As filed with the Securities and Exchange Commission on April 30, 1997
Securities Act Registration No. 33-98358
Investment Company Act Registration No. 811-9116
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Post-Effective Amendment No. 3 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 4 (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
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 in accordance with the provisions of Rule
24f-2 under the Investment Company Act of 1940. The Rule 24f-2 Notice for
Registrant's fiscal year ending December 31, 1996 was filed on February 27,
1997.
Approximate Date of Proposed Public offering: as soon as practicable after
the Registration Statement becomes effective.
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b)
(x) on April 30, 1997 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) on (date) pursuant to paragraph (a)(i)
( ) 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.
VAN WAGONER FUNDS, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and the
Statement of Additional Information of the responses to the Items of Parts A and
B of Form N-1A).
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
--------------------- --------------------------------------
PART A - INFORMATION REQUIRED IN PROSPECTUS
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1. Cover Page Cover Page
2. Synopsis Expense Summary
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Van Wagoner Funds, Inc.; Investment
Objectives, Policies and Risk
Considerations; Investment Limitations
5. Management of the Fund Management of the Funds
5A. Management's Discussion of Fund
Performance *
6. Capital Stock and Other Capital Structure; Dividends and
Securities Distributions; Taxes; Shareholder
Reports and Information
7. Purchase of Securities Being How to Purchase Shares; Pricing of Fund
Offered 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
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History * *
13. Investment Objectives and Additional Investment Information;
Policies Investment Restrictions
14. Management of the Fund Additional Company Information;
Shareholder Meetings
15. Control Persons and Principal Additional Company Information
Holders of Securities
16. Investment Advisory and Other Additional Company Information
Services
17. Brokerage Allocation and Other Portfolio Transactions and Brokerage
Policies
18. Capital Stock and Other Description of Shares
Securities
19. Purchase, Redemption and Pricing Included in the Prospectus under the
of Securities Being Offered heading "How to Purchase Shares,"
"Pricing of Shares" and "How to
Redeem Shares" and in the Statement of
Additional Information under the
headings "Retirement Plans" and
"Determination of Net Asset Value"
20. Tax Status Included in the Prospectus under the
headings "Taxes" and "Dividends and
Distributions" and in the Statement of
Additional Information under the heading
"Taxes" and "Additional Investment
Information"
21. Underwriters Distribution of Shares
22. Calculation of Performance Data Included in the Prospectus under the
heading "Fund Performance" and in the
Statement of Additional Information
under the heading "Performance
Information"
23. Financial Statements Financial Statements
* Answer negative or inapplicable.
* * Complete answer to Item is contained in the Prospectus.
(LOGO)
PROSPECTUS
APRIL 30, 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. The Company presently
offers four 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 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.
VAN WAGONER POST-VENTURE FUND seeks capital appreciation. The Fund invests
primarily in companies considered by the Adviser to be in their post-venture
capital stage, i.e., 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 April 30, 1997, 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. The Securities and Exchange
Commission maintains a web site (http://www.sec.gov) that contains the Statement
of Additional Information, material incorporated by reference, and other
information regarding registrants that file electronically with the Securities
and Exchange Commission.
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............................................. 5
Van Wagoner Funds, Inc........................................... 6
Investment Objectives, Policies and Risk Considerations.......... 6
Investment Limitations........................................... 14
Management of the Funds.......................................... 15
Pricing of Fund Shares........................................... 18
How to Purchase Shares........................................... 19
How to Exchange Shares........................................... 24
How to Redeem Shares............................................. 26
Dividends and Distributions...................................... 31
Shareholder Reports and Information.............................. 31
Retirement Plans................................................. 32
Service and Distribution Plan.................................... 33
Taxes............................................................ 33
Capital Structure................................................ 34
Transfer and Dividend Disbursing Agent, Custodian and
Independent Accountants........................................ 35
Fund Performance................................................. 36
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. Actual total operating expenses may be higher or lower than those
indicated. An example based on the summary is also shown.
EMERGING MICRO- MID- POST-
GROWTH CAP CAP VENTURE
FUND FUND FUND FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed
on Purchases None None None None
Maximum Sales Load Imposed
on Reinvested Dividends None None None None
Deferred Sales Load Imposed
on Redemptions None None None None
Redemption Fees<F1> None None None None
Exchange Fees None None None None
ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.25% 1.50% 1.00% 1.50%
12b-1 Fees<F2> 0.25% 0.25% 0.25% 0.25%
Other Expenses (net of
reimbursement)<F3><F4> 0.45% 0.20% 0.70% 0.20%
Total Operating Expenses
(net of reimbursement)<F4> 1.95% 1.95% 1.95% 1.95%
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<F1> A fee of $10.00 is charged for each wire redemption.
<F2> 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.
<F3> Such expenses include custodian, transfer agency and administration fees
and other customary Fund expenses.
<F4> The Funds' investment adviser has voluntarily agreed to limit the total
operating expenses of the Emerging Growth, Micro-Cap, Mid-Cap 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 at least January 1, 1998. After such date, the expense
limitation may be terminated or revised at any time. Absent the limitation,
Other Expenses and Total Annual Operating Expenses for the fiscal year
ended December 31, 1996 would have been 0.48% and 1.98% for the Emerging
Growth Fund, 0.80% and 2.55% for the Micro-Cap Fund and 0.80% and 2.05% for
the Mid-Cap Fund, respectively. Since the Post-Venture Fund did not
commence operations until after the close of business on December 31, 1996,
the Fund estimates that Other Expenses and Total Annual Operating Expenses
would initially be approximately 1.30% 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:
EMERGING MICRO- MID- POST-
GROWTH CAP CAP VENTURE
FUND FUND FUND FUND
One Year $ 20 $ 20 $ 20 $ 20
Three Years $ 63 $ 63 $ 63 $ 63
Five Years $109 $109 $109 $109
Ten Years $234 $234 $234 $234
THE EXAMPLES SHOWN ABOVE SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. 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 and, for the fiscal year ended December 31, 1996, has been audited by
Price Waterhouse LLP, independent accountants, whose report thereon was
unqualified and is included in the Funds' Annual Report to Shareholders. The
table should be read in conjunction with the financial statements and related
notes included in the Annual Report to Shareholders. Further information about
the performance of the Funds is contained in the Annual Report to Shareholders,
copies of which may be obtained without charge upon request.
PERIOD ENDED
MAR. 31, 1997
YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
EMERGING MICRO- MID- POST-
FOR A FUND SHARE OUTSTANDING GROWTH CAP CAP VENTURE
THROUGHOUT THE PERIOD FUND<F1> FUND<F1> FUND<F1> FUND<F2>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.00 $10.00 $10.00
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment loss (0.15) (0.09) (0.09) (0.02)
Net realized and unrealized gains
(losses) on investments 2.84<F3> 2.54<F3> 2.48<F3> (1.69)
------- ------- ------- -------
Total from investment operations 2.69 2.45 2.39 (1.71)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $12.69 $12.45 $12.39 $8.29
======= ======= ======= =======
TOTAL RETURN<F4> 26.90% 24.50% 23.90% (17.10)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $638,159 $140,698 $137,740 $21,090
Ratio of net expenses to average
net assets<F5><F6> 1.95% 1.95% 1.95% 1.95%
Ratio of net investment loss
to average net assets<F5><F6> (1.49)% (1.04)% (1.16)% (0.69)%
Portfolio turnover rate 159% 153% 173% 67%
Average commission rate paid on
portfolio investment
transactions $0.0531 $0.0474 $0.0516 $0.0366
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<F1> Commenced operations after the close of business on December 31, 1995
<F2> Commenced operations after the close of business on December 31, 1996
<F3> The amount shown may not accord with the aggregate gains and losses of
portfolio securities due to the timing of sales and redemptions of Fund
shares.
<F4> Total return is not annualized for periods less than a full year.
<F5> Annualized for periods less than a full year
<F6> Without fees waived, the ratio of net expenses to average net assets would
have been 1.98% for the Emerging Growth Fund, 2.55% for the Micro-Cap Fund,
2.05% for the Mid-Cap Fund and 3.14% (unaudited) for the Post-Venture Fund.
The ratio of net investment loss to average net assets would have been
(1.52)% for the Emerging Growth Fund, (1.64)% for the Micro-Cap Fund,
(1.26)% for the Mid-Cap Fund and (1.88)% (unaudited) for the Post-Venture
Fund. The annual expense ratio of each Fund is capped at 1.95% through
January 1, 1998.
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
offers four diversified investment portfolios: Van Wagoner Emerging Growth Fund,
Van Wagoner Micro-Cap Fund, Van Wagoner Mid-Cap 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 18 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. Issuers in which the
Funds may invest may still be in the developmental 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 a 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."
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 - 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"). Each Fund will, however,
limit its investment in non-investment grade convertible debt securities to no
more than 5% of its 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. It is presently anticipated the portfolio turnover rate for the
Post-Venture Fund generally will not exceed 150%. However, this should not be
considered as a limiting factor and the actual turnover rate may exceed this if
the Adviser deems it appropriate. See "Financial Highlights" for the portfolio
turnover rates for the other Funds.
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 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 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. The Govett Smaller Companies Fund earned a 5-star
Morningstar, Inc. ranking for the three-year period ended December 31, 1995 as a
result of its performance while Mr. Van Wagoner was the portfolio manager. There
were 172 funds in Morningstar's Small Company category for the three-year period
ended December 31, 1995. Morningstar's proprietary ratings reflect historical
risk-adjusted performance and are subject to change every month. 10% of the
funds in an investment category receive 5 stars; 22.5% receive 4 stars; and the
next 35% receive 3 stars. Ratings are historical and do not represent future
results. Prior thereto, Mr. Van Wagoner 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<F1> INDEX<F2> S&P 500<F3>
One Year 69.0% 39.9% 37.6%
March 1, 1993 through
December 31, 1995 54.7% 17.2% 15.4%
- -------------------------
<F1> 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.
<F2> The Nasdaq Composite Index is a market capitalization price only index that
tracks the performance of domestic common stocks traded on the regular
Nasdaq market as well as National Market System-traded foreign common
stocks and ADRs.
<F3> 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. While serving as portfolio manager for the
Govett Smaller Companies Fund, Mr. Van Wagoner 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. 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
pays the salaries and fees of all officers and directors of the Funds (except
the fees paid to disinterested directors). For the foregoing, the Adviser
receives a monthly fee of 1/12 of 1.25%, 1.50%, 1.00% and 1.50% on the average
daily net assets of the Emerging Growth, Micro-Cap, Mid-Cap 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"), 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 0.18 of 1.0% on
the first $50,000,000 of average net assets, 0.105 of 1.0% on the next
$50,000,000 of average net assets, 0.055 of 1.0% on the next $150,000,000 of
average net assets, and 0.03 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. Sunstone Investor Services, LLC, an affiliate of Sunstone
Financial Group, Inc., acts as the transfer agent and dividend disbursing agent
for the Funds. See "Transfer and Dividend Disbursing Agent, Custodian and
Independent Accountants."
EXPENSES
Each Fund pays all of its own expenses, including without limitation, the cost
of preparing and printing its registration statement required under the
Securities Act of 1933 and the 1940 Act and any amendments thereto, the expense
of registering its 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 Fund's 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 in good order 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 in good order 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 under the
supervision of 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 each Fund's
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 ("IRA") $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. The Funds will not accept your account if you are investing for another
person as attorney-in-fact. The Funds also will not accept accounts with a
"Power of Attorney" or "POA" in the registration section of the Purchase
Application.
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 COMPLETE AN IRA APPLICATION TO ESTABLISH 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. Payment may be delayed for up to 7 business days on redemption
requests for recent purchases made by check in order to ensure that the check
has cleared. 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:
UMB Bank, n.a.
A.B.A. Number 101000695
For credit to Van Wagoner Funds, Inc.
Account Number 9870610183
For further credit to:
(investor account number)
(name or account registration)
(Social Security or Taxpayer Identification Number)
(identify which Fund to purchase)
A PURCHASE APPLICATION MUST BE RECEIVED BY THE FUNDS TO ESTABLISH PRIVILEGES AND
TO VERIFY YOUR ACCOUNT INFORMATION. PAYMENT OF REDEMPTION PROCEEDS MAY BE
DELAYED AND TAXES MAY BE WITHHELD UNLESS 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 BY MAIL. You may make additional investments by mail
or by wire in the minimums listed previously. When adding to an account by mail,
you should send the Funds your check, together with a subsequent investment slip
from a recent statement. If this investment slip is unavailable, you should send
a signed note giving the full name of the account and the account number. See
"Additional Purchase Information" for more information regarding purchases
made by check or electronic funds transfer.
HOW TO ADD TO YOUR ACCOUNT BY ELECTRONIC FUNDS TRANSFER. You may also make
additional investments by telephone or in writing through electronic funds
transfers 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. Electronic funds transfers may be made commencing 10 business days
after receipt by the Funds of your request to adopt this service. This time
period allows the Funds to verify your bank information. Investments made by
electronic funds transfer in any one account must be in an amount of at least
$50 and will be effective at the net asset value next computed after receipt by
the Funds of the proceeds from your bank account. See "Additional Purchase
Information" for more information regarding purchases made by check or
electronic funds transfer. Changes to bank information must be made in writing
and signed by all registered holders 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. See
"Pricing of Fund Shares." This service may be selected by calling the Funds at
1-800-228-2121 for the necessary form and instructions.
HOW TO ADD TO YOUR ACCOUNT BY WIRE. For additional investments made by wire
transfer, you should use the wiring instructions listed previously. Be sure to
include your account number. WIRED FUNDS ARE CONSIDERED RECEIVED IN GOOD ORDER
ON THE DAY THEY REACH THE FUNDS' BANK ACCOUNT BY THE FUNDS' CUT-OFF TIME FOR
PURCHASES AND ALL REQUIRED INFORMATION IS PROVIDED IN THE WIRE INSTRUCTIONS. THE
WIRE INSTRUCTIONS WILL DETERMINE THE TERMS OF THE PURCHASE TRANSACTION.
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" or the "AIP 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 designated period and applies the amount to the
purchase of Fund shares. The Funds require 10 business days after their receipt
of your request to initiate the Plan to verify your account information.
Generally, the Plan will begin on the next transaction date scheduled by the
Funds for the Plan following this 10 business day period. AIP Plan transactions
are scheduled for the 5th and/or 20th of every month. AIP Plan transactions also
may be scheduled monthly, quarterly or annually. 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 and YOUR PURCHASE WILL BE CANCELLED. YOU WILL ALSO BE
RESPONSIBLE FOR ANY LOSSES SUFFERED BY THE FUNDS AS A RESULT. When a purchase is
made pursuant to the Automatic Investment Plan, and a redemption of such shares
is requested shortly thereafter, the Funds may delay payment of the redemption
proceeds for up to 7 days from the purchase date. This delay allows the Funds to
verify that the proceeds used to purchase the shares were properly debited from
your designated bank or other financial institution. 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. A signature guarantee is required. 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. Changes to bank information must be made in writing and
signed by all registered holders 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. A REDEMPTION OF ALL
FUNDS FROM YOUR PLAN ACCOUNT WILL NOT AUTOMATICALLY DISCONTINUE PLAN PRIVILEGES.
TERMINATION OF THE PLAN MUST BE MADE IN WRITING AND RECEIVED BY THE FUNDS FIVE
BUSINESS DAYS PRIOR TO THE EFFECTIVE DATE OF TERMINATION.
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 telephone, 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.
ADDITIONAL PURCHASE INFORMATION. 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.
When a purchase is made by check and a redemption is requested shortly
thereafter, payment may be delayed for up to 7 business days on redemption
requests for recent purchases made by check in order to ensure that the check
has cleared. This delay allows the Funds to verify that proceeds used to
purchase Fund shares will not be returned due to insufficient funds and is
intended to protect the remaining investors from loss.
Effective September 1, 1996, the Funds changed their procedures regarding the
establishment of the privilege to initiate telephone inquiries, exchanges and
redemptions. Consequently, Purchase Applications distributed after September 1,
1996 provide that investors automatically authorize the telephone privileges
unless they check the appropriate box on the Purchase Application to waive the
privilege. Shareholders who established accounts prior to September 1, 1996 and
shareholders who establish accounts after that date and use the original
Purchase Application authorize the telephone privilege ONLY if they checked the
appropriate box on the old Purchase Application authorizing the privilege. If
you have any questions as to how to authorize or waive this privilege, or with
respect to existing accounts, whether you have properly authorized or waived the
privilege, or how to add or delete a privilege, please call the Funds at 1-800-
228-2121. Generally, after the account has been established, a request to
authorize, waive, add or delete a privilege must be in writing and signed by
each registered holder of the account with signatures guaranteed by a commercial
bank or trust company in the United States, a member of the National Association
of Securities Dealers, Inc. or other eligible guarantor institution. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
HOW TO EXCHANGE SHARES
Shares of any Van Wagoner Fund may be exchanged for shares of another Van
Wagoner Fund that is available for investment 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 as well as the same privileges, unless otherwise specified. To
exchange by telephone, you must follow the instructions below under "How to
Redeem by Telephone." See "Additional Exchange Information" regarding
telephone exchanges. You must obtain the prospectus for the appropriate Van
Wagoner Fund, and you are advised to read it carefully, before authorizing any
investment in shares of a Van Wagoner Fund. For a more detailed discussion of
the rights, responsibilities and risks of telephone transactions, please refer
to "How to Redeem by Telephone" on page 27.
In addition to the ability to exchange among Van Wagoner Funds, you may exchange
all or a portion of your 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 by calling 1-800-228-
2121, 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) or the close of the New York
Stock Exchange, if different, 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 less than all of the balance from
the Money Market Fund to a Fund, your exchange proceeds will exclude accrued and
unpaid 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 and paid
from the Money Market Fund, at the end of the month. An exchange between one
Fund and another or to the Money Market Fund is treated the same as an ordinary
sale and purchase for federal income tax purposes.
See "Additional Redemption Exchange Information" regarding purchases made by
check.
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. Therefore, the maximum number
of exchanges you wish to make between Funds may be restricted. 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 the 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. To establish the
Automatic Exchange Plan after an account is open, call the Funds at 1-800-228-
2121.
Effective September 1, 1996, the Funds changed their procedures regarding the
establishment of the privilege to initiate telephone inquiries, exchanges and
redemptions. Consequently, Purchase Applications distributed after September 1,
1996 provide that investors automatically authorize the telephone privileges
unless they check the appropriate box on the Purchase Application to waive the
privilege. Shareholders who established accounts prior to September 1, 1996 and
shareholders who establish accounts after that date and use the original
Purchase Application authorize the telephone privilege ONLY if they checked the
appropriate box on the old Purchase Application authorizing the privilege. If
you have any questions as to how to authorize or waive this privilege, or with
respect to existing accounts, whether you have properly authorized or waived the
privilege, or how to add or delete a privilege, please call the Funds at 1-800-
228-2121. Generally, after the account has been established, a request to
authorize, waive, add or delete a privilege must be in writing and signed by
each registered holder of the account with signatures guaranteed by a commercial
bank or trust company in the United States, a member of the National Association
of Securities Dealers, Inc. or other eligible guarantor institution. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
Signature guarantees must be signed by an authorized signatory of the bank,
trust company, or member firm and "Signature Guaranteed" must appear with the
signature.
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 and a fee is charged when redeeming
shares in an IRA. Refer to the IRA Disclosure Statement & Custodial Agreement
for additional information on IRA accounts and fees. 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. If the dollar amount requested to be redeemed is greater
than the current account value as determined by the net asset value on the
effective date of the redemption, the entire account balance will be redeemed. A
request for redemption must be signed exactly as the shares are registered. If
the amount requested is greater than $50,000, the proceeds are to be sent to a
person other than the shareholder(s) of record, to a location other than the
address of record or is made within 30 days of an address exchange, 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. Additional documentation may be required for the redemption of shares
held in corporate, partnership or fiduciary accounts. See "Additional
Redemption Information" for instructions on redeeming shares in corporate
accounts. Additional documentation is required for the redemption of shares held
by persons acting pursuant to a Power of Attorney. In case of any questions,
contact the Funds in advance.
The Funds will mail payment for redemption within 7 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. See "Additional Redemption Information" regarding
telephone redemptions. Shares may be redeemed, in an amount up to $50,000, 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. A
redemption request in excess of $50,000 must be made in writing and signed by
each registered holder of the account with 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. A telephone redemption request
will not be processed within 30 calendar days after an address change. A
redemption request within that 30 day time period must be in writing and signed
by each registered holder of the account with signatures guaranteed. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE GUARANTOR. Telephone redemptions must be in amounts
of $500 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. There is currently a $10 fee for each wire redemption. It will be
deducted from your redemption proceeds. 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 7 days after
receipt of the redemption request.
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. REDEMPTION REQUESTS MADE
VIA FAX WILL NOT BE ACCEPTED BY THE FUNDS.
REDEEMING SHARES THROUGH OTHER INSTITUTIONS. Investors may be charged a fee if
they redeem shares of a Fund through a broker or an agent.
ADDITIONAL REDEMPTION INFORMATION. When a purchase is made by check and a
redemption is requested shortly thereafter, payment may be delayed for up to 7
business days on redemption requests for recent purchases made by check in order
to ensure that the check has cleared. This delay allows the Funds to verify that
proceeds used to purchase Fund shares will not be returned due to insufficient
funds and is intended to protect the remaining investors from loss.
Effective September 1, 1996, the Funds changed their procedures regarding the
establishment of the privilege to initiate telephone inquiries, exchanges and
redemptions. Consequently, Purchase Applications distributed after September 1,
1996 provide that investors automatically authorize the telephone privileges
unless they check the appropriate box on the Purchase Application to waive the
privilege. Shareholders who established accounts prior to September 1, 1996 and
shareholders who establish accounts after that date and use the original
Purchase Application authorize the telephone privilege ONLY if they checked the
appropriate box on the old Purchase Application authorizing the privilege. If
you have any questions as to how to authorize or waive this privilege, or with
respect to existing accounts, whether you have properly authorized or waived the
privilege, or how to add or delete a privilege, please call the Funds at 1-800-
228-2121. Generally, after the account has been established, a request to
authorize, waive, add or delete a privilege must be in writing and signed by
each registered holder of the account with signatures guaranteed by a commercial
bank or trust company in the United States, a member of the National Association
of Securities Dealers, Inc. or other eligible guarantor institution. A NOTARY
PUBLIC IS NOT AN ACCEPTABLE GUARANTOR.
Any redemption or transfer of ownership request for corporate accounts will
require the following WRITTEN documentation:
1. A written letter of instruction signed by the required number of authorized
officers, along with their respective positions. For redemption requests in
excess of $50,000, the written request must be signature guaranteed. A
signature guarantee may be obtained from a commercial bank or trust company
in the United States, a member firm of the National Association of
Securities Dealers, Inc. or other guarantor and "Signature Guaranteed"
must appear with the signature. A NOTARY PUBLIC IS NOT AN ACCEPTABLE
GUARANTOR.
2. A certified Corporate Resolution that states the date the Resolution was
adopted and who is empowered to act, transfer or sell assets on behalf of
the corporation.
3. If the Corporate Resolution is more than 60 days old from the date of the
transaction request, a Certificate of Incumbency from the Corporate
Secretary which specifically states the officer or officers named in the
resolution have the authority to act on the account. The Certificate of
Incumbency must be dated within 60 days of the requested transaction. IF
THE CORPORATE RESOLUTION CONFERS AUTHORITY ON OFFICERS BY TITLE AND NOT BY
NAME, THE CERTIFICATE OF INCUMBENCY MUST NAME THE OFFICER(S) AND THEIR
TITLE(S).
When redeeming shares from the Money Market Fund, if you redeem less than all of
the balance of your account, your redemption proceeds will exclude accrued and
unpaid income through the date of the redemption. When redeeming your entire
balance from the Money Market Fund, accrued income will be paid separately when
the income is collected and paid from the Money Market Fund, at the end of the
month.
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 may 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.
If your account balance in the Money Market Fund is redeemed, accrued interest
will be paid at the end of the following month.
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 upon commencement of
participation in the Plan) 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. Any changes made to distribution information
must be made in writing and signed by each registered holder of the account with
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.
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. Income dividends
and capital gains distributions received in cash may only be sent by wire if in
amounts of $500 or more. 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
AUTOMATED SHAREHOLDER SERVICES. 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. 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.
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.
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.
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.
RETIREMENT PLANS
The Funds have a program under which you may establish an 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 pension (SEP), Savings
Incentive Match Plans for Employees (SIMPLEs), 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.
TAXES
Each Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue 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 Taxpayer
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 Investor Services, LLC, an affiliate of 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 Financial Group, Inc.
serves as the Funds' administrator. 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, 1997.
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.
A shareholder's investment in a Fund and its return are not guaranteed and will
fluctuate according to market conditions. When considering "average" annual
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 a Fund for a specific period
(again reflecting changes in a Fund's share price and assuming reinvestment of
dividends and distributions).
Each Fund may quote its average annual total and/or aggregate total return for
various time periods in advertisements or communications to shareholders. A 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 a Fund's performance.
Each Fund's total return may also be compared to such indices as the Dow Jones
Industrial Average, S&P 500 Composite Stock Price Index, S&P Midcap 400 Index,
Nasdaq Composite OTC Index or Nasdaq Industrial 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 its 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, INC.
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
EMERGING GROWTH FUND
MICRO-CAP FUND
MID-CAP FUND
POST-VENTURE FUND
This Statement of Additional Information dated April 30, 1997, is meant to
be read in conjunction with the Prospectus dated April 30, 1997, for the
Emerging Growth Fund, Micro-Cap Fund, Mid-Cap 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.
TABLE OF CONTENTS
Page
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ADDITIONAL INVESTMENT INFORMATION................................ 3
INVESTMENT RESTRICTIONS.......................................... 12
ADDITIONAL COMPANY INFORMATION................................... 15
Directors and Officers ........................................ 15
Control Persons and Principal Holders of Securities ........... 16
Investment Adviser ............................................ 17
Administrator ................................................. 19
Custodian, Transfer Agent and Dividend Paying Agent ........... 19
Legal Counsel ................................................ 19
Independent Accountants ....................................... 20
DISTRIBUTION OF SHARES........................................... 20
PORTFOLIO TRANSACTIONS AND BROKERAGE............................. 20
TAXES............................................................ 22
DESCRIPTION OF SHARES............................................ 25
SHAREHOLDER MEETINGS............................................. 25
RETIREMENT PLANS................................................. 27
PERFORMANCE INFORMATION.......................................... 27
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES;
DETERMINATION OF NET ASSET VALUE................................. 30
OTHER INFORMATION................................................ 30
FINANCIAL STATEMENTS............................................. 32
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 their 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 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.
VAN WAGONER 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 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
liquid 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 by 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
and subject to the rules of 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" subject to the rules
of Code Section 1256 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.
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. The current portfolio turnover
rates for the Funds are set forth in the prospectus.
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 of 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 represent 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. Age 41.
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. Age 54.
ROBERT S. COLMAN, DIRECTOR
Partner since February 1991 of Colman Furlong & Co. and since 1996 the
founder of Colman Partners, both private merchant banking firms. Mr. Colman is
a Director of Cleveland Cliffs, Inc. and HealthCare COMPARE Corp. Age 55.
PETER R. KRIS, VICE PRESIDENT
Mr. Kris is Vice President of the Company and has served in such capacity
since February 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. Age 31.
The Director of the Company who is an officer of the Adviser receives no
remuneration from the Funds. In 1997, each of the other Directors will be paid
a fee of $1,000 for each meeting attended. In addition, each Director is
reimbursed for the expenses of attending meetings. The table below sets forth
the compensation of the Directors for the fiscal year ending December 31, 1996.
COMPENSATION TABLE
Aggregate Total Compensation
Compensation from from Company Paid
Name of Person Company to Directors
- -------------- ----------------- ------------------
Garrett R. Van Wagoner $0 $0
Larry P. Arnold $1,500 $1,500
Robert S. Colman $1,500 $1,500
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. As of April 1, 1997,
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.
VAN WAGONER EMERGING GROWTH FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA 94104,
25%; National Financial Services Corp.*, 200 Liberty Street, One World Financial
Center, New York, NY 10281-1003, 14%.
VAN WAGONER MICRO-CAP FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA 94104,
26%; National Financial Services Corp. *, 200 Liberty Street, One World
Financial Center, New York, NY 10281-1003, 17%.
VAN WAGONER MID-CAP FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA 94104,
24%; National Financial Services Corp.*, 200 Liberty Street, One World Financial
Center, New York, NY 10281-1003, 15%.
VAN WAGONER POST-VENTURE FUND
Charles Schwab & Co., Inc.*, 101 Montgomery Street, San Francisco, CA 94104,
18%; National Financial Services Corp.*, 200 Liberty Street, One World Financial
Center, New York, NY 10281-1003, 17%.
As of April 1, 1997, the directors and officers as a group owned 1% of the
outstanding shares of the Mid-Cap Fund, 2% of the outstanding shares of the
Post-Venture Fund and less than 1% of the outstanding shares of the Emerging
Growth Fund and Micro-Cap 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 and Mid-Cap Funds are dated as of December 31, 1995. The Investment
Advisory Agreement for the Post-Venture Fund is dated as of August 7, 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. The
Investment Advisory Agreements for the Emerging Growth, Micro-Cap and Mid-Cap
Funds were 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
Emerging Growth, Micro-Cap and Mid-Cap Funds on December 8, 1995. The
Investment Advisory Agreement for the Post-Venture Fund was approved by the vote
of a majority of the Directors who are not parties to the Investment Advisory
Agreement or interested persons of any such party on August 7, 1996, and by the
initial shareholder of the Post-Venture Fund on August 7, 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 respective 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 such Fund's common
stock is qualified for sale or if the states in which the shares of such Fund
are qualified for sale impose no such restrictions, 2%. As of the date of this
Statement of Additional Information, no such state law provision was applicable
to any of the Funds. Additionally, the Adviser has voluntarily agreed to
reimburse each Fund to the extent aggregate annual operating expenses as
described above exceed 1.95% of the average daily net assets of each Fund, until
January 1, 1998. 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.
For the fiscal year ended December 31, 1996, the Adviser accrued the
following management fees and waived a portion of its management fees in the
following amounts*:
Emerging Growth Fund
Gross Management Fees $6,508,760
Waived Management Fees $178,686
Micro-Cap Fund
Gross Management Fees $1,397,953
Waived Management Fees $563,718
Mid-Cap Fund
Gross Management Fees $834,015
Waived Management Fees $80,281
*The Post-Venture Fund commenced operations after the close of business on
December 31, 1996.
ADMINISTRATOR. Sunstone Financial Group, Inc. (the "Administrator")
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 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, 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. For the fiscal year ended December 31,
1996, the fees paid to the Administrator were $280,175, $130,643 and $120,846
for the Emerging Growth Fund, Micro-Cap Fund and Mid-Cap Fund, respectively.
(The Post-Venture Fund commenced operations after the close of business on
December 31, 1996). In addition, the Administrator received from the Funds
$60,000 for organizational services provided by the Administrator, plus out-of-
pocket expenses.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT. UMB Bank, n.a. serves
as the custodian and Sunstone Investor Services, LLC, an affiliate of Sunstone
Financial Group, Inc., the Funds' administrator, serves as the transfer and
dividend paying agent for the Funds. Under the terms of the respective
agreements, UMB Bank, n.a. is responsible for the receipt and delivery of each
Fund's securities and cash, and Sunstone Investor Services, LLC 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. UMB Bank, n.a. and Sunstone
Investor Services, LLC 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.
For the fiscal year ended December 31, 1996, the Funds* paid a total of
$1,743,248 in 12b-1 fees. Sunstone Financial Group, Inc. received compensation
in the amount of $134,128 pursuant to its Distribution Agreement and the balance
was spent for printing and mailing of prospectuses to other than current
shareholders, advertising, compensation to dealers and other distribution
purposes. (* The Post-Venture Fund commenced operations after the close of
business on December 31, 1996.)
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.
During the year ended December 31, 1996, the Funds paid the following
brokerage commissions*:
Emerging Growth Fund $1,962,362
Micro-Cap Fund 260,568
Mid-Cap Fund 321,769
*The Post-Venture Fund commenced operations after the close of business on
December 31, 1996.
None of the brokers to whom commissions were paid during the fiscal year
ended December 31, 1996 provided research services to the Adviser.
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. Each Fund
intends to declare and distribute dividends during each year sufficient to
prevent imposition of the excise tax.
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 or treaties 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.
RETIREMENT PLANS
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 fiscal year ended December 31, 1996 for each of
the Emerging Growth Fund, Micro-Cap Fund and Mid-Cap Fund, were 26.90%, 24.50%
and 23.90%, respectively. Such performance results reflect reimbursements made
by the Adviser during the fiscal year ended December 31, 1996 to keep the ratio
of net expenses to average net assets of each Fund at or below 1.95%. The total
return for the period from the commencement of operations (after the close of
business on December 31, 1996) through March 31, 1997, for the Post-Venture Fund
was (17.10)%. Such performance results reflect reimbursement made by the
Adviser (after the close of business on December 31, 1996 through March 31,
1997) to keep the ratio of net expenses to average net assets for the 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. Rankings 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.
To illustrate the method of computing the offering price of shares of the
Funds*, the offering price on December 31, 1996 was as follows:
Emerging
Growth Micro-Cap Mid-Cap
Net Assets $638,159,476 $140,698,454 $137,740,482
divided by
Shares Outstanding 50,275,260 11,303,250 11,114,950
equals
Net Asset Value Per Share $12.69 $12.45 $12.39
(Offering & Redemption Price)
*The Post-Venture Fund commenced operations after the close of business on
December 31, 1996.
Shares of the Funds may be exchanged for shares of the Northern U.S.
Government Money Market Fund as provided in the Prospectus. Sunstone Investor
Services, LLC, the Funds' transfer agent, 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 Funds exchanged into the
Northern U.S. Government Money Market Fund. Sunstone Investor Services, LLC is
an affiliate of Sunstone Financial Group, Inc., the Funds' administrator.
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
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.
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 audited financial statements dated December 31, 1996 for the
Emerging Growth Fund, Micro-Cap Fund and Mid-Cap Fund are attached hereto:
1. Schedules of Investments as of December 31, 1996
2. Statements of Assets and Liabilities as of December 31, 1996
3. Statements of Operations for the Year Ended December 31, 1996
4. Statements of Changes in Net Assets for the Year Ended December 31,
1996
5. Financial Highlights for the Year Ended December 31, 1996
6. Notes to Financial Statements
7. Report of Independent Accountants
The following unaudited financial statements dated March 31, 1997 for the Post-
Venture Fund are attached hereto:
1. Schedule of Investments as of March 31, 1997
2. Statement of Assets and Liabilities as of March 31, 1997
3. Statement of Operations for the Three Months Ended March 31, 1997
4. Statement of Changes in Net Assets for the Three Months Ended March 31,
1997
5. Financial Highlights for the Three Months Ended March 31, 1997
6. Notes to Financial Statements
VAN WAGONER EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS
December 31, 1996
NUMBER
OF SHARES VALUE
--------- -----
COMMON STOCKS 101.20%
CHEMICALS 0.49%
235,000 NuCo2, Inc.<F3><F4> $ 3,128,438
------------
COMMERCIAL SERVICES -
MISCELLANEOUS 1.72%
296,500 Pediatrix Medical Group, Inc.<F3> 10,970,500
------------
COMMERCIAL SERVICES -
SECURITY/SAFETY 0.68%
200,000 Check Point Software
Technologies, Ltd.<F3> 4,350,000
------------
COMPUTERS - INTEGRATED
SYSTEMS 1.67%
225,000 Wind River Systems, Inc.<F3> 10,659,375
------------
COMPUTERS - LOCAL
NETWORKS 10.81%
400,000 Arbor Software Corp.<F3> 9,700,000
475,000 Ascend Communications, Inc.<F3> 29,509,375
400,000 Citrix Systems, Inc.<F3> 15,625,000
500,000 Xylan Corp.<F3> 14,125,000
------------
68,959,375
------------
COMPUTERS - MEMORY
DEVICES 3.72%
460,000 Legato Systems, Inc.<F3> 15,007,500
175,000 Veritas Software Corp.<F3> 8,706,250
------------
23,713,750
------------
COMPUTERS - PERIPHERALS 1.36%
275,000 Security Dynamics
Technologies, Inc.<F3> 8,662,500
------------
COMPUTERS - RETAIL/
WHOLESALE 0.75%
600,000 Intelligent Electronics, Inc.<F3> 4,800,000
------------
COMPUTERS - SERVICES 2.78%
375,000 Viasoft, Inc.<F3> 17,718,750
------------
COMPUTERS - SOFTWARE 24.40%
950,000 Avant! Corp.<F3><F4> 30,162,500
NUMBER
OF SHARES VALUE
--------- -----
COMPUTERS - SOFTWARE 24.40% (CONT'D.)
250,000 CBT Group PLC ADR<F3> $ 13,562,500
400,000 Clarify, Inc.<F3> 19,200,000
75,000 Forte Software, Inc.<F3> 2,456,250
350,000 McAfee Associates, Inc.<F3> 15,400,000
200,000 Netscape Communications Corp.<F3> 11,375,000
450,000 Pure Atria Corp.<F3> 11,137,500
300,000 Remedy Corp.<F3> 16,125,000
475,000 SQA, Inc.<F3><F4> 15,793,750
250,000 Technology Modeling
Associates, Inc.<F3><F4> 3,312,500
550,000 Vantive Corp.<F3> 17,187,500
------------
155,712,500
------------
ENERGY - SERVICES 4.53%
150,000 Energy Ventures, Inc.<F3> 7,631,250
175,000 ENSCO International, Inc.<F3> 8,487,500
400,000 Nabors Industries, Inc.<F3> 7,700,000
225,000 Rowan Cos., Inc.<F3> 5,090,625
------------
28,909,375
------------
MACHINERY 0.75%
300,000 JLG Industries, Inc. 4,800,000
------------
MEDICAL - BIOMEDICAL/
GENETICS 0.46%
250,000 Cardiac Pathways Corp.<F3><F4> 2,968,750
------------
MEDICAL - INFORMATION
SERVICES 2.02%
200,000 HBO & Co. 11,875,000
150,000 Oacis Healthcare Holding Corp.<F3> 1,012,500
------------
12,887,500
------------
MEDICAL - INSTRUMENTS 0.90%
250,000 Heartport, Inc.<F3> 5,718,750
------------
MEDICAL - OUTPATIENT/
HOME 1.27%
300,000 OccuSystems, Inc.<F3> 8,100,000
------------
MEDICAL - PRODUCTS 5.78%
125,000 Parexel International Corp.<F3> 6,453,125
550,000 Pharmaceutical Product
Development, Inc.<F3> 13,887,500
VAN WAGONER EMERGING GROWTH FUND
SCHEDULE OF INVESTMENTS (cont'd.)
NUMBER
OF SHARES VALUE
--------- -----
MEDICAL - PRODUCTS 5.78% (CONT'D.)
250,000 Quintiles Transnational Corp.<F3> $ 16,562,500
------------
36,903,125
------------
MEDICAL - WHOLESALE/DRUG 1.94%
425,000 NCS HealthCare, Inc.<F3><F4> 12,378,125
------------
OIL & GAS 10.54%
600,000 Comstock Resources, Inc.<F3> 7,800,000
155,000 Diamond Offshore Drilling, Inc.<F3> 8,835,000
100,000 Falcon Drilling Co., Inc.<F3> 3,925,000
440,000 Global Marine, Inc.<F3> 9,075,000
650,000 Noble Drilling Corp.<F3> 12,918,750
175,000 Reading & Bates Corp.<F3> 4,637,500
100,000 Smith International, Inc.<F3> 4,487,500
120,000 Tidewater, Inc. 5,430,000
125,000 Transocean Offshore, Inc. 7,828,125
100,000 Varco International, Inc.<F3> 2,312,500
------------
67,249,375
------------
POLLUTION CONTROL - SERVICES 0.19%
33,400 Newpark Resources, Inc.<F3> 1,244,150
------------
TELECOMMUNICATIONS -
EQUIPMENT 23.69%
720,000 Adtran, Inc.<F3> 29,880,000
500,600 Cascade Communications Corp.<F3> 27,595,575
250,000 Natural Microsystems Corp.<F3> 7,875,000
1,100,000 PairGain Technologies, Inc.<F3> 33,481,250
525,000 Premisys Communications, Inc.<F3> 17,718,750
400,000 Sync Research, Inc.<F3> 5,500,000
775,000 Tellabs, Inc.<F3> 29,159,375
------------
151,209,950
------------
TELECOMMUNICATIONS -
SERVICES 0.75%
200,000 Objective Systems
Integrators, Inc.<F3> 4,775,000
------------
Total Common Stocks
(cost $607,580,180) 645,819,288
------------
NUMBER
OF SHARES VALUE
--------- -----
WARRANTS 0.01%
196,000 ATS Medical, Inc. -
expires 3/2/97<F3> $ 73,500
------------
Total Warrants
(cost $260,827) 73,500
------------
PRINCIPAL
AMOUNT
- ---------
SHORT-TERM INVESTMENTS 0.00%
$2,310 UMB Bank, n.a., Money Market
Fiduciary 2,310
------------
Total Short-Term Investments
(cost $2,310) 2,310
------------
Total Investments 101.21%
(cost $607,843,317) 645,895,098
Other Liabilities
less Assets (1.21)% (7,735,622)
------------
NET ASSETS 100.00% $638,159,476
============
<F3> Non-income producing
<F4> Affiliated company - see Note 6
See notes to financial statements.
VAN WAGONER MICRO-CAP FUND
SCHEDULE OF INVESTMENTS
December 31, 1996
NUMBER
OF SHARES VALUE
--------- -----
COMMON STOCKS 91.99%
BUILDINGS 1.23%
50,000 NCI Building Systems, Inc.<F5> $1,725,000
------------
CHEMICALS 0.99%
105,000 NuCo2, Inc.<F5><F6> 1,397,813
------------
COMMERCIAL SERVICES -
MISCELLANEOUS 1.91%
41,000 Abacus Direct Corp.<F5> 768,750
84,450 ClinTrials Research, Inc.<F5> 1,921,237
------------
2,689,987
------------
COMMERCIAL SERVICES -
SECURITY/SAFETY 1.55%
100,000 Check Point Software
Technologies, Ltd.<F5> 2,175,000
------------
COMPUTERS - INTEGRATED
SYSTEMS 3.59%
225,000 Peerless Systems Corp.<F5> 3,825,000
100,000 Western Micro Technology, Inc.<F5> 1,225,000
------------
5,050,000
------------
COMPUTERS - LOCAL
NETWORKS 4.71%
70,000 ACT Networks, Inc.<F5> 2,555,000
65,500 Ascend Communications, Inc.<F5> 4,069,188
------------
6,624,188
------------
COMPUTERS - RETAIL/
WHOLESALE 1.99%
350,000 Intelligent Electronics, Inc.<F5> 2,800,000
------------
COMPUTERS - SERVICES 1.18%
350,000 Dynamic Healthcare
Technologies, Inc.<F5> 1,662,500
------------
COMPUTERS - SOFTWARE 22.14%
225,000 ANSYS, Inc.<F5> 3,037,500
40,000 Clarify, Inc.<F5> 1,920,000
275,000 Mechanical Dynamics, Inc.<F5><F6> 3,815,625
200,000 OrCAD, Inc.<F5><F6> 2,200,000
75,000 Rogue Wave Software, Inc.<F5> 1,181,250
NUMBER
OF SHARES VALUE
--------- -----
COMPUTERS - SOFTWARE 22.14% (CONT'D.)
100,000 Simulation Sciences, Inc.<F5> $ 1,487,500
100,000 SQA, Inc.<F5><F6> 3,325,000
287,500 Technology Modeling
Associates, Inc.<F5><F6> 3,809,375
300,000 Walker Interactive Systems, Inc.<F5> 4,068,750
275,000 XcelleNet, Inc.<F5> 4,434,375
150,000 Xionics Document
Technologies, Inc.<F5> 1,875,000
------------
31,154,375
------------
CONSUMER PRODUCTS -
MISCELLANEOUS 0.38%
40,100 Koala Corp.<F5> 541,350
------------
ELECTRONICS - SEMICONDUCTOR
MANUFACTURING 1.41%
100,000 ELEXSYS International, Inc.<F5> 1,987,500
------------
ENERGY - SERVICES 3.21%
50,000 Energy Ventures, Inc.<F5> 2,543,750
100,000 Marine Drilling Co., Inc.<F5> 1,968,750
------------
4,512,500
------------
MEDICAL - BIOMEDICAL/
GENETICS 5.69%
400,000 Cardiac Pathways Corp.<F5><F6> 4,750,000
250,000 Cardiovascular Dynamics, Inc.<F5> 3,250,000
------------
8,000,000
------------
MEDICAL - INFORMATION
SERVICES 0.33%
10,000 The Registry, Inc.<F5> 461,250
------------
MEDICAL - INSTRUMENTS 2.13%
30,000 Hologic, Inc.<F5> 742,500
300,000 IRIDEX Corp.<F5><F6> 2,250,000
------------
2,992,500
------------
MEDICAL - PRODUCTS 18.50%
520,000 Aksys, Ltd.<F5> 4,485,000
1,025,000 Angeion Corp.<F5> 3,587,500
325,000 ATS Medical, Inc.<F5> 2,518,750
385,000 CardioGenesis Corp.<F5> 4,331,250
100,000 Cytyc Corp.<F5> 2,700,000
VAN WAGONER MICRO-CAP FUND
SCHEDULE OF INVESTMENTS (cont'd.)
NUMBER
OF SHARES VALUE
--------- -----
MEDICAL - PRODUCTS 18.50% (CONT'D.)
175,000 EndoSonics Corp.<F5> $ 2,668,750
50,000 Parexel International Corp.<F5> 2,581,250
125,000 Pharmaceutical Product
Development, Inc.<F5> 3,156,250
------------
26,028,750
------------
MEDICAL - WHOLESALE/DRUG 2.07%
100,000 NCS HealthCare, Inc.<F5><F6> 2,912,500
------------
OIL & GAS 4.50%
50,000 Benton Oil & Gas Co.<F5> 1,131,250
150,000 Comstock Resources, Inc.<F5> 1,950,000
5,000 Drilex International, Inc.<F5> 60,000
15,000 Patterson Energy, Inc.<F5> 386,250
100,000 Rutherford-Moran Oil Corp.<F5> 2,800,000
------------
6,327,500
------------
PHARMACEUTICALS 0.78%
125,000 NABI, Inc.<F5> 1,093,750
------------
TELECOMMUNICATIONS -
EQUIPMENT 8.38%
40,000 Adtran, Inc.<F5> 1,660,000
101,000 Galileo Corp.<F5> 2,537,625
175,000 Natural Microsystems Corp.<F5> 5,512,500
25,000 Powerwave Technologies, Inc.<F5> 365,625
125,000 Sync Research, Inc.<F5> 1,718,750
------------
11,794,500
------------
TELECOMMUNICATIONS -
SERVICES 2.27%
400,000 CTC Communications Corp.<F5><F6> 3,200,000
------------
TRANSPORTATION 1.71%
50,000 Trico Marine Services, Inc.<F5> 2,400,000
------------
UTILITIES - TELEPHONE 1.34%
30,000 Seacor Holdings, Inc.<F5> 1,890,000
------------
Total Common Stocks
(cost $117,130,574) 129,420,963
------------
NUMBER
OF SHARES VALUE
--------- -----
REAL ESTATE INVESTMENT TRUSTS 2.65%
100,000 Redwood Trust, Inc. $ 3,725,000
------------
Total Real Estate Investment Trusts
(cost $3,175,000) 3,725,000
------------
WARRANTS 0.02%
60,500 ATS Medical, Inc. -
expires 3/2/97<F5> 22,687
------------
Total Warrants
(cost $88,099) 22,687
------------
PRINCIPAL
AMOUNT
--------
REPURCHASE AGREEMENTS 9.23%
$12,990,000 UMB Bank, n.a., 5.875%, dated
12/31/96, repurchase price
$12,994,182, maturing
1/2/97 (collateralized by
U.S. Treasury Notes,
6.50%, 5/15/97) 12,990,000
------------
Total Repurchase Agreements
(cost $12,990,000) 12,990,000
------------
SHORT-TERM INVESTMENTS 0.00%
6,885 UMB Bank, n.a., Money Market
Fiduciary 6,885
------------
Total Short-Term Investments
(cost $6,885) 6,885
------------
Total Investments 103.89%
(cost $133,390,558) 146,165,535
Other Liabilities
less Assets (3.89)% (5,467,081)
------------
NET ASSETS 100.00% $140,698,454
============
<F5> Non-income producing
<F6> Affiliated company - see Note 6
See notes to financial statements.
VAN WAGONER MID-CAP FUND
SCHEDULE OF INVESTMENTS
December 31, 1996
NUMBER
OF SHARES VALUE
--------- -----
COMMON STOCKS 96.44%
COMMERCIAL SERVICES -
MISCELLANEOUS 2.01%
75,000 Pediatrix Medical Group, Inc.<F7> $ 2,775,000
------------
COMPUTERS - INTEGRATED
SYSTEMS 1.72%
50,000 Wind River Systems, Inc.<F7> 2,368,750
------------
COMPUTERS - LOCAL
NETWORKS 11.74%
75,000 Arbor Software Corp.<F7> 1,818,750
100,000 Ascend Communications, Inc.<F7> 6,212,500
100,000 Citrix Systems, Inc.<F7> 3,906,250
150,000 Xylan Corp.<F7> 4,237,500
------------
16,175,000
------------
COMPUTERS - MEMORY
DEVICES 4.77%
125,000 Legato Systems, Inc.<F7> 4,078,125
50,000 Veritas Software Corp.<F7> 2,487,500
------------
6,565,625
------------
COMPUTERS - MINI/MICRO 1.72%
60,000 Rational Software Corp.<F7> 2,373,750
------------
COMPUTERS - PERIPHERALS 1.72%
75,000 Security Dynamics
Technologies, Inc.<F7> 2,362,500
------------
COMPUTERS - SERVICES 2.92%
85,000 Viasoft, Inc.<F7> 4,016,250
------------
COMPUTERS - SOFTWARE 22.79%
200,000 Avant! Corp.<F7><F8> 6,350,000
50,000 CBT Group PLC ADR<F7> 2,712,500
75,000 Clarify, Inc.<F7> 3,600,000
75,000 i2 Technologies, Inc.<F7> 2,868,750
75,000 McAfee Associates, Inc.<F7> 3,300,000
25,000 Netscape Communications Corp.<F7> 1,421,875
100,000 Pure Atria Corp.<F7> 2,475,000
70,000 Remedy Corp.<F7> 3,762,500
NUMBER
OF SHARES VALUE
--------- -----
COMPUTERS - SOFTWARE 22.79% (CONT'D.)
8,000 Saville Systems Ireland
PLC ADR<F7> $ 325,000
25,000 Siebel Systems, Inc.<F7> 675,000
125,000 Vantive Corp.<F7> 3,906,250
------------
31,396,875
------------
ENERGY - SERVICES 3.37%
35,000 ENSCO International, Inc.<F7> 1,697,500
100,000 Nabors Industries, Inc.<F7> 1,925,000
45,300 Rowan Cos., Inc.<F7> 1,024,913
------------
4,647,413
------------
MACHINERY 1.16%
100,000 JLG Industries, Inc. 1,600,000
------------
MEDICAL - INFORMATION
SERVICES 2.16%
50,000 HBO & Co. 2,968,750
------------
MEDICAL - INSTRUMENTS 1.25%
75,000 Heartport, Inc.<F7> 1,715,625
------------
MEDICAL - OUTPATIENT/
HOME 1.25%
63,800 OccuSystems, Inc.<F7> 1,722,600
------------
MEDICAL - PRODUCTS 2.40%
50,000 Quintiles Transnational Corp.<F7> 3,312,500
------------
MEDICAL - SUPPLIES 1.17%
50,000 Omnicare, Inc. 1,606,250
------------
OIL & GAS 10.17%
50,000 Falcon Drilling Co., Inc.<F7> 1,962,500
100,000 Global Marine, Inc.<F7> 2,062,500
150,000 Noble Drilling Corp.<F7> 2,981,250
50,000 Reading & Bates Corp.<F7> 1,325,000
40,000 Smith International, Inc.<F7> 1,795,000
25,000 Transocean Offshore, Inc. 1,565,625
100,000 Varco International, Inc.<F7> 2,312,500
------------
14,004,375
------------
VAN WAGONER MID-CAP FUND
SCHEDULE OF INVESTMENTS (cont'd.)
NUMBER
OF SHARES VALUE
--------- -----
POLLUTION CONTROL - SERVICES 2.03%
75,000 Newpark Resources, Inc.<F7> $ 2,793,750
------------
TELECOMMUNICATIONS -
EQUIPMENT 20.53%
123,200 Adtran, Inc.<F7> 5,112,800
100,000 Cascade Communications Corp.<F7> 5,512,500
225,000 PairGain Technologies, Inc.<F7> 6,848,437
125,000 Premisys Communications, Inc.<F7> 4,218,750
175,000 Tellabs, Inc.<F7> 6,584,375
------------
28,276,862
------------
TELECOMMUNICATIONS - SERVICES 1.56%
90,000 Objective Systems
Integrators, Inc.<F7> 2,148,750
------------
Total Common Stocks
(cost $125,426,768) 132,830,625
------------
PRINCIPAL
AMOUNT
---------
REPURCHASE AGREEMENTS 1.16%
$1,600,000 UMB Bank, n.a., 5.875%, dated
12/31/96, repurchase price
$1,600,515, maturing 1/2/97
(collateralized by U.S. Treasury
Notes, 6.50%, 5/15/97) 1,600,000
------------
Total Repurchase Agreements
(cost $1,600,000) 1,600,000
------------
SHORT-TERM INVESTMENTS 0.65%
898,338 UMB Bank, n.a., Money
Market Fiduciary 898,338
------------
Total Short-Term Investments
(cost $898,338) 898,338
------------
VALUE
-----
Total Investments 98.25%
(cost $127,925,106) $135,328,963
Other Assets
less Liabilities 1.75% 2,411,519
------------
NET ASSETS 100.00% $137,740,482
============
<F7> Non-income producing
<F8> Affiliated company - see Note 6
See notes to financial statements.
VAN WAGONER FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1996
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
----------- --------- -------
ASSETS:
Investments, at value:
Nonaffiliated issuers
(cost $546,731,584,
$107,339,221 and $121,834,981,
respectively) $578,151,035 $120,755,222 $128,978,963
Affiliated issuers (cost
$61,111,733, $26,051,337
and $6,090,125, respectively) 67,744,063 25,410,313 6,350,000
Receivable for investments sold 25,848,467 14,712,477 14,939,380
Receivable from investment adviser 154,153 105,051 41,169
Organizational expenses, net
of accumulated amortization 29,360 29,360 29,360
Interest and dividends receivable 6,230 49,307 2,672
Receivable for shares sold 4,999 -- --
Prepaid expenses and other assets 60,438 26,700 26,686
------------ ------------ ------------
Total Assets 671,998,745 161,088,430 150,368,230
------------ ------------ ------------
LIABILITIES:
Payable for investments purchased 30,306,922 19,953,845 12,237,494
Payable to custodian 1,531,052 -- --
Accrued investment advisory fee 687,367 172,437 124,548
Accrued distribution fee 315,294 61,377 69,986
Payable for shares redeemed 272,041 9,239 6,995
Accrued expenses and other
liabilities 726,593 193,078 188,725
------------ ------------ ------------
Total Liabilities 33,839,269 20,389,976 12,627,748
------------ ------------ ------------
NET ASSETS $638,159,476 $140,698,454 $137,740,482
============ ============ ============
NET ASSETS CONSIST OF:
Capital stock $ 5,028 $ 1,130 $ 1,112
Paid-in-capital 718,929,554 148,214,100 145,043,525
Accumulated net realized loss
on investments (118,826,887) (20,291,753) (14,708,012)
Net unrealized appreciation
on investments 38,051,781 12,774,977 7,403,857
------------ ------------ ------------
Net Assets $638,159,476 $140,698,454 $137,740,482
============ ============ ============
CAPITAL STOCK, $0.0001 PAR VALUE
Authorized 200,000,000 100,000,000 100,000,000
Issued and outstanding 50,275,260 11,303,250 11,114,950
NET ASSET VALUE, REDEMPTION
PRICE, AND OFFERING PRICE
PER SHARE (NET ASSETS/SHARES
OUTSTANDING) $12.69 $12.45 $12.39
====== ====== ======
See notes to financial statements.
VAN WAGONER FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 1996
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
----------- --------- -------
INVESTMENT INCOME:
Interest $ 2,282,856 $ 801,575 $ 624,962
Dividends 116,520 43,277 30,254
------------ ------------ ------------
Total Investment Income 2,399,376 844,852 655,216
------------ ------------ ------------
EXPENSES:
Investment advisory fees 6,508,760 1,397,953 834,015
Transfer agent fees and expenses 1,496,248 400,321 340,542
12b-1 fees 1,301,752 232,992 208,504
Federal and state registration fees 371,689 110,551 106,959
Fund accounting and
administration fees 280,175 130,643 120,846
Printing and postage expenses 273,222 47,422 37,461
Custody fees 48,802 19,168 17,343
Professional fees 23,637 23,637 23,637
Amortization of organization costs 7,364 7,364 7,364
Directors' fees and expenses 4,668 4,668 4,668
Miscellaneous 16,035 6,338 5,271
------------ ------------ ------------
Total expenses before waiver 10,332,352 2,381,057 1,706,610
Less: Waiver of expenses (178,686) (563,718) (80,281)
------------ ------------ ------------
Net Expenses 10,153,666 1,817,339 1,626,329
------------ ------------ ------------
NET INVESTMENT LOSS (7,754,290) (972,487) (971,113)
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized loss on
investments (118,833,259) (20,296,388) (14,710,318)
Change in unrealized
appreciation on investments 38,051,781 12,774,977 7,403,857
------------ ------------ ------------
Net Loss on Investments (80,781,478) (7,521,411) (7,306,461)
------------ ------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(88,535,768) $(8,493,898) $(8,277,574)
============ ============ ============
See notes to financial statements.
VAN WAGONER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31, 1996
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
----------- --------- -------
OPERATIONS:
Net investment loss $ (7,754,290) $ (972,487) $ (971,113)
Net realized loss on investments (118,833,259) (20,296,388) (14,710,318)
Change in unrealized
appreciation on investments 38,051,781 12,774,977 7,403,857
------------ ------------ ------------
Net decrease in net assets
resulting from operations (88,535,768) (8,493,898) (8,277,574)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 1,363,297,233 245,071,240 244,490,946
Redemption of shares (636,635,323) (95,912,221) (98,506,223)
------------ ------------ ------------
Net increase from share
transactions 726,661,910 149,159,019 145,984,723
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS 638,126,142 140,665,121 137,707,149
NET ASSETS:
Beginning of period 33,334 33,333 33,333
------------ ------------ ------------
End of period $638,159,476 $140,698,454 $137,740,482
============ ============ ============
TRANSACTIONS IN SHARES:
Shares sold 96,673,050 18,977,746 18,740,673
Shares redeemed (46,401,123) (7,677,829) (7,629,056)
------------ ------------ ------------
Net increase 50,271,927 11,299,917 11,111,617
============ ============ ============
See notes to financial statements.
VAN WAGONER FUNDS
FINANCIAL HIGHLIGHTS
Year Ended December 31, 1996
For a Fund share outstanding throughout the year.
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
----------- --------- -------
Net Asset Value, Beginning
of Period $10.00 $10.00 $10.00
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment loss (0.15) (0.09) (0.09)
Net realized and unrealized
gains on investments 2.84<F9> 2.54<F9> 2.48<F9>
-------- -------- --------
Total from investment operations 2.69 2.45 2.39
-------- -------- --------
Net Asset Value, End of Period $12.69 $12.45 $12.39
======== ======== ========
Total Return 26.90% 24.50% 23.90%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $638,159 $140,698 $137,740
Ratio of net expenses to
average net assets<F10> 1.95% 1.95% 1.95%
Ratio of net investment loss
to average net assets<F10> (1.49)% (1.04)% (1.16)%
Portfolio turnover rate 159% 153% 173%
Average commission rate paid
on portfolio investment
transactions $0.0531 $0.0474 $0.0516
<F9> The amount shown may not accord with the aggregate gains and losses of
portfolio securities due to the timing of sales and redemptions of Fund
shares.
<F10> Without fees waived, the ratio of net expenses to average net assets
would have been 1.98% for the Emerging Growth Fund, 2.55% for the Micro-
Cap Fund and 2.05% for the Mid-Cap Fund. The ratio of net investment
loss to average net assets would have been (1.52)% for the Emerging
Growth Fund, (1.64)% for the Micro-Cap Fund and (1.26)% for the Mid-Cap
Fund. The annual expense ratio of each Fund is capped at 1.95% through
January 1, 1998.
See notes to financial statements.
VAN WAGONER FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION
Van Wagoner Funds, Inc. (the "Company") was organized on October 18, 1995
as a Maryland corporation and is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end management investment
company. The Emerging Growth Fund, Micro-Cap Fund and Mid-Cap Fund
(collectively "the Funds") are separate, diversified investment
portfolios of Van Wagoner Funds, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") which permit management to make
certain estimates and assumptions at the date of the financial statements.
(A) INVESTMENT VALUATION - A security traded on a recognized stock
exchange is valued at the last sale price. If no sale is reported, the
most current bid price will be used. All other securities for which
over-the-counter market quotations are readily available are valued at
the most current closing price. Debt securities which will mature in
more than 60 days are valued at prices furnished by a pricing service.
Securities which will mature in 60 days or less are valued at
amortized cost, which approximates market value. Any securities for
which market quotations are not readily available are valued at their
fair value as determined in good faith by the Funds' investment
adviser under the supervision of the Board of Directors.
(B) REPURCHASE AGREEMENTS - During the term of a repurchase agreement, the
market value of the underlying collateral, including accrued interest,
is required to equal or exceed the market value of the repurchase
agreement. The underlying collateral for all repurchase agreements is
held by the Funds' custodian.
NOTES TO FINANCIAL STATEMENTS (cont'd.)
(C) 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. If any of the original shares
of a Fund 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.
(D) EXPENSES - The Funds are charged for those expenses that are directly
attributable to each portfolio, such as advisory and custodian fees.
Expenses that are not directly attributable to a portfolio are
typically allocated among the portfolios in proportion to their
respective net assets.
(E) 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.
As of December 31, 1996, the Emerging Growth, Micro-Cap and Mid-Cap
Funds had federal income tax capital loss carryforwards of
$80,675,019, $11,452,503 and $10,849,236, respectively. The entire
federal income tax loss carryforward for each Fund expires in 2004.
(F) DISTRIBUTIONS TO SHAREHOLDERS - Dividends from net investment income
and net realized capital gains, if any, will be declared and paid at
least annually. Distributions to shareholders are recorded on the ex-
dividend date. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of the timing and
characterization of certain income and capital gains or losses
determined in accordance with federal tax regulations, which may
differ from GAAP.
(G) OTHER - Investment transactions are accounted for on a trade date
basis. Each Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security
lot sold with the net sale proceeds. Dividend income is recognized on
the ex-dividend date and interest income is recognized on an accrual
basis.
NOTES TO FINANCIAL STATEMENTS (cont'd.)
3. INVESTMENT ADVISORY AGREEMENT
The Funds have an agreement with Van Wagoner Capital Management, Inc. (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: 1.25% for the
Emerging Growth Fund, 1.50% for the Micro-Cap 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 1.95% for each Fund until January 1, 1998. Expenses of $178,686,
$563,718 and $80,281 were waived in the Emerging Growth, Micro-Cap and Mid-
Cap Funds, respectively.
4. 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.
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the year ended December 31, 1996 were as
follows:
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
------------ --------- --------
Purchases $1,498,712,282 $263,108,538 $267,588,293
Sales 792,109,151 126,719,452 131,752,183
For the year ended December 31, 1996, there were no purchases or sales of
long-term U.S. Government securities.
NOTES TO FINANCIAL STATEMENTS (cont'd.)
The cost of securities on a tax basis for the Emerging Growth Fund, Micro-
Cap Fund and Mid-Cap Fund is $617,424,329, $134,133,529 and $131,475,743,
respectively. At December 31, 1996, gross unrealized appreciation and
depreciation on investments for federal income tax purposes were as
follows:
EMERGING MICRO-CAP MID-CAP
GROWTH FUND FUND FUND
------------ --------- --------
Unrealized appreciation $83,058,276 $17,404,666 $13,657,220
(Unrealized depreciation) (54,587,507) (5,372,660) (9,804,000)
----------- ----------- -----------
Net unrealized
appreciation
on investments $28,470,769 $12,032,006 $ 3,853,220
=========== =========== ===========
6. TRANSACTIONS WITH AFFILIATED COMPANIES
An affiliated company is a company in which one or more Funds has ownership
of at least 5% of the voting securities. Companies which are affiliates of
each Fund are as follows:
<TABLE>
<CAPTION>
AMOUNT OF
AMOUNT OF GAIN (LOSS)
DIVIDENDS REALIZED
SHARE ACTIVITY CREDITED ON SALE
------------------------------------------------------- TO INCOME OF SHARES
BALANCE PURCHASES/ SALES/ BALANCE IN FISCAL IN FISCAL
SECURITY NAME 12/31/95 ADDITIONS REDUCTIONS 12/31/96 1996 1996
- -------------- -------- ---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH FUND
Avant! Corp.<F11> - 1,049,381 99,381 950,000 - $ 155,468
Cardiac Pathways Corp.<F11> - 705,000 455,000 250,000 - (1,119,428)
CTC Communications Corp.<F11> - 396,050 396,050 - - (1,229,446)
Enterprise Systems, Inc.<F11> - 311,550 311,550 - - (3,813,070)
IRIDEX Corp.<F11> - 235,000 235,000 - - (1,071,875)
Mechanical Dynamics, Inc.<F11> - 224,000 224,000 - - (133,390)
Mecon, Inc.<F11> - 259,000 259,000 - - (2,640,437)
Meta-Software, Inc.<F11> - 633,300 633,300 - - (114,486)
NCS HealthCare, Inc.<F11> - 425,000 - 425,000 - -
NuCo2, Inc.<F11> - 406,400 171,400 235,000 - (2,171,491)
OrCAD, Inc.<F11> - 211,400 211,400 - - (622,225)
SQA, Inc.<F11> - 493,200 18,200 475,000 - (54,755)
</TABLE>
<TABLE>
NOTES TO FINANCIAL STATEMENTS (cont'd.)
<CAPTION>
AMOUNT OF
AMOUNT OF GAIN (LOSS)
DIVIDENDS REALIZED
SHARE ACTIVITY CREDITED ON SALE
------------------------------------------------------- TO INCOME OF SHARES
BALANCE PURCHASES/ SALES/ BALANCE IN FISCAL IN FISCAL
SECURITY NAME 12/31/95 ADDITIONS REDUCTIONS 12/31/96 1996 1996
- -------------- -------- ---------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EMERGING GROWTH FUND (CONT'D.)
Summit Medical Systems, Inc.<F11> - 639,100 639,100 - - $ (7,742,208)
Technology Modeling
Associates, Inc.<F11> - 250,000 - 250,000 - -
Vitalcom, Inc.<F11> - 487,000 487,000 - - (4,360,084)
--- ------------
- $(23,845,552)
=== ============
MICRO-CAP FUND
Avant! Corp.<F11> - 188,846 188,846 - - 351,241
Cardiac Pathways Corp.<F11> - 608,000 208,000 400,000 - (672,329)
CTC Communications Corp.<F11> - 406,000 6,000 400,000 - (39,069)
Enterprise Systems, Inc.<F11> - 97,050 97,050 - - (1,073,633)
IRIDEX Corp.<F11> - 305,000 5,000 300,000 - (26,875)
Mechanical Dynamics, Inc.<F11> - 298,750 23,750 275,000 - 11,624
Mecon, Inc.<F11> - 100,000 100,000 - - (255,403)
Meta-Software, Inc.<F11> - 155,000 155,000 - - -
NCS HealthCare, Inc.<F11> - 100,000 - 100,000 - -
NuCo2, Inc.<F11> - 108,600 3,600 105,000 - (49,500)
OrCAD, Inc.<F11> - 200,000 - 200,000 - -
SQA, Inc.<F11> - 105,300 5,300 100,000 - (15,945)
Summit Medical Systems, Inc.<F11> - 156,600 156,600 - - (2,099,600)
Technology Modeling
Associates, Inc.<F11> - 287,500 - 287,500 - -
Vitalcom, Inc.<F11> - 178,500 178,500 - - (1,413,868)
--- ------------
- $ (5,256,482)
=== ============
MID-CAP FUND
Avant! Corp.<F11> - 208,846 8,846 200,000 - (2,212)
IRIDEX Corp.<F11> - 4,000 4,000 - - 28,000
SQA, Inc.<F11> - 5,000 5,000 - - (625)
Vitalcom, Inc.<F11> - 4,000 4,000 - - 31,000
--- ------------
- $ 28,163
=== ============
<FN>
<F11> Non-income producing
</TABLE>
VAN WAGONER FUNDS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Van Wagoner Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Emerging Growth Fund, the
Micro-Cap Fund and the Mid-Cap Fund (each a portfolio of Van Wagoner Funds,
Inc., (the "Funds")) at December 31, 1996, the results of each of their
operations, the changes in each of their net assets and the financial highlights
for the year then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1996 by correspondence with the
custodian and the application of alternative procedures for unsettled
securities, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Milwaukee, Wisconsin
January 23, 1997
VAN WAGONER POST-VENTURE FUND
SCHEDULE OF INVESTMENTS
MARCH 31, 1997
(UNAUDITED)
Number
of Shares Value
--------- -----
COMMON STOCKS 82.99%
Commercial Services - Miscellaneous 1.56%
10,000 Pediatrix Medical Group, Inc. <F1> $ 328,750
----------
COMPUTERS - INTEGRATED SYSTEMS 4.74%
25,000 Peerless Systems Corp. <F1> 290,625
30,000 Wind River Systems, Inc. <F1> 708,750
----------
999,375
----------
COMPUTERS - LOCAL NETWORKS 5.73%
15,000 Ascend Communications, Inc. <F1> 611,250
45,000 Citrix Systems, Inc. <F1> 596,250
----------
1,207,500
----------
COMPUTERS - MEMORY DEVICES 2.39%
17,000 Veritas Software Corp. <F1> 503,625
----------
COMPUTERS - MINI/MICRO 2.44%
25,000 Rational Software Corp. <F1> 515,625
----------
COMPUTERS - SERVICES 5.39%
35,000 Viasoft, Inc. <F1> 1,137,500
----------
COMPUTERS - SOFTWARE 23.37%
25,000 ANSYS, Inc. <F1> 203,125
45,000 Avant! Corp. <F1><F2> 1,220,625
27,700 Clarify, Inc. <F1> 668,263
6,000 McAfee Associates, Inc. <F1> 265,500
30,000 Pure Atria Corp. <F1> 511,875
30,000 Remedy Corp. <F1> 1,147,500
30,000 Rogue Wave Software, Inc. <F1> 273,750
15,000 Vantive Corp. <F1> 307,500
20,000 XcelleNet, Inc. <F1> 330,000
----------
4,928,138
----------
VAN WAGONER POST-VENTURE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Number
of Shares Value
--------- -----
ELECTRONICS - SEMICONDUCTOR EQUIPMENT 1.42%
4,000 ASM Lithography Holding N.V. <F1> $ 300,000
----------
FINANCE - CONSUMER LOANS 0.44%
12,500 National Auto Finance Co., Inc. <F1> 93,750
----------
MEDICAL - BIOMEDICAL/GENETICS 3.49%
7,500 Cardiac Pathways Corp. <F1><F2> 61,875
67,500 Cardiovascular Dynamics, Inc. <F1><F2> 675,000
----------
736,875
----------
MEDICAL - ETHICAL DRUGS 1.70%
10,000 Dura Pharmaceuticals, Inc. <F1> 357,500
----------
MEDICAL - INSTRUMENTS 1.78%
5,000 Heartport, Inc. <F1> 122,500
35,000 Photoelectron Corp. <F1> 253,750
----------
376,250
----------
MEDICAL - OUTPATIENT/HOME 3.47%
17,500 OccuSystems, Inc. <F1> 393,750
15,000 Renal Treatment Centers, Inc. <F1> 337,500
----------
731,250
----------
MEDICAL - PRODUCTS 4.49%
16,000 Aksys, Ltd. <F1> 148,000
20,000 CardioGenesis Corp. <F1> 260,000
30,000 EndoSonics Corp. <F1> 285,000
5,000 Paraxel International Corp. <F1> 115,000
7,000 Pharmaceutical Product Development, Inc. <F1> 140,000
----------
948,000
----------
MEDICAL - WHOLESALE/DRUG 1.61%
15,000 NCS HealthCare, Inc. <F1><F2> 339,375
----------
VAN WAGONER POST-VENTURE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Number
of Shares Value
--------- -----
OIL & GAS 6.36%
45,000 Comstock Resources, Inc. <F1> $ 388,125
25,000 Edge Petroleum Corp. <F1> 400,000
20,000 Patterson Energy, Inc. <F1><F2> 552,500
----------
1,340,625
----------
TELECOMMUNICATIONS - EQUIPMENT 12.61%
9,000 Advanced Fibre Communications, Inc. <F1> 290,250
10,000 CIENA Corp. <F1> 284,375
15,000 Natural Microsystems Corp. <F1> 298,125
10,000 P-COM, Inc. <F1> 260,000
21,000 PairGain Technologies, Inc. <F1> 622,125
15,000 Powerwave Technologies, Inc. <F1> 268,125
30,000 Sync Research, Inc. <F1> 94,218
15,000 Tellabs, Inc. <F1> 541,875
----------
2,659,093
----------
TOTAL COMMON STOCKS (COST $22,161,349) 17,503,231
----------
PREFERRED STOCK 1.19%
35,714 Netro Corp. PPL Series C PFD <F1><F3><F4> 249,998
----------
TOTAL PREFERRED STOCK (COST $249,998) 249,998
----------
Number
of Contracts
- -------------
OPTIONS PURCHASED 2.55%
5,572 Put Option on Morgan Stanley High-Technology Index
Expiring June 30, 1997 at 359 133,059
2,491 Put Option on Nasdaq 100 Index
Expiring June 30, 1997 at 803.30 113,341
VAN WAGONER POST-VENTURE FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Number
of Contracts Value
- ------------- -----
OPTIONS PURCHASED 2.55% (continued)
7,206 Put Option on Russell 2000 Index
Expiring June 30, 1997 at 347 $ 94,254
4,430 Put Option on S&P 500 Index
Expiring June 30, 1997 at 790 198,375
----------
TOTAL OPTIONS PURCHASED (COST $446,585) 539,029
----------
Principal
Amount
---------
REPURCHASE AGREEMENTS 12.93%
$2,727,000 UMB Bank, n.a., 5.70%, dated 03/31/97,
repurchase price $2,728,097, maturing
04/1/97 (collateralized by
U.S. Treasury Note, 5.125%, 6/30/98) 2,727,000
----------
TOTAL REPURCHASE AGREEMENTS (COST $2,727,000) 2,727,000
----------
TOTAL INVESTMENTS (COST $25,584,932) 99.66% 21,019,258
Other Assets less Liabilities 0.34% 70,755
----------
NET ASSETS 100.00% $21,090,013
===========
<F1> Non-income producing
<F2> Affiliated company - see Note 6
<F3> Purchased in a private placement transaction; resale to the public may
require registration or sale only to qualified institutional buyers.
<F4> Valued under procedures established by the Board of Directors.
See notes to financial statements.
VAN WAGONER POST-VENTURE FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
(UNAUDITED)
ASSETS:
Investments, at value:
Nonaffiliated issuers (cost $19,701,063) $ 15,442,883
Affiliated issuers (cost $3,156,869) 2,849,375
Repurchase agreements, at value (cost $2,727,000) 2,727,000
Receivable for investments sold 1,332,739
Receivable from investment adviser 69,879
Interest and dividends receivable 1,725
Prepaid expenses and other assets 17,742
------------
Total Assets 22,441,343
------------
LIABILITIES:
Payable for investments purchased 786,585
Payable to custodian 436,845
Accrued investment advisory fee 68,696
Accrued distribution fee 7,059
Accrued expenses and other liabilities 52,145
------------
Total Liabilities 1,351,330
------------
NET ASSETS $21,090,013
============
NET ASSETS CONSIST OF:
Capital stock $ 254
Paid-in-capital 26,350,462
Accumulated net realized loss on investments (695,029)
Net unrealized depreciation on investments (4,565,674)
------------
Net Assets $21,090,013
============
CAPITAL STOCK, $0.0001 par value
Authorized 100,000,000
Issued and outstanding 2,543,716
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE (NET
ASSETS/SHARES OUTSTANDING) $8.29
=====
See notes to financial statements.
VAN WAGONER POST-VENTURE FUND
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 74,048
Dividends 500
---------
Total Investment Income 74,548
---------
EXPENSES:
Investment advisory fees 88,464
Transfer agent fees and expenses 43,847
Fund accounting and administration fees 15,206
Distribution fees 14,744
Federal and state registration fees 7,349
Printing and postage expenses 5,913
Professional fees 5,062
Custody fees 2,935
Directors' fees and expenses 575
Miscellaneous 787
---------
Total expenses before waiver 184,882
Less: Waiver of expenses (69,879)
---------
Net Expenses 115,003
---------
NET INVESTMENT LOSS (40,455)
---------
REALIZED AND UNREALIZED LOSS:
Net realized loss on investments (695,029)
Change in unrealized depreciation on
investments (4,565,674)
-----------
Net Loss on Investments (5,260,703)
------------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $(5,301,158)
============
See notes to financial statements.
VAN WAGONER POST-VENTURE FUND
STATEMENT OF CHANGES IN NET ASSETS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
OPERATIONS:
Net investment loss $ (40,455)
Net realized loss on investments (695,029)
Change in unrealized depreciation on investments (4,565,674)
-----------
Net decrease in net assets resulting from
operations (5,301,158)
-----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 35,795,603
Redemption of shares (9,404,432)
-----------
Net increase from share transactions 26,391,171
-----------
TOTAL INCREASE IN NET ASSETS 21,090,013
NET ASSETS:
Beginning of period -
End of period $21,090,013
===========
TRANSACTIONS IN SHARES:
Shares sold 3,538,073
Shares redeemed (994,357)
-----------
Net increase 2,543,716
===========
See notes to financial statements.
VAN WAGONER POST-VENTURE FUND
FINANCIAL HIGHLIGHTS
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Net Asset Value, Beginning of Period $10.00
LOSS FROM INVESTMENT OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized losses on investments (1.69)
------
Total from investment operations (1.71)
------
NET ASSET VALUE, END OF PERIOD $8.29
======
TOTAL RETURN <F1>
(17.10)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s) $21,090
Ratio of net expenses to average net assets<F2><F3> 1.95%
Ratio of net investment loss to average
net assets <F2><F3> (0.69)%
Portfolio turnover rate 67%
Average commission rate paid on portfolio
investment transactions $0.0366
<F1> Not annualized
<F2> Annualized
<F3> Without fees waived, the ratio of net expenses to average net
assets would have been 3.14%, and the ratio of net investment loss to
average net assets would have been (1.88)%. The annual expense ratio
of the Fund is capped at 1.95% through January 1, 1998.
See notes to financial statements.
WAGONER POST-VENTURE FUND
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
(1) Organization
------------
Van Wagoner Funds, Inc. (the "Company") was organized on October 18, 1995
as a Maryland corporation and is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end management investment
company. The Post-Venture Fund (the "Fund") is a separate, diversified
investment portfolio of Van Wagoner Funds, Inc. The Fund commenced
operations after the close of business on December 31, 1996.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP"). The presentation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that effect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(a) Investment Valuation - A security traded on a recognized stock
exchange is valued at the last sale price prior to the time when
assets are valued on the principal exchange on which the security is
traded. If no sale is reported on the valuation date, the most
current bid price will be used. All other securities for which over-
the-counter market quotations are readily available are valued at the
most current closing price. Debt securities which will mature in more
than 60 days are valued at prices furnished by a pricing service.
Securities which will mature in 60 days or less are valued at
amortized cost, which approximates market value. Any securities for
which market quotations are not readily available are valued at their
fair value as determined in good faith by the Fund's investment
adviser pursuant to guidelines established by the Board of Directors.
(b) Repurchase Agreements - During the term of a repurchase agreement, the
market value of the underlying collateral, including accrued interest,
is required to equal or exceed the market value of the repurchase
agreement. The underlying collateral for all repurchase agreements is
held by the Fund's custodian.
VAN WAGONER POST-VENTURE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(c) Expenses - The Fund is charged for those expenses that are directly
attributable to it, such as advisory and custodian fees. Expenses
that are not directly attributable to a portfolio are typically
allocated among the portfolios in proportion to their respective net
assets.
(d) Federal Income Taxes - The 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.
(e) Distributions to Shareholders - Dividends from net investment income
and net realized capital gains, if any, will be declared and paid at
least annually. Distributions to shareholders are recorded on the ex-
dividend date. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of the timing and
characterization of certain income and capital gains distributions
determined in accordance with federal tax regulations, which may
differ from GAAP.
(f) Other - Investment transactions are accounted for on the trade date
basis. The Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security
lot sold with the net sale proceeds. Dividend income is recognized on
the ex-dividend date and interest income is recognized on an accrual
basis.
(3) Investment Advisory Agreement
-----------------------------
The Fund has an agreement with Van Wagoner Capital Management, Inc. (the
"Adviser") to furnish investment advisory services to the Fund. Under
the terms of this agreement, the Adviser is compensated at the rate of
1.50% of the Fund's average daily net assets. 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 the Fund until January 1, 1998. Expenses of $69,879 were waived
in the Fund.
VAN WAGONER POST-VENTURE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(4) Service and Distribution Plan
-----------------------------
The Fund has adopted a Service and Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. The Plan authorizes payments by the Fund in
connection with the distribution of its shares at an annual rate, as determined
from time to time by the Board of Directors, of up to 0.25% of the Fund's
average daily net assets.
(5) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the three months ended March 31, 1997 were as
follows:
Purchases $33,122,756
Sales 10,016,380
For the three months ended March 31, 1997, there were no purchases or sales
of long-term U.S. Government securities.
At March 31, 1997, gross unrealized appreciation and depreciation on
investments, based on a cost basis for tax purposes of $25,697,712, were as
follows:
Unrealized appreciation $ 341,805
(Unrealized depreciation) (5,020,259)
Net unrealized depreciation ----------
on investments $(4,678,454)
==========
VAN WAGONER POST-VENTURE FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
(6) Transactions with Affiliated Companies
--------------------------------------
An affiliated company is a company in which one or more Funds has ownership
of at least 5% of the voting securities. Companies which are affiliates of
the Fund are as follows:
Share Activity
---------------------------------------
Amount of
Amount of Gain (Loss)
Dividends Realized on
Credited to Sale of
Balance Purchases/ Sales/ Balance Income in Shares in
Security Name 12/31/96 Additions Reductions 3/31/97 Fiscal 1997 Fiscal 1997
- ------------- -------- --------- ---------- ------- ----------- -----------
Avant! Corp.* - 45,000 - 45,000 - -
Cardiac
Pathways Corp.* - 7,500 - 7,500 - -
Cardiovascular
Dynamics, Inc.* - 67,500 - 67,500 - -
NCS HealthCare,
Inc.* - 15,000 - 15,000 - -
Patterson
Energy, Inc.* - 20,000 - 20,000 - -
Template
Software, Inc.* - 30,000 30,000 - - $(43,188)
------- ---------
$ - $(43,188)
======= =========
* Non-income producing
*****
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 strong.
AA Risk is modest, but may vary slightly from time to
AA- time because of economic conditions.
- -----------------------------------------------------------------------------
A+ Protection factors are average but adequate.
A However, risk factors are more variable and greater
A- in periods of economic areas.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
BBB+ Below average protection factors but still
BBB considered sufficient for prudent investment.
BBB- Considerable variability in risk during economic
cycles.
- -----------------------------------------------------------------------------
BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this
category.
- -----------------------------------------------------------------------------
B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according
to economic cycles.
- -----------------------------------------------------------------------------
CCC Well below investment grade securities.
Considerable uncertainty exists as to timely payment
of principal, interest or preferred dividends.
Protection factors are narrow and risk can be
substantial with unfavorable economic/industry
conditions, and/or with unfavorable company
developments.
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DD Default debt obligations. Issuer failed to meet
scheduled principal and/or interest payments.
DP Preferred stock with dividend arrearages.
- -----------------------------------------------------------------------------
The Prospectus and the Statement of Additional Information for the Capital
Appreciation and Growth Funds is incorporated herein by reference to the
Prospectus and the Statement of Additional Information filed pursuant to Rule
497 with the Securities and Exchange Commission on December 30, 1996.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
A. FINANCIAL STATEMENTS (ALL INCLUDED IN PART B):
The following audited financial statements for the Emerging Growth
Fund, Micro-Cap Fund and Mid-Cap Fund are included in Part B:
1. Schedules of Investments as of December 31, 1996
2. Statements of Assets and Liabilities as of December 31, 1996
3. Statements of Operations for the year ended December 31, 1996
4. Statements of Changes in Net Assets for the year ended
December 31, 1996
5. Financial Highlights for the year ended December 31, 1996
6. Notes to Financial Statements
7. Report of Independent Accountants
The following unaudited financial statements for the Post-Venture Fund
are included in Part B:
1. Schedule of Investments as of March 31, 1997
2. Statement of Assets and Liabilities as of March 31, 1997
3. Statement of Operations for the three months ended March 31,
1997
4. Statement of Changes in Net Assets for the three months ended
March 31, 1997
5. Financial Highlights for the three months ended March 31,
1997
6. Notes to Financial Statements
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 (Incorporated by reference to Exhibit
1.3 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
1.4 Article Supplementary (Incorporated by reference to Exhibit
1.4 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
1.5 Articles of Amendment (Incorporated by reference to Exhibit
1.5 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
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 the Emerging Growth Fund, Micro-Cap Fund and Mid-Cap
Fund 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. (Incorporated by reference to Exhibit 5.2 of Post-
Effective Amendment No.1 to Registrant's Registration
Statement on Form N-1A)
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 Amended and Restated Schedules A and B to the Administration
and Fund Accounting Agreement by and between Registrant and
Sunstone Financial Group, Inc. (Incorporated by reference to
exhibit 9.3 of Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A)
9.4 Amended and Restated Schedules A and C to the Transfer Agency
Agreement by and between Registrant and Sunstone Financial
Group, Inc. (Incorporated by reference to Exhibit 9.4 of Post-
Effective Amendment No.2 to Registrant's Registration
Statement on Form N-1A)
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)
14.1 Supplement to IRA Disclosure Statement and Custodial Agreement.
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 Schedules.
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 March 31, 1997
-------------- ----------------------------
Emerging Growth 36,887
Common Stock, $0.0001 par value Micro-Cap 12,859
Mid-Cap 12,769
Capital Appreciation 1
Growth 1
Post-Venture 2,367
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 committee of the board by vote as set forth in (i)
of this paragraph, or, if the requisite quorum of the full board cannot be
obtained therefor and the committee cannot be established, by a majority vote of
the full board in which directors who are parties to the action, suit or
proceeding may participate.
C. The termination of any action, suit or proceeding by 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; (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 and fund accountant and (3)
Sunstone Investor Services, LLC, 207 East Buffalo Street, Suite 400, Milwaukee,
Wisconsin 53202, relating to its role as 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 for the Capital Appreciation Fund and the Growth Fund
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Amended Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and 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 25th day of April, 1997.
VAN WAGONER FUNDS, INC.
(Registrant)
By: /s/ Garrett R. 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 R. Van Wagoner President; April 25, 1997
- -------------------------- Director (principal
Garrett R. Van Wagoner executive officer and
principal financial
and accounting
officer)
Director April __, 1997
- --------------------------
Larry Arnold
/s/ Robert S. Colman Director April 25, 1997
- --------------------------
Robert S. Colman
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 (Incorporated by reference to Exhibit
1.3 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
1.4 Article Supplementary (Incorporated by reference to Exhibit
1.4 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
1.5 Articles of Amendment (Incorporated by reference to Exhibit
1.5 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A)
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 the Emerging Growth Fund, Micro-Cap Fund and Mid-Cap
Fund 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. (Incorporated by reference to Exhibit 5.2 of Post-
Effective Amendment No.1 to Registrant's Registration
Statement on Form N-1A)
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 Amended and Restated Schedules A and B to the Administration
and Fund Accounting Agreement by and between Registrant and
Sunstone Financial Group, Inc. (Incorporated by reference to
Exhibit 9.3 of the Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form N-1A)
9.4 Amended and Restated Schedules A and C to the Transfer Agency
Agreement by and between Registrant and Sunstone Financial
Group, Inc. (Incorporated by reference to Exhibit 9.4 of Post-
Effective Amendment No.2 to Registrant's Registration
Statement on Form N-1A)
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)
14.1 Supplement to IRA Disclosure Statement and Custodial Agreement.
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 Schedules.
18. None.
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 3 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
January 23, 1997, relating to the financial statements and financial highlights
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
headings "Financial Highlights" and "Transfer and Dividend Disbursing Agent,
Custodian and Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Milwaukee, Wisconsin
April 15, 1997
SUPPLEMENT TO IRA DISCLOSURE STATEMENT
AND CUSTODIAL AGREEMENT
On January 1, 1997, new IRA legislation became effective which supplements and
revises, where appropriate, your Van Wagoner Funds IRA Disclosure Statement and
Custodial Agreement. Please keep this Supplement with your Disclosure Statement
and Custodial Agreement for future reference.
SPOUSAL IRA
If your spouse is employed, he or she can establish his or her own IRA subject
to the same rules as are applicable to your IRA. If you file a joint return with
a spouse who either has no compensation for the taxable year or elects to be
treated as having none, the maximum contribution amount is the lesser of $4,000
or 100% of the total compensation for you and your spouse for the year. In such
case the amount contributed can be divided between your IRA and the spousal IRA
in any manner you desire, provided that no more than $2,000 can be contributed
to either IRA. No contributions may be made to a spousal IRA during or after the
year in which he or she reaches age 70 1/2. However, if you are ineligible to
make contributions to your own IRA because of age, you may (if you have
sufficient compensation) nevertheless make contributions of up to $2,000 to an
IRA for your non-earning spouse if he or she has not reached age 70 1/2.
SIMPLIFIED EMPLOYEE PENSION PLAN
An IRA may also be used in connection with a SEP plan established by your
employer (or by you if you are self-employed). Under a SEP plan, your employer
may make a contribution to your IRA, and an IRA for all other employees, of up
to 15% of compensation (limited to $160,000) or $30,000, whichever is less. It
is your responsibility and that of your employer to see that contributions are
made under and in accordance with a valid SEP plan.
SAVINGS AND INCENTIVE MATCH PLAN FOR EMPLOYEES
OF SMALL EMPLOYERS ("SIMPLE")
An IRA may also be used in connection with a SIMPLE plan established by your
employer (or by you if you are self-employed). Under a SIMPLE plan, you may
elect to have your employer make salary reduction contributions of up to $6,000
per year to your SIMPLE IRA. The $6,000 limit applies for 1997 and is adjusted
periodically for cost of living increases. In addition, your employer will
contribute certain amounts to your SIMPLE IRA, either as a matching contribution
to those participants who make salary reduction contributions or as a non-
elective contribution to all eligible participants whether or not salary
reduction contributions are made. A number of special rules apply to SIMPLE
plans, including: (1) a SIMPLE plan generally is available only to employers
with fewer than 100 employees; (2) contributions must be made on behalf of all
employees of the employer (other than bargaining unit employees) who satisfy
certain minimum participation requirements; (3) contributions are made to a
special SIMPLE IRA that is separate and apart from your other IRAs; (4) if you
withdraw from your SIMPLE IRA during the two year period during which you first
began participation in the SIMPLE plan, the early distribution excise tax (if
otherwise applicable) is increased to 25%; and (5) during this two year period,
any amount withdrawn may be rolled over tax-free only into another SIMPLE IRA
(and not to a "regular" IRA). It is your responsibility and that of your
employer to see that contributions in excess of normal IRA limits are made under
and in accordance with a valid SIMPLE plan.
ESTATE TAXATION
An excess retirement accumulation exists if, at the time of your death, the
value of all your interests in qualified plans, tax-sheltered annuities and IRAs
exceeds the present value of an annuity with annual payments of $160,000
(adjusted periodically for inflation) payable over your life expectancy
immediately before your death.
WITHDRAWALS PRIOR TO AGE 59 1/2
A withdrawal from your IRA before you reach age 59 1/2 will not be subject to
the penalty tax if it is made on account of your permanent and total disability,
death, a qualifying rollover, a direct transfer, the timely withdrawal of an
excess contribution, to pay for medical expenses incurred by you, your spouse or
your dependent to the extent that the medical expenses exceed 7.5% of your
adjusted gross income, in certain situations, to pay for medical insurance
premiums if you are unemployed, or if the distribution is a part of a series of
substantially equal periodic payments (at least annually) made over your life
expectancy or the joint life expectancies of you and your beneficiary.
EXCESS DISTRIBUTION PENALTY
This tax is suspended for distributions in 1997, 1998 and 1999.
1/97
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