<PAGE>
As filed with the Securities and Exchange Commission on April 18, 1996
Securities Act Registration No. 33-83548
Investment Company Act File No. 811-8748
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
-------------------------------------
WANGER ADVISORS TRUST
(Registrant)
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone number: 312/634-9200
-------------------------------------
Ralph Wanger Janet D. Olsen
Wanger Advisors Trust Bell, Boyd & Lloyd
227 West Monroe Street, Suite 3000 Three First National Plaza
Chicago, Illinois 60606 70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
(Agents for service)
---------------------------------------------------
Amending Parts A, B and C, and filing exhibits
---------------------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[X] on May 1, 1996 pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[ ] on______pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on______pursuant to rule 485(a)(2)
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Registrant has elected to register pursuant to Rule 24f-2 an indefinite number
of shares of beneficial interest of its series designated Wanger U.S. Small Cap
Advisor and Wanger International Small Cap Advisor. On February 28, 1996,
Registrant filed its Rule 24f-2 Notice for the fiscal year ended December 31,
1995.
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<PAGE>
WANGER ADVISORS TRUST
Cross reference sheet pursuant to rule 495(a) of Regulation C
PART A
ITEM NO. PROSPECTUS HEADING
- -------- ------------------
COMBINED PROSPECTUS
Wanger U.S. Small Cap Advisor
Wanger International Small Cap Advisor
--------------------------------------
1. Cover Page Cover Page.
2. Synopsis Expenses and Performance - Expenses
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant The Funds at a Glance; Expenses and
Performance; The Wanger Investment
Objective and Policies; Securities,
Investment Practices, and Risks;
Organization and Management.
5. Management of the Fund Expenses and Performance;
Organization and Management.
5A. Management's Discussion of Fund Not applicable.
Performance
6. Capital Stock and Other Securities Investing in the Funds; Dividends and
Taxes.
7. Purchase of Securities Being Offered Investing in the Funds.
8. Redemption or Repurchase Investing in the Funds.
9. Pending Legal Proceedings Not applicable.
i
<PAGE>
SEPARATE PROSPECTUS
Wanger U.S. Small Cap Advisor
-------------------------------
1. Cover Page Cover Page.
2. Synopsis Expenses and Performance - Expenses
3. Condensed Financial Information Expenses and Performance - Financial
Highlights
4. General Description of Registrant The Fund at a Glance; Expenses and
Performance; The Wanger Investment
Objective and Policies; Securities,
Investment Practices, and Risks;
Organization and Management.
5. Management of the Fund Expenses and Performance;
Organization and Management.
5A. Management's Discussion of Fund Not applicable.
Performance
6. Capital Stock and Other Securities Investing in the Fund; Dividends
and Taxes.
7. Purchase of Securities Being Offered Investing in the Fund.
8. Redemption or Repurchase Investing in the Fund.
9. Pending Legal Proceedings Not applicable.
ii
<PAGE>
PART B HEADING IN STATEMENT
ITEM NO. OF ADDITIONAL INFORMATION
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COMBINED STATEMENT OF ADDITIONAL INFORMATION
Wanger U.S. Small Cap Advisor
Wanger International Small Cap Advisor
--------------------------------------
10. Cover Page Cover Page.
11. Table of Contents Table of Contents.
12. General Information and History Information About the Funds.
13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Techniques and Risks.
14. Management of the Registrant Trustees and Officers.
15. Control Persons and Principal The Trust; Trustees and Officers.
Holders of Securities
16. Investment Advisory and Other Services Investment Adviser; Custodian;
Independent Auditors.
17. Brokerage Allocation Portfolio Transactions.
18. Capital Stock and Other Securities The Trust.
19. Purchase, Redemption, and Pricing of Purchasing and Redeeming Shares.
Securities Being Offered
20. Tax Status Additional Tax Information.
21. Underwriters Distributor.
22. Calculation of Performance Data Performance Information.
23. Financial Statements Information About the Funds.
iii
<PAGE>
SEPARATE STATEMENT OF ADDITIONAL INFORMATION
Wagner U.S. Small Cap Advisor
--------------------------------------------
10. Cover Page Cover Page.
11. Table of Contents Table of Contents.
12. General Information and History Information About the Fund.
13. Investment Objectives and Policies Investment Objectives and Policies;
Investment Techniques and Risks.
14. Management of the Registrant Trustees and Officers.
15. Control Persons and Principal The Trust; Trustees and Officers.
Holders of Securities
16. Investment Advisory and Other Services Investment Adviser; Custodian;
Independent Auditors.
17. Brokerage Allocation Portfolio Transactions.
18. Capital Stock and Other Securities The Trust.
19. Purchase, Redemption, and Pricing of Purchasing and Redeeming Shares.
Securities Being Offered
20. Tax Status Additional Tax Information.
21. Underwriters Distributor.
22. Calculation of Performance Data Performance Information.
23. Financial Statements Information About the Fund.
PART C
- ------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
iv
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[WAT LOGO] Wanger Advisors Trust
Prospectus
May 1, 1996
Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-800-4-WANGER (1-800-492-6437)
<PAGE>
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information about how the Funds invest
and the availability of Fund shares.
A Statement of Additional Information ("SAI") dated the date of this prospectus
has been filed with the Securities and Exchange Commission, and is incorporated
herein by reference. The SAI is available free upon request by calling WAM at:
1-800-4-WANGER.
LIKE ALL MUTUAL FUNDS, 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.
[WAT LOGO]
================================================================================
Wanger Advisors Trust
Wanger U.S. Small Cap Advisor and Wanger International Small Cap Advisor (each,
a "Fund"; together, the "Funds"), each a series of Wanger Advisors Trust (the
"Trust"), invest for long-term capital growth. Each Fund invests primarily in
stocks of small and medium-size companies. Wanger U.S. Small Cap Advisor invests
primarily in U.S. companies. Wanger International Small Cap Advisor invests
primarily in non-U.S. companies. Both Funds are managed by Wanger Asset
Management, L.P. ("WAM").
Shares of Wanger U.S. Small Cap Advisor and Wanger International Small Cap
Advisor are offered to life insurance companies ("Life Companies") for
allocation to certain separate accounts established for the purpose of funding
qualified and non-qualified variable annuity or variable life insurance
contracts ("Variable Contracts"), and may also be offered directly to certain
pension plans and retirement arrangements and accounts permitting accumulation
of funds on a tax-deferred basis ("Retirement Plans").
Prospectus
May 1, 1996
Wanger Advisors Trust
227 West Monroe Street
Suite 3000
Chicago, IL 60606
<PAGE>
Wanger Advisors Trust Prospectus May 1, 1996
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Contents
The Funds at a Glance.................................. 3
Expenses and Performance............................... 4
Investing in the Funds................................. 6
The Wanger Investment Objective and Policies........... 8
Securities, Investment Practices, and Risks............ 10
Organization and Management............................ 14
Dividends and Taxes.................................... 17
2
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Wanger Advisors Trust Prospectus May 1, 1996
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The Funds at a Glance
Goal
Wanger U.S. Small Cap Advisor ("U.S. Small Cap") and Wanger International Small
Cap Advisor ("International Small Cap") invest for long-term growth of capital.
Strategy
U.S. Small Cap and International Small Cap invest primarily in stocks of small
and medium-size companies. The Funds look for attractively-priced companies that
Wanger Asset Management, L.P., investment adviser to the Funds, thinks will
benefit from favorable long-term social, economic, or political trends. The
areas of emphasis change from time to time. U.S. Small Cap invests primarily in
U.S. companies. International Small Cap invests primarily in non-U.S. companies.
Management
Wanger Asset Management, L.P. ("WAM") chooses investments for the Funds. Ralph
Wanger manages both Funds. Leah J. Zell is co-manager of International Small
Cap. The co-managers of U.S. Small Cap are Charles P. McQuaid and Terence M.
Hogan. WAM has a team of analysts who concentrate on investment themes,
countries, economic sectors, industries, and companies.
Who May Want To Invest
U.S. Small Cap and International Small Cap are designed for investors who want
long-term growth of capital rather than income and who have the long-term
investment outlook needed for investing in the stocks of small and medium-size
companies in the U.S. and overseas. Shares of the Funds are sold only to Life
Companies and certain Retirement Plans. See "Investing in the Funds - Who May
Invest."
The value of each Fund's investments and the return it generates vary from
day to day. Performance depends on WAM's skill in identifying the trends that
are the basis for the Funds' stock selections, and in picking individual stocks,
as well as general market and economic conditions.
The stocks of small companies often involve more risk than the stocks of
larger companies. Over time, stocks have shown greater growth potential than
other types of securities. In the short term, however, stock prices may
fluctuate widely in response to company, market, or economic news. The Funds do
not pursue income, and are not by themselves a balanced investment plan.
3
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Wanger Advisors Trust Prospectus May 1, 1996
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Expenses and Performance
Expenses
Transaction expenses are charges paid when shares of the Funds are purchased or
sold.
- ------------------------------------------------------------
Wanger U.S. Small Cap Advisor and
Wanger International Small Cap Advisor
Maximum sales charge on purchases
and reinvested dividends........................... None
Deferred sales charge on redemption.................. None
- ------------------------------------------------------------
Annual Fund operating expenses. Each Fund pays its own operating expenses
including the management fee to WAM. Expenses are factored into a Fund's price
or dividends, are subtracted from the share price daily, and are not charged
directly to shareholders.
All Fund operating expenses are calculated as a percentage of average net
assets.
- ------------------------------------------------------------
Wanger U.S. Small Cap Advisor
Management fee....................................... 1.00%
12b-1 fee............................................ None
Other expenses....................................... 0.35%
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Total Fund operating expenses........................ 1.35%
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Wanger International Small Cap Advisor
Management fee....................................... 1.30%
12b-1 fee............................................ None
Other expenses....................................... 0.50%
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Total Fund operating expenses........................ 1.80%
The Management fees shown are based on the following schedule: for U.S. Small
Cap, 1.00% of the net asset value of the Fund up to $100 million, 0.95% of the
net asset value of the Fund in excess of $100 million and up to $250 million,
and 0.90% of the net asset value in excess of $250 million; for International
Small Cap, 1.30% of the net asset value of the Fund up to $100 million, 1.20% of
the net asset value of the Fund in excess of $100 million and up to $250
million, and 1.10% of the net asset value in excess of $250 million. The "Other
expenses" are estimates for the current year and are not based on past
experience. WAM has voluntarily agreed to reimburse each Fund in the event that
the management fee and certain operating expenses of that Fund in any fiscal
year exceed 1.50% of average daily net assets for U.S. Small Cap and 1.90% of
average daily net assets for International Small Cap. See "Investment Adviser"
in the SAI.
Understanding Expenses
Operating a mutual fund involves a variety of expenses for portfolio management,
accounting, tax reporting, and other services. These costs are paid from the
fund's assets; any quoted share price or return is after expenses.
Example: Let's say, hypothetically, that each Fund's annual return is 5% and
that its operating expenses are exactly as shown above. For every $1,000 you
invested, here's how much would have been paid in total expenses if shares of
each Fund were redeemed after the number of years indicated:
- ------------------------------------------------------------
Wanger U.S. Small Cap Advisor
After 1 year......................................... $14
After 3 years........................................ $43
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- ------------------------------------------------------------
Wanger International Small Cap Advisor
After 1 year......................................... $18
After 3 years........................................ $57
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The table and examples illustrate the effect of direct and indirect expenses,
but are not meant to suggest actual or expected costs or returns, all of which
may vary.
Financial Highlights
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Wanger U.S. Small Cap Advisor
May 3 -- December 31, 1995
Net asset value, beginning of period................. $10.00
Income from investment operations:
Net investment loss................................ (.05)
Net realized and unrealized gains on
investments........................................ 1.65
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Total from investment operations................... 1.60
Less distributions
Total distributions................................ 0.00
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Net asset value, end of period....................... $11.60
============================================================
Total return........................................ 16.00%
Ratios/supplemental data:
Ratio of expenses to average net assets(a)(b)....... 2.08%*
Ratio of net investment income to average
net assets(b)..................................... (1.44%)*
Portfolio turnover rate............................. 59%*
Net assets at end of period..................... $21,903,536
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*Annualized
a) In accordance with a requirement by the Securities and
(notes continued on page 5)
4
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Wanger Advisors Trust Prospectus May 1, 1996
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Expenses and Performance,
continued
Exchange Commission, this ratio reflects gross custodian fees. This ratio net of
custodian fees paid indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of expenses
to average net assets and the ratio of net investment loss to average net assets
would have been 2.35% and (1.71%), respectively.
- ------------------------------------------------------------
Wanger International Small Cap Advisor
May 3 -- December 31, 1995
Net asset value, beginning of period................. $10.00
Income from investment operations:
Net investment loss................................ (.03)
Net realized and unrealized gains on
investments...................................... 3.48
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Total from investment operations................... 3.45
Less distributions
Total distributions................................ 0.00
Net asset value, end of period....................... $13.45
============================================================
Total return......................................... 34.50%
Ratios/supplemental data:
Ratio of expenses to average net assets(a)(b)........ 2.32%*
Ratio of net investment income to average
net assets(b)...................................... (0.81%)*
Portfolio turnover rate.............................. 14%*
Net assets at end of period..................... $11,368,924
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*Annualized
a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees paid
indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of expenses
to average net assets and the ratio of net investment loss to average net assets
would have been 4.20% and (2.69%), respectively.
This information has been audited by Ernst & Young LLP, independent auditors.
Their unqualified report is included in each Fund's Annual Report. The Annual
Reports are incorporated by reference into and are legally a part of the
SAI.
Performance
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment in a fund over a given period, assuming
reinvestment of any dividends and capital gains. Total return reflects actual
performance over a stated period of time. Average annual total return is a
hypothetical rate of return that, if achieved annually, would have produced the
same total return if performance had been constant over the entire period.
Average annual total returns smooth out variations in performance; they are not
the same as actual year-by-year results.
Total returns are based on past results and are not a prediction of future
performance. They do not include the effect of income taxes.
The Funds sometimes show their performance compared to stock indexes
(described in the statement of additional information), or give their ratings or
rankings determined by an unrelated organization.
Information about the performance of the Funds will be contained in each
Fund's annual report which may be obtained free of charge by calling WAM at:
1-800-4-WANGER.
Total returns quoted for the Funds include the effect of deducting each
Fund's expenses, but will not include charges and expenses attributable to a
particular Variable Contract or Retirement Plan. Because shares of the Funds may
only be purchased through a Variable Contract or an eligible Retirement Plan, an
individual owning a Variable Contract or participating in a Retirement Plan
should carefully review the Variable Contract disclosure documents or Retirement
Plan information for information on relevant charges and expenses. Excluding
these charges from quotations of each Fund's performance has the effect of
increasing the performance quoted. These charges should be considered when
comparing a Fund's performance to other investment vehicles.
5
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Wanger Advisors Trust Prospectus May 1, 1996
==============================================================================
Investing in the Funds
Doing Business With The Trust
The Trust provides Life Companies and Retirement Plans with information Monday
through Friday, except holidays, from 8:00 a.m. to 4:30 p.m. Chicago (central)
time. For information, prices, literature, or to obtain information regarding
the availability of Fund shares or how Fund shares are redeemed, call WAM at:
1-800-4-WANGER.
Who May Invest
Shares of the Funds are issued and redeemed in connection with investments in
and payments under certain qualified and non-qualified Variable Contracts issued
through separate accounts of the Life Companies. Shares of the Funds may also be
offered directly to certain of the following types of qualified plans and
retirement arrangements and accounts, collectively called "Retirement Plans":
. a plan described in section 401(a) of the Internal Revenue Code that
includes a trust exempt from tax under section 501(a);
. an annuity plan described in section 403(a);
. an annuity contract described in section 403(b), including a 403(b)(7)
custodial account;
. a governmental plan under section 414(d) or an eligible deferred
compensation plan under section 457(b); and
. a plan described in section 501(c)(18).
The trust or plan must be established before shares of the Funds can be
purchased by the plan. Neither the Funds nor WAM offers prototypes of these
plans. Most Retirement Plans are eligible to purchase Fund shares but the Funds
have imposed certain restrictions to reduce the Funds' expenses. To be eligible
to invest in the Funds, a Retirement Plan must be domiciled in a state in which
Fund shares are registered for sale (which the Funds expect will be the case in
only a few states), or in which an exemption from registration is available. In
most states, this policy will require that a Retirement Plan have at least $5
million in assets and that investment decisions are made by a Plan fiduciary
rather than Plan participants in order for the Plan to be eligible to invest. A
Retirement Plan may call WAM at: 1-800-4-WANGER to determine if it is eligible
to invest.
The Life Companies and the Retirement Plans may or may not make both Funds
available for allocations by owners of Variable Contracts and Retirement Plan
participants.
How to Invest and Redeem
Shares of U.S. Small Cap and International Small Cap may not be purchased or
redeemed directly by individual Variable Contract owners or individual
Retirement Plan participants. Variable Contract owners or Retirement Plan
participants should consult the disclosure documents for their Variable
Contract, or the plan documents (including the summary plan description) for
their Retirement Plan, regarding the provisions of the Variable Contract or of
the Retirement Plan which govern the availability of the Funds as investment
vehicles for allocations under their Variable Contract or Retirement Plan. No
sales commissions of any kind are imposed upon purchases of Fund shares by Life
Companies or Retirement Plans. (However, each Variable Contract imposes its own
charges and fees on owners of the Variable Contract and Retirement Plans may
impose such charges on participants in the Retirement Plan.) The price paid for
shares is the net asset value ("NAV") next calculated after the Fund or its
agent receives and accepts an order to purchase Fund shares. Purchase orders are
considered received when information identifying the purchaser and the money to
pay for the shares are received. Redemptions will be effected through the Life
Companies and Retirement Plan trustees to meet obligations under the Variable
Contracts and the Retirement Plans. In the case of a Life Company purchaser,
particular purchase and redemption procedures typically will be set forth in an
agreement between the Trust and the Life Company. The Trust may enter into
similar agreements with Retirement Plans.
Purchases. To the extent not otherwise provided in any agreement between
the Trust and a Life Company or Retirement Plan, shares of a Fund may be
purchased by check or by wire transfer of funds. To be effective, a purchase
order must consist of the money to purchase the shares and (i) information
identifying the purchaser, in the case of a Life Company or Retirement Plan with
which the Funds have entered into an agreement, or a subsequent purchase by a
Life Company or Retirement Plan that is already a Fund shareholder, or (ii) a
completed purchase application, in the case of the initial investment by a
Retirement Plan with which the Funds do not have an agreement.
6
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Wanger Advisors Trust Prospectus May 1, 1996
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Investing in the Funds, continued
Redemptions. Subject to the terms of any agreement between the Funds and
any Life Company or Retirement Plan, shares may be redeemed by written request
or by telephone (for redemptions of $50,000 or less), with proceeds paid by
check or by wire transfer.
Redeeming Shares in Writing. A written redemption request must:
. identify the owner of the account;
. specify the number of shares or dollar amount to be redeemed;
. be signed on behalf of the owner by an individual or individuals authorized
to do so, and include evidence of their authority;
. if the shares to be redeemed have a value of more than $50,000, include a
signature guarantee by an "eligible guarantor institution" as defined in
the rules under the Securities Exchange Act of 1934 (including a bank,
broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency or savings association, but not a
notary public); and
. be accompanied by any stock certificates representing the shares to be
redeemed.
A check for the redemption proceeds will be mailed to the address of record
unless payment by wire transfer is requested.
Redeeming Shares by Telephone. Unless a Retirement Plan shareholder chose
on its purchase application not to have the ability to do so, redemptions of
shares having a value of $50,000 or less may be requested by calling the Funds'
transfer agent at 1-800-962-1585. The Funds will not be responsible for
unauthorized transactions if they follow reasonable procedures to confirm that
instructions received by telephone are genuine, such as requesting
identification information that appears on a Retirement Plan's purchase
application and requiring permission to record the telephone call. If you are
unable to reach the Funds or their transfer agent by telephone, your redemption
request would have to be placed by mail.
Exchanging Shares by Telephone. To the extent not otherwise provided in an
agreement between the Trust and a Retirement Plan shareholder, a Retirement Plan
may exchange shares of one Fund for shares of the other Fund by telephone by
calling 1-800-962-1585. Shares may be exchanged only between identically-
registered accounts, and the shares in the new Fund must be registered under any
applicable state securities law, or the purchase must be eligible for an
exemption from otherwise applicable state securities registration requirements.
Shares for which share certificates have been issued may not be exchanged by
telephone. (If you want to return your certificates, call the Funds' transfer
agent at 1-800-962-1585 for instructions.) Because excessive trading can hurt
Fund performance and shareholders, the Funds reserve the right to temporarily or
permanently terminate the exchange privilege of any shareholder who makes
excessive use of the exchange plan. In particular, a pattern of exchanges that
coincide with a "market timing" strategy may be disruptive to a Fund. The Funds
may limit the number of exchanges per year. The Funds will not be responsible
for unauthorized transactions if they follow reasonable procedures to confirm
that instructions received by telephone are genuine, such as requesting
identification information that appears on a Retirement Plan's purchase
application and requiring permission to record the telephone call.
Normally, redemption proceeds will be paid within seven days after a Fund
or its agent receives a request for redemption. Redemptions may be suspended or
payment dates postponed on days when the New York Stock Exchange ("NYSE") is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
Share Price
The Funds are open for business each day the NYSE is open. The offering price
(price to buy one share) and redemption price (price to sell one share) are the
Fund's net asset value ("NAV") calculated at the next Closing Time after receipt
of an order. Closing Time is the time of the close of regular session trading on
the NYSE, which is usually 3:00 p.m. Chicago (Central) time, but is sometimes
earlier.
A Fund's NAV is the value of a single share. The NAV is computed by adding
up the value of the Fund's investments, cash, and other assets, subtracting its
liabilities, and then dividing the result by the number of shares outstanding.
Each Fund's portfolio securities and assets are valued primarily on the
basis of market quotations from the primary market in which they are traded or,
if quotations are not readily available, by a method that the Board of Trustees
believes accurately reflects a fair
7
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Wanger Advisors Trust Prospectus May 1, 1996
- ------------------------------------------------------------------------------
Investing in the Funds, continued
value. Values of foreign securities are translated from the local currency into
U.S. dollars using current exchange rates.
A purchase or redemption of Fund shares will be priced at the next NAV
calculated after the purchase or redemption request is received and accepted by
the Funds or their agent. An order received before Closing Time will get that
day's price; an order received after Closing Time will get the next day's price.
Statements and Reports
Information sent to Life Companies and Retirement Plans semi-annually includes:
. Schedule of Fund investments.
. Reports to shareholders.
Call WAM at: 1-800-4-WANGER for copies of Fund reports.
==============================================================================
The Wanger Investment Objective and Policies
U.S. Small Cap and International Small Cap seek long-term growth of capital.
Although income is considered in the selection of securities for U.S. Small Cap,
neither Fund is designed for investors seeking primarily income rather than
capital appreciation.
Fund management expects securities selection criteria for the Funds to be
similar to those for Acorn Fund and Acorn International, which are "retail"
funds with the same investment objectives as U.S. Small Cap and International
Small Cap. However, there cannot be a precise correlation, and the performance
of the Funds is not expected to be the same as that of the corresponding retail
fund. Selection criteria for portfolio securities and the relative weightings of
the selections can differ based on asset size, timing, state insurance law
considerations, investment restrictions, cash flow, expenses, and other factors.
The Funds prefer small companies. Since large institutions seek highly
marketable stocks, the stocks of large companies are studied in detail by
security analysts, with the result that all investors know much the same thing
about large companies. WAM prefers to work with stocks where values are more
attractive because the facts about the companies are not universally known. U.S.
Small Cap and International Small Cap thus generally concentrate purchases on
that segment of the market where the competition is less intense - companies
with a total common stock market capitalization of less than $1 billion. WAM
wants to be able to understand any company in which the Funds invest, and
smaller companies are easier to comprehend than large firms or conglomerates.
When a company develops into a multi-industry giant, it is difficult for even
the top management of the company to understand its own business and even harder
for an outsider to follow such widespread activities. Since WAM places a premium
on understanding the Funds' investments, when possible WAM talks to top
management directly. That is easier to do with smaller firms.
Looking for high quality companies. The Funds look for quality businesses,
with each investment ideally resting on a solid tripod of growth potential,
financial strength, and fundamental value. Not all of the companies in which the
Funds invest necessarily have all of these characteristics.
The sources of growth are a growing marketplace for the company's product,
good design, efficient manufacturing, sound marketing, and good profit margins.
Financial strength means low debt, adequate working capital, and conservative
accounting principles. Strong capitalization gives management the stability and
flexibility to reach strategic objectives. In economies with less well-developed
capital markets than those of the U.S., a strong balance sheet is an essential
component of competitive advantage. Fundamental value means low relative price.
The existence of a good company does not necessarily make its stock a good buy.
The price of a stock determines value as measured relative to dividends,
earnings, cash flow, growth rate, book value, and economic replacement value of
assets. The emphasis on fundamentals in relation to price sets U.S. Small Cap
and International Small Cap apart from pure "growth" or "value" funds.
WAM also believes that finding and understanding high quality companies is
important because investing in smaller companies involves relatively
8
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Wanger Advisors Trust Prospectus May 1, 1996
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The Wanger Investment Objective and Policies, continued
higher investment costs. One way to reduce these costs is to invest with a long-
term time horizon (at least 3-5 years) and to avoid frequent turnover of the
stocks held by the Funds. Occasionally, however, securities purchased on a long-
term basis may be sold within 12 months after purchase in light of a change in
the circumstances of a particular company or industry, or in general market or
economic conditions.
Investment themes. To find long-term investments and reduce their rate of
turnover, the Funds seek out areas of the economy that they believe will benefit
from favorable long-term economic and political trends. These areas of emphasis
may change from time to time, and are usually related to identified investment
themes or market niches. A small company frequently can carve out a specialized
niche for itself. The niche can be geographic, like that of a regional bank,
utility, or railroad. It can be technological, based on patents and know-how.
Sometimes the niche is a marketing technique. In international investing, the
niche can be participation in a fast-growth economy. A well-run business in a
growing country has an easier path to a high growth rate. The most important
single theme at this time is the information group (including communications,
media, electronics, and computer systems and software).
The Funds invest primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities.
The Funds may purchase foreign securities in the form of American Depository
Receipts (ADRs), European Depository Receipts (EDRs), or other securities
representing underlying shares of foreign issuers. The Funds may also invest in
any other type of security, including debt securities.
Under normal market conditions, International Small Cap will generally
invest at least 65% of its total assets, taken at market value, in foreign
securities. The foreign securities in which the Funds invest may be traded in
mature markets and in emerging markets. Each Fund's investment restrictions do
not require it to invest in a minimum or maximum number of countries; however,
state insurance laws may impose diversification or other requirements on the
Funds' foreign investing. The Funds may invest without limit in corporate or
government obligations or hold cash or cash equivalents if WAM determines that a
temporary defensive position is advisable. If investments in foreign securities
appear to be relatively unattractive because of current or anticipated adverse
political or economic conditions, International Small Cap may hold cash or
invest any portion of its assets in securities of the U.S. government and its
agencies and instrumentalities and equity and debt securities of U.S. companies,
as a temporary defensive strategy. The Funds use various techniques to increase
or decrease their exposure to the effects of possible changes in security
prices, currency exchange rates, or other factors that affect the value of a
Fund's portfolio. These techniques include buying and selling options, futures
contracts, or options on futures contracts, or entering into currency exchange
contracts or swap agreements.
The investment objective of either U.S. Small Cap or International Small
Cap may be changed by the Board of Trustees without shareholder approval. If
there were such a change, investors should consider whether that Fund would
remain an appropriate investment in light of then current financial position and
needs. The Funds are not intended, alone or together, to present a balanced
investment program.
9
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Wanger Advisors Trust Prospectus May 1, 1996
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Securities, Investment Practices, and Risks
The following pages contain more detailed information about types of investments
the Funds may make, and strategies WAM may employ in pursuit of each Fund's
investment objective, including information about the risks and restrictions
associated with these instrument types and investment practices. All policies
stated throughout this prospectus, other than those identified as fundamental,
can be changed without shareholder approval. A complete statement of each Fund's
investment restrictions is included in the SAI. Policies and limitations are
considered at the time of purchase; the sale of instruments is not required
because of a subsequent change in circumstances.
WAM may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help a Fund
achieve its goal.
Common stocks represent an equity (ownership) interest in a corporation.
This ownership interest often gives a Fund the right to vote on measures
affecting the company's organization and operations. Although common stocks have
a history of long-term growth in value, their prices tend to fluctuate in the
short term.
U.S. Small Cap and International Small Cap invest mostly in the securities
of smaller companies, that is, companies with a total common stock market
capitalization of less than $1 billion at the time of the initial investment.
During some periods, the securities of small companies, as a class, have
performed better than the securities of large companies, and in some periods
they have performed worse. Stocks of small companies tend to be more volatile
and less liquid than stocks of large companies. Small companies, as compared
with larger companies, may have a shorter history of operations, may not have as
great an ability to raise additional capital, may have a less diversified
product line making them susceptible to market pressure, and may have a smaller
public market for their shares.
Restrictions: Neither Fund may acquire securities of any one issuer which
at the time of investment (a) represent more than 10% of the voting securities
of the issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer.*
Foreign Securities
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks which in some ways may be greater than in U.S.
investments. International investing allows greater diversification and provides
an ability to take advantage of changes in foreign economies and market
conditions. From time to time, many foreign economies have grown faster than the
U.S. economy, and the returns on investments in these countries have exceeded
those of similar U.S. investments, although there can be no assurance that these
conditions will continue.
Investors should understand and consider carefully the greater risks
involved in foreign investing. Investing in foreign securities, positions in
which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts involve certain risks and
opportunities not typically associated with investing in U.S. securities. These
include: fluctuations in exchange rates of foreign currencies; imposition of
exchange control regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public information with
respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; different accounting,
auditing and financial reporting standards; different settlement periods and
trading practices; less liquidity and frequently greater price volatility in
foreign markets than in the United States; imposition of foreign taxes; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. In addition, the costs of
investing in foreign securities are higher than the cost of investing in U.S.
securities.
Investing in countries outside the U.S. also involves political risk. A
foreign government might restrict investments by foreigners, expropriate assets,
seize or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource
* These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
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Wanger Advisors Trust Prospectus May 1, 1996
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Securities, Investment Practices, and Risks, continued
self-sufficiency and balance of payments positions. Many emerging market
countries have experienced extremely high rates of inflation for many years.
That has had and may continue to have side effects on the economies and
securities markets of those countries.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid, and more volatile than the securities markets of
the United States and other more developed countries. Disclosure and regulatory
standards are in many respects less stringent than in the U.S. There also may be
a lower level of monitoring and regulation in emerging markets of traders,
insiders, and investors. Enforcement of existing regulations has been extremely
limited.
The Funds may invest in ADRs that are not sponsored by the issuer of the
underlying security. To the extent a Fund does so, it would probably bear its
proportionate share of the expenses of the depository and might have greater
difficulty in receiving copies of the issuer's shareholder communications than
would be the case with a sponsored ADR.
The Funds may invest in securities purchased on a when-issued and delayed
delivery basis. Although the payment terms of these securities are established
at the time a Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. A Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if WAM considers it advisable for investment reasons.
Restrictions: Under normal market conditions, International Small Cap
invests at least 65% of its total assets in foreign securities. U.S. Small Cap
will generally invest at least 65% of its total assets in domestic securities.
Managing Investment Exposure
The Funds use various techniques to increase or decrease their exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of the Funds' portfolios. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts or swap agreements.
These techniques are used by WAM to adjust the risk and return
characteristics of the Funds' portfolios. If WAM judges market conditions
incorrectly or employs a strategy that does not correlate well with a Fund's
investments, or if the counterparty to the transaction does not perform as
promised, the transaction could result in a loss. Use of these techniques may
increase the volatility of a Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. These techniques are used by the
Funds for hedging, risk management or portfolio management purposes and not for
speculation.
Currency exchange transactions. A currency exchange transaction may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through a forward
currency exchange contract ("forward contract"). A forward contract is an
agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into with banks and broker-dealers, are
not exchange-traded and are usually for less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different
countries in which the Funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The Funds' currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to a specific receivable or payable of a Fund accruing in connection with the
purchase or sale of portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. The Funds may engage in
portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denominated
in such currency. When a Fund owns or anticipates owning securities in countries
whose currencies are linked, WAM may aggregate such positions as to the currency
hedged. Although forward contracts may be used to protect a Fund from adverse
currency movements, the use of such hedges may reduce or
11
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Wanger Advisors Trust Prospectus May 1, 1996
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Securities, Investment Practices, and Risks, continued
eliminate the potentially positive effect of currency revaluations on that
Fund's total return.
Options and futures. Each Fund may enter into stock index or currency
futures contracts (or options thereon) to hedge a portion of that Fund's
portfolio, to provide an efficient means of regulating the Fund's exposure to
the equity markets, or as a hedge against changes in prevailing levels of
currency exchange rates. Each Fund may write covered call options and purchase
put and call options on foreign currencies, securities, and stock indices.
Futures contracts and options can be highly volatile. A Fund's attempt to use
such investments for hedging purposes may not be successful and could result in
reduction of that Fund's total return.
Restrictions: A Fund will not use futures contracts for speculation, and
will limit its use of futures contracts so that no more than 5% of that Fund's
total assets would be committed to initial margin deposits or premiums on such
contracts. The aggregate market value of each Fund's currencies or portfolio
securities covering call or put options will not exceed 10% of that Fund's net
assets.
Debt Securities
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of comparable
quality. Securities rated BBB or Baa are considered to be medium grade and to
have speculative characteristics. Investment in non-investment grade debt
securities is speculative and involves a high degree of risk.
Lower-rated debt securities (commonly called "junk bonds") are often
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's creditworthiness. The market prices of these
securities may fluctuate more than higher-rated securities and may decline
significantly in periods of general economic difficulty.
Money market instruments are high-quality, short-term debt securities that
present minimal credit risk. These instruments may carry fixed or variable
interest rates and are called cash-equivalents.
U.S. Small Cap may invest without limit in corporate or government
obligations, or hold cash or cash equivalents if WAM determines that a temporary
defensive position is advisable. If investments in foreign securities appear to
be relatively unattractive because of current or anticipated adverse political
or economic conditions, International Small Cap may hold cash or invest any
portion of its assets in securities of the U.S. government, its agencies and
instrumentalities, and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs (which, under normal
market conditions, are not expected to exceed 25% of its total assets) or for
temporary defensive purposes, each Fund may hold cash in domestic and foreign
currencies and may invest in domestic and foreign money market securities.
Restrictions: There are no restrictions on the ratings of debt securities
owned by the Funds or the portion of a Fund's assets that may be invested in
debt securities in a particular ratings category, except that neither Fund may
invest more than 20% of its assets in securities rated below investment grade or
considered by WAM to be of comparable credit quality. Neither Fund expects to
invest more than 5% of its net assets in such securities during the current
fiscal year.
Illiquid and Restricted Securities
Some investments may be determined by WAM to be illiquid, which means that they
may be difficult to sell promptly at an acceptable price. Other securities, such
as securities acquired in private placements, may be sold only in compliance
with certain legal restrictions. Difficulty in selling securities may result in
delays or a loss, or may be costly to the Fund.
Restrictions: Neither Fund may purchase a security if, as a result, more
than 15% of its net assets would be invested in illiquid or restricted
securities.*
* These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
12
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Wanger Advisors Trust Prospectus May 1, 1996
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Securities, Investment Practices, and Risks, continued
Lending and Repurchase Agreements
The Funds generally may not make loans, but will invest in repurchase
agreements. A repurchase agreement involves a sale of securities to a Fund in
which the seller agrees to repurchase the securities at a higher price, which
includes an amount representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller, the Fund could
experience both losses and delays in liquidating its collateral.
Restrictions: Neither Fund may make loans, but this restriction shall not
prevent a Fund from (a) buying a part of an issue of bonds, debentures, or other
obligations that are publicly distributed, or from investing up to an aggregate
of 15% of its total assets (taken at market value at the time of each purchase)
in parts of issues of bonds, debentures or other obligations of a type privately
placed with financial institutions, (b) investing in repurchase agreements, or
(c) lending portfolio securities,/1/ provided that it may not lend securities
if, as a result, the aggregate value of all securities loaned would exceed 33%
of its total assets (taken at market value at the time of such loan).*
Diversification
Each Fund's investment portfolio is well diversified to reduce risk.
Restrictions: Neither Fund may, with respect to 75% of its total assets,
invest more than 5% of its total assets in the securities of any one issuer.
Neither Fund may invest more than 25% of its total assets in any one industry.
This limitation does not apply to U.S. government securities.*
Other Investment Companies
Certain markets are closed in whole or in part to equity investments by
foreigners. The Funds may be able to invest in such markets solely or primarily
through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a
premium above the value of the issuer's portfolio securities, and is subject to
market availability. In the case of a purchase of shares of such a company in a
public offering, the purchase price may include an underwriting spread. The
Funds do not intend to invest in other investment companies unless, in the
judgment of WAM, the potential benefits of such investment justify the payment
of any applicable premium or sales charge. As a shareholder in an investment
company, a Fund would bear its ratable share of that investment company's
expenses, including its advisory and administration fees. At the same time the
Fund would continue to pay its own management fees and other expenses.
Restrictions: A Fund generally may invest up to 10% of its assets in shares
of other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in
another investment company may represent more than 3% of the outstanding stock
of the acquired investment company at the time of investment.
State Insurance Restrictions
The Funds are sold to the Life Companies in connection with Variable Contracts,
and will seek to be available under Variable Contracts sold in a number of
jurisdictions. Certain states have regulations or guidelines concerning
concentration of investments and other investment techniques. If applied to the
Funds, the Funds may be limited in their ability to engage in certain techniques
and to manage their portfolios with the flexibility provided herein. In order to
permit a Fund to be available under Variable Contracts sold in certain states,
each Fund may make commitments that are more restrictive than the investment
policies and limitations described above and in the statement of additional
information. If a Fund determines that such a commitment is no longer in the
Fund's best interests, the commitment may be revoked by terminating the
availability of the Fund to Variable Contract owners residing in such states.
/1/ The Funds have no present intention of lending their portfolio securities.
* These restrictions are "fundamental," which means that they cannot be
changed without shareholder approval.
13
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Wanger Advisors Trust Prospectus May 1, 1996
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Organization and Management
Organization
U.S. Small Cap and International Small Cap are series of Wanger Advisors Trust,
an open-end, management investment company. The Trust is a Massachusetts
business trust organized under an agreement and declaration of trust dated
August 30, 1994. Each share of a Fund is entitled to participate pro rata in any
dividends and other distributions declared by the Board of Trustees with respect
to that Fund, and all shares of a Fund have equal rights in the event of
liquidation of that Fund.
The Trust is governed by a Board of Trustees, which is responsible for
protecting the interests of the shareholders of the Funds. The Trustees are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Trust and the Funds, review contractual
arrangements with companies that provide services to the Funds and the Trust,
and review performance.
The Trust may hold special meetings of shareholders. These meetings may be
called to elect or remove Trustees, change fundamental policies, approve a
management contract, or for other purposes. The Funds will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. (The Trust is not required to hold annual meetings of shareholders and
does not intend to do so.) For further information on the rights of shareholders
of the Funds, see "Availability of the Funds and Shareholder Rights" below.
Management
The Funds are managed by Wanger Asset Management, L.P., 227 West Monroe Street,
Suite 3000, Chicago, Illinois 60606, which chooses the Funds' investments and
handles their business affairs under the direction of the Board of Trustees. WAM
is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., controlled by Ralph Wanger. WAM manages approximately $4.5
billion in assets.
Ralph Wanger is the Funds' portfolio manager. Mr. Wanger also manages Acorn
Fund and Acorn International, each a series of Acorn Investment Trust. Mr.
Wanger has been president and a member of the board of Acorn Investment Trust
and its predecessor since 1970. He is a principal of WAM and was a principal of
Acorn's prior adviser until July 1992. As portfolio manager, Mr. Wanger is
primarily responsible for development of the Funds' investment strategies.
Charles P. McQuaid and Terence M. Hogan are co-managers of U.S. Small Cap.
They are trustees of the Trust, of which Mr. McQuaid is senior vice president
and Mr. Hogan is a vice president. Mr. McQuaid is a trustee and senior vice
president of Acorn Investment Trust. He has been a principal of WAM since July
1992 and before that date was a principal of Acorn's prior investment adviser.
Mr. Hogan is a vice president of Acorn Investment Trust. He has been a principal
of WAM since July 1992 and was an analyst with Acorn's prior investment adviser
before that date. Mr. McQuaid and Mr. Hogan have been working with Mr. Wanger
for 18 and 10 years, respectively.
Leah J. Zell is co-manager of International Small Cap and is a trustee and
vice president of the Trust. Ms. Zell, who is a vice president of Acorn
Investment Trust, has been a principal of WAM since July 1992 and was an analyst
with Acorn's prior investment adviser before that date. Ms. Zell has been
working with Mr. Wanger for 12 years.
Merrillyn J. Kosier, vice president and secretary, and Bruce H. Lauer, vice
president and treasurer, are the other executive officers of the Trust.
State Street Bank and Trust Company is each Fund's transfer agent,
shareholder servicing agent and custodian.
Distributor
Shares of the Funds are offered for sale through WAM Brokerage Services, L.L.C.
(Distributor) without any sales commission or charges to the Funds or Life
Companies or Retirement Plans purchasing Fund
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Wanger Advisors Trust Prospectus May 1, 1996
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Organization and Management, continued
shares. However, each Variable Contract imposes its own charges and fees on
owners of Variable Contracts and Retirement Plans and may impose such charges on
participants in a Retirement Plan. The Distributor is wholly-owned by WAM, the
Funds' investment adviser, and the investment adviser's general partner, Wanger
Asset Management, Ltd. The Distributor's address is 227 West Monroe Street,
Suite 3000, Chicago, Illinois 60606. All distribution and promotional expenses
relating to the Funds are paid by WAM, including the payment or reimbursement of
any expenses incurred by the Distributor.
Expenses
Like all mutual funds, U.S. Small Cap and International Small Cap pay expenses
related to their daily operations. Expenses paid out of each Fund's assets are
reflected in its share price or dividends.
Each Fund pays a management fee to WAM for managing its investments and
business affairs, as set forth under "Expenses and Performance." The rates of
fee paid by each Fund are higher than those paid by many mutual funds,
reflecting the higher costs involved in actively managing "small cap"
portfolios, and in managing an international portfolio.
While the management fee is a significant component of each Fund's annual
operating costs, the Funds have other expenses as well. Each Fund pays the fees
of its custodian, transfer agents, auditors and lawyers. It also pays other
expenses such as the cost of compliance with federal and state laws, proxy
solicitations, shareholder reports, taxes, insurance premiums, and the fees of
Trustees who are not otherwise affiliated with the Trust or WAM.
Additional expenses are incurred under the Variable Contracts and the
Retirement Plans. These expenses are not described in this prospectus; Variable
Contract owners and Retirement Plan participants should consult the Variable
Contract disclosure documents or Retirement Plan information regarding these
expenses.
From time to time, WAM may pay amounts from its past profits to Life
Companies or other organizations that provide administrative services for the
Funds or that provide to owners of Variable Contracts and/or participants in
Retirement Plans other services relating to the Funds. These services may
include, among other things: sub-accounting services; answering inquiries
regarding the Funds; transmitting, on behalf of the Funds, proxy statements,
shareholder reports, updated prospectuses and other communications regarding the
Funds; and such other related services as the Funds, owners of Variable
Contracts, and/or participants in Retirement Plans may request. The amount of
any such payment will be determined by the nature and extent of the services
provided by the Life Company or other organization. Payment of such amounts by
WAM will not increase the fees paid by the Funds or their shareholders.
Availability of the Funds and Shareholder Rights
Shares of the Funds will be sold only to separate accounts of Life Companies,
and to certain Retirement Plans as described under "Investing in the
Funds -- Who May Invest." The Trustees of the Trust may refuse to sell shares of
the Funds to any person, or suspend or terminate the offering of shares if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable states laws, necessary
in the best interests of the shareholders of the Funds.
Each Fund offers its shares to (i) Variable Contracts (including variable
annuity and variable life insurance contracts) offered through Life Companies
which may or may not be affiliated with each other and (ii) Retirement Plans.
Due to differences in tax treatment and other considerations, the interests of
various Variable Contract owners and Retirement Plan participants may conflict.
The Board of Trustees of the Trust will monitor the Funds for any material
conflicts that may arise and will determine what action, if any, should be
taken. If a conflict occurs, the Board of Trustees may require one or more Life
Companies' separate accounts and/or Retirement Plans to with-
15
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Wanger Advisors Trust Prospectus May 1, 1996
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Organization and Management, continued
draw its investments in the Funds. As a result, a Fund may be forced to sell
securities at disadvantageous prices. In addition, the Board of Trustees may
refuse to sell shares of the Funds to any Variable Contract or Retirement Plan
or may suspend or terminate the offering of shares of the Funds if such action
is required by law or regulatory authority or is in the best interests of the
shareholders of the Funds.
Pursuant to current interpretations of the Investment Company Act of 1940,
as amended (the "1940 Act"), the Life Companies will solicit voting instructions
from Variable Contract owners with respect to any matters that are presented to
a vote of shareholders. The exercise of voting rights on shares held by
Retirement Plans will be governed by the terms of such Retirement Plans. Some
Retirement Plans may pass-through voting to plan participants. Shares held by
other Retirement Plans may be voted by the trustees of the Retirement Plan or by
a named fiduciary or an investment manager. Retirement Plan participants should
consult their plan documents for information.
On any matter submitted to a vote of shareholders, all shares of the Trust
then issued and outstanding and entitled to vote shall be voted in the aggregate
and not by Fund, except for matters concerning only one Fund. Certain matters
approved by a vote of shareholders of one Fund of the Trust may not be binding
on a Fund whose shareholders have not approved such matters. The holder of each
share of the Trust shall be entitled to one vote for each full share and a
fractional vote for each fractional share of stock. Shares of one Fund may not
bear the same economic relationship to the Trust as shares of another Fund.
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Wanger Advisors Trust Prospectus May 1, 1996
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Dividends and Taxes
Each Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code"). As such,
a Fund is not subject to federal income tax on that part of its investment
company taxable income (consisting generally of net investment income, net gains
from certain foreign currency transactions, and net realized short-term capital
gain, if any) and any net realized capital gain (the excess of net realized
long-term capital gain over net realized short-term capital loss) that it
distributes to its shareholders. It is the intention of each Fund to distribute
all such income and gains.
All dividends are distributed to the separate accounts and to the
Retirement Plans and will be automatically reinvested in Trust shares. Dividends
and distributions made by the Funds to the separate accounts are taxable, if at
all, to the Life Companies; they are not taxable to Variable Contract owners.
Dividends and distributions made by the Funds to the Retirement Plans are not
taxable to the Retirement Plans or to the participants thereunder.
For a discussion of the taxation of the Life Companies and separate
accounts, as well as the tax treatment of the Variable Contracts and the owners
thereof, see the disclosure documents for the Variable Contracts. For
information regarding the taxation of Retirement Plans as well as the
participants thereunder, see the plan administrator and plan documents for the
Retirement Plan. Prospective investors are urged to consult their tax advisers.
Each Fund intends to comply with the diversification requirements imposed
by Section 817(h) of the Code and the regulations thereunder. These requirements
are in addition to the diversification requirements imposed on each Fund by
Subchapter M of the Code and the 1940 Act. Section 817(h) places certain
limitations on the assets of a separate account that may be invested in
securities of a single issuer, and, because Section 817(h) and the regulations
thereunder treat a Fund's assets as assets of the related separate account,
these limitations also apply to the Fund's assets that may be invested in
securities of a single issuer. Generally, the regulations provide that, as of
the end of each calendar quarter, or within 30 days thereafter, no more than 55%
of a Fund's total assets may be represented by any one investment, no more than
70% by any two investments, no more than 80% by any three investments, and no
more than 90% by any four investments. For purposes of Section 817(h), all
securities of the same issuer, all interests in the same real property project,
and all interests in the same commodity are treated as a single investment.
Generally, compliance by the Funds with the requirements of Section 817(h) and
the regulations thereunder is not prevented by reason of the fact that shares in
a Fund may be held by the trustee of a qualified pension or other retirement
plan. Failure of a Fund to satisfy the Section 817(h) requirements could result
in adverse tax consequences to the Life Companies and Variable Contract owners.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting the Funds and their shareholders; see the
Statement of Additional Information for additional discussion.
17
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[WAT LOGO] Wanger Advisors Trust
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Trustees
Fred D. Hasselbring
Terence M. Hogan
Charles P. McQuaid
P. Michael Phelps
James A. Star
Ralph Wanger
Leah J. Zell
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Officers
Ralph Wanger, President
Charles P. McQuaid, Senior Vice President
Terence M. Hogan, Vice President
Leah J. Zell, Vice President
Merrillyn J. Kosier, Vice President and Secretary
Bruce H. Lauer, Vice President and Treasurer
Kenneth A. Kalina, Assistant Treasurer
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Transfer Agent, Dividend Disbursing Agent and Custodian
State Street Bank and Trust Company
Attention: Wanger Advisors Trust
P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
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Distributor
WAM Brokerage Services, L.L.C.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
312-634-9200
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Investment Advisor
Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
312-634-9200
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Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
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Auditors
Ernst & Young LLP
Chicago, Illinois
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WANGER ADVISORS TRUST
Wanger U.S. Small Cap Advisor
Wanger U.S. Small Cap Advisor (the "Fund"), a series of Wanger Advisors Trust
(the "Trust"), invests for long-term capital growth. The Fund invests primarily
in stocks of small and medium-size companies and primarily in U.S. companies.
The Fund is managed by Wanger Asset Management, L.P. ("WAM").
Shares of the Fund are offered to life insurance companies ("Life Companies")
for allocation to certain separate accounts established for the purpose of
funding qualified and non-qualified variable annuity or variable life insurance
contracts ("Variable Contracts"), and may also be offered directly to certain
pension plans and retirement arrangements and accounts permitting accumulation
of funds on a tax-deferred basis ("Retirement Plans").
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Please read this prospectus before investing, and keep it on file for future
reference. It contains important information about how the Fund invests and the
availability of Fund shares.
A Statement of Additional Information ("SAI") dated the date of this prospectus
has been filed with the Securities and Exchange Commission, and is incorporated
herein by reference. The SAI is available free upon request by calling WAM at:
1-800-4-WANGER.
LIKE ALL MUTUAL FUNDS, 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.
PROSPECTUS
May 1, 1996
Wanger U.S. Small Cap Advisor
227 West Monroe Street
Suite 3000
Chicago, IL 60606
1-800-4-WANGER (1-800-492-6437)
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CONTENTS
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THE FUND AT A GLANCE................................................... 1
EXPENSES AND PERFORMANCE............................................... 2
INVESTING IN THE FUND.................................................. 4
THE WANGER INVESTMENT OBJECTIVE AND POLICIES........................... 7
SECURITIES, INVESTMENT PRACTICES, AND RISKS............................ 8
ORGANIZATION AND MANAGEMENT............................................ 14
DIVIDENDS AND TAXES.................................................... 16
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THE FUND AT A GLANCE
GOAL
Wanger U.S. Small Cap Advisor (the "Fund") invests for long-term growth of
capital.
STRATEGY
The Fund invests primarily in stocks of small and medium-size companies. The
Fund looks for attractively-priced companies that Wanger Asset Management, L.P.,
investment adviser to the Fund, thinks will benefit from favorable long-term
social, economic, or political trends. The areas of emphasis change from time to
time. The Fund invests primarily in U.S. companies.
MANAGEMENT
Wanger Asset Management, L.P. ("WAM") chooses investments for the Fund, and
Ralph Wanger manages the Fund. The co-managers of the Fund are Charles P.
McQuaid and Terence M. Hogan. WAM has a team of analysts who concentrate on
investment themes, countries, economic sectors, industries, and companies.
WHO MAY WANT TO INVEST
The Fund is designed for investors who want long-term growth of capital rather
than income and who have the long-term investment outlook needed for investing
in the stocks of small and medium-size companies in the U.S. and overseas.
Shares of the Fund are sold only to Life Companies and certain Retirement Plans.
See "Investing in the Fund -- Who May Invest."
The value of the Fund's investments and the return it generates vary from day to
day. Performance depends on WAM's skill in identifying the trends that are the
basis for the Fund's stock selections, and in picking individual stocks, as well
as general market and economic conditions.
The stocks of small companies often involve more risk than the stocks of larger
companies. Over time, these stocks have shown greater growth potential than
other types of securities. In the short term, however, stock prices may
fluctuate widely in response to company, market, or economic news. The Fund does
not pursue income, and is not by itself a balanced investment plan.
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EXPENSES AND PERFORMANCE
EXPENSES
Transaction expenses are charges paid when shares of the Fund are purchased or
sold.
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Maximum sales charge on purchases
and reinvested dividends.........................................None
Deferred sales charge on redemption..............................None
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Annual Fund operating expenses. The Fund pays its own operating expenses
including the management fee to WAM. Expenses are factored into the Fund's price
or dividends, are subtracted from the share price daily, and are not charged
directly to shareholders.
All Fund operating expenses are calculated as a percentage of average net
assets.
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Management fee.................................................... 1.00%
12b-1 Fee......................................................... None
Other expenses.................................................... 0.35%
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Total Fund operating expenses..................................... 1.35%
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The Management fees shown are based on the following schedule: 1.00% of the net
asset value of the Fund up to $100 million, 0.95% of the net asset value of the
Fund in excess of $100 million and up to $250 million, and 0.90% of the net
asset value in excess of $250 million. The "Other expenses" are estimates for
the current year and are not based on past experience. WAM has voluntarily
agreed to reimburse the Fund in the event that the management fee and certain
operating expenses of the Fund in any fiscal year exceed 1.50% of average daily
net assets of the Fund. See "Investment Adviser" in the SAI.
UNDERSTANDING EXPENSES
Operating a mutual fund involves a variety of expenses for portfolio management,
accounting, tax reporting, and other services. These costs are paid from the
fund's assets; any quoted share price or return is after expenses.
Example: Let's say, hypothetically, that the Fund's annual return is 5% and
that its operating expenses are exactly as shown above. For every $1,000 you
invested, here's how much would have been paid in total expenses if shares of
the Fund were redeemed after the number of years indicated:
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After 1 year...................................................... $ 14
After 3 years..................................................... $ 43
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The table and examples illustrate the effect of direct and indirect expenses,
but are not meant to suggest actual or expected costs or returns, all of which
may vary.
FINANCIAL HIGHLIGHTS
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May 3 - December 31, 1995
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NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00
Income from investment operations:
Net investment loss..................................... (.05)
Net realized and unrealized gain on investments......... 1.65
Total from investment operations........................ 1.60
Less distributions
Total distributions......................................... 0.00
NET ASSET VALUE, END OF PERIOD.............................. $ 11.60
TOTAL RETURN................................................ 16.00%
RATIOS/SUPPLEMENTAL DATA:...................................
Ratio of expenses to average net assets (a) (b)........... 2.08%*
Ratio of net investment income to average net assets (b).. (1.44%)*
Portfolio turnover rate................................... 59%*
Net assets at end of period............................. $21,903,536
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*Annualized
(a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.
(b) The Fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been 2.35% and (1.71%), respectively.
This information has been audited by Ernst & Young LLP, independent
auditors. Their unqualified report is included in the Fund's Annual Report. The
Annual Report is incorporated by reference into and is legally a part of the
SAI.
PERFORMANCE
Mutual fund performance is commonly measured as total return. Total return is
the change in value of an investment in a fund over a given period, assuming
reinvestment of any dividends and capital gains. Total return reflects actual
performance over a stated period of time. Average annual total return is a
hypothetical rate of return that, if achieved annually, would have produced
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the same total return if performance had been constant over the entire period.
Average annual total returns smooth out variations in performance; they are not
the same as actual year-by-year results.
TOTAL RETURNS ARE BASED ON PAST RESULTS AND ARE NOT A PREDICTION OF FUTURE
PERFORMANCE. They do not include the effect of income taxes.
The Fund sometimes shows its performance compared to stock indexes
(described in the statement of additional information), or gives its ratings or
rankings determined by an unrelated organization.
Information about the performance of the Fund will be contained in the
Fund's annual report which may be obtained free of charge by calling WAM at:
1-800-4-WANGER.
TOTAL RETURNS QUOTED FOR THE FUND INCLUDE THE EFFECT OF DEDUCTING THE
FUND'S EXPENSES, BUT WILL NOT INCLUDE CHARGES AND EXPENSES ATTRIBUTABLE TO A
PARTICULAR VARIABLE CONTRACT OR RETIREMENT PLAN. BECAUSE SHARES OF THE FUND MAY
ONLY BE PURCHASED THROUGH A VARIABLE CONTRACT OR AN ELIGIBLE RETIREMENT PLAN, AN
INDIVIDUAL OWNING A VARIABLE CONTRACT OR PARTICIPATING IN A RETIREMENT PLAN
SHOULD CAREFULLY REVIEW THE VARIABLE CONTRACT DISCLOSURE DOCUMENTS OR RETIREMENT
PLAN INFORMATION FOR INFORMATION ON RELEVANT CHARGES AND EXPENSES. Excluding
these charges from quotations of the Fund's performance has the effect of
increasing the performance quoted. These charges should be considered when
comparing the Fund's performance to other investment vehicles.
INVESTING IN THE FUND
DOING BUSINESS WITH THE TRUST
The Trust provides Life Companies and Retirement Plans with information Monday
through Friday, except holidays, from 8:00 a.m. to 4:30 p.m. Chicago (central)
time. For information, prices, literature, or to obtain information regarding
the availability of Fund shares or how Fund shares are redeemed, call WAM
at 1-800-4-WANGER.
WHO MAY INVEST
Shares of the Fund are issued and redeemed in connection with investments in and
payments under certain qualified and non-qualified Variable Contracts issued
through separate accounts of the Life Companies. Shares of the Fund may also be
offered directly to certain of the following types of qualified plans and
retirement arrangements and accounts, collectively called "Retirement Plans":
. a plan described in section 401(a) of the Internal Revenue Code that
includes a trust exempt from tax under section 501(a);
. an annuity plan described in section 403(a);
. an annuity contract described in section 403(b), including a 403(b)(7)
custodial account;
. a governmental plan under section 414(d) or an eligible deferred
compensation plan under section 457(b); and
. a plan described in section 501(c)(18).
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The trust or plan must be established before shares of the Fund can be purchased
by the plan. Neither the Fund nor WAM offers prototypes of these plans. Most
Retirement Plans are eligible to purchase Fund shares but the Fund has imposed
certain restrictions to reduce the Fund's expenses. To be eligible to invest in
the Fund, a Retirement Plan must be domiciled in a state in which the Fund's
shares are registered for sale (which the Fund expects will be the case in only
a few states), or in which an exemption from registration is available. In most
states, this policy will require that a Retirement Plan have at least $5 million
in assets and that investment decisions are made by a Plan fiduciary rather than
Plan participants in order for the Plan to be eligible to invest. A Retirement
Plan may call WAM at 1-800-4-WANGER to determine if it is eligible to
invest.
HOW TO INVEST AND REDEEM
SHARES OF THE FUND MAY NOT BE PURCHASED OR REDEEMED DIRECTLY BY INDIVIDUAL
VARIABLE CONTRACT OWNERS OR INDIVIDUAL RETIREMENT PLAN PARTICIPANTS. Variable
Contract owners or Retirement Plan participants should consult the disclosure
documents for their Variable Contract, or the plan documents (including the
summary plan description) for their Retirement Plan, regarding the provisions of
the Variable Contract or of the Retirement Plan which govern the availability of
the Fund as an investment vehicle for allocations under their Variable Contract
or Retirement Plan.
No sales commissions of any kind are imposed upon purchases of the Fund's
shares by Life Companies or Retirement Plans. (However, each Variable Contract
imposes its own charges and fees on owners of the Variable Contract, and
Retirement Plans may impose such charges on participants in the Retirement
Plan.) The price paid for shares is the net asset value ("NAV") next calculated
after the Fund or its agent receives and accepts an order to purchase the Fund's
shares. Purchase orders are considered received when information identifying the
purchaser and the money to pay for the shares are received. Redemptions will be
effected through the Life Companies and Retirement Plan trustees to meet
obligations under the Variable Contracts and the Retirement Plans. In the case
of a Life Company purchaser, particular purchase and redemption procedures
typically will be set forth in an agreement between the Trust and the Life
Company. The Fund may enter into similar agreements with Retirement Plans.
PURCHASES. To the extent not otherwise provided in any agreement between
the Fund and a Life Company or Retirement Plan, shares of the Fund may be
purchased by check or by wire transfer of funds. To be effective, a purchase
order must consist of the money to purchase the shares and (i) information
identifying the purchaser, in the case of a Life Company or Retirement Plan with
which the Fund has entered into an agreement, or a subsequent purchase by a Life
Company or Retirement Plan that is already a Fund shareholder, or (ii) a
completed purchase application, in the case of the initial investment by a
Retirement Plan with which the Fund does not have an agreement.
REDEMPTIONS. Subject to the terms of any agreement between the Fund and
any Life Company or Retirement Plan, shares may be redeemed by written request
or by telephone (for redemptions of $50,000 or less), with proceeds paid by
check or by wire transfer.
Redeeming Shares in Writing. A written redemption request must:
. identify the owner of the account;
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. specify the number of shares or dollar amount to be redeemed;
. be signed on behalf of the owner by an individual or individuals authorized
to do so, and include evidence of their authority;
. if the shares to be redeemed have a value of more than $50,000, include a
signature guarantee by an "eligible guarantor institution" as defined in
the rules under the Securities Exchange Act of 1934 (including a bank,
broker, dealer, credit union, national securities exchange, registered
securities association, clearing agency or savings association, but not a
notary public); and
. be accompanied by any stock certificates representing the shares to be
redeemed.
A check for the redemption proceeds will be mailed to the address of record
unless payment by wire transfer is requested.
Redeeming Shares by Telephone. Unless a Retirement Plan shareholder chose
on its purchase application not to have the ability to do so, redemptions of
shares having a value of $50,000 or less may be requested by calling the Fund's
transfer agent at 1-800-962-1585. The Fund will not be responsible for
unauthorized transactions if it follows reasonable procedures to confirm that
instructions received by telephone are genuine, such as requesting
identification information that appears on a Retirement Plan's purchase
application and requiring permission to record the telephone call. If you are
unable to reach the Fund or its transfer agent by telephone, your redemption
request would have to be placed by mail.
Normally, redemption proceeds will be paid within seven days after the Fund or
its agent receives a request for redemption. Redemptions may be suspended or
payment date postponed on days when the New York Stock Exchange ("NYSE") is
closed (other than weekends or holidays), when trading on the NYSE is
restricted, or as permitted by the SEC.
SHARE PRICE
The Fund is open for business each day the NYSE is open. The offering price
(price to buy one share) and redemption price (price to sell one share) are the
Fund's net asset value ("NAV") calculated at the next Closing Time after receipt
of an order. Closing Time is the time of the close of regular session trading on
the NYSE, which is usually 3:00 p.m. Chicago (central) time, but is sometimes
earlier.
The Fund's NAV is the value of a single share. The NAV is computed by
adding up the value of the Fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
The Fund's portfolio securities and assets are valued primarily on the
basis of market quotations from the primary market in which they are traded or,
if quotations are not readily available, by a method that the Board of Trustees
believes accurately reflects a fair value. Values of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
A purchase or redemption of the Fund's shares will be priced at the next
NAV calculated after the purchase or redemption request is received and accepted
by the Fund or its agent. An order received before Closing Time will get that
day's price; an order received after Closing Time will get the next day's price.
6
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STATEMENTS AND REPORTS
Information sent to Life Companies and Retirement Plans semiannually includes:
. Schedule of the Fund's investments.
. Reports to shareholders.
Call WAM at: 1-800-4-WANGER for copies of the Fund's reports.
THE WANGER INVESTMENT OBJECTIVE AND POLICIES
WANGER U.S. SMALL CAP ADVISOR seeks long-term growth of capital. Although income
is considered in the selection of securities for the Fund, the Fund is not
designed for investors seeking primarily income rather than capital
appreciation.
The Fund's management expects securities selection criteria for the Fund to
be similar to those for Acorn Fund, which is a "retail" fund with the same
investment objective as the Fund. However, there cannot be a precise
correlation, and the performance of the Fund is not expected to be the same as
that of the retail fund. Selection criteria for portfolio securities and the
relative weightings of the selections can differ based on asset size, timing,
state insurance law considerations, investment restrictions, cash flow,
expenses, and other factors.
THE FUND PREFERS SMALL COMPANIES. Since large institutions seek highly
marketable stocks, the stocks of large companies are studied in detail by
security analysts, with the result that all investors know much the same thing
about large companies. WAM prefers to work with stocks where values are more
attractive because the facts about the companies are not universally known. The
Fund thus generally concentrates purchases on that segment of the market where
the competition is less intense -- companies with a total common stock market
capitalization of less than $1 billion. WAM wants to be able to understand any
company in which the Fund invests, and smaller companies are easier to
comprehend than large firms or conglomerates. When a company develops into a
multi-industry giant, it is difficult for even the top management of the company
to understand its own business and even harder for an outsider to follow such
widespread activities. Since WAM places a premium on understanding the Fund's
investments, when possible WAM talks to top management directly. That is easier
to do with smaller firms.
LOOKING FOR HIGH QUALITY COMPANIES. The Fund looks for quality businesses,
with each investment ideally resting on a solid tripod of growth potential,
financial strength, and fundamental value. Not all of the companies in which the
Fund invests necessarily have all of these characteristics.
The sources of growth are a growing marketplace for the company's product,
good design, efficient manufacturing, sound marketing, and good profit margins.
Financial strength means low debt, adequate working capital, and conservative
accounting principles. Strong capitalization gives management the stability and
flexibility to reach strategic objectives. In economies with less well-developed
capital markets than those of the U.S., a strong balance sheet is an essential
component of competitive advantage. Fundamental value means low relative price.
The existence of a good company does not necessarily make its stock a good buy.
The price of a stock determines value as measured relative to dividends,
earnings, cash flow, growth rate, book value, and economic replacement value of
assets. The emphasis on fundamentals in relation to price sets the Fund apart
from pure "growth" or "value" funds.
7
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WAM also believes that finding and understanding high quality companies is
important because investing in smaller companies involves relatively higher
investment costs. One way to reduce these costs is to invest with a long-term
time horizon (at least 3-5 years) and to avoid frequent turnover of the stocks
held by the Fund. Occasionally, however, securities purchased on a long-term
basis may be sold within 12 months after purchase in light of a change in the
circumstances of a particular company or industry, or in general market or
economic conditions.
INVESTMENT THEMES. To find long-term investments and reduce its rate of
turnover, the Fund seeks out areas of the economy that it believes will benefit
from favorable long-term economic and political trends. These areas of emphasis
may change from time to time, and are usually related to identified investment
themes or market niches. A small company frequently can carve out a specialized
niche for itself. The niche can be geographic, like that of a regional bank,
utility, or railroad. It can be technological, based on patents and know-how.
Sometimes the niche is a marketing technique. In international investing, the
niche can be participation in a fast-growth economy. A well-run business in a
growing country has an easier path to a high growth rate. The most important
single theme at this time is the information group (including communications,
media, electronics, and computer systems and software).
The Fund invests primarily in equity securities, including common and
preferred stocks, warrants or other similar rights, and convertible securities.
The Fund may purchase foreign securities in the form of American Depository
Receipts (ADRs), European Depository Receipts (EDRs), or other securities
representing underlying shares of foreign issuers. The Fund may also invest in
any other type of security, including debt securities.
The foreign securities in which the Fund invests may be traded in mature
markets and in emerging markets. The Fund's investment restrictions do not
require it to invest in a minimum or maximum number of countries; however, state
insurance laws may impose diversification or other requirements on the Fund's
foreign investing. The Fund may invest without limit in corporate or government
obligations or hold cash or cash equivalents if WAM determines that a temporary
defensive position is advisable. The Fund uses various techniques to increase or
decrease its exposure to the effects of possible changes in security prices,
currency exchange rates, or other factors that affect the value of the Fund's
portfolio. These techniques include buying and selling options, futures
contracts, or options on futures contracts, or entering into currency exchange
contracts or swap agreements.
The investment objective of the Fund may be changed by the Board of
Trustees without shareholder approval. If there were such a change, investors
should consider whether the Fund would remain an appropriate investment in light
of then current financial position and needs. The Fund is not intended to
present a balanced investment program.
SECURITIES, INVESTMENT PRACTICES, AND RISKS
The following pages contain more detailed information about types of investments
the Fund may make, and strategies WAM may employ in pursuit of the Fund's
investment objective, including information about the risks and restrictions
associated with these instrument types and investment practices. All policies
stated throughout this prospectus, other than those identified as fundamental,
can be changed without shareholder approval. A complete statement of the Fund's
investment restrictions is included in the SAI. Policies and limitations are
considered at
8
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the time of purchase; the sale of instruments is not required because of a
subsequent change in circumstances.
WAM may not buy all of these instruments or use all of these techniques to
the full extent permitted unless it believes that doing so will help the Fund
achieve its goal.
Common stocks represent an equity (ownership) interest in a corporation.
This ownership interest often gives the Fund the right to vote on measures
affecting the company's organization and operations. Although common stocks have
a history of long-term growth in value, their prices tend to fluctuate in the
short term.
The Fund invests mostly in the securities of smaller companies, that is,
companies with a total common stock market capitalization of less than $1
billion at the time of the initial investment. During some periods, the
securities of small companies, as a class, have performed better than the
securities of large companies, and in some periods they have performed worse.
Stocks of small companies tend to be more volatile and less liquid than stocks
of large companies. Small companies, as compared with larger companies, may have
a shorter history of operations, may not have as great an ability to raise
additional capital, may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public market for their
shares.
Restrictions: The Fund may not acquire securities of any one issuer which
at the time of investment (a) represent more than 10% of the voting securities
of the issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer.*
FOREIGN SECURITIES
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks which in some ways may be greater than in U.S.
investments. International investing allows greater diversification and provides
an ability to take advantage of changes in foreign economies and market
conditions. From time to time, many foreign economies have grown faster than the
U.S. economy, and the returns on investments in these countries have exceeded
those of similar U.S. investments, although there can be no assurance that these
conditions will continue.
Investors should understand and consider carefully the greater risks
involved in foreign investing. Investing in foreign securities, positions in
which are generally denominated in foreign currencies, and utilization of
forward foreign currency exchange contracts involve certain risks and
opportunities not typically associated with investing in U.S. securities. These
include: fluctuations in exchange rates of foreign currencies; imposition of
exchange control regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public information with
respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; different accounting,
auditing and financial reporting standards; different settlement periods and
trading practices; less liquidity and frequently greater price volatility in
foreign markets than in the United States; imposition of foreign taxes; and
sometimes less advantageous legal, operational, and financial protections
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* These restrictions are "fundamental," which means that they cannot be
changed without shareholder approval.
9
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applicable to foreign sub-custodial arrangements. In addition, the costs of
investing in foreign securities are higher than the cost of investing in U.S.
securities.
Investing in countries outside the U.S. also involves political risk. A
foreign government might restrict investments by foreigners, expropriate assets,
seize or nationalize foreign bank deposits or other assets, establish exchange
controls, or enact other policies that could affect investment in these nations.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product, rates of
inflation, currency depreciation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Many emerging market countries
have experienced extremely high rates of inflation for many years. That has had
and may continue to have side effects on the economies and securities markets of
those countries.
The securities markets of emerging countries are substantially smaller,
less developed, less liquid, and more volatile than the securities markets of
the United States and other more developed countries. Disclosure and regulatory
standards are in many respects less stringent than in the U.S. There also may be
a lower level of monitoring and regulation in emerging markets of traders,
insiders, and investors. Enforcement of existing regulations has been extremely
limited.
The Fund may invest in ADRs that are not sponsored by the issuer of the
underlying security. To the extent the Fund does so, it would probably bear its
proportionate share of the expenses of the depository and might have greater
difficulty in receiving copies of the issuer's shareholder communications than
would be the case with a sponsored ADR.
The Fund may invest in securities purchased on a when-issued and delayed
delivery basis. Although the payment terms of these securities are established
at the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. A Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities before settlement
date if WAM considers it advisable for investment reasons.
Restrictions: Under normal market conditions, the Fund will generally
invest at least 65% of its total assets in domestic securities.
MANAGING INVESTMENT EXPOSURE
The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of the Fund's portfolio. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts or swap agreements.
These techniques are used by WAM to adjust the risk and return
characteristics of the Fund's portfolio. If WAM judges market conditions
incorrectly or employs a strategy that does not correlate well with the Fund's
investments, or if the counterparty to the transaction does not perform as
promised, the transaction could result in a loss. Use of these techniques may
increase the volatility of the Fund and may involve a small investment of cash
relative to the magnitude of the risk assumed. These techniques are used by the
Fund for hedging, risk management or portfolio management purposes and not for
speculation.
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through a forward
currency exchange contract ("forward
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contract"). A forward contract is an agreement to purchase or sell a specified
currency at a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are usually entered
into with banks and broker-dealers, are not exchange-traded and are usually for
less than one year, but may be renewed.
Currency exchange transactions may involve currencies of the different
countries in which the Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The Fund's currency
transactions are limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involving
either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to a specific receivable or payable of the Fund accruing in connection with the
purchase or sale of portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. The Fund may engage in
portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denominated
in such currency. When the Fund owns or anticipates owning securities in
countries whose currencies are linked, WAM may aggregate such positions as to
the currency hedged. Although forward contracts may be used to protect the Fund
from adverse currency movements, the use of such hedges may reduce or eliminate
the potentially positive effect of currency revaluations on the Fund's total
return.
OPTIONS AND FUTURES. The Fund may enter into stock index or currency
futures contracts (or options thereon) to hedge a portion of the Fund's
portfolio, to provide an efficient means of regulating the Fund's exposure to
the equity markets, or as a hedge against changes in prevailing levels of
currency exchange rates. The Fund may write covered call options and purchase
put and call options on foreign currencies, securities, and stock indices.
Futures contracts and options can be highly volatile. The Fund's attempt to use
such investments for hedging purposes may not be successful and could result in
reduction of the Fund's total return.
Restrictions: The Fund will not use futures contracts for speculation, and
will limit its use of futures contracts so that no more than 5% of the Fund's
total assets would be committed to initial margin deposits or premiums on such
contracts. The aggregate market value of the Fund's currencies or portfolio
securities covering call or put options will not exceed 10% of the Fund's net
assets.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates.
"Investment grade" debt securities are those rated within the four highest
ratings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of comparable
quality. Securities rated BBB or Baa are considered to be medium grade and to
have speculative characteristics. Investment in non-investment grade debt
securities is speculative and involves a high degree of risk.
Lower-rated debt securities (commonly called "junk bonds") are often
considered speculative and involve greater risk of default or price changes due
to changes in the issuer's
11
<PAGE>
creditworthiness. The market prices of these securities may fluctuate more than
higher-rated securities and may decline significantly in periods of general
economic difficulty.
MONEY MARKET INSTRUMENTS are high-quality, short-term debt securities that
present minimal credit risk. These instruments may carry fixed or variable
interest rates and are called cash equivalents.
The Fund may invest without limit in corporate or government obligations,
or hold cash or cash equivalents if WAM determines that a temporary defensive
position is advisable. To meet liquidity needs (which, under normal market
conditions, are not expected to exceed 25% of its total assets) or for temporary
defensive purposes, the Fund may hold cash in domestic and foreign currencies
and may invest in domestic and foreign money market securities.
Restrictions: There are no restrictions on the ratings of debt securities
owned by the Fund or the portion of the Fund's assets that may be invested in
debt securities in a particular ratings category, except that the Fund may not
invest more than 20% of its assets in securities rated below investment grade or
considered by WAM to be of comparable credit quality. The Fund does not expect
to invest more than 5% of its net assets in such securities during the current
fiscal year.
ILLIQUID AND RESTRICTED SECURITIES
Some investments may be determined by WAM to be illiquid, which means that they
may be difficult to sell promptly at an acceptable price. Other securities, such
as securities acquired in private placements, may be sold only in compliance
with certain legal restrictions. Difficulty in selling securities may result in
delays or a loss, or may be costly to the Fund.
Restrictions: The Fund may not purchase a security if, as a result, more
than 15% of its net assets would be invested in illiquid or restricted
securities.*
LENDING AND REPURCHASE AGREEMENTS
The Funds generally may not make loans, but will invest in repurchase
agreements. A repurchase agreement involves a sale of securities to a Fund in
which the seller agrees to repurchase the securities at a higher price, which
includes an amount representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller the Fund could
experience both losses and delays in liquidating its collateral.
Restrictions: Neither Fund may make loans, but this restriction shall not
prevent a Fund from (a) buying a part of an issue of bonds, debentures, or other
obligations that are publicly distributed, or from investing up to an aggregate
of 15% of its total assets (taken at market value at the time of each purchase)
in parts of issues of bonds, debentures or other obligations of a type privately
placed with financial institutions, (b) investing in repurchase agreements, or
(c) lending
- -------------------
* These restrictions are "fundamental," which means that they cannot be
changed without shareholder approval.
12
<PAGE>
portfolio securities,/1/ provided that it may not lend securities if, as a
result, the aggregate value of all securities loaned would exceed 33% of its
total assets (taken at market value at the time of such loan).*
DIVERSIFICATION
The Fund's investment portfolio is well diversified to reduce risk.
Restrictions: The Fund may not with respect to 75% of its total assets,
invest more than 5% of its total assets in the securities of any one issuer. The
Fund may not invest more than 25% of its total assets in any one industry. This
limitation does not apply to U.S. government securities.*
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments by
foreigners. The Fund may be able to invest in such markets solely or primarily
through governmentally-authorized investment companies.
Investment in another investment company may involve the payment of a
premium above the value of the issuer's portfolio securities, and is subject to
market availability. In the case of a purchase of shares of such a company in a
public offering, the purchase price may include an underwriting spread. The Fund
does not intend to invest in other investment companies unless, in the judgment
of WAM, the potential benefits of such investment justify the payment of any
applicable premium or sales charge. As a shareholder in an investment company,
the Fund would bear its ratable share of that investment company's expenses,
including its advisory and administration fees. At the same time the Fund would
continue to pay its own management fees and other expenses.
Restrictions: The Fund generally may invest up to 10% of its assets in
shares of other investment companies and up to 5% of its assets in any one
investment company (in each case measured at the time of investment). No
investment in another investment company may represent more than 3% of the
outstanding stock of the acquired investment company at the time of investment.
STATE INSURANCE RESTRICTIONS
The Fund is sold to the Life Companies in connection with Variable Contracts,
and will seek to be available under Variable Contracts sold in a number of
jurisdictions. Certain states have regulations or guidelines concerning
concentration of investments and other investment techniques. If applied to the
Fund, the Fund may be limited in its ability to engage in certain techniques and
to manage its portfolio with the flexibility provided herein. In order to permit
the Fund to be available under Variable Contracts sold in certain states, the
Fund may make
- -----------------------
/1/ The Funds have no present intention of lending their portfolio securities.
* These restrictions are "fundamental," which means that they cannot be
changed without shareholder approval.
13
<PAGE>
commitments that are more restrictive than the investment policies and
limitations described above and in the statement of additional information. If
the Fund determines that such a commitment is no longer in the Fund's best
interests, the commitment may be revoked by terminating the availability of the
Fund to Variable Contract owners residing in such states.
ORGANIZATION AND MANAGEMENT
ORGANIZATION
The Fund is a series of Wanger Advisors Trust, an open-end, management
investment company. Wanger Advisors Trust currently has two series, the Fund and
Wanger International Small Cap Advisor. The Trust is a Massachusetts business
trust organized under an agreement and declaration of trust dated August 30,
1994. Each share of the Fund is entitled to participate pro rata in any
dividends and other distributions declared by the Board of Trustees with respect
to the Fund, and all shares of the Fund have equal rights in the event of
liquidation of the Fund.
The Trust is governed by a Board of Trustees, which is responsible for
protecting the interests of the shareholders of the Fund. The Trustees are
experienced executives and professionals who meet at regular intervals to
oversee the activities of the Trust and the Fund, review contractual
arrangements with companies that provide services to the Fund and the Trust, and
review performance.
The Trust may hold special meetings of shareholders. These meetings may be
called to elect or remove Trustees, change fundamental policies, approve a
management contract, or for other purposes. The Fund will mail proxy materials
in advance, including a voting card and information about the proposals to be
voted on. (The Trust is not required to hold annual meetings of shareholders and
does not intend to do so.) For further information on the rights of shareholders
of the Fund, see "Availability of the Fund and Shareholder Rights" below.
MANAGEMENT
The Fund is managed by Wanger Asset Management, L.P., 227 West Monroe Street,
Suite 3000, Chicago, Illinois 60606, which chooses the Fund's investments and
handles its business affairs under the direction of the Board of Trustees. WAM
is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., controlled by Ralph Wanger. WAM manages approximately $4.5
billion in assets.
Ralph Wanger is the Fund's portfolio manager. Mr. Wanger also manages Acorn
Fund and Acorn International, each a series of Acorn Investment Trust, as well
as Wanger International Small Cap Advisor, another series of Wanger Advisors
Trust. Mr. Wanger has been president and a member of the board of Acorn Fund and
its predecessor since 1970. He is a principal of WAM and was a principal of
Acorn Fund's prior adviser until July 1992. As portfolio manager, Mr. Wanger is
primarily responsible for development of the Fund's investment strategies.
Charles P. McQuaid and Terence M. Hogan are co-managers of the Fund. They
are trustees of the Trust, of which Mr. McQuaid is senior vice president and Mr.
Hogan is a vice president. Mr. McQuaid is a trustee and senior vice president of
Acorn Investment Trust. He has been a principal of WAM since July 1992 and
before that date was a principal of Acorn's prior
14
<PAGE>
investment adviser. Mr. Hogan is a vice president of Acorn Investment Trust. He
has been a principal of WAM since July 1992 and was an analyst with Acorn's
prior investment adviser before that date.
Merrillyn J. Kosier, vice president and secretary, and Bruce H. Lauer, vice
president and treasurer, are the other executive officers of the Trust.
State Street Bank and Trust Company is the Fund's transfer agent,
shareholder servicing agent and custodian.
DISTRIBUTOR
Shares of the Funds are offered for sale through WAM Brokerage Services, L.L.C.
(Distributor) without any sales commission or charges to the Funds or Life
Companies or Retirement Plans purchasing Fund shares. However, each Variable
Contract imposes its own charges and fees on owners of Variable Contracts and
Retirement Plans and may impose such charges on participants in a Retirement
Plan. The Distributor is wholly-owned by WAM, the Funds' investment adviser, and
the investment adviser's general partner, Wanger Asset Management, Ltd. The
Distributor's address is 227 West Monroe Street, Suite 3000, Chicago, Illinois
60606. All distribution and promotional expenses relating to the Funds are paid
by WAM, including the payment or reimbursement of any expenses incurred by the
Distributor.
EXPENSES
Like all mutual funds, the Fund pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends. The Fund pays a management fee to WAM for managing its investments
and business affairs, as set forth under "Expenses and Performance." The rates
of fee paid by the Fund are higher than those paid by many mutual funds,
reflecting the higher costs involved in actively managing "small cap"
portfolios.
While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses as well. The Fund pays the fees of
its custodian, transfer agents, auditors and lawyers. It also pays other
expenses such as the cost of compliance with federal and state laws, proxy
solicitations, shareholder reports, taxes, insurance premiums, and the fees of
Trustees who are not otherwise affiliated with the Trust or WAM.
Additional expenses are incurred under the Variable Contracts and the
Retirement Plans. These expenses are not described in this prospectus; Variable
Contract owners and Retirement Plan participants should consult the Variable
Contract disclosure documents or Retirement Plan information regarding these
expenses.
From time to time, WAM may pay amounts from its past profits to Life
Companies or other organizations that provide administrative services for the
Fund or that provide to owners of Variable Contracts and/or participants in
Retirement Plans other services relating to the Fund. These services may
include, among other things: sub-accounting services; answering inquiries
regarding the Fund; transmitting, on behalf of the Fund, proxy statements,
shareholder reports, updated prospectuses and other communications regarding the
Fund; and such other related services as the Fund, owners of Variable Contracts,
and/or participants in Retirement Plans may request. The amount of any such
payment will be determined by the nature and extent of the services provided by
the Life Company or other organization. Payment of such amounts by WAM will not
increase the fees paid by the Fund or its shareholders.
15
<PAGE>
AVAILABILITY OF THE FUND AND
SHAREHOLDER RIGHTS
Shares of the Fund will be sold only to separate accounts of Life Companies, and
to certain Retirement Plans as described under "Investing in the Fund -- Who May
Invest." The Trustees of the Trust may refuse to sell shares of the Fund to any
person, or suspend or terminate the offering of shares if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable states laws, necessary in the
best interests of the shareholders of the Fund.
The Fund offers its shares to (i) Variable Contracts (including variable
annuity and variable life insurance contracts) offered through Life Companies
which may or may not be affiliated with each other and (ii) Retirement Plans.
due to differences in tax treatment and other considerations, the interests of
various Variable contract owners and Retirement Plan participants may conflict.
The Board of Trustees of the Trust will monitor the Fund for any material
conflicts that may arise and will determine what action, if any, should be
taken. If a conflict occurs, the Board of Trustees may require one or more Life
Companies' separate accounts and/or Retirement Plans to withdraw its investments
in the Fund. As a result, the Fund may be forced to sell securities at
disadvantageous prices. In addition, the Board of Trustees may refuse to sell
shares of the Fund to any Variable Contract or Retirement Plan or may suspend or
terminate the offering of shares of the Fund if such action is required by law
or regulatory authority or is in the best interests of the shareholders of the
Fund.
Pursuant to current interpretations of the Investment Company Act of 1940,
as amended, the Life Companies will solicit voting instructions from Variable
Contract owners with respect to any matters that are presented to a vote of
shareholders. The exercise of voting rights on shares held by Retirement Plans
will be governed by the terms of such Retirement Plans. Some Retirement Plans
may pass-through voting to plan participants. Shares held by other Retirement
Plans may be voted by the trustees of the Retirement Plan or by a named
fiduciary or an investment manager. Retirement Plan participants should consult
their plan documents for information.
On any matter submitted to a vote of shareholders, all shares of the Trust
then issued and outstanding and entitled to vote, including shares of both the
Fund and Wanger International Small Cap Advisor the other series of the Trust,
shall be voted in the aggregate and not by fund, except for matters concerning
only the Fund. Certain matters approved by a vote of shareholders of one fund of
the Trust may not be binding on a fund whose shareholders have not approved such
matters. The holder of each share of the Trust shall be entitled to one vote for
each full share and a fractional vote for each fractional share of stock. Shares
of one fund may not bear the same economic relationship to the Trust as shares
of another fund.
DIVIDENDS AND TAXES
The Fund intends to qualify and to continue to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended
("Code"). As such, the Fund is not subject to federal income tax on that part of
its investment company taxable income (consisting generally of net investment
income, net gains from certain foreign currency transactions, and net realized
short-term capital gain, if any) and any net realized capital gain (the
16
<PAGE>
excess of net realized long-term capital gain over net realized short-term
capital loss) that it distributes to its shareholders. It is the intention of
the Fund to distribute all such income and gains.
All dividends are distributed to the separate accounts and to the
Retirement Plans and will be automatically reinvested in Trust shares. Dividends
and distributions made by the Fund to the separate accounts are taxable, if at
all, to the Life Companies; they are not taxable to Variable Contract owners.
Dividends and distributions made by the Fund to the Retirement Plans are not
taxable to the Retirement Plans or to the participants thereunder.
For a discussion of the taxation of the Life Companies and separate
accounts, as well as the tax treatment of the Variable Contracts and the owners
thereof, see the disclosure documents for the Variable Contracts. For
information regarding the taxation of Retirement Plans as well as the
participants thereunder, see the plan administrator and plan documents for the
Retirement Plan. Prospective investors are urged to consult their tax advisers.
The Fund intends to comply with the diversification requirements imposed by
Section 817(h) of the Code and the regulations thereunder. These requirements
are in addition to the diversification requirements imposed on the Fund by
Subchapter M of the Code and the 1940 Act. Section 817(h) places certain
limitations on the assets of a separate account that may be invested in
securities of a single issuer, and, because Section 817(h) and the regulations
thereunder treat the Fund's assets as assets of the related separate account,
these limitations also apply to the Fund's assets that may be invested in
securities of a single issuer. Generally, the regulations provide that, as of
the end of each calendar quarter, or within 30 days thereafter, no more than 55%
of the Fund's total assets may be represented by any one investment, no more
than 70% by any two investments, no more than 80% by any three investments, and
no more than 90% by any four investments. For purposes of Section 817(h), all
securities of the same issuer, all interests in the same real property project,
and all interests in the same commodity are treated as a single investment.
Generally, compliance by the Fund with the requirements of Section 817(h) and
the regulations thereunder is not prevented by reason of the fact that shares in
the Fund may be held by the trustee of a qualified pension or other retirement
plan. Failure of the Fund to satisfy the Section 817(h) requirements could
result in adverse tax consequences to the Life Companies and Variable Contract
owners.
The foregoing is only a summary of some of the important federal income tax
considerations generally affecting the Fund and its shareholders; see the
Statement of Additional Information for additional discussion.
17
<PAGE>
<TABLE>
<CAPTION>
======================================================================================================================
WANGER ADVISORS TRUST
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TRUSTEES Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ----------------------------------------------------------------------------------------------------------------------
OFFICERS Ralph Wanger, President Leah J. Zell, Vice President
Charles P. McQuaid, Senior Vice President Merrillyn J. Kosier, Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Kenneth A. Kalina, Assistant Treasurer
- ----------------------------------------------------------------------------------------------------------------------
TRANSFER AGENT, State Street Bank and Trust Company
DIVIDEND DISBURSING Attention: Wanger Advisors Trust
AGENT AND CUSTODIAN P.O. Box 8502
Boston Massachusetts 02266-8502
1-800-962-1585
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISOR Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-800-4-WANGER
(1-800-492-6437)
- ----------------------------------------------------------------------------------------------------------------------
LEGAL COUNSEL Bell, Boyd & Lloyd
Chicago, Illinois
- ----------------------------------------------------------------------------------------------------------------------
AUDITORS Ernst & Young LLP
Chicago, Illinois
</TABLE>
<PAGE>
WANGER ADVISORS TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1996
227 West Monroe Street
Chicago, Illinois 60606
Telephone: 1-800-4-WANGER
-------------------------
WANGER U.S. SMALL CAP ADVISOR
WANGER INTERNATIONAL SMALL CAP ADVISOR
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
INFORMATION ABOUT THE FUNDS.............................................. 2
INVESTMENT OBJECTIVES AND POLICIES....................................... 2
INVESTMENT TECHNIQUES AND RISKS.......................................... 2
INVESTMENT RESTRICTIONS.................................................. 15
PERFORMANCE INFORMATION.................................................. 18
INVESTMENT ADVISER....................................................... 19
DISTRIBUTOR.............................................................. 21
THE TRUST................................................................ 21
TRUSTEES AND OFFICERS; CERTAIN SHAREHOLDERS.............................. 22
PURCHASING AND REDEEMING SHARES.......................................... 24
ADDITIONAL TAX INFORMATION............................................... 25
PORTFOLIO TRANSACTIONS................................................... 28
CUSTODIAN................................................................ 29
INDEPENDENT AUDITORS..................................................... 29
APPENDIX................................................................. A-1
</TABLE>
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
WANGER ADVISORS TRUST dated May 1, 1996 and any supplement thereto, which may be
obtained from the Trust at no charge by writing or telephoning Wanger Asset
Management, L.P., the Trust's investment adviser, at the address or telephone
number shown above.
1
<PAGE>
INFORMATION ABOUT THE FUNDS
WANGER U.S. SMALL CAP ADVISOR ("U.S. Small Cap") and WANGER INTERNATIONAL SMALL
CAP ADVISOR ("International Small Cap") (each, a "Fund"; together, the "Funds")
are series of Wanger Advisors Trust (the "Trust"). Both Funds are currently
available only for allocation to certain life insurance company ("Life Company")
separate accounts established for the purpose of funding certain qualified and
non-qualified variable annuity contracts ("Variable Contracts"), and may also be
offered directly to certain types of pension plans and retirement arrangements
and accounts permitting the accumulation of funds on a tax-deferred basis
("Retirement Plans"), as described in the prospectus.
The 1995 annual report of each Fund, copies of which accompany this SAI, contain
audited financial statements, notes thereto, supplementary information entitled
"Financial Highlights," and a report of independent auditors, all of which (but
no other part of the annual reports) are incorporated into this Statement of
Additional Information by reference. Additional copies of the annual reports may
be obtained without charge by writing or telephoning Wanger Asset Management,
L.P. at the address or telephone number shown on the cover page of this
Statement of Additional Information.
The discussion below supplements the description in the prospectus of the Funds'
investment objectives, policies, and restrictions.
INVESTMENT OBJECTIVES AND POLICIES
U.S. SMALL CAP and INTERNATIONAL SMALL CAP invest with the objective of long-
term growth of capital. Although income is considered by U.S. SMALL CAP in the
selection of securities, the Funds are not designed for investors seeking
primarily income rather than capital appreciation. Both Funds are managed by
Wanger Asset Management, L.P. ("WAM").
The Funds use the techniques and invest in the types of securities described
below and in the prospectus.
INVESTMENT TECHNIQUES AND RISKS
FOREIGN SECURITIES
The Funds invest in foreign securities, which may entail a greater degree of
risk (including risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of domestic issuers.
Under normal market conditions, International Small Cap invests at least 65% of
its total assets, taken at market value, in foreign securities. U.S. Small Cap
does not have a current intention to invest more than 5% of its net assets in
foreign securities.
2
<PAGE>
The Funds may invest in securities of foreign issuers directly or in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), or
other securities representing underlying shares of foreign issuers. Positions in
these securities are not necessarily denominated in the same currency as the
common stocks into which they may be converted. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets. A Fund may invest in both "sponsored" and
"unsponsored" ADRs. In a sponsored ADR, the issuer typically pays some or all of
the expenses of the depository and agrees to provide its regular shareholder
communications to ADR holders. An unsponsored ADR is created independently of
the issuer of the underlying security. The ADR holders generally pay the
expenses of the depository and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. Neither Fund expects
to invest more than 5% of its total assets in unsponsored ADRs.
A Fund's investment performance is affected by the strength or weakness of the
U.S. dollar against the currencies of the foreign markets in which the Fund's
securities trade or in which they are denominated. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the yen-denominated stock will fall. (See the
discussion of transaction hedging and portfolio hedging under "Foreign Currency
Exchange Transactions.")
Investors should understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities, positions in which are generally
denominated in foreign currencies, and utilization of forward foreign currency
exchange contracts involve risks and opportunities not typically associated with
investing in U.S. securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of exchange control
regulation or currency restrictions that would prevent cash from being brought
back to the United States; less public information with respect to issuers of
securities; less governmental supervision of stock exchanges, securities
brokers, and issuers of securities; different accounting, auditing, and
financial reporting standards; different settlement periods and trading
practices; less liquidity and frequently greater price volatility in foreign
markets than in the United States; imposition of foreign taxes; and sometimes
less advantageous legal, operational, and financial protections applicable to
foreign sub-custodial arrangements.
Although the Funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
3
<PAGE>
CURRENCY EXCHANGE TRANSACTIONS
The Funds may enter into currency exchange transactions. A currency exchange
transaction may be conducted either on a spot (i.e., cash) basis at the spot
rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.
Forward currency transactions may involve currencies of the different countries
in which the Funds may invest, and serve as hedges against possible variations
in the exchange rate between these currencies. The Funds' currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent described
below under "Synthetic Foreign Money Market Positions." Transaction hedging is
the purchase or sale of a forward contract with respect to specific payables or
receivables of a Fund accruing in connection with the purchase or sale of
portfolio securities. Portfolio hedging is the use of a forward contract with
respect to a portfolio security position denominated or quoted in a particular
currency. The Funds may engage in portfolio hedging with respect to the currency
of a particular country in amounts approximating actual or anticipated positions
in securities denominated in that currency. When either Fund owns or anticipates
owning securities in countries whose currencies are linked, WAM may aggregate
such positions as to the currency hedged.
If a Fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, liquid assets of that Fund, such as cash, U.S. government
securities, or other liquid high grade debt obligations, having a value equal to
the Fund's commitment under such forward contract will be segregated on the
books of the Fund and held by the custodian while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency, a Fund
may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that the Fund is obligated to deliver.
4
<PAGE>
If a Fund retains the portfolio security and engages in an offsetting
transaction, that Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, a Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of the
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to a Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Because currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The Funds may invest in money market
instruments denominated in foreign currencies. In addition to, or in lieu of,
such direct investment, the Funds may construct a synthetic foreign money market
position by (a) purchasing a money market instrument denominated in one
currency, generally U.S. dollars, and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of exchange. For
example, a synthetic money market position in Japanese yen could be constructed
by purchasing a U.S. dollar money market instrument, and entering concurrently
into a forward contract to deliver a corresponding amount of U.S. dollars in
exchange for Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly liquid short-term
U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign money market instruments. The results of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policies that, under normal conditions,
(a) U.S. SMALL CAP will generally invest at least 65% of its total assets in
domestic securities, and (b) INTERNATIONAL SMALL CAP will generally invest at
least 65% of its total assets in foreign securities.
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OPTIONS AND FUTURES
The Funds may purchase and write both call options and put options on securities
and on indexes, and enter into interest rate and index futures contracts, and
may purchase or sell options on such futures contracts ("futures options") in
order to provide additional revenue, or to hedge against changes in security
prices or interest rates. The Funds may also use other types of options,
futures contracts and futures options currently traded or subsequently developed
and traded, provided the Board of Trustees determines that their use is
consistent with the Funds' investment objective.
OPTIONS. An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The Funds will write call options and put options only if they are "covered."
For example, in the case of a call option on a security, the option is "covered"
if a Fund owns the security underlying the call or has an absolute and immediate
right to acquire that security without additional cash consideration (or, if
additional cash consideration is required, cash or cash equivalents in such
amount are held in a segregated account by its custodian) upon conversion or
exchange of other securities held in its portfolio.
If an option written by a Fund expires, that Fund realizes a capital gain equal
to the premium received at the time the option was written. If an option
purchased by a Fund expires, that Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or index, exercise price and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if the
cost of the closing option is less than the premium received from writing the
option, or, if it is more, the Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if it is less, the
Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call
6
<PAGE>
option include supply and demand, interest rates, the current market price of
the underlying security or index in relation to the exercise price of the
option, the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by a Fund is an asset of that Fund, valued
initially at the premium paid for the option. The premium received for an
option written by a Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
OTC DERIVATIVES. The Funds may buy and sell over-the-counter ("OTC")
derivatives (derivatives not traded on exchange). Unlike exchange-traded
derivatives, which are standardized with respect to the underlying instrument,
expiration date, contract size, and strike price, the terms of OTC derivatives
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows the Funds greater flexibility
to tailor an instrument to their needs, OTC derivatives generally involve
greater credit risk than exchange-traded derivatives, which are guaranteed by
the clearing organization of the exchanges where they are traded. Each Fund
will limit its investments so that no more than 5% of its total assets will be
placed at risk in the use of OTC derivatives.
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with
transactions in options. For example, there are significant differences among
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation among these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. If a Fund were unable to close out an option that
it had purchased on a security, it would have to exercise the option in order to
realize any profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a Fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call. As the writer of a covered call option on a
foreign currency, a Fund forgoes, during the option's life, the opportunity to
profit from currency appreciation.
If trading was suspended in an option purchased or written by one of the Funds,
that Fund would not be able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it had
purchased.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may use interest
rate futures contracts and index futures contracts. An interest rate or index
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; and the New
York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes;
Eurodollar certificates of deposit; and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.
The Funds may purchase and write call and put futures options. Futures options
possess many of the same characteristics as options on securities and indexes
(discussed above). A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having jurisdiction over the
Funds, the Funds will limit their use of futures contracts and futures options
to hedging transactions. For example, the Funds might use futures contracts to
hedge against fluctuations in the general level of stock prices, anticipated
changes in interest rates, or currency fluctuations that might adversely affect
either the value of a Fund's securities or the price of the securities that a
Fund intends to purchase. The Funds' hedging may include sales of futures
contracts as an offset against the effect of expected declines in stock prices
or currency exchange rates or increases in interest rates and purchases of
futures contracts as an offset against the effect of expected increases in stock
prices or currency exchange rates or declines in interest rates. Although other
techniques could be used to reduce the Funds' exposure to stock price, interest
rate, and currency fluctuations, the Funds may be able to hedge their exposure
more effectively and perhaps at a lower cost by using futures contracts and
futures options.
The success of any hedging technique depends on WAM correctly predicting changes
in the level and direction of stock prices, interest rates, currency exchange
rates, and other factors. Should those predictions be incorrect, a Fund's
return might have been better had hedging not been attempted; however, in the
absence of the ability to hedge, WAM might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
- ------------------
/1/ A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those securities is made.
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<PAGE>
When a purchase or sale of a futures contract is made by a Fund, that Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Funds expect to earn interest income on
their initial margin deposits. A futures contract held by a Fund is valued daily
at the official settlement price of the exchange on which it is traded. Each
day the Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by the Fund but is instead settlement between that
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Funds will mark-to-market their open futures positions.
The Funds are also required to deposit and maintain margin with respect to put
and call options on futures contracts they write. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Funds.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Funds realize a capital
gain, or if it is more, the Funds realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
engaging in the transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the use
of futures contracts and futures options as hedging techniques. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. In addition, there are significant differences between
the securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options, and the
related securities, including technical influences in futures and futures
options trading and differences between the Funds' investments being hedged and
the securities underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition of the index,
including the issuers and the weighting of each issue, may differ from the
composition of a Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and creditworthiness of the
issues underlying the
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<PAGE>
futures contract may differ from the financial instruments held in a Fund's
portfolio. A decision as to whether, when, and how to hedge involves the
exercise of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected stock price
or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures or futures option position. The Fund would be
exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES. A Fund will not enter into a futures
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that Fund plus premiums paid by it
for open futures option positions, less the amount by which any such positions
are "in-the-money,"/2/ would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, a
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed out by the Fund.
A Fund may not maintain open short positions in futures contracts, call options
written on futures contracts, or call options written on indexes if, in the
aggregate, the market value of all such open positions exceeds the current value
of the securities in its portfolio, plus or minus unrealized gains
- -------------------
/2/ A call option is "in-the-money" if the value of the futures contract
that is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.
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<PAGE>
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For this
purpose, to the extent a Fund has written call options on specific securities in
its portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5 and
thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which a Fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
Each Fund's options and futures transactions are also subject to certain non-
fundamental investment restrictions set forth under "Investment Restrictions" in
this SAI. Moreover, neither Fund will purchase puts, calls, straddles, spreads,
or any combination thereof if by reason of such purchase more than 10% of that
Fund's total assets would be invested in such securities.
SWAP AGREEMENTS. A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of investments or
market factors. Depending on its structure, a swap agreement may increase or
decrease a Fund's exposure to changes in the value of an index of securities in
which the Fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. A Fund may enter into any form of
swap agreement if WAM determines it is consistent with the Fund's investment
objective and policies, but each Fund will limit its use of swap agreements so
that no more than 5% of its total assets will be placed at risk.
A swap agreement tends to shift the Fund's investment exposure from one type of
investment to another. For example, if the Fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase the Fund's exposure to foreign stock market movements and
foreign currencies. Depending on how it is used, a swap agreement may increase
or decrease the overall volatility of the Fund's investments and its net asset
value.
The performance of a swap agreement is determined by the change in the specific
currency, market index, security, or other factors that determine the amounts of
payments due to and from the Fund. If a swap agreement calls for payments by
the Fund, the Fund must be prepared to make such
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<PAGE>
payments when due. If the counterparty's creditworthiness declines, the value of
a swap agreement would be likely to decline, potentially resulting in a loss.
The Fund expects to be able to eliminate its exposure under any swap agreement
either by assignment or by other disposition, or by entering into an offsetting
swap agreement with the same party or a similarly creditworthy party.
The Fund will segregate liquid assets (such as cash, U.S. government securities,
or other liquid high grade debt obligations) of the Fund to cover its current
obligations under swap agreements. If the Fund enters into a swap agreement on
a net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accumulated obligations under the swap agreement
over the accumulated amount the Fund is entitled to receive under the agreement.
If the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accumulated
obligations under the agreement.
ILLIQUID SECURITIES
A Fund may not invest in illiquid securities if as a result they would comprise
more than 15% of the value of the net assets of the Fund.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a 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 of Trustees. If through the
appreciation of illiquid securities or the depreciation of liquid securities,
either U.S. SMALL CAP or INTERNATIONAL SMALL CAP should be in a position where
more than 15% of the value of its net assets is invested in illiquid assets,
including restricted securities, that Fund will take appropriate steps to
protect liquidity.
Notwithstanding the foregoing, a Fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. WAM, under the supervision of the Board
of Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to a Fund's restriction of investing no more than 15%
of its assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination
WAM will consider the trading markets for the specific security taking into
account the unregistered nature of a Rule 144A security. In addition, WAM could
consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of market place trades (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics of transfer).
The liquidity of Rule 144A securities will be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the Funds' holdings of
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<PAGE>
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that a Fund does not invest more than 15% of its assets in
illiquid securities. Investing in Rule 144A securities could have the effect of
increasing the amount of a Fund's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such securities.
DEBT SECURITIES
The Funds may invest in debt securities, including lower-rated securities (i.e.,
securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or
lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk
bonds"), and securities that are not rated. There are no restrictions as to the
ratings of debt securities acquired by the Funds or the portion of a Fund's
assets that may be invested in debt securities in a particular ratings category
except that neither Fund will invest more than 20% of its assets in securities
rated below investment grade or considered by WAM to be of comparable credit
quality. Neither Fund expects to invest more than 5% of its net assets in such
securities during the current fiscal year.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than higher-
quality instruments and generally are more sensitive to adverse economic changes
or individual corporate developments. During a period of adverse economic
changes, including a period of rising interest rates, the junk bond market may
be severely disrupted, and issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than higher-
quality debt securities because the market for them is less broad. The market
for unrated debt securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely to increase
significantly, and a Fund may have greater difficulty selling its portfolio
securities. See "Net Asset Value." The market value of these securities and
their liquidity may be affected by adverse publicity and investor perceptions.
A more complete description of the characteristics of bonds in each ratings
category is included in the appendix to this SAI.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund purchases a security from
a bank or recognized securities dealer and simultaneously commits to resell that
security to the bank or dealer at an agreed-upon price, date, and market rate of
interest unrelated to the coupon rate or maturity of the purchased security.
Although repurchase agreements carry certain risks not associated with direct
investments in securities, a Fund will enter into repurchase agreements only
with banks and dealers believed by WAM to present minimum credit risks in
accordance
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<PAGE>
with guidelines approved by the board of trustees. WAM will review and monitor
the creditworthiness of such institutions, and will consider the capitalization
of the institution, WAM's prior dealings with the institution, any rating of the
institution's senior long-term debt by independent rating agencies, and other
relevant factors.
A Fund will invest only in repurchase agreements collateralized at all times in
an amount at least equal to the repurchase price plus accrued interest. To the
extent that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase were less than the repurchase price, the Fund would
suffer a loss. If the financial institution which is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings there may be restrictions on a Fund's ability to
sell the collateral and the Fund could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under
such Code that would allow it immediately to resell such collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Funds may purchase securities on a when-issued or delayed-delivery basis.
Although the payment and interest terms of these securities are established at
the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. A Fund makes such commitments only with the intention of actually
acquiring the securities, but may sell the securities before the settlement date
if WAM deems it advisable for investment reasons. A Fund may utilize spot and
forward foreign currency exchange transactions to reduce the risk inherent in
fluctuations in the exchange rate between one currency and another when
securities are purchased or sold on a when-issued or delayed-delivery basis.
At the time a Fund enters into a binding obligation to purchase securities on a
when-issued or delayed delivery basis, liquid assets of the Fund having a value
at least as great as the purchase price of the securities to be purchased will
be segregated on the books of the Fund and held by the custodian throughout the
period of the obligation. The use of these investment strategies, as well as
any borrowing by a Fund, may increase net asset value fluctuation.
TEMPORARY STRATEGIES
The Funds have the flexibility to respond promptly to changes in market and
economic conditions. In the interest of preserving shareholders' capital, WAM
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, a Fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. or foreign issuers, and most or
all of the Fund's investments may be made in the United States and denominated
in U.S. dollars. It is impossible to predict whether, when, or for how long a
Fund might employ defensive strategies.
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In addition, pending investment of proceeds from new sales of Fund shares or to
meet ordinary daily cash needs, a Fund temporarily may hold cash (U.S. dollars,
foreign currencies, or multinational currency units) and may invest any portion
of its assets in money market instruments.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with a view to rapid turnover,
there are no limitations on the length of time that portfolio securities must be
held. Portfolio turnover can occur for a number of reasons such as general
conditions in the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of holding or
changing a portfolio investment. The Funds' anticipated portfolio turnover
rates are less than 100% for each Fund. A high rate of portfolio turnover, if
it should occur, would result in increased transaction expenses which must be
borne by each Fund.
INVESTMENT RESTRICTIONS
In pursuing their investment objectives, WANGER U.S. SMALL CAP ADVISOR AND
WANGER INTERNATIONAL SMALL CAP ADVISOR each will not:
1. With respect to 75% of the value of the Fund's total assets, invest more
than 5% of its total assets (valued at the time of investment) in
securities of a single issuer, except securities issued or guaranteed by
the government of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at the time of investment) in
securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);/3/
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/3/ The Funds have no present intention of lending their portfolio securities.
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5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures;/4/
6. Underwrite the distribution of securities of other issuers; however, the
Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the Fund could be regarded as an underwriter as defined by that
act with respect to such resale; but the Fund will limit its total
investment in restricted securities and in other securities for which there
is no ready market, including repurchase agreements maturing in more than
seven days, to not more than 15% of its net assets at the time of
acquisition;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) forward contracts;
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
10. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Restrictions 1 through 10 above are "fundamental," which means that they cannot
be changed without the approval of the lesser of (i) 67% of the Fund's shares
present at a meeting if more than 50% of the shares outstanding are present or
(ii) more than 50% of the Fund's outstanding shares.
In addition, each Fund is subject to a number of restrictions that may be
changed by the Board of Trustees without shareholder approval. Under those non-
fundamental restrictions, each Fund will not:
(a) Invest in companies for the purpose of management or the exercise of
control;
(b) Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration;
- ------------------
/4/ State insurance laws currently restrict a Fund's borrowings to facilitate
redemptions to no more than 25% of the Fund's net assets.
16
<PAGE>
(c) Invest more than 10% of its net assets (valued at the time of
investment) in warrants, valued at the lower of cost or market; provided
that warrants acquired in units or attached to securities shall be deemed
to be without value for purposes of this restriction;
(d) Invest more than 5% of its total assets (valued at time of investment)
in securities of issuers with less than three years' operation (including
predecessors);
(e) Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940 and applicable state
law;
(f) Purchase or retain securities of a company if all of the Trustees,
directors and officers of the Trust and of WAM who individually own
beneficially more than 1/2% of the securities of the company collectively
own beneficially more than 5% of such securities;
(g) Pledge, mortgage or hypothecate its assets, except as may be necessary
in connection with permitted borrowings or in connection with short sales,
options, futures and options on futures;
(h) Purchase a put or call option if the aggregate premiums paid for all
put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options
purchased as closing transactions;
(i) Sell securities short or maintain a short position.
Notwithstanding the foregoing investment restrictions, either Fund may purchase
securities pursuant to the exercise of subscription rights, provided that such
purchase will not result in the Fund's ceasing to be a diversified investment
company. Japanese and European corporations frequently issue additional capital
stock by means of subscription rights offerings to existing shareholders at a
price substantially below the market price of the shares. The failure to
exercise such rights would result in a Fund's interest in the issuing company
being diluted. The market for such rights is not well developed in all cases
and, accordingly, the Fund may not always realize full value on the sale of
rights. The exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising rights or
would have already been exceeded as a result of fluctuations in the market value
of the Fund's portfolio securities with the result that the Fund would be forced
either to sell securities at a time when it might not otherwise have done so, or
to forego exercising the rights.
In addition, pursuant to state insurance laws, each Fund is subject to the
following guidelines, which may also be changed by the Trustees:
(a) Each Fund will be invested in a minimum of five different foreign
countries at all times, except that this minimum is reduced to four when
foreign country investments comprise less than 80% of the value of the
Fund's net assets; to three when less than 60% of such value; to two when
less than 40%; and to one when less than 20%.
17
<PAGE>
(b) Each Fund will have no more than 20% of its net assets invested in
securities of issuers located in any one country; except that a Fund may
have an additional 15% of its net assets invested in securities of issuers
located in any one of the following countries: Australia; Canada; France;
Japan; the United Kingdom; or Germany.
(c) A Fund may not acquire the securities of any issuer if, as a result of
such investment, more than 10% of the Fund's total assets would be invested
in the securities of any one issuer, except that this restriction shall not
apply to U.S. Government securities or foreign government securities; and
the Fund will not invest in a security if, as a result of such investment,
it would hold more than 10% of the outstanding voting securities of any one
issuer.
(d) Each Fund may borrow no more than 10% of the value of its net assets
when borrowing for any general purpose and 25% of net assets when borrowing
as a temporary measure to facilitate redemptions.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
shares of a Fund, including the value of shares acquired through reinvestment of
all dividends and capital gains distributions. "Average Annual Total Return" is
the average annual compounded rate of change in value represented by the Total
Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(1+T)/n/
Where: P = the amount of an assumed initial investment in shares of a Fund
T = average annual total return
n = number of years from initial investment to the end of the period
ERV = ending redeemable value of shares held at the end of the period
For example, the Total Return in Wanger U.S. Small Cap Advisor and Wanger
International Small Cap Advisor for the period from May 3, 1995 through December
31, 1995 was 16.0% and 34.5%, respectively.
The Funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the Funds are
not necessarily indicative of future results. Each Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. Fund
performance figures do not reflect expenses of the
18
<PAGE>
separate accounts of the Life Companies, expenses imposed under the Variable
Contracts, or expenses imposed by the Retirement Plans.
In advertising and sales literature, each Fund's performance may be compared
with those of market indexes and other mutual funds. In addition to the
performance information described above, a Fund might use comparative
performance as computed in a ranking or rating determined by Lipper Analytical
Services, Inc., an independent service that monitors the performance of over
1,000 mutual funds, Morningstar, Inc., VARDS, or another service.
The Funds may note their mention or recognition, or the mention or recognition
of WAM or its principals, in newsletters, newspapers, magazines, or other media.
INVESTMENT ADVISER
The Funds' investment adviser, WAM, furnishes continuing investment advice to
the Funds and is responsible for overall management of the Funds' business
affairs. It furnishes office space and all necessary office facilities,
equipment, and personnel to the Funds; it assumes all other expenses incurred by
WAM in connection with managing the assets of the Funds, including expenses in
connection with placement of securities orders, expenses in determination of
daily price computations, portfolio accounting and related bookkeeping; and
assumes the expenses of printing and distributing the Funds' prospectus and
reports to prospective investors. At its own expense, WAM may contract with any
other person or persons to provide services in connection with daily price
computations, portfolio accounting and related bookkeeping.
For its services to WANGER U.S. SMALL CAP ADVISOR, WAM receives a fee accrued
daily and paid monthly at the annual rate of 1.0% of the net asset value of the
Fund up to $100 million, 0.95% of the net asset value in excess of $100 million
and up to $250 million, and 0.90% of the net asset value in excess of $250
million. These fees may be reduced by any amount necessary to cause the Fund's
expenses to be within the limitation described below. The investment advisory
fees of the Fund for the period from May 3, 1995 through December 31, 1995 were
$71,496.
For its services to WANGER INTERNATIONAL SMALL CAP ADVISOR, WAM receives a fee
accrued daily and paid monthly at the annual rate of 1.30% of the net asset
value of the Fund up to $100 million, 1.20% of the net asset value in excess of
$100 million and up to $250 million, and 1.10% of the net asset value in excess
of $250 million. These fees may be reduced by any amount necessary to cause the
Fund's expenses to be within the limitation described below. The investment
advisory fees of the Fund for the fiscal period from May 3, 1995 through
December 31, 1995 were $43,726.
The staff of the Securities and Exchange Commission has advised the Trust that
the annual advisory fees paid by many mutual funds are less than 0.75% of
average net assets. In 1995, Wanger U.S. Small Cap Advisor's advisory fee was
1.00% of its average net assets, and Wanger International Small Cap Advisor's
advisory fee was 1.30% of its average net assets.
19
<PAGE>
The Trust pays all charges of depositories, custodians and other agents for the
safekeeping and servicing of the Funds' cash, securities and other property; all
charges of the Funds' transfer agents and registrars, and the Funds' dividend
disbursing and redemption agents, if any; and all charges of independent
auditors and legal counsel. The Trust also pays other expenses such as the cost
of qualifying and maintaining the registration of shares of the Funds and the
cost of compliance with federal and state securities laws; typesetting of the
Funds' prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; printing and mailing
certificates for shares of the Funds; publishing reports and notices to the
Funds' shareholders and to governmental bodies or regulatory agencies; proxy
solicitations of the Funds or of the Board of Trustees of the Trust; shareholder
meetings; fees and taxes payable to federal, state or governmental agencies,
domestic or foreign; insurance premiums required by law or deemed advisable by
the Trust's Board of Trustees; all costs of borrowing money; all expenses of
maintaining the registration of the Trust under the Investment Company Act of
1940, all fees, dues and other expenses related to membership of the Trust in
any trade association or other investment company organization; the fees of
Trustees who are not otherwise affiliated with the Trust or WAM, and all
expenses incurred in connection with their services to the Trust. The Trust
also pays all brokers' commissions and other charges relative to the purchase
and sale of portfolio securities for the Funds.
The investment advisory agreements require WAM to reimburse a Fund in the event
that the total annual expenses of the Fund that are payable in any fiscal year,
including the advisory fee but excluding taxes, interest, brokerage commissions
and similar fees, and certain extraordinary litigation expenses, exceed the
limits prescribed by any state in which that Fund's shares are qualified for
sale. Total annual expenses, and the amount by which total annual expenses may
exceed these limits, will be determined as of the close of each business day of
the year. The Trust does not believe that any such state expense limitation is
currently applicable. If the states in which a Fund's shares are qualified for
sale impose no limits on total expenses, then WAM has voluntarily agreed to
reimburse the Fund in the event the fees and expenses payable by the Fund in any
fiscal year (as described above) exceed 1.90% for Wanger International Small Cap
Advisor and 1.50% for Wanger U.S. Small Cap Advisor of average daily net assets.
The following items are excluded for purposes of calculating the expenses
subject to this limitation: (i) credits, if any, that a Fund may receive that
have the effect of offsetting certain of those expenses; and (ii) the excess
custodian costs attributable to investments in foreign securities compared to
the custodian costs which would have been incurred had the investments been in
domestic securities. Reimbursement of expenses in excess of this limitation will
be made monthly and will be paid to the Fund by reduction of WAM's advisory fee.
WAM may from time to time absorb expenses for a Fund in addition to the
reimbursement of expenses in excess of applicable limitations.
WAM advanced all of the Trust's organizational expenses, which are being
amortized and reimbursed to WAM over a five year period.
WAM is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., which is controlled by Ralph Wanger. WAM commenced operations
in 1992. Ralph Wanger, Charles P. McQuaid, Terence M. Hogan, and Leah J. Zell,
who are officers and trustees of the Trust, are limited partners of WAM. WAM
has approximately $4.5 billion under management.
20
<PAGE>
DISTRIBUTOR
Shares of each Fund are distributed by WAM Brokerage Services, L.L.C. ("WAM BD")
under a Distribution Agreement as described in the prospectus dated May 1, 1996,
which is incorporated herein by reference. The Distribution Agreement continues
in effect from year to year, provided such continuance is approved annually (i)
by a majority of the trustees or by a majority of the outstanding voting
securities of the Trust, and (ii) by a majority of the trustees who are not
parties to the Agreement or interested persons of any such party. Shares of the
Funds are offered for sale through WAM BD without any sales commission or
charges to the Funds or Life Companies or Retirement Plans purchasing Fund
shares. However, each Variable Contract imposes its own charges and fees on
owners of Variable Contracts and Retirement Plans and may impose such charges on
participants in a Retirement Plan. The Trust has agreed to pay all expenses in
connection with registration of its shares with the Securities and Exchange
Commission and auditing and filing fees in connection with registration of its
shares under the various stock blue sky laws.
THE TRUST
The Agreement and Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its Trustees. The Trust may issue an unlimited number
of shares, in one or more series as the Board of Trustees may authorize. Any
such series of shares may be further divided, without shareholder approval, into
two or more classes of shares having such preferences or special or relative
rights or privileges as the Trustees may determine. The shares of the Funds are
not currently divided into classes. U.S. Small Cap and International Small Cap
are the only series of the Trust currently being offered. The Board of Trustees
may authorize the issuance of additional series if deemed advisable, each with
its own investment objective, policies, and restrictions. All shares issued
will be fully paid and non-assessable and will have no preemptive or conversion
rights.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the Board of Trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of Trustees. Shares do not have cumulative
voting rights; accordingly, shareholders controlling voting interests of more
than 50% of shares of the Funds voting for the election of Trustees could elect
all of the Trustees if they chose to do so, and in such event, shareholders
controlling voting interests of the remaining shares would not be able to elect
any Trustees.
Shareholder rights regarding voting are described in the prospectus. These
voting rights are based on applicable federal and state laws. To the extent
that changes in such laws or regulations thereunder or interpretations thereof
eliminate the necessity to submit any such matters to a
21
<PAGE>
shareholder vote, or otherwise restrict or limit such voting rights, the Trust
reserves the right to act in any manner permitted by such changes.
The Trust's Declaration of Trust disclaims liability of the shareholders,
trustees, and officers of the Trust for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or contract entered into or executed by the Trust or the board of trustees. The
Declaration of Trust provides for indemnification out of the Trust's assets for
all losses or expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, although shareholders of a business trust may,
under certain circumstances, be held personally liable under Massachusetts law
for the obligations of the trust, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote because it is
limited to circumstances in which the disclaimer is inoperative and the Trust
itself is unable to meet its obligations. The risk to any one series of
sustaining a loss on account of liabilities incurred by another series is also
believed to be remote.
TRUSTEES AND OFFICERS; CERTAIN SHAREHOLDERS
The Trustees and officers of the Trust and their principal business activities
during the past five years are:
Ralph Wanger, trustee and president* (age 62)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; prior thereto, principal,
Harris Associates L.P.; trustee and president, Acorn Investment Trust.
Charles P. McQuaid, trustee and senior vice president* (age 42)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; prior thereto, principal,
Harris Associates L.P.; trustee and senior vice president, Acorn Investment
Trust.
Terence M. Hogan, trustee and vice president* (age 34)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst, and portfolio manager, Wanger Asset Management, L.P., since July
1992; prior thereto, analyst, Harris Associates L.P.; vice president, Acorn
Investment Trust.
Leah J. Zell, trustee and vice president* (age 47)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst, and portfolio manager, Wanger Asset Management, L.P., since July
1992; prior thereto, analyst, Harris Associates L.P.; vice president, Acorn
Investment Trust.
Fred D. Hasselbring, trustee (age 54)
1338 N. Bell Avenue, Chicago, Illinois 60622; owner, Fred D. Hasselbring
and Associates (retail industry computer systems consulting and sales).
22
<PAGE>
P. Michael Phelps, trustee (age 62)
100 North Riverside Plaza, Chicago, Illinois 60606-1596; vice president and
corporate secretary, Morton International, Inc.
James A. Star, trustee (age 35)
222 N. LaSalle Street, Suite 2000, Chicago, Illinois 60601; vice president,
Henry Crown and Company, a diversified private holding company, since
October 1994; portfolio manager and investment analyst, Harris Associates
L.P., June 1991 to October 1994; attorney, Kirkland and Ellis, prior to
June 1991.
Merrillyn J. Kosier, vice president and secretary (age 36)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; director of
marketing and shareholder services, Wanger Asset Management, L.P., since
September 1993; prior thereto, vice president of marketing, Kemper
Financial Services, Inc.; vice president and secretary, Acorn Investment
Trust.
Bruce H. Lauer, vice president and treasurer (age 38)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; chief
administrative officer, Wanger Asset Management, L.P., since April 1995;
prior thereto, first vice president, investment accounting, Kemper
Financial Services, Inc.; vice president and treasurer, Acorn Investment
Trust.
Kenneth A. Kalina, assistant treasurer (age 36)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; Fund
controller, Wanger Asset Management, L.P., since September 1995; prior
thereto, treasurer of the Stein Roe Mutual Funds; assistant treasurer,
Acorn Investment Trust.
*Messrs. Hogan, McQuaid, and Wanger and Ms. Zell are Trustees who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940, and of WAM.
Mr. Wanger and Ms. Zell are married. Messrs. Hogan, McQuaid, and Wanger and Ms.
Zell are members of the Executive Committee, which has authority during
intervals between meetings of the Board of Trustees to exercise the powers of
the board, with certain exceptions. Messrs. Hasselbring, Phelps, and Star are
members of the Audit Committee, which has the authority to make recommendations
to the Board of Trustees regarding the selection of independent auditors for the
Trust and to confer with the independent auditors regarding the scope and
results of each audit.
Each Trustee of Wanger Advisors Trust who is not an "interested person" of the
Trust, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, receives as remuneration for services as Trustee an annual fee of
$6,000, a meeting fee of $1,000 for each meeting of the Board of Trustees
attended by such Trustee, and an additional fee of $300 for each committee
meeting of the Board of Trustees attended by such Trustee that does not
immediately follow or precede a
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meeting of the Board of Trustees. Each such Trustee is reimbursed for out-of-
pocket expenses reasonably incurred in attending meetings of the Board of
Trustees or any committee thereof.
At December 31, 1995 the trustees and officers as a group owned beneficially
approximately 93,923 shares (approximately 11.0% of the outstanding shares) of
International Small Cap and approximately 68,587 shares (approximately 3.6% of
the outstanding shares) of U.S. Small Cap. Of the shares of International Small
Cap beneficially owned by the trustees and officers as a group, Mr. Wanger owned
beneficially approximately 80,226 shares (approximately 9.5% of the outstanding
shares). At that date, Phoenix Home Life Mutual Insurance Company,
One American Row, Hartford, Connecticut 06115, was the record holder of 806,972
shares (approximately 96% of the outstanding shares) of International Small
Cap, and 1,853,224 shares (approximately 98% of the outstanding shares) of U.S.
Small Cap, all of which are beneficially owned by Variable Contract owners,
including trustees and officers of the Trust whose shareholdings are reported
above. Shares owned by trustees and officers as Variable Contract owners are
included in the shares reported for both the trustees and officers as a group
and for Phoenix Home Life Mutual Insurance Company.
The following table shows compensation paid by the Trust during the fiscal year
ended December 31, 1995 to each Trustee of the Trust who is not an "interested
person" of the Trust or of WAM. The Trust does not pay compensation to its
officers or to Trustees who are "interested persons." The Trust does not offer
any pension or retirement benefits to its trustees.
<TABLE>
<CAPTION>
===========================================================================================
NAME OF PERSON, AGGREGATE COMPENSATION AGGREGATE COMPENSATION TOTAL
POSITION FROM WANGER U.S. FROM WANGER INTERNATIONAL COMPENSATION
SMALL CAP ADVISOR SMALL CAP ADVISOR FROM FUND COMPLEX
===========================================================================================
<S> <C> <C> <C>
FRED D. HASSELBRING $6,500 $6,500 $13,000
Trustee
P. MICHAEL PHELPS $6,500 $6,500 $13,000
Trustee
JAMES A. STAR $6,000 $6,000 $12,000
Trustee
</TABLE>
PURCHASING AND REDEEMING SHARES
Shares of U.S. Small Cap and International Small Cap may not be purchased or
redeemed directly by individual Variable Contract owners or individual
Retirement Plan participants. Purchases and redemptions are discussed in the
prospectus. That information is incorporated herein by reference.
For purposes of computing the net asset value of a share of either Fund, a
security traded on a securities exchange, or in an over-the-counter market in
which transaction prices are reported, is valued at the last sale price at the
time of valuation. A security for which there is no reported sale on the
valuation date is valued at the mean of the latest bid and ask quotations or, if
there is no ask
24
<PAGE>
quotation, at the most recent bid quotation. Securities for which quotations are
not readily available and any other assets are valued at a fair value as
determined in good faith by the Board of Trustees. Money market instruments
having a maturity of 60 days or less from the valuation date are valued on an
amortized cost basis. All assets and liabilities initially expressed in foreign
currencies are converted into U.S. dollars at a current exchange rate.
The Funds' net asset values are determined only on days on which the New York
Stock Exchange ("NYSE") is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE
will be closed on the preceding Friday or the following Monday, respectively.
Trading in the portfolio securities of the Funds may take place in various
foreign markets on certain days (such as Saturday) when the Funds are not open
for business and do not calculate their net asset values. Conversely, trading
in the Funds' portfolio securities may not occur on days when the Funds are
open. Therefore, the calculation of net asset value does not take place
contemporaneously with the determinations of the prices of many of the Funds'
portfolio securities and the value of the Funds' portfolios may be significantly
affected on days when shares of the Funds may not be purchased or redeemed.
Computation of net asset value (and the sale and redemption of Fund shares) may
be suspended or postponed during any period when (a) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or that
exchange is closed for other than customary weekend and holiday closings, (b)
the Commission has by order permitted such suspension, or (c) an emergency, as
determined by the Commission, exists making disposal of portfolio securities or
valuation of the net assets of the Funds not reasonably practicable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of a Fund during any 90-
day period for any one shareholder. Redemptions in excess of the above amounts
will normally be paid in cash, but may be paid wholly or partly by a
distribution in-kind of securities. If a redemption is made in kind, the
redeeming shareholder would bear any transaction costs incurred in selling the
securities received. The Agreement and Declaration of Trust also authorizes the
Trust to redeem shares under certain other circumstances as may be specified by
the Board of Trustees.
ADDITIONAL TAX INFORMATION
Shares of the Funds are offered to separate accounts of Life Companies that fund
Variable Contracts and may be offered to certain Retirement Plans, which are
pension plans and retirement arrangements and accounts permitting the
accumulation of funds on a tax-deferred basis. See the disclosure documents for
the Variable Contracts or the plan documents (including the summary plan
description) for the Retirement Plans for a discussion of the special taxation
of insurance
25
<PAGE>
companies with respect to the separate accounts and the Variable Contracts, and
the holders thereof, or the special taxation of Retirement Plans and the
participants therein.
Each Fund intends to qualify and to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify for that treatment, the Fund must
distribute to 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. These requirements include the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months -- options, futures or
forward contracts (other than those on foreign currencies), or foreign
currencies (or options, futures or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in securities (or
options and futures with respect thereto) ("Short-Short Limitation"); (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash or cash items, U.S. Government
securities, securities of other RICs, and other securities that, with respect to
any one issuer, do not exceed 5% of the value of the Fund's total assets and
that do not represent more than 10% of the outstanding voting securities of the
issuer; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
As noted in the prospectus, each Fund must, and intends to, comply with the
diversification requirements imposed by Section 817(h) of the Code and the
regulations thereunder. For information concerning the consequences of failure
to meet the requirements of Section 817(h), see the prospectus for the Variable
Contracts.
The Funds will not be subject to the 4% Federal excise tax imposed on RICs that
do not distribute substantially all their income and gains each calendar year
because that tax does not apply to a RIC whose only shareholders are segregated
asset accounts of life insurance companies held in connection with variable
annuity contracts and/or variable life insurance policies or Retirement Plans.
The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the Funds and their shareholders. No
attempt is made to present a complete explanation of the Federal tax treatment
of the Funds' activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for variable contracts
are not intended as a substitute for careful tax planning. Accordingly,
potential investors are urged to consult their own tax advisers for more
detailed information and for information regarding any state, local, or foreign
taxes applicable to the variable contracts and the holders thereof.
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<PAGE>
PORTFOLIO TRANSACTIONS
Portfolio transactions of the Funds are placed with those securities brokers and
dealers that WAM believes will provide the best value in transaction and
research services for each Fund, either in a particular transaction or over a
period of time. Although some transactions involve only brokerage services, many
involve research services as well.
In valuing brokerage services, WAM makes a judgment as to which brokers are
capable of providing the most favorable net price (not necessarily the lowest
commission) and the best execution in a particular transaction. Best execution
connotes not only general competence and reliability of a broker, but specific
expertise and effort of a broker in overcoming the anticipated difficulties in
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, WAM makes a judgment of the usefulness of research
and other information provided to WAM by a broker in managing each Fund's
investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising that Fund.
The reasonableness of brokerage commissions paid by the Funds in relation to
transaction and research services received is evaluated by WAM's staff on an
ongoing basis. The general level of brokerage charges and other aspects of each
Fund's portfolio transactions are reviewed periodically by the Board of
Trustees.
WAM is the principal source of information and advice to the Funds, and is
responsible for making and initiating the execution of investment decisions by
the Funds. However, the Board of Trustees recognizes that it is important for
WAM, in performing its responsibilities to the Funds, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the Funds to take into account the value of the information received
for use in advising the Funds. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the Funds is not determinable. In addition, the Board of Trustees understands
that other clients of WAM might benefit from the information obtained for the
Funds, in the same manner that the Funds might benefit from information obtained
by WAM in performing services to others.
Transactions of the Funds in the over-the-counter market and the third market
are executed with primary market makers acting as principal except where it is
believed that better prices and execution may be obtained otherwise.
Brokerage commissions incurred by Wanger U.S. Small Cap Advisor and Wanger
International Small Cap Advisor for the fiscal period from May 3, 1995 through
December 31, 1995 were $59,273 and $49,559, respectively.
27
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Although investment decisions for the Funds are made independently from those
for other investment advisory clients of WAM, it may develop that the same
investment decision is made for one or both of the Funds and one or more other
advisory clients. If one or both of the Funds and other clients purchase or sell
the same class of securities on the same day, the transactions will be allocated
as to amount and price in a manner considered equitable to each.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8502, Boston, Massachusetts 02266-
8502, is the custodian for the Funds. It is responsible for holding all
securities and cash of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Funds, and performing
other administrative duties, all as directed by authorized persons of the Funds.
The custodian does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends, or payment of
expenses of the Funds. The Funds have authorized the custodian to deposit
certain portfolio securities of the Funds in central depository systems as
permitted under federal law. The Funds may invest in obligations of the
custodian and may purchase or sell securities from or to the custodian. The
custodian may employ one or more sub-custodians located in the United States
upon approval by the Board of Trustees of the Trust; and is authorized to employ
sub-custodians for the Funds' assets maintained outside the United States.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606
audits and reports on the Funds' annual financial statements, reviews certain
regulatory reports and the Funds' federal income tax return, and performs other
professional accounting, auditing, tax, and advisory services when engaged to do
so by the Funds.
28
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APPENDIX
DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, WAM believes that the quality of debt securities in which
the Funds invest should be continuously reviewed. A rating is not a
recommendation to purchase, sell or hold a security, because it does not take
into account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating should be
evaluated independently. Ratings are based on current information furnished by
the issuer or obtained by the ratings services from other sources which they
consider reliable. Ratings may be changed, suspended or withdrawn as a result
of changes in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P").
MOODY'S RATINGS
Aaa--Bonds rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt-
edge". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. Although 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 bonds.
Aa--Bonds rated Aa are judged to be 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 bonds 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 bonds.
A--Bonds 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 sometime in the future.
Baa--Bonds 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.
A-1
<PAGE>
Ba--Bonds rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds 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 rated Caa are of poor standing. Such bonds may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds rated Ca represent obligations which are speculative in a
high degree. Such bonds are often in default or have other marked shortcomings.
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay
principal and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this capacity than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on
balance, as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation among such bonds and CC the
highest degree of speculation. Although such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
A-2
<PAGE>
WANGER ADVISORS TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
MAY 1, 1996
227 West Monroe Street
Chicago, Illinois 60606
Telephone: 1-800-4-WANGER
-------------------------
WANGER U.S. SMALL CAP ADVISOR
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION ABOUT THE FUND........................................... 2
INVESTMENT OBJECTIVE AND POLICIES.................................... 2
INVESTMENT TECHNIQUES AND RISKS...................................... 3
INVESTMENT RESTRICTIONS.............................................. 15
PERFORMANCE INFORMATION.............................................. 18
INVESTMENT ADVISER................................................... 19
DISTRIBUTOR.......................................................... 20
THE TRUST............................................................ 21
TRUSTEES AND OFFICERS; CERTAIN SHAREHOLDERS.......................... 22
PURCHASING AND REDEEMING SHARES...................................... 24
ADDITIONAL TAX INFORMATION........................................... 25
PORTFOLIO TRANSACTIONS............................................... 27
CUSTODIAN............................................................ 28
INDEPENDENT AUDITORS................................................. 28
FINANCIAL STATEMENTS................................................. 28
APPENDIX............................................................. 1
</TABLE>
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
Wanger Advisors Trust for WANGER U.S. SMALL CAP ADVISOR dated May 1, 1996 and
any supplement thereto, which may be obtained from Wanger Advisors Trust at no
charge by writing or telephoning Wanger Asset Management, L.P., the Trust's
investment adviser, at the address or telephone number shown above.
<PAGE>
INFORMATION ABOUT THE FUND
WANGER U.S. SMALL CAP ADVISOR (the "Fund") is a series of Wanger Advisors Trust
(the "Trust"). Wanger International Small Cap Advisor ("International Small
Cap") is also a series of the Trust. The Fund is currently available only for
allocation to certain life insurance company ("Life Company") separate accounts
established for the purpose of funding certain qualified and non-qualified
variable annuity contracts ("Variable Contracts"), and may also be offered
directly to certain types of pension plans and retirement arrangements and
accounts permitting the accumulation of funds on a tax-deferred basis
("Retirement Plans"), as described in the prospectus.
The 1995 annual report of the Fund, a copy of which accompanies this SAI,
contains audited financial statement, notes thereto, supplementary information,
and a report of independent auditors, all of which (but no other part of the
annual report) is incorporated into this Statement of Additional Information by
reference. Additional copies of the annual reports may be obtained without
charge by writing or telephoning Wanger Asset Management, L.P. at the address or
telephone number shown on the cover page of this Statement of Additional
Information.
The discussion below supplements the description in the prospectus of the Fund's
investment objectives, policies, and restrictions.
INVESTMENT OBJECTIVE AND POLICIES
The Fund invests with the objective of long-term growth of capital. Although
income is considered by the Fund in the selection of securities, the Fund is not
designed for investors seeking primarily income rather than capital
appreciation. The Fund is managed by Wanger Asset Management, L.P. ("WAM").
The Fund uses the techniques and invests in the types of securities described
below and in the prospectus.
2
<PAGE>
INVESTMENT TECHNIQUES AND RISKS
FOREIGN SECURITIES
The Fund invests in foreign securities, which may entail a greater degree of
risk (including risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of domestic issuers.
It does not have a current intention to invest more than 5% of its net assets in
foreign securities.
The Fund may invest in securities of foreign issuers directly or in the form of
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), or
other securities representing underlying shares of foreign issuers. Positions
in these securities are not necessarily denominated in the same currency as the
common stocks into which they may be converted. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets. The Fund may invest in both "sponsored" and
"unsponsored" ADRs. In a sponsored ADR, the issuer typically pays some or all
of the expenses of the depository and agrees to provide its regular shareholder
communications to ADR holders. An unsponsored ADR is created independently of
the issuer of the underlying security. The ADR holders generally pay the
expenses of the depository and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. The Fund does not
expect to invest more than 5% of its total assets in unsponsored ADRs.
The Fund's investment performance is affected by the strength or weakness of the
U.S. dollar against the currencies of the foreign markets in which the Fund's
securities trade or in which they are denominated. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the yen-denominated stock will fall. (See the
discussion of transaction hedging and portfolio hedging under "Foreign Currency
Exchange Transactions.")
Investors should understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities, positions in which are generally
denominated in foreign currencies, and utilization of forward foreign currency
exchange contracts involve risks and opportunities not typically associated with
investing in U.S. securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of exchange control
regulation or currency restrictions that would prevent cash from being brought
back to the United States; less public information with respect to issuers of
securities; less governmental supervision of stock exchanges, securities
brokers, and issuers of securities; different accounting, auditing, and
financial reporting standards; different settlement periods and trading
practices; less liquidity and frequently greater price volatility in foreign
markets than in the United States; imposition of foreign taxes; and sometimes
less advantageous legal, operational, and financial protections applicable to
foreign sub-custodial arrangements.
3
<PAGE>
Although the Fund tries to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
CURRENCY EXCHANGE TRANSACTIONS
The Fund may enter into currency exchange transactions. A currency exchange
transaction may be conducted either on a spot (i.e., cash) basis at the spot
rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.
Forward currency transactions may involve currencies of the different countries
in which the Fund may invest, and serve as hedges against possible variations in
the exchange rate between these currencies. The Fund's currency transactions
are limited to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent described
below under "Synthetic Foreign Money Market Positions." Transaction hedging is
the purchase or sale of a forward contract with respect to specific payables or
receivables of the Fund accruing in connection with the purchase or sale of
portfolio securities. Portfolio hedging is the use of a forward contract with
respect to a portfolio security position denominated or quoted in a particular
currency. The Fund may engage in portfolio hedging with respect to the currency
of a particular country in amounts approximating actual or anticipated positions
in securities denominated in that currency. When the Fund owns or anticipates
owning securities in countries whose currencies are linked, WAM may aggregate
such positions as to the currency hedged.
If the Fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, liquid assets of the Fund, such as cash, U.S. government
securities, or other liquid high grade debt obligations, having a value equal to
the Fund's commitment under such forward contract will be segregated on the
books of the Fund and held by the custodian while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency, the Fund
may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for the Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the Fund is obligated to deliver and if a
4
<PAGE>
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of the
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Because currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The Fund may invest in money market
instruments denominated in foreign currencies. In addition to, or in lieu of,
such direct investment, the Fund may construct a synthetic foreign money market
position by (a) purchasing a money market instrument denominated in one
currency, generally U.S. dollars, and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of exchange. For
example, a synthetic money market position in Japanese yen could be constructed
by purchasing a U.S. dollar money market instrument, and entering concurrently
into a forward contract to deliver a corresponding amount of U.S. dollars in
exchange for Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly liquid short-term
U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign money market instruments. The results of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the
5
<PAGE>
synthetic foreign money market position shall not be deemed a "foreign security"
for purposes of the policies that, under normal conditions, the Fund will
generally invest at least 65% of its total assets in domestic securities.
OPTIONS AND FUTURES
The Fund may purchase and write both call options and put options on securities
and on indexes, and enter into interest rate and index futures contracts, and
may purchase or sell options on such futures contracts ("futures options") in
order to provide additional revenue, or to hedge against changes in security
prices or interest rates. The Fund may also use other types of options, futures
contracts and futures options currently traded or subsequently developed and
traded, provided the Board of Trustees determines that their use is consistent
with the Fund's investment objective.
OPTIONS. An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The Fund will write call options and put options only if they are "covered."
For example, in the case of a call option on a security, the option is "covered"
if the Fund owns the security underlying the call or has an absolute and
immediate right to acquire that security without additional cash consideration
(or, if additional cash consideration is required, cash or cash equivalents in
such amount are held in a segregated account by its custodian) upon conversion
or exchange of other securities held in its portfolio.
If an option written by the Fund expires, the Fund realizes a capital gain equal
to the premium received at the time the option was written. If an option
purchased by the Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying security or index, exercise price and expiration). There can be no
assurance, however, that a closing purchase or sale transaction can be effected
when the Fund desires.
The Fund will realize a capital gain from a closing purchase transaction if the
cost of the closing option is less than the premium received from writing the
option, or, if it is more, the Fund will realize a capital loss. If the premium
received from a closing sale transaction is more than the
6
<PAGE>
premium paid to purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security or index in
relation to the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an
option written by the Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
OTC DERIVATIVES. The Fund may buy and sell over-the-counter ("OTC") derivatives
(derivatives not traded on exchange). Unlike exchange-traded derivatives, which
are standardized with respect to the underlying instrument, expiration date,
contract size, and strike price, the terms of OTC derivatives generally are
established through negotiation with the other party to the contract. While
this type of arrangement allows the Fund greater flexibility to tailor an
instrument to their needs, OTC derivatives generally involve greater credit risk
than exchange-traded derivatives, which are guaranteed by the clearing
organization of the exchanges where they are traded. The Fund will limit its
investments so that no more than 5% of its total assets will be placed at risk
in the use of OTC derivatives.
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with
transactions in options. For example, there are significant differences among
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation among these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when the Fund seeks to
close out an option position. If the Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
the Fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, the Fund
forgoes, during the option's life, the opportunity to profit from increases in
the market value of the security covering the call option above the sum of the
premium and the exercise price of the call. As the writer of a covered call
option on a foreign currency, the Fund forgoes, during the option's life, the
opportunity to profit from currency appreciation.
If trading was suspended in an option purchased or written by the Fund, the Fund
would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it had purchased.
7
<PAGE>
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may use interest
rate futures contracts and index futures contracts. An interest rate or index
futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; and the New
York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes;
Eurodollar certificates of deposit; and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.
The Fund may purchase and write call and put futures options. Futures options
possess many of the same characteristics as options on securities and indexes
(discussed above). A futures option gives the holder the right, in return for
the premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period of
the option. Upon exercise of a call option, the holder acquires a long position
in the futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having jurisdiction over the
Fund, the Fund will limit its use of futures contracts and futures options to
hedging transactions. For example, the Fund might use futures contracts to
hedge against fluctuations in the general level of stock prices, anticipated
changes in interest rates, or currency fluctuations that might adversely affect
either the value of the Fund's securities or the price of the securities that
the Fund intends to purchase. The Funds' hedging may include sales of futures
contracts as an offset against the effect of expected declines in stock prices
or currency exchange rates or increases in interest rates and purchases of
futures contracts as an offset against the effect of expected increases in stock
prices or currency exchange rates or declines in interest rates. Although other
techniques could be used to reduce the Fund's exposure to stock price, interest
rate, and currency fluctuations, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
The success of any hedging technique depends on WAM correctly predicting changes
in the level and direction of stock prices, interest rates, currency exchange
rates, and other factors. Should those predictions be incorrect, the Fund's
return might have been better had hedging not been attempted; however, in the
absence of the ability to hedge, WAM might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
- ------------------
/1/ A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading day
of the contract and the price at which the index contract was originally
written. Although the value of a securities index is a function of the value of
certain specified securities, no physical delivery of those securities is made.
8
<PAGE>
When a purchase or sale of a futures contract is made by the Fund, the Fund is
required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on
its initial margin deposits. A futures contract held by the Fund is valued daily
at the official settlement price of the exchange on which it is traded. Each
day the Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Fund will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with respect to put and
call options on futures contracts they write. Such margin deposits will vary
depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the use
of futures contracts and futures options as hedging techniques. A purchase or
sale of a futures contract may result in losses in excess of the amount invested
in the futures contract. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. In addition, there are significant differences between
the securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options, and the
related securities, including technical influences in futures and futures
options trading and differences between the Fund's investments being hedged and
the securities underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition of the index,
including the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and creditworthiness of the
issues underlying the futures contract may differ from the financial
9
<PAGE>
instruments held in the Fund's portfolio. A decision as to whether, when, and
how to hedge involves the exercise of skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when the
Fund seeks to close out a futures or futures option position. The Fund would be
exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES. The Fund will not enter into a futures
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by the Fund plus premiums paid by it
for open futures option positions, less the amount by which any such positions
are "in-the-money,"/2/ would exceed 5% of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, the Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed out by the Fund.
The Fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship
- -------------------
/2/ A call option is "in-the-money" if the value of the futures contract that is
the subject of the option exceeds the exercise price. A put option is "in-the-
money" if the exercise price exceeds the value of the futures contract that is
the subject of the option.
10
<PAGE>
between the portfolio and the positions. For this purpose, to the extent the
Fund has written call options on specific securities in its portfolio, the value
of those securities will be deducted from the current market value of the
securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5 and
thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which the Fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by the
daily settlement price of the contract.
The Fund's options and futures transactions are also subject to certain non-
fundamental investment restrictions set forth under "Investment Restrictions" in
this SAI. Moreover, the Fund will not purchase puts, calls, straddles, spreads,
or any combination thereof if by reason of such purchase more than 10% of the
Fund's total assets would be invested in such securities.
SWAP AGREEMENTS. A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of investments or
market factors. Depending on its structure, a swap agreement may increase or
decrease the Fund's exposure to changes in the value of an index of securities
in which the Fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. The Fund may enter into any form of
swap agreement if WAM determines it is consistent with the Fund's investment
objective and policies, but the Fund will limit its use of swap agreements so
that no more than 5% of its total assets will be placed at risk.
A swap agreement tends to shift the Fund's investment exposure from one type of
investment to another. For example, if the Fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase the Fund's exposure to foreign stock market movements and
foreign currencies. Depending on how it is used, a swap agreement may increase
or decrease the overall volatility of the Fund's investments and its net asset
value.
The performance of a swap agreement is determined by the change in the specific
currency, market index, security, or other factors that determine the amounts of
payments due to and from the Fund. If a swap agreement calls for payments by
the Fund, the Fund must be prepared to make such payments when due. If the
counterparty's creditworthiness declines, the value of a swap agreement
11
<PAGE>
would be likely to decline, potentially resulting in a loss. The Fund expects to
be able to eliminate its exposure under any swap agreement either by assignment
or by other disposition, or by entering into an offsetting swap agreement with
the same party or a similarly creditworthy party.
The Fund will segregate liquid assets (such as cash, U.S. government securities,
or other liquid high grade debt obligations) of the Fund to cover its current
obligations under swap agreements. If the Fund enters into a swap agreement on
a net basis, it will segregate assets with a daily value at least equal to the
excess, if any, of the Fund's accumulated obligations under the swap agreement
over the accumulated amount the Fund is entitled to receive under the agreement.
If the Fund enters into a swap agreement on other than a net basis, it will
segregate assets with a value equal to the full amount of the Fund's accumulated
obligations under the agreement.
ILLIQUID SECURITIES
The Fund may not invest in illiquid securities if as a result they would
comprise more than 15% of the value of the net assets of the Fund.
Restricted securities may be sold only in privately negotiated transactions or
in a public offering with respect to which a registration statement is in effect
under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, the Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a 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 a
fair value as determined in good faith by the Board of Trustees. If through the
appreciation of illiquid securities or the depreciation of liquid securities,
the Fund should be in a position where more than 15% of the value of its net
assets is invested in illiquid assets, including restricted securities, the Fund
will take appropriate steps to protect liquidity.
Notwithstanding the foregoing, the Fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That rule permits certain qualified institutional buyers,
such as the Fund, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. WAM, under the supervision of the Board
of Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the Fund's restriction of investing no more than
15% of its assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination WAM will consider the trading markets for the specific security
taking into account the unregistered nature of a Rule 144A security. In
addition, WAM could consider the (1) frequency of trades and quotes, (2) number
of dealers and potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of market place trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
12
<PAGE>
Fund does not invest more than 15% of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the amount
of the Fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
DEBT SECURITIES
The Fund may invest in debt securities, including lower-rated securities (i.e.,
securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or
lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk
bonds"), and securities that are not rated. There are no restrictions as to the
ratings of debt securities acquired by the Fund or the portion of the Fund's
assets that may be invested in debt securities in a particular ratings category
except that the Fund will not invest more than 20% of its assets in securities
rated below investment grade or considered by WAM to be of comparable credit
quality. The Fund does not expect to invest more than 5% of its net assets in
such securities during the current fiscal year.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than higher-
quality instruments and generally are more sensitive to adverse economic changes
or individual corporate developments. During a period of adverse economic
changes, including a period of rising interest rates, the junk bond market may
be severely disrupted, and issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than higher-
quality debt securities because the market for them is less broad. The market
for unrated debt securities is even narrower. During periods of thin trading in
these markets, the spread between bid and asked prices is likely to increase
significantly, and the Fund may have greater difficulty selling its portfolio
securities. See "Net Asset Value." The market value of these securities and
their liquidity may be affected by adverse publicity and investor perceptions.
A more complete description of the characteristics of bonds in each ratings
category is included in the appendix to this SAI.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon price, date, and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated
with direct investments in securities, the Fund will enter into repurchase
agreements
13
<PAGE>
only with banks and dealers believed by WAM to present minimum credit risks in
accordance with guidelines approved by the board of trustees. WAM will review
and monitor the creditworthiness of such institutions, and will consider the
capitalization of the institution, WAM's prior dealings with the institution,
any rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
The Fund will invest only in repurchase agreements collateralized at all times
in an amount at least equal to the repurchase price plus accrued interest. To
the extent that the proceeds from any sale of such collateral upon a default in
the obligation to repurchase were less than the repurchase price, the Fund would
suffer a loss. If the financial institution which is party to the repurchase
agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or
other liquidation proceedings there may be restrictions on the Fund's ability to
sell the collateral and the Fund could suffer a loss. However, with respect to
financial institutions whose bankruptcy or liquidation proceedings are subject
to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under
such Code that would allow it immediately to resell such collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund may purchase securities on a when-issued or delayed-delivery basis.
Although the payment and interest terms of these securities are established at
the time the Fund enters into the commitment, the securities may be delivered
and paid for a month or more after the date of purchase, when their value may
have changed. The Fund makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities before the
settlement date if WAM deems it advisable for investment reasons. The Fund may
utilize spot and forward foreign currency exchange transactions to reduce the
risk inherent in fluctuations in the exchange rate between one currency and
another when securities are purchased or sold on a when-issued or delayed-
delivery basis.
At the time the Fund enters into a binding obligation to purchase securities on
a when-issued or delayed delivery basis, liquid assets of the Fund having a
value at least as great as the purchase price of the securities to be purchased
will be segregated on the books of the Fund and held by the custodian throughout
the period of the obligation. The use of these investment strategies, as well
as any borrowing by the Fund, may increase net asset value fluctuation.
TEMPORARY STRATEGIES
The Fund has the flexibility to respond promptly to changes in market and
economic conditions. In the interest of preserving shareholders' capital, WAM
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, the Fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. or foreign issuers, and most or
all of the Fund's investments may be made in the United States and denominated
in U.S. dollars. It is impossible to predict whether, when, or for how long the
Fund might employ defensive strategies.
14
<PAGE>
In addition, pending investment of proceeds from new sales of the Fund's shares
or to meet ordinary daily cash needs, the Fund temporarily may hold cash (U.S.
dollars, foreign currencies, or multinational currency units) and may invest any
portion of its assets in money market instruments.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to rapid turnover,
there are no limitations on the length of time that portfolio securities must be
held. Portfolio turnover can occur for a number of reasons such as general
conditions in the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of holding or
changing a portfolio investment. The Fund's anticipated portfolio turnover rate
is less than 100%. A high rate of portfolio turnover, if it should occur, would
result in increased transaction expenses which must be borne by the Fund.
INVESTMENT RESTRICTIONS
In pursuing its investment objective, WANGER U.S. SMALL CAP ADVISOR will not:
1. With respect to 75% of the value of the Fund's total assets, invest more
than 5% of its total assets (valued at the time of investment) in
securities of a single issuer, except securities issued or guaranteed by
the government of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at the time of investment) in
securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);/3/
- -----------------
/3/ The Fund has no present intention of lending its portfolio securities.
15
<PAGE>
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures;/4/
6. Underwrite the distribution of securities of other issuers; however, the
Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the Fund could be regarded as an underwriter as defined by that
act with respect to such resale; but the Fund will limit its total
investment in restricted securities and in other securities for which there
is no ready market, including repurchase agreements maturing in more than
seven days, to not more than 15% of its net assets at the time of
acquisition;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) forward contracts;
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
10. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Restrictions 1 through 10 above are "fundamental," which means that they cannot
be changed without the approval of the lesser of (i) 67% of the Fund's shares
present at a meeting if more than 50% of the shares outstanding are present or
(ii) more than 50% of the Fund's outstanding shares.
In addition, the Fund is subject to a number of restrictions that may be changed
by the Board of Trustees without shareholder approval. Under those non-
fundamental restrictions, the Fund will not:
(a) Invest in companies for the purpose of management or the exercise of
control;
(b) Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration;
- ------------------
/4/ State insurance laws currently restrict the Fund's borrowings to facilitate
redemptions to no more than 25% of the Fund's net assets.
16
<PAGE>
(c) Invest more than 10% of its net assets (valued at the time of
investment) in warrants, valued at the lower of cost or market; provided
that warrants acquired in units or attached to securities shall be deemed
to be without value for purposes of this restriction;
(d) Invest more than 5% of its total assets (valued at time of investment)
in securities of issuers with less than three years' operation (including
predecessors);
(e) Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940 and applicable state
law;
(f) Purchase or retain securities of a company if all of the Trustees,
directors and officers of the Trust and of WAM who individually own
beneficially more than 1/2% of the securities of the company collectively
own beneficially more than 5% of such securities;
(g) Pledge, mortgage or hypothecate its assets, except as may be necessary
in connection with permitted borrowings or in connection with short sales,
options, futures and options on futures;
(h) Purchase a put or call option if the aggregate premiums paid for all
put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options
purchased as closing transactions;
(i) Sell securities short or maintain a short position.
Notwithstanding the foregoing investment restrictions, the Fund may purchase
securities pursuant to the exercise of subscription rights, provided that such
purchase will not result in the Fund's ceasing to be a diversified investment
company. Japanese and European corporations frequently issue additional capital
stock by means of subscription rights offerings to existing shareholders at a
price substantially below the market price of the shares. The failure to
exercise such rights would result in the Fund's interest in the issuing company
being diluted. The market for such rights is not well developed in all cases
and, accordingly, the Fund may not always realize full value on the sale of
rights. The exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising rights or
would have already been exceeded as a result of fluctuations in the market value
of the Fund's portfolio securities with the result that the Fund would be forced
either to sell securities at a time when it might not otherwise have done so, or
to forego exercising the rights.
In addition, pursuant to state insurance laws, the Fund is subject to the
following guidelines, which may also be changed by the Trustees:
(a) The Fund will be invested in a minimum of five different foreign
countries at all times, except that this minimum is reduced to four when
foreign country investments comprise less than 80% of the value of the
Fund's net assets; to three when less than 60% of such value; to two when
less than 40%; and to one when less than 20%.
17
<PAGE>
(b) The Fund will have no more than 20% of its net assets invested in
securities of issuers located in any one country; except that the Fund may
have an additional 15% of its net assets invested in securities of issuers
located in any one of the following countries: Australia; Canada; France;
Japan; the United Kingdom; or Germany.
(c) The Fund may not acquire the securities of any issuer if, as a result
of such investment, more than 10% of the Fund's total assets would be
invested in the securities of any one issuer, except that this restriction
shall not apply to U.S. Government securities or foreign government
securities; and the Fund will not invest in a security if, as a result of
such investment, it would hold more than 10% of the outstanding voting
securities of any one issuer.
(d) The Fund may borrow no more than 10% of the value of its net assets
when borrowing for any general purpose and 25% of net assets when borrowing
as a temporary measure to facilitate redemptions.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
shares of the Fund, including the value of shares acquired through reinvestment
of all dividends and capital gains distributions. "Average Annual Total Return"
is the average annual compounded rate of change in value represented by the
Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(1 +T)/n/
Where: P = the amount of an assumed initial investment in shares of the Fund
T = average annual total return
n = number of years from initial investment to the end of the period
ERV = ending redeemable value of shares held at the end of the period
For example, the Total Return in the Fund for the period from May 3, 1995
through December 31, 1995 was 16.0%.
The Fund imposes no sales charges and pays no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the Fund are
not necessarily indicative of future results. The Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing the Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different
18
<PAGE>
reinvestment assumptions or time periods. Fund performance figures do not
reflect expenses of the separate accounts of the Life Companies, expenses
imposed under the Variable Contracts, or expenses imposed by the Retirement
Plans.
In advertising and sales literature, the Fund's performance may be compared with
those of market indexes and other mutual funds. In addition to the performance
information described above, the Fund might use comparative performance as
computed in a ranking or rating determined by Lipper Analytical Services, Inc.,
an independent service that monitors the performance of over 1,000 mutual funds,
Morningstar, Inc., VARDS, or another service.
The Fund may note its mention or recognition, or the mention or recognition of
WAM or its principals, in newsletters, newspapers, magazines, or other media.
INVESTMENT ADVISER
The Fund's investment adviser, WAM, furnishes continuing investment advice to
the Fund and is responsible for overall management of the Fund's business
affairs. It furnishes office space and all necessary office facilities,
equipment, and personnel to the Fund; it assumes all other expenses incurred by
WAM in connection with managing the assets of the Fund, including expenses in
connection with placement of securities orders, expenses in determination of
daily price computations, portfolio accounting and related bookkeeping; and
assumes the expenses of printing and distributing the Fund's prospectus and
reports to prospective investors. At its own expense, WAM may contract with any
other person or persons to provide services in connection with daily price
computations, portfolio accounting and related bookkeeping.
For its services to the Fund, WAM receives a fee accrued daily and paid monthly
at the annual rate of 1.0% of the net asset value of the Fund up to $100
million, 0.95% of the net asset value in excess of $100 million and up to $250
million, and 0.90% of the net asset value in excess of $250 million. These fees
may be reduced by any amount necessary to cause the Fund's expenses to be within
the limitation described below. The investment advisory fee of the Fund for the
period from May 3, 1995 through December 31, 1995 were $71,496.
The staff of the Securities and Exchange Commission has advised the Fund that
the annual advisory fees paid by many mutual funds are less than 0.75% of
average net assets. In 1995, the Fund's investment advisory fee was 1.00% of
its average net assets.
The Fund pays all charges of depositories, custodians and other agents for the
safekeeping and servicing of the Fund's cash, securities and other property; all
charges of the Fund's transfer agents and registrars, and the Fund's dividend
disbursing and redemption agents, if any; and all charges of independent
auditors and legal counsel. The Fund also pays other expenses such as the cost
of qualifying and maintaining the registration of shares of the Fund and the
cost of compliance with federal and state securities laws; typesetting of the
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; printing and mailing
certificates for shares of the Fund; publishing reports and notices to the
Fund's
19
<PAGE>
shareholders and to governmental bodies or regulatory agencies; proxy
solicitations of the Fund or of the Board of Trustees of the Trust; shareholder
meetings; fees and taxes payable to federal, state or governmental agencies,
domestic or foreign; insurance premiums required by law or deemed advisable by
the Trust's Board of Trustees; all costs of borrowing money; its proportionate
share of all expenses of maintaining the registration of the Trust under the
Investment Company Act of 1940; its proportionate share of all fees, dues and
other expenses related to membership of the Trust in any trade association or
other investment company organization; and its proportionate share of the fees
of Trustees who are not otherwise affiliated with the Trust or WAM, and all
expenses incurred in connection with their services to the Trust. The Fund also
pays all brokers' commissions and other charges relative to the purchase and
sale of portfolio securities for the Fund.
The investment advisory agreements require WAM to reimburse the Fund in the
event that the total annual expenses of the Fund that are payable in any fiscal
year, including the advisory fee but excluding taxes, interest, brokerage
commissions and similar fees, and certain extraordinary litigation expenses,
exceed the limits prescribed by any state in which the Fund's shares are
qualified for sale. Total annual expenses, and the amount by which total annual
expenses may exceed these limits, will be determined as of the close of each
business day of the year. The Fund does not believe that any such state expense
limitation is currently applicable. If the states in which the Fund's shares
are qualified for sale impose no limits on total expenses, then WAM has
voluntarily agreed to reimburse the Fund in the event the fees and expenses
payable by the Fund in any fiscal year (as described above) exceed 1.5% of
average daily net assets. The following items are excluded for purposes of
calculating the expenses subject to this limitation: (i) credits, if any, that
the Fund may receive that have the effect of offsetting certain of those
expenses; and (ii) the excess custodian costs attributable to investments in
foreign securities compared to the custodian costs which would have been
incurred had the investments been in domestic securities. Reimbursement of
expenses in excess of this limitation will be made monthly and will be paid to
the Fund by reduction of WAM's advisory fee. WAM may from time to time absorb
expenses for the Fund in addition to the reimbursement of expenses in excess of
applicable limitations.
WAM advanced all of the Trust's organizational expenses, which are being
amortized and reimbursed to WAM over a five year period.
WAM is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., which is controlled by Ralph Wanger. WAM commenced operations
in 1992. Ralph Wanger, Charles P. McQuaid, Terence M. Hogan, and Leah J. Zell,
who are officers and trustees of the Trust, are limited partners of WAM. WAM
has approximately $4.5 billion under management.
DISTRIBUTOR
Shares of the Fund are distributed by WAM Brokerage Services, L.L.C. ("WAM BD")
under a Distribution Agreement as described in the prospectus dated May 1, 1996,
which is incorporated herein by reference. The Distribution Agreement continues
in effect from year to year, provided such continuance is approved annually (i)
by a majority of the trustees or by a majority of the outstanding voting
securities of the Trust, and (ii) by a majority of the trustees who are not
parties
20
<PAGE>
to the Agreement or interested persons of any such party. Shares of the Fund are
offered for sale through WAM BD without any sales commission or charges to the
Fund or Life Companies or Retirement Plans purchasing Fund shares. However, each
Variable Contract imposes its own charges and fees on owners of Variable
Contracts and Retirement Plans and may impose such charges on participants in a
Retirement Plan. The Trust has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange Commission and
auditing and filing fees in connection with registration of its shares under the
various stock blue sky laws.
THE TRUST
The Agreement and Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its Trustees. The Trust may issue an unlimited number
of shares, in one or more series as the Board of Trustees may authorize. Any
such series of shares may be further divided, without shareholder approval, into
two or more classes of shares having such preferences or special or relative
rights or privileges as the Trustees may determine. The shares of the Fund are
not currently divided into classes. The Fund and International Small Cap are
the only series of the Trust currently being offered. The Board of Trustees may
authorize the issuance of additional series if deemed advisable, each with its
own investment objective, policies, and restrictions. All shares of the Fund
which are issued will be fully paid and non-assessable and will have no
preemptive or conversion rights.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the Board of Trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of Trustees. Shares do not have cumulative
voting rights; accordingly, shareholders controlling voting interests of more
than 50% of shares of the Fund's voting for the election of Trustees could elect
all of the Trustees if they chose to do so, and in such event, shareholders
controlling voting interests of the remaining shares would not be able to elect
any Trustees.
Shareholder rights regarding voting are described in the prospectus. These
voting rights are based on applicable federal and state laws. To the extent
that changes in such laws or regulations thereunder or interpretations thereof
eliminate the necessity to submit any such matters to a shareholder vote, or
otherwise restrict or limit such voting rights, the Trust reserves the right to
act in any manner permitted by such changes.
21
<PAGE>
The Trust's Declaration of Trust disclaims liability of the shareholders,
trustees, and officers of the Trust for acts or obligations of the Trust and
requires that notice of such disclaimer be given in each agreement, obligation,
or contract entered into or executed by the Trust or the board of trustees. The
Declaration of Trust provides for indemnification out of the Trust's assets for
all losses or expenses of any shareholder held personally liable for the
obligations of the Trust. Thus, although shareholders of a business trust may,
under certain circumstances, be held personally liable under Massachusetts law
for the obligations of the trust, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote because it is
limited to circumstances in which the disclaimer is inoperative and the Trust
itself is unable to meet its obligations. The risk to any one series of
sustaining a loss on account of liabilities incurred by another series is also
believed to be remote.
TRUSTEES AND OFFICERS; CERTAIN SHAREHOLDERS
The Trustees and officers of the Trust and their principal business activities
during the past five years are:
Ralph Wanger, trustee and president* (age 62)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; prior thereto, principal,
Harris Associates L.P.; trustee and president, Acorn Investment Trust.
Charles P. McQuaid, trustee and senior vice president* (age 42)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; prior thereto, principal,
Harris Associates L.P.; trustee and senior vice president, Acorn Investment
Trust.
Terence M. Hogan, trustee and vice president* (age 34)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst, and portfolio manager, Wanger Asset Management, L.P., since July
1992; prior thereto, analyst, Harris Associates L.P.; vice president, Acorn
Investment Trust.
Leah J. Zell, trustee and vice president* (age 47)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst, and portfolio manager, Wanger Asset Management, L.P., since July
1992; prior thereto, analyst, Harris Associates L.P.; vice president, Acorn
Investment Trust.
Fred D. Hasselbring, trustee (age 54)
1338 N. Bell Avenue, Chicago, Illinois 60622; owner, Fred D. Hasselbring
and Associates (retail industry computer systems consulting and sales).
P. Michael Phelps, trustee (age 61)
100 North Riverside Plaza, Chicago, Illinois 60606-1596; vice president and
corporate secretary, Morton International, Inc.
22
<PAGE>
James A. Star, trustee (age 35)
222 N. LaSalle Street, Suite 2000, Chicago, Illinois 60601; vice president,
Henry Crown and Company, a diversified holding company, since October 1994;
portfolio manager and investment analyst, Harris Associates L.P., June 1991
to October 1994; attorney, Kirkland and Ellis, prior to June 1991.
Merrillyn J. Kosier, vice president and secretary (age 36)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; director of
marketing and shareholder services, Wanger Asset Management, L.P., since
September 1993; prior thereto, vice president of marketing, Kemper
Financial Services, Inc.; vice president and secretary, Acorn Investment
Trust.
Bruce H. Lauer, vice president and treasurer (age 38)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; chief
administrative officer, Wanger Asset Management, L.P., since April 1995;
prior thereto, first vice president, investment accounting, Kemper
Financial Services, Inc.; vice president and treasurer, Acorn Investment
Trust.
Kenneth A. Kalina, assistant treasurer (age 36)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; Fund
controller, Wanger Asset Management, L.P., since September 1995; prior
thereto, treasurer of the Stein Roe Mutual Funds; assistant treasurer,
Acorn Investment Trust.
*Messrs. Hogan, McQuaid, and Wanger and Ms. Zell are Trustees who are
"interested persons" of the Trust as defined in the Investment Company Act of
1940, and of WAM.
Mr. Wanger and Ms. Zell are married. Messrs. Hogan, McQuaid, and Wanger and Ms.
Zell are members of the Executive Committee, which has authority during
intervals between meetings of the Board of Trustees to exercise the powers of
the board, with certain exceptions. Messrs. Hasselbring, Phelps, and Star are
members of the Audit Committee, which has the authority to make recommendations
to the Board of Trustees regarding the selection of independent auditors for the
Trust and to confer with the independent auditors regarding the scope and
results of each audit.
Each Trustee of Wanger Advisors Trust who is not an "interested person" of the
Trust, as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, receives as remuneration for services as Trustee an annual fee of
$6,000, a meeting fee of $1,000 for each meeting of the Board of Trustees
attended by such Trustee, and an additional fee of $300 for each committee
meeting of the Board of Trustees attended by such Trustee that does not
immediately follow or precede a meeting of the Board of Trustees. Each such
Trustee is reimbursed for out-of-pocket expenses reasonably incurred in
attending meetings of the Board of Trustees or any committee thereof.
23
<PAGE>
At December 31, 1995 the trustees and officers as a group owned beneficially
approximately 68,587 shares (approximately 3.6% of the outstanding shares) of
U.S. Small Cap. At that date, Phoenix Home Life Mutual Insurance Company, One
American Row, Hartford, Connecticut 06115, was the record holder of 1,853,224
shares (approximately 98% of the outstanding shares) of U.S. Small Cap, all of
which are beneficially owned by Variable Contract owners, including trustees and
officers of the Trust whose shareholdings are reported above. Including the
shares reported above, the trustees and officers as a group and Phoenix Home
Life Mutual Insurance Company owned approximately 5.9% and 97% of the Trust's
total outstanding shares, respectively. Shares owned by trustees and officers as
Variable Contract owners are included in the shares reported for both the
trustees and officers as a group and for Phoenix Home Life Mutual Insurance
Company.
The following table shows compensation paid by the Trust during the fiscal year
ended December 31, 1995 to each Trustee of the Trust who is not an "interested
person" of the Trust or of WAM. The Trust does not pay compensation to its
officers or to Trustees who are "interested persons." The Trust does not offer
any pension or retirement benefits to its trustees.
<TABLE>
<CAPTION>
================================================================
NAME OF PERSON, AGGREGATE COMPENSATION TOTAL
POSITION FROM WANGER U.S. COMPENSATION
SMALL CAP ADVISOR FROM FUND COMPLEX
================================================================
<S> <C> <C>
FRED D. HASSELBRING $6,500 $13,000
Trustee
P. MICHAEL PHELPS $6,500 $13,000
Trustee
JAMES A. STAR $6,000 $12,000
Trustee
</TABLE>
PURCHASING AND REDEEMING SHARES
Shares of the Fund may not be purchased or redeemed directly by individual
Variable Contract owners or Individual Retirement Plan participants. Purchases
and redemptions are discussed in the prospectus. That information is
incorporated herein by reference.
For purposes of computing the net asset value of a share of the Fund, a security
traded on a securities exchange, or in an over-the-counter market in which
transaction prices are reported, is valued at the last sale price at the time of
valuation. A security for which there is no reported sale on the valuation date
is valued at the mean of the latest bid and ask quotations or, if there is no
ask quotation, at the most recent bid quotation. Securities for which
quotations are not readily available and any other assets are valued at a fair
value as determined in good faith by the Board of Trustees. Money market
instruments having a maturity of 60 days or less from the valuation date are
valued
24
<PAGE>
on an amortized cost basis. All assets and liabilities initially expressed in
foreign currencies are converted into U.S. dollars at a current exchange rate.
The Fund's net asset values are determined only on days on which the New York
Stock Exchange ("NYSE") is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE
will be closed on the preceding Friday or the following Monday, respectively.
Trading in the portfolio securities of the Fund may take place in various
foreign markets on certain days (such as Saturday) when the Fund is not open for
business and does not calculate its net asset values. Conversely, trading in
the Fund's portfolio securities may not occur on days when the Fund is open.
Therefore, the calculation of net asset value does not take place
contemporaneously with the determinations of the prices of many of the Fund's
portfolio securities and the value of the Fund's portfolios may be significantly
affected on days when shares of the Fund may not be purchased or redeemed.
Computation of net asset value (and the sale and redemption of the Fund's
shares) may be suspended or postponed during any period when (a) trading on the
NYSE is restricted, as determined by the Securities and Exchange Commission, or
that exchange is closed for other than customary weekend and holiday closings,
(b) the Commission has by order permitted such suspension, or (c) an emergency,
as determined by the Commission, exists making disposal of portfolio securities
or valuation of the net assets of the Fund not reasonably practicable.
The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the net asset value of the Fund during any
90-day period for any one shareholder. Redemptions in excess of the above
amounts will normally be paid in cash, but may be paid wholly or partly by a
distribution in-kind of securities. If a redemption is made in kind, the
redeeming shareholder would bear any transaction costs incurred in selling the
securities received. The Agreement and Declaration of Trust also authorizes the
Trust to redeem shares under certain other circumstances as may be specified by
the Board of Trustees.
ADDITIONAL TAX INFORMATION
Shares of the Fund are offered to separate accounts of Life Companies that fund
Variable Contracts and may be offered to certain Retirement Plans, which are
pension plans and retirement arrangements and accounts permitting the
accumulation of funds on a tax-deferred basis. See the disclosure documents for
the Variable Contracts or the plan documents (including the summary plan
description) for the Retirement Plans for a discussion of the special taxation
of insurance companies with respect to the separate accounts and the Variable
Contracts, and the holders thereof, or the special taxation of Retirement Plans
and the participants therein.
25
<PAGE>
The Fund intends to qualify and to continue to qualify for treatment as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify for that treatment, the Fund must
distribute to 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. These requirements include the following: (1) the Fund must
derive at least 90% of its gross income each taxable year from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income
(including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or currencies ("Income
Requirement"); (2) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities, or any of the
following, that were held for less than three months -- options, futures or
forward contracts (other than those on foreign currencies), or foreign
currencies (or options, futures or forward contracts thereon) that are not
directly related to the Fund's principal business of investing in securities (or
options and futures with respect thereto) ("Short-Short Limitation"); (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash or cash items, U.S. Government
securities, securities of other RICs, and other securities that, with respect to
any one issuer, do not exceed 5% of the value of the Fund's total assets and
that do not represent more than 10% of the outstanding voting securities of the
issuer; and (4) at the close of each quarter of the Fund's taxable year, not
more than 25% of the value of its total assets may be invested in securities
(other than U.S. Government securities or the securities of other RICs) of any
one issuer.
As noted in the prospectus, the Fund must, and intends to, comply with the
diversification requirements imposed by Section 817(h) of the Code and the
regulations thereunder. For information concerning the consequences of failure
to meet the requirements of Section 817(h), see the prospectus for the Variable
Contracts.
The Fund will not be subject to the 4% Federal excise tax imposed on RICs that
do not distribute substantially all its income and gains each calendar year
because that tax does not apply to a RIC whose only shareholders are segregated
asset accounts of life insurance companies held in connection with variable
annuity contracts and/or variable life insurance policies or Retirement Plans.
The foregoing is only a general summary of some of the important Federal income
tax considerations generally affecting the Fund and its shareholders. No
attempt is made to present a complete explanation of the Federal tax treatment
of the Fund's activities, and this discussion and the discussion in the
prospectuses and/or statements of additional information for variable contracts
are not intended as a substitute for careful tax planning. Accordingly,
potential investors are urged to consult their own tax advisers for more
detailed information and for information regarding any state, local, or foreign
taxes applicable to the variable contracts and the holders thereof.
26
<PAGE>
PORTFOLIO TRANSACTIONS
Portfolio transactions of the Fund are placed with those securities brokers and
dealers that WAM believes will provide the best value in transaction and
research services for the Fund, either in a particular transaction or over a
period of time. Although some transactions involve only brokerage services, many
involve research services as well.
In valuing brokerage services, WAM makes a judgment as to which brokers are
capable of providing the most favorable net price (not necessarily the lowest
commission) and the best execution in a particular transaction. Best execution
connotes not only general competence and reliability of a broker, but specific
expertise and effort of a broker in overcoming the anticipated difficulties in
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, WAM makes a judgment of the usefulness of research
and other information provided to WAM by a broker in managing each Fund's
investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising the Fund.
The reasonableness of brokerage commissions paid by the Fund in relation to
transaction and research services received is evaluated by WAM's staff on an
ongoing basis. The general level of brokerage charges and other aspects of the
Fund's portfolio transactions are reviewed periodically by the Board of
Trustees.
WAM is the principal source of information and advice to the Fund, and is
responsible for making and initiating the execution of investment decisions by
the Fund. However, the Board of Trustees recognizes that it is important for
WAM, in performing its responsibilities to the Fund, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the Fund to take into account the value of the information received
for use in advising the Fund. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the Fund is not determinable. In addition, the Board of Trustees understands
that other clients of WAM might benefit from the information obtained for the
Fund, in the same manner that the Fund might benefit from information obtained
by WAM in performing services to others.
Transactions of the Fund in the over-the-counter market and the third market are
executed with primary market makers acting as principal except where it is
believed that better prices and execution may be obtained otherwise.
Brokerage commissions incurred by the Fund for the fiscal period May 3, 1995
through December 31, 1995 were $59,273.
27
<PAGE>
Although investment decisions for the Fund are made independently from those for
other investment advisory clients of WAM, it may develop that the same
investment decision is made for one or both of the Fund and one or more other
advisory clients. If the Fund and other clients purchase or sell the same class
of securities on the same day, the transactions will be allocated as to amount
and price in a manner considered equitable to each.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8502, Boston, Massachusetts 02266-
8502, is the custodian for the Fund. It is responsible for holding all
securities and cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and collecting income from
investments, making all payments covering expenses of the Fund, and performing
other administrative duties, all as directed by authorized persons of the Fund.
The custodian does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund. The Fund has authorized the custodian to deposit certain
portfolio securities of the Fund in central depository systems as permitted
under federal law. The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian. The custodian may employ
one or more sub-custodians located in the United States upon approval by the
Board of Trustees of the Trust; and is authorized to employ sub-custodians for
the Fund's assets maintained outside the United States.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606
audits and reports on the Fund's annual financial statements, reviews certain
regulatory reports and the Fund's federal income tax return, and performs other
professional accounting, auditing, tax, and advisory services when engaged to do
so by the Fund.
28
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the credit
quality of the security being rated. However, the ratings are general and are
not absolute standards of quality or guarantees as to the creditworthiness of an
issuer. Consequently, WAM believes that the quality of debt securities in which
the Fund invests should be continuously reviewed. A rating is not a
recommendation to purchase, sell or hold a security, because it does not take
into account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating should be
evaluated independently. Ratings are based on current information furnished by
the issuer or obtained by the ratings services from other sources which they
consider reliable. Ratings may be changed, suspended or withdrawn as a result
of changes in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P").
MOODY'S RATINGS
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although 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 bonds.
Aa--Bonds rated Aa are judged to be 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 bonds 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 bonds.
A--Bonds 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 sometime in the future.
Baa--Bonds 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 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
A-1
<PAGE>
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B--Bonds 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 rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
Ca--Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and
interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and interest
and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
A-2
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
Wanger U.S. Small Cap Advisor
Annual Report
December 31, 1995
<PAGE>
- -------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Annual Report 1995
In a Nutshell
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor returned 16% to investors during the eight months
the Fund was in operation during 1995. Through September, our performance was
boosted by a number of winners in our information and finance groups. Our best
stocks were Silver King (TV stations), Sierra On-line (computer games) and Aames
(home equity lending). We more than doubled our money in each stock.
The fourth quarter of 1995 was more of a struggle. Rising U.S. consumer debt
delinquencies and bankruptcies spooked our credit card stocks (First USA,
Peoples Bank). A few weak energy stocks also hurt performance. Our disappointing
fourth quarter results pushed us slightly below the market averages shown in the
table for the period from the commencement of the Fund's operations (May 3,
1995) through the end of the year.
Our approach to investing is to buy the stocks of small- and medium-size
companies that we believe will benefit from favorable long-term social,
economic, or political trends. We have packed our portfolio with these companies
and are ready for the new year. Bring on 1996!
Results to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
4th quarter May 3, 1995
------------------------
<S> <C> <C>
Wanger U.S. Small Cap Advisor -- 3.8% 16.0%
Dow-Jones 7.5% 20.4%
Standard & Poor's 500 6.0% 21.8%
Standard & Poor's MidCap 1.4% 18.7%
Russell 2000 2.2% 20.1%
</TABLE>
The Dow Jones Industrial Average includes 30 big companies. The S&P 500 is a
broad market-weighted average, still blue chip dominated. The S&P MidCap 400 is
a market value weighted index of 400 stocks that are in the next tier down from
the S&P 500. The Russell 2000 is formed by taking 3,000 companies and then
eliminating the largest 1,000 leaving a good small company index. All indices
are unmanaged and returns include reinvested dividends.
Net Asset Value Per Share as of 12/31/95: $11.60
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in Wanger U.S. Small Cap Advisor
May 3, 1995 through December 31, 1995
[GRAPH APPEARS HERE]
Wanger US Small Cap Russell 2000
------------------- ------------
5/3/95 $10,000 $10,000
5/31/95 $ 9,870 $10,172
6/30/95 $10,770 $10,700
7/31/95 $11,560 $11,316
8/31/95 $11,940 $11,550
9/30/95 $12,060 $11,757
10/31/95 $11,380 $11,231
11/30/95 $11,640 $11,703
12/31/95 $11,600 $12,012
This graph compares the results of $10,000 invested in Wanger U.S. Small Cap
Advisor on May 3, 1995 (the date the Fund began operations) with the Russell
2000 with dividends reinvested. Past performance does not guarantee future
results. The investment return and principal value of an investment in the Fund
will fluctuate so that Fund shares, when redeemed, may be worth more or less
than their original cost.
2
<PAGE>
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
<TABLE>
<CAPTION>
Number of Shares Value
- --------------------------------------------------------------------------------
Common Stocks and Other Equity-Like
Securities--94.9%
Information Group--24.5%
- --------------------------------------------------------------------------------
Broadcasting and CATV--4.6%
<S> <C> <C>
20,000 Tele-Communications, Liberty $ 537,500
Media Group (b)
19,000 International Family Entertainment (b) 311,125
12,000 Jones Intercable, Cl. A (b) 148,500
- --------------------------------------------------------------------------------
997,125
Mobile Communications--4.6%
15,000 Cellular Communications of 416,250
Puerto Rico (b)
18,000 Vanguard Cellular Systems (b) 364,500
10,600 Mobile Telecommunication 226,575
Technologies (b)
- --------------------------------------------------------------------------------
1,007,325
Software--2.2%
25,500 CACI International (b) 302,813
4,300 Business Records Corporation (b) 169,850
- --------------------------------------------------------------------------------
472,663
Instrumentation--2.7%
30,000 COMARCO (b) 435,000
10,000 Thermo Spectra (b) 156,250
- --------------------------------------------------------------------------------
591,250
Computer Systems--2.5%
12,500 Solectron (b) 551,563
Distribution--2.1%
22,200 Richey Electronics (b) 288,600
23,000 Bell Microproducts (b) 166,750
- --------------------------------------------------------------------------------
455,350
Components and Peripherals--5.8%
15,000 In Focus Systems (b) 541,875
25,000 Oak Industries (b) 468,750
14,000 Planar Systems (b) 267,750
- --------------------------------------------------------------------------------
1,278,375
- --------------------------------------------------------------------------------
Information Group--Total 5,353,651
Health Care Group--8.9%
- --------------------------------------------------------------------------------
Medical Equipment--7.2%
42,000 Kinetic Concepts $ 504,000
30,000 AMSCO International (b) 446,250
14,000 Thermedics (b) 388,500
9,000 Invacare 227,250
- --------------------------------------------------------------------------------
1,566,000
Services--1.7%
15,000 Lincare Holding (b) 375,000
- --------------------------------------------------------------------------------
Health Care Group--Total 1,941,000
Consumer Goods and Services Group--14.0%
- --------------------------------------------------------------------------------
Retail--4.0%
30,000 Borders (b) 555,000
18,500 Dave & Buster's 224,312
10,000 Duckwall Alco Stores (b) 102,500
- --------------------------------------------------------------------------------
881,812
Entertainment and Leisure--3.3%
20,000 Rio Hotel & Casino (b) 237,500
13,000 Station Casinos (b) 190,125
5,000 GC Companies (b) 167,500
35,000 Monarch Casino & Resort (b) 122,500
- --------------------------------------------------------------------------------
717,625
Restaurants--1.8%
35,000 Quantum Restaurant Group (b) 393,750
Manufacturers--4.9%
21,000 Newell Companies 543,375
15,000 Liz Claiborne 416,250
10,000 Hampshire Group (b) 120,000
- --------------------------------------------------------------------------------
1,079,625
- --------------------------------------------------------------------------------
Consumer Group--Total 3,072,812
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Finance Group-22.7%
- --------------------------------------------------------------------------------
Savings & Loans-5.7%
18,000 Washington Federal $ 461,250
22,000 Peoples Bank Bridgeport 418,000
10,000 Bell Bancorp 357,500
- --------------------------------------------------------------------------------
1,236,750
Insurance-3.9%
18,000 Transnational Re 441,000
17,000 Leucadia National 425,000
- --------------------------------------------------------------------------------
866,000
Money Management-1.7%
17,000 SEI Corporation 369,750
Credit Cards-4.3%
20,000 National Data 495,000
10,000 First USA 443,750
- --------------------------------------------------------------------------------
938,750
Other-7.1%
35,000 Baker Fentress 586,250
30,000 DVI Health Services (b) 420,000
28,000 Americredit (b) 381,500
30,000 Cash America International 165,000
- --------------------------------------------------------------------------------
1,552,750
- --------------------------------------------------------------------------------
Finance Group-Total 4,964,000
Industrial Goods and Services-14.1%
- --------------------------------------------------------------------------------
Machinery-2.8%
25,000 Zoltek Companies (b) $ 418,750
10,600 Atchison Casting (b) 127,200
3,750 Baldor Electric 75,468
- --------------------------------------------------------------------------------
621,418
Steel-1.2%
8,000 UCAR International (b) 270,000
Furniture and Textiles-3.9%
33,000 Lilly Industries, Cl. A 420,750
19,000 Unifi 420,375
- --------------------------------------------------------------------------------
841,125
Services-6.2%
29,000 Wackenhut, Cl. B 449,500
35,000 AG Services of America (b) 332,500
25,000 NuCo2 (b) 325,000
19,000 Thomas Group (b) 256,500
- --------------------------------------------------------------------------------
1,363,500
- --------------------------------------------------------------------------------
Industrial Group-Total 3,096,043
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy and Minerals Group--10.7%
- --------------------------------------------------------------------------------
Cogeneration--4.8%
24,000 The AES Corporation (b) $ 573,000
29,000 Thermo Ecotek (b) 485,750
- --------------------------------------------------------------------------------
1,058,750
Oil & Gas Producer--3.5%
36,000 Abraxas Petroleum (b) 225,000
25,000 Tesoro Petroleum (b) 215,625
10,000 United Meridian (b) 173,750
14,700 Global Natural Resources (b) 154,350
- --------------------------------------------------------------------------------
768,725
Refining/Marketing--1.0%
24,000 NGC Corporation 213,000
Oil Services--1.4%
7,000 Atwood Oceanics (b) 176,750
5,000 Seacor Holdings (b) 135,000
- --------------------------------------------------------------------------------
311,750
- --------------------------------------------------------------------------------
Energy Group--Total 2,352,225
- --------------------------------------------------------------------------------
Total Common Stocks and Other
Equity-Like Securities--94.9% $20,779,731
- --------------------------------------------------------------------------------
(Cost: $20,340,288)
Cash and Other Assets
Less Liabilities--5.1% 1,123,805
- --------------------------------------------------------------------------------
Total Net Assets--100% $21,903,536
- --------------------------------------------------------------------------------
</TABLE>
Notes To Statement of Investments:
a) At December 31, 1995, for federal income tax purposes cost of investments
was $20,340,288 and net unrealized appreciation was $439,443 consisting of
gross unrealized appreciation of $1,596,638 and gross unrealized
depreciation of $1,157,195.
b) Non-income producing security.
See accompanying notes to financial statements.
5
<PAGE>
================================================================================
Report of Independent Auditors
To the Shareholders of Wanger U.S. Small
Cap Advisor and the Trustees of
Wanger Advisors Trust
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger U.S. Small Cap Advisor as of December
31, 1995, the related statements of operations and changes in net assets and the
financial highlights for the period from May 3, 1995 (commencement of
operations) through December 31, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Wanger
U.S. Small Cap Advisor at December 31, 1995, the results of its operations and
changes in its net assets and the financial highlights for the period from May
3, 1995 through December 31, 1995 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996
6
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Assets December 31, 1995
and Liabilities
<S> <C> <C>
Assets
Investments, at value (cost: $20,340,288) $20,779,731
Cash 1,045,491
Organization costs 86,672
Receivable for:
Fund shares sold $305,337
Dividends 13,525 318,862
- -------------------------------------------------------------------------------
Total assets 22,230,756
Liabilities and Net Assets
Payable for:
Securities purchased 225,000
Amount owed to advisor 86,780
Other 15,440
- -------------------------------------------------------------------------------
Total liabilities 327,220
- -------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
Fund shares outstanding 1,888,396
- -------------------------------------------------------------------------------
Pricing of Shares
Net asset value, offering price and redemption price per share $ 11.60
- -------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $21,506,936
Undistributed net realized gain on sales of investments 59,816
Unrealized appreciation of investments 439,443
Net investment loss (102,659)
- -------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
U.S. Small Cap Advisor Statement of Operations December 31, 1995
May 3, 1995 through December 31, 1995
<S> <C>
Investment Income:
Dividends $ 40,287
Interest 46
- -------------------------------------------------------------------------------
Total investment income 40,333
Expenses:
Investment advisory fee 71,496
Custodian fees and expenses 5,384
Legal and audit fees and expenses 52,389
Reports to shareholders 4,437
Transfer agent fees and expenses 2,172
Amortization of organization costs 13,328
Trustees' fees and other expenses 13,000
Insurance 4,941
Other expenses 1,025
- -------------------------------------------------------------------------------
Total Expenses 168,172
Less custodian fees paid indirectly (5,384)
Less reimbursement of expenses by advisor (19,796)
- -------------------------------------------------------------------------------
Net expenses 142,992
- -------------------------------------------------------------------------------
Net investment loss (102,659)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 499,259
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 396,600
================================================================================
Wanger U.S. Small Cap Advisor Statement May 3, 1995 through December 31, 1995
of Changes in Net Assets
- -------------------------------------------------------------------------------
From operations:
- -------------------------------------------------------------------------------
Net investment loss $ (102,659)
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations 396,600
From Fund share transactions:
Proceeds from shares sold 24,819,962
Payments for shares redeemed (3,438,708)
- -------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 21,381,254
- -------------------------------------------------------------------------------
Total increase in net assets 21,777,854
Net assets:
Beginning of period (May 3, 1995) 125,682
- -------------------------------------------------------------------------------
End of period (including net investment loss of $102,659) $21,903,536
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Wanger U.S. Small Cap Advisor Financial Highlights December 31, 1995
May 3, 1995 through December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.05)
Net realized and unrealized gain on investments 1.65
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.60
Net Asset Value, end of period $ 11.60
================================================================================================
Total Return 16.00%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (a) (b) 2.08%*
Ratio of net investment loss to average net assets (b) (1.44)%*
Portfolio turnover rate 59%*
Net assets at end of period $21,903,536
================================================================================================
</TABLE>
* Annualized
a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been 2.35% and (1.71%), respectively.
See accompanying notes to financial statements.
9
<PAGE>
===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995
1. Nature of operations
Wanger U.S. Small Cap Advisor (the "Fund") is a series of Wanger Advisors Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The investment objective of the Fund is to seek
long-term growth of capital. The Fund is available only for allocation to
certain life insurance company separate accounts established for the purpose of
funding qualified and non-qualified variable annuity contracts, and may also be
offered directly to certain types of pension plans and retirement arrangements.
The Fund commenced operations on May 3, 1995.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation, or lacking
any reported sales on that day, at the midpoint of the most recent bid and
offer. Money market instruments having a maturity of 60 days or less from the
valuation date are valued on an amortized cost basis. Securities for which
quotations are not readily available and any other assets are valued at a fair
value as determined in good faith by the Board of Trustees.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date.
Interest income is recorded on the accrual basis and includes amortization of
discounts on money market instruments and long-term debt instruments when
required for federal income tax purposes. Realized gains and losses from
security transactions are reported on an identified cost basis.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.
10
<PAGE>
===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995
Federal income taxes, dividends and distributions to shareholders
It is the Fund's policy to comply with the special provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner
provided therein, to distribute all of its taxable income, as well as any net
realized gain on sales of investments reportable for federal income tax
purposes.
Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.
3. Transactions with Affiliates
The Fund's portfolio and business affairs are managed by its investment advisor,
Wanger Asset Management, L.P. ("WAM"). The Fund pays WAM a monthly advisory fee
based upon average daily net assets at the following annual rates: 1% up to $100
million, .95% in excess of $100 million and up to $250 million, and .90% in
excess of $250 million.
The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the period ended December
31, 1995, WAM reimbursed the Fund $19,796.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. The Fund incurred trustees' fees and expenses of $13,000 in 1995 to
trustees not affiliated with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
4. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Shares sold 2,170,461
Less shares redeemed 294,633
- ---------------------------------------------------------------
Net increase in shares outstanding 1,875,828
===============================================================
</TABLE>
5. Investment transactions
<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $24,736,475
Proceeds from sales 4,456,003
===============================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Wanger U.S. Small Cap Advisor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustees Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ------------------------------------------------------------------------------------------------------------------------
Officers Ralph Wanger, President Merrillyn J. Kosier,
Charles P. McQuaid, Senior Vice President Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Leah J. Zell, Vice President Kenneth A. Kalina, Assistant Treasurer
- ------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend State Street Bank and Trust Company
Disbursing Agent and Attention: Wanger Advisors Trust
Custodian P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
- ------------------------------------------------------------------------------------------------------------------------
Investment Advisor Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
(312) 634-9200
- ------------------------------------------------------------------------------------------------------------------------
Legal Counsel Bell, Boyd & Lloyd
Chicago, Illinois
- ------------------------------------------------------------------------------------------------------------------------
Auditors Ernst & Young LLP
Chicago, Illinois
</TABLE>
This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Fund. This
report is not authorized for distribution unless preceded or accompanied by a
prospectus.
<PAGE>
=============================================================================
[LOGO] Wanger International Small Cap Advisor
Annual Report
December 31, 1995
<PAGE>
=============================================================================
Wanger International Small Cap Advisor Annual Report 1995
In a Nutshell
- -----------------------------------------------------------------------------
Wanger International Small Cap Advisor had an extraordinary 1995. We began
operations on May 3, 1995. For the period from May 3 to the end of the year,
the foreign markets were up about 2%. Your fund went up 34.5%.
For the fourth quarter of 1995, your fund was up 4.2%, ahead of the two
market averages shown in the table.
Many of the best stocks of 1995 were in Europe. Our fund is a small cap
fund, not an emerging markets fund, so we have the majority of our investments
in the developed markets of Europe, Japan, Canada, and Australia. We
participate in the high-risk, high-return emerging markets, but only with part
of our money.
Results to December 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
4th quarter May 3, 1995
-------------------------
<S> <C> <C>
Wanger Int'l Small Cap 4.2% 34.5%
EAFE 3.6% 4.1%
Lipper Int'l Small Co. -0.3% 7.5%
Funds Average
</TABLE>
EAFE is Morgan Stanley's Europe, Australia and Far East Index. EAFE is an
unmanaged index of companies throughout the world in proportion to world stock
market capitalization, excluding the U.S. and Canada. The Lipper International
Small Company Funds Average is a new group comprised of twelve small company
international funds.
Net Asset Value Per Share as of 12/31/95: $13.45
=============================================================================
The Value of a $10,000 Investment in
Wanger International Small Cap Advisor
May 3, 1995 through December 31, 1995
[GRAPH APPEARS HERE]
Total Return
Life of Fund 34.5%
<TABLE>
<CAPTION>
Wanger International
Measurement Period Small Cap Advisor EAFE
- ------------------ -------------------- ----------
<S> <C> <C>
5/3/95 $10,000 $10,000
5/31/95 $10,790 $ 9,867
6/30/95 $10,970 $ 9,681
7/31/95 $11,910 $10,270
8/31/95 $12,290 $ 9,864
9/30/95 $12,910 $10,044
10/31/95 $12,700 $ 9,760
11/30/95 $12,660 $10,019
12/31/95 $13,450 $10,409
</TABLE>
This graph compares the results of $10,000 invested in Wanger International
Small Cap Advisor on May 3, 1995 (the date the Fund began operations) with
Morgan Stanley's Europe, Australia and Far East Index (EAFE). Past performance
does not guarantee future results. The investment return and principal value of
an investment in the Fund will fluctuate so that Fund shares, when redeemed, may
be worth more or less than their original cost.
===================================================================
5/95 6/95 9/95 12/31/95
+9.7% +17.7% +4.2%
-------------------------------------------------------------------
Wanger International Small Cap Advisor Total Return for Each Period
2
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Common Stocks and Other Equity-Like
Securities--95.3%
Europe--45.8%
- --------------------------------------------------------------------------------
Germany/Austria--4.6%
- --------------------------------------------------------------------------------
3,120 Rhoen Klinikum Ord. $ 309,537
Hospital Management
1,200 BWT 123,324
Water Filtration Systems (Austria)
1,000 Fresenius Pfd. 95,019
Dialysis Equipment and Solutions
- --------------------------------------------------------------------------------
527,880
Denmark--2.7%
- --------------------------------------------------------------------------------
6,000 Martin Group (b) 313,966
Computer Controlled Lights
Netherlands--3.4%
- --------------------------------------------------------------------------------
20,000 Axxicon Group (b) 368,037
Plastic Injection Moulds for Compact Discs
Finland--2.9%
- --------------------------------------------------------------------------------
10,000 Tietotehdas, Cl. B 324,720
Computer Services/Consulting
Norway--1.7%
- --------------------------------------------------------------------------------
8,000 Elkjoeb Norge 198,797
Consumer Electronics Retailer
Sweden--6.2%
- --------------------------------------------------------------------------------
12,000 Pricer, Cl. B (b) 202,807
Electronic Shelf Labels for Supermarkets
9,000 Althin Medical AB 183,341
Dialysis & Other Medical Equipment
15,000 HL Display 165,233
Retail Display Systems
5,250 Frontec, Series B (b) 151,313
Computer Consulting and Software
- --------------------------------------------------------------------------------
702,694
France--8.4%
- --------------------------------------------------------------------------------
6,000 Axime Ex Segin (b) 462,529
Computer Services/Consulting
10,000 Coflexip 188,750
Flexible Pipe for Subsea Oil Wells
1,500 Guilbert 176,362
Office Supplies Distributor
1,400 Spir Communication 128,535
Newspaper Publisher & Printer
- --------------------------------------------------------------------------------
956,176
United Kingdom/Ireland--10.5%
- --------------------------------------------------------------------------------
55,000 Oriflame International 345,842
Natural Cosmetics
44,500 Serco Group 253,563
Facilities Management
30,000 Capita Group 132,747
Outsourcing Government Services
5,000 International Cabletel (b) 122,500
Cable TV & Telephone System
20,000 N. Brown Group 83,219
Mail Order Women's Clothing
12,400 Seton Healthcare Group 76,046
Pharmaceuticals
10,000 Biocompatibles International (b) 73,749
Contact Lenses, Coronary Stents & Other
Medical Devices
50,000 City Centre Restaurants 72,972
Fast Food Restaurants
15,000 Body Shop International 35,399
Natural Cosmetics and Toiletries
- --------------------------------------------------------------------------------
1,196,037
Switzerland--2.1%
- --------------------------------------------------------------------------------
300 Phoenix Mecano 150,691
Electrical Components Manufacturer
80 Suedelektra Holding (b) 86,208
Diversified Pool of Commodity-Related Projects
- --------------------------------------------------------------------------------
236,899
Italy--3.3%
- --------------------------------------------------------------------------------
16,000 Brembo (b) 185,334
Manufacturer of Disk Brake Systems
50,000 Costa Crociere Ord. 122,156
Cruise Ship Line
46,000 Tecnost 75,386
ATM, Lotto and Toll Collection Equipment
Manufacturer
- --------------------------------------------------------------------------------
382,876
- --------------------------------------------------------------------------------
Europe--Total 5,208,082
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
Asia--31.9%
- --------------------------------------------------------------------------------
Hong Kong/China--7.7%
- --------------------------------------------------------------------------------
<S> <C> <C>
1,000,000 Golden Harvest Entertainment $265,132
Movie Distribution & Exhibition
90,000 New World Infrastructure (b) 172,271
Infrastructure Investments (China)
150,000 Li and Fung 133,859
Sourcing of Consumer Goods
60,000 Varitronix International 111,355
LCD Manufacturer
200,000 Chen Hsong Holdings 104,759
Plastic Injection Machines
120,000 JCG Holdings 87,688
Consumer Finance
- --------------------------------------------------------------------------------
875,064
Japan--9.6%
- --------------------------------------------------------------------------------
7,000 Hokuto 254,459
Mushroom Grower
2,500 Autobacs Seven 207,929
Auto Parts Retailer
3,600 Sankyo Company 167,507
Pachinko Machine Manufacturer
3,300 Aucnet 159,946
Used Auto Auctions Via Satellite
6,000 Heiwa 156,456
Pachinko Machine Manufacturer
2,000 Paramount Bed 139,589
Hospital Bed Manufacturer
- --------------------------------------------------------------------------------
1,085,886
Malaysia--3.8%
- --------------------------------------------------------------------------------
50,000 Sistem Televisyen Malaysia 180,189
Television Franchise
33,750 Malaysian Assurance Alliance 152,865
Insurance
13,000 O.Y.L. Industries 100,866
Air Conditioners
- --------------------------------------------------------------------------------
433,920
Indonesia/Philippines--7.2%
- --------------------------------------------------------------------------------
280,000 Suba Indah 186,748
Beverage and Food Manufacturer
350,000 Int'l Container Terminal Services (b) 183,473
Container Handling Terminals & Port
Management (Philippines)
350,000 Universal Robina 173,466
Snack Foods (Philippines)
150,000 PILTEL (b) 151,544
Mobile Communications (Philippines)
80,000 Mustika Ratu (b) 127,706
Traditional Cosmetics
- --------------------------------------------------------------------------------
822,937
Singapore--3.6%
- --------------------------------------------------------------------------------
70,000 Venture Manufacturing Warrants 111,347
7/26/99 (b)
Contract Manufacturer of Electronic Goods
17,000 Clipsal Industries 38,420
Electrical Components
160,000 Genting International 260,800
Cruise Line
- --------------------------------------------------------------------------------
410,567
- --------------------------------------------------------------------------------
Asia--Total 3,628,374
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Latin America--8.0%
- --------------------------------------------------------------
Mexico--5.8%
- --------------------------------------------------------------
61,500 Nadro, Series L $207,528
Pharmaceutical Distributor
21,000 Grupo Radio Centro 154,875
Radio Stations and Networks
10,000 Kimberly Clark De Mexico 151,071
Paper Products
10,000 Bufete Industrial (b) 150,000
Engineering and Construction
- --------------------------------------------------------------
663,474
Brazil/Chile--2.2%
- --------------------------------------------------------------
5,000 Genesis Chile Fund 202,500
Closed-End Fund (Chile)
70,000 Brazilian Smaller Companies Warrants (b) 49,000
Closed-End Fund (Brazil)
- --------------------------------------------------------------
251,500
- --------------------------------------------------------------
Latin America--Total 914,974
Other Countries--9.6%
- --------------------------------------------------------------
Australia/New Zealand--6.5%
- --------------------------------------------------------------
60,000 Publishing & Broadcasting 209,333
Media & TV Broadcasting
114,300 Austereo 161,553
Media - Radio
25,000 PDL Holdings 138,933
Electrical Equipment Manufacturer &
Distributor (New Zealand)
80,000 Just Jeans Holdings 115,453
Jeans & Fashion Retail Stores
350,000 Command Petroleum Holdings (b) 106,750
Oil and Gas Exploration
- --------------------------------------------------------------
732,022
- --------------------------------------------------------------
Canada--3.1%
- --------------------------------------------------------------
50,000 Tesco (b) 242,870
Rental of Drilling Equipment
20,000 Veritas Energy Services (b) 109,979
Geophysical Contractor
- --------------------------------------------------------------
352,849
- --------------------------------------------------------------
Other--Total 1,084,871
Total Common Stocks and Other
Equity-Like Securities--95.3% 10,836,301
- --------------------------------------------------------------
(Cost:$9,726,347)
Cash and Other Assets
Less Liabilities--4.7% 532,623
- --------------------------------------------------------------
Total Net Assets--100% $11,368,924
- --------------------------------------------------------------
</TABLE>
Notes to Statement of Investments:
a) At December 31, 1995, for federal income tax purposes cost of investments
was $9,759,245 and net unrealized appreciation was $1,077,056 consisting of
gross unrealized appreciation of $1,329,208 and gross unrealized depreciation
of $252,152.
b) Non-income producing security.
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
At December 31, 1995, the Fund's portfolio of investments as a percentage of net assets was diversified
as follows:
Value Percent
- ----------------------------------------------------
<S> <C> <C>
Information Group
- ----------------------------------------------------
Computer Systems $ 936,666 8.2%
- ----------------------------------------------------
Broadcasting and CATV 828,450 7.3
- ----------------------------------------------------
Consumer Electronics 499,263 4.4
- ----------------------------------------------------
Mobile Communications 151,544 1.3
- ----------------------------------------------------
Software 151,313 1.3
- ----------------------------------------------------
Distribution 128,535 1.2
- ----------------------------------------------------
2,695,771 23.7
Health Care
- ----------------------------------------------------
Biotechnology/Drug Delivery 388,333 3.4
- ----------------------------------------------------
Services 383,286 3.4
- ----------------------------------------------------
Hospital/Laboratory Supplies 234,608 2.1
- ----------------------------------------------------
Equipment 183,341 1.6
- ----------------------------------------------------
1,189,568 10.5
Consumer Goods and Services
- ----------------------------------------------------
Retail 1,650,847 14.5
- ----------------------------------------------------
Entertainment and Leisure 706,919 6.2
- ----------------------------------------------------
Manufacturers 705,024 6.2
- ----------------------------------------------------
Food 687,645 6.1
- ----------------------------------------------------
3,750,435 33.0
Finance Group
- ----------------------------------------------------
Money Management 423,771 3.7
- ----------------------------------------------------
Other 1,042,853 9.2
- ----------------------------------------------------
1,466,624 12.9
Industrial Goods and Services
- ----------------------------------------------------
Machinery Processing 752,081 6.6
- ----------------------------------------------------
Services 183,473 1.6
- ----------------------------------------------------
Forest Products and Construction 150,000 1.3
- ----------------------------------------------------
1,085,554 9.5
Energy and Minerals
- ----------------------------------------------------
Oil Services 431,620 3.8
- ----------------------------------------------------
Oil and Gas Producers 216,729 1.9
- ----------------------------------------------------
648,349 5.7
Total Common Stocks and
Other Equity-Like Securities 10,836,301 95.3
- ----------------------------------------------------
Cash and Other Assets
less Liabilities 532,623 4.7
- ----------------------------------------------------
Net Assets $11,368,924 100.0%
- ----------------------------------------------------
</TABLE>
===============================================================================
Report of Independent Auditors
To the Shareholders of Wanger International Small Cap Advisor and the Trustees
of Wanger Advisors Trust
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger International Small Cap Advisor as of
December 31, 1995, the related statements of operations and changes in net
assets and the financial highlights for the period from May 3, 1995
(commencement of operations) through December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Wanger
International Small Cap Advisor at December 31, 1995, the results of its
operations and changes in its net assets and the financial highlights for the
period from May 3, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996
6
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
Wanger International Small Cap Advisor Statement of Assets and Liabilities December 31, 1995
<S> <C> <C>
Assets
Investments, at value (cost: $9,726,347) $10,836,301
Cash 883,814
Organization costs 86,672
Receivable for:
Securities sold 79,781
Dividends 2,963
Fund shares sold 177,438 260,182
- ---------------------------------------------------------------------------------------------------------------
Total assets 12,066,969
Liabilities and Net Assets
Payable for:
Securities purchased 594,769
Fund shares redeemed 81
Amount owed to advisor 86,740
Other 16,455
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 698,045
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
- ---------------------------------------------------------------------------------------------------------------
Fund shares outstanding 845,182
===============================================================================================================
Pricing of Shares
Net asset value, offering price and redemption price per share $13.45
- ---------------------------------------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $10,233,014
Accumulated net realized gain on sales of investments and foreign currency transactions 53,357
Unrealized appreciation of investments and foreign currency transactions 1,109,954
Net investment loss (27,401)
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Wanger International Small Cap Advisor Statement of Operations December 31, 1995
May 3, 1995 through December 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign taxes of $5,769) $ 39,708
Interest 161
- ----------------------------------------------------------------------------------------------
Total investment income 39,869
Expenses:
Investment advisory fee 43,726
Custodian fees and expenses 19,208
Legal and audit fees and expenses 40,560
Reports to shareholders 3,199
Amortization of organization costs 13,328
Trustees' fees 13,000
Insurance 4,941
Other expenses 3,186
- ----------------------------------------------------------------------------------------------
Total expenses 141,148
Less custodian fees paid indirectly (10,886)
Less reimbursement of expenses by advisor (62,992)
- ----------------------------------------------------------------------------------------------
Net expenses 67,270
- ----------------------------------------------------------------------------------------------
Net investment loss (27,401)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,163,311
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,135,910
==============================================================================================
Wanger International Small Cap Advisor Statement of Changes in Net Assets
==============================================================================================
From operations:
Net investment loss $ (27,401)
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,135,910
From Fund share transactions:
Proceeds from shares sold 11,951,601
Payments for shares redeemed (1,844,269)
- ----------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 10,107,332
- ----------------------------------------------------------------------------------------------
Total increase in net assets 11,243,242
Net Assets:
- ----------------------------------------------------------------------------------------------
Beginning of period (May 3, 1995) 125,682
- ----------------------------------------------------------------------------------------------
End of period (including net investment loss of $27,401) $11,368,924
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger International Small Cap Advisor Financial Highlights December 31, 1995
May 3, 1995 through December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.03)
Net realized and unrealized gain on investments 3.48
- --------------------------------------------------------------------------------
Total from investment operations 3.45
Net Asset Value, end of period $ 13.45
================================================================================
Total Return 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 2.32%*
Ratio of net investment loss to average net assets (b) (0.81)%*
Portfolio turnover rate 14%*
Net assets at end of period $11,368,924
================================================================================
</TABLE>
* Annualized
a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been been 4.20% and (2.69)%, respectively.
See accompanying notes to financial statements.
9
<PAGE>
==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995
1. Nature of operations
Wanger International Small Cap Advisor (the "Fund") is a series of Wanger
Advisors Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. The investment objective of the
Fund is to seek long-term growth of capital. The Fund is available only for
allocation to certain life insurance company separate accounts established for
the purpose of funding qualified and non-qualified variable annuity contracts,
and may also be offered directly to certain types of pension plans and
retirement arrangements. The Fund commenced operations on May 3, 1995.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation, or lacking
any reported sales on that day, at the midpoint of the most recent bid and
offer. Money market instruments having a maturity of 60 days or less from the
valuation date are valued on an amortized cost basis. Securities for which
quotations are not readily available and any other assets are valued at a fair
value as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss on investments
resulting from changes in foreign exchange rates is included with net realized
and unrealized gain or loss as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.
Federal income taxes, dividends and distributions
to shareholders
It is the Fund's policy to comply with the special provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner
provided therein, to distribute all of its taxable income, as well as any net
realized gain on sales of investments and foreign currency transactions
reportable for federal income tax purposes.
The Fund will elect to mark-to-market its investment in Passive Foreign
Investment Companies ("PFICs") for income tax purposes. In accordance with this
election, the Fund recognized unrealized appreciation on PFICs of $32,898 for
the period ended December 31, 1995.
Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.
10
<PAGE>
==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995
3. Transactions with Affiliates
The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes
continuing investment supervision to the Fund and is responsible for overall
management of the Fund's business affairs. The Fund pays WAM a monthly advisory
fee based upon average daily net assets at the following rates: 1.3% up to $100
million, 1.2% in excess of $100 million and up to $250 million and 1.1% in
excess of $250 million.
The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the year ended December 31,
1995, WAM reimbursed the Fund $62,992.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. The Fund incurred trustees' fees and expenses of $13,000 in 1995 to
trustees not affiliated with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
4. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Shares sold 986,106
Less shares redeemed 153,492
- ------------------------------------------------------------------------------
Net increase in shares outstanding 832,614
==============================================================================
</TABLE>
5. Investment transactions
<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $10,188,942
Proceeds from sales 516,063
==============================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Wanger International Small Cap Advisor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustees Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ------------------------------------------------------------------------------------------------------------------------
Officers Ralph Wanger, President Merrillyn J. Kosier,
Charles P. McQuaid, Senior Vice President Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Leah J. Zell, Vice President Kenneth A. Kalina, Assistant Treasurer
- ------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend State Street Bank and Trust Company
Disbursing Agent and Attention: Wanger Advisors Trust
Custodian P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
- ------------------------------------------------------------------------------------------------------------------------
Investment Advisor Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
(312) 634-9200
- ------------------------------------------------------------------------------------------------------------------------
Legal Counsel Bell, Boyd & Lloyd
Chicago, Illinois
- ------------------------------------------------------------------------------------------------------------------------
Auditors Ernst & Young LLP
Chicago, Illinois
</TABLE>
This report, including the audited financial statements contained herein, is
submitted for the general information of the shareholders of the Fund. This
report is not authorized for distribution unless preceded or accompanied by a
prospectus.
<PAGE>
WANGER ADVISORS TRUST
PART C
------
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
- ------- ---------------------------------
(a) Financial statements:
--------------------
(1) Financial statements included in Part A of this amendment:
None
(2) Financial statements included in Part B of this amendment:
(i) Wanger U.S. Small Cap Adviser (incorporated by reference to the
following portions of Registrant's 1995 Wanger U.S. Small Cap
Advisor Annual Report; a copy of the annual report is attached to
this amendment, but, except for those portions incorporated by
reference, is furnished for the information of the Commission and is
not deemed to be filed as part of this amendment):
Report of independent auditors
Statement of assets and liabilities at December 31, 1995
Statement of operations for the period ended December 31, 1995
Statement of changes in net assets for the period ended December 31,
1995
Statement of investments at December 31, 1995
Notes to financial statements
(ii) Wanger International Small Cap Advisor (incorporated by
reference to the following portions of Registrant's 1995 Wanger
International Small Cap Advisor Annual Report; a copy of the annual
report is attached to this amendment, but, except for those portions
incorporated by reference, is furnished for the information of the
Commission and is not deemed to be filed as part of this amendment):
Report of independent auditors
Statement of assets and liabilities at December 31, 1995
Statement of operations for the period ended December 31, 1995
Statement of changes in net assets for the period ended December 31,
1995.
Statement of investments at December 31, 1995
Notes to financial statements
(2) Financial statements included in Part C of this amendment:
None
C-1
<PAGE>
Note: The following schedules have been omitted for the following reasons:
Schedules I and III - The required information is presented in the
statements of investments at December 31, 1995.
Schedules II, IV, V, VI and VII - The required information is not
present.
(b) Exhibits:
--------
1. Agreement and Declaration of Trust.
2. By-laws.
3. None
4(a). Specimen Share Certificate - Wanger U.S. Small Cap Advisor. (1)
4(b). Specimen Share Certificate - Wanger International Small Cap Advisor.
(1)
5(a). Investment Advisory Agreement - Wanger U.S. Small Cap Advisor.
5(b). Investment Advisory Agreement - Wanger International Small Cap
Advisor.
6. Distribution Agreement between Wanger Advisors Trust and WAM
Brokerage Services, L.L.C. dated as of May 1, 1996.
7. None.
8. Custodian Contract between Wanger Advisors Trust and State Street
Bank and Trust Company.
9(a)(1)Participation Agreement between Wanger Advisors Trust and Phoenix
Home Life Mutual Insurance Company dated April 18, 1995.
9(a)(2)Participation Agreement between Wanger Advisors Trust and PHL
Variable Insurance Company dated February 23, 1995.
9(a)(3)Participation Agreement between Wanger Advisors Trust and National
Home Life Assurance Company dated May 19, 1995.
9(a)(4)Form of Participation Agreement between Wanger Advisors Trust and
First Providian Life and Health Insurance Company.
9(a)(5)Form of Participation Agreement between Wanger Advisors Trust and
Safeco Life Insurance Company.
9(b). Transfer Agency and Service Agreement between Wanger Advisors Trust
and State Street Bank and Trust Company.
C-2
<PAGE>
10. Opinion and Consent regarding the legality of the securities being
registered, together with consent to the inclusion of that opinion in
this Registration Statement.
11. Consent of Independent Auditors.
12. None.
13. Subscription Agreement.
14. None.
15. None.
16(a).Computation of performance information - Wanger U.S. Small Cap
Advisor.
16(b).Computation of performance information - Wanger International Small
Cap Advisor.
17(a) Financial data schedule - Wanger U.S. Small Cap Advisor.
17(b) Financial data schedule - Wanger International Small Cap Advisor.
18 Form of Purchase Application.
-----------------------------------
(1) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 1 to Registrant's registration statement on
form N-1A no. 33-83548.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
- ------- -------------------------------------------------------------
The registrant does not consider that there are any persons
directly or indirectly controlling, controlled by, or under common
control with, the Registrant within the meaning of this item. The
information in the prospectuses under the caption "ORGANIZATION AND
MANAGEMENT" and in the statements of additional information in the
sixth paragraph under the caption "INVESTMENT ADVISER" is incorporated
by reference.
C-3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
- ------- -------------------------------
As of March 31, 1996, there were 22 record holders of the
Registrant's shares of beneficial interest of the series designated
Wanger U.S. Small Cap Advisor and 30 record holders of the
Registrant's shares of beneficial interest of the series designated
Wanger International Small Cap Advisor.
ITEM 27. INDEMNIFICATION
- ------- ---------------
Article VIII of the Agreement and Declaration of Trust of the
registrant (Exhibit 1 included herein) provides in effect that the
Registrant shall provide certain indemnification of its trustees and
officers. In accordance with Section 17(h) of the Investment Company
Act of 1940, that provision shall not protect any person against any
liability to the registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
Trustees, officers and controlling persons of the Registrant pursuant
to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 1940
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer, or
controlling person of the Registrant in connection with the successful
defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the 1940 Act and will be governed by the final
adjudication of such issue.
The Registrant, its trustees and officers, its investment adviser
and persons affiliated with them are insured under a policy of
insurance maintained by registrant and its investment adviser, within
the limits and subject to the limitations of the policy, against
certain expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result
of such actions, suits or proceedings, to which they are parties by
reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or
intention to deceive or defraud has been finally adjudicated or may be
established or who willfully fails to act prudently.
C-4
<PAGE>
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
- ------- ----------------------------------------------------
The information in the prospectus under the caption "ORGANIZATION
AND MANAGEMENT" is incorporated by reference. Neither Wanger Asset
Management, L.P. nor its general partner has at any time during the
past two years been engaged in any other business, profession,
vocation or employment of a substantial nature either for its own
account or in the capacity of director, officer, employee, partner or
trustee.
ITEM 29. PRINCIPAL UNDERWRITER
- -------- ---------------------
WAM Brokerage Services, L.L.C. also acts as principal underwriter
for Acorn Investment Trust.
<TABLE>
<CAPTION>
<S> <C> <C>
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
WITH UNDERWRITERS WITH REGISTRANT
Terence M. Hogan President Vice President and Trustee
Merrillyn J. Kosier Vice President and Vice President and
Secretary Secretary
The principal business of each officer of WAM Brokerage L.L.C. is 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
- ------- --------------------------------
Bruce H. Lauer, Vice President and Treasurer
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
ITEM 31. MANAGEMENT SERVICES
- ------- -------------------
Not applicable.
ITEM 32. UNDERTAKINGS
- ------- ------------
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a Prospectus
is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
The Registrant undertakes, if requested to do so by the holders of at
least 10% of the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of removal of
a director or directors and to assist in communications with other
shareholders as required by Section 16(c).
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chicago, Illinois on April 18, 1996.
WANGER ADVISORS TRUST
By /s/Ralph Wanger
---------------------
Ralph Wanger, President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- -----
<S> <C> <C>
/s/Fred D. Hasselbring Trustee )
- ------------------------ )
Fred D. Hasselbring )
)
/s/Terence M. Hogan Trustee )
- ------------------------ )
Terence M. Hogan )
)
/s/Charles P. McQuaid Trustee )
- ------------------------ )
Charles P. McQuaid )
)
/s/P. Michael Phelps Trustee ) April 18, 1996
- ------------------------ )
P. Michael Phelps )
)
/s/James A. Star Trustee )
- ------------------------ )
James A. Star )
)
/s/Ralph Wanger Trustee and President )
- ------------------------ (principal executive )
Ralph Wanger officer) )
)
)
/s/Leah J. Zell Trustee )
- ------------------------ )
Leah J. Zell )
)
/s/Bruce H. Lauer Treasurer (principal )
- ------------------------ financial and accounting )
Bruce H. Lauer officer) )
</TABLE>
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
-------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
1 Agreement and Declaration of Trust
2 By-laws
5(a) Investment Advisory Agreement - Wanger
U.S. Small Cap Advisor
5(b) Investment Advisory Agreement - Wanger
International Small Cap Advisor
6 Distribution Agreement between Wanger
Advisors Trust and WAM Brokerage
Services, L.L.C. dated as of May 1,
1996
8 Custodian Contract between Wanger
Advisors Trust and State Street Bank
and Trust Company
9(a)(1) Participation Agreement between Wanger
Advisors Trust and Phoenix Home Life
Mutual Insurance Company dated April
18, 1995
9(a)(2) Participation Agreement between Wanger
Advisors Trust and PHL Variable
Insurance Company dated February 23,
1995
9(a)(3) Participation Agreement between Wanger
Advisors Trust and National Home Life
Assurance Company dated May 19, 1995
9(a)(4) Form of Participation Agreement
between Wanger Advisors Trust and
First Providian Life and Health
Insurance Company
9(a)(5) Form of Participation Agreement
between Wanger Advisors Trust and
Safeco Life Insurance Company
9(b) Transfer Agency and Service Agreement
between Wanger Advisors Trust and
State Street Bank and Trust Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE
- ------ ------- ----
<S> <C> <C>
10 Opinion and Consent dated February 15,
1995 regarding the legality of
securities being registered, together
with consent to the inclusion of that
opinion in this Registration Statement
11 Consent of Independent Auditors
13 Subscription Agreement
16(a) Computation of performance information
- Wanger U.S. Small Cap Advisor
16(b) Computation of performance information
- Wanger International Small Cap
Advisor
17(a) Financial data schedule - Wanger U.S.
Small Cap Advisor
17(b) Financial data schedule - Wanger
International Small Cap Advisor
18 Form of Purchase Application
</TABLE>
<PAGE>
EXHIBIT 1
WANGER ADVISORS TRUST
---------------------
AGREEMENT AND DECLARATION OF TRUST
----------------------------------
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this
30th day of August, 1994 by Ralph Wanger (hereinafter with any additional and
successor trustees referred to as the "Trustees") and by the holders of shares
of beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees and any successor Trustees elected in accordance with
Article IV hereof have agreed to manage all property coming into their hands as
trustees of a Massachusetts business trust with transferable shares in
accordance with the provisions hereinafter set forth.
NOW, THEREFORE, the Trustees and any successor Trustees elected in
accordance with Article IV hereof hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Name
- ----
Section 1. This Trust shall be known as "Wanger Advisors Trust", and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Definitions
- -----------
Section 2. Whenever used herein, unless otherwise required by the context
or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust established by
this Agreement and Declaration of Trust as amended from time to time;
(b) "Trustees" refers to The Trustee or Trustees of the Trust named herein
or elected in accordance with Article IV;
<PAGE>
(c) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest in the Trust shall be divided from
time to time or, if more than one series of Shares is authorized by
the Trustees, the equal proportionate units into which each series of
Shares shall be divided from time to time or, if more than one class
of Shares of any series is authorized by the Trustees, the equal
proportionate units into which each class of such series of Shares
shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and the
Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person," "Assignment," "Commission," "Interested
Person," "Principal Underwriter" and "Majority Shareholder Vote" (the
67% or 50% requirement of the third sentence of Section 2(a)(42) of
the 1940 Act, whichever may be applicable) shall have the meanings
given them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust as amended or restated from time to time; and
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to
time.
ARTICLE II
PURPOSE
The purpose of the Trust is to engage in the business of a management
investment company and to provide investors a managed investment primarily, but
not necessarily exclusively, in securities, commodities and debt instruments.
ARTICLE III
SHARES
Division of Beneficial Interest
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Section 1. The Trustees may divide the beneficial interest in the Trust
into an unlimited number of Shares and authorize the issuance of Shares without
prior Shareholder approval. The Shares of the Trust shall be issued in one or
more series as the Trustees may, without Shareholder approval, authorize. The
Trustees may, without Shareholder approval, divide the Shares of any series into
two or more classes, Shares of each such class having such preferences or
special or relative rights or privileges (including conversion rights, if any)
as the Trustees may determine and as are not inconsistent with any provision of
this Declaration of Trust. Each series shall be preferred over all other series
in respect of the assets allocated to that series. The
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beneficial interest in each series shall at all times be divided into Shares,
without par value, each of which shall, except as the Trustees may otherwise
authorize in the case of any series that is divided into two or more classes,
represent an equal proportionate interest in the series with each other Share of
the same series, none having priority or preference over another. The number of
Shares authorized shall be unlimited, and the Shares so authorized may be
represented in part by fractional shares. The Trustees may from time to time
divide or combine the Shares of any series or class into a greater or lesser
number without thereby changing the proportionate beneficial interests in the
series or class.
Ownership of Shares
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Section 2. The ownership of Shares shall be recorded on the books of the
Trust or its transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be; shall be conclusive
as to who are the Shareholders of each series and class and as to the number of
Shares of each series and class held from time to time by each Shareholder.
Investments in the Trust Assets of the Series
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Section 3. The Trustees may accept investments in the Trust from such
persons as the Trustees or any officer or officers or agent of the Trust may
authorize, and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize. After the date of the
initial contribution of capital, the number of Shares representing the initial
contribution may in the Trustees' discretion be considered as outstanding and
the amount received by the Trustees as a result of the contribution shall be
treated as an asset of the Trust.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.
In addition, any assets, income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging to any particular
series shall be allocated by the Trustees between and among one or more of the
series in such manner as they, in their sole discretion, deem fair and
equitable. Each such allocation to any series shall be conclusive and binding
upon the Shareholders of all series for all purposes, and shall be referred to
as assets belonging to that series. No holder of Shares of any particular
series shall have any claim on or right to any assets allocated or belonging to
any other series.
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Establishment of Series or Class
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Section 4. The establishment and designation of any series of Shares or
class thereof shall be effective upon the adoption of a resolution by majority
of the Trustees (or of a committee thereof) setting forth such establishment and
designation and the relative rights and preferences of the Shares of such series
or class. Such establishment and designation shall not constitute an amendment
to this Declaration of Trust, although the Trustees may, at their option, set
forth such establishment and designation in a written instrument signed by them
or by an officer of the Trust pursuant to a vote of the Trustees. The Trustees
(or a committee thereof) may by majority vote amend such establishment and
designation, provided, however, that such amendment does not adversely affect
the rights of any holders of outstanding Shares. At any time, if no Shares are
outstanding of a particular series or class previously so established and
designated, the Trustees (or a committee thereof) may by majority vote abolish
such series or class and said establishment and designation thereof.
No preemptive Rights: Derivative Actions
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Section 5. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust. No action may be brought by a Shareholder on behalf of the
Trust or a particular series of the Trust or class thereof unless a prior demand
regarding such matter has been made on the Trustees and the Shareholders of the
Trust or such series or class thereof.
Status of Shares and Limitation of Personal Liability
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Section 6. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
agent of the Trust, shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
Trustees and Officers as Shareholders
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Section 7. Any Trustee, officer or other agent of the Trust may acquire,
own and dispose of a variable annuity contract or variable life insurance
policy, or an interest in one or more qualified plans, which are funded in whole
or in part by Shares of the Trust, to the same extent as if he or she were not a
Trustee, officer or agent; and the Trustees may issue and sell or cause to be
issued and sold, directly or indirectly, Shares to, and purchase such Shares or
cause such
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Shares to be purchased from, any such person or any firm or company in which he
is interested, subject only to the general limitations herein contained as to
the sale and purchase of such Shares; and all subject to any restrictions which
may be contained in the By-Laws.
ARTICLE IV
THE TRUSTEES
Election; Removal
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Section 1. A Trustee is not required to be a resident of the Commonwealth
of Massachusetts, and is not required to be a Shareholder. The number of
Trustees shall be fixed by the Trustees, except that, subsequent to any sale of
Shares pursuant to a public offering, there shall be not less than three
Trustees. Any vacancy occurring in the Board of Trustees may be filled by the
Trustees consistent with the 1940 Act by appointing such other person as they in
their discretion shall see fit, if, immediately after such appointment, at least
two-thirds of the Trustees then holding office shall have been elected to such
office by Shareholders. Until any such vacancy is filled as provided in this
Section 1, the Trustees then in office shall, regardless of their number, have
all powers granted to and discharge all duties imposed on the Trustees hereby.
Such appointment shall be evidenced by a written instrument signed by a majority
of the Trustees in office, even though less than a quorum, or by recording in
the records of the Trust, and shall take effect upon such signing or recording
and the acceptance of such appointment by the Trustee so appointed. An
appointment of a Trustee may be made by the Trustees then in office in
anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. In the event that at
any time less than a majority of the Trustees then holding office were elected
to such office by the Shareholders, the Trustees shall call a meeting of
Shareholders for the purpose of electing Trustees.
Each initial Trustee shall serve until such Trustee is elected by
Shareholders, and then during the lifetime of the Trust and until his or her
successor is elected and qualified, or until he or she sooner dies, resigns or
is removed. Such initial Trustee(s) shall be Ralph Wanger and such other
person(s) as the Trustee or Trustees then in office shall, prior to any sale of
Shares pursuant to a public offering, appoint. Each Trustee elected by the
Shareholders or by the Trustees shall serve during the lifetime of the Trust and
until the election and qualification of his or her successor, or until he or she
sooner dies, resigns or is removed. By vote of a majority of the Trustees then
in office, the Trustees may remove a Trustee with or without cause. At any
meeting called for that purpose, a Trustee may be removed, with or without
cause, by vote of the holders of two-thirds of the outstanding Shares.
Effect of Death, Resignation, etc. of a Trustee
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Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
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Powers
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Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may fill vacancies in their number, including
vacancies resulting from increases in their number, and may elect and remove
such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may appoint an advisory board, the members of which shall not be Trustees and
need not be Shareholders; they may employ one or more investment advisers or
managers as provided in this Article IV; they may employ one or more custodians
of the assets of the Trust and may authorize such custodians to employ
subcustodians and to deposit all or any part of such assets in a system or
systems for the central handling of securities, in accordance with the 1940 Act;
retain a transfer agent or a Shareholder services agent, or both; provide for
the distribution of Shares by the Trust, through one or more principal
underwriters or otherwise; set record dates for the determination of
Shareholders with respect to various matters; and in general delegate such
authority as permitted by the 1940 Act that they consider desirable to any
officer of the Trust, to any committee of the Trustees or to any agent or
employee of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest in securities, options, futures contracts,
options on futures contracts and other property, and to hold cash
uninvested;
(b) To sell, assign, negotiate, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease or otherwise dispose of or
realize on any or all of the assets of the Trust;
(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such
power and discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities or other assets:
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(e) To hold any security or property in a form not indicating any trust,
whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or
otherwise, subject in any case to proper safeguards according to the
usual practice of trust companies or investment companies;
(f) Subject to the provisions of Article III, to establish separate and
distinct series of Shares and classes thereof with separately defined
investment objectives, policies and purposes, and with separately
defined relative powers, rights, privileges and liabilities, and to
allocate assets, liabilities and expenses of the Trust to a particular
series of Shares or to apportion the same among two or more series,
provided that any liabilities or expenses incurred by a particular
series of Shares shall be payable solely out of the assets of that
series; and to the extent necessary or appropriate to give effect to
the preferences and special or relative rights and privileges of any
class of Shares, to allocate assets, liabilities, income and expenses
of a series to a particular class of Shares of that series or to
apportion the same among two or more classes of Shares of that series:
(g) Combine one or more series of Shares or classes thereof into a single
series or class on such terms and conditions as the Trustees shall
determine;
(h) Change or eliminate any eligibility requirements for investment in
Shares of any series or any class thereof, including without
limitation, the power to provide for the issue of Shares of any series
or class thereof in connection with any merger or consolidation of the
Trust with another trust or company or any acquisition by the Trust of
part or all of the assets of another trust or company;
(i) Determine the method of allocating distributions among the various
series of Shares and classes thereof;
(j) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of
which is or was held in the Trust; to consent to any contract, lease,
mortgage, purchase or sale of property by such corporation or issuer,
and to pay calls or subscriptions with respect to any security held in
the Trust;
(k) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such power
and authority with relation to any security (whether or not so
deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the Trustees
shall deem proper;
(l) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust on any matter in controversy, including but not
limited to claims for taxes;
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(m) To enter into joint ventures, general or limited partnerships and any
other combinations or associations;
(n) To borrow funds, securities or other assets, to the extent permitted
by applicable law;
(o) To endorse or guarantee the payment of any notes or other obligations
of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and
pledge the Trust property or any part thereof to secure any of or all
of such obligations or obligations incurred pursuant to subparagraph
(q) hereof;
(p) To purchase and pay for entirely out of Trust property such insurance
as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring
the assets of the Trust and payment of distributions and principal on
its portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents, investment
advisers or managers, principal underwriters or independent
contractors of the Trust individually against all claims and
liabilities of every nature arising by reason of holding, being or
having held any such office or position, or by reason of any action
alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter or independent contractor, including
any action taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to indemnify
such person against such liability;
(q) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-
sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions,
including the purchasing of life insurance and annuity contracts as a
means of providing such retirement and other benefits, for any or all
of the Trustees, officers, employees and agents of the Trust;
(r) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon giving
notice to such Shareholder;
(s) To enter into contracts of any kind and description;
(t) To name, or to change the name or designation of, the Trust or any
series or class of the Trust;
(u) To take whatever action may be necessary to enable the Trust to comply
with any applicable Federal, state or local statute, rule or
regulation;
(v) To make distributions to Shareholders in the manner hereinafter
provided for; and
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(w) To engage in any other lawful act or activity in which corporations
organized under the Massachusetts Business Corporation Law may engage.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein, from time to time in the Bylaws, or in the 1940 Act, any action
to be taken by the Trustees may be taken by a majority of the Trustees present
at a meeting of the Trustees (a quorum being present), within or without
Massachusetts, including any meeting held by means of a conference telephone or
other communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting, or by written consents
of a majority of the Trustees then in office. At any meeting of the Trustees,
or a committee thereof, a majority of the Trustees or members of such committee,
as the case may be, shall constitute a quorum. If a quorum is present when a
duly called or held meeting is convened, the Trustees present may, following the
withdrawal of one or more Trustees originally present, continue to transact
business until adjournment thereof, even though such Trustees would not
otherwise constitute a quorum. Meetings of the Trustees, or a committee
thereof, may be called orally or in writing by the Chairman of the Board of
Trustees or of such committee or by any two other Trustees or committee members,
as the case may be. Notice of the time, date and place of all meetings of the
Trustees, or a committee thereof, shall be given to each Trustee or committee
member as provided in the By-Laws.
Notice of any meeting need not be given to any Trustee (or committee
member) who attends that meeting without objecting to the tack of notice or who
executes a written waiver of notice with respect to the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
one of their number the authority to approve particular matters or take
particular actions on behalf of the Trust.
Payment of Expenses by Trust
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Section 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder services agent and such
other agents or independent contractors, and such other expenses and charges, as
the Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares, as determined by the Trustees consistent
with applicable law, shall be payable solely out of the assets of that series.
Any general liabilities, expenses, costs, charges or reserves of the Trust which
are not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees between or among any one or more of the
series in such manner as the Trustees in their sole discretion deem fair and
equitable. Each such allocation shall be conclusive and binding upon the
Shareholders of all series for all purposes. Any creditor of any series may
look only to the assets of that series to satisfy such creditor's debt.
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Ownership of Assets of the Trust
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Section 5. The assets of the Trust shall be held separate and apart from
any assets now or hereafter held in any capacity other than as Trustee hereunder
by the Trustees or any successor Trustees. Title to all of the assets of each
series of Shares and the Trust shall at all times be considered as vested in the
Trustees. The right, title and interest of the Trustees in such assets shall
vest automatically in each person who may hereafter become a Trustee, and upon
any Trustee's death, resignation or removal, such Trustee shall automatically
cease to have any right, title or interest in such assets. Vesting and
cessation of title as set forth in this Section 5 shall be effective
notwithstanding the absence of execution and delivery of any conveyancing
documents.
Advisory, Management and Distribution
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Section 6. Subject to a favorable Majority Shareholder Vote to the extent
required by the 1940 Act and interpretations thereunder, the Trustees may, at
any time and from time to time, contract for exclusive or nonexclusive advisory
and/or management or other services with Wanger Asset Management, L.P., a
Delaware limited partnership, or any other partnership, corporation, trust,
association or other organization (the "Adviser"), every such contract to comply
with such requirements and restrictions as may be set forth in the Bylaws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested, and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Adviser or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the Bylaws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association or other organization, or of or for
any parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's
contract, or transfer, shareholder services or other agency contract
may have been or may hereafter be made, or that any organization, or
any parent or affiliate thereof, is a Shareholder or has an interest
in the Trust, or that
(ii) any corporation, trust, association or other organization with which
an advisory or management contract or principal underwriters or
distributor's contract, or transfer, Shareholder services or other
agency contract may have been or may hereafter be made also has an
advisory or management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or other
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agency contract with one or more other corporations, trusts,
associations or other organizations, or has other businesses or
interests shall not affect the validity of any such contract or
disqualify any Shareholder, Trustee or officer of the Trust from
voting upon or executing the same or create any liability or
accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Voting Powers
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Section 1. The Shareholders shall have power to vote only (i) for the
election or removal of Trustees as provided in Article IV, (ii) with respect to
any Adviser as provided in Article IV, Section 6, (iii) with respect to any
termination of this Trust or any series of this Trust to the extent and as
provided in Article IX, Section 4, (iv) with respect to any amendment of this
Declaration of Trust to the extent and as provided in Article IX, Section 9 and
(v) with respect to such additional matters relating to the Trust as may be
required by law, this Declaration of Trust, the Bylaws or any registration of
the Trust with the Securities and Exchange Commission (or any successor agency)
or any state, or as the Trustees may consider necessary or desirable. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a proportionate
fractional vote. Notwithstanding any other provision of this Declaration of
Trust, on any matter submitted to a vote of Shareholders, all Shares of the
Trust then entitled to vote shall be voted in the aggregate as a single class
without regard to series or class except: (1) when required by the 1940 Act, or
when the Trustees shall have determined that the matter affects one or more
series or classes materially differently, Shares shall be voted by individual
series or class; and (2) when the Trustees have determined that the matter
affects only the interests of one or more series or classes, then only
Shareholders of such series or classes shall be entitled to vote thereon. There
shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to Shares
held in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. At all meetings of Shareholders, unless
inspectors of election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Unless
otherwise specified in the proxy, the proxy shall apply to all Shares of each
series of the Trust owned the Shareholder.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the Bylaws to be taken by Shareholders.
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Voting Power and Meetings
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Section 2. Meetings of Shareholders of the Trust or of any series or class
may be called by the Trustees or such other person or persons as may be
specified in the Bylaws and held from time to time for the purpose of taking
action upon any matter requiring the vote or the authority of the Shareholders
of the Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Meetings of Shareholders
of the Trust or of any series or class shall be called by the Trustees or such
other person or persons as may be specified in the Bylaws upon written
application. The Shareholders shall be entitled to at least fifteen days'
written notice of any meeting of the Shareholders.
Quorum and Required Vote
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Section 3. Thirty per cent of the Shares entitled to vote shall be a
quorum for the transaction of business at a Shareholders' meetings, except that
where any provision of law or of this Declaration of Trust permits or requires
that holders of any series or class shall vote as a series or class, then thirty
percent of the aggregate number of Shares of that series or class entitled to
vote shall be necessary to constitute a quorum for the transaction of business
by that series or class. Any lesser number, however, shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. Except when a larger vote is required by any provision of law
or of this Declaration of Trust or the Bylaws, a majority of the Shares voted
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Declaration of Trust permits or requires
that the holders of any series or class shall vote as a series or class, then a
majority of the Shares of that series or class voted on the matter (or a
plurality with respect to the election of a Trustee) shall decide that matter
insofar as that series or class is concerned.
Action By Written Consent
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Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of law or of
this Declaration of Trust or the Bylaws) consent to the action in writing and
such written consents are filed with the records of the meetings of
Shareholders. Such consent shall be treated for all purposes as a vote taken at
a meeting of Shareholders.
Additional Provisions
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Section 5. The Bylaws may include further provisions for Shareholders'
votes and meetings and related matters.
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ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
AND DETERMINATION OF NET ASSET VALUE
Distributions
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Section 1. The Trustees may, but need not, each year distribute to the
Shareholders of each series or class such income and gains, accrued or realized,
as the Trustees may determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may establish)
determined in accordance with prudent and generally accepted accounting
practices. The Trustees shall have full discretion to determine which items
shall be treated as income and which items as capital and their determination
shall be binding upon the Shareholders. Distributions of each year's income of
each series, if any be made, may be made in one or more payments, which shall be
in Shares, in cash or otherwise, and on a date or dates and as of a record date
or dates, determined by the Trustees. At any time and from time to time in
their discretion, the Trustees may distribute to the Shareholders of any one or
more series or classes as of a record date or dates determined by the Trustees,
in Shares, in cash or otherwise, all or part of any gains realized on the sale
or disposition of property of the series or otherwise, or all or part of any
other principal of the Trust attributable to the series. In the case of any
series not divided into two or more classes of Shares, each distribution
pursuant to this Section 1 shall be made ratably according to the number of
Shares of the series held by the several Shareholders on the applicable record
date thereof, provided that no distribution need be made on Shares purchased
pursuant to orders received, or for which payment is made, after such time or
times as the Trustees may determine. In the case of any series divided into two
or more classes, each distribution pursuant to this Section 1 may be made in
whole or in such parts as the Trustees may determine to the Shareholders of any
one or more classes, and the distribution to the Shareholders of any class shall
be made ratably according to the number of Shares of the class (but need not be
made ratably according to the number of Shares of the series, considered without
regard to class) held by the several Shareholders on the record date thereof,
provided that no distribution need be made on shares purchased pursuant to
orders received, or for which payment is made, after such time or times as the
Trustees may determine. Any such distribution paid in Shares will be paid at
the net asset value thereof as determined in accordance with Section 7 of this
Article VI.
Redemptions and Repurchases
- ---------------------------
Section 2. Any holder of Shares of the Trust may by presentation of a
written request, together with his or her certificates, if any, for such Shares,
in proper form for transfer, at the office of the Trust or at a principal office
of a transfer agent appointed by the Trust, or by following such other
procedures for redemption as the Trustees may from time to time determine,
redeem his or her Shares for the net asset value thereof determined and computed
in accordance with the provisions of this Section 2 and the provisions of
Section 7 of this Article VI.
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Upon receipt by the Trust or its transfer agent of such request for
redemption of Shares, such Shares shall be redeemed at the net asset value per
share of the appropriate series or class next determined after such Shares are
tendered in proper order for transfer to the Trust or determined as of such
other time fixed by the Trustees as may be permitted or required by the 1940
Act, provided that no such tender shall be required in the case of Shares for
which a certificate or certificates have not been issued, and in such case such
Shares shall be redeemed at the net asset value per share of the appropriate
series or class next determined after such request has been received in proper
form or determined at such other time fixed by the Trustees as may be permitted
or required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each series or class as
set forth above in this Section 2 shall be subject to the conditions that during
any time of emergency, as hereinafter defined, such obligation may be suspended
by the Trust by or under authority of the Trustees for such period or periods
during such time of emergency as shall be determined by or under authority of
the Trustees. If there is such a suspension, any Shareholder may withdraw any
demand for redemption and any tender of Shares which has been received by the
Trust during any such period and any tender of Shares, the applicable net asset
value of which would but for such suspension be calculated as of a time during
such period. Upon such withdrawal, the Trust shall return to the Shareholder
the certificates therefor, if any. For the purposes of any such suspension,
"time of emergency" shall mean, either with respect to all Shares or any series
of Shares, any period during which:
a. the New York Stock Exchange is closed other than for customary weekend
and holiday closings; or
b. the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and regulations of
the Securities and Exchange Commission, either that trading on the New
York Stock Exchange is restricted, or that an emergency exists as a
result of which (i) disposal by the Trust of securities owned by it is
not reasonably practicable or (ii) it is not reasonably practicable
for the Trust fairly to determine the current value of its net assets;
or
c. the suspension or postponement of such obligations is permitted by
order of the Securities and Exchange Commission.
The Trust may also purchase, repurchase or redeem Shares in accordance with
such other methods, upon such other terms and subject to such other conditions
as the Trustees may from time to time authorize at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
Payment in Kind
- ---------------
Section 3. Subject to any generally applicable limitation imposed by the
Trustees, any payment on redemption of Shares may, if authorized by the
Trustees, be made wholly or partly in kind, instead of in cash. Such payment in
kind shall be made by distributing securities or other property constituting, in
the opinion of the Trustees, a fair representation of the various types of
14
<PAGE>
securities and other property then held by the series of Shares being redeemed
(but not necessarily involving a portion of each of the series' holdings) and
taken at their value used in determining the net asset value of the Shares in
respect of which payment is made.
Redemptions at the Option of the Trust
- --------------------------------------
Section 4. The Trust shall have the right at any time to redeem Shares of
any Shareholder at the net asset value thereof as determined in accordance with
Section 7 of Article VI of this Declaration of Trust: (i) if at such time such
Shareholder owns fewer Shares than, or Shares having an aggregate net asset
value of less than, an amount determined from time to time by the Trustees; or
(ii) to the extent that such Shareholder owns Shares of a particular series of
Shares equal to or in excess of a percentage of the outstanding Shares of that
series (determined without regard to class) determined from time to time by the
Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust
representing a percentage equal to or in excess of such percentage of the
aggregate number of outstanding Shares of the Trust or the aggregate net asset
value of the Trust determined from time to time by the Trustees. In the event
that the Trust determines to redeem Shares of a Shareholder pursuant to clause
(i) of this Section 4, such Shareholder shall be notified prior to any such
redemption and shall be allowed 60 days to make additional investments in Shares
before such redemption is effected.
Dividends, Distributions, Redemptions and Repurchases
- -----------------------------------------------------
Section 5. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or any series or class thereof)
with respect to, nor any redemption or repurchase of, the Shares of any series
(or of any class) shall be effected by the Trust other than from the assets of
such series (or of the series of which such class is a part).
Additional Provisions Relating to Redemptions and Repurchases
- -------------------------------------------------------------
Section 6. The completion of redemption of Shares shall constitute a full
discharge of the Trust and the Trustees with respect to such Shares, and the
Trustees may require that any certificate or certificates issued by the Trust to
evidence the ownership of such Shares shall be surrendered to the Trustees for
cancellation or notation.
Determination of Net Asset Value
- --------------------------------
Section 7. The term "net asset value" of the Shares of each series or
class shall mean: (i) the value of all the assets of such series or class; (ii)
less the total liabilities of such series or class; (iii) divided by the number
of Shares of such series or class outstanding, in each case at the time of each
determination. The "number of Shares of such series or class outstanding" for
the purposes of such computation shall be exclusive of any Shares of such series
or class to be redeemed and not then redeemed as to which the redemption price
has been determined, but shall include Shares of such series or class presented
for repurchase and not then repurchased, and Shares of such series or class to
be redeemed and not then redeemed, as to which the redemption price has not been
determined, and Shares of such series or class the sale of which has been
confirmed. Any fractions involved in the computation of net asset value per
share shall be
15
<PAGE>
adjusted to the nearer cent unless the Trustees shall determine to adjust such
fractions to a fraction of a cent. With respect to an exact half cent, such
fraction shall be adjusted to the next higher cent unless the Trustees shall
determine to adjust such fraction to a fraction of a cent.
The Trustees, or any officer or officers or agent of this Trust designated
for the purpose by the Trustees, shall determine the net asset value of the
Shares of each series or class, and the Trustees shall fix the times as of which
the net asset value of the Shares of each series or class shall be determined
and shall fix the periods during which any such net asset value shall be
effective as to sales, redemptions and repurchases of, and other transactions
in, the Shares of such series or class, except as such times and periods for any
such transaction may be fixed by other provisions of this Declaration of Trust
or by the Bylaws.
In valuing the portfolio investments of any series or class for
determination of net asset value per share of such series or class:
(a) Each security for which market quotations are readily available shall
be valued at current market value determined by methods specified by
the Board of Trustees;
(b) Each other security, including any security within (a) above for which
the specified price does not appear to represent a dependable
quotation for such security as of the time of valuation, shall be
valued at a fair value as determined in good faith by the Trustees;
(c) Any cash on hand shall be valued at the face amount thereof;
(d) Any cash on deposit, accounts receivable, and cash dividends and
interest declared or accrued and not yet received, any prepaid
expenses, and any other current asset shall be valued at the face
amount thereof, unless the Trustees shall determine that any such item
is not worth its face amount, in which case such asset shall be valued
at a fair value determined in good faith by the Trustees; and
(e) Any other asset shall be valued at a fair value determined in good
faith, by the Trustees.
Notwithstanding the foregoing, money market instruments, including, but not
limited to, short-term debt obligations, commercial paper and repurchase
agreements, may be, but need not be, valued on the basis of quoted yields for
securities of comparable maturity, quality, and type, or on the basis of
amortized cost, to the extent permitted by the 1940 Act and interpretations
thereof.
Liabilities of any series or class for accounts payable for investments
purchased and for Shares tendered for redemption and not then redeemed as to
which the redemption price has been determined shall be stated at the amounts
payable therefor. In determining the net asset value of any series or class,
the person or persons making such determination on behalf of the Trust may
include in liabilities such reserves, estimated accrued expenses and
contingencies as such person or persons may in its, his or their best judgment
deem consistent with determinations by the
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Trustees pursuant to Article IV, Section 4, and fair and reasonable under the
circumstances. Any income dividends and gains distributions payable by the Trust
shall be deducted as of such time or times on the record date therefor as the
Trustees shall determine.
The manner of determining the net assets of any series or class or of
determining the net asset value of the Shares of any series or class may from
time to time be altered as necessary or desirable in the judgment of the
Trustees to conform to any other method prescribed or permitted by any
applicable law or regulation.
Determinations under this Section 7 made in good faith and in accordance
with the provisions of the 1940 Act shall be binding on all parties concerned.
ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
Compensation
- ------------
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.
Limitation of Liability
- -----------------------
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, adviser or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of his or her willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
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ARTICLE VIII
INDEMNIFICATION
Trustees, Officers, etc.
- ------------------------
Section 1. The Trust shall indemnify each person who is or has been a
Trustee or officer (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees and expenses reasonably incurred by any Covered
Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil, criminal, administrative or investigative, and
any appeal therefrom, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Covered Person,
except that no Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would otherwise be
subject by reason of such Covered Person's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Expenses, including counsel fees and expenses so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered Person to repay to the
Trust amounts so paid if it is ultimately determined that indemnification of
such expenses is not authorized under this Article, provided that (a) such
Covered Person shall provide security for his undertaking, (b) the Trust shall
be insured against losses arising by reason of such Covered Person's failure to
fulfill his undertaking or (c) a majority of the Trustees who are disinterested
persons and who are not Interested Persons (provided that a majority of such
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(but not a full trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to indemnification.
Compromise Payment
- ------------------
Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication in a decision
on the merits by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office,
indemnification shall be provided if (a) approved as in the best interest of the
Trust, after notice that it involves such indemnification, by at least a
majority of the Trustees who are disinterested persons and are not Interested
Persons (provided that a majority of such Trustees then in office
18
<PAGE>
act on the matter), upon a determination, based upon a review of readily
available facts (but not a full trial-type inquiry) that such Covered Person is
not liable to the Trust or its Shareholders by reason of such Covered Person's
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office, or (b) there has
been obtained an opinion in writing of independent legal counsel, based upon a
review of readily available facts (but not a full-trial type inquiry) to the
effect that such indemnification would not protect such Covered Person against
any liability to the Trust to which such Covered Person would otherwise be
subject by reason of such Covered Person's willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Any approval pursuant to this Section shall not prevent the recovery from
any Covered Person of any amount paid to such Covered Person in accordance with
this section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been liable to the
Trust or its Shareholders by reason of such Covered Person's willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Indemnification Not Exclusive: Definitions
- -------------------------------------------
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any such Covered Person may be
entitled. As used in this Article V111, the term "Covered Person" shall include
such person's heirs, executors, administrators, or other legal representatives,
and a "disinterested person" is a person against whom none of the actions, suits
or other proceedings in question or another action, suit or other proceeding on
the same or similar grounds is then or has been pending. Nothing contained in
this article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of such persons.
Shareholders
- ------------
Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
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ARTICLE IX
MISCELLANEOUS
Trustees, Shareholders, etc. Not Personally Liable; Notice
- ----------------------------------------------------------
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of his or her willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee, or officers or officer or Shareholders or
Shareholder individually .
Trustees' Good Faith Action, Expert Advice, No Bond or Surety
- -------------------------------------------------------------
Section 2. The exercise by the Trustees of their powers and discretion
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice or for
failing to follow such advice. The Trustees shall not be required to give any
bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
- ------------------------------------------------
Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
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Duration and Termination of Trust
- ---------------------------------
Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least a majority of the Shares of each series entitled
to vote or by the Trustees by written notice to the Shareholders. Any series of
Shares may be terminated at any time by vote of Shareholders holding at least a
majority of the Shares of such series entitled to vote or by the Trustees by
written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets to distributable form in cash or shares
or other securities, or any combination thereof, and distribute the proceeds to
the Shareholders of the series involved, ratably according to the number of
Shares of such series held by the several Shareholders of such series on the
date of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes of
Shares of that series, provided that any distribution to the Shareholders of a
particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.
Filing of Copies, References, Headings
- --------------------------------------
Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Clerk of the City of Boston, as well as any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection which the Trust hereunder; and, with the same effect as if it were
the original, may rely on a copy certified by an officer of the Trust to be a
copy of this instrument or of any such amendments. In this instrument and in
any such amendment, references to this instrument, and all expressions such as
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts, each of which shall be
deemed an original, but in proving this declaration, it shall not be necessary
to provide more than one of such counterparts.
21
<PAGE>
Applicable Law
- --------------
Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a Trust.
Amendments
- ----------
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
so to do by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series and
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series and class affected and no vote of
Shareholders of a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or supplementing any
defective or inconsistent provision contained herein shall not require
authorization by Shareholder vote.
Registered Agent
- ----------------
Section 8. The Registered Agent of the Trust within the Commonwealth of
Massachusetts for service of process, and the principal place of business of the
Trust within the Commonwealth of Massachusetts, shall be CT Corporation, 2
Oliver Street, Boston, Massachusetts 02109.
IN WITNESS WHEREOF, the undersigned, being the sole initial Trustee of the
Trust, has executed this document as of this 26/th/ day of August, 1994.
______________________________________
Ralph Wanger, as Trustee and, not
individually
22
<PAGE>
THE STATE OF ILLINOIS
Chicago ss. August 26, 1994
Then personally appeared the above-named Trustee and acknowledged the
foregoing instrument to be such Trustee's free act and deed, before me,
_____________________________________
Notary Public
My commission expires: _______________________
(Notary's Seal)
Address of the Trust:
Wanger Advisors Trust
C/O CT Corporation
2 Oliver Street
Boston, MA 02109
Address of the Trustees:
C/O CT Corporation
2 Oliver Street
Boston, MA 02109
Address of the Registered Agent
CT Corporation
2 Oliver Street
Boston, MA 02109
DECLARATION OF TRUST
WANGER ADVISORS TRUST
23
<PAGE>
EXHIBIT 2
BYLAWS
OF
WANGER ADVISORS TRUST
Section 1. Agreement and Declaration of
Trust and Principal Office
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust"), of Wanger Advisors Trust, a Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, or such
other location as shall be determined from time to time by the officers of the
Trust.
Section 2. Shareholders
2.1 Shareholder Meetings. The trust will not hold annual meetings of
shareholders. A special meeting of the shareholders of the Trust or of any one
or more series or classes of shares may be called at any time by the Trustees,
by the chairman, the president or, if the Trustees, the chairman and the
president shall fail to call any meeting of shareholders for a period of 30 days
after written application of one or more shareholders who hold at least 10% of
all outstanding shares of the Trust, if shareholders of all series are required
under the Declaration of trust to vote in the aggregate and not by individual
series at such meeting, or 10% of the outstanding shares of any series or class,
if shareholders of such series or class are entitled under the Declaration of
Trust to vote by individual series or class at such meeting, then such
shareholders may call such meeting. If the meeting is a meeting of the
shareholders of one or more series or classes of shares, but not a meeting of
all shareholders of the Trust, then only the shareholders of such one or more
series or classes shall be entitled to notice of and to vote at the meeting.
Each call of a meeting shall state the place, date, hour and purposes of the
meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at the
principal office of the Trust, or, to the extent permitted by the Declaration of
Trust, at such other place within the United States as shall be designated by
the Trustees or the president of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be given
or caused to be given by the Trustees at least fifteen days before the meeting
to each shareholder entitled to vote at such meeting by leaving such notice with
him or her or at his or her residence or usual place of business or by mailing
it, postage prepaid, and addressed to such shareholder at his or her address as
it appears in the records of the Trust. Such notice shall be given by the
secretary or an assistant secretary or by an officer designated by the Trustees.
A certificate or affidavit by the secretary or assistant secretary or officer
shall be prima facie evidence of the giving of any notice
<PAGE>
required by the Declaration of Trust. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of notice, executed before or
after the meeting by such shareholder or his or her attorney thereunto duly
authorized, is filed with the records of the meeting or if the shareholder
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to such shareholders.
2.4 Ballots. No ballot shall be required for any election unless requested by
a shareholder present or represented at the meeting and entitled to vote in the
election.
2.5 Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall not be
valid after the final adjournment of such meeting.
Section 3. Trustees
3.1 Committees and Advisory Board. The Trustees may appoint from their number
an executive committee and other committees. Except as the Trustees may
otherwise determine, any such committee may make rules for conduct of its
business. Any such committee shall keep regular minutes of its proceedings and
report the same to the Board of Trustees. The Trustees may appoint any advisory
board to consist of not less than two nor more than five members. The members
of the advisory board, if any, shall be compensated in such manner as the
Trustees may determine and shall confer with and advise the Trustees regarding
the investments and other affairs of the Trust. Each member of the advisory
board, if any, shall hold office for the lifetime of the Trust and until his or
her successor is appointed by the Trustees and qualified, or until he or she
sooner dies, resigns, is removed or becomes disqualified, or until the advisory
board is sooner abolished by the Trustees.
3.2 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees.
3.3 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting; when called by the
chairman, the president or the treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the secretary or an assistant
secretary or by the officer or one of the Trustees calling the meeting.
3.4 Notice. It shall be sufficient notice to a Trustee to send notice by mail
at least forty-eight hours or by telegram at least twenty-four hours before the
meeting addressed to the Trustee at his or her usual or last known business or
residence address or to give notice to him or her in person or by telephone at
least twenty-four hours before the meeting. Notice of a meeting need not be
given to any Trustee if a written waiver of notice, executed by him or her
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting
2
<PAGE>
without protesting prior thereto or at its commencement the lack of notice to
him or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting.
3.5 Quorum. At any meeting of the Trustees, one-third of the Trustees then in
office shall constitute a quorum; provided, however, a quorum shall not be less
than two. Any meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
3.6 Eligibility to Serve. No person shall be appointed to serve as a Trustee
after attaining the age of 75 years. Any Trustee shall retire as a Trustee as
of the end of the calendar year in which the Trustee attains the age of 75
years.
Section 4. Officers and Agents
4.1 Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as the
Trustees from time to time may in their discretion elect or appoint. The trust
may also have such agents, if any, as the Trustees from time to time may in
their discretion appoint. Any officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person, except
that any person holding the office of President shall not hold he office of Vice
President.
4.2 Powers. Subject to the other provisions of these By-laws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to his or
her office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate, including without limitation the power to make purchases and
sales of portfolio securities of the Trust pursuant to recommendations of the
Trust's investment adviser in accordance with the policies and objectives of the
Trust set forth in its registration statement and with such general or specific
instructions as the Trustees may from time to time have issued.
4.3 Election. The president, the treasurer and the secretary shall be elected
annually by the Trustees. Other officers, if any, may be elected or appointed
by the Trustees at any time.
4.4 Tenure. The president, the treasurer and the secretary shall hold office
until their respective successors are chosen and qualified, or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Each
other officer shall hold office at the pleasure of the Trustees. Each agent
shall retain his or her authority at the pleasure of the Trustees.
4.5 President. The president shall be the chief executive officer of the
Trust, and shall, subject to the control of the Trustees, have general charge
and supervision of the business of the Trust and shall preside at meetings of
the Trustees or shareholders.
4.6 Vice Presidents. In the absence of the president, or in the event of the
president's inability or refusal to act, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting shall
3
<PAGE>
have all the powers of the president. Any vice president shall have such other
duties and powers as shall be designated from time to time by the Trustees or
the president.
4.7. Treasurer. The treasurer shall be the chief financial and accounting
officer of the Trust and subject to any arrangement made by the Trustees with a
bank or trust company or other organization as custodian or transfer or
shareholder services agent, shall be in charge of its valuable papers, its books
of account and accounting records, and the preparation of its financial
statements, and shall have such duties and powers as shall be designated from
time to time by the Trustees or the president. Any assistant treasurer shall
have such duties and powers as shall be designated from time to time by the
Trustees.
4.8 Secretary. The secretary shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the secretary from any meting
of shareholders or Trustees, an assistant secretary, or if there be none or he
or she is absent, a temporary clerk chosen at the meeting, shall record the
proceedings thereof in the aforesaid books.
Section 5. Resignations and Removals
Any Trustee, chairman, vice-chairman, officer or advisory board member may
resign at any time by delivering his or her resignation in writing to the
president, the treasurer or the secretary or to a meeting of the Trustees. The
Trustees may remove any officer or advisory board member elected by them with or
without cause by the vote of a majority of the Trustees then in office. Except
to the extent expressly provided in a written agreement with the Trust, no
Trustee, chairman, vice-chairman, officer, or advisory board member resigning,
and no officer, chair, vice-chairman, or advisory board member removed, shall
have any right to any compensation for any period following his or her
resignation or removal, or any right to damages on account of such removal.
Section 6. Vacancies
A vacancy in any office may be filled at any time by the Board of Trustees.
Each successor shall hold office for the unexpired term, and in the case of the
present, the treasurer and the secretary, until his or her successor is chosen
and qualified, or in each case until he or she sooner dies, resigns, is removed
or becomes disqualified.
Section 7. Shares of Beneficial Interest
7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the event
that the Trustees authorize the issuance of share certificates, subject to the
provisions of Section 7.3, each shareholder shall be entitled to a certificate
stating the number of whole shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the chairman, the president or a vice president and by the treasurer or
secretary. Such signatures may be facsimiles if the certificate is signed by a
transfer agent or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile
4
<PAGE>
signature has been placed on such certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by the Trust with
the same effect as if he or she were such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the transfer agent
may either issue receipts therefor or keep accounts upon the books of the Trust
for the record holders of such shares, who shall in either case be deemed, for
all purposes hereunder, to be the holders of certificates for such shares as if
they had accepted such certificates and shall be held to have expressly assented
and agreed to the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or
the mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
Section 8. Record Date and Closing Transfer Books
The Trustees may fix in advance a time, which shall not be more than 60 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.
Section 9. Seal
The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts," together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the vice
presidents or by the treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust.
5
<PAGE>
Section 11. Fiscal Year
Except as from time to time otherwise provided by the Trustees, the fiscal year
of the Trust shall end on December 31.
Section 12. Amendments
These By-Laws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.
6
<PAGE>
EXHIBIT 5(a)
INVESTMENT ADVISORY AGREEMENT
between
Wanger Advisors Trust
and
Wanger Asset Management, L.P.
for
WANGER U.S. SMALL-CAP ADVISOR
WANGER ADVISORS TRUST, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company (the "Trust"), and WANGER ASSET MANAGEMENT, L.P.,
a Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser ("WAM"), agree that:
1. Engagement of WAM. WAM shall manage the investment and reinvestment of
the assets of Wanger U.S. Small Cap Advisor, a series of the Trust (the "Fund"),
subject to the supervision of the Board of Trustees of the Trust, for the period
and on the terms set forth in this agreement. WAM shall give due consideration
to the investment policies and restrictions and the other statements concerning
the Fund in the Trust's agreement and declaration of trust, bylaws, and
registration statement under the 1940 Act and the Securities Act of 1933 (the
"1933 Act"), and to the provisions of the Internal Revenue Code of 1986, as
amended, applicable to the Fund as a regulated investment company. WAM shall be
deemed for all purposes to be an independent contractor and not an agent of the
Trust or the Fund, and unless otherwise expressly provided or authorized, shall
have no authority to act or represent the Trust or the Fund in any way.
WAM is authorized to make the decisions to buy and sell securities,
options, futures contracts and any other investments in which the Fund may
invest pursuant to its investment objectives, policies and restrictions, to
place the Fund's portfolio transactions with broker-dealers, and to negotiate
the terms of such transactions, including brokerage commissions on brokerage
transactions, on behalf of the Fund. WAM is authorized to exercise discretion
with the Fund's policy concerning allocation of its portfolio brokerage,
consistent with the Trust's registration statement and under the supervision of
the Trust's Board of Trustees, and as permitted by law, including but not
limited to Section 28(e) of the Securities Exchange Act of 1934, and in so doing
shall not be required to make any reduction in its investment advisory fees.
2. Expenses to be Paid by WAM. WAM shall furnish to the Trust, at WAM's
expense, office space and all necessary office facilities, equipment and
personnel for managing that portion of the Trust's business relating to the
Fund. WAM shall also assume and pay all other expenses incurred by it in
connection with managing the assets of the Fund, including expenses in
connection with placement of securities orders, all expenses of printing and
distributing the Fund's prospectus and reports to prospective investors (except
to the extent such expenses are allocated to a party other than the Trust in any
participation
<PAGE>
or operating agreement to which the Trust is a party), and all expenses in
determination of daily price computations, portfolio accounting and related
bookkeeping. WAM may, at WAM's expense, contract with any other person or
persons to provide services in connection with daily price computations,
portfolio accounting and related bookkeeping under such terms as it deems
reasonable and it shall have the authority to direct the activities of such
other person or persons in the manner it deems appropriate.
3. Expenses to be Paid by the Trust. The Trust shall pay all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents and
registrars and its dividend disbursing and redemption agents, if any; all
charges of legal counsel and of independent auditors; all expenses of qualifying
and maintaining the registration of shares of the Fund under the federal and
applicable state securities laws of such United States jurisdictions as the
Trust may from time to time reasonably designate; all compensation of trustees
other than those affiliated with WAM and all expenses incurred in connection
with their services to the Trust; all costs of borrowing money; all expenses of
publication of notices and reports to the Fund's shareholders and to
governmental bodies or regulatory agencies; all expenses of proxy solicitations
of the Fund or of the Board of Trustees of the Trust; all expenses of
shareholder meetings; all expenses of typesetting of the Fund's prospectus and
of printing and mailing copies of the prospectus furnished to each then-existing
shareholder or beneficial owner (except as may be otherwise provided in any
participation or operating agreement to which the Trust is a party); all taxes
and fees payable to federal, state or other governmental agencies, domestic or
foreign, all stamp or other taxes; all expenses of printing and mailing
certificates for shares of the Fund; all expenses of bond and insurance coverage
required by law or deemed advisable by the Trust's Board of Trustees; all
expenses of maintaining the registration of the Trust under the 1940 Act and all
fees, dues and other expenses related to membership of the Trust in any trade
association or other investment company organization.
In addition to the payment of expenses, the Fund shall also pay all
brokers' commissions and other charges relative to the purchase and sale of
portfolio securities for the Fund. Any expenses borne by the Trust that are
attributable solely to the organization, operation or business of the Fund shall
be paid solely out of the Fund assets.
The Trust's organizational expenses which were advanced to the Trust by WAM
shall be amortized over a period of 60 months beginning with the month following
the commencement of the Trust's operations, and the Trust shall reimburse WAM
during the period such amortization by paying to WAM on the last business day of
each month an amount equal to the organizational expenses amortized during that
month.
Any expense borne by the Trust that is not solely attributable to the Fund,
nor solely to any other series of shares of the Trust, shall be apportioned in
such manner as WAM determines is fair and appropriate, or as otherwise specified
by the Board of Trustees of the Trust.
<PAGE>
4. Compensation of WAM. For the services to be rendered and the charges
and expenses to be assumed and to be paid by WAM hereunder, the Fund shall pay
to WAM a fee accrued daily and paid monthly at the annual rate of 1.00% of the
average daily net asset value of the Fund up to $100 million, 0.95% of the
average daily net asset value of the Fund in excess of $100 million and up to
$250 million, and 0.90% of the average daily net asset value of the Fund in
excess of $250 million.
5. Limitation of Expenses of the Fund. The total expenses of the Fund,
exclusive of taxes, of interest and of extraordinary litigation expenses, but
including fees paid to WAM, shall not in any fiscal year of the Fund exceed the
most restrictive limits prescribed by any state in which the Fund's shares are
then qualified for sale, and WAM agrees to reimburse the Fund for any sums
expended for such expenses in excess of that amount. If the states in which the
Fund's shares are qualified for sale impose no limits on total expenses, then
WAM agrees to reimburse the Fund in the event the fee and expenses payable by
the Fund in any fiscal year exceed 2.0%. For purposes of calculating the
expenses subject to this limitation, (i) brokers' commissions and other charges
relating to the purchase and sale of portfolio securities and (ii) the excess
custodian costs attributable to investments in foreign securities compared to
the custodian costs which would have been incurred had the investments been in
domestic securities, shall not be regarded as expenses. Reimbursement, if any,
shall be made by reduction of the fees otherwise payable to WAM under this
agreement, no less frequently than quarterly.
6. Services of WAM Not Exclusive. The services of WAM to the Fund
hereunder are not to be deemed exclusive, and WAM shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
7. Services Other Than as Manager. WAM (or an affiliate of WAM) may act
as broker for the Fund in connection with the purchase or sale of securities by
or to the Fund if and to the extent permitted by procedures adopted from time to
time by the Board of Trustees of the Trust. Such brokerage services are not
within the scope of the duties of WAM under this agreement, and, within the
limits permitted by law and the Board of Trustees of the Trust, WAM (or an
affiliate of WAM) may receive brokerage commissions, fees or other remuneration
from the Fund for such services in addition to its fee for services as WAM.
Within the limits permitted by law, WAM may receive compensation from the Fund
for other services performed by it for the Fund which are not within the scope
of the duties of WAM under this agreement.
8. Limitation of Liability of WAM. WAM shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of WAM, or of any of the partners,
employees or agents of WAM, in connection with or pursuant to this agreement,
except by reason of willful misfeasance, bad faith or gross negligence on the
part of WAM in the performance of its duties or by reason of reckless disregard
by WAM of its obligations and duties under this agreement.
<PAGE>
9. Use of WAM's Name. The Trust may use the name "Wanger Advisors Trust"
or any other name using the name "Wanger" only for so long as this agreement or
any extension, renewal or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded to the
business of WAM as investment adviser. At such time as this agreement or any
extension, renewal or amendment hereof, or such similar agreement, shall no
longer be in effect, the Trust will (by amendment of its Agreement and
Declaration of Trust, if necessary) cease to use any name using the name
"Wanger," any name similar thereto or any other name indicating that it is
advised by or otherwise connected with WAM or with any organization which shall
have succeeded to WAM's business as investment adviser. WAM's consent to the
use of the name "Wanger" by the Trust shall not prevent WAM's permitting any
other enterprise, including other investment companies, to use that name.
10. Duration and Renewal. This agreement shall be effective January 1,
1995, or if later, the date approved by both (a) the vote of a "majority of the
outstanding voting shares of the Fund" (which term as used throughout this
agreement shall be construed in accordance with the definition of "vote of a
majority of the outstanding voting securities of a company" in section 2(a)(42)
of the 1940 Act), and (b) the vote of a majority of trustees who are not parties
to this agreement or interested persons of any party to this agreement, cast in
person at a meeting called for the purpose of voting on approval of this
agreement. Unless terminated as provided in Section 11, this agreement shall
continue in effect until December 31, 1996, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of WAM, voting in person at a meeting called for the purpose of voting on such
approval, and (b) by either the Board of Trustees of the Trust or vote of the
holders of a majority of the outstanding shares of the Fund.
11. Termination. This agreement may be terminated at any time, without
payment of any penalty, by the Board of Trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to WAM. This agreement may be terminated by WAM at any time upon
60 days' written notice to the Trust. This agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the 1940 Act).
12. Non-Liability of Trustees and Shareholders. Any obligation of the
Trust hereunder shall be binding only upon the assets of the Trust (or
applicable series thereof) and shall not be binding upon any trustee, officer,
employee, agent or shareholder of the Trust. Neither the authorization of any
action by the trustees or shareholders of the Trust nor the execution of this
agreement on behalf of the Trust shall impose any liability upon any trustee,
officer or shareholder of the Trust.
13. Amendment. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in section 2(a)(19) of the 1940 Act) of the Trust or of WAM, voting in
person at a meeting
<PAGE>
called for the purpose of voting on such approval, and (b) of the holders of a
majority of the outstanding shares of the Fund, where required by the 1940 Act
or other applicable law, or otherwise deemed appropriate by the Board of
Trustees of the Trust.
Dated: January __, 1995
WANGER ADVISORS TRUST WANGER ASSET MANAGEMENT, L.P.,
by Wanger Asset Management, Ltd., its
General Partner
By __________________________________ By __________________________________
<PAGE>
EXHIBIT 5(b)
INVESTMENT ADVISORY AGREEMENT
between
Wanger Advisors Trust
and
Wanger Asset Management, L.P.
for
WANGER INTERNATIONAL SMALL-CAP ADVISOR
WANGER ADVISORS TRUST, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company (the "Trust"), and WANGER ASSET MANAGEMENT, L.P.,
a Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser ("WAM"), agree that:
1. Engagement of WAM. WAM shall manage the investment and reinvestment of
the assets of Wanger International Small Cap Advisor, a series of the Trust (the
"Fund"), subject to the supervision of the Board of Trustees of the Trust, for
the period and on the terms set forth in this agreement. WAM shall give due
consideration to the investment policies and restrictions and the other
statements concerning The Fund in the Trust's agreement and declaration of
trust, bylaws, and registration statement under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code
of 1986, as amended, applicable to the Fund as a regulated investment company.
WAM shall be deemed for all purposes to be an independent contractor and not an
agent of the Trust or the Fund, and unless otherwise expressly provided or
authorized, shall have no authority to act or represent the Trust or the Fund in
any way.
WAM is authorized to make the decisions to buy and sell securities,
options, futures contracts and any other investments in which the Fund may
invest pursuant to its investment objectives, policies and restrictions, to
place the Fund's portfolio transactions with broker-dealers, and to negotiate
the terms of such transactions, including brokerage commissions on brokerage
transactions, on behalf of the Fund. WAM is authorized to exercise discretion
with the Fund's policy concerning allocation of its portfolio brokerage,
consistent with the Trust's registration statement and under the supervision of
the Trust's Board of Trustees, and as permitted by law, including but not
limited to Section 28(e) of the Securities Exchange Act of 1934, and in so doing
shall not be required to make any reduction in its investment advisory fees.
2. Expenses to be Paid by WAM. WAM shall furnish to the Trust, at WAM's
expense, office space and all necessary office facilities, equipment and
personnel for managing that portion of the Trust's business relating to the
Fund. WAM shall also assume and pay all other expenses incurred by it in
connection with managing the assets of the Fund, including expenses in
connection with placement of securities orders, all expenses of printing and
distributing the Fund's prospectus and reports to prospective investors (except
<PAGE>
to the extent such expenses are allocated to a party other than the Trust in any
participation or operating agreement to which the Trust is a party), and all
expenses in determination of daily price computations, portfolio accounting, and
related bookkeeping. WAM may, at WAM's expense, contract with any other person
or persons to provide services in connection with daily price computations,
portfolio accounting and related bookkeeping under such terms as it deems
reasonable and it shall have the authority to direct the activities of such
other person or persons in the manner it deems appropriate.
3. Expenses to be Paid by the Trust. The Trust shall pay all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents and
registrars and its dividend disbursing and redemption agents, if any; all
charges of legal counsel and of independent auditors; all expenses of qualifying
and maintaining the registration of shares of the Fund under the federal and
applicable state securities laws of such United States jurisdictions as the
Trust may from time to time reasonably designate; all compensation of trustees
other than those affiliated with WAM and all expenses incurred in connection
with their services to the Trust; all costs of borrowing money; all expenses of
publication of notices and reports to the Fund's shareholders and to
governmental bodies or regulatory agencies; all expenses of proxy solicitations
of the Fund or of the Board of Trustees of the Trust; all expenses of
shareholder meetings; all expenses of typesetting of the Fund's prospectus and
of printing and mailing copies of the prospectus furnished to each then-existing
shareholder or beneficial owner (except as may be otherwise provided in any
participation or operating agreement to which the Trust is a party); all taxes
and fees payable to federal, state or other governmental agencies, domestic or
foreign, all stamp or other taxes; all expenses of printing and mailing
certificates for shares of the Fund; all expenses of bond and insurance coverage
required by law or deemed advisable by the Trust's Board of Trustees; all
expenses of maintaining the registration of the Trust under the 1940 Act and all
fees, dues and other expenses related to membership of the Trust in any trade
association or other investment company organization.
In addition to the payment of expenses, the Fund shall also pay all
brokers' commissions and other charges relative to the purchase and sale of
portfolio securities for the Fund. Any expenses borne by the Trust that are
attributable solely to the organization, operation or business of the Fund shall
be paid solely out of the Fund assets.
The Trust's organizational expenses which were advanced to the Trust by WAM
shall be amortized over a period of 60 months beginning with the month following
the commencement of the Trust's operations, and the Trust shall reimburse WAM
during the period such amortization by paying to WAM on the last business day of
each month an amount equal to the organizational expenses amortized during that
month.
Any expense borne by the Trust that is not solely attributable to the Fund,
nor solely to any other series of shares of the Trust, shall be apportioned in
such manner as
2
<PAGE>
WAM determines is fair and appropriate, or as otherwise specified by the Board
of Trustees of the Trust.
4. Compensation of WAM. For the services to be rendered and the charges
and expenses to be assumed and to be paid by WAM hereunder, the Fund shall pay
to WAM a fee accrued daily and paid monthly at the annual rate of 1.30% of the
average daily net asset value of the Fund up to $100 million, 1.20% of the
average daily net asset value of the Fund in excess of $100 million and up to
$250 million, and 1.10% of the average daily net asset value of the Fund in
excess of $250 million.
5. Limitation of Expenses of the Fund. The total expenses of the Fund,
exclusive of taxes, of interest and of extraordinary litigation expenses, but
including fees paid to WAM, shall not in any fiscal year of the Fund exceed the
most restrictive limits prescribed by any state in which the Fund's shares are
then qualified for sale, and WAM agrees to reimburse the Fund for any sums
expended for such expenses in excess of that amount. If the states in which the
Fund's shares are qualified for sale impose no limits on total expenses, then
WAM agrees to reimburse the Fund in the event the fee and expenses payable by
the Fund in any fiscal year exceed 2.0%. For purposes of calculating the
expenses subject to this limitation, (i) brokers' commissions and other charges
relating to the purchase and sale of portfolio securities and (ii) the excess
custodian costs attributable to investments in foreign securities compared to
the custodian costs which would have been incurred had the investments been in
domestic securities, shall not be regarded as expenses. Reimbursement, if any,
shall be made by reduction of the fees otherwise payable to WAM under this
agreement, no less frequently than quarterly.
6. Services of WAM Not Exclusive. The services of WAM to the Fund
hereunder are not to be deemed exclusive, and WAM shall be free to render
similar services to others so long as its services under this agreement are not
impaired by such other activities.
7. Services Other Than as Manager. WAM (or an affiliate of WAM) may act
as broker for the Fund in connection with the purchase or sale of securities by
or to the Fund if and to the extent permitted by procedures adopted from time to
time by the Board of Trustees of the Trust. Such brokerage services are not
within the scope of the duties of WAM under this agreement, and, within the
limits permitted by law and the Board of Trustees of the Trust, WAM (or an
affiliate of WAM) may receive brokerage commissions, fees or other remuneration
from the Fund for such services in addition to its fee for services as WAM.
Within the limits permitted by law, WAM may receive compensation from the Fund
for other services performed by it for the Fund which are not within the scope
of the duties of WAM under this agreement.
8. Limitation of Liability of WAM. WAM shall not be liable to the Trust or
its shareholders for any loss suffered by the Trust or its shareholders from or
as a consequence of any act or omission of WAM, or of any of the partners,
employees or agents of WAM, in connection with or pursuant to this agreement,
except by reason of willful misfeasance,
3
<PAGE>
bad faith or gross negligence on the part of WAM in the performance of its
duties or by reason of reckless disregard by WAM of its obligations and duties
under this agreement.
9. Use of WAM's Name. The Trust may use the name "Wanger Advisors Trust"
or any other name using the name "Wanger" only for so long as this agreement or
any extension, renewal or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded to the
business of WAM as investment adviser. At such time as this agreement or any
extension, renewal or amendment hereof, or such similar agreement, shall no
longer be in effect, the Trust will (by amendment of its Agreement and
Declaration of Trust, if necessary) cease to use any name using the name
"Wanger," any name similar thereto or any other name indicating that it is
advised by or otherwise connected with WAM or with any organization which shall
have succeeded to WAM's business as investment adviser. WAM's consent to the
use of the name "Wanger" by the Trust shall not prevent WAM's permitting any
other enterprise, including other investment companies, to use that name.
10. Duration and Renewal. This agreement shall be effective January 1,
1995, or if later, the date approved by both (a) the vote of a "majority of the
outstanding voting shares of the Fund" (which term as used throughout this
agreement shall be construed in accordance with the definition of "vote of a
majority of the outstanding voting securities of a company" in section 2(a)(42)
of the 1940 Act), and (b) the vote of a majority of trustees who are not parties
to this agreement or interested persons of any party to this agreement, cast in
person at a meeting called for the purpose of voting on approval of this
agreement. Unless terminated as provided in Section 11, this agreement shall
continue in effect until December 31, 1996, and thereafter from year to year
only so long as such continuance is specifically approved at least annually (a)
by a majority of those trustees who are not interested persons of the Trust or
of WAM, voting in person at a meeting called for the purpose of voting on such
approval, and (b) by either the Board of Trustees of the Trust or vote of the
holders of a majority of the outstanding shares of the Fund.
11. Termination. This agreement may be terminated at any time, without
payment of any penalty, by the Board of Trustees of the Trust, or by a vote of
the holders of a majority of the outstanding shares of the Fund, upon 60 days'
written notice to WAM. This agreement may be terminated by WAM at any time upon
60 days' written notice to the Trust. This agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a)(4) of
the 1940 Act).
12. Non-Liability of Trustees and Shareholders. Any obligation of the
Trust hereunder shall be binding only upon the assets of the Trust (or
applicable series thereof) and shall not be binding upon any trustee, officer,
employee, agent or shareholder of the Trust. Neither the authorization of any
action by the trustees or shareholders of the Trust nor the execution of this
agreement on behalf of the Trust shall impose any liability upon any trustee,
officer or shareholder of the Trust.
4
<PAGE>
13. Amendment. This agreement may not be amended without the affirmative
vote (a) of a majority of those trustees who are not "interested persons" (as
defined in section 2(a)(19) of the 1940 Act) of the Trust or of WAM, voting in
person at a meeting called for the purpose of voting on such approval, and (b)
of the holders of a majority of the outstanding shares of the Fund, where
required by the 1940 Act or other applicable law, or otherwise deemed
appropriate by the Board of Trustees of the Trust.
Dated: January __, 1995
WANGER ADVISORS TRUST WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By ___________________________ By _____________________________
5
<PAGE>
EXHIBIT 6
DISTRIBUTION AGREEMENT
BETWEEN
WANGER ADVISORS TRUST
AND
WAM BROKERAGE SERVICES, L.L.C.
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of this 1st day of
May, 1996 by and between WANGER ADVISORS TRUST, a business trust organized and
existing under the laws of the Commonwealth of Massachusetts ("WAT"), and WAM
BROKERAGE SERVICES, L.L.C., a limited liability company organized and existing
under the laws of the State of Illinois ("WAM BD").
RECITALS:
WHEREAS, WAT is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act");
WHEREAS, WAM BD is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and the laws of each state
(including the District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of the National
Association of Securities Dealers ("NASD") (such registrations and membership
are referred to collectively as the "Registrations");
WHEREAS, WAT desires WAM BD to act as the distributor in the public
offering of its shares of beneficial interest (hereinafter called "Shares")
which are divided into two series, Wanger U.S. Small Cap Advisor and Wanger
International Small Cap Advisor(hereinafter called, collectively, the "Funds"
and, individually, the "Fund");
WHEREAS, WAT has entered into investment advisory agreements with Wanger
Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which WAM
has agreed to pay all expenses incurred in the sale and promotion of shares of
WAT;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. WAT appoints WAM BD to act as principal underwriter (as
such term is defined in Section 2(a)(29) of the 1940 Act of its Shares.
2. Delivery of WAT Documents. WAT has furnished WAM BD with properly
certified or authenticated copies of each of the following in effect on the date
hereof and shall furnish WAM BD from time to time properly certified or
authenticated copies of all amendments or supplements thereto:
(a) Agreement and Declaration of Trust;
(b) By-Laws;
<PAGE>
(c) Resolutions of its Board of Trustees (hereinafter referred to as
the "Board") selecting WAM BD as distributor and approving this
form of agreement and authorizing its execution.
WAT shall furnish WAM BD promptly with copies of any registration
statements filed by it with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (the "1933 Act") or the 1940 Act, together with any
financial statements and exhibits included therein, and all amendments or
supplements thereto hereafter filed.
WAT also shall furnish WAM BD such other certificates or documents which
WAM BD may from time to time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 5, 6 and 8 hereof, and to such
minimum purchase and investor eligibility requirements as may from time to time
be indicated in WAT's Prospectus, WAM BD is authorized to solicit, as agent on
behalf of WAT, unconditional orders for purchases of WAT's Shares authorized for
issuance and registered under the 1933 Act, provided that:
(1) WAM BD shall act solely as a disclosed agent on behalf of and for
the account of WAT;
(2) WAT's transfer agent shall receive directly from investors all
payments for the purchase of WAT's Shares and also shall pay
directly to shareholders amounts due to them for the redemption
or repurchase of all WAT's Shares, with WAM BD having no rights
or duties to accept such payment or to effect such redemptions or
repurchases; if a payment for the purchase of WAT's Shares be
delivered to WAM BD, such payment shall not be negotiated by WAM
BD but shall be delivered as soon as reasonably practicable to
WAT's transfer agent;
(3) WAM BD shall confirm all orders received for purchase of WAT's
Shares which confirmation shall clearly state (i) that WAM BD is
acting as agent of WAT in the transaction, (ii) that all
certificates for redemption, remittances and registration
instructions should be sent directly to WAT and (iii) WAT's
mailing address;
(4) WAM BD shall have no liability for payment for purchases of WAT's
Shares it sells as agent; and
(5) Each order to purchase Shares of WAT received by WAM BD shall be
subject to acceptance by an officer of WAT in Chicago and entry
of the order on WAT's records or shareholder accounts and is not
binding until so accepted and entered.
2
<PAGE>
The purchase price to the public of WAT's Shares shall be the public
offering price as defined in Paragraph 7 hereof.
(b) In consideration of the rights granted to WAM BD under this Agreement,
WAM BD will use its best efforts (but only in states in which WAM BD may
lawfully do so) to solicit from investors unconditional orders to purchase
Shares of WAT. WAT shall make available to WAM BD, at WAM BD's cost, such
number of copies of WAT's currently effective Prospectus and Statement of
Additional Information and copies of all information, financial statements and
other papers which WAM BD may reasonably request for use in connection with the
distribution of Shares.
4. Selling Agreements. WAM BD is authorized, as agent on behalf of WAT,
to enter into agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of WAT's Shares authorized
for issuance and registered under the 1933 Act. All such agreements shall be
either in the form of agreement attached hereto or in such other form as may be
approved by the officers of WAT ("Selling Agreement"). All solicitations made
by other broker-dealers pursuant to a Selling Agreement shall be subject to the
same terms as are applied by this Agreement to solicitations made by WAM BD.
5. Solicitation of Orders to Purchase Shares by WAT. The rights granted
to WAM BD shall be non-exclusive in that WAT reserves the right to solicit
purchases from, and sell its Shares to, investors, including insurance company
separate accounts through which Fund shares are offered in connection with
variable annuity contracts or other arrangements . Further, WAT reserves the
right to issue Shares in connection with the merger or consolidation of any
other investment company, trust or personal holding company with WAT, or WAT's
acquisition, by the purchase or otherwise, of all or substantially all of the
assets of an investment company, trust or personal holding company, or
substantially all of the outstanding shares or interests of any such entity.
Any right granted to WAM BD to solicit purchases of Shares will not apply to
Shares that may be offered by WAT to shareholders by virtue of their being
shareholders of WAT.
6. Shares Covered by this Agreement. This Agreement relates to the
solicitation of orders to purchase Shares that are duly authorized and
registered and available for sale by WAT, including redeemed or repurchased
Shares if and to the extent that they may be legally sold and if, but only if,
WAT authorizes WAM BD to sell them.
7. Public Offering Price. All solicitations by WAM BD pursuant to this
Agreement shall be for orders to purchase Shares of WAT at the public offering
price. The public offering price for each accepted subscription for WAT's
Shares will be the net asset value per share of the particular Fund subscribed
for next determined by WAT after it accepts such subscription. The net asset
value per share shall be determined in the manner provided in WAT's Agreement
and Declaration of Trust as now in effect or as they may be amended, and as
reflected in WAT's then current Prospectus and Statement of Additional
Information.
8. Suspension of Sales. If and whenever the determination of a Fund's net
asset value is suspended and until such suspension is terminated, no further
orders for Shares of such
3
<PAGE>
Fund shall be accepted by WAT except such unconditional orders placed with WAT
and accepted by it before the suspension. In addition, WAT reserves the right to
suspend sales of Shares if, in the judgment of the Board of WAT, it is in the
best interest of WAT to do so, such suspension to continue for such period as
may be determined by WAT's Board; and in that event, (i) at the direction of
WAT, WAM BD shall suspend its solicitation of orders to purchase Shares of WAT
until otherwise instructed by WAT and (ii) no orders to purchase Shares shall be
accepted by WAT while such suspension remains in effect unless otherwise
directed by its Board.
9. Authorized Representations. WAT is not authorized by WAM BD to give on
behalf of WAM BD any information or to make any representations other than the
information and representations contained in WAT's registration statement filed
with the SEC under the 1933 Act and/or the 1940 Act as it may be amended from
time to time.
WAM BD is not authorized by WAT to give on behalf of WAT or any Fund any
information or to make any representations in connection with the sale of Shares
other than the information and representations contained in WAT's registration
statement filed with the SEC under the 1933 Act and/or the 1940 Act, covering
Shares, as such registration statement or WAT's prospectus may be amended or
supplemented from time to time, or contained in shareholder reports or other
material that may be prepared by or on behalf of WAT or approved by WAT for WAM
BD's use. No person other than WAM BD is authorized to act as principal
underwriter (as such term is defined in the 1940 Act, as amended) for WAT.
10. Registration of Additional Shares. WAT hereby agrees to register
either (i) an indefinite number of Shares pursuant to Rule 24f-2 under the 1940
Act, or (ii) a definite number of Shares as WAT shall deem advisable pursuant to
Rule 24e-2 under ICA-40, as amended. WAT will, in cooperation with WAM BD, take
such action as may be necessary from time to time to qualify such Shares (so
registered or otherwise qualified for sale under the 1933 Act), in any state
mutually agreeable to WAM BD and WAT, and to maintain such qualification;
provided, however, that nothing herein shall be deemed to prevent WAT from
registering its shares without approval of WAM BD in any state it deems
appropriate.
11. Conformity With Law. WAM BD agrees that in soliciting orders to
purchase Shares it shall conform in all respects with applicable federal and
state laws and the rules and regulations of the NASD. WAM BD will use its best
efforts to maintain its Registrations in good standing during the term of this
Agreement and will promptly notify WAT and WAM, in the event of the suspension
or termination of any of the Registrations.
12. Independent Contractor. WAM BD shall be an independent contractor and
neither WAM BD, nor any of its members, managers, officers, directors, employees
or representatives is or shall be an employee of WAT in the performance of WAM
BD's duties hereunder. WAM BD shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and employees and
agrees to pay all employee taxes thereunder.
4
<PAGE>
13. Indemnification. WAM BD agrees to indemnify and hold harmless WAT and
each of the members of its Board and its officers, employees and representatives
and each person, if any, who controls WAT within the meaning of Section 15 of
the 1933 Act against any and all losses, liabilities, damages, claims and
expenses (including the reasonable costs of investigating or defending any
alleged loss, liability, damage, claim or expense and reasonable legal counsel
fees incurred in connection therewith) to which WAT or such of the members of
its Board and of its officers, employees, representatives, or controlling person
or persons may become subject under the 1933 Act, under any other statute, at
common law, or otherwise, arising out of the acquisition or sale of any Shares
of WAT by any person which (i) may be based upon any wrongful act by WAM BD or
any of WAM BD's members, managers, directors, officers, employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
Prospectus, Statement of Additional Information, shareholder report or other
information covering Shares of WAT filed or made public by WAT or any amendment
thereof or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon information furnished to WAT by WAM BD in writing. In no case (i)
is WAM BD's indemnity in favor of WAT, or any person indemnified, to be deemed
to protect WAT or such indemnified person against any liability to which WAT or
such person would otherwise be subject by reason of willful misfeasance, bad
faith or negligence in the performance of its or his duties or by reason of its
or his reckless disregard of its or his obligations and duties under this
Agreement, or (ii) is WAM BD to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against WAT or any
person indemnified unless WAT or such person, as the case may be, shall have
notified WAM BD in writing of the claim within a reasonable time after the
summons, or other first written notification, giving information of the nature
of the claim served upon WAT or upon such person (or after WAT or such person
shall have received notice of such service on any designated agent). However,
failure to notify WAM BD of any such claim shall not relieve WAM BD from any
liability which WAM BD may have to WAT or any person against whom such action is
brought otherwise than on account of WAM BD's indemnity agreement contained in
this Paragraph.
WAM BD shall be entitled to participate, at its own expense, in the
defense, or, if WAM BD so elects, to assume the defense of any suit brought to
enforce any such claim but, if WAM BD elects to assume that defense, such
defense shall be conducted by legal counsel chosen by WAM BD and satisfactory to
the persons indemnified who are defendants in the suit. In the event that WAM
BD elects to assume the defense of any such suit and retain such legal counsel,
persons indemnified who are defendants in the suit shall bear the fees and
expenses of any additional legal counsel retained by them. If WAM BD does not
elect to assume the defense of any such suit, WAM BD will reimburse persons
indemnified who are defendants in such suit for the reasonable fees of any legal
counsel retained by them in such litigation.
WAT agrees to indemnify and hold harmless WAM BD and each of its members,
managers, directors, officers, employees, and representatives and each person,
if any, who controls WAM BD within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses (including
the damage, claim or expense and reasonable
5
<PAGE>
legal counsel fees incurred in connection therewith) to which WAM BD or such of
its members, managers, directors, officers, employees, representatives or
controlling person or persons may otherwise become subject under the 1933 Act,
under any other statute, at common law, or otherwise arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by WAT or any of the members of WAT's Board, or WAT's officers, employees or
representatives other than WAM BD, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement, Prospectus, Statement of Additional Information,
shareholder report or other information covering Shares filed or made public by
WAT or any amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished by WAM BD to WAT. In no
case (i) is WAT's indemnity in favor of WAM BD or any person indemnified to be
deemed to protect WAM BD or such indemnified person against any liability to
which WAM BD or such indemnified person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the performance of its or his
duties or by reason of its or his reckless disregard of its or his obligations
and duties under this Agreement, or (ii) is WAT to be liable under its indemnity
agreement contained in this Paragraph with respect to any claim made against WAM
BD or any person indemnified unless WAM BD, or such person, as the case may be,
shall have notified WAT in writing of the claim within a reasonable time after
the summons, or other first written notification, giving information of the
nature of the claim served upon WAM BD or upon such person (or after WAM BD or
such person shall have received notice of such service on any designated agent).
However, failure to notify WAT of any such claim shall not relieve WAT from any
liability which WAT may have to WAM BD or any person against whom such action is
brought otherwise than on account of WAT's indemnity agreement contained in this
Paragraph.
WAT shall be entitled to participate, at its own expense, in the defense
or, if WAT so elects, to assume the defense of any suit brought to enforce such
claim but, if WAT elects to assume the defense, such defense shall be conducted
by legal counsel chosen by WAT and satisfactory to the persons indemnified who
are defendants in the suit. In the event that WAT elects to assume the defense
of any such suit and retain such legal counsel, the persons indemnified who are
defendants in the suit shall bear the fees and expenses of any additional legal
counsel retained by them. If WAT does not elect to assume the defense of any
such suit, WAT will reimburse the persons indemnified who are defendants in such
suit for the reasonable fees and expenses of any legal counsel retained by them
in such litigation.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon its execution ("Effective Date") and unless terminated as
provided herein, shall remain in effect through December 31, 1997, and from year
to year thereafter, but only so long as such continuance is specifically
approved at least annually by (a) a vote of majority of the members of the Board
of WAT who are not interested persons of WAM BD or WAT, voting in person at a
meeting called for the purpose of voting on such approval, and (b) the vote of
either the Board of WAT or a majority of the outstanding Shares of WAT. This
Agreement may be terminated at any time, without the payment or any penalty (a)
on 60 days' written notice, by the Board of WAT or by or by a vote of a majority
of the outstanding Shares of WAT, or by WAM
6
<PAGE>
BD, or (b) immediately, on written notice by the Board of WAT, in the event of
termination or suspension of any of the Registrations. This Agreement will
automatically terminate in the event of its assignment. In interpreting the
provisions of this Paragraph 14, the definitions contained in Section 2(a) of
the 1940 Act (particularly the definitions of "interested person", "assignment",
and "majority of the outstanding shares") shall be applied.
15. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by each party against which enforcement of the change, waiver,
discharge or termination is sought. If WAT should at any time deem it necessary
or advisable in the best interests of WAT that any amendment of this Agreement
be made in order to comply with the recommendations or requirements of the SEC
or any other governmental authority or to obtain any advantage under state or
Federal tax laws and notifies WAM BD of the form of such amendment and the
reasons therefore, and if WAM BD should decline to assent to such amendment, WAT
may terminate this Agreement forthwith. If WAM BD should at any time request
that a change be made in WAT's Agreement and Declaration of Trust, By-Laws or
its methods of doing business, in order to comply with any requirements of
Federal law or regulations of the SEC, or of a national securities association
of which WAM BD is or may be a member, relating to the sale of Shares, and WAT
should not make such necessary changes within a reasonable time, WAM BD may
terminate this Agreement forthwith.
16. Liability. It is understood and expressly stipulated that neither the
shareholders of WAT nor the members of the Board of WAT shall be personally
liable hereunder. The obligations of WAT are not personally binding upon, nor
shall resort to the private property of, any of the members of the Board of WAT
nor of the shareholders, officers, employees or agents of WAT, but only WAT's
property shall be bound.
17. Miscellaneous. The captions in this Agreement are included for
convenience or reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18. Notice. Any notice required or permitted to be given by a party to
this Agreement or to any other party hereunder shall be deemed sufficient if
delivered in person or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other party at the address
provided below or to the last address furnished by each such other party to the
party giving notice.
If to WAT: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
7
<PAGE>
If to WAM BD: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Merrillyn J. Kosier
If to WAM: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
ATTEST: WAM BROKERAGE SERVICES, L.L.C.
/s/ Merrillyn J. Kosier By: /s/ Terence M. Hogan
- ------------------------------------ ------------------------------------
Secretary Terence M. Hogan, President
ATTEST: WANGER ADVISORS-TRUST
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
- ------------------------------------ ------------------------------------
Secretary Ralph Wanger, President
ACKNOWLEDGED:
WANGER ASSET MANAGEMENT, L.P.
By: /s/ Ralph Wanger
--------------------------------
Ralph Wanger
ATTEST:
/s/ Merrillyn J. Kosier
- ------------------------------------
Secretary
8
<PAGE>
Date _________________
WAM BROKERAGE SERVICES, L.L.C.
WANGER ADVISORS TRUST
SELLING AGREEMENT
Dear Sirs:
We are the principal underwriter of the shares of beneficial interest of
Wanger Advisors Trust ("WAT"), which are divided into two series, Wanger U.S.
Small Cap Advisor and Wanger International Small Cap Advisor (each a "Fund" and
together the "Funds"). WAT is a Massachusetts business trust registered under
the Investment Company Act of 1940 as an open-end investment company. We invite
you as agent for your customer to participate in the distribution of shares of
beneficial interest of WAT ("Shares"), subject to the following terms and
conditions:
1. We hereby grant to you the right to make Shares available to, and to
solicit orders to purchase Shares by, the public, subject to applicable federal
and state law, the Agreement and Declaration of Trust and By-laws of WAT, and
the current Prospectus and Statement of Additional Information relating to the
Funds attached hereto (the "Prospectus"), including any minimum investment and
investor eligibility requirements from time to time stated therein. You will
forward to us or to WAT's transfer agent, as we may direct from time to time,
all orders for the purchase of Shares obtained by you, subject to such terms and
conditions as to the form of payment, minimum initial and subsequent purchase
and otherwise, and in accordance with such procedures and directions, as we may
specify from time to time. All orders are subject to acceptance by an authorized
officer of WAT in Chicago and WAT reserves the right in its sole discretion to
reject any order. No Share purchase shall be effective until payment is
received by WAT in the form of Federal funds. If a Share purchase by check is
cancelled because the check does not clear, you will be responsible for any loss
to a Fund or to us resulting therefrom.
2. The public offering price of the Shares of a Fund shall be the net
asset value per share of the outstanding Shares of that Fund determined in
accordance with the then current Prospectus. No sales charge shall apply.
3. As used in this Agreement, the term "Registration Statement" shall mean
the Registration Statement most recently filed by WAT with the Securities and
Exchange Commission and effective under the Securities Act of 1933, as such
Registration Statement is amended by any amendments thereto at the time in
effect, and the terms "prospectus" and "statement of additional information"
with regard to a Fund shall mean the form of prospectus and statement of
additional information relating to that Fund as attached hereto filed by WAT as
part of the Registration Statement, as such form of prospectus and statement of
additional information may be amended or supplemented from time to time.
<PAGE>
4. You hereby represent that you are and will remain during the term of
this Agreement duly registered as a broker-dealer under the Securities Exchange
Act of 1934 and under the securities laws of each state where your activities
hereunder require such registration, and that you are and will remain during the
term of this Agreement a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"). In the conduct of our activities hereunder,
you will abide by all applicable rule and regulations of the NASD, including,
without limitation, Rule 26 of the Rules of Fair Practice of the NASD as in
effect from time to time, and all applicable federal and state securities laws,
including, without limitation, the prospectus delivery requirements of the
Securities Act of 1993.
5. This Agreement is subject to the right of WAT at any time to withdraw
all offerings of the Shares by written notice to us at our principal office. You
acknowledge that WAT will not issue certificates representing Shares.
6. Your obligations under this Agreement are not to be deemed exclusive,
and you shall be free to render similar services to others so long as your
services hereunder are not impaired thereby.
7. You will sell Shares only to residents of states or other jurisdictions
where we have notified you that the Shares have been registered or qualified for
sale to the public or are exempt from such qualification or registration.
Neither we nor WAT will have any obligation to register or qualify the Shares in
any particular jurisdiction. We shall not be liable or responsible for the
issue, form, validity, enforceability or value of the Shares or for any matter
in connection therewith, except lack of good faith on our part, and no
obligation not expressly assumed by us in this Agreement shall be implied
therefrom. Nothing herein contained, however, shall be deemed to be a condition,
stipulation or provision binding any person acquiring any Shares to waive
compliance with any provision of the Securities Act of 1933, or to relieve the
parties hereto from any liability arising thereunder.
8. You are not authorized to make any representations concerning a Fund,
WAT or the Shares except those contained in the then current prospectus and
statement of additional information relating to a Fund, or printed information
issued by WAT or by us as information supplemental to such prospectus and
statement of additional information. We will supply you with a reasonable number
of copies of the then current prospectus and statement of additional information
of the Funds, and reasonable quantities of any supplemental sales literature,
sales bulletins, and additional information as may be issued by us or WAT. You
will not use any advertising or sales material relating to a Fund other than
materials supplied by WAT or us, unless such other material is approved in
writing by us in advance of such use.
9. You will not have any authority to act as agent for WAT, a Fund, for us
or for any other dealer. All transactions between you and us contemplated by
this Agreement shall be as agents.
10. Either party to this Agreement may terminate this Agreement by giving
written notice to the other. Such notice shall be deemed to have been given on
the date on which it is either delivered personally to the other party, is
mailed postpaid or delivered by telecopier to the
2
<PAGE>
other party at its address listed below. This Agreement may be amended by us at
any time, and your placing of an order after the effective date of any such
amendment shall constitute your acceptance thereof.
WAM Brokerage Services, L.L.C. Dealer
- ------------------------------ ------
227 West Monroe St., Suite 3000 _____________________
Chicago, Illinois 60606 _____________________
Attention: Ms. Merrillyn J. Kosier _____________________
Telecopier: (312) 634-0016 _____________________
11. This Agreement constitutes the entire agreement between you and us
relating to the subject matter hereof and supersedes all prior or written
agreements between us. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Massachusetts and shall be binding upon both parties
hereto when signed by us and accepted by you in the space provided below.
Very truly yours,
WAM BROKERAGE SERVICES, L.L.C.
BY:_______________________________
The undersigned hereby accepts your invitation to participate in the
distribution of Shares and agrees to each of the terms and conditions set forth
in this letter.
__________________________________
(Dealer)
Date:_________________________ By:_______________________________
(Signature of Officer)
Pay Office of Dealer: Name:__________________________
Title:_________________________
_______________________________
Street Address
_______________________________
City/State/Zip
_______________________________
Telephone Number
3
<PAGE>
EXHIBIT 8
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Wanger Advisors Trust (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated January 20, 1995 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule 17f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign sub-
custodian in a single account that is identified as belonging to the Custodian
for the benefit of its customers, provided however, that (i) the records of the
Custodian with respect to securities and other non-cash property of the Fund
which are maintained in such account shall identify by book-entry those
securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign sub-
custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative this 24th day of May, 1995.
WANGER ADVISORS TRUST
By:_______________________________
Title:____________________________
STATE STREET BANK AND TRUST COMPANY
By:________________________________
Title:_____________________________
<PAGE>
CUSTODIAN CONTRACT
Between
WANGER ADVISORS TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
1. Employment of Custodian and Property to be Held By It.................... 1
2. Duties of the Custodian with Respect to Property of the Fund Held by
the custodian in the United States........................................ 2
2.1 Holding Securities................................................... 2
2.2 Delivery of Securities............................................... 3
2.3 Registration of Securities........................................... 7
2.4 Bank Accounts........................................................ 7
2.5 Availability of Federal Funds........................................ 8
2.6 Collection of Income................................................. 8
2.7 Payment of Fund Monies............................................... 9
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.. 11
2.9 Appointment of Agents................................................ 12
2.10 Deposit of Fund Assets in Securities System.......................... 12
2.l0A Fund Assets Held in the Custodian's Direct Paper System.............. 15
2.11 Segregated Account................................................... 16
2.12 Ownership Certificates for Tax Purposes.............................. 17
2.13 Proxies.............................................................. 17
2.14 Communications Relating to Portfolio Securities...................... 18
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States............................................... 18
3.1 Appointment of Foreign Sub-Custodians................................. 18
3.2 Assets to be Held..................................................... 19
3.3 Foreign Securities Depositories....................................... 19
</TABLE>
i
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<TABLE>
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<S> <C>
3.4 Agreements with Foreign Banking Institutions.......................... 20
3.5 Access of Independent Accountants of the Fund......................... 20
3.6 Reports by Custodian.................................................. 20
3.7 Transactions in Foreign Custody Account............................... 22
3.8 Liability of Foreign Sub-Custodians................................... 22
3.9 Liability of Custodian................................................ 23
3.10 Reimbursement for Advances............................................ 24
3.11 Monitoring Responsibilities........................................... 24
3.12 Branches of U.S. Banks................................................ 25
3.13 Tax Law............................................................... 25
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund....... 26
5. Proper Instructions......................................................... 26
6. Actions Permitted Without Express Authority................................. 27
7. Evidence of Authority....................................................... 28
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income............................... 29
9. Records..................................................................... 29
10. Opinion of Fund's Independent Accountants................................... 30
11. Reports to Fund by Independent Public Accountants........................... 30
12. Compensation of Custodian................................................... 30
13. Responsibility of Custodian................................................. 31
14. Effective Period, Termination and Amendment................................. 32
15. Successor Custodian......................................................... 34
16. Interpretive and Additional Provisions...................................... 35
17. Additional Funds............................................................ 35
</TABLE>
ii
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<TABLE>
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<S> <C>
18. Massachusetts Law to Apply.................................................. 36
19. Prior Contracts............................................................. 36
20. Shareholder Communications Election......................................... 37
21. Limitations of Liability of the Trustees, officers and Shareholders......... 38
</TABLE>
iii
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Wanger Advisors Trust, a business trust organized and
existing under the laws of Massachusetts, having its principal place of business
at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606-5066 hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in 2 series, Wanger
U.S. Small Cap Advisor and Wanger International Small Cap Advisor (such series
together with all other series subsequently established by the Fund and made
subject to this Contract in accordance with paragraph 17, being herein referred
to as the "Portfolio(s)";
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held By It.
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of
<PAGE>
principal or capital distributions received by it with respect to all securities
owned by the Portfolio(s) from time to time, and the cash consideration received
by it for such new or treasury shares of beneficial interest of the Fund
representing interests in the Portfolios ("Shares") as may be issued or sold
from time to time. The Custodian shall not be responsible for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian. The Custodian may employ as sub-custodian for
the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held by
the Custodian in the United States.
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities
2
<PAGE>
System" and (b) commercial paper of an issuer for which State Street
Bank and Trust Company acts as issuing and paying agent ("Direct
Paper") which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book-entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be
delivered to the Custodian;
3
<PAGE>
6) To the issuer thereof, or its agent, for transfer into the name of
the Portfolio or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange
for a different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no responsibility
or liability for any loss arising from the delivery of such
securities prior to receiving payment for such securities except
as may arise from the Custodian's own negligence or willful
misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment
of the securities of the issuer of such securities, or pursuant
to provisions for conversion contained in such securities, or
pursuant to any deposit agreement; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
4
<PAGE>
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that, in
any such case, the new securities and cash, if any, are to be
delivered to the Custodian;
10) For delivery in connection with any loans of securities made by
the Portfolio, but only against receipt of adequate collateral as
agreed upon from time to time by the Custodian and the Fund on
behalf of the Portfolio, which may be in the form of cash or
obligations issued by the United States government, its agencies
or instrumentalities, except that in connection with any loans
for which collateral is to be credited to the Custodian's account
in the book-entry system authorized by the U.S. Department of the
Treasury, the Custodian will not be held liable or responsible
for the delivery of securities owned by the Portfolio prior to
the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the
Fund on behalf of the Portfolio requiring a pledge of assets by
the Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Securities Exchange Act of
1934 (the "Exchange Act") and a member of The National
Association of Securities Dealers,
5
<PAGE>
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract Market,
or any similar organization or organizations, regarding account
deposits in connection with transactions by the Portfolio of the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to
the holders of shares in connection with distributions in kind,
as may be described from time to time in the currently effective
prospectus and statement of additional information of the Fund,
related to the Portfolio ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of,
in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the
6
<PAGE>
Secretary or an Assistant Secretary, specifying the securities of
the Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the Fund directs the Custodian to maintain
securities in "street name", the Custodian shall utilize its best
efforts only to timely collect income due the Fund on such securities
and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this
7
<PAGE>
Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of
the Portfolio, other than cash maintained by the Portfolio in a bank
account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian
in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3 the
Custodian shall collect on a timely basis all income and other
payments with respect to registered
8
<PAGE>
domestic securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities
business, and shall collect on a timely basis all income and other
payments with respect to bearer domestic securities if, on the date of
payment by the issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Portfolio
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of the
Portfolio but only (a) against the delivery of such securities or
evidence of title to such options, futures contracts or options on
futures contracts to the Custodian (or any
9
<PAGE>
bank, banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment Company
Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into between the Fund on behalf of
the Portfolio and the Custodian, or another bank, or a broker-
dealer which is a member of NASD, (i) against delivery of the
securities either in certificate form or through an entry
crediting the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for transfer
to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund as defined in
Article 5;
10
<PAGE>
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payment for
the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating expenses
of the Fund whether or not such expenses are to be in whole or
part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by an
officer of the Fund and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where
11
<PAGE>
payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the
securities purchased in the absence of specific written instructions
from the Fund on behalf of such Portfolio to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities
to the same extent as if the securities had been received by the
Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of
12
<PAGE>
the Custodian in the Securities System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Portfolio;
3) The Custodian shall pay for securities purchased for the account
of the Portfolio upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the
Portfolio. The Custodian shall transfer securities sold for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for
the account of the Portfolio. Copies of all advices from the
Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its
request. Upon request, the Custodian shall furnish the Fund on
behalf of the Portfolio confirmation of each transfer to or from
the account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the Portfolio
copies of daily transaction sheets
13
<PAGE>
reflecting each day's transactions in the Securities System for
the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting from
use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents
or of any of its or their employees or from failure of the
Custodian or any such agent to enforce effectively such rights as
it may have against the Securities System; at the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System
or any other person which the Custodian may have as a consequence
of any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
14
<PAGE>
2.l0A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
l) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct
Paper System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than assets
held as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the
Portfolio;
4) The Custodian shall pay for securities purchased for the account
of the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to
the account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon the making
of an entry on the records of the custodian to reflect such
transfer and receipt of payment for the account of the Portfolio;
15
<PAGE>
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the
Portfolio, in the form of a written advice or notice, of Direct
Paper on the next business day following such transfer and shall
furnish to the Fund on behalf of the Portfolio copies of daily
transaction sheets reflecting each day's transaction in the
Securities System for the account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio
with any report on its system of internal accounting control as
the Fund may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained
in an account by the Custodian pursuant to Section 2.10 or Section
2.10A hereof, (i) in accordance with the provisions of any agreement
among the Fund on behalf of the Portfolio, the Custodian and a
broker-dealer registered under the Exchange Act and a member of the
NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or
any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio, (ii) for purposes of segregating
cash or government
16
<PAGE>
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case
of clause (iv), upon receipt of, in addition to Proper Instructions
from the Fund on behalf of the applicable Portfolio, a certified copy
of a resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or
purposes of such segregated account and declaring such purposes to be
proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held
by it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered otherwise
than in the name of the Portfolio or a nominee of the Portfolio, all
proxies, without indication of the manner in which such proxies are
to be voted, and shall promptly deliver to the
17
<PAGE>
Portfolio such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly
to the Portfolio all written information received by the Custodian
from issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange offer.
If the Portfolio desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Portfolio
shall notify the Custodian at least three business days prior to the
date on which the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.
3.1 Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for the Portfolio's securities and other assets
maintained outside the United States the foreign banking institutions
and foreign securities depositories
18
<PAGE>
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-
custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such sub-
custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, and (b) cash and cash
equivalents in such amounts as the Custodian or the Fund may determine
to be reasonably necessary to effect the Portfolio's foreign
securities transactions. The Custodian shall identify on its books as
belonging to the Fund, the foreign securities of the Fund held by each
foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.4 hereof.
19
<PAGE>
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets as
belonging to each applicable Portfolio; (d) officers of or auditors
employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of
20
<PAGE>
the Portfolio(s) held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications
of any transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical
possession of such securities.
21
<PAGE>
3.7 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this Section 3.7,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis, to the foreign securities of the Fund held outside
the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor
(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-
custodian shall require the institution to exercise reasonable care in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in
22
<PAGE>
connection with the institution's performance of such obligations. At
the election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims against a foreign
banking institution as a consequence of any such loss, damage, cost,
expense, liability or claim if and to the extent that the Fund has not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.9, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strife or armed hostilities) or (b) other losses
(excluding a bankruptcy or insolvency of State Street London Ltd. not
caused by political risk) due to Acts of God, nuclear incident or
other losses under circumstances where the Custodian and State Street
London Ltd. have exercised reasonable care.
23
<PAGE>
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the
Custodian will promptly inform the Fund in the event that the
Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or any material loss of the
assets of the Fund or, in the case of any foreign sub-custodian not
the subject of an exemptive order from the Securities and Exchange
Commission, is notified by such foreign sub-custodian that there
appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its
24
<PAGE>
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles)
3.12 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions
hereof shall not apply where the custody of the Portfolios assets are
maintained in a foreign branch of a banking institution which is a
"bank" as defined by Section 2(a)(5) of the Investment Company Act of
1940 meeting the qualification set forth in Section 26(a) of said Act.
The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of thin Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be
the responsibility of the Fund to notify the Custodian of the
obligations imposed on the Fund or the Custodian as custodian of the
Fund by the tax law of jurisdictions other than those mentioned in the
above sentence, including responsibility for withholding and other
taxes, assessments or other governmental charges, certifications and
governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist
the Fund with respect to any claim for exemption or
25
<PAGE>
refund under the tax law of jurisdictions for which the Fund has
provided "such information.
4. Payments for Sales or Repurchase or Redemptions of Shares of the Fund.
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
5. Proper Instructions. Proper Instructions as used throughout this
Contract means a writing signed or initialled by one or more persons as the
Board of Trustees shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of
26
<PAGE>
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Trustees of the Fund accompanied by a detailed
description of procedures approved by the Board of Trustees, Proper Instructions
may include communications effected directly between electro-mechanical or
electronic devices provided that the Board of Trustees and the Custodian are
satisfied that such procedures afford adequate safeguards for the Portfolios'
assets. For purposes of this Section, Proper Instructions shall include
instructions received by the Custodian pursuant to any three-party agreement
which requires a segregated asset account in accordance with Section 2.11.
6. Actions Permitted Without Express Authority.
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its duties
under this Contract, provided that all such payments shall be
accounted for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
27
<PAGE>
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority. The Custodian shall be protected in acting upon
any instructions, notice, request, consent, certificate or other instrument or
paper believed by it to be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees pursuant to the
Declaration of Trust as described in such vote, and such vote may be considered
as in full force and effect until receipt by the Custodian of written notice to
the contrary.
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<PAGE>
8. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Portfolio shall be made at the time or
times described from time to time in the Fund's currently effective prospectus
related to such Portfolio.
9. Records.
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request,
29
<PAGE>
supply the Fund with a tabulation of securities owned by each Portfolio and held
by the Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants'.
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants.
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, but not less
frequently than annually, with reports by independent public accountants on the
accounting system, internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts, including
securities deposited and/or maintained in a Securities System, including the
Custodian's Direct Paper System, relating to the services provided by the
custodian under this Contract; such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be required by the Fund to provide
reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian.
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<PAGE>
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.9)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.12 hereof, the Custodian shall not be liable for
any loss, damage, cost, expense, liability or claim resulting from, or caused
by, the direction of or authorization by
31
<PAGE>
the Fund to maintain custody of any securities or cash of the Fund in a foreign
country including, but not limited to, losses resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Contract, except such as may arise from its or its nominee's own negligent
action, negligent failure to act or willful misconduct, any property at any time
held for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual
32
<PAGE>
agreement of the parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after the date
of such delivery or mailing; provided, however that the Custodian shall not with
respect to a Portfolio Act under Section 2.10 hereof in the absence of receipt
of an initial certificate of the Secretary or an Assistant Secretary that the
Board of Trustees of the Fund has approved the initial use of a particular
Securities System by such Portfolio and the receipt of an annual certificate of
the Secretary or an Assistant Secretary that the Board of Trustees has reviewed
the use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio Act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
33
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Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
15. Successor Custodian.
If a successor custodian for the Fund, or one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System or the Custodians Direct Paper
System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other
34
<PAGE>
property held by it under this Contract on behalf of each applicable Portfolio
and to transfer to an account of such successor custodian all of the securities
of each such Portfolio held in any Securities System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds.
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<PAGE>
In the event that the Fund establishes one or more series of Shares in
addition to Wanger U.S. Small Cap Advisor and Wanger International Small Cap
Advisor, with respect to which it desires to have the Custodian render services
as custodian under the terms hereof, it shall so notify the Custodian in
writing, and if the Custodian agrees in writing to provide such services, such
series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
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<PAGE>
20. Shareholder Communications Election.
Securities and Exchange Commission Rule 14b-2 requires banks which
hold securities for the account of customers to respond to requests by issuers
of securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [_] The Custodian is authorized to release the Fund's name,
address, and share positions.
NO [_] The Custodian is not authorized to release the Fund's name,
address, and share positions.
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21. Limitations of Liability of the Trustees, Officers and Shareholders.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, Officers or Shareholders individually but are binding
only upon assets and property of the Fund.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the __ day of ______, 199__.
ATTEST WANGER ADVISORS TRUST
___________________________________ _______________________________________
ATTEST STATE STREET BANK AND TRUST
COMPANY
___________________________________ By:____________________________________
Executive Vice President
38
<PAGE>
SCHEDULE A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trusteees of Wanger Advisors
Trust for use as sub-custodians for the Fund's securities and other assets:
<TABLE>
<S> <C> <C>
Argentina Depository: Caja de Valores S.A. (CDV)
Custodian: Citibank, N.A. - Buenos Aires
Australia Depository: Austraclear Limited
Custodian: Westpac Banking Corporation
Austria Depository: Osterreichische Kontrollbank AG
Custodian: GiroCredit Bank Aktiengesellschaft der
Sparkassen - Vienna
Bangladesh Custodian: Standard Chartered Bank
Belgium Depository: Caisse Interprofessionnelle de Depots et de
Virements de Titres S.A. (CIK)
Custodian: Generale Bank
Botswana Custodian: Barclay's Bank of Botswana Limited - Gabarone
Brazil Depository: Bolsa de Valores de SEo Paulo (Bovespa)
Custodian: Citibank, N.A. - SEo Paulo
Canada Depository: The Canadian Depository for Securities Limited
(CDS)
Custodian: Canada Trustco Mortgage Company
Chile Custodian: Citibank, N.A.
China Depository: Shanghai Securities Central Clearing and
Registration Corporation (SSCCRC);
Shenzhen Securities Registrars Co., Ltd.
(and designated agent banks)
Custodian: The Hongkong and Shanghai Banking Corporation
Limited - Shenzhen and Shanghai branches
Colombia Custodian: Cititrust Colombia S.A. Sociedad Fiduciaria -
Bogota
Cyprus Custodian: Barclays Bank PLC
Czech Republic Depository: Stredisko Cennych Papiou (SCP)
Custodian: Ceskoslovenska Obchodni Banka A.S. - Prague
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Denmark Depository: Vardipapircentralen - The Danish Securities
Center (VP)
Custodian: Den Danske Bank - Copenhagen
Egypt Custodian: National Bank of Egypt (Cairo)
Finland Depository: The Central Share Register of Finland
Custodian: Kansallis-Osake-Pankki - Helsinki
France Depository: Societe Interprofessionelle pour la Compensation
des Valeurs Mobilieres (SICOVAM)
Custodian: Banque Paribas
Germany Depository: The Deutscher Kassenverein AG (DKV)
Custodian: Berliner Handels- und Frankfurter Bank -
Frankfurt
Ghana Custodian: Barclay's Bank of Ghana Limited - Accru
Greece Depository: The Central Depository (Apothetirio Titlon A.E.)
Custodian: National Bank of Greece S.A. - Athens
Hong Kong Depository: The Central Clearing and Settlement System
(CCASS)
Custodian: Standard Chartered Bank - Hong Kong Branch
Hungary Custodian: Citibank Budapest Rt.
India Custodian: The Hongkong and Shanghai Banking Corporation
Limited - Bombay
Indonesia Custodian: Standard Chartered Bank - Jakarta
Ireland Custodian: Bank of Ireland - Dublin
Israel Depository: The Clearing House of the Tel Aviv Stock Exchange
Custodian: Bank Hapoalim B.M.
Italy Depository: Monte Titoli S.p.A.
Custodian: Morgan Guaranty Trust Company
Japan Custodian: Sumitomo Trust & Banking Co., Ltd. - Tokyo
Jordan Custodian: The British Bank of the Middle East, Jordan -
Amman
Kenya Custodian: Barclay's Bank of Kenya Limited - Nairobi
Korea Depository: Korea Securities Depository
Custodian: Bank of Seoul - Seoul
Malaysia Custodian: Standard Chartered Bank Malaysia Berhad -
Kuala Lumpur
Mexico Depository: S.D. INDEVAL, S.A. de C.V. (Instituto para el
Deposito de Valores)
Custodian: Citibank, N.A. - Mexico City
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Morocco Custodian: Banque Commerciale du Maroc - Casablanca
Netherlands Depository: Nederlands Centraal Instituut voor Giraal
Effectenverkeer B.V. (NECIGEF)
Custodian: MeesPierson N.V. - Amsterdam
New Zealand Custodian: ANZ Banking Group (New Zealand) Limited
Norway Depository: Verdipapirsentralen - The Norwegian Registry of
Securities (VPS)
Custodian: Christiania Bank og Kreditkasse - Oslo
Pakistan Custodian: Deutsche Bank AG - Karachi
Peru Depository: Caja de Valores (CAVAL)
Custodian: Citibank, N.A. - Lima
Philippines Custodian: Standard Chartered Bank - Manila
Poland Depository: The National Depository of Securities (Centrum
Krajowego Depozytu Papierow Wartosciowych)
Custodian: Citibank Poland S.A.
Portugal Depository: Central de Valores Mobili(Pounds)rios (Central)
Custodian: Banco Comercial Portugues - Lisbon
Singapore Depository: The Central Depository (Pte) Limited (CDP)
Custodian: The Development Bank of Singapore Ltd. -
Singapore
South Africa Custodian: Standard Bank of South Africa Limited -
Johannesburg
Spain Depository: Servicio de Compensacion y Liquidacion de Valores
(SCLV)
Custodian: Banco Santander, S.A.
Sri Lanka Depository: The Central Depository System (Pvt) Limited
Custodian: The Hongkong and Shanghai Banking Corporation
Limited - Colombo
Swaziland Custodian Barclays Bank of Swaziland Limited - Mbabane
Sweden Depository: Vardepapperscentralen - The Swedish Securities
Register Center (VPC)
Custodian: Skandinaviska Enskilda Banken - Stockholm
Switzerland Depository: Schweizerische Effekten - Giro AG (SEGA)
Custodian: Union Bank of Switzerland - Zurich
Taiwan Depository: The Taiwan Securities Central Depository
Company, Ltd. (TSCD)
Custodian: Central Trust of China
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
Thailand Depository: The Share Depository Center (SDC)
Custodian: Standard Chartered Bank - Bangkok
Turkey Depository: Istanbul Stock Exchange Settlement and Custody
Co., Inc. (I.M.K.B. Takas ve Saklama A.S.)
Custodian: Citibank, N.A. - Istanbul
United Kingdom Custodian: State Street Bank and Trust Company, London
Branch [U.K. Securities]
State Street London Limited
[access to Euroclear and Cedel]
Uruguay Custodian: Citibank, N.A. - Montevideo
Venezuela Custodian: Citibank, N.A. - Caracas
Zambia Custodian: Barclay's Bank of Zambia Limited - Lusaka
Zimbabwe Custodian: Barclay's Bank of Zimbabwe Limited - Harare
</TABLE>
Certified:
________________________________
Robert M. Slotky,
Fund's Authorized Officer
Date:___________________________
4
<PAGE>
EXHIBIT I
SUBCUSTODIAN AGREEMENT
AGREEMENT made this ____ day of ____________, 19__, between State Street
Bank and Trust Company, A Massachusetts Trust Company (hereinafter referred to
as the "Custodian"), having its principal place of business at 225 Franklin
Street, Boston, MA, and _____________________________________________
(hereinafter referred to as the "Subcustodian"), a ___________________ organized
under the laws of __________________ and having an office at
_______________________________.
WHEREAS, Custodian has been appointed to act as Trustee, Custodian or
Subcustodian of securities and monies on behalf of certain of its customers
including, without limitation, collective investment undertakings, investment
companies subject to the U.S. Investment Company Act of 1940, as amended, and
employee benefit plans subject to the U.S. Employee Retirement Income Security
Act of 1974, as amended;
WHEREAS, Custodian wishes to establish Account (the "Account") with the
Subcustodian to hold and maintain certain property for which Custodian is
responsible as custodian; and
WHEREAS, Subcustodian agrees to establish the Account and to hold and
maintain all Property in the Account in accordance with the terms and conditions
herein set forth.
Now THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Custodian and the Subcustodian agree as follows:
I. The Account
A. Establishment of the Account. Custodian hereby requests that
Subcustodian establish for each client of the Custodian an Account which shall
be composed of:
1. A Custody Account for any and all Securities (as hereinafter
defined) from time to time received by Subcustodian therefor, and
2. A Deposit Account for any and all Cash (as hereinafter defined)
from time to time received by Subcustodian therefor.
B. Use of the Account. The Account shall be used exclusively to hold,
acquire, transfer or otherwise care for, on behalf of Custodian as custodian and
the customers of Custodian and not for Custodian's own interest, Securities and
such Cash or cash equivalents as are transferred to Subcustodian or as are
received in payment of any transfer of, or as payment on, or interest on, or
dividend from, any such Securities (herein collectively called "Cash").
<PAGE>
C. Transfer of Property in the Account. Beneficial ownership of the
Securities and Cash in the Account shall be freely transferable without payment
of money or value other than for safe custody and administration.
D. Ownership and Segregation of Property in the Account. The ownership of
the property in the Account, whether Securities, Cash or both, and whether any
such property is held by Subcustodian in an Eligible Depository, shall be
clearly recorded on Subcustodian's books as belonging to Custodian on behalf of
Custodian's customers, and not for Custodian's own interest and, to the extent
that Securities are physically held in the Account, such Securities shall also
be physically aggregated from the general assets of Subcustodian, the assets of
Custodian in its individual capacity and the assets of Subcustodian's other
customers. In addition, Subcustodian shall maintain such other records as may
be necessary to identify the property hereunder as belonging to each Account.
E. Registration of Securities in the Account. Securities which are
eligible for deposit in a depository as provided for in Paragraph III may be
maintained with the depository in an account for Subcustodian's customers.
Securities which are not held in a depository and that are ordinarily held in
registered form will be registered in the name of Subcustodian or in the name of
Subcustodian's nominee, unless alternate Instructions are furnished by
Custodian.
II. Services to Be Provided By the Subcustodian
The services Subcustodian will provide to Custodian and the manner in which
such services will be performed will be set forth below in this Agreement.
A. Services Performed Pursuant to Instructions. All transactions
involving the Securities and Cash in the Account shall be executed solely in
accordance with Custodian's Instructions as that term is defined in Paragraph IV
hereof, except those described in paragraph B below.
B. Services to Be Performed Without Instructions. Subcustodian will,
unless it receives Instructions from Custodian to the contrary:
1. Collect Cash. Promptly collect and receive all dividends, income,
principal, proceeds from transfer and other payments with respect to property
held in the Account, and present for payment all Securities held in the Account
which are called, redeemed or retired or otherwise become payable and all
coupons and other income items which call for payment upon presentation, and
credit Cash receipts therefrom to the Deposit Account.
2. Exchange Securities. Promptly exchange Securities where the
exchange is purely ministerial including, without limitation, the exchange of
temporary Securities for those in definitive form and the exchange of warrants,
or other documents of entitlement to Securities, for the Securities themselves.
3. Sale of Rights and Fractional Interests. Whenever notification of
a rights entitlement or a fractional interest resulting from a rights issue,
stock dividend or stock split is
2
<PAGE>
received for the Account and such rights entitlement or fractional interest
bears an expiration date, Subcustodian will promptly endeavor to obtain
Custodian's Instructions, but should these not be received in time for
Subcustodian to take timely action, Subcustodian is authorized to sell such
rights entitlement or fractional interest and to credit the Account.
4. Execute Certificates. Execute in Custodian's name for the
Account, whenever Subcontractor deems it appropriate, such ownership and other
certificates as may be required to obtain the payment of income from the
Securities held in the account.
5. Pay Taxes and Receive Refunds. To pay or cause to be paid from
the Account any and all taxes and levies in the nature of taxes imposed on the
property in the Account by any governmental authority, and to take all steps
necessary to obtain all tax exemptions, privileges or other benefits, including
reclaiming and recovering any foreign withholding tax, relating to the Account
and to execute any declaration, affidavits, or certificates of ownership which
may be necessary in connection therewith.
6. Prevent Losses. Take such steps as may be reasonably necessary to
secure or otherwise prevent the loss of, entitlements attached to or otherwise
relating to property held in the Account.
C. Additional Services.
1. Transmission of Notices of Corporate Action. By such means as
will permit Custodian to take timely action with respect thereto, Subcustodian
will promptly notify Custodian upon receiving notices or reports, or otherwise
becoming aware, of corporate action affecting Securities held in the Account
(including, but not limited to, calls for redemption, mergers, consolidations,
reorganizations, recapitalizations, tender offers, rights offerings, exchanges,
subscriptions and other offerings) and dividend, interest and other income
payments relating to such Securities.
2. Communications Regarding the Exercise of Entitlements. Upon
request by Custodian, Subcustodian will promptly deliver, or cause any Eligible
Depository authorized and acting hereunder to deliver, to Custodian all notices,
proxies, proxy soliciting materials and other communications that call for
voting or the exercise of rights or other specific action (including material
relative to legal proceedings intended to be transmitted to security holders)
relating to Securities held in the Account to the extent received by
Subcustodian or said Eligible Depository, such proxies or any voting instruments
to be executed by the registered holder of the Securities, but without
indicating the manner in which such Securities are to be voted.
3. Monitor Financial Service. In furtherance of its obligations
under this Agreement, Subcustodian will monitor a leading financial service with
respect to announcements and other information respecting property held in the
Account, including announcements and other information with respect to corporate
actions and dividend, interest and other income payments.
3
<PAGE>
III. Use of Securities Depository
Subcustodian may, with the prior written approval of Custodian, maintain
all or any part of the Securities in the Account with a securities depository or
clearing agency which is incorporated or organized under the laws of a country
other than the United States of America and is supervised or regulated by a
government agency or regulatory authority in the foreign jurisdiction having
authority over such depositories or agencies, and which operates (a) the central
system for handling of designated securities or equivalent book entries in
_____________________, or (b) a transnational system for the central handling of
securities or equivalent book entries (herein called "Eligible Depository"),
provided however, that, while so maintained, such Securities shall be subject
only to the directions of Subcustodian, and that Subcustodian duties,
obligations and responsibilities with regard to such Securities shall be the
same as if such Securities were held by Subcustodian on its premises.
IV. Claims Against Property in the Account
The property in the account shall not be subject to any right, charge,
security interest, lien or claim of any kind (collectively "Charges") in favor
of Subcustodian or any Eligible Depository or any creditor of Subcustodian or of
any Eligible Depository except a claim for payment for such property's safe
custody or administration in accordance with the terms of this Agreement.
Subcustodian will immediately notify Custodian of any attempt by any party to
assert any Charge against the property held in the Account and shall take all
lawful actions to protect such property from such Charges until Custodian has
had a reasonable time to respond to such notice.
V. Subcustodian's Warranty
Subcustodian represents and warrants that:
(A) It is a branch of a "qualified U.S. bank" or an "eligible foreign
custodian" as those terms are defined in Rule 17f-5 of the Investment Company
Act of 1940, a copy of which is attached hereto as Attachment A (the "Rule"),
and Subcustodian shall immediately notify Custodian, in writing or by other
authorized means, in the event that there appears to be a substantial likelihood
that Subcontractor will cease to qualify under the Rule as currently in effect
or as hereafter amended, or
(B) It is the subject of an exemptive order issued by the United States
Securities and Exchange Commission which order permits Custodian to employ
Subcustodian notwithstanding the fact that Subcustodian fails to qualify under
the terms of the Rule, and Subcustodian shall immediately notify Custodian, in
writing or by other authorized means, if for any reason it is no longer covered
by such exemptive order.
Upon receipt of any such notification required under (A) or (B) of this section,
Custodian may terminate this Agreement immediately without prior notice to
Subcustodian.
4
<PAGE>
VI. Definitions
A. Instructions. The term "Instructions" means:
1. instructions in writing signed by authorized individuals
designated as such by Custodian;
2. telex or tested telex instructions of Custodian;
3. other forms of instructions in computer readable form as shall
customarily be used for the transmission of like information, and
4. such other forms of communication as from time to time may be
agreed upon by Custodian and Subcustodian, which Subcustodian believes in good
faith to have been given by Custodian or which are transmitted with proper
testing or authentication pursuant to terms and conditions which Custodian may
specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded. Subcustodian shall act in
accordance with Instructions and shall not be liable for any act or omission in
respect of any Instruction except in the case of willful default, negligence,
fraud, bad faith, willful misconduct, or reckless disregard of duties on the
part of Subcustodian. Subcustodian in executing all Instructions will take
relevant action in accordance with accepted industry practice and local
settlement practice.
B. Account. The term "Account" means collectively the Custody Account,
and the Deposit Account.
C. Securities. The term "Securities" includes, without limitation, stocks,
shares, bonds, debentures, debt securities (convertible or non-convertible),
notes, or other obligations or securities and any certificates, receipts,
futures contracts, foreign exchange contracts, options, warrants, scrip or other
instruments representing rights to receive, purchase or subscribe for the same,
or evidencing or representing any other rights or interests therein, or in any
property or assets.
VII. Miscellaneous Provisions
A. Statements Regarding the Account. Subcustodian will supply Custodian
with such statements regarding the Account as Custodian may request, including
the identity and location of any Eligible Depository authorized and acting
hereunder. In addition, Subcustodian will supply Custodian an advice or
notification of any transfers of Securities to or from the Account indicating,
as to Securities acquired for the account, if applicable, the Eligible
Depository having physical possession of such Securities.
B. Examination of Books and Records. Subcustodian agrees that its books
and records relating to the Account and Subcustodian's actions under this
Agreement shall be open to the physical, on-premises inspection and audit at
reasonable times by officers of, auditors
5
<PAGE>
employed by or other representatives of Custodian including (to the extent
permitted under the law of ___________________) the independent public
accountants for any customer of Custodian whose property is being held hereunder
and such books and records shall be retained for such period as shall be agreed
upon by Custodian and Subcustodian.
As Custodian may reasonably request from time to time, Subcustodian will furnish
its auditor's reports on its system of internal controls, and Subcustodian will
use its best efforts to obtain and furnish similar reports of any Eligible
Depository authorized and acting hereunder.
C. Standard of Care. In holding, maintaining, servicing and disposing of
Property under this Agreement, and in fulfilling any other obligations
hereunder, Subcustodian shall exercise the same standard of care that it
exercises over its own assets, provided that Subcustodian shall exercise at
least the degree of care and maintain adequate insurance as expected of a
prudent professional Subcustodian for hire and shall assume the burden of
proving that it has exercised such care in its maintenance of Property held by
Subcustodian in its Account. The maintenance of the Property in an Eligible
Depository shall not affect Subcustodian's standard of care, and Subcustodian
will remain as fully responsible for any loss or damage to such securities as if
it had itself retained physical possession of them. Subcustodian shall also
indemnify and hold harmless Custodian and each of Custodian's customers from and
against any loss, damage, cost, expense, liability or claim (including
reasonable attorney's fees) arising out of or in connection with the improper or
negligent performance or the nonperformance of the duties of Subcustodian.
Subcustodian shall be responsible for complying with all provisions of the law
of ________________________ , or any other law, applicable to Subcustodian in
connection with its duties hereunder, including (but not limited to) the payment
of all transfer taxes or other taxes and compliance with any currency
restrictions and securities laws in connection with its duties as Subcustodian.
D. Loss of Cash or Securities. Subcustodian agrees that, in the event of
any loss of Securities or Cash in the Account, Subcustodian will use its best
efforts to ascertain the circumstances relating to such loss and will promptly
report the same to Custodian and shall use every legal means available to it to
effect the quickest possible recovery.
E. Compensation of Subcustodian. Custodian agrees to pay to Subcustodian
from time to time such compensation for its services and such out-of-pocket or
incidental expenses of Subcustodian pursuant to this Agreement as may be
mutually agreed upon in writing from time to time.
F. Operating Requirements. The Subcustodian agrees to follow such
Operating Requirements as the Custodian may establish from time to time. A copy
of the current Operating Requirements is attached as Attachment B to this
Agreement.
G. Termination. This Agreement may be terminated by Subcustodian or
Custodian on 60 days' written notice to the other party, sent by registered
mail, provided that any such notice, whether given by Subcustodian or Custodian,
shall be followed within 60 days by
6
<PAGE>
Instructions specifying the names of the persons to whom Subcustodian shall
deliver the Securities in the Account and to whom the Cash in the account shall
be paid. If within 60 days following the giving of such notice of termination,
Subcustodian does not receive such Instructions, Subcustodian shall continue to
hold such Securities and Cash subject to this Agreement until such Instructions
are given. The obligations of the parties under this Agreement shall survive the
termination of this Agreement.
G. Notices. Unless otherwise specified in this Agreement, all notices and
communications with respect to matters contemplated by this Agreement shall be
in writing, and delivered by mail, postage prepaid, telex, SWIFT, or other
mutually agreed telecommunication methods to the following addresses (or to such
other address as either party hereto may from time to time designate by notice
duly given in accordance with this paragraph):
To Subcustodian:
To Custodian: State Street Bank and Trust Company
Securities Operations/
Network Administration
P.O. Box 1631
Boston, MA 02105
H. Confidentiality. Subcustodian and Custodian shall each use its best
efforts to maintain the confidentiality of the property in the Account and the
beneficial owners thereof, subject, however, to the provisions of any laws,
requiring disclosure. In addition, Subcustodian shall safeguard any test keys,
identification codes or other security devices which Custodian shall make
available to it. The Subcustodian further agrees it will not disclose the
existence of this Agreement or any current business relationship unless
compelled by applicable law or regulation or unless it has secured the
Custodian's written consent.
I. Assignment. This Agreement shall not be assignable by either party but
shall bind any successor in interest of Custodian and Subcustodian respectively.
J. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of ___________________________. To the extent
inconsistent with this Agreement or Custodian's Operating Requirements as
attached hereto, Subcustodian's rules and conditions regarding accounts
generally or custody accounts specifically shall not apply.
7
<PAGE>
CUSTODIAN: STATE STREET BANK AND TRUST COMPANY
By: _________________________
Date: _______________________
AGREED TO BY SUBCUSTODIAN
_____________________________
By: _________________________
Date:________________________
8
<PAGE>
EXHIBIT 9(a)(1)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of
April, 1995 by and between WANGER ADVISORS TRUST, an unincorporated
business trust formed under the laws of Massachusetts (the "Trust"), and PHOENIX
HOME LIFE MUTUAL INSURANCE COMPANY, a New York life insurance company (the
"Company"), on its own behalf and on behalf of each separate account of the
Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity contracts or
variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.9. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each version
of the definitive prospectus or supplement thereto filed with the SEC pursuant
to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares ("Trust
Registration Statement") or a class of Contracts ("Contracts Registration
Statement"), the registration
2
<PAGE>
statement filed with the SEC to register the securities issued thereby under the
1933 Act, or the most recently filed amendment thereto, in either case in the
form in which it was declared or became effective. The Contracts Registration
Statement is described more specifically on Schedule 2 to this Agreement. The
Trust Registration Statement was filed on Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust 1940 Act
Registration Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the Trust
or a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) Trust Series in existence
now or that may be established in the future and not listed on Schedule 3 will
be made available to the Company only as the Trust and the Company may agree
pursuant to Article XI hereof, and (ii) the Board of Trustees of the Trust (the
"Trust Board") may suspend or terminate the offering of Trust shares of any
Series in any jurisdiction, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in
3
<PAGE>
light of its fiduciary duties under Federal and any applicable state laws,
suspension or termination is necessary or in the best interests of the
shareholders of any Series (it being understood that "shareholders" for this
purpose shall mean Product Owners and Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase allocations of net amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Purchase and redemption requests
shall be processed by the Trust at the net asset value per share next
calculated after the Trust receives and accepts such request. The Trust
shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the Trust
Prospectus, and which as of the date of execution of this Agreement is the
time of the close of regular session trading on the New York Stock
Exchange, which is generally 4:00 p.m. Eastern Time. Receipt of any such
request on any Business Day by the Company as designee of the Trust prior
to the Trust's close of business shall constitute receipt by the Trust on
that same Business Day, provided that the Trust receives notice of such
request by 10 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a purchase request for such shares. Payment
for Series shares shall be made in Federal funds transmitted to
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the Trust by wire to be received by the Trust by 12:00 p.m. Eastern Time on
the day the Trust is notified of the purchase request for Series shares
(unless the Trust determines and so advises the Company that sufficient
proceeds are available from redemption of shares of other Series effected
pursuant to redemption requests tendered by the Company on behalf of the
Account). If payment in Federal funds for any purchase is not received, or
is received by the Trust after 3 p.m. Eastern Time on such Business Day,
the Company shall promptly, upon the Trust's request, reimburse the Trust
for any charges, costs, fees, interest or other expenses incurred by the
Trust in connection with any advances to, or borrowings or overdrafts by,
the Trust, or any similar expenses incurred by the Trust, as a result of
non-payment or late payment.
(c) Payment for Series shares redeemed by the Account or the Company
shall be made in Federal funds transmitted by wire to the Company or any
other designated person by 3 p.m. Eastern Time on the next Business Day
after the Trust is properly notified of the redemption order of Series
shares (unless redemption proceeds are to be applied to the purchase of
Trust shares of other Series in accordance with Section 2.3(b) of this
Agreement), except that (i) if payment of the redemption proceeds would
require the Trust to dispose of portfolio securities or otherwise incur
additional costs, proceeds shall be wired to the Company within seven days
and the Trust shall notify the Company of such delay by 3 p.m. Eastern Time
on such Business Day; and (ii) the Trust reserves the right to delay
payment of redemption proceeds to the extent permitted under Section 22(e)
of the 1940 Act; and (iii) the Trust reserves the right to effect payment
of redemptions in kind, but only to the extent described in the Trust
Prospectus. The Trust shall not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
2.4. The Trust shall use reasonable efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon
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as reasonably practicable after the net asset value per share for such Series is
calculated, and shall calculate such net asset value in accordance with the
Trust Prospectus. Neither the Trust, any Series, the Investment Adviser, nor any
of their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by the Company or any other Participating Company to the Trust or the
Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in
accordance with allocation instructions received from Contract Owners, it
being understood that no changes shall be made to Schedule 3 without the
prior written consent of the Trust and the Investment Adviser. The Company
may withdraw the Account's investment in the Trust or a Series of the Trust
only: (i) as necessary to facilitate Contract Owner requests; (ii) upon a
determination by a majority of the Trust Board, or a majority of
disinterested Trust Board members, that an irreconcilable material conflict
exists among the interests of (x) some or all Product Owners or (y) the
interests of some or all of the Participating Insurance Companies and/or
Qualified Entities investing in the
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Trust; or (iii) in the event that the shares of another investment company
are substituted for series shares in accordance with the terms of the
Contracts upon the (x) requisite vote of the Contract Owners having an
interest in the affected Series and the written consent of the Trust
(unless otherwise required by applicable law); (y) upon issuance of an SEC
exemptive order pursuant to Section 26(b) of the 1940 Act permitting such
substitution; or (z) as may otherwise be permitted under applicable law.
(b) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Trust shall not, without the prior written consent of the
Company (unless otherwise required by applicable law), take any action to
operate the Trust as a unit investment trust under the 1940 Act.
(d) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the
Trust's investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be sold
to other insurance companies; and the cash value of the Contracts may be
invested in other investment companies, provided, however, that (a) such
other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives
and policies of the Trust; or (b) the Company gives the Trust 45 days
written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a funding vehicle for the Contracts
prior to the date of this Agreement and the Company so informs the Trust
prior to the execution of this Agreement; or (d) the
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Trust consents to the use of such other investment company, such consent
not to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust
shall not sell Trust shares to any insurance company or separate account unless
an agreement complying with Article VII of this Agreement is in effect to govern
such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has been filed with the SEC in accordance
with the provisions of the 1940 Act and the Trust is duly registered as an open-
end management investment company thereunder; (iii) the Trust Registration
Statement has been declared effective by the SEC; (iv) Trust shares sold
pursuant to this Agreement have been duly authorized for issuance in accordance
with applicable law; (v) the Trust believes that it (x) currently qualifies as a
"regulated investment company" under Subchapter M of the Code and (y) currently
complies with Section 817(h) of the Code and regulations thereunder; and (vi)
the Trust's investment policies are in material compliance with any investment
restrictions set forth on Schedule 4 to this Agreement. The Trust, however,
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) otherwise
complies with the insurance laws or regulations of any state.
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3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
4.3 The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company
in lieu thereof, the Trust shall provide such documentation (including a final
copy of the Trust Prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the Trust Prospectus is
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more frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4 The Company shall deliver Contracts, Contracts and Trust Prospectuses,
Contracts and Trust Statements of Additional Information, and all amendments or
supplements to any of the foregoing to Contract Owners and prospective Contract
Owners, as required by applicable federal securities laws.
4.5. The Company shall:
(a) inform the Trust of any state in which the Trust is required under
such state's securities laws to register the offering of its shares
pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by state
insurance law that may become applicable to the Trust from time to time as
a result of the Account's investment therein (including, but not limited
to, restrictions with respect to fees and expenses and investment
policies), other than those set forth on Schedule 4 to this Agreement.
4.6. Upon receipt of information from the Company pursuant to Section
4.5(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by the such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to, the
costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of
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the Trust Prospectus, Trust Registration Statement, Trust proxy materials
and shareholder reports; the printing and mailing of all proxy statements
and periodic reports; the preparation of camera-ready copy of Trust
Prospectuses and Statements of Additional Information required to be
provided by the Trust to its then-current shareholders; preparation of all
statements and notices required by any Federal or state securities law; all
taxes on the issuance or transfer of Trust shares; and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall pay no fee or other
compensation to the Company under this Agreement, and shall not be charged
for the costs of printing and mailing to prospective Contract Owners copies
of the Trust Prospectus, Trust Statement of Additional Information,
notices, proxy statements, periodic reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the
Contracts Prospectus, Contracts Registration Statement, and Contract Owner
reports; and the printing and mailing of all periodic reports, Contracts
Prospectuses, Statements of Additional Information, and notices to current
and prospective Contract Owners required by any Federal or state insurance
law other than those paid for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. The Trust may delegate its rights
and responsibilities under this provision to the Investment Adviser.
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4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus or in reports of the Account
which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Trust, the
Contracts or the Account, as the case may be, promptly after the filing by or on
behalf of such party of such document with the SEC or other regulatory
authorities.
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
If a party requests any such information before it has been filed,
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the other party will provide the requested information if then available and in
the version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
(c) unless permitted under applicable law, vote Voting Shares of each
Series attributable to Contract Owners for which no instructions have been
received in the same proportion as Voting Shares of such Series for which
instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of each
Series held by the Company on its own behalf or on behalf of the Account
that are not attributable to Contract Owners in the same proportion as
Voting Shares of such Series for which instructions have been timely
received.
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The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code, and
all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
6.3. The Company undertakes to maintain the treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
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ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by the Trust for use in the Contracts Registration
Statement, Contracts Prospectus or in the Contracts or sales literature or
promotional material for the Contracts (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
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misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of the
Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or
Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertaking
specified in Article VI of this Agreement, unless such failure is a result
of the Trust's material breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with
the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any officer, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or
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otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by the Company to the Trust for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing); or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust with
respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
undertakings specified in Article VI of this Agreement,
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unless such failure is a result of the Company's material breach of this
Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
This indemnification will be in addition to any liability that the Trust
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the failure to so notify the indemnifying party will not relieve
the indemnifying party from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent, or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the
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indemnified party from and against any loss or liability by reason of such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3.
10.2. The obligation of the Trust to sell shares to the Company pursuant
to Article II of this Agreement shall terminate at the option of the Trust upon
30 days notice to the Company:
(a) upon institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares, or an
expected or anticipated ruling, judgment or outcome which would, in the
Trust's reasonable judgment, materially impair the Company's ability to
meet and perform the Company's obligations and duties hereunder;
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(b) in the event any of the Contracts are not registered, issued or
sold in accordance with applicable Federal and/or state law;
(c) if the Contracts cease to qualify as annuity contracts under the
Code, or if the Trust reasonably believes that the Contracts may fail to so
qualify;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company
shall have been the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Trust;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless
the Trust consents thereto; or
(f) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3.
In exercising its option to terminate its obligation to sell Shares to the
Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3. The restrictions on the Company under Section 2.7 of this Agreement
shall terminate at the option of the Company upon 30 days notice to the Trust:
(a) if shares of any Series are not reasonably available to meet the
requirements of the Contracts as determined by the Company, and the Trust,
after receiving written notice from the Company of such non-
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availability, fails to make available a sufficient number of Trust shares
to meet the requirements of the Contracts within 5 days after receipt
thereof;
(b) upon institution of formal proceedings against the Trust by the
NASD, the SEC or any state securities or insurance commission or any other
regulatory body;
(c) if the Trust ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code, or under any successor or similar
provision, or if the Company reasonably believes based on an opinion of
counsel satisfactory to the Trust that the Trust may fail to so qualify,
and the Trust, upon written request, fails to provide reasonable assurance
that it will take action to cure or correct such failure;
(d) if the Trust fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations thereunder and
the Trust, upon written request, fails to provide reasonable assurance that
it will take action to cure or correct such failure; or
(e) if the Trust informs the Company pursuant to Section 4.6 that the
Trust will not comply with investment restrictions as requested by the
Company and the Trust and the Company are unable to agree upon any
reasonable alternative accommodations.
10.4. This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions
of this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of
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amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the assets
of the Trust (or applicable Series thereof) and shall not be binding upon any
trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Name: Charles P. McQuaid
Title: Senior Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Name: Simon Tan
Title: Senior Vice President
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
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<PAGE>
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
(COMPANY)
Date: ___________ By: ___________________________
Name:
Title:
WANGER ADVISORS TRUST
(TRUST)
Date: ___________ By: ____________________________
Name: Charles P. McQuaid
Title: Senior Vice President
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<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
Phoenix Home Life Variable June 21, 1982 811-3488 Variable
Accumulation Account Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Effective as of _________________, the following separate accounts are hereby
added to this Schedule 1 and made subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
______________________________ ______________________________
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
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<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
================================================================================
SEC 1933 Act Name of Supporting
Contract Marketing Name Registration Number Account
================================================================================
Big Edge 2-78020 Phoenix Home Life
Variable Accumulation
Account
- --------------------------------------------------------------------------------
Big Edge Plus 2-78020 Phoenix Home Life
Variable Accumulation
Account
- --------------------------------------------------------------------------------
================================================================================
Effective as of January 1, 1996 , the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
================================================================================
SEC 1933 Act Name of Supporting
Contract Marketing Name Registration Number Account
================================================================================
Group Strategic Edge 2-78020 Phoenix Home Life
Variable Accumulation
Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
______________________________ ______________________________
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
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<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
================================================================================
Contracts Marketing Name Trust Series
================================================================================
Big Edge . Wanger U.S. Small Cap Advisor
. Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Big Edge Plus . Wanger U.S. Small Cap Advisor
. Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
================================================================================
Effective as of January 1, 1996 this Schedule 3 is hereby amended to reflect the
following changes in Trust Series or Contracts:
================================================================================
Contracts Marketing Name Trust Series
================================================================================
Group Strategic Edge . Wanger U.S. Small Cap Advisor
. Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
______________________________ ______________________________
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
26
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
None.
Effective as of ___________________, 1995, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
______________________________ ______________________________
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
27
<PAGE>
EXHIBIT 9(a)(2)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 23rd day of February, 1995 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and PHL VARIABLE INSURANCE COMPANY, a
Connecticut life insurance company (the "Company"), on its own behalf and on
behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity contracts or
variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
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<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.9. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each version of
the definitive prospectus or supplement thereto filed with the SEC pursuant to
Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares ("Trust
Registration Statement") or a class of
2
<PAGE>
Contracts ("Contracts Registration Statement"), the registration statement filed
with the SEC to register the securities issued thereby under the 1933 Act, or
the most recently filed amendment thereto, in either case in the form in which
it was declared or became effective. The Contracts Registration Statement is
described more specifically on Schedule 2 to this Agreement. The Trust
Registration Statement was filed on Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or the
Account, the registration statement filed with the SEC to register such entity
as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the Trust or
a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) Trust Series in existence
now or that may be established in the future and not listed on Schedule 3 will
be made available to the Company only as the Trust and the Company may agree
pursuant to Article XI hereof, and (ii) the Board of Trustees of the Trust (the
"Trust Board") may suspend or terminate the offering of Trust shares of any
Series in any jurisdiction, if such action is required by law
3
<PAGE>
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Trust Board acting in good faith and in light of its fiduciary duties
under Federal and any applicable state laws, suspension or termination is
necessary or in the best interests of the shareholders of any Series (it being
understood that "shareholders" for this purpose shall mean Product Owners and
Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase allocations of net amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Purchase and redemption requests
shall be processed by the Trust at the net asset value per share next
calculated after the Trust receives and accepts such request. The Trust
shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the Trust
Prospectus, and which as of the date of execution of this Agreement is the
time of the close of regular session trading on the New York Stock
Exchange, which is generally 4:00 p.m. Eastern Time. Receipt of any such
request on any Business Day by the Company as designee of the Trust prior
to the Trust's close of business shall constitute receipt by the Trust on
that same Business Day, provided that the Trust receives notice of such
request by 10 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a
4
<PAGE>
purchase request for such shares. Payment for Series shares shall be made
in Federal funds transmitted to the Trust by wire to be received by the
Trust by 12:00 p.m. Eastern Time on the day the Trust is notified of the
purchase request for Series shares (unless the Trust determines and so
advises the Company that sufficient proceeds are available from redemption
of shares of other Series effected pursuant to redemption requests tendered
by the Company on behalf of the Account). If payment in Federal funds for
any purchase is not received, or is received by the Trust after 3 p.m.
Eastern Time on such Business Day, the Company shall promptly, upon the
Trust's request, reimburse the Trust for any charges, costs, fees, interest
or other expenses incurred by the Trust in connection with any advances to,
or borrowings or overdrafts by, the Trust, or any similar expenses incurred
by the Trust, as a result of non-payment or late payment.
(c) Payment for Series shares redeemed by the Account or the Company
shall be made in Federal funds transmitted by wire to the Company or any
other designated person by 3 p.m. Eastern Time on the next Business Day
after the Trust is properly notified of the redemption order of Series
shares (unless redemption proceeds are to be applied to the purchase of
Trust shares of other Series in accordance with Section 2.3(b) of this
Agreement), except that (i) if payment of the redemption proceeds would
require the Trust to dispose of portfolio securities or otherwise incur
additional costs, proceeds shall be wired to the Company within seven days
and the Trust shall notify the Company of such delay by 3 p.m. Eastern Time
on such Business Day; and (ii) the Trust reserves the right to delay
payment of redemption proceeds to the extent permitted under Section 22(e)
of the 1940 Act; and (iii) the Trust reserves the right to effect payment
of redemptions in kind, but only to the extent described in the Trust
Prospectus. The Trust shall not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds by the Company; the
Company alone shall be responsible for such action.
5
<PAGE>
2.4. The Trust shall use reasonable efforts to make the net asset value
per share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the net
asset value per share for such Series is calculated, and shall calculate such
net asset value in accordance with the Trust Prospectus. Neither the Trust, any
Series, the Investment Adviser, nor any of their affiliates shall be liable for
any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company or any
other Participating Company to the Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on its
behalf and on behalf of the Account, to revoke this election and to receive all
such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in
accordance with allocation instructions received from Contract Owners, it
being understood that no changes shall be made to Schedule 3 without the
prior written consent of the Trust and the Investment Adviser. The Company
may withdraw the Account's investment in the Trust or a Series of the Trust
only: (i) as necessary to facilitate Contract Owner requests; (ii) upon a
determination by a majority of the Trust Board, or a majority of
disinterested Trust Board members, that an irreconcilable material conflict
exists among the
6
<PAGE>
interests of (x) some or all Product Owners or (y) the interests of some or
all of the Participating Insurance Companies and/or Qualified Entities
investing in the Trust; or (iii) in the event that the shares of another
investment company are substituted for series shares in accordance with the
terms of the Contracts upon the (x) requisite vote of the Contract Owners
having an interest in the affected Series and the written consent of the
Trust (unless otherwise required by applicable law); (y) upon issuance of
an SEC exemptive order pursuant to Section 26(b) of the 1940 Act permitting
such substitution; or (z) as may otherwise be permitted under applicable
law.
(b) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Trust shall not, without the prior written consent of the
Company (unless otherwise required by applicable law), take any action to
operate the Trust as a unit investment trust under the 1940 Act.
(d) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the
Trust's investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be sold
to other insurance companies; and the cash value of the Contracts may be
invested in other investment companies, provided, however, that (a) such
other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives
and policies of the Trust; or (b) the Company gives the Trust 45 days
written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a
7
<PAGE>
funding vehicle for the Contracts prior to the date of this Agreement and
the Company so informs the Trust prior to the execution of this Agreement;
or (d) the Trust consents to the use of such other investment company, such
consent not to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust shall
not sell Trust shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has been filed with the SEC in accordance
with the provisions of the 1940 Act and the Trust is duly registered as an open-
end management investment company thereunder; (iii) the Trust Registration
Statement has been declared effective by the SEC; (iv) Trust shares sold
pursuant to this Agreement have been duly authorized for issuance in accordance
with applicable law; (v) the Trust believes that it (x) currently qualifies as a
"regulated investment company" under Subchapter M of the Code and (y) currently
complies with Section 817(h) of the Code and regulations thereunder; and (vi)
the Trust's investment policies are in material compliance with any investment
restrictions set forth on Schedule 4 to this Agreement. The Trust, however,
makes
8
<PAGE>
no representation as to whether any aspect of its operations (including, but not
limited to, fees and expenses and investment policies) otherwise complies with
the insurance laws or regulations of any state.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
9
<PAGE>
4.3 The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a final copy
of the Trust Prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the Trust Prospectus is more frequently amended) to have
the Contracts Prospectus and Trust Prospectus printed together in one document.
4.4 The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, as required by applicable federal securities laws.
4.5. The Company shall:
(a) inform the Trust of any state in which the Trust is required under
such state's securities laws to register the offering of its shares
pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by state
insurance law that may become applicable to the Trust from time to time as
a result of the Account's investment therein (including, but not limited
to, restrictions with respect to fees and expenses and investment
policies), other than those set forth on Schedule 4 to this Agreement.
4.6. Upon receipt of information from the Company pursuant to Section
4.5(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
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<PAGE>
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by the such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited
to, the costs of: registration and qualification of the Trust shares
under the federal securities laws; preparation and filing with the SEC
of the Trust Prospectus, Trust Registration Statement, Trust proxy
materials and shareholder reports; the printing and mailing of all
proxy statements and periodic reports; the preparation of camera-ready
copy of Trust Prospectuses and Statements of Additional Information
required to be provided by the Trust to its then-current shareholders;
preparation of all statements and notices required by any Federal or
state securities law; all taxes on the issuance or transfer of Trust
shares; and any expenses permitted to be paid or assumed by the Trust
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The
Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not be charged for the costs of printing and
mailing to prospective Contract Owners copies of the Trust Prospectus,
Trust Statement of Additional Information, notices, proxy statements,
periodic reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the
Contracts Prospectus, Contracts Registration Statement, and Contract Owner
reports; and the printing and mailing of all periodic reports, Contracts
Prospectuses, Statements of Additional Information, and notices to current
and prospective Contract Owners required by any Federal or state insurance
law other than those paid for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to
11
<PAGE>
its use. The Trust shall respond to any request for written consent on a prompt
and timely basis, but failure to respond shall not relieve the Company of the
obligation to obtain the prior written consent of the Trust. The Trust may at
any time in its sole discretion revoke such written consent, and upon
notification of such revocation, the Company shall no longer use the material
subject to such revocation. The Trust may delegate its rights and
responsibilities under this provision to the Investment Adviser.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus or in reports of the Account
which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Trust, the
Contracts or the Account, as the case may be, promptly after the filing by or on
behalf of such party of such document with the SEC or other regulatory
authorities.
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<PAGE>
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
If a party requests any such information before it has been filed, the other
party will provide the requested information if then available and in the
version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
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<PAGE>
(c) unless permitted under applicable law, vote Voting Shares of each
Series attributable to Contract Owners for which no instructions have been
received in the same proportion as Voting Shares of such Series for which
instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of each
Series held by the Company on its own behalf or on behalf of the Account
that are not attributable to Contract Owners in the same proportion as
Voting Shares of such Series for which instructions have been timely
received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code, and
all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
6.3. The Company undertakes to maintain the treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated
14
<PAGE>
Participating Insurance Companies, as well as by Qualified Entities. Any
conditions or undertakings that may be imposed on the Company and the Trust by
virtue of such order shall be incorporated herein by this reference, as of the
date such order is granted, as though set forth herein in full, and the parties
to this Agreement shall comply with such conditions and undertakings to the
extent applicable to each such party. The Trust will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing
15
<PAGE>
to the Company by the Trust for use in the Contracts Registration
Statement, Contracts Prospectus or in the Contracts or sales literature or
promotional material for the Contracts (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or
Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertaking
specified in Article VI of this Agreement, unless such failure is a result
of the Trust's material breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with
the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss,
16
<PAGE>
claim, damage or liability is due to the willful misfeasance, bad faith, gross
negligence or reckless disregard of duty by the person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any officer, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by the Company to the Trust for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing); or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or the
omission or alleged omission to state therein a material fact required to
be stated
17
<PAGE>
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon information furnished in writing by the Trust to
the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust with
respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
undertakings specified in Article VI of this Agreement, unless such failure
is a result of the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
This indemnification will be in addition to any liability that the Trust
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the failure to so notify the indemnifying party will not relieve
the indemnifying party from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying
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<PAGE>
party may designate in such proceeding and shall pay the fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent, or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the
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<PAGE>
parties to this Agreement may terminate as provided in Sections 10.2 and 10.3.
10.2. The obligation of the Trust to sell shares to the Company pursuant
to Article II of this Agreement shall terminate at the option of the Trust upon
30 days notice to the Company:
(a) upon institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares, or an
expected or anticipated ruling, judgment or outcome which would, in the
Trust's reasonable judgment, materially impair the Company's ability to
meet and perform the Company's obligations and duties hereunder;
(b) in the event any of the Contracts are not registered, issued or
sold in accordance with applicable Federal and/or state law;
(c) if the Contracts cease to qualify as annuity contracts under the
Code, or if the Trust reasonably believes that the Contracts may fail to so
qualify;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company
shall have been the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Trust;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless
the Trust consents thereto; or
(f) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3.
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<PAGE>
In exercising its option to terminate its obligation to sell Shares to the
Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3. The restrictions on the Company under Section 2.7 of this Agreement
shall terminate at the option of the Company upon 30 days notice to the Trust:
(a) if shares of any Series are not reasonably available to meet the
requirements of the Contracts as determined by the Company, and the Trust,
after receiving written notice from the Company of such non-availability,
fails to make available a sufficient number of Trust shares to meet the
requirements of the Contracts within 5 days after receipt thereof;
(b) upon institution of formal proceedings against the Trust by the
NASD, the SEC or any state securities or insurance commission or any other
regulatory body;
(c) if the Trust ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code, or under any successor or similar
provision, or if the Company reasonably believes based on an opinion of
counsel satisfactory to the Trust that the Trust may fail to so qualify,
and the Trust, upon written request, fails to provide reasonable assurance
that it will take action to cure or correct such failure;
(d) if the Trust fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations thereunder and
the Trust, upon written request, fails to provide
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<PAGE>
reasonable assurance that it will take action to cure or correct such
failure; or
(e) if the Trust informs the Company pursuant to Section 4.6 that the
Trust will not comply with investment restrictions as requested by the
Company and the Trust and the Company are unable to agree upon any
reasonable alternative accommodations.
10.4. This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions
of this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of amendment of such Schedule,
unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the assets
of the Trust (or applicable Series thereof) and shall not be binding upon any
trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
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If to the Trust:
Name: _______________________________
Title: ______________________________
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Name: _______________________________
Title: ______________________________
PHL Variable Insurance Company
One American Row
Hartford, Connecticut 06115
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
PHL VARIABLE INSURANCE COMPANY
(COMPANY)
Date: ___________ By: ___________________________
Name:
Title:
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<PAGE>
WANGER ADVISORS TRUST
(TRUST)
Date: ___________ By: ____________________________
Name:
Title:
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<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
PHL Variable Accumulation December 7, 1994 811-8914 Variable
Account Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Effective as of ____________, the following separate accounts are hereby added
to this Schedule 1 and made subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
________________________________ ________________________________
Wanger Advisors Trust PHL Variable Insurance Company
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SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
===============================================================================
SEC 1933 Act Name of Supporting
Contract Marketing Name Registration Number Account
===============================================================================
Big Edge Choice 33-87376 PHL Variable
Accumulation Account
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
================================================================================
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
===============================================================================
SEC 1933 Act Name of Supporting
Contract Marketing Name Registration Number Account
===============================================================================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
________________________________ ________________________________
Wanger Advisors Trust PHL Variable Insurance Company
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SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
===============================================================
Contracts Marketing Name Trust Series
===============================================================
Big Edge Choice . Wanger U.S. Small Cap
Advisor
. Wanger International Small
Cap Advisor
---------------------------------------------------------------
---------------------------------------------------------------
===============================================================
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series:
===============================================================
Contracts Marketing Name Trust Series
===============================================================
---------------------------------------------------------------
---------------------------------------------------------------
===============================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
________________________________ ________________________________
Wanger Advisors Trust PHL Variable Insurance Company
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<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
None.
Effective as of ___________________, 1994, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
________________________________ ________________________________
Wanger Advisors Trust PHL Variable Insurance Company
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EXHIBIT 9(a)(3)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 19th day of May, 1995 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and NATIONAL HOME LIFE ASSURANCE
COMPANY, a Missouri life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business
as provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
1.4. "Contracts" -- the class or classes of variable annuity
contracts issued by the Company and described more specifically on Schedule 2 to
this Agreement.
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust,
Wanger Asset Management, L.P.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.9. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each
version of the definitive prospectus or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect
to Trust shares, each version of the definitive prospectus or supplement thereto
filed with the SEC pursuant to Rule 497 under the 1933 Act with respect to a
series of the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus").
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares or
a class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby
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<PAGE>
under the 1933 Act, or the most recently filed amendment thereto, in either case
in the form in which it was declared or became effective. The Contracts
Registration Statement is described more specifically on Schedule 2 to this
Agreement. The Trust Registration Statement was filed on Form N-1A (File No. 33-
83598).
1.14. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3
to this Agreement available for purchase by the Company on behalf of the
Account, such purchases to be effected at net asset value in accordance with
Section 2.3 of this Agreement. Notwithstanding the foregoing, (i) other than
those Series listed on Schedule 3, Trust Series in existence now or that may be
established in the future will be made available to the Company only as the
Trust and the Company may agree pursuant to Article XI hereof, and (ii) the
Board of Trustees of the Trust (the "Trust Board") may suspend or terminate the
offering of Trust shares of any Series, if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole
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<PAGE>
discretion of the Trust Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary in the best interests of the shareholders of any Series (it being
understood that "shareholders" for this purpose shall mean Product Owners and
Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, and the Trust Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for
the limited purpose of receiving purchase and redemption requests from the
Account based on allocations of net amounts to the Account or subaccounts
thereof under the Contracts and other transactions relating to the Contracts or
the Account. Purchase and redemption requests shall be processed by the Trust at
the net asset value per share next calculated after the Trust receives such
request. The Trust shall calculate its net asset value per share at the Trust's
close of business on each Business Day (as defined from time to time in the
Trust Prospectus, and which as of the date of execution of this Agreement is the
time of the close of regular session trading on the New York Stock Exchange,
which is generally 4:00 p.m. Eastern Time. Receipt of any such request on any
Business Day by the Company as designee of the Trust prior to the Trust's close
of business shall constitute receipt by the Trust on that same Business Day,
provided that the Trust receives notice of such request by 10 a.m. Eastern Time
on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same
day that it notifies the Trust of a purchase request for such shares. Payment
for Series shares shall be made in Federal funds transmitted to the Trust by
wire by 1:00 p.m. Eastern Time on the day the Trust is notified of the purchase
request for Series shares (unless the Trust determines and so advises the
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Company that sufficient proceeds are available from redemption of shares of
other Series effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If payment in Federal funds for any purchase is not
received, or is received by the Trust after 3 p.m. Eastern Time on such Business
Day, the Company shall promptly, upon the Trust's request, reimburse the Trust
for any charges, costs, fees, interest or other expenses incurred by the Trust
in connection with any advances to, or borrowings or overdrafts by, the Trust,
or any similar expenses incurred by the Trust, as a result of portfolio
transactions effected or dilution suffered by the Trust based upon such failure
to receive the funds by 3:00 p.m. Eastern Time. If Federal funds are not
received on time, such funds will be invested, and Series shares purchased
thereby will be issued, as soon as practicable. Upon receipt of Federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the Company or any
other designated person by 3:00 p.m. Eastern Time on the Business Day during
which the Trust is properly notified of the redemption order of Series shares
(unless redemption proceeds are to be applied to the purchase of Trust shares of
other Series in accordance with Section 2.3(b) of this Agreement), except that
(i) the Trust reserves the right to delay payment of redemption proceeds to the
extent permitted under Section 22(e) of the 1940 Act; and (ii) the Trust
reserves the right to effect payment of redemptions in kind, but only to the
extent described in the Trust Prospectus. The Trust shall not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds under the Contracts; the Company alone shall be responsible for such
action.
2.4. The Trust shall use reasonable efforts to make the net asset
value per share for each Series available to the Company by 6:30 p.m. Eastern
Time each Business Day, and shall use its best efforts to make the net asset
value available to the Company by 7:00 p.m. Eastern Time each Business Day, and
in any event, as soon as reasonably practicable after the net asset value per
share for such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the
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Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company or any other Participating Company to the
Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Trust shall notify the Company promptly of the
number of Series shares so issued as payment of such dividends and
distributions. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends and capital gains distributions in
cash.
2.6. Issuance and transfer of Trust shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment
under the Contracts in the Series of the Trust specified in Schedule 3 in
accordance with allocation instructions received from Contract Owners, it being
understood that no changes shall be made to Schedule 3 without the prior written
consent of the Trust and the Investment Adviser. The Company may withdraw the
Account's investment in the Trust or a Series of the Trust only: (i) as
necessary to facilitate Contract Owner requests; (ii) upon a determination by a
majority of the Trust Board, or a majority of disinterested Trust Board members,
that an irreconcilable material conflict exists among the interests of (x) all
Product Owners or (y) the interests of the Participating Insurance Companies
and/or Qualified Entities investing in the Trust; (iii) in the event that the
shares of another investment company are substituted for series shares in
accordance with the terms of the Contracts upon the (x) requisite vote of the
Contract Owners having an interest in the affected Series and the written
consent of the Trust (unless otherwise required by applicable law) or (y) upon
issuance of an SEC exemptive order pursuant to Section 26(b) of the 1940 Act
permitting such substitution; or (iv) as required by state and/or
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federal laws or regulations or judicial or other legal precedent of general
application.
(b) The Company shall not, without prior written notice to the
Trust (unless otherwise required by applicable law), take any action to operate
the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without the prior written consent of
the Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the Trust's
investment adviser.
(d) Notwithstanding Section 2.7(a) of this Agreement, the
Company and the Trust acknowledge that the arrangement contemplated by this
Agreement is not exclusive; Trust shares may be sold to other insurance
companies; and the cash value of the Contracts may be invested in other
investment companies, provided, however, that (a) such other investment company,
or series thereof, has investment objectives or policies that are substantially
different from the investment objectives and policies of the Trust; or (b) the
Company gives the Trust 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and appears on Schedule 3 to this
Agreement; or (d) the Trust consents to the use of such other investment
company, such consent not to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating
Insurance Companies and their separate accounts and to Qualified Entities. The
Trust shall not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Article V
and Article VII of this Agreement is in effect to govern such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under Missouri law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
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Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with Section 817(h) of the Code; and (vii) the Trust's
investment policies are in material compliance with any investment restrictions
set forth on Schedule 4 to this Agreement. Subject to Section 4.5 of this
Agreement, the Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. Further, the Trust shall register and qualify its shares for sale under
the securities laws of any state only if and to the extent that such
registration and qualification is deemed to be advisable by the Trust.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
3.4. Each party represents and warrants that all of its directors,
officers and employees dealing with the money and/or
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securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the federal securities laws or any
self-regulatory organization applicable to such party. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. Each party agrees to make reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and each
agrees to notify the other party promptly in the event that such coverage no
longer applies.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the
Trust 1940 Act Registration Statement from time to time as required in order to
effect the continuous offering of Trust shares and to maintain the Trust's
registration under the 1940 Act for so long as Trust shares are sold or any
Trust shares are outstanding.
4.2. The Company shall amend the Contracts Registration Statement and
the Account 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
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4.3. The Trust shall provide the Company with as many copies of the
Trust Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Trust shall provide such documentation (including a
final copy of the Trust Prospectus in 8-1/2" X 11" size camera-ready form at the
Trust's expense) and other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the Trust Prospectus is more
frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4. The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, all in accordance with the federal securities laws.
4.5. The Company shall inform the Trust of any investment
restrictions imposed by Missouri insurance law that may become applicable to the
Trust from time to time as a result of the Account's investment therein
(including, but not limited to, restrictions with respect to fees and expenses
and investment policies), other than those set forth on Schedule 4 to this
Agreement. In addition, the Company shall inform the Trust of any other
investment restrictions imposed by state insurance law that the Company is aware
may become applicable to the Trust from time to time as a result of the
Account's investment therein (including, but not limited to, restrictions with
respect to fees and expenses and investment policies), other than those set
forth on Schedule 4 to this Agreement. Upon receipt of any such information from
the Company, the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust, acting reasonably and in good faith, determines that
it is not in the best interests of shareholders, the Trust shall so inform the
Company, and the Trust and the Company shall discuss alternative accommodations
in the circumstances. If the Trust determines that it is in the best interests
of shareholders to comply with such restrictions, the Trust and the Company
shall amend Schedule 4 to this Agreement to reflect such restrictions. The Trust
shall comply with Schedule 4 to this Agreement as in effect from time to time.
4.6. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such
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party pursuant to this Agreement) shall be paid by the such party to the extent
permitted by law.
(a) Expenses assumed by the Trust include, but are not limited
to, the costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of the Trust
Prospectus, Trust Registration Statement, Trust proxy materials and shareholder
reports; the printing and mailing of all proxy statements and periodic reports;
the preparation of camera-ready copy of Trust Prospectuses and Statements of
Additional Information required to be provided by the Trust to its then-current
shareholders; preparation of all statements and notices required by any Federal
or state securities law; all taxes on the issuance or transfer of Trust shares;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Trust; and any expenses permitted to be paid or
assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act. The Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not be charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust Statement of
Additional Information, notices, proxy statements, periodic reports, or other
printed materials.
(b) Expenses assumed by the Company include, but are not limited
to, the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the Contracts
Prospectus, Contracts Registration Statement, and Contract Owner reports;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; and the printing and mailing of all
periodic reports, Contracts Prospectuses, Statements of Additional Information,
and notices to current and prospective Contract Owners required by any Federal
or state insurance law other than those paid for by the Trust.
4.7. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust for
such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in
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its sole discretion revoke such written consent, and upon notification of such
revocation, the Company shall no longer use the material subject to such
revocation. The Trust may delegate its rights and responsibilities under this
provision to the Investment Adviser.
4.8. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such piece shall be furnished to the Company
for such consent prior to its use. The Company shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Trust of the obligation to obtain the prior written consent of the
Company. The Company may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Trust shall no longer use
the material subject to such revocation.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.7 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in reports of the
Account which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Company.
4.11. Each party shall provide to the other at least one complete copy
of all Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations of voting instructions, sales literature and other
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promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities. Each party shall provide to the other any complaints
from Contract Owners pertaining to the Contracts.
4.12. Each party shall provide to the other upon request copies of
draft versions of any Registration Statements, Prospectuses, Statements of
Additional Information, periodic and other shareholder or Contract Owner
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed, the other party will provide the requested information if then available
and in the version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.15. No party shall use any other party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior written
consent of such party.
4.16. To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between the Company and the Trust, the Company reserves the right to modify the
Contracts in
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any respect whatsoever. The Company reserves the right in its sole discretion to
suspend the sale of Contracts, in whole or in part, or to accept or reject any
application for the purchase of a Contract. The Company agrees to notify the
Trust promptly upon the occurrence of any event the Company believes might
necessitate a material modification of the Contracts or suspension of Contract
sales; in the case of an anticipated material modification of the Contracts,
written notice of such modification shall be provided to the Trust at least
sixty (60) days prior to the date that such material modification of the
Contracts shall be effective.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares
or Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which
Voting Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract
Owners in accordance with instructions or proxies timely received from such
Contract Owners;
(c) vote Voting Shares of each Series attributable to Contract
Owners for which no instructions have been received in the same proportion as
Voting Shares of such Series for which instructions have been timely received;
and
(d) vote Voting Shares of each Series held by the Company on its
own behalf or on behalf of the Account that are not attributable to Contract
Owners in the same proportion as Voting Shares of such Series for which
instructions have been timely received.
The Company shall be responsible for assuring that voting privileges
for the Account are calculated in a manner consistent with the provisions set
forth above.
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ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered
investment company (under Subchapter M of the Code or any successor or similar
provision), and shall notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
6.3. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
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ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls the Trust within the meaning of such term under Section 15
of the 1933 Act (but not any Participating Insurance Companies or Qualified
Entities) and any officer, trustee, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made; provided that
this obligation to indemnify shall not apply if such statement or omission or
such alleged statement or alleged omission was made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Trust for use in the Contracts Registration Statement, Contracts
Prospectus or in the Contracts or sales literature or promotional material for
the Contracts (or any amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Trust Registration Statement,
Trust Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made,
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if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the
Company or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or Trust
shares; or
(d) arise as a result of any failure by the Company, or persons
under its control (or subject to its authorization), to perform its obligations
under the terms of this Agreement (including a failure, whether unintentional or
in good faith or otherwise, to comply with the undertaking specified in Article
VI of this Agreement, unless such failure is a result of the Trust's material
breach of this Agreement); or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with the
procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls the Company within the meaning of such term under Section 15
of the 1933 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Trust
Registration Statement, Trust Prospectus
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or sales literature or other promotional material of the Trust (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing by or on behalf of the Company to the Trust for
use in the Trust Registration Statement, Trust Prospectus or sales literature or
promotional material for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, if such statement or
omission was made in reliance upon information furnished in writing by or on
behalf of the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust
or persons under its control (or subject to its authorization) with respect to
the sale or distribution of the Contracts or the Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertakings
specified in Article VI of this Agreement, unless such failure is a result of
the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this
Agreement.
For purposes of Section 8.2(c) above, persons under the Trust's control or
subject to its authorization shall not include any
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persons under the Company's control or subject to the Company's authorization or
supervision.
This indemnification will be in addition to any liability that
the Trust may otherwise have; provided, however, that no person otherwise
entitled to indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification
("indemnified party") under this Article VIII of notice of the commencement of
any action, if a claim in respect thereof is to be made by the indemnified party
against any person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
19
<PAGE>
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall not terminate as to any Series of the Trust
until the Account no longer invests in that Series and the Company has confirmed
in writing to the Trust that it no longer intends to invest in such Series.
However, certain obligations of, or restrictions on, the parties to this
Agreement may terminate as provided in Sections 10.2 and 10.3 and the Company
may be required to redeem shares pursuant to Section 10.4 or in circumstances
contemplated by Article VII.
10.2. The obligation of the Trust to make Series shares available to
the Company for purchase pursuant to Article II of this Agreement shall
terminate at the option of the Trust upon written notice to the Company as
provided below:
(a) at any time more than two years after the date of this
Agreement, upon 60 days prior written notice;
(b) upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding
20
<PAGE>
the Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the Contracts or
the purchase of Trust shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Trust's reasonable judgment exercised in good faith,
materially impair the Company's ability to meet and perform the Company's
obligations and duties hereunder, such termination effective upon 15 days prior
written notice;
(c) in the event that any Contracts are not registered, issued,
sold, or administered in accordance with applicable Federal and/or state law,
including Federal income tax law ("Non-Complying Contracts"), then with respect
to such Non-Complying Contracts, such termination effective upon 5 days prior
written notice;
(d) if the Trust shall determine, in its sole judgment exercised
in good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company shall
have been the subject of material adverse publicity which is likely to have a
material adverse impact upon the business and operations of the Trust, such
termination effective upon 30 days prior written notice;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless the
Trust consents thereto, such termination effective upon 30 days prior written
notice;
(f) if the Company is in material breach of any provision of
this Agreement, which breach has not been cured to the satisfaction of the Trust
within 30 days after written notice of such breach has been delivered to the
Company; or
(g) upon termination, as to a Series, pursuant to Section 10.1
or notice from the Company pursuant to Section 10.3, such termination hereunder
effective upon 15 days prior written notice unless a longer notice and cure
period is provided in Section 10.1 or Section 10.3, as applicable, in which case
the longer notice and cure period shall apply.
Notwithstanding an exercise of its option to terminate its obligation to make
Shares available to the Company, the Trust shall continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effec-
21
<PAGE>
tive date of such termination (hereinafter referred to as "Existing Contracts")
to reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. Existing Contracts shall not include Non-Complying
Contracts, if any. In the event that the Trust terminates this Agreement, the
Trust shall promptly notify the Company whether the Trust is electing to make
Trust shares available after termination for Non-Complying Contracts (or a class
thereof). In determining whether to make Shares available for such Non-Complying
Contracts (or a class thereof), the Trust shall act in good faith giving due
consideration to the interests of owners of such Non-Complying Contracts (or a
class thereof).
10.3. Subject to compliance with applicable law, the Company may elect
to cease investing in a Series or the Trust or promoting a Series or the Trust
as an investment option under the Contracts, or withdraw its investment in a
Series or the Trust, upon the occurrence of one of the following events, upon 30
days prior written notice to the Trust, unless otherwise provided below:
(a) at any time more than two years after the effective date of
this Agreement, upon 60 days prior written notice;
(b) as to a Series, if shares of such Series are not reasonably
available to meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the Company of such
non-availability, fails to make available a sufficient number of Trust shares to
meet the requirements of the Contracts within 10 days after receipt thereof, it
being understood that, in such event, the Company's rights pursuant to this
Section 10.3 shall be limited to such Series;
(c) as to the Trust, upon institution of formal proceedings
against the Trust by the NASD, the SEC or any state securities or insurance
commission or any other regulatory body, upon 15 days prior written notice;
(d) as to a Series or the Trust, as applicable, if such Series
or the Trust ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code, or under any successor or similar provision, or if
such Series or the Trust
22
<PAGE>
may fail to so qualify, and the Trust, upon written request, fails to provide
reasonable assurance acceptable to the Company that it will take action to cure
or correct such failure, it being understood that, if the event does not involve
all Series, the Company's rights pursuant to this Section 10.3 shall be limited
to the affected Series;
(e) as to a Series or the Trust, as applicable, if such Series
or the Trust fails to meet the diversification requirements specified in Section
817(h) of the Code and any regulations thereunder and the Trust, upon written
request, fails to provide reasonable assurance acceptable to the Company that it
will take action to cure or correct such failure, it being understood that, if
the event does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(f) as to a Series or the Trust, as applicable, if such Series
or Trust ceased to qualify as a Regulated Investment Company or failed to meet
the diversification requirements specified in Section 817(h) of the Code, and
the Trust failed to cure such failure within the time period agreed upon when
reasonable assurances were accepted by the Company, it being understood that, if
the failure does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(g) as to a Series or the Trust, as applicable, if the Trust
informs the Company pursuant to Section 4.5 that such Series or the Trust will
not comply with investment restrictions as requested by the Company and the
Trust and the Company are unable to agree upon any reasonable alternative
accommodations, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited to
the affected Series;
(h) if the Trust is in material breach of a provision of this
Agreement, which breach has not been cured to the satisfaction of the Company
within 30 days after written notice of such breach has been delivered to the
Trust;
(i) with respect to any Series, in the event any of the Series
shares are not registered, issued or sold in accordance with applicable state
and/or Federal law or such law precludes the use of such Series shares as the
underlying
23
<PAGE>
investment medium of the Contracts, such termination effective upon 5 days prior
written notice; or
(j) if the Company shall determine, in its sole judgment
exercised in good faith, that either (1) the Trust or the Investment Adviser
shall have suffered a material adverse change in its business or financial
condition or (2) the Trust or the Investment Adviser shall have been the subject
of material adverse publicity which is likely to have a material adverse impact
upon the business and operations of the Contracts, such termination effective
upon 30 days prior written notice.
10.4. The parties understand and acknowledge that it is essential for
compliance with Section 817(h) of the Code that the Contracts qualify as annuity
contracts or life insurance policies, as applicable, under the Code.
Accordingly, if any of the Contracts cease to qualify as annuity contracts or
life insurance policies, as applicable, under the Code, or if any such Contracts
may fail to so qualify (in either case, other than solely as a result of the
Trust's failure to comply with Section 817(h) of the Code), the Trust shall have
the right to require the Company to redeem Trust shares attributable to such
Non-Complying Contracts upon notice to the Company and the Company shall so
redeem such shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
Shares. Notice to the Company shall specify the period of time the Company has
to redeem the Trust shares or to make other arrangements satisfactory to the
Trust and its counsel, such period of time to be determined with reference to
the requirements of Section 817(h) of the Code. The Company agrees to redeem
Trust shares in the circumstances described herein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts or Series, or additions of new classes of Contracts to be
issued by the Company through separate accounts investing in the Trust. The
provisions of this Agreement shall be equally applicable to each such class of
Contracts, Series and Accounts, effective as of the date of
24
<PAGE>
amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the
assets of the Trust (or applicable Series thereof) and shall not be binding upon
any trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Merrillyn J. Kosier
Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Dale E. Cooper
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
with a copy to:
Earl W. Baucom
Chief Financial Officer
National Home Life Assurance Company
Valley Forge, Pennsylvania 19493
25
<PAGE>
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
14.4. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
14.5. Subject to the requirements of legal process and regulatory
authority, the Trust shall treat as confidential the names and addresses of the
Contract Owners and all information reasonably identified as confidential in
writing by the Company and except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party hereto without the prior written consent of all
other parties.
14.7. Notwithstanding the provisions of Article VII of this Agreement,
the Trust acknowledges that it has no intention to file an application with SEC
to permit Trust shares to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
NATIONAL HOME LIFE ASSURANCE COMPANY
(COMPANY)
Date: By:
---------------------- ---------------------------------
Name:
Title:
WANGER ADVISORS TRUST
(TRUST)
Date: By:
---------------------- ---------------------------------
Name: Charles P. McQuaid
Title: Senior Vice President
27
<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
<TABLE>
<CAPTION>
===================================================================================================
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
===================================================================================================
<S> <C> <C> <C>
National Home Life February 14, 811-6564 Variable Annuity
Assurance Company 1992
Separate Account V
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
===================================================================================================
</TABLE>
Effective as of _____________, the following separate accounts are hereby added
to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
===================================================================================================
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
===================================================================================================
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
===================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
- ------------------------------ --------------------------------------
Wanger Advisors Trust National Home Life Assurance Company
i
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
=========================================================================================
SEC 1933 Act Registration Name of Supporting Account
Contract Marketing Name Number
=========================================================================================
<S> <C> <C>
National Home Life Advisor's File No. 33-80958 National Home Life Assurance
Edge Company Separate Account V
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
=========================================================================================
</TABLE>
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
=========================================================================================
SEC 1933 Act Registration Name of Supporting Account
Contract Marketing Name Number
=========================================================================================
<S> <C> <C>
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
=========================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
- ------------------------------ --------------------------------------
Wanger Advisors Trust National Home Life Assurance Company
ii
<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
<TABLE>
<CAPTION>
===============================================================================
Contract Marketing Name Trust Series
===============================================================================
<S> <C>
National Home Life Advisor's Edge . Wanger U.S. Small Cap Advisor
. Wanger International Small Cap
Advisor
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
</TABLE>
Effective as of the date the Agreement was executed, the following other funding
vehicles are available under the Contracts:
<TABLE>
<CAPTION>
=========================================================================================
Contract Marketing Name Trust Series
=========================================================================================
<S> <C>
National Home Life Advisor's Edge . DFA Investment Dimensions Group, Inc.
. Insurance Management Series (Federated)
. Insurance Investment Products Trust
(SEI)
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
=========================================================================================
</TABLE>
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series:
<TABLE>
<CAPTION>
===============================================================================
Contract Marketing Name Trust Series
===============================================================================
<S> <C>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
===============================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
- ------------------------------ -------------------------------------
Wanger Advisors Trust National Home Life Assurance Company
iii
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following Missouri
investment restrictions are applicable to the Trust:
NONE
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
- ------------------------------ ------------------------------------------
Wanger Advisors Trust National Home Life Assurance Company
iv
<PAGE>
EXHIBIT 9(a)(4)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this ______ day of
_____________, 1996 by and between WANGER ADVISORS TRUST, an unincorporated
business trust formed under the laws of Massachusetts (the "Trust"), and FIRST
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY, a New York life insurance company
(the "Company"), on its own behalf and on behalf of each separate account of the
Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described
more specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business
as provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
1.4. "Contracts" -- the class or classes of variable annuity
contracts issued by the Company and described more specifically on Schedule 2 to
this Agreement.
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust,
Wanger Asset Management, L.P.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.9. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each
version of the definitive prospectus or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect
to Trust shares, each version of the definitive prospectus or supplement thereto
filed with the SEC pursuant to Rule 497 under the 1933 Act with respect to a
series of the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus").
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares or
a class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby
2
<PAGE>
under the 1933 Act, or the most recently filed amendment thereto, in either case
in the form in which it was declared or became effective. The Contracts
Registration Statement is described more specifically on Schedule 2 to this
Agreement. The Trust Registration Statement was filed on Form N-1A (File No.
33-83598).
1.14. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3
to this Agreement available for purchase by the Company on behalf of the
Account, such purchases to be effected at net asset value in accordance with
Section 2.3 of this Agreement. Notwithstanding the foregoing, (i) other than
those Series listed on Schedule 3, Trust Series in existence now or that may be
established in the future will be made available to the Company only as the
Trust and the Company may agree pursuant to Article XI hereof, and (ii) the
Board of Trustees of the Trust (the "Trust Board") may suspend or terminate the
offering of Trust shares of any Series, if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole
3
<PAGE>
discretion of the Trust Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary in the best interests of the shareholders of any Series (it being
understood that "shareholders" for this purpose shall mean Product Owners and
Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, and the Trust Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase and redemption requests from the Account
based on allocations of net amounts to the Account or subaccounts thereof under
the Contracts and other transactions relating to the Contracts or the Account.
Purchase and redemption requests shall be processed by the Trust at the net
asset value per share next calculated after the Trust receives such request.
The Trust shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the Trust
Prospectus, and which as of the date of execution of this Agreement is the time
of the close of regular session trading on the New York Stock Exchange, which is
generally 4:00 p.m. Eastern Time. Receipt of any such request on any Business
Day by the Company as designee of the Trust prior to the Trust's close of
business shall constitute receipt by the Trust on that same Business Day,
provided that the Trust receives notice of such request by 10 a.m. Eastern Time
on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a purchase request for such shares. Payment for
Series shares shall be made in Federal funds transmitted to the Trust by wire by
2:30 p.m. Eastern Time on the day the Trust is notified of the purchase request
for Series shares (unless the Trust determines and so advises the
4
<PAGE>
Company that sufficient proceeds are available from redemption of shares of
other Series effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If payment in Federal funds for any purchase is not
received, or is received by the Trust after 3 p.m. Eastern Time on such Business
Day, the Company shall promptly, upon the Trust's request, reimburse the Trust
for any charges, costs, fees, interest or other expenses incurred by the Trust
in connection with any advances to, or borrowings or overdrafts by, the Trust,
or any similar expenses incurred by the Trust, as a result of portfolio
transactions effected or dilution suffered by the Trust based upon such failure
to receive the funds by 3:00 p.m. Eastern Time. If Federal funds are not
received on time, such funds will be invested, and Series shares purchased
thereby will be issued, as soon as practicable. Upon receipt of Federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust.
(c) Payment for Series shares redeemed by the Account or the Company
shall be made in Federal funds transmitted by wire to the Company or any other
designated person by 3:00 p.m. Eastern Time on the Business Day during which the
Trust is properly notified of the redemption order of Series shares (unless
redemption proceeds are to be applied to the purchase of Trust shares of other
Series in accordance with Section 2.3(b) of this Agreement), except that (i) the
Trust reserves the right to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act; and (ii) the Trust reserves the
right to effect payment of redemptions in kind, but only to the extent described
in the Trust Prospectus. The Trust shall not bear any responsibility whatsoever
for the proper disbursement or crediting of redemption proceeds under the
Contracts; the Company alone shall be responsible for such action.
2.4. The Trust shall use reasonable efforts to make the net asset value per
share for each Series available to the Company by 6:30 p.m. Eastern Time each
Business Day, and shall use its best efforts to make the net asset value
available to the Company by 7:00 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share for
such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the
5
<PAGE>
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company or any other Participating Company to the
Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Trust shall notify the Company promptly of
the number of Series shares so issued as payment of such dividends and
distributions. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends and capital gains distributions in
cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in accordance
with allocation instructions received from Contract Owners, it being understood
that no changes shall be made to Schedule 3 without the prior written consent of
the Trust and the Investment Adviser. The Company may withdraw the Account's
investment in the Trust or a Series of the Trust only: (i) as necessary to
facilitate Contract Owner requests; (ii) upon a determination by a majority of
the Trust Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) all Product
Owners or (y) the interests of the Participating Insurance Companies and/or
Qualified Entities investing in the Trust; (iii) in the event that the shares of
another investment company are substituted for series shares in accordance with
the terms of the Contracts upon the (x) requisite vote of the Contract Owners
having an interest in the affected Series and the written consent of the Trust
(unless otherwise required by applicable law) or (y) upon issuance of an SEC
exemptive order pursuant to Section 26(b) of the 1940 Act permitting such
substitution; or (iv) as required by state and/or
6
<PAGE>
federal laws or regulations or judicial or other legal precedent of general
application.
(b) The Company shall not, without prior written notice to the Trust
(unless otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act.
(c) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the Trust's
investment adviser.
(d) Notwithstanding Section 2.7(a) of this Agreement, the Company and
the Trust acknowledge that the arrangement contemplated by this Agreement is not
exclusive; Trust shares may be sold to other insurance companies; and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Trust; or (b) the Company gives the
Trust 45 days written notice of its intention to make such other investment
company available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a funding vehicle for the Contracts prior to
the date of this Agreement and appears on Schedule 3 to this Agreement; or (d)
the Trust consents to the use of such other investment company, such consent not
to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating
Insurance Companies and their separate accounts and to Qualified Entities. The
Trust shall not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Article V
and Article VII of this Agreement is in effect to govern such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under New York law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
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Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with Section 817(h) of the Code; and (vii) the Trust's
investment policies are in material compliance with any investment restrictions
set forth on Schedule 4 to this Agreement. Subject to Section 4.5 of this
Agreement, the Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. Further, the Trust shall register and qualify its shares for sale under
the securities laws of any state only if and to the extent that such
registration and qualification is deemed to be advisable by the Trust.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
3.4. Each party represents and warrants that all of its directors,
officers and employees dealing with the money and/or
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securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the federal securities laws or any
self-regulatory organization applicable to such party. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. Each party agrees to make reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and each
agrees to notify the other party promptly in the event that such coverage no
longer applies.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold or any Trust shares are
outstanding.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
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4.3. The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a final copy
of the Trust Prospectus in 8-1/2" X 11" size camera-ready form at the Trust's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the Trust Prospectus is more
frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4. The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, all in accordance with the federal securities laws.
4.5. The Company shall inform the Trust of any investment
restrictions imposed by New York insurance law that may become applicable to the
Trust from time to time as a result of the Account's investment therein
(including, but not limited to, restrictions with respect to fees and expenses
and investment policies), other than those set forth on Schedule 4 to this
Agreement. In addition, the Company shall inform the Trust of any other
investment restrictions imposed by state insurance law that the Company is aware
may become applicable to the Trust from time to time as a result of the
Account's investment therein (including, but not limited to, restrictions with
respect to fees and expenses and investment policies), other than those set
forth on Schedule 4 to this Agreement. Upon receipt of any such information
from the Company, the Trust shall determine whether it is in the best interests
of shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust, acting reasonably and in good faith, determines
that it is not in the best interests of shareholders, the Trust shall so inform
the Company, and the Trust and the Company shall discuss alternative
accommodations in the circumstances. If the Trust determines that it is in the
best interests of shareholders to comply with such restrictions, the Trust and
the Company shall amend Schedule 4 to this Agreement to reflect such
restrictions. The Trust shall comply with Schedule 4 to this Agreement as in
effect from time to time.
4.6. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such
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party pursuant to this Agreement) shall be paid by such party to the extent
permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to, the
costs of: registration and qualification of the Trust shares under the federal
securities laws; preparation and filing with the SEC of the Trust Prospectus,
Trust Registration Statement, Trust proxy materials and shareholder reports; the
printing and mailing of all proxy statements and periodic reports; the
preparation of camera-ready copy of Trust Prospectuses and Statements of
Additional Information required to be provided by the Trust to its then-current
shareholders; preparation of all statements and notices required by any Federal
or state securities law; all taxes on the issuance or transfer of Trust shares;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Trust; and any expenses permitted to be paid or
assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act. The Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not be charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust Statement of
Additional Information, notices, proxy statements, periodic reports, or other
printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the federal
securities laws; preparation and filing with the SEC of the Contracts
Prospectus, Contracts Registration Statement, and Contract Owner reports;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; and the printing and mailing of all
periodic reports, Contracts Prospectuses, Statements of Additional Information,
and notices to current and prospective Contract Owners required by any Federal
or state insurance law other than those paid for by the Trust.
4.7. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in
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its sole discretion revoke such written consent, and upon notification of such
revocation, the Company shall no longer use the material subject to such
revocation. The Trust may delegate its rights and responsibilities under this
provision to the Investment Adviser.
4.8. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such piece shall be furnished to the
Company for such consent prior to its use. The Company shall respond to any
request for written consent on a prompt and timely basis, but failure to respond
shall not relieve the Trust of the obligation to obtain the prior written
consent of the Company. The Company may at any time in its sole discretion
revoke such written consent, and upon notification of such revocation, the Trust
shall no longer use the material subject to such revocation.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.7 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in reports of the
Account which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other
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<PAGE>
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities. Each party shall provide to the other any complaints
from Contract Owners pertaining to the Contracts.
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
If a party requests any such information before it has been filed, the other
party will provide the requested information if then available and in the
version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.15. No party shall use any other party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior written
consent of such party.
4.16. To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between the Company and the Trust, the Company reserves the right to modify the
Contracts in
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any respect whatsoever. The Company reserves the right in its sole discretion to
suspend the sale of Contracts, in whole or in part, or to accept or reject any
application for the purchase of a Contract. The Company agrees to notify the
Trust promptly upon the occurrence of any event the Company believes might
necessitate a material modification of the Contracts or suspension of Contract
sales; in the case of an anticipated material modification of the Contracts,
written notice of such modification shall be provided to the Trust at least
sixty (60) days prior to the date that such material modification of the
Contracts shall be effective.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such Contract
Owners;
(c) vote Voting Shares of each Series attributable to Contract Owners
for which no instructions have been received in the same proportion as Voting
Shares of such Series for which instructions have been timely received; and
(d) vote Voting Shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to Contract Owners
in the same proportion as Voting Shares of such Series for which instructions
have been timely received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
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ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered
investment company (under Subchapter M of the Code or any successor or similar
provision), and shall notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
6.3. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
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ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls the Trust within the meaning of such term under Section 15
of the 1933 Act (but not any Participating Insurance Companies or Qualified
Entities) and any officer, trustee, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other promotional material
for the Contracts or the Contracts themselves (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the Trust for
use in the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust Prospectus or
sales literature or other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they were made,
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if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or supervision)
with respect to the sale or distribution of the Contracts or Trust shares; or
(d) arise as a result of any failure by the Company, or persons under
its control (or subject to its authorization), to perform its obligations under
the terms of this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the undertaking specified in Article VI
of this Agreement, unless such failure is a result of the Trust's material
breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for redemption or
purchase of Trust shares on a timely basis in accordance with the procedures set
forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls the Company within the meaning of such term under Section 15
of the 1933 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus
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or sales literature or other promotional material of the Trust (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing by or on behalf of the Company to the Trust for
use in the Trust Registration Statement, Trust Prospectus or sales literature or
promotional material for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon information furnished in writing by or on behalf of the Trust to
the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or
persons under its control (or subject to its authorization) with respect to the
sale or distribution of the Contracts or the Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertakings
specified in Article VI of this Agreement, unless such failure is a result of
the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
For purposes of Section 8.2(c) above, persons under the Trust's control or
subject to its authorization shall not include any
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persons under the Company's control or subject to the Company's authorization or
supervision.
This indemnification will be in addition to any liability that the
Trust may otherwise have; provided, however, that no person otherwise entitled
to indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification
("indemnified party") under this Article VIII of notice of the commencement of
any action, if a claim in respect thereof is to be made by the indemnified party
against any person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
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A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall not terminate as to any Series of the
Trust until the Account no longer invests in that Series and the Company has
confirmed in writing to the Trust that it no longer intends to invest in such
Series. However, certain obligations of, or restrictions on, the parties to
this Agreement may terminate as provided in Sections 10.2 and 10.3 and the
Company may be required to redeem shares pursuant to Section 10.4 or in
circumstances contemplated by Article VII.
10.2. The obligation of the Trust to make Series shares available to the
Company for purchase pursuant to Article II of this Agreement shall terminate at
the option of the Trust upon written notice to the Company as provided below:
(a) at any time more than two years after the date of this Agreement,
upon 60 days prior written notice;
(b) upon institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any other regulatory
body regarding
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the Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the Contracts or
the purchase of Trust shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Trust's reasonable judgment exercised in good faith,
materially impair the Company's ability to meet and perform the Company's
obligations and duties hereunder, such termination effective upon 15 days prior
written notice;
(c) in the event that any Contracts are not registered, issued, sold,
or administered in accordance with applicable Federal and/or state law,
including Federal income tax law ("Non-Complying Contracts"), then with respect
to such Non-Complying Contracts, such termination effective upon 5 days prior
written notice;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material adverse
change in its business or financial condition or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Trust, such termination
effective upon 30 days prior written notice;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless the
Trust consents thereto, such termination effective upon 30 days prior written
notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the Trust
within 30 days after written notice of such breach has been delivered to the
Company; or
(g) upon termination, as to a Series, pursuant to Section 10.1 or
notice from the Company pursuant to Section 10.3, such termination hereunder
effective upon 15 days prior written notice unless a longer notice and cure
period is provided in Section 10.1 or Section 10.3, as applicable, in which case
the longer notice and cure period shall apply.
Notwithstanding an exercise of its option to terminate its obligation to make
Shares available to the Company, the Trust shall continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effec-
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tive date of such termination (hereinafter referred to as "Existing Contracts")
to reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. Existing Contracts shall not include Non-Complying
Contracts, if any. In the event that the Trust terminates this Agreement, the
Trust shall promptly notify the Company whether the Trust is electing to make
Trust shares available after termination for Non-Complying Contracts (or a class
thereof). In determining whether to make Shares available for such Non-Complying
Contracts (or a class thereof), the Trust shall act in good faith giving due
consideration to the interests of owners of such Non-Complying Contracts (or a
class thereof).
10.3. Subject to compliance with applicable law, the Company may elect to
cease investing in a Series or the Trust or promoting a Series or the Trust as
an investment option under the Contracts, or withdraw its investment in a Series
or the Trust, upon the occurrence of one of the following events, upon 30 days
prior written notice to the Trust, unless otherwise provided below:
(a) at any time more than two years after the effective date of this
Agreement, upon 60 days prior written notice;
(b) as to a Series, if shares of such Series are not reasonably
available to meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the Company of such
non-availability, fails to make available a sufficient number of Trust shares to
meet the requirements of the Contracts within 10 days after receipt thereof, it
being understood that, in such event, the Company's rights pursuant to this
Section 10.3 shall be limited to such Series;
(c) as to the Trust, upon institution of formal proceedings against
the Trust by the NASD, the SEC or any state securities or insurance commission
or any other regulatory body, upon 15 days prior written notice;
(d) as to a Series or the Trust, as applicable, if such Series or the
Trust ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if such Series or the
Trust
22
<PAGE>
may fail to so qualify, and the Trust, upon written request, fails to provide
reasonable assurance acceptable to the Company that it will take action to cure
or correct such failure, it being understood that, if the event does not involve
all Series, the Company's rights pursuant to this Section 10.3 shall be limited
to the affected Series;
(e) as to a Series or the Trust, as applicable, if such Series or the
Trust fails to meet the diversification requirements specified in Section 817(h)
of the Code and any regulations thereunder and the Trust, upon written request,
fails to provide reasonable assurance acceptable to the Company that it will
take action to cure or correct such failure, it being understood that, if the
event does not involve all Series, the Company's rights pursuant to this Section
10.3 shall be limited to the affected Series;
(f) as to a Series or the Trust, as applicable, if such Series or
Trust ceased to qualify as a Regulated Investment Company or failed to meet the
diversification requirements specified in Section 817(h) of the Code, and the
Trust failed to cure such failure within the time period agreed upon when
reasonable assurances were accepted by the Company, it being understood that, if
the failure does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(g) as to a Series or the Trust, as applicable, if the Trust informs
the Company pursuant to Section 4.5 that such Series or the Trust will not
comply with investment restrictions as requested by the Company and the Trust
and the Company are unable to agree upon any reasonable alternative
accommodations, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited to
the affected Series;
(h) if the Trust is in material breach of a provision of this
Agreement, which breach has not been cured to the satisfaction of the Company
within 30 days after written notice of such breach has been delivered to the
Trust;
(i) with respect to any Series, in the event any of the Series shares
are not registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such Series shares as the
underlying
23
<PAGE>
investment medium of the Contracts, such termination effective upon 5 days prior
written notice; or
(j) if the Company shall determine, in its sole judgment exercised in
good faith, that either (1) the Trust or the Investment Adviser shall have
suffered a material adverse change in its business or financial condition or (2)
the Trust or the Investment Adviser shall have been the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Contracts, such termination effective upon 30
days prior written notice.
10.4. The parties understand and acknowledge that it is essential for
compliance with Section 817(h) of the Code that the Contracts qualify as annuity
contracts or life insurance policies, as applicable, under the Code.
Accordingly, if any of the Contracts cease to qualify as annuity contracts or
life insurance policies, as applicable, under the Code, or if any such Contracts
may fail to so qualify (in either case, other than solely as a result of the
Trust's failure to comply with Section 817(h) of the Code), the Trust shall have
the right to require the Company to redeem Trust shares attributable to such
Non-Complying Contracts upon notice to the Company and the Company shall so
redeem such shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
Shares. Notice to the Company shall specify the period of time the Company has
to redeem the Trust shares or to make other arrangements satisfactory to the
Trust and its counsel, such period of time to be determined with reference to
the requirements of Section 817(h) of the Code. The Company agrees to redeem
Trust shares in the circumstances described herein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts or Series, or additions of new classes of Contracts to be
issued by the Company through separate accounts investing in the Trust. The
provisions of this Agreement shall be equally applicable to each such class of
Contracts, Series and Accounts, effective as of the date of
24
<PAGE>
amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the
assets of the Trust (or applicable Series thereof) and shall not be binding upon
any trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Merrillyn J. Kosier
Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
John P. Fendig
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
with a copy to:
First Providian Life and Health Insurance Company
Attention: Marketing Director
520 Columbia Drive
Johnson City, New York 13790
25
<PAGE>
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
14.4. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
14.5. Subject to the requirements of legal process and regulatory
authority, the Trust shall treat as confidential the names and addresses of the
Contract Owners and all information reasonably identified as confidential in
writing by the Company and except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party hereto without the prior written consent of all other
parties.
14.7. Notwithstanding the provisions of Article VII of this
Agreement, the Trust acknowledges that it has no intention to file an
application with SEC to permit Trust shares to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
FIRST PROVIDIAN LIFE AND
HEALTH INSURANCE COMPANY
(COMPANY)
Date: ___________ By: ___________________________
Name:
Title:
WANGER ADVISORS TRUST
(TRUST)
Date: ___________ By: ____________________________
Name: Charles P. McQuaid
Title: Senior Vice President
27
<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
<TABLE>
<CAPTION>
================================================================================
Date
Established by Type of
Board of SEC 1940 Act Product
Name of Account and Directors of Registration Supported by
Subaccounts the Company Number Account
================================================================================
<S> <C> <C> <C>
First Providian Life and November 4, 1994 811-9062 Variable
Health Insurance Annuity
Company Separate
Account C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Effective as of _____________, the following separate accounts are hereby added
to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
================================================================================
Date
Established by Type of
Board of SEC 1940 Act Product
Name of Account and Directors of Registration Supported by
Subaccounts the Company Number Account
================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
_________________________ _______________________________________________
Wanger Advisors Trust First Providian Life and Health Insurance Company
i
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
================================================================================
SEC 1933 Act Registration Name of Supporting
Contract Marketing Name Number Account
================================================================================
<S> <C> <C>
First Providian Life and File No. 33-94204 First Providian Life
Health Insurance and Health Insurance
Advisor's Edge Company Separate
Account C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
================================================================================
SEC 1933 Act Registration Name of Supporting
Contract Marketing Name Number Account
================================================================================
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
_________________________ _______________________________________________
Wanger Advisors Trust First Providian Life and Health Insurance Company
ii
<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
<TABLE>
<CAPTION>
================================================================================
Contracts Marketing Name Trust Series
================================================================================
<S> <C>
First Providian Life and Health . Wanger U.S. Small Cap Advisor
Insurance Advisor's Edge . Wanger International Small Cap
Advisor
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Effective as of the date the Agreement was executed, the following other funding
vehicles are available under the Contracts:
<TABLE>
<CAPTION>
================================================================================
Contracts Marketing Name Funding Vehicle
================================================================================
<S> <C>
First Providian Life and Health . DFA Investment Dimensions Group, Inc.
Insurance Advisor's Edge . Insurance Management Series (Federated)
. The Montgomery Funds III
. Weiss, Peck & Greer
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series:
<TABLE>
<CAPTION>
==============================================
Contracts Marketing Name Trust Series
==============================================
<S> <C>
----------------------------------------------
----------------------------------------------
==============================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
_________________________ _______________________________________________
Wanger Advisors Trust First Providian Life and Health Insurance Company
iii
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following New York
investment restrictions are applicable to the Trust:
NONE
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
- --------------------------- -------------------------------------------------
Wanger Advisors Trust First Providian Life and Health Insurance Company
iv
<PAGE>
EXHIBIT 9(a)(5)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 27th day of September, 1995 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and SAFECO LIFE INSURANCE COMPANY, a
Washington life insurance company (the "Company"), on its own behalf and on
behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity contracts or
variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust.
<PAGE>
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.9. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each version
of the definitive prospectus or supplement thereto filed with the SEC pursuant
to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares ("Trust
Registration Statement") or a class of Contracts ("Contracts Registration
Statement"), the registration statement filed with the SEC to register the
securities issued thereby under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or became
effective. The Contracts Registration Statement is described more specifically
on Schedule 2 to this Agreement. The Trust Registration Statement was filed on
Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust 1940 Act
Registration Statement was filed on Form N-1A (File No. 811-8748).
-2-
<PAGE>
1.15. "Statement of Additional Information" -- with respect to the Trust
or a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1. The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) Trust Series in existence
now or that may be established in the future and not listed on Schedule 3 will
be made available to the Company only as the Trust and the Company may agree
pursuant to Article XI hereof, and (ii) the Board of Trustees of the Trust (the
"Trust Board") may suspend or terminate the offering of Trust shares of any
Series in any jurisdiction, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in light of its fiduciary duties under Federal and any
applicable state laws, suspension or termination is necessary or in the best
interests of the shareholders of any Series (it being understood that
"shareholders" for this purpose shall mean Product Owners and Qualified
Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase and redemption requests from the
Account based on allocations of net amounts to the Account or subaccounts
thereof under the Contracts and other transactions relating to the
Contracts or the Account. Purchase and redemption requests shall be
processed by the Trust at the net asset value per share next calculated
after the Trust receives and accepts such request. The Trust shall
calculate its net asset value per share at the Trust's close of business on
each Business Day (as defined from time to time in the Trust
-3-
<PAGE>
Prospectus, and which as of the date of execution of this Agreement is
the time of the close of regular session trading on the New York Stock
Exchange, which is generally 4:00 p.m. Eastern Time). Receipt of any
such request on any Business Day by the Company as designee of the
Trust prior to the Trust's close of business shall constitute receipt
by the Trust on that same Business Day, provided that the Trust
receives notice of such request by 10:30 a.m. Eastern Time on the next
following Business Day.
(b) The Company shall pay for shares of each Series on the same
day that it notifies the Trust of a purchase request for such shares.
Payment for Series shares shall be made in Federal funds transmitted
to the Trust by wire to be received by the Trust by 1:00 p.m. Eastern
Time on the day the Trust is notified of the purchase request for
Series shares (unless the Trust determines and so advises the Company
that sufficient proceeds are available from redemption of shares of
other Series effected pursuant to redemption requests tendered by the
Company on behalf of the Account). If payment in Federal funds for
any purchase is not received, or is received by the Trust after 3:00
p.m. Eastern Time on such Business Day, the Company shall promptly,
upon the Trust's request, reimburse the Trust for any charges, costs,
fees, interest or other expenses incurred by the Trust in connection
with any advances to, or borrowings or overdrafts by, the Trust, or
any similar expenses incurred by the Trust, as a result of non-payment
or late payment.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the
Company or any other designated person by 3:00 p.m. Eastern Time on
the next Business Day after the Trust is properly notified of the
redemption order of Series shares (unless redemption proceeds are to
be applied to the purchase of Trust shares of other Series in
accordance with Section 2.3(b) of this Agreement), except that (i) if
payment of the redemption proceeds would require the Trust to dispose
of portfolio securities or otherwise incur additional costs, proceeds
shall be wired to the Company within seven days and the Trust shall
notify the Company of such delay by 3 p.m. Eastern Time on such
Business Day; and (ii) the Trust reserves the right to delay payment
of redemption proceeds to the extent permitted under Section 22(e) of
the 1940 Act; and (iii) the Trust reserves the right to effect payment
of redemptions in kind, but only to the extent described in the Trust
Prospectus. The Trust shall not bear any responsibility whatsoever for
the proper disbursement or crediting of redemption proceeds by the
Company; the Company alone shall be responsible for such action.
-4-
<PAGE>
2.4. The Trust shall use reasonable efforts to make the net asset value
per share for each Series available to the Company by 6:00 p.m. Eastern Time
each Business Day and shall use its best efforts to make the net asset value
available to the Company by 7:00 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share for
such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company or any other
Participating Company to the Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in
accordance with allocation instructions received from Contract Owners, it
being understood that no changes shall be made to Schedule 3 without the
prior written consent of the Trust and the Investment Adviser. The Company
may withdraw the Account's investment in the Trust or a Series of the Trust
only: (i) as necessary to facilitate Contract Owner requests; (ii) upon a
determination by a majority of the Trust Board, or a majority of
disinterested Trust Board members, that an irreconcilable material conflict
exists among the interests of (x) some or all Product Owners or (y) the
interests of some or all of the Participating Insurance Companies and/or
Qualified Entities investing in the Trust; or (iii) in the event that the
shares of another investment company are substituted for series shares in
accordance with the terms of the Contracts upon the (x) requisite vote of
the Contract Owners having an interest in the affected Series and the
written consent of the Trust (unless otherwise required by applicable law);
(y) upon issuance of an SEC exemptive order pursuant to Section 26(b) of
the 1940 Act permitting such substitution; or (z) as may otherwise be
permitted under applicable law.
-5-
<PAGE>
(b) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Trust shall not, without the prior written consent of the
Company (unless otherwise required by applicable law), take any action to
operate the Trust as a unit investment trust under the 1940 Act.
(d) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the
Trust's investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be sold
to other insurance companies; and the cash value of the Contracts may be
invested in other investment companies, provided, however, that (a) such
other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives
and policies of the Trust; or (b) the Company gives the Trust 45 days
written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a funding vehicle for the Contracts
prior to the date of this Agreement and the Company so informs the Trust
prior to the execution of this Agreement; or (d) the Trust consents to the
use of such other investment company, such consent not to be unreasonably
withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust
shall not sell Trust shares to any insurance company or separate account unless
an agreement complying with Article VII of this Agreement is in effect to govern
such sales.
2.9 The Trust shall provide to the Company within 5 business days after
the end of each month a monthly statement of account reflecting all transactions
by the Company during that month.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v)
-6-
<PAGE>
the Contracts will be issued in compliance in all material respects with all
applicable Federal and state laws; and (vi) the Contracts currently are and at
the time of issuance will be treated as annuity contracts under applicable
provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has been filed with the SEC in accordance
with the provisions of the 1940 Act and the Trust is duly registered as an open-
end management investment company thereunder; (iii) the Trust Registration
Statement has been declared effective by the SEC; (iv) Trust shares sold
pursuant to this Agreement have been duly authorized for issuance in accordance
with applicable law; (v) the Trust believes that it (x) currently qualifies as a
"regulated investment company" under Subchapter M of the Code and (y) currently
complies with Section 817(h) of the Code and regulations thereunder; and (vi)
the Trust's investment policies are in material compliance with any investment
restrictions set forth on Schedule 4 to this Agreement. The Trust, however,
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) otherwise
complies with the insurance laws or regulations of any state.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company
-7-
<PAGE>
meets the terms and conditions of, and is relying on, Great West Life & Annuity
Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent no-action
letter released by the staff of the SEC addressing the same subject matter. The
Company shall file, register, qualify and obtain approval of the Contracts for
sale to the extent required by applicable insurance and securities laws of the
various states.
4.3 The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company
in lieu thereof, the Trust shall provide such documentation (including a final
copy of the Trust Prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the Trust Prospectus is more frequently amended) to have
the Contracts Prospectus and Trust Prospectus printed together in one document.
4.4 The Company shall deliver Contracts, Contracts and Trust Prospectuses,
Contracts and Trust Statements of Additional Information, and all amendments or
supplements to any of the foregoing to Contract Owners and prospective Contract
Owners, as required by applicable federal securities laws.
4.5. The Company shall:
(a) inform the Trust of any state in which the Trust is required under
such state's securities laws to register the offering of its shares
pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by state
insurance law that may become applicable to the Trust from time to time as
a result of the Account's investment therein (including, but not limited
to, restrictions with respect to fees and expenses and investment
policies), other than those set forth on Schedule 4 to this Agreement.
4.6. Upon receipt of information from the Company pursuant to Section
4.5(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by the such party to the extent permitted by law.
-8-
<PAGE>
(a) Expenses assumed by the Trust include, but are not limited to, the
costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of the Trust
Prospectus, Trust Registration Statement, Trust proxy materials and
shareholder reports; the printing and mailing of all proxy statements and
periodic reports; the preparation of Trust Prospectuses and Statements of
Additional Information required to be provided by the Trust to its then-
current shareholders; preparation of all statements and notices required by
any Federal or state securities law; all taxes on the issuance or transfer
of Trust shares; and any expenses permitted to be paid or assumed by the
Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act. The
Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not be charged for the costs of printing and mailing
to prospective Contract Owners copies of the Trust Prospectus, Trust
Statement of Additional Information, notices, proxy statements, periodic
reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the
Contracts Prospectus, Contracts Registration Statement, and Contract Owner
reports; and the printing and mailing of all periodic reports, Contracts
Prospectuses, Statements of Additional Information, and notices to current
and prospective Contract Owners required by any Federal or state insurance
law other than those paid for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. The Trust may delegate its rights
and responsibilities under this provision to the Investment Adviser. However,
should the Trust or its delegate revoke such consent, it agrees to reimburse the
Company for all costs of producing, printing and filing of such material
incurred prior to notification that consent has been revoked.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or
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<PAGE>
proxy statements for the Trust which are in the public domain or approved in
writing by the Trust for distribution to Contract Owners, or in sales literature
or other promotional material approved in accordance with Section 4.8 of this
Agreement, except with the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus or in reports of the Account
which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments or supplements to any of the above, that relate to the Trust, the
Contracts or the Account, as the case may be, promptly after the filing by or on
behalf of such party of such document with the SEC or other regulatory
authorities.
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
If a party requests any such information before it has been filed, the other
party will provide the requested information if then available and in the
version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
-10-
<PAGE>
4.15. The Trust agrees to provide the Company within ten (10) days after
the end of each month (i) performance information consisting of (x) the total
return of each Series then listed in Schedule 3 hereto through the end of that
month, and (y) the average annual total return of each such Series for the one-,
five-, and ten-year periods ended as of the most recent calendar quarter, or the
life of such Series, if shorter, in each case calculated in accordance with the
methods of calculation described in the Trust Prospectus; (ii) a listing of the
10 portfolio companies in which each such Series had its largest investments at
the end of that month; and (iii) a summary of the allocation of each such
Series' investments among industry groups.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
(c) unless permitted under applicable law, vote Voting Shares of each
Series attributable to Contract Owners for which no instructions have been
received in the same proportion as Voting Shares of such Series for which
instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of each
Series held by the Company on its own behalf or on behalf of the Account
that are not attributable to Contract Owners in the same proportion as
Voting Shares of such Series for which instructions have been timely
received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code, and
all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
-11-
<PAGE>
6.3. The Company undertakes to maintain the treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
6.4. The Trust undertakes to provide the Company within fifteen (15) days
after the end of each calendar quarter a letter from an appropriate Trust
officer certifying to the continued accuracy of the Trust's representations in
sections 6.1 and 6.2 of this Agreement with respect to any Series then listed on
Schedule 3 to this Agreement, and providing a detailed listing of the individual
securities and other assets, if any, held by each such Series as of the end of
such calendar quarter.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Contracts Registration Statement, Contracts Prospectus, sales
literature or other promotional material for the Contracts or the
Contracts themselves (or any amendment or supplement to
-12-
<PAGE>
any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made; provided that this obligation
to indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing to the Company by the Trust for use
in the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts (or
any amendment or supplement to any of the foregoing) or otherwise for use
in connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or
Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertaking
specified in Article VI of this Agreement, unless such failure is a result
of the Trust's material breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with
the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
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<PAGE>
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any officer, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by the Company to the Trust for use
in the Trust Registration Statement, Trust Prospectus or sales literature
or promotional material for the Trust (or any amendment or supplement to
any of the foregoing); or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust with
respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
undertakings specified in Article VI of this Agreement, unless such failure
is a result of the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
-14-
<PAGE>
This indemnification will be in addition to any liability that the Trust may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the failure to so notify the indemnifying party will not relieve
the indemnifying party from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but if
settled with such consent, or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
-15-
<PAGE>
ARTICLE X. TERMINATION
10.1 This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3.
10.2 The obligation of the Trust to sell shares to the Company pursuant to
Article II of this Agreement shall terminate at the option of the Trust:
(a) upon six months' notice to the Company;
(b) upon 30 days' notice to the Company:
(1) upon institution of formal proceedings against the Company by
the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account,
the administration of the Contracts or the purchase of Trust shares,
or an expected or anticipated ruling, judgment or outcome which would,
in the Trust's reasonable judgment, materially impair the Company's
ability to meet and perform the Company's obligations and duties
hereunder;
(2) in the event any of the Contracts are not registered, issued
or sold in accordance with applicable Federal and/or state law;
(3) if the Contracts cease to qualify as annuity contracts under
the Code, or if the Trust reasonably believes that the Contracts may
fail to so qualify;
(4) if the Trust shall determine, in its sole judgment exercised
in good faith, that either (1) the Company shall have suffered a
material adverse change in its business or financial condition or (2)
the Company shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business
and operations of the Trust;
(5) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to
another insurance company pursuant to an assumption reinsurance
agreement) unless the Trust consents thereto; or
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<PAGE>
(6) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3.
In exercising its option to terminate its obligation to sell Shares to the
Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3. The restrictions on the Company under Section 2.7 of this Agreement
shall terminate at the option of the Company:
(a) upon six months' notice to the Trust;
(b) upon 30 days' notice to the Trust:
(1) if shares of any Series are not reasonably available to meet
the requirements of the Contracts as determined by the Company, and
the Trust, after receiving written notice from the Company of such
non-availability, fails to make available a sufficient number of Trust
shares to meet the requirements of the Contracts within 5 days after
receipt thereof;
(2) upon institution of formal proceedings against the Trust by
the NASD, the SEC or any state securities or insurance commission or
any other regulatory body;
(3) if the Trust ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code, or under any successor or
similar provision, or if the Company reasonably believes based on an
opinion of counsel satisfactory to the Trust that the Trust may fail
to so qualify, and the Trust, upon written request, fails to provide
reasonable assurance that it will take action to cure or correct such
failure;
(4) if the Trust fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations thereunder
and the Trust, upon written request, fails to provide reasonable
assurance that it will take action to cure or correct such failure; or
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<PAGE>
(5) if the Trust informs the Company pursuant to Section 4.6 that
the Trust will not comply with investment restrictions as requested by
the Company and the Trust and the Company are unable to agree upon any
reasonable alternative accommodations.
10.4. This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions
of this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of amendment of such Schedule,
unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the assets
of the Trust (or applicable Series thereof) and shall not be binding upon any
trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Name: Merrillyn J. Kosier
Title: Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
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<PAGE>
If to the Company:
Name: Gregory Clarke
Title: Vice President
SAFECO Life Insurance Company
P. O. Box 34690
Seattle, Washington 98124-1690
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
SAFECO LIFE INSURANCE COMPANY
(COMPANY)
Date: _________________________
By: _________________________________
Name: Gregory Clarke
Title: Vice President
WANGER ADVISORS TRUST
(TRUST)
Date: _________________________
By: _________________________________
Name: Ralph Wanger
Title: President
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<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
================================================================================
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
================================================================================
SAFECO Life
Insurance Company
Separate Account C 9/14/93 811-8052 Variable Annuity
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Effective as of ________, the following separate accounts are hereby added to
this Schedule 1 and made subject to the Agreement:
================================================================================
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
__________________________________ ____________________________________
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
================================================================================
Contract Marketing Name SEC 1933 Act Name of Supporting
Registration Number Account
================================================================================
SAFECO Life Insurance
Company Separate
MainSail 33-60331 Account C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
================================================================================
Contract Marketing Name SEC 1933 Act Name of Supporting
Registration Number Account
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
__________________________________ ____________________________________
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
========================================================
Contract Marketing Name Trust Series
========================================================
Wanger U.S. Small Cap
MainSail Advisor
________________________________________________________
________________________________________________________
========================================================
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series:
========================================================
Contract Marketing Name Trust Series
========================================================
________________________________________________________
________________________________________________________
========================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
_________________________________ _____________________________________
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following investment
restrictions are applicable to the Trust:
None.
Effective as of ___________________, 199____, this Schedule 4 is hereby amended
to reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
________________________________ ____________________________________
Wanger Advisors Trust SAFECO Life Insurance Company
<PAGE>
EXHIBIT 9(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
WANGER ADVISORS TRUST
and
STATE STREET BANK AND TRUST COMPANY
lG193
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Article 1 Terms of Appointment; Duties of the Bank............................................. 2
Article 2 Fees and Expenses.................................................................... 5
Article 3 Representations and Warranties of the Bank........................................... 6
Article 4 Representations and Warranties of the Fund........................................... 6
Article 5 Data Access and Proprietary Information.............................................. 7
Article 6 Indemnification...................................................................... 9
Article 7 Standard of Care..................................................................... 11
Article 8 Covenants of the Fund and the Bank................................................... 12
Article 9 Termination of Agreement............................................................. 13
Article 10 Additional Funds..................................................................... 13
Article 11 Assignment........................................................................... 14
Article 12 Amendment............................................................................ 14
Article 13 Massachusetts Law to Apply........................................................... 14
Article 14 Force Majeure........................................................................ 15
Article 15 Consequential Damages................................................................ 15
Article 16 Merger of Agreement.................................................................. 15
Article 17 Counterparts......................................................................... 15
Article 18 Limitations of Liability of the Trustees, Officers and Shareholders.................. 15
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 12th day of January, 1995, by and between WANGER
ADVISORS TRUST, a Massachusetts business trust, having its principal office and
place of business at 227 West Monroe Street Suite 3000, Chicago, Illinois 60606
(the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company having its principal office and place of business at 225 Franklin
Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in two series, Wanger
U.S. Small Cap Advisor and Wanger International Small Cap Advisor (each such
series, together with all other series subsequently established by the Fund and
made subject to this Agreement in accordance with Article 10, being herein
referred to, as a "Portfolio", and collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank
as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities and the
Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
<PAGE>
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this Agreement, the
Fund on behalf of the Portfolios, hereby employs and appoints the Bank to act
as, and the Bank agrees to act its transfer agent for the authorized and issued
shares of beneficial interest of the Fund representing interests in each of the
respective Portfolios ("Shares"), dividend disbursing agent, custodian of
certain retirement plans and agent in connection with any accumulation, open-
account or similar plans provided to the shareholders of each of the respective
Portfolios of the Fund ("Shareholders") and set out in the currently effective
prospectus and statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any periodic
investment plan or periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures establishes from time to time by
agreement between the Fund on behalf of each of the Portfolios, as applicable
and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares and
promptly deliver payment and appropriate documentation thereof
to the Custodian of the Fund authorized pursuant to the
Articles of Incorporation of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
2
<PAGE>
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to
it by the Custodian with respect to any redemption, pay over
or cause to be paid over in the appropriate manner such monies
as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged
to have been lost, stolen or destroyed upon receipt by the
Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-l0(e) a record of the total number
of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with
3
<PAGE>
the total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i) perform the
customary services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to: maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State on the
system prior to activation and thereafter
4
<PAGE>
monitor the daily activity for each State. The responsibility of the Bank for
the Fund's blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and the
reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Article 1 may be established from time to time by agreement between the Fund on
behalf of each Portfolio and the Bank per the attached service responsibility
schedule. The Bank may at times perform only a portion of these services and the
Fund or its agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing between the
Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule attached
hereto. Such fees and out-of-pocket expenses and advances identified under
Section 2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited to confirmation production, postage, forms,
telephone, microfilm, microfiche, tabulating proxies, records storage or
advances incurred by the Bank for the items set out in the fee schedule attached
hereto. In addition, any other expenses incurred by the Bank at the request or
5
<PAGE>
with the consent of the Fund, will be reimbursed by the Fund on behalf of the
applicable Portfolio.
2.03 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all Shareholder accounts shall be advanced to the
Bank by the Fund at least seven (7) days prior to the mailing date of such
materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the Commonwealth of
Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
6
<PAGE>
4.01 It is a business trust duly organized and existing and in good
standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended, on behalf of each of the Portfolios is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of the Fund being
offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank on
data bases under the control and ownership of the Bank or other third party
("Data Access Services") constitute copyrighted, trade secret or other
proprietary information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all Proprietary
Information as proprietary to the Bank and further agrees that it shall not
divulge any Proprietary Information to any person or organization except as may
be
7
<PAGE>
provided hereunder. Without limiting the foregoing, the Fund agrees for itself
and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's applicable user
documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained, to inform
the Bank in a timely manner of such fact and dispose of such information in
accordance with the Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer facility or other
location, except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary Information at
common law, under federal copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article shall
survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner to
correct such failure. Organizations from which the
8
<PAGE>
Bank may obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make no claim
against the Bank arising out of the contents of such third-party data,
including, but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND
ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect the
transfer or movement of cash or Shares or (ii) transmit Shareholder information
or other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity with
security procedures established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
9
<PAGE>
(a) All actions of the Bank or its agent or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken in good
faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors or
information, records, documents or services which (i) are received by the Bank
or its agents or subcontractor, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf of the Fund
including but not limited to any previous transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf of the
applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or regulations of
any state that such Shares be registered in such state or in violation of any
stop order or other determination or ruling by any federal agency or any state
with respect to the offer or sale of such Shares in such state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Fund on behalf of the applicable Portfolio for any
action taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be
10
<PAGE>
genuine and to have been signed by the proper person or persons, or upon any
instruction, information, data, records or documents provided the Bank or its
agents or subcontractors by machine readable input, telex, CRT data entry or
other similar means authorized by the Fund, and shall not be held to have notice
of any change of authority of any person, until receipt of written notice
thereof from the Fund. The Bank, its agents and subcontractors shall also be
protected and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers of
the Fund, and the proper countersignature of any former transfer agent or former
registrar, or of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions contained in this
Article 6 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all developments
concerning such claim. The Fund shall have the option to participate with the
Bank in the defense of such claim or to defend against such claim in its own
name or in the name of the Bank. The Bank shall in no case confess any claim or
make any compromise in any case in which the Fund may be required to indemnify
the Bank except with the Fund's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement. The Bank shall be responsible for any and all
losses, damages, costs, charges, counsel fees, payments, expenses, and liability
arising out of or attributable to any action or failure or omission
11
<PAGE>
to act by the Bank as a result of the Bank's negligence, bad faith, or willful
misconduct or that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall on behalf of each of the Portfolios promptly furnish
to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Company Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained and
made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
8.04 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the
12
<PAGE>
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund and
to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movements of records and material will be borne by
the Fund on behalf of the applicable Portfolio(s). Additionally, the Bank
reserves the right to charge for any other reasonable expenses associated with
such termination.
Article 10 Additional Funds
10.01 In the event that the Fund establishes one or more series of Shares
in addition to Wanger U.S. Small Cap Advisor and Wanger International Small Cap
Advisor, with respect to which it desires to have the Bank render services as
transfer agent under the terms hereof, it shall so notify the Bank in writing,
and if the Bank agrees in writing to provide such services, such series of
Shares shall become a Portfolio hereunder.
13
<PAGE>
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this Agreement
nor any rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data Services,
Inc., a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(l)"), (ii) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS affiliate duly
registered as a transfer agent pursuant to Section 17A(c)(l); provided, however,
that the Bank shall be as fully responsible to the Fund for the acts and
omissions of any subcontractor as it is for its own acts and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution of the
Trustees of the Fund.
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
14
<PAGE>
Article 14 Force Majeure
14.01 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
Article 15 Consequential Damages
15.01 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
Article 16 Merger of Agreement
16.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject manner
hereof whether oral or written.
Article 17 Counterparts
17.01 This Agreement may be executed by the parties hereto on any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
Article 18 Limitations of Liability of the Trustees, Officers and Shareholders
18.01 A copy of the Declaration of Trust is on file with the Secretary of
the Commonwealth of Massachusetts, and notice is hereby given that this
instrument is executed on behalf of the Trustees of the Trust as Trustees and
not individually and that the obligations of this
15
<PAGE>
instrument are not binding upon any of the Trustees, Officers, or Shareholders
individually but are binding only upon the assets and property of the Fund.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
WANGER ADVISORS TRUST
BY:_________________________________
ATTEST:
____________________________
STATE STREET BANK AND TRUST COMPANY
BY:__________________________________
Vice President
ATTEST:
_____________________________
17
<PAGE>
STATE STREET BANK AND TRUST COMPANY
TRANSFER AGENT FEE SCHEDULE
WANGER ADVISORS TRUST
WANGER US SMALL CAP ADVISOR
WANGER INTERNATIONAL SMALL CAP ADVISOR
- --------------------------------------------------------------------------------
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes. There will be a minimum monthly charge of $1,500 per
fund. For the first twelve (12) months of operation, the Trust will receive a
$2,000 credit per month.
<TABLE>
<CAPTION>
<S> <C>
Open Account - charged once per year $6.75
Closed Account - charged once per year $1.20
Manual Transactions - charged per month
based on volumes $1.50
Telephone Calls - charged per month
based on volumes $1.50
Investor Fees (Optional per Investor
Record) - charged per month based on
volumes $1.80
</TABLE>
Out-of-Pocket Expenses -Out-of-Pocket expenses include but are not limited to
confirmation statements, postage, forms, audio response, telephone, microfilm,
microfiche, and expenses incurred at the specific direction of the Fund.
WANGER ADVISORS TRUST STATE STREET BANK & TRUST CO.
By: ___________________________ By:__________________________________
Title:_________________________ Title:_______________________________
Date:__________________________ Date:________________________________
18
<PAGE>
EXHIBIT 10
February 15, 1995
Wanger Advisors Trust
227 West Monroe Street, #3000
Chicago, Illinois 60606
Ladies and Gentlemen:
Share of Beneficial Interest
Without Par Value
---------------------------
We have acted as counsel for Wanger Advisors Trust (the "Trust") in
connection with the registration under the Securities Act of 1933 (the "Act") of
an indefinite number of shares of beneficial interest, without par value, of the
series of the Trust designated Wanger U.S. Small Cap Advisor and Wanger
International Small Cap Advisor (each a Series) in registration statement no.
33-83548 on form N-1A (the "Registration Statement").
In this connection we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, records,
certificates and other papers as we deemed it necessary to examine for the
purpose of this opinion, including the Agreement and Declaration of Trust (the
"Trust Agreement") and bylaws of the Trust, actions of the board of trustees of
the Trust authorizing the issuance of shares of each Series, the form of
certificates to evidence such shares, and the Registration Statement.
Based on the foregoing examination, we are of the opinion that:
1. The Trust is an unincorporated voluntary association legally
organized and validly existing under the laws of The Commonwealth of
Massachusetts.
2. Upon the issuance and delivery of the shares of each Series in
accordance with the Trust Agreement and the actions of the board of
trustees authorizing the issuance of such shares, and the receipt by the
Trust of the authorized consideration therefor, the shares so issued will
be validly issued and outstanding, fully paid and nonassessable.
With respect to the opinion stated in paragraph 2 above, we wish to point
out that the shareholders of a Massachusetts business trust may under some
circumstances be subject to assessment at the instance of creditors to pay the
obligations of such trust in the event that its assets are insufficient for the
purpose.
<PAGE>
Wanger Advisors Trust
February 15, 1995
Page 2
In giving this opinion we have relied upon the attached opinion of Sullivan
& Worcester to us dated February 14, 1995.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under section 7 of the Act.
Very truly yours,
<PAGE>
Wanger Advisors Trust
February 15, 1995
Page 3
Prepared by: Janet D. Olsen
Partner approval: Janet D. Olsen
Second partner approval: Cameron S. Avery
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Expenses and
Performance" and to the incorporation by reference of our reports with
respect to Wanger U.S. Small Cap Advisor and Wanger International Small Cap
Advisor dated January 31, 1996 in the Registration Statement of Wanger
Advisors Trust on Form N-1A and in the related prospectus filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 2.
the Registration Statement under the Securities Act of 1933 (File No. 33-
83548) and in this Amendment No. 3 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-8748).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
April 17, 1996
<PAGE>
WANGER ADVISORS TRUST
SUBSCRIPTION AGREEMENT
----------------------
1. Subscription for Shares. I agree to purchase from Wanger Advisors
Trust (the "Trust") 5,000 shares of beneficial interest of the series designated
Wanger U.S. Small Cap Advisor for a price of $10.00 per share, and 5,000 shares
of beneficial interest of the series designated Wanger International Small Cap
Advisor (with Wanger U.S. Small Cap Advisor, the "Funds") for a price of $10.00
per share, on the terms and conditions set forth herein and in the preliminary
prospectus described below, and agree to tender $100,000 in payment therefor at
such time as the board of trustees or the president of the Trust determines.
I understand that the Trust has filed a registration statement with the
Securities and Exchange Commission (No. 33-83548) on Form N-1A, which contains
the preliminary prospectus describing the Trust, each of the Funds, and the
shares. I acknowledge receipt of a copy of the preliminary prospectus.
I recognize that the Trust will not be fully operational until it commences
a public offering of its shares. Accordingly, a number of features of the Trust
described in the preliminary prospectus, including redemption of shares upon
request of shareholders, will not be available until the Trust's registration
statement becomes effective under the Securities Act of 1933.
2. Representations and Warranties. I represent and warrant as follows:
(a) I am aware that no federal or state agency has made any finding
or determination as to the fairness for investment, nor any
recommendation nor endorsement, of the shares;
(b) I have such knowledge and experience of financial and business
matters as will enable me to utilize the information made
available to me in connection with the offering of the shares to
evaluate the merits and risks of the prospective investment and
to make an informed investment decision;
(c) I recognize that the Trust has only recently been organized, that
the Funds have no financial or operating history, and that
investments in the Funds involve certain risks; I have taken full
cognizance of and understand all of the risks related to the
purchase of the shares; and I acknowledge that I have suitable
financial resources and anticipated income to bear the economic
risks of such an investment;
(d) I am purchasing the shares for my own account, for investment,
and not with any intention of redemption, distribution, or resale
of the shares, either in whole or in part;
(e) I will not sell the shares purchased by me without registration
of them under the Securities Act of 1933 or exemption therefore;
<PAGE>
(f) I have been furnished with and have read this agreement, the
preliminary prospectus, and such other documents relating to the
Funds and the Trust as I have requested and as have been provided
to me by the Trust; and
(g) I have also had the opportunity to ask questions of, and receive
answers from, officers of the Trust concerning the Trust and the
terms of the offering.
3. Rejection of Subscriptions. I recognize that the Trust reserves the
right to reject or limit any subscription.
4. Taxpayer Identification. I certify under penalties of perjury that the
number shown on this form is my correct taxpayer identification number and that
I am not subject to backup withholding as a result of a failure to report all
interest and dividend income to the Internal Revenue Service.
Dated:________________, 199_
__________________________________________
Taxpayer Identification Number
WANGER ASSET MANAGEMENT, L.P.
By: Wanger Asset Management, Ltd.
Its General Partner
By: ____________________________________
2
<PAGE>
EXHIBIT 16A
Wanger U.S. Small Cap Advisor
Total Return Calculation
Initial Investment: $ 1,000
Period: From commencement of operations (May 3, 1995)
to December 31, 1995
Number of Days in Period: 242
Total Return 16.00%
<TABLE>
<CAPTION>
Dividend Dividend Total Account
Dividend Dollars Shares Shares Value
Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Investment $1,000
5/3/95 $10.00 100 0 0 0 100 1,000
12/31/95 11.60 100 0 0 0 100 1,160
</TABLE>
<PAGE>
EXHIBIT 16B
Wanger U.S. Small Cap Advisor
Total Return Calculation
Initial Investment: $ 1,000
Period: From commencement of operations (May 3, 1995)
to December 31, 1995
Number of Days in Period: 242
Total Return 16.00%
<TABLE>
<CAPTION>
Dividend Dividend Total Account
Dividend Dollars Shares Shares Value
Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Investment $1,000
5/3/95 $10.00 100 0 0 0 100 1,000
12/31/95 11.60 100 0 0 0 100 1,160
</TABLE>
<PAGE>
[LOGO OF WANGER ADVISORS TRUST] Exhibit 18
================================================================================
APPLICATION
It takes only a few moments to fill out this simple step-by-step application. If
you have questions, call Wanger Asset Management at 1-800-4-WANGER (1-800-492-
6437), weekdays, 8:00 a.m.--4:30 p.m., Chicago (Central) time. Please be sure to
print your information on this application, then simply sign and return it to us
in the postage-paid envelope we've provided.
====================================== ========================================
YOUR ACCOUNT REGISTRATION CHOOSE YOUR INVESTMENTS
[_][_] [_][_][_][_][_][_][_] ___
Taxpayer ID Number ___ Wanger U.S. Small Cap Advisor $_____
___
______________________________________
| NAME OF RETIREMENT PLAN ___ Wanger International Small
Cap Advisor $_____
______________________________________ Total Investment $_____
Name of Plan
Make check(s) payable to Wanger Advisors
______________________________________ Trust.
========================================
______________________________________ DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS
Trustees's Names(s) Please choose how the Plan will receive
income dividends and capital gains. If
no option is checked, all dividends and
capital gains will be reinvested
Please include copy of first page and automatically. (Check one box.)
last page of trust agreement.
[_] Reinvest dividends and capital
______________________________________ gains.
| ADDRESS
[_] Pay dividends and capital gains in
cash.
______________________________________
Company [_] Pay dividends in cash; reinvest
capital gains.
______________________________________ ========================================
To the Attention of (If Applicable) TELEPHONE PLANS
A shareholder automatically has the
ability to exchange and redeem shares by
__________________________ ___________ telephone unless the boxes below are
Street or P.O. Box Suite No. checked. Proceeds of telephone
redemption requests are paid by check
mailed to the address of record and may
______________________________________ not be more than $50,000. Exchanges must
City, State, Zip Code be between identically-registered
accounts. See the prospectus for
details.
______________________________________
Daytime Phone, Including Area Code Check the box(es) if the Plan will not
exchange by telephone or redeem by
telephone:
====================================== [_] telephone exchanges
TYPE OF PLAN [_] telephone redemptions
========================================
To be eligible to invest, the Plan SIGNATURE
must be one of the types listed below
and the purchase of shares by the Plan By signing this form, we certify on
must be exempt from registration under behalf of the Plan that:
otherwise applicable state securities
laws. Please check the box below to We have received and read the
identify the Plan and call WAM at Prospectus, and agree to its terms. We
1-800-4-WANGER to determine if your understand that each of the account
investment will be accepted. services, including the telephone
exchange plan, may be terminated or
[_] a plan described in section 401(a) modified by Wanger Advisors Trust in the
of the Internal Revenue Code that future.
includes a trust exempt from tax
under section 501(a) We authorize Wanger Advisors Trust, and
its affiliates and agents to act on any
[_] an annuity plan described in instructions reasonably believed to be
section 403(a) genuine for any service authorized
(including telephone transactions), and
[_] an annuity contract described agree that they will not be liable for
in section 403(b), including a any resulting loss or expense.
custodial account described in
section 403(b)(7) Under penalty of perjury, the Tax
Identification Number given is correct.
[_] a governmental plan under section If we fail to give the correct number or
414(d) or an eligible deferred sign this form, Wanger Advisors Trust
compensation plan within the may reject, restrict, or redeem this
meaning of section 457(b) investment.
[_] a plan described in section Please sign here.
501(c)(18)
________________________________________
Name of Plan
By
________________________________ _______
Its Authorized Representative Date
By
________________________________ _______
Its Authorized Representative Date
- --------------------------------------------------------------------------------
[LOGO OF WANGER ADVISORS TRUST]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-03-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 20,340,288
<INVESTMENTS-AT-VALUE> 20,779,731
<RECEIVABLES> 318,862
<ASSETS-OTHER> 1,132,163
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,230,756
<PAYABLE-FOR-SECURITIES> 225,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 102,220
<TOTAL-LIABILITIES> 327,220
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,506,936
<SHARES-COMMON-STOCK> 1,888,396
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (102,659)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 59,816
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 439,443
<NET-ASSETS> 21,903,536
<DIVIDEND-INCOME> 40,287
<INTEREST-INCOME> 46
<OTHER-INCOME> 0
<EXPENSES-NET> 142,992
<NET-INVESTMENT-INCOME> (102,659)
<REALIZED-GAINS-CURRENT> 59,816
<APPREC-INCREASE-CURRENT> 439,443
<NET-CHANGE-FROM-OPS> 396,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,170,461
<NUMBER-OF-SHARES-REDEEMED> 294,633
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 21,777,854
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 71,496
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 168,172
<AVERAGE-NET-ASSETS> 10,783,507
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.05)
<PER-SHARE-GAIN-APPREC> 1.65
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.60
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> WANGER INTERNATIONAL SMALL CAP ADVISOR
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-03-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 9,726,347
<INVESTMENTS-AT-VALUE> 10,836,301
<RECEIVABLES> 260,182
<ASSETS-OTHER> 970,486
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,066,969
<PAYABLE-FOR-SECURITIES> 594,769
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,276
<TOTAL-LIABILITIES> 698,045
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,233,014
<SHARES-COMMON-STOCK> 845,182
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (27,401)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 53,357
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,109,954
<NET-ASSETS> 11,368,924
<DIVIDEND-INCOME> 39,708
<INTEREST-INCOME> 161
<OTHER-INCOME> 0
<EXPENSES-NET> 67,270
<NET-INVESTMENT-INCOME> (27,401)
<REALIZED-GAINS-CURRENT> 53,357
<APPREC-INCREASE-CURRENT> 1,109,954
<NET-CHANGE-FROM-OPS> 1,135,910
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 986,106
<NUMBER-OF-SHARES-REDEEMED> 153,492
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11,243,242
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,726
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 141,148
<AVERAGE-NET-ASSETS> 5,073,073
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 3.48
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.45
<EXPENSE-RATIO> 2.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
