VAN WAGONER FUNDS INC, 497, 1997-12-30

VAN WAGONER FUNDS INC
497, 1997-12-30

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VAN WAGONER FUNDS

PROSPECTUS

December 31, 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 Van Wagoner Technology
Fund, a diversified investment portfolio of the Company which is described in
this Prospectus, is designed to offer investors an equity-oriented investment
opportunity. The investment portfolio is individually referred to as the
"Fund."

VAN WAGONER TECHNOLOGY FUND seeks long-term capital appreciation. The Fund
invests in companies in the technology sectors that the Adviser believes have
the potential for above-average long-term growth in market value. The
Technology Fund invests in companies of any size market capitalization.

This Prospectus sets forth concisely the information about the Fund 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, date December 31, 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 Fund and is
available, without charge, by writing to the Fund at P.O. Box 1628, Milwaukee,
WI 53201-1628, or calling 1-800-228-2121. If you wish to contact the Fund 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

<TABLE>
<S> <C>
PAGE
Expense Summary............................................. 3
Van Wagoner Funds, Inc...................................... 4
Investment Objective, Policies and Risk Considerations..... 5
Investment Limitations...................................... 11
Management of the Fund..................................... 12
Pricing of Fund Shares...................................... 14
How to Purchase Shares...................................... 15
How to Exchange Shares...................................... 20
How to Redeem Shares........................................ 22
Dividends and Distributions................................. 26
Shareholder Reports and Information......................... 27
Retirement Plans............................................ 28

</TABLE>

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Service and Distribution Plan............................... 28
Taxes....................................................... 29
Capital Structure........................................... 30
Transfer and Dividend Disbursing Agent, Custodian and
Independent Accountants................................... 31
Fund Performance............................................ 31

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 FUND. THE PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE
FUND 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 the Fund. Annual Fund Operating Expenses are paid out of the
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.

TECHNOLOGY
FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases None
Maximum Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load Imposed on Redemptions None
Redemption Fees(1) None
Exchange Fees None

ANNUAL OPERATING EXPENSES (as a percentage of average net
assets)
Management Fees 1.25%
12b-1 Fees(2) 0.25%
Other Expenses (net of reimbursement)(3),(4) 0.45%
Total Operating Expenses (net of reimbursement)(4) 1.95%

(1) A fee of $10.00 is charged for each wire redemption.

(2) The maximum level of distribution expenses is
0.25% per annum of the 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.

(3) Such expenses include custodian, transfer agency and administration fees and
other customary Fund expenses.

(4) The Fund's investment adviser has voluntarily agreed to limit the total
operating expenses of the Fund (excluding interest, taxes, brokerage and
extraordinary expense) to an annual rate of 1.95% of the Fund's average net
assets until January 1, 1999. After such date, the expense limitation may be
terminated or revised at any time. The Fund estimates that absent the
limitation, Other Expenses of the Fund would initially be approximately
11.76% and the Total Annual Operating Expenses of the Fund would initially
be approximately 13.26%.

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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:

TECHNOLOGY
FUND
One Year $20
Three Years $63

THE EXAMPLE SHOWN ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION 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 Fund will be contained in the Fund's future annual reports to
shareholders, which may be obtained without charge when they become available.

VAN WAGONER FUNDS, INC.

Van Wagoner Funds, Inc. (the "Company") is a no-load open-end management
investment company, commonly known as a mutual fund, which is registered under
the Investment Company Act of 1940 (the "1940 Act"). The Company presently
consists of seven diversified investment portfolios. One of these portfolios,
Van Wagoner Technology Fund, is described in this Prospectus. The Van Wagoner
Technology Fund is individually referred to as the "Fund."

Van Wagoner Capital Management, Inc. (the "Adviser") serves as the investment
adviser to the Fund. Garrett R. Van Wagoner, founder and President of the
Adviser, is primarily responsible for the day-to-day management of the 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 Fund."

The 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 Fund under
the 1940 Act does not involve supervision of the Fund's management or policies
by the Securities and Exchange Commission.

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INVESTMENT OBJECTIVE, POLICIES
AND RISK CONSIDERATIONS

GENERAL

The investment objective of the Fund is to seek long-term capital appreciation.
The 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
Fund 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 the Fund represent an investment in securities with
fluctuating market prices, you should understand that the net asset value per
share of the Fund will vary as the aggregate value of the Fund's portfolio
securities increases or decreases. An investment in the Fund should be
considered a long-term investment. The Fund is not designed to meet investors'
short-term financial needs, nor is the Fund intended to provide a complete or
balanced investment program.

The investment objective, policies and practices of the 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
objective of the Fund will be met.

TECHNOLOGY FUND

The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve this investment objective by investing in companies in the
technology sectors that the Adviser believes to have the potential for
above-average long-term growth in market value. The Adviser considers the
technology sectors to include industries characterized by advances resulting
from research and development programs. Such industries include, but are not
limited to, computers, computer services and software, communications, consumer
electronics, cable television, pharmaceuticals, biotechnology, medical devices,
semi-conductors, technical services and robotics. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in
securities of companies in the technology sectors.

OTHER INVESTMENT POLICIES AND RISKS

In addition to the investment policies described above (and subject to certain
restrictions described below), the Fund 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.

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SMALLER CAPITALIZATION COMPANIES. The Fund may invest a substantial portion of
its assets in companies with modest capitalization, as well as start-up
companies. While the Adviser generally 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. Smaller capitalization
companies that are in the technology sectors may be particularly affected by
short product cycles and competitive pricing. 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, the Fund could incur a loss if it
determined to sell such a security shortly after its acquisition. When making
large sales, the 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.

The earnings of companies in the technology sectors may fluctuate to a greater
extent than other companies because of the effects of short product cycles
(i.e., technological obsolescence) and competitive pricing. Because of these
fluctuations, the enthusiasm of investors for technology stocks may change
dramatically resulting in significant common stock price fluctuations.

Investors should be aware that, based on the foregoing factors, an investment in
the Fund 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 Fund than in a fund that invests in larger, more established companies.
The 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. The 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 the 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 Fund may be subject to greater fluctuation than securities of domestic
companies.

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HEDGING STRATEGIES. The Fund 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 Fund. There can be no
assurance that such efforts will succeed. The 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. The 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 the
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. The 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. The Fund will make such
investments only if the underlying equity securities are deemed appropriate by
the Adviser for inclusion in the 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 the Fund in units or attached to securities are not
subject to these restrictions.

CONVERTIBLE SECURITIES. The 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, the 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 Fund will invest will be of a quality
less than investment grade (so-called "junk bonds"). The 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 the Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by the 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.

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MONEY MARKET INSTRUMENTS. In times when the Adviser believes that adverse
economic or market conditions justify such actions, the Fund may invest
temporarily up to 100% of its assets in short-term, high quality money market
instruments. The Fund 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.

The Fund 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. The Fund 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.

The 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 the Fund bears directly in
connection with its own operations, as a shareholder of another investment
company, the 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, the Fund may enter into repurchase agreements. In
a repurchase agreement, the 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 the 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 the Fund, even if the
same security has only recently been sold. The Fund 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 Fund's
objectives, the rate of portfolio turnover is irrelevant when the

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Adviser believes a change is in order to achieve those objectives, and the
Fund's annual portfolio turnover rate may vary from year to year. It is
presently anticipated the portfolio turnover rate for the Fund generally will
not exceed 200%. However, this should not be considered as a limiting factor and
the actual turnover rate may exceed this if the Adviser deems it appropriate.

High portfolio turnover in any year will result in the payment by the 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. The Fund 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
the 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

The Fund has adopted certain fundamental investment restrictions that may be
changed only with the approval by a majority of the Fund's outstanding shares.
The following description summarizes several of the Fund's fundamental
restrictions which have been adopted to maintain portfolio diversification and
reduce risk.

The Fund may not:

1. purchase the securities of any issuer if the purchase would cause more
than 5% of the value of the 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
the 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 Fund's objective, 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 Fund's investment objective, as
well as other policies which are not deemed fundamental, may be modified by the
Board of Directors without shareholder approval. Any change in the Fund's
investment objective may result in the Fund having an investment objective
different from the objective which the shareholder considered appropriate at the
time of investment in the Fund.

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MANAGEMENT OF THE FUND

As a Maryland corporation, the business affairs of the Company are managed by
its Board of Directors. The Company, on behalf of the Fund, has entered into an
investment advisory agreement with Van Wagoner Capital Management, Inc., 345
California Street, Suite 2450, San Francisco, CA 94104 (the "Investment Advisory
Agreement"). Pursuant to such Investment Advisory Agreement, the Adviser
furnishes continuous investment advisory services to the Fund.

INVESTMENT ADVISER

The Adviser was organized on October 24, 1995 as a Delaware corporation to
become the investment adviser to the Company. 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 the Fund. Mr. Van Wagoner has over
18 years of experience as a securities analyst and portfolio manager. Prior to
managing the Fund, Mr. Van Wagoner served as the portfolio manager of the
Govett Smaller Companies Fund, a portfolio of The Govett Funds, Inc., from
March 1993 until December 1995. Prior thereto, 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.

Pursuant to the Investment Advisory Agreement between the Adviser and the
Company on behalf of the Fund, the Adviser furnishes continuous investment
advisory services and management to the Fund. The Adviser supervises and
manages the investment portfolio of the Fund, 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 Fund's
investment portfolio. Under the Agreement, the Adviser, at its own expense and
without reimbursement from the Fund, furnishes office space and all necessary
office facilities, equipment and executive personnel for making the investment
decisions necessary for managing the Fund and maintaining its organization, and
pays the salaries and fees of all officers and directors of the Fund (except the
fees paid to disinterested directors). For the foregoing, the Adviser receives a
monthly fee of 1/12 of 1.25% on the average daily net assets of the Fund.

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 Fund. The Administrator, at its own expense and without reimbursement from
the Fund, furnishes office space and all necessary office facilities, equipment,
supplies and clerical and executive personnel for performing the services
required to be performed by it under the Administration Agreement. For its
administrative services (which include clerical, compliance, regulatory, fund
accounting and other services), the Administrator receives from the Fund a fee,
computed daily and payable monthly, based on the Fund's average net assets at
the annual rate beginning at 0.18 of 1.0%, and decreasing as the assets of the
Fund reach certain levels, subject to an annual minimum of $61,667, 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 Fund. See "Transfer and Dividend Disbursing Agent,
Custodian and Independent Accountants."

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EXPENSES

The 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 the Fund's shares, and the price you receive when
selling (redeeming) the 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 Fund currently
charges a $10 fee for each redemption made by wire. See "How to Redeem Shares."

The per share net asset value of the 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 3:00 p.m. Central time) on the New
York Stock Exchange on each day the New York Stock Exchange is open for trading.
This determination is applicable to all transactions in shares of the Fund prior
to that time and after the previous time as of which the net asset value was
determined. Accordingly, 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 Fund.
Investments by telephone pursuant to your prior authorization to the Fund to
draw on your bank account are considered received when the proceeds from the
bank account are received in good order by the Fund, 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 Fund's
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.

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<PAGE> 11

HOW TO PURCHASE SHARES

The Fund is no-load, so you may purchase, redeem or exchange shares directly at
net asset value without paying a sales charge. Because the Fund's net asset
value changes daily, your purchase price will be the next net asset value
determined after the Fund receives and accepts your purchase order. See
"Pricing of Fund Shares."

INITIAL ADDITIONAL
MINIMUM 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

The 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 Fund will not accept your account if you are investing for another
person as attorney-in-fact. The Fund 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 Fund 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 redeeming 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 FUND 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:

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<PAGE> 12

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 FUND TO ESTABLISH PRIVILEGES AND
TO VERIFY YOUR ACCOUNT INFORMATION. PAYMENT OF REDEMPTION PROCEEDS MAY BE
DELAYED AND TAXES MAY BE WITHHELD UNLESS THE FUND RECEIVES A PROPERLY COMPLETED
AND EXECUTED PURCHASE APPLICATION. The Fund reserves the right to refuse a
telephone transaction if they believe it advisable to do so.

IF YOU HAVE ANY QUESTIONS, CALL THE FUND 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 Fund 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
transfer if you have previously selected this service. By selecting this
service, you authorize the Fund to draw on your preauthorized bank account as
shown on the records of the Fund and receive the proceeds by electronic funds
transfer. Electronic funds transfers may be made commencing 10 business days
after receipt by the Fund of your request to adopt this service. This time
period allows the Fund 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 Fund 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 Fund 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 FUND'S BANK ACCOUNT BY THE FUND'S 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 the 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,

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<PAGE> 13

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 Fund requires 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
Fund 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 Fund for participation in
the Plan. You will receive a statement on a QUARTERLY basis showing the
purchases made under the Plan. A $23 fee will be imposed by the Fund 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 FUND 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 Fund may
delay payment of the redemption proceeds for up to 7 days from the purchase
date. This delay allows the Fund 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 Fund at 1-800-228-2121. A signature guarantee is
required. In the event you discontinue participation in the Plan, the Fund
reserves 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 FUND 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 Fund's Prospectus.
Certain services of the Fund may not be available or may be modified in
connection with the program of services provided. The Fund 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 Fund 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 Fund 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.

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<PAGE> 14

ADDITIONAL PURCHASE INFORMATION. The Fund will charge a $23 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 FUND AS A RESULT. In order to relieve you of responsibility for
the safekeeping and delivery of stock certificates, the Fund does 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 Fund 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.

New shareholders of the Fund are automatically provided with the privilege to
initiate telephone inquiries, exchanges and redemptions unless expressly waived
by the shareholder. Consequently, Purchase Applications provide that investors
automatically authorize the telephone privileges unless they check the
appropriate box on the Purchase Application to waive the privilege. If you have
any questions as to how to waive this privilege, or how to add or delete a
privilege after an account is established, please call the Fund 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. For a more detailed discussion of the
rights, responsibilities and risks of telephone transactions, please refer to
"How to Redeem by Telephone" on page 23.

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 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 23.

In addition to the ability to exchange among Van Wagoner Funds, you may exchange
all or a portion of your investment from the Fund 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 Fund 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.

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<PAGE> 15

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
Fund after receipt and acceptance of proper instructions for the exchange. If
you desire to use the expanded exchange privilege, you should contact the Fund
at 1800-228-2121 for further information about the procedures and the effective
times for exchanges. Generally, exchange requests received in proper order and
accepted by the Fund by 3:00 p.m. (Central time) or the close of the New York
Stock Exchange, if different, on a day during which the 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 the 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 the 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 the Fund when the income is collected and paid
from the Money Market Fund, at the end of the month. An exchange between the
Fund and the Money Market Fund is treated the same as an ordinary sale and
purchase for federal income tax purposes.

See "Additional Redemption Information" regarding purchases made by check.

Because of the risks associated with common stock investments, the Fund is
intended to be a long-term investment vehicle 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 Fund's performance and
shareholders, the Fund reserves 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 the
Fund receives or anticipates simultaneous orders affecting significant portions
of the Fund's assets. In particular, a pattern of exchanges with a "market
timer" strategy may be disruptive to the Fund. Therefore, the maximum number of
exchanges you wish to make between Funds may be restricted. Contact the Fund for
additional information concerning the exchange privilege.

AUTOMATIC EXCHANGE PLAN. You may make automatic monthly exchanges from a Fund
account to a Money Market 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 Fund's 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 Fund at 1-800-228-2121.

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<PAGE> 16

"How to Redeem by Telephone" on page 23.

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 Fund 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 Fund. 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 Fund 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 Fund in advance.

The Fund will mail payment for redemption within 7 days after it receives proper
instructions for redemption. However, the Fund will delay payment for 7 business
days on redemptions of recent purchases made by check. This allows the Fund 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 Fund 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 Fund. 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

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<PAGE> 17

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 Fund. Once the funds are transmitted, the time of
receipt and the availability of the funds are not within the Fund's control.
The Fund reserves the right to delay payment for a period of up to 7 days after
receipt of the redemption request.

The Fund reserves 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 Fund by telephone may be modified or terminated by the
Fund at any time. In an effort to prevent unauthorized or fraudulent redemption
or exchange requests by telephone, the Fund has 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 Fund 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 Fund 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 FUND.

REDEEMING SHARES THROUGH OTHER INSTITUTIONS. Investors may be charged a fee if
they redeem shares of the 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 Fund 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.

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<PAGE> 18

PUBLIC IS NOT AN ACCEPTABLE GUARANTOR. For a more detailed discussion of the
rights, responsibilities and risks of telephone transactions, please refer to
"How to Redeem by Telephone" on page 23.

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 Fund reserves 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 the 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 Fund offers 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 Systematic Withdrawal 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

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<PAGE> 19

GUARANTOR.

The Systematic Withdrawal Plan may be terminated by you at any time without
charge or penalty, and the Fund reserves 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 Fund by calling 1-800-228-2121.

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to pay dividends from net investment income annually and
distribute substantially all net realized capital gains at least annually. The
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 the
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 Fund. The election is effective for distributions
with a dividend record date on or after the date that the Fund receives notice
of the election. If you do not specify an election, all income dividends and
capital gains distributions will automatically be reinvested in full and
fractional shares of the Fund. Shares will be purchased at the net asset value
in effect on the business day after the dividend record date and will be
credited to your account on such date. Reinvested dividends and distributions
receive the same tax treatment as those paid in cash. Dividends and capital
gains distributions, if any, will reduce the net asset value of the 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 Fund 24 hours a day, 7 days a week. When calling
the Fund 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 Fund.

The automated service provides the information most frequently requested by
shareholders. After calling 1-800-228-2121 shareholders can:

1. Determine closing prices for the Fund and learn
how the price of the 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 Fund at 1-800-228-2121.

The Fund 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.

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<PAGE> 20

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 Fund 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 Fund has a program under which you may establish an IRA with the Fund and
purchase shares through such account. The minimum initial investment in the Fund
for an IRA is $500. The Fund also offers 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 Fund may be used as investment vehicles for established retirement
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 Fund at 1-800-228-2121.

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.

Payments may be made by the 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 the 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.

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<PAGE> 21

TAXES

The Fund intends to qualify for treatment as a regulated investment company
under the Internal Revenue Code. In each taxable year that the 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 the 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 the Fund's net capital gain, when designated as such, may receive favorable
tax treatment regardless of how long they have held their Fund shares and
whether such distributions are paid in cash or reinvested in additional Fund
shares. The Fund provides federal tax information to its shareholders annually,
including information about dividends and other distributions paid during the
preceding year.

The Fund 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 if required under another section of the Internal
Revenue Code.

The foregoing is only a summary of some of the important federal tax
considerations generally affecting the 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 Fund constitutes 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 the Fund represents an equal
proportionate interest in the 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 Fund 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 Fund 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 Fund 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

21
<PAGE> 22

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
Fund and may designate or redesignate the name of any outstanding class of
shares of the Fund. 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 Fund's 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 Fund in the proportion that the total net assets of the class
bear to the total net assets of all classes of the Fund's 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 Fund,
the holders of each class would be entitled, out of the assets of the Fund
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 315, Milwaukee, WI 53202-5712, acts as the Fund's
Transfer and Dividend Disbursing Agent. Sunstone Financial Group, Inc. serves
as the Fund's 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 Fund's investments. Neither the Transfer and Dividend
Disbursing Agent nor the Custodian has any part in deciding the Fund's
investment policies or which securities are to be purchased or sold for the
Fund's 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, 1998.

FUND PERFORMANCE

From time to time, the Fund may advertise its "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 the 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 the
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. The Fund also may use
"aggregate" total return figures for various periods, representing the
cumulative change in value of an investment in the Fund for a specific period
(again reflecting changes in the Fund's share price and assuming reinvestment of
dividends and distributions).

22
<PAGE> 23

VAN WAGONER FUNDS, INC.

STATEMENT OF ADDITIONAL INFORMATION

FOR THE

TECHNOLOGY FUND

This Statement of Additional Information dated December 31, 1997 is
meant to be read in conjunction with the Prospectus dated December 31, 1997 for
the Technology Fund (the "Fund") 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 this Fund should be made
solely upon the information contained herein. Copies of the Prospectus for the
Fund may be obtained by writing Van Wagoner Funds, Inc., P.O. Box 1628,
Milwaukee, Wisconsin 53201-1628. Capitalized terms used but not defined herein
have the same meanings as in the Prospectus.
<PAGE> 24

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Custodian, Transfer Agent and Dividend Paying Agent . . . . . . . . . . . . . . . 17
Legal Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DISTRIBUTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SHAREHOLDER MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PERFORMANCE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES;
DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
APPENDIX A (Description of Securities Ratings) . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

________________

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 FUND. THE PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY THE FUND IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.

2
<PAGE> 25

ADDITIONAL INVESTMENT INFORMATION

The following supplements the investment objective and policies of the
Fund as set forth in its Prospectus.

TECHNOLOGY FUND seeks long-term capital appreciation. The Fund
invests in companies in the technology sectors that the Adviser believes have
the potential for above-average long-term growth in market value. The Adviser
may invest companies of any size market capitalization.

MONEY MARKET INSTRUMENTS. The 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. The Fund may agree to purchase portfolio
securities from financial institutions subject to the seller's agreement to
repurchase them at a mutually agreed upon date and price ("repurchase
agreements"). Although the securities subject to a repurchase agreement may
bear maturities exceeding one year, settlement for the repurchase agreement
will never be more than one year after the Fund's acquisition of the securities
and normally will be within a shorter period of time. Securities subject to
repurchase agreements are held either by the Fund's custodian or subcustodian
(if any), or in the Federal Reserve/Treasury Book-Entry System. The seller
under a repurchase agreement will be required to maintain the value of the
securities subject to the agreement in an amount exceeding the repurchase price
(including accrued interest). Repurchase agreements may be considered loans to
the seller, collateralized by the underlying securities. The risk to the Fund
is limited to the ability of the seller to pay the agreed upon sum on the
repurchase date; in the event of default, the repurchase agreement provides
that the Fund is entitled to sell the underlying collateral. If the value of
the collateral declines after the agreement is entered into, however, and if
the seller defaults under a repurchase agreement when the value of the
underlying collateral is less than the repurchase

3
<PAGE> 26

price, the 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 the Fund. If the seller were to be subject
to a federal bankruptcy proceeding, the ability of the Fund to liquidate the
collateral could be delayed or impaired because of certain provisions of the
bankruptcy laws.

UNITED STATES GOVERNMENT OBLIGATIONS. The Fund 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. The Fund 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 (the
"SEC") 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, the 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, the 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, the 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.

4
<PAGE> 27

HEDGING STRATEGIES. The Fund may engage in hedging activities. It
may utilize a variety of financial instruments, including options, in an
attempt to reduce the investment risks of the Fund.

Hedging instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the 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 the Fund has invested or expects to invest. The use of
hedging instruments is subject to applicable regulations of the SEC, the
several options exchanges upon which they are traded and various state
regulatory authorities. In addition, the Fund's ability to use hedging
instruments will be limited by tax considerations.

OPTIONS. General. The 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.

5
<PAGE> 28

The 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 the Fund expires unexercised, the Fund
realizes a loss equal to the premium paid. If the 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 the Fund expires on the stipulated expiration date or if the 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 the 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 Fund. Expiration of a call option written by the
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 the 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 Fund 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

6
<PAGE> 29

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 Fund 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, the
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 the Fund. Inasmuch as the Fund's securities will not duplicate the
components of an index, the correlation will not be perfect. Consequently, the
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 the 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 the 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.

7
<PAGE> 30

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
the 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 the Fund is unable to effect a closing sale
transaction with respect to options on securities that it 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 the Fund has purchased) expose the Fund to an obligation to
another party. The 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 or liquid securities with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Fund will comply with SEC guidelines regarding cover for these instruments and,
if the guidelines so require, set aside cash or other liquid securities in a
segregated account with its Custodian in the prescribed amount. Under current
SEC guidelines, the Fund will segregate assets to cover transactions in which
the Fund 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 the 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. The 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 Fund 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 the 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. The
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 the Fund
are not subject to this restriction.

8
<PAGE> 31

CONVERTIBLE SECURITIES. Convertible securities entitle the holder to
receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible securities mature or are redeemed, converted or
exchanged. Prior to conversion, convertible securities have characteristics
similar to ordinary debt securities or preferred stocks in that they normally
provide a stable stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities rank
senior to common stock in a corporation's capital structure and therefore
generally entail less risk of loss of principal than the corporation's common
stock.

In selecting convertible securities for the Fund, the Adviser will
consider among other factors, its evaluation of the creditworthiness of the
issuers of the securities; the interest or dividend income generated by the
securities; the potential for capital appreciation of the securities and the
underlying common stocks; the prices of the securities relative to other
comparable securities and to the underlying common stocks; whether the
securities are entitled to the benefits of sinking funds or other protective
conditions; diversification of the Fund's portfolio as to issuers; and whether
the securities are rated by a rating agency and, if so, the ratings assigned.

The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying common stock). The investment value of convertible securities is
influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline, and by the
credit standing of the issuer and other factors. The conversion value of
convertible securities is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible securities is governed principally by their
investment value. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
securities will be increasingly influenced by their conversion value. In
addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying common stock while holding fixed income
securities.

Capital appreciation for the Fund may result from an improvement in
the credit standing of an issuer whose securities are held in the Fund or from
a general lowering of interest rates, or a combination of both. Conversely, a
reduction in the credit standing of an issuer whose securities are held by the
Fund or a general increase in interest rates may be expected to result in
capital depreciation to the Fund.

Typically, the convertible debt securities in which the Fund will
invest will be of a quality less than investment grade (so-called "junk
bonds"). The Fund 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

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<PAGE> 32

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, the
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 the 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 the Fund's
net asset value. If the 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, the Fund may be forced to liquidate these securities at a
substantial discount. Any such liquidation would reduce the 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, the 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

10
<PAGE> 33

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 the 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 . The 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 Fund anticipates 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 the
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. The 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 the 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 Fund is calculated by dividing the lesser of purchases or sales of
portfolio investments for the reporting period by the monthly average value of
the portfolio investments owned during the reporting period. The calculation
excludes all securities, including options, whose maturities or expiration
dates at the time of acquisition are one year or less. Portfolio turnover may
vary greatly from year to year as well as within a particular year, and may be
affected by cash requirements for redemption of shares and by requirements
which enable the Fund to receive favorable tax treatment. The Fund is not
restricted by policy with regard to portfolio turnover and will make changes in
its investment portfolio from time to time as business and economic conditions
as

11
<PAGE> 34

well as market prices may dictate. It is anticipated the portfolio turnover
rate for the Fund generally will not exceed 200%. However, this should not be
considered as a limiting factor.

INVESTMENT RESTRICTIONS

Consistent with the Fund's investment objective, the 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 the Fund's assets that may be
invested in any security or other asset, such percentage restriction will be
determined immediately after and as a result of the Fund's acquisition of such
security or other asset. Accordingly, any subsequent change in values, net
assets, or other circumstances will not be considered when determining whether
the investment complies with the Fund's investment limitations except with
respect to the Fund's restrictions on borrowings as set forth in restriction 8
below.

The 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 FUND'S FUNDAMENTAL INVESTMENT RESTRICTIONS.

The Fund may not:

1. Issue senior securities, except as permitted under the
Investment Company Act of 1940 (the "Investment Company Act"); provided,
however, the 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.

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<PAGE> 35

5. Act as an underwriter or distributor of securities other than
shares of the Fund except to the extent that the Fund's participation as part
of a group in bidding or by bidding alone, for the purchase or permissible
investments directly from an issuer or selling shareholders for the Fund's own
portfolio may be deemed to be an underwriting, and except to the extent that
the 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 the 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.

The Fund may not:

1. Purchase warrants, valued at the lower of cost or market, in
excess of 5% of the 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 the Fund may vote portfolio securities in
the Fund's discretion.

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<PAGE> 36

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, the Fund may engage in transactions involving options. The Fund will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.

8. Purchase any interest in any oil, gas or any other mineral
exploration or development program, including any oil, gas or mineral leases.

The 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 the 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 Fund,
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 the Fund, does not exceed 10% of the value of the
Fund's total assets.

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<PAGE> 37

ADDITIONAL COMPANY INFORMATION

DIRECTORS AND OFFICERS. Information regarding the Board of Directors
and officers of the Fund, 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, 345 California
Street, Suite 2450, 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 42.

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 56.

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 32.

The Director of the Company who is an officer of the Adviser receives
no remuneration from the Fund. In 1998, each of the other Directors will be
paid a fee of $1,000 for each meeting attended. This fee will be paid equally
by the seven Van Wagoner Funds. In addition, each Director is reimbursed for
the expenses of attending meetings. The table below sets forth the estimated
compensation of the Directors for the fiscal year ended December 31, 1998.

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<PAGE> 38

COMPENSATION TABLE

<TABLE>
<CAPTION>
Aggregate Compensation Total Compensation from Company
Name of Person from Company Paid to Directors
-------------- ------------ -----------------
<S> <C> <C>
Garrett R. Van Wagoner $0 $0
Larry P. Arnold $4,000 $4,000
Robert S. Colman $4,000 $4,000
</TABLE>

CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. As of after the
close of business on December 31, 1997, Garrett Van Wagoner owned all of the
outstanding shares of the Fund. Shareholders with a controlling interest could
effect the outcome of proxy voting or the direction of management of the
Company.

INVESTMENT ADVISER. The investment adviser to the Fund 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 the Fund and the
Adviser (the "Investment Advisory Agreement"), the Adviser provides continuous
investment advisory services to the Fund. The Adviser also provides the Fund
with office space, equipment and personnel necessary to operate and administer
the Fund's business and to supervise the provision of services by third
parties. The Advisory Agreement for the Fund is dated December 31, 1997. The
Investment Advisory Agreement has an initial term of two years and thereafter
is required to be approved annually by the Board of Directors of the Company or
by vote of a majority of the Fund's outstanding voting securities (as defined
in the 1940 Act). The annual renewal must also be approved by the vote of a
majority of the 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
Agreement 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 November 20, 1997 for the Fund. The Investment Advisory Agreement is
terminable without penalty with respect to the Fund, on 60 days' written notice
by the Directors, by vote of a majority of the Fund's outstanding voting
securities, or by the Adviser, and will terminate automatically in the event of
its assignment.

As compensation for its services, the Fund pays to the Adviser a
monthly advisory fee at the annual rate specified in the Prospectus. From time
to time, the Adviser may voluntarily waive all or a portion of its fee for the
Fund.

The Investment Advisory Agreement requires the Adviser to reimburse
the Fund in the event that the expenses and charges payable by the Fund in any
fiscal year, including the advisory fee but excluding taxes, interest,
brokerage commissions, and similar fees, exceed a percentage of the average net
asset value of the Fund for such year which is the most restrictive percentage
provided by the state laws of the various states in which the Fund's common
stock is qualified for sale or if the states in which the shares of the Fund
are qualified for sale impose no such restrictions, 2%. As of the date of this
Statement of Additional Information, no such state

16
<PAGE> 39

law provision was applicable to the Fund. Additionally, the Adviser has agreed
to reimburse the Fund to the extent aggregate annual operating expenses as
described above exceed 1.95% of the average daily net assets of the Fund, for
the Fund's first twelve months of operation. The Adviser may voluntarily
continue to waive all or a portion of the advisory fees otherwise payable by
the Fund. 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 the Fund by reducing the
Adviser's fee, subject to later adjustment, month by month, for the remainder
of the Fund's fiscal year. The Adviser may from time to time voluntarily
absorb expenses for the Fund in addition to the reimbursement of expenses in
excess of the foregoing.

The Investment Advisory Agreement provides that the Adviser shall not
be liable to the 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 Agreement also provides that nothing therein shall limit the freedom
of the Adviser and its affiliates to render investment supervisory and
corporate administrative services to other investment companies, to act as
investment adviser or investment counselor to other persons, firms or
corporations, or to engage in other business activities.

ADMINISTRATOR. Sunstone Financial Group, Inc. (the "Administrator")
provides various administrative and fund accounting services to the Fund (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 Fund. The Administration and Fund Accounting Agreement will
remain in effect for an initial 1 year term ending December 31, 1998 and
thereafter as long as its continuance is specifically approved at least
annually by the Board of Directors of the Company and the Administrator. The
Administration and Fund Accounting Agreement may be terminated on not less than
90 days' notice after the expiration of the initial term, without the payment
of any penalty, by the Board of Directors of the Company or by the
Administrator. Under the Administration and Fund Accounting Agreement, the
Administrator is not liable for any loss suffered by the Fund or its
shareholders in connection with the performance of the Administration and Fund
Accounting Agreement, except a loss resulting from willful misfeasance, bad
faith or negligence on the part of the Administrator in the performance of its
duties. The Administration and Fund Accounting Agreement also provides that
the Administrator may provide similar services to others including other
investment companies.

CUSTODIAN, TRANSFER AGENT AND DIVIDEND PAYING AGENT. UMB Bank, n.a.
serves as the custodian and Sunstone Investor Services, LLC serves as the
transfer and dividend paying agent for the Fund. Under the terms of the
respective agreements, UMB Bank, n.a. is responsible for the receipt and
delivery of the Fund's securities and cash, and Sunstone Investor Services, LLC
is responsible for processing purchase and redemption requests for the
securities of the Fund as well as the recordkeeping of ownership of the 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 do not exercise any supervisory functions over the
management of the Funds or the purchase and sale of securities.

17
<PAGE> 40

LEGAL COUNSEL. Foley & Lardner, with offices at 777 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, serves as counsel to the Fund.

INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP are the independent
accountants for the Fund. They are responsible for performing an audit of the
Fund's year-end financial statements as well as providing accounting and tax
advice to the management of the Fund.

DISTRIBUTION OF SHARES

As set forth in the Prospectus, 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.

The Plan was adopted in anticipation that the Fund will benefit from
the Plan through increased sales of shares of the Fund, thereby reducing the
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 Fund who are not interested persons of the Fund
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 Fund 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 Fund will be committed to the discretion
of the directors of the Fund who are not interested persons of the Fund. The
Board of Directors must review the amount and purposes of expenditures pursuant
to the Plan quarterly as reported to it by the officers of the Company. Unless
otherwise terminated, the Plan will continue in effect for as long as its
continuance is specifically approved at least annually by the Board of
Directors, including the Rule 12b-1 Directors.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Adviser is responsible for decisions to buy and sell securities
for the 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 Fund 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 the 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

18
<PAGE> 41

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 the 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 Fund
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 Fund
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 the 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 Fund. 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 Fund and
place portfolio transactions for these accounts. Research services furnished
by firms through which the Fund effects its 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 Fund. 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 Fund) 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 Fund will not, in the opinion
of the Adviser, be disproportionate to the benefits to be received by the Fund
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 the 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 the Fund. In making such allocations between the 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

19
<PAGE> 42

comparable securities, the availability of cash for investment, the size of
investment commitments generally held, and the opinions of the persons
responsible for recommending the investment.

TAXES

GENERAL

In order to qualify for treatment as a regulated investment company
("RIC") under the Code, the 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 the 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
stock or securities or foreign currencies, or other income (including but not
limited to gains from options, futures or forward contracts) derived with
respect to its business of investing in such stock, securities or those
currencies ("Income Requirement"); (2) 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 (3) 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. Additional rules apply for
related corporations.

Dividends and other distributions declared by the 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 the 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 the Fund
from U.S. corporations, with certain exceptions. However, dividends received
by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are potentially subject to the alternative minimum
tax.

If shares of the 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.

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<PAGE> 43

The 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.
The 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 Fund may be subject to income,
withholding, or other taxes imposed by foreign countries that would reduce the
yield on each Fund's portfolio securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains with
respect to investments by foreign investors. If more than 50% of the value of
the 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. If this election is made, the 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 the 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. The 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.

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<PAGE> 44

NON U.S. SHAREHOLDERS

In general, distributions of net investment income by the 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 if IRS Form W-8 is properly filed.)

The foregoing is a general and abbreviated summary of certain U.S.
federal income tax considerations affecting the 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 Fund 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 Fund shall not be deemed to have been effectively acted
upon unless approved by a majority of the outstanding shares of the 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 Fund outstanding (or of a class or series of the Fund, 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

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<PAGE> 45

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 Fund
outstanding (or of a class or series).

SHAREHOLDER MEETINGS

The Maryland Statutes permit registered investment companies, such as
the Fund, 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.

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<PAGE> 46

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 Fund offers 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 Fund 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.

The Fund also offers 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.

PERFORMANCE INFORMATION

The Fund 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.

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<PAGE> 47

The average annual total return for the 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 the 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 Fund's performance figures will be based upon historical results
and will not necessarily be indicative of future performance. The Fund's
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.

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<PAGE> 48

From time to time, in marketing and other literature, the Fund's
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 Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.

The Fund's performance may also be compared to the performance of
other mutual funds by Morningstar, Inc., which ranks funds on the basis of
historical risk and total return. Morningstar's rankings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment of the
historical risk level and total return of a fund as a weighted average for 3,
5, and 10 year periods. Ranking are not absolute or necessarily predictive of
future performance.

Evaluations of Fund performance made by independent sources may also
be used in advertisements concerning the Fund, including reprints of or
selections from, editorials or articles about the Fund. Sources for Fund
performance and articles about the Fund 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 Fund may compare its 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 Fund may purchase for their
respective portfolios and the investments measured by these indices.

Occasionally statistics may be used to specify the Fund's volatility
or risk. Measures of volatility or risk are generally used to compare the
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 Fund. The
description may include a "risk/return spectrum" which compares the 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

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<PAGE> 49

fluctuate. The description may also compare the 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 Fund 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, Martin Luther King, Jr. 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.

In connection with the determination of the Fund's net asset values,
options written or purchased by the Fund are valued at the last sales price if
such last sales price is between the current bid and asked prices. Otherwise,
options are valued at the mean between the current bid and asked prices.

Shares of the Fund may be exchanged for shares of the Northern U.S.
Government Money Market Fund as provided in the Prospectus. Sunstone Investor
Services, LLC receives a service fee from the Northern U.S. Government Money
Market Fund at the annual rate of 0.25 of 1% of the average daily net asset
value of the shares of the Fund exchanged into the Northern U.S. Government
Money Market Fund. Sunstone Investor Services, LLC is an affiliate of Sunstone
Financial Group, Inc., the Fund's 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 the Fund to pay
for redemptions in cash. In such cases the Board may authorize payment to be
made in portfolio securities of the Fund. However, the Fund has obligated
itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the 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 the 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 Fund 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

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<PAGE> 50

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 Fund's 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.

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<PAGE> 51
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.

A-1

<PAGE> 52

"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."

A-2

<PAGE> 53

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.

A-3

<PAGE> 54

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.

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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 category 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.

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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
deterring 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.

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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.

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.

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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.

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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.

<TABLE>
<CAPTION>
RATING SCALE DEFINITION
<S> <C>
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
AA- to time because of economic conditions.

A+ Protection factors are average but adequate. However risk
A factors are more variable and greater in periods
A- ofeconomic uncertainty.

BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in
BBB- risk during economic cycles.

BB+ Below investment grade but deemed likely to meet obligations
BB when due. Present or prospective financial protection factors
BB- 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 obligations will
B not be met when due. Financial protection factors will fluctuate
B- 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.

</TABLE>

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<PAGE> 60

DD Default debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP Preferred stock with dividend arrearages.
</TABLE>

A-10