<PAGE>
As filed with the Securities and Exchange Commission on September 30, 1998
Securities Act Registration No. 33-83548
Investment Company Act File No. 811-8748
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 7
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
-------------------------------------------------
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)
[ ] on April 30, 1998 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)
[X] on December 15, 1998 pursuant to rule 485(a)(2)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The definitive prospectus and statement of additional information for its series
designated Wanger U.S. Small Cap and Wanger International Small Cap, each dated
May 1, 1998, were filed with post-effective amendment no. 6 to the Registrant's
registration statement on April 28, 1998, and supplemented pursuant to rule
497(e) on May 17, 1998 (Securities Act File No. 33-83548). That prospectus and
statement of additional information, as supplemented, are not affected by, and
are therefore not included in, this post-effective amendment no. 7.
- --------------------------------------------------------------------------------
<PAGE>
WANGER ADVISORS TRUST
Cross reference sheet pursuant to rule 495(a) of Regulation C
<TABLE>
<CAPTION>
Item No. Location or caption*
- -------- --------------------
Part A (Prospectus)
Wanger Twenty
Wanger Foreign Forty
-------------------------------
<S> <C>
1. Cover Page Cover Page.
2. Synopsis Expenses and Performance
3. Condensed Financial Information Not applicable
4. General Description of Registrant The Funds at a Glance; Expenses and
Performance; Investing in the Funds;
Securities, Investment Practices, and
Risks; Organization and Management
5. Management of the Fund Expenses and Performance; The Funds
in Detail--Organization; Management
5A. Management's Discussion of Fund Not applicable (included in annual
Performance report)
6. Capital Stock and Other Securities Investing in the Funds; The Funds in
Detai--Organization; Management;
Dividends and Taxes
7. Purchase of Securities Being Offered Investing in the Funds; The Funds in
Detail--Organization and Management
8. Redemption or Repurchase Investing in the Funds
9. Pending Legal Proceedings Not applicable
</TABLE>
- --------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE>
<TABLE>
<CAPTION>
Item No. Location or caption*
- -------- --------------------
Part B (Statement of Additional Information)
Wanger U.S. Small Cap
Wanger International Small Cap
-------------------------------
<S> <C>
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;
Investment Restrictions
14. Management of the Fund Trustees and Officers; Certain
Shareholders
15. Control Persons and Principal The Trust; Trustees and Officers;
Holders of Securities Certain Shareholders
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
</TABLE>
- ---------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE>
<TABLE>
<CAPTION>
Item No. Location or caption*
- -------- --------------------
Part C (Other Information)
--------------------------
<S> <C>
24 Financial statements and exhibits
25 Persons controlled by or under common control with
registrant
26 Number of holders of securities
27 Indemnification
28 Business and other connections of investment adviser
29 Principal underwriters
30 Location of accounts and records
31 Management services
32 Undertakings
</TABLE>
- ---------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
<PAGE>
Wanger Twenty
Wanger Foreign Forty
================================================================================
- -------------------------------------------------------------------------------
Wanger Twenty invests for long-term capital growth. The Fund invests
primarily in the stocks of U.S. companies with market capitalizations of $1
billion to $10 billion. Wanger Twenty ordinarily focuses its investments in 20
to 25 U.S. companies.
- -------------------------------------------------------------------------------
Wanger Foreign Forty invests for long-term capital growth. The Fund invests
primarily in the stocks of foreign companies with market capitalizations of $1
billion to $10 billion. The Fund ordinarily has investments in 40 to 60
companies and invests primarily in developed markets.
- -------------------------------------------------------------------------------
Shares of Wanger Twenty and Wanger Foreign Forty (each, a "Fund," and
together, the "Funds") 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"). Wanger
Twenty and Wanger Foreign Forty are series of Wanger Advisors Trust. Both Funds
are managed by Wanger Asset Management, L.P. ("WAM").
Please read this prospectus before investing, and keep it on file for
future reference. It contains important information, including how the Funds
invest and the services available to shareholders.
A Statement of Additional Information ("SAI") dated the date of this
prospectus has been filed with the Securities and Exchange Commission ("SEC"),
and, along with any supplement to the SAI, is incorporated herein by reference
(is legally considered a part of this prospectus). The SAI is available free
upon request by calling WAM at 1-800-4-WANGER (1-800-492-6437). You may also
obtain the SAI, as well as other information that has been electronically filed,
from the SEC's web site (www.sec.gov).
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
December ___, 1999
<PAGE>
CONTENTS
=========================================
The Funds at a Glance 1
.Goal & Strategy 1
.Management and Organization 1
.Who May Want to Invest 2
.Risks 2
Expenses and Performance 3
.Expenses 3
.Performance 4
Investing in the Funds 5
.Doing Business with the Trust 5
.Who May Invest 5
.How to Invest and Redeem 5
Shareholder Policies 8
.Statements and Reports 8
.Share Price 8
The Funds in Detail 9
.Organization 9
.Management 9
.Other Funds Managed by WAM 11
.Transfer Agent and Custodian 11
.Distributor 11
.Expenses 11
.Availability of the Funds and
Shareholder Rights 12
How the Funds Invest 13
.Wanger Twenty 13
.Wanger Foreign Forty 13
.Looking for High Quality
Companies 14
.General Information 15
Securities, Investment Practices,
and Risks 15
.Common Stocks 15
.Diversification 16
.Foreign Securities 16
.Managing Investment
Exposure 18
.Debt Securities 20
.Illiquid and Restricted
Securities 21
.Other Investment
Companies 21
.Lending and Repurchase
Agreements 21
.State Insurance Restrictions 22
Dividends and Taxes 23
Wanger Advisors Trust 24
i
<PAGE>
THE FUNDS AT A GLANCE
================================================================================
Goal and Strategy
- --------------------------------------------------------------------------------
Wanger Twenty invests for long-term capital growth. The Fund invests
primarily in the stocks of U.S. companies with market capitalizations of $1
billion to $10 billion. Wanger Twenty is a non-diversified fund that ordinarily
focuses its investments in 20 to 25 U.S. companies.
Under normal market conditions, Wanger Twenty invests most of its assets in
common stocks, and securities exchangeable or convertible into common stocks of
U.S. companies, but may also invest in other types of securities.
Wanger Foreign Forty invests for long-term capital growth. The Fund invests
primarily in the stocks of foreign companies with market capitalizations of $1
billion to $10 billion. The Fund is a non-diversified fund that ordinarily has
investments in 40 to 60 companies and invests primarily in developed markets.
Under normal market conditions, Wanger Foreign Forty invests most of its
total assets in equity securities, including common and preferred stocks,
warrants or other similar rights, and convertible securities, of foreign
companies in at least three developed countries, but may also invest in other
types of securities, including debt securities.
Management and Organization
- --------------------------------------------------------------------------------
The Funds are series of Wanger Advisors Trust (the "Trust"). Wanger Asset
Management, L.P. (WAM), the Funds' investment adviser, employs a team approach
to management of the Funds. The management team consists of the Funds' portfolio
managers, other WAM portfolio managers, and research analysts. Each team member
has one or more areas of expertise, and shares responsibility for providing
ideas, information, and knowledge in managing the Funds. Daily decisions on
portfolio selection rest with the lead portfolio managers or co-managers who
utilize the input and advice of the management team in making purchase and sale
determinations. Ralph Wanger is the chief investment officer of WAM, and lead
strategist for all of the funds managed by WAM.
Wanger Twenty. John H. Park and Mark H. Yost are the co-portfolio managers
of Wanger Twenty. Mr. Park is a vice president of the Trust and a principal of
WAM. He has been a member of WAM's investment management team since July 1993.
Mr. Yost is a vice president of the Trust and has been a member of WAM's
investment management team since October 1995.
Wanger Foreign Forty. Marcel P. Houtzager and Leah J. Zell are the co-
portfolio managers of Wanger Foreign Forty. Mr. Houtzager is a vice president of
the Trust and a principal of WAM. He has been a member of WAM's investment
management team since 1992.
1
<PAGE>
Ms. Zell is a vice president of the Trust and a principal of WAM. She has
been analyzing international securities for Acorn Fund since 1984, and Acorn
International since 1992.
Who May Want to Invest
- --------------------------------------------------------------------------------
The Funds are suitable for investors who are willing to hold their shares
through market fluctuations and the accompanying changes in share values. The
Funds are not appropriate investments for those seeking short-term price
appreciation or for "market-timers." Wanger Twenty and Wanger Foreign Forty 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."
Risks
- --------------------------------------------------------------------------------
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. Because they are non-diversified,
the Funds have the ability to take larger positions in a smaller number of
issuers. While WAM believes that a strategy of investing in a limited number of
securities has the potential for higher total returns than a strategy of
investing in a larger number of securities, this may increase the volatility of
the Funds' investment performance. Also, if the securities in which a Fund
invests perform poorly, the Fund could incur greater losses than it might have
had it invested in a larger number of securities.
The value of the Funds' investments and the returns they generate vary from
day to day. Performance depends on WAM's skills 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. When you sell your shares,
they may be worth more or less than you paid for them. The Funds are not, alone
or together, a balanced investment plan and there can be no assurance that the
Funds will achieve their investment objectives.
<PAGE>
EXPENSES AND PERFORMANCE
================================================================================
Expenses
- --------------------------------------------------------------------------------
Transaction Expenses. Shareholder transaction expenses are charges you pay
when you buy or sell shares of the Funds:
Maximum sales charge on purchases and
reinvested dividends None
Deferred sales charge on redemptions None
Redemption fee None
Annual fund operating expenses. Each Fund pays its own operating expenses,
including the management fee to WAM. Expenses are factored into each Fund's
share price daily, and are not charged directly to shareholder accounts.
The Funds expect to incur the following expenses, expressed as a percentage
of the Fund's average net assets:
<TABLE>
<CAPTION>
Wanger
Wanger Foreign
Twenty Forty
<S> <C> <C>
Management Fee.................................. 0.95% 1.00%
12b-1 fee....................................... None None
Other operating expenses (after reimbursement).. 0.40 0.45
---- ----
Total operating expenses (after reimbursement).. 1.35% 1.45%
</TABLE>
The purpose of the expense table is to help you understand the costs and
expenses of investing in the Funds. WAM has agreed to reimburse Wanger Twenty
for any ordinary operating expenses exceeding 1.35% of its average net assets,
and Wanger Foreign Forty for any ordinary operating expenses exceeding 1.45% of
its average net assets, over each fiscal year. Absent reimbursement, "Other
operating expenses" would be estimated to be 0.68% for Wanger Twenty, and 2.51%
for Wanger Foreign Forty. "Total operating expenses" absent reimbursement would
be estimated to be 1.63% for Wanger Twenty and 3.51% for Wanger Foreign Forty.
The estimate of "Other operating expenses" is based on the estimated expenses
the Funds expect to incur during their initial fiscal year of operations ending
December 31, 1999.
3
<PAGE>
.Example: Let's say, hypothetically, that a 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 you would have paid in total expenses if you closed
your Fund account after the number of years indicated:
Wanger Twenty Wanger Foreign Forty
------------- --------------------
After 1 year $ 14 $15
After 3 years $ 43 $46
The purpose of the example is to illustrate the effect of expenses, but is
not meant to suggest actual or expected costs or returns, all of which may vary.
Because the Funds are new, the above amounts are estimates.
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 SAI), or give their ratings or rankings determined by an
unrelated organization.
Information about the performance of the Funds is contained in the
Trust's annual report which may be obtained free of charge by calling WAM at:
1-800-4-WANGER (1-800-492-6437).
Total returns quoted for the Funds include the effect of deducting
each Fund's expenses, but do 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 alternatives.
4
<PAGE>
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. 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 (1-800-492-6437).
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. The Funds have imposed certain additional restrictions on sales to
Retirement Plans to reduce their expenses. To be eligible to invest in the
Funds, a Retirement Plan must be domiciled in a state in which Fund shares may
be sold without payment of a fee to the state. 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. The Funds do not intend to offer
shares in states where the sale of Fund shares requires the payment of a fee. A
Retirement Plan may call WAM at 1-800-4-WANGER (1-800-492-6437) to determine if
it is eligible to invest.
How to Invest and Redeem
- --------------------------------------------------------------------------------
Shares of Wanger Twenty and Wanger Foreign Forty 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.
5
<PAGE>
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 a Fund or
its agent receives 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.
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 (if authorized under
state law), 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
6
<PAGE>
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 available for sale
without payment of a fee under any applicable state securities law. 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 have limited the number of exchanges to no more
than four 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 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 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.
7
<PAGE>
SHAREHOLDER POLICIES
================================================================================
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.
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. 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.
A purchase or redemption of Fund shares will be priced at the next NAV
calculated after the purchase or redemption request is received 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.
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 value. Values of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates. Because of the different trading hours in various foreign markets, the
calculation of NAV does not take place at the same time as the determination of
the prices of many foreign securities held by the Funds, particularly Wanger
Foreign Forty. Those timing differences may have a significant effect on a
Fund's NAV.
8
<PAGE>
THE FUNDS IN DETAIL
================================================================================
Organization
- --------------------------------------------------------------------------------
Wanger Twenty and Wanger Foreign Forty 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. A majority of the trustees are independent
of WAM.
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. (WAM), 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606; WAM 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. WAM manages more than $7 billion in assets.
WAM employs a team approach to management of the Funds. The management team
is made up of the lead portfolio manager or co-managers, other WAM portfolio
managers and research analysts. Team members share responsibility for providing
ideas, information and knowledge in managing the funds, with each team member
having one or more particular areas of expertise applicable to the management of
the funds. Daily decisions on portfolio selection rest with the lead portfolio
managers or co-portfolio managers who utilize the input and advice of the
management team in making purchase and sale determinations.
Ralph Wanger is the president of the Trust and the chief investment officer
of WAM. Mr. Wanger is also lead portfolio manager of Acorn Fund and chief
investment strategist of Acorn Investment Trust (Acorn Fund, Acorn
International, Acorn USA, Acorn Twenty and Acorn Foreign
9
<PAGE>
Forty). Mr. Wanger has been president and a member of the board of Acorn Fund
and its predecessor since 1970.
John H. Park and Mark H. Yost are the co-portfolio managers of Wanger
Twenty. Mr. Park is a vice president of both the Trust and Acorn Investment
Trust, and is a principal of WAM. He has been a member of WAM's investment
management team since July 1993. Prior to joining WAM, he was an analyst for
Ariel Capital Management. Mr. Park received his Chartered Financial Analyst
(CFA) designation in 1996 and earned both his undergraduate and M.B.A. degrees
from the University of Chicago.
Mr. Yost is a vice president of the Trust and Acorn Investment Trust and
has been a member of WAM's investment management team since October 1995. Mr.
Yost has been co-portfolio manager of Wanger U.S. Smaller Companies Fund, an
investment company offering shares to investors outside the U.S., since its
inception on June 23, 1997. Mr. Yost is also the portfolio manager of the WAM
Yost Partnership, L.P., a smaller company focused limited partnership. Before
joining WAM, Mr. Yost was an investment analyst for First Chicago Corporation.
Mr. Yost received his CFA designation in 1996. Mr. Yost received his B.A. from
St. Olaf College and his M.B.A. from the University of Chicago.
Marcel P. Houtzager and Leah J. Zell are the co-portfolio managers of
Wanger Foreign Forty. Mr. Houtzager is a vice president of the Trust and a
principal of WAM. Mr. Houtzager is also a vice president of Acorn Investment
Trust, and has been a member of WAM's investment management team since 1992. Mr.
Houtzager is the lead portfolio manager of Wanger International Small Cap
Advisor, a mutual fund investing in small cap stocks outside the United States.
Mr. Houtzager received his CFA designation in 1996 and is a Certified Public
Accountant. He received his B.A. from Pomona College in 1983 and his M.B.A. from
the University of California at Berkeley in 1985.
Ms. Zell is a vice president of the Trust and Acorn Investment Trust, and
is a principal of WAM. She has been analyzing international securities for Acorn
Fund since 1984, and Acorn International since 1992. Ms. Zell is lead portfolio
manager of Wanger International, a mutual fund investing in smaller foreign
companies with assets at June 30, 1998 of more than $1.8 billion. Ms. Zell
received her CFA designation in 1987. She earned her undergraduate degree from
Radcliffe College and holds a Ph.D. from Harvard University.
Since June 23, 1997, Mr. Houtzager and Ms. Zell have co-managed the Wanger
European Smaller Companies Fund, an investment company offering shares to
investors outside the United States.
Merrillyn J. Kosier, senior vice president and secretary, and Bruce H.
Lauer, vice president and treasurer, are the other executive officers of the
Trust. Ms. Kosier is the Director of Marketing and Shareholder Services at WAM,
and Mr. Lauer is WAM's Chief Administrative Officer. Prior to joining WAM, Ms.
Kosier and Mr. Lauer were both employed at Kemper Financial Services, where Ms.
Kosier served as Vice President of Marketing, and Mr. Lauer was First Vice
President of Investment Accounting.
10
<PAGE>
Other Funds Managed by WAM
- --------------------------------------------------------------------------------
In addition to serving as investment adviser to the Trust, WAM is also
investment adviser to the Acorn Family of Funds, some of which may have
investment objectives and investment strategies that are the same or similar to
the Funds', and may have the same portfolio managers as the Funds. However, the
Funds are separate entities that will have different investments, and different
investment performance, than those other funds.
Transfer Agent and Custodian
- --------------------------------------------------------------------------------
State Street Bank and Trust Company ("State Street") is the Funds' transfer
agent and custodian.
The smooth operation of the Funds depends on the ability of State Street and the
other service providers to the Fund to provide those services without
interruption. Some computer systems used today are unable to process date-
related information because they are not programmed to distinguish between the
year 2000 and the year 1900. WAM, like many other businesses, is taking steps to
ensure that the computer systems on which the smooth operation of the Funds
depends will continue to function properly. WAM is working with the service
providers to the Funds, such as State Street and various broker-dealers through
which portfolio securities of the Funds are traded, to arrange for testing of
internal and external systems. Based on the information currently available, WAM
does not anticipate any material impact on the delivery of services currently
provided. There can be no assurance, however, that the steps taken by WAM in
preparation for the year 2000 will be sufficient to avoid any adverse impact on
the Funds; in addition, shareholders should be aware that year 2000 problems may
also be encountered by Life Companies or Retirement Plans.
Distributor
- --------------------------------------------------------------------------------
Shares of the Funds are offered for sale through WAM Brokerage Services,
L.L.C. ("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 may impose such charges on participants in a Retirement Plan.
WAM BD is wholly-owned by WAM, the Funds' investment adviser, and the investment
adviser's general partner, Wanger Asset Management, Ltd. WAM BD'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 WAM BD.
Expenses
- --------------------------------------------------------------------------------
Like all mutual funds, each Fund pays expenses related to its 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." While the
management fee is a significant component of each Fund's annual operating costs,
the Funds have other expenses as well. Each
11
<PAGE>
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 state 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 withdraw 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.
12
<PAGE>
Pursuant to current interpretations of the Investment Company Act of 1940
(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.
HOW THE FUNDS INVEST
================================================================================
Wanger Twenty and Wanger Foreign Forty seek long-term growth of capital.
The investment philosophy and strategy of each of the Funds is discussed in the
following paragraphs.
Wanger Twenty
- --------------------------------------------------------------------------------
Wanger Twenty invests primarily in the stocks of U.S. companies with market
capitalizations of $1 billion to $10 billion. Wanger Twenty is a non-diversified
fund that ordinarily focuses its investments in 20 to 25 U.S. companies.
Under normal market conditions, Wanger Twenty invests most of its assets in
common stocks, and securities exchangeable or convertible into common stocks, of
U.S. companies, but may also invest in other types of securities. The Fund may
invest up to 15% of its total assets in foreign securities. Generally, the Fund
will invest in the securities of a foreign-based company only if its operations
are primarily located in the United States.
Wanger Twenty looks for high quality companies. As a long-term investor,
the Fund expects that its portfolio turnover rate will not ordinarily exceed 50%
annually.
Wanger Foreign Forty
- --------------------------------------------------------------------------------
Wanger Foreign Forty invests primarily in the stocks of foreign companies
with market capitalizations of $1 billion to $10 billion. The Fund is a non-
diversified fund that ordinarily has investments in 40 to 60 companies and
invests in developed markets.
Under normal market conditions, Wanger Foreign Forty invests at least 85%
of its total assets in equity securities of foreign companies, including common
and preferred stocks, warrants or other similar rights, and convertible
securities, but may also invest in any other type of security,
13
<PAGE>
including debt securities. The Fund ordinarily invests in at least three
countries. The Fund invests primarily in developed countries but may invest up
to 15% of its total assets in securities of companies in emerging markets. The
Fund's investments in emerging markets are generally in companies that receive a
significant portion of their revenues from, or have a significant portion of
their assets in, developed markets. The Fund does not invest in "frontier"
markets. The Funds use the definitions of "developed," "emerging," and
"frontier" markets published from time to time by the International Financial
Corporation, a member of the World Bank Group. The Fund may invest up to 15% of
its total assets in the securities of U.S. companies. Generally, the Fund
invests in a U.S. company only if its operations are primarily located outside
the United States.
Like Wanger Twenty, Wanger Foreign Forty looks for high quality companies.
As a long-term investor, the Fund expects that its portfolio turnover rate will
not ordinarily exceed 50% annually.
Looking for high quality companies
- --------------------------------------------------------------------------------
Wanger Twenty and Wanger Foreign Forty look for quality businesses, with
each investment ideally resting on a solid tripod of growth potential, financial
strength, and fundamental value. The emphasis on fundamentals in relation to
price sets the Funds apart from pure "growth" or "value" funds. 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. Fundamental value means low relative
price. The existence of a good company does not necessarily make its stock a
good buy. The price of the stock determines value as measured relative to
dividends, earnings, cash flow, growth rate, book value, and economic
replacement value of assets. Sometimes, value is found in a "special situation."
A special situation arises when WAM believes the securities of a particular
company have been overlooked or undervalued by other investors in connection
with a significant change or development affecting the company's business, and
will, within a reasonable time, appreciate in value regardless of general
business conditions or movements of the market as a whole. Developments creating
special situations might include, among others, the following: liquidations,
reorganizations, recapitalizations or mergers; material litigation;
technological breakthroughs; and new management or management policies. Although
investing in securities of special situation companies offers the potential for
above-average returns, if the anticipated development does not occur or produce
the expected results, the value of those securities may decline.
WAM also believes that finding and understanding high quality companies is
important to reduce taxes and transaction costs. In managing the Funds, WAM
tries to reduce these costs by investing with a long-term time horizon (at least
2-5 years) and avoiding frequent turnover of the stocks held by the Funds.
Occasionally, however, securities purchased on a long-term basis may be
14
<PAGE>
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.
General Information
- --------------------------------------------------------------------------------
Each 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. If investments in foreign securities appear to be
relatively unattractive because of current or anticipated adverse political or
economic conditions, Wanger Foreign Forty may hold cash or invest any portion of
its assets in securities of the U.S. government and equity and debt securities
of U.S. companies, as a temporary defensive measure. 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 its portfolio. These techniques may 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 each Fund is not fundamental and may be changed
by the board of trustees without shareholder approval. If there were such a
change, you should consider whether a Fund would remain an appropriate
investment in light of your then current financial position and needs. The Funds
are not intended, alone or together, to present a balanced investment program.
SECURITIES, INVESTMENT PRACTICES, AND RISKS
================================================================================
The following pages contain more detailed information about types of
investments each Fund may make, and strategies WAM may employ in pursuit of each
Fund's investment objective, including information about the associated risks
and restrictions. 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 the time of purchase; the sale of an
investment 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 fullest extent permitted, unless it believes that doing so will help the
Fund achieve its goal.
Common stocks
- --------------------------------------------------------------------------------
The Funds invest mostly in common stocks, which represent an equity
interest (ownership) in a corporation. This ownership interest often gives the
Funds the right to vote on measures affecting the company's organization and
operations. The Funds also invest in other types of equity securities, including
preferred stocks and securities convertible into common stocks. Over time,
common stocks have historically provided superior long-term capital growth
potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the Funds should be
considered long-term investments, designed to provide the best results when held
for several years or more. The Funds may not be suitable investments if you have
a short-term
15
<PAGE>
investment horizon or are unwilling to accept fluctuations in share price,
including significant declines over a given period.
Diversification
- --------------------------------------------------------------------------------
Diversification is a means of reducing risk by investing in a broad range
of stocks or other securities. Because they are non-diversified, the Funds have
the ability to take larger positions in a smaller number of issuers. The
appreciation or depreciation of a single stock may have a greater impact on the
NAV of a non-diversified fund, because it is likely to have a greater percentage
of its assets invested in that stock. As a result, each Fund's share price can
be expected to fluctuate more than that of broadly diversified funds investing
in similar securities. Because they are non-diversified, the Funds are not
subject to the limitations under the 1940 Act in the percentage of their assets
that they may invest in any one issuer. Both Funds, however, intend to comply
with the diversification standards for regulated investment companies under
Subchapter M of the Code (summarized below under "Restrictions") and Section
817(h) of the Code (see "Dividends and Taxes").
Restrictions:
-------------
. A 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;
. With respect to 50% of its total assets, a Fund may not purchase the
securities of any issuer (other than cash items and U.S. government securities
and securities of other investment companies) if such purchase would cause the
Fund's holdings of that issuer to exceed 5% of the Fund's total assets.
. A Fund may not invest more than 25% of its total assets in a single
issuer (other than U.S. government securities); and
. A Fund will not invest more than 25% of its total assets in the
securities of companies in a single industry (excluding U.S. government
securities).*
Foreign Securities
- --------------------------------------------------------------------------------
Wanger Foreign Forty invests primarily in foreign securities. International
investing allows you 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. During other periods, however, some
foreign markets have declined, and there can be no assurance that a country's
economy will remain stable or more favorable than the U.S. economy.
- --------------------
* These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
16
<PAGE>
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, including: fluctuations in exchange rates of foreign
currencies; imposition of exchange control regulations or currency restrictions
that would prevent cash from being brought 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; lack of
uniform accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity, frequently greater
price volatility, and higher transaction costs in foreign markets than in the
United States; possible imposition of foreign taxes; possible investments in
securities of developing as well as developed countries; and sometimes less
advantageous legal, operational, and financial protections applicable to foreign
sub-custodial arrangements. 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.
Wanger Foreign Forty invests primarily in developed markets, but, as
discussed above under "How the Funds Invest Wanger Foreign Forty," the Fund may
invest up to 15% of its total assets in emerging markets. The securities markets
of emerging countries are substantially smaller, less developed, less liquid,
and more volatile than the securities markets of the U.S. and other more
developed countries. Disclosure and regulatory standards in many respects are
less stringent than in the United States. 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.
Wanger Twenty may invest no more than 15% of its total assets in foreign
securities and will generally invest in a foreign-based company only if that
company's operations are primarily located in the United States. Wanger Twenty's
foreign investments may include securities in developed and emerging markets.
The Funds may invest from time to time in securities of foreign issuers
directly or in the form of American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) 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. GDRs
are receipts that trade in U.S. or non-U.S. markets.
The Funds may invest in both "sponsored" and "unsponsored" ADRs, EDRs, and
GDRs. In the case of a sponsored depositary receipt, the issuer typically pays
some or all of the expenses of the depository and agrees to provide its regular
shareholder communications to its holders. An unsponsored depositary receipt is
created independently of the issuer of the underlying security. The holders of a
depositary receipt generally pay the expenses of the depository and do not have
an
17
<PAGE>
undertaking from the issuer of the underlying security to furnish shareholder
communications. Each Fund may invest in depositary receipts 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 depositary
receipt.
Each Fund may invest in securities purchased on a when-issued and delayed
delivery basis. Although the payment terms of such a security are established at
the time a Fund enters into the commitment, the security may be delivered and
paid for a month or more after the date of purchase, when its 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.
Several European countries, including Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain,
adopted a single, uniform currency known as the "euro," effective January 1,
1999. The euro conversion could have potential adverse effects on the Funds'
ability to value their portfolio holdings in foreign securities, and could
increase the costs associated with the Funds' operations. The Trust and WAM are
working with the providers of services to the Funds in the areas of clearance
and settlement of trades in an effort to avoid any material impact on the Funds
due to the euro conversion; there can be no assurance, however, that the steps
taken by the Trust or WAM will be sufficient to avoid any adverse impact on the
Funds.
Restrictions:
-------------
. Under normal market conditions, Wanger Foreign Forty invests at least 85%
of its total assets in foreign securities. The Fund ordinarily has investments
in at least three developed countries. The Fund may invest up to 15% of its
total assets in securities of companies in emerging markets.
. Wanger Twenty may invest up to 15% of its total assets in foreign
securities. Wanger Twenty's foreign investments are generally in companies whose
operations are primarily in the U.S., and may include securities in developed
and emerging markets.
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, entering into currency exchange contracts or swap agreements, or
selling securities short against the box.
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 the Funds'
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
18
<PAGE>
risk assumed. These techniques are used by the Funds for hedging, risk
management, or portfolio management purposes and are not used 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
foreign currency 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, foreign exchange dealers,
or 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 that currency. When the Funds own or anticipate owning securities in
countries whose currencies are linked, WAM may aggregate those positions as to
the currency hedged. Although forward contracts may be used to protect the Funds
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. Each Fund may enter into stock index or currency
futures contracts (or options thereon) to hedge a portion of its portfolio, to
provide an efficient means of regulating its 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.
Short sales against the box. Each Fund may make short sales of securities
if, at all times when a short position is open, the Fund owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and equal
in amount to, the securities sold short. This technique is called selling short
"against the box." Selling short against the box may protect the Fund against
the risk of losses in the value of the portfolio securities sold short because
losses on the securities sold short should be wholly or partially offset by
gains in the short position (although this also means that the Fund would be
giving up the opportunity for gain).
19
<PAGE>
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 its 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.
Each 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. If investments in foreign securities appear to be
relatively unattractive because of current or anticipated adverse political or
economic conditions, Wanger Foreign Forty may hold cash or invest any portion of
its assets in securities of the U.S. government and equity and debt securities
of U.S. companies, as a temporary defensive measure. To meet liquidity needs
(which, under normal market conditions, are not expected to exceed 25% of 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 in which
the Funds may invest.
20
<PAGE>
. Neither Fund intends to invest more than 20% of its total assets in
debt securities, nor more than 5% of its total assets in debt securities rated
at or lower than the lowest investment grade.
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
pursuant to certain legal restrictions. Difficulty in selling securities may
result in delays or a loss, or may be costly to the Funds.
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.
Other Investment Companies
- -------------------------------------------------------------------------------
The Funds may invest from time to time in shares of other mutual funds and
other types of 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. 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. Neither Fund intends to invest
in such circumstances unless, in the judgment of WAM, the potential benefits of
such investment justify the payment of any applicable premium or sales charge,
and the additional layer of expense.
Restrictions:
. Each 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 voting
stock of the acquired investment company at the time of investment.
Lending and Repurchase Agreements
- -------------------------------------------------------------------------------
A Fund generally may not make loans, but each Fund has the power to invest
in repurchase agreements and reverse repurchase agreements (generally as a cash
management technique). 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 a bankruptcy of the seller, the Fund could
experience both losses and delays in liquidating its collateral.
21
<PAGE>
Restrictions:
A Fund may generally not make loans, but may (a) invest in debt securities
within the limits described in the prospectus and SAI, (b) invest in repurchase
agreements, or (c) lend up to 33% of its portfolio securities.*
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.
- -----------------------
* These restrictions are "fundamental," which means that they cannot be
changed without shareholder approval.
22
<PAGE>
DIVIDENDS AND TAXES
================================================================================
Each Fund intends 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. Those requirements
are different from the diversification standards imposed on each Fund by
Subchapter M of the Code. 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 SAI for additional
discussion.
23
<PAGE>
WANGER ADVISORS TRUST
================================================================================
Trustees Fred D. Hasselbring Ralph Wanger
Charles P. McQuaid Patricia H. Werhane
P. Michael Phelps
- --------------------------------------------------------------------------------
Officers Ralph Wanger, President
Marcel P. Houtzager, Vice President
Kenneth A. Kalina, Assistant Treasurer
Merrillyn J. Kosier, Senior Vice President and Secretary
Bruce H. Lauer, Vice President and Treasurer
Charles P. McQuaid, Senior Vice President
Robert A. Mohn, Vice President
John H. Park, Vice President
Mark H. Yost, Vice President
Leah J. Zell, Vice President
- --------------------------------------------------------------------------------
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
24
<PAGE>
WANGER ADVISORS TRUST 227 West Monroe Street
STATEMENT OF ADDITIONAL INFORMATION Suite 3000
December 15, 1998 Chicago, Illinois 60606
1-800-4-WANGER
(1-800-492-6437)
WANGER TWENTY
WANGER FOREIGN FORTY
<TABLE>
<CAPTION>
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TABLE OF CONTENTS Page
----------------- ----
<S> <C>
Information About the Funds............................................. 2
Investment Objectives and Policies...................................... 2
Investment Techniques and Risks......................................... 2
Performance Information................................................. 21
Investment Adviser...................................................... 22
Distributor............................................................. 23
The Trust............................................................... 24
Trustees and Officers; Certain Shareholders............................. 25
Purchasing and Redeeming Shares......................................... 27
Additional Tax Information.............................................. 28
Portfolio Transactions.................................................. 29
Custodian............................................................... 30
Independent Auditors.................................................... 31
Appendix - Description of Bond Ratings.................................. 32
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</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 Twenty and Wanger Foreign Forty (each, a "Fund," together, the "Funds")
dated the date of this SAI and any supplement thereto, which may be obtained
from Wanger at no charge by writing or telephoning Wanger at its address or
telephone number shown above.
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.
<PAGE>
Information About the Funds
Wanger Twenty invests for long-term capital growth. The Fund invests
primarily in the stocks of U.S. companies with market capitalizations of $1
billion to $10 billion. Wanger Twenty is a non-diversified fund that ordinarily
focuses its investments in 20 to 25 U.S. companies.
Wanger Foreign Forty invests for long-term capital growth. The Fund invests
primarily in the stocks of foreign companies with market capitalizations of $1
billion to $10 billion. The Fund is a non-diversified fund that ordinarily has
investments in 40 to 60 companies and invests in developed markets.
The Funds are non-diversified under the federal securities laws. However,
the Funds comply with the diversification standards established by the tax laws.
See "Investment Techniques and Risks -- Diversification" and "Additional Tax
Information" for more information.
The discussion below supplements the description in the prospectus of the
Funds' investment objectives, policies, and restrictions. For information about
the other funds of the Trust, Wanger U.S. Small Cap and Wanger International
Small Cap, request a copy of that fund's prospectus and SAI, which may be
obtained free of charge by writing or telephoning Wanger at its address or
telephone number shown on the cover page of this SAI.
Investment Objectives and Policies
The Funds invest with the objective of long-term capital growth. The Funds
are not, alone or together, a balanced investment program, and there can be no
assurance that either Fund will achieve its investment objective.
The Funds use the techniques and invest in the types of securities
described below and in the prospectus.
Investment Techniques and Risks
Common Stocks
The Funds invest mostly in common stocks, which represent an equity
interest (ownership) in a corporation. This ownership interest often gives the
Funds the right to vote on measures affecting the company's organization and
operations. The Funds also invest in other types of equity securities, including
preferred stocks and securities convertible into common stocks. Over time,
common stocks have historically provided superior long-term capital growth
potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the Funds should be
considered long-term investments, designed to provide the best results when held
for several years or more. The Funds may not be suitable investments
2
<PAGE>
if you have a short-term investment horizon or are unwilling to accept
fluctuations in share price, including significant declines over a given period.
Diversification
Diversification is a means of reducing risk by investing in a broad range
of stocks or other securities. Because they are non-diversified, the Funds have
the ability to take larger positions in a smaller number of issuers. The
appreciation or depreciation of a single stock may have a greater impact on the
NAV of a non-diversified fund, because it is likely to have a greater percentage
of its assets invested in that stock. As a result, each Fund's share price can
be expected to fluctuate more than that of broadly diversified funds investing
in similar securities. Because they are non-diversified, the Funds are not
subject to the limitations under the Investment Company Act of 1940 on the
percentage of their assets that they may invest in any one issuer. Both Funds
however, intend to comply with the diversification standards for regulated
investment companies under Subchapter M of the Internal Revenue Code (summarized
below under "Investment Restrictions") and Section 817(h) of the Code (see
"Additional Tax Information").
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, Wanger Foreign Forty invests at least
85% of its total assets in foreign securities; Wanger Twenty investments in
foreign securities are limited to not more than 15% of its total assets.
The Funds may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs) 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. GDRs are receipts that may
trade in U.S. or non-U.S. markets. The Funds may invest in sponsored or
unsponsored ADRs, EDRs or GDRs. 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 Funds may invest in both "sponsored"
and "unsponsored" depositary receipts. In a sponsored depositary receipt, the
issuer typically pays some or all of the expenses of the depository and agrees
to provide its regular shareholder communications to receipt holders. An
unsponsored depositary receipt is created independently of the issuer of the
underlying security. The receipt 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. Therefore, in the case of an
unsponsored depositary receipt, a Fund is likely to bear its proportionate share
of the expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a sponsored
3
<PAGE>
depositary receipt. Neither Fund expects to invest 5% or more of its total
assets in unsponsored depositary receipts.
The Funds' investment performance is affected by the strength or weakness
of the U.S. dollar against the currencies of the foreign markets in which its
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
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions," below.)
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; lack of uniform
accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign subcustodial
arrangements. In addition, the costs of investing in foreign securities are
higher than the costs of investing in U.S. securities.
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.
Wanger Foreign Forty invests primarily in developed countries but may
invest up to 15% of its total assets in securities of companies in emerging
markets. Wanger Foreign Forty's investments in emerging markets are generally in
companies that receive a significant portion of their revenues from, or have a
significant portion of their assets in, developed markets. Although there is no
limit on the percentage of its assets that may be invested in emerging markets,
Wanger Twenty's aggregate investments in foreign securities (including both
developed and emerging markets) are limited to no more than 15% of its total
assets. The Funds use the definitions of "developed," "emerging," and "frontier"
markets published from time to time by the International Financial Corporation,
a member of the World Bank Group ("IFC"). The Funds do not invest in "frontier"
markets.
The securities markets of emerging market 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 in many respects are less
4
<PAGE>
stringent than in the United States. There also may be a lower level of
monitoring and regulation of emerging markets of traders, insiders, and
investors. Enforcement of existing regulations has been extremely limited.
Several European countries, including Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, have
adopted a single, uniform currency known as the "euro," effective January 1,
1999. The euro conversion could have potential adverse effects on the Funds'
ability to value their portfolio holdings in foreign securities, and could
increase the costs associated with the Funds' operations. The Trust and WAM are
working with the providers of services to the Funds in the areas of clearance
and settlement of trades in an effort to avoid any material impact on the Funds
due to the euro conversion; there can be no assurance, however, that the steps
taken by the Trust or WAM will be sufficient to avoid any adverse impact on the
Funds.
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,
foreign exchange dealers or 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 a Fund 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. Either 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 a 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, assets of the Fund having a value at least as great as the
Fund's commitment under such forward contract will be segregated on the books of
the Fund and held by State Street Bank and Trust Company, the Funds' custodian
("State Street") 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
5
<PAGE>
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 fund is obligated to deliver.
If a 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 a 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, 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
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. Since 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
6
<PAGE>
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, Wanger Twenty will not invest more than 15% of its
total assets in foreign securities and Wanger Foreign Forty will invest at least
85% of its total assets in foreign securities.
Options and Futures
The Funds may purchase and write both call options and put options on
securities and on indexes, 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.)
A 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 consideration (or,
if additional consideration is required, assets having a value at least equal to
that amount are segregated on the books of the Fund) upon conversion or exchange
of other securities held in its portfolio.
If an option written by a 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 a Fund expires, the Fund realizes a capital loss equal to the
premium paid.
7
<PAGE>
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 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 and is
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. 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 exchanges). 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 its 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. See "Illiquid Securities" below for more
information on the risks associated with investing in OTC derivatives.
Risks Associated with Options. There are several risks associated with
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between 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 foregoes,
during the option's life, the
8
<PAGE>
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
foregoes, during the option's life, the opportunity to profit from currency
appreciation.
If trading were suspended in an option purchased or written by a Fund, it
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 has purchased.
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; the Russell
2000 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 options on futures. Options
on futures 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, each Fund will limit its use of futures contracts and futures options
to hedging transactions. For example, a 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 its securities or the price of the securities that the Fund
intends to purchase. A Fund's 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, a Fund may
___________________
/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.
9
<PAGE>
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's ability to correctly
predict 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.
When a purchase or sale of a futures contract is made by a Fund, it is
required to deposit with State Street or its broker 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 generally set
by the exchange on which the contract is traded; however, the margin requirement
may be modified during the term of the contract, and the Fund's broker may
require margin deposits in excess of the minimum required by the exchange. 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 the Fund and the broker of the amount one would owe the other
if the futures contract had been offset at the close of the previous day. In
computing daily NAV, 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 require 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
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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 issues 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 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 (liquid) 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 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.
___________________
/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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When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with State Street or its broker readily-
marketable securities having a fair market value (including any margin) at least
equal to the market value of such contract. When writing a call option on a
futures contract, the Fund similarly will maintain with State Street readily-
marketable securities having a fair market value (including any margin) at least
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 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 the
Funds invest 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.
Neither Fund will purchase puts, calls, straddles, spreads, or any
combination thereof if by reason of such purchase more than 10% of its total
assets would be invested in such securities.
Taxation of Options and Futures. If a Fund exercises a call or put option
that it holds, the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the security sold
(put). For cash settlement options and futures options exercised by the Fund,
the difference between the cash received at exercise and the premium paid is a
capital gain or loss.
If a call or put option written by a Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by a Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
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Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by a Fund is in-the-money at the time it was written
and the security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding period of the
securities covering an in-the-money option will not include the period of time
the option is outstanding.
If a Fund writes an equity call option/3/ other than a "qualified covered
call option," as defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, the Funds generally are required to
recognize for each taxable year their net unrealized gains and losses as of the
end of the year on futures, futures options, and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual closing of the
positions) is considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions, the related
securities and certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call options (or futures
call options) or buying put options (or futures put options) that are intended
to hedge against a change in the value of securities held by a fund may affect
the holding period of the hedged securities.
If a Fund were to enter into a short index future, short index futures
option, or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
___________________________
/3/ An equity option is defined to mean any option to buy or sell stock, and any
other option the value of which is determined by reference to an index of stocks
of the type that is ineligible to be traded on a commodity futures exchange
(e.g., an option contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on broad-based stock
indexes (such as the Standard & Poor's 500 index).
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The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
In order for each Fund to qualify for federal income tax treatment as a
regulated investment company, at least 90% of its gross income for a taxable
year must be derived from qualifying income, i.e., dividends, interest, income
derived from loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to gains from
options, futures, or forward contracts). Any net gain realized from futures (or
futures options) contracts will be considered gain from the sale of securities
and therefore be qualifying income for purposes of the 90% requirement.
Each Fund intends to distribute to shareholders annually any capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other Fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the Fund. Shareholders will be
advised of the nature of such capital gain distributions.
For further information, see the discussion under "Additional Tax
Information."
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 its 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 invested in such agreements.
A swap agreement tends to shift a Fund's investment exposure from one type
of investment to another. For example, if a 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 a Fund's investments and its NAV.
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
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and from the Fund. If a swap agreement calls for payments by a Fund, the Fund
must be prepared to make such 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. WAM expects to be able to eliminate
each Fund's 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.
Each Fund will segregate its assets to cover its current obligations under
a swap agreement. If a 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 its
accumulated obligations under the swap agreement over the accumulated amount the
Fund is entitled to receive under the agreement. If a 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 its accumulated obligations under the agreement.
Short Sales Against the Box. Each Fund may make short sales of securities
if at all times, when a short position is open, the Fund owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and equal
in amount to, the securities sold short. This technique is called selling short
"against the box." Although permitted by their investment restrictions, the
Funds do not currently intend to sell securities short.
In a short sale against the box, a Fund does not deliver from its portfolio
the securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Fund borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the Fund, to the purchaser of such securities. Such
broker-dealer is entitled to retain the proceeds from the short sale until the
Fund delivers to such broker-dealer the securities sold short. In addition, the
Fund is required to pay to the broker-dealer the amount of any dividends paid on
shares sold short. Finally, to secure its obligation to deliver to such broker-
dealer the securities sold short, the Fund must deposit and continuously
maintain in a separate account with State Street an equivalent amount of the
securities sold short or securities convertible into or exchangeable for such
securities without the payment of additional consideration. The Fund is said to
have a short position in the securities sold until it delivers to the broker-
dealer the securities sold, at which time the Fund receives the proceeds of the
sale. Because the Fund ordinarily will want to continue to hold securities in
its portfolio that are sold short, the Fund will normally close out a short
position by purchasing on the open market and delivering to the broker-dealer an
equal amount of the securities sold short, rather than by delivering portfolio
securities.
Short sales may protect a Fund against the risk of losses in the value of
its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly,
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<PAGE>
and, in the case where the Fund owns convertible securities, changes in the
conversion premium. The Funds will incur transaction costs in connection with
short sales.
In addition to enabling the Funds to hedge against market risk, short sales
may afford a Fund an opportunity to earn additional current income to the extent
the Fund is able to enter into arrangements with broker-dealers through which
the short sales are executed to receive income with respect to the proceeds of
the short sales during the period the Fund's short positions remain open.
The Taxpayer Relief Act of 1997 imposed constructive sale treatment for
federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules taxpayers will recognize gain, but not
loss, with respect to securities if they enter into short sales or "offsetting
notional principal contracts" (as defined by the Act) with respect to the same
or substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. The Secretary of the
Treasury is authorized to promulgate regulations that will treat as constructive
sales certain transactions that have substantially the same effect as short
sales.
Debt Securities
Both 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 either Fund or the portion of each
Fund's assets that may be invested in debt securities in a particular ratings
category. Neither Fund intends to invest more than 20% of its total assets in
debt securities nor more than 5% of its total assets in securities rated at or
lower than the lowest investment grade.
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 "Purchasing and Redeeming Shares -- Net Asset Value."
The market
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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.
Illiquid Securities
Neither Fund may invest in illiquid securities, including restricted
securities and OTC derivatives, if as a result, they would comprise more than
15% of the value of its net assets.
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 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,
either Fund should be in a position where more than 15% of the value of its net
assets are invested in illiquid assets, including restricted securities and OTC
derivatives, that Fund will take appropriate steps to protect liquidity.
Notwithstanding the above, either 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 each Fund's restriction of investing no more
than 15% of the value 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 would be monitored and if,
as a result of changed conditions, it is determined that a Rule 144A security is
no longer liquid, a Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that it 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.
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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, the Funds will enter into repurchase
agreements only with banks and dealers WAM believes 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.
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 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. Under normal circumstances, neither Fund intends to invest more than
5% of its total assets in repurchase agreements.
When-Issued and Delayed Delivery Securities; Reverse Repurchase Agreements
A 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 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 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.
A Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, assets of
the Fund having a value at
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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 State Street throughout the
period of the obligation. The use of these investment strategies, as well as any
borrowing by the Fund, may increase NAV fluctuation. The Funds have no present
intention of investing in reverse repurchase agreements.
Temporary Strategies
Both 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, each 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.
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. Each Fund's portfolio turnover
rate is not expected to exceed 50% under normal market conditions. A high rate
of portfolio turnover, if it should occur, would result in increased transaction
expenses which must be borne by the Funds. High portfolio turnover may also
result in the realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting from such
gains will be considered ordinary income for federal income tax purposes.
Line of Credit
The Trust maintains a line of credit with a bank in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Funds
would be subject to the Funds' restrictions on borrowing under "Investment
Restrictions," below.
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Investment Restrictions
In pursuing their investment objectives, neither Fund will:
1. 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;
2. With respect to 50% of its total assets, purchase the securities of any
issuer (other than cash items and U.S. government securities and securities
of other investment companies) if such purchase would cause the Fund's
holdings of that issuer to exceed more than 5% of the Fund's total assets;
3. Invest more than 25% of its total assets in a single issuer (other than
U.S. government securities);
4. Invest more than 25% of its total assets in the securities of companies
in a single industry (excluding U.S. government securities);
5. Make loans, but this restriction shall not prevent the Fund from (a)
investing in debt securities, (b) investing in repurchase agreements, or
(c) lending its 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);
6. 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;
7. 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;
8. 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;
9. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) foreign currency
contracts;
10. 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;
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11. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
The above restrictions for each Fund are "fundamental," which means that
they cannot be changed without the approval of the lesser of (i) 67% of each
fund's shares present at a meeting if more than 50% of the shares outstanding
are present or (ii) more than 50% of each fund's outstanding shares.
In addition, the Funds are subject to a number of restrictions that may be
changed by the board of trustees without shareholder approval. Under those non-
fundamental restrictions, neither Fund will:
(a) Invest in companies for the purpose of management or the exercise of
control;
(b) Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940;
(c) Invest more than 15% of its net assets (valued at time of investment)
in illiquid securities, including repurchase agreements maturing in more
than seven days;
(d) 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;
(e) Make short sales of securities unless the Fund owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into at least an
equal amount of such securities;
(f) [Wanger Twenty only] Invest more than 15% of its total assets in the
securities of foreign issuers.
(g) [Wanger Foreign Forty only] Invest more than 15% of its total assets in
securities of United States issuers, under normal market conditions.
Notwithstanding the foregoing investment restrictions, the Funds may
purchase securities pursuant to the exercise of subscription rights.
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 the Fund, including the value of shares acquired through
reinvestment of all dividends and capital gains
21
<PAGE>
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
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. The Funds' 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 Funds' 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.
In advertising and sales literature, the Funds' 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., or another service.
The Funds may note their mention or recognition in newsletters, newspapers,
magazines, or other media. The Funds may similarly note mention or recognition
of WAM, or appearances of principals of WAM, in the media.
Investment Adviser
The Funds' investment adviser, Wanger Asset Management, L.P. ("WAM"),
serves as the investment adviser for the Funds and for other institutional
accounts. As of the date of this SAI, WAM has approximately $7 billion under
management, including the Funds. WAM is a limited partnership managed by its
general partner, Wanger Asset Management, Ltd. ("WAM Ltd."), whose stockholders
are Ralph Wanger, Charles P. McQuaid, Leah J. Zell, Marcel P. Houtzager, Robert
A. Mohn, and John H. Park. Ralph Wanger is the president and Howard L. Kastel is
the chief executive officer of WAM Ltd. On matters submitted to the shareholders
of WAM Ltd., each shareholder has one vote (or a lesser vote in the case of new
shareholders). With certain exceptions (including for extraordinary
transactions, for which Mr. Wanger's consent is required), decisions are made by
majority vote. WAM commenced operations in 1992.
WAM furnishes continuing investment supervision to the Funds under an
investment advisory agreement (the "Agreement") and is responsible for overall
management of the Funds'
22
<PAGE>
business affairs. It furnishes office space, equipment and personnel to the
Funds and assumes the expenses of printing and distributing the Funds'
prospectus and reports to prospective investors. The Agreement will continue in
effect as to each of the Funds through June 30, 1999, and thereafter from year
to year so long as its continuance is approved at least annually by (i) the
board of trustees of the Trust or by the holders of a majority of each Fund's
outstanding voting securities as defined by the Investment Company Act of 1940
and (ii) a majority of the members of the Trust's board of trustees who are not
otherwise affiliated with the Trust or WAM, cast in person at a meeting called
for that purpose. Any amendment to the Agreement must be approved in the same
manner. The Agreement may be terminated as to either Fund without penalty by the
vote of the board of trustees of the Trust or the shareholders of that Fund (by
a majority as defined in the 1940 Act) on 60 days' written notice to WAM or by
WAM on 60 days' notice to the Fund, and will terminate automatically in the
event of its assignment.
The advisory fees the Funds pay to WAM are calculated daily and paid
monthly, at the following annual rates: Wanger Twenty, 0.95% of average net
assets; Wanger Foreign Forty, 1.00% of average net assets.
The Funds pay the cost of custodial, stock transfer, dividend disbursing,
audit and legal services, and membership in trade organizations. They also pay
other expenses such as the cost of maintaining the registration of their shares
under federal law, complying with state securities laws, proxy solicitations,
printing and distributing notices and copies of the prospectus and shareholder
reports furnished to existing shareholders, taxes, insurance premiums, and the
fees of trustees not affiliated with WAM.
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,
1998, 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 on a best efforts basis 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 in compliance with
state securities laws. WAM bears all sales and promotional expenses, other than
those borne by a Life Company or Retirement Plan. WAM BD is located at 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
23
<PAGE>
The Trust
The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust dated August 30, 1994. 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. 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 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.
24
<PAGE>
Trustees and Officers; Certain Shareholders
The trustees and officers of the Trust (including their dates of birth and
their principal business activities during the past five years are) are listed
below in alphabetical order:
Fred D. Hasselbring, trustee (8/14/1941)
819 Golf Lane, Wheaton, Illinois 60187; owner, Fred D. Hasselbring and
Associates (retail industry computer systems consulting and sales);
director and executive administrator, The Malachi Corp., Inc. (a non-profit
corporation).
Charles P. McQuaid, trustee and senior vice president* (8/27/1953)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; trustee and senior vice
president, Acorn Investment Trust.
P. Michael Phelps, trustee (9/19/1933)
222 East Chestnut Street, Chicago, Illinois 60611; retired since January
31, 1998; prior thereto, vice president and corporate secretary, Morton
International, Inc.
Ralph Wanger, trustee and president* (6/21/1934)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
Wanger Asset Management, L.P. since July 1992; trustee and president, Acorn
Investment Trust.
Patricia H. Werhane, trustee (9/20/1935)
104 Falcon Drive, Charlottesville, Virginia 22901; Ruffin Professor of
Business Ethics, Darden Graduate School of Business Administration,
University of Virginia, 1993 - present.
Marcel P. Houtzager, vice president (10/26/1960)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst and portfolio manager, Wanger Asset Management, L.P. since April
1992.
Kenneth A. Kalina, assistant treasurer (8/4/1959)
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.
Merrillyn J. Kosier, senior vice president and secretary (12/10/1959)
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.; senior vice president and secretary, Acorn
Investment Trust.
Bruce H. Lauer, vice president and treasurer (7/22/1957)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; chief
administrative officer, Wanger Asset Management, L.P., since April 1995;
vice president and treasurer, Acorn
25
<PAGE>
Investment Trust; director Wanger Investment Company PLC; prior thereto,
first vice president, investment accounting, Kemper Financial Services,
Inc.
Robert A. Mohn, vice president (9/13/1961)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst and portfolio manager, Wanger Asset Management, L.P. since August
1992.
John H. Park, vice president (5/30/1967)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal and
analyst, Wanger Asset Management, L.P. since July 1993; prior thereto,
analyst, Ariel Capital Management.
Mark H. Yost, vice president (_________)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; analyst and
portfolio manager, Wanger Asset Management, L.P., since October 1995; co-
portfolio manager of Wanger U.S. Smaller Companies Fund since June 1997;
portfolio manager of WAM Yost Partnership, L.P.; prior thereto, investment
analyst, First Chicago Corporation.
Leah J. Zell, vice president (5/23/1949)
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; principal,
analyst, and portfolio manager, Wanger Asset Management, L.P., since July
1992; vice president, Acorn Investment Trust.
*Messrs. McQuaid and Wanger are Trustees who are "interested persons" of
the Trust as defined in the Investment Company Act of 1940, and of WAM.
Messrs. McQuaid, Phelps and Wanger 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 and Phelps 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.
The following table shows compensation paid by the Trust during the fiscal
year ended December 31, 1997 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.
26
<PAGE>
<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(2)
==============================================================================================
<S> <C> <C> <C>
Fred D. Hasselbring $5,800 $5,800 $11,600
Trustee
P. Michael Phelps $6,550 $6,550 $13,100
Trustee
James A. Star* $5,800 $5,800 $11,600
Trustee
</TABLE>
*Mr. Star resigned as a trustee effective June 15, 1998.
Purchasing and Redeeming Shares
Shares of the Funds 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 generally 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 generally 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, or for which the
market quotation is determined not to represent a fair value, 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 the
mean of the bid and offer prices of such currencies against U.S. dollars quoted
by any major bank or dealer. If such quotations are not readily available, the
rate of exchange will be determined in accordance with policies established in
good faith by the board of trustees.
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 January, 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, particularly
International Small Cap, may take place in various foreign markets at certain
times on certain days (such as Saturday) when the NYSE is not open for business
and the Funds do not calculate their net asset values. Conversely,
27
<PAGE>
trading in the Funds' portfolio securities may not occur on days when the NYSE
is open. Because of the differences in the days and times at which trading
occurs in various markets, the calculation of net asset value does not take
place contemporaneously with the determinations of the prices of many of the
Funds' portfolio securities. The last sale price included in the calculation of
a Fund's net asset value may be several hours old at the time when it is
included in that calculation, which may have a significant effect on a Fund's
net asset value.
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 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 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, each 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) at the close of each
quarter of the Fund's taxable year, at
28
<PAGE>
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 (3) at the close of each
quarter of the Fund's taxable year, not more than 25% of the value of its total
assets may be invested in securities (other than U.S. Government securities or
the securities of other RICs) of any one issuer.
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. Those requirements are different from the standards for
regulated investment companies under Subchapter M of the Code 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.
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.
29
<PAGE>
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.
The Trust and WAM have adopted codes of ethics that, among other things,
regulate the personal transactions in securities of certain officers, directors,
trustees, partners and employees of the Trust and WAM. 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
30
<PAGE>
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.
31
<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 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.
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.
32
<PAGE>
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.
33
<PAGE>
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 (incorporated by reference to the following
portions of Registrant's 1997 Annual Report; a copy of the report
was filed with the Commission on February 27, 1998, and is not
included in this amendment):
Statement of Investments at December 31, 1997
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1997
Financial Highlights for the period ended December 31, 1995
and for the years ended December 31, 1996 and 1997
Notes to financial statements
Report of Independent Auditors
Wanger U.S. Small Cap (incorporated by reference to the following
portions of Registrant's 1998 Semi-Annual Report; a copy of the
report was filed with the Commission on August 26, 1998, and is not
included in this amendment):
Statement of Investments at June 30, 1998 (unaudited)
Statement of Assets and Liabilities at June 30, 1998
(unaudited)
Statement of Operations for the six months ended June 30,
1998 (unaudited)
Statement of Changes in Net Assets for the year ended
December 31, 1997 and the six months ended June 30, 1998
(unaudited)
Financial Highlights for the period ended December 31, 1995
and for the years ended December 31, 1996 and 1997, and for
the six months ended June 30, 1998 (unaudited)
Notes to financial statements
(ii) Wanger International Small Cap (incorporated by reference to the
following portions of Registrant's 1997 Wanger Advisors Trust Annual
<PAGE>
Report; a copy of the report was filed with the Commission on
February 27, 1998, and is not included in this amendment):
Statement of Investments at December 31, 1997
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the year ended December 31, 1997
Statement of Changes in Net Assets for the years ended
December 31, 1996 and 1997
Financial Highlights for the period ended December 31, 1995
and for the years ended December 31, 1996 and 1997
Notes to financial statements
Report of Independent Auditors
Wanger International Small Cap (incorporated by reference to the
following portions of Registrant's 1998 Semi-Annual Report; a copy
of the report was filed with the Commission on August 26, 1998, and
is not included in this amendment):
Statement of Investments at June 30, 1998 (unaudited)
Statement of Assets and Liabilities at June 30, 1998
(unaudited)
Statement of Operations for the six months ended June 30,
1998 (unaudited)
Statement of Changes in Net Assets for the year ended
December 31, 1997 and the six months ended June 30, 1998
(unaudited)
Financial Highlights for the period ended December 31, 1995
and for the years ended December 31, 1996 and 1997, and for
the six months ended June 30, 1998 (unaudited)
Notes to financial statements
(3) Financial statements included in Part C of this amendment:
None
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, 1997 and June 30, 1998
(unaudited).
Schedules II, IV and V - The required information is not present.
(b) Exhibits:
--------
1. Agreement and Declaration of Trust.(2)
<PAGE>
2. By-laws.(2)
3. None.
4(a). Specimen Share Certificate - Wanger U.S. Small Cap. (1)
4(b). Specimen Share Certificate - Wanger International Small Cap. (1)
5(a). Investment Advisory Agreement - Wanger U.S. Small Cap, dated
January 1, 1998. (5)
5(b). Investment Advisory Agreement - Wanger International Small Cap,
dated January 1, 1998. (5)
5(c). Form of Investment Advisory Agreement Wanger Twenty and Wanger
Foreign Forty.
6(a). Distribution Agreement between Wanger Advisors Trust and WAM
Brokerage Services, L.L.C. dated January 1, 1998. (5)
6(b) Form of Amendment to Distribution Agreement between Wanger Advisors
Trust and WAM Brokerage Services, L.L.C.
7. None.
8(a). Custodian Contract between Wanger Advisors Trust and State Street
Bank and Trust Company. (2)
8(b) Form of Letter Agreement between Wanger Advisors Trust and State
Street Bank and Trust Company applying Custodian Contract and
Transfer Agency and Service Agreement to Wanger Twenty and Wanger
Foreign Forty.
9(a)(1) Amendment No. 1 to the Participation Agreement between Wanger
Advisors Trust and Phoenix Home Life Mutual Insurance Company dated
April 18, 1995 (2) (amendment dated December 16, 1996). (3)
9(a)(2) Amendment No. 1 to the Participation Agreement between Wanger
Advisors Trust and PHL Variable Insurance Company dated February
23, 1995 (2) (amendment dated December 16, 1996). (3)
9(a)(3) Amendment No. 1 to the Participation Agreement between Wanger
Advisors Trust and Providian Life and Health Insurance Company
(formerly National Home Life Assurance Company) dated May 19, 1995
(2) (amendment dated December 16, 1996). (3)
9(a)(4) Participation Agreement between Wanger Advisors Trust and First
Providian Life and Health Insurance Company dated November 15,
1996, and Amendment No. 1 dated December 16, 1996. (3)
<PAGE>
9(a)(5) Participation Agreement between Wanger Advisors Trust and SAFECO
Life Insurance Company dated September 27, 1995 and Form of
Amendment No. 1 dated December 18, 1996. (3)
9(b). Transfer Agency and Service Agreement between Wanger Advisors Trust
and State Street Bank and Trust Company. (2)
10. Legal opinion and consent of Bell, Boyd & Lloyd.
11. Consent of Independent Auditors.
12. None.
13. Subscription Agreement. (2)
14. None.
15. None.
16(a). Computation of performance information - Wanger U.S. Small Cap. (2)
16(b). Computation of performance information - Wanger International Small
Cap. (2)
17(a) Financial data schedule - Wanger U.S. Small Cap.
17(b) Financial data schedule - Wanger International Small Cap.
18 Form of Purchase Application. (2)
______________________________
(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, Securities Act registration no. 33-83548 (the "Registration
Statement") filed on August 25, 1995.
(2) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 2 to the Registration Statement filed on April
19, 1996.
(3) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 3 to the Registration Statement filed on April
30, 1997.
(4) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 5 to the Registration Statement filed November
on 3, 1997.
(5) Incorporated by reference to the exhibit of the same number filed with
post-effective amendment no. 6 to the Registration Statement filed April
28, 1998.
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 prospectus under the caption "Organization and
Management" and in the Statement of
<PAGE>
Additional Information under the caption "Investment Adviser" is
incorporated by reference.
Item 26. Number of Holders of Securities
- ------- -------------------------------
As of August 31, 1998, there were 28 record holders of the
Registrant's shares of beneficial interest of the series designated
Wanger U.S. Small Cap and 45 record holders of the Registrant's
shares of beneficial interest of the series designated Wanger
International Small Cap.
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.
<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.
Name Positions and Offices with Positions and Offices with
Underwriters Registrant
Bruce H. Lauer President Vice President and Treasurer
Merrillyn J. Kosier Senior Vice President and Senior Vice President
Secretary
The principal business of each officer of WAM Brokerage L.L.C. is 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
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.
<PAGE>
(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).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant 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 September 30, 1998.
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.
Name Title Date
---- ----- ----
/s/ Fred D. Hasselbring
- ----------------------- Trustee )
Fred D. Hasselbring )
)
/s/ Charles P. McQuaid )
- ----------------------- Trustee )
Charles P. McQuaid )
)
/s/ P. Michael Phelps )
- ----------------------- Trustee )
P. Michael Phelps )
) September 30, 1998
/s/ Patricia H. Werhane )
- ----------------------- Trustee )
Patricia H. Werhane )
)
/s/ Ralph Wanger )
- ----------------------- Trustee and President )
Ralph Wanger (principal executive )
officer) )
/s/ Bruce H. Lauer )
- ----------------------- Treasurer (principal )
Bruce H. Lauer financial and accounting )
officer)
<PAGE>
Index of Exhibits Filed with this Amendment
-------------------------------------------
<TABLE>
<CAPTION>
Exhibit EDGAR
Number Exhibit No. Exhibit
- ------ ----------- -------
<S> <C> <C>
5(c) EX-99.B5.3 Form of Investment Advisory Agreement --
Wanger Twenty and Wanger Foreign Forty
6(b) EX-99.B6.2 Form of Amendment to Distribution
Agreement between Wanger Advisors Trust
and WAM Brokerage Services, L.L.C.
8(b) EX-99.B8.2 Form of Letter Agreement between Wanger
Advisors Trust and State Street Bank and
Trust Company applying Custodian Contract
and Transfer Agency and Service Agreement
to Wanger Twenty and Wanger Foreign Forty
10 EX-99.B10 Legal opinion and consent of Bell Boyd &
Lloyd
11 EX-99.B11 Consent of Independent Auditors
17(a) EX-27.1 Financial data schedule - Wanger U.S.
Small Cap
17(b) EX-27.2 Financial data schedule - Wanger
International Small Cap
</TABLE>
<PAGE>
Exhibit 5(c)
INVESTMENT ADVISORY AGREEMENT
Wanger Advisors Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end 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 Twenty and Wanger Foreign Forty, series of the Trust (each,
a "Fund," and collectively, the "Funds"), subject to the supervision of the
Board of Trustees of the Trust, for the period and on the terms set forth in
this agreement. If the Trust establishes one or more series in addition to the
Funds named above with respect to which it desires to retain WAM as investment
adviser hereunder, and if WAM is willing to provide such services under this
agreement, the Trust and WAM may add such new series to this agreement, by
written supplement to this agreement. Such supplement shall include a schedule
of compensation to be paid to WAM by the Trust with respect to such series and
such other modifications of the terms of this agreement with respect to such
series as the Trust and WAM may agree. Upon execution of such a supplement by
the Trust and WAM, that series will become a Fund hereunder and shall be subject
to the provisions of this agreement to the same extent as the Funds named above,
except as modified by the supplement.
WAM shall give due consideration to the investment policies and
restrictions and the other statements concerning the Funds 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 Funds as
regulated investment companies. WAM shall be deemed for all purposes to be an
independent contractor and not an agent of the Trust or the Funds, and unless
otherwise expressly provided or authorized, shall have no authority to act or
represent the Trust or the Funds 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 Funds may
invest pursuant to its investment objectives, policies and restrictions, to
place the Funds' portfolio transactions with broker-dealers, and to negotiate
the terms of such transactions, including brokerage commissions on brokerage
transactions, on behalf of the Funds. WAM is authorized to exercise discretion
with each 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.
<PAGE>
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
Funds. WAM shall also assume and pay all other expenses incurred by it in
connection with managing the assets of the Funds, including expenses in
connection with placement of securities orders, all expenses of printing and
distributing the Funds' prospectus and reports to prospective investors (except
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 Funds' shareholders and to
governmental bodies or regulatory agencies; all expenses of proxy solicitations
of the Funds or of the Board of Trustees of the Trust; all expenses of
shareholder meetings; all expenses of typesetting of the Funds' 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 Funds; 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, each Fund shall also pay all
brokers' commissions and other charges relative to the purchase and sale of
portfolio securities for that Fund. Any expenses borne by the Trust that are
attributable solely to the organization, operation or business of a Fund shall
be paid solely out of that 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
<PAGE>
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 a 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.
4. Compensation of WAM. For the services to be rendered and the expenses to
be assumed and to be paid by WAM under this agreement, the Trust shall pay to
WAM fees accrued daily and paid monthly at the annual rates shown below:
Wanger Twenty .95%
Wanger Foreign Forty 1.00%
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 Wanger Twenty in the event the fee and expenses payable
by the Fund in any fiscal year exceed 1.35%, and Wanger Foreign Forty in the
event the fee and expenses payable by the Fund in any fiscal year exceed 1.45%.
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 Funds
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 Funds in connection with the purchase or sale of securities by or
to the Funds 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 Funds for such services in addition to its fee for services as WAM.
Within the limits permitted by law, WAM may receive compensation
<PAGE>
from the Funds for other services performed by it for the Funds 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.
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,
1999, or if later, the date approved by both (a) the vote of a "majority of the
outstanding voting shares of each 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, 2001, 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 each 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 each 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).
<PAGE>
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 called for the purpose of voting on such approval, and (b)
of the holders of a majority of the outstanding shares of each Fund, where
required by the 1940 Act or other applicable law, or otherwise deemed
appropriate by the Board of Trustees of the Trust.
Dated: December __, 1998
WANGER ADVISORS TRUST WANGER ASSET MANAGEMENT, L.P.,
by Wanger Asset Management, Ltd., its
General Partner
By By
----------------------------------- ------------------------------------
<PAGE>
Exhibit 6(b)
AMENDMENT TO
DISTRIBUTION AGREEMENT
between
WANGER ADVISORS TRUST
and
WAM BROKERAGE SERVICES, L.L.C.
This Amendment to the Distribution Agreement is made this ____ day of
December, 1998 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
The Trust and WAM BD entered into a Distribution Agreement (the
"Agreement") dated January 1, 1998 by which WAT appointed WAM BD as principal
underwriter of its shares of beneficial interest (hereinafter called "Shares")
which are currently 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").
The Agreement permits the parties to amend the Agreement "by an instrument
in writing signed by each party against which enforcement of the change, waiver,
discharge or termination is sought." WAT has designated and wishes to offer for
sale to the public shares of two additional series, Wanger Twenty and Wanger
Foreign Forty, and may from time to time hereafter wish to offer for sale to the
public Shares of yet additional series.
WAT has entered into an investment advisory agreement dated January 1, 1999
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.
THEREFORE, WAT and WAM BD agree:
As used in the Distribution Agreement, "Shares" shall include the shares of
beneficial interest of the series of WAT designated Wanger Twenty and Wanger
Foreign Forty.
<PAGE>
ATTEST: WAM BROKERAGE SERVICES, L.L.C.
By:
- ---------------------------------- ----------------------------------
Secretary
ATTEST: WANGER ADVISORS TRUST
By:
- ---------------------------------- ----------------------------------
Secretary
ACKNOWLEDGED:
WANGER ASSET MANAGEMENT, L.P.
By:
------------------------------
ATTEST:
- ----------------------------------
Secretary
<PAGE>
Exhibit 8(b)
Wanger Advisors Trust
227 West Monroe
Suite 3000
Chicago, Illinois 60606-5016
1-800-4-WANGER
(1-800-492-6437)
December __, 1998
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Ladies and Gentlemen:
This is to advise you that Wanger Advisors Trust (the "Trust") has
established two new series of shares to be known as Wanger Twenty and Wanger
Foreign Forty. In accordance with the Additional Funds provision in Section 17
of the Custodian Contract dated January 20, 1995, as amended from time to time,
and in Article 10 of the Transfer Agency and Service Agreement dated January 12,
1995 between the Trust and State Street Bank and Trust Company, the Trust hereby
requests that you act as Custodian and Transfer Agent for each new series.
Please indicate your acceptance of this appointment as Custodian and
Transfer Agent by executing three copies of this Letter Agreement, returning two
copies to us and retaining one copy for your records.
WANGER ADVISORS TRUST
By:
----------------------------------
Merrillyn J. Kosier
Senior Vice President and Secretary
Agreed to this ____ day of December, 1998.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
<PAGE>
Exhibit 10
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
312 372 1121
Fax: 312 372 2098
September 30, 1998
Wanger Advisors Trust
227 West Monroe Street, #3000
Chicago, Illinois 60606
Ladies and Gentlemen:
Wanger Twenty
Wanger Foreign Forty
We have acted as counsel for Wanger Advisors Trust (the "Trust") in
connection with the registration under the Securities Act of 1933, as amended
(the "Act") of an indefinite number of shares of beneficial interest, without
par value (the "Shares"), of the series of the Trust designated Wanger Twenty
and Wanger Foreign Forty (each, a "Series") pursuant to a post-effective
amendment to the Trust's registration statement on Form N-1A, File No. 33-83548
(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 Trustees of the Trust
authorizing the issuance of shares of each Series, the form of certificate to
evidence such shares, and the Registration Statement, including the prospectus
(the "Prospectus") and the Statement of Additional Information (the "SAI").
Based on the foregoing examination, we are of the opinion that:
1. The Trust is validly existing as a trust with transferable shares of
the type commonly called a Massachusetts business trust.
<PAGE>
2. The Trust is authorized to issue an unlimited number of Shares of each
Series; the Shares to be offered for sale by the Prospectus have been
duly and validly authorized by all requisite action of the Trustees,
and no action of the shareholders of the Trust is required in such
connection.
3. When the Shares have been duly sold, issued and paid for as
contemplated by the Prospectus and the SAI such Shares will be validly
and legally issued, fully paid and non-assessable by the Trust.
With respect to the opinion stated in paragraph 3 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.
In giving this opinion we have relied upon the attached opinion of Sullivan
& Worcester LLP to us dated September 30, 1998.
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,
/s/ Bell, Boyd & Lloyd
<PAGE>
Sullivan & Worcester LLP
One Post Office Square
Boston, Mass. 02109
Tel No.: (617) 338-2800
Fax No.: (617) 338-2880 or 2883
Boston
September 30, 1998
Bell, Boyd & Lloyd
Three First National Plaza
- Suite 3300
70 West Madison Street
Chicago, Illinois 60602
Re: Wanger Advisors Trust
---------------------
Ladies and Gentlemen:
You have requested our opinion as to certain matters of Massachusetts law
relating to the organization and shares of Wanger Advisors Trust, a
Massachusetts trust with transferable shares (the "Trust"), established under a
Declaration of Trust dated August 30, 1994 (the "Declaration").
We have reviewed the Declaration and the actions taken by the trustees of
the Trust (the "Trustees") to organize the Trust and to authorize the issuance
and sale of shares of beneficial interest, without nominal or par value (the
"Shares"), of the series known as Wanger Twenty and Wanger Foreign Forty,
respectively, established and designated by resolutions adopted by the Trustees
on September 15, 1998 (each, a "Series"). In this connection we have examined
the By-laws of the Trust, the Prospectus (the "Prospectus") and Statement of
Additional Information (the "SAI") included in Post-Effective Amendment No. 7 to
the Trust's Registration Statement on Form N-1A under the Securities Act of
1933, as amended (the "Securities Act"), Registration No. 33-83548, and
Amendment No. 8 to its Registration Statement under the Investment Company Act
of 1940, as amended, Registration No. 811-8748 (collectively, the "Amendment",
and such Registration Statements, as amended by the Amendment, collectively, the
"Registration Statement"), which you have advised us is about to be filed with
the United States Securities and Exchange Commission (the "SEC"), certificates
of officers of the Trust and of public officials as to matters of fact, and such
other documents and instruments, and such questions of law and fact, as we have
considered necessary or appropriate for purposes of the opinions expressed
herein. We have assumed the genuineness of the signatures on, and the
authenticity of, all documents furnished to us, and the conformity to the
originals of documents submitted to us as copies, which facts we have not
independently verified.
Based upon and subject to the foregoing, we hereby advise you that, in our
opinion, under the laws of Massachusetts:
<PAGE>
Bell, Boyd & Lloyd -2- September 30, 1998
1. The Trust is validly existing as a trust with transferable shares of
the type commonly called a Massachusetts business trust.
2. The Trust is authorized to issue an unlimited number of Shares of each
Series; the Shares to be offered for sale by the Prospectus (the
"Shares") have been duly and validly authorized by all requisite
action of the Trustees, and no action of the shareholders of the Trust
is required in such connection.
3. When the Shares have been duly sold, issued and paid for as
contemplated by the Prospectus and the SAI such Shares will be validly
and legally issued, fully paid and non-assessable by the Trust.
With respect to the opinion stated in paragraph 3 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.
This letter expresses our opinions as to the provisions of the Declaration
and the laws of Massachusetts applying to business trusts generally, but does
not extend to the Massachusetts Securities Act, or to federal securities or
other laws.
You may rely upon the foregoing opinions in rendering your opinion letter
on the same matters which is to be filed with the Amendment as an exhibit to the
Registration Statement, and we hereby consent to the reference to us in the
Prospectus, and to the filing of this letter with the SEC as an exhibit to the
Registration Statement. In giving such consent, we do not thereby concede that
we fall within the category of persons whose consent is required under Section 7
of the Securities Act.
Very truly yours,
/s/ Sullivan & Worcester LLP
SULLIVAN & WORCESTER LLP
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Independent
Auditors" and to the use of our report dated February 4, 1998 for Wanger
Advisors Trust (comprised of the Wanger U.S. Small Cap and Wanger International
Small Cap portfolios) in the Registration Statement (Form N-1A) and its
incorporation by reference in the related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange Commission in this Post-
Effective Amendment No. 7 to the Registration Statement under the Securities Act
of 1933 (Registration No. 33-83548) and in the Amendment No. 8 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-8748).
/s/ ERNST & YOUNG LLP
Chicago, Illinois
September 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended June 30, 1998 and the
financial statements included in registrant's annual reports to shareholders.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> WANGER SMALL CAP US ADVISOR
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 269527
<INVESTMENTS-AT-VALUE> 348833
<RECEIVABLES> 3285
<ASSETS-OTHER> 39
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 352157
<PAYABLE-FOR-SECURITIES> 5431
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 213
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<SHARES-COMMON-STOCK> 14734
<SHARES-COMMON-PRIOR> 12624
<ACCUMULATED-NII-CURRENT> (203)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20992
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 79307
<NET-ASSETS> 346514
<DIVIDEND-INCOME> 813
<INTEREST-INCOME> 551
<OTHER-INCOME> 0
<EXPENSES-NET> 1567
<NET-INVESTMENT-INCOME> (203)
<REALIZED-GAINS-CURRENT> 21005
<APPREC-INCREASE-CURRENT> 22787
<NET-CHANGE-FROM-OPS> 43589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 15423
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2213
<NUMBER-OF-SHARES-REDEEMED> 788
<SHARES-REINVESTED> 686
<NET-CHANGE-IN-ASSETS> 75647
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15410
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1567
<AVERAGE-NET-ASSETS> 313107
<PER-SHARE-NAV-BEGIN> 21.46
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 3.23
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.16
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.52
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended June 30, 1998 and the
financial statements included in registrant's annual reports to shareholders.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> WANGER INTERNATIONAL SMALL CAP ADVISOR
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 121315
<INVESTMENTS-AT-VALUE> 150557
<RECEIVABLES> 1153
<ASSETS-OTHER> 111
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 151821
<PAYABLE-FOR-SECURITIES> 686
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 367
<TOTAL-LIABILITIES> 1053
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 121231
<SHARES-COMMON-STOCK> 7304
<SHARES-COMMON-PRIOR> 7079
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (129)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29173
<NET-ASSETS> 150768
<DIVIDEND-INCOME> 1401
<INTEREST-INCOME> 168
<OTHER-INCOME> 0
<EXPENSES-NET> 1076
<NET-INVESTMENT-INCOME> 493
<REALIZED-GAINS-CURRENT> 1995
<APPREC-INCREASE-CURRENT> 24233
<NET-CHANGE-FROM-OPS> 26721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1533
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 711
<NUMBER-OF-SHARES-REDEEMED> 563
<SHARES-REINVESTED> 77
<NET-CHANGE-IN-ASSETS> 30108
<ACCUMULATED-NII-PRIOR> 1533
<ACCUMULATED-GAINS-PRIOR> (798)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 892
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1076
<AVERAGE-NET-ASSETS> 140271
<PER-SHARE-NAV-BEGIN> 17.05
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 3.74
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<PER-SHARE-NAV-END> 20.64
<EXPENSE-RATIO> 1.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
