As filed with the Securities and Exchange Commission on April 28, 2000
Securities Act Registration No. 33-83548
Investment Company Act File No. 811-8748
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 10
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
--------------------------------------
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 LLC
227 West Monroe Street, Suite 3000 Three First National Plaza
Chicago, Illinois 60606 70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
(Agents for service)
--------------------------------------
Amending Parts A, B and C, and filing exhibits
--------------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[X] on May 1, 2000 pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[ ] on ____________ pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on ____________ pursuant to rule 485(a)(2)
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<PAGE>
Logo
WANGER ADVISORS FUNDS
managed by Wanger Asset Management LP
Wanger U.S. Small Cap
Wanger International Small Cap
Wanger Twenty
Wanger Foreign Forty
100% No-Load Funds
WANGER
PROSPECTUS
MAY 1, 2000
The Securities and Exchange
Commission has not approved or
disapproved these securities or
passed upon the adequacy of this
prospectus. Any representation to
the contrary is a criminal
offense.
<PAGE>
Shares of Wanger U.S. Small Cap, Wanger International Small Cap, Wanger Twenty
and Wanger Foreign Forty are offered to life insurance companies (Life
Companies) for allocation to certain separate accounts to fund qualified and
non-qualified variable annuity or variable life insurance contracts (Variable
Contracts). Shares also may be offered directly to certain pension plans and
retirement arrangements and accounts permitting accumulation of funds on a
tax-deferred basis (Retirement Plans).
WANGER ADVISORS TRUST
227 WEST MONROE STREET
SUITE 3000
CHICAGO, ILLINOIS 60606
800-4-WANGER
(800-492-6437)
<PAGE>
CONTENTS
AT A GLANCE 2 WANGER U.S. SMALL CAP
4 WANGER INTERNATIONAL SMALL CAP
6 WANGER TWENTY
8 WANGER FOREIGN FORTY
MANAGEMENT OF THE FUNDS 10 Portfolio Managers
11 Management Fees
HOW THE FUNDS INVEST 12 The Wanger Philosophy
13 Securities in which the
Funds Invest
14 Summarizing Risk
15 Managing Risk
SHAREHOLDER AND ACCOUNT POLICIES 17 How to Invest and Redeem
19 Statements and Reports
19 Share Price
TAXES 20
FINANCIAL HIGHLIGHTS 21 Wanger U.S. Small Cap
22 Wanger International Small Cap
23 Wanger Twenty
24 Wanger Foreign Forty
<PAGE>
AT A GLANCE
WANGER U.S. SMALL CAP
FUND OBJECTIVE
Wanger U.S. Small Cap seeks long-term growth of capital.
INVESTMENT STRATEGY
The fund invests primarily in the stocks of small- and medium-size U.S.
companies. Wanger U.S. Small Cap generally invests in the stocks of companies
with capitalizations of less than $2 billion with the intention of holding them
as they grow and selling them when they become large. Wanger U.S. Small Cap
believes that these smaller, less-profiled companies may offer higher return
potential than the stocks of large companies.
Throughout this prospectus we've identified the areas that contain specific
information about risk with [GRAPHIC OMITTED]. Please read those areas carefully
to fully understand your investment.
Wanger U.S. Small Cap typically looks for companies with:
o A strong business franchise that offers growth potential.
o Products and services that give the company a competitive advantage.
o A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Wanger U.S. Small Cap invests the majority (under normal market conditions, at
least 65%) of its total assets, at market value at the time of investment, in
companies with total stock market capitalizations of $2 billion or less.
Likewise, under normal market conditions, Wanger U.S. Small Cap generally
invests at least 65% of its total assets in domestic securities.
RISKS OF INVESTING
IN WANGER U.S.
SMALL CAP
[GRAPHIC OMITTED]
Smaller company stocks are often more volatile and less liquid than the stocks
of larger companies. You could lose money on your investment in Wanger U.S.
Small Cap, or the fund could underperform other investments, if:
o The stock market goes down.
o Small-cap stocks trail returns of the overall market.
o The stocks selected for the portfolio do not perform as expected.
YOU MAY WANT TO
INVEST IF YOU
o Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
o Are seeking growth of your capital over the long term (at least 5 years).
Shares of Wanger U.S. Small Cap are sold only to Life Companies and certain
Retirement Plans (see Shareholder and Account Policies on page 17).
YOU MAY NOT WANT TO
INVEST IF YOU
o Are seeking a significant amount of current dividend income.
o Are unwilling to accept short-term fluctuations in share price.
o Are investing for short-term investment goals or needs.
2
<PAGE>
AT A GLANCE
WANGER U.S. SMALL
CAP PERFORMANCE
The chart and table at right illustrate annual fund returns for each of the past
four years as well as a comparison of returns of Wanger U.S. Small Cap, the S&P
500 and the Russell 2000 indexes for the periods listed.
Total returns quoted for the fund include the effect of deducting the fund's
expenses, but do not include charges and expenses attributable to a particular
Variable Contract or Retirement Plan. Because shares of the fund may only be
purchased through a Variable Contract or an eligible Retirement Plan, an
individual owning a Variable Contract or participating in a Retirement Plan
should carefully review the Variable Contract or Retirement Plan disclosure
documents for information on relevant charges and expenses. Excluding these
charges from quotations of the fund's performance has the effect of increasing
the performance quoted. These charges should be considered when comparing the
fund's performance to other investment alternatives.
This information is intended to help you assess the variability of the fund's
returns over the past four years and the potential risks.
Chart
TOTAL RETURN
50
46.59%
40
30 29.41%
25.06%
20
10 8.68%
0 '96 '97 '98 '99
WANGER U.S. SMALL CAP'S HIGHEST AND LOWEST PERFORMING QUARTERS FOR THE FOUR
YEARS ENDED 12/31/1999 WERE:
Percent Change Quarter Ending
- ----------------------------------------------
Highest 17.80% 12/31/99
Lowest -17.69% 9/30/98
The fund's past performance is not an indication of future performance.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 12/31/1999:
Since
1 Year 3 Years Inception*
- ----------------------------------------------
Wanger U.S.
Small Cap 25.06% 20.71% 26.44%
S&P 500+ 21.04% 27.56% 27.47%
Russell 2000+ 21.26% 13.08% 16.31%
* Wanger U.S. Small Cap's inception date was 5/3/1995.
+ Wanger U.S. Small Cap's holdings are not identical to the S&P 500, the
Russell 2000 or any other market index. Therefore, the performance of
Wanger U.S. Small Cap will not mirror the returns of any particular index.
The S&P 500 Index is a broad market-weighted average of U.S. large,
blue-chip companies. The Russell 2000 Index is a market-weighted index of
2000 small companies formed by taking the largest 3000 companies and
eliminating the largest 1000 of those companies. The indexes are unmanaged;
the returns shown include reinvested dividends but not the commissions and
other costs that would be incurred to invest in the securities comprising
an index.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund, not including fees and expenses of your Variable Contract or
Retirement Plan.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .95%
12b-1 fee None
Other expenses .07%
- ------------------------------------------
Total annual fund operating expenses 1.02%
EXAMPLE
This example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. It assumes a $10,000
investment in Wanger U.S. Small Cap for the time period indicated, a 5% total
return each year, reinvestment of all dividends and distributions, and that
operating expenses remain constant at the level shown. Your actual returns and
costs may be higher or lower.
1 Year $ 104
3 Years $ 325
5 Years $ 563
10 Years $1,248
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
3
<PAGE>
AT A GLANCE
WANGER INTERNATIONAL SMALL CAP
FUND OBJECTIVE
Wanger International Small Cap seeks long-term growth of capital.
INVESTMENT STRATEGY
Wanger International Small Cap invests primarily in the stocks of companies
based outside the U.S. (or whose primary business takes place outside the U.S.)
with capitalizations of less than $2 billion with the intention of holding them
as they grow and selling them when they become large. Wanger International Small
Cap believes that these smaller, less-profiled companies - particularly outside
the U.S. - may offer higher return potential than the stocks of large companies.
Wanger International Small Cap typically looks for companies with:
o A strong business franchise that offers growth potential.
o Products and services that give the company a competitive advantage.
o A stock price that the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Wanger International Small Cap invests the majority (under normal market
conditions, at least 65%) of its total assets, at market value at the time of
investment, in companies with total stock market capitalizations of $2 billion
or less. Likewise, under normal market conditions, Wanger International Small
Cap will generally invest at least 65% of its total assets in foreign securities
in developed and emerging markets.
RISKS OF INVESTING IN WANGER INTERNATIONAL SMALL CAP
[GRAPHIC OMITTED]
Smaller company stocks are often more volatile and less liquid than the stocks
of larger companies. You could lose money on your investment in Wanger
International Small Cap, or the fund could underperform other investments, if:
o International stock markets go down.
o Foreign small- to mid-cap stocks trail returns of the overall market.
o The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
o Political or economic instability.
o Higher transaction costs.
o Currency exchange rate fluctuations.
YOU MAY WANT TO
INVEST IF YOU
o Are seeking to diversify your existing equity holdings with a fund that
invests in the stocks of companies outside the U.S.
o Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
o Are seeking growth of your capital over the long term (at least 5 years).
Shares of Wanger International Small Cap are sold only to Life Companies and
certain Retirement Plans (see Shareholder and Account Policies on page 17).
YOU MAY NOT WANT TO
INVEST IF YOU
o Are seeking a significant amount of current dividend income.
o Are unwilling to accept short-term fluctuations in share price.
o Are investing for short-term investment goals or needs.
4
<PAGE>
AT A GLANCE
WANGER INTERNATIONAL
SMALL CAP
PERFORMANCE
The chart and table at right illustrate annual fund returns for the past four
years as well as a comparison of returns of Wanger International Small Cap, EAFE
and EMI for the periods listed.
Total returns quoted for the fund include the effect of deducting the fund's
expenses, but do not include charges and expenses attributable to a particular
Variable Contract or Retirement Plan. Because shares of the fund may only be
purchased through a Variable Contract or an eligible Retirement Plan, an
individual owning a Variable Contract or participating in a Retirement Plan
should carefully review the Variable Contract or Retirement Plan disclosure
documents for information on relevant charges and expenses. Excluding these
charges from quotations of the fund's performance has the effect of increasing
the performance quoted. These charges should be considered when comparing the
fund's performance to other investment alternatives.
This information is intended to help you assess the variability of the fund's
returns over the past four years and the potential risks. The fund's performance
during 1999 was achieved during extraordinary market conditions and is highly
unlikely to be repeated.
* Wanger International Small Cap's inception date was 5/3/1995.
+ Wanger International Small Cap's holdings are not identical to the EAFE,
the EMI or any other market index. Therefore, the performance of Wanger
International Small Cap will not mirror the returns of any particular
index. Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an
unmanaged index of companies throughout the world in proportion to world
stock market capitalizations, excluding the U.S. and Canada. EMI (World
ex-U.S.) is Salomon Smith Barney's index of the bottom 20% of
institutionally investable capital of countries, selected by Salomon and
excluding the U.S. The indexes are unmanaged; the returns shown include
reinvested dividends but not the commissions and other costs that would be
incurred to invest in the securities comprising an index.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund, not including fees and expenses of your Variable Contract or
Retirement Plan.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees 1.25%
12b-1 fee None
Other expenses 0.24%
- -------------------------------------------
Total annual fund operating expenses 1.49%
Chart
TOTAL RETURN
130
126.37%
120
110
100
90
80
70
60
50
40
32.01%
30
20
10 16.33%
0
(1.46%)
-10 '96 '97 '98 '99
WANGER INTERNATIONAL SMALL CAP'S HIGHEST AND LOWEST PERFORMING QUARTERS FOR THE
FOUR YEARS ENDED 12/31/1999 WERE:
Percent Change Quarter Ending
- --------------------------------------------
Highest 57.43% 12/31/99
Lowest -18.56% 9/30/98
The fund's past performance is not an indication of future performance.
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED 12/31/1999:
Since
1 Year 3 Years Inception*
- -------------------------------------------------------------
Wanger Int'l Small Cap 126.37% 37.42% 38.70%
EAFE+ 26.96% 15.74% 12.75%
EMI (World ex-U.S.)+ 23.52% 7.87% 6.85%
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in Wanger International Small Cap for the time period indicated, a 5%
total return each year, reinvestment of all dividends and distributions, and
that operating expenses remain constant at the level shown. Your actual returns
and costs may be higher or lower.
1 Year $ 152
3 Years $ 471
5 Years $ 813
10 Years $1,779
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
5
<PAGE>
AT A GLANCE
WANGER TWENTY
FUND OBJECTIVE
Wanger Twenty seeks long-term growth of capital.
INVESTMENT STRATEGY
Wanger Twenty invests primarily in the stocks of medium- to larger-size U.S.
companies. Wanger Twenty is a non-diversified fund that takes advantage of its
advisor's research and stock-picking capabilities to invest in a limited number
of companies (between 20-25) with market capitalizations of $2 billion to $12
billion, offering the potential to provide above-average growth over time.
Wanger Twenty believes that companies within this capitalization range are less
profiled, and may offer higher return potential than the stocks of companies
with capitalizations above $12 billion.
Wanger Twenty typically looks for companies with:
o A strong business franchise that offers growth potential.
o Products and services that give the company a competitive advantage.
o A stock price that the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
RISKS OF INVESTING IN
WANGER TWENTY
[GRAPHIC OMITTED]
Wanger Twenty is a non-diversified fund. Therefore, each stock may represent a
significant part of its overall portfolio. The performance of each of these
larger holdings, if any, will have a greater impact on Wanger Twenty's total
return and may make the fund's returns more volatile than a more diversified
fund.
Mid-cap stocks are more volatile and may be less liquid than large-cap stocks.
Mid-cap companies may have a shorter history of operations and a smaller market
for their shares. You could lose money on your investment in Wanger Twenty, or
Wanger Twenty could underperform other investments, if:
o The stock market goes down.
o Mid-cap stocks trail returns of the overall market.
o The stocks selected for the portfolio do not perform as expected.
YOU MAY WANT TO
INVEST IF YOU
o Are seeking to complement your existing domestic equity holdings with a
focused stock fund.
o Are seeking a stock fund that emphasizes the less-profiled stocks of
medium- to larger-sized companies.
o Are seeking growth of your capital over the long term (at least 5 years).
Shares of Wanger Twenty are sold only to Life Companies and certain Retirement
Plans (see Shareholder and Account Policies on page 17).
YOU MAY NOT WANT TO
INVEST IF YOU
o Are seeking a significant amount of current dividend income.
o Are unwilling to accept short-term fluctuations in share price or the more
volatile returns of a non-diversified fund.
o Are investing for short-term investment goals or needs.
6
<PAGE>
AT A GLANCE
WANGER TWENTY
PERFORMANCE
Total return and average annual total return information is not available for
Wanger Twenty because the fund was not in operation throughout 1999.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund, not including fees and expenses of your Variable Contract or
Retirement Plan.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees 0.95%
12b-1 fee None
Other expenses 1.17%
- ---------------------------------------------
Total annual fund operating expenses 2.12%
Wanger Asset Management, L.P. has undertaken to limit Wanger Twenty's annual
expenses to 1.35% of its average net assets. This expense limitation undertaking
is voluntary and is terminable by either the fund or WAM on 30 days' written
notice to the other.
EXAMPLE
This example is intended to help you compare the cost of investing in Wanger
Twenty with the costs of investing in other mutual funds. It assumes you invest
$10,000 in Wanger Twenty for the time period indicated, a 5% total return each
year, reinvestment of all dividends and distributions, and that operating
expenses remain constant at the level shown. Your actual returns and costs may
be higher or lower.
1 Year $ 215
3 Years $ 664
5 Years $1,139
10 Years $2,452
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
7
<PAGE>
AT A GLANCE
WANGER FOREIGN FORTY
FUND OBJECTIVE
Wanger Foreign Forty seeks long-term growth of capital.
INVESTMENT STRATEGY
Wanger Foreign Forty invests primarily in the stocks of medium- to larger-size
companies with market capitalizations of $5 billion to $15 billion. The fund
invests in at least three countries. Wanger Foreign Forty is a non-diversified
fund that takes advantage of its advisor's research and stock- picking
capabilities to invest in a limited number of foreign companies (between 40-60)
in developed markets, offering the potential to provide above-average growth
over time. Wanger Foreign Forty believes that companies within this
capitalization range are less profiled, and may offer higher return potential
than the stocks of companies with capitalizations above $15 billion.
Wanger Foreign Forty typically looks for companies with:
o A strong business franchise that offers growth potential.
o Products and services that give the company a competitive advantage.
o A stock price that the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Wanger Foreign Forty is an international fund and invests the majority of its
assets in the stocks of foreign companies based in developed markets outside the
U.S.
RISKS OF INVESTING IN
WANGER FOREIGN FORTY
[GRAPHIC OMITTED]
Wanger Foreign Forty is a non-diversified fund that ordinarily holds 40 to 60
stocks. Wanger Foreign Forty takes larger positions in some of its stocks than
others. The performance of each of these larger holdings, if any, will have a
greater impact on Wanger Foreign Forty's total return, and may make Wanger
Foreign Forty's returns more volatile than a more diversified international
fund.
Mid-cap stocks are more volatile and may be less liquid than large-cap stocks.
Mid-cap companies may have a shorter history of operations and a smaller market
for their shares. You could lose money on your investment in Wanger Foreign
Forty, or Wanger Foreign Forty could underperform other investments, if:
o International stock markets go down.
o Foreign mid- to large-cap stocks trail returns of the overall market.
o The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
o Political or economic instability.
o Higher transaction costs.
o Currency exchange rate fluctuations.
8
<PAGE>
AT A GLANCE
YOU MAY NOT WANT TO
INVEST IF YOU
o Are seeking to complement your existing equity holdings with a focused
international stock fund.
o Are seeking a stock fund that emphasizes the less-profiled stocks of
medium- to larger- sized companies.
o Are seeking growth of your capital over the long term (at least 5 years).
Shares of Wanger Foreign Forty are sold only to Life Companies and certain
Retirement Plans (see Shareholder and Account Policies on page 17).
YOU MAY NOT WANT TO
INVEST IF YOU
o Are seeking a significant amount of current dividend income.
o Are unwilling to accept short-term fluctuations in share price or the more
volatile returns of a non-diversified fund.
o Are investing for short-term investment goals or needs.
WANGER FOREIGN FORTY
PERFORMANCE
Total return and average annual total return information is not available for
Wanger Foreign Forty because the fund was not in operation throughout 1999.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund, not including fees and expenses of your Variable Contract or
Retirement Plan.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees 1.00%
12b-1 fee None
Other expenses 2.45%
- ---------------------------------------------
Total annual fund operating expenses 3.45%
WAM has undertaken to limit Wanger Foreign Forty's annual expenses to 1.45% of
its average net assets. This expense limitation undertaking is voluntary and is
terminable by either the fund or WAM on 30 days' notice to the other.
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in Wanger Foreign Forty for the time period indicated, a 5% total
return each year, reinvestment of all dividends and distributions, and that
operating expenses remain constant at the level shown. Your actual returns and
costs may be higher or lower.
1 Years $ 348
3 Years $1,059
5 Years $1,793
10 Years $3,730
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
9
<PAGE>
MANAGEMENT OF THE FUNDS
The Wanger Advisors Trust 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 $9 billion in assets.
WAM uses a team of portfolio managers and analysts to manage the funds. Team
members share responsibility for providing ideas, information, and knowledge in
managing the funds, and each team member has one or more particular areas of
expertise. The portfolio managers are responsible for making daily portfolio
selection decisions, and utilize the management team's input and advice when
making buy and sell determinations.
PORTFOLIO MANAGERS
RALPH WANGER Chief investment officer
Ralph Wanger is chief investment strategist of WAM. He is chairman of the board
of Wanger Advisors Trust (the Trust). Mr. Wanger is also lead portfolio manager
of Acorn Fund. He has been president and a member of the board of trustees of
Acorn Investment Trust since 1970, and is a principal of WAM.
CHARLES P. MCQUAID Director of domestic research
Charles McQuaid is a member of the management team of Wanger U.S. Small Cap. He
is a trustee and senior vice president of the Trust. He is also a trustee and
senior vice president of Acorn Investment Trust and co-manager of Acorn Fund.
Mr. McQuaid is a principal of WAM and has worked with Mr. Wanger for 20 years.
ROBERT A. MOHN Lead portfolio manager, Wanger U.S. Small Cap
Robert Mohn is a vice president of the Trust and is the lead portfolio manager
of Wanger U.S. Small Cap. Mr. Mohn is also a vice president of Acorn Investment
Trust, and the lead portfolio manager of Acorn USA. He has been a member of
WAM's domestic analytical team since 1992, and a principal of WAM since 1995.
MARCEL P. HOUTZAGER Portfolio manager, Wanger International Small Cap and Wanger
Foreign Forty
Marcel Houtzager is a vice president of the Trust and is the lead
portfolio manager of Wanger International Small Cap and co-portfolio manager of
Wanger Foreign Forty. Mr. Houtzager is also a vice president of Acorn Investment
Trust, and the co-manager of Acorn Foreign Forty. He has been part of WAM's
international analytical team since 1992, and a principal of WAM since 1995.
JOHN H. PARK Lead portfolio manager, Wanger Twenty
John Park is a vice president of the Trust, and has managed Wanger Twenty since
its inception in February, 1999. Mr. Park is also a vice president of Acorn
Investment Trust and lead portfolio manager of Acorn Twenty. He has been a key
member of WAM's domestic investment team since 1993, and a principal of WAM
since 1998.
10
<PAGE>
PETER A. ZALDIVAR Co-portfolio manager, Wanger International Small Cap
Peter Zaldivar is a vice president of the Trust and is the co-portfolio manager
of Wanger International Small Cap. Mr. Zaldivar has been an analyst at WAM since
1996, and a principal of WAM since 1999. Before joining WAM, he was a vice
president and portfolio manager at Lord Asset Management.
ROGER D. EDGLEY Co-portfolio manager, Wanger Foreign Forty
Roger Edgley is a vice president of the Trust and is the co-portfolio manager of
Wanger Foreign Forty. Mr. Edgley is also a vice president of Acorn Investment
Trust, and the co-portfolio manager of Acorn Foreign Forty. He has been a member
of WAM's international analytical team since 1994, director of international
research since 1998 and a principal of WAM since 1999.
MANAGEMENT FEES
WAM earns the following advisory fees for managing the Wanger Advisors Trust
funds:
- --------------------------------------------------------------------------------
Fund Fee as a % of Average Net Assets During 1999
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap 0.95%
Wanger Int'l Small Cap 1.25%
Wanger Twenty 0.95%
Wanger Foreign Forty 1.00%
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 other services relating to the funds to owners of Variable
Contracts and/or participants in Retirement Plans. These services 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.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
11
<PAGE>
HOW THE FUNDS INVEST
THE WANGER PHILOSOPHY
THE INFORMATION EDGE
WAM invests in less profiled, entrepreneurially managed smaller and mid-sized
companies that WAM believes are benefiting from an important economic, social or
technological trend and whose domination of a niche creates the opportunity for
superior earnings-growth potential.
WAM has built its reputation on innovative thinking and unconventional stock
picks. We rely primarily on our independent, internally generated research to
uncover companies that may be less well known than the more popular names. This
is where WAM adds the greatest value to shareholders. To find these companies,
WAM looks for growth potential, financial strength and fundamental value.
<TABLE>
<CAPTION>
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE
<S> <C> <C>
o superior technology o stability o lower stock price relative
o innovative marketing o reduced risk to growth potential and
o solid management o competitive advantage capitalization
o dominant or niche position o low debt o growth at a reasonable
o superior earnings prospects o adequate working capital price
o fast-growing economy o conservative accounting
practices
The realization of this growth A strong balance sheet gives Once we uncover a great
potential would likely produce management greater flexibility company, we identify a price
superior performance that is to pursue strategic objectives that we believe would also
sustainable over time. and is essential to maintaining make the stock a good value.
a competitive advantage.
</TABLE>
STOCK STRENGTH COMES FIRST
WAM analysts continually screen companies and make more than 1,000 face-to-face
visits around the globe each year. We want to know everything we can about each
WAM investment to avoid surprises. To accomplish this, our analysts talk
directly to top management, vendors, suppliers and competitors, whenever
possible.
We believe that our thorough research helps us maintain lower transaction costs.
In managing the funds, we try to reduce these costs by investing with a
long-term time horizon (at least 2-5 years). Occasionally, however, securities
purchased on a long-term basis may be sold within 12 months after purchase due
to changes in the circumstances of a particular company or industry, or changes
in general market or economic conditions.
12
<PAGE>
SECURITIES IN WHICH THE
FUNDS INVEST
COMMON STOCKS
Each of the Wanger funds invests mostly in common stocks. Common stocks
represent an equity (ownership) interest in a corporation.
Wanger U.S. Small Cap and Wanger International Small Cap invest mainly in the
common stocks of small- and medium-size companies, with market capitalizations
of less than $2 billion. Wanger Twenty and Wanger Foreign Forty invest mostly in
the stocks of companies with market capitalizations of $2-12 billion and $5-15
billion, respectively.
FOREIGN SECURITIES
Wanger International Small Cap and Wanger Foreign Forty invest most of their
assets in non-U.S. securities. Wanger U.S. Small Cap and Wanger Twenty invest
most of their assets in the U.S., and only intend to invest a part of their
assets overseas under certain circumstances (see Portfolio Allocation below).
PORTFOLIO ALLOCATION
Under normal conditions, the funds' common stock investments (as a percentage of
total assets) are limited by the following maximum allocations:
% in U.S. companies % in non-U.S. companies
Wanger U.S. Small Cap no limit up to 35%
- --------------------------------------------------------------------------------
Wanger International
Small Cap up to 35% no limit
- --------------------------------------------------------------------------------
Wanger Twenty* no limit up to 15%
- --------------------------------------------------------------------------------
Wanger Foreign Forty** up to 15% no limit
- --------------------------------------------------------------------------------
*Wanger Twenty normally invests in a non-U.S. company only if its operations
are primarily located within the U.S.
**Wanger Foreign Forty normally invests in a U.S. company only if its operations
are primarily located outside of the U.S.
Wanger's board of trustees may change each fund's investment objective without
shareholder approval.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
13
<PAGE>
SUMMARIZING RISK
[GRAPHIC OMITTED]
When you invest in a mutual fund, you are exposed to certain risks. These
include the risk that you may receive little or no return on your investment, or
that you may even lose part or all of your investment. Investments that provide
higher potential reward also present greater risk. Likewise, investments with
lower potential reward have lower risk. Before investing in one of the Wanger
funds, you should carefully consider the risks associated with that particular
fund. Because of these risks, you should consider an investment in any of the
Wanger funds a long-term investment.
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.
SMALL AND MEDIUM COMPANIES
The Wanger Advisors Trust funds prefer small and medium companies over the
stocks of large companies. During some periods, the stocks of smaller companies
and the stocks of medium companies, as a class, have performed better than the
stocks of larger companies, and in some periods they have performed worse.
Stocks of smaller and medium-size companies may be more volatile and less liquid
than the stocks of larger companies.
FOREIGN SECURITIES
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of similar U.S.
investments, although there can be no assurance that these conditions will
continue.
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks that in some ways may be greater than in U.S.
investments. These risks may have a negative effect on a fund's NAV and include
fluctuations in exchange rates of foreign currencies; less public information
with respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers and issuers of securities; different accounting,
auditing and financial reporting standards; different settlement periods and
trading practices; less liquidity, frequently greater price volatility and
higher transaction costs; and the possible imposition of foreign taxes.
Investing in countries outside the U.S. may also involve political risk.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in such respects as gross domestic product, inflation rates, debt
structure and currency valuation.
Securities markets in emerging countries may be substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
U.S. and other developed countries.
14
<PAGE>
Managing Risk
[GRAPHIC OMITTED]
WAM uses various techniques and practices to try to mitigate the funds' exposure
to risk.
INVESTMENT LIMITATIONS
Each fund has adopted the following investment limitations (generally based upon
a percentage of total assets) that cannot be changed without shareholder
approval:
o Wanger U.S. Small Cap and Wanger International Small Cap are "diversified"
funds, meaning that, as to 75% of the fund's total assets, each fund will
invest not more than 5% of its assets in a single issuer, except for U.S.
government securities. As to the other 25%, Wanger U.S. Small Cap and Wanger
International Small Cap may take larger positions, investing more than 5% in
a single issuer.
o Wanger Twenty is a "non-diversified" fund, which means that the fund invests
at least 50% of its total assets so that no more than 5% is invested in a
single issuer.
o Wanger Foreign Forty, which is registered as a non-diversified fund, has
invested as if it were diversified. If Wanger Foreign Forty continues to
invest in a diversified manner through February 2002 (three years from the
commencement of its operations), the fund will not be able to take advantage
of its non-diversified status without getting shareholder approval to do so.
o None of the funds may invest more than 25% in any one issuer or more than 25%
in any industry (in each case with the exception of U.S. government
securities).
STATE INSURANCE RESTRICTIONS
The funds are sold to 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 herein and in the statement of
additional information. If a fund determines that such a commitment is no longer
in the fund's best interest, the commitment may be revoked by terminating the
availability of the fund to Variable Contract owners residing in such states.
DEFENSIVE INVESTMENT STRATEGIES
The funds' portfolio managers may use the following strategies if they believe
that a temporary defensive position is advisable. With respect to Wanger
International Small Cap and Wanger Foreign Forty, this includes times when
investments in foreign securities appears to be relatively unattractive because
of current or anticipated adverse political or economic conditions.
o Each fund may invest without limit in U.S. corporate and government
obligations.
o Each fund may hold cash or cash equivalents.
o Each fund may hold cash in domestic and foreign currencies and may invest in
domestic and foreign money market securities to meet liquidity needs.
(Generally, this is not expected to exceed 25% of total assets.)
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
15
<PAGE>
During these periods, a fund's assets may not be invested in accordance with its
strategy, and the fund may not achieve its investment objective.
HEDGING STRATEGIES
Each fund may (but is not required to) try to hedge against variations in
exchange rates, or to protect against exposure in the equity markets. Portfolio
managers may try to accomplish this by buying and selling:
o put and call options o currency exchange contracts
o futures contracts o swap agreements
o options on futures contracts
If a fund is not successful when using these techniques, total return could be
adversely affected.
16
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
The funds provide 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
800-4-WANGER (800-492-6437).
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 Life Companies. Shares of the funds are also
offered directly to certain of the following types of qualified plans and
retirement arrangements and accounts, collectively called Retirement Plans:
o a plan described in section 401(a) of the Internal Revenue Code that includes
a trust exempt from tax under section 501(a);
o an annuity plan described in section 403(a);
o an annuity contract described in section 403(b), including a 403(b)(7)
custodial account;
o a governmental plan under section 414(d) or an eligible deferred compensation
plan under section 457(b); and
o a plan escribed 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 fund 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 800-4-WANGER (800-492-6437) to determine if it
is eligible to invest.
HOW TO INVEST AND
REDEEM
Shares of the funds 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 for their
Retirement Plan, for information on the availability of the funds as investment
vehicles for allocations under their Variable Contract or Retirement Plan. In
the case of a Life Company purchaser, particular purchase and redemption
procedures typically are included in an agreement between the funds and the Life
Company. The funds may enter into similar agreements with Retirement Plans.
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.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
17
<PAGE>
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 $200,000 or less), with proceeds paid by check or by wire
transfer.
REDEEMING SHARES IN WRITING
A written redemption request must:
o identify the account owner;
o specify the number of shares or dollar amount to be redeemed;
o be signed on behalf of the owner by an individual or individuals authorized
to do so, and include evidence of their authority;
o if the shares to be redeemed have a value of more than $200,000, 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 include 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 $200,000 or
less may be requested by calling the funds' transfer agent at 800-962-1585. The
funds will not be responsible for unauthorized transactions if they follow
reasonable procedures to confirm that instructions received by telephone are
genuine, such as requesting identification information that appears on a
Retirement Plan's purchase application and requiring permission to record the
telephone call. If you are unable to reach the funds or their transfer agent by
telephone, your redemption request would have to be placed by mail.
18
<PAGE>
EXCHANGING SHARES BY TELEPHONE
To the extent not otherwise provided in an agreement between the funds and a
Retirement Plan shareholder, a Retirement Plan may exchange shares of one fund
for shares of another fund by telephone by calling 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 temporarily or
permanently to 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 the
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.
STATEMENTS AND REPORTS
Semiannual information sent to Life Companies and Retirement Plans includes:
o Schedule of fund investments.
o 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
(the price to buy one share) and the redemption price (price to sell one share)
are a fund's net asset value (NAV) calculated at the next Closing Time after
receipt of an order. Closing Time is the close of regular session trading on the
NYSE, which is usually 3 p.m. Central time.
NAV
A fund's NAV (Net Asset Value) is the value of a single share of the fund. The
NAV is computed by adding up the value of a 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 the Closing Time will get the next day's price.
Each fund's portfolio securities are generally valued on the basis of market
quotations from the primary market in which they are traded. In cases when the
quotations are not readily available, or for which the market quotation is
determined not to represent a fair value, the Trust will use a method that its
trustees believe 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. These timing
differences may have a significant effect on a fund's NAV, on days or at times
when you cannot purchase or redeem fund shares.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
19
<PAGE>
TAXES
Each fund intends to qualify every year as a regulated investment company under
the Internal Revenue Code. By so qualifying, a fund will not be subject to
federal income taxes to the extent that its net investment income and net
realized capital gains are distributed to the shareholders. Each fund also
intends to meet certain diversification requirements applicable to mutual funds
underlying variable insurance products. For more information about the tax
status of the funds, see Additional Tax Information in the Statement of
Additional Information.
The shareholders of the funds are the Life Company separate accounts and the
Retirement Plans. Under current law, owners of Variable Contracts which have
invested in a fund are not subject to federal income tax on fund distributions
or on gains realized upon the sale or redemption of fund shares until they are
withdrawn from the contracts. Similarly, Retirement Plan participants are not
subject to federal income tax on fund distributions or gains until they receive
distributions from the Retirement Plan account.
For information concerning the federal tax consequences to Variable Contract
owners or Retirement Plan participants, see the disclosure documents from the
Variable Contract or your Retirement Plan administrator. You should consult your
own tax advisor about the tax consequences of any investment.
20
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables will help you better understand each fund's financial
performance for the period from the date of a fund's commencement of operations.
They are excerpted from each fund's financial statements for the fiscal year
ended December 31, 1999, audited by Ernst & Young LLP. Certain information
reflects financial results for a single fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in a fund (assuming reinvestment of all dividends and distributions).
You may obtain the complete financial statements and auditor's report by
calling 800-4-WANGER (800-492-6437) and requesting a free copy of the funds'
latest annual shareholder report.
<TABLE>
<CAPTION>
WANGER U.S. SMALL CAP
5/3/95
Year Ended Year Ended Year Ended Year Ended through
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $22.18 $21.46 $16.97 $11.60 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (c) .03 (.05) (.02) (.06) (.05)
Net realized and unrealized gain 4.79 1.93 4.90 5.46 1.65
on investments
Total from investment operations 4.82 1.88 4.88 5.40 1.60
- --------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain (2.12) (1.16) (.39) (.03) --
TOTAL DISTRIBUTIONS (2.12) (1.16) (.39) (.03) --
- --------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $24.88 $22.18 $21.46 $16.97 $11.60
- --------------------------------------------------------------------------------------------------------
TOTAL RETURN (d) 25.06% 8.68% 29.41% 46.59% 16.00%
- --------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------
Ratio of expenses to average net 1.02% 1.02% 1.06% 1.21% 2.08%*
assets (a) (b)
Ratio of net investment income (loss) .14% (.25%) (.10%) (.41%) (1.44%)*
to average net assets (b)
Portfolio turnover rate 35% 34% 34% 46% 59%*
- --------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $390,709,473 $339,118,881 $270,865,827 $128,957,911 $21,903,536
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of of custodian
fees for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.04% for the year ended December 31, 1997, 1.19% for the year ended
December 31, 1996 and 2.00% for the period ended December 31, 1995.
(b) The fund was reimbursed by WAM for certain expenses from May 3, 1995 through
December 31, 1995. Without the reimbursement, the ratio of expenses to
average net assets (prior to custodian fees paid indirectly) and the ratio
of net investment income to average net assets for the period ended December
31, 1995 would have been 2.35% and (1.71%), respectively.
(c) Net investment income (loss) per share for the years ended December 31,
1999, 1998, 1997, 1996 and 1995, was based upon the average shares
outstanding during the period.
(d) Total return is not annualized for periods less than one year.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
21
<PAGE>
WANGER INTERNATIONAL SMALL CAP
<TABLE>
<CAPTION>
5/3/95
Year Ended Year Ended Year Ended Year Ended through
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.62 $17.05 $17.71 $13.45 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (c) (.13) .03 .02 (.09) (.03)
Net realized and unrealized gain (loss) 24.52 2.76 (.26) 4.38 3.48
on investments
TOTAL FROM INVESTMENT OPERATIONS 24.39 2.79 (.24) 4.29 3.45
- ----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from net investment income (.34) (.22) -- -- --
Distributions from net realized gain -- -- (.42) (.03) --
and unrealized gain reportable for
federal income taxes
TOTAL DISTRIBUTIONS (.34) (.22) (.42) (.03) --
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $43.67 $19.62 $17.05 $17.71 $13.45
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN (d) 126.37% 16.33% (1.46%) 32.01% 34.50%
- ----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net 1.49% 1.55% 1.60% 1.79% 2.32%*
assets (a) (b)
Ratio of net investment income (loss) (.49%) .16% .12% (.56%) (.81%)*
to average net assets (b)
Portfolio turnover rate 75% 56% 60% 50% 14%*
- ----------------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $311,330,972 $141,253,309 $120,660,158 $84,855,082 $11,368,924
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.59% for the year ended December 31, 1997, 1.75% for the year ended
December 31, 1996 and 2.00% for period ended December 31, 1995.
(b The fund was reimbursed by WAM for certain expenses from May 3, 1995 through
December 31, 1995. Without the reimbursement, the ratio of expenses (prior
to custodian fees paid indirectly) to average net assets and the ratio of
net investment income to average net assets for the period ended December
31, 1995 would have been 4.20% and (2.69%), respectively.
(c) Net investment income (loss) per share for the years ended December 31,
1999, 1998, 1997, 1996 and 1995, was based upon the average shares
outstanding during the period.
(d) Total return is not annualized for periods less than one year.
22
<PAGE>
WANGER TWENTY
2/1/99 through 12/31/99
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (c) (.08)
Net realized and unrealized gain
on investments 3.51
TOTAL FROM INVESTMENT OPERATIONS 3.43
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.43
- --------------------------------------------------------------------------------
TOTAL RETURN (d) 34.30%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of expenses to average net 1.41%*
assets (a) (b)
Ratio of net investment loss (.77%)*
to average net assets (b)
Portfolio turnover rate 113%*
- --------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $6,570,131
- --------------------------------------------------------------------------------
* Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances the fund maintains with the custodian ("custodian fees
paid indirectly"). This ratio net of custodian fees paid indirectly would
have been 1.35% for the period ended December 31, 1999.
(b) The fund was reimbursed by WAM for certain expenses from February 1, 1999
through December 31, 1999. Without the reimbursement, the ratio of expenses
(prior to custodian fees paid indirectly) to average net assets and the
ratio of net investment loss to average net assets for the period ended
December 31, 1999 would have been 2.12.% and (1.48%), respectively.
(c) Net investment loss per share for the period ended December 31, 1999, was
based upon the average shares outstanding during the period.
(d) Total return is not annualized for periods less than one year.
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
23
<PAGE>
WANGER FOREIGN FORTY
2/1/99 through 12/31/99
- --------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (c) (.01)
Net realized and unrealized gain
on investments 8.40
TOTAL FROM INVESTMENT OPERATIONS 8.39
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.39
- --------------------------------------------------------------------------------
TOTAL RETURN (d) 83.90%
- --------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Ratio of expenses to average net 1.59%*
assets (a) (b)
Ratio of net investment loss (.10%)*
to average net assets (b)
Portfolio turnover rate 91%*
- --------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD $5,826,128
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances the fund maintains with the custodian ("custodian fees
paid indirectly"). This ratio net of custodian fees paid indirectly would
have been 1.45% for the period ended December 31, 1999.
(b) The fund was reimbursed by WAM for certain expenses from February 1, 1999
through December 31, 1999. Without the reimbursement, the ratio of expenses
(prior to custodian fees paid indirectly) to average net assets and the
ratio of net investment loss to average net assets for the period ended
December 31, 1999 would have been 3.45.% and (1.96%), respectively.
(c) Net investment loss per share for the period ended December 31, 1999, was
based upon the average shares outstanding during the period.
(d) Total return is not annualized for periods less than one year.
24
<PAGE>
WANGER ADVISORS TRUST
The Wanger Advisors Trust semiannual and annual reports to shareholders contain
additional information about the funds. These reports provide commentary on
market conditions and investment strategies that affected each fund's
performance over the past six- and 12-month periods. The Statement of Additional
Information (also known as the SAI) contains detailed information about the
funds' policies and operations. The SAI is incorporated in this prospectus by
reference.
You may obtain free copies of the funds' latest semiannual and annual
shareholder reports and/or the funds' SAI. Call 800-4-WANGER (800-492-6437) to
make your request, or write to: Wanger Advisors Trust, PO Box 8502, Boston,
Massachusetts, 02266-8502.
You may also obtain this and other information about Wanger Advisors Trust
directly from the Securities and Exchange Commission (SEC). Information may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC; you
may get information on the operation of the Public Reference Room by calling the
SEC at (202) 942-8090. Reports and other information about the funds are
available on the SEC's online EDGAR database at http://www.sec.gov. You may also
request information by sending your request, after paying the appropriate
duplicating fee, electronically to [email protected] or in writing to the SEC's
Public Reference Section, Washington, DC 20549-0102.
811-08748
For more information call 800-492-6437 or visit our website at WWW.WANGER.COM.
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WANGER ADVISORS TRUST 227 West Monroe Street
STATEMENT OF ADDITIONAL INFORMATION Suite 3000
MAY 1, 2000 Chicago, Illinois 60606
1-800-4-WANGER
(1-800-492-6437)
WANGER U.S. SMALL CAP
WANGER INTERNATIONAL SMALL CAP
WANGER TWENTY
WANGER FOREIGN FORTY
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TABLE OF CONTENTS Page
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Information About the Funds...............................................2
Investment Objectives and Policies........................................2
Investment Techniques and Risks...........................................3
Performance Information..................................................24
Investment Adviser.......................................................27
Distributor..............................................................30
The Trust................................................................31
Trustees and Officers; Certain Shareholders..............................32
Purchasing and Redeeming Shares..........................................34
Additional Tax Information...............................................35
Portfolio Transactions...................................................36
Code of Ethics...........................................................38
Custodian................................................................38
Independent Auditors.....................................................39
Financial Statements.....................................................39
Appendix - Description of Bond Ratings...................................40
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This Statement of Additional Information ("SAI") is not a prospectus
but provides information that should be read in conjunction with the prospectus
of WANGER U.S. SMALL CAP, WANGER INTERNATIONAL SMALL CAP, WANGER TWENTY and
WANGER FOREIGN FORTY (each, a "Fund," together, the "Funds") dated the date of
this SAI and any supplement to the prospectus, 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"). The 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 or variable life insurance
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.
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INFORMATION ABOUT THE FUNDS
WANGER U.S. SMALL CAP invests for long-term capital growth. The Fund
generally invests in the stocks of companies with capitalizations of less than
$2 billion. Under normal market conditions, the Fund will generally invest at
least 65% of its total assets in domestic securities.
WANGER INTERNATIONAL SMALL CAP invests for long-term capital growth.
The Fund generally invests in stocks of companies with capitalizations of less
than $2 billion. Under normal market conditions, the Fund will generally invest
at least 65% of its total assets in foreign securities in mature and emerging
markets.
WANGER TWENTY invests for long-term capital growth. The Fund invests
primarily in the stocks of U.S. companies with market capitalizations of $2
billion to $12 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 $5 billion to $15 billion. The Fund is a non-diversified fund that ordinarily
has investments in 40 to 60 companies in developed markets.
WANGER U.S. SMALL CAP and WANGER INTERNATIONAL SMALL CAP are
diversified funds under the federal Securities laws. WANGER TWENTY and WANGER
FOREIGN FORTY are non-diversified under the federal securities laws. However,
all of 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 Funds are series of the Trust, and each Fund is an open-end,
management investment Company.
The discussion below supplements the description in the prospectus of
each Fund's investment objectives, policies, and restrictions.
INVESTMENT OBJECTIVES AND POLICIES
Each Fund invests 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 any Fund will achieve its investment objective. Each Fund
uses the techniques and invests in the types of securities described below and
in the prospectus.
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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 a
Fund 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 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 WANGER TWENTY and WANGER FOREIGN
FORTY are non-diversified, those 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, the share price of WANGER TWENTY and WANGER FOREIGN FORTY can be
expected to fluctuate more than that of broadly diversified funds investing in
similar securities. Because they are non-diversified, those 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. Each Fund,
however, intends 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").
Although WANGER FOREIGN FORTY is registered as a non-diversified fund,
it has (through the date of this SAI) invested as if it were diversified. WANGER
FOREIGN FORTY expects that it will begin to invest in a non-diversified manner
when it believes market conditions are appropriate to do so. However, if WANGER
FOREIGN FORTY'S investments remain diversified through February 1, 2002 (three
years after it began operations), the Fund will lose the ability to invest in a
non-diversified manner and would thereafter be a diversified fund. WANGER
FOREIGN FORTY would not be able to become non-diversified unless it sought and
obtained the approval of the holders of a "majority of its outstanding voting
securities," as defined in the Investment Company Act of 1940.
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FOREIGN SECURITIES
Each Fund may 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, and WANGER INTERNATIONAL SMALL CAP invests at
least 65% of its total assets, in each case taken at market value, in foreign
securities; WANGER TWENTY'S investments in foreign securities are limited to not
more than 15% of its total assets. WANGER U.S. SMALL CAP may invest up to 35% of
its total assets in foreign securities, but the Fund does not have a present
intention of investing more than 5% of its assets in foreign securities.
WANGER FOREIGN FORTY invests primarily in developed countries but may
invest up to 15% of its total assets in securities of companies with broad
international interests that are domiciled in the United States or in countries
considered "emerging markets," if the operations of those companies are located
primarily in developed overseas markets. The Funds use the terms "developed
markets" and "emerging markets" as those terms are defined by the International
Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging
markets" as used by the Funds include markets designated "frontier markets" by
the IFC. WANGER FOREIGN FORTY does not intend to invest more than 5% of its
total assets in those countries included in the "emerging markets" or "frontier
markets" categories.
The securities markets of emerging markets 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 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.
WANGER TWENTY usually limits its investments in foreign companies to
those whose operations are primarily in the U.S.
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 depositary receipts. 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
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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
depositary receipt. None of the Funds 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.
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
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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. A 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 while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency,
the Fund may either sell the portfolio security related to such contract and
make delivery of the currency, or it may retain the security and either acquire
the currency on the spot market or terminate its contractual obligation to
deliver the currency by purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date the same amount of
the currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for 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
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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 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 U.S. SMALL CAP will not invest more than 35% of its total assets in
foreign securities, WANGER TWENTY will not invest more than 15% of its total
assets in foreign securities, WANGER INTERNATIONAL SMALL CAP will generally
invest at least 65% of its total assets in foreign securities and WANGER FOREIGN
FORTY will generally 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. A Fund may also use other types of options, futures
contracts and futures options currently traded or subsequently developed and
traded,
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provided the board of trustees determines that their use is consistent with the
Fund's investment objective.
OPTIONS. An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the right to buy
from (call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.
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.
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.
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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 a Fund 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 and Restricted 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 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.
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1 A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of
those securities is made.
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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 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 its custodian or 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
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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 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 a Fund's investments
being hedged and the securities underlying the standard contracts available for
trading. For example, in the case of index futures contracts, the composition of
the index, including the 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
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<PAGE>
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.
When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with its custodian or 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 its custodian or broker
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," the "underlying commodity
value" of each long position in a commodity contract in which a Fund invests
will not at any time exceed the sum of:
- ---------------------------
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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(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.
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.
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 option3 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.
- ---------------------------
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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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.
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 one or more of a variety of different
types of investments or
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<PAGE>
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 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
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<PAGE>
continuously maintain in a separate account with its custodian 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, and, in the case where the Fund owns convertible
securities, changes in the conversion premium. A Fund will incur transaction
costs in connection with short sales.
In addition to enabling a Fund to hedge against market risk, short
sales may afford the 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.
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<PAGE>
DEBT SECURITIES
The Funds may invest in debt securities, including lower-rated
securities (i.e., securities rated BB or lower by Standard & Poor's Corporation
("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly
called "junk bonds"), and securities that are not rated. There are no
restrictions as to the ratings of debt securities acquired by the Funds or the
portion of each Fund's assets that may be invested in debt securities in a
particular ratings category. No 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." The market value of
these securities and their liquidity may be affected by adverse publicity and
investor perceptions. A more complete description of the characteristics of
bonds in each ratings category is included in the appendix to this SAI.
ILLIQUID AND RESTRICTED SECURITIES
No 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. An illiquid security generally is one that
cannot be sold in the ordinary course of business within seven days at
substantially the value assigned to it in calculations of a Fund's net asset
value. Repurchase agreements maturing in more than seven days, OTC derivatives
and restricted securities are generally illiquid; other types of investments may
also be illiquid from time to time. If, through the appreciation of illiquid
securities or the depreciation of liquid securities, a Fund should be in a
position where more than 15% of the value of its net assets are invested in
illiquid assets, that Fund will take appropriate steps to protect liquidity.
Illiquid securities are priced at a fair value determined in good faith by the
board of trustees or its delegate.
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
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<PAGE>
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 or its delegate. None of the Funds will invest more than 15%
of its total assets (valued at the time of investment) in restricted securities.
Notwithstanding the above, a Fund may purchase securities that have
been privately placed but that are eligible for purchase and sale under Rule
144A under the 1933 Act. That rule permits certain qualified institutional
buyers, such as the Funds, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. WAM, under the supervision of the
board of trustees, will consider whether securities purchased under Rule 144A
are illiquid and thus subject to 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.
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 minimal
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
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<PAGE>
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, no 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 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 its custodian 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
The Funds have the flexibility to respond promptly to changes in market
and economic conditions. In the interest of preserving shareholders' capital,
WAM may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, 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
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multinational currency units) and may invest any portion of its assets in money
market instruments.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. The portfolio turnover rate for
WANGER U.S. SMALL CAP is not expected to exceed 50% under normal market
conditions. The portfolio turnover rates of WANGER INTERNATIONAL SMALL CAP,
WANGER TWENTY and WANGER FOREIGN FORTY are likely to be greater than 50% but,
under normal market conditions, are expected to be no more than about 115%. 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 group of banks 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.
INVESTMENT RESTRICTIONS
In pursuing their investment objectives, WANGER U.S. SMALL CAP and WANGER
INTERNATIONAL SMALL CAP each will not:
1. With respect to 75% of the value of the Fund's total assets, invest
more than 5% of its total assets (valued at the time of investment) in
securities of a single issuer, except securities issued or guaranteed
by the government of the U.S., or any of its agencies or
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment
(a) represent more than 10% of the voting securities of the issuer or
(b) have a value greater than 10% of the value of the outstanding
securities of the issuer;
3. Invest more than 25% of its assets (valued at the time of
investment) in securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations
that are publicly distributed, or from investing up to an aggregate of
15% of its total assets (taken at market value at the time of
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<PAGE>
each purchase) in parts of issues of bonds, debentures or other
obligations of a type privately placed with financial institutions,
(b) investing in repurchase agreements, or (c) lending portfolio
securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its
total assets (taken at market value at the time of such loan);4
5. Borrow money except (a) from banks for temporary or emergency
purposes in amounts not exceeding 33% of the value of the Fund's total
assets at the time of borrowing, and (b) in connection with
transactions in options, futures and options on futures;5
6. Underwrite the distribution of securities of other issuers; however,
the Fund may acquire "restricted" securities which, in the event of a
resale, might be required to be registered under the Securities Act of
1933 on the ground that the Fund could be regarded as an underwriter as
defined by that act with respect to such resale; but the Fund will
limit its total investment in restricted securities and in other
securities for which there is no ready market, including repurchase
agreements maturing in more than seven days, to not more than 15% of
its net assets at the time of acquisition;
7. Purchase and sell real estate or interests in real estate, although
it may invest in marketable securities of enterprises which invest in
real estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that
it may enter into (a) futures and options on futures and (b) forward
contracts;
9. Make margin purchases of securities, except for use of such
short-term credits as are needed for clearance of transactions and
except in connection with transactions in options, futures and options
on futures;
10. Issue any senior security except to the extent permitted under
the Investment Company Act of 1940.
Restrictions 1 through 10 above are "fundamental," which means that they cannot
be changed without the approval of the lesser of (i) 67% of the Fund's shares
present at a meeting if more than 50% of the shares outstanding are present or
(ii) more than 50% of the Fund's outstanding shares.
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4 The Funds have no present intention of lending their portfolio securities.
- ---------------------------
5 State insurance laws currently restrict a Fund's borrowings to facilitate
redemptions to no more than 25% of the Fund's net assets.
21
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In addition, each Fund is subject to a number of restrictions that may be
changed by the Board of Trustees without shareholder approval. Under those
non-fundamental restrictions, each Fund will not:
(a) Invest in companies for the purpose of management or the exercise
of control;
(b) Acquire securities of other registered investment companies except
in compliance with the Investment Company Act of 1940 and applicable
state law;
(c) 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;
(d) Sell securities short or maintain a short position.
In pursuing their investment objectives, WANGER TWENTY and WANGER
FOREIGN FORTY each will not:
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
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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;
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.
23
<PAGE>
(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, any Fund may
purchase securities pursuant to the exercise of subscription rights, provided
that such purchase will not result in the Fund's ceasing to be a diversified
investment company. Japanese and European corporations frequently issue
additional capital stock by means of subscription rights offerings to existing
shareholders at a price substantially below the market price of the shares. The
failure to exercise such rights would result in a Fund's interest in the issuing
company being diluted. The market for such rights is not well developed in all
cases and, accordingly, the Fund may not always realize full value on the sale
of rights. The exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising rights or
would have already been exceeded as a result of fluctuations in the market value
of the Fund's portfolio securities with the result that the Fund would be forced
either to sell securities at a time when it might not otherwise have done so, or
to forego exercising the rights.
In addition, pursuant to state insurance laws, each Fund is subject to the
following guidelines, which may also be changed by the Trustees:
(a) Each Fund will be invested in a minimum of five different foreign
countries at all times, except that this minimum is reduced to four
when foreign country investments comprise less than 80% of the value of
the Fund's net assets; to three when less than 60% of such value; to
two when less than 40%; and to one when less than 20%.
(b) Each Fund will have no more than 20% of its net assets invested in
securities of issuers located in any one country; except that a Fund
may have an additional 15% of its net assets invested in securities of
issuers located in any one of the following countries: Australia;
Canada; France; Japan; the United Kingdom; or Germany.
(c) A Fund may not acquire the securities of any issuer if, as a result
of such investment, more than 10% of the Fund's total assets would be
invested in the securities of any one issuer, except that this
restriction shall not apply to U.S. Government securities or foreign
government securities; and the Fund will not invest in a security if,
as a result of such investment, it would hold more than 10% of the
outstanding voting securities of any one issuer.
(d) Each Fund may borrow no more than 10% of the value of its net
assets when borrowing for any general purpose and 25% of net assets
when borrowing as a temporary measure to facilitate redemptions.
PERFORMANCE INFORMATION
From time to time the Funds may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in shares of the Fund, including the value of shares acquired through
reinvestment of all dividends and capital gains
24
<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
For example, the Total Return and Average Total Return on a $1,000
investment in the Funds for the following periods ended December 31, 1999 were:
<TABLE>
<CAPTION>
WANGER U.S. SMALL CAP
--------------------- Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
1 year................................................ 25.06% 25.06%
3 year................................................ 75.89% 20.71%
Life of Fund (inception 5/3/95)....................... 199.09% 26.44%
<CAPTION>
WANGER INTERNATIONAL SMALL CAP
------------------------------ Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
1 year............................................................. 126.37% 126.37%
3 year............................................................. 159.49% 37.42%
Life of Fund (inception 5/3/95)...................... 360.72% 38.70%
<CAPTION>
WANGER TWENTY
------------- Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
Life of Fund (inception 2/1/99)....................... 34.30% N/A
<CAPTION>
WANGER FOREIGN FORTY
-------------------- Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
Life of Fund (inception 2/1/99)....................... 83.90% N/A
</TABLE>
The Funds impose no sales charges and pay no distribution expenses.
Income taxes are not taken into account. Performance figures quoted by the Funds
are not necessarily indicative of future results. Each Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods. Fund
performance figures do not reflect
25
<PAGE>
expenses of the separate accounts of the Life Companies, expenses imposed under
the Variable Contracts, or expenses imposed by Retirement Plans.
In advertising and sales literature, a Fund's performance may be
compared with those of market indexes and other mutual funds. In addition to the
performance information described above, the Fund might use comparative
performance as computed in a ranking or rating determined by Lipper, Inc., an
independent service that monitors the performance of over 1,000 mutual funds,
Morningstar, Incorporated, or another service.
The Funds [that have been in operation at least three years] may also
use statistics to indicate volatility or risk. The premise of each of these
measures is that greater volatility connotes greater risk undertaken in
achieving performance. The Funds may quote the following measures of volatility:
Beta. Beta is the volatility of a fund's total return relative to the
movements of a benchmark index. A beta greater than one indicates volatility
greater than the index, and a beta of less than one indicates a volatility less
than the index.
R-squared. R-squared reflects the percentage of a fund's price
movements that are explained by movements in the benchmark index. An R-squared
of 1.00 indicates that all movements of a fund's price are completely explained
by movements in the index. Generally, a higher R-squared will indicate a more
reliable beta figure.
Alpha. Alpha is a measure used to discuss a fund's relative
performance. Alpha measures the actual return of a fund compared to the expected
return of a fund given its risk (as measured by beta). The expected return of a
fund is based on how historical movements of the benchmark index and historical
performance of a fund compare to the benchmark index. The expected return is
computed by multiplying the advance or decline in a market represented by a
fund's beta. A positive alpha quantifies the value that a fund manager has added
and a negative alpha quantifies the value that a fund manager has lost.
Standard deviation. Standard deviation quantifies the volatility in the
returns of a Fund by measuring the amount of variation in the group of returns
that make up a Fund's average return. Standard deviation is generally calculated
over a three or five year period using monthly returns and modified to present
an annualized standard deviation.
Sharpe ratio. A Fund's Sharpe ratio quantifies its total return in
excess of the return of a guaranteed investment (90 day U.S. treasury bills),
relative to its volatility as measured by its standard deviation. The higher a
Fund's Sharpe ratio, the better a Fund's returns have been relative to the
amount of investment risk it has taken.
Beta and R-squared are calculated by performing a least squares linear
regression using three years of monthly total return figures for each portfolio
and benchmark combination. Alpha is calculated by taking the difference between
the average monthly portfolio return and the beta-adjusted average monthly
benchmark return. The result of this calculation is then geometrically
annualized.
26
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1999, some statistics for the Funds are as follows:
R2 Beta Alpha
<S> <C> <C> <C>
WANGER U.S. SMALL CAP
vs. S&P 500 .56 .80 -0.16%
vs. Russell 2000 .84 .78 9.55%
WANGER INTERNATIONAL SMALL CAP
vs. EMI Ex U.S. .61 1.37 25.89%
vs. EAFE .51 1.08 19.11%
</TABLE>
Other measures of volatility and relative performance may be used as
appropriate. All such measures will fluctuate and do not represent future
results.
The Funds may note their mention or recognition in newsletters,
newspapers, magazines, or other media. Portfolio managers and other members of
WAM's staff may make presentations at conferences or trade shows, appear on
television or radio programs, or conduct or participate in telephone conference
calls, and the Funds may announce those presentations, appearances or calls to
some or all shareholders, or to potential investors in the Funds. Biographical
and other information about a Fund's portfolio manager, including information
about awards received by that portfolio manager or mentions of the manager in
the media, may also be described or quoted in Fund advertisements or sales
literature.
The following are some benchmark indices utilized by the Funds: Salomon
Smith Barney Extended Market Index ("EMI"), an index of the bottom 20% of
institutionally investable capital of countries, selected by SSB, excluding the
U.S.; the Salomon Smith Barney World ex-U.S. Cap Range $2-$10 billion Index is
the $2 to $10 billion (U.S.) subset of SSB's Broad Market Index, which
represents a mid cap developed market index, excluding the U.S.; Morgan
Stanley's Europe, Australasia Far East Index ("EAFE"), an index of companies
throughout the world in proportion to world stock market capitalizations,
excluding the U.S. and Canada; the Standard & Poor's 500 Stock Index ("S&P
500"), a broad, market-weighted average of U.S. blue-chip companies; the
Standard & Poor's MidCap 400 ("S&P 400"), also a broad, market-weighted average
of U.S. companies in the next tier down in size from the S&P 500; and the
Russell 2000 Index, an index formed by taking the 3,000 largest U.S. companies
and eliminating the largest 1,000, leaving an unweighted index of 2000 small
companies. All indexes are unmanaged and include reinvested dividends.
The Funds may also compare their performance to the performance of
groups of mutual funds, including Lipper Averages and Indexes. Each Lipper
Average is the mean return of all mutual funds tracked by Lipper, Inc. in that
category, which generally will include the Fund making the comparison. Lipper
Indexes measure the performance of the largest funds tracked by Lipper in a
designated category.
27
<PAGE>
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 $9 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, John H. Park, Margaret M. Forster, Roger Edgely, Bruce H. Lauer, and
Peter Zaldivar. Ralph Wanger is the president 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
investment advisory agreements (the "Agreements") and is responsible for overall
management of the Funds' 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 Agreements for
WANGER U.S. SMALL CAP and WANGER INTERNATIONAL SMALL CAP will continue in effect
as to each of the Funds through December 31, 2000, 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. The Agreement for WANGER TWENTY and WANGER FOREIGN FORTY will
continue in effect as to each of the Funds through December 31, 2001, 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 Agreements
must be approved in the same manner. The Agreements may be terminated as to any
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 assignment.
28
<PAGE>
The advisory fees the Funds pay to WAM are calculated daily and paid
monthly, at the following annual rates:
<TABLE>
<CAPTION>
<S> <C>
WANGER U.S. SMALL CAP
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.00%
$100 million to $250 million 0.95%
In excess of $250 million 0.90%
WANGER INTERNATIONAL SMALL CAP
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.30%
$100 million to $250 million 1.20%
In excess of $250 million 1.10%
WANGER TWENTY
Rate of Fee
-----------
0.95%
WANGER FOREIGN FORTY
Rate of Fee
-----------
1.00%
</TABLE>
WAM has undertaken to reimburse WANGER TWENTY and WANGER FOREIGN FORTY to the
extent their ordinary operating expenses exceed 1.35% and 1.45%, respectively of
its average annual net assets. These expense limitation undertakings are
voluntary and may be terminated by either WAM or the Trust on 30 days' written
notice to the other.
29
<PAGE>
The advisory fees paid by each Fund for the fiscal years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
FUND 1999 1998 1997
- ----------------------------------- ------------------------ ------------------------ ----------------------------
<S> <C> <C> <C>
Wanger U.S. Small Cap $3,172,578 $2,972,442 $1,960,795
Wanger International Small Cap $2,231,975 $1,751,136 $1,528,703
Wanger Twenty
Gross advisory fee $35,044 ---- ----
Exp. Reimb. (26,027)
------------
Net advisory fee 9,017
Wanger Foreign Forty
Gross advisory fee $19,994 ---- ----
Exp. Reimb. (37,004)
------------
Net advisory fee (17,010)
</TABLE>
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, 2000, 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.
30
<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.
31
<PAGE>
TRUSTEES AND OFFICERS; CERTAIN SHAREHOLDERS
The board of trustees has overall responsibility for the Trust's and
the Funds' affairs. The trustees have general oversight responsibility for the
Funds' operations. 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:
<TABLE>
<CAPTION>
POSITION(S)
NAME AND HELD WITH
DATE OF BIRTH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------- ------------- ----------------------------------------------
<S> <C> <C>
Fred D. Hasselbring Trustee Retail industry and general business computer systems consultant; director
8/14/1941 and executive administrator, The Malachi Corp., Inc. (a non-profit
corporation).
Charles P. McQuaid Trustee and Principal and director of research, Wanger Asset Management, L.P. since
8/27/1953 senior vice July 1992; trustee and senior vice president, Acorn Investment Trust;
president* co-portfolio manager, Acorn Fund.
P. Michael Phelps Trustee Retired since January 31, 1998; prior thereto, vice president and
9/19/1933 corporate secretary, Morton International, Inc.
Ralph Wanger Trustee and Director, Wanger Investment Company plc; principal and portfolio manager,
6/21/1934 president* Wanger Asset Management, L.P. since July 1992; trustee and president,
Acorn Investment Trust.
Patricia H. Werhane Trustee Ruffin Professor of Business Ethics, Darden Graduate School of Business
9/20/1935 Administration, University of Virginia, 1993 - present.
Marcel P. Houtzager Vice president Principal (since 1995), analyst and portfolio manager (since 1992), Wanger
10/26/1960 Asset Management, L.P.; chief financial officer and compliance officer,
Wanger Asset Management, L.P. (since April 2000).
Kenneth A. Kalina Assistant Fund controller, Wanger Asset Management, L.P., since September 1995;
8/4/1959 treasurer assistant treasurer, Acorn Investment Trust; prior thereto, treasurer of
the Stein Roe Mutual Funds.
Bruce H. Lauer Vice Principal (since January 1, 2000) and chief operating officer (since April
7/22/1957 president, 1995), Wanger Asset Management, L.P., vice president, treasurer and
assistant assistant secretary, Acorn Investment Trust; director, Wanger Investment
secretary and Company plc and New Americas Small Cap Fund; prior thereto, first vice
treasurer president, investment accounting, Kemper Financial Services, Inc.
Robert A. Mohn Vice president Principal (since 1995), analyst and portfolio manager (since August 1992),
9/13/1961 Wanger Asset Management, L.P.; vice president, Acorn Investment Trust.
John H. Park Vice president Principal (since 1998), analyst and portfolio manager (since July 1993),
5/30/1967 Wanger Asset Management, L.P.; vice president, Acorn Investment Trust.
Peter A. Zaldivar Vice president Analyst and portfolio manager, Wanger Asset Management, L.P., since 1996;
5/26/1967 prior thereto, vice president and portfolio manager, Lord Asset Management.
32
<PAGE>
<CAPTION>
POSITION(S)
NAME AND HELD WITH
DATE OF BIRTH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
------------- ------------- ----------------------------------------------
<S> <C> <C>
Leah J. Zell Vice president Principal, analyst, and portfolio manager, Wanger Asset Management, L.P.,
5/23/1949 since July 1992; vice president, Acorn Investment Trust; managing director
and member of trust committee, Chai Trust Company.
Roger D. Edgely Vice president Vice president, Acorn Investment Trust; principal (since January 1, 2000)
4/18/1955 and analyst (since 1994), Wanger Asset Management L.P.; director of
international research, Wanger Asset Management, L.P., since 1998;
co-portfolio manager, Wanger Foreign Forty since December 1999; prior
thereto, analyst, Crosby Securities.
Steven A. Radis Secretary Chief Marketing Officer and Managing Director, Wanger Asset Management,
8/24/1962 L.P., since April 1999; prior thereto, Vice President of Corporate and
Marketing Communications, Zurich Kemper Life, January 1998 to March
1999, and First Vice President Corporate Communications, Zurich
Kemper Life, January 1987 to December 1997.
</TABLE>
*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.
Mr. Wanger and Ms. Zell are married to each other.
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, Phelps and Ms. Werhane 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 address for Messrs. Wanger, McQuaid, Edgely, Houtzager, Kalina,
Lauer, Mohn, Park, Radis, Zaldivar and Ms. Zell is Wanger Asset Management,
L.P., 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. The address
for Mr. Hasselbring is One Wheaton Center, Suite 1802, Wheaton, IL 60187. The
address for Mr. Phelps is 222 E. Chestnut Street, Apt. 10-B, Chicago, IL 60611.
The address for Ms. Werhane is 104 Falcon Drive, Charlottesville, VA 22901.
At March 31, 2000, the trustees and officers as a group owned
beneficially less than 1% of the outstanding shares of WANGER U.S. SMALL CAP and
WANGER INTERNATIONAL SMALL CAP. At March 31, 2000, the trustees and officers as
a group owned beneficially 2.33% of the outstanding shares of WANGER TWENTY and
4.55% of the outstanding shares of WANGER FOREIGN FORTY. At that date, Phoenix
Home Life Mutual Insurance Company (and its affiliates), One American Row,
Hartford, Connecticut 06102-5056, was the record holder of 7,799,432.640 shares
(approximately 91.49% of the outstanding shares) of WANGER INTERNATIONAL SMALL
CAP, 17,248,017.191 shares (approximately 92.43% of the outstanding shares) of
WANGER U.S. SMALL CAP, 552,031.372 shares (approximately 95.64% of the
outstanding shares) of WANGER TWENTY
33
<PAGE>
and 429,290.370 shares (approximately 92.57% of the outstanding shares) of
WANGER FOREIGN FORTY all of which are beneficially owned by Variable Contract
owners. At March 31, 2000, American Express Financial Advisors, IDS Tower 10,
Minneapolis, MN 55440, was the record holder of 1,006,692.469 shares
(approximately 5.39% of the outstanding shares) of WANGER U.S. SMALL CAP and
471,055.687 shares (approximately 5.53% of the outstanding shares) of WANGER
INTERNATIONAL SMALL CAP.
The following table shows compensation paid by the Trust during the
fiscal year ended December 31, 1999 to each Trustee of the Trust who is not an
"interested person" of the Trust or of WAM. The Trust does not pay compensation
to its officers or to Trustees who are "interested persons." The Trust does not
offer any pension or retirement benefits to its trustees.
<TABLE>
<CAPTION>
AGGREGATE TOTAL
AGGREGATE AGGREGATE AGGREGATE COMP. FROM COMP.
COMP. COMP. COMP. FROM WANGER FROM
FROM U.S. FROM INT. WANGER FOREIGN FUND
NAME OF TRUSTEE SMALL CAP SMALL CAP TWENTY+ FORTY+ COMPLEX
--------------------------- ------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Fred D. Hasselbring $10,135 $5,547 $80 $38 $15,800
Charles P. McQuaid 0 0 0 0 0
P. Michael Phelps $10,135 $5,547 $80 $38 $15,800
Ralph Wanger 0 0 0 0 0
Patricia H. Werhane $10,135 $5,547 $80 $38 $15,800
</TABLE>
+ For the period 2/1/99 (inception date) through 12/31/99.
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.
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.
34
<PAGE>
Each Fund's net asset value is 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 WANGER
INTERNATIONAL SMALL CAP and WANGER FOREIGN FORTY, 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, 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 Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") so as to
35
<PAGE>
avoid payment of federal income tax on its capital gains and net investment
income currently distributed to its shareholders. 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
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.
36
<PAGE>
In valuing brokerage services, WAM makes a judgment as to which brokers
are capable of providing the most favorable net price (not necessarily the
lowest commission) and the best execution in a particular transaction. Best
execution connotes not only general competence and reliability of a broker, but
specific expertise and effort of a broker in overcoming the anticipated
difficulties in fulfilling the requirements of particular transactions, because
the problems of execution and the required skills and effort vary greatly among
transactions.
In valuing research services, WAM makes a judgment of the usefulness of
research and other information provided to WAM by a broker in managing each
Fund's investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising that Fund.
In some cases, a Fund may pay a higher commission to a broker that also
provides research services to the Fund than it might have paid to a broker that
does not provide such research services. The reasonableness of brokerage
commissions paid by the Funds in relation to transaction and research services
received is evaluated by WAM's staff on an ongoing basis. The general level of
brokerage charges and other aspects of each Fund's portfolio transactions are
reviewed periodically by the board of trustees.
WAM is the principal source of information and advice to the Funds, and
is responsible for making and initiating the execution of investment decisions
by the Funds. However, the Board of Trustees recognizes that it is important for
WAM, in performing its responsibilities to the Funds, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the Funds to take into account the value of the information received
for use in advising the Funds. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the Funds is not determinable. In addition, the Board of Trustees understands
that other clients of WAM might benefit from the information obtained for the
Funds, in the same manner that the Funds might benefit from information obtained
by WAM in performing services to others.
Transactions of the Funds in the over-the-counter market and the third
market are executed with primary market makers acting as principal except where
it is believed that better prices and execution may be obtained otherwise.
Brokerage commissions incurred by the Funds during the last three
fiscal years, not including the gross underwriting spread on securities
purchased in underwritten public offerings, were as follows:
<TABLE>
<CAPTION>
FUND 1999 1998 1997
-------------------------------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C>
Wanger U.S. Small Cap $208,460 $253,172 $249,054
37
<PAGE>
Wanger International Small Cap 787,215 518,766 647,529
Wanger Twenty 15,056 N/A N/A
Wanger Foreign Forty 14,569 N/A N/A
</TABLE>
The increase in the commissions paid by WANGER INTERNATIONAL SMALL CAP
in 1999 compared to 1998 resulted from an increase in the Fund's assets (from
$141 million at December 31, 1998 to $311 million at December 31, 1999) and an
increase in portfolio turnover from 56% in 1998 to 75% in 1999. The commissions
paid by WANGER TWENTY and WANGER FOREIGN FORTY resulted from the increase in
their assets after they began operations in February 1999.
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 more of the Funds and one or more other
advisory clients. If one or more 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.
CODE OF ETHICS
The 1940 Act and rules thereunder require that the Trust and WAM
establish standards and procedures for the detection and prevention of certain
conflicts of interest, including activities by which persons having knowledge of
the investments and investment intentions of the Funds might take advantage of
that knowledge for their own benefit. The Trust and WAM have adopted a Code of
Ethics to meet those concerns and legal requirements. Although the Code does not
prohibit employees who have knowledge of the investments and investment
intentions of the Funds from engaging in personal securities investing, it does
regulate such personal securities investing by these employees as a part of the
effort by the Trust and WAM to detect and prevent conflicts of interest.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8502, Boston,
Massachusetts 02266-8502, is both the custodian and the transfer agent for the
Funds. As custodian, it is responsible for holding all securities and cash of
the Funds, receiving and paying for securities purchased, delivering against
payment securities sold, receiving and collecting income from investments,
making all payments covering expenses of the Funds, and performing other
administrative duties, all as directed by authorized persons of the Funds. The
custodian does not exercise any supervisory function in such matters as purchase
and sale of portfolio securities, payment of dividends, or payment of expenses
of the Funds. The Funds have authorized the custodian to deposit certain
portfolio securities of the Funds in central depository systems as permitted
under federal law. The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian. The custodian may employ
one or more sub-custodians located in the United States upon approval by the
Board of Trustees of the Trust; and is authorized to employ sub-custodians for
the Funds' assets maintained outside the United States.
38
<PAGE>
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.
FINANCIAL STATEMENTS
<TABLE>
Wanger Advisors Trust 1999 Annual Report
STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
WANGER WANGER WANGER WANGER
U.S. SMALL CAP INTERNATIONAL TWENTY FOREIGN
SMALL CAP FORTY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments, at value (cost: Wanger U.S. Small Cap
$316,160,490; $393,241,228 $311,037,254 $6,492,781 $5,335,343
Wanger International Small Cap $159,698,410;
Wanger Twenty $5,723,262; Wanger Foreign
Forty $3,689,331)
Cash 61 190,820 403 43,463
Organization costs 6,711 6,711 -- --
Receivable for:
Securities sold -- 1,746,099 407,406 261,554
Fund shares sold 656,862 583,431 52,950 236,116
Dividends and interest 26,648 144,335 2,296 7,225
Other assets 3,409 4,785 64 31
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 393,934,919 313,713,435 6,955,900 5,883,732
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 2,990,622 19,605 359,108 43,488
Fund shares redeemed 195,033 2,281,870 13,357 --
Amount owed to advisor 8,844 7,107 9,017 152
Other 30,947 73,881 4,287 13,964
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 3,225,446 2,382,463 385,769 57,604
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $390,709,473 $311,330,972 $6,570,131 $5,826,128
====================================================================================================================================
Fund shares outstanding 15,704,298 7,128,362 489,305 316,780
====================================================================================================================================
PRICING OF SHARES
Net asset value, offering price and redemption
price per share $24.88 $43.67 $13.43 $18.39
====================================================================================================================================
ANALYSIS OF NET ASSETS
Paid-in capital $264,394,492 $120,767,930 $5,520,471 $3,780,585
Undistributed net realized gain on sales of
investments and foreign currency transactions 48,752,400 39,225,530 280,141 401,583
Net unrealized appreciation of investments and foreign
currency transactions (net of unrealized PFIC gains
of $5,826 for Wanger Foreign Forty) 77,080,738 151,337,512 769,519 1,640,182
Undistributed net investment income 481,843 -- -- 3,778
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $390,709,473 $311,330,972 $6,570,131 $5,826,128
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Wanger Advisors Trust 1999 Annual Report
STATEMENTS OF OPERATIONS
<CAPTION>
WANGER WANGER WANGER WANGER
U.S. SMALL CAP INTERNATIONAL TWENTY FOREIGN FORTY
Inception Inception
February 1 February 1
Year Ended Year Ended through through
December 31, December 31, December 31, December 31,
1999 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign taxes of $171,245 for Wanger $2,520,432 $1,669,203 $19,675 $22,542
International Small Cap and $2,131 for
Wanger Foreign Forty)
Interest 1,350,409 105,490 1,592 4,401
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 3,870,841 1,774,693 21,267 26,943
EXPENSES:
Investment advisory 3,172,578 2,231,975 35,044 19,994
Custodian 48,168 295,019 2,431 8,683
Legal and audit 57,923 47,565 15,250 15,115
Reports to shareholders 14,559 14,811 7,300 7,300
Amortization of organization costs 21,643 19,976 -- --
Transfer agent 21,808 21,716 17,600 17,500
Trustees 31,610 16,817 251 121
Insurance 4,511 2,183 16 8
Other 22,326 10,739 107 57
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 3,395,126 2,660,801 77,999 68,778
Less custodian fees paid indirectly (6,128) (4,963) (2,173) (2,783)
Less reimbursement of expenses by advisor -- -- (26,027) (37,004)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 3,388,998 2,655,838 49,799 28,991
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 481,843 (881,145) (28,532) (2,048)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 49,157,155 47,468,114 308,673 401,583
Net change in unrealized appreciation 26,975,880 124,783,648 769,519 1,646,008
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 76,133,035 172,251,762 1,078,192 2,047,591
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $76,614,878 $171,370,617 $1,049,660 $2,045,543
===================================================================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Wanger Advisors Trust 1999 Annual Report
STATEMENTS OF CHANGES IN NET ASSETS
-------------------------- --------------------------- ------------ -------------
WANGER WANGER WANGER WANGER
U.S. SMALL CAP INTERNATIONAL TWENTY FOREIGN FORTY
Inception Inception
February 1 February 1
Year Ended Year Ended Year Ended Year Ended through through
December 31, December 31, December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1999
- -----------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $481,843 $(783,423) $(881,145) $220,138 $(28,532) $(2,048)
Net realized gain (loss) on sales of
investments 49,157,155 31,406,965 47,468,114 (2,995,916) 308,673 401,583
Net change in unrealized appreciation 26,975,880 (6,414,368) 124,783,648 21,548,547 769,519 1,646,008
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 76,614,878 24,209,174 171,370,617 18,772,769 1,049,660 2,045,543
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (2,396,217) (1,532,876) -- --
Net realized gain (31,015,042) (15,422,770) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (31,015,042) (15,422,770) (2,396,217) (1,532,876) -- --
FROM FUND SHARE TRANSACTIONS:
Reinvestment of dividends and capital
gain distributions 30,987,684 15,407,847 2,391,782 1,530,069 -- --
Proceeds from other shares sold 39,307,491 94,608,919 30,696,445 26,836,486 6,997,548 4,072,887
- -----------------------------------------------------------------------------------------------------------------------------------
70,295,175 110,016,766 33,088,227 28,366,555 6,997,548 4,072,887
Payments for shares redeemed (64,304,419) (50,550,116) (31,984,964) (25,013,297) (1,477,077) (292,302)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 5,990,756 59,466,650 1,103,263 3,353,258 5,520,471 3,780,585
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 51,590,592 68,253,054 170,077,663 20,593,151 6,570,131 5,826,128
NET ASSETS:
Beginning of period 339,118,881 270,865,827 141,253,309 120,660,158 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $390,709,473 $339,118,881 $311,330,972 $141,253,309 $6,570,131 $5,826,128
- -----------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $481,843 -- -- $2,396,102 -- $3,778
===================================================================================================================================
See accompanying notes to financial statements.
<PAGE>
Wanger Advisors Trust 1999 Annual Report
WANGER U.S. SMALL CAP FINANCIAL HIGHLIGHTS
May 3, 1995
Year ended Year ended Year ended Year ended through
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $22.18 $21.46 $16.97 $11.60 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (c) .03 (.05) (.02) (.06) (.05)
Net realized and unrealized gain on investments 4.79 1.93 4.90 5.46 1.65
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.82 1.88 4.88 5.40 1.60
LESS DISTRIBUTIONS
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain (2.12) (1.16) (.39) (.03) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.12) (1.16) (.39) (.03) --
NET ASSET VALUE, END OF PERIOD $24.88 $22.18 $21.46 $16.97 $11.60
===================================================================================================================================
TOTAL RETURN (D) 25.06% 8.68% 29.41% 46.59% 16.00%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (a) (b) 1.02% 1.02% 1.06% 1.21% 2.08%*
Ratio of net investment income (loss)
to average net assets (b) .14% (.25%) (.10%) (.41%) (1.44%)*
Portfolio turnover rate 35% 34% 34% 46% 59%*
Net assets at end of period $390,709,473 $339,118,881 $270,865,827 $128,957,911 $21,903,536
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.04% for the year ended December 31, 1997, 1.19% for the year ended
December 31, 1996 and 2.00% for the period ended December 31, 1995.
(b) The fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses (prior to custodian fees paid indirectly) to average net assets
and the ratio of net investment income to average net assets for the period
ended December 31, 1995, would have been 2.35% and (1.71%), respectively.
(c) Net investment income (loss) per share for the years ended December 31,
1999, 1998, 1997 and 1996 was based upon the average shares outstanding
during the period.
(d) Total return is not annualized for periods less than one year.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1999 Annual Report
WANGER INTERNATIONAL SMALL CAP FINANCIAL HIGHLIGHTS
May 3, 1995
Year ended Year ended Year ended Year ended through
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.62 $17.05 $17.71 $13.45 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (c) (.13) .03 .02 (.09) (.03)
Net realized and unrealized gain (loss)
on investments 24.52 2.76 (.26) 4.38 3.48
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 24.39 2.79 (.24) 4.29 3.45
LESS DISTRIBUTIONS
Dividends from net investment income (.34) (.22) -- -- --
Distributions from net realized gain and unrealized
gain reportable for federal income taxes -- -- (.42) (.03) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.34) (.22) (.42) (.03) --
NET ASSET VALUE, END OF PERIOD $43.67 $19.62 $17.05 $17.71 $13.45
===================================================================================================================================
TOTAL RETURN (D) 126.37% 16.33% (1.46%) 32.01% 34.50%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (a) (b) 1.49% 1.55% 1.60% 1.79% 2.32%*
Ratio of net investment income (loss) to average
net assets (b) (.49%) .16% .12% (.56%) (.81%)*
Portfolio turnover rate 75% 56% 60% 50% 14%*
Net assets at end of period $311,330,972 $141,253,309 $120,660,158 $84,855,082 $11,368,924
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.59% for the year ended December 31, 1997, 1.75% for the year ended
December 31, 1996 and 2.00% for the period ended December 31, 1995.
(b) The fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses (prior to custodian fees paid indirectly) to average net assets
and the ratio of net investment income to average net assets for the period
ended December 31, 1995, would have been 4.20% and (2.69%), respectively.
(c) Net investment income (loss) per share for the years ended December 31,
1999, 1998, 1997 and 1996 was based upon the average shares outstanding
during the period.
(d) Total return is not annualized for periods less than one year.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Wanger Advisors Trust 1999 Annual Report
WANGER TWENTY FINANCIAL HIGHLIGHTS
February 1, 1999 through
December 31, 1999
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (c) (.08)
Net realized and unrealized gain on investments 3.51
- -------------------------------------------------------------------------------
Total from investment operations 3.43
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.43
===============================================================================
TOTAL RETURN (D) 34.30%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (a) (b) 1.41%*
Ratio of net investment loss to average net assets (b) (.77%)*
Portfolio turnover rate 113%*
Net assets at end of period $6,570,131
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.35% for the period ended December 31, 1999.
(b) The fund was reimbursed by the Advisor for certain expenses from February
1, 1999 through December 31, 1999. Without the reimbursement, the ratio of
expenses (prior to custodian fees paid indirectly) to average net assets
and the ratio of net investment loss to average net assets for the period
ended December 31, 1999 would have been 2.12% and (1.48%), respectively.
(c) Net investment loss per share for the period ended December 31, 1999 was
based upon the average shares outstanding during the period.
(d) Total return is not annualized for periods less than one year.
See accompanying notes to financial statements.
<PAGE>
Wanger Advisors Trust 1999 Annual Report
WANGER FOREIGN FORTY FINANCIAL HIGHLIGHTS
February 1, 1999 through
December 31, 1999
- -------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (c) (.01)
Net realized and unrealized gain on investments 8.40
- -------------------------------------------------------------------------------
Total from investment operations 8.39
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.39
===============================================================================
TOTAL RETURN (D) 83.90%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (a) (b) 1.59%*
Ratio of net investment loss to average net assets (b) (.10%)*
Portfolio turnover rate 91%*
Net assets at end of period $5,826,128
- --------------------------------------------------------------------------------
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.45 % for the year ended December 31, 1999.
(b) The fund was reimbursed by the Advisor for certain expenses from February
1, 1999 through December 31, 1999. Without the reimbursement, the ratio of
expenses (prior to custodian fees paid indirectly) to average net assets
and the ratio of net investment loss to average net assets for the period
ended December 31, 1999 would have been 3.45% and (1.96%), respectively.
(c) Net investment loss per share for the period ended December 31, 1999 was
based upon the average shares outstanding during the period.
(d) Total return is not annualized for periods less than one year.
See accompanying notes to financial statements.
<PAGE>
Wanger Advisors Trust 1999 Annual Report
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Wanger US Small Cap, Wanger International Small Cap, Wanger Twenty and Wanger
Foreign Forty ("the Funds") are series of Wanger Advisors Trust ("the Trust"),
an open-end management investment company organized as a Massachusetts business
trust. The investment objective of each Fund is to seek long-term growth of
capital. The Funds are available only for allocation to certain life insurance
company separate accounts established for the purpose of funding qualified and
non-qualified variable annuity contracts, and may also be offered directly to
certain types of pension plans and retirement arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not readily available and any other assets
are valued as determined in good faith by the Board of Trustees.
FOREIGN CURRENCY TRANSLATIONS
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimated.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
CUSTODIAN FEES
Custodian fees are reduced based on each Fund's cash balances maintained with
the custodian. The amount is disclosed as a reduction of total expenses in the
Statements of Operations.
FEDERAL INCOME TAXES, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
The Funds have complied with the special provisions of the Internal Revenue Code
available to regulated investment companies and, in the manner provided therein,
distribute all of their taxable income, as well as any net realized gain on
sales of investments and foreign currency transactions reportable for federal
income tax purposes.
Wanger International Small Cap has elected to mark-to-market its investments
in Passive Foreign Investment Companies ("PFICS") for income tax purposes. In
accordance with this election, the Fund had no unrealized appreciation from
investments in PFICs at December 31, 1999. Cumulative net unrealized
appreciation recognized in prior years on PFICs sold in 1999 amounted to
$83,762.
Wanger Foreign Forty has also has elected to mark-to-market its investments
in Passive Foreign Investment Companies ("PFICS") for income tax purposes. In
accordance with this election, the Fund had $5,826 of unrealized appreciation
from investments in PFICs at December 31, 1999.
Dividends and distributions payable to each Fund's shareholders are recorded
by the Fund on the ex-dividend date.
Reclassifications have been made in 1999 for Wanger International Small Cap
and Wanger Twenty in the accompanying analysis of net assets from undistributed
net investment income to net realized gain on the sale of investments of
$964,907 and $28,532, respectively. These reclassifications were made to reflect
differences between financial reporting and income tax basis and had no impact
on net asset value.
3. TRANSACTIONS WITH AFFILIATES
The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes
continuing investment supervision to the Fund and is responsible for overall
management of the Fund's business affairs. Each Fund pays WAM a monthly advisory
fee based upon average daily net assets at the following rates:
WANGER U.S. SMALL CAP
Average Daily Net Assets
For the first $100 million 1.00%
Next $150 million .95%
In excess of $250 million .90%
<PAGE>
Wanger Advisors Trust 1999 Annual Report
NOTES TO FINANCIAL STATEMENTS
WANGER INTERNATIONAL SMALL CAP
Average Daily Net Assets
For the first $100 million 1.30%
Next $150 million 1.20%
In excess of $250 million 1.10%
WANGER TWENTY
On average daily net assets .95%
WANGER FOREIGN FORTY
On average daily net assets 1.00%
The investment advisory agreement also provides that WAM will reimburse the
Funds to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed a percentage of average net assets. This amount is 1.50%
for Wanger U.S. Small Cap, 1.90% for Wanger International Small Cap, 1.35% for
Wanger Twenty and 1.45% for Wanger Foreign Forty. WAM was not required to
reimburse Wanger U.S. Small Cap or Wanger International Small Cap under these
agreements for the year ended December 31, 1999. Wanger Twenty and Wanger
Foreign Forty were reimbursed $26,027 and $37,004, respectively, for the period
ended December 31, 1999.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. The Funds paid the following trustees' fees and expenses to trustees
not affiliated with WAM:
1999
Wanger U.S. Small Cap $31,610
Wanger International Small Cap 16,817
Wanger Twenty 251
Wanger Foreign Forty 121
WAM advanced $100,000 in connection with the organization and initial
registration of Wanger U.S. Small Cap and Wanger International Small Cap. These
costs are being amortized and reimbursed to WAM over the period May, 1995
through April, 2000. WAM paid all organization costs associated with the
organization of Wanger Twenty and Wanger Foreign Forty. These costs amounted to
$ 20,816. WAM will not be reimbursed for these costs by the Funds.
WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is
the distributor of each Fund's shares and receives no compensation for its
services
4. BORROWING ARRANGEMENTS
Wanger U.S. Small Cap and Wanger International Small Cap participate in a
$250,000,000 credit facility which was entered into to facilitate portfolio
liquidity. No amounts were borrowed under this facility during 1999.
5. FUND SHARES TRANSACTIONS
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
WANGER U.S. SMALL CAP Year ended Year ended
December 31, 1999 December 31, 1998
Shares sold 1,827,456 4,370,518
Shares issued in reinvestment of
dividend and capital gain
distributions 1,675,771 686,318
- -------------------------------------------------------------------------------
3,503,227 5,056,836
Less shares redeemed 3,089,752 2,389,858
- -------------------------------------------------------------------------------
Net increase in shares outstanding 413,475 2,666,978
WANGER INTERNATIONAL SMALL CAP Year ended Year ended
December 31, 1999 December 31, 1998
Shares sold 1,101,093 1,389,310
Shares issued in reinvestment
of dividend and capital gain
distributions 119,889 76,657
- -------------------------------------------------------------------------------
1,220,982 1,465,967
Less shares redeemed 1,290,574 1,346,776
- -------------------------------------------------------------------------------
Net decrease in shares outstanding (69,592) 119,191
WANGER TWENTY Period ended
December 31, 1999
Shares sold 612,940
Less shares redeemed 123,635
- --------------------------------------------------------------------------------
Net increase in shares outstanding 489,305
WANGER FOREIGN FORTY Period ended
December 31, 1999
Shares sold 342,192
Less shares redeemed 25,412
- --------------------------------------------------------------------------------
Net increase in shares outstanding 316,780
6. INVESTMENT TRANSACTIONS
The aggregate costs of purchases and proceeds from sales other than short-term
obligations in 1999 were:
---------------------------------------------------------------
WANGER U.S. WANGER WANGER WANGER
SMALL CAP INTERNATIONAL TWENTY FOREIGN FORTY
SMALL CAP
PURCHASES $106,139,136 $132,788,428 $8,919,902 $4,748,084
SALES 147,545,241 138,231,907 3,938,241 1,766,268
<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.
40
<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.
41
<PAGE>
PART C
ITEM 23. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits:
a. Agreement and Declaration of Trust (exhibit 1 to
post-effective amendment No. 2). (2)
b. By-laws (exhibit 2 to post-effective amendment No. 2).(2)
c.1. Specimen Share Certificate - Wanger U.S. Small Cap (exhibit
4(a) to post-effective amendment No. 1). (1)
c.2. Specimen Share Certificate - Wanger International Small Cap
(exhibit 4(b) to post-effective amendment No. 1). (1)
d.1. Investment Advisory Agreement - Wanger U.S. Small Cap, dated
January 1, 1998 (exhibit 5(a) to post-effective amendment No.
6). (5)
d.2. Investment Advisory Agreement - Wanger International Small
Cap, dated January 1, 1998 (exhibit 5(b) to post-effective
amendment No. 6). (5)
d.3. Investment Advisory Agreement - Wanger Twenty and Wanger
Foreign Forty (exhibit d.3 to post-effective amendment No.
8). (6)
e.1. Distribution Agreement between Wanger Advisors Trust and WAM
Brokerage Services, L.L.C. dated January 1, 1998 (exhibit 6(a)
to post-effective amendment No. 6). (5)
e.2. Amendment to Distribution Agreement between Wanger Advisors
Trust and WAM Brokerage Services, L.L.C. (exhibit e.2 to
post-effective amendment No. 8). (6)
f. None.
g.1. Custodian Contract between Wanger Advisors Trust and State
Street Bank and Trust Company (exhibit 8(a) to post-effective
amendment No. 2). (2)
g.2. 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 (exhibit g.2 to post-effective
amendment No. 8). (6)
h.1. Amendment No. 1 to the Participation Agreement between Wanger
Advisors Trust and Phoenix Home Life Mutual Insurance Company
dated April 18, 1995 (exhibit 9(a)(1) to post-effective
amendment No. 2) (2) (amendment dated December 16, 1996)
(exhibit 9(a)(1) to post-effective amendment No. 3). (3)
h.2. Amendment No. 1 to the Participation Agreement between Wanger
Advisors Trust and PHL Variable Insurance Company dated
February 23, 1995 (exhibit 9(a)(2) to post-effective amendment
No. 2) (2) (amendment dated December 16, 1996) (exhibit
9(a)(2) to post-effective amendment No. 3). (3)
<PAGE>
h.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 (exhibit 9(a)(3) to post-effective amendment No.
2) (2) (amendment dated December 16, 1996) (exhibit 9(a)(3)
to post-effective amendment No. 3). (3)
h.4. Participation Agreement between Wanger Advisors Trust and
First Providian Life and Health Insurance Company dated
November 15, 1996, and Amendment No. 1 December 16, 1996
(exhibit 9(a)(4) to post-effective amendment No. 3). (3)
h.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 (exhibit 9(a)
(5) to post-effective amendment No. 3). (3)
h.6. Transfer Agency and Service Agreement between Wanger Advisors
Trust and State Street Bank and Trust Company dated
July 1, 1999.
i. Consent of Bell, Boyd & Lloyd LLC.
j. Consent of Independent Auditors.
k. None.
l. Subscription Agreement (exhibit 13 to post-effective
amendment No. 2). (2)
m. None.
n. None.
p.1. Code of Ethics, as amended March 15, 2000.
p.2. Code of Ethics for Non-Interested Board Members, as amended
June 8, 1999.
------------------------------
(1) Incorporated by reference to the exhibit 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 filed with post-effective
amendment no. 2 to the Registration Statement filed on April 19, 1996.
(3) Incorporated by reference to the exhibit filed with post-effective
amendment no. 3 to the Registration Statement filed on April 30, 1997.
(4) Incorporated by reference to the exhibit filed with post-effective
amendment no. 5 to the Registration Statement filed on November 3, 1997.
(5) Incorporated by reference to the exhibit filed with post-effective
amendment no. 6 to the Registration Statement filed April 28, 1998.
<PAGE>
(6) Incorporated by reference to the exhibit filed with post-effective
amendment no. 8 to the Registration Statement filed February 26, 1999.
ITEM 24. 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
Additional Information under the caption "Investment Adviser" is incorporated by
reference.
ITEM 25. INDEMNIFICATION
Article VIII of the Agreement and Declaration of Trust of the
registrant (Exhibit a 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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The information in the prospectus under the caption "Management of the
Funds" 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 27. PRINCIPAL UNDERWRITER
WAM Brokerage Services, L.L.C. also acts as principal underwriter for
Acorn Investment Trust.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT
UNDERWRITERS
<S> <C> <C>
Bruce H. Lauer President Vice President, Assistant Secretary
and Treasurer
Marilyn Morrison Vice President and Secretary
</TABLE>
The principal business of each officer of WAM Brokerage L.L.C. is 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
Bruce H. Lauer, Vice President, Assistant Secretary and Treasurer
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this post-effective amendment pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Chicago, Illinois on April 28, 2000.
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 ) April 28, 2000
)
/S/ PATRICIA H. WERHANE Trustee )
- --------------------------
Patricia H. Werhane )
)
/S/ RALPH WANGER Trustee and President )
- -------------------------- (principal executive )
Ralph Wanger officer) )
)
/S/ BRUCE H. LAUER Treasurer (principal )
- -------------------------- financial and accounting )
Bruce H. Lauer officer)
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
EXHIBIT
NUMBER EXHIBIT
h.6 Transfer Agency and Service Agreement between Wanger
Advisors Trust and State Street Bank and Trust Company
dated July 1, 1999.
i. Consent of Bell Boyd & Lloyd LLC.
j. Consent of Independent Auditors.
p.1 Code of Ethics.
p.2 Code of Ethics for Non-Interested Board Members.
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
WANGER ADVISORS TRUST
AND
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment and Duties.................................1
2. Third Party Administrators for Defined Contribution Plans ......3
3. Fees and Expenses...............................................4
4. Representations and Warranties of the Transfer Agent............5
5. Representations and Warranties of the Fund......................6
6. Wire Transfer Operating Guidelines..............................6
7. Data Access and Proprietary Information.........................8
8. Indemnification.................................................9
9. Standard of Care...............................................10
10. Confidentiality................................................11
11. Covenants of the Fund and the Transfer Agent...................12
12. Termination of Agreement.......................................12
13. Assignment and Third Party Beneficiaries.......................14
14. Subcontractors.................................................14
15. Miscellaneous..................................................15
16. Additional Funds...............................................16
17. Limitations of Liability of the Trustees and Shareholders......16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of July, 1999, by and between WANGER ADVISORS
TRUST, a Massachusetts business trust, having its principal office and place of
business at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606 (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company
having its principal office and place of business at 225 Franklin Street,
Boston, Massachusetts 02110 (the "Transfer Agent").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Fund intends to initially offer shares in four (4) series, such
series shall be named in the attached Schedule A which may be amended by the
parties from time to time (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Section 17, being herein referred to as a "Portfolio," and
collectively as the "Portfolios"); and
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Transfer
Agent as its transfer agent, dividend disbursing agent, custodian of certain
retirement plans and agent in connection with certain other activities, and the
Transfer Agent desires to accept such appointment.
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment and Duties
1.1 Transfer Agency Services. Subject to the terms and conditions set forth
in this Agreement, the Fund, on behalf of the Portfolios, hereby
employs and appoints the Transfer Agent to act as, and the Transfer
Agent agrees to act as its transfer agent for the Fund's authorized and
issued shares of beneficial interest ("Shares"), dividend disbursing
agent, custodian of certain retirement plans and agent in connection
with any accumulation, open-account or similar plan provided to the
shareholders of each of the respective Portfolios of the Fund
("Shareholders") and set out in the currently effective prospectus and
statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program. In accordance
with procedures established from time to time by agreement between the
Fund on behalf of each of the Portfolios, as applicable and the
Transfer Agent, the Transfer Agent agrees that it will perform the
following services:
(a) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Declaration of Trust
of the Fund (the "Custodian");
(b) Pursuant to purchase orders, issue the appropriate number of Shares
and hold such Shares in the appropriate Shareholder account;
<PAGE>
(c) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to the
Custodian;
(d) In respect to the transactions in items (a), (b) and (c) above, the
Transfer Agent shall execute transactions directly with broker-dealers
authorized by the Fund;
(e) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or cause to
be paid over in the appropriate manner such monies as instructed by the
redeeming Shareholders;
(f) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(g) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(h) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Transfer Agent
of indemnification satisfactory to the Transfer Agent and protecting
the Transfer Agent and the Fund, and the Transfer Agent at its option,
may issue replacement certificates in place of mutilated stock
certificates upon presentation thereof and without such indemnity;
(i) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(j) Record the issuance of Shares of the Fund and maintain pursuant to
SEC Rule 17Ad-10(e) a record of the total number of Shares of the Fund
which are authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Transfer Agent shall also provide the Fund
on a regular basis with the total number of Shares which are authorized
and issued and outstanding and shall have no obligation, when recording
the issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the Fund.
1.2 Additional Services. In addition to, and neither in lieu nor in
contravention of, the services set forth in the above paragraph, the
Transfer Agent shall perform the following services:
(a) Other Customary Services. Perform the customary services of a
transfer agent, dividend disbursing agent, custodian of certain
retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plan (including without
limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing Shareholder
proxies, Shareholder reports and prospectuses to current Shareholders,
withholding taxes on U.S. resident and non-resident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions
by federal authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for all
purchases
2
<PAGE>
and redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
(b) Control Book (also known as "Super Sheet"). Maintain a daily record
and produce a daily report for the Fund of all transactions and
receipts and disbursements of money and securities and deliver a copy
of such report for the Fund for each business day to the Fund no later
than 9:00 AM Eastern Time, or such earlier time as the Fund may
reasonably require, on the next business day;
(c)"Blue Sky" Reporting. The responsibility of the Transfer Agent for
the Fund's compliance with applicable blue sky requirements is solely
limited to the initial establishment of transactions subject to blue
sky compliance by the Fund and providing a system which will enable the
Fund to monitor the total number of Shares sold in each State. The Fund
shall (i) identify to the Transfer Agent in writing those transactions
and assets to be treated as exempt from blue sky reporting for each
State and (ii) verify the establishment of transactions for each State
on the system prior to activation and thereafter monitor the daily
activity for each State;
(d) National Securities Clearing Corporation (the "NSCC"). (i) in a
timely manner and without receipt of supporting documentation from a
Shareholder accept and effectuate the registration and maintenance of
accounts through Networking and the purchase, redemption, transfer and
exchange of shares in such accounts through Fund/SERV (networking and
Fund/SERV being programs operated by the NSCC on behalf of NSCC's
participants, including the Fund), in accordance with instructions
transmitted to and received by the Transfer Agent by transmission from
NSCC on behalf of broker-dealers and banks which have been established
by, or in accordance with the instructions of authorized persons, as
hereinafter defined on the dealer file maintained by the Transfer
Agent; (ii) issue instructions to Fund's banks for the settlement of
transactions between the Fund and NSCC (acting on behalf of its
broker-dealer and bank participants); (iii) provide account and
transaction information from the affected Portfolio's records on DST
Systems, Inc. computer system TA2000 ("TA2000 System") in accordance
with NSCC's Networking and Fund/SERV rules for those broker-dealers;
(iv) maintain Shareholder accounts on TA2000 System through Networking;
(v) comply with all applicable laws, rules, and regulations, including
NSCC rules and procedures relating to Networking; (iv) with respect to
Networking, comply with the provisions of each Fund's current
prospectus and statement of additional information; (vii) implement and
maintain procedures reasonably designed to ensure the accuracy of all
transmissions through Networking and to limit the access to, and the
inputting of data into, Networking to persons specifically authorized
by the Transfer Agent; (viii) otherwise perform any and all duties,
functions, procedures and responsibilities pursuant to each NSCC matrix
level and as otherwise established by NSCC from time to time; and (ix)
conduct the activities noted herein in a businesslike and competent
manner.
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(e) New Procedures. The Transfer Agent and the fund may, from time to
time, agree in writing that the Fund or another of the Fund's Agents
will perform some or all of the services described in this Section 1,
or that additional or different services shall be performed by the
Transfer Agent, and any such written agreement will supersede any
provisions of this agreement with respect to the subject matter
thereof; and
(f) Additional Telephone Support Services. If the parties elect to have
the Transfer Agent provide additional telephone support services under
this Agreement, the parties will agree to such services, fees and
sub-contracting as stated in Schedule 1.2(f) entitled "Telephone
Support Services" attached hereto.
2. Third Party Administrators for Defined Contribution Plans
2.1 The Fund may decide to make available to certain of its customers, a
qualified plan program (the "Program") pursuant to which the customers
("Employers") may adopt certain deferred compensation or other
retirement plans ("Plan or Plans") for the benefit of the individual
Plan participant (the "Plan Participant"), such Plan(s) being qualified
under Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code") and administered by third party administrators which may be
plan administrators as defined in the Employee Retirement Income
Security Act of 1974, as amended (the "TPA(s)").
2.2 In accordance with the procedures established in the initial Schedule
2.1 entitled "Third Party Administrator Procedures," as may be amended
by the Transfer Agent and the Fund from time to time ("Schedule 2.1"),
the Transfer Agent shall:
(a) Treat Shareholder accounts established by the Plans in the name of
the Trustees, Plans or TPAs as the case may be as omnibus accounts;
(b) Maintain omnibus accounts on its records in the name of the
TPA or its designee as the Trustee for the benefit of the Plan; and
(c) Perform all services under Section 1 as transfer agent of the
Fund and not as a record-keeper for the Plans.
2.3 Transactions identified under Section 2 of this Agreement shall be
deemed exception services ("Exception Services") when such
transactions:
(a)Require the Transfer Agent to use methods and procedures other than
those usually employed by the Transfer Agent to perform services under
Section 1 of this Agreement;
(b)Involve the provision of information to the Transfer Agent after
the commencement of the nightly processing cycle of the TA2000 System;
or
(c) Require more manual intervention by the Transfer Agent, either in
the entry of data or in the modification or amendment of reports
generated by the TA2000 System than is usually required by
non-retirement plan and pre-nightly transactions.
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3. Fees and Expenses
3.1 Fee Schedule. For the performance by the Transfer Agent pursuant to
this Agreement, the Fund agrees to pay the Transfer Agent an annual
maintenance fee for each Shareholder account as set forth in the
attached fee schedule ("Schedule 3.1"). Such fees and out-of-pocket
expenses and advances identified under Section 3.2 below may be changed
from time to time subject to mutual written agreement between the Fund
and the Transfer Agent.
3.2 Out-of-Pocket Expenses. In addition to the fee paid under Section 3.1
above, the Fund agrees to reimburse the Transfer Agent for
out-of-pocket expenses, including but not limited to confirmation
statements, investor processing, postage, forms, audio response,
telephone, microfilm, microfiche, records storage, or advances incurred
by the Transfer Agent for the items set out in Schedule 3.1 attached
hereto. In addition, any other expenses incurred by the Transfer Agent
at the request or with the consent of the Fund, will be reimbursed by
the Fund.
3.3 Postage. Postage for mailing of dividends, proxies, Fund reports and
other mailings to all shareholder accounts shall be advanced to the
Transfer Agent by the Fund at least seven (7) days prior to the mailing
date of such materials.
3.4 Invoices. The Fund agrees to pay all fees and reimbursable expenses
within thirty (30) days following the receipt of the respective billing
notice, except for any fees or expenses that are subject to good faith
dispute. In the event of such a dispute, the Fund may only withhold
that portion of the fee or expense subject to the good faith dispute.
The Fund shall notify the Transfer Agent in writing within twenty-one
(21) calendar days following the receipt of each billing notice if the
Fund is disputing any amounts in good faith. If the Fund does not
provide such notice of dispute within the required time, the billing
notice will be deemed accepted by the Fund. The Fund shall settle such
disputed amounts within five (5) days of the day on which the parties
agree on the amount to be paid by payment of the agreed amount. If no
agreement is reached, then such disputed amounts shall be settled as
may be required by law or legal process.
3.5 Cost of Living Adjustment. Following the Initial Term, unless the
parties shall otherwise agree and provided that the service mix and
volumes remain consistent as previously provided in the Initial Term,
the total fee for all services shall equal the fee that would be
charged for the same services based on a fee rate (as reflected in a
fee rate schedule) increased by the percentage increase for the
twelve-month period of such previous calendar year of the Consumer
Price Index for Urban Wage Earners and Clerical Workers, for the Boston
area, as published bimonthly by the United States Department of Labor,
Bureau of Labor Statistics, or, in the event that publication of such
Index is terminated, any successor or substitute index, appropriately
adjusted, acceptable to both parties.
3.6 Late Payments. If any undisputed amount in an invoice of the Transfer
Agent (for fees or reimbursable expenses) is not paid when due, the
Fund shall pay the Transfer Agent interest thereon (from the due date
to the date of payment) at a per annum rate equal to one percent (1.0%)
plus the Prime Rate (that is, the base rate on corporate loans posted
by
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large domestic banks) published by The Wall Street Journal (or, in
the event such rate is not so published, a reasonably equivalent
published rate selected by the Fund) on the first day of publication
during the month when such amount was due. Notwithstanding any other
provision hereof, such interest rate shall be no greater than permitted
under applicable provisions of Massachusetts law.
4. Representations and Warranties of the Transfer Agent
The Transfer Agent represents and warrants to the Fund that:
4.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
4.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
4.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
4.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
4.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
5. Representations and Warranties of the Fund
The Fund represents and warrants to the Transfer Agent that:
5.1 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
5.2 It is empowered under applicable laws and by its Declaration of Trust
and By-Laws to enter into and perform this Agreement.
5.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform this
Agreement.
5.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
5.5 A registration statement under the Securities Act of 1933, as amended
is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
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6. Wire Transfer Operating Guidelines/Articles 4A of the Uniform
Commercial Code
6.1 Obligation of Sender. The Transfer Agent is authorized to promptly
debit the appropriate Fund account(s) upon the receipt of a payment
order in compliance with the selected security procedure (the "Security
Procedure") chosen for funds transfer on the form provided by the
Transfer Agent (the "Fund Selection Form") and in the amount of money
that the Transfer Agent has been instructed to transfer. The Transfer
Agent shall execute payment orders in compliance with the Security
Procedure and with the Fund instructions on the execution date provided
that such payment order is received by the customary deadline for
processing such a request, unless the payment order specifies a later
time. All payment orders and communications received after the
customary deadline will be deemed to have been received the next
business day.
6.2 Security Procedure. The Fund acknowledges that the Security Procedure
it has designated on the Fund Selection Form was selected by the Fund
from security procedures offered by the Transfer Agent. The Fund shall
restrict access to confidential information relating to the Security
Procedure to authorized persons as communicated to the Transfer Agent
in writing. The Fund must notify the Transfer Agent immediately if it
has reason to believe unauthorized persons may have obtained access to
such information or of any change in the Fund's authorized personnel.
The Transfer Agent shall verify the authenticity of all Fund
instructions according to the Security Procedure.
6.3 Account Numbers. The Transfer Agent shall process all payment orders on
the basis of the account number contained in the payment order. In the
event of a discrepancy between any name indicated on the payment order
and the account number, the account number shall take precedence and
govern.
6.4 Rejection. The Transfer Agent reserves the right to decline to process
or delay the processing of a payment order which (a) is in excess of
the collected balance in the account to be charged at the time of the
Transfer Agent's receipt of such payment order; (b) if initiating such
payment order would cause the Transfer Agent, in the Transfer Agent's
sole judgement, to exceed any volume, aggregate dollar, network, time,
credit or similar limits which are applicable to the Transfer Agent; or
(c) if the Transfer Agent, in good faith, is unable to satisfy itself
that the transaction has been properly authorized.
6.5 Cancellation Amendment. The Transfer Agent shall use reasonable efforts
to act on all authorized requests to cancel or amend payment orders
received in compliance with the Security Procedure provided that such
requests are received in a timely manner affording the Transfer Agent
reasonable opportunity to act. However, the Transfer Agent assumes no
liability if the request for amendment or cancellation cannot be
satisfied.
6.6 Errors. The Transfer Agent shall assume no responsibility for failure
to detect any erroneous payment order provided that the Transfer Agent
complies with the payment order instructions as received and the
Transfer Agent complies with the Security Procedure. The Security
Procedure is established for the purpose of authenticating payment
orders only and not for the detection of errors in payment orders.
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6.7 Interest. The Transfer Agent shall assume no responsibility for lost
interest with respect to the refundable amount of any unauthorized
payment order, unless the Transfer Agent is notified of the
unauthorized payment order within thirty (30) days of notification by
the Transfer Agent of the acceptance of such payment order.
6.8 ACH Credit Entries/Provisional Payments. When the Fund initiates or
receives Automated Clearing House credit and debit entries pursuant to
these guidelines and the rules of the National Automated Clearing House
Association and the New England Clearing House Association, the
Transfer Agent will act as an Originating Depository Financial
Institution and/or Receiving Depository Financial Institution, as the
case may be, with respect to such entries. Credits given by the
Transfer Agent with respect to an ACH credit entry are provisional
until the Transfer Agent receives final settlement for such entry from
the Federal Reserve Bank. If the Transfer Agent does not receive such
final settlement, the Fund agrees that the Transfer Agent shall receive
a refund of the amount credited to the Fund in connection with such
entry, and the party making payment to the Fund via such entry shall
not be deemed to have paid the amount of the entry.
6.9 Confirmation. Confirmation of Transfer Agent's execution of payment
orders shall ordinarily be provided within twenty four (24) hours
notice of which may be delivered through the Transfer Agent's
proprietary information systems, or by facsimile or call-back. Fund
must report any objections to the execution of an order within thirty
(30) days.
7. Data Access and Proprietary Information
7.1 The Fund acknowledges that the databases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Transfer Agent as
part of the Fund's ability to access certain Fund-related data
("Customer Data") maintained by the Transfer Agent on databases under
the control and ownership of the Transfer Agent or other third party
("Data Access Services") constitute copyrighted, trade secret, or other
proprietary information (collectively, "Proprietary Information") of
substantial value to the Transfer Agent or other third party. In no
event shall Proprietary Information be deemed Customer Data. The Fund
agrees to treat all Proprietary Information as proprietary to the
Transfer Agent and further agrees that it shall not divulge any
Proprietary Information to any person or organization except as may be
provided hereunder. Without limiting the foregoing, the Fund agrees for
itself and its employees and agents to:
(a) Use such programs and databases (i) solely on the Fund's computers,
or (ii) solely from equipment at the locations agreed to between the
Fund and the Transfer Agent and (iii) solely in accordance with the
Transfer Agent's applicable user documentation;
(b) Refrain from copying or duplicating in any way (other than in the
normal course of performing processing on the Fund's computer(s)), the
Proprietary Information;
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<PAGE>
(c) Refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Transfer Agent's instructions;
(d) Refrain from causing or allowing information transmitted from the
Transfer Agent's computer to the Fund's terminal to be retransmitted to
any other computer terminal or other device except as expressly
permitted by the Transfer Agent (such permission not to be unreasonably
withheld);
(e) Allow the Fund to have access only to those authorized transactions
as agreed to between the Fund and the Transfer Agent; and
(f) Honor all reasonable written requests made by the Transfer Agent to
protect at the Transfer Agent's expense the rights of the Transfer
Agent in Proprietary Information at common law, under federal copyright
law and under other federal or state law.
7.2 Proprietary Information shall not include all or any portion of any of
the foregoing items that: (i) are or become publicly available without
breach of this Agreement; (ii) are released for general disclosure by a
written release by the Transfer Agent; or (iii) are already in the
possession of the receiving party at the time of receipt without
obligation of confidentiality or breach of this Agreement.
7.3 The Fund acknowledges that its obligation to protect the Transfer
Agent's Proprietary Information is essential to the business interest
of the Transfer Agent and that the disclosure of such Proprietary
Information in breach of this Agreement would cause the Transfer Agent
immediate, substantial and irreparable harm, the value of which would
be extremely difficult to determine. Accordingly, the parties agree
that, in addition to any other remedies that may be available in law,
equity, or otherwise for the disclosure or use of the Proprietary
Information in breach of this Agreement, the Transfer Agent shall be
entitled to seek and obtain a temporary restraining order, injunctive
relief, or other equitable relief against the continuance of such
breach.
7.4 If the Fund notifies the Transfer Agent that any of the Data Access
Services do not operate in material compliance with the most recently
issued user documentation for such services, the Transfer Agent shall
endeavor in a timely manner to correct such failure. Organizations from
which the Transfer Agent may obtain certain data included in the Data
Access Services are solely responsible for the contents of such data
and the Fund agrees to make no claim against the Transfer Agent arising
out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE TRANSFER AGENT EXPRESSLY
DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN
INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
7.5 If the transactions available to the Fund include the ability to
originate electronic instructions to the Transfer Agent in order to (i)
effect the transfer or movement of cash
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or Shares or (ii) transmit Shareholder information or other
information, then in such event the Transfer Agent shall be entitled
to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is
undertaken in conformity with security procedures established by the
Transfer Agent from time to time.
7.6 Each party shall take reasonable efforts to advise its employees of
their obligations pursuant to this Section 7. The obligations of this
Section shall survive termination of this Agreement.
8. Indemnification
8.1A The Transfer Agent shall not be responsible for, and the Fund shall
indemnify and hold the Transfer Agent harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to actions taken
in good faith and without negligence or willful misconduct on the part
of the Transfer Agent or its agents or subcontractors and arising out
of or attributable to:
(a) All actions of the Transfer Agent or its agents or subcontractors
required to be taken pursuant to this Agreement (including the defense
of any law suit in which the Transfer Agent or affiliate is a named
party);
(b) The Fund's lack of good faith, negligence or willful misconduct; or
(c) The negotiation and processing of any checks including without
limitation for deposit into the Fund's demand deposit account
maintained by the Transfer Agent.
8.1B The Transfer Agent shall not be responsible for, and the Fund shall
indemnify and hold the Transfer Agent harmless from and against, any
and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to:
(a) Action taken or omitted, by the Transfer Agent, or its agents or
subcontractors in reliance on: (i) any information, records, documents,
data, stock certificates or services, which are received by the
Transfer Agent or its agents or subcontractors by machine readable
input, facsimile, CRT data entry, electronic instructions or other
similar means authorized by the Fund, and which have been prepared,
maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any broker-dealer, TPA
or previous transfer agent or registrar; (ii) any instructions or
requests of the Fund or any of its officers; (iii) any instructions or
opinions of legal counsel with respect to any matter arising in
connection with the services to be performed by the Transfer Agent
under this Agreement which are provided to the Transfer Agent after
consultation with such legal counsel; or (iv) any paper or document,
reasonably believed to be genuine, authentic and signed by the proper
person or persons;
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(b) The offer or sale of Shares in violation of federal or state
securities laws or regulations requiring that such Shares be registered
or in violation of any stop order or other determination or ruling by
any federal or any state agency with respect to the offer or sale of
such Shares; or
(c) Upon the Fund's request entering into any agreements required by
the National Securities Clearing Corporation (the "NSCC") for the
transmission of Fund or Shareholder data through the NSCC clearing
systems.
8.2 In order that the indemnification provisions contained in this Section
8 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Transfer Agent, the Transfer Agent shall
promptly notify the Fund of such assertion, and shall keep the Fund
advised with respect to all developments concerning such claim. The
Fund shall have the option to participate with the Transfer Agent in
the defense of such claim or to defend against said claim in its own
name or in the name of the Transfer Agent. The Transfer Agent shall in
no case confess any claim or make any compromise in any case in which
the Fund may be required to indemnify the Transfer Agent except with
the Fund's prior written consent.
9. Standard of Care
The Transfer Agent shall at all times act in good faith and agrees to
use its best efforts within reasonable limits to insure the accuracy of
all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors, including encoding and payment processing errors, unless said
errors are caused by its negligence, bad faith, or willful misconduct
or that of its employees or agents. The parties agree that any encoding
or payment processing errors shall be governed by this standard of care
and Section 4-209 of the Uniform Commercial Code is superseded by
Section 9 of this Agreement. This standard of care also shall apply to
Exception Services, as defined in Section 2.3 herein, but such
application shall take into consideration the manual processing
involved in, and time sensitive nature of, Exception Services.
10. Confidentiality
10.1 The Transfer Agent and the Fund agree that they will not, at any time
during the term of this Agreement or after its termination, reveal,
divulge, or make known to any person, firm, corporation or other
business organization, any customers' lists, trade secrets, cost
figures and projections, profit figures and projections, or any other
secret or confidential information whatsoever, whether of the Transfer
Agent or of the Fund, used or gained by the Transfer Agent or the Fund
during performance under this Agreement. The Fund and the Transfer
Agent further covenant and agree to retain all such knowledge and
information acquired during and after the term of this Agreement
respecting such lists, trade secrets, or any secret or confidential
information whatsoever in trust for the sole benefit of the Transfer
Agent or the Fund and their successors and assigns. In the event of
breach of the foregoing by either party, the remedies provided by
Section 7.3 shall be
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available to the party whose confidential information is disclosed. The
above prohibition of disclosure shall not apply to the extent that the
Transfer Agent must disclose such data to its sub-contractor or Fund
agent for purposes of providing services under this Agreement.
10.2 In the event that any requests or demands are made for the inspection
of the Shareholder records of the Fund, other than request for records
of Shareholders pursuant to standard subpoenas from state or federal
government authorities (i.e., divorce and criminal actions), the
Transfer Agent will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such
inspection. The Transfer Agent expressly reserves the right, however,
to exhibit the Shareholder records to any person whenever it is advised
by counsel that it may be held liable for the failure to exhibit the
Shareholder records to such person or if required by law or court
order.
11. Covenants of the Fund and the Transfer Agent
11.1 The Fund shall promptly furnish to the Transfer Agent the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Transfer Agent and the
execution and delivery of this Agreement; and
(b) A copy of the Declaration of Trust and By-Laws of the Fund and
all amendments thereto.
11.2 The Transfer Agent hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of
stock certificates, check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
11.3 The Transfer Agent shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable.
To the extent required by Section 31 of the Investment Company Act of
1940, as amended, and the Rules thereunder, the Transfer Agent agrees
that all such records prepared or maintained by the Transfer Agent
relating to the services to be performed by the Transfer Agent
hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to the Fund on and in
accordance with its request.
12. Termination of Agreement
12.1 Term. The initial term of this Agreement (the "Initial Term") shall be
three (3) years from the date first stated above unless terminated
pursuant to the provisions of this Section 12. Unless a terminating
party gives written notice to the other party one hundred and twenty
(120) days before the expiration of the Initial Term, this Agreement
will renew automatically from year to year after the Initial Term (each
such year-to-year renewal term a "Renewal Term"). If one hundred and
twenty (120) days before the expiration of the Initial Term or a
Renewal Term the parties to this Agreement do not agree upon a Fee
Schedule for the upcoming Renewal Term, the fees shall be increased
pursuant to Section 3.5 of this Agreement.
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12.2 Early Termination. Notwithstanding anything contained in this
Agreement, should the Fund desire to move any of its services provided
by the Transfer Agent hereunder to a successor service provider prior
to the expiration of the then current Initial or Renewal Term, or
without the required notice, the Transfer Agent shall make a good faith
effort to facilitate the conversion on such prior date; however, there
can be no guarantee or assurance that the Transfer Agent will be able
to facilitate a conversion of services on such prior date. In
connection with the foregoing, should services be converted to a
successor service provider, the fees payable to the Transfer Agent
shall be calculated as if the services had been performed by the
Transfer Agent until the expiration of the then current Initial or
Renewal Term and calculated at the asset and/or Shareholder account
levels, as the case may be, on the date notice of termination was given
to the Transfer Agent, and the payment of all fees to the Transfer
Agent as set forth herein shall be accelerated to the business day
immediately prior to the conversion or termination of services, except
(a) as provided in Section 12.6 below or (b) if the Fund is liquidated
or its assets merged or purchased or the like with or by another entity
which does not utilize the services of the Transfer Agent, the fees
payable to the Transfer Agent shall be calculated as if the services
had been performed by the Transfer Agent until the later of (i) the
date on which the Transfer Agent actually ceases performing the
services for the Fund and (ii) 120 days after the notice of termination
was given to the Transfer Agent. If the Fund's assets are merged or
purchased or the like with or by another entity which utilizes the
services of the Transfer Agent, the fees payable to the Transfer Agent
shall be calculated through the date on which the Transfer Agent ceases
performing the services for the Fund.
12.3 Expiration of Term. After the expiration of the Initial Term or Renewal
Term whichever currently in effect, should either party exercise its
right to terminate, all out-of-pocket expenses or costs associated with
the movement of records and material will be borne by the Fund.
Additionally, the Transfer Agent reserves the right to charge for any
other reasonable expenses associated with such termination.
12.4 Confidential Information. Upon termination of this Agreement, each
party shall return to the other party all copies of confidential or
proprietary materials or information received from such other party
hereunder, other than materials or information required to be retained
by such party under applicable laws or regulations.
12.5 Unpaid Invoices. The Transfer Agent may terminate this Agreement
immediately upon an unpaid invoice payable by the Fund to the Transfer
Agent being outstanding for more than ninety (90) days, except with
respect to any amount subject to a good faith dispute within the
meaning of Section 3.4 of this Agreement.
12.6 Material Breach. The Fund may terminate this Agreement by notice to the
Transfer Agent, effective at the time specified therein, without
further liability for the payment of fees beyond the effective date of
such termination, upon the material breach by the Transfer Agent of any
provision of this Agreement; provided that, after receiving written
notice from the Fund of the existence of such material breach, the
Transfer Agent fails to correct such material breach within 10 days
after receipt of such notice.
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12.7 Bankruptcy. Either party hereto may terminate this Agreement by notice
to the other party, effective at any time specified therein, in the
event that (a) the other party ceases to carry on its business or (b)
an action is commenced by or against the other party under Title 11 of
the United States Code or a receiver, conservator or similar officer is
appointed for the other party and such suit, conservatorship or
receivership is not discharged within thirty (30) days.
13. Assignment and Third Party Beneficiaries
13.1 Except as provided in Section 14.1 below neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party. Any attempt to do so in
violation of this Section shall be void. Unless specifically stated to
the contrary in any written consent to an assignment, no assignment
will release or discharge the assignor from any duty or responsibility
under this Agreement.
13.2 Except as explicitly stated elsewhere in this Agreement, nothing under
this Agreement shall be construed to give any rights or benefits in
this Agreement to anyone other than the Transfer Agent and the Fund,
and the duties and responsibilities undertaken pursuant to this
Agreement shall be for the sole and exclusive benefit of the Transfer
Agent and the Fund. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and
assigns.
13.3 This Agreement does not constitute an agreement for a partnership or
joint venture between the Transfer Agent and the Fund. Other than as
provided in Section 14.1 and Schedule 1.2(f), neither party shall make
any commitments with third parties that are binding on the other party
without the other party's prior written consent.
14. Subcontractors
14.1 The Transfer Agent may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial
Data Services, Inc., a Massachusetts corporation ("Boston Financial")
which is duly registered as a transfer agent pursuant to Section
17A(c)(2) of the Securities Exchange Act of 1934, as amended, (ii) a
Boston Financial subsidiary duly registered as a transfer agent or
(iii) a Boston Financial affiliate duly registered as a transfer agent;
provided, however, that the Transfer Agent shall be fully responsible
to the Fund for the acts and omissions of Boston Financial or its
subsidiary or affiliate as it is for its own acts and omissions.
14.2 Nothing herein shall impose any duty upon the Transfer Agent in
connection with or make the Transfer Agent liable for the actions or
omissions to act of unaffiliated third parties in the performance of
services ancillary to the services to be performed under this agreement
and not acting as agent of the Transfer Agent hereunder, such as by way
of example and not limitation, Airborne Services, Federal Express,
United Parcel Service, the U.S. Mails, the NSCC and telecommunication
companies, provided, if the Transfer Agent selected such company, the
Transfer Agent shall have exercised due care in selecting the same.
15. Miscellaneous
14
<PAGE>
15.1 Amendment. This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a
resolution of the Board of Trustees of the Fund.
15.2 Massachusetts Law to Apply. This Agreement shall be construed and
the provisions thereof interpreted under and in accordance with the
laws of The Commonwealth of Massachusetts.
15.3 Force Majeure. In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond
its control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages resulting
from such failure to perform or otherwise from such causes.
15.4 Consequential Damages. Neither party to this Agreement shall be liable
to the other party for special, indirect or consequential damages under
any provision of this Agreement or for any special, indirect or
consequential damages arising out of any act or failure to act
hereunder.
15.5 Survival. All provisions regarding indemnification, warranty,
liability, and limits thereon, and confidentiality and/or protections
of proprietary rights and trade secrets shall survive the termination
of this Agreement.
15.6 Severability. If any provision or provisions of this Agreement shall be
held invalid, unlawful, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be
affected or impaired.
15.7 Priorities Clause. In the event of any conflict, discrepancy or
ambiguity between the terms and conditions contained in this Agreement
and any Schedules or attachments hereto, the terms and conditions
contained in this Agreement shall take precedence.
15.8 Waiver. No waiver by either party or any breach or default of any of
the covenants or conditions herein contained and performed by the other
party shall be construed as a waiver of any succeeding breach of the
same or of any other covenant or condition.
15.9 Merger of Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with
respect to the subject matter hereof whether oral or written.
15.10 Counterparts. This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
15.11 Reproduction of Documents. This Agreement and all schedules, exhibits,
attachments and amendments hereto may be reproduced by any commercial
photographic, photostatic, microfilm, micro-card, miniature
photographic or other similar process. The parties hereto each agree
that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether
or not the original is
15
<PAGE>
in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement, facsimile
or further reproduction shall likewise be admissible in evidence.
15.12 Notices. All notices and other communications as required or permitted
hereunder shall be in writing and sent by first class mail, postage
prepaid, addressed as follows or to such other address or addresses of
which the respective party shall have notified the other.
(a) If to State Street Bank and Trust Company, to:
State Street Bank and Trust Company
c/o Boston Financial Data Services, Inc.
1250 Hancock Street, Suite 300N
Quincy, Massachusetts 02169
Attention: Legal Department
Facsimile: (617) 483-5850
(b) If to the Fund, to:
Wanger Asset Management, L.P.
227 West Monroe, Suite 3000
Chicago, Illinois 60606
Attention: Bruce H. Lauer
16. Additional Funds
In the event that the Fund establishes one or more series of Shares, in
addition to those listed on the attached Schedule A, with respect to
which it desires to have the Transfer Agent render services as transfer
agent under the terms hereof, it shall so notify the Transfer Agent in
writing, and if the Transfer Agent agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Trust as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees, officers or
Shareholders individually but are binding only upon the assets and
property of the Fund.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
WANGER ADVISORS TRUST
BY: /s/ Kenneth A. Kalina
----------------------
Kenneth A. Kalina
Assistant Treasurer
ATTEST:
/s/ Linda K. Roth
- --------------------
Linda K. Roth
STATE STREET BANK AND TRUST
COMPANY
BY: signature illegible
-----------------------
Vice Chairman
ATTEST:
signature illegible
- ---------------------
17
<PAGE>
SCHEDULE A
Wanger U.S. Small Cap Advisor
Wanger International Small Cap Advisor
Wanger Twenty
Wanger Foreign Forty
WANGER ADVISORS TRUST STATE STREET BANK AND TRUST COMPANY
BY: /s/ Kenneth A. Kalina BY: signature illegible
-------------------------------- -------------------
Kenneth A. Kalina
Assistant Treasurer
<PAGE>
SCHEDULE 1.2(F)
ADDITIONAL TELEPHONE SUPPORT FEES AND SERVICES
Dated ____________
I. SERVICES
1. Transfer Agent and Telephone Support Functions
a. Answer telephone inquiries from [XXX 8 a.m. to 8 p.m. Boston time
Monday through Friday except Christmas Day XXX] [XXX OTHER HOLIDAY
COVERAGE AVAILABLE?XXX] from [XXX existing customers and prospective
customers XXX] of the Fund [XXX for sales literature XXX] in accordance
with the telephone script provided by the Fund.
b. Answer questions pertaining thereto the extent that such questions are
answerable based upon the information supplied to the Transfer Agent by
the Fund.
c. [XXX As the Fund and the Transfer Agent may agree in writing, the
Transfer Agent will receive calls and take written transaction requests
from shareholders of the Fund. Transfer Agent transactions include:
[XXX telephone redemptions, account maintenance, exchanges, transfers,
confirmed purchases, account balances and general inquiries XXX]. Some
transactions may result in research which will be done by the Fund.
Other calls may be referred directly to the Fund. Fax any referrals to
[XXX name of company XXX] on the same day the telephone call is
received XXX];
2. Incorporate new information into the above referenced script upon
written instructions from the Fund;
3. Maintain prospect detail information for six (6) months thereafter,
provide such information to the Fund in the form that the Fund may
reasonably request;
4. Send all literature orders for information from Boston Financial/DST
[XXX [how?] [to whom?] XXX] a minimum of [XXX one XXX] transmission
per day;
5. Provide the Fund with a [XXX daily/weekly/monthly XXX] telephone report
detailing the calls received during the [XXX day/week/month XXX];
6. [XXX Provide the Fund with monthly conversion reports as selected by
the Fund from DST's standard report package. XXX]
7. TARGET SERVICE LEVELS: Average speed of answer is fifteen (15) seconds,
abandon rate of no more than 2%, and an overall service level of 85%.
The averages will be calculated on a weekly basis.
<PAGE>
II. SUBCONTRACTORS
1. The Transfer Agent may, without further consent on the part of the
Fund, subcontract ministerial telephone support services for the
performance hereof.
III. FEES
STATE STREET BANK AND TRUST COMPANY
BY:_______________________________ BY:______________________________
<PAGE>
SCHEDULE 2.1
THIRD PARTY ADMINISTRATOR(S) PROCEDURES
Dated July 1, 1999
1. On each day on which both the New York Stock Exchange and the Fund are open
for business (a "Business Day"), the TPA(s) shall receive, on behalf of and
as agent of the Fund, Instructions (as hereinafter defined) from the Plan.
Instructions shall mean as to each Fund (i) orders by the Plan for the
purchases of Shares, and (ii) requests by the Plan for the redemption of
Shares; in each case based on the Plan's receipt of purchase orders and
redemption requests by Participants in proper form by the time required by
the terms of the Plan, but not later than the time of day at which the net
asset value of a Fund is calculated, as described from time to time in that
Fund's prospectus. Each Business Day on which the TPA receives Instructions
shall be a "Trade Date".
2. The TPA(s) shall communicate the TPA(s)'s acceptance of such Instructions,
to the applicable Plan.
3. On the next succeeding Business Day following the Trade Date on which it
accepted Instructions for the purchase and redemption of Shares, (TD+1),
the TPA(s) shall notify the Transfer Agent of the net amount of such
purchases or redemptions, as the case may be, for each of the Plans. In the
case of net purchases by any Plan, the TPA(s) shall instruct the Trustees
of such Plan to transmit the aggregate purchase price for Shares by wire
transfer to the Transfer Agent on (TD+1). In the case of net redemptions by
any Plan, the TPA(s) shall instruct the Fund's custodian to transmit the
aggregate redemption proceeds for Shares by wire transfer to the Trustees
of such Plan on (TD+1). The times at which such notification and
transmission shall occur on (TD+1) shall be as mutually agreed upon by each
Fund, the TPA(s), and the Transfer Agent.
4. The TPA(s) shall maintain separate records for each Plan, which record
shall reflect Shares purchased and redeemed, including the date and price
for all transactions, and Share balances. The TPA(s) shall maintain on
behalf of each of the Plans a single master account with the Transfer Agent
and such account shall be in the name of that Plan, the TPA(s), or the
nominee of either thereof as the record owner of Shares owned by such Plan.
5. The TPA(s) shall maintain records of all proceeds of redemptions of Shares
and all other distributions not reinvested in Shares.
6. The TPA(s) shall prepare, and transmit to each of the Plans, periodic
account statements showing the total number of Shares owned by that Plan as
of the statement closing date, purchases and redemptions of Shares by the
Plan during the period covered by the statement, and the dividends and
other distributions paid to the Plan on Shares during the statement period
(whether paid in cash or reinvested in Shares).
<PAGE>
7. The TPA(s) shall, at the request and expense of each Fund, transmit to the
Plans prospectuses, proxy materials, reports, and other information
provided by each Fund for delivery to its shareholders.
8. The TPA(s) shall, at the request of each Fund, prepare and transmit to each
Fund or any agent designated by it such periodic reports covering Shares of
each Plan as each Fund shall reasonably conclude are necessary to enable
the Fund to comply with state Blue Sky requirements.
9. The TPA(s) shall transmit to the Plans confirmation of purchase orders and
redemption requests placed by the Plans; and
10. The TPA(s) shall, with respect to Shares, maintain account balance
information for the Plan(s) and daily and monthly purchase summaries
expressed in Shares and dollar amounts.
11. Plan sponsors may request, or the law may require, that prospectuses, proxy
materials, periodic reports and other materials relating to each Fund be
furnished to Participants in which event the Transfer Agent or each Fund
shall mail or cause to be mailed such materials to Participants. With
respect to any such mailing, the TPA(s) shall, at the request of the
Transfer Agent or each Fund, provide at the TPA(s)'s expense a complete and
accurate set of mailing labels with the name and address of each
Participant having an interest through the Plans in Shares.
WANGER ADVISORS TRUST STATE STREET BANK AND TRUST COMPANY
BY: /s/ Kenneth A. Kalina BY: signature illegible
------------------------------- -------------------
Kenneth A. Kalina
Assistant Treasurer
<PAGE>
SCHEDULE 3.1
FEES AND EXPENSES
Dated Effective July 1, 1999 through June 30, 2002
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes. There is a minimum monthly charge of $1500.00 per
month.
Annual Open Account Fee $6.75
Annual Closed Account Fee $1.20
Manual Transactions* $1.50
Telephone Calls* $1.50
Audio Response $.15/Call
*Charged per month based on volumes
Out-of-Pocket Expenses - Out-of-Pocket expenses include but are not limited to
confirmation statements, investor processing, postage, forms, audio response,
telephone, microfilm, microfiche and expenses incurred at the specific direction
of the Fund.
WANGER ADVISORS TRUST STATE STREET BANK AND TRUST COMPANY
BY: /s/ Kenneth A. Kalina BY: signature illegible
------------------------------- -------------------
Kenneth A. Kalina
Assistant Treasurer
Exhibit i
BELL, BOYD & LLOYD LLC
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
312 372 1121
Fax: 312 372 2098
April 30, 2000
As counsel for Wanger Advisors Trust (the "Registrant"), we consent to
the incorporation by reference of our opinion for the Registrant's series
designated Wanger U.S. Small Cap and Wanger International Small Cap dated April
27, 1998, filed with the Registrant's registration statement on Form N-1A on
April 29, 1998, and our opinion for the Registrant's series designated Wanger
Twenty and Wanger Foreign Forty dated September 30, 1998, filed with the
Registrant's registration statement on Form N-1A on September 30, 1998
(Securities Act file no. 33-83548).
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 Securities Act of 1933.
/s/ Bell, Boyd & Lloyd LLC
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 4, 2000 on the 1999 financial statements of Wanger U.S. Small Cap,
Wanger International Small Cap, Wanger Twenty and Wanger Foreign Forty
comprising Wanger Advisors Trust, and its incorporation by reference in the
Registration Statement (Form N-1A) and in the related Prospectus and Statement
of Additional Information, filed with the Securities and Exchange Commission in
this Post-Effective Amendment No. 10 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-83548) and in the Amendment No. 11
to the Registration Statement under the Investment Company Act of 1940
(Registration No. 811-8748).
ERNST & YOUNG LLP
Chicago, Illinois
April 28, 2000
EXHIBIT P.1
EFFECTIVE DATE: MARCH 15, 2000
WANGER ASSET MANAGEMENT, L.P.
WAM BROKERAGE SERVICES, L.L.C.
ACORN INVESTMENT TRUST
WANGER ADVISORS TRUST
CODE OF ETHICS
This Code of Ethics ("Code") has been adopted by Wanger Asset
Management, L.P. ("WAM"), an independent investment advisor, WAM Brokerage
Services, L.L.C. ("WAM, LLC"), a registered broker-dealer, Acorn Investment
Trust ("Acorn") and Wanger Advisors Trust ("WAT").
The Code applies to all employees of WAM and WAM, LLC (provided by
Wanger Asset Management, Ltd.), and all officers and trustees of Acorn and WAT
except those trustees who are not "interested persons" of Acorn or WAT,
respectively, or of WAM, as defined in the Investment Company Act and rules.
The policy of WAM is to avoid any conflict of interest, or the
appearance of any conflict of interest, between the interests of WAM, or its
officers, partners and employees, and the interests of Acorn, WAT or WAM's
advisory clients ("Clients"). The Investment Company Act and Investment Advisers
Act and rules require that WAM, Acorn and WAT establish standards and procedures
for the detection and prevention of certain conflicts of interest, including
activities by which persons having knowledge of the investments and investment
intentions of Clients might take advantage of that knowledge for their own
benefit. Implementation and monitoring of these standards inevitably places some
restrictions on the freedom of the investment activities of those people.
This Code of Ethics has been adopted by WAM to meet those concerns and
legal requirements. Any questions about the Code or about the applicability of
the Code to a personal securities transaction should be directed to WAM's
designated compliance officer, Ralph Wanger or Charles P. McQuaid. If none of
them are available, questions should be directed to counsel for WAM.
I. STATEMENT OF PRINCIPLE
GENERAL PROHIBITIONS. The Investment Company Act and rules make it
illegal for any person covered by the Code, directly or indirectly, in
connection with the purchase or sale of a security held or to be acquired by
Clients to:
a. employ any device, scheme or artifice to defraud Clients;
b. make any untrue statement of a material fact, omit to state
a material fact or in any way mislead Clients regarding a
material fact;
<PAGE>
c. engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon Clients;
or
d. engage in any manipulative practice with respect to Clients.
PERSONAL SECURITIES TRANSACTIONS. The Code regulates the personal
securities transactions as a part of the effort by WAM to detect and prevent
conduct that might violate the general prohibitions outlined above. A personal
securities transaction is a transaction in a security in which the person
subject to this Code has a beneficial interest.
SECURITY is interpreted very broadly for this purpose, and includes any
right to acquire any security (an option or warrant, for example).
You have a beneficial interest in a security in which you have,
directly or indirectly, the opportunity to profit or share in any profit derived
from action in the security, or in which you have an indirect interest,
including beneficial ownership by your spouse or minor children or other
dependents living in your household, or your share of securities held by a
partnership of which you are a general partner. Technically, the rules under
section 16 of the Securities Exchange Act of 1934 will be applied to determine
if you have a beneficial interest in a security (even if the security would not
be within the scope of section 16). Examples of beneficial interest and a copy
of Rule 16a-1(a), defining beneficial ownership, are attached as appendix A.
In any situation where the potential for conflict exists, transactions
for Clients must take precedence over any personal transaction. The people
subject to this Code owe a duty to Clients to conduct their personal securities
transactions in a manner which does not interfere with Clients' portfolio
transactions or otherwise take inappropriate advantage of their relationship to
Clients. Personal securities transactions must comply with the Code of Ethics
and should avoid any actual or potential conflict of interest between your
interests and Clients' interests.
Situations not specifically governed by this Code of Ethics will be
resolved in light of this general principle.
II. HOW THE CODE'S RESTRICTIONS APPLY
The restrictions on personal securities transactions in Section III and
the compliance procedures in Section IV differentiate among groups of people
based on their positions and responsibilities with WAM. The groups are:
investment personnel and access personnel.
A. INVESTMENT PERSONNEL (individually, an "investment person")
are those who make, or participate in making, investment
decisions for Clients, or who, because of their positions with
WAM, have a heightened duty to Clients or who can be expected
to have more information about Clients' portfolio
transactions. Investment personnel are:
o WAM portfolio managers;
2
<PAGE>
o WAM analysts;
o WAM traders;
o WAM portfolio accounting personnel;
o WAM support staff working directly with portfolio
managers, analysts, or traders; and
o WAM partners and officers of WAM.
B. ACCESS PERSONNEL are all employees of WAM or WAM, LLC who are
not investment personnel described above.
III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
A. NO TRANSACTIONS WITH CLIENTS. No investment person or access
person shall knowingly sell to or purchase from a Client any
security or other property, except securities issued by that
Client.
B. NO CONFLICTING TRANSACTIONS. No investment person or access
person shall purchase or sell any security, other than a
listed index option or futures contract, in which such person
has or would thereby acquire a beneficial interest which the
person knows or has reason to believe is being purchased or
sold or considered for purchase or sale by a Client, until all
Clients' transactions have been completed or consideration of
such transactions has been abandoned.
C. INITIAL PUBLIC OFFERINGS. No investment person or access
person shall acquire any security in an initial public
offering, except (i) with the prior consent of the compliance
officer, Mr. Wanger or Mr. McQuaid based on a determination
that the acquisition does not conflict with the Code or its
underlying policies, or the interests of WAM or its Clients,
and (ii) in circumstances in which the opportunity to acquire
the security has been made available to the person for reasons
other than the person's relationship with WAM or its Clients.
Such circumstances might include, for example:
o an opportunity to acquire securities of an insurance
company converting from a mutual ownership structure
to a stockholder ownership structure, if the person's
ownership of an insurance policy issued by the IPO
company or an affiliate of the IPO company conveys
the investment opportunity;
o an opportunity resulting from the person's
pre-existing ownership of an interest in the IPO
company or an investor in the IPO company;
3
<PAGE>
o an opportunity made available to the person's spouse,
in circumstances permitting the compliance officer,
Mr. Wanger or Mr. McQuaid reasonably to determine
that the opportunity is being made available for
reasons other than the person's relationship with WAM
or its Clients (for example, because of the spouse's
employment).
D. PRIVATE PLACEMENTS. No investment person or access person
shall acquire any security in a private placement without the
express written prior approval of the designated compliance
officer, Mr. Wanger, or Mr. McQuaid. In deciding whether that
approval should be granted, each of those persons will
consider whether the investment opportunity should be reserved
for Clients, and whether the opportunity has been offered
because of the person's relationship with Clients. An
investment person who has been authorized to acquire a
security in a private placement must disclose that investment
if he or she later participates in consideration of an
investment in that issuer by Clients. Any investment decision
for Clients relating to that security must be made by other
investment personnel.
E. SHORT-TERM TRADING. No investment person may profit from the
purchase and sale, or sale and purchase, of the same (or
equivalent) securities within 60 days. Any profit so realized
will be required to be donated to a charitable organization
selected by the investment person and approved by WAM's
compliance officer, Mr. Wanger or Mr. McQuaid. This
restriction does not apply to any profits from short-term
trading in listed index options or futures contracts, or to
any transaction which has received the prior approval of the
compliance officer, Mr. Wanger or Mr. McQuaid.
F. GIFTS. No investment person or access person may accept any
gift or other thing of more than a $100 value from any person
or entity that does business with or on behalf of WAM, or
seeks to do business with or on behalf of WAM. Gifts in excess
of this value must either be returned to the donor or paid for
by the recipient. It is not the intent of the code to prohibit
the everyday courtesies of business life. Therefore, excluded
from this prohibition are an occasional meal, ticket to a
theater, entertainment, or sporting event that is an
incidental part of a meeting that has a clear business
purpose.
G. SERVICE AS A DIRECTOR. No investment person or access person
may serve as member of the board of directors or trustees of
any business organization, other than a civic or charitable
organization, without the prior written approval of the
compliance officer, Mr. Wanger or Mr. McQuaid based on a
determination that the board service would not be inconsistent
with the interests of WAM or of its Clients. If an investment
person is serving as a board member, that investment person
shall not participate in making investment decisions relating
to the securities of the company on whose board he or she
sits.
IV. COMPLIANCE PROCEDURES
4
<PAGE>
A. EXECUTION OF PERSONAL SECURITIES TRANSACTIONS. All personal
securities transactions must be conducted through brokerage
accounts that have been identified to the compliance officer.
Each such brokerage account must be set up to deliver
duplicate copies of all confirmations and statements to the
compliance officer. No exceptions to this policy will be made.
B. PRECLEARANCE. Except as provided below, all personal
securities transactions for investment personnel and access
personnel must be cleared in advance by the compliance
officer, Mr. Wanger or Mr. McQuaid (personal securities
transactions for each of whom must be precleared in advance
by one of the others). If the proposed trade is not executed
within two business days after preclearance, the preclearance
will expire and the request must be made again.
Transactions in the following securities are exempt from the
preclearance requirement but are subject to all other
provisions of the Code, including Sections III and IV:
1. securities listed as exempt in Section V;
2. municipal securities;
3. straight debt securities;
4. listed index options and futures;
5. short sales of, or transactions that close or have
the economic effect of closing a short position in,
securities not held in the portfolio of, or under
consideration for purchase by, any Client; and
6. transactions in an account (including an investment
advisory account, trust account or other account) of
such person (either alone or with others) over which
a person other than the investment person or access
person (including an investment adviser or trustee)
exercises investment discretion if:
o the investment person or access person does not
know of the proposed transaction until after the
transaction has been executed;
o the investment person or access person has
previously identified the account to WAM's
compliance officer and has affirmed to the
compliance officer that (in some if not all
cases) he or she does not know of proposed
transactions in that account until after they are
executed.
5
<PAGE>
This exclusion from the preclearance requirement is
based upon the employee not having knowledge of any
transaction until after that transaction is executed.
Therefore, notwithstanding this general exclusion, if
the investment person or access person becomes aware
of any transaction in such investment advisory
account before it is executed, the investment person
must seek preclearance of that transaction before it
is executed.
C. BLACKOUT PERIODS.
1. Investment personnel. No personal securities transaction of
an investment person will be cleared (as provided in B.,
above) if any Client (1) has a conflicting order pending or
(2) is actively considering a purchase or sale of the same
security. A conflicting order is any order for the same
security, or for an option on or a warrant for that security,
which has not been fully executed. A purchase or sale of a
security is being "actively considered" (a) when a
recommendation to purchase or sell has been made for any
Client and is pending, or, (b) with respect to the person
making the recommendation, when that person is seriously
considering making the recommendation.
Absent extraordinary circumstances, a personal securities
transaction for an investment person will not be approved
until the sixth business day after completion of any
transaction for any Client.
2. Access personnel. No personal securities transaction of an
access person may be executed on a day during which any Client
has a pending order in the same security until that order is
fully executed or withdrawn.
D. DISCLOSURE OF PERSONAL HOLDINGS. Each investment person and
access person shall disclose his or her personal securities
holdings no later than ten days after commencement of
employment with WAM (Attachment A), and annually thereafter
(Attachment B) as of December 31 of each year. Annual reports
shall be delivered to the compliance officer no later than
January 30 of the following year.
E. REPORTING PERSONAL SECURITIES TRANSACTIONS.
1. Each investment person and access person shall (i)
identify to WAM any brokerage or other account in
which the person has a beneficial interest and (ii)
instruct the broker or custodian to deliver to WAM's
compliance officer duplicate confirmations of all
transactions and duplicate monthly statements.
6
<PAGE>
2. Each investment person and access person shall report
all personal securities transactions during a month
to the designated compliance officer no later than
ten days after the end of the month.
Monthly transaction reports shall include the
following information:
For each transaction:
o the date of the transaction;
o title, interest rate and maturity date
(if applicable), number of shares and the
principal amount of each security
involved;
o the nature of the transaction (i.e.,
purchase, sale, gift, or other type of
acquisition or disposition);
o the price at which the transaction was
effected;
o the name of the broker, dealer or bank with or
through which the transaction was effected; and
o the date the report is submitted.
In addition, for each account established during the
month in which securities are held for the benefit of
an investment person or access person, the monthly
report shall include:
o the name of the broker, dealer or bank with
whom the account was established;
o the date the account was established; and
o the date the report is submitted.
3. Reports relating to the personal securities
transactions of the compliance officer shall be
delivered to Mr. Wanger or Mr. McQuaid.
F. REPORTS MAY BE IN ANY FORM. Monthly transaction reports filed
by investment or access personnel pursuant to Section IV(E)(2)
of this Code may be in any form (including copies of
confirmations or account statements) including the information
required by Section IV(E)(2).
An INVESTMENT PERSON OR ACCESS PERSON will be deemed to have
satisfied the monthly reporting requirement, and is not
required to file a monthly report of any transactions:
7
<PAGE>
(1) executed through WAM's trading desk, for
which the trading department will provide to
WAM's compliance department information
about transactions; or
(2) executed through brokerage or other accounts
identified to WAM and for which duplicate
monthly account statements showing all
transactions are delivered to WAM.
Any personal securities transaction of an investment person or
access person which for any reason does not appear in the
trading or brokerage records described above shall be reported
as required by Section IV(E)(2) of this Code.
G. MONITORING OF TRANSACTIONS. WAM's compliance officer will
monitor the trading patterns of investment personnel and
access personnel. The trading of the compliance officer will
be monitored by Mr. Wanger or Mr. McQuaid.
H. CERTIFICATION OF COMPLIANCE. Each INVESTMENT PERSON and
ACCESS PERSON is required to certify annually that he or she
has read and understands the code and recognizes that he or
she is subject to the code. Each investment person and
access person is also required to certify annually that he or
she has disclosed or reported all personal securities
transactions required to be disclosed or reported under the
code. To accomplish this, the compliance officer shall
annually distribute a copy of the code and request
certification by all covered persons. The compliance officer
shall be responsible for ensuring that all personnel comply
with the certification requirement.
Each investment person and access person who has not engaged
in any personal securities transaction during the preceding
year for which a report was required to be filed pursuant to
the code shall include a certification to that effect in his
or her annual certification.
I. REVIEW BY THE FUNDS' BOARDS. The officers of Acorn and WAT
shall prepare an Annual Issues and Certification Report to
the board that:
1. summarizes existing procedures concerning personal
investing and any changes in those procedures during
the past year;
2. describes issues that arose during the previous year
under the Code or procedures concerning personal
investing, including but not limited to information
about material violations of the Code and sanctions
imposed;
3. certifies to the board that the Fund has adopted
procedures reasonably necessary to prevent its investment
persons and access persons from violating the Code; and
8
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4. identifies any recommended changes in existing
restrictions or procedures based upon experience under
the Code, evolving industry practices, or developments
in applicable laws or regulations.
V. EXEMPT TRANSACTIONS
The provisions of this Code are intended to restrict the personal
investment activities of persons subject to the Code only to the extent
necessary to accomplish the purposes of the Code. Therefore, the provisions of
Section III (Restrictions on Personal Securities Transactions) and Section IV
(Compliance Procedures) of this Code shall not apply to:
A. Purchases or sales effected in any account over which the
persons subject to this Code have no direct or indirect
influence or control;
B. Purchases or sales of:
1. U.S. government securities;
2. shares of open-end investment companies (mutual
funds), including but not limited to shares of any
mutual fund managed by WAM; and
3. bank certificates of deposit or commercial paper.
C. Purchases or sales over which persons subject to this Code
have no control;
D. Purchases which are part of an automatic dividend reinvestment
plan;
E. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities to
the extent such rights were acquired from such issuer, and
sales of such rights so acquired; and
F. Purchases or sales which receive the prior approval of the
compliance officer, Mr. Wanger or Mr. McQuaid because they
are not inconsistent with this Code or the provisions of Rule
17j-l(a) under the Investment Company Act of 1940. A copy of
Rule 17j-1 is attached as Appendix B.
VI. CONSEQUENCES FOR FAILURE TO COMPLY WITH THE CODE
Compliance with this Code of Ethics is a condition of employment by WAM
or WAM, LLC, and retention of office as a trustee or officer of Acorn or WAT.
Taking into consideration all relevant circumstances, the executive committee of
WAM will determine what action is appropriate for any breach of the provisions
of the Code. Possible actions include letters of sanction, suspension,
termination of employment, or removal from office.
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Reports filed pursuant to the Code will be maintained in confidence but
will be reviewed by WAM to verify compliance with the Code. Additional
information may be required to clarify the nature of particular transactions.
VII. RETENTION OF RECORDS
The compliance officer shall maintain the records listed below for a
period of six years at WAM's principal place of business in an easily accessible
place:
A. a list of all persons subject to the Code during the period;
B. receipts signed by all persons subject to the Code
acknowledging receipt of copies of the Code and acknowledging
that they are subject to it;
C. a copy of each code of ethics that has been in effect at any
time during the period;
D. a copy of each report filed pursuant to the Code and a record
of any known violations and actions taken as a result thereof
during the period; and
E. records evidencing prior approval of, and the rationale
supporting, an acquisition by an investment person or access
person of securities in a private placement.
Adopted effective June 15, 1996
Amended effective January 1, 2000
March 15, 2000
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Appendix A
EXAMPLES OF BENEFICIAL OWNERSHIP
For purposes of the Code, you will be deemed to have a beneficial
interest in a security if you have the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the security.
Examples of beneficial ownership under this definition include:
o securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or broker,
or by a relative, executor or administrator) or that you have pledged to
another (as security for a loan, for example);
o securities held by a trust of which you are a beneficiary (except that, if
your interest is a remainder interest and you do not have or participate in
investment control of trust assets, you will not be deemed to have a
beneficial interest in securities held by the trust);
o securities held by you as trustee or co-trustee, where either you or any
member of your immediate family (i.e., spouse, children or descendants,
stepchildren, parents and their ancestors, and stepparents, in each case
treating a legal adoption as blood relationship) has a beneficial interest
(using these rules) in the trust.
o securities held by a trust of which you are the settlor, if you have the
power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
o securities held by any partnership in which you are a general partner, to
the extent of your interest in partnership capital or profits;
o securities held by a personal holding company controlled by you alone or
jointly with others;
o securities held by (i) your spouse, unless legally separated, or you and
your spouse jointly, or (ii) your minor children or any immediate family
member of you or your spouse (including an adult relative), directly or
through a trust, who is sharing your home, even if the securities were not
received from you and the income from the securities is not actually used
for the maintenance of your household; or
o securities you have the right to acquire (for example, through the exercise
of a derivative security), even if the right is not presently exercisable,
or securities as to which, through any other type of arrangement, you
obtain benefits substantially equivalent to those of ownership.
You will NOT be deemed to have beneficial ownership of securities in the
following situations:
<PAGE>
o securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over the
partnership's portfolio; and
o securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you have no
right to revoke the gift.
THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY
BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT
WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO WAM'S DESIGNATED
COMPLIANCE OFFICER, MR. WANGER OR MR. MCQUAID.
<PAGE>
Appendix B
SS. 270.17J-1 PERSONAL INVESTMENT ACTIVITIES OF INVESTMENT COMPANY PERSONNEL.
(a) Definitions. For purposes of this section:
(1) Access Person means:
(i) Any director, officer, general partner or Advisory
Person of a Fund or of a Fund's investment adviser.
(A) If an investment adviser is primarily
engaged in a business or businesses
other than advising Funds or other advisory
clients, the term Access Person means any
director, officer, general partner or
Advisory Person of the investment adviser
who, with respect to any Fund, makes any
recommendation, participates in the
determination of which recommendation will
be made, or whose principal function or
duties relate to the determination of which
recommendation will be made, or who, in
connection with his or her duties, obtains
any information concerning recommendations
on Covered Securities being made by the
investment adviser to any Fund.
(B) An investment adviser is "primarily engaged
in a business or businesses other than
advising Funds or other advisory clients"
if, for each of its most recent three fiscal
years or for the period of time since its
organization, whichever is less, the invest-
ment adviser derived, on an unconsolidated
basis, more than 50 percent of its total
sales and revenues and more than 50 percent
of its income (or loss), before income taxes
and extraordinary items, from the other
business or businesses.
(ii) Any director, officer or general partner of a
principal underwriter who, in the ordinary course of
business, makes, participates in or obtains
information regarding, the purchase or sale of
Covered Securities by the Fund for which the
principal underwriter acts, or whose functions or
duties in the ordinary course of business relate to
the making of any recommendation to the Fund
regarding the purchase or sale of Covered Securities.
(2) Advisory Person of a Fund or of a Fund's investment adviser
means:
(i) Any employee of the Fund or investment adviser (or of
any company in a control relationship to the Fund or
investment adviser) who, in connection with his or
her regular functions or duties, makes, participates
in, or obtains information regarding the purchase or
sale of Covered Securities by a Fund, or whose
functions relate to the making of any recommendations
with respect to the purchases or sales; and
(ii) Any natural person in a control relationship to the
Fund or investment adviser who obtains information
concerning recommendations made to the Fund with
regard to the purchase or sale of Covered Securities
by the Fund.
(3) Control has the same meaning as in section 2(a)(9) of the Act
[15 U.S.C. 80a-2(a)(9)].
(4) Covered Security means a security as defined in section
2(a)(36) of the Act [15 U.S.C. 80a-2(a)(36)], except that it
does not include:
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(i) Direct obligations of the Government of the
United States;
(ii) Bankers' acceptances, bank certificates of
deposit, commercial paper and high quality
short-term debt instruments, including
repurchase agreements; and
(iii) Shares issued by open-end Funds.
(5) Fund means an investment company registered under the
Investment Company Act.
(6) An Initial Public Offering means an offering of
securities registered under the Securities Act of
1933 [15 U.S.C. 77a], the issuer of which,
immediately before the registration, was not subject
to the reporting requirements of sections 13 or 15(d)
of the Securities Exchange Act of 1934 [15 U.S.C.
78m or 78o(d)].
(7) Investment Personnel of a Fund or of a Fund's
investment adviser means:
(i) Any employee of the Fund or investment
adviser (or of any company in a control
relationship to the Fund or investment
adviser) who, in connection with his or her
regular functions or duties, makes or
participates in making recommendations
regarding the purchase or sale of securities
by the Fund.
(ii) Any natural person who controls the Fund or
investment adviser and who obtains
information concerning recommendations made
to the Fund regarding the purchase or sale
of securities by the Fund.
(8) A Limited Offering means an offering that is exempt
from registration under the Securities Act of 1933
pursuant to section 4(2) or section 4(6) [15 U.S.C.
77d(2) or 77d(6)] or pursuant to rule 504, rule 505,
or rule 506 [17 CFR 230.504, 230.505, or 230.506]
under the Securities Act of 1933.
(9) Purchase or sale of a Covered Security includes,
among other things, the writing of an option to
purchase or sell a Covered Security.
(10) Security Held or to be Acquired by a Fund means:
(i) Any Covered Security which, within the most
recent 15 days:
(A) Is or has been held by the Fund; or
(B) Is being or has been considered by
the Fund or its investment adviser
for purchase by the Fund; and
(ii) Any option to purchase or sell, and any
security convertible into or exchangeable
for, a Covered Security described in
paragraph (a)(10)(i) of this section.
(b) Unlawful Actions. It is unlawful for any affiliated person of or
principal underwriter for a Fund, or any affiliated person of an
investment adviser of or principal underwriter for a Fund, in
connection with the purchase or sale, directly or indirectly, by the
person of a Security Held or to be Acquired by the Fund:
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(1) To employ any device, scheme or artifice to defraud the Fund;
(2) To make any untrue statement of a material fact to the Fund or
omit to state a material fact necessary in order to make the
statements made to the Fund, in light of the circumstances
under which they are made, not misleading;
(3) To engage in any act, practice or course of business that
operates or would operate as a fraud or deceit on the Fund; or
(4) To engage in any manipulative practice with respect to the
Fund.
(c) Code of Ethics.
(1) Adoption and Approval of Code of Ethics.
(i) Every Fund (other than a money market fund or a Fund
that does not invest in Covered Securities) and each
investment adviser of and principal underwriter for
the Fund, must adopt a written code of ethics
containing provisions reasonably necessary to prevent
its Access Persons from engaging in any conduct
prohibited by paragraph (b) of this section.
(ii) The board of directors of a Fund, including a
majority of directors who are not interested persons,
must approve the code of ethics of the Fund, the code
of ethics of each investment adviser and principal
underwriter of the Fund, and any material changes to
these codes. The board must base its approval of a
code and any material changes to the code on a
determination that the code contains provisions
reasonably necessary to prevent Access Persons from
engaging in any conduct prohibited by paragraph (b)
of this section. Before approving a code of a Fund,
investment adviser or principal underwriter or any
amendment to the code, the board of directors must
receive a certification from the Fund, investment
adviser or principal underwriter that it has adopted
procedures reasonably necessary to prevent Access
Persons from violating the investment adviser's or
principal underwriter's code of ethics. The Fund's
board must approve the code of an investment adviser
or principal underwriter before initially retaining
the services of the investment adviser or principal
underwriter. The Fund's board must approve a material
change to a code no later than six months after
adoption of the material change.
(iii) If a Fund is a unit investment trust, the Fund's
principal underwriter or depositor must approve the
Fund's code of ethics, as required by paragraph
(c)(1)(ii) of this section. If the Fund has more than
one principal underwriter or depositor, the principal
underwriters and depositors may designate, in
writing, which principal underwriter or depositor
must conduct the approval required by paragraph
(c)(1)(ii) of this section, if they obtain written
consent from the designated principal underwriter or
depositor.
(2) Administration of Code of Ethics.
(i) The Fund, investment adviser and principal
underwriter must use reasonable diligence and
institute procedures reasonably necessary to prevent
violations of its code of ethics.
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(ii) No less frequently than annually, every Fund (other
than a unit investment trust) and its investment
advisers and principal underwriters must furnish to
the Fund's board of directors, and the board of
directors must consider, a written report that:
(A) Describes any issues arising under the code
of ethics or procedures since the last
report to the board of directors, including,
but not limited to, information about
material violations of the code or
procedures and sanctions imposed in response
to the material violations; and
(B) Certifies that the Fund, investment adviser
or principal underwriter, as applicable, has
adopted procedures reasonably necessary to
prevent Access Persons from violating the
code.
(3) Exception for Principal Underwriters. The requirements of
paragraphs (c)(1) and (c)(2) of this section do not apply to
any principal underwriter unless:
(i) The principal underwriter is an affiliated person of
the Fund or of the Fund's investment adviser; or
(ii) An officer, director or general partner of the
principal underwriter serves as an officer, director
or general partner of the Fund or of the Fund's
investment adviser.
(d) Reporting Requirements of Access Persons.
(1) Reports Required. Unless excepted by paragraph (d)(2) of this
section, every Access Person of a Fund (other than a money
market fund or a Fund that does not invest in Covered
Securities) and every Access Person of an investment adviser
of or principal underwriter for the Fund, must report to that
Fund, investment adviser or principal underwriter:
(i) Initial Holdings Reports. No later than 10 days after
the person becomes an Access Person, the following
information:
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership when the person became
an Access Person;
(B) The name of any broker, dealer or bank with
whom the Access Person maintained an account
in which any securities were held for the
direct or indirect benefit of the Access
Person as of the date the person became an
Access Person; and
(C) The date that the report is submitted by the
Access Person.
(ii) Quarterly Transaction Reports. No later than 10 days
after the end of a calendar quarter, the following
information:
(A) With respect to any transaction during the
quarter in a Covered Security in which the
Access Person had any direct or indirect
beneficial ownership:
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(1) The date of the transaction, the
title, the interest rate and
maturity date (if applicable), the
number of shares and the principal
amount of each Covered Security
involved;
(2) The nature of the transaction (i.e.,
purchase, sale or any other type
of acquisition or disposition);
(3) The price of the Covered Security at
which the transaction was effected;
(4) The name of the broker, dealer or
bank with or through which the
transaction was effected; and
(5) The date that the report is
submitted by the Access Person.
(B) With respect to any account established by
the Access Person in which any securities
were held during the quarter for the direct
or indirect benefit of the Access Person:
(1) The name of the broker, dealer or
bank with whom the Access Person
established the account;
(2) The date the account was
established; and
(3) The date that the report is
submitted by the Access Person.
(iii) Annual Holdings Reports. Annually, the following
information (which information must be current as of
a date no more than 30 days before the report is
submitted):
(A) The title, number of shares and principal
amount of each Covered Security in which the
Access Person had any direct or indirect
beneficial ownership;
(B) The name of any broker, dealer or bank with
whom the Access Person maintains an account
in which any securities are held for the
direct or indirect benefit of the Access
Person; and
(C) The date that the report is submitted by the
Access Person.
(2) Exceptions from Reporting Requirements.
(i) A person need not make a report under paragraph
(d)(1) of this section with respect to transactions
effected for, and Covered Securities held in, any
account over which the person has no direct or
indirect influence or control.
(ii) A director of a Fund who is not an "interested
person" of the Fund within the meaning of section
2(a)(19) of the Act [15 U.S.C. 80a-2(a)(19)], and who
would be required to make a report solely by reason
of being a Fund director, need not make:
(A) An initial holdings report under paragraph
(d)(1)(i) of this section and an annual
holdings report under paragraph (d)(1)(iii)
of this section; and
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(B) A quarterly transaction report under
paragraph (d)(1)(ii) of this section, unless
the director knew or, in the ordinary course
of fulfilling his or her official duties as
a Fund director, should have known that
during the 15-day period immediately before
or after the director's transaction in a
Covered Security, the Fund purchased or sold
the Covered Security, or the Fund or its
investment adviser considered purchasing or
selling the Covered Security.
(iii) An Access Person to a Fund's principal underwriter
need not make a report to the principal underwriter
under paragraph (d)(1) of this section if:
(A) The principal underwriter is not an
affiliated person of the Fund (unless the
Fund is a unit investment trust) or any
investment adviser of the Fund; and
(B) The principal underwriter has no officer,
director or general partner who serves as an
officer, director or general partner of the
Fund or of any investment adviser of the
Fund.
(iv) An Access Person to an investment adviser need not
make a quarterly transaction report to the investment
adviser under paragraph (d)(1)(ii) of this section if
all the information in the report would duplicate
information required to be recorded under ss.ss.
275.204-2(a)(12) or 275.204-2(a)(13) of this chapter.
(v) An Access Person need not make a quarterly
transaction report under paragraph (d)(1)(ii) of this
section if the report would duplicate information
contained in broker trade confirmations or account
statements received by the Fund, investment adviser
or principal underwriter with respect to the Access
Person in the time period required by paragraph
(d)(1)(ii), if all of the information required by
that paragraph is contained in the broker trade
confirmations or account statements, or in the
records of the Fund, investment adviser or principal
underwriter.
(3) Review of Reports. Each Fund, investment adviser and principal
underwriter to which reports are required to be made by
paragraph (d)(1) of this section must institute procedures by
which appropriate management or compliance personnel review
these reports.
(4) Notification of Reporting Obligation. Each Fund, investment
adviser and principal underwriter to which reports are
required to be made by paragraph (d)(1) of this section must
identify all Access Persons who are required to make these
reports and must inform those Access Persons of their
reporting obligation.
(5) Beneficial Ownership. For purposes of this section, beneficial
ownership is interpreted in the same manner as it would be
under ss. 240.16a-1(a)(2) of this chapter in determining
whether a person is the beneficial owner of a security for
purposes of section 16 of the Securities Exchange Act of 1934
[15 U.S.C. 78p] and the rules and regulations thereunder. Any
report required by paragraph (d) of this section may contain a
statement that the report will not be construed as an
admission that the person making the report has any direct or
indirect beneficial ownership in the Covered Security to which
the report relates.
(e) Pre-approval of Investments in IPOs and Limited Offerings. Investment
Personnel of a Fund or its investment adviser must obtain approval from
the Fund or the Fund's investment adviser before
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directly or indirectly acquiring beneficial ownership in any
securities in an Initial Public Offering or in a Limited Offering.
(f) Recordkeeping Requirements.
(1) Each Fund, investment adviser and principal underwriter that
is required to adopt a code of ethics or to which reports are
required to be made by Access Persons must, at its principal
place of business, maintain records in the manner and to the
extent set out in this paragraph (f), and must make these
records available to the Commission or any representative of
the Commission at any time and from time to time for
reasonable periodic, special or other examination:
(A) A copy of each code of ethics for the organization
that is in effect, or at any time within the past
five years was in effect, must be maintained in an
easily accessible place;
(B) A record of any violation of the code of ethics, and
of any action taken as a result of the violation,
must be maintained in an easily accessible place for
at least five years after the end of the fiscal year
in which the violation occurs;
(C) A copy of each report made by an Access Person as
required by this section, including any information
provided in lieu of the reports under paragraph
(d)(2)(v) of this section, must be maintained for at
least five years after the end of the fiscal year in
which the report is made or the information is
provided, the first two years in an easily accessible
place;
(D) A record of all persons, currently or within the past
five years, who are or were required to make reports
under paragraph (d) of this section, or who are or
were responsible for reviewing these reports, must be
maintained in an easily accessible place; and
(E) A copy of each report required by paragraph
(c)(2)(ii) of this section must be maintained for at
least five years after the end of the fiscal year in
which it is made, the first two years in an easily
accessible place.
(2) A Fund or investment adviser must maintain a record of any
decision, and the reasons supporting the decision, to approve
the acquisition by investment personnel of securities under
paragraph (e), for at least five years after the end of the
fiscal year in which the approval is granted.
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ATTACHMENT A
ACKNOWLEDGMENT OF RECEIPT OF CODE OF ETHICS
CODE OF ETHICS. Wanger Asset Management, L.P. ("WAM"), Acorn Investment
Trust ("Acorn") and Wanger Advisors Trust ("WAT") have adopted a written Code of
Ethics (the "Code") to avoid potential conflicts of interest by WAM personnel. A
copy of the Code is attached to this letter. As a condition of your continued
employment with WAM and the retention of your position, if any, as an officer of
Acorn or WAT, you are required to read, understand and abide by the Code.
POLICY AND PROCEDURES CONCERNING MATERIAL NON-PUBLIC INFORMATION. WAM
also has adopted a written policy concerning the use and handling of material
non-public information (the "Policy"), a copy of which is also attached.
Acknowledgment of compliance with the Policy is an additional condition of
continued employment with WAM.
COMPLIANCE PROGRAM. The Code and Policy require that all personnel
furnish to WAM's compliance officer the names and addresses of any firm with
which you have any investment account. You are also required to furnish to WAM's
compliance officer copies of your monthly or quarterly account statements, or
other documents, showing all purchases or sales of securities in any such
account, or which are effected by you or for your benefit, or the benefit of any
member of your household. Additionally, you are required to furnish a report of
your personal securities holdings within 10 days of commencement of your
employment with WAM and annually thereafter. These requirements apply to any
investment account, such as an account at a brokerage house, trust account at a
bank, custodial account or similar types of accounts.
WAM's compliance program also requires that you report any contact with
any securities issuer, government or its personnel, or others, that, in the
usual course of business, might involve material non-public financial
information. Only investment personnel are permitted to make such contacts. The
Policy requires that you bring to the attention of the compliance officer any
information you receive from any source which might be material non-public
information.
Any questions concerning the Code or the Policy should be directed to
WAM's Compliance Officer.
- -------------------------------------------------------------------------------
I affirm that I have read and understand the Code of Ethics ("Code")
and the Policy Concerning Material Non-Public Information ("Policy"). I agree to
the terms and conditions set forth in the Code and the Policy.
- -------------------------------- ----------------
Signature Date
<PAGE>
ATTACHMENT B
ANNUAL AFFIRMATION OF COMPLIANCE
I affirm that:
1. I have again read and, during the past year to the best of my knowledge,
have complied with the Code of Ethics ("Code") and the Policy Concerning
Material Non-Public Information ("Policy").
2. I have provided to the firm's compliance officer the names and addresses of
each investment account that I have with any firm, including, but not
limited to, broker-dealers, banks and others. (List of known accounts
attached.)
3. I have provided to the compliance officer of the firm copies of account
statements showing each and every transaction in any security in which I
have a beneficial interest, as defined in the Code during the most
recently-ended calendar year
or
During the most recent calendar year there were no transactions in any
security in which I had a beneficial interest required to be reported
pursuant to the Code.
4. I have provided to the compliance officer a report of my personal
securities holdings as of the end of the most recent calendar year,
including the title, number of shares and principal amount of each security
in which I have any direct or indirect beneficial ownership.
- -------------------------------- -----------------
Signature Date
Exhibit p.2
WANGER ADVISORS TRUST
CODE OF ETHICS
FOR
NON-INTERESTED BOARD MEMBERS
(ADOPTED EFFECTIVE JUNE 15, 1996 AMENDED JUNE 8, 1999)
The Investment Company Act and rules require that Wanger Advisors Trust
("WAT" or the "Fund") establish standards and procedures for the detection and
prevention of certain conflicts of interest, including activities by which
persons having knowledge of the investments and investment intentions of WAT
might take advantage of that knowledge for their own benefit. For that purpose,
WAT has adopted this Code of Ethics (the "Code") applicable to those members of
WAT's board of trustees who are not affiliated with WAT or Wanger Asset
Management, L.P. ("WAM"), WAT's investment adviser, and a code of ethics
applying to persons affiliated with WAM (the "WAM Code").
Any questions about the Code or about the applicability of the Code to
a personal securities transaction should be directed to WAM's designated
compliance officer, Ralph Wanger, Charles P. McQuaid, or counsel for the Fund.
I. STATEMENT OF PRINCIPLE
GENERAL PROHIBITIONS. The Investment Company Act and rules make it
illegal for any person covered by the Code, directly or indirectly, in
connection with the purchase or sale of a security held or to be acquired by the
Fund to:
a. employ any device, scheme, or artifice to defraud the Funds;
b. make to the Funds any untrue statement of a material fact or
omit to state to the Funds a material fact necessary in order
to make the statements made, in light of circumstances under
which they are made, not misleading;
c. engage in any act, practice, or course of business which
operates or would operate as a fraud or deceit upon the Funds;
or
d. engage in any manipulative practice with respect to the Funds.
PERSONAL SECURITIES TRANSACTIONS. The Code regulates personal
securities transactions as a part of the effort by the Fund to detect and
prevent conduct that might violate the general prohibitions outlined above. A
personal securities transaction is a transaction in a SECURITY in which the
person subject to this Code has a BENEFICIAL INTEREST.
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SECURITY is interpreted very broadly for this purpose, and includes any
right to acquire any security (an option or warrant, for example).
You have a BENEFICIAL INTEREST in a security in which you have,
directly or indirectly, the opportunity to profit or share in any profit derived
from a transaction in the security, or in which you have an indirect interest,
including beneficial ownership by your spouse or minor children or other
dependents living in your household, or your share of securities held by a
partnership of which you are a general partner. Technically, the rules under
section 16 of the Securities Exchange Act of 1934 will be applied to determine
if you have a beneficial interest in a security (even if the security would not
be within the scope of section 16). Examples of beneficial interest and a copy
of Rule 16a-1(a), defining beneficial ownership, are attached as Appendix A.
In any situation where the potential for conflict exists, transactions
for the Fund must take precedence over any personal transaction. The Fund's
non-interested trustees owe a duty to the Fund and its shareholders to conduct
their personal securities transactions in a manner which does not interfere with
the portfolio transactions of the Fund, take inappropriate advantage of their
relationship with the Fund, or create any actual or potential conflict of
interest between their interests and the interests of the Fund and its
shareholders.
Situations not specifically governed by this Code of Ethics will be
resolved in light of this general principle.
II. TO WHOM THE CODE'S RESTRICTIONS APPLY
The Code applies to the Fund's outside board members -- those members of the
board of WAT who are not affiliated with WAM, are not officers or 5%
shareholders of WAT, and are not otherwise "interested persons" of WAM. The
outside board members subject to the Code are listed on Schedule A hereto.
III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS
A. NO TRANSACTIONS WITH THE FUNDS. No outside board member
shall knowingly sell to or purchase from the Fund any
security or other property, except securities issued by the
Fund.
B. NO CONFLICTING TRANSACTIONS. No outside board member shall
purchase or sell any security in which such person has or
would thereby acquire a beneficial interest which the person
knows or has reason to believe is being purchased or sold or
considered for purchase or sale by the Fund, until the Fund's
transactions have been completed or consideration of such
transactions has been abandoned.
IV. COMPLIANCE PROCEDURES
A. REPORTING PERSONAL SECURITIES TRANSACTIONS.
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1. An outside board member shall report to WAM's compliance
officer, within ten days after the end of the calendar quarter
in which a reportable transaction occurs, any personal
securities transaction in which the outside board member, at
the time of the transaction, knew, or in the ordinary course
of fulfilling his duties as a trustee should have known, that
on the day of the transaction or within 15 days before or
after that day a purchase or sale of that security was made by
or considered for the Fund.
B. FORM OF REPORTS. Reports of personal securities transactions
may be in any form (including copies of confirmations or
monthly statements) but must include (i) the date of the
transaction, the title and number of shares, and the principal
amount of each security involved; (ii) the nature of the
transaction (i.e., purchase, sale, gift, or other type of
acquisition or disposition); (iii) the price at which the
transaction was effected; (iv) the name of the broker, dealer,
or bank with or through whom the transaction was effected; and
(v) the name of the reporting person.
C. MONITORING OF TRANSACTIONS. WAM's compliance officer will
review the reports of personal securities transactions of the
Fund's outside board members.
D. CERTIFICATION OF COMPLIANCE. Each outside board member is
required to certify annually that he or she has read and
understands the Code and recognizes that he or she is subject
to the Code. To accomplish this, the Secretary of the Fund
shall annually distribute a copy of the Code and request
certification.
E. REVIEW BY THE FUND'S BOARD. The officers of the Fund shall
prepare an annual report to the board that:
1. summarizes existing procedures concerning personal
investing and any changes in those procedures during
the past year;
2. identifies any violations of the Code requiring
significant remedial action during the past year; and
3. identifies any recommended changes in existing
restrictions or procedures based upon experience
under the Code, evolving industry practices, or
developments in applicable laws or regulations.
V. EXEMPT TRANSACTIONS
The provisions of this Code are intended to restrict the personal
investment activities of persons subject to the Code only to the extent
necessary to accomplish the purposes of the Code. Therefore, the provisions of
Section III (Restrictions on Personal Securities Transactions) and Section IV
(Compliance Procedures) of this Code shall not apply to:
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A. Purchases or sales effected in any account over which the
persons subject to this Code have no direct or indirect
influence or control;
B. Purchases or sales of:
1. U.S. government securities;
2. shares of open-end investment companies (mutual
funds), including but not limited to shares of any
series of WAT or Acorn; and
3. bank certificates of deposit or commercial paper.
C. Purchases or sales over which neither the person subject to
this Code nor the Fund has control;
D. Purchases that are part of an automatic dividend reinvestment
plan;
E. Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of securities to
the extent such rights were acquired from such issuer, and
sales of such rights so acquired; and
F. Purchases or sales that receive the prior approval of the
Fund's compliance officer, Mr. Wanger, or Mr. McQuaid because
they are not inconsistent with this Code or the provisions of
Rule 17j-1(a) under the Investment Company Act of 1940. A
copy of Rule 17j-1 is attached as Appendix B.
VI. CONSEQUENCES OF FAILURE TO COMPLY WITH THE CODE
Compliance with this Code of Ethics is a condition of retention of
positions with the Fund. The Fund's board of trustees shall determine what
action is appropriate for any breach of the provisions of the Code by an outside
board member, which may include removal from the board.
Reports filed pursuant to the Code will be maintained in confidence but
will be reviewed by WAM or the Fund to verify compliance with the Code.
Additional information may be required to clarify the nature of particular
transactions.
VII. RETENTION OF RECORDS
WAM's designated compliance officer shall maintain the records listed
below for a period of five years at the Fund's principal place of business in an
easily accessible place:
A. a list of all persons subject to the Code during the period;
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B. receipts signed by all persons subject to the Code
acknowledging receipt of copies of the Code
and acknowledging that they are subject to it;
C. a copy of each code of ethics that has been in effect at any
time during the period; and
D. a copy of each report filed pursuant to the Code and a
record of any known violation and action taken as a result
thereof during the period.
* * * * *
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Appendix A
EXAMPLES OF BENEFICIAL OWNERSHIP
For purposes of the Code, you will be deemed to have a beneficial interest in a
security if you have the opportunity, directly or indirectly, to profit or share
in any profit derived from a transaction in the security. Examples of beneficial
ownership under this definition include:
o securities you own, no matter how they are registered, and including
securities held for you by others (for example, by a custodian or
broker, or by a relative, executor or administrator) or that you have
pledged to another (as security for a loan, for example);
o securities held by a trust of which you are a beneficiary (except that,
if your interest is a remainder interest and you do not have or
participate in investment control of trust assets, you will not be
deemed to have a beneficial interest in securities held by the trust);
o securities held by you as trustee or co-trustee, where either you or
any member of your immediate family (i.e., spouse, children or
descendants, stepchildren, parents and their ancestors, and
stepparents, in each case treating a legal adoption as blood
relationship) has a beneficial interest (using these rules) in the
trust;
o securities held by a trust of which you are the settlor, if you have
the power to revoke the trust without obtaining the consent of all the
beneficiaries and have or participate in investment control;
o securities held by any partnership in which you are a general partner,
to the extent of your interest in partnership capital or profits;
o securities held by a personal holding company controlled by you alone
or jointly with others;
o securities held by (i) your spouse, unless legally separated, or you
and your spouse jointly, or (ii) your minor children or any immediate
family member of you or your spouse (including an adult relative),
directly or through a trust, who is sharing your home, even if the
securities were not received from you and the income from the
securities is not actually used for the maintenance of your household;
or
o securities you have the right to acquire (for example, through the
exercise of a derivative security), even if the right is not presently
exercisable, or securities as to which, through any other type of
arrangement, you obtain benefits substantially equivalent to those of
ownership.
You will NOT be deemed to have beneficial ownership of securities in the
following situations:
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o securities held by a limited partnership in which you do not have a
controlling interest and do not have or share investment control over
the partnership's portfolio; and
o securities held by a foundation of which you are a trustee and donor,
provided that the beneficiaries are exclusively charitable and you have
no right to revoke the gift.
THESE EXAMPLES ARE NOT EXCLUSIVE. THERE ARE OTHER CIRCUMSTANCES IN WHICH YOU MAY
BE DEEMED TO HAVE A BENEFICIAL INTEREST IN A SECURITY. ANY QUESTIONS ABOUT
WHETHER YOU HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO WAM'S DESIGNATED
COMPLIANCE OFFICER, MR. WANGER OR MR. MCQUAID.
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WANGER ADVISORS TRUST
CODE OF ETHICS AFFIRMATION
I affirm that I have received a copy of the Wanger Advisors Trust Code
of Ethics for Non-Interested Board Members (the "Code") and have read and
understand it. I acknowledge that I am subject to the Code and will comply with
the Code in all respects.
Date:
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Signature
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SCHEDULE A
Fred D. Hasselbring
P. Michael Phelps
Patricia Werhane
