriate Fund of such
action in writing by facsimile transmission or in such other manner as
such Fund and Custodian may agree in writing.
(l) Interest Bearing Deposits.
Upon receipt of Instructions directing the Custodian to purchase
interest bearing fixed term and call deposits (hereinafter referred to,
collectively, as "Interest Bearing Deposits") for the account of a Fund,
the Custodian shall purchase such Interest Bearing Deposits in the name of
such Fund with such banks or trust companies, including the Custodian, any
Subcustodian or any subsidiary or affiliate of the Custodian (hereinafter
referred to as "Banking Institutions"), and in such amounts as such Fund
may direct pursuant to Instructions. Such Interest Bearing Deposits may
be denominated in U.S. Dollars or other currencies, as such Fund may
determine and direct pursuant to Instructions. The responsibilities of
the Custodian to a Fund for Interest Bearing Deposits issued by the
Custodian shall be that of a U.S. bank for a similar deposit. With
respect to Interest Bearing Deposits other than those issued by the
Custodian, (a) the Custodian shall be responsible for the collection of
income and the transmission of cash to and from such accounts; and (b) the
Custodian shall have no duty with respect to the selection of the Banking
Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions Other than as Principal.
(1) Upon receipt of Instructions, the Custodian shall
settle foreign exchange contracts or options to purchase and sell foreign
currencies for spot and future delivery on behalf of and for the account
of a Fund with such currency brokers or Banking Institutions as such Fund
may determine and direct pursuant to Instructions. Such Fund accepts full
responsibility for its use of third party foreign exchange brokers and for
execution of said foreign exchange contracts and understands that such
Fund shall be responsible for any and all costs and interest charges which
may be incurred as a result of the failure or delay of its third party
broker to deliver foreign exchange. Notwithstanding the foregoing, the
Custodian shall be responsible for the transmission of cash and
instructions to and from the currency broker or Banking Institution with
which the contract or option is made, and the safekeeping of all
certificates and other documents and agreements evidencing or relating to
such foreign exchange transaction. The Custodian shall have no duty with
respect to the selection of the currency brokers or Banking Institutions
with which such Fund deals or, so long as the Custodian acts in accordance
with Instructions, for the failure of such brokers or Banking Institutions
to comply with the terms of any contract or option.
(2) Notwithstanding anything to the contrary contained
herein, upon receipt of Instructions the Custodian may, in connection with
a foreign exchange contract, make free outgoing payments of cash in the
form of U.S. Dollars or foreign currency prior to receipt of confirmation
of such foreign exchange contract or confirmation that the countervalue
currency completing such contract has been delivered or received.
(n) Pledges or Loans of Securities.
(1) Upon receipt of Instructions from a Fund, the
Custodian will release or cause to be released Securities held in custody
to the pledgees designated in such Instructions by way of pledge or
hypothecation to secure loans incurred by such Fund with various lenders
including but not limited to UMB Bank, N.A.; provided, however, that the
Securities shall be released only upon payment to the Custodian of the
monies borrowed, except that in cases where additional collateral is
required to secure existing borrowings, further Securities may be released
or delivered, or caused to be released or delivered for that purpose upon
receipt of Instructions. Upon receipt of Instructions, the Custodian will
pay, but only from funds available for such purpose, any such loan upon
re-delivery to it of the Securities pledged or hypothecated therefor and
upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated
account for the benefit of the pledgee.
(2) Upon receipt of Instructions, the Custodian will
release Securities held in custody to the borrower designated in such
Instructions and may, except as otherwise provided below, deliver such
Securities prior to the receipt of collateral, if any, for such borrowing,
provided that, in case of loans of Securities held by a Securities System
that are secured by cash collateral, the Custodian's instructions to the
Securities System shall require that the Securities System deliver the
Securities of the appropriate Fund to the borrower thereof only upon
receipt of the collateral for such borrowing. The Custodian shall retain
on such Fund's behalf the right to any dividends, interest or distribution
on such loaned Securities. Upon receipt of Instructions and the loaned
Securities, the Custodian will release the collateral to the borrower.
(o) Stock Dividends, Rights, Etc.
The Custodian shall receive and collect all stock dividends,
rights, and other items of like nature and, upon receipt of Instructions,
take action with respect to the same as directed in such Instructions.
(p) Routine Dealings.
The Custodian will, in general, attend to all routine and
mechanical matters in accordance with industry standards in connection
with the sale, exchange, substitution, purchase, transfer, or other
dealings with Securities or other property of each Fund except as may be
otherwise provided in this Agreement or directed from time to time by
Instructions from a Fund. The Custodian may also make payments to itself
or others from the Assets for reasonable and customary disbursements and
out-of-pocket expenses incidental to handling Securities or other similar
items relating to its duties under this Agreement, provided that all such
payments shall be accounted for to the appropriate Fund.
(q) Overdrafts.
If the Custodian or any Subcustodian, depository, or clearing
agency acting under agreement with the Custodian or any of their
respective assigns shall, in its sole discretion, advance funds to or for
the benefit of the account of any Fund which results in an overdraft
because the monies held by the Custodian or any Subcustodian, depository
or clearing agency, or any of their respective assigns, on behalf of that
Fund are insufficient to pay the total amount payable upon a purchase of
securities as specified in Instructions from the Fund, or for any other
reason, the amount of any such overdraft shall be payable by the Fund(s)
to the Custodian upon demand, and shall bear interest from the date
advanced until the date of payment at a rate agreed upon from time to
time. The Custodian is hereby granted an assignment of and a security
interest in all assets of the Fund(s) in which the overdraft(s) occurred,
whether or not held by the Custodian or any Subcustodian, depository or
clearing agency, for payment of any outstanding overdrafts which may occur
from time to time. The Custodian is also hereby granted a right of
set-off in any deposits, securities and security positions of the Fund(s)
in which overdrafts occur which are held by or for the account of the
Custodian.
(r) Collections.
The Custodian shall (a) collect amounts due and payable to each
such Fund with respect to portfolio securities and other Assets; (b)
promptly credit to the account of each such Fund all income and other
payments relating to portfolio securities and other Assets held by the
Custodian hereunder upon Custodian's receipt of such income or payments or
as otherwise agreed in writing by the Custodian and each such Fund; (c)
promptly endorse and deliver any instruments required to effect such
collection; and (d) promptly execute ownership and other certificates and
affidavits for all federal, state, local and foreign tax purposes in
connection with receipt of income or other payments with respect to
portfolio securities and other Assets, or in connection with the transfer
of such securities or other Assets; provided, however, that with respect
to portfolio securities registered in so-called street name, or physical
securities with variable interest rates, the Custodian shall use its best
efforts to collect amounts due and payable to each such Fund. The
Custodian shall promptly notify a Fund in writing by facsimile
transmission or in such other manner as such Fund and Custodian may agree
in writing if any amount payable with respect to portfolio securities or
other Assets is not received by the Custodian when due. The Custodian
shall not be responsible for the collection of amounts due and payable
with respect to portfolio securities or other Assets that are in default.
(s) Dividends, Distributions and Redemptions.
To enable each Fund to pay dividends or other distributions to
shareholders of each such Fund and to make payment to shareholders who
have requested repurchase or redemption of their shares of each such Fund
(collectively, the "Shares"), the Custodian shall promptly release cash or
securities. In the case of cash, the Custodian shall, upon the receipt of
Instructions, transfer such funds by check or wire transfer to any account
at any bank or trust company designated by such Fund in such Instructions.
In the case of securities, the Custodian shall, upon the receipt of
Special Instructions, make such transfer to any entity or account
designated by such Fund in such Special Instructions.
(t) Proceeds from Shares Sold.
The Custodian shall receive funds representing cash payments
received for Shares issued or sold from time to time by each Fund, and
shall promptly credit such funds to the account of the appropriate Fund.
The Custodian shall promptly notify the appropriate Fund of Custodian's
receipt of cash in payment for Shares issued by such Fund by facsimile
transmission or in such other manner as such Fund and the Custodian shall
agree. Upon receipt of Instructions, the Custodian shall: (a) deliver all
federal funds received by the Custodian in payment for Shares as may be
set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund as
of specified times agreed upon from time to time by such Fund and the
Custodian, in the amount of checks received in payment for Shares which
are deposited to the accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985.
The Custodian shall deliver or cause to be delivered to the
appropriate Fund all forms of proxies, all notices of meetings, and any
other notices or announcements affecting or relating to securities owned
by such Fund that are received by the Custodian, any Subcustodian, or any
nominee of either of them, and, upon receipt of Instructions, the
Custodian shall execute and deliver, or cause such Subcustodian or nominee
to execute and deliver, such proxies or other authorizations as may be
required. Except as directed pursuant to Instructions, neither the
Custodian nor any Subcustodian or nominee shall vote upon any such
securities, or execute any proxy to vote thereon, or give any consent or
take any other action with respect thereto.
The Custodian will not release the identity of a Fund to an
issuer which requests such information pursuant to the Shareholder
Communications Act of 1985 for the specific purpose of direct
communications between such issuer and the Fund unless such Fund directs
the Custodian otherwise in writing.
(v) Books and Records.
The Custodian shall maintain such records relating to its
activities under this Agreement as are required to be maintained by Rule
31a-1 under the Investment Company Act of 1940 ("the 1940 Act") and to
preserve them for the periods prescribed in Rule 31a-2 under the 1940 Act.
These records shall be open for inspection by duly authorized officers,
employees or agents (including independent public accountants) of the
appropriate Fund during normal business hours of the Custodian.
The Custodian shall provide accountings relating to its
activities under this Agreement as shall be agreed upon by each Fund and
the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
The Custodian shall take all reasonable action as each Fund may
request to obtain from year to year favorable opinions from each such
Fund's independent certified public accountants with respect to the
Custodian's activities hereunder and in connection with the preparation of
each such Fund's periodic reports to the SEC and with respect to any other
requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
The Custodian shall deliver to a Fund a written report prepared
by the Custodian's independent certified public accountants with respect
to the services provided by the Custodian under this Agreement, including,
without limitation, the Custodian's accounting system, internal accounting
control and procedures for safeguarding cash, securities and other Assets,
including cash, Securities and other Assets deposited and/or maintained in
a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
Upon receipt of Instructions, the Custodian shall pay, or cause
to be paid, all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
From time to time, in accordance with the relevant provisions of
this Agreement, the Custodian may appoint one or more Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, or Interim
Subcustodians (as each are hereinafter defined) to act on behalf of a
Fund. A Domestic Subcustodian, in accordance with the provisions of this
Agreement, may also appoint a Foreign Subcustodian, Special Subcustodian,
or Interim Subcustodian to act on behalf of a Fund. For purposes of this
Agreement, all Domestic Subcustodians, Foreign Subcustodians, Special
Subcustodians and Interim Subcustodians shall be referred to collectively
as "Subcustodians".
(a) Domestic Subcustodians.
The Custodian may, at any time and from time to time, appoint
any bank as defined in Section 2(a)(5) of the 1940 Act or any trust
company or other entity, any of which meet the requirements of a custodian
under Section 17(f) of the 1940 Act and the rules and regulations
thereunder, to act for the Custodian on behalf of a Fund as a subcustodian
for purposes of holding Assets of such Fund and performing other functions
of the Custodian within the United States (a "Domestic Subcustodian");
provided, that the Custodian shall notify such Fund in writing of the
identity and qualifications of any proposed Domestic Subcustodian at least
sixty (60) days prior to the desired appointment of such Domestic
Subcustodian, and provided further that such Fund will notify the
Custodian in writing of approval or disapproval of the appointment of the
proposed Domestic Subcustodian; and that the Custodian's appointment of
any such Domestic Subcustodian shall not be effective without such prior
written approval of such Fund. Each such duly approved Domestic
Subcustodian shall be listed on Appendix "A" attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
The Custodian may at any time appoint, or cause a Domestic
Subcustodian to appoint, any bank, trust company or other entity meeting
the requirements of an "eligible foreign custodian" under Section 17(f) of
the 1940 Act and the rules and regulations thereunder to act for the
Custodian on behalf of a Fund as a subcustodian or sub-subcustodian (if
appointed by a Domestic Subcustodian) for purposes of holding Assets of
such Fund and performing other functions of the Custodian in countries
other than the United States of America (hereinafter referred to as a
"Foreign Subcustodian" in the context of either a subcustodian or a
sub-subcustodian); provided, that, prior to the appointment or approval of
any Foreign Subcustodian the Custodian shall, or shall cause the Domestic
Subcustodian to, notify such Fund, in writing, of the identity and
qualifications of the proposed Foreign Subcustodian and make a copy of the
proposed subcustodian agreement available to such Fund at least sixty (60)
days prior to the desired appointment; and provided further that the
Custodian shall have obtained written confirmation from such Fund of the
approval of the Board of Directors or other governing body of such Fund
(which approval may be withheld in the sole discretion of such Board of
Directors or other governing body or entity) with respect to (i) the
identity and qualifications of any proposed Foreign Subcustodian, and (ii)
the country or countries in which, and the securities depositories or
clearing agencies (hereinafter "Securities Depositories and Clearing
Agencies"), if any, through which, any proposed Foreign Subcustodian is
authorized to hold Securities and other Assets of such Fund, and (iii) the
form and terms of the subcustodian agreement to be entered into with such
proposed Foreign Subcustodian. Each such duly approved Foreign
Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold Securities and other Assets
of the Fund shall be listed on Appendix "A" attached hereto, as it may be
amended, from time to time. Each Fund shall be responsible for informing
the Custodian sufficiently in advance of a proposed investment which is to
be held in a country in which no Foreign Subcustodian is authorized to
act, in order that there shall be sufficient time for the Custodian, or
any Domestic Subcustodian, to effect the appropriate arrangements with a
proposed Foreign Subcustodian, including obtaining approval as provided in
this Section 5(b). In connection with the appointment of any Foreign
Subcustodian, the Custodian shall, or shall cause the Domestic
Subcustodian to, enter into a subcustodian agreement with the Foreign
Subcustodian in form and substance approved by the appropriate Fund. The
Custodian shall not consent to the amendment of, and shall cause any
Domestic Subcustodian not to consent to the amendment of, any agreement
entered into with a Foreign Subcustodian, which materially affects a
Fund's rights under such agreement, except upon prior written approval of
the Fund pursuant to Special Instructions.
(c) Interim Subcustodians.
Notwithstanding the foregoing, in the event that a Fund shall
invest in an Asset to be held in a country in which no Foreign
Subcustodian is authorized to act, the Custodian shall promptly notify
such Fund in writing by facsimile transmission or in such other manner as
such Fund and Custodian shall agree in writing of the unavailability of an
approved Foreign Subcustodian in such country; and upon the receipt of
Special Instructions from such Fund, the Custodian shall, or shall cause
its Domestic Subcustodian to, appoint or approve an entity (referred to
herein as an "Interim Subcustodian") designated in such Special
Instructions to hold such Security or other Asset.
(d) Special Subcustodians.
Upon receipt of Special Instructions, the Custodian shall, on
behalf of a Fund, appoint one or more banks, trust companies or other
entities designated in such Special Instructions to act for the Custodian
on behalf of such Fund as a subcustodian for purposes of: (i) effecting
third-party repurchase transactions with banks, brokers, dealers or other
entities through the use of a common custodian or subcustodian; (ii)
providing depository and clearing agency services with respect to certain
variable rate demand note securities, (iii) providing depository and
clearing agency services with respect to dollar denominated securities,
and (iv) effecting any other transactions designated by such Fund in such
Special Instructions. Each such designated subcustodian (hereinafter
referred to as a "Special Subcustodian") shall be listed on Appendix "A"
attached hereto, as it may be amended from time to time. In connection
with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form
and substance approved by such Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a
Special Subcustodian, or waive any rights under such agreement, except
upon prior approval pursuant to Special Instructions.
(e) Supervision of Subcustodians.
The Custodian shall (i) cause each Domestic Subcustodian and
Foreign Subcustodian to, and (ii) use its best efforts to cause each
Interim Subcustodian and Special Subcustodian to, perform all of its
obligations in accordance with the terms and conditions of the
subcustodian agreement under which such Subcustodian serves.
(f) Termination of a Subcustodian.
The Custodian shall, upon receipt of Special Instructions,
terminate any Subcustodian with respect to a Fund, in accordance with the
termination provisions under the applicable subcustodian agreement.
(g) Certification Regarding Foreign Subcustodians.
Upon request of a Fund, the Custodian shall deliver to such Fund
a certificate stating: (i) the identity of each Foreign Subcustodian then
acting on behalf of the Custodian; (ii) the countries in which and the
Securities Depositories and Clearing Agents through which each such
Foreign Subcustodian is then holding cash, Securities and other Assets of
the Fund; and (iii) such other information as may be requested by such
Fund to ensure compliance with rules and regulations under the 1940 Act.
6. STANDARD OF CARE.
(a) General Standard of Care.
The Custodian shall exercise reasonable care and diligence in
carrying out all of its duties and obligations under this Agreement, and
shall be liable to a Fund for all losses, damages and reasonable costs and
expenses (including but not limited to reasonable attorneys fees) suffered
or incurred by such Fund resulting from the failure of the Custodian to
exercise such reasonable care and diligence; provided, however, in no
event shall the Custodian be liable for consequential damages.
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian
incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, Securities System, Securities
Depository or Clearing Agency utilized by any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any
act or thing which this Agreement provides shall be performed or omitted
to be performed, by reason of: (i) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or of any foreign country, or political subdivision thereof or of
any court of competent jurisdiction (and neither the Custodian nor any
other Person shall be obligated to take any action contrary thereto); or
(ii) any event beyond the control of Custodian or other Person such as
war, riots, strikes, lockouts, labor disputes, equipment or transmission
failures or natural disasters; or (iii) any "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, devaluation,
revaluation, confiscation, seizure, cancellation, destruction or similar
action by any governmental authority, de facto or de jure; or enactment,
promulgation, imposition or enforcement by any such governmental authority
of currency restrictions, exchange controls, taxes, levies or other
charges affecting a Fund's Assets; or acts of war, terrorism, insurrection
or revolution; or any other act or event beyond the Custodian's or such
other Person's control.
(c) Mitigation by Custodian.
Upon the occurrence of any event which causes or may cause any
loss, damage or expense to a Fund, (i) the Custodian shall, (ii) the
Custodian shall cause any applicable Domestic Subcustodian to, and (iii)
the Custodian shall use its best efforts to cause any applicable Foreign
Subcustodian, Special Subcustodian or Interim Subcustodian to, use all
commercially reasonable efforts and take all reasonable steps under the
circumstances to mitigate the effects of such event and to avoid
continuing harm to such Fund.
(d) Liability for Past Records.
Neither the Custodian nor any Domestic Subcustodian shall have
any liability in respect of any loss, damage or expense suffered by a
Fund, insofar as such loss, damage or expense arises from the performance
of the Custodian or any Domestic Subcustodian in reliance upon records
that were maintained for such Fund by entities other than the Custodian or
any Domestic Subcustodian prior to the Custodian's employment hereunder.
(e) Advice of Counsel.
The Custodian and all Domestic Subcustodians shall be entitled
to receive and act upon advice of counsel on all matters. The Custodian
and all Domestic Subcustodians shall be without liability for any action
reasonably taken or omitted in good faith pursuant to the advice of (i)
counsel for the appropriate Fund, or (ii) at the expense of the Custodian
or any Domestic Subcustodian, such other counsel as such Fund and the
Custodian or any Domestic Subcustodian may agree upon.
(f) Advice of the Fund and Others.
The Custodian and any Domestic Subcustodian may rely upon the
advice of a Fund and upon statements of the Fund's accountants and other
persons reasonably believed by it in good faith to be expert in matters
upon which they are consulted, and neither the Custodian nor any Domestic
Subcustodian shall be liable for any actions taken, in good faith, upon
such statements.
(g) Instructions Appearing to be Genuine.
The Custodian and all Domestic Subcustodians shall be fully
protected and indemnified in acting as a custodian hereunder upon any
Resolutions of the Board of Directors or Trustees, Instructions, Special
Instructions, advice, notice, request, consent, certificate, instrument or
paper reasonably appearing to it to be genuine and to have been properly
executed and shall, unless otherwise specifically provided herein, be
entitled to receive as conclusive proof of any fact or matter required to
be ascertained from a Fund hereunder a certificate signed by any officer
of such Fund authorized to countersign or confirm Special Instructions.
(h) Exceptions from Liability.
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under any
duty or obligation to inquire into,nor be liable for:
(i) the validity of the issue of any Securities purchased
by or for a Fund, the legality of the purchase
thereof or evidence of ownership required to be
received by such Fund, or the propriety of the
decision to purchase or amount paid therefor;
(ii) the legality of the sale of any securities by or for
a Fund, or the propriety of the amount for which
the same were sold; or
(iii) any other expenditures, encumbrances of securities,
borrowings or similar actions with respect to a
Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of a Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of
the shareholders, trustees, partners or directors of such Fund, or such
Fund's currently effective Registration Statement on file with the
Securities and Exchange Commission.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
(a) Domestic Subcustodians and Securities Systems.
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian or Securities System to the same extent as if such
actions or omissions were performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
The Custodian shall be liable to a Fund for any loss or damage
to such Fund caused by or resulting from the acts or omissions of any
Foreign Subcustodian to the extent that, under the terms set forth in the
subcustodian agreement between the Custodian or a Domestic Subcustodian
and such Foreign Subcustodian, the Foreign Subcustodian has failed to
perform in accordance with the standard of conduct imposed under such
subcustodian agreement as determined in accordance with the law which is
adjudicated to govern such agreements and in accordance with any
determination of any court as to the duties of said Foreign Subcustodian
pursuant to said agreement.
(c) Interim Subcustodians, Special Subcustodians, Securities
Depositories and Clearing Agencies.
The Custodian shall not be liable to a Fund for any loss, damage
or expense suffered or incurred by such Fund resulting from the actions or
omissions of an Interim Subcustodian, Special Subcustodians, or Securities
Depository and Clearing Agency unless such loss, damage or expense is
caused by, or results from, the negligence, willful misconduct or bad
faith of the Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
The Custodian shall not be responsible for any loss occasioned
by the acts, neglects, defaults or insolvency of any broker, bank, trust
company or any other person with whom the Custodian may deal (other than
any of such entities acting as a Subcustodian, Securities System or
Securities Depository and Clearing Agency, for whose actions the liability
of the Custodian is set out elsewhere in this Agreement) in the absence of
its own negligence, willful misconduct or bad faith.
(e) Reimbursement of Expenses.
Each Fund agrees to reimburse the Custodian for all reasonable
out-of-pocket expenses incurred by the Custodian in connection with the
fulfillment of its obligations under paragraph (c) of Section 6; provided
however, that such reimbursement shall not apply to expenses occasioned by
or resulting from the negligence, willful misconduct or bad faith of the
Custodian.
8. INDEMNIFICATION.
(a) Indemnification by Fund.
Subject to the limitations set forth in this Agreement, each
Fund agrees to indemnify and hold harmless the Custodian and its nominees
from all loss, damage and expense (including reasonable attorneys' fees)
suffered or incurred by the Custodian or its nominee caused by or arising
from actions taken by the Custodian, its employees or agents in the
performance of its duties and obligations under this Agreement, including,
but not limited to, any indemnification obligations undertaken by the
Custodian under any relevant Subcustodian Agreement; provided, however,
that such indemnity shall not apply to the extent the Custodian is liable
under Sections 6 or 7 hereof. In addition, each Fund agrees to indemnify
any Person against liability incurred by reason of taxes assessed to such
Person resulting from the fact that securities and other property of
indemnifying Fund are registered in the name of such Person in accordance
with the provisions of this Agreement; provided, however, that in no event
shall such indemnification be applicable to income, franchise or similar
taxes which may be imposed or assessed against any Person.
(b) Indemnification by Custodian.
Subject to the limitations set forth in this Agreement and in
addition to the obligations provided in Sections 6 and 7, the Custodian
agrees to indemnify and hold harmless each Fund and its nominees from all
loss, damage and expense (including reasonable attorneys' fees) suffered
or incurred by each such Fund or its nominee caused by or arising from the
negligence, willful misconduct or bad faith of the Custodian or its
nominee.
9. COMPENSATION.
Each Fund will pay to the Custodian such compensation as is
agreed to in writing by the Custodian and each such Fund from time to
time.
10. TERMINATION AND ASSIGNMENT.
Any Fund or the Custodian may terminate this Agreement by notice
in writing, delivered or mailed, postage prepaid (certified mail, return
receipt requested) to the other not less than 90 days prior to the date
upon which such termination shall take effect. Upon termination of this
Agreement, the appropriate Fund shall pay to the Custodian such fees as
may be due the Custodian hereunder as well as its reimbursable
disbursements, costs and expenses paid or incurred to such date. Upon
termination of this Agreement, the Custodian shall deliver, at the
terminating party's expense, all Assets held by it hereunder to the
appropriate Fund or as otherwise designated by such Fund. Upon such
delivery, the Custodian shall have no further obligations or liabilities
under this Agreement except as to the final resolution of matters relating
to activity occurring prior to the last to occur of the effective date of
termination or the date upon which the Custodian has completed the
delivery of all Assets held by it hereunder to the appropriate Fund or as
otherwise designated by such Fund.
This Agreement may not be assigned by the Custodian or any Fund
without the respective consent of the other, duly authorized by a
resolution by its Board of Directors or Trustees.
11. NOTICES.
As to each Fund, notices, requests, instructions and other
writings delivered to VanWagoner Funds, Inc. or to a particular Fund at
______________________________, postage prepaid, or to such other address
as any such Fund may have designated to the Custodian in writing, shall be
deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to
the Securities Administration Department of the Custodian at its office at
928 Grand Avenue, Kansas City, Missouri, or mailed postage prepaid, to the
Custodian's Securities Administration Department, Post Office Box 226,
Kansas City, Missouri 64141, or to such other addresses as the Custodian
may have designated to each such Fund in writing, shall be deemed to have
been properly delivered or given to the Custodian hereunder; provided,
however, that procedures for the delivery of Instructions and Special
Instructions shall be governed by Section 2(e) hereof.
12. MISCELLANEOUS.
(a) This Agreement is executed and delivered in the State of
Missouri and shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be
binding upon, and inure to the benefit of, and be enforceable by the
respective successors and assigns of the parties hereto.
(c) As to each Fund, no provisions of this Agreement may be
amended or modified, in any manner except in writing, properly executed by
both the Custodian and the Fund; provided, however, Appendix "A" may be
amended from time to time as Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, and Securities Depositories and
Clearing Agencies are approved or terminated according to the terms of
this Agreement; and provided further, however, that additional Funds may
be made parties to this Agreement by the execution of a separate signature
page.
(d) The captions in this Agreement are included for convenience
of reference only, and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of
execution hereof.
(f) This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of
this Agreement, and the definitions thereof are found in the following
sections of the Agreement:
Term Section
Account 4(b)(3)(ii)
ADR'S 4(j)
Assets 2
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
Securities 2
Securities Depositories and
Clearing Agencies 5(b)
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to
be illegal, in conflict with any law or otherwise invalid by any court of
competent jurisdiction, the remaining portion or portions shall be
considered severable and shall not be affected, and the rights and
obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular part, term or provision held to
be illegal or invalid.
(i) This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof,
and accordingly supersedes, as of the effective date of this Agreement,
any custodian agreement heretofore in effect between any Fund and the
Custodian.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Custody
Agreement to be executed by their duly respective authorized officers.
UMB BANK, N.A.
BY____________________________
Title:
ATTEST:
------------------------
VANWAGONER FUNDS, INC. on behalf of
VANWAGONER EMERGING GROWTH FUND,
VANWAGONER MIDCAP FUND, and
VANWAGONER MICROCAP FUND.
BY_____________________________
Title:
ATTEST:
------------------------
<PAGE>
APPENDIX A
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Morgan Stanley Trust Company (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
FOREIGN SUBCUSTODIANS:
SECURITIES DEPOSITORIES AND CLEARING AGENCIES:
Euroclear
VANWAGONER FUNDS, INC. on behalf of
its VANWAGONER EMERGING GROWTH FUND,
VANWAGONER MIDCAP FUND, and
VANWAGONER MICROCAP FUND.
UMB Bank, N.A.
By:______________________ By:________________________
Date
EXHIBIT 9.1
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS AGREEMENT is made as of this 31st day of December, 1995, by and
between Van Wagoner Funds, Inc., a Maryland Corporation (the
"Corporation"), and Sunstone Financial Group, Inc., a Wisconsin
Corporation (the "Administrator").
WHEREAS, the Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "Act") and is
authorized to issue shares of common stock (the "Shares") in separate
series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Corporation and the Administrator desire to enter into
an agreement pursuant to which the Administrator shall provide
administration and fund accounting services to such investment portfolios
of the Corporation as are listed on Schedule A hereto and any additional
investment portfolios the Corporation and Administrator may agree upon and
include on Schedule A as such Schedule may be amended from time to time
(such investment portfolios and any additional investment portfolios are
individually referred to as a "Fund" and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
1. Appointment
The Corporation hereby appoints the Administrator as administrator
and fund accountant of the Funds for the period and on the terms set forth
in this Agreement. The Administrator accepts such appointment and agrees
to render the services herein set forth, for the compensation herein
provided.
2. Services as Administrator
(a) Subject to the direction and control of the Corporation's Board
of Directors and utilizing information provided by the Corporation and its
agents, the Administrator will: (1) provide office space, facilities,
equipment and personnel to carry out its services hereunder; (2) compile
data for and prepare with respect to the Funds timely Notices to the
Securities and Exchange Commission (the "Commission") required pursuant to
Rule 24f-2 under the Act and Semi-Annual Reports on Form N-SAR; (3) assist
in the preparation for execution by the Corporation and file all federal
income and excise tax returns and state income tax returns (and such other
required tax filings as may be agreed to by the parties) other than those
required to be made by the Corporation's custodian or transfer agent,
subject to review and approval of the Corporation and the Corporation's
independent accountants; (4) prepare the financial statements for the
Annual and Semi-Annual Reports required pursuant to Section 30(d) under
the Act; (5) assist the Corporation's legal counsel in the preparation of
the Registration Statement for the Corporation (on Form N-1A or any
replacement therefor) and any amendments thereto; (6) determine and
periodically monitor each Fund's income and expense accruals and cause all
appropriate expenses to be paid from Corporation assets on proper
authorization from the Corporation; (7) calculate daily net asset values
and income factors of each Fund; (8) maintain all general ledger accounts
and related subledgers; (9) perform security valuations; (10) assist in
the acquisition of the Corporation's fidelity bond required by the Act,
monitor the amount of the bond and make the necessary Commission filings
related thereto; (11) from time to time as the Administrator deems
appropriate, check each Fund's compliance with the policies and
limitations of each Fund relating to the portfolio investments as set
forth in the Prospectus and Statement of Additional Information and
monitor each Fund's status as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (but these
functions shall not relieve the Corporation's investment adviser and sub-
advisers, if any, of their primary day-to-day responsibility for assuring
such compliance); (12) maintain, and/or coordinate with the other service
providers the maintenance of, the accounts, books and other documents
required pursuant to Rule 31a-1(a) and (b) under the Act; (13) prepare
and/or file all subsequent documents to be filed with states to maintain
the Fund's securities registration, including, without limitation, sales
reports, updated prospectuses, Form U-1s; (14) develop with legal counsel
and secretary of the Corporation an agenda for each board meeting and, if
requested by the Directors, attend board meetings and prepare minutes;
(15) coordinate preparation of other matters required to be reported to
the board, including, without limitation, details of Rule 12b-1 payments,
codes of ethics compliance and broker commissions; (16) prepare Form 1099s
for directors and other fund vendors; (17) calculate dividend and capital
gains distributions subject to review and approval by the Corporation and
its independent accountants; and (18) generally assist in the
Corporation's administrative operations as mutually agreed to by the
parties. The duties of the Administrator shall be confined to those
expressly set forth herein, and no implied duties are assumed by or may be
asserted against the Administrator hereunder.
(b) The Directors of the Corporation shall cause the officers,
adviser, legal counsel, independent accountants and custodian for the
Funds to cooperate with the Administrator and to provide the
Administrator, upon request, with such information, documents and advice
relating to the Funds and the Corporation as is within the possession or
knowledge of such persons, in order to enable the Administrator to perform
its duties hereunder. In connection with its duties hereunder, the
Administrator shall be entitled to rely, and shall be held harmless by the
Corporation when acting in reliance, upon the instruction, advice,
information or any documents relating to the Funds provided to the
Administrator by an officer or representative of the Funds or by any of
the aforementioned persons. Fees charged by such persons shall be an
expense of the respective Fund. The Administrator shall be entitled to
rely on any document which it reasonably believes to be genuine and to
have been signed or presented by the proper party. The Administrator
shall not be held to have notice of any change of authority of any
officer, agent, representative or employee of the Corporation until
receipt of written notice thereof from the Corporation.
(c) In compliance with the requirements of Rule 31a-3 under the Act,
the Administrator hereby agrees that all records which it maintains for
the Corporation are the property of the Corporation and further agrees to
surrender promptly to the Corporation any of such records upon the
Corporation's request. Subject to the terms of Section 6, the
Administrator further agrees to preserve for the periods prescribed by
Rule 31a-2 under the Act the records described in (a) above which are
maintained by the Administrator for the Corporation.
(d) It is understood that in determining security valuations, the
Administrator employs one or more pricing services to determine valuations
of portfolio securities for purposes of calculating net asset values of
the Funds. The Administrator shall identify to the Corporation and the
Board of Directors any such pricing service utilized on behalf of the
Corporation. The Administrator is authorized to rely on the prices
provided by such service(s) or by the Funds' investment adviser or other
authorized representative of the Funds, and shall not be liable for losses
to the Corporation or its securityholders as a result of its' reliance on
the valuations provided by the approved pricing service(s) or the
representative.
3. Fees; Delegation; Expenses
(a) In consideration of the services rendered pursuant to this
Agreement, the Corporation will pay the Administrator a fee, computed
daily and payable monthly, as provided in Schedule B hereto, plus out-of-
pocket expenses. The Corporation shall also pay the Administrator for
organizational start-up services provided on behalf of the Funds as
specified in Schedule B. Out-of-pocket expenses include, but are not
limited to, travel, lodging and meals in connection with travel on behalf
of the Corporation, programming and related expenses (previously incurred
or to be incurred by Administrator) in connection with providing
electronic transmission of data between the Administrator and the Funds'
other service providers, brokers, dealers and depositories, and
photocopying, postage and overnight delivery expenses. Fees shall be paid
by each Fund at a rate that would aggregate at least the applicable
minimum fee for each Fund.
(b) For the purpose of determining fees payable to the
Administrator, net asset value shall be computed in accordance with the
Corporation's Prospectuses and resolutions of the Corporation's Board of
Directors. The fee for the period from the day of the month this
Agreement is entered into until the end of that month shall be pro-rated
according to the proportion which such period bears to the full monthly
period. Upon any termination of this Agreement before the end of any
month, the fee for such part of a month shall be pro-rated according to
the proportion which such period bears to the full monthly period and
shall be payable upon the date of termination of this Agreement. Should
the Corporation be liquidated, merged with or acquired by another fund or
investment company, any accrued fees shall be immediately payable. Such
fee as is attributable to each Fund shall be a separate charge to each
Fund and shall be the several (and not joint or joint and several)
obligation of each such Fund.
(c) The Administrator will bear all expenses in connection with the
performance of its services under this Agreement except as otherwise
provided herein. Other costs and expenses to be incurred in the operation
of the Funds, including, but not limited to: taxes; interest; brokerage
fees and commissions, if any; salaries, fees and expenses of officers and
Directors; Commission fees and state Blue Sky fees; advisory fees; charges
of custodians, transfer agents, dividend disbursing agents; security
pricing services; insurance premiums; outside auditing and legal expenses;
costs of organization and maintenance of corporate existence; typesetting,
printing, proofing and mailing of prospectuses, statements of additional
information, supplements, notices and proxy materials for regulatory
purposes and for distribution to current shareholders; typesetting,
printing, proofing and mailing and other costs of shareholder reports;
expenses incidental to holding meetings of the Fund's shareholders and
Directors; and any extraordinary expenses; will be borne by the Funds or
their investment adviser. Expenses incurred for distribution of fund
shares, including the typesetting, printing, proofing and mailing of
prospectuses for persons who are not shareholders of the Corporation, will
be borne by the Corporation or its investment adviser, except for such
expenses permitted to be paid by the Corporation under a distribution plan
adopted in accordance with applicable laws.
4. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Corporation all
records and other information relative to the Funds and prior, present or
potential shareholders of the Corporation (and clients of said
shareholders), and not to use such records and information for any purpose
other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the
Corporation, which approval shall not be unreasonably withheld and may not
be withheld where the Administrator may be exposed to civil or criminal
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, when subject to governmental
or regulatory audit or investigation, or when so requested by the
Corporation.
5. Limitation of Liability
The Administrator shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Funds in connection with
the matters to which this Agreement relates, except for a loss resulting
from willful misfeasance, bad faith or negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. Furthermore, the
Administrator shall not be liable for any action taken or omitted to be
taken in accordance with instructions received by the Administrator from
an officer or representative of the Corporation.
6. Term
(a) This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the effective date of the Corporation's
Registration Statement as declared by the Securities and Exchange
Commission and, with respect to each Fund not in existence on that date,
on the date an amendment to Schedule A to this Agreement relating to that
Fund is executed. This Agreement shall continue in effect with respect to
each Fund until December 31, 1996 (the "Initial Term"). Thereafter, if
not terminated as provided herein, this Agreement shall continue
automatically in effect as to each Fund for successive annual periods.
(b) This Agreement may be terminated with respect to any one or more
particular Funds without penalty after the Initial Term (i) upon mutual
consent of the parties, or (ii) by either party upon not less than ninety
(90) days' written notice to the other party (which notice may be waived
by the party entitled to the notice). The terms of this Agreement shall
not be waived, altered, modified, amended or supplemented in any manner
whatsoever except by a written instrument signed by the Administrator and
the Corporation.
(c) Notwithstanding anything herein to the contrary, upon the
termination of this Agreement or the liquidation of a Fund or the
Corporation, the Administrator shall deliver the records of the Fund(s)
and/or Corporation as the case may be to the Corporation or person(s)
designated by the Corporation and thereafter the Corporation or its
designee shall be solely responsible for preserving the records for the
periods required by all applicable laws, rules and regulations. In
addition, in the event of termination of this Agreement, or the proposed
liquidation or merger of the Corporation or a Fund(s), and the Corporation
requests the Administrator to provide services in connection therewith,
the Administrator shall provide such services and be entitled to such
compensation as the parties may mutually agree.
7. Non-Exclusivity
The services of the Administrator rendered to the Corporation are not
deemed to be exclusive. The Administrator may render such services and
any other services to others, including other investment companies. The
Corporation recognizes that from time to time directors, officers and
employees of the Administrator may serve as trustees, directors, officers
and employees of other entities (including other investment companies),
that such other entities may include the name of the Administrator as part
of their name and that the Administrator or its affiliates may enter into
investment advisory or other agreements with such other entities.
8. Governing Law; Invalidity
This Agreement shall be governed by Wisconsin law. To the extent
that the applicable laws of the State of Wisconsin, or any of the
provisions herein, conflict with the applicable provisions of the Act, the
latter shall control, and nothing herein shall be construed in a manner
inconsistent with the Act or any rule or order of the Commission
thereunder. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
9. Notices
Any notice required or to be permitted to be given by either party to
the other shall be in writing and shall be deemed to have been given when
sent by registered or certified mail, postage prepaid, return receipt
requested, as follows: Notice to the Administrator shall be sent to
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202, Attention Miriam M. Allison, and notice to the
Corporation shall be sent to Van Wagoner Funds, Inc., Attention: Garrett
Van Wagoner, ___________________________________.
10. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer as of the day and year first
above written.
VAN WAGONER FUNDS, INC.
(the "Corporation")
By:_____________________________
Garrett Van Wagoner
President
SUNSTONE FINANCIAL GROUP, INC.
("Administrator")
By:_____________________________
President
<PAGE>
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
VAN WAGONER FUNDS, INC.
and
Sunstone Financial Group, Inc.
Van Wagoner Micro-Cap Fund
Van Wagoner Emerging Growth Fund
Van Wagoner Mid-Cap Fund
<PAGE>
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
Van Wagoner Funds, Inc.
and
Sunstone Financial Group, Inc.
Minimum
Name of Fund Annual Fees Annual Fee
Micro-Cap Up to $50 Million 22.5 basis points $61,500
$50 Million to $100 Million 15.0 basis points
$100 Million to $250 Million 10.0 basis points
Over $250 Million 7.5 basis points
Emerging Up to $50 Million 22.5 basis points $61,500
Growth $50 Million to $100 Million 15.0 basis points
$100 Million to $250 Million 10.0 basis points
Over $250 Million 7.5 basis points
Mid-Cap Up to $50 Million 22.5 basis points $61,500
$50 Million to $100 Million 15.0 basis points
$100 Million to $250 Million 10.0 basis points
Over $250 Million 7.5 basis points
In addition to the foregoing, the Corporation shall pay to the
Administrator $_______ for organizational start-up services provided by
the Administrator on behalf of the Funds. The Corporation shall also
pay/reimburse the Administrator's out-of-pocket expenses as described in
the Agreement.
Dated: December 31, 1995.
VAN WAGONER FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: /s/ Garrett Van Wagoner By: /s/ Miriam M. Allison
Garrett Van Wagoner Miriam M. Allison
President President
EXHIBIT 9.2
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT made as of the 31st day of December, 1995 by and
between VAN WAGONER FUNDS, INC., a Maryland corporation having its
principal place of business at ____________________________________(the
"Corporation"), and SUNSTONE FINANCIAL GROUP, INC., a Wisconsin
corporation, having its principal place of business at 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202 (the "Sunstone"):
WHEREAS, the Corporation is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company and is authorized to issue shares of common stock
("Shares") in separate series with each such series representing the
interests in a separate portfolio of securities and other assets;
WHEREAS, the Corporation desires to retain Sunstone to render the
transfer agency and other services contemplated hereby with respect to
each of the investment portfolios of the Corporation as are listed on
Schedule A hereto and any additional investment portfolios the Corporation
and Sunstone may agree upon and include on Schedule A as such Schedule may
be amended from time to time (such investment portfolios and any
additional investment portfolios are individually referred to as a Fund
and collectively the "Funds"), and Sunstone is willing to render such
services.
NOW, THEREFORE, in consideration of the mutual promises and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
ARTICLE I
APPOINTMENT OF TRANSFER AGENT
A. Appointment. The Corporation hereby constitutes and appoints
Sunstone as transfer agent and dividend disbursing agent of all the Shares
of the Funds during the period of this Agreement, and Sunstone hereby
accepts such appointment as transfer agent and dividend disbursing agent
and agrees to perform the duties thereof as hereinafter set forth.
2. Sunstone shall perform the transfer agent and dividend
disbursing agent services described on Schedule B hereto. To the extent
that a Fund requests Sunstone to perform any additional services in a
manner not consistent with Sunstone's usual processing procedures,
Sunstone and the Fund shall mutually agree as to the services to be
accomplished, the manner of accomplishment and the compensation to which
Sunstone shall be entitled with respect thereto.
3. Sunstone may, in its discretion, appoint in writing other
parties qualified to perform transfer agency and shareholder services
reasonably acceptable to the Funds (individually, a "Sub-transfer Agent")
to carry out some or all of its responsibilities under this Agreement with
respect to a Fund; provided, however, that unless the Fund shall enter
into a written agreement with such Sub-transfer Agent, the Sub-transfer
Agent shall be the agent of Sunstone and not the agent of the Corporation
or such Fund and, in such event Sunstone shall be fully responsible for
the acts or omissions of such Sub-transfer Agent and shall not be relieved
of any of its responsibilities hereunder by the appointment of such Sub-
transfer Agent.
4. Sunstone shall have no duties or responsibilities
whatsoever hereunder except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or obligation
shall be implied in this Agreement against Sunstone.
B. Documents/Records.
1. In connection with such appointment, the Corporation shall
deliver or cause to be delivered the following documents to Sunstone:
a) A copy of the Articles of Incorporation and By-laws of
the Corporation and all amendments thereto certified by the Secretary of
the Corporation;
b) A copy of the resolutions of the Board of Directors of
the Corporation certified by the Secretary of the Corporation appointing
Sunstone and authorizing the execution of this Transfer Agency Agreement
on behalf of the Funds and designating certain persons to sign stock
certificates, if any, and give or authorize others to give written or oral
instructions and requests on behalf of the Funds;
c) A certificate signed by the Secretary of the
Corporation specifying: the number of authorized Shares and the number of
such authorized Shares issued and currently outstanding; the names and
specimen signatures of the officers of the Corporation authorized to sign
written stock certificates and the individuals authorized to provide oral
instructions and to sign written instructions and requests; and the name
and address of the legal counsel for the Corporation;
d) In the event the Corporation issues Share
certificates, specimen Share certificates for each Fund in the form
approved by the Board of Directors of the Corporation (and in a format
compatible with Sunstone's operating system), together with a Certificate
signed by the Secretary of the Corporation as to such approval;
e) Copies of the Corporation's Registration Statement, as
amended to date, and the most recently filed Post-Effective Amendment
thereto, filed by the Corporation with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "1933 Act"),
and under the 1940 Act, as amended, together with any applications filed
in connection therewith; and
f) Opinion of counsel for the Corporation with respect to
the Corporation's organization and existence under the laws of its state
of organization, the validity of the authorized and outstanding Shares,
whether such Shares are fully paid and non-assessable and the status of
such Shares under the Securities Act of 1933, as amended, and any other
applicable federal law or regulation (i.e., if subject to registration,
that they have been registered and that the Registration Statement has
become effective or, if exempt, the specific grounds therefor.)
2. The Corporation agrees to deliver or to cause to be
delivered to Sunstone in Milwaukee, Wisconsin, at the Corporation s
expense, all of its shareholder account records relating to the Funds in a
format acceptable to Sunstone and all such other documents, records and
information as Sunstone may reasonably request in order for Sunstone to
perform its services hereunder.
ARTICLE II
COMPENSATION & EXPENSES
A. Compensation. In consideration for its services hereunder as
transfer agent and dividend disbursing agent, each Fund will pay to
Sunstone such compensation as shall be set forth in a separate fee
schedule to be agreed to by each Fund and Sunstone from time to time. A
copy of the initial fee schedule is attached hereto as Schedule C.
B. Expenses. The Corporation on behalf of each Fund also agrees to
promptly reimburse Sunstone for all reasonable out-of-pocket expenses or
disbursements incurred by Sunstone in connection with the performance of
services under this Agreement including, but not limited to, expenses for
postage, express delivery services, freight charges, envelopes, checks,
drafts, forms (continuous or otherwise), specially requested reports and
statements, bank account service fees and charges, telephone calls,
telegraphs, stationery supplies, outside printing and mailing firms,
magnetic tapes, reels or cartridges (if sent to a Fund or to a third party
at a Fund's request) and magnetic tape handling charges, on-site and off-
site record storage, media for storage of records (e.g., microfilm,
microfiche, optical platters, computer tapes and disks), computer
equipment installed at a Fund's request at a Fund's or a third party's
premises, telecommunications equipment, telephone/telecommunication lines
between a Fund and its agents, on one hand, and Sunstone on the other,
proxy soliciting, processing and/or tabulating costs, transmission of
statement data for remote printing or processing, and transaction fees to
the extent any of the foregoing are paid by Sunstone. Postage is payable
in advance and is due at least seven days prior to the anticipated mail
date. Other out-of pocket expenses are payable in advance if so requested
by Sunstone. In the event Sunstone requests advance payment, Sunstone
shall not be obligated to incur such expenses or perform the related
service(s) until payment is received. Sunstone may, at its option,
arrange to have various service providers submit invoices directly to the
Funds for payment of out-of pocket expenses reimbursable hereunder. In
addition to the foregoing, any other expenses incurred by Sunstone at the
request or with the consent of a Fund will be promptly reimbursed by the
respective Fund.
C. Payment Procedures.
1. Amounts due hereunder shall be due and paid by the
respective Fund on or before the thirtieth (30th) day after the date of
the statement therefor (the "Due Date"). Service fees are billed monthly,
and out-of-pocket expenses are billed as incurred (unless prepayment is
requested by Sunstone). Sunstone may, at its option, arrange to have
various service providers submit invoices directly to the Funds for
payment of out-of-pocket expenses reimbursable hereunder. The Corporation
is aware that its failure to pay all amounts in a timely fashion so that
they will be received by Sunstone on or before the Due Date will give rise
to costs to Sunstone not contemplated by this Agreement, including but not
limited to carrying, processing and accounting charges. Accordingly, in
the event that any amounts due hereunder are not received by Sunstone
within ten (10) days of the date of a notice of past due amounts, a Fund
shall pay a late charge equal to one and one-half percent (1.5%) per month
or the maximum amount permitted by law, whichever is less from the date of
the past due notice to the date of Sunstone's receipt of payment of such
past due amount. In addition, the Fund shall pay reasonable attorney s
fees and court costs of Sunstone if any amounts due Sunstone are collected
by or through an attorney. The parties hereby agree that such late charge
represents a fair and reasonable computation of the costs incurred by
reason of late payment or payment of amounts not properly due. Acceptance
of such late charge shall in no event constitute a waiver of the Fund s
default or prevent the non-defaulting party from exercising any other
rights and remedies available to it.
2. In the event that any charges are disputed, the Fund shall,
on or before the Due Date, pay all undisputed amounts due hereunder and
notify Sunstone in writing of any disputed charges for out-of-pocket
expenses which it is disputing in good faith. Payment for such disputed
charges shall be due on or before the close of the fifth (5th) business
day after the day on which Sunstone provides to the Fund documentation
which an objective observer would agree reasonably supports the disputed
charges (the "Revised Due Date"). Late charges shall not begin to accrue
as to charges disputed in good faith until the first day after the Revised
Due Date.
ARTICLE III
PROCESSING AND PROCEDURES
A. Issuance, Redemption and Transfer of Shares
1. Sunstone acknowledges that it has received a copy of the
Fund's Prospectus (as hereinafter defined), which Prospectus describes how
sales and redemptions of shares of each Fund shall be made and Sunstone
agrees to accept purchase orders and redemption requests with respect to
Fund shares on each Fund Business Day in accordance with such Prospectus.
"Fund Business Day" shall be deemed to be each day on which the New York
Stock Exchange is open for trading, and "Prospectus" shall mean the last
Fund prospectus actually received by Sunstone from the Fund with respect
to which the Fund has indicated a registration statement under the 1933
Act has become effective, including the Statement of Additional
Information, incorporated by reference therein.
2. On each Fund Business Day Sunstone shall, as of the time at
which the net asset value of the Fund is computed, issue to and redeem
from the accounts specified in a purchase order or redemption request,
which in accordance with the Prospectus is effective on such day, the
appropriate number of full and fractional Shares based on the net asset
value per Share of such Fund specified in an advice received on such Fund
Business Day from or on behalf of the Fund.
3. Upon the issuance of any Shares in accordance with this
Agreement, Sunstone shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Fund in
connection with such issuance of any Shares.
4. Sunstone shall not be required to issue any Shares after it
has received from an Officer (as herein defined) of the Fund or from an
appropriate federal or state authority written notification that the sale
of Shares has been suspended or discontinued, and Sunstone shall be
entitled to rely upon such written notification. "Officer" shall be
deemed to be the Corporation's President, any Vice President, Secretary,
Treasurer, Controller, any Assistant Controller, any Assistant Treasurer
and any Assistant Secretary of the Corporation, and any other person duly
authorized by the Board of Directors of the Corporation to execute any
certificate, instruction, notice or other instrument or provide oral
instructions on behalf of the Corporation, and disclosed to Sunstone, as
such individuals may be amended from time to time and disclosed in writing
to Sunstone, and any person reasonably believed by Sunstone to be such a
person.
5. Upon receipt of a proper redemption request and monies paid
to it by the Custodian in connection with a redemption of Shares, Sunstone
shall cancel the redeemed Shares and after making appropriate deduction
for any withholding of taxes required of it by applicable law, make
payment in accordance with the Fund's redemption and payment procedures
described in the Prospectus.
6. (a) Except as otherwise provided in sub-paragraph (b) of
this paragraph, Shares will be transferred or redeemed upon presentation
to Sunstone of Share certificates, if any, or instructions properly
endorsed for transfer or redemption, accompanied by such documents as
Sunstone deems necessary to evidence the authority of the person making
such transfer or redemption, and bearing satisfactory evidence of the
payment of stock transfer taxes. Sunstone reserves the right to refuse to
transfer or redeem Shares until it is satisfied that the endorsement on
the stock certificate, if any, or instructions is valid and genuine, and
for that purpose it will require, unless otherwise instructed by an
authorized officer of the Fund or except as provided in sub-paragraph (b)
of this paragraph, a guarantee of signature by an "Eligible Guarantor
Institution" as that term is defined by SEC Rule 17Ad-15. Sunstone also
reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authorized,
and it shall incur no liability for the refusal, in good faith, to make
transfers or redemptions which Sunstone, in its judgment, deems improper
or unauthorized, or until it is satisfied that there is no basis to any
claims adverse to such transfer or redemption. Sunstone may, in effecting
transfers and redemptions of Shares, rely upon those provisions of the
Uniform Act for the Simplification of Fiduciary Security Transfers or the
Uniform Commercial Code, as the same may be amended from time to time,
applicable to the transfer of securities, and the Corporation shall
indemnify Sunstone for any act done or omitted by it in good faith in
reliance upon such laws.
(b) Notwithstanding the foregoing or any other provision
contained in this Agreement to the contrary, Sunstone shall be fully
protected by each Fund in not requiring any instruments, documents,
assurances, endorsements or guarantees, including, without limitation, any
signature guarantees, in connection with a redemption, or transfer, of
Shares whenever Sunstone reasonably believes that requiring the same would
be inconsistent with the transfer and redemption procedures as described
in the Prospectus.
7. Notwithstanding any provision contained in this Agreement
to the contrary, Sunstone shall not be required or expected to require, as
a condition to any transfer or redemption of any Shares pursuant to a
computer tape or electronic data transmission, any documents to evidence
the authority of the person requesting the transfer or redemption and/or
the payment of any stock transfer taxes, and shall be fully protected in
acting in accordance with the applicable provisions of this Article.
8. In connection with each purchase and each redemption of
Shares, Sunstone shall send such statements as are prescribed by the
Federal securities laws applicable to transfer agents or as described in
the Prospectus. If the Prospectus indicates that certificates for Shares
are available and if specifically requested in writing by any shareholder,
or if otherwise required hereunder, Sunstone will countersign, issue and
mail to such shareholder at the address set forth in the records of
Sunstone a Share certificate for any full Share requested.
9. On each Fund Business Day Sunstone shall supply the Fund
with a statement specifying with respect to the immediately preceding Fund
Business Day: the total number of Shares of the Fund (including
fractional Shares) issued and outstanding at the opening of business on
such day; the total number of Shares of the Fund sold on such day; the
total number of Shares of the Fund and the dollar amount redeemed from
Shareholders by Sunstone on such day; and the total number of Shares of
the Fund issued and outstanding.
10. Procedures for effecting purchase, redemption or transfer
transactions accepted from investors by telephone or other methods shall
be established by mutual agreement between the Funds and Sunstone
consistent with the terms of the Prospectus. Sunstone upon notice to a
Fund may establish such additional procedures, rules and regulations
governing the transfer or registration of Share certificates, if any, or
the purchase, redemption or transfer of Shares, as it may deem advisable
and consistent with the Prospectus and such rules and regulations
generally adopted by mutual fund transfer agents. Sunstone shall not be
liable, and shall be held harmless by the Funds, for its actions or
omissions which are consistent with the foregoing procedures.
B. Dividends and Distributions.
1. The Corporation shall furnish to Sunstone a copy of a
resolution of its Board of Directors, certified by the Secretary or any
Assistant Secretary, either (i) setting forth the date of the declaration
of a dividend or distribution, the date of accrual or payment, as the case
may be, thereof, the record date as of which shareholders entitled to
payment, or accrual, as the case may be, shall be determined, the amount
per Share of such dividend or distribution, the payment date on which all
previously accrued and unpaid dividends are to be paid, and the total
amount, if any, payable to Sunstone on such payment date, or (ii)
authorizing the declaration of dividends and distributions on a daily or
other periodic basis and authorizing Sunstone to rely on a certificate of
an Officer setting forth the information described in subsection (i) of
this paragraph.
2. In connection with a reinvestment of a dividend or
distribution of Shares of a Fund, Sunstone shall as of each Fund Business
Day, as specified in a certificate or resolution described in paragraph 1,
issue Shares of the Fund based on the net asset value per Share of such
Fund specified in an advice received from or on behalf of the Fund on such
Fund Business Day.
3. Upon the mail date specified in such certificate or
resolution, as the case may be, the Fund shall, in the case of a cash
dividend or distribution, cause the Custodian to deposit in an account in
the name of Sunstone on behalf of the Fund, an amount of cash, if any,
sufficient for Sunstone to make the payment, as of the mail date,
specified in such Certificate or resolution, as the case may be, to the
Shareholders who were of record on the record date. Sunstone will, upon
receipt of any such cash, make payment of such cash dividends or
distributions to the shareholders of record as of the record date.
Sunstone shall not be liable for any improper payments made in good faith
and in accordance with a certificate or resolution described in the
preceding paragraph. If Sunstone shall not receive from the Custodian
sufficient cash to make payments of any cash dividend or distribution to
all shareholders of the Fund as of the record date, Sunstone shall, upon
notifying the Fund, withhold payment to all shareholders of record as of
the record date until sufficient cash is provided to Sunstone.
4. It is understood that Sunstone in its capacity as transfer
agent and dividend disbursing agent shall in no way be responsible for the
determination of the rate or form of dividends or capital gain
distributions due to the shareholders pursuant to the terms of this
Agreement. It is further understood that Sunstone shall file such
appropriate information returns concerning the payment of dividend and
capital gain distributions with the proper federal and state authorities
as are required by law to be filed by the Funds but shall in no way be
responsible for the collection or withholding of taxes due on such
dividends or distributions due to shareholders, except and only to the
extent, required by applicable law.
C. Authorization and Issuance of Shares; Recapitalization or
Capital Adjustment.
1. Prior to the effective date of any increase or decrease in
the total number of Shares authorized to be issued, or the issuance of any
additional Shares of a Fund pursuant to stock dividends, stock splits or
similar transactions, the Corporation agrees to deliver to Sunstone such
documents, certificates, reports and legal opinions as Sunstone may
reasonably request.
2. In the case of any negative stock split, recapitalization
or other capital adjustment requiring a change in the form of Share
certificates, Sunstone will issue Share certificates in the new form in
exchange for, or upon transfer of, outstanding Share certificates in the
old form, upon receiving:
(a) A certificate of an Officer authorizing the issuance
of the Share certificates in the new form, a certified copy of any
amendment to the Articles of Incorporation with respect to the change, and
such other documents and information as Sunstone may reasonably request.
(b) In the event the Funds issue Share certificates,
specimen Share certificates for each Fund in the new form approved by the
Board of Directors, with a certificate signed by the Secretary of the
Corporation as to such approval.
3. In the event a Fund issues Share certificates, the Fund at
its expense shall furnish Sunstone with a sufficient supply of blank Share
certificates in the new form and from time to time will replenish such
supply upon the request of Sunstone. Such blank Share certificates shall
be compatible with Sunstone's system and shall be properly signed by
facsimile or otherwise by Officers of the Corporation authorized by law or
by the By-Laws to sign Share certificates and, if required shall bear the
corporate Seal or facsimile thereof. Each Fund agrees to indemnify and
exonerate, save and hold Sunstone harmless, from and against any and all
claims or demands that may be asserted against Sunstone with respect to
the genuineness of any Share certificate supplied to Sunstone.
4. In the event a Fund issues Share certificates, Sunstone may
issue new Share certificates in place of certificates represented to have
been lost, stolen, or destroyed upon receiving written instructions from
the shareholder accompanied by proof of an indemnity or surety bond issued
by a recognized insurance institution specified by the Fund or Sunstone.
If Sunstone receives written notification from the shareholder or broker
dealer that the certificate issued was never received, and such
notification is made within 30 days of the date of issuance, Sunstone may
reissue the certificate without requiring a surety bond. Sunstone may
also reissue certificates which are represented as lost, stolen, or
destroyed without requiring a surety bond provided that the notification
is in writing and accompanied by an indemnification signed on behalf of a
member firm of the New York Stock Exchange and signed by an officer of
said firm with the signature guaranteed. Notwithstanding the foregoing,
Sunstone will reissue a certificate upon written authorization from an
Officer of the Fund.
D. Records.
1. Sunstone shall keep such records as are specified in
Schedule D hereto in the form and manner, and for such period, as it may
deem advisable but not inconsistent with the rules and regulations of
appropriate government authorities, in particular Rules 31a-2 and 31a-3
under the 1940 Act. Sunstone may deliver to the Funds from time to time
at its discretion, for safekeeping or disposition by a Fund in accordance
with law, such records, papers and documents accumulated in the execution
of its duties as such transfer agent, as Sunstone may deem expedient,
other than those which Sunstone is itself required to maintain pursuant to
applicable laws and regulations. The Funds shall assume all
responsibility for any failure thereafter to produce any record, paper,
canceled Share certificate, or other document so returned, if and when
required. To the extent required by Section 31 of the 1940 Act and the
rules and regulations thereunder, the records specified in Schedule D
hereto maintained by Sunstone, which have not been previously delivered to
a Fund pursuant to the foregoing provisions of this paragraph, shall be
considered to be the property of the Fund, shall be made available upon
request for inspection by the officers, employees, and auditors of the
Fund, and shall be delivered to the Fund promptly upon request and in any
event upon the date of termination of this Agreement, in the form and
manner kept by Sunstone on such date of termination or such earlier date
as may be requested by the Fund.
2. Sunstone agrees to keep all records and other information
relative to the Funds and their shareholders confidential. In case of any
requests or demands for the inspection of the shareholder records of a
Fund, Sunstone will endeavor to notify the Fund promptly and to secure
instructions from an Officer as to such inspection. Sunstone reserves the
right, however, to exhibit the shareholder records to any person whenever
it receives advice from its counsel that there is a reasonable likelihood
that Sunstone will be held liable for the failure to exhibit the
shareholder records to such person; provided, however, that in connection
with any such disclosure Sunstone shall promptly notify the Fund that such
disclosure has been made or is to be made. Notwithstanding the foregoing,
Sunstone may disclose information when requested by a shareholder
concerning an account as to which such shareholder claims a legal or
beneficial interest or when requested by the Funds, the shareholder or the
dealer of record as to such account.
3. Sunstone shall only be responsible for the safekeeping and
maintenance of transfer agency records, canceled certificates, if any, and
correspondence of a Fund created or produced prior to the time of
conversion which are under its control and acknowledged in a writing to
the Fund to be in its possession. Any expenses or liabilities incurred by
Sunstone as a result of shareholder inquiries, regulatory compliance or
audits related to such records shall be the responsibility of the Funds.
ARTICLE IV
CONCERNING THE CORPORATION
A. Representations. The Corporation represents and warrants to
Sunstone that:
(a) It is a corporation duly organized and existing under the
laws of the State of Maryland, it is empowered under applicable laws and
by its Articles of Incorporation and By-Laws to enter into and perform
this Agreement, and all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(b) It is an investment company registered under the 1940 Act.
(c) A registration statement under the 1933 Act with respect to
the Shares is effective. The Corporation shall notify Sunstone if such
registration statement or any state securities registrations have been
terminated, lapse or a stop order has been entered with respect to the
Shares.
B. Covenants.
1. The Corporation will file with Sunstone copies of all
material amendments to its Articles of Incorporation and By-laws made
after the date of this Agreement. Each copy of the Articles of
Incorporation of the Funds and copies of all amendments thereto shall be
certified by the Secretary of the Corporation. Each copy of the By-Laws
and copies of all amendments thereto, and copies of resolutions of the
Board of Directors, shall be certified by the Secretary of the
Corporation.
2. The Corporation shall promptly deliver to Sunstone written
notice of any change in the Officers authorized to sign Share
certificates, if any, notifications or requests, or provide oral
instructions, together with a specimen signature of each new Officer. In
the event any Officer who shall have signed manually or whose facsimile
signature shall have been affixed to blank Share certificates shall die,
resign or be removed prior to issuance of such Share certificates,
Sunstone may issue such Share certificates of the Fund notwithstanding
such death, resignation or removal, and the Funds shall promptly deliver
to Sunstone such approval, adoption or ratification as may be required by
law.
3. The Corporation shall deliver to Sunstone the Fund s
currently effective Prospectus and, for purposes of this Agreement,
Sunstone shall not be deemed to have notice of any information contained
in such Prospectus until a reasonable time after it is actually received
by Sunstone.
4. All requisite steps will be taken by the Funds from time to
time when and as necessary to register the Funds' shares for sale in all
states in which Funds' shares shall at the time be offered for sale and
require registration. If at any time a Fund receives notice of any stop
order or other proceeding in any such state affecting such registration or
the sale of Fund's shares, or of any stop order or other proceeding under
the federal securities laws affecting the sale of the Fund's shares, the
Fund will give prompt notice thereof to Sunstone.
5. The Corporation will comply with all applicable
requirements of the 1933 Act, the Securities Exchange Act of 1934, as
amended, the 1940 Act, blue sky laws, and any other applicable laws, rules
and regulations.
6. The Corporation agrees that prior to effecting any change
in the Prospectus which would increase or alter the duties and obligations
of Sunstone hereunder, it shall advise Sunstone of such proposed change at
least 30 days prior to the intended date of the same, and shall proceed
with such change only if it shall have received the written consent of
Sunstone thereto, which shall not be unreasonably withheld.
ARTICLE V
CONCERNING THE TRANSFER AGENT
A. Representations. Sunstone represents and warrants to the Fund
that:
(a) It is a corporation duly organized and existing under the
laws of the State of Wisconsin, is empowered under applicable law and by
its Articles of Incorporation and By-Laws to enter into and perform this
Agreement, and all requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
(b) It is duly registered as a transfer agent under Section 17A
of the Securities Exchange Act of 1934, as amended, to the extent
required.
B. Limitation of Liability; Indemnification.
1. Sunstone shall use its best efforts to ensure the accuracy
of all services performed under this Agreement, but shall not be liable
for any loss or damage, including counsel fees, resulting from its actions
or omissions to act or otherwise, in the absence of its bad faith, willful
misfeasance, negligence or reckless disregard of its duties under this
Agreement.
2. The Corporation on behalf of the Funds agrees to indemnify
and hold harmless Sunstone, its employees, agents, directors, officers and
nominees from and against any and all claims, demands, actions and suits,
whether groundless or otherwise, and from and against any and all
judgments, liabilities, losses, damages, costs, charges, counsel fees and
other expenses of every nature and character arising out of or in any way
relating to Sunstone's actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reliance on information, records, instructions (oral or written) or
requests given or made to Sunstone by the Funds, its officers, directors,
agents or representatives; provided that this indemnification shall not
apply to actions or omissions of Sunstone in cases of its own willful
misfeasance or negligence, and further provided that prior to confessing
any claim against it which may be the subject of this indemnification,
Sunstone shall give the Funds written notice of and reasonable opportunity
to defend against said claim in its own name or in the name of Sunstone.
The indemnity and defense provisions provided hereunder shall indefinitely
survive the termination of this Agreement.
3. Sunstone agrees to indemnify and hold harmless the Funds,
its employees, agents, directors, officers and nominees from and against
any and all claims, demands, actions and suits, whether groundless or
otherwise, and from and against any and all judgments, liabilities,
losses, damages, costs, charges, counsel fees and other expenses of every
nature and character resulting from Sunstone's bad faith, willful
misfeasance, negligence or reckless disregard of its duties under this
Agreement; provided that prior to confessing any claim against it which
may be the subject of this indemnification, the Funds shall give Sunstone
written notice of and reasonable opportunity to defend against said claim
in its own name or in the name of the Funds. The indemnity and defense
provisions provided hereunder shall indefinitely survive the termination
of this Agreement.
4. Sunstone assumes no responsibility hereunder, and shall not
be liable, for any damage, loss of data, errors, delay or any other loss
whatsoever caused by events beyond its reasonable control. Sunstone will,
however, take all reasonable steps to minimize service interruptions for
any period that such interruption continues beyond Sunstone's control.
5. Notwithstanding anything herein to the contrary, Sunstone
shall not be liable and shall be indemnified in acting upon any writing or
document reasonably believed by it to be genuine and to have been signed
or made by an Officer or verbal instructions which the individual
receiving the instructions on behalf of Sunstone reasonably believes in
good faith to have been given by an Officer, and Sunstone shall not be
held to have any notice of any change of authority of any person until
receipt of written notice thereof from a Fund or such person. Sunstone
shall not be liable to a Fund with respect to any redemption draft on
which the signature of the drawer is forged nor shall Sunstone be liable
for any alteration or absence or forgery of any endorsement, it being
understood that Sunstone's sole responsibility with respect to inspecting
redemption drafts is to use reasonable care to verify the drawer s
signature against signatures on file. It shall also be protected in
processing Share certificates, if any, which bear the proper
countersignature of Sunstone and which it reasonably believes to bear the
proper manual or facsimile signature of the Officers.
6. IN NO EVENT AND UNDER NO CIRCUMSTANCES SHALL EITHER PARTY
TO THIS AGREEMENT BE LIABLE TO ANYONE, INCLUDING, WITHOUT LIMITATION TO
THE OTHER PARTY, FOR CONSEQUENTIAL OR PUNITIVE DAMAGES FOR ANY ACT OR
FAILURE TO ACT UNDER ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF
THE POSSIBILITY THEREOF.
7. At any time Sunstone may request instructions and/or
receive directions from an Officer with respect to any matter arising in
connection with Sunstone's duties and obligations under this Agreement,
and Sunstone shall not be liable for any action taken or permitted by it
in good faith in accordance with such instructions or directions. Such
request for instructions by Sunstone may set forth any action proposed to
be taken or omitted by Sunstone with respect to its duties or obligations
under this Agreement and the date on and/or which such action shall be
taken. Sunstone shall not be liable for any action taken or omitted in
accordance with a proposal included in any such request on or after the
date specified therein unless, prior to taking or omitting any such
action, Sunstone has received instructions in response to such application
specifying the action to be taken or omitted. Sunstone may consult
counsel of the Corporation, or upon notice to the Corporation, its own
counsel, at the expense of the Corporation and shall be fully protected
with respect to anything done or omitted by it in good faith in accordance
with the advice or opinion of counsel to the Corporation or its own
counsel.
8. Notwithstanding any of the provisions of this Agreement,
Sunstone shall be under no duty or obligation under this Agreement to
inquire into, and shall not be liable for:
(a) The legality of the issue or sale of any Shares, the
sufficiency of the amount to be received therefor, or the authority of a
Fund, as the case may be, to request such sale or issuance;
(b) The legality of a transfer of Shares, or of a
redemption of any Shares, the propriety of the amount to be paid therefor,
or the authority of a Fund, as the case may be, to request such transfer
or redemption;
(c) The legality of the declaration of any dividend by a
Fund, or the legality of the issue of any Shares in payment of any stock
dividend, or the legality of any recapitalization or readjustment of
Shares.
ARTICLE V
TERM
1. This Agreement shall remain in full force and effect for a
period of two (2) years from the date hereof, the initial term, and
thereafter shall automatically extend for additional, successive twelve
(12) month terms unless earlier terminated as provided below.
2. Either of the parties hereto may terminate this Agreement
after the initial term by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than
ninety (90) days after the date of receipt of such notice. In the event
such notice is given by a Fund, it shall be accompanied by a copy of a
resolution of the Board of Directors of the Corporation, certified by the
Secretary or any Assistant Secretary, electing to terminate this Agreement
and designating the successor transfer agent or transfer agents. In the
event such notice is given by Sunstone, the Fund shall on or before the
termination date, deliver to Sunstone a copy of a resolution of its Board
of Directors certified by the Secretary or any Assistant Secretary
designating a successor transfer agent or transfer agents. In the absence
of such designation by the Fund, the Fund shall upon the date specified in
the notice of termination of this Agreement and delivery of the records
maintained hereunder, be deemed to be its own transfer agent and Sunstone
shall thereby be relieved of all duties and responsibilities pursuant to
this Agreement. Fees and out-of-pocket expenses incurred by Sunstone, but
unpaid by a Fund upon such termination, shall be immediately due and
payable upon and notwithstanding such termination.
3. In the event this Agreement is terminated as provided
herein, Sunstone, upon the written request of a Fund, shall deliver the
records of the Fund to the Fund or its successor transfer agent in the
form maintained by Sunstone. The Fund shall be responsible to Sunstone
for all out-of-pocket expenses and for the reasonable costs and expenses
associated with the preparation and delivery of such media, including: (a)
any custom programming requested by a Fund in connection with the
preparation of such media; (b) transportation of forms and other Fund
materials used in connection with the processing of Fund transactions by
Sunstone; and (c) transportation of Fund records and files in the
possession of Sunstone. Sunstone shall not reduce the level of service
provided to the Fund following notice of termination by the Fund.
ARTICLE VI
MISCELLANEOUS
A. Notices. Any notice or other instrument in writing, authorized
or required by this Agreement to be given to a Fund or the Corporation
shall be sufficiently given if addressed to the Corporation and mailed and
delivered to the President at _______________________________, or at such
other place as the Corporation may from time to time designate in writing.
Any notice or other instrument in writing, authorized or required by this
Agreement to be given to Sunstone shall be sufficiently given if addressed
to Sunstone and mailed or delivered to the President at 207 East Buffalo
Street, Suite 400, Milwaukee, Wisconsin 53202, or at such other place as
Sunstone may from time to time designate in writing.
B. Amendments/Assignments.
1. This Agreement may not be amended or modified in any manner
except by a written agreement executed by both parties with the formality
of this Agreement.
2. This Agreement shall extend to and shall be binding upon
the parties hereto, and their respective successors and assigns. This
Agreement shall not be assignable by either party without the written
consent of the other party except that Sunstone may assign this Agreement
to an affiliate with advance written notice to the Corporation.
C. Wisconsin Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin. If any
part, term or provision of this Agreement is determined by the courts or
any regulatory authority having jurisdiction over the issue to be illegal,
in conflict with any law or otherwise invalid, the remaining portion or
portions shall be considered severable and not be affected, and the rights
and obligations of the parties shall be construed and enforced as if the
Agreement did not contain the particular part, term or provision held to
be illegal or invalid.
D. Counterparts. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original; but such
counterparts shall, together, constitute only one instrument.
E. Back-up Facility. During the terms of this Agreement, Sunstone
shall provide a facility capable of safeguarding the transfer agency and
dividend disbursing records of the Fund in case of damage to the primary
facility providing those services (the "Back-Up Facility"). Transfer of
the transfer agency and dividend records of the Fund to the Back-Up
Facility shall commence as soon as practicable after damage to the primary
facility results in an inability to provide the transfer agency and
dividend disbursing services. After the primary facility has recovered,
Sunstone shall again utilize it to provide the transfer agency and
dividend disbursing services to the Fund. Sunstone shall use reasonable
efforts to provide the services described in this Agreement from the Back-
Up Facility.
F. Prior Transfer Agent(s). Sunstone will endeavor to assist in
resolving shareholder inquiries and errors relating to the period during
which prior transfer agents acted as such for the Fund. Any such
inquiries or errors which cannot be expediently resolved by Sunstone will
be referred to the Fund.
G. Non-Exclusive; Other Agreements. The services of Sunstone
hereunder are not deemed exclusive and Sunstone shall be free to render
similar services to others. Except as specifically provided herein, this
Agreement does not in any way affect any other agreements entered into
among the parties hereto and any actions taken or omitted by any party
hereunder shall not affect any rights or obligations of any other party
hereunder.
H. Captions. The captions in the Agreement are included for
convenience of reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective corporate officer, thereunto duly
authorized and their respective corporate seals to be hereunto affixed, as
the day and year first above written.
SUNSTONE FINANCIAL GROUP, INC. HX FUNDS, INC.
By: ______________________________ By: ________________________________
(Signature) (Signature)
_____________________________ ________________________________
(Name) (Name)
_____________________________ ________________________________
(Title) (Title)
_____________________________ ________________________________
(Date Signed) (Date Signed)
<PAGE>
SCHEDULE A
HX Micro-Cap Fund
HX Emerging Growth Fund
HX Mid-Cap Fund
<PAGE>
SCHEDULE B
SERVICES TO HX FUNDS, INC.
[x] Maintenance of shareholder accounts
- Maintain records for each shareholder account;
- Scan account documents for electronic storage;
- Issue customer statements;
- Record changes to shareholder account information;
- Maintain account documentation files for each shareholder; and
- Establish and maintain IRA accounts.
[x] Shareholder servicing and shareholder transactions
- Respond to written and telephone (recorded lines) inquiries from
shareholders for information about their accounts;
- Process shareholder purchase and redemption orders, including
those of automatic investment and systematic withdrawal plans;
- Set up account information, including address, dividend options,
taxpayer identification numbers and wire instructions;
- Issue transaction confirmations;
- Process transfers and exchanges; and
- Process dividend payments by check, wire or ACH or purchase new
shares through dividend reinvestment.
[x] Compliance reporting and proxy processing
- Provide required reports to the Securities and Exchange Commission,
the National Association of Securities Dealers and the states in
which each fund is registered;
- Prepare and distribute required Internal Revenue Service forms
relating to earned income and capital gains to fund and
shareholders;
- Issue tax withholding reports to the Internal Revenue Service; and
- Mail, process and tabulate proxies.
[x] Dealer/load processing (if applicable)
- Provide dealer access through NSCC's FundSERV;
- Calculate fees due under 12b-1 plans for distribution and marketing
expenses; and
[x] Telephone service representatives on-line access
- Respond to shareholder or dealer inquiries related to:
[x] Account registration;
[x] Share balances;
[x] Account options;
[x] Dividend and capital gain distribution status;
[x] Withholding status;
[x] Transaction dates and types;
[x] Shares traded;
[x] Social security number/tax ID number;
[x] External account number;
[x] Address;
[x] Customer or account type;
[x] Dealer, branch and rep information;
[x] Dollars available/not available in the account;
[x] Shares purchased/redeemed today;
[x] Dividend accrual, current dividend period; and
[x] Market value of shares.
[x] Standard reports
- Shareholder base analysis (monthly)
- New account listing (weekly)
- Purchases, redemptions, exchanges (monthly)
- Servicing summary (monthly)
- Rule 12b-1 reports (monthly)
Other Service Features
In addition to the standard features listed above, Sunstone's system
offers additional features to meet specialized needs.
[x] Specialized needs
- 12b-1 fee calculations*
- Multiple account look-up options
- Cross-fund account queries
- Cross-account queries
- Comprehensive reporting by various criteria*
- Consolidated statements
- Duplicate statements to third parties
- Multiple address option
- Labels to all shareholders or selected groups*
- Proxy generation and tabulation*
- Cross-fund dividend reinvestment
- User-defined transaction descriptions
- User-defined transaction rules
- Fund-level processing options
- Systematic withdrawals
- Automatic periodic purchases and automatic investment plans
- Correspondence system capabilities
*available at additional cost
<PAGE>
SCHEDULE C
FEE SCHEDULE
[To be provided.]
<PAGE>
SCHEDULE D
RECORDS MAINTAINED BY SUNSTONE
Account applications
Canceled certificates plus stock powers and supporting documents
Checks including check registers, reconciliation records, any adjustment
records and tax withholding documentation
Indemnity bonds for replacement of lost or missing stock certificates and
checks
Liquidation, redemption, withdrawal and transfer requests including stock
powers, signature guarantees and any supporting documentation
Shareholder correspondence
Shareholder transaction records
Share transaction history of the Funds
EXHIBIT 10
FOLEY & LARDNER
A T T O R N E Y S A T L A W
FIRSTAR CENTER
777 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202-5367
A MEMBER OF GLOBALEX
WITH MEMBER OFFICES IN
MADISON BERLIN
CHICAGO TELEPHONE (414) 271-2400 BRUSSELS
WASHINGTON, D.C. DRESDEN
JACKSONVILLE TELEX 26-819 FRANKFURT
ORLANDO LONDON
TALLAHASSEE (FOLEY LARD MIL) PARIS
TAMPA SINGAPORE
WEST PALM BEACH FACSIMILE (414) 297-4900 STUTTGART
TAIPEI
WRITER'S DIRECT LINE
November 30, 1995
Van Wagoner Funds, Inc.
207 East Buffalo Street
Suite 400
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel for you in connection with the
preparation of a Registration Statement on Form N-1A relating to the sale
by you of an indefinite amount of Van Wagoner Funds, Inc. Common Stock,
$0.0001 par value (such Common Stock being hereinafter referred to as the
"Stock") in the manner set forth in the Registration Statement to which
reference is made. In this connection we have examined: (a) the
Registration Statement on Form N-1A; (b) your Articles of Incorporation
and Bylaws, as amended to date; (c) corporate proceedings relative to the
authorization for issuance of the Stock; and (d) such other proceedings,
documents and records as we have deemed necessary to enable us to render
this opinion.
Based upon the foregoing, we are of the opinion that the shares
of Stock when sold as contemplated in the Registration Statement will be
legally issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the
Securities Act of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
FOLEY & LARDNER
EXHIBIT 11
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the
registration statement on Form N-1A (the "Registration Statement") of our
report dated November 30, 1995, relating to the statement of assets and
liabilities of Van Wagoner Funds, Inc., which appears in such Statement of
Additional Information, and to the incorporation by reference of our
report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading
"Independent Accountants" in such Statement of Additional Information and
to the reference to us under the heading "Transfer and Dividend Disbursing
Agent, Custodian and Certified Public Accountants" in such Prospectus.
Price Waterhouse LLP
Milwaukee, Wisconsin
November 30, 1995
EXHIBIT 13.1
SUBSCRIPTION AGREEMENT
HX Funds, Inc.
San Francisco, California
Gentlemen:
The undersigned hereby subscribes to 10,000 shares of the Common Stock,
$.0001 par value per share, of HX Funds, consisting of 3,333 shares of the
Micro Cap Fund, 3,334 shares of the Emerging Growth Fund and 3,333 shares
of the Mid-Cap Fund, in consideration for which the undersigned agrees to
transfer to you upon demand cash in the amount of $100,000 ($10 per share
of each Fund). It is understood that upon receipt by you of payment
therefor, said shares shall be issued and shall be deemed to be fully paid
and nonassessable.
The undersigned agrees that the shares are being purchased for investment
with no present intention of reselling or redeeming said shares.
Dated and effective as of this 27th day of November, 1995.
HX CAPITAL MANAGEMENT, INC.
By: /s/ Garrett Van Wagoner
Garrett Van Wagoner
President
ACCEPTANCE
The foregoing subscription is hereby accepted. Dated and effective as of
this 27th day of November, 1995.
HX FUNDS, INC.
By: /s/ Garrett Van Wagoner
Garrett Van Wagoner
President
EXHIBIT 13.2
ORGANIZATIONAL EXPENSES AGREEMENT
HX Funds, Inc., a Maryland corporation (the "Company") and Van Wagoner
Capital Management, Inc., a California corporation (the "Adviser"), in
consideration for the engagement by the Adviser as the investment adviser
for the series of the Company set forth on Appendix A hereto (the "Funds")
pursuant to separate agreements, hereby agree as follows:
1. Advancement of Expenses. The Adviser shall pay all of the
organizational expenses of the Funds, including but not limited to initial
fees for registration of the shares of the Funds under applicable law and
fees for services rendered prior to the commencement of the initial public
offering of shares of the Funds, subject to the right to be reimbursed
pursuant to paragraph 2.
2. Reimbursement and Amortization of Expenses. The Funds shall amortize
the organizational expenses over a period of 60 months beginning with the
month in which the Funds commence the initial public offering of shares of
the Funds, and the Funds shall reimburse the Adviser during the period of
such amortization.
3. Limitation on Reimbursement. If the Funds should be liquidated during
such 60-month period prior to the complete amortization of all
organizational expenses, neither the Funds nor the Company shall have any
duty to reimburse the Adviser for organizational expenses unamortized as
of the time of liquidation.
4. Limitation on Redemption of Initial Investment. The Adviser agrees
that, in the event that it or any transferee thereof redeems any
percentage of the Adviser's initial investment in the Funds prior to the
60-month amortization period, the Company is authorized to reduce the
redemption proceeds to cover any unamortized organizational expenses in
the same proportion as the number of initial shares being redeemed bears
to the number of initial shares outstanding at the time of redemption. If,
for any reason, said reduction of redemption proceeds is not in fact made
by the Company in the event of such a redemption, the Adviser agrees to
reimburse the Company immediately for any unamortized organizational
expenses in the proportion stated above.
Dated: November 27, 1995
HX Funds, Inc. HX Capital Management, Inc.
("Company") ("Adviser")
By: /s/ Garrett VanWagoner By: /s/ Garrett VanWagoner
Garrett VanWagoner Garrett VanWagoner
<PAGE>
Appendix A
to Organizational
Expenses Agreement
Dated November 27, 1995
Micro-Cap Fund
Emerging Growth Fund
Mid-Cap Fund
EXHIBIT 14
THE _________________ FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Please read the following information together with the
Individual Retirement Account Custodial Agreement and the Prospectus for
the fund you select for investment of your IRA contributions.
You may revoke this account any time within seven calendar days
after it is established by mailing or delivering a written request for
revocation to: _________________________________________________________.
If your revocation is mailed, the date of the postmark (or the date of
certification if sent by certified or registered mail) will be considered
your revocation date. Upon proper revocation, you will receive a full
refund of your initial contribution, without any adjustments for items
such as administrative fees or fluctuations in market value.
1. General. Your IRA is a custodial account created for your
exclusive benefit, and ___________________________________ serves as
custodian. Your interest in the account is nonforfeitable.
2. Investments. Contributions made to your IRA will be
invested in shares of the __________________________ Fund and/or any other
regulated investment company of the series of funds commonly known as
__________________________ Funds. To the extent that two or more funds
are available within ___________________ Funds, you elect how your
contributions are invested.
3. Eligibility. Employees and self-employed individuals are
eligible to contribute to an IRA. Employers may also contribute to
employer-sponsored IRAs established for the benefit of their employees.
You may also establish an IRA to receive rollover contributions and
transfers from another IRA custodian or trustee or from certain other
retirement plans.
4. Time of Contribution. You may make regular contributions
to your IRA any time up to and including the due date for filing your tax
return for the year, not including extensions. You may continue to make
regular contributions to your IRA up to (but not including) the calendar
year in which you reach 70-1/2. Employer contributions to a SEP - IRA
plan may be continued after you attain age 70-1/2. Rollover contributions
and transfers may be made at any time, including after you reach age 70-
1/2.
5. Amount of Contribution. You may make annual regular
contributions to an IRA in any amount up to 100% of your compensation for
the year or $2,000, whichever is less. Qualifying rollover contributions
and transfers are not subject to this limitation.
6. Spousal IRA. If you are married and your spouse is not
employed (or if your employed spouse elects to be treated as having no
compensation), you may make contributions to a spousal IRA in addition to
your own IRA. The maximum amount contributed to both your own and to your
spouse's IRA may not exceed 100% of your compensation or $2,250, whichever
is less. In no event, however, may the annual contribution to either your
account or your spouse's account exceed $2,000.
7. Rollovers and Transfers. You are allowed to "rollover" a
distribution or transfer your assets from one individual retirement
account to another without any tax liability. Rollovers between IRAs may
be made once per year and must be accomplished within 60 days after the
distribution. Also, under certain conditions, you may roll over (tax
free) all or a portion of a distribution received from a qualified plan or
tax-sheltered annuity. However, strict limitations apply to such
rollovers, and you should seek competent advice in order to comply with
all of the rules governing rollovers.
Effective January 1, 1993, most distributions from qualified
retirement plans will be subject to a 20% withholding requirement. The
20% withholding can be avoided by directly transferring the amount of the
distribution to an individual retirement account or to certain other types
of retirement plans. You should receive more information regarding these
new withholding rules and whether your distribution can be transferred to
an IRA from the plan administrator prior to receiving your distribution.
8. Excess Contributions. Contributions which exceed the
allowable maximum for federal income tax purposes are treated as excess
contributions. A nondeductible penalty tax of 6% of the excess amount
contributed will be added to your income tax for each year in which the
excess contribution remains in your account.
9. Correction of Excess Contribution. If you make a
contribution in excess of your allowable maximum, you may correct the
excess contribution and avoid the 6% penalty tax for that year by
withdrawing the excess contribution and its earnings on or before the
date, including extensions, for filing your tax return. Any earnings on
the withdrawn excess contribution will be taxable in the year the excess
contribution was made and may be subject to a 10% penalty tax. In
addition, in certain cases an excess contribution may be withdrawn after
the time for filing your tax return. Finally, excess contributions for
one year may be carried forward and applied against the contribution
limitation in succeeding years.
10. Tax Deductibility of Annual Contributions. Although you
may make an IRA contribution within the limitations described above, all
or a portion of your contribution may be nondeductible. No deduction is
allowed for a rollover contribution or transfer. If you are not married
and are not an "active participant" in an employer-sponsored retirement
plan, you may make a fully deductible IRA contribution in any amount up to
$2,000 or 100% of your compensation for the year, whichever is less. The
same limits apply if you are married and file a joint return with your
spouse and neither you nor your spouse is an "active participant" in an
employer-sponsored retirement plan.
An employer-sponsored retirement plan includes any of the
following types of retirement plans:
-- a qualified pension, profit-sharing, or
stock bonus plan established in accordance
with IRC 401(a) or 401(k),
-- a Simplified Employee Pension Plan (SEP)
(IRC 408(k)),
-- a deferred compensation plan maintained by a
governmental unit or agency,
-- tax-sheltered annuities and custodial
accounts (IRC 403(b) and 403(b)(7)),
-- a qualified annuity plan under IRC Section
403(a).
Distributions from the types of plans listed above are eligible to be
rolled over or transferred to your IRA.
Generally, you are considered an "active participant" in a
defined contribution plan if an employer contribution or forfeiture was
credited to your account during the year. You are considered an "active
participant" in a defined benefit plan if you are eligible to participate
in a plan, even though you elect not to participate. You are also treated
as an "active participant" if you make a voluntary or mandatory
contribution to any type of plan, even if your employer makes no
contribution to the plan.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, your IRA contribution is
fully deductible if your adjusted gross income (or combined income if you
file a joint tax return) does not exceed certain limits. For this purpose
adjusted gross income is not modified to take into account any deduction
for IRA contributions, but does take into account the passive loss
limitations under Code Section 86 and any taxable benefits under the
Social Security Act and the Railroad Retirement Act.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, the deduction for your
IRA contribution is reduced proportionately for adjusted gross income
which exceeds the applicable dollar amount. The applicable dollar amount
for an individual is $25,000 and $40,000 for married couples filing a
joint tax return. The applicable dollar limit for married individuals
filing separate returns if $0. If your adjusted gross income exceeds the
applicable dollar amount by $10,000 or less, you may make a deductible IRA
contribution. The deductible amount, however, will be less than $2000.
To determine the amount of your deductible contribution, use the
following calculations:
1) Subtract the applicable dollar amount from
your adjusted gross income. If the result
is $10,000 or more, you can only make a
nondeductible contribution to your IRA.
2) Divide the above figure by $10,000, and
multiply that percentage by $2,000.
3) Subtract the dollar amount (result from #2
above) from $2,000 to determine the amount
which is deductible.
If the deduction limit is not a multiple of $10 then it should
be rounded up to the next $10. There is a $200 minimum floor on the
deduction limit if your adjusted gross income does not exceed $35,000 (for
a single taxpayer), $50,000 (for married taxpayers filing jointly) or
$10,000 (for a married taxpayer filing separately).
Even if your income exceeds the limits described above, you may
make a contribution to your IRA up to the contribution limitations
described in Section 5 above. To the extent that your contribution
exceeds the deductible limits, it will be nondeductible. However,
earnings on all IRA contributions are tax deferred until distribution.
11. Simplified Employee Pension Plan. Your IRA may be used as
part of a Simplified Employee Pension Plan established by your employer.
Your employer may contribute to your IRA/SEP up to a maximum of 15% of
your compensation or $30,000, whichever is less. If your SEP Plan
permits, you may also elect to have your employer make salary reduction
contributions of up to $9,240 for 1995 (adjusted periodically for cost of
living increases) to your IRA. However, the combination of the employer's
contributions and your salary reduction contributions may not exceed the
lesser of 15% of your compensation or $30,000. It is your responsibility
and that of your employer to see that contributions in excess of normal
IRA limits are made under a valid Simplified Employee Pension Plan and
are, therefore, proper.
12. Form of Distributions. Distributions may be made in any
one of three methods:
(a) a lump-sum distribution,
(b) installments over a period not extending beyond your life
expectancy (as determined by actuarial tables), or
(c) installments over a period not extending beyond the joint
life expectancy of you and your designated beneficiary (as determined
by actuarial tables).
13. Latest Time to Withdraw. You must begin receiving the
assets in your account no later than April 1 following the calendar year
in which you reach age 70-1/2 (your "required beginning date"). In
general, the minimum amount that must be distributed each year is equal to
the amount obtained by dividing the balance in your IRA on the last day of
the prior year (or the last day of the year prior to the year in which you
attain age 70-1/2) by your life expectancy, the joint life expectancy of
you and your beneficiary, or the specified payment term, whichever is
applicable. A federal tax penalty may be imposed against you if the
required minimum distribution is not made for the year you reach age 70-
1/2 and for each year thereafter. The penalty is equal to 50% of the
amount by which the actual distribution is less than the required minimum.
Unless you or your spouse elects otherwise, your life expectancy
and/or the life expectancy of your spouse will be recalculated annually.
An election not to recalculate life expectancy(ies) is irrevocable and
will apply to all subsequent years. The life expectancy of a nonspouse
beneficiary may not be recalculated.
If you have two or more IRAs, you may satisfy the minimum
distribution requirements by receiving a distribution from one of your
IRAs in an amount sufficient to satisfy the minimum distribution
requirements for your other IRAs. You must still calculate the required
minimum distribution separately for each IRA, but then such amounts may be
totalled and the total distribution taken from one or more of your
individual IRAs.
Distribution from your IRA must satisfy the special "incidental
death benefit" rules of the Internal Revenue Code. These provisions set
forth certain limitations on the joint life expectancy of you and your
beneficiary. If your beneficiary is not your spouse, your beneficiary
will be generally considered to be no more than 10 years younger than you
for the purpose of calculating the minimum amount that must be
distributed.
14. Distribution of Account Assets After Death. If you die
before receiving the balance of your account, distribution of your
remaining account balance is subject to several special rules. If you die
on or after your required beginning date, distribution must continue in a
method at least as rapid as under the method of distribution in effect at
your death. If you die before your required beginning date, your
remaining interest will, at the election of your beneficiary or
beneficiaries, (i) be distributed by December 31 of the year in which
occurs the fifth anniversary of your death, or (ii) commence to be
distributed by December 31 of the year following your death over a period
not exceeding the life or life expectancy of your designated beneficiary
or beneficiaries.
Two additional distribution options are available if your spouse
is the beneficiary: (i) payments to your spouse may commence as late as
December 31 of the year you would have attained age 70-1/2 and be
distributed over a period not exceeding the life or life expectancy of
your spouse, or (ii) your spouse can simply elect to treat your IRA as his
or her own, in which case distributions will be required to commence by
April 1 following the calendar year in which your spouse attains age 70-
1/2.
15. Tax Treatment of Distributions. Amounts distributed to you
are generally includable in your gross income in the taxable year you
receive them and are taxable as ordinary income. To the extent, however,
that any part of a distribution constitutes a return of your nondeductible
contributions, it will not be included in your income. The amount of any
distribution excludable from income is the portion that bears the same
ratio as your aggregate nondeductible contributions bear to the balance of
your IRA at the end of the year (calculated after adding back
distributions during the year). For this purpose, all of your IRAs are
treated as single IRA. Furthermore, all distributions from an IRA during
a taxable year are to be treated as one distribution. The aggregate
amount of distributions excludable from income for all years cannot exceed
the aggregate nondeductible contributions for all calendar years.
No distribution to you or anyone else from your account can
qualify for capital gains treatment under the federal income tax laws.
Similarly, you are not entitled to the special five- or ten-year averaging
rule for lump-sum distributions available to persons receiving
distributions from certain other types of retirement plans. All
distributions are taxed to the recipient as ordinary income except the
portion of a distribution which represents a return of nondeductible
contributions.
16. Early Distributions. Distributions from your IRA made
before age 59-1/2 will be subject to a 10% nondeductible penalty tax
unless the distribution is a return of nondeductible contributions or is
made because of your death, disability, as part of a series of
substantially equal periodic payments over your life expectancy or the
joint life expectancy of you and your beneficiary, or the distribution is
an exempt withdrawal of an excess contribution. The penalty tax may also
be avoided if the distribution is rolled over to another individual
retirement account.
17. Qualification of Plan. Your Individual Retirement Account
Plan has been approved as to form by the Internal Revenue Service. The
Internal Revenue Service approval is a determination only as to the form
of the Plan and does not represent a determination of the merits of the
Plan as adopted by you. You may obtain further information with respect
to your Individual Retirement Account from any district office of the
Internal Revenue Service.
18. Prohibited Transactions. If any of the following events
occur during the existence of your IRA, your account will be disqualified,
and the entire balance in your account will be treated as if distributed
to you and will be taxable to you as ordinary income during the year in
which such event occurs:
(a) the sale, exchange, or leasing of any property between
you and your account,
(b) the lending of money or other extensions of credit
between you and your account,
(c) the furnishing of goods, services, or facilities
between you and your account, and/or
If you are under age 59-1/2, you may also be subject to the 10% tax on
early distributions.
19. Penalty for Pledging Account. If you use (pledge) all or
part of your IRA as security for a loan, then the portion so pledged will
be treated as if distributed to you and will be taxable to you as ordinary
income during the year in which you make such pledge. The 10% additional
tax on early distributions may also apply.
20. Reporting for Tax Purposes. Deductible contributions to
your IRA may be claimed as a deduction on your tax form 1040 for the
taxable year contributed. If any nondeductible contributions are made by
you during a tax year, such amounts must be reported on Form 8606 and
attached to your Federal Income Tax Return for the year contributed. If
you report a nondeductible contribution to your IRA and do not make the
contribution, you will be subject to a $100 penalty for each overstatement
unless a reasonable cause is shown for not contributing. Other reporting
will be required by you in the event that special taxes or penalties
described herein are due. You must also file Treasury Form 5329 with the
IRS for each taxable year in which the contribution limits are exceeded, a
premature distribution takes place, or less than the required minimum
amount is distributed from your IRA.
21. Allocation of Earnings. The value of the shares purchased
by your IRA increases or decreases in accordance with changes in the
market value of the mutual fund shares held by your IRA. Any dividend or
capital gains distributions on the shares purchased by your IRA will be
used to purchase additional investment company shares at the then current
net asset value. The growth in value of your IRA is neither guaranteed or
projected.
22. Income Tax Withholding. You must indicate on distribution
requests whether or not federal income taxes should be withheld.
Redemption request not indicating an election not to have federal income
tax withheld will be subject to withholding.
23. Other Information. Information about the shares of each
mutual fund available for investment by your IRA must be furnished to you
in the form of a prospectus governed by rules of the Securities and
Exchange Commission. Please refer to the prospectus for detailed
information concerning your mutual fund. You may obtain further
information concerning IRAs from any District Office of the Internal
Revenue Service.
Fees and other expenses of maintaining your account may be
charged to you or your account.
EXHIBIT 15
VAN WAGONER FUNDS, INC.
SERVICE AND DISTRIBUTION PLAN
WHEREAS, Van Wagoner Funds, Inc. (the "Company") is organized to
engage in the business of an open-end management investment company and is
registered as such under the Investment Company Act of 1940, as amended
(the "Act");
WHEREAS, the Company is authorized to issue shares of common stock
(the "Shares") in separate series with each such series representing
interests in a separate portfolio of securities and other assets (the
"Funds");
WHEREAS, the Company desires to appoint a distributor, act itself as
a distributor of the Funds' shares and/or to enter into agreements with
dealers and other financial service organizations to obtain various
distribution-related and/or shareholder services for the Funds, all as
permitted and contemplated by Rule 12b-1 adopted under the Act; it being
understood that to the extent any activity is one which a Fund may finance
without a Rule 12b-1 plan, the Fund may also make payments to finance such
activity outside such a plan and not subject to its limitations.
NOW, THEREFORE, the Company hereby adopts on behalf of each Fund with
respect to each Fund's shares, a Service and Distribution Plan on the
following terms and conditions (the "Plan"):
1. Each Fund may charge a distribution expense and service fee on
an annualized basis of 0.25% of each Fund's average daily net assets.
Such fee shall be calculated and accrued daily and paid at such intervals
as the Board of Directors of the Company shall determine, subject to any
applicable restriction imposed by rules of the National Association of
Securities Dealers, Inc.
2. (a) The amount set forth in paragraph 1 of this Plan shall be
paid for services and expenses in connection with any activities primarily
intended to result in the sale of shares of the Funds including, but not
limited to, compensation to the Company's distributor and reimbursement of
such distributor's expenses, as provided in the Distribution Agreement by
and between the Distributor and the Company. In addition, the Funds may
pay all or a portion of this fee to any other securities dealer, financial
institution or any other person (the "Shareholder Organization(s)") who
renders personal service to shareholders, assists in the maintenance of
shareholder accounts or who renders assistance in distributing or
promoting the sale of the Funds' shares pursuant to a written agreement
based on the form attached hereto as Appendix A or any other form duly
approved by the Board of Directors (the "related agreement").
(b) To the extent such fee is not paid to such persons, the
Funds may use the fee for their expenses of distribution of their shares
including, but not limited to, payment by the Funds of the cost of
preparing, printing and distributing Prospectuses and Statements of
Additional Information to prospective investors and of implementing and
operating the Plan as well as payment of capital or other expenses of
associated equipment, rent, salaries, bonuses, interest and other overhead
costs.
3. The Plan shall not take effect with respect to a Fund's shares
until it has been approved by a vote of the then sole shareholder of the
shares of the Fund.
4. This Plan shall not take effect until it, together with any
related agreements, has been approved by votes of a majority of both (a)
the Directors of the Company and (b) those Directors of the Company who
are not "interested persons" of the Company (as defined in the Act) and
who have no direct or indirect financial interest in the operation of this
Plan or any agreements related to it (the "Rule 12b-1 Directors"), cast in
person at a meeting (or meetings) called for the purpose of voting on this
Plan and such related agreements.
5. After approval as set forth in paragraphs 3 and 4, this Plan
shall take effect upon commencement of operations of the respective Funds.
The Plan of Distribution shall continue in full force and effect as to the
Fund shares for so long as such continuance is specifically approved at
least annually in the manner provided for approval of this Plan in
paragraph 4.
6. All persons authorized to direct the disposition of monies paid
or payable by a Fund pursuant to the Plan or any related agreement shall
provide to the Directors of the Company, and the Directors shall review,
at least quarterly, a written report of the amounts so expended and the
purposes for which such expenditures were made.
7. This Plan may be terminated as to a Fund at any time, without
payment of any penalty, by vote of the Directors of the Company, by a vote
of a majority of the Rule 12b-1 Directors, or by a vote of a majority of
the outstanding shares of the Fund on not more than 30 days' written
notice to any other party to the Plan.
8. This Plan may not be amended to increase materially the amount
of the fee provided for in paragraph 1 hereof unless such amendment is
approved by a vote of a majority of the outstanding shares of the
respective Fund(s), and no material amendment to the Plan shall be made
unless approved in the manner provided for approval and annual renewal in
paragraph 4 hereof.
9. While this Plan is in effect, the selection and nomination of
Directors who are not interested persons (as defined in the Act) of the
Company shall be committed to the discretion of the Directors who are not
such interested persons.
10. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 6 hereof, for a
period of not less than six years from the date of this Plan, any such
agreement or any such report, as the case may be, the first two years in
an easily accessible place.
IN WITNESS WHEREOF, the Company, on behalf of the Funds, has adopted
this Service and Distribution Plan as of the 8th day of December, 1995.
<PAGE>
Appendix A
SERVICING AND DISTRIBUTION AGREEMENT
Gentlemen:
We wish to enter into this Servicing and Distribution Agreement
("Agreement") with you concerning the provision of distribution services
(and, to the extent provided below, support services) to your clients
("Clients") who may from time to time acquire and beneficially own shares
of any Fund ("Shares") offered by Van Wagoner Funds, Inc.
The terms and conditions of this Agreement are as follows:
Section 1. You will provide reasonable assistance in connection
with the distribution of Shares to Clients as requested from time to time,
which assistance may include forwarding sales literature and advertising
provided by us for Clients. In addition, you agree to provide the
following support services to Clients who may from time to time acquire
and beneficially own shares:/1 (i) processing dividend and distribution
payments from us on behalf of Clients; (ii) providing information
periodically to Clients showing their positions in Shares; (iii) arranging
for bank wires, (iv) responding to Client inquiries relating to the
services performed by you; (v) providing subaccounting with respect to
Shares beneficially owned by Clients or the information to us necessary
for subaccounting; (vi) if required by law, forwarding shareholder
communications from us (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax
notices) to Clients; (vii) assisting in processing purchase, exchange and
redemption requests from Clients and in placing such orders with our
service contractors; (viii) assisting Clients in changing dividend
options, account designations and addresses; and (ix) providing such other
similar services as we may reasonably request to the extent you are
permitted to do so under applicable statutes, rules and regulations.
_____________________
1/ Services may be modified or omitted in the particular case and items
renumbered.
Section 2. You will provide such office space and equipment,
telephone facilities and personnel (which may be any part of the space,
equipment and facilities currently used in your business, or any personnel
employed by you) as may be reasonably necessary or beneficial in order to
provide the aforementioned assistance and services to Clients.
Section 3. Neither you nor any of your officers, employees or
agents are authorized to make any representations concerning us or the
Shares except those contained in our then current prospectuses and
statements of additional information for Shares, copies of which will be
supplied by us to you, or in such supplemental literature or advertising
as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed
to be an independent contractor, and will have no authority to act as an
agent for us in any matter or in any respect. By your written acceptance
of this Agreement, you agree to and do release, indemnify and hold us
harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by
you or your officers, employees or agents regarding your responsibilities
hereunder or the purchase, redemption, transfer or registration of Shares
(or orders relating to the same) by or on behalf of Clients. You and your
employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities
provided by you hereunder, we will pay to you, and you will accept as full
payment therefor, a fee at the annual rate of _________% of the average
daily net asset value of the Shares beneficially owned by your Clients for
whom you are the dealer of record or holder of record or with whom you
have a servicing relationship (the "Clients' Shares"), which fee will be
computed daily and payable monthly. For purposes of determining the fees
payable under this Section 5, the average daily net asset value of the
Clients' Shares will be computed in the manner specified in our
Registration Statement (as the same is in effect from time to time) in
connection with the computation of the net asset value of Shares for
purposes of purchases and redemptions. The fee rate stated above may be
prospectively increased or decreased by us, in our sole discretion, at any
time upon notice to you. Furthermore, we may, in our discretion and
without notice, suspend or withdraw the sale of Shares, including the sale
of Shares to you for the account of any Client or Clients. All fees
payable by Van Wagoner Funds, Inc. under this agreement with respect to
the Shares of a particular Fund shall be borne by, and be payable entirely
out of the assets allocable to, said Shares.
Section 6. Any person authorized to direct the disposition of
monies paid or payable by us pursuant to this Agreement will provide to
our Board of Directors, and our Directors will review, at least quarterly,
a written report of the amounts so expended and the purposes for which
such expenditures were made. In addition, you will furnish us or our
designees with such information as we or they may reasonably request
(including, without limitation, periodic certifications confirming the
provision to Clients of the services described herein), and will otherwise
cooperate with us and our designees (including, without limitation, any
auditors designated by us), in connection with the preparation of reports
to our Board of Directors concerning this Agreement and the monies paid or
payable by us pursuant hereto, as well as any other reports or filings
that may be required by law.
Section 7. We may enter into other similar Agreements with any
other person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you
represent, warrant and agree that: (i) the compensation payable to you
hereunder, together with any other compensation you receive from Clients
for services contemplated by this Agreement, will not be excessive or
unreasonable under the laws and instruments governing your relationships
with Clients; and (ii) you will provide to Clients a schedule of any fees
that you may charge to them relating to the investment of their assets in
Shares. In addition, you understand that this Agreement has been entered
into pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"Act"), and is subject to the provisions of said Rule, as well as any
other applicable rules or regulations promulgated by the Securities and
Exchange Commission.
Section 9. This Agreement will become effective on the date a
fully executed copy of this Agreement is received by us or our designee.
Unless sooner terminated, this Agreement will continue until [date], and
thereafter will continue automatically for successive annual periods
provided such continuance is specifically approved at least annually by us
in the manner described in Section 12. This Agreement is terminable with
respect to the Shares of any Fund, without penalty, at any time by us
(which termination may be a vote of a majority of the Disinterested
Trustees as defined in Section 12 or by vote of the holders of a majority
of the outstanding Shares of such Fund) or by you upon notice to the other
party hereto. This Agreement will also terminate automatically in the
event of its assignment (as defined in the Act).
Section 10. All notices and other communications to either you or
us will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address stated
herein.
Section 11. This Agreement will be construed in accordance with
the laws of the State of _______________.
Section 12. This Agreement has been approved by vote of a majority
of (i) our Board of Directors and (ii) those Directors who are not
"interested persons" (as defined in the Investment Company Act of 1940) of
us and have no direct or indirect financial interest in the operation of
the Service and Distribution Plan adopted by us or in any agreement
related thereto cast in person at a meeting called for the purpose of
voting on such approval ("Disinterested Directors").
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly
return it to us at _____________________________________________.
Very truly yours,
VAN WAGONER FUNDS, INC.
Date:_____________________ By:_________________________________
(Authorized Officer)
____________________________________
(address)
____________________________________
Accepted and Agreed to:
[Shareholder Organization]
Date:______________________ By:_________________________________
____________________________________
(address)
____________________________________
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