Van Wagoner is seeking to change how it is paid for advising to of its funds. The changes would create a performance-based fee for the fund manager. In a little noticed move, the fund complex is also seeking to waive an obligation to reimburse expenses to the two funds. Those reimbursements cost Van Wagoner more nearly one million dollars last year.

The fund firm revealed the changes to the advisory agreement this week in a proxy statement filed with the SEC as part of the preparations for the funds' annual shareholder meetings on August 29. If approved by shareholders, the new agreements would be put in place for the Van Wagoner Emerging Growth Fund and Small-Cap Growth Fund. A third fund -- the $27 million Growth Opportunities Fund -- already basis the management fee it pays Van Wagoner on a performance-adjusted basis.

As it now stands, the two funds each pay Van Wagoner a flat 125 basis point as the investment advisor. Under the new investment advisory contract, Van Wagoner will start with a fee of 125 basis points. The fee would then be adjusted by 2.5 basis points for every 10 basis points that Van Wagoner's investment performance differs from the performance of the fund benchmark. In both cases the benchmark is the Lipper Small-Cap Growth Index.

The performance adjustment would be capped at 25 basis points up or down. Thus, if Van Wagoner exceeds the performance of the index by 100 basis points or more, it would earn the maximum 150 basis point fee. If it lags the benchmark by 100 basis points or more it would earn just 100 basis points as a management fee.

Since Van Wagoner has been trailing the benchmarks, shareholders would have paid a lesser management fee last year under the new agreement than under the old agreement.

However, Van Wagoner is also asking shareholders to wave an expense reimbursement that cost it $2.2 million for the two funds last year (see chart below). Currently, the fund advisor reimburses all fund expenses that exceed 200 basis points.

How Van Wagoner Saves
	Current Agreement	Modified Agreement
Emerging Growth Fund
Mgmt Fee	$2,111,081	$1,688,883
Reimbursement	$524,651	$0
Net	$1,586,430	$1,688,883
Small-Cap Fund
Mgmt Fee	$846,691	$564,470
Reimbursement	$418,333	$0
Net	$428,358	$564,470
Total
Mgmt Fee	$2,957,772	$2,253,353
Reimbursement	$942,984	$0
Net	$2,014,788	$2,253,353
Source: Van Wagoner Proxy Statement

Last year the total expenses on the Small-Cap fund reached 231 basis points. That meant Van Wagoner reimbursed the fund 31 basis points, or $418,333. In the case of the Emerging Growth fund the reimbursement hit $524,651. Combined the reimbursements cost Van Wagoner $942,000, or nearly a third of the $2.9 million it received in investment advisor fees.  

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