As filed with the Securities and Exchange Commission on June 14, 1996
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
Post-Effective Amendment No. 1 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 2 X
(Check appropriate box or boxes)
VAN WAGONER FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
One Bush Street
Suite 1150
San Francisco, CA 94104
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (800) 228-2121
Garrett R. Van Wagoner Copy to:
Van Wagoner Funds, Inc. Richard L. Teigen, Esq.
One Bush Street, Suite 1150 Foley & Lardner
San Francisco, CA 94104 777 East Wisconsin Avenue
(Name and Address of Agent for Service) Milwaukee, WI 53202
Registrant has registered an indefinite number of shares of its common
stock under The Securities Act of 1933 and will file its required Rule
24f-2 Notice for Registrant's fiscal year ending December 31, 1996 prior
to March 2, 1997.
Approximate Date of Proposed Public offering: as soon as practible after
the Registration Statement becomes effective.
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b)
( ) pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( X ) 75 days after filing pursuant to paragraph (a)(ii)
( ) on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
( ) this Post-Effective Amendment designates a new effective date for
a previously filed Post-Effective Amendment.
<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
Item No. on Form N-1A Prospectus or Statement of
Additional Information
PART A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Financial Highlights
Information
4. General Description of Van Wagoner Funds, Inc.;
Registrant 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 Capital Structure; Dividends
Securities and Distributions; Taxes;
Shareholder Reports and
Information
7. Purchase of Securities How to Purchase Shares;
Being 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 Additional Investment
and Policies Information; Investment
Restrictions
14. Management of the Fund Additional Company
Information; Shareholder
Meetings
15. Control Persons and Additional Company
Principal Holders of Information
Securities
16. Investment Advisory and Additional Company
Other Services Information
17. Brokerage Allocation Portfolio Transactions and
and Other Policies Brokerage
18. Capital Stock and Other Description of Shares
Securities
19. Purchase, Redemption Included in the Prospectus
and Pricing of Securities under the heading "How to
Being Offered 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 Included in the Prospectus
Performance Data 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
August ___, 1996
Van Wagoner Funds
Van Wagoner Capital Management, Inc.
Investment Adviser
Dear Investor:
Thank you for your interest in the Van Wagoner Funds. We hope this letter
and prospectus will help you more fully understand the potential benefits
and risks of growth stock investing and determine whether it is consistent
with your long-term (5 or more years) investment goals.
Growth Stock Investing
Investing in small- to mid-size companies has the potential to be an
exciting and rewarding investment opportunity. Many young companies today
are on the brink of explosive growth, through development of innovative
products and/or services. However, investing in these young companies
presents risks and price volatility greater than those associated with
larger, more mature companies. For the investor who is patient and mindful
of these risks the potential rewards of growth stock investing can be
substantial.
Investment Style
Van Wagoner Funds' investment style is most accurately described as Growth
Stock Investing. When researching and investing in growth oriented
companies, our focus is placed on understanding each business by speaking
directly with company management, industry consultants and analysts. We
believe this "hands on" approach gives us greater insight and allows us to
make the most informed decisions.
We seek out companies that share a common theme: the ability to thrive in
rapidly growing industries, the delivery of innovative products and
services and management teams who are financially rewarded by their
success.
Again, we appreciate your interest in the Van Wagoner Funds and look
forward to helping you achieve your financial goals.
Sincerely,
Garrett R. Van Wagoner
President
This letter and information on the next page are followed by a prospectus
which describes in detail the Funds' objectives, investment policies,
risks, fees and other matters of interest. Please read it carefully before
investing.
The Van Wagoner Funds
The Van Wagoner Funds is a Family of no-load mutual funds presently
consisting of six diversified investment portfolios designed to offer
investors a range of equity-oriented investment opportunities.
Van Wagoner Emerging Growth Fund
Van Wagoner Micro-Cap Growth Fund
Van Wagoner Mid-Cap Growth Fund
Van Wagoner Capital Appreciation Fund
Van Wagoner Growth Fund
Van Wagoner Post-Venture Fund
Van Wagoner Funds
are designed for:
X An aggressive equity investor seeking growth opportunities.
X A long-term investor who is willing to accept short-term volatility.
X An investor who understands the benefits of a professionally managed
and well-diversified portfolio.
X An investor seeking a growth element within a diversified portfolio.
About the Investment Adviser
Garrett R. Van Wagoner is portfolio manager and President of the Van
Wagoner Funds. He manages all six portfolios: Emerging Growth, Micro-Cap
Growth, Mid-Cap Growth, Capital Appreciation, Growth and Post-Venture.
Prior to founding Van Wagoner Capital Management in January 1996, Mr. Van
Wagoner managed the Govett Smaller Companies Fund for three years. He also
worked with Bessemer Trust, N.A. and has over 18 years experience of
equity portfolio management. He is a graduate of Bucknell University.
August , 1996
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. 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 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
may invest in companies of all sizes.
Van Wagoner Micro-Cap Growth Fund seeks capital appreciation. The
Micro-Cap Growth Fund invests primarily in equity securities of companies
with market capitalizations of less than $350 million.
Van Wagoner Mid-Cap Growth Fund seeks capital appreciation. The Mid-Cap
Growth Fund invests primarily in equity securities of companies with
market capitalizations between $500 million and $5 billion.
Van Wagoner Capital Appreciation Fundseeks capital appreciation. The Fund
invests in companies that the Adviser believes to have the potential for
long-term growth in their business. The Capital Appreciation Fund focuses
on companies with small- to mid-size market capitalizations.
Van Wagoner Growth Fundseeks capital appreciation. The Fund invests in
companies that the Adviser believes to have the potential for
above-average long-term growth. The Fund will focus on companies that have
mid- to larger-size market capitalizations.
Van Wagoner Post-Venture Fundseeks capital appreciation. The Fund invests
primarily in companies considered by the Adviser to be in their
post-venture capital stage. Under normal market conditions, the Fund will
invest at least 65% of its total assets in securities of companies that
have received venture capital financing during the early stages of the
company's existence or the early stages of the development of a new
product or service, or as part of a reorganization, restructuring or
recapitalization.
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 August , 1996, 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 P.O. Box
1628, Milwaukee, WI 53201-1628, or calling 1-800-228-2121. If you wish to
contact the Funds via an overnight delivery, send it to: Van Wagoner
Funds, Inc., 207 East Buffalo Street, Suite 315, Milwaukee, WI 53202-5712.
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.
Table of Contents
Page
Expense Summary 3
Financial Highlights 4
Van Wagoner Funds, Inc. 5
Investment Objectives, Policies and Risk Considerations 6
Investment Limitations 12
Management of the Funds 13
Pricing of Fund Shares 16
How to Purchase Shares 17
How to Exchange Shares 21
How to Redeem Shares 23
Dividends and Distributions 25
Shareholder Reports and Information 26
Retirement Plans 27
Service and Distribution Plan 27
Taxes 28
Capital Structure 28
Transfer and Dividend Disbursing Agent, Custodian and
Independent Accountants 30
Fund Performance 30
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.
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.
Emerging Micro-Cap Mid-Cap
Growth Growth Growth
Fund 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 1.25% 1.50% 1.00%
12b-1 Fees(3) 0.25% 0.25% 0.25%
Other Expenses (net of
reimbursement)(4)(5) 0.45% 0.20% 0.70%
Total Operating Expenses (net
of reimbursement)(5) 1.95% 1.95% 1.95%
Capital Post-
Appreciation Growth Venture
Fund 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 1.25% 1.00% 1.50%
12b-1 Fees(3) 0.25% 0.25% 0.25%
Other Expenses (net of
reimbursement)(4)(5) 0.45% 0.70% 0.20%
Total Operating Expenses
(net of reimbursement)(5) 1.95% 1.95% 1.95%
(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 Emerging Growth, Micro-Cap Growth,
Mid-Cap Growth, Capital Appreciation, Growth and Post-Venture Funds
(excluding interest, taxes, brokerage and extraordinary expense) to
an annual rate of 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 Emerging
Growth, Micro-Cap Growth, Mid-Cap Growth, Capital Appreciation,
Growth and Post-Venture Funds would initially be approximately
0.46%, 0.78%, 0.83%, 0.71%, 1.30% and 1.30%, respectively, and the
Total Annual Operating Expenses of the Funds would initially be
approximately 1.96%, 2.53%, 2.08%, 2.21%, 2.55% and 3.05%,
respectively.
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:
<TABLE>
<CAPTION>
Emerging Micro-Cap Mid-Cap Capital Post-
Growth Growth Growth Appreciation Growth Venture
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
One Year $20 $20 $20 $20 $20 $20
Three Years $62 $62 $62 $62 $62 $62
</TABLE>
The examples shown above should not be considered representations of past
or future expenses or rates of return. 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.
FINANCIAL HIGHLIGHTS
The financial information for each Fund share outstanding during the
periods specified in the following table has been derived from the
financial records of each Fund. The table should be read in conjunction
with the financial statements and related notes included in the
Semi-Annual Report to Shareholders. The Capital Appreciation Fund, Growth
Fund and Post-Venture Fund commenced operations on August ____, 1996.
Six Months Ended June 30, 1996 (Unaudited)
Emerging Micro-Cap Mid-Cap
Growth Growth Growth
Fund(1) Fund(1) Fund(1)
Net Asset Value, Beginning
of Period
Income (Loss) from Investment
Operations:
Net investment loss
Net realized and unrealized
gains on investments
Total from investment
operations
Net Asset Value, End of Period
Total Return(2)
Supplemental Data and Ratios:
Net assets, end of period (000s)
Ratio of net expenses to
average net assets(3)(4)
Ratio of net investment income
(loss) to average net
assets(3)(4)
Portfolio turnover rate
Average commission rate paid
on portfolio investment
transactions
(1) Commenced operations on January 1, 1996
(2) Not annualized
(3) Annualized
(4) Without fees waived, the ratio of net expenses to average net
assets would have been _____% for the Emerging Growth Fund,
_____% for the Micro-Cap Growth Fund and _____% for the Mid-Cap
Growth Fund. The ratio of net investment income (loss) to average
net assets would have been _____% for the Emerging Growth Fund,
_____% for the Micro-Cap Growth Fund and _____% for the Mid-Cap
Growth Fund. The annual expense ratio of each Fund is capped at
1.95% through January 1, 1997.
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 six diversified investment portfolios: Van Wagoner
Emerging Growth Fund, Van Wagoner Micro-Cap Growth Fund, Van Wagoner
Mid-Cap Growth Fund, Van Wagoner Capital Appreciation Fund, Van Wagoner
Growth Fund and Van Wagoner Post-Venture 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 Funds
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.
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."
Micro-Cap Growth Fund
The investment objective of the Micro-Cap Growth 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."
Mid-Cap Growth Fund
The investment objective of the Mid-Cap Growth 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 Growth Fund, but are still undergoing growth due to a new,
improved or upgraded product, service or business operation. See "Other
Investment Policies and Risks."
Capital Appreciation Fund
The investment objective of the Capital Appreciation Fund is capital
appreciation. The Fund seeks to achieve this investment objective by
investing in companies that the Adviser believes to have the potential for
long-term growth in their business. The Adviser will focus on companies
that have characteristics the Adviser believes could allow for rapid
growth including innovative products or services, capable management,
strong balance sheets and/or a unique competitive strength. Although the
Adviser may invest in companies of all sizes, the Adviser also expects to
focus on companies that, at the time of purchase, have small- or mid-size
market capitalizations.
Growth Fund
The investment objective of the Growth Fund is 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.
The Adviser will focus on companies that are more established than
traditional emerging growth companies but that the Adviser believes have
the potential for above-average growth due to new products or services,
changes in financial or other conditions, new revitalized management or
other factors. The Adviser also expects to focus on companies that, at the
time of purchase, have mid- to larger-size market capitalizations,
although the Adviser may invest in companies of all sizes.
Post-Venture Fund
The investment objective of the Post-Venture Fund is capital appreciation.
The Fund seeks to achieve its objective by investing in companies that the
Adviser believes to have the potential for above-average growth in market
value. The Fund will invest primarily in companies considered by the
Adviser to be in their post-venture capital stage. Under normal market
conditions, the Fund will invest at least 65% of its total assets in
securities of companies that have received venture capital financing
during the early stages of the company's existence or as part of a
reorganization, restructuring or recapitalization. It is anticipated that
the Fund will focus on investing primarily in companies during or after
they have engaged in the early stages of their public existence. The Fund
may invest in companies of all sizes.
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 up to 10% of its net
assets 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 securities
of foreign issuers which are publicly traded in the United States, either
directly or through 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, which are sometimes referred to as derivatives, 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: (1) the imperfect
correlation between the change in market value of the instruments held by
a Fund and the price of the option; (2) possible lack of a liquid
secondary market; (3) losses caused by unanticipated market movements; and
(4) 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 ^O 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 Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("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 a 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 S&P or Prime-1 or Prime-2 by 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 13 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. Distributions to shareholders of such investment gains, to the
extent they consist of net short-term capital gains, will be considered
ordinary income for federal income tax purposes.
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 of 1933, as amended, 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 Funds'
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
331/3% 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 objective 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., 1 Bush Street, Suite 1150, San Francisco, CA
94104 (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 Delaware 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 over 18 years of experience as a securities analyst and
portfolio manager. Prior to managing the Funds, 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 S&P 500 were:
Govett Nasdaq
Smaller Composite
Companies Fund(1) Index(2) S&P 500(3)
One Year 69.0% 39.9% 37.6%
March 1, 1993 through
December 31, 1995 54.7% 17.2% 15.4%
(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 Emerging Growth Fund will be
capped initially at 1.95%.
(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 strategies as those 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 not indicative 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
1.25%, 1.50%, 1.00%, 1.25%, 1.00% and 1.50% on the average daily net
assets of the Emerging Growth, Micro-Cap Growth, Mid-Cap Growth, Capital
Appreciation, Growth and Post-Venture Funds, respectively. The rate of the
advisory fees 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, WI 53202-5712, 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 each Fund a fee, computed daily and payable
monthly, based on each Fund's average net assets at the annual rate of
0.175 of 1.0% on the first $50,000,000 of average net assets, 0.100 of
1.0% on the next $50,000,000 of average net assets, 0.05 of 1.0% on the
next $150,000,000 of average net assets, and 0.025 of 1.0% on average net
assets in excess of $250,000,000, subject to an annual minimum of $61,667
per Fund, plus out-of-pocket expenses. In addition, the Administrator
received from the Funds $60,000 for organizational services provided by
the Administrator, plus out-of-pocket expenses. 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, Custodian and Independent
Accountants."
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 1940 Act and any amendments
thereto, the expense of registering their shares with the Securities and
Exchange Commission and 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 a Fund prior to that time and after the
previous time as of which the net asset value was determined. Accordingly,
investments 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
investments accepted or redemption requests received in proper form after
that time will be valued as of the close of the next trading day.
Investments are considered received only when your check, wired funds or
electronically transferred funds are received by the Funds. Investments by
telephone pursuant to your prior authorization to the Funds to draw on
your bank account are considered received when the proceeds from the bank
account are received by the Funds, which generally takes two to three
banking days.
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. Securities traded on only over-the-counter markets
are valued on the basis of closing over-the-counter trade prices.
Securities for which there were no transactions are valued at the closing
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 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. Please complete the Purchase
Application. You may duplicate any application or 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 should be mailed directly to:
Van Wagoner Funds, Inc.
P.O. Box 1628
Milwaukee, WI 53201-1628
To purchase shares by overnight or express mail, please use the following
street address:
Van Wagoner Funds, Inc.
207 East Buffalo Street, Suite 315
Milwaukee, WI 53202-5712
All applications must be accompanied by payment in the form of a check
made payable to "Van Wagoner 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 will delay the mailing
of a redemption check until the purchase check has cleared your bank,
which may take up to 7 business days from the purchase date. If you
contemplate needing to exchange or redeem your investment shortly after
purchase, you should purchase the shares by wire as discussed below.
How to Open Your Account by Wire. You may make purchases by direct wire
transfers. To ensure proper credit to your account, you must call the
Funds at 1-800-228-2121 for instructions and to obtain an investor account
number prior to wiring funds. Funds should be wired through the Federal
Reserve System as follows:
M&I Marshall & Ilsley Bank Milwaukee
A.B.A. Number 075000051
For the account of Park Bank
Account Number 012149
For credit to Van Wagoner Funds, Inc.
Account Number 610031899
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
at the following address: Van Wagoner Funds, Inc., P.O. Box 1628,
Milwaukee, WI 53201-1628. If you wish to send it via overnight delivery,
you may send it to: Van Wagoner Funds, Inc., 207 East Buffalo Street,
Suite 315, Milwaukee, WI 53202-5712. An original Purchase Application must
be received by the Funds to establish privileges and to verify your
account information. Shares will not be redeemed until the Funds receive 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 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 Funds 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. You may also make additional investments by telephone if
you have previously selected this service. By selecting this service, you
authorize the Funds to draw on your preauthorized bank account as shown on
the records of the Funds and receive the proceeds by electronic funds
transfer. Investments made by phone in any one account must be in an
amount of at least $50. Investments made by electronic funds transfer will
be effective at the net asset value next computed after receipt by the
Funds of the proceeds from your bank account. See "Pricing of Fund
Shares." This service may be selected by completing the appropriate
section on the Purchase Application. 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 Funds. 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. For additional investments made by
wire transfer, you should use the wiring instructions listed above. Be
sure to include your account number. Wired funds are considered received
on the day they are deposited in the Funds' account.
Automatic Investment Plan. You may make purchases of shares of each Fund
automatically on a regular 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 Funds if sufficient funds are
not available in your account or your account has been closed at the time
of the automatic transaction. 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
Investment Plan after an account is opened by calling the Funds 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 60 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 or electronic funds transfer that is returned unpaid
and your purchase will be cancelled. 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 fee will be charged by the Funds 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 from the
Van Wagoner Funds to the Northern U.S. Government Money Market Fund (the
"Money Market Fund"). This expanded 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 Money
Market Fund prospectus from the Funds, and you are advised to read it
carefully, before authorizing any investment in shares of the Money Market
Fund.
For exchanges between Van Wagoner Funds, the value to be exchanged and the
price of the shares being purchased will be the net asset value next
determined by the Funds after receipt and acceptance of proper
instructions for the exchange. If you desire to use the expanded exchange
privilege, you should contact the Funds at 1-800-228-2121 for further
information about the procedures and the effective times for exchanges.
Generally, exchange requests received in proper order and accepted by the
Funds by 3:00 p.m. (Central time) on a day during which each Fund's net
asset value is determined will be effective that day for both the Fund
being purchased and the Fund being redeemed. Please note that when
exchanging from a Fund to the Money Market Fund, you will begin accruing
income from the Money Market Fund the day following the exchange. When
exchanging from the Money Market Fund to a Fund, your exchange proceeds
will exclude accrued income from the Money Market Fund through the date of
exchange. When exchanging your entire balance from the Money Market Fund,
accrued income will automatically be exchanged into a Fund when the income
is collected from the Money Market Fund, typically after the end of each
month. An exchange from one Fund to another or to the Money Market Fund is
treated the same as an ordinary sale and purchase for federal income tax
purposes.
If you buy shares by check, you may not exchange those shares for up to 7
business days to ensure your check has cleared. This delay allows the
Funds to verify that the check used to purchase Fund shares will not be
returned due to insufficient funds and is intended to protect the
remaining investors from loss. If you intend to exchange shares soon after
their purchase, you should purchase the shares by wire or contact the
Funds at 1-800-228-2121 for further information.
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 Funds 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 Funds 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 Funds. 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 Funds 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 Funds 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 7 business days on redemptions of recent purchases made by
check. This allows the Funds to verify that the check used to purchase
Fund shares 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 Funds at 1-800-228-2121.
Proceeds redeemed by telephone will be mailed to your address, or wired or
transmitted by electronic funds transfer to your preauthorized bank
account as shown on the records of the Funds. Any written redemption
requests received within 15 days after an address change made by telephone
must be accompanied by a signature guarantee and no telephone redemptions
will be allowed within 15 days of such a change. Telephone redemptions
must be in amounts of $1,000 or more.
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. Electronically transferred funds will ordinarily
arrive at your bank within two to three banking days after transmission.
To change the designated account, send a written request with the
signature(s) guaranteed to the Funds. Once the funds are transmitted, the
time of receipt and the availability of the funds are not within the
Funds' control. 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 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 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 Funds by telephone, you may
also redeem shares by delivering or mailing the redemption request to: Van
Wagoner Funds, Inc., P.O. Box 1628, Milwaukee, WI 53201-1628. If you wish
to send the information via overnight delivery, you may send it to: Van
Wagoner Funds, Inc., 207 East Buffalo Street, Suite 315, Milwaukee, WI
53202-5712.
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.
Systematic Withdrawal Plan. The Funds offer a Systematic Withdrawal Plan
which allows you to designate that a fixed amount ($50 minimum per
transaction limited to those shareholders with a balance of $10,000 or
greater) be distributed to you at regular intervals. The redemption takes
place on the 5th or 20th of the month, but if the day you designate falls
on a Saturday, Sunday or legal holiday, the distribution shall be made on
the prior business day.
The Systematic Withdrawal Plan may be terminated by you at any time
without charge or penalty, and the Funds reserve the right to terminate or
modify the Systematic Withdrawal Plan upon 60 days' written notice.
Withdrawals involve redemption of Fund shares and may result in a gain or
loss for federal income tax purposes. An application for participation in
the Systematic Withdrawal Plan may be obtained from the Funds by calling
1-800-228-2121.
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 receive cash as designated on the
Purchase Application. You may change your election at any time by sending
written notification to the Funds. The election is effective for
distributions with a dividend record date on or after the date that the
Funds receive 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.
SHAREHOLDER REPORTS AND INFORMATION
The Funds will provide the following statements and reports:
Automated Teleresponse Service. Shareholders using a touch-tone telephone
can access information about the Funds 24 hours a day, 7 days a week. When
calling the Funds at 1-800-228-2121, shareholders may choose to use the
automated information feature or, during regular business hours (7:00 a.m.
to 7:00 p.m. Central time, Monday through Friday), speak with a
representative of the Funds.
The automated service provides the information most frequently requested
by shareholders. After calling 1-800-228-2121 shareholders can:
1. Determine closing prices for each Fund and learn how the price of a
Fund has changed from the previous day.
2. After August 1, 1996, learn account balance(s), the last 5
transactions completed and order duplicate forms and statements.
For total return information, call the Funds at 1-800-228-2121.
Confirmation Statements. Except for Automatic Investment Plans, 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. Financial reports are provided to shareholders
semi-annually. 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 additional copies of previous statements, you may order
statements for the current and preceding year at no charge. Statements for
earlier years are available for $5 each. Call 1-800-228-2121 to order past
statements. 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: Van Wagoner Funds, Inc., P.O. Box 1628,
Milwaukee, WI 53201-1628 or call 1-800-228-2121. If you wish to send the
information via overnight delivery, you may send it to: Van Wagoner Funds,
Inc., 207 East Buffalo Street, Suite 315, Milwaukee, WI 53202-5712.
RETIREMENT PLANS
The Funds have a program under which you may establish an Individual
Retirement Account ("IRA") with the Funds and purchase shares through such
account. The minimum initial investment in each Fund for an IRA is $500.
The Funds also offer a tax-sheltered custodial account designed to qualify
under Section 403(b)(7) of the Internal Revenue Code which is available
for use by employees of certain educational, non-profit, hospital and
charitable organizations.
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").
You may obtain additional information regarding Retirement Plans by
calling the Funds at 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 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 provide a certified Social Security or Tax
Identification Number or IRS Form W-8.
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 1,000,000,000 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: (1) to one vote per full share of
Common Stock; (2) to such distributions as may be legally declared by the
Company's Board of Directors; and (3) 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 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.
TRANSFER AND DIVIDEND DISBURSING
AGENT, CUSTODIAN AND
INDEPENDENT ACCOUNTANTS
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI 53202-5712, acts as each Fund's Transfer and Dividend
Disbursing Agent. Sunstone also serves as the Funds' administrator and
distributor. See "Management of the Funds." UMB Bank, n.a., which has its
principal address at 928 Grand Avenue, Kansas City, MO, 64141, acts 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, WI 53202, has been selected to serve as independent 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 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, Inc., 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.
Each 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
Emerging Growth Fund
Micro-Cap Growth Fund
Mid-Cap Growth Fund
Capital Appreciation Fund
Growth Fund
Post-Venture Fund
This Statement of Additional Information dated August __, 1996, is
meant to be read in conjunction with the Van Wagoner Funds' Prospectus
dated August __, 1996, for the Emerging Growth Fund, Micro-Cap Growth
Fund, Mid-Cap Growth Fund, Capital Appreciation Fund, Growth Fund and
Post-Venture 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 1628, Milwaukee,
Wisconsin 53201-1628. 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 . . . . . . . . . . . . . . . 13
ADDITIONAL COMPANY INFORMATION . . . . . . . . . . . 15
Directors and Officers . . . . . . . . . . . . . 16
Control Persons and Principal Holders of
Securities . . . . . . . . . . . . . . . . . . 17
Investment Adviser . . . . . . . . . . . . . . . 17
Administrator . . . . . . . . . . . . . . . . . 18
Custodian, Transfer Agent and Dividend Paying
Agent . . . . . . . . . . . . . . . . . . . . . 19
Legal Counsel . . . . . . . . . . . . . . . . . 19
Independent Accountants . . . . . . . . . . . . 19
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . 19
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . 20
TAXES . . . . . . . . . . . . . . . . . . . . . . . . 21
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . 24
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . 25
INDIVIDUAL RETIREMENT ACCOUNTS . . . . . . . . . . . 26
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . 26
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES;
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . 29
OTHER INFORMATION . . . . . . . . . . . . . . . . . . 29
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 31
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.
ADDITIONAL INVESTMENT INFORMATION
The following supplements the investment objectives and policies of
the Funds as set forth in the Prospectus.
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 Micro-Cap Growth Fund seeks capital appreciation. The
Micro-Cap Growth Fund invests primarily in equity securities of companies
with market capitalizations of less than $350 million. (The Fund was
formerly called the Micro-Cap Growth Fund).
Van Wagoner Mid-Cap Growth Fund seeks capital appreciation. The Mid-
Cap Growth Fund invests primarily in equity securities of companies with
market capitalizations between $500 million and $5 billion. (The Fund was
formerly called the Mid-Cap Growth Fund).
Capital Appreciation Fund seeks capital appreciation. The Fund
invests in companies that the Adviser believes to have the potential for
long-term growth in their business. The Fund focuses on companies with
small- to mid- size market capitalizations.
Growth Fund seeks capital appreciation. The Fund invests in companies
that the Adviser believes to have the potential for above-average long-
term growth. The Adviser will focus on companies that have mid- to larger
market capitalizations.
Post-Venture Fund seeks capital appreciation. The Fund invests
primarily in companies considered by the Adviser to be in their post-
venture capital stage. Under normal market conditions, the Fund will
invest at least 65% of its total assets in securities of companies that
have received venture capital financing during the early stages of the
company's existence or the early stages of the development of a new
product or service, or as part of of a reorganization, restructuring or
recapitalization.
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 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 stocks in
that they normally provide a stable stream of income with generally higher
yields than those of common stock of the same or similar issuers.
Convertible securities rank senior to common stock in a corporation's
capital structure and therefore generally entail less risk of loss of
principal than the corporation's common stock.
In selecting convertible securities for the 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 a 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
Emerging Growth, Micro-Cap Growth and Mid-Cap Growth Funds generally will
not exceed 125%, 150%, and 150%, respectively. It is also anticipated the
portfolio turnover rate for the Capital Appreciation, Growth and Post-
Venture Funds generally will not exceed 150% each. 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 a 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 a Fund's investment limitations except with
respect to a 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 10% 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, 1 Bush Street, Suite 1150, San Francisco, California,
94104.
*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, 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. Director of Sparta Foods, Inc.
Robert S. Colman, Director
Robert S. Colman, 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.
Peter R. Kris, Vice President
Mr. Kris is Vice President of the Company and has served in such
capacity since March 1996. He was Vice President of Govett and Company
Limited from May 1992 until February 1996. Mr. Kris was an Account
Executive with Charles Schwab and Company from March 1992 to May 1992, and
prior thereto he was employed for two years by State Street Bank & Trust
as Portfolio Accounting Manager.
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. The table below sets forth the estimated compensation
of the Directors for the fiscal year ending December 31, 1996.
<TABLE>
COMPENSATION TABLE
<CAPTION>
Pension or
Retirement
Aggregate Benefits Accrued Estimated Annual Total Compensation
Compensation As Part of Benefits from Company Paid
Name of Person from Company Company Expenses Upon Retirement to Directors
<S> <C> <C> <C> <C>
Garrett R. Van Wagoner $0 $0 $0 $0
Larry P. Arnold $2,000 $0 $0 $2,000
Robert S. Colman $2,000 $0 $0 $2,000
</TABLE>
Control Persons and Principal Holders of Securities. As of May 30,
1996, the Funds were aware that the following persons or entities owned a
controlling interest (ownership of greater than 25%) or owned of record
5% or more 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.
SERIES B - VAN WAGONER EMERGING GROWTH FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA
94104, 30%; National Financial Services Corp.*, 200 Liberty Street, One
World Financial Center, New York, NY 10281-1003, 22%; Donaldson, Lufkin &
Jenrette*, P.O. Box 2052, Jersey City, NJ 07303, 8%.
SERIES A - VAN WAGONER MICRO-CAP GROWTH FUND
Charles Schwab & Co.*, 101 Montgomery Street, San Francisco, CA 94104,
29%; National Financial Services Corp. *, 200 Liberty Street, One World
Financial Center, New York, NY 10281-1003, 21%; Donaldson, Lufkin &
Jenrette*, P.O. Box 3052, Jersey City, NJ 07303, 8%.
SERIES C - VAN WAGONER MID-CAP GROWTH FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA
94104, 34%; National Financial Services Corp.*, 200 Liberty Street, One
World Financial Center, New York, NY 10281-1003, 21%; Donaldson, Lufkin &
Jenrette*, P.O. Box 2052, Jersey City, NJ 07303, 6%.
As of April 24, 1996, the directors and officers as a group owned 2% of
the outstanding shares of the Mid-Cap Growth Fund and less than 1% of the
outstanding shares of the Emerging Growth Fund and Micro-Cap Growth Fund.
*Shareholders of record, not beneficial owners.
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 for the Emerging Growth, Micro-Cap Growth
and Mid-Cap Growth Funds are dated as of December 31, 1995. The Advisory
Agreements for the Capital Appreciation, Growth and Post-Venture Funds are
dated August , 1996. 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 8, 1995, and
by the initial shareholder of the (i) Emerging Growth, Micro-Cap Growth
and Mid-Cap Growth Funds on December 8, 1995, and (ii) Capital
Appreciation, Growth and Post-Venture Funds on August , 1996. 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 each
Fund, 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
willful misfeasance, bad faith or negligence on the part of the
Administrator in the performance of its duties. The Administration and
Fund Accounting Agreement also provides 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
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 Company 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 1,000,000,000 shares of
common stock, par value $0.0001 per share. 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.
The total return for the period from the commencement of operations
(January 1, 1996) through June 30, 1996 for each of the Emerging Growth
Fund, Micro-Cap Growth Fund and Mid-Cap Growth Fund, were %,
% and %, respectively. Such performance results reflect
reimbursements made by the Adviser during the period from January 1, 1996
through June 30, 1996 to keep the ratio of net expenses to average net
assets of each Fund at or below 1.95%.
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.
The following unaudited financial statements are incorporated by reference
to the Van Wagoner Funds, Inc. Semi-Annual Report dated June 30, 1996
(File No. 811-9116) as filed with the Securities Exchange Commission
through the EDGAR SYSTEM on August , 1996.
1. Statements of Assets and Liabilities as of June 30, 1996
2. Statements of Operations for the six months ended June 30, 1996
3. Statements of Changes in Net Assets for the six months ended
June 30, 1996
4. Financial Highlights for the six months ended June 30, 1996
5. Schedules of Investments as of June 30, 1996
6. Notes to Financial Statements
<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 the
Micro-Cap Fund, the Emerging Growth Fund, and the Mid-Cap Fund, (three
portfolios of the Van Wagoner Funds, Inc. (the "Funds")) at November 27,
1995, in conformity with generally accepted accounting principles. This
financial statement is the responsibility of the Funds' 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
AA- from time to time because of economic conditions.
A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater 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.
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. (Incorporated
by reference to Exhibit 1.1 of Pre-Effective Amendment
No. 1 to Registrant's Registration Statement on Form N-
1A)
1.2 Articles of Amendment. (Incorporated by reference to
Exhibit 1.2 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
1.3 Article Supplementary
1.4 Article Supplementary
1.5 Articles of Amendment
2. Registrant's By-Laws. (Incorporated by reference to
Exhibit 2 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
3. None.
4. None.
5.1 Investment Advisory Agreements by and between Registrant
on behalf of each of the Funds and Van Wagoner Capital
Management, Inc. (Incorporated by reference to Exhibit 5
of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
5.2 Form of Investment Advisory Agreements by and between
Registrant on behalf of the Capital Appreciation, Growth
and Post-Venture portfolios and Van Wagoner Capital
Management, Inc.
6.1 None.
6.2 None.
7. None.
8.1 Custodian Agreement by and between Registrant and United
Missouri Bank, N.A. (Incorporated by reference to
Exhibit 8.1 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
9.1 Administration and Fund Accounting Agreement by and
between Registrant and Sunstone Financial Group, Inc.
(Incorporated by reference to Exhibit 9.1 of Pre-
Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A)
9.2 Transfer Agency Agreement by and between Registrant and
Sunstone Financial Group, Inc. (Incorporated by
reference to Exhibit 9.2 of Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A)
9.3 Form of Amended and Restated Schedules A and B to the
Administration and Fund Accounting Agreement by and
between Registrant and Sunstone Financial Group, Inc.
9.4 Form of Amended and Restated Schedule A to the Transfer
Agency Agreement by and between Registrant and Sunstone
Financial Group, Inc.
10. Opinion of Foley & Lardner, counsel for Registrant.
(Incorporated by reference to Exhibit 10 of Pre-
Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A)
11. Consent of Independent Accountants.
12. None.
13.1 Subscription Agreement. (Incorporated by reference to
Exhibit 13.1 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
13.2 Organizational Expenses Agreement. (Incorporated by
reference to Exhibit 13.2 of Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A)
14. Form of Individual Retirement Custodial Account
Agreement and Disclosure Statement. (Incorporated by
reference to Exhibit 14 of Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A)
15. Registrant's Service and Distribution Plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940.
(Incorporated by reference to Exhibit 15 of Pre-
Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A)
16. Computation of Performance Figures (Incorporated by
reference to Exhibit 16 of Registrant's Registration
Statement on Form N-1A).
17. Financial Data Schedule. (Incorporated by reference to
Exhibit 17 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
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 May 29, 1996
Emerging Growth 21,209
Common Stock, $0.0001 par value Micro-Cap Growth 6,867
Mid-Cap Growth 4,700
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:
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
Not Applicable.
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 Registration Statement.
<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 11th day of June, 1996.
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 June 11, 1996
Garrett R. Van Wagoner (principal executive
officer and principal
financial and accounting
officer)
/s/ Larry Arnold Director June 14, 1996
Larry Arnold
Director
Robert Colman
<PAGE>
EXHIBIT INDEX
1.1 Registrant's Articles of Incorporation. (Incorporated by
reference to Exhibit 1.1 of Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A)
1.2 Articles of Amendment. (Incorporated by reference to
Exhibit 1.2 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
1.3 Article Supplementary
1.4 Article Supplementary
1.5 Articles of Amendment
2. Registrant's By-Laws. (Incorporated by reference to Exhibit
2 of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
3. None.
4. None.
5.1 Investment Advisory Agreements by and between Registrant on
behalf of each of the Funds and Van Wagoner Capital
Management, Inc. (Incorporated by reference to Exhibit 5 of
Pre-Effective Amendment No. 1 to Registrant's Registration
Statement on Form N-1A)
5.2 Form of Investment Advisory Agreements by and between
Registrant on behalf of the Capital Appreciation, Growth
and Post-Venture portfolios and Van Wagoner Capital
Management, Inc.
6.1 None.
6.2 None.
7. None.
8.1 Custodian Agreement by and between Registrant and United
Missouri Bank, N.A. (Incorporated by reference to Exhibit
8.1 of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
9.1 Administration and Fund Accounting Agreement by and between
Registrant and Sunstone Financial Group, Inc. (Incorporated
by reference to Exhibit 9.1 of Pre-Effective Amendment No.
1 to Registrant's Registration Statement on Form N-1A)
9.2 Transfer Agency Agreement by and between Registrant and
Sunstone Financial Group, Inc. (Incorporated by reference
to Exhibit 9.2 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
9.3 Form of Amended and Restated Schedules A and B to the
Administration and Fund Accounting Agreement by and between
Registrant and Sunstone Financial Group, Inc.
9.4 Form of Amended and Restated Schedule A to the Transfer
Agency Agreement by and between Registrant and Sunstone
Financial Group, Inc.
10. Opinion of Foley & Lardner, counsel for Registrant.
(Incorporated by reference to Exhibit 10 of Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on
Form N-1A)
11. Consent of Independent Accountants.
12. None.
13.1 Subscription Agreement. (Incorporated by reference to
Exhibit 13.1 of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A)
13.2 Organizational Expenses Agreement. (Incorporated by
reference to Exhibit 13.2 of Pre-Effective Amendment No. 1
to Registrant's Registration Statement on Form N-1A)
14. Form of Individual Retirement Custodial Account Agreement
and Disclosure Statement. (Incorporated by reference to
Exhibit 14 of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
15. Registrant's Service and Distribution Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940.
(Incorporated by reference to Exhibit 15 of Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on
Form N-1A)
16. Computation of Performance Figures (Incorporated by
reference to Exhibit 16 of Registrant's Registration
Statement on Form N-1A).
17. Financial Data Schedule. (Incorporated by reference to
Exhibit 17 of Pre-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
18. None.
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
VAN WAGONER FUNDS, INC.
Pursuant to Section 2-208.1 of the Maryland General Corporation
Law (the "MGCL"), Van Wagoner Funds, Inc., having its registered office in
Baltimore, Maryland (the "Company"), does hereby certify to the State
Department of Assessments and Taxation of Maryland (the "Department")
that:
FIRST: The Company is registered as an open-end investment
company under the Investment Company Act of 1940.
SECOND: Pursuant to Section 2-105(c) of the MGCL and Article IV
of the Company's Articles of Incorporation, the Board of Directors of the
Company duly adopted on June __, 1996 resolutions: (a) increasing the
total number of shares of Common Stock, $0.0001 par value, that the
Company has authority to issue pursuant to Article IV of the Company's
Articles of Incorporation from 500,000,000 shares to 1,000,000,000 shares;
and (b) authorizing and directing the filing of these Articles
Supplementary for record with the Department.
THIRD: (a) The total number of shares of stock which the
Company was heretofore authorized to issue was 500,000,000 shares of
Common Stock, $0.0001 par value, of which 300,000,000 shares were
designated 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
and 200,000,000 shares were undesignated.
(b) The total number of shares of stock which the Company shall
be authorized to issue upon the filing of these Articles Supplementary for
record with the Department is 1,000,000,000 shares of Common Stock,
$0.0001 par value, of which 300,000,000 shares shall be designated 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
and 700,000,000 shares shall be undesignated.
FOURTH: These Articles Supplementary shall become effective as
of the time they are accepted by the Department for record.
IN WITNESS WHEREOF, the Company has caused these presents to be
signed in its name and on its behalf by its Vice President and attested by
its Secretary as of this ____ day of June, 1996.
VAN WAGONER FUNDS, INC.
By: _________________________________
Peter Kris, Vice President
Attest: ___________________________
Garrett R. Van Wagoner,
Secretary
ARTICLES SUPPLEMENTARY
TO
ARTICLES OF INCORPORATION
OF
VAN WAGONER FUNDS, INC.
Pursuant to Section 2-208 of the Maryland General Corporation
Law (the "MGCL"), Van Wagoner Funds, Inc., a Maryland corporation having
its registered office in Baltimore, Maryland (the "Company"), does hereby
certify to the State Department of Assessments and Taxation of Maryland
(the "Department") that:
FIRST: The Company is registered as an open-end investment
company under the Investment Company Act of 1940.
SECOND: Pursuant to Section 2-105(a)(9) of the MGCL and
Article IV of the Company's Articles of Incorporation, the Board of
Directors of the Company duly adopted on June __, 1996 resolutions (a)
designating 400,000,000 shares of the Company's previously undesignated
Common Stock, $.0001 par value, as follows:
Class Fund Shares
B Emerging Growth Fund* 100,000,000
D Capital Appreciation 100,000,000
Fund*
E Growth Fund* 100,000,000
F Post-Venture Fund* 100,000,000
_______________
* or such other name designated by the Company's
Board of Directors.
and (b) authorizing and directing the filing of these Articles
Supplementary for record with the Department.
THIRD: The respective preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of each class of the Company's
Common Stock, $.0001 par value, are as set forth in Section B of
Article IV of the Company's Articles of Incorporation.
FOURTH: These Articles Supplementary shall become effective as
of the time they are accepted by the Department for record.
IN WITNESS WHEREOF, the Company has caused these presents to be
signed in its name and on its behalf by its Vice President and attested by
its Secretary as of this ____ day of June, 1996.
VAN WAGONER FUNDS, INC.
By: _________________________________
Peter Kris, Vice President
Attest: ___________________________
Garrett R. Van Wagoner,
Secretary
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
VAN WAGONER FUNDS, INC.
The undersigned officers of Van Wagoner 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 VAN WAGONER FUNDS,
INC.
SECOND: That the last sentence of Section A of Article IV of
the Corporation's Articles of Incorporation is amended in its entirety to
read as follows:
A total of Seven Hundred Million (700,000,000) shares of
Common Stock shall be classified as follows:
Class Fund Shares
A Micro-Cap Growth Fund* 100,000,000
B Emerging Growth Fund* 200,000,000
C Mid-Cap Growth Fund* 100,000,000
D Capital Appreciation Fund* 100,000,000
D Growth Fund* 100,000,000
F Post-Venture Fund* 100,000,000
_______________
* or such other name designated by the Corporation's Board of
Directors.
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 officers of the Corporation
who executed the foregoing Articles of Amendment hereby acknowledge the
same to be their act and further acknowledge that, to the best of their
knowledge, information and belief, the matters set forth herein are true
in all material respects under the penalties of perjury.
Dated this ____ day of August, 1996.
VAN WAGONER FUNDS, INC.
By: _________________________________
Peter Kris, Vice President
Attest: ___________________________
Garrett R. Van Wagoner,
Secretary
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of August, 1996 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 registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act")
as an open-end management investment company consisting at the date hereof
of six series, the Van Wagoner Micro-Cap Growth Fund (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund"),
the Van Wagoner Mid-Cap Growth Fund (the "Mid-Cap Fund"), the Van Wagoner
Capital Appreciation Fund (the "Capital Appreciation Fund"), the Van
Wagoner Growth Fund (the "Growth Fund") and the Van Wagoner Post-Venture
Fund (the "Post-Venture 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 Capital Appreciation 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 Capital
Appreciation 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 Capital Appreciation 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 Capital Appreciation 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 Capital Appreciation
Fund in any way or otherwise be deemed an agent of the Company or the
Capital Appreciation 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 Capital Appreciation Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Capital Appreciation Fund, shall
furnish office space, and all necessary office facilities, equipment and
executive personnel for managing the investments of the Capital
Appreciation Fund. The Adviser shall not be required to pay any expenses
of the Capital Appreciation Fund except as provided herein if the total
expenses borne by the Capital Appreciation Fund, including the Adviser's
fee and the fees paid to the Capital Appreciation 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 Capital Appreciation 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 Capital Appreciation Fund's shares are
qualified for sale or, if the states in which the Capital Appreciation
Fund's shares are qualified for sale impose no such restrictions, 2%. The
expenses of the Capital Appreciation Fund's operations borne by the
Capital Appreciation 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 Capital
Appreciation 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 Capital
Appreciation Fund on a monthly basis. If the accrued amount of the
expenses of the Capital Appreciation 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 Capital Appreciation Fund, shall pay to the Adviser an advisory fee,
paid monthly, based on the average net assets of the Capital Appreciation
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 Capital Appreciation
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 Capital Appreciation Fund. The
Adviser shall not take an ownership position in the Capital Appreciation
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 Capital
Appreciation Fund, except for the purchase of shares of the Capital
Appreciation 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 Capital Appreciation Fund.
6. Exclusivity. The services of the Adviser to the Capital
Appreciation 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 Capital Appreciation 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 Capital Appreciation Fund and the Company will not use such name
if the Adviser ceases to be the Capital Appreciation Fund's sole
investment adviser. During the period that this Agreement is in effect,
the Adviser shall be the Capital Appreciation 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 Capital Appreciation Fund or to any shareholder of the
Capital Appreciation 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 Capital Appreciation Fund and for the selection of
the markets on or in which the transactions will be executed. The Adviser
may cause the Capital Appreciation 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 Capital Appreciation
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 Capital Appreciation 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 Capital Appreciation 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 January 1, 1998 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 Capital Appreciation 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, INC.
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of August, 1996 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 registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act")
as an open-end management investment company consisting at the date hereof
of six series, the Van Wagoner Micro-Cap Growth Fund (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund"),
the Van Wagoner Mid-Cap Growth Fund (the "Mid-Cap Fund"), the Van Wagoner
Capital Appreciation Fund (the "Capital Appreciation Fund"), the Van
Wagoner Growth Fund (the "Growth Fund") and the Van Wagoner Post-Venture
Fund (the "Post-Venture 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 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 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 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 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 Growth Fund in any way or otherwise be deemed
an agent of the Company or the 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 Growth Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Growth Fund, shall furnish office
space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Growth Fund. The Adviser
shall not be required to pay any expenses of the Growth Fund except as
provided herein if the total expenses borne by the Growth Fund, including
the Adviser's fee and the fees paid to the 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 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 Growth Fund's shares are qualified for sale or, if the states in
which the Growth Fund's shares are qualified for sale impose no such
restrictions, 2%. The expenses of the Growth Fund's operations borne by
the 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 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 Growth Fund
on a monthly basis. If the accrued amount of the expenses of the 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 Growth Fund, shall pay to the Adviser an advisory fee, paid monthly,
based on the average net assets of the 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 1.00%, (1.00% per annum) on the
average daily net assets of the 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 Growth Fund. The Adviser shall
not take an ownership position in the 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 Growth Fund, except for the
purchase of shares of the 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 Growth Fund.
6. Exclusivity. The services of the Adviser to the 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 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 Growth Fund and the
Company will not use such name if the Adviser ceases to be the Growth
Fund's sole investment adviser. During the period that this Agreement is
in effect, the Adviser shall be the 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 Growth Fund or to any shareholder of the 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 Growth Fund and for the selection of the markets on
or in which the transactions will be executed. The Adviser may cause the
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 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 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 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
January 1, 1998 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 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, INC.
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Agreement made this _____ day of August, 1996 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 registered with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "Act")
as an open-end management investment company consisting at the date hereof
of six series, the Van Wagoner Micro-Cap Growth Fund (the "Micro-Cap
Fund"), the Van Wagoner Emerging Growth Fund (the "Emerging Growth Fund"),
the Van Wagoner Mid-Cap Growth Fund (the "Mid-Cap Fund"), the Van Wagoner
Capital Appreciation Fund (the "Capital Appreciation Fund"), the Van
Wagoner Growth Fund (the "Growth Fund") and the Van Wagoner Post-Venture
Fund (the "Post-Venture 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 Post-Venture 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 Post-Venture
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 Post-Venture 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 Post-Venture 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 Post-Venture Fund in any way or otherwise
be deemed an agent of the Company or the Post-Venture 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 Post-Venture
Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Company or the Post-Venture Fund, shall furnish
office space, and all necessary office facilities, equipment and executive
personnel for managing the investments of the Post-Venture Fund. The
Adviser shall not be required to pay any expenses of the Post-Venture Fund
except as provided herein if the total expenses borne by the Post-Venture
Fund, including the Adviser's fee and the fees paid to the Post-Venture
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 Post-Venture 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 Post-Venture Fund's shares
are qualified for sale or, if the states in which the Post-Venture Fund's
shares are qualified for sale impose no such restrictions, 2%. The
expenses of the Post-Venture Fund's operations borne by the Post-Venture
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 Post-Venture 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 Post-Venture
Fund on a monthly basis. If the accrued amount of the expenses of the
Post-Venture 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 Post-Venture Fund, shall pay to the Adviser an advisory fee, paid
monthly, based on the average net assets of the Post-Venture 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 Post-Venture 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 Post-Venture Fund. The Adviser
shall not take an ownership position in the Post-Venture 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 Post-Venture Fund,
except for the purchase of shares of the Post-Venture 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 Post-
Venture Fund.
6. Exclusivity. The services of the Adviser to the Post-
Venture 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 Post-Venture 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 Post-Venture Fund and the Company will not use such name if the
Adviser ceases to be the Post-Venture Fund's sole investment adviser.
During the period that this Agreement is in effect, the Adviser shall be
the Post-Venture 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 Post-Venture Fund or to any shareholder of the Post-
Venture 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 Post-Venture Fund and for the selection of the
markets on or in which the transactions will be executed. The Adviser may
cause the Post-Venture 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 Post-Venture 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 Post-Venture 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 Post-Venture 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
January 1, 1998 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 Post-Venture 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, INC.
(the "Adviser")
By: ___________________________
President
VAN WAGONER FUNDS, INC.
(the "Company")
By: __________________________
President
Amended and Restated
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
Van Wagoner Funds, Inc.
and
Sunstone Financial Group, Inc.
Dated August , 1996
Intending to be legally bound, the undersigned hereby amend and restate
Schedule A to the aforesaid Agreement to include the following investment
portfolios:
Van Wagoner Micro-Cap Fund
Van Wagoner Emerging Growth Fund
Van Wagoner Mid-Cap Fund
Van Wagoner Capital Appreciation Fund
Van Wagoner Growth Fund
Van Wagoner Post-Venture Fund
VAN WAGONER FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
Garrett Van Wagoner Miriam M. Allison
President President
Date: August , 1996 Date: August , 1996
<PAGE>
Amended and Restated
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
Van Wagoner Funds, Inc.
and
Sunstone Financial Group, Inc.
Intending to be legally bound, the undersigned hereby amend and restate
Schedule B to the aforesaid Agreement to include the following fees for
the following investment portfolios:
<TABLE>
<CAPTION>
Minimum
Name of Fund Annual Fees Annual Fee
<S> <C> <C> <C>
Micro-Cap Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
Emerging Growth Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
Mid-Cap Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
Capital
Appreciation Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
Growth Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
Post-Venture Up to $50 Million 17.5 basis points $61,667
$50 Million to $100 Million 10.0 basis points
$100 Million to $250 Million 5.0 basis points
Over $250 Million 2.5 basis points
</TABLE>
The Corporation shall also pay/reimburse the Administrator's out-of-pocket
expenses as described in the Agreement.
VAN WAGONER FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: _______________________ By: ______________________
Garrett Van Wagoner Miriam M. Allison
President President
Date: Date:
Amended and Restated
Schedule A
to the
Transfer Agency Agreement
by and between
Van Wagoner Funds, Inc.
and
Sunstone Financial Group, Inc.
Dated August , 1996
Intending to be legally bound, the undersigned hereby amend and restate
Schedule A to the aforesaid Agreement to include the following investment
portfolios:
Van Wagoner Micro-Cap Fund
Van Wagoner Emerging Growth Fund
Van Wagoner Mid-Cap Fund
Van Wagoner Capital Appreciation Fund
Van Wagoner Growth Fund
Van Wagoner Post-Venture Fund
VAN WAGONER FUNDS, INC. SUNSTONE FINANCIAL GROUP, INC.
By: By:
Garrett Van Wagoner Miriam M. Allison
President President
Date: August , 1996 Date: August , 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-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 Independent
Accountants" in such Prospectus.
PRICE WATERHOUSE LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
June 12, 1996
