Van Wagoner Funds Annual Report
Dear fellow shareholders: december 31, 1998
1998 was a particularly strong year for the Van Wagoner Funds. The Funds
significantly outpaced indices like the Russell 2000, S&P 500/R and Nasdaq
Industrial.<F1>
This was the year that tried but ultimately rewarded our patience . . . a true
exercise in market dynamics. The shift away from growth stocks early in the year
only intensified as the depths of the Asian economic crisis became clearer. A
huge liquidity squeeze took hold, sending prices tumbling without regard for
fundamentals. By the third quarter, there were no safe havens; almost all stocks
declined, regardless of company size or sector.
While we made some adjustments in light of economic trends, the Van Wagoner
Funds remained true to their discipline. We made sure we owned what we consider
classic growth stocks with innovative products, sound strategy and good
management teams. We kept our portfolios positioned for the upturn we expected.
And in the fourth quarter, this discipline paid off.
The Federal Reserve cut interest rates, investors grew more comfortable
branching out in their equity portfolios, and dollars began moving into smaller
companies with solid fundamentals. We believe this is the beginning of a true
small-cap cycle that will reward investors in the growth stock sector.
While the Funds stayed true to our investment style, the stocks in our
portfolios changed over the course of the year. In the first six months we held
more energy and retail stocks. As the Asian crisis deepened, we reduced our
exposure in the energy sector. And, after making a healthy profit over the
summer, we cut back on retail stocks, based on expectations for slower spending
later in the year.
Meanwhile, two of the areas we had been monitoring grew more appealing in July.
When Internet stocks took a hit, we saw the opportunity to increase our
holdings. And with small-cap valuations reaching what we considered rock bottom,
we also grew aggressive in semiconductors and other technology sectors. The
decision to add to our existing technology weightings significantly helped the
Funds outperform their respective indices. Finally, we completed the
diversification we had begun earlier in the year, eliminating many large
portfolio positions - a strategy that affected performance positively.
From one quarter to the next, we were especially pleased with the results of our
analysts' research. Over the year, nearly 95% of the companies we held met or
exceeded their earnings estimates - a phenomenal record in a year where many
companies missed their marks. External factors kept the prices of high
performing companies down - but it was like holding a beach ball under water.
When conditions turned favorable, these stocks exploded.
Now small-cap valuations remain cheap, interest rates are still low and
investors are looking for companies with strong domestic growth. Those are the
makings of a strong small-cap cycle . . . and we believe we have positioned the
Funds to take full advantage. I want to thank you, our shareholders, for holding
firm throughout a turbulent 1998. Like you, everyone on the Van Wagoner Funds
investment team is a shareholder. We are pleased with the results of our efforts
in 1998 and look forward to the year ahead.
Sincerely,
Garrett R. Van Wagoner
<F1> Please see page 3 for the total returns of the Funds and their respective
benchmark, the S&P 500/R Index. The Russell 2000's and Nasdaq Industrial
Index's total return for the quarter and one year ended 12/31/98 and average
annual total return since inception (12/31/96) as of 12/31/98 were as follows:
16.31% and 26.52%; (2.55)% and 7.22%; and 9.20% and 8.85%, respectively. The
Russell 2000 is an index of the smallest 2000 companies in the Russell 3000
Index, as ranked by total market capitalization. The Russell 2000 Index is
widely regarded in the industry to accurately capture the universe of small-cap
stocks. The Nasdaq Industrial Index tracks the performance of domestic common
stocks traded on the regular Nasdaq market and which are classified as
industrial companies. As of December 31, 1998, this index included 2,866
companies, including agricultural, mining, construction, manufacturing
(electronic components), services and public administration enterprises. It is
not possible to directly invest in an unmanaged index.
CAPITAL
APPRECIATION S&P 500 COMPOSITE
FUND STOCK INDEX
- -------------------------------------------------
12/31/96 $10,000 $10,000
12/31/97 10,456 13,336
12/31/98 18,630 17,147
- ---------------------------------------
Total Return
For the periods ended 12/31/98
- ---------------------------------------
One Year 78.18%
Average Annual Since Inception 36.49%
- ---------------------------------------
This chart assumes an initial investment of $10,000 made after the close of
business on 12/31/96 (Commencement). Returns shown here and in the table are
based on net change in NAV. Performance figures reflect fee waivers in effect
and represent past performance which is no guarantee of future results. The
investment return and principal value of an investment in Van Wagoner Funds will
fluctuate so that an investor's shares in the Funds, when redeemed, may be worth
more or less than their original cost.
The S&P 500 Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
S&P 500 COMPOSITE
GROWTH FUND STOCK INDEX
- -------------------------------------------------
12/31/96 $10,000 $10,000
12/31/97 10,574 13,336
12/31/98 18,278 17,147
- ---------------------------------------
Total Return
For the periods ended 12/31/98
- ---------------------------------------
One Year 72.86%
Average Annual Since Inception 35.20%
- ---------------------------------------
This chart assumes an initial investment of $10,000 made after the close of
business on 12/31/96 (Commencement). Returns shown here and in the table are
based on net change in NAV. Performance figures reflect fee waivers in effect
and represent past performance which is no guarantee of future results. The
investment return and principal value of an investment in Van Wagoner Funds will
fluctuate so that an investor's shares in the Funds, when redeemed, may be worth
more or less than their original cost.
The S&P 500 Composite Stock Index is an unmanaged index of 500 selected common
stocks, most of which are listed on the New York Stock Exchange. The Index is
heavily weighted toward stocks with large market capitalizations and represents
approximately two-thirds of the total market value of all domestic common
stocks.
Van Wagoner Capital Appreciation Fund
Schedule of Investments
December 31, 1998
Number
of Shares Value
- ------------ ------------
COMMON AND PREFERRED STOCKS 87.02%
Chemicals - Specialty 0.61%
250 ChiRex Inc. <F1> $5,344
--------
COMMERCIAL SERVICES - BUSINESS 1.93%
1,400 Dental Care Alliance, Inc. <F1> 16,800
--------
COMMERCIAL SERVICES -
MISCELLANEOUS 5.91%
200 Boron, LePore &
Associates, Inc. <F1> 6,900
50 CMGI, Inc. <F1> 5,325
300 The Metzler Group, Inc. <F1> 14,606
200 Pediatrix Medical Group, Inc. <F1> 11,988
1,000 Realty Information Group, Inc. <F1> 12,625
--------
51,444
--------
COMPUTERS - GRAPHICS 2.43%
750 Micromuse Inc. <F1> 14,625
100 Xilinx, Inc. <F1> 6,512
--------
21,137
--------
COMPUTERS - INTEGRATED SYSTEMS 1.49%
450 Apex PC Solutions, Inc. <F1> 12,994
--------
COMPUTERS - LOCAL NETWORKS 5.06%
250 3Com Corp. <F1> 11,203
300 Citrix Systems, Inc. <F1> 29,119
100 Visual Networks, Inc. <F1> 3,750
--------
44,072
--------
COMPUTERS - MEMORY DEVICES 4.09%
300 EMC Corp. <F1> 25,500
100 Legato Systems, Inc. <F1> 6,594
250 Maxtor Corp. <F1> 3,500
--------
35,594
--------
COMPUTERS - MINI/MICRO 2.89%
250 Compaq Computer Corp. 10,484
200 Dell Computer Corp. <F1> 14,637
--------
25,121
--------
Number
of Shares Value
- ------------ ------------
COMPUTERS - RETAIL/WHOLESALE 1.15%
250 Emulex Corp. <F1> $10,000
--------
COMPUTERS - SERVICES 1.84%
100 America Online, Inc. <F1> 16,000
--------
COMPUTERS - SOftware 4.18%
75 EarthLink Network, Inc. <F1> 4,275
100 GeoTel Communications Corp. <F1> 3,725
250 Network Associates, Inc. <F1> 16,563
50 Yahoo! Inc. <F1> 11,847
--------
36,410
--------
COMPUTER SOFTWARE - ENTERPRISE 3.99%
600 Best Software, Inc. <F1> 14,250
350 New Era of Networks, Inc.<F1> 15,400
250 Segue Software, Inc. <F1> 5,063
--------
34,713
--------
COMPUTER SOFTWARE - INTERNET 6.24%
250 Digital River, Inc. <F1> 8,875
200 Exodus Communications, Inc. <F1> 12,850
8,772 iVillage, Inc. <F1> <F2> 25,000
125 MindSpring Enterprises, Inc. <F1> 7,633
--------
54,358
--------
COMPUTER SOFTWARE - MEDICAL 4.56%
150 Medical Manager Corp. <F1> 4,706
7,000 OnHealth Network Co. <F1> 35,000
--------
39,706
--------
COSMETICS/PERSONAL CARE 0.77%
50 Bristol-Myers Squibb Co. 6,691
--------
ELECTRICAL CONNECTORS 1.02%
250 Level One Communications, Inc. <F1> 8,875
--------
ELECTRONICS - MISCELLANEOUS
COMPONENTS 1.07%
100 Solectron Corp. <F1> 9,294
--------
Number
of Shares Value
- ------------ ------------
ELECTRONICS - SEMICONDUCTOR
EQUIPMENT 6.62%
100 ASM Lithography Holding N.V. <F1> $3,050
1,250 ATMI, Inc. <F1> 31,562
100 Flextronics International Ltd. <F1> 8,562
100 Novellus Systems, Inc. <F1> 4,950
100 Teradyne, Inc. <F1> 4,238
100 Veeco Instruments Inc. <F1> 5,313
--------
57,675
--------
ELECTRONICS - SEMICONDUCTOR
MANUFACTURING 10.14%
250 Actel Corp. <F1> 5,000
100 Altera Corp. <F1> 6,088
100 Applied Micro Circuits Corp. <F1> 3,397
200 Jabil Circuit, Inc. <F1> 14,925
100 Linear Technology Corp. 8,956
100 PMC-Sierra, Inc. <F1> 6,313
100 QLogic Corp. <F1> 13,087
250 Semtech Corp. <F1> 8,969
100 Texas Instruments, Inc. 8,556
100 TranSwitch Corp. <F1> 3,894
200 Vitesse Semiconductor Corp. <F1> 9,125
--------
88,310
--------
ENERGY - ALTERNATIVE SOURCES 1.24%
500 KTI, Inc. <F1> 10,812
--------
LEISURE - SERVICES 0.88%
250 Travel Services
International, Inc. <F1> 7,625
--------
MEDICAL/DENTAL SERVICES 0.96%
250 ICON plc ADR <F1> 8,375
--------
MEDICAL - DRUGS/DIVERSIFIED 0.86%
100 Warner-Lambert Co. 7,519
--------
MEDICAL - PRODUCTS 0.35%
100 Pharmaceutical Product
Development, Inc. <F1> 3,006
--------
Number
of Shares Value
- ------------ ------------
POLLUTION CONTROL - SERVICES 1.06%
500 Waste Connections, Inc. <F1> $9,187
--------
RESTAURANTS 1.56%
750 PJ America Inc. <F1> 13,594
--------
RETAIL - MAIL ORDER/DIRECT 1.84%
50 Amazon.com, Inc. <F1> 16,062
--------
RETAIL - MISCELLANEOUS/DIVERSIFIED 0.99%
250 Sonic Automotive, Inc. <F1> 8,609
--------
TELECOMMUNICATIONS - EQUIPMENT 6.42%
2,500 Digital Microwave Corp. <F1> 17,109
1,000 E-Tek Dynamics, Inc. <F1> 26,750
100 Nokia Corp. ADR 12,044
--------
55,903
--------
TELECOMMUNICATIONS - SERVICES 4.87%
1,000 Com21, Inc. <F1> 21,000
100 MCI WorldCom, Inc. <F1> 7,175
200 MetroNet Communications Corp. <F1> 6,700
150 Qwest Communications
International Inc. <F1> 7,500
--------
42,375
--------
TOTAL COMMON AND
PREFERRED STOCKS (cost $521,633) 757,605
--------
Principal
Amount
- ------------
U.S. TREASURY NOTES 5.75%
$50,000 U.S. Treasury Notes,
4.625%, 12/31/00 50,078
--------
Total U.S. Treasury Notes (cost $50,101) 50,078
--------
Principal
Amount Value
- ------------ ------------
SHORT-TERM INVESTMENTS 4.73%
$41,000 UMB Bank, n.a. repurchase
agreement, 4.35%, dated 12/31/98,
repurchase price $41,020, maturing
1/04/99 (collateralized by U.S.
Treasury Notes, 5.875%, 2/28/99) $41,000
177 UMB Bank, n.a., Money Market Fiduciary 177
--------
TOTAL SHORT-TERM INVESTMENTS
(cost $41,177) 41,177
--------
TOTAL INVESTMENTS (cost $612,911) 97.50% 848,860
Other Assets less Liabilities 2.50% 21,748
--------
NET ASSETS 100.00% $870,608
========
<F1> Non-income producing
<F2> Preferred stock purchased in a private placement transaction; resale to
public may require registration or sale only to qualified institutional
buyers. Security is valued under procedures established by the Board of
Directors.
See notes to financial statements.
Van Wagoner Growth Fund
Schedule of Investments
December 31, 1998
Number
of Shares Value
- ------------ ------------
COMMON AND PREFERRED STOCKS 90.58%
BANKS - SUPER REGIONAL 1.72%
200 Mellon Bank Corp. $13,750
--------
COMMERCIAL SERVICES - BUSINESS 2.10%
1,400 Dental Care Alliance, Inc. <F1> 16,800
--------
COMMERCIAL SERVICES -
MISCELLANEOUS 3.39%
50 CMGI, Inc. <F1> 5,325
200 The Metzler Group, Inc. <F1> 9,737
200 Pediatrix Medical Group, Inc. <F1> 11,987
--------
27,049
--------
COMPUTERS - GRAPHICS 2.65%
750 Micromuse Inc. <F1> 14,625
100 Xilinx, Inc. <F1> 6,513
--------
21,138
--------
COMPUTERS - LOCAL NETWORKS 5.88%
250 3Com Corp. <F1> 11,203
100 Ascend Communications, Inc. <F1> 6,575
300 Citrix Systems, Inc. <F1> 29,119
--------
46,897
--------
COMPUTERS - MEMORY DEVICES 4.44%
250 EMC Corp. <F1> 21,250
100 Legato Systems, Inc. <F1> 6,594
250 Seagate Technology, Inc. <F1> 7,562
--------
35,406
--------
COMPUTERS - MINI/MICRO 4.07%
250 Compaq Computer Corp. 10,484
300 Dell Computer Corp. <F1> 22,000
--------
32,484
--------
COMPUTERS - SERVICES 2.00%
100 America Online, Inc. <F1> 16,000
--------
Number
of Shares Value
- ------------ ------------
COMPUTERS - SOFTWARE 4.32%
75 EarthLink Network, Inc. <F1> $4,275
100 Microsoft Corp. <F1> 13,869
100 Sterling Commerce, Inc. <F1> 4,500
50 Yahoo! Inc. <F1> 11,847
--------
34,491
--------
COMPUTER SOFTWARE - ENTERPRISE 1.49%
500 Best Software, Inc. <F1> 11,875
--------
COMPUTER SOFTWARE - INTERNET 4.09%
8,772 iVillage, Inc. <F1> <F2> 25,000
125 MindSpring Enterprises, Inc. <F1> 7,633
--------
32,633
--------
COMPUTER SOFTWARE - MEDICAL 3.13%
5,000 OnHealth Network Co. <F1> 25,000
--------
CONSUMER PRODUCTS - MISCELLANEOUS 0.73%
50 The Clorox Co. 5,841
--------
COSMETICS/PERSONAL CARE 1.41%
50 Bristol-Myers Squibb Co. 6,691
50 Proctor & Gamble Co. 4,566
--------
11,257
--------
ELECTRONICS - MISCELLANEOUS
COMPONENTS 1.16%
100 Solectron Corp. <F1> 9,294
--------
ELECTRONICS - SEMICONDUCTOR
EQUIPMENT 6.43%
100 ASM Lithography Holding N.V. <F1> 3,050
1,000 ATMI, Inc. <F1> 25,250
100 Flextronics International Ltd. <F1> 8,562
100 Novellus Systems, Inc. <F1> 4,950
100 Teradyne, Inc. <F1> 4,237
100 Veeco Instruments Inc. <F1> 5,313
--------
51,362
--------
Number
of Shares Value
- ------------ ------------
ELECTRONICS - SEMICONDUCTOR
MANUFACTURING 10.65%
100 Altera Corp. <F1> $6,088
100 Applied Micro Circuits Corp. <F1> 3,397
200 Jabil Circuit, Inc. <F1> 14,925
100 Linear Technology Corp. 8,956
250 Micron Technology, Inc. <F1> 12,641
100 PMC-Sierra, Inc. <F1> 6,312
50 QLogic Corp. <F1> 6,544
100 Texas Instruments, Inc. 8,556
100 TranSwitch Corp. <F1> 3,894
300 Vitesse Semiconductor Corp. <F1> 13,687
--------
85,000
--------
FINANCIAL SERVICES 1.01%
200 The Bank of New York Company, Inc. 8,050
--------
HOUSEHOLD - AUDIO/VIDEO 0.64%
75 Philips Electronics N.V. 5,077
--------
LEISURE - SERVICES 2.46%
250 Carnival Corp. 12,000
250 Travel Services
International, Inc. <F1> 7,625
--------
19,625
--------
MEDIA - RADIO/TV 5.02%
250 Chancellor Media Corp. <F1> 11,969
150 Tele-Communications, Inc. Class A <F1> 8,297
200 Time Warner Inc. 12,412
100 Viacom Inc. <F1> 7,356
--------
40,034
--------
MEDICAL - DRUGS/DIVERSIFIED 0.94%
100 Warner-Lambert Co. 7,519
--------
MEDICAL - ETHICAL DRUGS 1.48%
50 Pfizer Inc. 6,272
100 Schering-Plough Corp. 5,525
--------
11,797
--------
Number
of Shares Value
- ------------ ------------
MEDICAL - PRODUCTS 1.38%
100 Guidant Corp. $11,025
--------
OIL & GAS PRODUCTION/PIPELINE 0.78%
200 The Williams Companies, Inc. 6,238
--------
RETAIL - MAIL ORDER/DIRECT 2.01%
50 Amazon.com, Inc. <F1> 16,062
--------
TELECOMMUNICATIONS - EQUIPMENT 8.09%
100 AirTouch Communications, Inc. <F1> 7,212
100 AT&T Corp. 7,525
1,000 E-Tek Dynamics, Inc. <F1> 26,750
100 Lucent Technologies Inc. 11,000
100 Nokia Corp. ADR 12,044
--------
64,531
--------
TELECOMMUNICATIONS - SERVICES 6.46%
1,000 Com21, Inc. <F1> 21,000
150 Level 3 Communications, Inc. 6,469
100 MCI WorldCom, Inc. <F1> 7,175
200 MediaOne Group Inc. <F1> 9,400
150 Qwest Communications
International Inc. <F1> 7,500
--------
51,544
--------
TRANSPORTATION - AIRLINES 0.65%
100 Delta Air Lines, Inc. 5,200
--------
TOTAL COMMON AND
PREFERRED STOCKS (cost $506,261) 722,979
--------
Principal
Amount
- ------------
U.S. TREASURY NOTES 6.27%
$50,000 U.S. Treasury Notes,
4.625%, 12/31/00 50,078
--------
Total U.S. Treasury Notes (cost $50,101) 50,078
--------
Principal
Amount Value
- ------------ ------------
SHORT-TERM INVESTMENTS 8.91%
$71,000 UMB Bank, n.a. repurchase
agreement, 4.35%, dated
12/31/98, repurchase price
$71,034, maturing 1/04/99
(collateralized by U.S.
Treasury Notes, 5.875%, 2/28/99) $71,000
42 UMB Bank, n.a., Money Market Fiduciary 42
--------
TOTAL SHORT-TERM INVESTMENTS (cost $71,042) 71,042
--------
TOTAL INVESTMENTS (cost $627,404) 105.76% 844,099
Liabilities less Other Assets (5.76)% (45,951)
--------
NET ASSETS 100.00% $798,148
========
<F1> Non-income producing
<F2> Preferred stock purchased in a private placement transaction; resale to
public may require registration or sale only to qualified institutional
buyers. Security is valued under procedures established by the Board of
Directors.
See notes to financial statements.
Van Wagoner Funds, Inc.
Statements of Assets and Liabilities
December 31, 1998
Capital
Appreciation Growth
Fund Fund
------------ ------------
ASSETS:
Investments, at value (cost $612,911
and $627,404, respectively) $848,860 $844,099
Receivable for investments sold 127,460 143,306
Receivable from investment adviser 9,655 9,431
Interest and dividends receivable 18 57
Prepaid expenses and other assets 3 569
-------- --------
Total Assets 985,996 997,462
-------- --------
LIABILITIES:
Payable for investments purchased 22,997 30,360
Accrued investment advisory fee 901 732
Dividend payable 65,292 141,915
Accrued expenses and other liabilities 26,198 26,307
-------- --------
Total Liabilities 115,388 199,314
-------- --------
NET ASSETS $870,608 $798,148
======== ========
NET ASSETS CONSIST OF:
Capital stock $6 $6
Paid-in-capital 676,904 630,978
Accumulated distributions in excess of
net realized gains (42,251) (49,531)
Net unrealized appreciation on investments 235,949 216,695
-------- --------
Net Assets $870,608 $798,148
======== ========
CAPITAL STOCK, $0.0001 par value
Authorized 100,000,000 100,000,000
Issued and outstanding 57,859 56,759
NET ASSET VALUE, REDEMPTION PRICE,
AND OFFERING PRICE PER SHARE (NET
ASSETS/SHARES OUTSTANDING) $15.05 $14.06
======== ========
See notes to financial statements.
Van Wagoner Funds, Inc.
Statements of Operations
Year Ended December 31, 1998
Capital
Appreciation Growth
Fund Fund
--------- ---------
INVESTMENT INCOME:
Interest $12,158 $11,972
Dividends 290 1,005
-------- --------
Total Investment Income 12,448 12,977
-------- --------
EXPENSES:
Fund accounting and administration fees 61,667 61,667
Professional fees 17,445 17,466
Custody fees 13,525 13,792
State registration fees 13,066 13,067
Investment advisory fees 8,958 7,337
Directors' fees and expenses 3,247 3,247
Printing and postage expenses 2,846 2,840
Miscellaneous 2,009 2,176
-------- --------
Total expenses before waivers and reimbursements 122,763 121,592
Less: Waivers and reimbursements of expenses (108,789) (107,285)
-------- --------
Net Expenses 3,974 14,307
-------- --------
NET INVESTMENT LOSS (1,526) (1,330)
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS):
Net realized gain on investments 272,542 296,829
Net realized loss on options purchased (10,458) (11,145)
Change in unrealized appreciation on investments 172,140 134,119
-------- --------
Net Gain on Investments 434,224 419,803
-------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $432,698 $418,473
======== ========
See notes to financial statements.
<TABLE>
<CAPTION>
Van Wagoner Funds, Inc.
Statements of Changes in Net Assets
Capital Appreciation Fund Growth Fund
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
-------------- ---------------------------- --------------
<C> <C> <C> <C>
OPERATIONS:
Net investment loss $(1,526) $(15,549) $(1,330) $(15,885)
Net realized gain (loss) on investments 272,542 (53,771) 296,829 (53,971)
Net realized loss on options purchased (10,458) - (11,145) -
Change in unrealized appreciation on investments 172,140 63,809 134,119 82,576
---------- ---------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations 432,698 (5,511) 418,473 12,720
---------- ---------- ---------- ----------
DISTRIBUTIONS:
Of net realized gains (24,567) - (93,710) -
In excess of net realized gains (40,725) (168,197) (48,205) (122,118)
---------- ---------- ---------- ----------
Total distributions 65,292) (168,197) (141,915) (122,118)
---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares 25,000 1,309,860 25,000 1,309,860
Proceeds from reinvestment of dividends - 168,197 - 122,118
Redemption of shares (826,147) - (825,990) -
---------- ---------- ---------- ----------
Net increase (decrease) from share transactions (801,147) 1,478,057 (800,990) 1,431,978
---------- ---------- ---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (433,741) 1,304,349 (524,432) 1,322,580
NET ASSETS:
Beginning of period 1,304,349 - 1,322,580 -
---------- ---------- ---------- ----------
End of period $870,608 $1,304,349 $798,148 $1,322,580
========== ========== ========== ==========
TRANSACTIONS IN SHARES:
Shares sold 2,249 124,722 2,152 125,094
Shares issued in reinvestment of dividends - 18,899 - 12,977
Shares redeemed (88,011) - (83,464) -
---------- ---------- ---------- ----------
Net increase (decrease) (85,762) 143,621 (81,312) 138,071
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
Van Wagoner Funds, Inc.
Financial Highlights
For a Fund share outstanding throughout the period.
Capital Appreciation Fund <F1> Growth Fund <F1>
------------------------------ ----------------------------
Year Ended Year Ended Year Ended Year Ended
Dec. 31, 1998 Dec. 31, 1997 Dec. 31, 1998 Dec. 31, 1997
-------------- -------------- -------------- --------------
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $9.08 $10.00 $9.58 $10.00
Income (Loss) from Investment Operations:
Net investment loss (0.03) (0.11) (0.02) (0.12)
Net realized and unrealized gains on investments 7.13 0.54 7.00 0.68
---------- ---------- ---------- ----------
Total from investment operations 7.10 0.43 6.98 0.56
---------- ---------- ---------- ----------
Distributions:
Of net realized gains (0.43) - (1.65) -
In excess of net realized gains (0.70) (1.35) (0.85) (0.98)
---------- ---------- ---------- ----------
Total distributions (1.13) (1.35) (2.50) (0.98)
---------- ---------- ---------- ----------
Net Asset Value, End of Period $15.05 $9.08 $14.06 $9.58
========== ========== ========== ==========
Total Return 78.18% 4.56% 72.86% 5.74%
Supplemental Data and Ratios:
Net assets, end of period (000s) $871 $1,304 $798 $1,323
Ratio of expenses to average net assets, net of
waivers and reimbursements 1.95% 1.95% 1.95% 1.95%
Ratio of net investment loss to average net assets,
net of waivers and reimbursements (0.21)% (1.36)% (0.18)% (1.40)%
Ratio of expenses to average net assets, before
voluntary waivers and reimbursements 2.00% 2.00% 2.00% 2.00%
Ratio of net investment loss to average net assets,
before voluntary waivers and reimbursements (0.26)% (1.41)% (0.23)% (1.45)%
Portfolio turnover rate 1263% 625% 1233% 593%
</TABLE>
<F1> Commenced operations after the close of business on December 31, 1996
See notes to financial statements.
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) Organization
------------
Van Wagoner Funds, Inc. (the "Company") was organized on October 18, 1995
as a Maryland corporation and is registered under the Investment Company
Act of 1940 (the "1940 Act") as an open-end management investment company.
The Capital Appreciation Fund and the Growth Fund (collectively, the
"Funds") are separate, diversified investment portfolios of Van Wagoner
Funds, Inc. The majority shareholder of the Funds is an affiliate of the
investment adviser.
(2) Significant Accounting Policies
-------------------------------
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements.
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") which permit management to make
certain estimates and assumptions at the date of the financial statements.
(a) Investment Valuation - A security traded on a recognized stock
exchange is valued at the last sale price prior to the time when
assets are valued on the principal exchange on which the security is
traded. If no sale is reported on the valuation date, the most
current bid price will be used. All other securities for which over-
the-counter market quotations are readily available are valued at the
most current closing price. Debt securities which will mature in more
than 60 days are valued at prices furnished by a pricing service.
Securities which will mature in 60 days or less are valued at
amortized cost, which approximates market value. Any securities for
which market quotations are not readily available are valued at their
fair value as determined in good faith by the Funds' investment
adviser pursuant to guidelines established by the Board of Directors.
(b) Repurchase Agreements - During the term of a repurchase agreement, the
market value of the underlying collateral, including accrued interest,
is required to equal or exceed the market value of the repurchase
agreement. The underlying collateral for all repurchase agreements is
held by the Funds' custodian.
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(c) Expenses - The Funds are charged for those expenses that are directly
attributable to each portfolio, such as advisory and custodian fees.
Expenses that are not directly attributable to a portfolio are
typically allocated among the portfolios in proportion to their
respective net assets.
(d) Federal Income Taxes - Each Fund intends to comply with the
requirements of the Internal Revenue Code necessary to qualify as a
regulated investment company and to make the requisite distributions
of income to its shareholders which will be sufficient to relieve it
from all or substantially all federal income taxes.
(e) Restricted Securities - The Funds own securities which are
unregistered and thus restricted as to resale. These securities are
valued at their fair value, which at December 31, 1998 is equal to
cost. Where future disposition of these securities requires
registration under the Securities Act of 1933, the Funds have the
right to include these securities in such registration, generally
without cost to the Funds. The Funds have no right to require
registration of unregistered securities. The Funds had restricted
securities with an aggregate market value of $25,000 and $25,000,
respectively, representing 2.9% and 3.1%, respectively, of the net
assets of each of the Funds.
(f) Options Contracts - The Funds purchase put options to hedge portfolio
investments. Premiums paid for option contracts purchased are
included in the Statements of Assets and Liabilities as an asset.
Option contracts are valued at the last sales price reported on the
date of valuation. If no sale is reported, the option contract
purchased is valued at the average of the current bid and asked price
reported on the day of valuation. When option contracts expire or are
closed, realized gains or losses are recognized without regard to any
unrealized gains or losses on the underlying securities.
(g) Distributions to Shareholders - Dividends from net investment income
and net realized capital gains, if any, will be declared and paid at
least annually. Distributions to shareholders are recorded on the ex-
dividend date. Each Fund may periodically make reclassifications
among certain of its capital accounts as a result of the timing and
characterization of certain income and capital gains distributions
determined in accordance with federal tax regulations,
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
which may differ from GAAP. Accordingly, at December 31, 1998,
reclassifications were recorded to increase undistributed net
investment income by $1,526 and $1,330; increase accumulated
distributions in excess of net realized gains by $1,526 and $1,326;
and decrease paid-in-capital by $0 and $4 for the Capital Appreciation
and Growth Funds, respectively.
(h) Other - Investment transactions are accounted for on the trade date
basis. Each Fund determines the gain or loss realized from the
investment transactions by comparing the original cost of the security
lot sold with the net sale proceeds. Dividend income is recognized on
the ex-dividend date and interest income is recognized on an accrual
basis.
(3) Investment Advisory Agreement
-----------------------------
The Funds have an agreement with Van Wagoner Capital Management, Inc. (the
"Adviser") to furnish investment advisory services to the Funds. Under the
terms of this agreement, the Adviser is compensated at the rate of 1.25%
and 1.00% of the average daily net assets of the Capital Appreciation Fund
and Growth Fund, respectively. The agreement also provides that the
Adviser will limit expenses to no more than 2.00% of each Fund's average
daily net assets. The Adviser has further agreed to voluntarily reduce
fees and reimburse the Funds for expenses (exclusive of brokerage,
interest, taxes and extraordinary expenses) that exceed the expense
limitation of 1.95% for each Fund until January 1, 2000. These waivers and
reimbursements were $108,789 and $107,285 for the Capital Appreciation and
Growth Funds, respectively.
(4) Service and Distribution Plan
-----------------------------
The Funds have adopted a Service and Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes payments by
the Funds in connection with the distribution of their shares at an annual
rate, as determined from time to time by the Board of Directors, of up to
0.25% of a Fund's average daily net assets. No fees were paid under the
Plan in 1998.
VAN WAGONER FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(5) Investment Transactions
-----------------------
The aggregate purchases and sales of securities, excluding short-term
investments, for the Funds for the year ended December 31, 1998 were as
follows:
Capital
Appreciation Growth
Fund Fund
------------- -------------
Purchases $6,671,174 $6,715,609
Sales 7,537,650 7,599,582
For the year ended December 31, 1998, there were no purchases or sales of
long-term U.S. government securities.
The cost of securities on a tax basis for the Capital Appreciation Fund and
Growth Fund is $617,356 and $632,013, respectively. At December 31, 1998,
gross unrealized appreciation and depreciation on investments for federal
income tax purposes were as follows:
Capital
Appreciation Growth
Fund Fund
------------ ------------
Unrealized appreciation $239,365 $220,368
(Unrealized depreciation) (7,861) (8,282)
-------- --------
Net unrealized appreciation
on investments $231,504 $212,086
======== ========
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of the Van Wagoner Funds, Inc.
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Van Wagoner Capital
Appreciation Fund and the Van Wagoner Growth Fund (two of the portfolios
constituting the Van Wagoner Funds, Inc., hereafter referred to as the "Funds")
at December 31, 1998, and the results of each of their operations, changes in
net assets and the financial highlights for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereinafter collectively referred to as the
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
January 29, 1999
NOTICE TO SHAREHOLDERS
Ernst & Young LLP has been retained as the Funds' independent accountants for
the fiscal year ending December 31, 1999.
