January 4, 1996
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Van Wagoner Funds, Inc.
(33-98358; 811-9116)
Gentlemen:
Transmitted herewith is the final prospectus of the above-referenced registrant
which is being filed pursuant to Rule 497(c) under the Securities Act of 1933.
Questions regarding this filing may be directed to the undersigned.
Very truly yours,
Randy M. Pavlick
Vice President - Legal and Compliance Services
Encl.
RMP/bk
---------------------------------
PROSPECTUS
DECEMBER 31, 1995
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 port folios 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 Fund seeks capital appreciation. The Micro-Cap Fund
invests primarily in equity securities of companies with market capitalizations
of less than $350 million.
Van Wagoner Mid-Cap Fund seeks capital appreciation. The Mid-Cap Fund invests
primarily in equity securities of companies with market capitalizations between
$500 million and $5 billion.
This Prospectus sets forth concisely the information about the Funds that you
should know before investing. You are advised to read this Prospectus carefully
and keep it for future reference.
A Statement of Additional Information, dated December 31, 1995, which is
incorporated herein by reference, has been filed with the Securities and
Exchange Commission. The Statement of Additional Information, which may be
revised from time to time, contains further information about the Funds and is
available, without charge, by writing to the Funds at 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
Van Wagoner Funds, Inc.................................................. 4
Investment Objectives, Policies and Risk Considerations................. 5
Investment Limitations................................................. 11
Management of the Funds................................................ 12
Pricing of Fund Shares................................................. 15
How to Purchase Shares................................................. 16
How to Exchange Shares................................................. 19
How to Redeem Shares................................................... 21
Dividends and Distributions............................................ 24
Shareholder Reports and Information.................................... 24
Retirement Plans....................................................... 25
Service and Distribution Plan.......................................... 25
Taxes...................................................................26
Capital Structure...................................................... 26
Transfer and Dividend Disbursing Agent, Custodian and
Independent Accountants.............................................. 28
Fund Performance....................................................... 28
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 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<F1> None None None
Exchange Fees<F2> $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<F3> 0.25% 0.25% 0.25%
Other Expenses (net of reimbursement) <F4><F5> 0.45% 0.20% 0.70%
Total Operating Expenses (net of
reimbursement) <F5> 1.95% 1.95% 1.95%
<F1>A fee of $10.00 is charged for each wire redemption.
<F2>A fee of $5.00 is charged for telephone exchanges but no fee is charged for
written exchange requests.
<F3>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.
<F4>Such expenses include custodian, transfer agency and administration fees and
other customary Fund expenses.
<F5>The Funds' investment adviser has voluntarily agreed to limit the total
operating expenses of the Emerging Growth, Micro-Cap and Mid-Cap Funds
(excluding interest, taxes, brokerage and extraordinary expense) to an annual
rate of 1.95%, 1.95% and 1.95%, respectively, of each Fund's average net
assets until January 1, 1997. After such date, the expense limitation may be
terminated or revised at any time. The Funds estimate that absent the
limitation, Other Expenses of the Emerging Growth, Micro-Cap and Mid-Cap Funds
would initially be approximately 0.73%, 1.38% and 1.38%, respectively, and the
Total Annual Operating Expenses of the Funds would initially be approximately
2.23%, 3.13% and 2.63%, 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:
One Year $20 $20 $20
Three Years $22 $22 $22
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.
VAN WAGONER FUNDS, INC.
Van Wagoner Funds, Inc. (the "Company") is a no-load, open-end management
investment company, commonly known as a mutual fund, which is registered under
the Investment Company Act of 1940 (the "1940 Act"). The Company presently
consists of three diversified investment portfolios: Van Wagoner Emerging Growth
Fund, Van Wagoner Micro-Cap Fund and Van Wagoner Mid-Cap Fund (each investment
portfolio is individually referred to as a "Fund" and collectively as the
"Funds"). The Funds offer a range of equity-oriented investment opportunities.
Van Wagoner Capital Management, Inc. (the "Adviser") serves as the investment
adviser to the Funds. Garrett R. Van Wagoner, founder and President of the
Adviser, is primarily responsible for the day-to-day management of each Fund's
investment portfolio. Mr. Van Wagoner has had over 17 years of experience as a
securities analyst and portfolio manager including serving as the portfolio
manager of the Govett Smaller Companies Fund from March 1993 until December
1995. See "Management of the Funds."
Each Fund obtains its assets by continuously selling its shares to the
public. Proceeds from such sales are invested by the Fund in securities of other
companies. The resources of many investors are thus combined and each individual
investor has an interest in every one of the securities owned, thereby providing
diversification in a variety of industries. The Adviser furnishes professional
management to select and watch over its investments. As an open-end investment
company, the Fund will redeem any of its outstanding shares on demand of the
owner at the next determined net asset value. Registration of the Funds under
the 1940 Act does not involve supervision of the Funds' management or policies
by the Securities and Exchange Commission.
INVESTMENT OBJECTIVES, POLICIES
AND RISK CONSIDERATIONS
General
The investment objective of each of the Funds is to seek capital appreciation.
Each Fund pursues its investment objective by investing primarily in equity
securities subject to certain separate investment policies described below.
Equity securities are common stocks, preferred stocks, warrants to purchase
common stocks or preferred stocks, and securities convertible into common or
preferred stocks. When selecting securities, the Adviser will consider certain
criteria including, but not limited to, (1) the prospects for a company's
product, (2) the potential for the company's industry, (3) management ability,
(4) the relationship of the price of the security to its estimated value, and
(5) relevant market, economic and political considerations. Securities in which
the Funds may invest may still be in the development stage, may be older
companies that appear to be entering a new era of growth due to management
changes, development of new technology or other events, or may be companies with
high growth rates.
Because shares of each Fund represent an investment in securities with
fluctuating market prices, you should understand that the net asset value per
share of each Fund will vary as the aggregate value of a Fund's portfolio
securities increases or decreases. An investment in the 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 Fund
The investment objective of the Micro-Cap Fund is capital appreciation. The Fund
seeks to achieve this investment objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of companies
that, at the time of purchase, have market capitalizations of less than $350
million. The Adviser will focus generally on investments in companies that have
strong management teams and the Adviser perceives to have the ability to grow
significantly over the next several years. These companies may still be in the
developmental stage and may have limited product lines. See "Other Investment
Policies and Risks."
Mid-Cap Fund
The investment objective of the Mid-Cap Fund is capital appreciation. In seeking
to achieve this investment objective the Fund will invest, under normal market
conditions, at least 65% of its total assets in equity securities of companies
that, at the time of purchase, have market capitalizations between $500 million
and $5 billion. The Adviser will focus on companies that are more established
than those in the Micro-Cap Fund, but are still undergoing growth due to a new,
improved or upgraded product, service or business operation. See "Other
Investment Policies and Risks."
Other Investment Policies and Risks
In addition to the investment policies described above (and subject to
certain restrictions described below), each of the Funds may invest in the
following securities and may employ some or all of the following investment
techniques, some of which may present special risks as described below. A more
complete discussion of certain of these securities and investment techniques and
the associated risks is contained in the Statement of Additional Information.
Smaller Capitalization Companies. Each Fund may invest a substantial
portion of its assets in companies with modest capitalization, as well as start-
up companies. While the Adviser believes that small- and medium-sized companies
as well as start-up companies can provide greater growth potential than larger,
more mature companies, investing in the securities of such companies also
involves greater risk, potential price volatility and cost. These companies
often involve higher risks because they lack the management experience,
financial resources, product diversification, markets, distribution channels and
competitive strengths of larger companies. In addition, in many instances, the
frequency and volume of their trading is substantially less than is typical of
larger companies. Therefore, the securities of smaller companies as well as
start-up companies may be subject to wider price fluctuations. The spreads
between the bid and asked prices of the securities of these companies in the
U.S. over-the-counter market typically are larger than the spreads for more
actively traded securities. As a result, a Fund could incur a loss if it
determined to sell such a security shortly after its acquisition. When making
large sales, a Fund may have to sell portfolio holdings at discounts from quoted
prices or may have to make a series of small sales over an extended period of
time due to the trading volume of smaller company securities.
Investors should be aware that, based on the foregoing factors, an investment in
the Funds may be subject to greater price fluctuations than an investment in a
fund that invests primarily in larger, more established companies. The Adviser's
research efforts may also play a greater role in selecting securities for the
Funds than in a fund that invests in larger, more established companies. Each
Fund may invest in securities of issuers which, together with any predecessor
entity, have a record of less than three years of continuous operation.
Foreign Securities. Each Fund may invest without limitation in foreign
securities. Foreign securities will be limited to sponsored and unsponsored
American Depository Receipts ("ADRs"). ADRs typically are issued by a U.S.
bank or trust company and evidence ownership of underlying securities issued by
a foreign corporation. Unsponsored ADRs differ from sponsored ADRs in that the
establishment of unsponsored ADRs are not approved by the issuer of the
underlying securities. As a result, available information concerning the issuer
may not be as current or reliable as the information for sponsored ADRs, and the
price of unsponsored ADRs may be more volatile.
Investments in foreign securities involve special risks and costs and
opportunities which are in addition to those inherent in domestic investments.
Political, economic or social instability of the issuer or the country of issue,
the possibility of expropriation or confiscatory taxation, limitations on the
removal of assets or diplomatic developments, and the possibility of adverse
changes in investment or exchange control regulations are among the inherent
risks. Foreign companies are not subject to the regulatory requirements of U.S.
companies and, as such, there may be less publicly available information about
such companies. Moreover, foreign companies are not subject to uniform
accounting, auditing and financial reporting standards and requirements
comparable to those applicable to U.S. companies. Dividends and interest payable
on a Fund's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions allowed
to investors under U.S. federal income tax law, such taxes may reduce the net
return to shareholders. See "Taxes" in the Statement of Additional
Information. Because of these and other factors, securities of foreign companies
acquired by the Funds may be subject to greater fluctuation than securities of
domestic companies.
Hedging Strategies. The Funds may use various hedging strategies to attempt to
reduce the overall level of risk for an individual security, or group of
securities, or to reduce the investment risk of the Funds. There can be no
assurance that such efforts will succeed. Each Fund may write (i.e., sell)
covered call and secured put options, and buy put or call options, 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 - 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
the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the bond over any long period of time may be
small. Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Adviser will consider such an event in determining
whether the Fund should continue to hold the security. The Adviser expects,
however, to sell promptly any convertible debt securities that fall below a B
rating quality as a result of these events. See the Statement of Additional
Information for a description of applicable debt ratings.
Money Market Instruments. In times when the Adviser believes that adverse
economic or market conditions justify such actions, each Fund may invest
temporarily up to 100% of its assets in short-term, high quality money market
instruments. The Funds may also invest in such instruments pending investment,
to meet anticipated redemption requests, and/or to retain the flexibility to
respond promptly to changes in market and economic conditions. It is impossible
to predict when or for how long the Adviser may employ these strategies.
Each of the Funds may invest in commercial paper and other cash
equivalents rated A-1 or A-2 by 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.
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 33 1/3% of the
value of its total assets at the time of borrowing.
A list of the Funds' objectives, policies and restrictions, both fundamental and
nonfundamental, is set forth in the Statement of Additional Information. In
order to provide a degree of flexibility, the Funds' investment objectives, as
well as other policies which are not deemed fundamental, may be modified by the
Board of Directors without shareholder approval. Any change in a Fund's
investment 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 California corporation to
become the investment adviser to the Funds. Garrett R. Van Wagoner, the
President and a director of the Adviser, is the sole shareholder of the Adviser,
and is the portfolio manager for each of the Funds. Mr. Van Wagoner has had over
17 years of experience as a securities analyst and portfolio manager. Mr. Van
Wagoner served as the portfolio manager of the Govett Smaller Companies Fund, a
portfolio of The Govett Funds, Inc., from March 1993 until December 1995. Prior
thereto, he was Senior Vice President at Bessemer Trust, N.A., since 1982, where
he was responsible for its emerging growth stock investment program.
As portfolio manager of the Govett Smaller Companies Fund, Mr. Van Wagoner was
responsible for its day-to-day management and the selection of its investments.
Average annual returns for the one-year period ended December 31, 1995 and for
the entire period during which Mr. Van Wagoner managed the Govett Smaller
Companies Fund compared with the performance of the Nasdaq Composite Index and
the S&P 500 were:
Govett Nasdaq
Smaller Composite
Companies Fund<F6> Index<F7> S&P 500<F8>
------------------ -------- -----------
One Year 69.0% 39.9% 37.6%
March 1, 1993 through
December 31, 1995 54.7% 17.2% 15.4%
<F6>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, Micro-Cap and Mid-Cap Funds will be capped initially at
1.95%, for each Fund.
<F7>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.
<F8>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 to be used by the Emerging Growth Fund. Unlike the Emerging
Growth Fund, which is not limited as to the capitalization of portfolio
securities, the Govett Smaller Companies Fund was required to invest at least
65% of its total assets in companies with individual market capitalizations
which would, at the time of purchase, place them in the same size range as
companies included in the Nasdaq Composite Index, excluding its top 75
companies. Of course, past performance is 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 port folios. 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% and 1.00% on the average daily net assets of the Emerging Growth,
Micro-Cap and Mid-Cap 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, Wisconsin 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."
Distribution
Sunstone acts as distributor for the Funds pursuant to a Distribution Agreement
between Sunstone and the Company. Shares also may be sold by authorized dealers
who have entered into dealer agreements with Sunstone or the Company. Pursuant
to the Distribution Agreement, the Funds will (1) pay Sunstone a fee, payable
monthly, at the annual rate of 0.025% of each Fund's average daily net assets,
subject to a minimum aggregate annual fee of $25,000, and (2) reimburse
Sunstone's out-of-pocket expenses; provided, however, that if during any annual
period, such compensation and reimbursement payments and other payments under
the Service and Distribution Plan exceed 0.25% of a Fund's average daily net
assets, Sunstone will rebate such excess to the Fund. See "Service and
Distribution Plan."
Expenses
The Funds pay all of their own expenses, including without limitation, the cost
of preparing and printing their registration statements required under the
Securities Act of 1933 and the 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, Purchase Applications accepted or redemption requests
received in proper form prior to the close of regular trading on a day the New
York Stock Exchange is open for trading will be valued as of the close of
trading, and Purchase Applications accepted or redemption requests received in
proper form after that time will be valued as of the close of the next trading
day.
Securities which are traded on a recognized stock exchange are valued at the
last sale price on the securities exchange on which such securities are
primarily traded or at last sale price on the national securities market.
Exchange-traded securities for which there were no transactions are valued at
the closing bid prices. Securities traded on only over-the-counter
markets are valued on the basis of closing over-the-counter bid prices. Debt
securities (other than short-term instruments) are valued at prices
furnished by a pricing service, subject to review and possible revision by the
Funds' Adviser. Any modification of the price of a debt security furnished by a
pricing service is made pursuant to procedures adopted by the Company's Board of
Directors. Debt instruments maturing within 60 days are valued by the amortized
cost method. Any securities for which market quotations are not readily
available are valued at their fair value as determined in good faith by the
Adviser pursuant to guidelines established by the Company's Board of Directors.
HOW TO PURCHASE SHARES
All of the Funds are 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
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 10 calendar days
from the purchase date. If you contemplate needing access to your investment
shortly after purchase, you should purchase the shares by wire as discussed
below.
How to Open Your Account by Wire. You may make purchases by direct wire
transfers. To ensure proper credit to your account, please call the Funds at 1-
800-228-2121 for instructions 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 07500051
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. 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. For additional
investments made by wire transfer, you should use the wiring instructions listed
above. Be sure to include your account number.
Automatic Investment Plan. You may make purchases of shares of each Fund
automatically on a regular 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 sixty days' written
notice, if the account's net asset value is $1,000 or less.
Purchasing Shares Through Other Institutions. If you purchase shares through a
program of services offered or administered by a broker-dealer, financial
institution, or other service provider, you should read the program materials,
including information relating to fees, in addition to the Funds' Prospectus.
Certain services of a Fund may not be available or may be modified in connection
with the program of services provided. The Funds may only accept requests to
purchase additional shares into a broker-dealer street name account from
the broker-dealer.
Certain broker-dealers, financial institutions, or other service providers that
have entered into an agreement with the Company may enter purchase orders on
behalf of their customers by phone, with payment to follow within several days
as specified in the agreement. The Funds may effect such purchase orders at the
net asset value next determined after receipt of the telephone purchase order.
It is the responsibility of the broker-dealer, financial institution, or other
service provider to place the order with the Funds on a timely basis. If
payment is not received within the time specified in the agreement, the
broker-dealer, financial institution, or other service provider could be held
liable for any resulting fees or losses.
Miscellaneous. The Funds will charge a $20 service fee against your account for
any check or electronic funds transfer that is returned unpaid. You will also be
responsible for any losses suffered by the Funds as a result. In order to
relieve you of responsibility for the safekeeping and delivery of stock
certificates, the Funds do not issue certificates.
HOW TO EXCHANGE SHARES
Shares of any Van Wagoner Fund may be exchanged for shares of another Van
Wagoner Fund at any time. This exchange offer is available only in states where
shares of such other Fund may be legally sold. Each exchange is subject to the
minimum initial investment required for each Fund. You may make additional
exchanges for $500 or more. You may open a new account or purchase additional
shares by making an exchange from an existing Van Wagoner Fund account. New
accounts will have the same registration as the existing accounts. Exchanges may
be made either in writing or by telephone; however, a $5 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 "U.S. Government 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 U.S. Government Money Market Fund
prospectus from the Funds, and you are advised to read it carefully, before
authorizing any investment in shares of the U.S. Government Money Market Fund.
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. You should note that requests for an exchange from a Fund
to the U.S. Government Money Market Fund must be received and accepted by the
Funds by 3:00 p.m. Central time on a day during which the Fund's net asset value
is determined in order to permit the investment of exchange proceeds into the
U.S. Government Money Market Fund the next day the net asset value of the U.S.
Government Money Market Fund is determined. Requests for an exchange from the
U.S. Government Money Market Fund to a Fund must be received by the Funds prior
to 12:30 p.m. Central time in order to permit the redemption of the U.S.
Government Money Market Fund and the investment of the exchange proceeds into
the Fund the day the exchange request is accepted. Otherwise, both the
redemption from the U.S. Government Money Market Fund and the purchase of the
Fund will occur the next day the respective net asset values are determined. An
exchange from one Fund to another or to the U.S. Government Money Market Fund is
treated the same as an ordinary sale and purchase for federal income tax
purposes.
If you buy shares by check, you may not exchange those shares for up to 10
calendar days to ensure your check has cleared. 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 U.S. Government 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 10
calendar 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 credited to your
preauthorized bank account as shown on the records of the Funds. Telephone
redemptions must be in amounts of $1,000 or more.
In order to arrange for telephone redemptions after your account has been opened
or to change the bank account or address designated to receive redemption
proceeds, you must send a written request to the 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.
Payment of the redemption proceeds for Fund shares redeemed by telephone where
you request wire payment will normally be made in federal funds on the next
business day. The Funds reserve the right to delay payment for a period of up to
seven days after receipt of the redemption request. There is currently a $10 fee
for each wire redemption. It will be deducted from your account.
The Funds reserve the right to refuse a telephone redemption or exchange
transaction if it believes it is advisable to do so. Procedures for redeeming or
exchanging shares of the Funds by telephone may be modified or terminated by the
Funds at any time. In an effort to prevent unauthorized or fraudulent redemption
or exchange requests by telephone, the Funds 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.
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:
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. You may obtain
additional information regarding establishing such an account by calling the
Funds at 1-800-228-2121.
The Funds may be used as investment vehicles for established defined
contribution plans, including simplified employee (including SAR-SEPs), 401(k),
profit-sharing and money purchase pension plans ("Retirement Plans"). For
details concerning Retirement Plans, please call 1-800-228-2121.
SERVICE AND DISTRIBUTION PLAN
The Funds have adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the
Funds in connection with the distribution of their shares at an annual rate, as
determined from time to time by the Board of Directors, of up to 0.25% of a
Fund's average daily net assets.
Payments may be made by each Fund under the Plan for the purpose of financing
any activity primarily intended to result in the sales of shares of the Fund as
determined by the Board of Directors. Such activities include advertising,
compensation to Sunstone in its capacity as distributor, compensation for sales
and sales marketing activities of financial institutions and others, such as
dealers or other distributors, shareholder account servicing, production and
dissemination of prospectuses and sales and marketing materials, and capital or
other expenses of associated equipment, rent, salaries, bonuses, interest and
other overhead. To the extent any activity is one which a Fund may finance
without a Plan, the Fund may also make payments to finance such activity outside
of the Plan and not subject to its limitations. Payments under the Plan are not
tied exclusively to actual distribution and service expenses, and the payments
may exceed distribution and service expenses actually incurred.
TAXES
Each Fund intends to qualify for treatment as a regulated investment
company under the Code. In each taxable year that a Fund so qualifies, such Fund
(but not its shareholders) will be relieved of federal income tax on that part
of its investment company taxable income and net capital gain that is
distributed to shareholders.
Dividends from a Fund's investment company taxable income (whether paid in cash
or reinvested in additional shares) are taxable to its shareholders as ordinary
income to the extent of the Fund's earnings and profits. Distributions of a
Fund's net capital gain, when designated as such, are taxable to its
shareholders as long-term capital gain, regardless of how long they have held
their Fund shares and whether such distributions are paid in cash or reinvested
in additional Fund shares. Each Fund provides federal tax information to its
shareholders annually, including information about dividends and other
distributions paid during the preceding year.
The Funds will be required to withhold federal income tax at a rate of 31%
("backup withholding") from dividend payments and redemption and exchange
proceeds if you fail to complete the Purchase Application.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders. See "Taxes"
in the Statement of Additional Information for further discussion. There may be
other federal, state or local tax considerations applicable to you as an
investor. You therefore are urged to consult your tax adviser regarding any tax-
related issues.
CAPITAL STRUCTURE
The Funds constitute a single corporation (the "Company") that was
organized as a Maryland corporation on October 18, 1995. The Company's
authorized capital consists of a single class of 500,000,000 shares of Common
Stock, $0.0001 par value. The Common Stock is divisible into an unlimited number
of "series," each of which is a separate Fund. Each share of a Fund represents
an equal proportionate interest in that Fund. As a shareholder, you will be
entitled: (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. As of
the date of this Prospectus, the Adviser owned all of the outstanding shares of
each Fund and therefore controlled each Fund.
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." United Missouri 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.
Van Wagoner Funds
PROSPECTUS
December 31, 1995
Van Wagoner
Capital Management, Inc.
Investment Adviser
Van Wagoner Funds
P.O. Box 1628
Milwaukee, WI 53201-1628
For Fund information
and Shareholder Services
call 1-800-228-2121.
