-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fvx8pioxy+1SSRnvomJLTSsFtnijh65CaOC9r/FVsEEOgNq9zOzRe47ZSiK5hPkM sKAHWz6GT/kyJ8n+OG6K5g== 0000891804-00-000769.txt : 20000501 0000891804-00-000769.hdr.sgml : 20000501 ACCESSION NUMBER: 0000891804-00-000769 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000428 EFFECTIVENESS DATE: 20000428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WANGER ADVISORS TRUST CENTRAL INDEX KEY: 0000929521 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 033-83548 FILM NUMBER: 612058 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: SEC FILE NUMBER: 811-08748 FILM NUMBER: 612059 BUSINESS ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 FORMER COMPANY: FORMER CONFORMED NAME: WANGER ADVISORS TRUT DATE OF NAME CHANGE: 19940902 485BPOS 1 WANGER ADVISORS TRUST 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 - -------------------------------------------------------------------------------- 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) - ------------------------------------------------------------------------------- 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. 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) 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 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 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 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 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 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 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 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 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 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 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 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.
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE 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.
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 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 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 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 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 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 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 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 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 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.
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 - ------------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------------
* 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 WANGER INTERNATIONAL 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 - ---------------------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------------------
* 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 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 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 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 publicinfo@sec.gov 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. 25 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 - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ----------------- ---- 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 - ------------------------------------------------------------------------------ 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. 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. 2 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. 3 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 4 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 5 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 6 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, 7 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. 8 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. - --------------------------- 1 A futures contract on an index is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. 9 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 10 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 11 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. 12 (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). 13 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 14 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 15 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. 16 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 17 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 18 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 19 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 20 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. - --------------------------- 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 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 22 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 (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 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:
WANGER U.S. SMALL CAP --------------------- Average Annual Total Return Total Return ------------ -------------- 1 year................................................ 25.06% 25.06% 3 year................................................ 75.89% 20.71% Life of Fund (inception 5/3/95)....................... 199.09% 26.44% WANGER INTERNATIONAL SMALL CAP ------------------------------ Average Annual Total Return Total Return ------------ -------------- 1 year............................................................. 126.37% 126.37% 3 year............................................................. 159.49% 37.42% Life of Fund (inception 5/3/95)...................... 360.72% 38.70% WANGER TWENTY ------------- Average Annual Total Return Total Return ------------ -------------- Life of Fund (inception 2/1/99)....................... 34.30% N/A WANGER FOREIGN FORTY -------------------- Average Annual Total Return Total Return ------------ -------------- Life of Fund (inception 2/1/99)....................... 83.90% N/A
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 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
As of December 31, 1999, some statistics for the Funds are as follows: R2 Beta Alpha 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%
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 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 The advisory fees the Funds pay to WAM are calculated daily and paid monthly, at the following annual rates:
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%
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 The advisory fees paid by each Fund for the fiscal years ended December 31, 1999, 1998 and 1997 were as follows:
FUND 1999 1998 1997 - ----------------------------------- ------------------------ ------------------------ ---------------------------- 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)
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 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 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:
POSITION(S) NAME AND HELD WITH DATE OF BIRTH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ------------- ------------- ---------------------------------------------- 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 POSITION(S) NAME AND HELD WITH DATE OF BIRTH THE FUNDS PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS ------------- ------------- ---------------------------------------------- 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.
*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 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.
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 --------------------------- ------------- --------------- --------------- -------------- --------------- 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
+ 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 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 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 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:
FUND 1999 1998 1997 -------------------------------------------- ----------------- ------------------ ------------------ Wanger U.S. Small Cap $208,460 $253,172 $249,054 37 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
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 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 Wanger Advisors Trust 1999 Annual Report STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------ WANGER WANGER WANGER WANGER U.S. SMALL CAP INTERNATIONAL TWENTY FOREIGN SMALL CAP FORTY - ------------------------------------------------------------------------------------------------------------------------------------ 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.
Wanger Advisors Trust 1999 Annual Report STATEMENTS OF OPERATIONS
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 - ----------------------------------------------------------------------------------------------------------------------------------- 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.
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: 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. 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.
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 - ----------------------------------------------------------------------------------------------------------------------------------- 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.
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. 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. 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% 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 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 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 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) 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. (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. 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.
NAME POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT UNDERWRITERS Bruce H. Lauer President Vice President, Assistant Secretary and Treasurer Marilyn Morrison Vice President and Secretary
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. 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) 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. EX-99.H.6 2 TRANSFER AGENCY AND SERVICE AGREEMENT TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN WANGER ADVISORS TRUST AND STATE STREET BANK AND TRUST COMPANY 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 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; (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 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. 3 (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. 4 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 5 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. 6 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. 7 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; 8 (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 9 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; 10 (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 11 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. 12 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. 13 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 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 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 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 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 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. 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:______________________________ 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). 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 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 EX-99.I 3 CONSENT OF BELL BOYD & LLOYD 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 EX-99.J 4 CONSENT OF INDEPENDENT AUDITORS 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 EX-99.P.1 5 CODE OF ETHICS 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; 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 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 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 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 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 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 (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 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. 9 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 10 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: 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. 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: B-1 (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: B-2 (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. B-3 (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: B-4 (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 B-5 (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 B-6 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. B-7 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 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 EX-99.P.2 6 CODE OF ETHICS FOR NON-INTERESTED BOARD MEMBERS 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. 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. 2 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: 3 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; 4 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. * * * * * 5 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: 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. 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: --------------------- ------------------------------ Signature SCHEDULE A Fred D. Hasselbring P. Michael Phelps Patricia Werhane -----END PRIVACY-ENHANCED MESSAGE-----