-----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, UGJLJ7qBsnewYpdibn+uwVtX9FxJtZdFFY5+z+pKe2ftB6bVoSe/NeAkzhys2jOV HT3+Qhm8bfDOiX/54wqVhQ== 0000891804-06-001316.txt : 20060420 0000891804-06-001316.hdr.sgml : 20060420 20060420163128 ACCESSION NUMBER: 0000891804-06-001316 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20060420 DATE AS OF CHANGE: 20060420 EFFECTIVENESS DATE: 20060501 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WANGER ADVISORS TRUST CENTRAL INDEX KEY: 0000929521 IRS NUMBER: 362692100 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-83548 FILM NUMBER: 06770306 BUSINESS ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606-5016 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WANGER ADVISORS TRUST CENTRAL INDEX KEY: 0000929521 IRS NUMBER: 362692100 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-08748 FILM NUMBER: 06770307 BUSINESS ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606-5016 0000929521 S000008981 Wanger U.S. Smaller Companies C000024403 Wanger U.S. Smaller Companies WUSAX 0000929521 S000008982 Wanger International Small Cap C000024404 Wanger International Small Cap WSCAX 0000929521 S000008983 Wanger Select C000024405 Wanger Select WATWX 0000929521 S000008984 Wanger International Select C000024406 Wanger International Select WAFFX 485BPOS 1 file002.txt WANGER ADVISOR TRUST As filed with the Securities and Exchange Commission on April 20, 2006 Securities Act Registration No. 33-83548 Investment Company Act File No. 811-08748 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 19 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 20 - -------------------------------------------------------------------------------- WANGER ADVISORS TRUST (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 - --------------------------------------------------------------------------------
Charles P. McQuaid Michelle Rhee Stacy H. Winick Wanger Advisors Trust Columbia Management Group, LLC Bell, Boyd & Lloyd PLLC 227 West Monroe Street, Suite 3000 One Financial Center 1615 L Street, N.W. Chicago, Illinois 60606 Boston, Massachusetts 02111 Washington, D.C. 20036
(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, 2006 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) WANGER U.S. SMALLER COMPANIES PROSPECTUS MAY 1, 2006 * * * * Fund shares are available only through variable annuity contracts and variable life insurance policies of participating insurance companies, and through certain retirement plans. This prospectus must be accompanied by a prospectus for your variable annuity contract or variable life insurance policy. Retain both prospectuses for future reference. * * * * Although Fund shares have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------------- Not FDIC Insured May Lose Value No Bank Guarantee ----------------- TABLE OF CONTENTS THE TRUST ................................................................... 3 THE FUND .................................................................... 4 OTHER INVESTMENT STRATEGIES AND RISKS ....................................... 7 TRUST MANAGEMENT ORGANIZATIONS .............................................. 9 The Trustees ........................................................... 9 The Adviser: Columbia Wanger Asset Management, L.P. .................... 9 Portfolio Manager ...................................................... 10 Legal Proceedings ...................................................... 10 Mixed and Shared Funding ............................................... 11 Additional Expenses .................................................... 11 Additional Intermediary Compensation ................................... 12 FINANCIAL HIGHLIGHTS ........................................................ 13 SHAREHOLDER INFORMATION ..................................................... 14 APPENDIX .................................................................... 19 2 THE TRUST Wanger Advisors Trust (Trust) includes four separate mutual funds (Funds), each with its own investment goal and strategies. This prospectus contains information about Wanger U.S. Smaller Companies, formerly named Wanger U.S. Small Cap (Fund). The Fund is an investment option under variable annuity contracts (VA contracts) and variable life insurance policies (VLI policies) issued by life insurance companies (Participating Insurance Companies). Participating Insurance Companies invest in the Fund through separate accounts that they set up for that purpose. Owners of VA contracts and VLI policies invest in sub-accounts of those separate accounts through instructions they give to their insurance company. Shares of the Fund 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). The prospectuses of the Participating Insurance Companies' separate accounts describe which Funds are available to the purchasers of their own VA contracts and VLI policies. The Trust assumes no responsibility for the accuracy or adequacy of those prospectuses. The Retirement Plan disclosure documents describe which Funds are available to participants in the plan. 3 THE FUND INVESTMENT GOAL--WANGER U.S. SMALLER COMPANIES - -------------------------------------------------------------------------------- Wanger U.S. Smaller Companies seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGY - -------------------------------------------------------------------------------- The Fund invests primarily in the stocks of small- and medium-sized U.S. companies. Wanger U.S. Smaller Companies generally invests in stocks of companies with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. Wanger U.S. Smaller Companies believes that these smaller companies, which are not as well known by financial analysts, may offer higher return potential than the stocks of larger companies. Wanger U.S. Smaller Companies 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 adviser believes is reasonable relative to the assets and earning power of the company. Under normal circumstances, Wanger U.S. Smaller Companies invests at least 80% of its net assets (plus any borrowings for investment purposes), at market value at the time of investment, in companies with total stock market capitalizations of $5 billion or less at the time of initial purchase. Likewise, under normal market conditions, Wanger U.S. Smaller Companies invests at least 80% of its net assets (plus any borrowings for investment purposes) in domestic securities. The portfolio manager may sell a portfolio holding if the security reaches the portfolio manager's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks. The portfolio manager may also sell a portfolio holding to fund redemptions. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- There are two basic risks for all mutual funds that invest in stocks: MANAGEMENT RISK and MARKET RISK. You may lose money by investing in the Fund. Management risk means that Columbia Wanger Asset Management, L.P.'s (CWAM) investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably compared with funds with similar investment objectives and strategies. Since the Fund purchases equity securities, it is subject to EQUITY RISK. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the equity market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be 4 negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. Because the Fund invests in stocks, the price of its shares--its net asset value per share--fluctuates daily in response to changes in the market value of the stocks. SMALLER COMPANIES Smaller companies, including small-cap and mid-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks. SECTOR RISK Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart that follows shows the Fund's calendar-year total returns. The performance table following the bar chart shows how the Fund's average annual returns compare with those of a broad measure of market performance for one year, five years and ten years. We compare the Fund to the Russell 2000 Index, the Standard & Poor's MidCap 400 Index (S&P MidCap 400) and the Standard & Poor's 500 Index (S&P 500 Index), which are broad-based measures of market performance. The Russell 2000 Index is the Fund's primary benchmark. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance does not predict the Fund's future performance. The Fund's performance results do not reflect the cost of insurance and separate account charges which are imposed under your VA contract or VLI policy, or any charges imposed by your Retirement Plan. Returns and value of an investment will vary, resulting in a gain or a loss on sale. 5 CALENDAR-YEAR TOTAL RETURNS YEAR-BY-YEAR TOTAL RETURN BAR CHART: 1996 46.59% 1997 29.41% 1998 8.68% 1999 25.06% 2000 -8.16% 2001 11.39% 2002 -16.81% 2003 43.22% 2004 18.33% 2005 11.25% Best quarter: 2nd quarter 2003, 20.46% Worst quarter: 3rd quarter 2002, -19.23% 1 YEAR 5 YEARS 10 YEARS ------------ ------------ ------------ Wanger U.S. Smaller Companies 11.25% 11.81% 15.26% Russell 2000* 4.55% 8.22% 9.26% S&P MidCap 400* 12.56% 8.60% 14.36% S&P 500* 4.91% 0.54% 9.07% - ------------- * The Russell 2000 Index, the Fund's primary benchmark, 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 S&P MidCap 400 is a market value-weighted index of 400 U.S. stocks that are in the next tier down from the S&P 500. The S&P 500 Index is a broad market-weighted average of U.S. large blue-chip companies. The indexes are unmanaged and differ from the Fund's composition; they are not available for direct investment. 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 VA contract, VLI policy or Retirement Plan. SHAREHOLDER TRANSACTION EXPENSES Fees paid directly from your investment: Maximum sales charge N/A Deferred sales charge N/A ANNUAL FUND OPERATING EXPENSES Expenses that are deducted from Fund assets: Management fees 0.90% 12b-1 fee None Other expenses 0.05% - -------------------------------------------------------------------------------- Total annual Fund operating expenses 0.95% 6 EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes a $10,000 investment in Wanger U.S. Smaller Companies for the time periods indicated, a 5% total return each year, reinvestment of all dividends and distributions, and that operating expenses remain the same. Your actual returns and costs may be higher or lower. 1 Year $97 3 Years $303 5 Years $525 10 Years $1,166 OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information (SAI), which you may obtain free of charge (see back cover). Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies. THE INFORMATION EDGE CWAM invests in entrepreneurially managed smaller- and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of outsourcing as a business strategy or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on its independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies. 7
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - ------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price o innovative marketing o adequate working capital relative to growth potential o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this A strong balance sheet gives Once CWAM uncovers an growth potential would management greater flexibility attractive company, it likely produce superior to pursue strategic objectives identifies a price that performance that is and is important to maintaining it believes would also sustainable over time. a competitive advantage. make the stock a good value. - ------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING CWAM's analysts continually screen companies and contact more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower transaction costs by investing with a long-term time horizon (at least two to five years). 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. STATE INSURANCE RESTRICTIONS The Fund is sold to Participating Insurance Companies in connection with VA contracts and VLI policies, and will seek to be available under VA contracts and VLI policies sold in a number of jurisdictions. Certain states have regulations or guidelines concerning concentration of investments and other investment techniques. If applied to the Fund, the Fund may be limited in its ability to engage in certain techniques and to manage its portfolio with the flexibility provided herein. In order to permit the Fund to be available under VA contracts and VLI policies sold in certain states, the Fund may make commitments that are more restrictive than the investment policies and limitations described herein and in the SAI. If the 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 VA contract owners and VLI policyholders residing in such states. TEMPORARY DEFENSIVE POSITIONS At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. DERIVATIVE STRATEGIES The Fund may enter into a number of derivative strategies, including those that employ futures, options and swap contracts, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The 8 Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund. The Fund also may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. PORTFOLIO TURNOVER The Fund does not have limits on portfolio turnover. Turnover may vary significantly from year to year. CWAM does not expect the Fund's turnover to exceed 65% under normal conditions. Portfolio turnover increases transaction expenses, which reduce the Fund's return. TRUST MANAGEMENT ORGANIZATIONS THE TRUSTEES The business of the Trust and the Fund is supervised by the Trust's Board of Trustees. The SAI contains names of and biographical information on the Trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions, academia, and public service to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Wanger Advisors Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. THE ADVISER: COLUMBIA WANGER ASSET MANAGEMENT, L.P. Columbia Wanger Asset Management, L.P. (CWAM), 227 West Monroe Street, Suite 3000, Chicago, IL 60606, is the Fund's investment adviser. CWAM is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. CWAM and its predecessor have managed mutual funds, including Wanger U.S. Smaller Companies, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM is an indirect wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. For the fiscal year 2005, the Fund paid CWAM management fees at 0.90% of the average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. 9 PORTFOLIO MANAGER CWAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. Robert Mohn is a vice president of the Trust and the lead portfolio manager of Wanger U.S. Smaller Companies. He has been a member of the domestic analytical team at CWAM and its predecessors since August 1992, and was principal of WAM from 1995 to September 29, 2000. He also manages Columbia Acorn USA and co-manages Columbia Acorn Fund. He also manages the U.S. fund of an investment company whose shares are offered only to non-U.S. investors. Mr. Mohn is a vice president of Columbia Acorn Trust and the director of domestic research for CWAM. The SAI provides additional information about Mr. Mohn's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS CWAM, Columbia Acorn Trust, another mutual fund family advised by CWAM, and the trustees of Columbia Acorn Trust, are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of Columbia Acorn Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the United States District Court for the District of Massachusetts, alleging that CWAM used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Columbia Acorn Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Columbia Acorn Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Columbia Acorn Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the district court, and the Seventh Circuit Court of Appeals affirmed this dismissal. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Columbia Acorn Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent 10 deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Columbia Acorn Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Columbia Acorn Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. MIXED AND SHARED FUNDING As described previously, the Trust serves as a funding medium for VA contracts and VLI policies of Participating Insurance Companies and for certain Retirement Plans, so-called mixed and shared funding. As of the date of this prospectus, the Participating Insurance Companies are Keyport Life Insurance Company (Keyport), Keyport Benefit Life Insurance Company (Keyport Benefit), Aegon Financial Services Group, Inc., SAFECO Life Insurance Company, PHL Variable Life Insurance Company, Phoenix Home Life Mutual Insurance Company, American Enterprise Life Insurance Company, IDS Life Insurance Company, IDS Life Insurance Company of New York, Sun Life Assurance Company of Canada (U.S.), Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, ING Insurance Company of America, ING Life Insurance and Annuity Company, Reliastar Life Insurance Company, Sun Life Insurance & Annuity Company of New York, Merrill Lynch Life Insurance Company, ML Life Insurance Company of New York and TIAA-CREF Life Insurance Company. The Fund is or may become a funding vehicle for VA contracts or VLI policies of the Participating Insurance Companies or may become a funding vehicle for VA contracts or VLI policies of other Participating Insurance Companies. The interests of owners of VA contracts and VLI policies could diverge based on differences in state regulatory requirements, changes in the tax laws or other unanticipated developments. The Trust does not foresee any such differences or disadvantages at this time. However, the Trustees will monitor for such developments to identify any material irreconcilable conflicts and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more separate accounts might be required to withdraw its investments in the Fund or shares of another fund may be substituted. This might force the Fund to sell securities at lower prices. ADDITIONAL EXPENSES Additional expenses are incurred under the VA contracts, VLI policies and the Retirement Plans. These expenses are not described in this prospectus; owners of VA contracts, VLI policies and Retirement Plan participants should consult the contract or policy disclosure documents or Retirement Plan information regarding these expenses. From time to time, CWAM may pay amounts from its past profits to Participating Insurance Companies or other organizations that provide administrative services for the Fund or that provide 11 other services relating to the Fund to owners of VA contracts, VLI policies and/or participants in Retirement Plans. These services include, among other things: subaccounting services; answering inquiries regarding the Fund; transmitting, on behalf of the Fund, proxy statements, shareholder reports, updated prospectuses and other communications regarding the Fund; and such other related services as the Fund, owners of VA contracts, VLI policies 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 Participating Insurance Company or other organization. Payment of such amounts by CWAM will not increase the fees paid by the Fund or its shareholders. ADDITIONAL INTERMEDIARY COMPENSATION In connection with the sale of the Columbia family of funds (including the Funds) (the "Columbia Funds"), the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the distributor's sale of fund shares. The Fund is not a party to these arrangements, and such cash payments are not paid out of Fund assets. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists. Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events. In addition, the distributor, and/or the Fund's investment adviser, transfer agent or their affiliates, pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, subtransfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary. In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the SAI. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE. 12 FINANCIAL HIGHLIGHTS The financial highlights table that follows is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements, which have been audited for the years ended December 31, 2004 and 2005 by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. The information for the years ended December 31, 2001, 2002 and 2003 is included in the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling 1-888-4-WANGER (1-888-492-6437). The Fund's total returns presented below do not reflect the cost of insurance and other company separate account charges which vary with the VA contracts, VLI policies or Retirement Plans. WANGER U.S. SMALLER COMPANIES
YEAR ENDED DECEMBER 31, SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2005 2004 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, BEGINNING OF PERIOD $31.37 $26.51 $18.51 $22.25 $19.99 - ------------------------------------------------------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(a) 0.09 (0.14) (0.11) (0.10) (0.04) Net realized and unrealized gain (loss) on investments 3.44 5.00 8.11 (3.64) 2.31 - ------------------------------------------------------------------------------------------------------------------------------------ Total from Investment Operations 3.53 4.86 8.00 (3.74) 2.27 - ------------------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income -- -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------------------------------------ Total Distributions Declared to Shareholders -- -- -- -- (0.01) - ------------------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $34.90 $31.37 $26.51 $18.51 $22.25 - ------------------------------------------------------------------------------------------------------------------------------------ Total Return(b) 11.25%(c) 18.33% 43.22% (16.81)% 11.39% - ------------------------------------------------------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSET/SUPPLEMENTAL DATA: Expenses 0.95%(d) 1.00%(d) 0.99%(d) 1.05%(d) 0.99% Net investment income (loss) 0.29%(d) (0.49)%(d) (0.48)%(d) (0.47)%(d) (0.20)% Waiver 0.00%(e) -- -- -- -- Portfolio turnover rate 11% 15% 10% 16% 18% Net assets, end of period (000's) $1,493,695 $1,153,553 $822,658 $471,726 $498,186 - ------------------------------------------------------------------------------------------------------------------------------------
(a) Net investment income (loss) per share was based upon the average shares outstanding during the period. (b) Total return at net asset value assuming all distributions are reinvested. (c) Had the Investment Adviser not waived a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. (e) Rounds to less then 0.01%. 13 SHAREHOLDER INFORMATION SHAREHOLDER AND ACCOUNT POLICIES The Fund provides Participating Insurance 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 CWAM at 1-888-4-WANGER (1-888-492-6437). Shares of the Fund are issued and redeemed in connection with investments in and payments under certain qualified and non-qualified VA contracts and VLI policies issued through separate accounts of Participating Insurance Companies. Shares of the Fund 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 described in section 501(c)(18). The trust or plan must be established before shares of the Fund can be purchased by the plan. Neither the Fund nor CWAM offers prototypes of these plans. The Fund has imposed certain additional restrictions on sales to Retirement Plans to reduce Fund expenses. To be eligible to invest in the Fund, 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 Fund does not intend to offer shares in states where the sale of Fund shares requires the payment of a fee. A Retirement Plan may call CWAM at 1-888-4-WANGER (1-888-492-6437) to determine if it is eligible to invest. HOW TO INVEST AND REDEEM Shares of the Fund may not be purchased or redeemed directly by individual VA contract owners, VLI policyholders or individual Retirement Plan participants. VA contract owners, VLI policyholders or Retirement Plan participants should consult the disclosure documents for their VA contract, VLI policy or the plan documents for their Retirement Plan, for information on the availability of the Fund as an investment vehicle for allocations under their VA contract, VLI policy or Retirement Plan. In the case of a Participating Insurance Company purchaser, particular purchase and redemption procedures typically are included in an agreement between the Fund and the Participating Insurance Company. The Fund may enter into similar agreements with Retirement Plans. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Fund. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts, VLI policies and Retirement Plan participants and certain other terms of those contracts, policies and Retirement Plans. The Trust issues and redeems shares at net 14 asset value without imposing any selling commission, sales load or redemption charge. However, each VA contract and VLI policy imposes its own charges and fees on owners of the VA contract and VLI policy and Retirement Plans may impose such charges on participants in the Retirement Plan. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. FUND POLICY ON TRADING OF FUND SHARES The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." For purposes of this section, the "Columbia Funds" are the Columbia, Columbia Acorn Trust, Wanger Advisors Trust and Nations family of mutual funds. The Columbia Funds are not intended as vehicles for market timing. The board of trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares. The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, and subject to the limitations noted below, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice. The rights of shareholders to redeem shares of a Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase. For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control. Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs. 15 The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, all Fund purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries, retirement plans and variable insurance products. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Also, certain financial intermediaries, retirement plans and variable insurance products have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In addition, the terms and conditions of a particular insurance contract may limit the ability of the Participating Insurance Company to address frequent trading activity by a VA contract owner or VLI policyholder. Columbia Management Group, LLC has designated a Market Timing Steering Committee (the "Committee") composed of members of senior management designed to ensure, among other things, that participating insurance companies can either enforce the Funds' market timing policy, or monitor for market timing pursuant to a policy that is at least as restrictive as the Funds' policy. The Committee oversees the due diligence process with respect to participating insurance companies. The due diligence process for participating insurance companies includes a review of an insurance company's market timing policies, and requests that insurance companies certify that they can enforce the Funds' market timing policy as disclosed in the prospectus. Alternatively, if the participating insurance company cannot certify that it can enforce the Funds' market timing policy, the Committee requests that the participating insurance company certify that it has an internal market timing policy that is as restrictive or more restrictive than the Funds' market timing policy. If the insurance company cannot provide either form of certification, the Committee requests that the participating insurance company provide the Funds' transfer agent with shareholder level data transparency to enable the transfer agent to monitor trading activity in accordance with the Funds' market timing policy. An insurance company that agrees to provide data transparency is required to restrict, upon the transfer agent's request, participants that violate the Funds' market timing policy. If a current participating insurance company is unable to comply, Columbia will take steps consistent with its contractual obligations to place the participating insurance company's accounts on redemption only status. If a prospective participating insurance company is unable to comply with one of the alternatives, the Fund will not begin a business relationship with that company. The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges. PURCHASES AND REDEMPTIONS To the extent not otherwise provided in any agreement between the Trust and a Participating Insurance Company or Retirement Plan, shares of the Fund may be purchased by check or by wire transfer of funds. To be effective, a purchase order must consist of the money to purchase the shares and (i) information identifying the purchaser, in the case of a Participating Insurance Company or Retirement Plan with which the Fund has entered into an agreement, or a subsequent purchase by a Participating Insurance Company or Retirement Plan that is already a Fund shareholder, or (ii) a 16 completed purchase application, in the case of the initial investment by a Retirement Plan with which the Fund does not have an agreement. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Funds. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts and VLI policies and certain other terms of those contracts and policies. The Funds issue and redeem shares at net asset value without imposing any selling commissions, sales charge or redemption charge. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. Normally, redemption proceeds will be paid within seven days after the Fund or its agent receives a request for redemption. Redemptions may be suspended or 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's share price is its net asset value next determined. Net asset value is the difference between the values of the Fund's assets and liabilities divided by the number of shares outstanding. We determine net asset value at the close of regular trading on the New York Stock Exchange (NYSE), normally 4 p.m. Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the-counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. We value a security at fair value when events have occurred after the last available market price and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security. The Fund's foreign securities may trade on days when the NYSE is closed. We will not price shares on days that the NYSE is closed for trading and Participating Insurance Companies and Retirement Plans may not purchase or redeem shares. DIVIDENDS AND DISTRIBUTIONS The Fund intends to declare and distribute, as dividends or capital gains distributions, at least annually, substantially all of its net investment income and net profits realized from the sale of portfolio securities, if any, to its shareholders (Participating Insurance Companies' separate accounts and Retirement Plan participants). The net investment income of the Fund consists of all dividends or interest received by the Fund, less expenses (including the investment advisory fees). Income dividends will be declared and distributed annually by the Fund. All net short-term and long-term capital gains of the Fund, net of carry-forward losses, if any, realized during the fiscal year, are declared and distributed periodically, no less frequently than annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value, as of the record date for the distributions. TAXES The Fund intends to qualify every year as a regulated investment company under the Internal Revenue Code. By so qualifying, the 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. The 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 Fund, see Taxes in the SAI. For information concerning the federal tax consequences to VA contract owners, VLI policyholders or Retirement Plan participants, see the disclosure documents from the VA contract, VLI policy or your Retirement Plan administrator. You should consult your tax advisor about the tax consequences of any investment. 18 APPENDIX HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
WANGER U.S. SMALLER COMPANIES MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ------------------------------------------------------------------------------------------------------------------- 1 5.00% 0.95% 4.05% $10,405.00 $ 96.92 2 10.25% 0.95% 8.26% $10,826.40 $ 100.85 3 15.76% 0.95% 12.65% $11,264.87 $ 104.93 4 21.55% 0.95% 17.21% $11,721.10 $ 109.18 5 27.63% 0.95% 21.96% $12,195.80 $ 113.61 6 34.01% 0.95% 26.90% $12,689.73 $ 118.21 7 40.71% 0.95% 32.04% $13,203.67 $ 122.99 8 47.75% 0.95% 37.38% $13,738.42 $ 127.97 9 55.13% 0.95% 42.95% $14,294.82 $ 133.16 10 62.89% 0.95% 48.74% $14,873.76 $ 138.55 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,873.76 TOTAL ANNUAL FEES AND EXPENSES $1,166.38
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis. 19 FOR MORE INFORMATION - -------------------------------------------------------------------------------- Adviser: Columbia Wanger Asset Management, L.P. Additional information about the Fund's investments is available in the Fund's semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over the last fiscal year. You may wish to read the Fund's SAI for more information on the Fund and the securities in which it invests. The SAI is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website, www.columbiafunds.com, include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of the annual and semi-annual reports and the SAI, request other information and discuss your questions about the Fund by writing or calling the Fund's adviser or visiting the Fund's website at: Columbia Wanger Asset Management, L.P. Shareholder Services Group 227 West Monroe, Suite 3000 Chicago, IL 60606 1 (888) 4-WANGER (1-888-492-6437) www.columbiafunds.com Or by calling or writing the Participating Insurance Company which issued your variable annuity contract or variable life insurance policy or the Retirement Plan you participate in. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, D.C. Information on the Public Reference Room may be obtained by calling the SEC at 202-942-8090. Reports and other information about the Fund are available on the EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Investment Company Act file number: 811-08748 WANGER INTERNATIONAL SMALL CAP PROSPECTUS MAY 1, 2006 * * * * Fund shares are available only through variable annuity contracts and variable life insurance policies of participating insurance companies, and through certain retirement plans. This prospectus must be accompanied by a prospectus for your variable annuity contract or variable life insurance policy. Retain both prospectuses for future reference. * * * * Although Fund shares have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------------- Not FDIC Insured May Lose Value No Bank Guarantee ----------------- TABLE OF CONTENTS THE TRUST ................................................................... 3 THE FUND .................................................................... 4 OTHER INVESTMENT STRATEGIES AND RISKS ....................................... 8 TRUST MANAGEMENT ORGANIZATIONS .............................................. 10 The Trustees ........................................................... 10 The Adviser: Columbia Wanger Asset Management, L.P. .................... 10 Portfolio Managers ..................................................... 11 Legal Proceedings ...................................................... 11 Mixed and Shared Funding ............................................... 12 Additional Expenses .................................................... 13 Additional Intermediary Compensation ................................... 13 FINANCIAL HIGHLIGHTS ........................................................ 14 SHAREHOLDER INFORMATION ..................................................... 15 APPENDIX .................................................................... 20 2 THE TRUST Wanger Advisors Trust (Trust) includes four separate mutual funds (Funds), each with its own investment goal and strategies. This prospectus contains information about Wanger International Small Cap (Fund). The Fund is an investment option under variable annuity contracts (VA contracts) and variable life insurance policies (VLI policies) issued by life insurance companies (Participating Insurance Companies). Participating Insurance Companies invest in the Fund through separate accounts that they set up for that purpose. Owners of VA contracts and VLI policies invest in sub-accounts of those separate accounts through instructions they give to their insurance company. Shares of the Fund 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). The prospectuses of the Participating Insurance Companies' separate accounts describe which Funds are available to the purchasers of their own VA contracts and VLI policies. The Trust assumes no responsibility for the accuracy or adequacy of those prospectuses. The Retirement Plan disclosure documents describe which Funds are available to participants in the plan. 3 THE FUND INVESTMENT GOAL--WANGER INTERNATIONAL SMALL CAP - -------------------------------------------------------------------------------- Wanger International Small Cap seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGY - -------------------------------------------------------------------------------- Wanger International Small Cap invests primarily in the stocks of companies based outside the United States with market capitalizations of less than $5 billion at the time of initial purchase. As long as a stock continues to meet the Fund's other investment criteria, the Fund may choose to hold the stock even if it grows beyond an arbitrary capitalization limit. Wanger International Small Cap believes that these smaller companies--particularly outside the United States--which are not as well known by financial analysts may offer higher return potential than the stocks of larger 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 adviser believes is reasonable relative to the assets and earning power of the company. Under normal circumstances, Wanger International Small Cap invests at least 80% of its net assets (plus any borrowings for investment purposes), at market value at the time of investment, in companies with total stock market capitalizations of $5 billion or less at the time of initial purchase. Likewise, under normal market conditions, Wanger International Small Cap will generally invest at least 65% of its total assets in foreign securities in developed markets (for example, Japan, Canada and the United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). The portfolio manager may sell a portfolio holding if the security reaches the portfolio manager's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks. The portfolio manager may also sell a portfolio holding to fund redemptions. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- There are two basic risks for all mutual funds that invest in stocks: MANAGEMENT RISK and MARKET RISK. You may lose money by investing in the Fund. Management risk means that Columbia Wanger Asset Management, L.P.'s (CWAM) investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably compared with funds with similar investment objectives and strategies. Since the Fund purchases equity securities, it is subject to EQUITY RISK. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the equity market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be 4 negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. Because the Fund invests in stocks, the price of its shares--its net asset value per share--fluctuates daily in response to changes in the market value of the stocks. FOREIGN SECURITIES Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls. EMERGING MARKETS Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. SMALLER COMPANIES Smaller companies, including small-cap and mid-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks. SECTOR RISK Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector. 5 MARKET TIMERS Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and to discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- The bar chart that follows shows the Fund's calendar-year total returns. The performance table following the bar chart shows how the Fund's average annual returns compare with those of a broad measure of market performance for one year, five years and ten years. We compare the Fund to the S&P/Citigroup EMI Global ex-US, the MSCI EAFE Index and the Lipper Variable Underlying International Core Funds Index, which are broad-based measures of market performance. The S&P/Citigroup EMI Global ex-US is the Fund's primary benchmark. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance does not predict the Fund's future performance. The Fund's performance results do not reflect the cost of insurance and separate account charges which are imposed under your VA contract or VLI policy, or any charges imposed by your Retirement Plan. Returns and value of an investment will vary, resulting in a gain or a loss on sale. The Fund's performance during 1999 was achieved during extraordinary market conditions. 6 CALENDAR-YEAR TOTAL RETURNS BAR CHART: 1996 32.01% 1997 -1.46% 1998 16.33% 1999 126.37% 2000 -27.84% 2001 -21.27% 2002 -13.83% 2003 48.86% 2004 30.27% 2005 21.53% Best Quarter: 4th quarter 1999, 57.43% Worst Quarter: 3rd quarter 2002, -23.49% 1 YEAR 5 YEARS 10 YEARS ---------- ----------- ---------- Wanger International Small Cap 21.53% 9.84% 14.73% S&P/Citigroup EMI Global ex-US* 21.99% 14.20% 8.43% MSCI EAFE* 13.54% 4.55% 5.84% Lipper VUF International Core Funds Index* 15.34% 2.51% 5.85% - ------------- * The S&P/Citigroup EMI Global ex-U.S., the Fund's primary benchmark, is an index of the bottom 20% of institutionally investable capital of developed and emerging countries, selected by the index sponsor, outside the United States. Morgan Stanley's Europe, Australasia and Far East Index (MSCI EAFE) is an index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. Lipper Indexes include the largest funds tracked by Lipper, Inc. in the named category. The Lipper Variable Underlying International Core Funds Index is made up of the 10 largest non-U.S. funds. The indexes are unmanaged and differ from the Fund's composition; they are not available for direct investment. 7 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 VA contract, VLI policy or Retirement Plan. SHAREHOLDER TRANSACTION EXPENSES Fees paid directly from your investment: Maximum sales charge N/A Deferred sales charge N/A ANNUAL FUND OPERATING EXPENSES Expenses that are deducted from Fund assets: Management fees 0.95% 12b-1 fee None Other expenses 0.18% - -------------------------------------------------------------------------------- Total annual Fund operating expenses 1.13% EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes a $10,000 investment in Wanger International Small Cap for the time periods indicated, a 5% total return each year, reinvestment of all dividends and distributions, and that operating expenses remain the same. Your actual returns and costs may be higher or lower. 1 Year $115 3 Years $359 5 Years $622 10 Years $1,375 OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information (SAI), which you may obtain free of charge (see back cover). Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE CWAM invests in entrepreneurially managed smaller- and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of outsourcing as a business strategy or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. 8 In making investments for the Fund, CWAM relies primarily on its independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - ------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price o innovative marketing o adequate working capital relative to growth potential o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this A strong balance sheet gives Once CWAM uncovers an growth potential would management greater flexibility attractive company, it likely produce superior to pursue strategic objectives identifies a price that it performance that is and is important to maintaining believes would also make the sustainable over time. a competitive advantage. stock a good value. - ------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING CWAM's analysts continually screen companies and contact more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower transaction costs by investing with a long-term time horizon (at least two to five years). 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. STATE INSURANCE RESTRICTIONS The Fund is sold to Participating Insurance Companies in connection with VA contracts and VLI policies, and will seek to be available under VA contracts and VLI policies sold in a number of jurisdictions. Certain states have regulations or guidelines concerning concentration of investments and other investment techniques. If applied to the Fund, the Fund may be limited in its ability to engage in certain techniques and to manage its portfolio with the flexibility provided herein. In order to permit the Fund to be available under VA contracts and VLI policies sold in certain states, the Fund may make commitments that are more restrictive than the investment policies and limitations described herein and in the SAI. If the 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 VA contract owners and VLI policyholders residing in such states. TEMPORARY DEFENSIVE POSITIONS At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. 9 DERIVATIVE STRATEGIES The Fund may enter into a number of derivative strategies, including those that employ futures, options and swap contracts, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund. The Fund also may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. PORTFOLIO TURNOVER The Fund does not have limits on portfolio turnover. Turnover may vary significantly from year to year. CWAM does not expect the Fund's turnover to exceed 100% under normal conditions. Portfolio turnover increases transaction expenses, which reduce the Fund's return. TRUST MANAGEMENT ORGANIZATIONS THE TRUSTEES The business of the Trust and the Fund is supervised by the Trust's Board of Trustees. The SAI contains names of and biographical information on the Trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions, academia, and public service to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Wanger Advisors Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. THE ADVISER: COLUMBIA WANGER ASSET MANAGEMENT, L.P. Columbia Wanger Asset Management, L.P. (CWAM), 227 West Monroe Street, Suite 3000, Chicago, IL 60606, is the Fund's investment adviser. CWAM is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. CWAM and its predecessor have managed mutual funds, including Wanger International Small Cap, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM is an indirect wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. 10 For the fiscal year 2005, the Fund paid CWAM management fees at 0.95% of the average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGERS CWAM uses a team to assist the portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio managers are responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. Louis J. Mendes and Chris Olson are co-portfolio managers of Wanger International Small Cap. Mr. Mendes has managed Wanger International Small Cap since December 2005. He has been a member of the international team at CWAM since 2001 and an analyst and portfolio manager with Merrill Lynch Investment Managers specializing in Asian equity markets prior thereto. Mr. Mendes is also a vice president of Columbia Acorn Trust and a co-portfolio manager of Columbia Acorn International. The SAI provides additional information about Mr. Mendes' compensation, other accounts he manages and his ownership of securities in the Fund. Mr. Olson is a vice president of the Trust and has managed Wanger International Small Cap since September 2001. He has been a member of the international analytical team at CWAM since January 2001. Mr. Olson is also a vice president of Columbia Acorn Trust and lead portfolio manager of Columbia Acorn International Select and Wanger International Select. Prior to joining CWAM, Mr. Olson was most recently a director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. The SAI provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS CWAM, Columbia Acorn Trust, another mutual fund family advised by CWAM, and the trustees of Columbia Acorn Trust, are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of Columbia Acorn Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the United States District Court for the District of Massachusetts, alleging that CWAM used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Columbia Acorn Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Columbia Acorn Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Columbia Acorn Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate 11 daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the district court, and the Seventh Circuit Court of Appeals affirmed this dismissal. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Columbia Acorn Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Columbia Acorn Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Columbia Acorn Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. MIXED AND SHARED FUNDING As described previously, the Trust serves as a funding medium for VA contracts and VLI policies of Participating Insurance Companies and for certain Retirement Plans, so-called mixed and shared funding. As of the date of this prospectus, the Participating Insurance Companies are Keyport Life Insurance Company (Keyport), Keyport Benefit Life Insurance Company (Keyport Benefit), Aegon Financial Services Group, Inc., SAFECO Life Insurance Company, PHL Variable Life Insurance Company, Phoenix Home Life Mutual Insurance Company, American Enterprise Life Insurance Company, IDS Life Insurance Company, IDS Life Insurance Company of New York, Sun Life Assurance Company of Canada (U.S.), Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, ING Insurance Company of America, ING Life Insurance and Annuity Company, Reliastar Life Insurance Company, Sun Life Insurance & Annuity Company of New York, Merrill Lynch Life Insurance Company, ML Life Insurance Company of New York and TIAA-CREF Life Insurance Company. The Fund is or may become a funding vehicle for VA contracts or VLI policies of the Participating Insurance Companies or may become a funding vehicle for VA contracts or VLI policies of other Participating Insurance Companies. The interests of owners of VA contracts and VLI policies could diverge based on differences in state regulatory requirements, changes in the tax laws or other unanticipated developments. The Trust does not foresee any such differences or disadvantages at this time. However, the Trustees will monitor for such developments to identify any material irreconcilable conflicts and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, 12 one or more separate accounts might be required to withdraw its investments in the Fund or shares of another fund may be substituted. This might force the Fund to sell securities at lower prices. ADDITIONAL EXPENSES Additional expenses are incurred under the VA contracts, VLI policies and the Retirement Plans. These expenses are not described in this prospectus; owners of VA contracts, VLI policies and Retirement Plan participants should consult the contract or policy disclosure documents or Retirement Plan information regarding these expenses. From time to time, CWAM may pay amounts from its past profits to Participating Insurance Companies or other organizations that provide administrative services for the Fund or that provide other services relating to the Fund to owners of VA contracts, VLI policies and/or participants in Retirement Plans. These services include, among other things: subaccounting services; answering inquiries regarding the Fund; transmitting, on behalf of the Fund, proxy statements, shareholder reports, updated prospectuses and other communications regarding the Fund; and such other related services as the Fund, owners of VA contracts, VLI policies 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 Participating Insurance Company or other organization. Payment of such amounts by CWAM will not increase the fees paid by the Fund or its shareholders. ADDITIONAL INTERMEDIARY COMPENSATION In connection with the sale of the Columbia family of Funds (including the Funds) (the "Columbia Funds"), the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the distributor's sale of fund shares. The Fund is not a party to these arrangements, and such cash payments are not paid out of Fund assets. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists. Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events. In addition, the distributor, and/or the Fund's investment adviser, transfer agent or their affiliates, pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, subtransfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary. In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the SAI. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE. 13 FINANCIAL HIGHLIGHTS The financial highlights table that follows is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements, which have been audited for the years ended December 31, 2004 and 2005 by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. The information for the years ended December 31, 2001, 2002 and 2003 is included in the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling 1-888-4-WANGER (1-888-492-6437). The Fund's total returns presented below do not reflect the cost of insurance and other company separate account charges which vary with the VA contracts, VLI policies or Retirement Plans. WANGER INTERNATIONAL SMALL CAP
YEAR ENDED DECEMBER 31, SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $25.46 $19.68 $13.27 $15.40 $28.53 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.25 0.13 0.13 0.07 0.02 Net realized and unrealized gain (loss) on investments and foreign currency transactions 5.20 5.80 6.33 (2.20) (5.12) - --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 5.45 5.93 6.46 (2.13) (5.10) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.28) (0.15) (0.05) -- -- From net realized gain and unrealized gain reportable for federal income taxes -- -- -- -- (8.03) - -------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.28) (0.15) (0.05) -- (8.03) - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $30.63 $25.46 $19.68 $13.27 $15.40 - -------------------------------------------------------------------------------------------------------------------------------- Total Return(b) 21.53%(c) 30.27% 48.86% (13.83) % (21.27)% - -------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (d) 1.13% 1.36% 1.41% 1.47% 1.43% Net investment income (d) 0.92% 0.59% 0.85% 0.46% 0.10% Waiver 0.02% -- -- -- -- Portfolio turnover rate 24% 47% 45% 54% 56% Net assets, end of period (000's) $973,257 $606,773 $380,726 $216,084 $230,626
- ------------- (a) Net investment income per share was based upon the average shares outstanding during the period. (b) Total return at net asset value assuming all distributions are reinvested. (c) Had the Investment Adviser not waived a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 14 SHAREHOLDER INFORMATION SHAREHOLDER AND ACCOUNT POLICIES The Fund provides Participating Insurance 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 CWAM at 1-888-4-WANGER (1-888-492-6437). Shares of the Fund are issued and redeemed in connection with investments in and payments under certain qualified and non-qualified VA contracts and VLI policies issued through separate accounts of Participating Insurance Companies. Shares of the Fund 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 described in section 501(c)(18). The trust or plan must be established before shares of the Fund can be purchased by the plan. Neither the Fund nor CWAM offers prototypes of these plans. The Fund has imposed certain additional restrictions on sales to Retirement Plans to reduce Fund expenses. To be eligible to invest in the Fund, 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 Fund does not intend to offer shares in states where the sale of Fund shares requires the payment of a fee. A Retirement Plan may call CWAM at 1-888-4-WANGER (1-888-492-6437) to determine if it is eligible to invest. HOW TO INVEST AND REDEEM Shares of the Fund may not be purchased or redeemed directly by individual VA contract owners, VLI policyholders or individual Retirement Plan participants. VA contract owners, VLI policyholders or Retirement Plan participants should consult the disclosure documents for their VA contract, VLI policy or the plan documents for their Retirement Plan, for information on the availability of the Fund as an investment vehicle for allocations under their VA contract, VLI policy or Retirement Plan. In the case of a Participating Insurance Company purchaser, particular purchase and redemption procedures typically are included in an agreement between the Fund and the Participating Insurance Company. The Fund may enter into similar agreements with Retirement Plans. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Fund. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts, VLI policies and Retirement Plan participants and certain other terms of those contracts, policies and Retirement Plans. The Trust issues and redeems shares at net 15 asset value without imposing any selling commission, sales load or redemption charge. However, each VA contract and VLI policy imposes its own charges and fees on owners of the VA contract and VLI policy and Retirement Plans may impose such charges on participants in the Retirement Plan. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. FUND POLICY ON TRADING OF FUND SHARES The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." For purposes of this section, the "Columbia Funds" are the Columbia, Columbia Acorn Trust, Wanger Advisors Trust and Nations family of mutual funds. The Columbia Funds are not intended as vehicles for market timing. The board of trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares. The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, and subject to the limitations noted below, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice. The rights of shareholders to redeem shares of a Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase. For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control. Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs. 16 The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, all Fund purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries, retirement plans and variable insurance products. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Also, certain financial intermediaries, retirement plans and variable insurance products have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In addition, the terms and conditions of a particular insurance contract may limit the ability of the Participating Insurance Company to address frequent trading activity by a VA contract owner or VLI policyholder. Columbia Management Group, LLC has designated a Market Timing Steering Committee (the "Committee") composed of members of senior management designed to ensure, among other things, that participating insurance companies can either enforce the Funds' market timing policy, or monitor for market timing pursuant to a policy that is at least as restrictive as the Funds' policy. The Committee oversees the due diligence process with respect to participating insurance companies. The due diligence process for participating insurance companies includes a review of an insurance company's market timing policies, and requests that insurance companies certify that they can enforce the Funds' market timing policy as disclosed in the prospectus. Alternatively, if the participating insurance company cannot certify that it can enforce the Funds' market timing policy, the Committee requests that the participating insurance company certify that it has an internal market timing policy that is as restrictive or more restrictive than the Funds' market timing policy. If the insurance company cannot provide either form of certification, the Committee requests that the participating insurance company provide the Funds' transfer agent with shareholder level data transparency to enable the transfer agent to monitor trading activity in accordance with the Funds' market timing policy. An insurance company that agrees to provide data transparency is required to restrict, upon the transfer agent's request, participants that violate the Funds' market timing policy. If a current participating insurance company is unable to comply, Columbia will take steps consistent with its contractual obligations to place the participating insurance company's accounts on redemption only status. If a prospective participating insurance company is unable to comply with one of the alternatives, the Fund will not begin a business relationship with that company. The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges. PURCHASES AND REDEMPTIONS To the extent not otherwise provided in any agreement between the Trust and a Participating Insurance Company or Retirement Plan, shares of the Fund may be purchased by check or by wire transfer of funds. To be effective, a purchase order must consist of the money to purchase the shares and (i) information identifying the purchaser, in the case of a Participating Insurance Company or Retirement Plan with which the Fund has entered into an agreement, or a subsequent purchase by a Participating Insurance Company or Retirement Plan that is already a Fund shareholder, or (ii) a completed purchase application, in the case of the initial investment by a Retirement Plan with which the Fund does not have an agreement. 17 The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Funds. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts and VLI policies and certain other terms of those contracts and policies. The Funds issue and redeem shares at net asset value without imposing any selling commissions, sales charge or redemption charge. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. Normally, redemption proceeds will be paid within seven days after the Fund or its agent receives a request for redemption. Redemptions may be suspended or 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's share price is its net asset value next determined. Net asset value is the difference between the values of the Fund's assets and liabilities divided by the number of shares outstanding. We determine net asset value at the close of regular trading on the New York Stock Exchange (NYSE), normally 4 p.m. Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the-counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. We value a security at fair value when events have occurred after the last available market price and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security. The Fund's foreign securities may trade on days when the NYSE is closed. We will not price shares on days that the NYSE is closed for trading and Participating Insurance Companies and Retirement Plans may not purchase or redeem shares. 18 DIVIDENDS AND DISTRIBUTIONS The Fund intends to declare and distribute, as dividends or capital gains distributions, at least annually, substantially all of its net investment income and net profits realized from the sale of portfolio securities, if any, to its shareholders (Participating Insurance Companies' separate accounts and Retirement Plan participants). The net investment income of the Fund consists of all dividends or interest received by the Fund, less expenses (including the investment advisory fees). Income dividends will be declared and distributed annually by the Fund. All net short-term and long-term capital gains of the Fund, net of carry-forward losses, if any, realized during the fiscal year, are declared and distributed periodically, at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value, as of the record date for the distributions. TAXES The Fund intends to qualify every year as a regulated investment company under the Internal Revenue Code. By so qualifying, the 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. The 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 Fund, see Taxes in the SAI. For information concerning the federal tax consequences to VA contract owners, VLI policyholders or Retirement Plan participants, see the disclosure documents from the VA contract, VLI policy or your Retirement Plan administrator. You should consult your tax advisor about the tax consequences of any investment. 19 APPENDIX HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
WANGER INTERNATIONAL SMALL CAP MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ------------------------------------------------------------------------------------------------------------------- 1 5.00% 1.13% 3.87% $10,387.00 $ 115.19 2 10.25% 1.13% 7.89% $10,788.98 $ 119.64 3 15.76% 1.13% 12.07% $11,206.51 $ 124.27 4 21.55% 1.13% 16.40% $11,640.20 $ 129.08 5 27.63% 1.13% 20.91% $12,090.68 $ 134.08 6 34.01% 1.13% 25.59% $12,558.59 $ 139.27 7 40.71% 1.13% 30.45% $13,044.60 $ 144.66 8 47.75% 1.13% 35.49% $13,549.43 $ 150.26 9 55.13% 1.13% 40.74% $14,073.79 $ 156.07 10 62.89% 1.13% 46.18% $14,618.45 $ 162.11 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,618.45 TOTAL ANNUAL FEES AND EXPENSES $1,374.63 (1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
20 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 21 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION Adviser: Columbia Wanger Asset Management, L.P. Additional information about the Fund's investments is available in the Fund's semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over the last fiscal year. You may wish to read the Fund's SAI for more information on the Fund and the securities in which it invests. The SAI is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website, www.columbiafunds.com, include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of the annual and semi-annual reports and the SAI, request other information and discuss your questions about the Fund by writing or calling the Fund's adviser or visiting the Fund's website at: Columbia Wanger Asset Management, L.P. Shareholder Services Group 227 West Monroe, Suite 3000 Chicago, IL 60606 1 (888) 4-WANGER (1-888-492-6437) www.columbiafunds.com Or by calling or writing the Participating Insurance Company which issued your variable annuity contract or variable life insurance policy or the Retirement Plan you participate in. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, D.C. Information on the Public Reference Room may be obtained by calling the SEC at 202-942-8090. Reports and other information about the Fund are available on the EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Investment Company Act file number: 811-08748 WANGER SELECT PROSPECTUS MAY 1, 2006 * * * * Fund shares are available only through variable annuity contracts and variable life insurance policies of participating insurance companies, and through certain retirement plans. This prospectus must be accompanied by a prospectus for your variable annuity contract or variable life insurance policy. Retain both prospectuses for future reference. * * * * Although Fund shares have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------------- Not FDIC Insured May Lose Value No Bank Guarantee ----------------- TABLE OF CONTENTS THE TRUST ................................................................... 3 THE FUND .................................................................... 4 OTHER INVESTMENT STRATEGIES AND RISKS ....................................... 7 TRUST MANAGEMENT ORGANIZATIONS .............................................. 9 The Trustees ........................................................... 9 The Adviser: Columbia Wanger Asset Management, L.P ..................... 10 Portfolio Manager ...................................................... 10 Legal Proceedings ...................................................... 10 Mixed and Shared Funding ............................................... 11 Additional Expenses .................................................... 12 Additional Intermediary Compensation ................................... 12 FINANCIAL HIGHLIGHTS ........................................................ 14 SHAREHOLDER INFORMATION ..................................................... 15 APPENDIX .................................................................... 20 2 THE TRUST Wanger Advisors Trust (Trust) includes four separate mutual funds (Funds), each with its own investment goal and strategies. This prospectus contains information about Wanger Select (Fund). The Fund is an investment option under variable annuity contracts (VA contracts) and variable life insurance policies (VLI policies) issued by life insurance companies (Participating Insurance Companies). Participating Insurance Companies invest in the Fund through separate accounts that they set up for that purpose. Owners of VA contracts and VLI policies invest in sub-accounts of those separate accounts through instructions they give to their insurance company. Shares of the Fund 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). The prospectuses of the Participating Insurance Companies' separate accounts describe which Funds are available to the purchasers of their own VA contracts and VLI policies. The Trust assumes no responsibility for the accuracy or adequacy of those prospectuses. The Retirement Plan disclosure documents describe which Funds are available to participants in the plan. 3 THE FUND INVESTMENT GOAL--WANGER SELECT - -------------------------------------------------------------------------------- Wanger Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGY - -------------------------------------------------------------------------------- Wanger Select generally invests in the stocks of U.S. companies. Wanger Select is a non-diversified fund that takes advantage of its adviser's research and stock-picking capabilities to invest in a limited number of companies (between 20-40) with market capitalizations under $20 billion at the time of initial purchase, offering the potential to provide above-average growth over time. Wanger Select believes that companies within this capitalization range, which are not as well known by financial analysts as the largest companies, may offer higher return potential than the stocks of companies with capitalizations above $20 billion. The Fund invests the majority of its assets in U.S. companies, but also may invest up to 25% of its assets, valued at the time of investment, in companies outside the United States in developed markets (for example, Japan, Canada and the United Kingdom) and emerging markets (for example, Mexico, Brazil and Korea). Wanger Select 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 adviser believes is reasonable relative to the assets and earning power of the company. The portfolio manager may sell a portfolio holding if the security reaches the portfolio manager's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks. The portfolio manager may also sell a portfolio holding to fund redemptions. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- There are two basic risks for all mutual funds that invest in stocks: MANAGEMENT RISK and MARKET RISK. You may lose money by investing in the Fund. Management risk means that Columbia Wanger Asset Management, L.P.'s (CWAM) investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably compared with funds with similar investment objectives and strategies. Since the Fund purchases equity securities, it is subject to EQUITY RISK. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the equity market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. 4 Because the Fund invests in stocks, the price of its shares--its net asset value per share--fluctuates daily in response to changes in the market value of the stocks. MID-CAP COMPANIES The securities issued by mid-cap companies may have more risk than those of larger companies. These securities may be more susceptible to market downturns, and their prices could be more volatile. SECTOR RISK Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector. NON-DIVERSIFIED Wanger Select is a non-diversified fund. As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly. FOREIGN SECURITIES Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities, denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls. EMERGING MARKETS Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. Their securities markets may be underdeveloped. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE HISTORY The bar chart that follows shows the Fund's calendar-year total returns. The performance table following the bar chart shows how the Fund's average annual returns compare with those of a 5 broad measure of market performance for one year, five years and the life of the Fund. We compare the Fund to the Standard and Poor's MidCap 400 Index (S&P MidCap 400), the Standard and Poor's 500 Index (S&P 500 Index) and the Lipper Variable Underlying Mid-Cap Growth Funds Index, which are broad-based measures of market performance. The S&P MidCap 400 is the Fund's primary benchmark. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance does not predict the Fund's future performance. The Fund's performance results do not reflect the cost of insurance and separate account charges which are imposed under your VA contract or VLI policy, or any charges imposed by your Retirement Plan. Returns and value of an investment will vary, resulting in a gain or a loss on sale. CALENDAR-YEAR TOTAL RETURNS YEAR-BY-YEAR TOTAL RETURN BAR CHART: 2000 9.45% 2001 9.09% 2002 -7.62% 2003 30.73% 2004 19.31% 2005 10.49% Best quarter: 4th quarter 2001, 17.97% Worst quarter: 3rd quarter 2001, -10.70% SINCE 1 YEAR 5 YEARS INCEPTION+ ---------- ---------- ------------ Wanger Select* 10.49% 11.67% 14.51% S&P MidCap 400** 12.56% 8.60% 11.47% S&P 500** 4.91% 0.54% 1.19% Lipper VUF Mid-Cap Growth Funds*** 9.51% -1.58% 4.64%**** - ------------- + Wanger Select's inception date was 2/1/1999. * Part of the performance shown is due to the Fund's purchase of securities in IPO's. The impact of IPO purchases declines as a Fund grows larger. ** The S&P MidCap 400 Index, the Fund's primary benchmark, is a broad market-weighted index of 400 stocks that are in the next tier down from the S&P 500 Index. The S&P 500 Index is a broad market-weighted average of U.S. large, blue-chip companies. The indexes are unmanaged and differ from the Fund's composition; they are not available for direct investment. *** The Lipper Variable Underlying Mid-Cap Growth Funds Index measures the performance of the 30 largest mid-cap growth funds tracked by Lipper. The indexes are unmanaged and differ from the Fund's composition; they are not available for direct investment. **** Performance information is from 1/31/1999. 6 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 VA contract, VLI policy or Retirement Plan. SHAREHOLDER TRANSACTION EXPENSES Fees paid directly from your investment: Maximum sales charge N/A Deferred sales charge N/A ANNUAL FUND OPERATING EXPENSES Expenses that are deducted from Fund assets: Management fees 0.85% 12b-1 fee None Other expenses 0.12% - -------------------------------------------------------------------------------- Total annual Fund operating expenses(1)(2) 0.97% (1) Expenses have been revised to reflect actual expected expenses for future periods. (2) CWAM has undertaken to limit Wanger Select's annual expenses to 1.35% of its average net assets. This expense limitation is contractual and will terminate on April 30, 2007. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes a $10,000 investment in Wanger Select for the time periods indicated, a 5% total return each year, reinvestment of all dividends and distributions, and that operating expenses remain the same. Your actual returns and costs may be higher or lower. This example does not include the effect of CWAM's undertaking to limit the Fund's expenses. 1 Year $99 3 Years $309 5 Years $536 10 Years $1,190 OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information (SAI), which you may obtain free of charge (see back cover). Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE CWAM invests in entrepreneurially managed smaller- and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, 7 social or technological trends (for example, the growth of outsourcing as a business strategy or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on its independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - ------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price o innovative marketing o adequate working capital relative to growth potential o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this A strong balance sheet gives Once CWAM uncovers an attractive growth potential would likely management greater flexibility company, it identifies a price produce superior performance to pursue strategic objectives that it believes would also that is sustainable and is important to maintaining make the stock a good value. over time. a competitive advantage. - ------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING CWAM's analysts continually screen companies and contact more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower transaction costs by investing with a long-term time horizon (at least two to five years). 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. STATE INSURANCE RESTRICTIONS The Fund is sold to Participating Insurance Companies in connection with VA contracts and VLI policies, and will seek to be available under VA contracts and VLI policies sold in a number of jurisdictions. Certain states have regulations or guidelines concerning concentration of investments and other investment techniques. If applied to the Fund, the Fund may be limited in its ability to engage in certain techniques and to manage its portfolio with the flexibility provided herein. In order to permit the Fund to be available under VA contracts and VLI policies sold in certain states, the Fund may make commitments that are more restrictive than the investment policies and limitations described herein and in the SAI. If the 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 VA contract owners and VLI policyholders residing in such states. 8 TEMPORARY DEFENSIVE POSITIONS At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. DERIVATIVE STRATEGIES The Fund may enter into a number of derivative strategies, including those that employ futures, options and swap contracts, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund. The Fund also may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. PORTFOLIO TURNOVER The Fund does not have limits on portfolio turnover. Turnover may vary significantly from year-to-year. CWAM does not expect the Fund's turnover to exceed 125% under normal conditions. Portfolio turnover increases transaction expenses, which reduce the Fund's return. TRUST MANAGEMENT ORGANIZATIONS THE TRUSTEES The business of the Trust and the Fund is supervised by the Trust's Board of Trustees. The SAI contains names of and biographical information on the Trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions, academia, and public service to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Wanger Advisors Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. 9 THE ADVISER: COLUMBIA WANGER ASSET MANAGEMENT, L.P. Columbia Wanger Asset Management, L.P. (CWAM), 227 West Monroe Street, Suite 3000, Chicago, IL 60606, is the Fund's investment adviser. CWAM is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. CWAM and its predecessor have managed mutual funds, including Wanger Select, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM is an indirect wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. For the fiscal year 2005, the Fund paid CWAM management fees at 0.84% of the average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGER CWAM uses a team to assist the lead portfolio manager in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. Ben Andrews, lead portfolio manger of the Fund, is a vice president of the Trust and has been part of the CWAM investment team since 1998, most recently as a senior technology analyst. His analytical experience includes covering a broad range of industries and special situations. Mr. Andrews is also the lead portfolio manager of Columbia Acorn Select. Prior to joining CWAM, Mr. Andrews was a senior analyst at Rothschild Investment Corporation. The SAI provides additional information about Mr. Andrews' compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS CWAM, Columbia Acorn Trust, another mutual fund family advised by CWAM, and the trustees of Columbia Acorn Trust, are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of Columbia Acorn Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the United States District Court for the District of Massachusetts, alleging that CWAM used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Columbia Acorn Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. 10 The Columbia Acorn Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Columbia Acorn Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the district court, and the Seventh Circuit Court of Appeals affirmed this dismissal. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Columbia Acorn Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Columbia Acorn Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Columbia Acorn Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. MIXED AND SHARED FUNDING As described previously, the Trust serves as a funding medium for VA contracts and VLI policies of Participating Insurance Companies and for certain Retirement Plans, so-called mixed and shared funding. As of the date of this prospectus, the Participating Insurance Companies are Keyport Life Insurance Company (Keyport), Keyport Benefit Life Insurance Company (Keyport Benefit), Aegon Financial Services Group, Inc., SAFECO Life Insurance Company, PHL Variable Life Insurance Company, Phoenix Home Life Mutual Insurance Company, American Enterprise Life Insurance Company, IDS Life Insurance Company, IDS Life Insurance Company of New York, Sun Life Assurance Company of Canada (U.S.), Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, ING Insurance Company of America, ING Life Insurance and Annuity Company, Reliastar Life Insurance Company, Sun Life Insurance & Annuity Company of New York, Merrill Lynch Life Insurance Company, ML Life Insurance Company of New York and TIAA-CREF Life Insurance Company. The Fund is or may become a funding vehicle for VA contracts or VLI policies of the Participating Insurance Companies or may become a funding vehicle for VA contracts or VLI policies of other Participating Insurance Companies. The interests of owners of VA contracts and VLI policies could diverge based on differences in state regulatory requirements, changes in the tax laws or other unanticipated developments. The Trust 11 does not foresee any such differences or disadvantages at this time. However, the Trustees will monitor for such developments to identify any material irreconcilable conflicts and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more separate accounts might be required to withdraw its investments in the Fund or shares of another Fund may be substituted. This might force the Fund to sell securities at lower prices. ADDITIONAL EXPENSES Additional expenses are incurred under the VA contracts, VLI policies and the Retirement Plans. These expenses are not described in this prospectus; owners of VA contracts, VLI policies and Retirement Plan participants should consult the contract or policy disclosure documents or Retirement Plan information regarding these expenses. From time to time, CWAM may pay amounts from its past profits to Participating Insurance Companies or other organizations that provide administrative services for the Fund or that provide other services relating to the Fund to owners of VA contracts, VLI policies and/or participants in Retirement Plans. These services include, among other things: subaccounting services; answering inquiries regarding the Fund; transmitting, on behalf of the Fund, proxy statements, shareholder reports, updated prospectuses and other communications regarding the Fund; and such other related services as the Fund, owners of VA contracts, VLI policies 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 Participating Insurance Company or other organization. Payment of such amounts by CWAM will not increase the fees paid by the Fund or its shareholders. ADDITIONAL INTERMEDIARY COMPENSATION In connection with the sale of the Columbia family of funds (including the Funds) (the "Columbia Funds"), the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the distributor's sale of fund shares. The Fund is not a party to these arrangements, and such cash payments are not paid out of Fund assets. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists. Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events. In addition, the distributor, and/or the Fund's investment adviser, transfer agent or their affiliates, pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, subtransfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary. 12 In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the SAI. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE. 13 FINANCIAL HIGHLIGHTS The financial highlights table that follows is intended to help you understand the Fund's financial performance. Information is shown since the Fund's inception and for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements, which have been audited for the years ended December 31, 2004 and 2005 by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. The information for the years ended December 31, 2001, 2002 and 2003 is included in the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling 1-888-4-WANGER (1-888-492-6437). The Fund's total returns presented below do not reflect the cost of insurance and other company separate account charges which vary with the VA contracts, VLI policies or Retirement Plans. WANGER SELECT
YEAR ENDED DECEMBER 31, SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2005 2004 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $22.11 $18.55 $14.19 $15.36 $14.08 - -------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment loss (a) (0.04) (0.10) (0.11) (0.09) (0.05) Net realized and unrealized gain (loss) on investments 2.12 3.68 4.47 (1.08) 1.33 - -------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.08 3.58 4.36 (1.17) 1.28 - -------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net realized capital gains (1.53) (0.02) -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (1.53) (0.02) -- -- -- - -------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $22.66 $22.11 $18.55 $14.19 $15.36 - -------------------------------------------------------------------------------------------------------------------------------- Total Return (b) 10.49%(c) 19.31% 30.73% (7.62)% 9.09% - -------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (d) 0.96% 1.10% 1.15% 1.18% 1.33% Net investment loss (d) (0.20)% (0.49)% (0.65)% (0.62)% (0.34)% Waiver 0.02% -- -- -- -- Portfolio turnover rate 26% 36% 21% 45% 76% Net assets, end of period (000's) $102,674 $82,465 $52,112 $26,124 $21,429
- ------------- (a) Net investment loss per share was based upon the average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested. (c) Had the Investment Adviser not waived a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. 14 SHAREHOLDER INFORMATION SHAREHOLDER AND ACCOUNT POLICIES The Fund provides Participating Insurance 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 CWAM at 1-888-4-WANGER (1-888-492-6437). Shares of the Fund are issued and redeemed in connection with investments in and payments under certain qualified and non-qualified VA contracts and VLI policies issued through separate accounts of Participating Insurance Companies. Shares of the Fund 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 described in section 501(c)(18). The trust or plan must be established before shares of the Fund can be purchased by the plan. Neither the Fund nor CWAM offers prototypes of these plans. The Fund has imposed certain additional restrictions on sales to Retirement Plans to reduce Fund expenses. To be eligible to invest in the Fund, 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 Fund does not intend to offer shares in states where the sale of Fund shares requires the payment of a fee. A Retirement Plan may call CWAM at 1-888-4-WANGER (1-888-492-6437) to determine if it is eligible to invest. HOW TO INVEST AND REDEEM Shares of the Fund may not be purchased or redeemed directly by individual VA contract owners, VLI policyholders or individual Retirement Plan participants. VA contract owners, VLI policyholders or Retirement Plan participants should consult the disclosure documents for their VA contract, VLI policy or the plan documents for their Retirement Plan, for information on the availability of the Fund as an investment vehicle for allocations under their VA contract, VLI policy or Retirement Plan. In the case of a Participating Insurance Company purchaser, particular purchase and redemption procedures typically are included in an agreement between the Fund and the Participating Insurance Company. The Fund may enter into similar agreements with Retirement Plans. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Fund. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts, VLI policies and Retirement Plan participants and certain other terms of those contracts, policies and Retirement Plans. The Trust issues and redeems shares at net 15 asset value without imposing any selling commission, sales load or redemption charge. However, each VA contract and VLI policy imposes its own charges and fees on owners of the VA contract and VLI policy and Retirement Plans may impose such charges on participants in the Retirement Plan. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. FUND POLICY ON TRADING OF FUND SHARES The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." For purposes of this section, the "Columbia Funds" are the Columbia, Columbia Acorn Trust, Wanger Advisors Trust and Nations family of mutual funds. The Columbia Funds are not intended as vehicles for market timing. The board of trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares. The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, and subject to the limitations noted below, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice. The rights of shareholders to redeem shares of a Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase. For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control. Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs. 16 The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, all Fund purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries, retirement plans and variable insurance products. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Also, certain financial intermediaries, retirement plans and variable insurance products have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In addition, the terms and conditions of a particular insurance contract may limit the ability of the Participating Insurance Company to address frequent trading activity by a VA contract owner or VLI policyholder. Columbia Management Group, LLC has designated a Market Timing Steering Committee (the "Committee") composed of members of senior management designed to ensure, among other things, that participating insurance companies can either enforce the Funds' market timing policy, or monitor for market timing pursuant to a policy that is at least as restrictive as the Funds' policy. The Committee oversees the due diligence process with respect to participating insurance companies. The due diligence process for participating insurance companies includes a review of an insurance company's market timing policies, and requests that insurance companies certify that they can enforce the Funds' market timing policy as disclosed in the prospectus. Alternatively, if the participating insurance company cannot certify that it can enforce the Funds' market timing policy, the Committee requests that the participating insurance company certify that it has an internal market timing policy that is as restrictive or more restrictive than the Funds' market timing policy. If the insurance company cannot provide either form of certification, the Committee requests that the participating insurance company provide the Funds' transfer agent with shareholder level data transparency to enable the transfer agent to monitor trading activity in accordance with the Funds' market timing policy. An insurance company that agrees to provide data transparency is required to restrict, upon the transfer agent's request, participants that violate the Funds' market timing policy. If a current participating insurance company is unable to comply, Columbia will take steps consistent with its contractual obligations to place the participating insurance company's accounts on redemption only status. If a prospective participating insurance company is unable to comply with one of the alternatives, the Fund will not begin a business relationship with that company. The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges. PURCHASES AND REDEMPTIONS To the extent not otherwise provided in any agreement between the Trust and a Participating Insurance Company or Retirement Plan, shares of the Fund may be purchased by check or by wire transfer of funds. To be effective, a purchase order must consist of the money to purchase the shares and (i) information identifying the purchaser, in the case of a Participating Insurance Company or Retirement Plan with which the Fund has entered into an agreement, or a subsequent purchase by a Participating Insurance Company or Retirement Plan that is already a Fund shareholder, or (ii) a 17 completed purchase application, in the case of the initial investment by a Retirement Plan with which the Fund does not have an agreement. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Funds. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts and VLI policies and certain other terms of those contracts and policies. The Funds issue and redeem shares at net asset value without imposing any selling commissions, sales charge or redemption charge. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. Normally, redemption proceeds will be paid within seven days after the Fund or its agent receives a request for redemption. Redemptions may be suspended or 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's share price is its net asset value next determined. Net asset value is the difference between the values of the Fund's assets and liabilities divided by the number of shares outstanding. We determine net asset value at the close of regular trading on the New York Stock Exchange (NYSE), normally 4 p.m. Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the-counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. We value a security at fair value when events have occurred after the last available market price and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security. The Fund's foreign securities may trade on days when the NYSE is closed. We will not 18 price shares on days that the NYSE is closed for trading and Participating Insurance Companies and Retirement Plans may not purchase or redeem shares. DIVIDENDS AND DISTRIBUTIONS The Fund intends to declare and distribute, as dividends or capital gains distributions, at least annually, substantially all of its net investment income and net profits realized from the sale of portfolio securities, if any, to its shareholders (Participating Insurance Companies' separate accounts and Retirement Plan participants). The net investment income of the Fund consists of all dividends or interest received by the Fund, less expenses (including the investment advisory fees). Income dividends will be declared and distributed annually by the Fund. All net short-term and long-term capital gains of the Fund, net of carry-forward losses, if any, realized during the fiscal year, are declared and distributed periodically, at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value, as of the record date for the distributions. TAXES The Fund intends to qualify every year as a regulated investment company under the Internal Revenue Code. By so qualifying, the 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. The 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 Fund, see Taxes in the SAI. For information concerning the federal tax consequences to VA contract owners, VLI policyholders or Retirement Plan participants, see the disclosure documents from the VA contract, VLI policy or your Retirement Plan administrator. You should consult your tax advisor about the tax consequences of any investment. 19 APPENDIX HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
WANGER SELECT MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ------------------------------------------------------------------------------------------------------------------- 1 5.00% 0.97% 4.03% $10,403.00 $ 98.95 2 10.25% 0.97% 8.22% $10,822.24 $ 102.94 3 15.76% 0.97% 12.58% $11,258.38 $ 107.09 4 21.55% 0.97% 17.12% $11,712.09 $ 111.41 5 27.63% 0.97% 21.84% $12,184.09 $ 115.90 6 34.01% 0.97% 26.75% $12,675.11 $ 120.57 7 40.71% 0.97% 31.86% $13,185.91 $ 125.43 8 47.75% 0.97% 37.17% $13,717.30 $ 130.48 9 55.13% 0.97% 42.70% $14,270.11 $ 135.74 10 62.89% 0.97% 48.45% $14,845.20 $ 141.21 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,845.20 TOTAL ANNUAL FEES AND EXPENSES $1,189.71 (1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
20 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 21 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION Adviser: Columbia Wanger Asset Management, L.P. Additional information about the Fund's investments is available in the Fund's semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over the last fiscal year. You may wish to read the Fund's SAI for more information on the Fund and the securities in which it invests. The SAI is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website, www.columbiafunds.com, include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of the annual and semi-annual reports and the SAI, request other information and discuss your questions about the Fund by writing or calling the Fund's adviser or visiting the Fund's website at: Columbia Wanger Asset Management, L.P. Shareholder Services Group 227 West Monroe, Suite 3000 Chicago, IL 60606 1 (888) 4-WANGER (1-888-492-6437) www.columbiafunds.com Or by calling or writing the Participating Insurance Company which issued your variable annuity contract or variable life insurance policy or the Retirement Plan you participate in. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, D.C. Information on the Public Reference Room may be obtained by calling the SEC at 202-942-8090. Reports and other information about the Fund are available on the EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Investment Company Act file number: 811-08748 WANGER INTERNATIONAL SELECT PROSPECTUS MAY 1, 2006 * * * * Fund shares are available only through variable annuity contracts and variable life insurance policies of participating insurance companies, and through certain retirement plans. This prospectus must be accompanied by a prospectus for your variable annuity contract or variable life insurance policy. Retain both prospectuses for future reference. * * * * Although Fund shares have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ----------------- Not FDIC Insured May Lose Value No Bank Guarantee ----------------- TABLE OF CONTENTS THE TRUST .................................................................. 3 THE FUND ................................................................... 4 OTHER INVESTMENT STRATEGIES AND RISKS ...................................... 8 TRUST MANAGEMENT ORGANIZATIONS ............................................. 10 The Trustees .......................................................... 10 The Adviser: Columbia Wanger Asset Management, L.P. ................... 10 Portfolio Manager ..................................................... 10 Legal Proceedings ..................................................... 11 Mixed and Shared Funding .............................................. 12 Additional Expenses ................................................... 12 Additional Intermediary Compensation .................................. 12 FINANCIAL HIGHLIGHTS ....................................................... 14 SHAREHOLDER INFORMATION .................................................... 15 APPENDIX ................................................................... 20 2 THE TRUST Wanger Advisors Trust (Trust) includes four separate mutual funds (Funds), each with its own investment goal and strategies. This prospectus contains information about Wanger International Select (Fund). The Fund is an investment option under variable annuity contracts (VA contracts) and variable life insurance policies (VLI policies) issued by life insurance companies (Participating Insurance Companies). Participating Insurance Companies invest in the Fund through separate accounts that they set up for that purpose. Owners of VA contracts and VLI policies invest in sub-accounts of those separate accounts through instructions they give to their insurance company. Shares of the Fund 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). The prospectuses of the Participating Insurance Companies' separate accounts describe which Funds are available to the purchasers of their own VA contracts and VLI policies. The Trust assumes no responsibility for the accuracy or adequacy of those prospectuses. The Retirement Plan disclosure documents describe which Funds are available to participants in the plan. 3 THE FUND INVESTMENT GOAL--WANGER INTERNATIONAL SELECT - -------------------------------------------------------------------------------- Wanger International Select seeks long-term growth of capital. PRINCIPAL INVESTMENT STRATEGY - -------------------------------------------------------------------------------- Wanger International Select invests primarily in the stocks of companies with market capitalizations of $2 to $25 billion at the time of initial purchase. Although the Fund primarily invests in small- and medium-sized companies, at times the Fund may invest in larger-sized companies. The Fund invests in at least three countries. Wanger International Select takes advantage of its adviser's research and stockpicking capabilities to invest in a limited number of foreign companies (between 40-60) generally in developed markets (for example, Japan, Canada, and the United Kingdom), offering the potential to provide above-average growth over time. Wanger International Select believes that companies within this capitalization range, which are not as well known by financial analysts, may offer higher return potential than the stocks of companies with capitalizations above $25 billion. Wanger International Select 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 adviser believes is reasonable relative to the assets and earning power of the company. Under normal circumstances, Wanger International Select invests at least 65% of its net assets in the stocks of foreign companies based in developed markets outside the United States. The portfolio manager may sell a portfolio holding if the security reaches the portfolio manager's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks. The portfolio manager may also sell a portfolio holding to fund redemptions. Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks." PRINCIPAL INVESTMENT RISKS - -------------------------------------------------------------------------------- There are two basic risks for all mutual funds that invest in stocks: MANAGEMENT RISK and MARKET RISK. You may lose money by investing in the Fund. Management risk means that Columbia Wanger Asset Management, L.P.'s (CWAM) investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably compared with funds with similar investment objectives and strategies. Since the Fund purchases equity securities, it is subject to EQUITY RISK. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the equity market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole. 4 Because the Fund invests in stocks, the price of its shares--its net asset value per share--fluctuates daily in response to changes in the market value of the stocks. FOREIGN SECURITIES Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls. EMERGING MARKETS Investment in emerging markets is subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets. SMALLER COMPANIES Smaller companies, including small- and mid-cap companies, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than securities of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks. SECTOR RISK Sector risk may sometimes be present in the Fund's investments. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times, the Fund may have a large portion of its assets invested in a particular sector. MARKET TIMERS Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund 5 management and, since a market timer's profits are effectively paid directly out of the Fund's assets, negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and to discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated. An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. PERFORMANCE HISTORY The bar chart below shows the Fund's calendar-year total returns. The performance table following the bar chart shows how the Fund's average annual returns compare with those of a broad measure of market performance for one year, five years and the life of the Fund. We compare the Fund to the S&P/Citigroup World ex-U.S. Cap Range $2-10B Index, the MSCI EAFE Index and the Lipper Variable Underlying International Growth Funds Index, which are broad-based measures of market performance. The S&P/Citigroup World ex-U.S. Cap Range $2-$10B Index is the Fund's primary benchmark. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. As with all mutual funds, past performance does not predict the Fund's future performance. The Fund's performance results do not reflect the cost of insurance and separate account charges which are imposed under your VA contract or VLI policy, or any charges imposed by your Retirement Plan. Returns and value of an investment will vary, resulting in a gain or a loss on sale. CALENDAR-YEAR TOTAL RETURNS YEAR-BY-YEAR TOTAL RETURN BAR CHART: 2000 -1.58 2001 -26.61 2002 -15.29 2003 41.24 2004 24.34 2005 16.43 Best quarter: 2nd quarter 2003, 19.58% Worst quarter: 3rd quarter 2001, -21.53%
SINCE 1 YEAR 5 YEARS INCEPTION+ ------------ ------------ ------------ Wanger International Select 16.43% 4.91% 12.80% S&P/Citigroup World ex-U.S. Cap Range $2-10B* 20.35% 11.60% 10.66% MSCI EAFE* 13.54% 4.55% 4.61% Lipper VUFInternational Growth Funds Index* 16.90% 1.10% 4.28%**
6 - ------------- + Wanger International Select's inception date was 2/1/1999. * The S&P/Citigroup World ex-U.S. Cap Range $2-10B, the Fund's primary benchmark, is a subset of the broad market, selected by the index sponsor, representing the mid-cap developed market, excluding the United States. MCSI EAFE is Morgan Stanley's Europe, Australasia and Far East Index, a widely recognized international benchmark that comprises 20 major markets in Europe, Australia and the Far East. Lipper Indexes include the largest funds tracked by Lipper, Inc. in the named category. The Lipper Variable Underlying International Growth Funds Index is made up of the 10 largest non-U.S. funds. All indexes are unmanaged and returns include reinvested dividends. It is not possible to invest directly in an index. ** Performance information is from 1/31/1999. 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 VA contract, VLI policy or Retirement Plan. SHAREHOLDER TRANSACTION EXPENSES Fees paid directly from your investment: Maximum sales charge N/A Deferred sales charge N/A ANNUAL FUND OPERATING EXPENSES Expenses that are deducted from Fund assets: Management fees 0.99% 12b-1 fee None Other expenses 0.33% - -------------------------------------------------------------------------------- Total annual Fund operating expenses(1) 1.32% (1) CWAM has undertaken to limit Wanger International Select's annual expenses to 1.45% of its average net assets. This expense limitation is contractual and will terminate on April 30, 2007. EXAMPLE This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes a $10,000 investment in Wanger International Select for the time periods indicated, a 5% total return each year, reinvestment of all dividends and distributions, and that operating expenses remain the same. Your actual returns and costs may be higher or lower. The example expenses for the one year period reflect the contractual expense limitation referred to above, but this arrangement is not reflected in the example expenses for the second and third years of the three-year period, the second through fifth years of the five-year period, and the second through tenth years of the ten-year period. 1 Year $134 3 Years $418 5 Years $723 10 Years $1,590 7 OTHER INVESTMENT STRATEGIES AND RISKS The Fund's principal investment strategies and their associated risks are described above. This section provides more detail about the Fund's investment strategies, and describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques, which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information (SAI), which you may obtain free of charge (see back cover). Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies. THE INFORMATION EDGE CWAM invests in entrepreneurially managed smaller- and mid-sized companies that it believes are not as well known by financial analysts and whose domination of a niche creates the opportunity for superior earnings-growth potential. CWAM may identify what it believes are important economic, social or technological trends (for example, the growth of outsourcing as a business strategy, or the productivity gains from the increasing use of technology) and try to identify companies it thinks will benefit from those trends. In making investments for the Fund, CWAM relies primarily on its independent, internally generated research to uncover companies that may be less well known than the more popular names. To find these companies, CWAM compares growth potential, financial strength and fundamental value among companies.
GROWTH POTENTIAL FINANCIAL STRENGTH FUNDAMENTAL VALUE - ------------------------------------------------------------------------------------------------------ o superior technology o low debt o reasonable stock price o innovative marketing o adequate working capital relative to growth potential o managerial skill o conservative accounting practices o valuable assets o market niche o adequate profit margin o good earnings prospects o strong demand for product The realization of this A strong balance sheet gives Once CWAM uncovers an attractive growth potential would likely management greater flexibility company, it identifies a produce superior performance to pursue strategic objectives price that it believes that is sustainable and is important to maintaining would also make the stock over time. a competitive advantage. a good value. - ------------------------------------------------------------------------------------------------------
LONG-TERM INVESTING CWAM's analysts continually screen companies and contact more than 1,000 companies around the globe each year. To accomplish this, CWAM analysts often talk directly to top management, vendors, suppliers and competitors. In managing the Fund, CWAM tries to maintain lower transaction costs by investing with a long-term time horizon (at least two to five years). 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. 8 STATE INSURANCE RESTRICTIONS The Fund is sold to Participating Insurance Companies in connection with VA contracts and VLI policies, and will seek to be available under VA contracts and VLI policies sold in a number of jurisdictions. Certain states have regulations or guidelines concerning concentration of investments and other investment techniques. If applied to the Fund, the Fund may be limited in its ability to engage in certain techniques and to manage its portfolio with the flexibility provided herein. In order to permit the Fund to be available under VA contracts and VLI policies sold in certain states, the Fund may make commitments that are more restrictive than the investment policies and limitations described herein and in the SAI. If the 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 VA contract owners and VLI policyholders residing in such states. TEMPORARY DEFENSIVE POSITIONS At times, CWAM may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal. DERIVATIVE STRATEGIES The Fund may enter into a number of derivative strategies, including those that employ futures, options and swap contracts, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund. The Fund also may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. PORTFOLIO TURNOVER The Fund does not have limits on portfolio turnover. Turnover may vary significantly from year to year. CWAM does not expect the Fund's turnover to exceed 125% under normal conditions. Portfolio turnover increases transaction expenses, which reduce the Fund's return. 9 TRUST MANAGEMENT ORGANIZATIONS THE TRUSTEES The business of the Trust and the Fund is supervised by the Trust's Board of Trustees. The SAI contains names of and biographical information on the Trustees. More than 75% of the Fund's Trustees are independent, meaning that they have no affiliation with the adviser or the Funds, apart from the personal investments they have made as private individuals. The independent Trustees bring backgrounds in business and the professions, academia, and public service to their task of working with the Funds' officers to establish the policies and oversee the activities of the Funds. Among the Trustees' responsibilities are selecting the investment adviser for the Funds; negotiating the advisory agreements; approving investment policies; monitoring fund operations, performance, and costs; reviewing contracts; and nominating or selecting new trustees. Each Trustee serves until his or her retirement, resignation, death or removal; or otherwise as specified in the Fund's organizational documents. It is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. A Trustee must retire at the end of the year in which he or she attains the age of 75. Any Trustee may be removed at a shareholders' meeting by a vote representing two-thirds of the net asset value of all shares of the Funds of Wanger Advisors Trust. The mailing address for the Trustees and officers is 227 W. Monroe, Suite 3000, Chicago, Illinois 60606. THE ADVISER: COLUMBIA WANGER ASSET MANAGEMENT, L.P. Columbia Wanger Asset Management, L.P. (CWAM), 227 West Monroe Street, Suite 3000, Chicago, IL 60606, is the Fund's investment adviser. CWAM is responsible for the Fund's management, subject to the oversight of the Fund's Board of Trustees. CWAM and its predecessor have managed mutual funds, including Wanger International Select, since 1992. In its duties as investment adviser, CWAM runs the Fund's day-to-day business, including making investment decisions and placing all orders for the purchase and sale of the Fund's portfolio securities. As of December 31, 2005, CWAM managed more than $27.1 billion in assets. CWAM is an indirect wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. For the fiscal year 2005 the Fund paid CWAM management fees at 0.99% of the average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the period ended December 31, 2005. PORTFOLIO MANAGER CWAM uses a team to assist the portfolio managers in managing the Fund. Team members share responsibility for providing ideas, information, and knowledge in managing the Fund, and each team member has one or more particular areas of expertise. The portfolio manager is responsible for making daily investment decisions, and utilizing the management team's input and advice when making buy and sell determinations. Christopher Olson is a vice president of the Trust and the lead manager of Wanger International Select and has managed Wanger International Select since September 2001. He has been a member of the international analytical team at CWAM since January 2001. Mr. Olson is also a vice president of Columbia Acorn Trust, lead portfolio manager of Columbia Acorn International Select and a 10 co-portfolio manger of Wanger International Small Cap. Prior to joining CWAM, Mr. Olson was most recently a director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. The SAI provides additional information about Mr. Olson's compensation, other accounts he manages and his ownership of securities in the Fund. LEGAL PROCEEDINGS CWAM, Columbia Acorn Trust, another mutual fund family advised by CWAM, and the trustees of Columbia Acorn Trust, are named as defendants in class and derivative complaints, which were consolidated in a Multi-District Action in the federal district court for the District of Maryland on February 20, 2004. These lawsuits contend that defendants permitted certain investors to market time their trades in certain Columbia Acorn Funds. The Multi-District Action is ongoing. All claims against Columbia Acorn Trust and its independent trustees have been dismissed; however, the interested trustees of the Columbia Acorn Trust are still parties to the litigation. CWAM, the Columbia Acorn Funds and the trustees of Columbia Acorn Trust are defendants in a consolidated lawsuit, filed on August 2, 2004 in the United States District Court for the District of Massachusetts, alleging that CWAM used Fund assets to make undisclosed payments to brokers as an incentive for the brokers to market the Columbia Acorn Funds over the other mutual funds to investors. The complaint alleges CWAM and the trustees of the Columbia Acorn Trust breached certain common law duties and federal laws. All claims against all defendants in this lawsuit have been dismissed. However, the plaintiffs have filed a notice of appeal with the United States Court of Appeals for the First Circuit. The Columbia Acorn Trust and CWAM are also defendants in a class action lawsuit, filed on November 13, 2003 in the Circuit Court of the Third Judicial Circuit, Madison County, Illinois, that alleges, in summary, that the Columbia Acorn Trust and CWAM exposed shareholders of Columbia Acorn International Fund to trading by market timers by allegedly (a) failing to properly evaluate daily whether a significant event affecting the value of that Fund's securities had occurred after foreign markets had closed but before the calculation of the Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio valuation and share pricing policies and procedures; and (c) failing to know and implement applicable rules and regulations concerning the calculation of NAV (the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the district court, and the Seventh Circuit Court of Appeals affirmed this dismissal. However, plaintiffs are in the process of appealing that decision before the United States Supreme Court. On March 21, 2005, a class action complaint was filed against the Columbia Acorn Trust and CWAM in the Superior Court of the Commonwealth of Massachusetts seeking to rescind the contingent deferred sales charges assessed upon redemption of Class B shares of Columbia Acorn Funds due to the alleged market timing by certain shareholders of the Columbia Acorn Funds. In addition to the rescission of sales charges, plaintiffs seek recovery of actual damages, attorneys' fees and costs. The case has been transferred to the Multi-District Action in the federal district court of Maryland. The Columbia Acorn Trust and CWAM intend to defend these suits vigorously. As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Funds. In connection with the events described in detail above, various parties have filed suit against certain funds, their boards and/or Bank of America (and affiliated entities). These suits are ongoing. However, based on currently available information, the Columbia Acorn Trust believes that the likelihood that these lawsuits will have a material adverse impact on any fund is remote, and CWAM 11 believes that the lawsuits are not likely to materially affect its ability to provide investment management services to the Fund. MIXED AND SHARED FUNDING As described previously, the Trust serves as a funding medium for VA contracts and VLI policies of Participating Insurance Companies and for certain Retirement Plans, so-called mixed and shared funding. As of the date of this prospectus, the Participating Insurance Companies are Keyport Life Insurance Company (Keyport), Keyport Benefit Life Insurance Company (Keyport Benefit), Aegon Financial Services Group, Inc., SAFECO Life Insurance Company, PHL Variable Life Insurance Company, Phoenix Home Life Mutual Insurance Company, American Enterprise Life Insurance Company, IDS Life Insurance Company, IDS Life Insurance Company of New York, Sun Life Assurance Company of Canada (U.S.), Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, ING Insurance Company of America, ING Life Insurance and Annuity Company, Reliastar Life Insurance Company, Sun Life Insurance & Annuity Company of New York, Merrill Lynch Life Insurance Company, ML Life Insurance Company of New York and TIAA-CREF Life Insurance Company. The Fund is or may become a funding vehicle for VA contracts or VLI policies of the Participating Insurance Companies or may become a funding vehicle for VA contracts or VLI policies of other Participating Insurance Companies. The interests of owners of VA contracts and VLI policies could diverge based on differences in state regulatory requirements, changes in the tax laws or other unanticipated developments. The Trust does not foresee any such differences or disadvantages at this time. However, the Trustees will monitor for such developments to identify any material irreconcilable conflicts and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more separate accounts might be required to withdraw its investments in the Fund or shares of another fund may be substituted. This might force the Fund to sell securities at lower prices. ADDITIONAL EXPENSES Additional expenses are incurred under the VA contracts, VLI policies and the Retirement Plans. These expenses are not described in this prospectus; owners of VA contracts, VLI policies and Retirement Plan participants should consult the contract or policy disclosure documents or Retirement Plan information regarding these expenses. From time to time, CWAM may pay amounts from its past profits to Participating Insurance Companies or other organizations that provide administrative services for the Fund or that provide other services relating to the Fund to owners of VA contracts, VLI policies and/or participants in Retirement Plans. These services include, among other things: subaccounting services; answering inquiries regarding the Fund; transmitting, on behalf of the Fund, proxy statements, shareholder reports, updated prospectuses and other communications regarding the Fund; and such other related services as the Fund, owners of VA contracts, VLI policies 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 Participating Insurance Company or other organization. Payment of such amounts by CWAM will not increase the fees paid by the Fund or its shareholders. ADDITIONAL INTERMEDIARY COMPENSATION In connection with the sale of the Columbia family of funds (including the Funds) (the "Columbia Funds"), the distributor, or its advisory affiliates, from their own resources, may make cash payments 12 to financial service firms that agree to promote the distributor's sale of fund shares. The Fund is not a party to these arrangements, and such cash payments are not paid out of Fund assets. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists. Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events. In addition, the distributor, and/or the Fund's investment adviser, transfer agent or their affiliates, pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, subtransfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary. In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the SAI. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE. 13 FINANCIAL HIGHLIGHTS The financial highlights table that follows is intended to help you understand the Fund's financial performance. Information is shown since the Fund's inception and for the Fund's last five fiscal years, which run from January 1 to December 31. Certain information in the table reflects the financial results for a single Fund share. The total returns in the table represent the return that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements, which have been audited for the years ended December 31, 2004 and 2005 by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's audited financial statements, is included in the Fund's annual report. The information for the years ended December 31, 2001, 2002 and 2003 is included in the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements. You can request a free annual report by calling 1-888-4-WANGER (1-888-492-6437). The Fund's total returns presented below do not reflect the cost of insurance and other company separate account charges which vary with the VA contracts, VLI policies or Retirement Plans. WANGER INTERNATIONAL SELECT
YEAR ENDED DECEMBER 31, SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $17.19 $13.87 $9.86 $11.64 $17.29 - --------------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (loss)(a) 0.13 0.04 0.04 0.04 (0.03) Net realized and unrealized gain (loss) on investments and foreign currency transactions 2.66 3.33 4.01 (1.82) (4.46) - --------------------------------------------------------------------------------------------------------------------------------- Total from Investment Operations 2.79 3.37 4.05 (1.78) (4.49) - --------------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.35) (0.05) (0.04) -- (0.02) From net realized capital gains -- -- -- -- (1.14) - --------------------------------------------------------------------------------------------------------------------------------- Total Distributions Declared to Shareholders (0.35) (0.05) (0.04) -- (1.16) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $19.63 $17.19 $13.87 $9.86 $11.64 - --------------------------------------------------------------------------------------------------------------------------------- Total Return(b) 16.43%(c) 24.34% 41.24%(c) (15.29)%(c) (26.61)% - --------------------------------------------------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (d) 1.32% 1.43% 1.45% 1.45% 1.45% Net investment income (loss)(d) 0.76% 0.29% 0.39% 0.35% (0.20)% Waiver/Reimbursement 0.00%(e) -- 0.09% 0.10% -- Portfolio turnover rate 48% 71% 59% 113% 72% Net assets, end of period (000's) $44,026 $35,232 $26,928 $14,083 $15,431 - ------------- (a) Net investment income (loss) per share was based upon the average shares outstanding during the period. (b) Total return at net asset value assuming all distributions reinvested. (c) Had the Investment Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (d) The benefits derived from custody fees paid indirectly had no impact. (e) Rounds to less then 0.01%.
14 SHAREHOLDER INFORMATION SHAREHOLDER AND ACCOUNT POLICIES The Fund provides Participating Insurance 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 CWAM at 1-888-4-WANGER (1-888-492-6437). Shares of the Fund are issued and redeemed in connection with investments in and payments under certain qualified and non-qualified VA contracts and VLI policies issued through separate accounts of Participating Insurance Companies. Shares of the Fund 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 described in section 501(c)(18). The trust or plan must be established before shares of the Fund can be purchased by the plan. Neither the Fund nor CWAM offers prototypes of these plans. The Fund has imposed certain additional restrictions on sales to Retirement Plans to reduce Fund expenses. To be eligible to invest in the Fund, 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 Fund does not intend to offer shares in states where the sale of Fund shares requires the payment of a fee. A Retirement Plan may call CWAM at 1-888-4-WANGER (1-888-492-6437) to determine if it is eligible to invest. HOW TO INVEST AND REDEEM Shares of the Fund may not be purchased or redeemed directly by individual VA contract owners, VLI policyholders or individual Retirement Plan participants. VA contract owners, VLI policyholders or Retirement Plan participants should consult the disclosure documents for their VA contract, VLI policy or the plan documents for their Retirement Plan, for information on the availability of the Fund as an investment vehicle for allocations under their VA contract, VLI policy or Retirement Plan. In the case of a Participating Insurance Company purchaser, particular purchase and redemption procedures typically are included in an agreement between the Fund and the Participating Insurance Company. The Fund may enter into similar agreements with Retirement Plans. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Fund. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts, VLI policies and Retirement Plan participants and certain other terms of those contracts, policies and Retirement Plans. The Trust issues and redeems shares at net 15 asset value without imposing any selling commission, sales load or redemption charge. However, each VA contract and VLI policy imposes its own charges and fees on owners of the VA contract and VLI policy and Retirement Plans may impose such charges on participants in the Retirement Plan. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. FUND POLICY ON TRADING OF FUND SHARES The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." For purposes of this section, the "Columbia Funds" are the Columbia, Columbia Acorn Trust, Wanger Advisors Trust and Nations family of mutual funds. The Columbia Funds are not intended as vehicles for market timing. The board of trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares. The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, and subject to the limitations noted below, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice. The rights of shareholders to redeem shares of a Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase. For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control. Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs. 16 The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, all Fund purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries, retirement plans and variable insurance products. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Also, certain financial intermediaries, retirement plans and variable insurance products have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In addition, the terms and conditions of a particular insurance contract may limit the ability of the Participating Insurance Company to address frequent trading activity by a VA contract owner or VLI policyholder. Columbia Management Group, LLC has designated a Market Timing Steering Committee (the "Committee") composed of members of senior management designed to ensure, among other things, that participating insurance companies can either enforce the Funds' market timing policy, or monitor for market timing pursuant to a policy that is at least as restrictive as the Funds' policy. The Committee oversees the due diligence process with respect to participating insurance companies. The due diligence process for participating insurance companies includes a review of an insurance company's market timing policies, and requests that insurance companies certify that they can enforce the Funds' market timing policy as disclosed in the prospectus. Alternatively, if the participating insurance company cannot certify that it can enforce the Funds' market timing policy, the Committee requests that the participating insurance company certify that it has an internal market timing policy that is as restrictive or more restrictive than the Funds' market timing policy. If the insurance company cannot provide either form of certification, the Committee requests that the participating insurance company provide the Funds' transfer agent with shareholder level data transparency to enable the transfer agent to monitor trading activity in accordance with the Funds' market timing policy. An insurance company that agrees to provide data transparency is required to restrict, upon the transfer agent's request, participants that violate the Funds' market timing policy. If a current participating insurance company is unable to comply, Columbia will take steps consistent with its contractual obligations to place the participating insurance company's accounts on redemption only status. If a prospective participating insurance company is unable to comply with one of the alternatives, the Fund will not begin a business relationship with that company. The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges. PURCHASES AND REDEMPTIONS To the extent not otherwise provided in any agreement between the Trust and a Participating Insurance Company or Retirement Plan, shares of the Fund may be purchased by check or by wire transfer of funds. To be effective, a purchase order must consist of the money to purchase the shares and (i) information identifying the purchaser, in the case of a Participating Insurance Company or Retirement Plan with which the Fund has entered into an agreement, or a subsequent purchase by a Participating Insurance Company or Retirement Plan that is already a Fund shareholder, or (ii) a 17 completed purchase application, in the case of the initial investment by a Retirement Plan with which the Fund does not have an agreement. The Participating Insurance Companies and Retirement Plans place daily orders to purchase and redeem shares of the Funds. These orders generally reflect the net effect of instructions they receive from holders of their VA contracts and VLI policies and certain other terms of those contracts and policies. The Funds issue and redeem shares at net asset value without imposing any selling commissions, sales charge or redemption charge. Shares generally are sold and redeemed at their net asset value next determined after Participating Insurance Companies and Retirement Plans receive purchase or redemption requests. The right of redemption may be suspended or payment postponed whenever permitted by applicable law and regulations. Normally, redemption proceeds will be paid within seven days after the Fund or its agent receives a request for redemption. Redemptions may be suspended or 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. During any 90-day period for any one shareholder, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the Fund's net assets. Redemptions in excess of these limits will normally be paid in cash, but may be paid wholly or partly by an in-kind distribution of securities. HOW THE FUND'S SHARE PRICE IS DETERMINED The Fund's share price is its net asset value next determined. Net asset value is the difference between the values of the Fund's assets and liabilities divided by the number of shares outstanding. We determine net asset value at the close of regular trading on the New York Stock Exchange (NYSE), normally 4 p.m. Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the-counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. We value a security at fair value when events have occurred after the last available market price and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security. The Fund's foreign securities may trade on days when the NYSE is closed. We will not 18 price shares on days that the NYSE is closed for trading and Participating Insurance Companies and Retirement Plans may not purchase or redeem shares. DIVIDENDS AND DISTRIBUTIONS The Fund intends to declare and distribute, as dividends or capital gains distributions, at least annually, substantially all of its net investment income and net profits realized from the sale of portfolio securities, if any, to its shareholders (Participating Insurance Companies' separate accounts and Retirement Plan participants). The net investment income of the Fund consists of all dividends or interest received by the Fund, less expenses (including the investment advisory fees). Income dividends will be declared and distributed annually by the Fund. All net short-term and long-term capital gains of the Fund, net of carry-forward losses, if any, realized during the fiscal year, are declared and distributed periodically, at least annually. All dividends and distributions are reinvested in additional shares of the Fund at net asset value, as of the record date for the distributions. TAXES The Fund intends to qualify every year as a regulated investment company under the Internal Revenue Code. By so qualifying, the 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. The 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 Fund, see Taxes in the SAI. For information concerning the federal tax consequences to VA contract owners, VLI policyholders or Retirement Plan participants, see the disclosure documents from the VA contract, VLI policy or your Retirement Plan administrator. You should consult your tax advisor about the tax consequences of any investment. 19 APPENDIX HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
WANGER INTERNATIONAL SELECT MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN 0.00% $10,000.00 5% HYPOTHETICAL CUMULATIVE CUMULATIVE YEAR-END ANNUAL RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES & YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES (1) - ------------------------------------------------------------------------------------------------------------------- 1 5.00% 1.32% 3.68% $10,368.00 $ 134.43 2 10.25% 1.32% 7.50% $10,749.54 $ 139.38 3 15.76% 1.32% 11.45% $11,145.13 $ 144.50 4 21.55% 1.32% 15.55% $11,555.27 $ 149.82 5 27.63% 1.32% 19.80% $11,980.50 $ 155.34 6 34.01% 1.32% 24.21% $12,421.38 $ 161.05 7 40.71% 1.32% 28.78% $12,878.49 $ 166.98 8 47.75% 1.32% 33.52% $13,352.42 $ 173.12 9 55.13% 1.32% 38.44% $13,843.79 $ 179.49 10 62.89% 1.32% 43.53% $14,353.24 $ 186.10 TOTAL GAIN AFTER FEES AND EXPENSES $ 4,353.24 TOTAL ANNUAL FEES AND EXPENSES $1,590.22 (1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
20 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 21 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 22 | Notes - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 23 FOR MORE INFORMATION Adviser: Columbia Wanger Asset Management, L.P. Additional information about the Fund's investments is available in the Fund's semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance over the last fiscal year. You may wish to read the Fund's SAI for more information on the Fund and the securities in which it invests. The SAI is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus. The SAI and the Fund's website, www.columbiafunds.com, include a description of the Fund's policies with respect to the disclosure of portfolio holdings. You can get free copies of the annual and semi-annual reports and the SAI, request other information and discuss your questions about the Fund by writing or calling the Fund's adviser or visiting the Fund's website at: Columbia Wanger Asset Management, L.P. Shareholder Services Group 227 West Monroe, Suite 3000 Chicago, IL 60606 1 (888) 4-WANGER (1-888-492-6437) www.columbiafunds.com Or by calling or writing the Participating Insurance Company which issued your variable annuity contract or variable life insurance policy or the Retirement Plan you participate in. Information about the Fund (including the SAI) can be reviewed and copied at the Public Reference Room of the Securities and Exchange Commission (SEC) in Washington, D.C. Information on the Public Reference Room may be obtained by calling the SEC at 202-942-8090. Reports and other information about the Fund are available on the EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. Investment Company Act file number: 811-08748 WANGER ADVISORS TRUST One Financial Center, Boston, Massachusetts 02111 STATEMENT OF ADDITIONAL INFORMATION Dated May 1, 2006 This Statement of Additional Information (SAI) is not a prospectus, but provides additional information that should be read in conjunction with the Trust's prospectus dated May 1, 2006 and any supplement thereto. Audited financial statements, which are contained in the Funds' December 31, 2005 Annual Reports, are incorporated by reference into this SAI. The prospectuses and annual reports may be obtained at no charge by calling Columbia Management Distributors, Inc. (CMD) at (800) 426-3750, by visiting the Fund's website at www.columbiafunds.com or by contacting the applicable participating insurance company, the broker-dealers offering certain variable annuity contracts or variable life insurance policies issued by the participating insurance company, or the applicable retirement plan. TABLE OF CONTENTS Page GENERAL INFORMATION AND HISTORY.......................................2 ------------------------------- INVESTMENT RESTRICTIONS...............................................4 ----------------------- PORTFOLIO TURNOVER....................................................8 ------------------ PURCHASES AND REDEMPTIONS.............................................9 ------------------------- TRUSTEES AND OFFICERS................................................10 --------------------- MANAGEMENT ARRANGEMENTS..............................................16 ----------------------- TRANSFER AGENT.......................................................21 -------------- TRUST CHARGES AND EXPENSES...........................................21 -------------------------- UNDERWRITER..........................................................22 ----------- CODES OF ETHICS......................................................24 --------------- CUSTODIAN AND FUND ACCOUNTING AGENT..................................25 ----------------------------------- PORTFOLIO TRANSACTIONS...............................................25 ---------------------- NET ASSET VALUE......................................................30 --------------- TAXES................................................................30 ----- INVESTMENT PERFORMANCE...............................................32 ---------------------- RECORD SHAREHOLDERS..................................................33 ------------------- ANTI-MONEY LAUNDERING COMPLIANCE.....................................35 -------------------------------- PROXY VOTING POLICIES................................................35 --------------------- DISCLOSURE OF PORTFOLIO INFORMATION..................................36 ----------------------------------- PUBLIC DISCLOSURES...................................................37 ------------------ OTHER DISCLOSURES....................................................37 ----------------- INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM........................38 --------------------------------------------- APPENDIX A - INVESTMENT TECHNIQUES AND SECURITIES....................39 APPENDIX B - PROXY VOTING POLICY AND PROCEDURES......................57 GENERAL INFORMATION AND HISTORY Wanger Advisors Trust (the Trust) is an open-end, diversified management investment company currently consisting of four Funds with differing investment objectives, policies and restrictions. Currently, the Trust consists of Wanger U.S. Smaller Companies, formerly named Wanger U.S. Small Cap Advisor through April 30, 2002 (U.S. Smaller Companies), Wanger International Small Cap (International Small Cap), Wanger Select, formerly named Wanger Twenty through April 30, 2004 (Wanger Select), and Wanger International Select, formerly named Wanger Foreign Forty through April 30, 2004 (Wanger International Select) (individually referred to as a Fund, or by the defined name indicated, or collectively as the Funds). U.S. Smaller Companies, International Small Cap and Wanger International Select are diversified funds under the federal securities laws. Wanger Select is non-diversified under the federal securities laws. However, all of the Funds comply with the diversification standards established by the tax laws. See the section entitled "Taxes" for more information. The Trust issues shares of beneficial interest in each Fund that represent interests in a separate portfolio of securities and other assets. The Trust is permitted to offer separate series (Funds) and different classes of shares. The Trust currently offers one class of shares of each Fund. Sales of shares are made without a sales charge at each Fund's per share net asset value. The Trust may add or delete Funds and/or classes from time to time. The Trust is the funding vehicle for variable annuity contracts (VA contracts) and variable life insurance policies (VLI policies) offered by the separate accounts of life insurance companies (Participating Insurance Companies). The Trust also can be a funding vehicle for certain types of pension plans, retirement arrangements and accounts permitting the accumulation of funds on a tax-deferred basis (Retirement Plans). Currently, no such arrangements exist. The Trustees of the Trust (Board of Trustees or Trustees) monitor events to identify any material conflicts that may arise between the interests of the Participating Insurance Companies and Retirement Plans, or between the interests of owners of VA contracts, VLI policies and Retirement Plan participants. The interests of owners of VA contracts, VLI policies and Retirement Plan participants could diverge for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any portfolio of the Funds are being managed; (e) a difference in voting instructions given by VA contract owners and VLI contract owners; (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners; or (g) as applicable, a decision by a Retirement Plan to disregard the voting instructions of Retirement Plan participants. The Trust currently does not foresee any disadvantages to the owners of VA contracts and VLI policies or Retirement Plan participants arising from the fact that certain interests of owners may differ. However, the Trustees will monitor for such developments to identify any material irreconcilable conflicts and to determine what action, if any, should be taken in response to such conflicts. If such a conflict were to occur, one or more separate accounts might be required to withdraw its investments in the Funds or shares of another fund may be substituted. This might force the Funds to sell securities at lower prices. Additional information regarding such differing interests and related risks are described in the prospectus under "Mixed and Shared Funding." 2 The Trust was organized under an Agreement and Declaration of Trust (Declaration of Trust) as a Massachusetts business trust on August 30, 1994. The Trust is authorized to issue an unlimited number of shares of beneficial interest without par value, in one or more series, each with one or more classes, as the Trustees may authorize. Each Fund is a separate series of the Trust. Each share of a Fund is entitled to participate pro rata in any dividends and other distributions declared by the Board of Trustees with respect to that Fund, and all shares of a Fund have equal rights in the event of liquidation of that Fund. Shareholders of a Fund are entitled to one vote for each share of that Fund held on any matter presented to shareholders. Shares of the Funds will vote separately as individual series when required by the Investment Company Act of 1940 (the 1940 Act), or other applicable law or when the Board of Trustees determines that the matter affects only the interests of one or more Funds, such as, for example, a proposal to approve an amendment to that Fund's Advisory Agreement, but shares of all the Funds vote together, to the extent required by the 1940 Act, in the election or selection of Trustees. The shares do not have cumulative voting rights, which means that the holders of more than 50% of the shares of the Funds voting for the election of Trustees can elect all of the Trustees, and, in such event, the holders of the remaining shares will not be able to elect any Trustees. The Funds are not required by law to hold regular annual meetings of their shareholders and do not intend to do so. However, it is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. Additional meetings may be called for purposes of electing or removing Trustees or changing fundamental policies. The Trust is required to hold a shareholders' meeting to elect Trustees to fill vacancies in the event that less than a majority of Trustees were elected by shareholders. Trustees may also be removed, with or without cause, by the vote of two-thirds of the outstanding shares at a meeting called for that purpose. Under Massachusetts law, shareholders of a business trust may, under certain circumstances, be held personally liable for the obligations of the Trust. The Trust's shareholders are the separate accounts of Participating Insurance Companies and the Retirement Plans. However, the Trust's Declaration of Trust disclaims liability of the shareholders, the Trustees, or officers of the Trust for acts or obligations of the Trust, which are binding only on the assets and property of the Trust (or the applicable Fund thereof) 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 (or the applicable Fund) for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, 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 Fund of sustaining a loss on account of liabilities incurred by another Fund also is believed to be remote. 3 INVESTMENT RESTRICTIONS U.S. Smaller Companies and International Small Cap operate under the investment restrictions listed below. Restrictions numbered 1 through 10 are fundamental policies which may not be changed for a Fund without approval of a majority of the outstanding voting shares of a Fund, defined as the lesser of the vote of (a) 67% of the shares of a Fund at a meeting where more than 50% of the outstanding shares are present in person or by proxy or (b) more than 50% of the outstanding shares of a Fund. Other restrictions are not fundamental policies and may be changed with respect to a Fund by the Trustees without shareholder approval. The following investment restrictions apply to each of U.S. Smaller Companies and International Small Cap except as otherwise indicated. U.S. Smaller Companies and International Small Cap each may not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at the time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer that at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at the time of investment) in securities of companies in any one industry; 4. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan);(1) 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;(2) 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 - ------------------- (1) The Funds have no present intention of lending their portfolio securities. (2) State insurance laws currently restrict a Fund's borrowings to facilitate redemptions to no more than 25% of the Fund's net assets. 4 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. U.S. Smaller Companies and International Small Cap are also subject to the following restrictions and policies, which are not fundamental and may be changed by the Trustees without shareholder approval. U.S. Smaller Companies and International Small Cap may not: (a) [INTERNATIONAL SMALL CAP ONLY] Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes), at market value at the time of investment, in companies with total stock market capitalizations of $5 billion or less at the time of initial purchase.* International Small Cap will notify shareholders at least 60 days prior to any change in its 80% policy; (b) [U.S. SMALLER COMPANIES ONLY] Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes), at market value at the time of investment, in companies with total stock market capitalizations of $5 billion or less at the time of initial purchase.* U.S. Smaller Companies will notify shareholders at least 60 days prior to any change in its 80% policy; (c) [U.S. SMALLER COMPANIES ONLY] Under normal circumstances, invest less than 80% of its net assets (plus any borrowings for investment purposes) in domestic securities. U.S. Smaller Companies will notify shareholders at least 60 days prior to any change in its 80% policy; (d) Invest in companies for the purpose of management or the exercise of control; (e) Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940 and applicable state law; - ------------------- * The Fund may add to positions of stocks whose market capitalizations have grown above the designated market capitalization range since they were first purchased, if the investment adviser deems such stocks to be attractive. 5 (f) 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; (g) Sell securities short or maintain a short position. Wanger Select and Wanger International Select operate under the investment restrictions listed below. Restrictions numbered 1 through 12 are fundamental policies which may not be changed for a Fund without approval of a majority of the outstanding voting shares of a Fund, defined as the lesser of the vote of (a) 67% of the shares of a Fund at a meeting where more than 50% of the outstanding shares are present in person or by proxy or (b) more than 50% of the outstanding shares of a Fund. Other restrictions are not fundamental policies and may be changed with respect to a Fund by the Trustees without shareholder approval. The following investment restrictions apply to each of Wanger Select and Wanger International Select except as otherwise indicated. Wanger Select and Wanger International Select each may not: 1. [WANGER INTERNATIONAL SELECT ONLY] 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, 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; 3. [WANGER SELECT ONLY] 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; 4. Invest more than 25% of its total assets in a single issuer (other than U.S. government securities); 5. Invest more than 25% of its total assets in the securities of companies in a single industry (excluding U.S. government securities); 6. 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); 7. 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; 8. 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 6 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; 9. 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; 10. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 11. 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; 12. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Wanger Select and Wanger International Select are also subject to the following restrictions and policies, which are not fundamental and may be changed by the Trustees without shareholder approval. Wanger Select and Wanger International Select may not: (a) [WANGER INTERNATIONAL SELECT ONLY] Under normal circumstances, invest less than 65% of its net assets (plus any borrowings for investment purposes) in the stocks of foreign companies based in developed markets outside the U.S.; (b) Invest in companies for the purpose of management or the exercise of control; (c) Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940; (d) Invest more than 25% of its net assets (valued at time of investment) in illiquid securities, including repurchase agreements maturing in more than seven days; (e) 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; (f) 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; (g) [WANGER SELECT ONLY] Invest more than 25% of its total assets (valued at the time of investment) in the securities of foreign issuers; (h) [WANGER INTERNATIONAL SELECT 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 7 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. Each Fund is also subject to the following additional restrictions and policies under certain applicable insurance laws pertaining to variable annuity contract separate accounts. These policies and restrictions are not fundamental and may be changed by the Trustees without shareholder approval: (a) Each Fund that invests in the securities of foreign countries 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 that invests in the securities of foreign countries 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. If a percentage limit with respect to any of the foregoing fundamental and non-fundamental policies is satisfied at the time of investment or borrowing, a later increase or decrease in a Fund's assets will not constitute a violation of the limit. PORTFOLIO TURNOVER The portfolio turnover of each Fund will vary from year to year. Although no Fund will trade in securities for short-term profits, when circumstances warrant securities may be sold without regard to the length of time held. Portfolio turnover for each Fund is shown under "FINANCIAL HIGHLIGHTS" in the prospectus. A 100% turnover rate would occur if all of the securities in the portfolio were sold and either repurchased or replaced within one year. Higher transaction costs reduce the Funds' returns. During the fiscal years 2004 and 2005, the portfolio turnover rate did not vary significantly from the prior years. 8 PURCHASES AND REDEMPTIONS Purchases and redemptions are discussed in the prospectus under the heading "SHAREHOLDER INFORMATION." Each Fund's net asset value (NAV) is determined on days that the New York Stock Exchange (NYSE) is open for regular 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. NAV will not be determined on days when the NYSE is closed unless, in the judgment of the Trustees, the NAV of a Fund should be determined on any such day, in which case the determination will be made at 4 p.m., Eastern time. To calculate the net asset value on a given day, we value each stock listed or traded on a stock exchange at its latest sale price on that day. If there are no sales that day, we value the security at the most recently quoted bid price. We value each over-the counter security as of the last sale price for that day. If a security is traded principally on the Nasdaq Stock Market Inc. (Nasdaq), the SEC-approved Nasdaq Official Closing Price is applied. When the price of a security is not available, including days when we determine that the sale or bid price of the security does not reflect that security's market value, we value the security at a fair value determined in good faith under procedures established by the Board of Trustees. We value a security at fair value when events have occurred after the last available market price and before the close of the NYSE that materially affect the security's price. In the case of foreign securities, this could include events occurring after the close of the foreign market and before the close of the NYSE. When a Fund uses fair value to price securities, it may value those securities higher or lower than another fund that uses market quotations to price the same securities. The Trust has retained an independent statistical fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. The use of an independent fair value pricing service is intended to and may decrease the opportunities for time zone arbitrage transactions. There can be no assurance that the use of an independent fair value pricing service will successfully decrease arbitrage opportunities. If a security is valued at a "fair value", that value may be different from the last quoted market price for that security. The Fund's foreign securities may trade on days when the NYSE is closed. Except as described above, we will not price shares on days that NYSE is closed for trading and Participating Insurance Companies and Retirement Plans may not purchase or redeem shares. The Trust reserves the right to suspend or postpone redemptions of shares of any Fund during any period when: (a) trading on the NYSE is restricted, as determined by the Commission, or the NYSE is closed for other than customary weekend and holiday closing; (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 the valuation of net assets of such Fund not reasonably practicable. Participating Insurance Companies may charge transaction fees for their services in connection with accepting share purchase and redemption orders on behalf of the Funds. For 9 purchase orders placed through a Participating Insurance Company, a shareholder will pay the Fund's NAV per share next computed after the Participating Insurance Company receives such purchase order, plus any applicable transaction charge imposed by the Participating Insurance Company. For redemption orders placed through a Participating Insurance Company, a shareholder will receive redemption proceeds which reflect the NAV per share next computed after the Participating Insurance Company receives the redemption order, less any redemption fees imposed by the Participating Insurance Company. In some instances, a Participating Insurance Company will not charge any transaction fees directly to investors in a Fund. However, for certain shareholder servicing services provided by the Participating Insurance Company with respect to Fund share accounts held on behalf of its customers, the Participating Insurance Company may charge a fee based on net assets that is paid by Columbia Wanger Asset Management, L.P. (CWAM) out of its legitimate profits. In addition, you may, subject to the approval of the Trust, purchase shares of a Fund with securities that are held in the Funds' portfolio (or, rarely, with securities that are not currently held in the portfolio but that are eligible for purchase by the Fund, consistent with the Fund's investment objectives and restrictions) that have a value that is readily ascertainable in accordance with the Trust's valuation policies. Should the Trust approve your purchase of a Fund's shares with securities, the Trust would follow its purchase-in-kind procedures and would value the securities tendered in payment (determined as of the next close of regular session trading on the New York Stock Exchange after receipt of the purchase order) pursuant to the Trust's valuation procedures as then in effect, and you would receive the number of Fund shares having a net asset value on the purchase date equal to the aggregate purchase price. The Trust has elected to be governed by Rule 18f-1 under the 1940 Act 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. The Trust does not have any arrangements with shareholders or other individuals that would permit frequent purchases or redemptions of Fund shares. TRUSTEES AND OFFICERS The Board of Trustees of the Trust has overall management responsibility for the Trust and the Funds. Each Trustee serves a term of unlimited duration provided that a majority of Trustees always has been elected by shareholders. However, it is expected that every five years the Trustees will call a meeting of shareholders to elect Trustees. The retirement age for Trustees is 75. The Trustees appoint their own successors, provided that at least two-thirds of the Trustees, after such appointment, have been elected by shareholders. Shareholders may remove a Trustee, with or without cause, upon the vote of two-thirds of the Trust's outstanding shares at any meeting called for that purpose. A Trustee may be removed with or without cause upon the vote of a majority of the Trustees. 10 The names of the Trustees and officers of the Trust, the date each was first elected or appointed to office, their principal business occupations during at least the last five years and other directorships they hold, are shown below.
NUMBER OF YEAR FIRST PORTFOLIOS IN NAME, POSITION(S) WITH WANGER ELECTED OR FUND COMPLEX ADVISORS TRUST AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER APRIL 30, 2006 OFFICE PAST FIVE YEARS TRUSTEE DIRECTORSHIPS -------------- ------ --------------- ------- ------------- TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST: Jerome L. Duffy, 69, 2003 Retired (since December 1997); prior thereto, 4 None. Trustee (3)(6) senior vice president, Kemper Financial Services and treasurer, Kemper Funds; National Association of Securities Dealers, Arbitrator (2000 to present); SEC Division of Enforcement, Expert Witness (1998 to present). Fred D. Hasselbring, 64, Retail industry, general project development and 4 None. Trustee (3)(5)(6) 1994 business computer systems consultant; voice over specialist for industrial and institutional applications; former chairman of the board of the Trust (September 2004 to November 2004); former lead independent trustee (August 2003 to September 2004). Kathryn A. Krueger, M.D., 48, 2003 Medical Fellow I, Cardiovascular Therapeutic 4 None. Trustee (3)(4) Area, Lilly Research Laboratories (May 2004 to present); Medical Advisor, Cardiovascular Therapeutic Area, Lilly Research Laboratories (January 2003 to April 2004); Medical Director, Cardiovascular Therapeutic Area, Lilly Research Laboratories (October 2002 to December 2002); Medical Director, Neptune Product Team, Lilly Research Laboratories (October 2001 to October 2002); Acting Director and Senior Clinical Research Physician, Lilly Research Laboratories (April 2001 to September 2001); Senior Clinical Research Physician, Lilly Research Laboratories (January 2000 to March 2001). Patricia H. Werhane, 70, 1998 Ruffin Professor of Business Ethics, Darden 4 None. Chair of the Board and Trustee Graduate School of Business Administration, (2)(3)(4)(6) University of Virginia (since 1993); Senior Fellow of the Olsson Center for Applied Ethics, Darden Graduate School of Business Administration, University of Virginia (2001 to present); and Wicklander Chair of Business Ethics and Director of the Institute for Business and Professional Ethics, DePaul University (since September 2003). 11 NUMBER OF YEAR FIRST PORTFOLIOS IN NAME, POSITION(S) WITH WANGER ELECTED OR FUND COMPLEX ADVISORS TRUST AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING OVERSEEN BY OTHER APRIL 30, 2006 OFFICE PAST FIVE YEARS TRUSTEE DIRECTORSHIPS -------------- ------ --------------- ------- ------------- TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST: Ralph Wanger, 71, 1994 Founder, former president, chief investment 10 Columbia Trustee officer and portfolio manager, Columbia Wanger Acorn (1) (2) (5) Asset Management, L.P. (CWAM) (July 1992 to Trust. September 2003); Former president, Columbia Acorn Trust (April 1992 through September 2003); Former president, Wanger Advisors Trust (1994 through September 2003); principal, Wanger Asset Management, L.P. (WAM) (July 1992 to September 2000); president, WAM Ltd. (July 1992 to September 2000); director, Wanger Investment Company PLC; advisor to CWAM (September 2003 to September 2005).
NUMBER OF PORTFOLIOS IN FUND COMPLEX YEAR FIRST FOR WHICH NAME, POSITION(S) WITH WANGER ELECTED OR OFFICER ACTS ADVISORS TRUST AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING IN SAME OTHER APRIL 30, 2006 OFFICE PAST FIVE YEARS CAPACITY DIRECTORSHIPS -------------- ------ --------------- -------- ------------- OFFICERS OF WANGER ADVISORS TRUST: Ben Andrews, 40, 2004 Analyst and portfolio manager, CWAM (since 1998); 10 None. Vice President vice president, Columbia Acorn Trust. J. Kevin Connaughton, 41, 2001 Treasurer and Chief Financial Officer of the 10 Banc of America Assistant Treasurer Columbia Funds and of the Liberty All-Star Funds Capital (since December 2000) (formerly chief accounting Management officer and controller of the Columbia Funds and (Ireland), of the Liberty All-Star Funds from February 1998 Limited. to October 2000); treasurer of the Galaxy Funds (from September 2002 through November 2005); treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC (from December 2002 through December 2004). Michael G. Clarke, 35, 2004 Chief accounting officer and Assistant Treasurer 10 None. Assistant Treasurer of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds (since October 2004); Managing Director of CWAM (since February 2001); Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds (from May 2004 to October 2004); Assistant Treasurer (from June 2002 to May 2004); Vice President, Product Strategy & Development of the Liberty Funds and Stein Roe Funds (from February 2001 to June 2002). 12 NUMBER OF PORTFOLIOS IN FUND COMPLEX YEAR FIRST FOR WHICH NAME, POSITION(S) WITH WANGER ELECTED OR OFFICER ACTS ADVISORS TRUST AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING IN SAME OTHER APRIL 30, 2006 OFFICE PAST FIVE YEARS CAPACITY DIRECTORSHIPS -------------- ------ --------------- -------- ------------- Jeffrey R. Coleman, 36 2006 Assistant treasurer, Columbia Acorn Trust (since 10 None. Assistant Treasurer March 2006); Group Operations Manager of CWAM (since October 2004); Vice President of CDC IXIS Asset Management Services, Inc. (investment management) (from August 2000 to September 2004). Bruce H. Lauer, 48, 1995 Chief operating officer, CWAM (since April 1995); 10 None. Vice President, Secretary and vice president, treasurer and secretary, Columbia Treasurer Acorn Trust; director, Wanger Investment Company PLC and New Americas Small Cap Fund; director, Banc of America Capital Management (Ireland) Ltd. Charles P. McQuaid, 52, 1994 President, CWAM (since October 2003); Chief 10 Columbia Acorn President (5) Investment Officer of CWAM (since Trust. September 2003); senior vice president of the Trust (from 1994 through September 2003); Portfolio manager (since 1995) and director of research, CWAM (from July 1992 through December 2003); Interim director of international research, CWAM (from December 2003 to December 2004); Trustee since 1992 and president since 2003, Columbia Acorn Trust. Robert A. Mohn, 44, 1997 Analyst and portfolio manager, CWAM (since August 10 None. Vice President 1992); director of domestic research, CWAM (since March 2004); principal, WAM (from 1995 to September 2000); vice president, Columbia Acorn Trust. Louis J. Mendes, 41, 2006 Analyst and portfolio manager, CWAM (since 2001); 10 None. Vice President vice president, Columbia Acorn Trust; prior thereto, analyst and portfolio manager, Merrill Lynch. Christopher Olson, 41, 2001 Analyst and portfolio manager, CWAM (since 10 None. Vice President January 2001); vice president, Columbia Acorn Trust; prior thereto, director and portfolio strategy analyst with UBS Asset Management/Brinson Partners. Michelle Rhee, 39, 2006 Associate General Counsel, Bank of America; 10 None. Assistant Secretary Attorney, Investment Management, Legal Department, Global Wealth & Investment Management (since 2004); Associate, Junior Partner, Wilmer Cutler Pickering Hale and Dorr LLP (1997-2004). Robert Scales, 53, 2004 Associate General Counsel, Grant Thornton LLP 10 None. Chief Compliance Officer, Senior (2002-2004); prior thereto Associate General Vice President and General Counsel, UBS PaineWebber (broker-dealer). Counsel (6) 13 NUMBER OF PORTFOLIOS IN FUND COMPLEX YEAR FIRST FOR WHICH NAME, POSITION(S) WITH WANGER ELECTED OR OFFICER ACTS ADVISORS TRUST AND AGE AT APPOINTED TO PRINCIPAL OCCUPATION(S) DURING IN SAME OTHER APRIL 30, 2006 OFFICE PAST FIVE YEARS CAPACITY DIRECTORSHIPS -------------- ------ --------------- -------- ------------- Linda Roth-Wiszowaty, 36, 2006 Executive Administrator, CWAM (since April 2004); 10 None. Assistant Secretary prior thereto Executive Assistant to the Chief Operating Officer.
- ------------------- (1) Trustee who is treated as an "interested person" of the Trust and of CWAM, as defined in the Investment Company Act of 1940, because he is a former officer of the Trust, former employee of CWAM and formerly a consultant to CWAM. (2) Member of the Executive Committee of the Board of Trustees, which is authorized to exercise all powers of the Board of Trustees with certain statutory exceptions. The Executive Committee did not meet during 2005. Trustees who are not members of the Executive Committee serve as alternates. (3) Member of the Audit Committee of the Board of Trustees, which identifies the independent registered public accounting firm to be recommended to the board; meets with the independent registered public accounting firm and management to review the scope and the results of the audits of the Funds' financial statements; confirms the independence of the independent registered public accounting firm; reviews with the independent registered public accounting firm and management the effectiveness and adequacy of the Funds' internal controls; and reviews legal and regulatory matters. The Audit Committee met two times during 2005. Mr. Duffy is chairman of the Audit Committee. (4) Member of the Governance Committee of the Board of Trustees, which makes recommendations to the Trustees regarding committees of the Board of Trustees and committee assignments, makes recommendations to the Trustees regarding the composition of the Board of Trustees and candidates for election as non-interested Trustees, oversees the process for evaluating the functioning of the Board of Trustees, and makes recommendations to the Board of Trustees regarding the compensation of Trustees who are not affiliated with any investment adviser, administrator or distributor of the Funds. The Governance Committee will consider shareholder recommendations regarding candidates for election as Trustees. Written recommendations may be submitted to the Secretary of the Trust at 227 W. Monroe Street, Suite 3000, Chicago, IL 60606. The shareholder recommendation must include: (i) the class or series and number of all shares of the Fund owned beneficially and of record by the nominating shareholder at the time the recommendation is submitted and the dates on which such shares were acquired, specifying the number of shares owned beneficially; (ii) a full listing of the proposed candidate's education, experience (including knowledge of the investment company industry, experience as a director or senior officer of public or private companies, and directorships on other boards of other registered investment companies), current employment, date of birth, business and residence address, and the names and addresses of at least three professional references; (iii) information as to whether the candidate is or may be an "interested person" (as such term is defined in the Act, as amended) of the Trust, CWAM, or any subadviser to a Fund, and, if believed not to be an "interested person," information regarding the candidate that will be sufficient for the Fund to make such determination; (iv) the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee of the Trust, if elected; (v) a description of all arrangements or understandings between the nominating shareholder, the candidate and/or any other person or persons (including their names) pursuant to which the shareholder recommendation is being made, and if none, so specify; (vi) the class or series and number of all shares of the Fund owned of record or beneficially by the candidate, as reported by the candidate; and (vii) such other information that would be helpful to the Governance Committee in evaluating the candidate. The Governance Committee may require the nominating shareholder to furnish such other information as it may reasonably require or deem necessary to verify any information furnished to determine the qualifications and eligibility of the candidate proposed by the nominating shareholder to serve as a Trustee of a Trust. If the nominating shareholder fails to provide such other information in writing within seven days of receipt of written request from the Governance Committee, the recommendation of such candidate as a nominee will be deemed not properly submitted for consideration, and the Governance Committee is not required to consider such candidate. The Governance Committee met once during 2005. Ms. Krueger is chair of the Governance Committee. (5) Member of the Trust's Valuation Committee, which determines valuations of portfolio securities held by any series of the Trust in instances as required by the valuation procedures adopted by the Board of Trustees. The Valuation Committee met eighteen times during 2005. Mr. Hasselbring is chairman of the Valuation Committee. Trustees who are not members of the Valuation Committee serve as alternates. 14 (6) Member of the Trust's Compliance/Contract Review Committee, which: (A) provides oversight of (1) the monitoring processes and controls regarding the Trust's compliance with legal, regulatory and internal rules, policies, procedures and standards; and (2) compliance by the Trust's investment adviser, principal underwriter and transfer agent, and agents thereof; and (B) reviews and makes recommendations to the other Trustees regarding certain agreements and plans that are required to be approved by a majority of the independent trustees. Mr. Hasselbring is chairman of the Compliance/Contract Review Committee, and Robert Scales is a non-voting member of that committee. The Compliance/Contract Review Committee met twelve times during 2005. Pursuant to the Settlements discussed in the Prospectus under the heading "LEGAL PROCEEDINGS", at least 75% of the Board must meet the independence standards set forth in the Settlements (certain of those standards being more restrictive than those contained in the Investment Company Act and rules thereunder and that generally prohibit affiliations with certain Columbia and Bank of America-related entities). Those independence standards are referred to as "super-independence" standards. The chairman of the board must meet even more stringent independence standards. Certain other conditions in the Settlements generally require that: o No action may be taken by the Board of Trustees (or any committee thereof) unless such action is approved by a majority of the members of the board or the committee who meet the super-independence standards. If any proposed action to be approved by a majority of the independent trustees is not approved by the full board, the Trust is required to disclose the proposal and the vote in its shareholder report for that period; o Beginning in 2005 and not less than every fifth calendar year thereafter, the Trust must hold a meeting of shareholders to elect trustees+; and o The Board of Trustees must appoint either (a) a full-time senior officer who must report directly to the board with respect to his or her responsibilities, including (i) monitoring compliance with federal and state securities, applicable state laws respecting potential or actual conflicts of interest and fiduciary duties, and applicable codes of ethics and compliance manuals, (ii) managing the process by which management fees to be charged to the Funds are negotiated and (iii) preparing, or directing the preparation of, a written evaluation of, among other things, management fees charged to the Funds and to institutional and other clients, profit margins of CWAM and its affiliates from supplying services to the Funds and possible economies of scale or (b) an independent compliance consultant and an independent fee consultant with similar responsibilities.++ As noted above certain officers of the Trust also hold positions with CWAM. A Trustee and certain of the officers of the Trust are also Trustees or officers of Columbia Acorn Trust, which is also managed by CWAM. - ------------------- + The Trust held a meeting of shareholders on September 30, 2005 to elect trustees. ++ At a meeting of the Board of Trustees held on February 18, 2005, a majority of the trustees, other than interested persons of the Trust or the Adviser, found Promontory Financial Group LLC not unacceptable to serve as the independent compliance consultant ("ICC") to CMD (f/k/a Columbia Funds Distributor, Inc.). At a meeting of the Board of Trustees held on November 17, 2004, the trustees unanimously voted to appoint Robert Scales as the Senior Vice President of the Trust and to designate Mr. Scales as the individual responsible for performing the duties and responsibilities of the Senior Officer as set forth in the Assurance of Discontinuance dated February 9, 2005 among the Attorney General of the State of New York, Columbia Management Advisors, Inc. and CMD, including the responsibilities of the independent fee consultant. 15 The address for the Trustees and officers is c/o Columbia Wanger Asset Management, L.P., 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606, except for Messrs. Clarke, Coleman and Connaughton, and Ms. Rhee, whose address is Columbia Management Group, LLC ("Columbia Management"), Mail Stop: MA5-515-11-05, One Financial Center, Boston, MA 02111. COMPENSATION OF TRUSTEES The table set forth below presents certain information regarding the fees paid to the Trustees for their services in such capacity during the year ended December 31, 2005. The Trustees are paid an annual retainer plus an attendance fee for each meeting of the Board of Trustees or standing committee thereof attended. Trustees do not receive any pension or retirement benefits from the Trust. No officers of the Trust or other individuals who are affiliated with the Trust receive any compensation from the Trust for services provided to it. None of the independent Trustees received any fees from any other investment companies affiliated with the Trust. AGGREGATE TOTAL COMP. COMP. FROM NAME OF TRUSTEE FROM FUNDS FUND COMPLEX -------------------------------------------------------------- Jerome L. Duffy $50,500 $50,500 Fred D. Hasselbring $60,750 $60,750 Dr. Kathryn A. Krueger $39,000 $39,000 Patricia H. Werhane $57,000 $57,000 Ralph Wanger $ 5,750 $13,625* ------------------- *Mr. Wanger received an additional $7,875 in compensation for his services as a trustee of Columbia Acorn Trust during the year ended December 31, 2005. MANAGEMENT ARRANGEMENTS INVESTMENT ADVISER CWAM was previously named Liberty Wanger Asset Management, L.P. and its predecessor was named Wanger Asset Management, L.P. (WAM). CWAM serves as the investment adviser for the Funds, the Acorn family of funds and for other institutional accounts. As of December 31, 2005, CWAM had approximately $27.1 billion under management, including the Funds. CWAM changed its name from Liberty Wanger Asset Management, L.P. to its current name on October 13, 2003. CWAM is a wholly owned subsidiary of Columbia Management Group, LLC, which is an indirect wholly owned subsidiary of Bank of America Corporation. CWAM has advised and managed mutual funds, including the Funds, since 1992. The Advisory Agreement between the Trust and CWAM will continue from year to year so long as such continuation is approved at least annually by (1) the Board of Trustees or the vote of a majority of the outstanding voting securities of the Fund, and (2) a majority of the Trustees who are not interested persons of any party to the Agreement, cast in person at a meeting called for the purpose of voting on such approval. Each Advisory Agreement may be terminated at any time, without penalty, by either the Trust or CWAM upon 60 days' written notice, and automatically terminates in the event of its assignment as defined in the 1940 Act. 16 A discussion of the factors considered by the Board of Trustees in approving the Advisory Agreement can be found in the Trust's annual report for the period ended December 31, 2005. CWAM, at its own expense, provides office space, facilities and supplies, equipment and personnel for the performance of its functions under each Fund's Advisory Agreement and pays all compensation of the Trustees, officers and employees who are employees of CWAM. The Advisory Agreement provides that neither CWAM nor any of its directors, officers, stockholders (or partners of stockholders), agents, or employees shall have any liability to the Trust or any shareholder of the Fund for any error or judgment, mistake of law or any loss arising out of any investment, or for any other act or omission in the performance by CWAM of its duties under the Advisory Agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the part of CWAM in the performance of its duties or from reckless disregard by CWAM of its obligations and duties under the Advisory Agreement. PORTFOLIO MANAGERS Robert A. Mohn is the lead portfolio manager of Wanger U.S. Smaller Companies. Chris Olson and Louis Mendes are the co-portfolio managers of Wanger International Small Cap. Chris Olson is the lead portfolio manager of Wanger International Select. Ben Andrews is the lead portfolio manager of Wanger Select. CWAM's largest fund portfolios are team managed. Intermediate and senior analysts have buy and sell authority and transact under the guidelines and supervision of portfolio managers. Portfolio managers are responsible for portfolio structures, including industry weightings for all funds and regional weightings for international funds, and provide approvals for transactions by the newer analysts. In contrast, CWAM's smaller mutual funds and separate accounts are conventionally managed with portfolio managers writing or approving all trades. Other Accounts Managed by Portfolio Managers The portfolio managers also have responsibility for the day-to-day management of accounts other than the Funds, including separate accounts and unregistered funds. Information regarding those other accounts is set forth below. The advisory fees received by CWAM in connection with the management of the Funds and other accounts are not based on the performance of the Funds or the other accounts.
Number of Other Accounts Managed and Assets by Account Type as of December 31, 2005 --------------------------------------- Registered Other Pooled Portfolio Manager Investment Companies Investment Vehicles Other Accounts (Other than the Funds) Ben Andrews Number: 1 0 2 Assets: $1,787,564,000 $0 $2,000,000 Louis Mendes Number: 2 0 8 Assets: $3,057,419,000 $0 $1,900,000 Robert A. Mohn Number: 3 1 6 Assets: $17,656,612,000 $407,078,000 $1,226,000,000 Chris Olson Number: 1 0 1 Assets: $94,721,000 $0 $250,000
17 Ownership of Securities At December 31, 2005, none of the portfolio managers owned shares of the Funds they manage because shares of the Funds are issued in connection with investments in and payments under certain qualified and non-qualified variable annuity contracts and variable life insurance policies issued through separate accounts of Participating Insurance Companies. Compensation As of December 31, 2005, the portfolio managers receive all of their compensation from CWAM and its parent company. Ben Andrews, Robert A. Mohn, Louis Mendes and Chris Olson each received compensation in the form of salary and bonus. In addition, Messrs. Andrews and Mohn each received a distribution in connection with his association with CWAM prior to its acquisition in September 2000 and CWAM's recent performance. Messrs. Mendes and Olson also participated in a supplemental pool for CWAM employees that was established in connection with the acquisition of CWAM and was based on CWAM's recent performance. All analysts and portfolio managers have performance benchmarks. Analyst performance is compared to assigned industry or region stock performance within the benchmark indices while portfolio manager performance is compared to entire benchmark indices. The benchmark index for each Fund is: (1) Wanger U.S. Smaller Companies: Russell 2000; (2) Wanger International Small Cap: S&P/Citigroup EMI Global ex-U.S.; (3) Wanger Select: Standard & Poor's MidCap 400; and (4) Wanger International Select: S&P/Citigroup World ex-U.S. Cap Range $2-10B. Performance compared to benchmark indices is the dominant performance evaluation factor for all analysts and managers. Industry (or country) weighting recommendations are the second most important factor for analysts. Other factors are assets managed, new analyst mentoring, teamwork, and managerial, marketing, compliance and other qualitative contributions. Analysts and managers are positioned in a number of compensation tiers based on cumulative performance. Excellent performance results in advancement to a higher tier each two or three years, until the highest tier is reached. Higher tiers have higher base compensation levels and wider bonus ranges. While cumulative performance places analysts and managers in tiers, current year performance drives changes in cash bonus levels. Cash incentive bonuses vary by tier, and can range between a fraction of base pay to several times base pay; the objective being to provide very competitive total compensation for high performers. Typically, a very high proportion of an analyst's or manager's bonus is paid in cash with a smaller proportion going into an investment program where the employee can select Columbia mutual funds as their investment vehicle. Bank of America restricted stock or options may also be part of an individual's compensation. These mutual fund investments and Bank of America restricted stock or options vest over three years. 18 Potential conflicts of interest in managing multiple accounts Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts that CWAM believes are faced by investment professionals at most major financial firms. CWAM and the Trustees of the Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others: o The most attractive investments could be allocated to higher-fee accounts. o The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time. o The trading of other accounts could be used to benefit higher-fee accounts (front- running). o The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation. Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, CWAM's investment professionals do not have the opportunity to invest in client accounts, other than the Funds. A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, CWAM's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. "Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an 19 independent third party would pay. CWAM and the Funds' Trustees have adopted compliance procedures that provide that any transactions between the Funds and another Columbia-advised account are to be made at an independent current market price, as required by law. Another potential conflict of interest may arise based on the different investment objectives and strategies of the Funds and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. The Funds' portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Funds. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to a Fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the Funds and/or accounts that he or she manages. CWAM or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of a Fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. The Funds' portfolio managers may also face other potential conflicts of interest in managing the Funds, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, the Funds' portfolio managers may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at 20 CWAM, including the Funds' portfolio managers, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by CWAM and the Funds, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Funds. TRANSFER AGENT Under the Fund's transfer agency and shareholder servicing agreement, the Funds pay Columbia Management Services, Inc. (CMS) a monthly fee based on the number of open accounts. The address of CMS is One Financial Center, Boston, Massachusetts 02111. TRUST CHARGES AND EXPENSES MANAGEMENT FEES: Each Fund pays CWAM an annual advisory fee based on the following schedule. Fees are computed and accrued daily and paid monthly. During each year in the three-year period ended December 31, 2005, pursuant to the Advisory Agreements, each Fund paid CWAM management fees as follows:
ANNUAL FEE RATE 2005 2004 2003 (AS A PERCENT OF AVERAGE NET ASSETS) ---- ---- ---- ------------------------------------ Wanger U.S. Smaller Companies First $100 million: 0.99% Gross advisory fee $11,560,012 $8,747,399 $5,627,621 $100 million to $250 million: 0.94% Exp. Waiver 21,040 0 0 $250 million and over: 0.89% ----------- ---------- ---------- Net advisory fee $11,538,972 $8,747,399 $5,627,621 ----------- ---------- ---------- Wanger International Small Cap First $100 million: 1.15% Gross advisory fee $7,405,850 $5,493,529 $3,279,805 $100 million to $250 million: 1.00% Exp. Waiver 188,761 0 0 $250 million to $500 million: 0.95% ----------- ---------- ---------- $500 million and over: 0.85% Net advisory fee $7,217,089 $5,493,529 $3,279,805 ----------- ---------- ---------- Wanger Select 0.85% on all assets Gross advisory fee $745,156 $598,432 $355,065 Exp. Reimb. 14,597 0 0 -------- -------- -------- Net advisory fee $730,559 $598,432 $355,065 Wanger International Select 0.99% on all assets Gross advisory fee $392,342 $281,849 $172,540 Exp. Reimb. 674 0 16,227 -------- -------- -------- Net advisory fee $391,668 $281,849 $156,313
EXPENSE LIMITATION: CWAM has agreed to reimburse all expenses, including management fees, but excluding interest, taxes, 12b-1, brokerage and extraordinary expenses of the Funds as follows: FUND EXPENSES EXCEEDING ---- ------------------ Wanger Select 1.35% of average net assets Wanger International Select 1.45% of average net assets Each of the above expense limitations will terminate on April 30, 2007. 21 UNDERWRITER CMD, One Financial Center, Boston, MA 02111, serves as the principal underwriter of the Trust. CMD is a subsidiary of Columbia Management Group, LLC, which is a wholly owned subsidiary of Bank of America Corporation. Like CMD, the address for Columbia Management Group, LLC is One Financial Center, Boston, MA 02111. The Underwriting 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 Underwriting Agreement or interested persons of any such party. Shares of the Funds are offered for sale on a continuous basis through CMD on a best efforts basis without any sales commission or charges to the Funds or Participating Insurance Companies or Retirement Plans purchasing Fund shares. However, each VA contract and VLI policy imposes its own charges and fees on owners of VA contracts and VLI policies, and Retirement Plans may impose such charges on participants in a Retirement Plan. In connection with the sale of the Columbia family of funds (including the Funds) (the Columbia Funds), CMD, or its advisory affiliates, from their own resources, may make cash payments to financial service firms (FSFs) that agree to promote the sale of shares of funds that CMD distributes. The Funds are not parties to these arrangements and such cash payments are not paid out of fund assets. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the fund on focus, select or other similar lists. Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events. In addition, CMD, and/or the Fund's investment adviser, transfer agent or their affiliates, pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, subtransfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary. In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund. As of the date of this SAI and in connection with the Columbia Funds, CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include: 1st Global Capital Corp. AG Edwards ABN AMRO (now Principal) ADP Clearing & Outsourcing SVCS Inc AIG/Advantage Capital 22 American Express Ameriprise Financial Services AMG AST Trust Company AXA Advisors Banc of America Bear Stearns Securities Corp Benefit Plan Administrators Bisys Retirement Ceridian Retirement Charles Schwab Citicorp Investment Services Citigroup Global Markets CitiStreet Inst Services Division CitiStreet Retirement Services Division City National Bank Commonwealth Financial Network Compensation & Capital CPI Qualified Plan Consultants Crown Point Trust (formerly Columbia Trust Company) Daily Access Concepts DataLynx Davenport & Company Digital Retirement Solutions Edgewood Services Edward Jones ExpertPlan Ferris, Baker, Watts, Incorporated Fidelity FSC Gem Group Great West Life Hartford Life HSBC Securities (USA) Inc. Huntington IFMG ING Investmart, Inc. Janney Montgomery Scott, Inc. JJB Hilliard WL Lyons JP Morgan Retirement Legg Mason Wood Walker, Inc. Lincoln Financial Linsco/Private Ledger Corp (LPL) M & T Securities Matrix Settlement & Clearance Services (MSCS) McDonald Investments Mellon Employee Benefit Solutions Mercer (formerly Putnam) 23 Merrill Lynch MFS MidAtlantic Capital Morgan Keegan & Company Morgan Stanley Dean Witter National Financial Service Co. National Investor Services Corp. Nationwide Investment Services Northeast Retirement Services NYLife Distributors Pershing LLC Piper Jaffray PNC Investment Raymond James RBC Dain Rauscher Robert W. Baird Royal Alliance Scott & Stringfellow Sentra Spelman Stanton Group State of NY Stifel Nicolaus & Co. SunAmerica Sungard Investment Products, Inc. T Rowe Price TD Waterhouse TIAA-CREF Life Insurance Company TruSource (formerly C N A Trust) Trustlynx UBS Financial Services Unified Trust Vanguard Wachovia Webster Investment Services Wells Fargo Wilmington Trust PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE. During fiscal year ended December 31, 2005, the Funds made no payments to dealers. CODES OF ETHICS The Funds, CWAM and CMD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds under limited circumstances. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the 24 EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102. CUSTODIAN AND FUND ACCOUNTING AGENT State Street Bank and Trust Company (the Bank), 2 Avenue De Lafayette, Boston, Massachusetts 02111-2900, is the custodian and fund accounting agent for the Trust. It is responsible for holding all securities and cash of each Fund, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the Trust, and performing other administrative duties, all as directed by authorized persons. CWAM and Columbia Management supervise the Bank in such matters as purchase and sale of portfolio securities, payment of dividends or payment of expenses of the Funds. Portfolio securities purchased in the United States are maintained in the custody of the Bank or other domestic banks or depositories. Portfolio securities purchased outside of the United States are maintained in the custody of foreign banks and trust companies who are members of the Bank's Global Custody Network and foreign depositories (foreign subcustodians). With respect to foreign subcustodians, there can be no assurance that a Fund, and the value of its shares, will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign subcustodians, difficulties and costs of obtaining jurisdiction over, or enforcing judgments against, the foreign subcustodians or application of foreign law to a Fund's foreign subcustodial arrangements. Accordingly, an investor should recognize that the noninvestment risks involved in holding assets abroad are greater than those associated with investing in the United States. The Funds may invest in obligations of the Bank and may purchase or sell securities from or to the Bank. PORTFOLIO TRANSACTIONS CWAM places the orders for the purchase and sale of portfolio securities and options and futures contracts for the Funds. CWAM's overriding objective in selecting brokers and dealers to effect portfolio transactions is to seek the best combination of net price and execution. The best net price, giving effect to brokerage commissions, if any, and other transaction costs, is an important factor in this decision; however, a number of other judgmental factors may also enter into the decision. These factors include CWAM's knowledge of negotiated commission rates currently available and other current transaction costs; the nature of the security being purchased or sold; the size of the transaction; the desired timing of the transaction; the activity existing and expected in the market for the particular security; confidentiality; the execution, clearance and settlement capabilities of the broker or dealer selected and others considered; CWAM's knowledge of the financial stability of the broker or dealer selected and such other brokers and dealers; evaluation of competing markets, including exchanges, over-the-counter markets, electronic communications networks or other alternative trading facilities; the broker's or dealer's responsiveness to CWAM; and CWAM's knowledge of actual or apparent operation problems of any broker or dealer. Recognizing the value of these factors, CWAM may cause a Fund to pay a brokerage commission in excess of that which another broker may have charged for effecting the same transaction. CWAM has established internal policies for the guidance of its trading personnel, 25 specifying minimum and maximum commissions to be paid for various types and sizes of transactions effected for the Funds. CWAM has discretion for all trades of the Funds. Transactions which vary from the guidelines are subject to periodic supervisory review. These guidelines are reviewed and periodically adjusted, and the general level of brokerage commissions paid is periodically reviewed by CWAM. Evaluations of the reasonableness of brokerage commissions, based on the factors described in the preceding paragraph, are made by CWAM's trading personnel while effecting portfolio transactions. The general level of brokerage commissions paid is reviewed by CWAM, and reports are made annually to the Board of Trustees. CWAM maintains and periodically updates a list of approved brokers and dealers that in CWAM's judgment, are generally capable of providing best price and execution and are financially stable. CWAM's traders are directed to use only brokers and dealers on the approved list. CWAM may place trades for the Funds through a registered broker-dealer that is an affiliate of CWAM pursuant to procedures adopted by the Board of Trustees. Such trades will only be effected consistent with CWAM's obligation to seek best execution for its clients, and the Funds will pay these affiliates a commission for these transactions. The Funds have adopted procedures consistent with Investment Company Act Rule 17e-1 governing such transactions. It is CWAM's practice, when feasible, to aggregate for execution as a single transaction orders for the purchase or sale of a particular security, with the same terms and conditions, for the accounts of several clients in order to seek a lower commission or more advantageous net price. All clients participating in the aggregated execution receive the same execution price and transaction costs are shared pro rata, whenever possible. INVESTMENT RESEARCH PRODUCTS AND SERVICES FURNISHED BY BROKERS AND DEALERS CWAM engages in the long-standing practice in the money management industry of acquiring research and brokerage products and services ("research products") from broker-dealer firms in return for directing trades for the Funds to those firms. In effect, CWAM is using the commission dollars generated from the Funds to pay for these research products. The money management industry uses the term "soft dollars" to refer to this industry practice. CWAM has a duty to seek the best combination of net price and execution. CWAM faces a potential conflict of interest with this duty when it uses Fund trades to obtain soft dollar products. This conflict exists because CWAM is able to use the soft dollar products in managing its Funds without paying cash ("hard dollars") for the product. This reduces CWAM's expenses. Moreover, under a provision of the federal securities laws applicable to soft dollars, CWAM is not required to use the soft dollar product in managing those accounts that generate the trade. Thus, the Funds that generate the brokerage commission used to acquire the soft dollar product may not benefit directly from that product. In effect, those Funds are cross subsidizing CWAM's management of the other Funds that do benefit directly from the product. This practice is explicitly sanctioned by a provision of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft dollar transactions conducted in a specified manner. Although it is inherently difficult if not impossible to document, CWAM believes that over time most, if not all, Funds benefit from soft dollar products such that cross subsidizations even out. 26 CWAM attempts to reduce or eliminate this conflict by directing Fund trades for soft dollar products only if CWAM concludes that the broker-dealer supplying the product is capable of providing a combination of the best net price and execution on the trade. As noted above, the best net price, while significant, is one of a number of judgmental factors CWAM considers in determining whether a particular broker is capable of providing the best net price and execution. CWAM may cause a Fund to pay a brokerage commission in a soft dollar trade in excess of that which another broker-dealer might have charged for the same transaction. CWAM acquires two types of soft dollar research products: (i) proprietary research created by the broker-dealer firm executing the trade and (ii) other research created by third parties that are supplied to CWAM through the broker-dealer firm executing the trade. Proprietary research consists primarily of traditional research reports, recommendations and similar materials produced by the in-house research staffs of broker-dealer firms. This research includes evaluations and recommendations of specific companies or industry groups, as well as analyses of general economic and market conditions and trends, market data, contacts and other related information and assistance. CWAM's research analysts periodically rate the quality of proprietary research produced by various broker-dealer firms. Based on these evaluations, CWAM develops target levels of commission dollars on a firm-by-firm basis. CWAM attempts to direct trades to each firm to meet these targets. CWAM also uses soft dollars to acquire research created by third parties that are supplied to CWAM through broker-dealers executing the trade (or other broker-dealers who "step in" to a transaction and receive a portion of the brokerage commission for the trade). The targets that CWAM establishes for both proprietary and for third-party research typically will reflect discussions that CWAM has with the broker-dealer providing the research regarding the level of commissions it expects to receive for the research. However, these targets are not binding commitments, and CWAM does not agree to direct a minimum amount of commissions to any broker-dealer for soft dollar research. In setting these targets, CWAM makes a determination that the value of the research is reasonably commensurate with the cost of acquiring it. These targets are established on a calendar-year basis. CWAM will receive the research whether or not commissions directed to the applicable broker-dealer are less than, equal to or in excess of the target. CWAM generally will carry over target shortages and excesses to the next year's target. CWAM believes that this practice reduces the conflicts of interest associated with soft dollar transactions, since CWAM can meet the non-binding expectations of broker-dealers providing soft dollar research over flexible time periods. In the case of third-party research, the third party is paid by the broker-dealer and not by CWAM. CWAM may enter into a contract with the third-party vendor to use the research. CWAM also receives company-specific research for soft dollars from independent research organizations that are not brokers. Consistent with industry practice, CWAM does not require that the Fund that generates the trade receive any benefit from the soft dollar product obtained through the trade. As noted above, this may result in cross subsidization of soft dollar products among Funds. As noted, this practice is explicitly sanctioned by a provision of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft dollar transactions conducted in a specified manner. In certain cases, CWAM will direct a trade to one broker-dealer with the instruction that it execute the trade and pay over a portion of the commission from the trade to another broker- 27 dealer who provides CWAM with soft dollar research. The broker-dealer executing the trade "steps out" of a portion of the commission in favor of the other broker-dealer providing the soft dollar product. CWAM may engage in step-out transactions in order to direct soft dollar commissions to a broker-dealer which provides research but may not be able to provide best execution. Brokers who receive step-out commissions typically are brokers providing third-party soft dollar research that is not available on a hard-dollars basis. CWAM has not engaged in step-out transactions as a manner of compensating broker-dealers that sell shares of investment companies managed by CWAM. As stated above, CWAM's overriding objective in effecting portfolio transactions for the Funds is to seek to obtain the best combination of price and execution. Except as described in the following sentence, neither the Trust nor any Fund nor CWAM has entered into any agreement with, or made any commitment to, any unaffiliated broker-dealer which would bind CWAM, the Trust or any Fund to compensate any such broker-dealer, directly or indirectly, for sales of VA contracts or VLI policies. CWAM has entered into arrangements with sponsors of programs for the sale of VA contracts or VLI policies issued by Participating Insurance Companies that are not affiliates of CWAM. CWAM pays the sponsor from CWAM's fee for managing the Funds. The fee is an amount of the Funds' assets allocable to the Fund shares held in separate accounts of such unaffiliated Participating Insurance Companies. CWAM does not cause the Trust or any Fund to pay brokerage commissions higher than those obtainable from other broker-dealers in recognition of such sales of VA contracts or VLI policies. The Trust's purchases and sales of securities not traded on securities exchanges generally are placed by CWAM with market makers for these securities on a net basis, without any brokerage commissions being paid by the Trust. Net trading does involve, however, transaction costs. Included in prices paid to underwriters of portfolio securities is the spread between the price paid by the underwriter to the issuer and the price paid by the purchasers. Each Fund's purchases and sales of portfolio securities in the over-the-counter market usually are transacted with a broker-dealer on a net basis without any brokerage commission being paid by such Fund, but do reflect the spread between the bid and asked prices. CWAM may also transact purchases of some portfolio securities directly with the issuers. With respect to a Fund's purchases and sales of portfolio securities transacted with a broker or dealer on a net basis, CWAM may also consider the part, if any, played by the broker or dealer in bringing the security involved to CWAM's attention, including investment research related to the security and provided to the Fund. CWAM may place trades for the Funds through affiliates of CWAM in accordance with Investment Company Act Rule 17e-1 governing such transactions and pursuant to procedures adopted by the Board of Trustees. CWAM did not place any trades for the Funds through its affiliates during the fiscal year 2005. The table below shows information on brokerage commissions paid by each of the Funds during the periods indicated.
WANGER U.S. WANGER WANGER SMALLER INTERNATIONAL WANGER INTERNATIONAL COMPANIES SMALL CAP SELECT SELECT Total brokerage commissions paid during 2005.......................... $ 1,015,455 $ 1,724,288 $ 189,885 $ 95,178 Total brokerage commissions paid during 2004.......................... $ 978,168 $ 1,250,424 $ 130,751 $ 89,919 Total brokerage commissions paid during 2003.......................... $ 537,637 $ 742,706 $ 57,684 $ 58,972
28 Brokerage commissions paid by the Funds in 2005 generally increased from prior years due to increases in net assets, as well as slight increases in portfolio trading. Directed transactions include transactions that the Funds or CWAM directs to a registered broker-dealer, through an agreement or understanding or otherwise through an internal allocation procedure, because of research services provided by the registered broker-dealer to the Funds. For each registered broker-dealer to which the Funds or CWAM directed transactions during the last fiscal year, the following tables show the dollar amount of directed transactions for each Fund, and the commissions paid by each Fund on directed transactions.
WANGER U.S. WANGER WANGER SMALLER COMPANIES INTERNATIONAL WANGER INTERNATIONAL SMALL CAP SELECT SELECT Total amount of directed brokerage transactions during 2005.................. $ 109,362,001 $ 641,598,403 $ 8,067,968 $ 35,640,571 Total amount of directed brokerage commissions paid during 2005.................. $ 212,607 $ 1,192,359 $ 18,366 $ 76,130
During the last three most recent fiscal years, the Funds have not paid any brokerage commissions to any broker that is an affiliated person of the Funds, at the time of the transaction, CWAM or CMD, or any of their affiliates. The Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during their most recent fiscal year. At December 31, 2005, the Funds held securities of their regular brokers or dealers as set forth below: 29 WANGER U.S. SMALLER COMPANIES ISSUER VALUE SEI Investments Company $11,877,000 WANGER INTERNATIONAL SMALL CAP ISSUER VALUE Perpetual Trustees Australia $3,489,557 Hong Kong Exchanges and Clearing $8,292,869 WANGER SELECT ISSUER VALUE SEI Investments Company $1,779,700 Janus Capital Group Inc. $1,658,070 Nuveen Investments Inc. $1,278,600 WANGER INTERNATIONAL SELECT FUND ISSUER VALUE Hong Kong Exchanges and Clearing $1,326,859 NET ASSET VALUE The net asset value of the shares of each of the Funds is determined by dividing the total assets of each Fund, less all liabilities (including accrued expenses), by the total number of shares outstanding. The proceeds received by each Fund for each purchase or sale of its shares, and all income, earnings, profits and proceeds thereof, subject only to the rights of creditors, will be specifically allocated to such Fund, and constitute the underlying assets of that Fund. The underlying assets of each Fund will be segregated on the books of account, and will be charged with the liabilities in respect to such Fund and with a share of the general liabilities of the Trust. TAXES Each Fund has elected to be treated and to qualify as a "regulated investment company" under Subchapter M of the Internal Revenue Code of 1986 (Code). As a result of such election, for any tax year in which a Fund meets the investment limitations and the distribution, diversification and other requirements referred to below, that Fund will not be subject to federal income tax, and the income of the Fund that is distributed, or deemed to be distributed, to its shareholders will be treated as dividends distributed to its shareholders. Under current law, since the shareholders are life insurance company "segregated asset accounts," they will not be subject to income tax currently on this income to the extent such income is applied to increase the values of VA contracts and VLI policies. If a Fund were to fail to qualify under Subchapter M, it would be required to pay on any income and realized capital gains, reducing the amount of income and realized capital gains that would otherwise be available for distribution to Fund shareholders. Among the conditions for qualification and avoidance of taxation at the Trust or Fund level, Subchapter M imposes investment limitations, distribution requirements, and requirements relating to the diversification of investments. The requirements of Subchapter M may affect the investments made by each Fund. Any of the applicable diversification requirements could require a sale of assets of a Fund that would affect the net asset value of the Fund. 30 Pursuant to the requirements of Section 817(h) of the Code, the only shareholders of the Trust and its Funds will be Participating Insurance Companies and their separate accounts that fund VA contracts, VLI policies and other variable insurance contracts, and certain Retirement Plans, which are pension plans and retirement arrangements and accounts permitting the accumulation of funds on a tax-deferred basis. The prospectus that describes a particular VA contract or VLI policy discusses the taxation of both separate accounts and the owner of such contract or policy. The plan documents (including the summary plan description) for the Retirement Plan discuss the taxation of Retirement Plans and the participants therein. Each Fund intends to comply with the requirements of Section 817(h) and the related regulations issued thereunder by the Treasury Department. These provisions impose certain diversification requirements affecting the securities in which the Funds may invest and other limitations. The diversification requirements of Section 817(h) of the Code are in addition to the diversification requirements under Subchapter M and the Investment Company Act of 1940. The consequences of failure to meet the requirements of Section 817(h) could result in taxation of the Participating Insurance Companies offering the VA contracts and VLI policies and immediate taxation of all owners of the contracts and policies to the extent of appreciation on investment under the contracts. The Trust believes it is in compliance with these requirements. The Secretary of the Treasury may issue additional rulings or regulations that will prescribe the circumstances in which control of the investments of a segregated asset account by an owner of a variable insurance contract may cause such owner, rather than the insurance company, to be treated as the owner of the assets of a segregated asset account. It is expected that such regulations would have prospective application. However, if a ruling or regulation were not considered to set forth a new position, the ruling or regulation could have retroactive effect. The Trust therefore may find it necessary, and reserves the right, to take action to assure that a VA contract or VLI policy continues to qualify as an annuity or insurance contract under federal tax laws. The Trust, for example, may be required to alter the investment objectives of any Fund or substitute the shares of one Fund for those of another. No such change of investment objectives or substitution of securities will take place without notice to the contract and policy owners with interests invested in the affected Fund and without prior approval of the Securities and Exchange Commission, or the approval of a majority of such owners, to the extent legally required. To the extent a Fund invests in foreign securities, investment income received by the Fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle a Fund to a reduced rate of tax or exemption from tax on such income. Gains and losses from foreign currency dispositions, foreign-currency denominated debt securities and payables or receivables, and foreign currency forward contracts are subject to special tax rules that generally cause them to be recharacterized as ordinary income and losses, and may affect the timing and amount of the Fund's recognition of income, gain or loss. It is impossible to determine the effective rate of foreign tax in advance since the amount of a Fund's assets, if any, to be invested within various countries will fluctuate and the extent to which tax refunds will be recovered is uncertain. The Funds intend to operate so as to qualify for treaty-reduced tax rates where applicable. 31 The Funds will not be subject to the 4% federal excise tax imposed on regulated investment companies that do not distribute substantially all their income and gains each calendar year because that tax does not apply to a regulated investment company whose only shareholders are segregated asset accounts of life insurance companies held in connection with VA contracts, VLI policies and/or Retirement Plans. The preceding is a brief summary of some relevant tax considerations. This discussion is not intended as a complete explanation or a substitute for careful tax planning and consultation with individual tax advisors. INVESTMENT PERFORMANCE Each of the Funds may quote total return figures from time to time. Total return on a per share basis is the amount of dividends received per share plus or minus the change in the net asset value per share for a given period. Total return percentage may be calculated by dividing the value of a share at the end of a given period (including dividends reinvested) by the value of the share at the beginning of the period and subtracting one. The Funds' total returns do not reflect the cost of insurance and other insurance company separate account charges which vary with the VA contracts and VLI policies offered through the separate accounts of the Participating Insurance Companies, or expenses imposed by Retirement Plans. 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. 32 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 five years of monthly total return figures for each of U.S. Smaller Companies and International Small Cap and their respective benchmarks, and using three years of monthly total return figures for each of Wanger Select and Wanger International Select and their respective benchmarks. 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. RECORD SHAREHOLDERS All the shares of the Funds are held of record by subaccounts of separate accounts of Participating Insurance Companies on behalf of the owners of VLI policies and VA contracts, or by Retirement Plans on behalf of the participants therein. At all meetings of shareholders of the Funds each Participating Insurance Company will vote the shares held of record by subaccounts of its separate accounts only in accordance with the instructions received from the VLI policy and VA contract owners on behalf of whom such shares are held, and each Retirement Plan will vote the shares held of record by participants in the Retirement Plans only in accordance with the instructions received from the participants on behalf of whom such shares are held. All such shares as to which no instructions are received will be voted in the same proportion as shares as to which instructions are received. Accordingly, each Participating Insurance Company disclaims beneficial ownership of the shares of the Funds held of record by the subaccounts of its separate accounts, and each Retirement Plan disclaims beneficial ownership of the shares of the Funds held of record by its participants. The following table shows the dollar range of equity securities of the Funds "beneficially" owned (within the meaning of that term as defined in rule 16a-1(a)(2) under the Securities Exchange Act of 1934) by each Trustee as of December 31, 2005:
- ----------------------------- ------------------------ --------------------------- ------------------------------------- NAME OF TRUSTEE NAME OF FUND DOLLAR RANGE OF EQUITY AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN EACH FUND SECURITIES IN ALL REGISTERED INVESTMENT COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF INVESTMENT COMPANIES - ------------------------------------------------------------------------------------------------------------------------ TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST: - ------------------------------------------------------------------------------------------------------------------------ Jerome L. Duffy* Wanger U.S. Smaller None Companies None Wanger International Small Cap None Wanger Select None Wanger International Select None - ----------------------------- ------------------------ --------------------------- ------------------------------------- Fred D. Hasselbring Wanger U.S. Smaller None Companies None - ----------------------------- ------------------------ --------------------------- ------------------------------------- 33 Wanger International Small Cap None Wanger Select None Wanger International Select None - ----------------------------- ------------------------ --------------------------- ------------------------------------- Dr. Kathryn A. Krueger Wanger U.S. Smaller None Companies None Wanger International Small Cap None Wanger Select None Wanger International Select None - ----------------------------- ------------------------ --------------------------- ------------------------------------- Patricia H. Werhane Wanger U.S. Smaller None Companies None Wanger International Small Cap None Wanger Select None Wanger International Select None - ------------------------------------------------------------------------------------------------------------------------ TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST: - ------------------------------------------------------------------------------------------------------------------------ Ralph Wanger* Wanger U.S. Smaller Companies None None Wanger International Small Cap None Wanger Select None Wanger International Select None - ----------------------------- ------------------------ --------------------------- -------------------------------------
* None of the Trustees and officers owns shares of the Funds because shares of the Funds are issued in connection with investments in and payments under certain qualified and non-qualified variable annuity contracts and variable life insurance policies issued through separate accounts of Participating Insurance Companies. However, as of December 31, 2005, Mr. Duffy and Mr. Wanger owned variable insurance policies which held shares of the Funds (which shares are also reported under the names of the contract issuers). At that date, the aggregate dollar range of equity securities in the family of investment companies attributable to Mr. Duffy's variable annuity contract was $1 - $10,000, and the aggregate dollar range of equity securities in the family of investment companies attributable to Mr. Wanger's variable annuity contract was over $100,000. At March 31, 2006, none of the Trustees and officers owned shares of the Funds because shares of the Funds are issued in connection with investments in and payments under certain qualified and non-qualified variable annuity contracts and variable life insurance policies issued through separate accounts of Participating Insurance Companies.** At March 31, 2006, Phoenix Home Life Mutual Insurance Company (and its affiliates), One American Row, Hartford, Connecticut 06102-5056, was the record holder of approximately 22.18% of the outstanding shares of International Small Cap, approximately 19.12% of the outstanding shares of U.S. Smaller Companies, approximately 36.57% of the outstanding shares of Wanger Select and approximately 74.12% of the outstanding shares of Wanger International Select all of which are beneficially owned by variable contract owners. At March 31, 2006, IDS Life, 1 IT, IDS Tower 10, T11/229, Minneapolis, Minnesota 55440, was the record holder of approximately 65.31% of 34 the outstanding shares of U.S. Smaller Companies and approximately 66.80% of the outstanding shares of International Small Cap, all of which are owned by variable contract owners. At March 31, 2006, Sun Life Assurance Company, One Sun Life Executive Park, Wellesley Hills, MA 02481 was the record holder of approximately 22.62% of the outstanding shares of Wanger Select and approximately 16.64% of the outstanding shares of Wanger International Select. At March 31, 2006, ING Life Insurance and Annuity Company, 151 Farmington Avenue, Hartford, CT 06156, was the record holder of approximately 32.26% of the outstanding shares of Wanger Select Fund, all of which are owned by variable contract owners. As of March 31, 2006, none of the independent Trustees owned beneficially or of record any shares of CWAM or CMD, or of any person directly or indirectly controlling, controlled by, or under common control with CWAM or CMD. ** However, as of March 31, 2006, Mr. Duffy, Mr. McQuaid and Mr. Wanger owned variable insurance policies which held shares of the Funds (which shares are also reported under the names of the contract issuers). Including those shares, as of March 31, 2006, the Trustees and officers as a group owned beneficially less than 1% of the outstanding shares of Wanger U.S. Smaller Companies and Wanger International Small Cap. As of March 31, 2006, the Trustees and officers as a group owned beneficially 1.72% of the outstanding shares of Wanger Select and 3.61% of the outstanding shares of Wanger International Select. ANTI-MONEY LAUNDERING COMPLIANCE The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above. PROXY VOTING POLICIES The Funds have delegated to CWAM the responsibility to vote proxies relating to portfolio securities held by the Funds. In deciding to delegate this responsibility to CWAM, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by CWAM. These included the procedures that CWAM follows when a vote presents a conflict between the interests of the Funds and their shareholders and CWAM, its affiliates, its other clients or other persons. CWAM's policy is to vote all proxies for Fund securities in a manner considered by CWAM to be in the best interest of the Funds and their shareholders without regard to any benefit to CWAM, its affiliates, its other clients or other persons. CWAM examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. CWAM also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Funds. CWAM determines the best interest of the Funds in light of the potential economic return on the Funds' investment. 35 CWAM addresses potential material conflicts of interest by having predetermined voting guidelines and by having each individual stock analyst review and vote each proxy for the stocks that he or she follows. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, CWAM's Proxy Committee determines the vote in the best interest of the Funds, without consideration of any benefit to CWAM, its affiliates, its other clients or other persons. CWAM's Proxy Committee is composed of representatives of CWAM's equity investments, equity research and compliance functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on an annual basis, CWAM's proxy voting policies to ensure consistency with internal and regulatory agency policies, and to develop additional predetermined voting guidelines to assist in the review of proxy proposals. The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest. CWAM has retained Institutional Shareholder Services (ISS), a third-party vendor, to implement its proxy-voting process. ISS provides proxy analysis, record keeping services and vote disclosure services. CWAM's proxy voting policies, guidelines and procedures are included in this SAI as Appendix B. In accordance with SEC regulations the Funds' proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the Funds' proxy voting record (i) on the Securities and Exchange Commission's website at www.sec.gov; and (ii) without charge, upon request, by calling 888-492-6437. DISCLOSURE OF PORTFOLIO INFORMATION The Trustees of the Wanger Advisors Funds have adopted policies with respect to the disclosure of information regarding the Funds' portfolio holdings by the Trust, Columbia Management, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds in the Columbia Funds complex, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Funds' policies are described below. The Trustees shall be informed as needed regarding the Funds' compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Management and its affiliates. The Funds' policies prohibit Columbia Management and the Funds' other service providers from entering into any agreement to disclose Fund portfolio 36 holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, Participating Insurance Companies or Retirement Plans, third-party service providers, rating and ranking organizations and affiliated persons of the Funds. PUBLIC DISCLOSURES The Funds' portfolio holdings are currently disclosed to the public through their filings with the SEC and on the Funds' website at www.columbiafunds.com. The Funds file their portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semiannual period) and Form N-Q (with respect to the first and third quarters of the Funds' fiscal year). Shareholders may obtain the Funds' Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Funds' Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room. The Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
- ---------------------------------------- -------------------------------------- -------------------------------------- INFORMATION PROVIDED FREQUENCY OF DISCLOSURE DATE OF WEB POSTING - ---------------------------------------- -------------------------------------- -------------------------------------- Full portfolio holdings information Monthly 30 calendar days after month end. - ---------------------------------------- -------------------------------------- --------------------------------------
The scope of the information provided relating to each Fund's portfolio that is made available on the website may change from time to time without prior notice. A Fund, CWAM or its affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly. OTHER DISCLOSURES The Funds' policies provide that non-public disclosures of a Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure and (2) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information. The Trust may authorize such non-public disclosures of a Fund's portfolio holdings if these requirements are satisfied. The Funds periodically disclose their portfolio information on a confidential basis to various service providers that require such information in order to assist the Funds with day-to-day business operations. In addition to Columbia Management and its affiliates, these service providers include the Funds' custodian (State Street Bank & Trust Company) and subcustodians, independent registered public accounting firm (PricewaterhouseCoopers LLP), legal counsel (Bell, Boyd & Lloyd LLC), financial printer (Financial Graphic Services, Inc.), the Funds' proxy voting service provider (Institutional Shareholder Services), the Funds' proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support CWAM's trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise 37 using the information except as necessary in providing services to the Funds. The Funds may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Funds, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information. Certain clients of the Funds' investment adviser(s) may follow a strategy similar to that of the Funds and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Funds. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP, the independent registered public accounting firm, audits and reports on the annual financial statements and provide tax return review services and assistance and consultation in connection with the review of various SEC filings. Their offices are located at: One North Wacker Drive, Chicago, IL, 60606. The financial statements of the Trust and reports of independent registered public accounting firm appearing in the December 31, 2005 annual report of the Trust are incorporated in this SAI by reference. 38 APPENDIX A INVESTMENT TECHNIQUES AND SECURITIES 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 Select is non-diversified, it has 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 Select can be expected to fluctuate more than that of a broadly diversified fund investing in similar securities. Because Wanger Select is non-diversified, it is not subject to the limitations under the 1940 Act on the percentage of its assets that it may invest in any one issuer. Wanger Select, however, intends to comply with the diversification standards for regulated investment companies under Subchapter M of the Internal Revenue Code (summarized in "Investment Restrictions") and Section 817(h) of the Code (see "Taxes"). Although Wanger International Select was previously registered as a non-diversified fund, its investments remained diversified through February 1, 2002 (three years after it began operations). As a result, the Fund lost the ability to invest in a non-diversified manner and is now considered a diversified fund. Wanger International Select will not be able to become non-diversified unless it seeks and obtains the approval of the holders of a "majority of its outstanding voting securities," as defined in the 1940 Act. 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 circumstances, Wanger International Select invests at least 80% of its net assets (plus any borrowings for investment purposes), and International Small Cap invests at least 65% of its total assets, in each case taken at market value, in foreign securities; Wanger Select's investments in foreign securities are limited to not more than 25% of its total assets. U.S. Smaller Companies 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. 39 Wanger International Select invests primarily in developed countries but may invest up to 15% of its total assets in "emerging markets or frontier 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. 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. The Funds may invest in securities of foreign issuers directly or in the form of American Depository Receipts (ADRs), European Depository Receipts (EDRs), Global Depository 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 depository 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" depository receipts. In a sponsored depository receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to receipt holders. An unsponsored depository 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 depository 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 depository receipt. None of the Funds expects to invest 5% or more of its total assets in unsponsored depository receipts. The investment performance of a Fund that invests in securities of foreign issuers 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 40 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 Each of the Funds may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates. The Funds may purchase foreign currencies on a spot or forward basis in conjunction with their investments in foreign securities and to hedge against fluctuations in foreign currencies. The Funds also may buy and sell currency futures contracts and options thereon for such hedging purposes. A Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, a Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with purchases or sales of its portfolio securities. A Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging a Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payments is declared, and the date on which such payments are made or received. A Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. A Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and (if the Fund is so authorized) purchase and sell foreign currency futures contracts. For transaction hedging purposes a Fund which is so authorized may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on a currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on a currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option. 41 When it engages in position hedging, a Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, a Fund which is so authorized may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. A Fund may enter into short sales of a foreign currency to hedge a position in a security denominated in that currency. In such circumstances, the Fund will maintain, in a segregated account with its Custodian, an amount of cash or liquid debt securities equal to the excess of (i) the amount of foreign currency required to cover such short sale position over (ii) the amount of such foreign currency which could then be realized through the sale of the foreign securities denominated in the currency subject to the hedge. The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature. It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for a Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver. Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which the Fund can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency. 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 42 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, U.S. Smaller Companies will not invest more than 35% of its total assets in foreign securities, Wanger Select will not invest more than 25% 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 International Select will invest at least 80% of its net assets (plus any borrowings for investment purposes) in foreign securities. OPTIONS, FUTURES AND OTHER DERIVATIVES Each Fund may purchase and write both call options and put options on securities, indexes and foreign currencies, and enter into interest rate, index and foreign currency futures contracts and options on such futures contracts (futures options) in order to achieve its investment objective, to provide additional revenue, or to hedge against changes in security prices, interest rates or currency exchange rates. A Fund also may use other types of options, futures contracts, futures options, and other types of forward or investment contracts linked to individual securities, interest rates, foreign currencies, indices or other benchmarks (derivative products) currently traded or subsequently developed and traded, provided the Trustees determine that their use is consistent with the Fund's investment objective. OPTIONS A Fund may purchase and write both put and call options on securities, indexes or foreign currencies in standardized contracts traded on recognized securities exchanges, boards of trade or similar entities, or quoted on Nasdaq. A Fund also may purchase agreements, sometimes called cash puts, which may accompany the purchase of a new issue of bonds from a dealer that the Fund might buy as a temporary defensive measure. An option on a security (or index or foreign currency) 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 or a specified quantity of the foreign currency) 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 other 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 cash consideration upon conversion or exchange of other securities held in its 43 portfolio (or, if additional cash consideration is required, cash or cash equivalents in such amount are held in a segregated account by its custodian). 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, currency 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, currency or index in relation to the exercise price of the option, the volatility of the underlying security, currency or index, and the time remaining until expiration. A put or call option purchased by a Fund is an asset of the Fund, valued initially at the premium paid for the option. The premium received for an option written by a Fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. 44 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. 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 and 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, 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 or a foreign currency, it would not be able to sell the underlying security or currency unless 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, the Fund foregoes, during the option's life, the opportunity to profit from appreciation of the currency covering the call. If trading were suspended in an option purchased or written by a Fund, the Fund would not be able to close out the option. If restrictions on exercise were imposed, the Fund might be unable to exercise the option. Except to the extent that a call option on an index written by the Fund is covered by an option on the same index purchased by the Fund, movements in the index may result in a loss to the Fund; however, such losses may be mitigated by changes in the value of the Fund's portfolio securities during the period the option was outstanding. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS A Fund may use interest rate, index and foreign currency futures contracts. An interest rate, index or foreign currency futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument, the cash value of an index(1) or a specified quantity of a foreign currency at a specified price and time. A public - ------------------- (1) A futures contract on an index is an agreement between two parties 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. 45 market exists in futures contracts covering a number of indexes (including, but not limited to, the Standard & Poor's 500 Stock Index, the Value Line Composite Index and the New York Stock Exchange Composite Index), certain financial instruments (including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes and 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. A Fund may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities, indexes and foreign currencies (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long position (call) or a 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 a Fund, such 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 or gain exposure to fluctuations in the general level of stock prices or anticipated changes in interest rates or currency exchange rates which might adversely affect either the value of the Fund's securities or the price of the securities that the Fund intends to purchase. Although other techniques could be used to reduce that Fund's exposure to stock price and interest rate and currency fluctuations, the Fund may be able to hedge its exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. A Fund will only enter into futures contracts and futures options that are standardized and traded on an exchange, board of trade or similar entity or quoted on an automated quotation system. The success of any futures transaction depends on CWAM correctly predicting changes in the level and direction of stock prices, interest rates, currency exchange rates and other factors. Should those predictions be incorrect, a Fund's return might have been better had the transaction not been attempted; however, in the absence of the ability to use futures contracts, CWAM 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, the Fund is required to deposit with its custodian (or broker, if legally permitted) a specified amount of cash or U.S. Government securities or other securities acceptable to the broker (initial margin). The margin required for a futures contract is set by the exchange on which the contact is traded and may be modified during the term of the contract. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the Fund upon termination of the contract, assuming all contractual obligations have been satisfied. A Fund expects to earn interest income on its initial margin deposits. A futures contract held by a Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by a Fund does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract 46 had expired at the close of the previous day. In computing daily net asset value, a Fund will mark-to-market its open futures positions. The Funds are also required to deposit and maintain margin with respect to put and call options on futures contracts written by it. Such margin deposits will vary depending on the nature of the underlying futures contract (and the related initial margin requirements), the current market value of the option and other futures positions held by the Fund. Although some futures contracts call for making or taking delivery of the underlying property, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying property and delivery month). If an offsetting purchase price is less than the original sale price, the Fund engaging in the transaction 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 engaging in the transaction realizes a capital gain, or if it is less, the Fund realizes a capital loss. The transaction costs must also be included in these calculations. Risks Associated with Futures There are several risks associated with the use of futures contracts and futures options. 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 the currency markets and the futures markets that could result in an imperfect correlation between the markets, causing a given transaction 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 or currencies, including technical influences in futures and futures options trading and differences between the Fund's investments being hedged and the securities or currencies underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of the Fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in the Fund's portfolio. A decision as to whether, when and how to use futures contracts 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 security price, interest rate or currency exchange rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. 47 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 long-term trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. LIMITATIONS ON OPTIONS AND FUTURES A Fund will not enter into a futures contract or purchase an option if, immediately thereafter, the initial margin deposits for futures contracts held by that Fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money,"(2) would exceed 5% of the Fund's total assets. When purchasing a futures contract or writing a put option on a futures contract, a Fund must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) equal to the market value of such contract. When writing a call option on a futures contract, the Fund similarly will maintain with its custodian cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed out by the Fund. 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 the Fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission (CFTC) Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," each Fund will use commodity futures or commodity options contracts solely for bona fide hedging purposes within the meaning and intent of CFTC Regulation 1.3(z), or, with respect to positions in commodity futures and commodity options contracts that do not come within the meaning and intent of CFTC Regulation 1.3(z), the aggregate initial margin and premiums required to establish such positions will not exceed 5% of the fair market value of the assets of a Fund, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into [in the case of an option that is in-the-money at the time of purchase, the in-the-money amount (as defined in Section 190.01(x) of the CFTC Regulations) may be excluded in computing such 5%]. TAXATION OF OPTIONS AND FUTURES If a Fund exercises a call or put option 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 a Fund, the difference between the cash received at exercise and the premium paid is a capital gain or loss. - ------------------- (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. 48 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 was in-the-money at the time it was written and the security covering the option was held for more than the long-term holding period prior to the writing of the option, any loss realized as a result of a closing purchase transaction will be long-term. The holding period of the securities covering an in-the-money option will not include the period of time the option is outstanding. If a Fund writes an equity call option(3) other than a "qualified covered call option," as defined in the Internal Revenue Code, any loss on such option transaction, to the extent it does not exceed the unrealized gains on the securities covering the option, may be subject to deferral until the securities covering the option have been sold. A futures contract held until delivery results in capital gain or loss equal to the difference between the price at which the futures contract was entered into and the settlement price on the earlier of delivery notice date or expiration date. If a Fund delivers securities under a futures contract, the Fund also realizes a capital gain or loss on those securities. For federal income tax purposes, a Fund generally is required to recognize as income for each taxable year its 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 options positions on futures, 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: (1) will affect the holding period of the hedged securities; and (2) may cause unrealized gain or loss on such securities to be recognized upon entry into the hedge. 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 would be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. In order for a Fund to continue 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 - ------------------- (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 Stock Index). 49 from the sale of securities or foreign currencies, or other income (including but not limited to gains from options and futures contracts). In addition, gains realized on the sale or other disposition of securities held for less than three months must be limited to less than 30% of the Fund's annual gross income. 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. In order to avoid realizing excessive gains on securities held less than three months, the Fund may be required to defer the closing out of certain positions beyond the time when it would otherwise be advantageous to do so. 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 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 CWAM 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. CWAM 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 50 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 those securities, on behalf of the Fund, to the purchaser of the securities. The broker-dealer is entitled to retain the proceeds from the short sale until the Fund delivers to the 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 the broker-dealer the securities sold short, the Fund must deposit and continuously maintain in a separate account with its custodian an equivalent amount of the securities sold short or securities convertible into or exchangeable for the 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 the portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in the 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, a short sale may afford the Fund an opportunity to earn additional current income to the extent the Fund is able to enter into an arrangement with the broker-dealer through which the short sale is executed to receive income with respect to the proceeds of the short sale during the period the Fund's short position remain open. The Code imposes 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 Code) with respect to the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales. DEBT SECURITIES 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 51 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 or 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. The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. 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, CWAM 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 and 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. 52 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. 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. C--Bonds rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. 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. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitments. BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as having significant speculative characteristics. 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. 53 REPURCHASE AGREEMENTS A repurchase agreement involves a transaction 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 that CWAM believes present minimal credit risks in accordance with guidelines approved by the Board of Trustees. CWAM will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, CWAM'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 in a repurchase agreement only if it is 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 that is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings, there may be restrictions on the Fund's ability to sell the collateral and the Fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or liquidation proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply with provisions under such Code that would allow it immediately to resell such collateral. "WHEN-ISSUED" SECURITIES AND COMMITMENT AGREEMENTS; REVERSE REPURCHASE AGREEMENTS Each Fund may purchase and sell securities on a when-issued and delayed-delivery basis. When-issued or delayed-delivery transactions arise when securities are purchased or sold by the Funds with payment and delivery taking place in the future in order to secure what is considered to be an advantageous price and yield to the Funds at the time of entering into the transaction. However, yields available in the market when delivery takes place may be higher than the yields on securities to be delivered. When the Funds engage in when-issued and delayed-delivery transactions, the Funds rely on the buyer or seller, as the case may be, to consummate the sale. Failure to do so may result in the Funds missing the opportunity to obtain a price or yield considered to be advantageous. When-issued and delayed-delivery transactions may be expected to occur a month or more before delivery is due. However, no payment or delivery is made by the Funds until they receive payment or delivery from the other party to the transaction. A separate account of liquid assets equal to the value of such purchase commitments will be maintained with the Trust's custodian until payment is made and will not be available to meet redemption requests. When-issued and delayed-delivery agreements are subject to risks from changes in value based upon changes in the level of interest rates and other market factors, both before and after delivery. The Funds do not accrue any income on such securities prior to their delivery. To the extent a Fund engages in when-issued and delayed-delivery transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. 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 54 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, CWAM may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, each Fund temporarily may hold cash (U.S. dollars, foreign currencies, multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. or foreign issuers, and most or all of the Fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when, or for how long a Fund might employ defensive strategies. In addition, pending investment of proceeds from new sales of Fund shares or to meet ordinary daily cash needs, a Fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and may invest any portion of its assets in money market instruments. 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 are acquired through private placement transactions, directly from the issuer or from security holders, generally at higher yields or on terms more favorable to investors than comparable publicly traded securities. Privately placed securities are not readily marketable and ordinarily can be sold only in privately negotiated transactions to a limited number of purchasers or in public offerings made pursuant to an effective registration statement under the Securities Act of 1933. Private or public sales of such securities by a Fund may involve significant delays and expense. Private sales require negotiations with one or more purchasers and generally produce less favorable prices than the sale of comparable unrestricted securities. Public sales generally involve the time and expense of preparing and processing a registration statement under the Securities Act of 1933 and may involve the payment of underwriting commissions; accordingly, the proceeds may be less than the proceeds from the sale of securities of the same class which are freely marketable. Restricted securities are valued 55 at a fair value 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. CWAM, 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 the determination CWAM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, CWAM could consider (1) the frequency of trades and quotes, (2) the number of dealers and potential purchasers, (3) the dealer undertakings to make a market, and (4) the 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 were determined that a Rule 144A security was no longer liquid, a Fund's holding of the security would be reviewed to determine what, if any, steps were required to assure that the Fund did 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 were unwilling to purchase such securities. 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" on pp. 4. 56 APPENDIX B PROXY VOTING POLICY AND PROCEDURES PROXY VOTING POLICY 1.0 GENERAL Columbia Wanger Asset Management, L.P. ("CWAM") shall vote all proxies for Client securities for which CWAM has been granted voting authority in a manner consistent with the best interests of CWAM's Clients, without regard to any benefit to CWAM or its affiliates. Clients are described in Section 6.0 below. 2.0 RECOMMENDATION CWAM shall examine each proxy recommendation and vote against management's recommendation if, in its judgment, approval or adoption of the recommendation would be expected to impact adversely the current or potential market value of the issuer's securities. 3.0 CLIENT INTEREST The best interest of a Client includes the potential economic return on the Client's investment. In the event a Client informs CWAM that its other interests require a particular vote, CWAM shall vote as the Client instructs. 4.0 VOTING CWAM addresses potential material conflicts of interest by having each stock analyst review and vote each proxy for the stocks that he/she follows. For those proposals where the analyst is voting against management's recommendation or where there is a variance from these guidelines, the CWAM Proxy Committee will determine the vote in the best interest of CWAM's Client, without consideration of any benefit to CWAM, its affiliates or its other Clients. 5.0 POLICY CWAM's policy is based upon its fiduciary obligation to act in its Clients' best interests. Applicable Regulation imposes obligations with respect to proxy voting on investment advisers, and also on investment companies. 6.0 ACCOUNT POLICIES Except as otherwise directed by the Client, CWAM shall vote proxies as follows: 6.1 SEPARATE ACCOUNTS CWAM shall vote proxies on securities held in separate Accounts where the Client has given CWAM proxy voting authority. 6.2 COLUMBIA ACORN TRUST/WANGER ADVISORS TRUST 57 CWAM shall vote proxies for portfolio securities held in these funds. 6.3 CWAM OFFSHORE FUNDS CWAM shall vote proxies on securities held in the Wanger Investment Company PLC (Wanger US Smaller Companies and Wanger European Smaller Companies) and Banque Du Louvre Multi Select Fund and OFI Multi Select Fund. CWAM has not been given authority to vote proxies for the New America Small Caps Fund. 6.4 CWAM SUBADVISED MUTUAL FUND ACCOUNTS The authority to vote proxies on securities held in the AXP International Aggressive Growth Fund is reserved to the client. CWAM has authority to vote proxies on securities held in the Optimum Small Cap Growth Fund. 7.0 PROXY COMMITTEE 7.1 CWAM has established a Proxy Committee, which currently consists of the Chief Investment Officer (CIO), Chief Operating Officer (COO), and Chief Compliance Officer (CCO). For proxy voting purposes only, the Proxy Committee will also include the analyst who follows the portfolio security to be voted on. A designated portfolio manager (PM) will be an alternate member of the Proxy Committee for voting purposes. 7.1.1. In the event that such voting members are unable to participate in a meeting of the Proxy Committee to vote on a proxy, their designees shall act on their behalf. A vacancy in the Proxy Committee shall be filled by the prior member's successor in position at CWAM or a person of equivalent experience. Others may be appointed as Standing Members (and Alternate Members) at the discretion of the Proxy Committee. In addition, others may be invited to participate in Proxy Committee meetings on an ad hoc basis at the discretion of the Proxy Committee. 7.1.2 Meetings will be held on an "as needed" basis to vote on proxy matters which come to the attention of the Proxy Committee. Members may vote at meetings by written consent, email or phone. A vote of a majority of the Proxy Committee may approve a proposal. For administrative and procedural matters, meetings will be held as needed. 7.2 PROXY COMMITTEE RESPONSIBILITIES: 7.2.1 Oversee the operation of the this Proxy Voting Policy and assist in compliance with Applicable Regulation, 7.2.2 Review CWAM proxy voting procedures as described herein at least annually to ensure consistency with internal policies and Applicable Regulation and recommend changes if necessary, 7.2.3 Develop guidelines to assist in the review and voting of proxy proposals, 58 7.2.4 Determine proxy votes when proposals require the attention of the Proxy Committee as described herein, 7.2.5 Select and monitor a third-party proxy voting service to help implement the proxy-voting process and to periodically evaluate the extent and quality of services provided by the third party, 7.2.6 Monitor the education of appropriate employees involved in the proxy-voting process, 7.2.7 Review disclosures relating to CWAM and Clients with respect to proxy voting procedures, 7.2.8 Monitor the recordkeeping of information related to the proxy-voting process, and 7.2.9 Review Forms N-PX filed with the Securities and Exchange Commission. 7.2.9.1 The Proxy Committee has delegated to the CCO the review described in Section 7.2.9. 7.3 THE FUNCTIONS OF THE PROXY COMMITTEE SHALL INCLUDE, IN PART: 7.3.1 Direction of the vote on proposals where there has been a recommendation to the Proxy Committee not to vote according to the Voting Guidelines (See Section 8.0). 7.3.2 Annual review of these procedures to ensure consistency with internal policies and Applicable Regulation, 7.3.3 Annual review of existing Voting Guidelines and development of additional Voting Guidelines to assist in the review of proxy proposals, and 7.3.4 Development and modification of voting procedures deemed appropriate or necessary. 7.4 In determining the vote on any proposal for which it has responsibility, the Proxy Committee shall act in accordance with the policy stated above. 7.5 CONFLICT No member of the Proxy Committee shall vote on any matter before the Proxy Committee if he or she has a conflict of interest by reason of a direct relationship with the issuer to whom a proposal relates, e.g., is a portfolio manager for an account of the issuer or has a personal or family relationship with senior officers or directors of the issuer. Each member of the Proxy Committee has a duty to disclose any such conflict or any attempt to influence his or her vote. 8.0 VOTING GUIDELINES 8.1 CWAM does not delegate any of its proxy voting to a third party. The analyst who follows the stock shall review all proxies and ballot items for which CWAM has authority to vote. The analyst shall consider the views of management on each proposal, 59 and if those views are consistent with this Proxy Voting Policy, will vote in favor of management. However, each analyst has the responsibility of independently analyzing each proposal and voting each proxy item on a case-by-case basis. 8.2 CWAM uses the following guidelines with respect to voting on specific matters: 8.2.1 ELECTION OF THE BOARD OF DIRECTORS CWAM will generally support management's recommendation for proposals for the election of directors or for an increase or decrease in the number of directors provided a majority of directors would be independent. When director elections are contested, the analyst's recommendation and vote shall be forwarded to the Proxy Committee for a full vote. 8.2.2 APPROVAL OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM CWAM will generally support management in its annual appointment or approval of independent registered public accounting firm. An accounting firm will usually be thought of as independent unless the accounting firm receives more than 50% of its revenues from non-audit and non-tax activities from the issuer and its affiliates. In those cases, the vote should be forwarded to the Proxy Committee for a full vote. 8.2.3 COMPENSATION AND EQUITY-BASED COMPENSATION PLANS CWAM is generally opposed to compensation plans that substantially dilute ownership interest in an issuer, provide participants with excessive awards, or have inherently objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for incentive programs (including options, restricted stock or other equity equivalent programs but excluding expired or exercised rights) exceeds 10% of the currently outstanding shares overall, or 3% for directors only, the proposal shall be referred to the Proxy Committee. The analyst shall provide background information on total compensation and issuer performance, along with a recommendation, to the Proxy Committee. The Proxy Committee will then consider the circumstances surrounding the issue and vote in the best interests of the Client. 8.2.4 CORPORATE GOVERNANCE ISSUES CWAM will generally support resolutions to improve shareholder democracy and reduce the likelihood of management entrenchment or conflict-of-interest. All matters relating to corporate governance will be voted by CWAM on a case-by-case basis using this basic premise. If an analyst believes that a vote should be made contrary to this premise, then the recommendation shall be brought to the Proxy Committee for a full vote. 8.2.5 SOCIAL AND CORPORATE RESPONSIBILITY ISSUES CWAM believes that "ordinary business matters" are primarily the responsibility of management and should be approved solely by the issuer's board of directors. However, proposals regarding social issues initiated by shareholders asking the 60 issuer to disclose or amend certain business practices will be analyzed by the appropriate analyst and evaluated on a case-by-case basis. If an analyst believes that a vote against management is appropriate, the analyst shall refer the proposal to the Proxy Committee for a full vote. 8.2.6 "BLANK CHECK" PROPOSALS Occasionally proxy statements ask that shareholders allow proxies to approve any other items in a "blank check" manner. Analysts should vote against such proposals, and need not refer those items to the Proxy Committee. 8.2.7 SHARES DISPOSED OF SUBSEQUENT TO THE PROXY RECORD DATE Occasionally, CWAM receives proxy statements for securities that have been sold subsequent to the record date of the proxy vote, but prior to the actual date that the proxy ballot must be voted. In such instances, the analyst may abstain from voting. 8.2.8 SPECIAL ISSUES VOTING FOREIGN PROXIES Voting proxies with respect to shares of foreign issuers may involve significantly greater effort and corresponding cost due to the variety of regulatory schemes and corporate practices in other countries. Oftentimes, there may be language barriers, which will mean that an English translation of proxy information may not be available. Such translations must be obtained before the relevant shareholder meeting. Time frames between shareholder notification, distribution of proxy materials, book-closure and the actual meeting date may be too short to allow timely action. In such situations, and where CWAM believes that it is uncertain with regards to the information received, or that the costs associated with proxy voting could exceed the expected benefits, the analyst may elect to abstain from voting. 8.2.8.1 In addition, to vote shares in certain countries, shares must be "blocked" by the custodian or depository for a specified number of days before the shareholder meeting. Blocked shares typically may not be traded until the day after the shareholder meeting. CWAM may refrain from shares subject to blocking restrictions where, in the analyst's judgment, benefit from proxy voting is outweighed by the interest of maintaining client liquidity in the shares. The decision to vote/not vote is made by the analyst, generally on a case-by-case basis based on relevant factors, including the extent to which the proxy items bear directly on shareholder value, the length of the blocking period, the significance of the holding, and whether the holding is considered a long-term Client holding. 8.2.8.2 In cases where the analyst determines that CWAM should abstain from voting foreign proxies, the CWAM librarian (or its designee) will document the reasons for abstaining from proxy voting. PROXY VOTING PROCEDURES 61 1.0 The Proxy Committee ("Committee") has developed the following procedures to assist in the voting of proxies according to the Voting Guidelines set forth in the Proxy Voting Policy in Section 8.0 thereof. The Committee may revise these procedures from time to time, as it deems appropriate or necessary to affect the purposes of the Proxy Voting Policy. 2.0 For Columbia Acorn Funds and Wanger Advisors Funds (the "Funds"). 2.1.1 CWAM shall use Institutional Shareholder Services ("ISS"), a third-party vendor, to implement its proxy-voting process. ISS shall provide record keeping services. ISS also will provide its internally generated proxy analysis, which can be used to help supplement the Analyst's research in the proxy-voting process. 2.1.2 On a daily basis, the Funds' custodian shall send ISS a holding file detailing each domestic equity holding included in the Funds. Information on equity holdings for the international portfolios included in the Funds shall be sent weekly. 2.1.3 ISS shall receive proxy material information from Proxy Edge or State Street Bank for the Funds. This shall include issues to be voted upon, together with a breakdown of holdings for the Funds. 2.1.4 Whenever a vote is solicited, ISS shall send CWAM a request to vote over a secure website. The Proxy Administrator, the CWAM Proxy Administrator (or a substitute) will be responsible to check this website daily. The Proxy Administrator will forward all materials to the appropriate Analyst, who will review and complete the proxy ballot and return to the Proxy Administrator, or will refer one or more proposals to the Committee. The Analyst will file Committee documentation under G:\Shared\ProxyComm. The Proxy Administrator will promptly provide ISS the final instructions as how to vote the proxy. 2.1.5 ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by the Funds on which a vote is solicited unless otherwise directed by the analyst. On a yearly basis (or when requested), CWAM shall receive a report from ISS detailing CWAM's voting for the previous period on behalf of the Funds. 3.0 For All Other Clients for Which CWAM Has Voting Authority (e.g. Separate Accounts), CWAM shall use each Separate Account's respective custodian for voting proxies. CWAM shall separately maintain voting records for these accounts. 3.1.1 The Proxy Administrator will be responsible for obtaining all proxy materials from the custodian, forward these to the appropriate Analyst who will review and complete the proxy ballot and return to the Proxy Administrator or will refer one or more proposals to the Committee. The Analyst will keep documentation (usually copies of email correspondence) of any proposals brought before the Committee and will instruct the Proxy Administrator to vote the proposal in accordance with the Committee decision. The Analyst will file Committee documentation under G:\Shared\ProxyComm. The Proxy Administrator will promptly provide ISS the final instructions as how to vote the proxy. 62 3.1.2 The Proxy Administrator will be responsible for recording all voting records onto a spreadsheet, which will comprise the detail of how CWAM voted each proxy on behalf of the respective Client. This spreadsheet shall comply with the appropriate record keeping requirements, and will be available to the Client upon request. 3.1.3 Exception. A Separate Account may agree with CWAM that CWAM shall utilize ISS for proxy voting, as described in these policies. 4.0 The Firm shall retain any proxy voting records in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the Firm. 5.0 The Firm's CCO shall be responsible for reviewing proxy voting activities. 63 PART C ITEM 23. EXHIBITS Exhibits: a. Agreement and Declaration of Trust. (3) b. By-laws, as amended effective December 20, 2004. (16) c.1. Specimen Share Certificate - Wanger U.S. Small Cap. (1) c.2. Specimen Share Certificate - Wanger International Small Cap. (2) d. Amended and Restated Investment Advisory Agreement between Wanger Advisors Trust and Columbia Wanger Asset Management, L.P. dated September 28, 2005. e. Underwriting Agreement between Wanger Advisors Trust and Liberty Funds Distributor, Inc. dated November 1, 2001. (13) f. None. g. Amended and Restated Master Custodian Agreement between Wanger Advisors Trust and State Street Bank and Trust Company dated September 19, 2005. 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). (6) 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). (7) h.3. Amendment No. 1 to the Participation Agreement between Wanger Advisors Trust and Aegon Financial Services Group, Inc. (formerly Providian Life and Health Insurance Company and 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). (8) h.4. Participation Agreement between Wanger Advisors Trust and First Providian Life and Health Insurance Company dated November 15, 1996, and Amendment No. 1 dated December 16, 1996. (9) 2 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. (10) h.6. Shareholders' Servicing and Transfer Agent Agreement between Wanger Advisors Trust and Liberty Funds Services, Inc. dated September 29, 2000. (12) h.7. Participation Agreement between Wanger Advisors Trust and Keyport Benefit Life Insurance Company dated September 29, 2000. (12) h.8. Participation Agreement between Wanger Advisors Trust and Keyport Life Insurance Company dated September 29, 2000. (12) h.9. Participation Agreement between Wanger Advisors Trust, Liberty Wanger Asset Management, L.P. and American Enterprise Life Insurance Company dated August 30, 1999. (13) h.10. Participation Agreement between Wanger Advisors Trust, Liberty Wanger Asset Management, L.P. and IDS Life Insurance Company dated August 30, 1999. (13) h.11. Participation Agreement between Wanger Advisors Trust, Liberty Wanger Asset Management, L.P. and IDS Life Insurance Company of New York dated August 30, 1999. (13) h.12. Participation Agreement between Wanger Advisors Trust, Liberty Funds Distributor, Inc., and Sun Life Assurance Company of Canada (U.S.) dated April 1, 2002. (13) h.13. Participation Agreement between Wanger Advisors Trust, Liberty Funds Distributor, Inc. and Transamerica Life Insurance Company dated May 1, 2002. (14) h.14. Amendment No. 1 to the Participation Agreement between Wanger Advisors Trust, Liberty Funds Distributor, Inc. and Transamerica Life Insurance Company dated December 1, 2002. (14) h.15. Amendment No. 2 to the Participation Agreement between Wanger Advisors Trust, Liberty Funds Distributor, Inc. and Transamerica Life Insurance Company dated December 1, 2002. (15) h.16. Participation Agreement between Wanger Advisors Trust, Columbia Funds Distributor, Inc. and Transamerica Financial Life Insurance Company dated May 1, 2004. (15) h.17. Letter agreement between Wanger Advisors Trust and Columbia Wanger Asset Management, L.P. dated May 1, 2006. 3 h.18. Amendment No. 1 to the Shareholders' Servicing and Transfer Agent Agreement between Wanger Advisors Trust and Columbia Funds Services, Inc. dated February 1, 2004. (17) h.19. Participation Agreement between Wanger Advisors Trust, Columbia Wanger Asset Management, L.P. and ING Insurance Company of America dated May 1, 2004. (16) h.20. Participation Agreement between Wanger Advisors Trust, Columbia Funds Distributor, Inc., Sun Life Assurance Company of Canada (U.S.) and Sun Life Insurance and Annuity Company of New York dated December 1, 2004. (16) h.21. Participation Agreement among Merrill Lynch Life Insurance Company, Wanger Advisors Trust and Columbia Funds Distributor, Inc. dated March 4, 2005. h.22. Participation Agreement among ML Life Insurance Company of New York, Wanger Advisors Trust and Columbia Funds Distributor, Inc. dated March 4, 2005. h.23. Participation Agreement among TIAA-CREF Life Insurance Company, Wanger Advisors Trust, Columbia Wanger Asset Management, LLP and Columbia Management Distributors, Inc. dated March 1, 2006. i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of Independent Registered Public Accounting Firm. k. None. l. Subscription Agreement. (5) m. None. n. None. p.1. Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended January 1, 2006. p.2. Form of Code of Ethics for Non-Interested Board Members, as amended. p.3. Code of Ethics of Columbia Management Distributors, Inc., the principal underwriter of the Funds, dated January 1, 2006. - -------------------------------------------------------------------------------- 1. Incorporated by reference to exhibit 4(a) 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. 4 2. Incorporated by reference to exhibit 4(b) filed with post-effective amendment no. 1 to the Registration Statement filed on August 25, 1995. 3. Incorporated by reference to exhibit 1 filed with post-effective amendment no. 2 to the Registration Statement filed on April 19, 1996. 4. Incorporated by reference to exhibit 8(a) filed with post-effective amendment no. 2 to the Registration Statement filed on April 19, 1996. 5. Incorporated by reference to exhibit 13 filed with post-effective amendment no. 2 to the Registration Statement filed on April 19, 1996. 6. Incorporated by reference to exhibit 9(a)(1) filed with post-effective amendment no. 3 to the Registration Statement filed on April 21, 1997. 7. Incorporated by reference to exhibit 9(a)(2) filed with post-effective amendment no. 3 to the Registration Statement filed on April 21, 1997. 8. Incorporated by reference to exhibit 9(a)(3) filed with post-effective amendment no. 3 to the Registration Statement filed on April 21, 1997. 9. Incorporated by reference to exhibit 9(a)(4) filed with post-effective amendment no. 3 to the Registration Statement filed on April 21, 1997. 10. Incorporated by reference to exhibit 9(a)(5) filed with post-effective amendment no. 3 to the Registration Statement filed on April 21, 1997. 11. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 8 to the Registration Statement filed February 26, 1999. 12. Incorporated by reference to exhibit of the same number filed with post-effective amendment no. 13 to the Registration Statement filed April 25, 2001. 13. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 14 to the Registration Statement filed April 10, 2002. 14. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 15 to the Registration Statement filed April 10, 2003. 15. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 16 to the Registration Statement filed April 20, 2004. 16. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 17 to the Registration Statement filed February 18, 2005. 17. Incorporated by reference to the exhibit of the same number filed with post-effective amendment no. 18 to the Registration Statement filed April 13, 2005. 5 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 "Trust Management Organizations" and in the Statement of Additional Information under the caption "Management Arrangements" 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 "Trust Management Organizations" is incorporated by reference. Neither Columbia 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. 6 ITEM 27. PRINCIPAL UNDERWRITER (a) Columbia Management Distributors, Inc. ("CMD"), a subsidiary of Columbia Management Advisors, LLC, is the Registrant's principal underwriter. CMD acts in such capacity for each series of Columbia Funds Series Trust, Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust, Stein Roe Variable Investment Trust, Nations Separate Account Trust and Columbia Acorn Trust. (b) The table below lists each director or officer of the principal underwriter named in the answer to Item 20. 7
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT UNDERWRITER Ahmed, Yaqub Vice President None Aldi, Andrew Vice President None Anderson, Judith Vice President None Ash, James Vice President None Banks, Keith Director None Ballou, Rick Senior Vice President None Bartlett, John Managing Director None Berretta, Frederick Director and President None Bradley, Jean M. Vice President None Brantley, Thomas Senior Vice President None Bozek, James Senior Vice President None Brown, Beth Senior Vice President None Claiborne, Doug Senior Vice President None Climer, Quentin Vice President None Conley, Brook Vice President None Davis, W. Keith Senior Vice President None DeFao, Michael Chief Legal Officer None Desilets, Marian Vice President Assistant Secretary Devaney, James Senior Vice President None Devlin, Audrey Assistant Vice President None Dolan, Kevin Vice President None Donovan, M. Patrick Chief Compliance Officer None Doyle, Matthew Vice President None Emerson, Kim P. Senior Vice President None Feldman, David Managing Director None Feloney, Joseph Senior Vice President None 8 NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT UNDERWRITER Ferullo, Jeanne Vice President None Fisher, James Vice President None Fisher, Michael Assistant Secretary None Ford, David Vice President None Froude, Don Director and President None Gellman, Laura D. Conflicts of Interest Officer None Gentile, Russell Vice President None Goldberg, Matthew Senior Vice President None Gubala, Jeffrey Vice President None Guenard, Brian Vice President None Hall, Jennifer Assistant Vice President None Hoefler, Heidi A. Assistant Secretary None Hohmann, David Assistant Secretary None Iudice, Jr., Philip Treasurer and Chief Financial Officer None Kamin, Eric Assistant Vice President None Koffink, Paul Assistant Vice President None Lebrun, Marie T. Assistant Treasurer None Lynch, Andrew Managing Director None Lynn, Jerry Vice President None Magasiner, Andrei Grischa Assistant Treasurer None Marcelonis, Sheila Vice President None Martin, William W. Operational Risk Officer None Miller, Anthony Vice President None Miller, Greg Vice President None Moberly, Ann R. Senior Vice President None Moon, Leslie Assistant Vice President None Morse, Jonathan Vice President None Mroz, Gregory Senior Vice President None Nickodemus, Paul Vice President None Nigrosh, Diane Vice President None Noack, Robert Vice President None Owen, Stephanie Vice President None Penitsch, Marilyn Vice President None Piken, Keith Senior Vice President None Pryor, Elizabeth Secretary None Ratto, Gregory Vice President None Rawdon, Gary Assistant Vice President None 9 NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH REGISTRANT UNDERWRITER Reed, Christopher B. Senior Vice President None Ross, Gary Senior Vice President None Saylor, Roger Director and President None Schug, Derek Vice President None Schortmann, Matthew Assistant Vice President None Sciasca, Steven A. Assistant Vice President None Scully-Power, Adam Vice President None Seller, Gregory Vice President None Shea, Terence Vice President None Sideropoulos, Lou Senior Vice President None Smith, Connie B. Assistant Secretary None Studer, Eric Senior Vice President None Unckless, Amy L. Corporate Ombudsman None Waldron, Thomas Vice President None Walsh, Brian Vice President None Weidner, Donna M. Assistant Treasurer None Wess, Valerie Senior Vice President None Wheeler, Eben Assistant Vice President None Wilson, Christopher L. Senior Vice President None Winn, Keith Senior Vice President None Yates, Susan Vice President None
- ------------------------- *The principal business address of each officer of Columbia Management Distributors, Inc. is One Financial Center, Boston, MA 02111. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS Bruce H. Lauer, Vice President, Secretary and Treasurer Wanger Advisors Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Certain records, including records relating to the Registrant's shareholders and the physical possession of its securities, may be maintained at the main office of Registrant's transfer agent, Columbia Management Services, Inc., located at One Financial Center, Boston, MA 02111 or custodian, State Street Bank and Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900. 10 ITEM 29. MANAGEMENT SERVICES Not applicable. ITEM 30. UNDERTAKINGS Not applicable. 11 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 20, 2006. WANGER ADVISORS TRUST By: /s/ Charles P. McQuaid ----------------------------- Charles P. McQuaid, 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/ Jerome L. Duffy Trustee ) - ----------------------------- ) Jerome L. Duffy ) ) /s/ Fred D. Hasselbring Trustee ) - ----------------------------- ) Fred D. Hasselbring ) ) /s/ Kathryn A. Krueger Trustee ) - ----------------------------- ) Kathryn A. Krueger ) April 20, 2006 ) /s/ Patricia H. Werhane Trustee and ) - ----------------------------- Chair of the Board ) Patricia H. Werhane ) ) /s/ Ralph Wanger Trustee ) - ----------------------------- ) Ralph Wanger ) ) /s/ Charles P. McQuaid President ) - ----------------------------- (principal executive ) Charles P. McQuaid officer) ) ) ) /s/ Bruce H. Lauer Treasurer (principal ) - ----------------------------- financial and accounting ) Bruce H. Lauer officer) ) ) 12 INDEX OF EXHIBITS FILED WITH THIS AMENDMENT EXHIBIT NUMBER EXHIBIT d. Amended and Restated Investment Advisory Agreement between Wanger Advisors Trust and Columbia Wanger Asset Management, L.P. dated September 28, 2005. g. Amended and Restated Master Custodian Agreement between Wanger Advisors Trust and State Street Bank and Trust Company dated September 28, 2005. h.17. Letter agreement between Wanger Advisors Trust and Columbia Wanger Asset Management, L.P. dated May 1, 2006. h.21. Participation Agreement among Merrill Lynch Life Insurance Company, Wanger Advisors Trust and Columbia Funds Distributor, Inc. dated March 4, 2005. h.22. Participation Agreement among ML Life Insurance Company of New York, Wanger Advisors Trust and Columbia Funds Distributor, Inc. dated March 4, 2005. h.23. Participation Agreement among TIAA-CREF Life Insurance Company, Wanger Advisors Trust, Columbia Wanger Asset Management, LLP and Columbia Management Distributors, Inc. dated March 1, 2006. i. Consent of Bell, Boyd & Lloyd LLC. j. Consent of Independent Registered Public Accounting Firm. p.1. Code of Ethics of Columbia Wanger Asset Management, L.P., Columbia Acorn Trust and Wanger Advisors Trust, as amended January 1, 2006. p.2. Form of Code of Ethics for Non-Interested Board Members, as amended. p.3. Code of Ethics of Columbia Management Distributors, Inc., the principal underwriter of the Funds, dated January 1, 2006. p.3. Code of Ethics of Columbia Management Distributors, Inc., the principal underwriter of the Funds, dated January 1, 2006. 13 EX-99.D 3 file003.txt INVESTMENT ADVISORY AGREEMENT AMENDED AND RESTATED INVESTMENT ADVISORY AGREEMENT WANGER ADVISORS TRUST, a Massachusetts business trust registered under the Investment Company Act of 1940 (the "1940 Act") as an open-end management investment company (the "Trust"), and COLUMBIA WANGER ASSET MANAGEMENT, L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser ("Columbia WAM"), agree that: 1. ENGAGEMENT OF COLUMBIA WAM. Columbia WAM shall manage the investment and reinvestment of the assets of Wanger U.S. Smaller Companies, Wanger International Small Cap, Wanger Select and Wanger International Select, series of the Trust (each, a "Fund," and collectively, the "Funds"), subject to the supervision of the Board of Trustees of the Trust, for the period and on the terms set forth in this agreement. Also subject to the supervision of the Board of Trustees of the Trust, Columbia WAM will endeavor to preserve the autonomy of the Trust as a separate legal entity. Columbia WAM will remain a wholly-owned subsidiary of Columbia Management Group, Inc. ("CMG") (or its successor) as a Chicago-based investment management firm. If the Trust establishes one or more series in addition to the Funds named above with respect to which it desires to retain Columbia WAM as investment adviser hereunder, and if Columbia WAM is willing to provide such services under this agreement, the Trust and Columbia WAM may add such new series to this agreement, by written supplement to this agreement. Such supplement shall include a schedule of compensation to be paid to Columbia WAM by the Trust with respect to such series and such other modifications of the terms of this agreement with respect to such series as the Trust and Columbia WAM may agree. Upon execution of such a supplement by the Trust and Columbia WAM, that series will become a Fund hereunder and shall be subject to the provisions of this agreement to the same extent as the Funds named above, except as modified by the supplement. Columbia WAM shall give due consideration to the investment policies and restrictions and the other statements concerning the Funds in the Trust's agreement and declaration of trust, bylaws, and registration statement under the 1940 Act and the Securities Act of 1933 (the "1933 Act"), and to the provisions of the Internal Revenue Code of 1986, as amended, applicable to the Funds as regulated investment companies. Columbia WAM shall be deemed for all purposes to be an independent contractor and not an agent of the Trust or the Funds, and unless otherwise expressly provided or authorized, shall have no authority to act or represent the Trust or the Funds in any way. Columbia WAM will maintain the investment philosophy and research that the Chicago-based management deems appropriate; its research activities will be separate and dedicated solely to Columbia WAM and it will maintain its own domestic and international trading activities. Columbia WAM will use its best efforts to maintain information systems that will provide timely and uninterrupted operating information and data consistent with all regulatory and compliance requirements. The Chicago-based management will have the responsibility and considerable latitude to recruit and compensate (on a competitive basis) investment management personnel and to control travel budgets for analysts consistent with its operational and strategic plans while always subject to the approval of the management of CMG. Columbia WAM is authorized to make the decisions to buy and sell securities, options, futures contracts and any other investments in which the Funds may invest pursuant to its investment objectives, policies and restrictions, to place the Funds' portfolio transactions with broker-dealers, and to negotiate the terms of such transactions, including brokerage commissions on brokerage transactions, on behalf of the Funds. Columbia WAM is authorized to exercise discretion with each Fund's policy concerning allocation of its portfolio brokerage, consistent with the Trust's registration statement and under the supervision of the Trust's Board of Trustees, and as permitted by law, including but not limited to Section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not be required to make any reduction in its investment advisory fees. Columbia WAM may, where it deems it to be advisable, aggregate orders with other securities of the same type to be sold or purchased by one or more Funds with like orders on behalf of other clients of Columbia WAM (as well as clients of other investment advisers affiliated with Columbia WAM, in the event that Columbia WAM and such affiliated investment advisers share common trading facilities). In such event, Columbia WAM (or Columbia WAM and its affiliated advisers, as the case may be) will allocate the shares so sold or purchased, as well as the expenses incurred in the transaction, in a manner it (or it and they) consider to be equitable and fair and consistent with its (or its or their) fiduciary obligations to clients. Columbia WAM acknowledges the importance that the Board and its compliance committee place on full legal and regulatory compliance by CMG, Columbia WAM, and all other Trust service providers and their personnel ("collectively "Providers") and agrees to (i) fully cooperate with the Board, the compliance/contract review committee and the Chief Compliance Officer of the Trust with all inquiries by the Trust concerning such compliance by the Providers and (ii) proactively communicate with the Board, the compliance/contract review committee and the Chief Compliance Officer of the Trust concerning material compliance matters and any instance of legal or regulatory non-compliance by the Providers of which Columbia WAM is aware and that Columbia WAM deems to be material. Such cooperation and communication by Columbia WAM will be done after receipt of an inquiry or upon learning of any such legal or regulatory non-compliance. 2. ADMINISTRATIVE SERVICES. Columbia WAM shall supervise the business and affairs of the Trust and each Fund and shall provide such services and facilities as may be required for effective administration of the Trust and Funds as are not provided by employees or other agents engaged by the Trust; provided that Columbia WAM shall not have any obligation to provide under this agreement any such services which are the subject of a separate agreement or arrangement between the Trust and Columbia WAM, any affiliate of Columbia WAM, or any third party administrator. 3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection with the services to be provided by Columbia WAM under this agreement, Columbia WAM may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by Columbia WAM, provided that Columbia WAM shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this agreement. All costs and expenses associated with services provided by any such third parties shall be borne by Columbia WAM or such parties. 4. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under the 1940 Act, Columbia WAM agrees to maintain records relating to its services under this agreement, and further agrees that all records that it maintains for the Trust are the property of the Trust and to surrender promptly to the Trust any of such records upon the Trust's request; provided that Columbia WAM may at its own expense make and retain copies of any such records. Columbia WAM further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. 5. EXPENSES TO BE PAID BY COLUMBIA WAM. Columbia WAM shall furnish to the Trust, at Columbia WAM's expense, office space and all necessary office facilities, equipment and personnel for managing that portion of the Trust's business relating to the Funds. Columbia WAM shall also assume and pay all other expenses incurred by it in connection with managing the assets of the Funds, including expenses in connection with placement of securities orders, all expenses of printing and distributing the Funds' prospectus and reports to prospective investors (except to the extent such expenses are allocated to a party other than the Trust in any participation or operating agreement to which the Trust is a party), and all expenses in determination of daily price computations, portfolio accounting and related bookkeeping. 6. EXPENSES TO BE PAID BY THE TRUST. Except as otherwise provided in this agreement or any other contract to which the Trust is a party, the Trust shall pay all expenses incidental to its organization, operations and business, including, without limitation: (a) all charges of depositories, custodians, sub-custodians and other agencies for the safekeeping and servicing of its cash, securities and other property and of its transfer agents and registrars and its dividend disbursing and redemption agents, if any; (b) all charges of legal counsel and of independent auditors; (c) all compensation of trustees other than those affiliated with Columbia WAM or the Trust's administrator, if any, and all expenses incurred in connection with their services to the Trust; (d) all expenses of preparing, printing and distributing notices, proxy solicitation materials and reports to shareholders of the Funds; (e) all expenses of meetings of shareholders of the Funds; (f) all expenses of registering and maintaining the registration of the Trust under the 1940 Act and of shares of the Funds under the 1933 Act, including all expenses of preparation, filing and printing of annual or more frequent revisions of the Funds' registration statements under the 1940 Act and 1933 Act, and of supplying each then existing shareholder or beneficial owner of shares of the Funds of a copy of each revised prospectus or supplement thereto, and of supplying a copy of the statement of additional information upon request to any then existing shareholder; (g) all costs of borrowing money; (h) all expenses of publication of notices and reports to shareholders and to governmental bodies or regulatory agencies; 2 (i) all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign, and all stamp or other taxes; (j) all expenses of printing and mailing certificates for shares of a Fund; (k) all expenses of bond and insurance coverage required by law or deemed advisable by the Board; (l) all expenses of qualifying and maintaining qualification of, or providing appropriate notification of intention to sell relating to, shares of the Funds under the securities laws of the various states and other jurisdictions, and of registration and qualification of the Trust under any other laws applicable to the Trust or its business activities; (m) all fees, dues and other expenses related to membership of the Trust in any trade association or other investment company organization; and (n) any extraordinary expenses. In addition to the payment of expenses, the Trust shall also pay all brokers' commissions and other charges relating to the purchase and sale of portfolio securities for each Fund. Any expense borne by the Trust that is not solely attributable to a Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as Columbia WAM determines is fair and appropriate, or as otherwise specified by the Board of Trustees of the Trust. 7. COMPENSATION OF COLUMBIA WAM. For the services to be rendered and the expenses to be assumed and to be paid by Columbia WAM under this agreement, the Trust on behalf of the respective Funds shall pay to Columbia WAM fees accrued daily and paid monthly at the annual rates (as the percentage of the Fund's net assets) shown below: WANGER U.S. SMALLER COMPANIES ASSETS RATE OF FEE First $100 million............................................. 0.990% $100 million to $250 million................................... 0.940% In excess of $250 million...................................... 0.890% WANGER INTERNATIONAL SMALL CAP ASSETS RATE OF FEE First $100 million............................................. 1.150% $100 million to $250 million................................... 1.000% $250 million to $500 million................................... 0.950% $500 million and over.......................................... 0.850% WANGER SELECT All Assets..................................................... 0.850% WANGER INTERNATIONAL SELECT All Assets..................................................... 0.990% 8. LIMITATION OF EXPENSES OF THE FUND. The total expenses of Wanger Select and Wanger International Select through April 30, 2006, exclusive of taxes, of interest and of extraordinary litigation expenses, but including fees paid to Columbia WAM, as a percentage of the Fund's net assets, shall not exceed 1.35% or 1.45% per annum, respectively, and Columbia WAM agrees to reimburse each Fund for any sums expended for such expenses in excess of that amount. For purposes of calculating the expenses subject to this limitation, (i) brokers' commissions and other charges relating to the purchase and sale of portfolio securities and (ii) 3 the excess custodian costs attributable to investments in foreign securities compared to the custodian costs which would have been incurred had the investments been in domestic securities, shall not be regarded as expenses. Reimbursement, if any, shall be made by reduction of the fees otherwise payable to Columbia WAM under this agreement, no less frequently than quarterly. Notwithstanding the foregoing, the limitations on total expenses set forth above in this Section 8 shall not apply to any class of shares of a Fund established after November 1, 2001. 9. SERVICES OF COLUMBIA WAM NOT EXCLUSIVE. The services of Columbia WAM to the Funds hereunder are not to be deemed exclusive, and Columbia WAM shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. The principal investment management focus and responsibilities of Columbia WAM's portfolio managers and analysts will be dedicated to Columbia Acorn Trust and Wanger Advisors Trust. 10. SERVICES OTHER THAN AS MANAGER. Columbia WAM (or an affiliate of Columbia WAM) may act as broker for the Funds in connection with the purchase or sale of securities by or to the Funds if and to the extent permitted by procedures adopted from time to time by the Board of Trustees of the Trust. Such brokerage services are not within the scope of the duties of Columbia WAM under this agreement, and, within the limits permitted by law and the Board of Trustees of the Trust, Columbia WAM (or an affiliate of Columbia WAM) may receive brokerage commissions, fees or other remuneration from the Funds for such services in addition to its fee for services under this agreement. Within the limits permitted by law, Columbia WAM or an affiliate of Columbia WAM may receive compensation from the Funds for other services performed by it for the Funds which are not within the scope of the duties of Columbia WAM under this agreement. The Trust hereby authorizes any entity or person associated with Columbia WAM that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. The Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2(T)(a)(iv). 11. LIMITATION OF LIABILITY OF COLUMBIA WAM. To the extent permitted by applicable law, neither Columbia WAM nor any of its partners, officers, agents, employees or affiliates shall be liable to the Trust or its shareholders for any loss suffered by the Trust or its shareholders as a result of any error of judgment, or any loss arising out of any investment, or as a consequence of any other act or omission of Columbia WAM or any of its affiliates in the performance of Columbia WAM's duties under this agreement, except for liability resulting from willful misfeasance, bad faith or gross negligence on the part of Columbia WAM or such affiliate, or by reason of reckless disregard by Columbia WAM or such affiliate of the obligations and duties of Columbia WAM under this agreement. 12. USE OF "WANGER" OR "COLUMBIA" NAME. The Trust may use the name "Wanger Advisors Trust" or any name using the name "Columbia" or "Wanger" or any combination or derivation of either of them only for so long as this agreement or any extension, renewal or amendment hereof remains in effect, including any similar agreement with any organization that shall remain affiliated with CMG and that shall have succeeded to the business of Columbia WAM as investment adviser. At such time as this agreement or any extension, renewal or amendment hereof, or such similar agreement, shall no longer be in effect, the Trust will (by amendment of its agreement and Declaration of Trust, if necessary) cease to use any name using the name "Columbia" or "Wanger" or any combination or derivation of either of them or any name similar thereto or any other name indicating that it is advised by or otherwise connected with Columbia WAM or with any organization which shall have succeeded to Columbia WAM's business as investment adviser. Columbia WAM's consent to the use of the name "Wanger" by the Trust shall not prevent Columbia WAM's permitting any other enterprise, including other investment companies, to use that name. 13. DURATION AND RENEWAL. This agreement shall be effective on September 28, 2005. Unless terminated as provided in Section 14, this agreement shall continue in effect until July 31, 2006, and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of the Trust or of Columbia WAM, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of the Trust or vote of the holders of a majority of the outstanding shares of each Fund. 14. TERMINATION. This agreement may be terminated at any time, without payment of any penalty, by the Board of Trustees of the Trust, or by a vote of the holders of a majority of the outstanding shares of each Fund, upon 60 days' written notice to Columbia WAM. This agreement may be terminated by Columbia WAM at any time upon 60 days' written notice to the Trust. This agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a)(4) of the 1940 Act). 15. NON-LIABILITY OF 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 Trust by officers of the Trust as officers and not individually. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of the Trust. Neither the 4 authorization of any action by the trustees or shareholders of the Trust nor the execution of this agreement on behalf of the Trust shall impose any liability upon any trustee, officer or shareholder of the Trust. 16. AMENDMENT. This agreement may be amended in accordance with the 1940 Act. 17. NOTICES. Any notice, demand, change of address or other communication to be given in connection with this agreement shall be given in writing and shall be given by personal delivery, by registered or certified mail or by transmittal by facsimile or other electronic medium addressed to the recipient as follows (or at such other address or addresses as a party may provide to the other from time to time, by notice): 5 If to Columbia WAM: Columbia Wanger Asset Management, L.P. Attention: Bruce H. Lauer 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone: 312 634-9200 Facsimile: 312 634-0016 with a copy to: R. Scott Henderson Bank of America One Financial Center Boston, MA 02111 Telephone: 617 772-3331 Facsimile: 617 345-0919 If to Wanger Advisors Trust: Wanger Advisors Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone: 312 634-9200 Facsimile: 312 634-1919 with a copy to: Bell, Boyd & Lloyd LLC Attention: Cameron S. Avery 70 West Madison Street, Suite 3300 Chicago, Illinois 60602 Telephone: 312/372-1121 Facsimile: 312/372-2098 All notices shall be conclusively deemed to have been given on the day of actual delivery thereof and, if given by registered or certified mail, on the fifth business day following the deposit thereof in the mail and, if given by facsimile or other electronic medium, on the day of transmittal thereof (upon electronic confirmation of receipt thereof). Dated as of September 28, 2005 WANGER ADVISORS TRUST COLUMBIA WANGER ASSET MANAGEMENT, L.P., By WAM Acquisition GP, Inc. Its General Partner By: /s/ Charles P. McQuaid By: /s/ Bruce H. Lauer ----------------------------------------- ------------------- Charles P. McQuaid Bruce H. Lauer 6 EX-99.G 4 file004.txt MASTER CUSTODIAN AGREEMENT AMENDED AND RESTATED MASTER CUSTODIAN AGREEMENT This Amended and Restated Master Custodian Agreement is made as of September 19, 2005 between each registered investment company identified on Appendix A hereto (each such registered investment company and each registered investment company made subject to this Agreement in accordance with Section 18 below shall hereinafter be referred to as the "FUND"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "CUSTODIAN"). WITNESSETH: WHEREAS, each Fund is registered under the Investment Company Act of 1940, as amended, (the "1940 ACT"); WHEREAS, the Funds have appointed the Custodian as custodian of its assets by a Master Custodian Agreement dated as of January 20, 1995, as amended (the "ORIGINAL CUSTODY AGREEMENT"), and retained the Custodian to serve as custodian of its assets, for itself, and, to the extent a Fund is authorized to issue shares of common stock or shares of beneficial interest in separate series, on behalf of each of its series set forth on Appendix A hereto (such series together with all other series subsequently established by a Fund and made subject to this Agreement in accordance with Section 19 below, shall hereinafter be referred to as the "PORTFOLIO(S)"; for each Fund not authorized to issue separate series of shares, all references hereinafter to one or more "Portfolio(s)" shall be deemed to refer to such Fund); and WHEREAS, the Funds and Custodian desire to amend and restate the Original Custody Agreement pursuant to the terms and conditions herein. NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT Each Fund hereby employs the Custodian as the custodian of certain assets of such Fund, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("DOMESTIC SECURITIES") and securities it desires to be held outside the United States ("FOREIGN SECURITIES"). The Fund, on behalf of the Portfolio(s), has delivered or will deliver to the Custodian all securities and cash of the Portfolios (other than any securities or cash of the Portfolios held by a futures commission merchant or commodity clearing organization pursuant to Rule 17f-6 under the 1940 Act), and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios ("SHARES") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. With respect to uncertificated shares (the "UNDERLYING SHARES") of registered investment companies (hereinafter sometimes referred to as the "UNDERLYING PORTFOLIOS"), the holding of confirmation statements that identify the shares as being recorded in the Custodian's name on behalf of the Portfolio will be deemed custody for purposes hereof. Upon receipt of "PROPER INSTRUCTIONS" (as such term is defined in Section 7 hereof), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees, Board of Directors, Board of Managers or other governing board, as applicable, of a Fund (the "BOARD") on behalf of the applicable Portfolio(s). The Custodian may employ as sub-custodian for a Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4. The Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all domestic securities owned by such Portfolio other than (a) securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. SECURITIES SYSTEM") and (b) the Underlying Shares owned by the Fund which are maintained pursuant to Section 2.13 in an account with State Street Bank and Trust Company or such other entity as may from time to time act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the "UNDERLYING TRANSFER AGENT"). SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian or in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio; 2 3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible under this Agreement for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 11) For delivery in connection with any loans of securities made by the Fund to a third party lending agent, or the lending agent's custodian, in accordance with Proper Instructions (which may not provide for the receipt by the Custodian of 3 collateral therefor) agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio; 12) For delivery as security in connection with any borrowing by the Fund on behalf of the Portfolio requiring a pledge of assets by the Fund on behalf of the Portfolio, but only against receipt of amounts borrowed; 13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "EXCHANGE ACT") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund; 14) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission ("CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund; 15) Upon the sale or other delivery of such investments (including, without limitation, to one or more custodians (each, a "REPO CUSTODIAN") appointed by the Fund on behalf of a Portfolio and communicated to the Custodian by Proper Instructions, including Schedule D (as may be amended from time to time) attached to this Agreement, duly executed by two authorized officers of the Fund, for the purpose of engaging in repurchase agreement transactions), and prior to receipt of payment therefor, as set forth in written Proper Instructions (such delivery in advance of payment, along with payment in advance of delivery made in accordance with Section 2.6(8), as applicable, shall each be referred to herein as a "FREE TRADE"), provided that such Proper Instructions shall set forth (a) the securities of the Portfolio to be delivered and (b) the person(s) to whom delivery of such securities shall be made; 16) Upon receipt of instructions from the Fund or the transfer agent for the Fund (the "TRANSFER AGENT") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio (the "PROSPECTUS"), in satisfaction of requests by holders of Shares for repurchase or redemption; 17) For delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and 4 18) In the case of a sale processed through the Underlying Transfer Agent of Underlying Shares, in accordance with Section 2.13 hereof; 19) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio specifying the securities of the Portfolio to be delivered and naming the person or persons to whom delivery of such securities shall be made. SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment advisor as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, the Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. SECTION 2.5 COLLECTION OF INCOME. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held 5 hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.8 hereof; (c) in the case of a purchase of Underlying Shares, in accordance with the conditions set forth in Section 2.13; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities; or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued as set forth in Section 6 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on Shares declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 6 7) For payment as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and 8) For delivery to a Repo Custodian for the purpose of engaging in repurchase agreement transactions, which delivery may be made without contemporaneous receipt by the Custodian of assets in exchange therefor, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund on behalf of a Portfolio, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Portfolio with respect to the securities so delivered (each such delivery, a "FREE TRADE"), provided that, in preparing reports of monies received or paid out of the Portfolio or of assets comprising the Portfolio, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and 9) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the Portfolio specifying the amount of such payment and naming the person or persons to whom such payment is to be made. SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or subcustodian of the Custodian for purposes of this Section 2.7 or any other provision of this Agreement. SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time. SECTION 2.9 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating U.S. cash, U.S. Government securities, or other U.S. securities in connection with swaps arrangements in connection with transactions by the Portfolio, options purchased, sold or written 7 by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio. SECTION 2.10 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. SECTION 2.11 PROXIES. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. SECTION 2.12 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action. SECTION 2.13 DEPOSIT OF FUND ASSETS WITH THE UNDERLYING TRANSFER AGENT. Underlying Shares shall be deposited and/or maintained in an account or accounts maintained with the Underlying Transfer Agent. The Underlying Transfer Agent shall be deemed to be acting as if it is a "securities depository" for purposes of Rule 17f-4 under the 1940 Act. The Fund hereby directs the Custodian to deposit and/or maintain such securities with the Underlying Transfer Agent, subject to the following provisions: 1) The Custodian shall keep Underlying Shares owned by a Portfolio with the Underlying Transfer Agent provided that such securities are maintained in an account or accounts on the books and records of the Underlying Transfer Agent in the name of the Custodian as custodian for the Portfolio. 8 2) The records of the Custodian with respect to Underlying Shares which are maintained with the Underlying Transfer Agent shall identify by book-entry those Underlying Shares belonging to a Portfolio; 3) The Custodian shall pay for Underlying Shares purchased for the account of a Portfolio upon (i) receipt of advice from the Portfolio's investment manager that such Underlying Shares have been purchased and will be transferred to the account of the Custodian, on behalf of the Portfolio, on the books and records of the Underlying Transfer Agent, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. The Custodian shall receive confirmation from the Underlying Transfer Agent of the purchase of such securities and the transfer of such securities to the Custodian's account with the Underlying Transfer Agent only after such payment is made. The Custodian shall transfer Underlying Shares redeemed for the account of a Portfolio (i) upon receipt of an advice from the Portfolio's investment manager that such securities have been redeemed and that payment for such securities will be transferred to the Custodian and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. The Custodian will receive confirmation from the Underlying Transfer Agent of the redemption of such securities and payment therefor only after such securities are redeemed. Copies of all advices from the Portfolio's investment manager of purchases and sales of Underlying Shares for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian, and be provided to the investment manager at its request; 4) The Custodian shall be not be liable to the Fund for any loss or damage to the Fund resulting from maintenance of Underlying Shares with Underlying Transfer Agent except for losses resulting directly from the negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees. SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7 SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "COUNTRY RISK" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country. "ELIGIBLE FOREIGN CUSTODIAN" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth 9 in Rule 17f-5 or by other appropriate action of the SEC, or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository. "ELIGIBLE SECURITIES DEPOSITORY" has the meaning set forth in section (b)(1) of Rule 17f-7. "FOREIGN ASSETS" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments. "FOREIGN CUSTODY MANAGER" has the meaning set forth in section (a)(3) of Rule 17f-5. "RULE 17F-5" means Rule 17f-5 promulgated under the 1940 Act. "RULE 17F-7" means Rule 17f-7 promulgated under the 1940 Act. SECTION 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. 3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios. 3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof. Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund, on behalf of the Portfolios, of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board on behalf of the Portfolios responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Agreement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of the Portfolios to the Custodian as Foreign 10 Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Portfolios with respect to that country. The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn. 3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES: (a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1). (b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2). (c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder. 3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board, or at the Board's delegation, a Fund's investment advisor, shall be deemed to have considered and determined to accept, on behalf of the Fund, such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios. 11 3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 3.2 after the occurrence of the material change. 3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise. 3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios. 3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Board's delegation to the Custodian as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Portfolios with respect to designated countries. SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES. 3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7. 3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1. 12 SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD OUTSIDE THE UNITED STATES SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings: "FOREIGN SECURITIES SYSTEM" means an Eligible Securities Depository listed on Schedule B hereto. "FOREIGN SUB-CUSTODIAN" means a foreign banking institution serving as an Eligible Foreign Custodian. SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian. SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country. SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT. 4.4.1. DELIVERY OF FOREIGN SECURITIES. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: (i) upon the sale of such foreign securities for the Portfolio in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System; (ii) in connection with any repurchase agreement related to foreign securities; (iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios; 13 (iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable; (v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; (vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct; (vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; (viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; (ix) for delivery as security in connection with any borrowing by the Portfolios requiring a pledge of assets by the Portfolios; (x) for delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; (xi) in connection with the lending of foreign securities; and (xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made. 4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only: (i) upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving 14 later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System; (ii) in connection with the conversion, exchange or surrender of foreign securities of the Portfolio; (iii) for the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses; (iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians; (v) for delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; (vi) for payment of part or all of the dividends received in respect of securities sold short; (vii) in connection with the borrowing or lending of foreign securities; and (viii) For delivery to Repo Custodian, which delivery may be made without contemporaneous receipt by the Custodian of assets in exchange therefor, and upon which delivery to such Repo Custodian in accordance with Proper Instructions from the Fund on behalf of a Portfolio, the Custodian shall have no further responsibility or obligation to the Fund as a custodian for the Fund on behalf of a Portfolio with respect to the securities so delivered (each such delivery, a "FREE TRADE"), provided that, in preparing reports of monies received or paid out of the Portfolio or of assets comprising the Portfolio, the Custodian shall be entitled to rely upon information received from time to time from the Repo Custodian and shall not be responsible for the accuracy or completeness of such information included in the Custodian's reports until such assets are received by the Custodian; and (ix) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made. 4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent 15 for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer. The Custodian shall provide to the Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board being provided with substantively less information than had been previously provided hereunder. SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice. SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts. SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures. SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights. 16 SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At the Fund's election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim. SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund with respect to the Portfolios or the Custodian as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information. SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care. 17 SECTION 5. LOAN SERVICING PROVISIONS SECTION 5.1 GENERAL. The following provisions shall apply with respect to investments, property or assets in the nature of loans, or interests or participations in loans, including without limitation interests in syndicated bank loans and bank loan participations, whether in the U.S. or outside the U.S. (collectively, "LOANS") entered into by the Fund on behalf of one or more of its Portfolios (referred to in this Section 5 as the "FUND"). SECTION 5.2 SAFEKEEPING. Instruments, certificates, agreements and/or other documents which the Custodian may receive with respect to Loans, if any (collectively "FINANCING DOCUMENTS"), from time to time, shall be held by the Custodian at its offices in Boston, Massachusetts. SECTION 5.3 DUTIES OF THE CUSTODIAN. The Custodian shall accept such Financing Documents, if any, with respect to Loans as may be delivered to it from time to time by the Fund. The Custodian shall be under no obligation to examine the contents or determine the sufficiency of any such Financing Documents or to provide any certification with respect thereto, whether received by the Custodian as original documents, photocopies, by facsimile or otherwise. Without limiting the foregoing, the Custodian is under no duty to examine any such Financing Documents to determine whether necessary steps have been taken or requirements met with respect to the assignment or transfer of the related Loan or applicable interest or participation in such Loan. The Custodian shall be entitled to assume the genuineness, sufficiency and completeness of any Financing Documents received, and the genuineness and due authority of any signature appearing on such documents. Notwithstanding any term of this Agreement to the contrary, with respect to any Loans, (i) the Custodian shall be under no obligation to determine, and shall have no liability for, the sufficiency of, or to require delivery of, any instrument, document or agreement constituting, evidencing or representing such Loan, other than to receive such Financing Documents, if any, as may be delivered or caused to be delivered to it by the Fund (or its investment manager acting on its behalf), (ii) without limiting the generality of the foregoing, delivery of any such Loan (including without limitation, for purposes of Section 2.6 above) may be made to the Custodian by, and may be represented solely by, delivery to the Custodian of a facsimile or photocopy of an assignment agreement (an "ASSIGNMENT Agreement") or a confirmation or certification from the Fund (or the investment manager) to the effect that it has acquired such Loan and/or has received or will receive, and will deliver to the Custodian, appropriate Financing Documents constituting, evidencing or representing such Loan (such confirmation or certification, together with any Assignment Agreement, collectively, an "ASSIGNMENT AGREEMENT OR CONFIRMATION"), in any case without delivery of any promissory note, participation certificate or similar instrument (collectively, an "INSTRUMENT"), (iii) if an original Instrument shall be or shall become available with respect to any such Loan, it shall be the sole responsibility of the Fund (or the investment manager acting on its behalf) to make or cause delivery thereof to the Custodian, and the Custodian shall be under no obligation at any time or times to determine whether any such original Instrument has been issued or made available with respect to such Loan, and shall not be under any obligation to compel compliance by the Fund to make or cause delivery of such Instrument to the Custodian, and (iv) any reference to Financing Documents appearing in this Section 5 shall be deemed to include, without limitation, any such Instrument and/or Assignment Agreement or Confirmation. 18 If payments with respect to a Loan ("LOAN PAYMENT") are not received by the Custodian on the date on which they are due, as reflected in the Payment Schedule (as such term is defined in Section 5.4 below) of the Loan ("PAYMENT DATE"), or in the case of interest payments, not received either on a scheduled interest payable date, as reported to the Custodian by the Fund (or the investment manager acting on its behalf) for the Loan (the "INTEREST PAYABLE DATE"), or in the amount of their accrued interest payable, the Custodian shall promptly, but in no event later than one business day after the Payment Date or the Interest Payable Date, give telephonic notice to the party obligated under the Financing Documents to make such Loan Payment (the "OBLIGOR") of its failure to make timely payment, and (2) if such payment is not received within three business days of its due date, shall notify the Fund (or the investment manager on its behalf) of such Obligor's failure to make the Loan Payment. In the event the Custodian should receive a past due interest or other Loan Payment, the Custodian shall notify the Fund of such receipt. The Custodian shall have no responsibility with respect to the collection of Loan Payments which are past due, other than the duty to notify the Obligor and the Fund (or the investment manager acting on its behalf) as provided herein. The Custodian shall have no responsibilities or duties whatsoever under this Agreement, with respect to Loans or the Financing Documents, except for such responsibilities as are expressly set forth herein. Without limiting the generality of the foregoing, the Custodian shall have no obligation to preserve any rights against prior parties or to exercise any right or perform any obligation in connection with the Loans or any Financing Documents (including, without limitation, no obligation to take any action in respect of or upon receipt of any consent solicitation, notice of default or similar notice received from any bank agent or Obligor, except that the Custodian shall undertake reasonable efforts to forward any such notice to the Fund or the investment manager acting on its behalf). In case any question arises as to its duties hereunder, the Custodian may request instructions from the Fund and shall be entitled at all times to refrain from taking any action unless it has received Proper Instructions from the Fund or the investment manager and the Custodian shall in all events have no liability, risk or cost for any action taken, with respect to a Loan, pursuant to and in compliance with the Proper Instructions of such parties. The Custodian shall be only responsible and accountable for Loan Payments actually received by it and identified as for the account of the Fund; any and all credits and payments credited to the Fund, with respect to Loans, shall be conditional upon clearance and actual receipt by the Custodian of final payment thereon. The Custodian shall promptly, upon the Fund's request, release to the Fund's investment manager or to any party as the Fund or the Fund's investment manager may specify, any Financing Documents being held on behalf of the Fund. Without limiting the foregoing, the Custodian shall not be deemed to have or be charged with knowledge of the sale of any Loan, unless and except to the extent it shall have received written notice and instruction from the Fund (or the investment manager acting on its behalf) with respect thereto, and except to the extent it shall have received the sale proceeds thereof. In no event shall the Custodian be under any obligation or liability to make any advance of its own funds with respect to any Loan. 19 SECTION 5.4 RESPONSIBILITY OF THE FUND. With respect to each Loan held by the Custodian hereunder in accordance with the provisions hereof, the Fund shall (a) cause the Financing Documents evidencing such Loan to be delivered to the Custodian; (b) include with such Financing Documents an amortization schedule of payments (the "PAYMENT SCHEDULE") identifying the amount and due dates of scheduled principal payments, the Interest Payable Date(s) and related payment amount information, and such other information with respect to the related Loan and Financing Documents as the Custodian reasonably may require in order to perform its services hereunder (collectively, "LOAN INFORMATION"), in such form and format as the Custodian reasonably may require; (c) take, or cause the investment manager to take, all actions necessary to acquire good title to such Loan (or the participation in such Loan, as the case may be), as and to the extent intended to be acquired; and (d) cause the Custodian to be named as its nominee for payment purposes under the Financing Documents or otherwise provide for the direct payment of the Payments to the Custodian. The Custodian shall be entitled to rely upon the Loan Information provided to it by the Fund (or the investment manager acting on its behalf) without any obligation on the part of the Custodian independently to verify, investigate, recalculate, update or otherwise confirm the accuracy or completeness thereof; and the Custodian shall have no liability for any delay or failure on the part of the Fund in providing necessary Loan Information to the Custodian, or for any inaccuracy therein or incompleteness thereof. With respect to each such Loan, the Custodian shall be entitled to rely on any information and notices it may receive from time to time from the related bank agent, Obligor or similar party with respect to the related Loan, and shall be entitled to update its records on the basis of such information or notices received, without any obligation on its part independently to verify, investigate or recalculate such information. SECTION 5.5 INSTRUCTIONS; AUTHORITY TO ACT. The certificate of the Secretary or an Assistant Secretary of the Fund, identifying certain individuals to be officers of the Fund or employees of the Fund's investment manager authorized to sign any such instructions, may be received and accepted as conclusive evidence of the incumbency and authority of such to act and may be considered by the Custodian to be in full force and effect until it receives written notice to the contrary from the Secretary or Assistant Secretary of the Fund's Board. Notwithstanding any other provision of this Agreement, the Custodian shall have no responsibility to ensure that any investment by the Fund with respect to Loans has been authorized. SECTION 5.6 ATTACHMENT. In case any portion of the Loans or the Financing Documents shall be attached or levied upon pursuant to an order of court, or the delivery or disbursement thereof shall be stayed or enjoined by an order of court, or any other order, judgment or decree shall be made or entered by any court affecting the property of the Fund or any act of the Custodian relating thereto, the Custodian is hereby expressly authorized in its sole discretion to obey and comply with all orders, judgments or decrees so entered or issued, without the necessity of inquire whether such court had jurisdiction, and, in case the Custodian obeys or complies with any such order, judgment or decree, it shall not be liable to anyone by reason of such compliance. SECTION 6. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares 20 thereof issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. SECTION 7. PROPER INSTRUCTIONS Proper Instructions, which may also be standing instructions, as used throughout this Agreement, shall mean instructions received by the Custodian from any person duly authorized by the Fund or its investment adviser. Such instructions may be in writing signed by the authorized person or persons or may be in a communication utilizing access codes or a tested communication effected between electro-mechanical or electronic devices, or may be by such other means and utilizing such intermediary systems and utilities as may be agreed to from time to time by the Custodian and the person or entity giving such instructions, provided that the Fund has followed any security procedures agreed to from time to time by the Fund and the Custodian, including, but not limited to, the security procedures selected by the Fund in the Funds Transfer Addendum to this Agreement. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.9 of this Agreement. The Fund or the Fund's investment manager shall cause its duly authorized officer to certify to the Custodian in writing the names and specimen signatures of persons authorized to give Proper Instructions. The Custodian shall be entitled to rely upon the authority of such persons until it receives notice from the Fund to the contrary. SECTION 8. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 21 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board. SECTION 9. EVIDENCE OF AUTHORITY The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of the Fund ("CERTIFIED RESOLUTION") as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. SECTION 10. RECORDS (a) The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. (b) For a period of seven (7) years following termination of this Agreement or, if earlier, until the delivery to the Fund or its agent (which includes a Successor Custodian) of Portfolio Information (as defined below) from the preceding five (5) years in a reasonably searchable paper or electronic format to be agreed upon by the parties acting in good faith, the Custodian shall maintain and, upon request of the Fund and subject to the payment of compensation to the Custodian as provided below, make available to the Fund, its representatives or agents, such Portfolio Information as may reasonably be required in order for the Fund or its agents (but not the Custodian) to determine whether the Fund may be entitled to participate in certain class action securities litigation or other legal proceedings. As used in this subsection (b), the term "PORTFOLIO INFORMATION" shall mean a Portfolio's portfolio holdings information that is maintained by the Custodian pursuant to Section 10(a). The Custodian shall be entitled to reasonable compensation for any services provided and any additional expenses incurred under this Section 10(b). 22 SECTION 11. OPINION OF FUND'S INDEPENDENT ACCOUNTANT The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof. SECTION 12. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a "SECURITIES SYSTEM"), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. SECTION 13. COMPENSATION OF CUSTODIAN The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon in writing from time to time between the Fund on behalf of each applicable Portfolio and the Custodian. SECTION 14. RESPONSIBILITY OF CUSTODIAN So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. Except to the extent arising from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, however, the Custodian shall be without liability to the Fund and the Portfolios for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, or acts of war, revolution, riots or terrorism. 23 Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by the Fund or its duly-authorized investment manager or investment advisor in their instructions to the Custodian provided such instructions have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian's sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (v) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vi) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (vii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it. If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement. In no event shall the Custodian be liable for indirect, special or consequential damages. 24 SECTION 15. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT This Agreement shall become effective as of its execution and shall continue for a term of one (1) year, subject to up to two (2) automatic one (1) year renewals (collectively, the "INITIAL TERM"), unless either party gives prior written notice to the other of its intent not to renew; provided, however, that either party may terminate this Agreement without penalty upon sixty (60) days prior written notice for cause. This Agreement may be amended at any time by mutual agreement of the parties hereto and after the Initial Term, this Agreement shall continue in full force and effect until terminated by either party by delivering written notice the other party in accordance with Section 22, such termination to take effect not sooner than sixty (60) days after the date of such delivery or mailing; provided, however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund's Declaration of Trust, Articles of Incorporation and By-laws, Partnership or Limited Liability Company Agreement or other governing documents, as applicable, ("GOVERNING DOCUMENTS") and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Agreement, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its reasonable costs, expenses and disbursements. SECTION 16. SUCCESSOR CUSTODIAN If a successor custodian for one or more Portfolios shall be appointed by the Board, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a Certified Resolution, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution. In the event that no written order designating a successor custodian or Certified Resolution shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the 25 securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the Certified Resolution to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect. SECTION 17. INTERPRETIVE AND ADDITIONAL PROVISIONS In connection with the operation of this Agreement, the Custodian and the Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund's Governing Documents. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement. SECTION 18. ADDITIONAL FUNDS In the event that any registered investment company in addition to those listed on Appendix A hereto desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such registered investment company shall become a Fund hereunder and be bound by all terms and conditions and provisions of this Agreement. SECTION 19. ADDITIONAL PORTFOLIOS In the event that any Fund establishes one or more series of Shares in addition to those listed on the Appendix attached to this Agreement, with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing and transmit to the Custodian a revised Appendix A, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. SECTION 20. MASSACHUSETTS LAW TO APPLY This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 26 SECTION 21. PRIOR AGREEMENTS This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets. SECTION 22. NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time. To the Fund: Columbia Management Advisors, Inc. 245 Summer Street, 3rd Floor Boston, Massachusetts 02110 Attention: Michael Clarke Telephone: (617) 585-4130 Facsimile: (617) 585-4065 To the Custodian: STATE STREET BANK AND TRUST COMPANY Two Avenue de Lafayette, LCC/5S Boston, MA 02111 Attention: Edward J. McKenzie, Vice President Telephone: (617) 662-4100 Facsimile: (617) 662-4313 Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting. SECTION 23. REPRODUCTION OF DOCUMENTS This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/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 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 of such reproduction shall likewise be admissible in evidence. 27 SECTION 24. THE PARTIES All references herein to the "Fund" are to each of the management investment companies listed on Appendix A hereto, and each management investment company made subject to this Agreement in accordance with Section 18 above, individually, as if this Agreement were between such individual Fund and the Custodian. In the case of a series corporation, trust or other entity, all references herein to the "Portfolio" are to the individual series or portfolio of such corporation, trust or other entity, or to such corporation, trust or other entity on behalf of the individual series or portfolio, as appropriate, made subject to this Agreement in accordance with Section 19 above. Any reference in this Agreement to "the parties" shall mean the Custodian and such other individual Fund as to which the matter pertains. On behalf of each Fund that is organized as a Massachusetts business trust, notice is hereby given that a copy of the Agreement and Declaration of Trust of the Fund is on file with the Secretary of State of The Commonwealth of Massachusetts, and that this Agreement is executed by an officer of the Fund, as an officer and not individually, on behalf of the trustees of the Fund, as trustees and not individually, and that the obligations of this Agreement with respect to the Fund shall be binding upon the assets and properties of the Fund only and shall not be binding upon any of the Trustees, officers, employees, agents or shareholders of the Fund or the Trust individually. SECTION 25. REPRESENTATIONS AND WARRANTIES OF EACH FUND Each Fund hereby represents and warrants that: (a) it is duly incorporated, formed or organized and is validly existing in good standing in its jurisdiction of incorporation, formation or organization; (b) it has the requisite power and authority under applicable law and its Governing Documents to enter into and perform this Agreement; (c) all requisite proceedings have been taken to authorize it to enter into and perform this Agreement; (d) this Agreement constitutes its legal, valid, binding and enforceable agreement; (e) its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Fund or any law or regulation applicable to it, and (f) it is an investment company registered under the 1940 Act, as amended and will continue to be a registered investment company under the 1940 Act for the term of this Agreement. SECTION 26. REMOTE ACCESS SERVICES ADDENDUM The Custodian and the Fund agree to be bound by the terms of the Remote Access Services Addendum attached hereto. SECTION 27. COUNTERPARTS This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which, when executed and delivered, shall constitute an original, and all such counterparts together shall constitute one and the same instrument. 28 SECTION 28. CONFIDENTIALITY The parties hereto agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior written consent of the party providing the information. In addition, during the term of this Agreement, the Custodian will maintain policies reasonably designed to prohibit the Custodian and its employees from engaging in securities transactions based on knowledge of the Fund's portfolio holdings. The foregoing shall not be applicable to any information that is (i) publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, or that is independently derived by any party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (ii) aggregated, without reference to such Fund, in whole or in part, with other client information for the Custodian's own marketing, reporting or other purposes, or (iii) required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation. SECTION 29. PROVISIONS SURVIVING TERMINATION The provisions of Sections 4.11, 4.12, 10, 14, 15, 16, 20, 26 and 28 of this Agreement shall survive termination of this Agreement for any reason. SECTION 30. SHAREHOLDER COMMUNICATIONS ELECTION SEC Rule 14b-2 of Regulation 14A under the Exchange Act requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund's name, address, and share position to requesting companies whose securities the Fund owns. If the Fund tells the Custodian "no", the Custodian will not provide this information to requesting companies. If the Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For the Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below. YES [ ] The Custodian is authorized to release the Fund's name, address, and share positions. 29 NO [X] The Custodian is not authorized to release the Fund's name, address, and share positions. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 30 IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the date first written above. EACH OF THE ENTITIES SET FORTH ON FUND SIGNATURE ATTESTED TO BY: THE APPENDIX A ATTACHED HERETO By: /s/ Bruce H. Lauer By: /s/ Linda R. Wiszowaty ------------------------------- ------------------------------- Name: Bruce H. Lauer Name: Linda R. Wiszowaty ------------------------------- ------------------------------- Title: Treasurer Title: Notary ------------------------------- ------------------------------- STATE STREET BANK AND TRUST COMPANY SIGNATURE ATTESTED TO BY: By: /s/ Joseph L. Hooley By: /s/ Veronica Greenbaum ------------------------------- ------------------------------- Name: Joseph L. Hooley Name: Veronica Greenbaum ------------------------------- ------------------------------- Title: Executive Vice President Title: Vice President ------------------------------- ------------------------------- 31 APPENDIX A WANGER ADVISORS TRUST Wanger International Select, VS Wanger International Small Cap, VS Wanger Select, VS Wanger US Smaller Companies, VS SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS
COUNTRY SUBCUSTODIAN Argentina Citibank, N.A. Australia Westpac Banking Corporation Citibank Pty. Limited Austria Erste Bank der Osterreichischen Sparkassen AG Bahrain HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Bangladesh Standard Chartered Bank Belgium BNP Paribas Securities Services, S.A. Benin via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Bermuda The Bank of Bermuda Limited Botswana Barclays Bank of Botswana Limited Brazil Citibank, N.A. Bulgaria ING Bank N.V. Burkina Faso via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Canada State Street Trust Company Canada Cayman Islands Scotiabank & Trust (Cayman) Limited Chile BankBoston, N.A. People's Republic of China The Hongkong and Shanghai Banking Corporation Limited, Shanghai and Shenzhen branches Colombia Cititrust Colombia S.A. Sociedad Fiduciaria Costa Rica Banco BCT S.A. Croatia Privredna Banka Zagreb d.d Cyprus Cyprus Popular Bank Ltd. Czech Republic Ceskoslovenska Obchodni Banka, AS. Denmark Danske Bank A/S Ecuador Banco de la Produccion S.A. 1 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Egypt HSBC Bank Egypt S.A.E. (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Estonia AS Hansabank Finland Nordea Bank Finland Plc. France BNP Paribas Securities Services, S.A. Deutsche Bank AG, Netherlands (operating through its Paris branch) Germany Deutsche Bank AG Ghana Barclays Bank of Ghana Limited Greece National Bank of Greece S.A. Guinea-Bissau via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Hong Kong Standard Chartered Bank (Hong Kong) Limited Hungary HVB Bank Hungary Rt. Iceland Kaupthing Bank hf. India Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Indonesia Deutsche Bank AG Ireland Bank of Ireland Israel Bank Hapoalim B.M. Italy BNP Paribas Securities Services, S.A. Ivory Coast Societe Generale de Banques en Cote d'Ivoire Jamaica Bank of Nova Scotia Jamaica Ltd. Japan Mizuho Corporate Bank Ltd. Sumitomo Mitsui Banking Corporation Jordan HSBC Bank Middle East (as delegate of the Hongkong and Shanghai Banking Corporation Limited) Kazakhstan HSBC Bank Kazakhstan (as delegate of the Hongkong and Shanghai Banking Corporation Limited) 2 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Kenya Barclays Bank of Kenya Limited Republic of Korea Deutsche Bank AG The Hongkong and Shanghai Banking Corporation Limited Latvia A/s Hansabanka Lebanon HSBC Bank Middle East (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Lithuania SEB Vilniaus Bankas AB Malaysia Standard Chartered Bank Malaysia Berhad Mali via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Malta HSBC Bank Malta Plc. Mauritius The Hongkong and Shanghai Banking Corporation Limited Mexico Banco National de Mexico S.A. Morocco Attijariwafa bank Namibia Standard Bank Namibia Limited Netherlands Deutsche Bank N.V. KAS BANK N.V. New Zealand Westpac Banking Corporation Niger via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Nigeria Stanbic Bank Nigeria Limited Norway Nordea Bank Norge ASA Oman HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Pakistan Deutsche Bank AG Palestine HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) 3 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Panama HSBC Bank (Panama) S.A. Peru Citibank del Peru, S.A. Philippines Standard Chartered Bank Poland Bank Handlowy w Warszawie S.A. Portugal Banco Comercial Portugues S.A. Puerto Rico Citibank N.A. Qatar HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) Romania ING Bank N.V. Russia ING Bank (Eurasia) ZAO, Moscow Senegal via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Serbia HVB Bank Serbia and Montenegro a.d. Singapore DBS Bank Limited United Overseas Bank Limited Slovak Republic Ceskoslovenska Obchodni Banka, A.S., pobocka zahranicnej banky v SR Slovenia Bank Austria Creditanstalt d.d. - Ljubljana South Africa Nedcor Bank Limited Standard Bank of South Africa Limited Spain Santander Central Hispano Investment S.A. Sri Lanka The Hongkong and Shanghai Banking Corporation Limited Swaziland Standard Bank Swaziland Limited Sweden Skandinaviska Enskilda Banken AB Switzerland UBS AG Taiwan - R.O.C. Central Trust of China Thailand Standard Chartered Bank 4 SCHEDULE A STATE STREET GLOBAL CUSTODY NETWORK SUBCUSTODIANS COUNTRY SUBCUSTODIAN Togo via Societe Generale de Banques en Cote d'Ivoire, Abidjan, Ivory Coast Trinidad & Tobago Republic Bank Limited Tunisia Banque Internationale Arabe de Tunisie Turkey Citibank, A.S. Uganda Barclays Bank of Uganda Limited Ukraine ING Bank Ukraine United Arab Emirates HSBC Bank Middle East Limited (as delegate of The Hongkong and Shanghai Banking Corporation Limited) United Kingdom State Street Bank and Trust Company, United kingdom Branch Uruguay BankBoston, N.A. Venezuela Citibank, N.A. Vietnam The Hongkong and Shanghai Banking Corporation Limited Zambia Barclays Bank of Zambia Plc. Zimbabwe Barclays Bank of Zimbabwe Limited
5 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES Argentina Caja de Valores S.A. Australia Austraclcar Limited Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank Division) Bahrain Clearing, Settlement, and Depository System of the Bahrain Stock Exchange Bangladesh Central Depository Bangladesh Limited Belgium Banque Nationale de Belgique Caisse Interprofessionnelle de Depots et de Virements de Titres, S.A. Benin Depositaire Central - Banque de Reglement Bermuda Bermuda Securities Depository Brazil Central de Custodia e de Liquidacao Financeira de Titulos Privados (CETIP) Companhia Brasileira de Liquidacao e Custodia Sistema Especial de Liquidacao e de Custodia (SELIC) Bulgaria Bulgarian National Bank Central Depository AD Burkina Faso Depositaire Central - Banque de Reglement Canada The Canadian Depository for Securities Limited Chile Deposito Central de Valores S.A. People's Republic of China China Securities Depository and Clearing Corporation Limited Shanghai Branch China Securities Depository and Clearing Corporation Limited Shenzhen Branch Colombia Deposito Central de Valores Deposito Centralizado de Valores de Colombia S..A. (DECEVAL) Costa Rica Central de Valores S.A. Croatia Sredisnja Depozitarna Agencija d.d. 1 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Cyprus Central Depository and Central Registry Czech Republic Czech National Bank Stredisko cennych papiru - Ceska republika Denmark Vaerdipapircentralen (Danish Securities Center) Egypt Misr for Clearing, Settlement, and Depository S.A.E. Estonia AS Eesti Vaartpaberikeskus Finland Suomen Arvopaperikeskus France Euroclear France Germany Clearstream Banking AG, Frankfurt Greece Apothetirion Titlon AE Central Securities Depository Bank of Greece, System for Monitoring Transactions in Securities in Book-Entry Form Guinea-Bissau Depositaire Central - Banque de Reglement Hong Kong Central Moneymarkets Unit Hong Kong Securities Clearing Company Limited Hungary Kozponti Elszamolohaz es Ertektar (Budapest) Rt. (KELER) Iceland Icelandic Securities Depository Limited India Central Depository Services (India) Limited National Securities Depository Limited Reserve Bank of India Indonesia Bank Indonesia PT Kustodian Sentral Efek Indonesia Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE Clearinghouse) Italy Monte Titoli S.p.A. Ivory Coast Depositaire Central - Banque de Reglement Jamaica Jamaica Central Securities Depository 2 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Japan Bank of Japan - Net System Japan Securities Depository Center (JASDEC) Incorporated Jordan Securities Depository Center Kazakhstan Central Securities Depository Kenya Central Depository and Settlement Corporation Limited Central Bank of Kenya Republic of Korea Korea Securities Depository Latvia Latvian Central Depository Lebanon Banque du Liban Custodian and Clearing Center of Financial Instruments for Lebanon and the Middle East (Midclear) S.A.L. Lithuania Central Securities Depository of Lithuania Malaysia Bank Negara Malaysia Bursa Malaysia Depository Sdn. Bhd. Mali Depositaire Central - Banque de Retlement Malta Central Securities Depository of the Malta Stock Exchange Mauritius Bank of Mauritius Central Depository and Settlement Co. Ltd. Mexico S.D. Indeval, S.A. de C.V. Morocco Maroclear Namibia Bank of Namibia Netherlands Euroclear Nederland New Zealand New Zealand Central Securities Depository Limited Niger Depositaire Central - Banque de Reglement Nigeria Central Securities Clearing System Limited 3 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Norway Verdipapirsentralen (Norwegian Central Securities Depository) Oman Muscat Depository & Securities Registration Company, SAOC Pakistan Central Depository Company of Pakistan Limited State Bank of Pakistan Palestine Clearing, Depository and Settlement, a department of the Palestine Stock Exchange Panama Central Latinoamericana de Valores, S.A. (LatinClear) Peru Caja de Valores y Liquidaciones, Institution de Compensacion y Liquidation de Valores S.A Philippines Philippine Central Depository, Inc. Registry of Scripless Securities (ROSS) of the Bureau of Treasury Poland Rejestr Papierow Wartosciowych Krajowy Depozyt Papierow Wartosciowych S.A. Portugal INTERBOLSA -- Sociedade Gestora de Sistemas de Liquidacao e de Sistemas Centralizados de Valores Mobiliarios, S.A. Qatar Central Clearing and Registration (CCR), a department of the Doha Securities Market Romania Bucharest Stock Exchange Registry Division National Bank of Romania National Securities Clearing, Settlement and Depository Company Russia Vneshtorgbank, Bank for Foreign Trade of the Russian Federation Senegal Depositaire Central - Banque de Reglement Serbia Central Registrar and Central Depository for Securities Singapore The Central Depository (Pte) Limited Monetary Authority of Singapore Slovak Republic Naodna banka slovenska Centralny depozitar cennych papierov SR, a.s. 4 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Slovenia KDD - Centralna klirinsko depotna druzba d.d. South Africa Share Transactions Totally Electronic (STRATE) Ltd. Spain IBERCLEAR Sri Lanka Central Depository System (Pvt) Limited Sweden Vardepapperscentralen VPC AB (Swedish Central Securities Depository) Switzerland Segalntersettle AG (SIS) Taiwan - R.O.C. Taiwan Securities Central Depository Company Limited Thailand Bank of Thailand Thailand Securities Depository Company Limited Togo Depositaire Central - Banque de Reglement Trinidad and Tobago Trinidad and Tobago Central Bank Tunisia Societe Tunisienne Interprofessionelle pour la Compensation et de Depots des Valeurs Mobilieres (STICODEVAM) Turkey Central Bank of Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK) Uganda Bank of Uganda Ukraine Mizhregionalny Fondovy Souz National Bank of Ukraine United Arab Emirates Clearing and Depository System, a department of the Dubai Financial Market United Kingdom CrestCo. Uruguay Banco Central del Uruguay Venezuela Banco Central de Venezuela Caja Venezolana de Valores Vietnam Securities Registration, Clearing and Settlement, Depository Department of the Securities Trading Center 5 SCHEDULE B STATE STREET GLOBAL CUSTODY NETWORK DEPOSITORIES OPERATING IN NETWORK MARKETS COUNTRY DEPOSITORIES Zambia Bank of Zambia LuSE Central Shares Depository Limited TRANSNATIONAL Euroclear Clearstream Banking, S.A.
6 SCHEDULE C MARKET INFORMATION
PUBLICATION/TYPE OF INFORMATION BRIEF DESCRIPTION - -------------------------------- ----------------- (scheduled frequency) The Guide to Custody in World Markets An overview of settlement and safekeeping procedures, custody (hardcopy annually and regular practices and foreign investor considerations for the markets website updates) in which State Street offers custodial services. Global Custody Network Review Information relating to Foreign Sub-Custodians in State Street's - ----------------------------- Global Custody Network. The Review stands as an integral part of (annually) the materials that State Street provides to its U.S. mutual fund clients to assist them in complying with SEC Rule 17f-5. The Review also gives insight into State Street's market expansion and Foreign Sub-Custodian selection processes, as well as the procedures and controls used to monitor the financial condition and performance of our Foreign Sub-Custodian banks. Securities Depository. Review Custody risk analyses of the Foreign Securities Depositories presently - ----------------------------- operating in Network markets. This publication is an integral part of (annually) the materials that State Street provides to its U.S. mutual fund clients to meet informational obligations created by SEC Rule 17f-7. Global Legal Survey With respect to each market in which State Street offers custodial - ------------------- services, opinions relating to whether local law restricts (i) access (annually) of a fund's independent public accountants to books and records of a Foreign Sub-Custodian or Foreign Securities System, (ii) a fund's ability to recover in the event of bankruptcy or insolvency of a Foreign Sub-Custodian or Foreign Securities System, (iii) a fund's ability to recover in the event of a loss by a Foreign Sub-Custodian or Foreign Securities System, and (iv) the ability of a foreign investor to convert cash and cash equivalents to U.S. dollars. Subcustodian Agreements Copies of the contracts that State Street has entered into with - ----------------------- each Foreign Sub-Custodian that maintains U.S. mutual fund (annually) assets in the markets in which State Street offers custodial services. Global Market Bulletin Information on changing settlement and custody conditions in markets - ---------------------- where State Street offers custodial services. Includes changes in market (daily or as necessary) and tax regulations, depository developments, dematerialization information, as well as other market changes that may impact State Street's clients. Foreign Custody Advisories For those markets where State Street offers custodial services that (as necessary) exhibit special risks or infrastructures impacting custody, State Street issues market advisories to highlight those unique market factors which might impact our ability to offer recognized custody service levels. Material Change Notices Informational letters and accompanying materials confirming (presently on a quarterly State Street's foreign custody arrangements, including a basis or as otherwise necessary) summary of material changes with Foreign Sub-Custodians that have occurred during the previous quarter. The notices also identify any material changes in the custodial risks associated with maintaining assets with Foreign Securities Depositories.
SCHEDULE D TRI-PARTY REPO CUSTODIAN BANKS ACCOUNT NUMBERS NONE FUNDS TRANSFER ADDENDUM OPERATING GUIDELINES 1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit Client's account(s) upon the receipt of a payment order in compliance with the selected Security Procedure chosen for funds transfer and in the amount of money that State Street has been instructed to transfer. State Street shall execute payment orders in compliance with the Security Procedure and with the Client's 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 this time will be deemed to have been received on the next business day. 2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it has designated on the Selection Form was selected by the Client from Security Procedures offered by State Street. The Client agrees that the Security Procedures are reasonable and adequate for its wire transfer transactions and agrees to be bound by any payment orders, amendments and cancellations, whether or not authorized, issued in its name and accepted by State Street after being confirmed by any of the selected Security Procedures. The Client also agrees to be bound by any other valid and authorized payment order accepted by State Street. The Client shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated in writing to State Street. The Client must notify State Street immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Client's authorized personnel. State Street shall verify the authenticity of all instructions according to the Security Procedure. 3. ACCOUNT NUMBERS: State Street 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. Financial institutions that receive payment orders initiated by State Street at the instruction of the Client may also process payment orders on the basis of account numbers, regardless of any name included in the payment order. State Street will also rely on any financial institution identification numbers included in any payment order, regardless of any financial institution name included in the payment order. 4. REJECTION: State Street 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 State Street's receipt of such payment order; (b) if initiating such payment order would cause State Street, in State Street's sole judgment, to exceed any volume, aggregate dollar, network, time, credit or similar limits upon wire transfers which are applicable to State Street; or (c) if State Street, in good faith, is unable to satisfy itself that the transaction has been properly authorized. 5. CANCELLATION OR AMENDMENT: State Street 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 State Street reasonable opportunity to act. However, State Street assumes no liability if the request for amendment or cancellation cannot be satisfied. 6. ERRORS: State Street shall assume no responsibility for failure to detect any erroneous payment order provided that State Street complies with the payment order instructions as received and State Street 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. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless State Street is notified of the unauthorized payment order within thirty (30) days of notification by State Street of the acceptance of such payment order. In no event shall State Street be liable for special, indirect or consequential damages, even if advised of the possibility of such damages and even for failure to execute a payment order. 8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a Client initiates or receives ACH 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, State Street will act as an Originating Depository Financial Institution and/or Receiving Depository Institution, as the case may be, with respect to such entries. Credits given by State Street with respect to an ACH credit entry are provisional until State Street receives final settlement for such entry from the Federal Reserve Bank. If State Street does not receive such final settlement, the Client agrees that State Street shall receive a refund of the amount credited to the Client in connection with such entry, and the party making payment to the Client via such entry shall not be deemed to have paid the amount of the entry. 9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment orders shall ordinarily be provided within 24 hours. Notice may be delivered through State Street's proprietary information systems, such as, but not limited to Horizon and GlobalQuest(R), account statements, advices, or by facsimile or callback. The Client must report any objections to the execution of a payment order within 30 days. FUNDS TRANSFER ADDENDUM 10. LIABILITY ON FOREIGN ACCOUNTS: State Street shall not be required to repay any deposit made at a non-U.S. branch of State Street, or any deposit made with State Street and denominated in a non-U.S. dollar currency, if repayment of such deposit or the use of assets denominated in the non-U.S. dollar currency is prevented, prohibited or otherwise blocked due to: (a) an act of war, insurrection or civil strife; (b) any action by a non-U.S. government or instrumentality or authority asserting governmental, military or police power of any kind, whether such authority be recognized as a defacto or a dejure government, or by any entity, political or revolutionary movement or otherwise that usurps, supervenes or otherwise materially impairs the normal operation of civil authority; or(c) the closure of a non-U.S. branch of State Street in order to prevent, in the reasonable judgment of State Street, harm to the employees or property of State Street. The obligation to repay any such deposit shall not be transferred to and may not be enforced against any other branch of State Street. The foregoing provisions constitute the disclosure required by Massachusetts General Laws, Chapter 167D, Section 36. While State Street is not obligated to repay any deposit made at a non-U.S. branch or any deposit denominated in a non-U.S. currency during the period in which its repayment has been prevented, prohibited or otherwise blocked, State Street will repay such deposit when and if all circumstances preventing, prohibiting or otherwise blocking repayment cease to exist. 11. MISCELLANEOUS: State Street and the Client agree to cooperate to attempt to recover any funds erroneously paid to the wrong party or parties, regardless of any fault of State Street or the Client, but the party responsible for the erroneous payment shall bear all costs and expenses incurred in trying to effect such recovery. These Guidelines may not be amended except by a written agreement signed by the parties. FUNDS TRANSFER ADDENDUM Security Procedure(s) Selection Form - ------------------------------------ Please select one or more of the funds transfer security procedures indicated below. [ ] SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative society owned and operated by member financial institutions that provides telecommunication services for its membership. Participation is limited to securities brokers and dealers, clearing and depository institutions, recognized exchanges for securities, and investment management institutions. SWIFT provides a number of security features through encryption and authentication to protect against unauthorized access, loss or wrong delivery of messages, transmission errors, loss of confidentiality and fraudulent changes to messages. SWIFT is considered to be one of the most secure and efficient networks for the delivery of funds transfer instructions. Selection of this security procedure would be most appropriate for existing SWIFT members. [X] STANDING INSTRUCTIONS Standing Instructions may be used where funds are transferred to a broker on the Client's established list of brokers with which it engages in foreign exchange transactions. Only the date, the currency and the currency amount are variable. In order to establish this procedure, State Street will send to the Client a list of the brokers that State Street has determined are used by the Client. The Client will confirm the list in writing, and State Street will verify the written confirmation by telephone. Standing Instructions will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the Standing Instruction will be confirmed by telephone prior to execution. [X] REMOTE BATCH TRANSMISSION Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data communications between the Client and State Street. Security procedures include encryption and or the use of a test key by those individuals authorized as Automated Batch Verifiers. Clients selecting this option should have an existing facility for completing CPU-CPU transmissions. This delivery mechanism is typically used for high-volume business. [ ] GLOBAL HORIZON INTERCHANGESM FUNDS TRANSFER SERVICE Global Horizon Interchange Funds Transfer Service (FTS) is a State Street proprietary microcomputer-based wire initiation system. FTS enables Clients to electronically transmit authenticated Fedwire, CHIPS or internal book transfer instructions to State Street. This delivery mechanism is most appropriate for Clients with a low-to-medium number of transactions (5-75 per day), allowing Clients to enter, batch, and review wire transfer instructions on their PC prior to release to State Street. [ ] TELEPHONE CONFIRMATION (CALLBACK) Telephone confirmation will be used to verify all non-repetitive funds transfer instructions received via untested facsimile or phone. This procedure requires Clients to designate individuals as authorized initiators and authorized verifiers. State Street will verify that the instruction contains the signature of an authorized person and prior to execution, will contact someone other than the originator at the Client's location to authenticate the instruction. Selection of this alternative is appropriate for Clients who do not have the capability to use other security procedures. [ ] REPETITIVE WIRES For situations where funds are transferred periodically (minimum of one instruction per calendar quarter) from an existing authorized account to the same payee (destination bank and account number) and only the date and currency amount are variable, a repetitive wire may be implemented. Repetitive wires will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the instruction will be confirmed by telephone prior to execution. Telephone confirmation is used to establish this process. Repetitive wire instructions must be reconfirmed annually. This alternative is recommended whenever funds are frequently transferred between the same two accounts. [X] TRANSFERS INITIATED BY FACSIMILE The Client faxes wire transfer instructions directly to State Street Mutual Fund Services. Standard security procedure requires the use of a random number test key for all transfers. Every six months the Client receives test key logs from State Street. The test key contains alpha-numeric characters, which the Client puts on each document faxed to State Street. This procedure ensures all wire instructions received via fax are authorized by the Client. We provide this option for Clients who wish to batch wire instructions and transmit these as a group to State Street Mutual Fund Services once or several times a day. FUNDS TRANSFER ADDENDUM [ ] AUTOMATED CLEARING HOUSE (ACH) State Street receives an automated transmission or a magnetic tape from a Client for the initiation of payment (credit) or collection (debit) transactions through the ACH network. The transactions contained on each transmission or tape must be authenticated by the Client. Clients using ACH must select one or more of the following delivery options: [ ] GLOBAL HORIZON INTERCHANGE AUTOMATED CLEARING HOUSE SERVICE Transactions are created on a microcomputer, assembled into batches and delivered to State Street via fully authenticated electronic transmissions in standard NACHA formats. [ ] Transmission from Client PC to State Street Mainframe with Telephone Callback [ ] Transmission from Client Mainframe to State Street Mainframe with Telephone Callback [ ] Transmission from DST Systems to State Street Mainframe with Encryption [ ] Magnetic Tape Delivered to State Street with Telephone Callback State Street is hereby instructed to accept funds transfer instructions only via the delivery methods and security procedures indicated. The selected delivery methods and security procedure(s) will be effective ____________________ for payment orders initiated by our organization. KEY CONTACT INFORMATION Whom shall we contact to implement your selection(s)? CLIENT OPERATIONS CONTACT ALTERNATE CONTACT Emily Bredahl Paula Ryan - -------------------------------------- -------------------------------------- Name Name Columbia Wanger Asset Management Columbia Wanger Asset Management 227 W. Monroe St., Ste. 3000 227 W. Monroe St., Ste. 3000 - -------------------------------------- -------------------------------------- Address Address Chicago, IL 60606 Chicago, IL 60606 - -------------------------------------- -------------------------------------- City/State/Zip Code City/State/Zip Code (312) 634-9210 (312) 634-9211 - -------------------------------------- -------------------------------------- Telephone Number Telephone Number (312) 634-1927 (312) 634-0014 - -------------------------------------- -------------------------------------- Facsimile Number Facsimile Number - -------------------------------------- SWIFT Number - -------------------------------------- Telex Number FUNDS TRANSFER ADDENDUM INSTRUCTION(S) TELEPHONE CONFIRMATION FUND ___________________________________________________________________________ INVESTMENT ADVISER _____________________________________________________________ AUTHORIZED INITIATORS Please Type or Print Please provide a listing of Fund officers or other individuals who are currently authorized to INITIATE wire transfer instructions to State Street: NAME TITLE (Specify whether position SPECIMEN SIGNATURE is with Fund or Investment Adviser) ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ AUTHORIZED VERIFIERS Please Type or Print Please provide a listing of Fund officers or other individuals who will be CALLED BACK to verify the initiation of repetitive wires of $10 million or more and all non-repetitive wire instructions: NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY) ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ ___________________ _______________________________ _____________________ REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT ADDENDUM to that certain Amended and Restated Master Custodian Agreement dated as of September 19, 2005 (the "Custodian Agreement") between those registered investment companies identified on Appendix A thereto (the "Customer") and State Street Bank and Trust Company, including its subsidiaries and affiliates ("State Street"). State Street has developed and utilizes proprietary accounting and other systems in conjunction with the custodian services which State Street provides to the Customer. In this regard, State Street maintains certain information in databases under its control and ownership which it makes available to its customers (the "Remote Access Services"). The Services State Street agrees to provide the Customer, and its designated investment advisors, consultants or other third parties authorized by State Street ("Authorized Designees") with access to In~SightSM as described in Exhibit A or such other systems as may be offered from time to time (the "System") on a remote basis. Security Procedures The Customer agrees to comply, and to cause its Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security procedures as may be issued from time to time by State Street for use of the System and access to the Remote Access Services. The Customer agrees to advise State Street immediately in the event that it learns or has reason to believe that any person to whom it has given access to the System or the Remote Access Services has violated or intends to violate the terms of this Addendum and the Customer will cooperate with State Street in seeking injunctive or other equitable relief. The Customer agrees to discontinue use of the System and Remote Access Services, if requested, for any security reasons cited by State Street. Fees Fees and charges for the use of the System and the Remote Access Services and related payment terms shall be as set forth in the Custody Fee Schedule in effect from time to time between the parties (the "Fee Schedule"). The Customer shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street. Proprietary Information/Injunctive Relief The System and Remote Access Services described herein and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, knowhow, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to the Customer by State Street as part of the Remote Access Services and through the use of the System and all copyrights, patents, trade secrets and other proprietary rights of State Street related thereto are the exclusive, valuable and confidential property of State Street and its relevant licensors (the "Proprietary Information"). The Customer agrees on behalf of itself and its i Authorized Designees to keep the Proprietary Information confidential and to limit access to its employees and Authorized Designees (under a similar duty of confidentiality) who require access to the System for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public. The Customer agrees to use the Remote Access Services only in connection with the proper purposes of this Addendum. The Customer will not, and will cause its employees and Authorized Designees not to, (i) permit any third party to use the System or the Remote Access Services, (ii) sell, rent, license or otherwise use the System or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Remote Access Services for any fund, trust or other investment vehicle without the prior written consent of State Street, or (iv) allow or cause any information transmitted from State Street's databases, including data from third party sources, available through use of the System or the Remote Access Services, to be published, redistributed or retransmitted for other than use for or on behalf of the Customer, as State Street's customer. The Customer agrees that neither it nor its Authorized Designees will modify the System in any way; enhance or otherwise create derivative works based upon the System; nor will the Customer or Customer's Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System. The Customer acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street inadequately compensable in damages at law and that State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available. Limited Warranties State Street represents and warrants that it is the owner of and has the right to grant access to the System and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology, including but not limited to the use of the Internet, and the necessity of relying upon third party sources, and data and pricing information obtained from third parties, the System and Remote Access Services are provided "AS IS", and the Customer and its Authorized Designees shall be solely responsible for the investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors will not be liable to the Customer or its Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the System or the Remote Access Services, nor shall either party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control. State Street will take reasonable steps to ensure that its products (and those of its third-party suppliers) reflect the available state of the art technology to offer products that are Year 2000 compliant, including, but not limited to, century recognition of dates, calculations that correctly compute same century and multi century formulas and date values, and interface values that reflect the date issues arising between now and the next one-hundred years, and if any changes are required, State Street will make the changes to its products at no cost to you and in a commercially reasonable time frame and will require third-party suppliers to do likewise. The Customer will do likewise for its systems. EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET, FOR ITSELF AND ITS RELEVANT LICENSORS, EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES ii CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE. Infringement State Street will defend or, at our option, settle any claim or action brought against the Customer to the extent that it is based upon an assertion that access to the System or use of the Remote Access Services by the Customer under this Addendum constitutes direct infringement of any patent or copyright or misappropriation of a trade secret, provided that the Customer notifies State Street promptly in writing of any such claim or proceeding and cooperates with State Street in the defense of such claim or proceeding. Should the System or the Remote Access Services or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under any applicable patent or copyright or trade secret laws, State Street shall have the right, at State Street's sole option, to (i) procure for the Customer the right to continue using the System or the Remote Access Services, (ii) replace or modify the System or the Remote Access Services so that the System or the Remote Access Services becomes noninfringing, or (iii) terminate this Addendum without further obligation. Termination Either party to the Custodian Agreement may terminate this Addendum (i) for any reason by giving the other party at least one-hundred and eighty (180) days' prior written notice in the case of notice of termination by State Street to the Customer or thirty (30) days' notice in the case of notice from the Customer to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. This Addendum shall in any event terminate within ninety (90) days after the termination of the Custodian Agreement. In the event of termination, the Customer will return to State Street all copies of documentation and other confidential information in its possession or in the possession of its Authorized Designees. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years. Miscellaneous This Addendum and the exhibits hereto constitute the entire understanding of the parties to the Custodian Agreement with respect to access to the System and the Remote Access Services. This Addendum cannot be modified or altered except in a writing duly executed by each of State Street and the Customer and shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. By its execution of the Custodian Agreement, the Customer accepts responsibility for its and its Authorized Designees' compliance with the terms of this Addendum. iii EXHIBIT A TO REMOTE ACCESS SERVICES ADDENDUM TO CUSTODIAN AGREEMENT IN~SIGHTSM System Product Description In~SightSM provides bilateral information delivery, interoperability, and on-line access to State Street. In~SightSM allows users a single point of entry into State Street's diverse systems and applications. Reports and data from systems such as Investment Policy MonitorSM, Multicurrency HorizonSM, Securities Lending, Performance & Analytics, and Electronic Trade Delivery can be accessed through In~SightSM. This Internet-enabled application is designed to run from a Web browser and perform across low-speed data lines or corporate high-speed backbones. In~SightSM also offers users a flexible toolset, including an ad-hoc query function, a custom graphics package, a report designer, and a scheduling capability. Data and reports offered through In~SightSM will continue to increase in direct proportion with the customer roll out, as it is viewed as the information delivery system will grow with State Street's customers. iv EX-99.H.17 5 file005.txt LETTER AGREEMENT [CWAM LETTERHEAD] May 1, 2006 Wanger Advisors Trust 227 W. Monroe Street Suite 3300 Chicago, Illinois 60606 Ladies and Gentlemen: Columbia Wanger Asset Management, L.P. ("CWAM") hereby contractually undertakes as of the date hereof as follows with respect to each of the series of Wanger Advisors Trust (each such series a "Fund"): The total expenses of Wanger Select and Wanger International Select through April 30, 2007, exclusive of taxes, of interest and of extraordinary litigation expenses, but including fees paid to CWAM, as a percentage of the Fund's net assets, shall not exceed 1.35% or 1.45% per annum, respectively, and CWAM agrees to reimburse each Fund for any sums expended for such expenses in excess of that amount. For purposes of calculating the expenses subject to this limitation, (i) brokers' commissions and other charges relating to the purchase and sale of portfolio securities and (ii) the excess custodian costs attributable to investments in foreign securities compared to the custodian costs which would have been incurred had the investments been in domestic securities, shall not be regarded as expenses. Reimbursement, if any, shall be made by reduction of the fees otherwise payable to CWAM under the Amended and Restated Investment Advisory Agreement dated September 28, 2005 between Wanger Advisors Trust and CWAM (the "Agreement"), no less frequently than quarterly. Notwithstanding the foregoing, the limitations on total expenses set forth herein shall not apply to any class of shares of a Fund established after the effective date hereof. Effective May 1, 2006, this contractual undertaking supercedes the provisions contained in Section 8 of the Agreement. This undertaking shall be binding upon any successors and assigns of CWAM. Very truly yours, COLUMBIA WANGER ASSET MANAGEMENT, L.P. By: /s/ Bruce H. Lauer ---------------------------------- Bruce H. Lauer Chief Operating Officer Agreed and accepted by WANGER ADVISORS TRUST By: /s/ Bruce H. Lauer ----------------------------------- Bruce H. Lauer Vice President, Secretary and Treasurer EX-99.H.21 6 file006.txt PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT AMONG MERRILL LYNCH LIFE INSURANCE COMPANY, WANGER ADVISORS TRUST, AND COLUMBIA FUNDS DISTRIBUTOR, INC. THIS AGREEMENT, dated as of the 4th day of March, 2005, by and among Merrill Lynch Life Insurance Company (the "Company"), an Arkansas life insurance company, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (hereinafter referred to individually and collectively as the "Account"), Wanger Advisors Trust (the "Fund"), a Massachusetts business trust, and Columbia Funds Distributor, Inc. (the "Underwriter"), a corporation organized and existing under the laws of the Commonwealth of Massachusetts. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance and variable annuity contracts (the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and Underwriter ("Participating Insurance Companies") and to certain retirement plans; WHEREAS, the shares of beneficial interest of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive Order"); WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, Columbia Wanger Asset Management, L.P. (the "Adviser"), a Delaware limited partnership, which serves as investment adviser to the Fund, is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended; WHEREAS, the Company has issued or will issue certain variable life insurance and/or variable annuity contracts supported wholly or partially by the Account (the "Contracts"), and said Contracts are listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement; WHEREAS, the Account is duly established and maintained as a segregated asset account, duly established by the Company, on the date shown for such Account on Schedule A hereto as it may be amended from time to time by mutual written agreement, to set aside and invest assets attributable to the aforesaid Contracts; WHEREAS, the Underwriter, which serves as distributor to the Fund, is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Underwriter is authorized to sell such shares to the Account at net asset value. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund has granted to the Underwriter exclusive authority to distribute the Fund's shares, and has agreed to instruct, and has so instructed, the Underwriter to make available to the Company for purchase on behalf of the Account shares of the Designated Portfolios. Pursuant to such authority and instructions, and subject to Article X hereof, the Underwriter agrees to make available to the Company for purchase on behalf of the Account, shares of those Designated Portfolios listed on Schedule A to this Agreement, such purchases to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund series (other than those listed on Schedule A) in existence now or that may be established in the future may be made available to the Company, and (ii) the Board of Trustees of the Fund (the "Board") may suspend or terminate the offering of Fund shares of any Designated Portfolio or class thereof, if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, suspension or termination is necessary in the best interests of the shareholders of such Designated Portfolio including, but not limited to, if the Fund determines that trading activity represents market timing or trading activity is disruptive and may potentially harm the Fund. 2 1.2. The Fund shall redeem, at the Company's request, any full or fractional Designated Portfolio shares held by the Company on behalf of the Account, such redemptions to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem Fund shares attributable to Contract owners except in the circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may delay redemption of Fund shares of any Designated Portfolio to the extent permitted by the 1940 Act, and any rules, regulations, or orders thereunder. 1.3. Purchase and Redemption Procedures (a) The Parties agree to communicate, process and settle purchase and redemption transactions for Designated Portfolio shares via the Fund/SERV and Networking systems of the National Securities Clearing Corporation ("NSCC"). The Fund hereby appoints the Company as an agent of the Fund for the limited purpose of receiving purchase and redemption requests on behalf of the Account (but not with respect to any Fund shares that may be held in the general account of the Company) for shares of those Designated Portfolios made available hereunder, based on allocations of amounts to the Account or subaccounts thereof under the Contracts and other transactions relating to the Contracts or the Account. Receipt of any such request (or relevant transactional information therefor) on any day the New York Stock Exchange (the "Exchange") is open for regular session trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC (a "Business Day") by the Company as such limited agent of the Fund prior to the time that the Fund ordinarily calculates its net asset value as described from time to time in the Fund Prospectus (which as of the date of execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on that same Business Day, provided that such request is transmitted to the Fund via the NSCC by the latest time trades (which as of the date of execution of this Agreement is ___ p.m. Eastern Time) are accepted by Fund/SERV. "Fund/SERV" shall mean NSCC's system for automated, centralized processing of mutual fund purchase and redemption orders, settlement, and account registration. "Networking" shall mean NSCC's system that allows mutual funds and life insurance companies to exchange account level information electronically. (b) The Company shall pay for shares of each Designated Portfolio by the scheduled close of federal funds transmissions on the same Business Day that it notifies the Fund of a purchase request for such shares. Payment for Designated Portfolio shares shall be in federal funds transmitted by wire from the Settling Bank (on behalf of the Company) to NSCC (unless the Fund determines and so advises the Company that sufficient proceeds are available from redemption of shares of other Designated Portfolios effected pursuant to redemption requests tendered by the Company on behalf of the Account). Upon receipt of federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. "Settling Bank" shall mean the entity appointed to perform such settlement services on behalf of the Fund. 3 (c) Payment for Designated Portfolio shares redeemed by the Account or the Company shall be made in federal funds transmitted by wire to the Company on the next Business Day after the Fund is properly notified of the redemption order of such shares (unless redemption proceeds are to be applied to the purchase of shares of other Designated Portfolios in accordance with Section 1.3(b) of this Agreement), except that the Fund reserves the right to redeem Designated Portfolio shares in assets other than cash and to delay payment of redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance with the procedures and policies of the Fund as described in the then current prospectus. The Fund shall not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds by the Company; the Company alone shall be responsible for such action. (d) Any purchase or redemption request for Designated Portfolio shares held or to be held in the Company's general account shall be effected at the closing net asset value per share next determined after the Fund's receipt of such request, provided that, in the case of a purchase request, payment for Fund shares so requested is received by the Fund in federal funds prior to close of business for determination of such value, as defined from time to time in the Fund Prospectus. 1.4. The Fund shall use its best efforts to make the closing net asset value per share for each Designated Portfolio available to the Company by 6:30 p.m. Eastern Time each Business Day, and in any event, as soon as reasonably practicable after the closing net asset value per share for such Designated Portfolio is calculated, and shall calculate such closing net asset value in accordance with the Fund's Prospectus. In the event the Fund is unable to make the 6:30 p.m. deadline stated herein, transactions shall be held until it is administratively feasible for the Company to update these transactions in the next nightly cycle following receipt of information regarding the Fund's net asset value per share. Held transactions processed the following nightly cycle shall then be processed "as of" the original trade date and Columbia Funds Services, Inc. shall bear any loss resulting from such "as of" processing. Neither the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates shall be liable for any information provided to the Company pursuant to this Agreement which information is based on incorrect information supplied by the Company or any other Participating Insurance Company to the Fund or the Underwriter. Any material error in the calculation or reporting of the closing net asset value per share shall be reported immediately upon discovery to the Company. In such event the Company shall be entitled to an adjustment to the number of shares purchased or redeemed to reflect the correct closing net asset value per share and the Company shall not bear the cost of correcting such errors. Any error of a lesser amount shall be corrected in the next Business Day's net asset value per share. 1.5. The Fund shall furnish notice (by wire or telephone followed by written confirmation) to the Company as soon as reasonably practicable of any income dividends or capital gain distributions payable on any Designated Portfolio shares. The form of payment of dividends and capital gains distributions will be determined in accordance with the Company's operational procedures in effect at the time of the payment of such dividend or distribution. At this time the Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Designated Portfolio shares in the form of additional shares of that Designated Portfolio. The Company reserves the right, on its behalf and 4 on behalf of the Account, to revoke this election and to receive all such dividends and capital gain distributions in the form of cash. The Fund shall notify the Company promptly of the number of Designated Portfolio shares so issued as payment of such dividends and distributions. 1.6. Issuance and transfer of Fund shares shall be by book entry only. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares shall be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account. 1.7. (a) The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other insurance companies (subject to Section 1.8 hereof) and the cash value of the Contracts may be invested in other investment companies. A funding vehicle other than those listed on Schedule A to this Agreement may be made available for the investment of the cash value of the Contracts, provided, however, that the Company gives the Fund and the Underwriter 45 days written notice of its intention to make such other investment vehicle available as a funding vehicle for the Contracts. (b) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law), take any action to operate the Account as a management investment company under the 1940 Act. (c) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law), induce Contract owners to change or modify the Fund or change the Fund's distributor or investment adviser. (d) The Company shall not, without prior notice to the Fund, induce Contract owners to vote on any matter submitted for consideration by the shareholders of the Fund in a manner other than as recommended by the Board of Trustees of the Fund. 1.8. The Underwriter and the Fund shall sell Fund shares only to Participating Insurance Companies and their separate accounts and to persons or plans ("Qualified Persons") that communicate to the Underwriter and the Fund that they qualify to purchase shares of the Fund under Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder without impairing the ability of the Account to consider the portfolio investments of the Fund as constituting investments of the Account for the purpose of satisfying the diversification requirements of Section 817(h). The Underwriter and the Fund shall not sell Fund shares to any Account unless an agreement complying with Article VI of this Agreement is in effect to govern such sales, to the extent required. The Company hereby represents and warrants that it and the Account are Qualified Persons. The Fund reserves the right to suspend or cease offering shares of any Designated Portfolio in the discretion of the Fund. 5 ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts (a) are, or prior to issuance will be, registered under the 1933 Act, or (b) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal securities and state securities and insurance laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under Arkansas insurance laws, and that it (a) has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, or alternatively (b) has not registered the Account in proper reliance upon an exclusion from registration under the 1940 Act. The Company shall register and qualify the Contracts or interests therein as securities in accordance with the laws of the various states only if and to the extent deemed advisable by the Company. 2.2. The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus and statement of additional information of the Designated Portfolios in accordance with the provisions of such current prospectus and statement of additional information, including the policy on trading shares. The Company shall not permit any person other than a Contract owner or its agent to give instructions to the Company that would require the Company to redeem or exchange shares of the Designated Portfolios. 2.3. The Fund may make payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of whom are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the plan or in any agreement related to the plan, formulate and approve a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund makes no representations as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund agrees that it will reasonably cooperate with the Company and furnish to the Company upon written request any specified information required by state insurance laws or otherwise so that the Company can obtain the authority needed to issue the Contracts in the various states. 6 2.5. The Fund represents that it is lawfully organized and validly existing under the laws of the State of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with any applicable state and federal securities laws. 2.7. The Fund and the Underwriter represent and warrant that all of their trustees/directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.8. The Fund represents and warrants that the investments of each Portfolio will comply with the diversification requirements set forth in Section 817(h) of the Code and the rules and regulations thereunder. 2.9. The Company and the Fund each represents and warrants that it: (a) has access to the facilities of the NSCC, (b) has met and will continue to meet all of the requirements to participate in Fund/SERV and Networking, and (c) intends to remain at all times in compliance with the then current rules and procedures of NSCC, all to the extent necessary or appropriate to facilitate such communications, processing, and settlement of Designated Portfolio share transactions. 2.10. The Company represents and warrants that it has adopted and implemented policies and procedures reasonably designed to ensure that all orders received by the Company at or after the close of the Exchange on each Business Day will not be aggregated with orders received by the Company before the close of the Exchange on such Business Day. 2.11. The Company represents and warrants that it has adopted policies and procedures ("Disruptive Trading Procedures") which are designed to detect contract owners engaging in disruptive trading activities, including frequent or short-term transfers, and imposing transfer restrictions on such contract owners. 2.12. Each party to this Agreement agrees to cooperate fully with any and all efforts by any party to assure any party that the it has implemented effective compliance policies and procedures administered by qualified personnel as required by and in accordance with any and all applicable laws, rules and regulations. 7 ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Underwriter shall provide the Company with as many copies of the Fund's current prospectus describing only the Designated Portfolios listed on Schedule A as the Company may reasonably request. The Fund or the Underwriter shall bear the expense of printing copies of the current prospectus and profiles for the Funds that will be distributed to existing Contract owners, and the Company shall bear the expense of printing copies of the Fund's prospectus and profiles that are used in connection with offering the Contracts issued by the Company. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus on diskette at the Fund's or the Underwriter's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing for existing Contract owners to be at the Fund's or Underwriter's expense). 3.2. The Fund's prospectus shall state that the current Statement of Additional Information ("SAI") for the Fund is available, and the Underwriter (or the Fund), at its expense, shall provide a reasonable number of copies of such SAI free of charge to the Company for itself and for any owner of a Contract who requests such SAI. 3.3. The Fund shall provide the Company with information regarding the Fund's expenses, which information may include a table of fees and related narrative disclosure for use in any prospectus or other descriptive document relating to a Contract. 3.4. The Fund, at its or the Underwriter's expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.5. The Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such portfolio for which instructions have been received, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners or to the extent otherwise required by law. 8 The Company will vote Fund shares held in any segregated asset account in the same proportion as Fund shares of such portfolio for which voting instructions have been received from Contract owners, to the extent permitted by law. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners. 3.6. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in a Designated Portfolio calculates voting privileges as required by the Mixed and Shared Funding Exemptive Order and consistent with any reasonable standards that the Fund may adopt and provide in writing. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material that the Company develops and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named. No such material shall be used until approved by the Fund or its designee. The Fund or its designee will be deemed to have approved such sales literature or promotional material unless the Fund or its designee objects or provides comment to the Company within ten Business Days after receipt of such material. The Fund or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no such material shall be used if the Fund or its designee so object. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or the Underwriter in connection with the sale of the Contracts other than the information or representations contained in the registration statement or profiles or prospectus or SAI for the Fund shares, as such registration statement and profiles and prospectus or SAI may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to be furnished, to the Company, each piece of sales literature or other promotional material that it develops and in which the Company, and/or its Account, is named. No such material shall be used until approved by the Company. The Company will be deemed to have approved such sales literature or promotional material unless the Company objects or provides comment to the Fund, the Underwriter, or their designee within ten Business Days after receipt of such material. The Company reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Company and/or its Account is named, and no such material shall be used if the Company so objects. 9 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account, or the Contracts other than the information or representations contained in a registration statement and prospectus (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), or SAI for the Contracts, as such registration statement, prospectus, or SAI may be amended or supplemented from time to time, or in published reports for the Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, profiles, prospectuses, SAIs, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Fund or its shares, promptly after the filing of such document(s) with the SEC or other regulatory authorities. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Contracts or the Account, promptly after the filing of such document(s) with the SEC or other regulatory authorities. The Company shall promptly provide to the Fund and the Underwriter any complaints received from the Contract owners pertaining to the Fund or the Designated Portfolio. 4.7. The Fund will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Designated Portfolio, and of any material change in the Fund's registration statement, particularly any change resulting in a change to the registration statement or prospectus for any Account. The Fund will work with the Company so as to enable the Company to solicit proxies from Contract owners, or to make changes to its prospectus or registration statement, in an orderly manner. The Fund will make reasonable efforts to attempt to have changes affecting Contract prospectuses become effective simultaneously with the annual updates for such prospectuses. 4.8. For purposes of this Article IV, the phrase "sales literature and other promotional materials" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, SAIs, shareholder reports, proxy materials, and any other communications distributed or made generally available with regard to the Fund. 10 ARTICLE V. Fees and Expenses 5.1. The Fund and the Underwriter shall pay no fee or other compensation to the Company under this Agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Fund or Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing, and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the Underwriter, or other resources available to the Underwriter. Currently, no such payments are contemplated. 5.2. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law and all taxes on the issuance or transfer of the Fund's shares. 5.3. The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. Diversification and Qualification 6.1. The Fund will invest its assets in such a manner as to ensure that the Contracts will be treated as annuity or life insurance contracts, whichever is appropriate, under the Code and the regulations issued thereunder (or any successor provisions). Without limiting the scope of the foregoing, each Designated Portfolio has complied and will continue to comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, and any amendments or other modifications or successor provisions to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will (a) take all reasonable steps to notify the Company of such breach and (b) immediately take all necessary steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 1.817-5. 11 6.2. The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will maintain such qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. The Fund acknowledges that compliance with Subchapter M is an essential element of compliance with Section 817(h). 6.3. The Fund shall provide the Company or its designee with reports certifying compliance with the aforesaid Section 817(h) diversification and Subchapter M qualification requirements on a quarterly basis. 6.4. Subject to Sections 6.1 and 6.2, the Company represents that the Contracts are currently, and at the time of issuance shall be, treated as life insurance or annuity insurance contracts, under applicable provisions of the Code, and that it will maintain such treatment, and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing the Contracts have ceased to be so treated or that they might not be so treated in the future. The Company agrees that any prospectus offering a contract that is a "modified endowment contract" as that term is defined in Section 7702A of the Code (or any successor or similar provision), shall identify such contract as a modified endowment contract. ARTICLE VII. Potential Conflicts 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the Contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever Contract owner voting instructions are disregarded. 12 7.3. If it is determined by a majority of the Board, or a majority of its disinterested members, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested Board members), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Designated Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Board's election, to withdraw the Account's investment in the Fund and terminate this Agreement with respect to each Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contract if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that a majority of the members of the Board who are not interested persons of the Fund determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board 13 informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7. If and to the extent the Mixed and Shared Funding Exemption Order or any amendment thereto contains terms and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with the Mixed and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By the Company 8.1(a). The Company agrees to indemnify and hold harmless the Fund and the Underwriter and each of its trustees/directors and officers, employees, agents and each person, if any, who controls the Fund or Underwriter within the meaning of Section 15 of the 1933 Act or who is under common control with the Underwriter (collectively, the "Indemnified Parties" for purposes of this Section 8.1 ) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statements of any material fact contained in the registration statement, prospectus (which shall include a written description of a Contract that is not registered under the 1933 Act), or SAI for the Contracts or contained in sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the 14 registration statement, prospectus or SAI for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, or sales literature of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or its agents or persons under the Company's authorization or control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any material failure by the Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.4 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; or as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1 (c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of its obligations or duties under this Agreement. 15 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Underwriter 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors, officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or profile or prospectus or SAI or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or the Fund by or on behalf of the Company for use in the registration statement, profile, prospectus or SAI for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or 16 (ii) arise out of or as a result of conduct statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Underwriter; or (iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement (including a failure of the Fund, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Sections 6.1 and 6.2 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Underwriter; or (vi) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or the Account, whichever is applicable. 17 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund 8.3(a). The Fund agrees to indemnify and hold harmless the Company and each of its directors and officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may be required to pay or may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Sections 6.1 and 6.2 of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; or 18 (iii) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Fund, the Underwriter or the Account, whichever is applicable. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company and the Underwriter agree promptly to notify the Fund of the commencement of any litigation or proceeding against it or any of its respective officers or directors in connection with the Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, any Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive Order should no longer be necessary under applicable law, then Article VII shall no longer apply. 19 ARTICLE X. Termination 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party, for any reason with respect to some or all Designated Portfolios, by three (3) months advance written notice delivered to the other parties; or (b) termination by the Company upon one month advance written notice to the Fund and the Underwriter based upon the Company's determination that shares of the Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Fund or the Underwriter in the event that formal administrative proceedings are instituted against the Company or the broker-dealer(s) marketing the Contracts by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund's shares; provided, however, that the Fund or Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (e) termination by the Company in the event that formal administrative proceedings are instituted against the Fund or the Underwriter by the NASD, the SEC, or any state securities or insurance department or any other regulatory body; provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund or the Underwriter to perform its obligations under this Agreement; or 20 (f) termination by the Company by written notice to the Fund and the Underwriter with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M or fails to comply with the Section 817(h) diversification requirements specified in Sections 6.1 and 6.2 hereof, or if the Company reasonably believes that such Portfolio may fail to so qualify or comply; or (g) termination by the Fund or Underwriter by written notice to the Company in the event that the Contracts fail to meet the qualifications specified in Section 6.4 hereof; or (h) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (i) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that the Fund, Adviser, or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (j) termination by the Fund or the Underwriter by written notice to the Company, if the Company gives the Fund and the Underwriter the written notice specified in Section 1.7(a) hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, any termination under this Section 10.1(j) shall be effective forty-five days after the notice specified in Section 1.7(a) was given; or (k) termination by the Company upon any substitution of the shares of another investment company or series thereof for shares of a Designated Portfolio of the Fund in accordance with the terms of the Contracts, provided that the Company has given at least 45 days prior written notice to the Fund and Underwriter of the date of substitution; or 21 (l) termination by any party in the event that the Fund's Board of Trustees determines that a material irreconcilable conflict exists as provided in Article VII; or (m) termination by the Fund in the event that the Fund's Board of Trustees determines that such termination would be in the best interests of shareholders; or (n) termination by any party upon assignment, unless such assignment is made with the written consent of each party. 10.2. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"), unless the Underwriter requests that the Company seek an order pursuant to Section 26(c) of the 1940 Act to permit the substitution of other securities for the shares of the Designated Portfolios. The Underwriter agrees to split the cost of seeking such an order, and the Company agrees that it shall reasonably cooperate with the Underwriter and seek such an order upon request. Specifically, the owners of the Existing Contracts may be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the existing Contracts (subject to any such election by the Underwriter). The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. The parties further agree that this Section 10.2 shall not apply to any terminations under Section 10.1 (g) of this Agreement. 10.3. The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice to the Fund and Underwriter, as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of other securities for the shares of the Designated Portfolios is consistent with the terms of the Contracts, or (iv) as permitted under the terms of the Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter reasonable assurance that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contacts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 45 days notice of its intention to do so. 22 10.4. Notwithstanding any termination of this Agreement, each party's obligation under Article VIII to indemnify the other parties shall survive. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Bruce H. Lauer Vice President, Secretary and Treasurer Wanger Advisors Trust 227 West Monroe St., Suite 3000 Chicago, Illinois 60606 If to the Company: Edward W. Diffin, Jr. Vice President & Senior Counsel Merrill Lynch Life Insurance Company 1300 Merrill Lynch Dr., 2nd Floor Pennington, NJ 08534 If to the Underwriter: Columbia Funds Distributor, Inc. ARTICLE XII. Miscellaneous 12.1. All persons dealing with the Fund must look solely to the property of the Fund, and in the case of a series company, the respective Designated Portfolios listed on Schedule A hereto as though each such Designated Portfolio had separately contracted with the Company and the Underwriter for the enforcement of any claims against the Fund. The parties agree that neither the Board, officers, agents or shareholders of the Fund assume any personal liability or responsibility for obligations entered into by or on behalf of the Fund. 12.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information has come into the public domain. 23 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Arkansas Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable contract operations of the Company are being conducted in a manner consistent with the Arkansas variable annuity laws and regulations and any other applicable law or regulations. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. A copy of the Declaration of Trust of the Fund 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 Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets of and property of the Fund or the Designated Portfolios, as a series of the Fund. 24 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. MERRILL LYNCH LIFE INSURANCE COMPANY: By its authorized officer By: /s/ Edward W. Diffin, Jr. ------------------------------- Title: Vice President & Senior Counsel Date: March 4, 2005 WANGER ADVISORS TRUST By its authorized officer By: /s/ Bruce H. Lauer ------------------------------- Title: Treasurer Date: March 8, 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. By its authorized officer By: /s/ Donald Froude ------------------------------- Title: President Date: March 4, 2005 25 SCHEDULE A Separate Account Merrill Lynch Life Variable Annuity Separate Account A Portfolio Wanger U.S. Smaller Companies - Class I Contract Merrill Lynch Investor Choice - Investor Series (Form ML-VA-010 and state variations thereof) Dated: March 4, 2005 EX-99.H.22 7 file007.txt PARTICIPATION AGREEMENT PARTICIPATION AGREEMENT AMONG ML LIFE INSURANCE COMPANY OF NEW YORK, WANGER ADVISORS TRUST, AND COLUMBIA FUNDS DISTRIBUTOR, INC. THIS AGREEMENT, dated as of the 4th day of March, 2005, by and among ML Life Insurance Company of New York (the "Company"), a New York life insurance company, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (hereinafter referred to individually and collectively as the "Account"), Wanger Advisors Trust (the "Fund"), a Massachusetts business trust, and Columbia Funds Distributor, Inc. (the "Underwriter"), a corporation organized and existing under the laws of the Commonwealth of Massachusetts. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance and variable annuity contracts (the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and Underwriter ("Participating Insurance Companies") and to certain retirement plans; WHEREAS, the shares of beneficial interest of the Fund are divided into several series of shares, each designated a "Portfolio" and representing the interest in a particular managed portfolio of securities and other assets; WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission (the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive Order"); WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the Portfolios are registered under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, Columbia Wanger Asset Management, L.P. (the "Adviser"), a Delaware limited partnership, which serves as investment adviser to the Fund, is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended; WHEREAS, the Company has issued or will issue certain variable life insurance and/or variable annuity contracts supported wholly or partially by the Account (the "Contracts"), and said Contracts are listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement; WHEREAS, the Account is duly established and maintained as a segregated asset account, duly established by the Company, on the date shown for such Account on Schedule A hereto as it may be amended from time to time by mutual written agreement, to set aside and invest assets attributable to the aforesaid Contracts; WHEREAS, the Underwriter, which serves as distributor to the Fund, is registered as a broker dealer with the SEC under the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios listed in Schedule A hereto, as it may be amended from time to time by mutual written agreement (the "Designated Portfolios") on behalf of the Account to fund the aforesaid Contracts, and the Underwriter is authorized to sell such shares to the Account at net asset value. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund has granted to the Underwriter exclusive authority to distribute the Fund's shares, and has agreed to instruct, and has so instructed, the Underwriter to make available to the Company for purchase on behalf of the Account shares of the Designated Portfolios. Pursuant to such authority and instructions, and subject to Article X hereof, the Underwriter agrees to make available to the Company for purchase on behalf of the Account, shares of those Designated Portfolios listed on Schedule A to this Agreement, such purchases to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund series (other than those listed on Schedule A) in existence now or that may be established in the future may be made available to the Company, and (ii) the Board of Trustees of the Fund (the "Board") may suspend or terminate the offering of Fund shares of any Designated Portfolio or class thereof, if such action is required by law or by regulatory authorities having jurisdiction or if, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, suspension or termination is necessary in the best interests of the shareholders of such Designated Portfolio including, but not limited to, if the Fund determines that trading activity represents market timing or trading activity is disruptive and may potentially harm the Fund. 2 1.2. The Fund shall redeem, at the Company's request, any full or fractional Designated Portfolio shares held by the Company on behalf of the Account, such redemptions to be effected at net asset value in accordance with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not redeem Fund shares attributable to Contract owners except in the circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may delay redemption of Fund shares of any Designated Portfolio to the extent permitted by the 1940 Act, and any rules, regulations, or orders thereunder. 1.3. Purchase and Redemption Procedures (a) The Parties agree to communicate, process and settle purchase and redemption transactions for Designated Portfolio shares via the Fund/SERV and Networking systems of the National Securities Clearing Corporation ("NSCC"). The Fund hereby appoints the Company as an agent of the Fund for the limited purpose of receiving purchase and redemption requests on behalf of the Account (but not with respect to any Fund shares that may be held in the general account of the Company) for shares of those Designated Portfolios made available hereunder, based on allocations of amounts to the Account or subaccounts thereof under the Contracts and other transactions relating to the Contracts or the Account. Receipt of any such request (or relevant transactional information therefor) on any day the New York Stock Exchange (the "Exchange") is open for regular session trading and on which the Fund calculates its net asset value pursuant to the rules of the SEC (a "Business Day") by the Company as such limited agent of the Fund prior to the time that the Fund ordinarily calculates its net asset value as described from time to time in the Fund Prospectus (which as of the date of execution of this Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the Fund on that same Business Day, provided that such request is transmitted to the Fund via the NSCC by the latest time trades (which as of the date of execution of this Agreement is ____ p.m. Eastern Time) are accepted by Fund/SERV. "Fund/SERV" shall mean NSCC's system for automated, centralized processing of mutual fund purchase and redemption orders, settlement, and account registration. "Networking" shall mean NSCC's system that allows mutual funds and life insurance companies to exchange account level information electronically. (b) The Company shall pay for shares of each Designated Portfolio by the scheduled close of federal funds transmissions on the same Business Day that it notifies the Fund of a purchase request for such shares. Payment for Designated Portfolio shares shall be in federal funds transmitted by wire from the Settling Bank (on behalf of the Company) to NSCC (unless the Fund determines and so advises the Company that sufficient proceeds are available from redemption of shares of other Designated Portfolios effected pursuant to redemption requests tendered by the Company on behalf of the Account). Upon receipt of federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. "Settling Bank" shall mean the entity appointed to perform such settlement services on behalf of the Fund. 3 (c) Payment for Designated Portfolio shares redeemed by the Account or the Company shall be made in federal funds transmitted by wire to the Company on the next Business Day after the Fund is properly notified of the redemption order of such shares (unless redemption proceeds are to be applied to the purchase of shares of other Designated Portfolios in accordance with Section 1.3(b) of this Agreement), except that the Fund reserves the right to redeem Designated Portfolio shares in assets other than cash and to delay payment of redemption proceeds to the extent permitted under Section 22(e) of the 1940 Act and any Rules thereunder, and in accordance with the procedures and policies of the Fund as described in the then current prospectus. The Fund shall not bear any responsibility whatsoever for the proper disbursement or crediting of redemption proceeds by the Company; the Company alone shall be responsible for such action. (d) Any purchase or redemption request for Designated Portfolio shares held or to be held in the Company's general account shall be effected at the closing net asset value per share next determined after the Fund's receipt of such request, provided that, in the case of a purchase request, payment for Fund shares so requested is received by the Fund in federal funds prior to close of business for determination of such value, as defined from time to time in the Fund Prospectus. 1.4. The Fund shall use its best efforts to make the closing net asset value per share for each Designated Portfolio available to the Company by 6:30 p.m. Eastern Time each Business Day, and in any event, as soon as reasonably practicable after the closing net asset value per share for such Designated Portfolio is calculated, and shall calculate such closing net asset value in accordance with the Fund's Prospectus. In the event the Fund is unable to make the 6:30 p.m. deadline stated herein, transactions shall be held until it is administratively feasible for the Company to update these transactions in the next nightly cycle following receipt of information regarding the Fund's net asset value per share. Held transactions processed the following nightly cycle shall then be processed "as of" the original trade date and Columbia Funds Services, Inc. shall bear any loss resulting from such "as of" processing. Neither the Fund, any Designated Portfolio, the Underwriter, nor any of their affiliates shall be liable for any information provided to the Company pursuant to this Agreement which information is based on incorrect information supplied by the Company or any other Participating Insurance Company to the Fund or the Underwriter. Any material error in the calculation or reporting of the closing net asset value per share shall be reported immediately upon discovery to the Company. In such event the Company shall be entitled to an adjustment to the number of shares purchased or redeemed to reflect the correct closing net asset value per share and the Company shall not bear the cost of correcting such errors. Any error of a lesser amount shall be corrected in the next Business Day's net asset value per share. 1.5. The Fund shall furnish notice (by wire or telephone followed by written confirmation) to the Company as soon as reasonably practicable of any income dividends or capital gain distributions payable on any Designated Portfolio shares. The form of payment of dividends and capital gains distributions will be determined in accordance with the Company's operational procedures in effect at the time of the payment of such dividend or distribution. At this time the Company, on its behalf and on behalf of the Account, hereby elects to receive all such dividends and distributions as are payable on any Designated Portfolio shares in the form of additional shares of that Designated Portfolio. The Company reserves the right, on its behalf and 4 on behalf of the Account, to revoke this election and to receive all such dividends and capital gain distributions in the form of cash. The Fund shall notify the Company promptly of the number of Designated Portfolio shares so issued as payment of such dividends and distributions. 1.6. Issuance and transfer of Fund shares shall be by book entry only. Stock certificates will not be issued to the Company or the Account. Purchase and redemption orders for Fund shares shall be recorded in an appropriate ledger for the Account or the appropriate subaccount of the Account. 1.7. (a) The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other insurance companies (subject to Section 1.8 hereof) and the cash value of the Contracts may be invested in other investment companies. A funding vehicle other than those listed on Schedule A to this Agreement may be made available for the investment of the cash value of the Contracts, provided, however, that the Company gives the Fund and the Underwriter 45 days written notice of its intention to make such other investment vehicle available as a funding vehicle for the Contracts. (b) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law), take any action to operate the Account as a management investment company under the 1940 Act. (c) The Company shall not, without prior notice to the Underwriter (unless otherwise required by applicable law), induce Contract owners to change or modify the Fund or change the Fund's distributor or investment adviser. (d) The Company shall not, without prior notice to the Fund, induce Contract owners to vote on any matter submitted for consideration by the shareholders of the Fund in a manner other than as recommended by the Board of Trustees of the Fund. 1.8. The Underwriter and the Fund shall sell Fund shares only to Participating Insurance Companies and their separate accounts and to persons or plans ("Qualified Persons") that communicate to the Underwriter and the Fund that they qualify to purchase shares of the Fund under Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder without impairing the ability of the Account to consider the portfolio investments of the Fund as constituting investments of the Account for the purpose of satisfying the diversification requirements of Section 817(h). The Underwriter and the Fund shall not sell Fund shares to any Account unless an agreement complying with Article VI of this Agreement is in effect to govern such sales, to the extent required. The Company hereby represents and warrants that it and the Account are Qualified Persons. The Fund reserves the right to suspend or cease offering shares of any Designated Portfolio in the discretion of the Fund. 5 ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that the Contracts (a) are, or prior to issuance will be, registered under the 1933 Act, or (b) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal securities and state securities and insurance laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law, that it has legally and validly established the Account prior to any issuance or sale thereof as a segregated asset account under Arkansas insurance laws, and that it (a) has registered or, prior to any issuance or sale of the Contracts, will register the Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts, or alternatively (b) has not registered the Account in proper reliance upon an exclusion from registration under the 1940 Act. The Company shall register and qualify the Contracts or interests therein as securities in accordance with the laws of the various states only if and to the extent deemed advisable by the Company. 2.2. The Company agrees to purchase and redeem the shares of the Designated Portfolios offered by the then current prospectus and statement of additional information of the Designated Portfolios in accordance with the provisions of such current prospectus and statement of additional information, including the policy on trading shares. The Company shall not permit any person other than a Contract owner or its agent to give instructions to the Company that would require the Company to redeem or exchange shares of the Designated Portfolios. 2.3. The Fund may make payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of whom are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the plan or in any agreement related to the plan, formulate and approve a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses. 2.4. The Fund makes no representations as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies, objectives and restrictions) complies with the insurance laws and regulations of any state. The Fund agrees that it will reasonably cooperate with the Company and furnish to the Company upon written request any specified information required by state insurance laws or otherwise so that the Company can obtain the authority needed to issue the Contracts in the various states. 6 2.5. The Fund represents that it is lawfully organized and validly existing under the laws of the State of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with any applicable state and federal securities laws. 2.7. The Fund and the Underwriter represent and warrant that all of their trustees/directors, officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.8. The Fund represents and warrants that the investments of each Portfolio will comply with the diversification requirements set forth in Section 817(h) of the Code and the rules and regulations thereunder. 2.9. The Company and the Fund each represents and warrants that it: (a) has access to the facilities of the NSCC, (b) has met and will continue to meet all of the requirements to participate in Fund/SERV and Networking, and (c) intends to remain at all times in compliance with the then current rules and procedures of NSCC, all to the extent necessary or appropriate to facilitate such communications, processing, and settlement of Designated Portfolio share transactions. 2.10. The Company represents and warrants that it has adopted and implemented policies and procedures reasonably designed to ensure that all orders received by the Company at or after the close of the Exchange on each Business Day will not be aggregated with orders received by the Company before the close of the Exchange on such Business Day. 2.11. The Company represents and warrants that it has adopted policies and procedures ("Disruptive Trading Procedures") which are designed to detect contractowners engaging in disruptive trading activities, including frequent or short-term transfers, and imposing transfer restrictions on such contractowners. 2.12. Each party to this Agreement agrees to cooperate fully with any and all efforts by any party to assure any party that the it has implemented effective compliance policies and procedures administered by qualified personnel as required by and in accordance with any and all applicable laws, rules and regulations. 7 ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. The Underwriter shall provide the Company with as many copies of the Fund's current prospectus describing only the Designated Portfolios listed on Schedule A as the Company may reasonably request. The Fund or the Underwriter shall bear the expense of printing copies of the current prospectus and profiles for the Funds that will be distributed to existing Contract owners, and the Company shall bear the expense of printing copies of the Fund's prospectus and profiles that are used in connection with offering the Contracts issued by the Company. If requested by the Company in lieu thereof, the Fund shall provide such documentation (including a final copy of the new prospectus on diskette at the Fund's or the Underwriter's expense) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the Fund's prospectus printed together in one document (such printing for existing Contract owners to be at the Fund's or Underwriter's expense). 3.2. The Fund's prospectus shall state that the current Statement of Additional Information ("SAI") for the Fund is available, and the Underwriter (or the Fund), at its expense, shall provide a reasonable number of copies of such SAI free of charge to the Company for itself and for any owner of a Contract who requests such SAI. 3.3. The Fund shall provide the Company with information regarding the Fund's expenses, which information may include a table of fees and related narrative disclosure for use in any prospectus or other descriptive document relating to a Contract. 3.4. The Fund, at its or the Underwriter's expense, shall provide the Company with copies of its proxy material, reports to shareholders, and other communications to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.5. The Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in the same proportion as Fund shares of such portfolio for which instructions have been received, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners or to the extent otherwise required by law. 8 The Company will vote Fund shares held in any segregated asset account in the same proportion as Fund shares of such portfolio for which voting instructions have been received from Contract owners, to the extent permitted by law. The Company and its agents shall not oppose or interfere with the solicitation of proxies for Fund shares held for such Contract owners. 3.6. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in a Designated Portfolio calculates voting privileges as required by the Mixed and Shared Funding Exemptive Order and consistent with any reasonable standards that the Fund may adopt and provide in writing. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material that the Company develops and in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named. No such material shall be used until approved by the Fund or its designee. The Fund or its designee will be deemed to have approved such sales literature or promotional material unless the Fund or its designee objects or provides comment to the Company within ten Business Days after receipt of such material. The Fund or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund (or a Designated Portfolio thereof) or the Adviser or the Underwriter is named, and no such material shall be used if the Fund or its designee so object. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund or the Adviser or the Underwriter in connection with the sale of the Contracts other than the information or representations contained in the registration statement or profiles or prospectus or SAI for the Fund shares, as such registration statement and profiles and prospectus or SAI may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund and the Underwriter, or their designee, shall furnish, or cause to be furnished, to the Company, each piece of sales literature or other promotional material that it develops and in which the Company, and/or its Account, is named. No such material shall be used until approved by the Company. The Company will be deemed to have approved such sales literature or promotional material unless the Company objects or provides comment to the Fund, the Underwriter, or their designee within ten Business Days after receipt of such material. The Company reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Company and/or its Account is named, and no such material shall be used if the Company so objects. 9 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Account, or the Contracts other than the information or representations contained in a registration statement and prospectus (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), or SAI for the Contracts, as such registration statement, prospectus, or SAI may be amended or supplemented from time to time, or in published reports for the Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, profiles, prospectuses, SAIs, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Fund or its shares, promptly after the filing of such document(s) with the SEC or other regulatory authorities. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, prospectuses (which shall include an offering memorandum, if any, if the Contracts issued by the Company or interests therein are not registered under the 1933 Act), SAIs, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and all amendments or supplements to any of the above, that relate to the Contracts or the Account, promptly after the filing of such document(s) with the SEC or other regulatory authorities. The Company shall promptly provide to the Fund and the Underwriter any complaints received from the Contract owners pertaining to the Fund or the Designated Portfolio. 4.7. The Fund will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for any Designated Portfolio, and of any material change in the Fund's registration statement, particularly any change resulting in a change to the registration statement or prospectus for any Account. The Fund will work with the Company so as to enable the Company to solicit proxies from Contract owners, or to make changes to its prospectus or registration statement, in an orderly manner. The Fund will make reasonable efforts to attempt to have changes affecting Contract prospectuses become effective simultaneously with the annual updates for such prospectuses. 4.8. For purposes of this Article IV, the phrase "sales literature and other promotional materials" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, prospectuses, SAIs, shareholder reports, proxy materials, and any other communications distributed or made generally available with regard to the Fund. 10 ARTICLE V. Fees and Expenses 5.1. The Fund and the Underwriter shall pay no fee or other compensation to the Company under this Agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Fund or Underwriter may make payments to the Company or to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing, and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the Underwriter, or other resources available to the Underwriter. Currently, no such payments are contemplated. 5.2. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall see to it that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law and all taxes on the issuance or transfer of the Fund's shares. 5.3. The Company shall bear the expenses of distributing the Fund's prospectus to owners of Contracts issued by the Company and of distributing the Fund's proxy materials and reports to such Contract owners. ARTICLE VI. Diversification and Qualification 6.1. The Fund will invest its assets in such a manner as to ensure that the Contracts will be treated as annuity or life insurance contracts, whichever is appropriate, under the Code and the regulations issued thereunder (or any successor provisions). Without limiting the scope of the foregoing, each Designated Portfolio has complied and will continue to comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts, and any amendments or other modifications or successor provisions to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will (a) take all reasonable steps to notify the Company of such breach and (b) immediately take all necessary steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 1.817-5. 11 6.2. The Fund represents that it is or will be qualified as a Regulated Investment Company under Subchapter M of the Code, and that it will maintain such qualification (under Subchapter M or any successor or similar provisions) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. The Fund acknowledges that compliance with Subchapter M is an essential element of compliance with Section 817(h). 6.3. The Fund shall provide the Company or its designee with reports certifying compliance with the aforesaid Section 817(h) diversification and Subchapter M qualification requirements on a quarterly basis. 6.4. Subject to Sections 6.1 and 6.2, the Company represents that the Contracts are currently, and at the time of issuance shall be, treated as life insurance or annuity insurance contracts, under applicable provisions of the Code, and that it will maintain such treatment, and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for believing the Contracts have ceased to be so treated or that they might not be so treated in the future. The Company agrees that any prospectus offering a contract that is a "modified endowment contract" as that term is defined in Section 7702A of the Code (or any successor or similar provision), shall identify such contract as a modified endowment contract. ARTICLE VII. Potential Conflicts 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the Contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever Contract owner voting instructions are disregarded. 12 7.3. If it is determined by a majority of the Board, or a majority of its disinterested members, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested Board members), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Designated Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Designated Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Board's election, to withdraw the Account's investment in the Fund and terminate this Agreement with respect to each Account; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contract if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that a majority of the members of the Board who are not interested persons of the Fund determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board 13 informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7. If and to the extent the Mixed and Shared Funding Exemption Order or any amendment thereto contains terms and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with the Mixed and Shared Funding Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in the Mixed and Shared Funding Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By the Company 8.1(a). The Company agrees to indemnify and hold harmless the Fund and the Underwriter and each of its trustees/directors and officers, employees, agents and each person, if any, who controls the Fund or Underwriter within the meaning of Section 15 of the 1933 Act or who is under common control with the Underwriter (collectively, the "Indemnified Parties" for purposes of this Section 8.1 ) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statements of any material fact contained in the registration statement, prospectus (which shall include a written description of a Contract that is not registered under the 1933 Act), or SAI for the Contracts or contained in sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in the 14 registration statement, prospectus or SAI for the Contracts or in the Contracts or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of conduct, statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI, or sales literature of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or its agents or persons under the Company's authorization or control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any material failure by the Company to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the qualification requirements specified in Section 6.4 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; or as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1 (c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of its obligations or duties under this Agreement. 15 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Underwriter 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors, officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or profile or prospectus or SAI or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or the Fund by or on behalf of the Company for use in the registration statement, profile, prospectus or SAI for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or 16 (ii) arise out of or as a result of conduct statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Fund or the Underwriter; or (iv) arise as a result of any failure by the Fund or the Underwriter to provide the services and furnish the materials under the terms of this Agreement (including a failure of the Fund, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Sections 6.1 and 6.2 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund or the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund or the Underwriter; or (vi) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance or such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company or the Account, whichever is applicable. 17 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. 8.3. Indemnification By the Fund 8.3(a). The Fund agrees to indemnify and hold harmless the Company and each of its directors and officers, employees, agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may be required to pay or may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages, liabilities or expenses (or actions in respect thereof) or settlements, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Sections 6.1 and 6.2 of this Agreement); or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; or 18 (iii) arise out of or result from the materially incorrect or untimely calculation or reporting of the daily net asset value per share or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Fund, the Underwriter or the Account, whichever is applicable. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.3(d). The Company and the Underwriter agree promptly to notify the Fund of the commencement of any litigation or proceeding against it or any of its respective officers or directors in connection with the Agreement, the issuance or sale of the Contracts, the operation of the Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of New York. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, any Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive Order should no longer be necessary under applicable law, then Article VII shall no longer apply. 19 ARTICLE X. Termination 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party, for any reason with respect to some or all Designated Portfolios, by three (3) months advance written notice delivered to the other parties; or (b) termination by the Company upon one month advance written notice to the Fund and the Underwriter based upon the Company's determination that shares of the Fund are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter in the event any of the Designated Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Fund or the Underwriter in the event that formal administrative proceedings are instituted against the Company or the broker-dealer(s) marketing the Contracts by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund's shares; provided, however, that the Fund or Underwriter determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (e) termination by the Company in the event that formal administrative proceedings are instituted against the Fund or the Underwriter by the NASD, the SEC, or any state securities or insurance department or any other regulatory body; provided, however, that the Company determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund or the Underwriter to perform its obligations under this Agreement; or 20 (f) termination by the Company by written notice to the Fund and the Underwriter with respect to any Designated Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M or fails to comply with the Section 817(h) diversification requirements specified in Sections 6.1 and 6.2 hereof, or if the Company reasonably believes that such Portfolio may fail to so qualify or comply; or (g) termination by the Fund or Underwriter by written notice to the Company in the event that the Contracts fail to meet the qualifications specified in Section 6.4 hereof; or (h) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company has suffered a material adverse change in its business, operations, financial condition, or prospects since the date of this Agreement or is the subject of material adverse publicity; or (i) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that the Fund, Adviser, or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (j) termination by the Fund or the Underwriter by written notice to the Company, if the Company gives the Fund and the Underwriter the written notice specified in Section 1.7(a) hereof and at the time such notice was given there was no notice of termination outstanding under any other provision of this Agreement; provided, however, any termination under this Section 10.1(j) shall be effective forty-five days after the notice specified in Section 1.7(a) was given; or (k) termination by the Company upon any substitution of the shares of another investment company or series thereof for shares of a Designated Portfolio of the Fund in accordance with the terms of the Contracts, provided that the Company has given at least 45 days prior written notice to the Fund and Underwriter of the date of substitution; or 21 (l) termination by any party in the event that the Fund's Board of Trustees determines that a material irreconcilable conflict exists as provided in Article VII; or (m) termination by the Fund in the event that the Fund's Board of Trustees determines that such termination would be in the best interests of shareholders; or (n) termination by any party upon assignment, unless such assignment is made with the written consent of each party. 10.2. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall, at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"), unless the Underwriter requests that the Company seek an order pursuant to Section 26(c) of the 1940 Act to permit the substitution of other securities for the shares of the Designated Portfolios. The Underwriter agrees to split the cost of seeking such an order, and the Company agrees that it shall reasonably cooperate with the Underwriter and seek such an order upon request. Specifically, the owners of the Existing Contracts may be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the existing Contracts (subject to any such election by the Underwriter). The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. The parties further agree that this Section 10.2 shall not apply to any terminations under Section 10.1 (g) of this Agreement. 10.3. The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract owner initiated or approved transactions, (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days prior written notice to the Fund and Underwriter, as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of other securities for the shares of the Designated Portfolios is consistent with the terms of the Contracts, or (iv) as permitted under the terms of the Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter reasonable assurance that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contacts, the Company shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 45 days notice of its intention to do so. 22 10.4. Notwithstanding any termination of this Agreement, each party's obligation under Article VIII to indemnify the other parties shall survive. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Bruce H. Lauer Vice President, Secretary and Treasurer Wanger Advisors Trust 227 West Monroe St., Suite 3000 Chicago, Illinois 60606 If to the Company: Edward W. Diffin, Jr. Vice President & Senior Counsel ML Life Insurance Company of New York 1300 Merrill Lynch Dr., 2nd Floor Pennington, NJ 08534 If to the Underwriter: Columbia Funds Distributor, Inc. -------------------------------- -------------------------------- -------------------------------- -------------------------------- ARTICLE XII. Miscellaneous 12.1. All persons dealing with the Fund must look solely to the property of the Fund, and in the case of a series company, the respective Designated Portfolios listed on Schedule A hereto as though each such Designated Portfolio had separately contracted with the Company and the Underwriter for the enforcement of any claims against the Fund. The parties agree that neither the Board, officers, agents or shareholders of the Fund assume any personal liability or responsibility for obligations entered into by or on behalf of the Fund. 12.2. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information has come into the public domain. 23 12.3. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the Arkansas Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the variable contract operations of the Company are being conducted in a manner consistent with the Arkansas variable annuity laws and regulations and any other applicable law or regulations. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies, and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. A copy of the Declaration of Trust of the Fund 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 Fund by officers of the Fund as officers and not individually and that the obligations of or arising out of this instrument are not binding upon any of the trustees, officers or shareholders individually but are binding only upon the assets of and property of the Fund or the Designated Portfolios, as a series of the Fund. 24 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. ML LIFE INSURANCE COMPANY OF NEW YORK: By its authorized officer By: /s/ Edward W. Diffin, Jr. ------------------------------- Title: Vice President & Senior Counsel Date: March 4, 2005 WANGER ADVISORS TRUST By its authorized officer By: /s/ Bruce H. Lauer ------------------------------- Title: Treasurer Date: March 8, 2005 COLUMBIA FUNDS DISTRIBUTOR, INC. By its authorized officer By: /s/ Donald Froude ------------------------------- Title: President Date: March 4, 2005 25 SCHEDULE A Separate Account ML of New York Variable Annuity Separate Account A Portfolios Wanger U.S. Smaller Companies - Class I Contract Merrill Lynch Investor Choice - Investor Series (Form MLNY-VA-010 and state variations thereof) Dated: March 4, 2005 EX-99.H.23 8 file008.txt PARTICIPATION AGREEMENT FUND PARTICIPATION AGREEMENT TIAA-CREF LIFE INSURANCE COMPANY WANGER ADVISORS TRUST COLUMBIA WANGER ASSET MANAGEMENT, LLP AND COLUMBIA MANAGEMENT DISTRIBUTORS, INC. MARCH 1, 2006 TABLE OF CONTENTS ARTICLE I. Sale of Fund Shares.................................................2 ARTICLE II. Representations and Warranties.....................................5 ARTICLE III. Prospectuses and Proxy Statements; Voting.........................9 ARTICLE IV. Sales Material and Information....................................10 ARTICLE V. Fees and Expenses..................................................11 ARTICLE VI. Diversification and Qualification.................................11 ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order.....................................................13 ARTICLE VIII. Indemnification.................................................15 ARTICLE IX. Applicable Law....................................................19 ARTICLE X. Termination........................................................19 ARTICLE XI. Notices...........................................................21 ARTICLE XII. Miscellaneous....................................................22 SCHEDULE A....................................................................25 SCHEDULE B....................................................................26 SCHEDULE C....................................................................27 PARTICIPATION AGREEMENT Among TIAA-CREF LIFE INSURANCE COMPANY WANGER ADVISORS TRUST COLUMBIA WANGER ASSET MANAGEMENT, LLP and COLUMBIA MANAGEMENT DISTRIBUTORS, INC. THIS AGREEMENT, made and entered into as of this 1st day of March, 2006, by and among TIAA-CREF LIFE INSURANCE COMPANY (the "Company"), a New York life insurance company, on its own behalf and on behalf of its separate accounts (the "Accounts"); WANGER ADVISORS TRUST, an open-end management investment company organized under the laws of Massachusetts (the "Fund"); COLUMBIA WANGER ASSET MANAGEMENT, LLP (the "Adviser"), a Delaware limited partnership; and COLUMBIA MANAGEMENT DISTRIBUTORS, INC. (the "Distributor"), a Massachusetts corporation. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and/or variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies, many of which have entered into participation agreements similar to this Agreement (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is divided into several series of shares, each designated a portfolio and representing the interest in a particular managed portfolio of securities and other assets; and WHEREAS, the Fund is able to rely on an order from the Securities and Exchange Commission (hereinafter the "SEC") granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another and qualified pension and retirement plans ("Qualified Plans") (hereinafter the "Mixed and Shared Funding Exemptive Order"); and 1 WHEREAS, the Fund is registered as an open-end management investment company under the 1940 Act and shares of the portfolios are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, the Adviser is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended; and WHEREAS, the Distributor is duly registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, (the "1934 Act") and is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Company has issued and plans to continue to issue certain variable life insurance policies and variable annuity contracts supported wholly or partially by the Accounts (the "Contracts"), and the Contracts are listed on Schedule A attached hereto and incorporated herein by reference, as such schedule may be amended from time to time by mutual written agreement of the parties; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company under the insurance laws of the State of New York to set aside and invest assets attributable to the Contracts; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios listed on Schedule B attached hereto and incorporated herein by reference, as such schedule may be amended from time to time by mutual written agreement of the parties (the "Portfolios"), on behalf of the Accounts to fund the Contracts, and the Fund is authorized to sell such shares to unit investment trusts such as the Accounts at net asset value; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company also intends to continue to purchase shares in other open-end investment companies or series thereof not affiliated with the Fund (the "Unaffiliated Funds") on behalf of the Accounts to fund the Contracts. NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund, the Distributor and the Adviser agree as follows: ARTICLE I. Sale of Fund Shares 1.1. The Fund agrees to sell to the Company those shares of the Portfolios which the Account orders, executing such orders on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Portfolios. For purposes of this Section 1.1, the Company shall be the designee of the Fund for receipt of such orders and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of any such order by 10:00 a.m. Eastern time on the next following Business Day. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Portfolio calculates its net asset value pursuant to the rules of the SEC. "Valuation Time" shall mean the time as of which the Fund calculates net asset value for the shares of the Portfolios on the relevant Business Day. 2 1.2. The Fund agrees to make shares of the Portfolios available for purchase at the applicable net asset value per share by the Company and the Accounts on those days on which the Fund calculates its Portfolios' net asset value pursuant to rules of the SEC, and the Fund shall calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Fund may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Fund acting in good faith, necessary or appropriate in the best interests of the shareholders of such Portfolio. All orders accepted by the Company shall be subject to the terms of the then current prospectus of the Fund, including the Fund's excessive trading policies. The Company shall use its best efforts, and shall reasonably cooperate with, the Fund to enforce stated prospectus policies regarding transactions in Portfolio shares. The Company acknowledges that orders accepted by it in violation of the Fund's stated policies may be subsequently revoked or cancelled by the Fund and that the Fund shall not be responsible for any losses incurred by the Company or the Contract owner as a result of such cancellation. In addition, the Company acknowledges that the Fund has the right to refuse any purchase order for any reason, particularly if the Fund determines that a Portfolio would be unable to invest the money effectively in accordance with its investment policies or would otherwise be adversely affected due to the size of the transaction, frequency of trading, or other factors. 1.3. The Fund will not sell shares of the Portfolios to any other Participating Insurance Company separate account unless an agreement containing provisions the substance of which are the same as Sections 2.1, 2.2 (except with respect to designation of applicable law), 3.6, 3.7, 3.8, and Article VII of this Agreement is in effect to govern such sales. 1.4. The Fund agrees to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on each Business Day at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.4, the Company shall be the designee of the Fund for receipt of requests for redemption and receipt by such designee shall constitute receipt by the Fund, provided that the Fund receives notice of any such request for redemption by 10:00 a.m. Eastern time on the next following Business Day. 1.5. The parties hereto acknowledge that the arrangement contemplated by this Agreement is not exclusive; the Fund's shares may be sold to other Participating Insurance Companies (subject to Section 1.3) and the cash value of the Contracts may be invested in other investment companies. 1.6. The Company shall pay for Fund shares by 3:00 p.m. Eastern time on the next Business Day after an order to purchase Fund shares is received in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire and/or by a credit for any shares redeemed the same day as the purchase. 1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund shares by 11:00 a.m. Eastern Time on the next Business Day after a redemption order is received in accordance with Section 1.4 hereof; provided, however, that the Fund may delay payment in extraordinary circumstances to the extent permitted under Section 22(e) of the 1940 Act. 3 Payment shall be in federal funds transmitted by wire and/or a credit for any shares purchased the same day as the redemption. Each party has the right to rely on information or confirmations provided by the other party (or by an affiliate of the other party), and shall not be liable in the event that an error is a result of any misinformation supplied by the other party. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or the Accounts. Shares purchased from the Fund will be recorded in an appropriate title for the relevant Account or the relevant sub-account of an Account. 1.9. The Fund shall furnish same day notice (by electronic communication or telephone, followed by electronic confirmation) to the Company of any income, dividends or capital gain distributions payable on a Portfolio's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on a Portfolio's shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company by the end of the next following Business Day of the number of shares so issued as payment of such dividends and distributions. 1.10. The Fund shall make the net asset value per share for each Portfolio available to the Company on each Business Day as soon as reasonably practicable after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 6:00 p.m. Eastern time. In the event of an error in the computation of a Portfolio's net asset value per share ("NAV") or any dividend or capital gain distribution (each, a "pricing error"), the Adviser or the Fund shall immediately notify the Company as soon as possible after discovery of the error. Such notification may be verbal, but shall be confirmed promptly in writing. A pricing error shall be corrected as follows: (a) if the pricing error results in a difference between the erroneous NAV and the correct NAV of less than $0.01 per share, then no corrective action need be taken; (b) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than $0.01 per share, but less than 1/2 of 1% of the Portfolio's NAV at the time of the error, then the Adviser shall reimburse the Portfolio for any loss, after taking into consideration any positive effect of such error; however, no adjustments to Contract owner accounts need be made; and (c) if the pricing error results in a difference between the erroneous NAV and the correct NAV equal to or greater than 1/2 of 1% of the Portfolio's NAV at the time of the error, then the Adviser shall reimburse the Portfolio for any loss (without taking into consideration any positive effect of such error) and shall reimburse the Company for the costs of adjustments made to correct Contract owner accounts. Upon notification by the Adviser of any overpayment due to a material error, the Company shall promptly remit to the Adviser any overpayment that has not been paid to Contract owners. In no event shall the Company be liable to Contract owners for any such adjustments or underpayment amounts. A pricing error within categories (b) or (c) above shall be deemed to be "materially incorrect" or constitute a "material error" for purposes of this Agreement. The standards set forth in this Section 1.10 are based on the parties' understanding of the views expressed by the staff of the SEC as of the date of this Agreement. In the event the views of the SEC staff are later modified or superseded by SEC or judicial interpretation, the parties shall amend the 4 foregoing provisions of this Agreement to comport with the appropriate applicable standards, on terms mutually satisfactory to all parties. 1.11. The parties agree to mutually cooperate with respect to any state insurance law restriction or requirement applicable to the Fund's investments; provided, however, that the Fund reserves the right not to implement restrictions or take other actions required by state insurance law if the Fund or the Adviser determines that the implementation of the restriction or other action is not in the best interest of Fund shareholders. ARTICLE II. Representations and Warranties 2.1. The Company represents and warrants that: (a) the securities issued by the Accounts under the Contracts are or will be registered under the 1933 Act, or are not so registered in proper reliance upon an exemption from such registration requirements; (b) the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and (c) the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. 2.2. The Company represents and warrants that: (a) it is an insurance company duly organized and in good standing under applicable law; (b) it has legally and validly established each Account prior to any issuance or sale of units thereof as a segregated asset account under New York law; and (c) it has registered each Account as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts and will maintain such registration for so long as any Contracts are outstanding as required by applicable law or, alternatively, the Company has not registered one or more Accounts in proper reliance upon an exclusion from such registration requirements. 2.3. The Fund represents and warrants that: (a) the Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act; (b) the Fund shares sold pursuant to this Agreement shall be duly authorized for issuance and sold in compliance with all applicable federal securities laws including without limitation the 1933 Act, the 1934 Act, and the 1940 Act; (c) the Fund is and shall remain registered under the 1940 Act; and (d) the Fund shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. 2.4. The Fund represents and warrants that it shall register and qualify the shares for sale in accordance with the laws of the various states if and to the extent required by applicable law. 2.5. The Fund represents and warrants that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.6. The Adviser represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with any applicable state and federal securities laws. 5 2.7. The Distributor represents and warrants that it is and shall remain duly registered under all applicable federal and state securities laws and that it shall perform its obligations for the Fund in compliance in all material respects with the laws of any applicable state and federal securities laws. 2.8. The Fund and the Adviser represent and warrant that all of their respective officers, employees, investment advisers, and other individuals or entities dealing with the money and/or securities of the Fund are, and shall continue to be at all times, covered by one or more blanket fidelity bonds or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage required by Rule 17g-1 under the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid bonds shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.9. The Fund and the Adviser represent and warrant that they will provide the Company with as much advance notice as is reasonably practicable of any material change affecting the Portfolios (including, but not limited to, any material change in the registration statement or prospectus affecting the Portfolios) and any proxy solicitation affecting the Portfolios and consult with the Company in order to implement any such change in an orderly manner, recognizing the expenses of changes and attempting to minimize such expenses by implementing them in conjunction with regular annual updates of the prospectus for the Contracts. 2.10. The Company represents and warrants, for purposes other than diversification under Section 817 of the Internal Revenue Code of 1986 as amended (the "Code"), that the Contracts are currently and at the time of issuance will be treated as annuity contracts or life insurance policies under applicable provisions of the Code, and that it will make every effort to maintain such treatment and that it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. In addition, the Company represents and warrants that each Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract" within the meaning of such terms under Section 817 of the Code and the regulations thereunder. The Company will use every effort to continue to meet such definitional requirements, and it will notify the Fund, the Distributor and the Adviser immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. The Company represents and warrants that it will not purchase Fund shares with assets derived from tax-qualified retirement plans except, indirectly, through Contracts purchased in connection with such plans. 2.11. The Company represents and warrants that it is currently in compliance, and will remain in compliance, with all applicable anti-money laundering laws, regulations, and requirements. In addition, the Company represents and warrants that it has adopted and implemented policies and procedures reasonably designed to achieve compliance with the applicable requirements administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury. 6 2.12. The Company represents and warrants that it is currently in compliance, and will remain in compliance, with all applicable laws, rules and regulations relating to consumer privacy, including, but not limited to, Regulation S-P. 2.13. The Company represents and warrants that it has adopted, and will at all times during the term of this Agreement maintain, reasonable and appropriate procedures ("Late Trading Procedures") designed to ensure that any and all orders relating to the purchase, sale or exchange of Fund shares communicated to the Fund to be treated in accordance with Article I of this Agreement as having been received on a Business Day have been received by the Valuation Time on such Business Day and were not modified after the Valuation Time, and that all orders received from Contract owners but not rescinded by the Valuation Time were communicated to the Fund or its agent as received for that Business Day. The Company further represents and warrants that it has adopted and implemented controls reasonably designed to ensure that all orders received by the Company after the close of the New York Stock Exchange on a particular Business Day will not be aggregated with orders received by the Company before the close of the New York Stock Exchange on such Business Day. Each transmission of orders by the Company shall constitute a representation by the Company that such orders are accurate and complete and relate to orders received by the Company by the Valuation Time on the Business Day for which the order is to be priced and that such transmission includes all orders relating to Fund shares received from Contract owners but not rescinded by the Valuation Time. The Company agrees to provide the Fund or its designee with a copy of the Late Trading Procedures and such certifications and representations regarding the Late Trading Procedures as the Fund or its designee may reasonably request. The Company will promptly notify the Fund in writing of any material change to the Late Trading Procedures. 2.14. The Company represents and warrants that it has adopted, and will at all times during the term of this Agreement maintain, reasonable and appropriate procedures ("Market Timing Procedures") designed to minimize any adverse impact on other Fund investors due to excessive trading. The Company agrees to provide the Fund or its designee with a copy of the Market Timing Procedures and such certifications and representations regarding the Market Timing Procedures as the Fund or its designee may reasonably request. The Company will promptly notify the Fund in writing of any material change to the Market Timing Procedures. The parties agree that in light of any conflict between the Market Timing Procedures and actions taken or policies adopted by the Fund designed to minimize any adverse impact on other Fund investors due to excessive trading, the stricter policy, as determined by the parties, will apply. 2.15. (a) You agree to cooperate with all requests by the Fund with respect to discouraging, monitoring and terminating patterns of trading that the Fund deems disruptive, including providing, upon written request by the Fund, the Taxpayer Identification Number ("TIN"), if known, of any and all Shareholder(s) of the account and the amount, date, name or other identifier of any investment professional(s) associated with the Shareholder(s) or account (if known) and transaction type (purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer or exchange of the Funds' shares held through an account maintained by you during the period covered by the request. 7 (i) You will provide the Fund or its designee a weekly feed of the transaction information sought. The Fund may request transaction information as it deems necessary to investigate compliance with policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding shares issued by the Fund. If you provide the Fund a daily feed, unless otherwise directed by the Fund, you agree to provide the information specified in this Section 2.15 for each trading day. (ii) You agree to transmit the requested information that is on your books and records to the Fund or its designee promptly upon conclusion of each week. If the requested information is not on your books and records, you agree to use reasonable efforts to: (A) promptly obtain and transmit the requested information; (B) obtain assurances from the accountholder that the requested information will be provided to the Fund promptly; or (C) if directed by the Fund, restrict or prohibit further purchases of the Fund's shares from such accountholder. In such instance, you agree to inform the Fund whether you plan to perform (A), (B), or (C). Responses required by this sub-Section must be communicated in writing and in a format mutually agreed upon by the parties. To the extent practicable, the format for any transaction information provided to the Fund should be consistent with the National Securities Clearing Corporation's Standardized Data Reporting Format. (iii) The Fund agrees not to use the information received pursuant to this Section 2.15(i) for marketing or any other similar purpose without your prior written consent. (b) You agree to execute written instructions from the Fund to restrict or prohibit further purchases or exchanges of the Fund's shares by a Shareholder that has been identified by a Fund as having engaged in transactions of such Fund's shares (directly or indirectly through your account) that violate policies established by the Fund for the purpose of eliminating or reducing any dilution of the value of the outstanding securities issued by the Fund. (i) Instructions must include the TIN, if known, and the specific restriction(s) to be executed. If the TIN is not known, the instructions must include an equivalent identifying number of the Shareholder(s) or account(s) or other agreed upon information to which the instruction relates. (ii) You agree to execute instructions as soon as reasonably practicable, but not later than five (5) business days after receipt by you of the instructions. (iii) You must provide written confirmation to the Funds that instructions have been executed. You agree to provide confirmation as soon as reasonably practicable, but not later than ten (10) business days after the instructions have been executed. (c) For purposes of this Section 2.15: (i) The term "Fund" includes us and the Transfer Agent, but does not include any "excepted funds" as defined in Rule 22c-2(b) under the 1940 Act. (ii) The term "Shareholder" means the beneficial owner of the Funds' shares, whether such shares are held directly or by you in nominee name. 8 (iii) The term "written" includes electronic writings and facsimile transmissions. 2.16 The Company agrees to cooperate fully with any and all efforts by the Fund to assure the Fund that the Company has implemented effective compliance policies and procedures administered by qualified personnel as required by and in accordance with any and all applicable laws, rules and regulations. ARTICLE III. Prospectuses and Proxy Statements; Voting 3.1. At least annually, the Adviser or Distributor shall provide the Company with as many copies of the Fund's current prospectus and amendments thereto as the Company may reasonably request, with expenses to be borne in accordance with Schedule A hereof. If requested by the Company in lieu thereof, the Adviser, Distributor or Fund shall provide such documentation (including an electronic version of the current prospectus) and other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus for the Fund is amended) to have the prospectus for the Contracts and the prospectus for the Fund printed together in one document. 3.2 The Fund will provide the Company with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to the Portfolios promptly after the filing of each such document with the SEC or other regulatory authority. The Company will provide the Fund with at least one complete copy of all prospectuses, statements of additional information, annual and semi-annual reports, proxy statements, exemptive applications and all amendments or supplements to any of the above that relate to a Separate Account promptly after the filing of each such document with the SEC or other regulatory authority.3.3. If applicable state or federal laws or regulations require that the Statement of Additional Information ("SAI") for the Fund be distributed to all Contract owners, then the Fund, Distributor and/or the Adviser shall provide the Company with copies of the Fund's SAI in such quantities, with expenses to be borne in accordance with Schedule A hereof, as the Company may reasonably require to permit timely distribution thereof to Contract owners. The Adviser, Distributor and/or the Fund shall also provide an SAI to any Contract owner or prospective owner who requests such SAI from the Fund. 3.4. The Fund, Distributor and/or Adviser shall provide the Company with copies of the Fund's proxy material, reports to shareholders and other communications to shareholders in such quantity, with expenses to be borne in accordance with Schedule A hereof, as the Company may reasonably require to permit timely distribution thereof to Contract owners. 3.5. It is understood and agreed that, except with respect to information regarding the Company provided in writing by that party, the Company shall not be responsible for the content of the prospectus or SAI for the Fund. It is also understood and agreed that, except with respect to information regarding the Fund, the Distributor, the Adviser or the Portfolios provided in writing by the Fund, the Distributor or the Adviser, neither the Fund, the Distributor nor Adviser are responsible for the content of the prospectus or SAI for the Contracts. 3.6. If and to the extent required by law the Company shall: 9 (a) solicit voting instructions from Contract owners; (b) vote the Portfolio shares held in the Accounts in accordance with instructions received from Contract owners; (c) vote Portfolio shares held in the Accounts for which no instructions have been received in the same proportion as Portfolio shares for which instructions have been received from Contract owners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners; and (d) vote Portfolio shares held in its general account or otherwise in the same proportion as Portfolio shares for which instructions have been received from Contract owners, so long as and to the extent that the SEC continues to interpret the 1940 Act to require such voting by the insurance company. The Company reserves the right to vote Fund shares in its own right, to the extent permitted by law. 3.7. The Company shall be responsible for assuring that each of its separate accounts holding shares of a Portfolio calculates voting privileges as directed by the Fund and agreed to by the Company and the Fund. The Fund agrees to promptly notify the Company of any changes of interpretations or amendments of the Mixed and Shared Funding Exemptive Order. 3.8. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or, as the Fund currently intends, comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of directors or trustees and with whatever rules the SEC may promulgate with respect thereto. ARTICLE IV. Sales Material and Information 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, a copy of each piece of sales literature or other promotional material that the Company develops or proposes to use and in which the Fund (or Portfolio thereof), the Adviser or the Distributor is named in connection with the Contracts, at least ten (10) business days prior to its use. No such material shall be used if the Fund objects to such use within five (5) business days after receipt of such material. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement, including the prospectus or SAI for the Fund shares, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Fund, Distributor or Adviser, except with the permission of the Fund, Distributor or Adviser. 4.3. The Fund, the Adviser or the Distributor shall furnish, or shall cause to be furnished, to the Company, a copy of each piece of sales literature or other promotional material 10 in which the Company and/or its accounts are named at least ten (10) business days prior to its use. No such material shall be used if the Company objects to such use within five (5) business days after receipt of such material. 4.4. The Fund, the Distributor and the Adviser shall not give any information or make any representations on behalf of the Company or concerning the Company, the Accounts, or the Contracts other than the information or representations contained in a registration statement, including the prospectus or SAI for the Contracts, as the same may be amended or supplemented from time to time, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. For purposes of Articles IV and VIII, the phrase "sales literature and other promotional material" includes, but is not limited to, advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or other public media; e.g., on-line networks such as the Internet or other electronic media), sales literature (i.e., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, form letters, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and shareholder reports, and proxy materials (including solicitations for voting instructions) and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6. At the request of any party to this Agreement, each other party will make available to the other party's independent auditors and/or representatives of the appropriate regulatory agencies, all records, data and access to operating procedures that may be reasonably requested in connection with compliance and regulatory requirements related to this Agreement or any party's obligations under this Agreement. ARTICLE V. Fees and Expenses 5.1. The Fund, the Distributor and the Adviser shall pay no fee or other compensation to the Company under this Agreement, and the Company shall pay no fee or other compensation to the Fund, the Distributor or Adviser under this Agreement; provided, however, (a) the parties will bear their own expenses as reflected in Schedule C and other provisions of this Agreement, and (b) the parties may enter into other agreements relating to the Company's investment in the Fund, including services agreements. ARTICLE VI. Diversification and Qualification 6.1. The Fund, Distributor and Adviser represent and warrant that the Fund and each Portfolio thereof will at all times comply with Section 817(h) of the Code and Treasury Regulation ss.1.817-5, as amended from time to time, and any Treasury interpretations thereof, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications or successor provisions to such Section or Regulations. The Fund, the Distributor or the Adviser shall, upon request, provide to the 11 Company a quarterly written diversification report, which shall show the results of the quarterly Section 817(h) diversification test and include a certification as to whether each Portfolio complies with the Section 817(h) diversification requirement. 6.2. The Fund, the Distributor and the Adviser agree that shares of the Portfolios will be sold only to Participating Insurance Companies and their separate accounts and to Qualified Plans. No shares of any Portfolio of the Fund will be sold to the general public. 6.3. The Fund, the Distributor and the Adviser represent and warrant that the Fund and each Portfolio is currently qualified as a Regulated Investment Company under Subchapter M of the Code, and that each Portfolio will maintain such qualification (under Subchapter M or any successor or similar provisions) as long as this Agreement is in effect. 6.4. The Fund, the Distributor or the Adviser will notify the Company immediately upon having a reasonable basis for believing that the Fund or any Portfolio has ceased to comply with the aforesaid Section 817(h) diversification or Subchapter M qualification requirements or might not so comply in the future. 6.5. Without in any way limiting the effect of Sections 8.2, 8.3 and 8.4 hereof and without in any way limiting or restricting any other remedies available to the Company, the Adviser or Distributor will pay all costs associated with or arising out of any failure, or any anticipated or reasonably foreseeable failure, of the Fund or any Portfolio to comply with Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable and appropriate corrections or responses to any such failure; such costs may include, but are not limited to, the costs involved in creating, organizing, and registering a new investment company as a funding medium for the Contracts and/or the costs of obtaining whatever regulatory authorizations are required to substitute shares of another investment company for those of the failed Portfolio (including but not limited to an order pursuant to Section 26(c) of the 1940 Act). 6.6. The Company agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of the Company (or, to the Company's knowledge, of any Contract owner) that any Portfolio has failed to comply with the diversification requirements of Section 817(h) of the Code or the Company otherwise becomes aware of any facts that could give rise to any claim against the Fund, Distributor or Adviser as a result of such a failure or alleged failure: (a) The Company shall promptly notify the Fund, the Distributor and the Adviser of such assertion or potential claim; (b) The Company shall consult with the Fund, the Distributor and the Adviser as to how to minimize any liability that may arise as a result of such failure or alleged failure; (c) The Company shall use its best efforts to minimize any liability of the Fund, the Distributor and the Adviser resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulations, Section 1.817-5(a)(2), to the commissioner of the IRS that such failure was inadvertent; 12 (d) Any written materials to be submitted by the Company to the IRS, any Contract owner or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations, Section 1.817-5(a)(2)) shall be provided by the Company to the Fund, the Distributor and the Adviser (together with any supporting information or analysis) within at least two (2) business days prior to submission; (e) The Company shall provide the Fund, the Distributor and the Adviser with such cooperation as the Fund, the Distributor and the Adviser shall reasonably request (including, without limitation, by permitting the Fund, the Distributor and the Adviser to review the relevant books and records of the Company) in order to facilitate review by the Fund, the Distributor and the Adviser of any written submissions provided to it or its assessment of the validity or amount of any claim against it arising from such failure or alleged failure; (f) The Company shall not with respect to any claim of the IRS or any Contract owner that would give rise to a claim against the Fund, the Distributor and the Adviser (i) compromise or settle any claim, (ii) accept any adjustment on audit, or (iii) forego any allowable administrative or judicial appeals, without the express written consent of the Fund, the Distributor and the Adviser, which shall not be unreasonably withheld; provided that, the Company shall not be required to appeal any adverse judicial decision unless the Fund and the Adviser shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and further provided that the Fund, the Distributor and the Adviser shall bear the costs and expenses, including reasonable attorney's fees, incurred by the Company in complying with this clause (f). ARTICLE VII. Potential Conflicts and Compliance With Mixed and Shared Funding Exemptive Order 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio is being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners or by contract owners of different Participating Insurance Companies; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever Contract owner voting 13 instructions are to be disregarded. Such responsibilities shall be carried out by the Company with a view only to the interests of its Contract owners. 7.3. If it is determined by a majority of the Board, or a majority of its directors who are not interested persons of the Fund, the Distributor, the Adviser or any subadviser to any of the Portfolios (the "Independent Directors"), that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the Independent Directors), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio, or submitting the question whether such segregation should be implemented to a vote of all affected contract owners and, as appropriate, segregating the assets of any appropriate group (i.e., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the Account's investment in the Fund and terminate this Agreement; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six-month period the Adviser, the Distributor and the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the Independent Directors. Until the end of the foregoing six-month period, the Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority of the Independent Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any 14 irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination; provided, however, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict as determined by a majority of the Independent Directors. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable: and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. Indemnification 8.1. Indemnification By The Company (a) The Company agrees to indemnify and hold harmless the Fund, the Distributor and the Adviser and each of their respective officers and directors or trustees and each person, if any, who controls the Fund, Distributor or Adviser within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, expenses, damages and liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus or SAI covering the Contracts or contained in the Contracts or sales literature or other promotional material for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of the Adviser, Distributor or Fund for use in the registration statement or prospectus for the Contracts or in the Contracts or sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or Fund shares; or 15 (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature or other promotional material of the Fund not supplied by the Company or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material of the Fund, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon information furnished in writing to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, including without limitation Section 2.11 and Section 6.6 hereof, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. (b) The Company shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. (c) The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Company has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other 16 expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. Indemnification by the Adviser (a) The Adviser agrees to indemnify and hold harmless the Company and its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, expenses, damages, liabilities (including amounts paid in settlement with the written consent of the Adviser) or litigation (including reasonable legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or SAI or sales literature or other promotional material of the Fund prepared by the Fund, the Distributor or the Adviser (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this Agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished in writing to the Adviser, the Distributor or the Fund by or on behalf of the Company for use in the registration statement, prospectus or SAI for the Fund or in sales literature or other promotional material (or any amendment or supplement to any of the foregoing) or otherwise for use in connection with the sale of the Contracts or the Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature or other promotional material for the Contracts not supplied by the Adviser or persons under its control) or wrongful conduct of the Fund, the Distributor or the Adviser or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI, or sales literature or other promotional material covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or 17 statements therein not misleading, if such statement or omission was made in reliance upon information furnished in writing to the Company by or on behalf of the Adviser, the Distributor or the Fund; or (iv) arise as a result of any failure by the Fund, the Distributor or the Adviser to provide the services and furnish the materials under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification and other qualification requirements specified in Article VI of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Fund, the Distributor or the Adviser in this Agreement or arise out of or result from any other material breach of this Agreement by the Adviser, the Distributor or the Fund; or (vi) arise out of or result from the incorrect or untimely calculation or reporting by the Fund, the Distributor or the Adviser of the daily net asset value per share (subject to Section 1.10 of this Agreement) or dividend or capital gain distribution rate; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. This indemnification is in addition to and apart from the responsibilities and obligations of the Adviser specified in Article VI hereof. (b) The Adviser shall not be liable under this indemnification provision with respect to any losses, claims, expenses, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to any of the Indemnified Parties. (c) The Adviser shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Adviser in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Adviser of any such claim shall not relieve the Adviser from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision, except to the extent that the Adviser has been prejudiced by such failure to give notice. In case any such action is brought against the Indemnified Parties, the Adviser will be entitled to participate, at its own expense, in the defense thereof. The Adviser also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Adviser to such party of the Adviser's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Adviser will not be liable to 18 such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. (d) The Company agrees promptly to notify the Adviser of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of the Account. ARTICLE IX. Applicable Law 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts, without regard to conflict of laws provisions. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. Termination 10.1. This Agreement shall terminate: (a) at the option of any party, with or without cause, with respect to some or all Portfolios, upon sixty (60) days advance written notice delivered to the other parties; or (b) at the option of the Company by written notice to the other parties with respect to any Portfolio based upon the Company's determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) at the option of the Company by written notice to the other parties with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) at the option of the Fund, Distributor or Adviser in the event that formal administrative proceedings are instituted against the Company by the NASD, the SEC, the Insurance Commissioner or like official of any state or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Contracts, the operation of any Account, or the purchase of the Fund shares, if, in each case, the Fund, Distributor or Adviser, as the case may be, reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Company to perform its obligations under this Agreement; or (e) at the option of the Company in the event that formal administrative proceedings are instituted against the Fund, the Distributor or the Adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body, if the 19 Company reasonably determines in its sole judgment exercised in good faith, that any such administrative proceedings will have a material adverse effect upon the ability of the Fund, the Distributor or the Adviser to perform their obligations under this Agreement; or (f) at the option of the Company by written notice to the Fund with respect to any Portfolio if the Company reasonably believes that the Portfolio will fail to meet the Section 817(h) diversification requirements or Subchapter M qualifications specified in Article VI hereof; or (g) at the option of any non-defaulting party hereto in the event of a material breach of this Agreement by any party hereto (the "defaulting party") other than as described in Section 10.1(a)-(h); provided, that the non-defaulting party gives written notice thereof to the defaulting party, with copies of such notice to all other non-defaulting parties, and if such breach shall not have been remedied within thirty (30) days after such written notice is given, then the non-defaulting party giving such written notice may terminate this Agreement by giving thirty (30) days written notice of termination to the defaulting party; or (h) at any time upon written agreement of all parties to this Agreement. 10.2. Notice Requirement No termination of this Agreement shall be effective unless and until the party terminating this Agreement gives prior written notice to all other parties of its intent to terminate, which notice shall set forth the basis for the termination. Furthermore, (a) in the event any termination is based upon the provisions of Article VII, or the provisions of Section 10.1(a) of this Agreement, the prior written notice shall be given in advance of the effective date of termination as required by those provisions unless such notice period is shortened by mutual written agreement of the parties; (b) in the event any termination is based upon the provisions of Section 10.1(d), 10.1(e) or 10.1(g) of this Agreement, the prior written notice shall be given at least sixty (60) days before the effective date of termination; and (c) in the event any termination is based upon the provisions of Section 10.1(b), 10.1(c) or 10.1(f), the prior written notice shall be given in advance of the effective date of termination, which date shall be determined by the party sending the notice. 10.3. Effect of Termination Notwithstanding any termination of this Agreement, other than as a result of a failure by either the Fund or the Company to meet Section 817(h) of the Code diversification requirements, the Fund, the Distributor and the Adviser shall, at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the 20 Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.3 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.4. Surviving Provisions Notwithstanding any termination of this Agreement, each party's obligations under Article VIII to indemnify other parties shall survive and not be affected by any termination of this Agreement. In addition, with respect to Existing Contracts, all provisions of this Agreement shall also survive and not be affected by any termination of this Agreement. ARTICLE XI. Notices Any notice shall be sufficiently given when sent by registered or certified mail to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other parties. If to the Company: TIAA-CREF Life Insurance Company 730 Third Avenue New York, NY 10017 Attention: Secretary If to the Fund: Wanger Advisors Trust 227 W. Monroe Street Suite 3000 Chicago IL 60606 Attention: Secretary If to the Adviser: Columbia Wanger Asset Management, LLP 227 W. Monroe Street Suite 3000 Chicago IL 60606 Attention: Secretary If to the Distributor: Columbia Management Distributors, Inc. One Financial Center Boston, MA 02111 Attention: Secretary 21 ARTICLE XII. Miscellaneous 12.1. Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the affected party until such time as such information may come into the public domain. Without limiting the foregoing, no party hereto shall disclose any information that another party has designated as proprietary. 12.2. The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.3. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.4. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.5. Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 12.6. Any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration in a forum jointly selected by the relevant parties (but if applicable law requires some other forum, then such other forum) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. 12.7. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto. 12.9. The Company agrees that the obligations assumed by the Fund, Distributor and the Adviser pursuant to this Agreement shall be limited in any case to the Fund, Distributor and Adviser and their respective assets and the Company shall not seek satisfaction of any such obligation from the shareholders of the Fund, Distributor or the Adviser, the Directors, officers, employees or agents of the Fund, Distributor or Adviser, or any of them. 22 12.10. The Fund, the Distributor and the Adviser agree that the obligations assumed by the Company pursuant to this Agreement shall be limited in any case to the Company and its assets and neither the Fund, Distributor nor Adviser shall seek satisfaction of any such obligation from the shareholders of the Company, the directors, officers, employees or agents of the Company, or any of them. 12.11. No provision of this Agreement may be deemed or construed to modify or supersede any contractual rights, duties, or indemnifications, as between the Adviser and the Fund, and the Distributor and the Fund. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified below. TIAA-CREF LIFE INSURANCE COMPANY By its authorized officer, By: /s/ Bret L. Benham -------------------------------------------- Title: Senior Vice President WANGER ADVISORS TRUST By its authorized officer, By: /s/ Bruce H. Lauer -------------------------------------------- Title: President COLUMBIA WANGER ASSET MANAGEMENT, LLP By its authorized officer, By: /s/ Bruce H. Lauer -------------------------------------------- Title: President COLUMBIA MANAGEMENT DISTRIBUTORS, INC. By its authorized officer, By: /s/ Donald S. Froude -------------------------------------------- Title: President 23 SCHEDULE A CONTRACTS TIAA-CREF INTELLIGENT LIFE FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY 24 SCHEDULE B DESIGNATED PORTFOLIO(S) Wanger U.S. Smaller Companies Wanger International Small Cap Wanger Select 25 SCHEDULE C EXPENSES The Fund and/or the Distributor and/or Adviser, and the Company will coordinate the functions and pay the costs of the completing these functions based upon an allocation of costs in the tables below. Costs shall be allocated to reflect the Fund's share of the total costs determined according to the number of pages of the Fund's respective portions of the documents.
- ------------------------------ --------------------------- --------------------------- --------------------------- ITEM FUNCTION PARTY RESPONSIBLE FOR PARTY RESPONSIBLE FOR COORDINATION EXPENSE - ------------------------------ --------------------------- --------------------------- --------------------------- Mutual Fund Prospectus Printing of combined Company Inforce - Fund prospectuses Prospective - Company - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution (including Company Fund postage) to New and Inforce Clients - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution (including Company Company postage) to Prospective Clients - ------------------------------ --------------------------- --------------------------- --------------------------- Product Prospectus Printing and Distribution Company Company for Inforce and Prospective Clients - ------------------------------ --------------------------- --------------------------- --------------------------- Mutual Fund Prospectus If Required by Fund, Fund, Distributor or Fund, Distributor or Update & Distribution Distributor or Adviser Adviser Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- If Required by Company Company (Fund, Company Distributor or Adviser to provide Company with document in PDF format) - ------------------------------ --------------------------- --------------------------- --------------------------- 26 - ------------------------------ --------------------------- --------------------------- --------------------------- ITEM FUNCTION PARTY RESPONSIBLE FOR PARTY RESPONSIBLE FOR COORDINATION EXPENSE - ------------------------------ --------------------------- --------------------------- --------------------------- - ------------------------------ --------------------------- --------------------------- --------------------------- Product Prospectus Update & If Required by Fund, Company Fund, Distributor or Distribution Distributor or Adviser Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- If Required by Company Company Company - ------------------------------ --------------------------- --------------------------- --------------------------- Mutual Fund SAI Printing Fund, Distributor or Fund, Distributor or Adviser Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution (including Party who receives the Party who receives the postage) request request - ------------------------------ --------------------------- --------------------------- --------------------------- Product SAI Printing Company Company - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution Company Company - ------------------------------ --------------------------- --------------------------- --------------------------- Proxy Material for Mutual Printing if proxy Fund, Distributor or Fund, Distributor or Fund required by Law Adviser Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution (including Company Fund, Distributor or labor) if proxy required Adviser by Law - ------------------------------ --------------------------- --------------------------- --------------------------- Printing & distribution Company Company if required by Company - ------------------------------ --------------------------- --------------------------- --------------------------- Mutual Fund Annual & Printing of reports Fund, Distributor or Fund, Distributor or Semi-Annual Report Adviser Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution Company Fund, Distributor or Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- Other communication to New If Required by the Fund, Company Distributor or Adviser and Prospective clients Distributor or Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- If Required by Company Company Company - ------------------------------ --------------------------- --------------------------- --------------------------- 27 - ------------------------------ --------------------------- --------------------------- --------------------------- ITEM FUNCTION PARTY RESPONSIBLE FOR PARTY RESPONSIBLE FOR COORDINATION EXPENSE - ------------------------------ --------------------------- --------------------------- --------------------------- - ------------------------------ --------------------------- --------------------------- --------------------------- Other communication to Distribution (including Company Fund, Distributor or inforce labor and printing) if Adviser required by the Fund, Distributor or Adviser - ------------------------------ --------------------------- --------------------------- --------------------------- Distribution (including Company Company labor and printing) if required by Company - ------------------------------ --------------------------- --------------------------- --------------------------- Operations of the Fund All operations and Fund, Distributor or Fund or Adviser related expenses, Adviser including the cost of registration and qualification of shares, taxes on the issuance or transfer of shares, cost of management of the business affairs of the Fund, and expenses paid or assumed by the fund pursuant to any Rule 12b-1 plan - ------------------------------ --------------------------- --------------------------- --------------------------- Operations of the Accounts Federal registration of Company Company units of separate account (24f-2 fees) - ------------------------------ --------------------------- --------------------------- ---------------------------
28 EX-99.I 9 file009.txt CONSENT OF BELL, BOYD & LLOYD LLC BELL, BOYD & LLOYD LLC - -------------------------------------------------------------------------------- 70 West Madison Street, Suite 3100 o Chicago, Illinois 60602-4207 312.372.1121 o Fax 312.827.8000 April 20, 2006 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. Smaller Companies (formerly named 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 Select (formerly named Wanger Twenty) and Wanger International Select (formerly named 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. BELL, BOYD & LLOYD LLC - -------------------------------------------------------------------------------- c h i c a g o o w a s h i n g t o n EX-99.J 10 file010.txt CONSENT OF INDEPENDENT AUDITORS CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our reports dated February 14, 2006, relating to the financial statements and financial highlights which appear in the December 31, 2005 Annual Reports to the Shareholders of Wanger Advisors Trust, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the captions "Financial Highlights" and "Independent Registered Public Accounting Firm" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois April 13, 2006 EX-99.P.1 11 file011.txt CODE OF ETHICS COLUMBIA WANGER ASSET MANAGEMENT, L.P. COLUMBIA ACORN TRUST WANGER ADVISORS TRUST CODE OF ETHICS EFFECTIVE JANUARY 1, 2006
Table of Contents OVERVIEW AND DEFINITIONS PAGE Overview 3 Things You Need to Know to Use This Code 4 Definitions 5-7 Part I STATEMENT OF GENERAL PRINCIPLES (APPLIES TO ALL EMPLOYEES) A. Compliance with the Spirit of the Code 8 B. Additional Codes of Ethics 8 C. Nonpublic Information 9 D. Reporting Violations of CWAM Code of Ethics 9 E. Compliance with Federal Securities Laws 9 Part II PROHIBITED TRANSACTIONS AND ACTIVITIES (APPLIES TO ALL EMPLOYEES) A. Prohibition on Fraudulent and Deceptive Acts 10 B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 10 C. Restrictions Applicable to All Employees with Respect to Transactions in Bank of America's Retirement Plans 11 D. Trading Restrictions Applicable to All Access Persons 11-13 1. Prohibition on Trading Securities Being Purchased, Sold or Considered for Purchase or Sale by a Client Account 11 2. Pre-clearance of Transactions 12 3. Fourteen Calendar Day Blackout Period 12 4. Initial Public Offerings, Hedge Funds and Private Placements 12 5. Short-Term Trading (60 Calendar Days) 13 6. Excessive Trading 13 7. Closed-end Funds Advised by Bank of America 13 E. Additional Trading Restrictions Applicable to Investment Persons 13-15 F. Exempt Transactions 15 G. Restriction on Service as Officer or Director 16 H. Participation in Investment Clubs 16 I. Additional Restrictions for Specific Sub-Groups 16 J. Gifts 16 K. Penalties for Non-Compliance 16 Part III ADMINISTRATION AND REPORTING REQUIREMENTS (APPLIES TO ALL EMPLOYEES) A. New Employees 17 B. Annual Code Coverage Acknowledgement and Compliance Certification 17 C. Reporting Requirements for All Access Persons 17-18 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Open -end Mutual Funds 18 2. Quarterly Investment Account and Transaction Report 18 3. Annual Holdings Report 18 4. Duplicate Account Statements and Confirmations 18 D. Exceptions from the Above Reporting Requirements 18 E. Code Administration 18 F. Monitoring of Transactions 19 G. Certification of Compliance and Receipt of Code 19 H. Non-public Information 19 I. Responsibility 19 J. Questions 19 K. Compliance With the Code 20 L. Retention of Records 20 M. Furnishing of the Code upon Request 20 1 APPENDICES: Appendix A Beneficial Ownership 21-22 Appendix B Pre-clearance Procedures for Personal Transactions in Covered Securities and Open-end Funds 23 Appendix C Pre-clearance Procedures 24-25 Appendix D Hardship Exceptions to the Short-term Profit Trading Ban 26 Appendix E Sanction Schedule 27 Appendix F Portfolio Holdings Disclosure Policy 28-29 FORMS: Form A Initial Holdings Report 30-32 Form B Quarterly Personal Securities Transaction Report 33 Form C Annual Code of Ethics Certification 34 Annual Policy Concerning Material Non-public Information 34 Annual Holdings Report 35 Form D Multi-Approval Form 36
2 COLUMBIA WANGER ASSET MANAGEMENT, L.P. CODE OF ETHICS OVERVIEW This is the Code of Ethics for: o All employees and officers of Columbia Wanger Asset Management, L.P. (CWAM) and employees of Bank of America or CMG Companies who receive official notice under this Code of Ethics from Compliance. o The Code is intended to satisfy the requirements of Rule 204A-1 under the Investment Advisers Act of 1940. In addition, this Code is intended to satisfy certain NASD requirements for registered personnel. The Code covers the following activities: o It prohibits certain activities by EMPLOYEES that involve the potential for conflicts of interest (Part I). o It prohibits certain kinds of PERSONAL SECURITIES TRADING by ACCESS PERSONS (Part II). o It requires all EMPLOYEES to report their open-end mutual fund holdings and transactions, and requires ACCESS PERSONS to report ALL of their securities holdings, transactions and accounts so they can be reviewed for conflicts with the investment activities of CWAM CLIENT ACCOUNTS (Part III) and compliance with this Code. Failure to comply with this Code may result in disciplinary action, including termination of employment. 3 THINGS YOU NEED TO KNOW TO USE THIS CODE This Code applies to all Employees and is divided as follows: o OVERVIEW AND DEFINITIONS o PART I Statement of General Principles o PART II Prohibited Transactions and Activities o PART III Administration and Reporting Requirements o APPENDICES: Appendix A Beneficial Ownership Appendix B Pre-Clearance Procedures for Personal Transactions in Covered Securities and Open-end Mutual Funds Appendix C Pre-Clearance Procedures Appendix D Exceptions to the Short-Term Profit Trading Ban Appendix E Sanctions Schedule Appendix F Portfolio Holdings Disclosure Policy o FORMS: Form A Initial Holdings Report Form B Quarterly Personal Securities Transaction Report Form C Annual Code of Ethics Certification Annual Policy Concerning Material Non-Public Information Annual Holdings Report Form D Multi-Approval Form To understand what other parts of this Code apply to you, you need to know whether you fall into one or more of these categories: o ACCESS PERSON (ALL EMPLOYEES) o INVESTMENT PERSON If after reading the definitions you don't know which category you belong to, contact CWAM Compliance at (312) 634-9829. 4 DEFINITIONS Terms in BOLDFACE TYPE have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms below. THESE TERMS HAVE SPECIAL MEANINGS IN THE CODE OF ETHICS: o "ACCESS PERSON" means (i) any EMPLOYEE: (A) who has access to nonpublic information regarding any purchase or sale of securities in a CLIENT ACCOUNT, or nonpublic information regarding the portfolio holdings of any CLIENT ACCOUNT, or (B) who is involved in making securities recommendations to a CLIENT ACCOUNT, or who has access to such recommendations that are nonpublic, (ii) any officer of CWAM, and (iii) any other EMPLOYEE designated as an ACCESS PERSON by COMPLIANCE. COMPLIANCE shall maintain a list of EMPLOYEES deemed to be ACCESS PERSONS and will notify each EMPLOYEE of their designation under this Code. An ACCESS PERSON does not include the independent directors of the funds managed by CWAM; however it does include the FUND CCO and his/her staff. o "AUTOMATIC INVESTMENT PLAN" means a plan or other program in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a pre-determined schedule and allocation. These may include payroll deduction plans, issuer dividend reinvestment programs ("DRIPs") or 401(k) automatic investment plans. o A security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a recommendation to purchase or sell the security has been made or is expected to be made soon (within 7 calendar days) and communicated or, with respect to the person making the recommendation, when such person decides to make the recommendation. o "BENEFICIAL OWNERSHIP" means direct or indirect, through any contract, arrangement, understanding, relationship or otherwise, pecuniary interest in a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." BENEFICIAL OWNERSHIP includes accounts of a spouse, minor children and relatives resident in the home of the ACCESS PERSON, as well as accounts of another person if the ACCESS PERSON obtains therefrom benefits substantially equivalent to those of ownership. For additional information, see Appendix A. o "CCO" means CWAM's Chief Compliance Officer or his/her designee. o "CIO" means CWAM's Chief Investment Officer. o "COO" means CWAM's Chief Operating Officer. o "CLIENT" or "CLIENT ACCOUNT" refers to any investment account - including, without limitation, any registered or unregistered investment company or fund - for which CWAM has been retained to act as investment adviser or sub-adviser. o "CLOSED-END FUND" refers to a registered investment company whose shares are publicly traded in a secondary market rather than directly, with the fund. o "CMG" refers to Columbia Management Group, Inc. Its direct and indirect affiliates that have adopted the CMG Code of Ethics are referred to as the "CMG COMPANIES". o "COMPLIANCE" refers to CWAM's Compliance Department: The CWAM CCO and his designees. o "CONTROL" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940. 5 o "COVERED SECURITY" means anything that is considered a "security" under the Investment Company Act of 1940, but does not include: 1. Direct obligations of the U.S. Government. 2. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. 3. Shares of OPEN-END MUTUAL FUNDS. (Subject to pre-clearance procedures in Appendix B.) 4. Futures and options on futures. However, a proposed trade in a "single stock future" (a security future which involves a contract for sale for future delivery of a single security) is subject to the Code's pre-clearance requirement. COVERED SECURITIES therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, and shares of exchange traded funds (ETFs), among other instruments. If you have any question or doubt about whether an investment is a considered a security or a COVERED SECURITY under this Code, ask COMPLIANCE. o "CWAM" refers to Columbia Wanger Asset Management, L.P. o "CWAM CODE OF ETHICS COMMITTEE" consists of the CWAM COO, the CWAM CCO, the CWAM CIO and the CWAM Human Resource Director. The FUND CCO shall participate as a non-voting member of this Committee. o "EMPLOYEE" means any employee of CWAM who receives official notice of coverage under this Code of Ethics from CWAM COMPLIANCE. o "EXCLUDED FUND" is defined as money market funds or other funds designed to provide short term liquidity. Contact COMPLIANCE if you have any questions about whether a fund may qualify as an Excluded Fund. o "FAMILY HOLDINGS" and "FAMILY/HOUSEHOLD MEMBER" - defined in Appendix A. o "FEDERAL SECURITIES LAWS" means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a -mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 -5314; 5316 - 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of Treasury. o "FUND CCO" refers to the Chief Compliance Officer of the Columbia Acorn Trust and Wanger Advisors Trust. o "INFORMATION WALL" refers to the policies and procedures established by CWAM in the Policies and Procedures Concerning Information Wall found in the CWAM Statement of Operations and Supervisory Procedures Manual. o "INITIAL PUBLIC OFFERING (IPO)" generally refers to a company's first offer of shares to the public. Specifically, an offering of securities registered under the Securities Act of 1933, 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. o "INVESTMENT PERSON" refers to an ACCESS PERSON who has been designated, by COMPLIANCE, as such and may include the following CWAM EMPLOYEES: o Portfolio Managers; and 6 o Research Analysts o "OPEN-END MUTUAL FUND" refers to a registered investment company whose shares (usually regarding separate "series" or portfolios of the fund) are continuously offered to and redeemed (or exchanged, for other shares) by investors directly (or through financial intermediaries) based on the "net asset value" of the fund. o "PRIVATE PLACEMENT" generally refers to an offering of securities that is not offered to the public. Specifically, an offering that is exempt from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6) of, or Regulation D under, the Securities Act of 1933. o "PURCHASE OR SALE OF A SECURITY" includes, among other things, the writing of an option to purchase or sell a security. o "REGISTERED PERSONNEL" means an EMPLOYEE licensed and registered with the NASD. o "SUPERVISED PERSON" means any partner, officer, director (or other person occupying a similar status or performing similar functions), or EMPLOYEE of an investment adviser, or other person who provides investment advice on behalf of the investment adviser and is subject to the supervision and CONTROL of the investment adviser. 7 PART I STATEMENT OF GENERAL PRINCIPLES This Section Applies to All Employees The relationship with our CLIENTS is fiduciary in nature. This means that you are required to put the interests of our CLIENTS before your personal interests. This Code is based on the principle that all officers, directors and EMPLOYEES of CWAM are required to conduct their personal securities transactions in a manner that does not interfere with the portfolio transactions of, or take unfair advantage of their relationship with CWAM OR CLIENT. This fiduciary duty is owed by all persons covered by this Code to each and all of our advisory CLIENTS. No EMPLOYEE shall knowingly sell to or purchase from a CLIENT any security or other property, except securities issued by that CLIENT. It is imperative that all officers, directors and EMPLOYEES avoid situations that might compromise or call into question their exercise of independent judgment in the interest of CLIENT ACCOUNTS. Areas of concern relating to independent judgment include, among others, taking personal advantage of unusual or limited investment opportunities appropriate for CLIENTS, and receipt of gifts from persons doing or seeking to do business with CWAM. All EMPLOYEES must adhere to the specific requirements set forth in this Code, including the requirements related to personal securities trading. A. COMPLIANCE WITH THE SPIRIT OF THE CODE CWAM recognizes that sound, responsible personal securities trading by its personnel is an appropriate activity when it is not excessive in nature and conducted in such a manner as to be consistent with the code of ethics and to avoid any actual or potential conflict of interest. However, CWAM will not tolerate personal trading activity which is inconsistent with our duties to our CLIENTS or which injures the reputation and professional standing of our organization. Therefore, technical compliance with the specific requirements of this Code will not insulate you from scrutiny should a review of your trades indicate breach of your duty of loyalty to the firm's CLIENTS or otherwise pose a hazard to the firm's reputation and standing in the industry. THE CWAM CODE OF ETHICS COMMITTEE has the authority to grant when appropriate written waivers from the provisions of this Code for EMPLOYEES. It is expected that this authority will be exercised only in rare instances. The CWAM CODE OF ETHICS COMMITTEE may consult with the CMG Legal Department prior to granting any such waivers. B. ADDITIONAL CODES OF ETHICS All EMPLOYEES are also subject to CWAM's Compliance Program concerning Non-public Information and Proprietary Information, and CWAM's Policies and Procedures Concerning INFORMATION WALL. All EMPLOYEES are subject to the Bank of America Corporation Code of Ethics and General Policy on Insider Trading. All EMPLOYEES are required to read and comply with that Code which includes many further important conflict of interest policies applicable to all Bank of America associates, including policies on insider trading and receipt of gifts by EMPLOYEES. It is available on the intranet links portion of Bank of America's intranet homepage. Separate Codes of Ethics will be applicable to the independent trustees of Columbia Acorn Trust and Wanger Advisors Trust. CMG maintains a separate Code of Ethics applicable to EMPLOYEES of certain CMG COMPANIES. Persons responsible for administering this Code should consult relevant provisions of the CMG and 8 Bank of America Codes, when considering the implementation and scope of this Code. However, to the extent that such other Codes' provisions are inconsistent with the CWAM Code, the provisions of the CWAM Code will govern the conduct of ACCESS PERSONS. C. APPROVED BROKER-DEALER REQUIREMENT FOR EMPLOYEE INVESTMENT ACCOUNTS Employees are required to read and comply with the Global Wealth and Investment Management ("Global WIM") Associate Designated Brokerage Account Policy. Unless an exception has been granted, that policy requires Employees to maintain their current and any new Associate Accounts with Banc of America Investment Services, Inc. (BAI) or Merrill Lynch. The policy is available on the intranet links portion of Global WIM's intranet homepage. D. NONPUBLIC INFORMATION SUPERVISED PERSONS are prohibited from disclosing to persons outside the firm any material nonpublic information about any client, the securities investments made by the firm on behalf of a client, information about contemplated securities transactions, or information regarding the firm's trading strategies, except as required to effectuate securities transactions on behalf of a client or for other legitimate business purposes. Disclosure of nonpublic information is a violation of CWAM's Non-Public Information Policy and breaches of CWAM's fiduciary duty. Incorporated in this Code are the provisions of the Funds' Portfolio Holdings Disclosure Policy in Appendix F. E. REPORTING VIOLATIONS OF CWAM CODE OF ETHICS SUPERVISED PERSONS must report any conduct by another SUPERVISED PERSON that one reasonably believes constitutes or may constitute a violation of the CWAM Code of Ethics. SUPERVISED PERSONS must promptly report all relevant facts and other circumstances indicating a violation of the CWAM Code of Ethics to Joe LaPalm at (312) 634-9829 or to the CMG Ethics and Compliance Helpline at 1.888.411.1744 (toll free). If you wish to remain anonymous, use the name "Mr. Columbia" or "Mrs. Columbia" when calling collect. You will not be retaliated against for reporting information in good faith in accordance with this policy. F. COMPLIANCE WITH FEDERAL SECURITIES LAWS SUPERVISED PERSONS are required to comply with the FEDERAL SECURITIES LAWS. 9 Part II PROHIBITED TRANSACTIONS AND ACTIVITIES This Section Applies to All Employees A. PROHIBITION OF FRAUDULENT AND DECEPTIVE ACTS The Investment Advisers Act of 1940 makes it unlawful for any investment adviser, directly or indirectly, to employ any device, scheme or artifice to defraud any CLIENT or prospective CLIENT, or to engage in any transaction or practice that operates as a fraud or deceit on such persons. The Investment Company Act of 1940 makes it unlawful for any director, trustee, officer or EMPLOYEE of an investment adviser of an investment company (as well as certain other persons), in connection with the purchase or sale, directly or indirectly, by such person of a "SECURITY HELD OR TO BE ACQUIRED" by the investment company (the "Fund"): 1. To employ any device, scheme or artifice to defraud the Fund; 2. To make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Fund; or 4. To engage in any manipulative practice with respect to the Fund. Note: "SECURITY HELD OR TO BE ACQUIRED" 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 within the scope of clause (i) above. All EMPLOYEES are required to comply with these and all other applicable FEDERAL SECURITIES LAWS. Requirements of these laws are embodied in the policies and procedures of the CMG COMPANIES. B. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO REDEMPTIONS OR EXCHANGES OF OPEN-END MUTUAL FUND INVESTMENTS 1. No EMPLOYEE may engage in any purchase and sale or exchange in the same class of shares of an OPEN-END MUTUAL FUND that occurs within 60 days of one another. (This provision does not apply to any EXCLUDED Fund.) 2. ALL REDEMPTIONS OR EXCHANGES of shares of ANY OPEN-END MUTUAL FUND (except an EXCLUDED FUND), in which an EMPLOYEE has BENEFICIAL OWNERSHIP must be approved using the pre-clearance procedures in Appendix B. Note: PURCHASES of OPEN-END MUTUAL FUNDS no longer require prior approval. Except in rare cases of hardship, gifting of securities or other unusual circumstances no such redemption or exchange will be approved unless such investment has been held for at least 60 CALENDAR DAYS. All such exceptions require advance approval from the CCO. Therefore, if an EMPLOYEE purchases shares of an OPEN-END MUTUAL FUND, he or she will not be permitted to redeem or exchange out of any shares of that fund for at least 60 CALENDAR DAYS. 10 Exceptions: (1) Transactions in shares of EXCLUDED FUNDS, and (2) as provided immediately below for Bank of America's retirement plans, and (3) at Section F of Part II of this Code regarding other "Exempt Transactions" (as applicable). 3. LATE TRADING PROHIBITION: Late trading of mutual funds is illegal. No Employee shall engage in any transaction in any OPEN-END MUTUAL FUND shares on a day where the order is placed after the time as of which the net asset value of the fund is last determined on that day. 4. MARKET TIMING PROHIBITION: No EMPLOYEE shall engage in mutual fund market timing activities. CWAM Management believes that the interests of a mutual fund's long-term shareholders and the ability of a mutual fund to manage its investments may be adversely affected when fund shares are repeatedly bought and sold (or exchanged) by any individual or entity within short periods of time to take advantage of short-term differentials in the net asset values of such funds. This practice, known as "market timing," can occur in several ways: either in direct purchases and sales of mutual fund shares, through rapid reallocation of funds held in 401(k) or similarly structured retirement or other accounts invested in mutual fund assets, or through the rapid reallocation of funds held in variable annuity and variable life policies invested in mutual fund assets. C. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO TRANSACTIONS IN BANK OF AMERICA'S RETIREMENT PLANS As a reminder all Employees must comply with the Policy of Excessive Trading and Market Timing in the Bank of America Retirement Plans ("Retirement Plan Policy") located in the Retirement overview section of Personal Online, under the Benefits tab. The Retirement Plan Policy generally limits the frequency with which an associate can move dollars in and out of any retirement plan investment choice to once every 30 days. Associates who violate this policy will be restricted in their ability to make future fund exchanges and may be subject to disciplinary action - up to and including termination of employment. In addition to the Retirement Plan Policy, all employees participating in the Plans remain subject to the particular restrictions on trading mutual fund shares contained in the prospectuses of mutual funds offered by the Plans, including but not limited to Columbia Funds. NOTE: Investment holdings and transactions in BAC Retirement Plans are exempt from the pre-clearance requirements in Part II and the reporting requirements of Part III of this Code. D. TRADING RESTRICTIONS APPLICABLE TO ALL ACCESS PERSONS 1. PROHIBITION ON TRADING COVERED SECURITIES BEING PURCHASED, SOLD OR CONSIDERED FOR PURCHASE OR SALE BY ANY CWAM CLIENT ACCOUNT No ACCESS PERSON shall purchase or sell, directly or indirectly, any COVERED SECURITY in which such person had, or by reason of such transaction acquires, any direct or indirect BENEFICIAL OWNERSHIP when, at the time of such purchase or sale, the same class of security: o Is the subject of an open buy or sell order for a CLIENT ACCOUNT; or o Is BEING CONSIDERED FOR PURCHASE OR SALE by a CLIENT ACCOUNT 11 NOTE: o This restriction DOES NOT APPLY to securities of an issuer that has a MARKET CAPITALIZATION OF $25 BILLION OR MORE at the time of the transactions; however, an ACCESS PERSON must pre-clear these trades as with any other personal trade. o No ACCESS PERSON shall purchase or sell any security, other than a listed index option, listed index futures contract or ETF, in which such person has or would thereby acquire a beneficial interest which the ACCESS 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. 2. PRE-CLEARANCE OF TRANSACTIONS ACCESS PERSONS must pre-clear all transactions in COVERED SECURITIES in which they have BENEFICIAL OWNERSHIP using the pre-clearance procedures described in Appendix C. ACCESS PERSONS may rely on the exemptions stated in Section F of Part II of this Code. - -------------------------------------------------------------------------------- NOTE: PRE-CLEARANCE REQUESTS MUST BE SUBMITTED DURING NYSE HOURS. PRE-CLEARANCE APPROVALS ARE VALID UNTIL 4:00 PM ET OF THE NEXT BUSINESS DAY AFTER APPROVAL. (Example: If a pre-clearance approval is granted on Tuesday, the approval is valid only until 4:00 pm ET Wednesday.) - -------------------------------------------------------------------------------- 3. FOURTEEN CALENDAR DAY BLACKOUT PERIOD No ACCESS PERSON shall purchase or sell any COVERED SECURITY (or its equivalent) within a period of 7 CALENDAR-DAYS before or after a purchase or sale of the same class of security by a CLIENT ACCOUNT. NOTE: The 14 calendar-day restriction DOES NOT APPLY: o To securities of an issuer that has a MARKET CAPITALIZATION OF $25 BILLION OR MORE at the time of the transactions; however, an ACCESS PERSON must pre-clear these trades as with any other personal trade. Also, this exception does not relieve ACCESS PERSONS of the duty to refrain from inappropriate trading of securities held or BEING CONSIDERED FOR PURCHASE OR SALE in CLIENT ACCOUNTS with which they are regularly associated. 4. INITIAL PUBLIC OFFERINGS (IPOS), Hedge Funds AND PRIVATE PLACEMENTS No ACCESS PERSON shall acquire BENEFICIAL OWNERSHIP of securities in an INITIAL PUBLIC OFFERING, hedge fund or PRIVATE PLACEMENT except with the prior written approval of the CWAM CCO. (NOTE: REGISTERED PERSONNEL are prohibited from purchasing IPO'S.) In approving such acquisition, the CCO must determine that the acquisition does not conflict with the Code or its underlying policies, or the interests of CWAM or its CLIENTS. In deciding whether such approval should be granted, the CCO shall consider whether the investment opportunity should be reserved for Clients, and whether the opportunity has been offered to the ACCESS PERSON because of the ACCESS PERSON's relationship with CLIENTS. The CCO may approve such acquisition where there are circumstances in which the opportunity to acquire the security has been made available to the ACCESS PERSON for reasons other than the ACCESS PERSON's relationship with CWAM or its CLIENTS. Such circumstances might include, among other things: o An opportunity to acquire securities of an insurance company converting from a mutual ownership structure to a stockholder ownership structure, if the ACCESS 12 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 ACCESS PERSON's pre-existing ownership of an interest in the IPO company or status of an investor in the IPO company; o An opportunity made available to the ACCESS PERSON's spouse, in circumstances permitting the CCO reasonably to determine that the opportunity is being made available for reasons other than the ACCESS PERSON's relationship with CWAM or its CLIENTS (for example, because of the spouse's employment). 5. SHORT-TERM TRADING (60 CALENDAR-DAYS) Any profit realized by an ACCESS PERSON from any purchase and sale, or any sale and purchase, of the SAME CLASS OF COVERED SECURITY (or its equivalent) within any period of 60 CALENDAR-DAYS or less is prohibited. NOTE: Regarding this restriction: a. The 60 calendar-day restriction period commences the day after the purchase or sale of any COVERED SECURITY (or its equivalent). b. The 60-day restriction applies on a "last in, first out basis." That's why the restriction refers to "the SAME CLASS OF COVERED SECURITY." In light of this feature, an ACCESS PERSON (or FAMILY/HOUSEHOLD MEMBER) may not buy and sell, or sell and buy, the same class of COVERED SECURITY within 60 days even though the specific shares or other securities involved may have been held longer than 60 days. c. Purchase and sale transactions in the same security within 60 days that result in a loss to the ACCESS PERSON (or FAMILY/HOUSEHOLD MEMBER) are not restricted. d. The 60-day restriction does not apply to the exercise of options to purchase shares of Bank of America stock and the immediate sale of the same or identical shares, including so-called "cashless exercise" transactions. e. Strategies involving options with expirations of less than 60 days may result in violations of the short-term trading ban. f. Exceptions to the short-term trading ban may be requested in writing, addressed to the CCO, in advance of a trade and will generally be granted only in rare cases of hardship, gifting of securities or other unusual circumstances where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. See examples of exceptions in Appendix D. 6. EXCESSIVE TRADING FOR PERSONAL ACCOUNTS IS STRONGLY DISCOURAGED ACCESS PERSONS are strongly discouraged from engaging in excessive trading for their personal accounts. Although this Code does not define excessive trading, trading volumes may be monitored by CWAM COMPLIANCE. 7. CLOSED-END FUNDS ADVISED BY BANK OF AMERICA No ACCESS PERSON shall acquire BENEFICIAL OWNERSHIP of securities of any CLOSED-END FUND advised by CMG or other Bank of America company except with the prior written approval of COMPLIANCE. E. ADDITIONAL TRADING RESTRICTIONS APPLICABLE TO INVESTMENT PERSONS 1. MANAGER PRE-APPROVAL REQUIRED FOR IPOS AND PRIVATE PLACEMENTS All Investment Persons are required to obtain written manager pre-approval for personal investments in INITIAL PUBLIC OFFERINGS (IPOS) AND PRIVATE PLACEMENTS. "Manager pre-approval" is an approval by an investment person's immediate manager or the designee. After obtaining manager pre-approval, INVESTMENT PERSONS must obtain pre-approval from the CCO. The reporting and approval of these transactions are done on Form D. 2. The Funds and CLIENT ACCOUNTS under management shall be given priority when investment opportunities arise. Portfolio Managers and Analysts may not execute transactions for their 13 personal accounts without first determining whether the transaction is appropriate for a Fund or CLIENT ACCOUNT. Analysts at CWAM are assigned industry coverage areas. Portfolio Managers at CWAM are also assigned coverage areas, in addition to their overall responsibility for Funds and CLIENT ACCOUNTS. All Portfolio Managers and Analysts must comply with the pre-clearance and reporting provisions of this Code, and are, in addition, subject to the following restrictions. A security is "followed by CWAM" for purposes of this Section if it has been entered into CWAM's Equity Research Data Base. PORTFOLIO MANAGERS PURCHASES a. Portfolio Managers MAY NOT PURCHASE any security held by the Funds or CLIENT ACCOUNTS advised by the Portfolio Manager. b. Portfolio Managers MAY NOT PURCHASE securities followed by CWAM and within the coverage area of that Portfolio Manager. c. Portfolio Managers MAY NOT PURCHASE any security that is within the investment parameters established by the Funds or CLIENT ACCOUNTS advised by the Portfolio Manager UNLESS: o It is outside the Portfolio Manager's coverage area; o The Analyst responsible for that coverage area declines the investment opportunity on behalf of the Funds and CLIENT ACCOUNTS advised by the Portfolio Manager; and o The Analyst's conclusion is provided in writing to COMPLIANCE in advance of the transaction. d. Because the Funds and CLIENT ACCOUNTS managed by CWAM invest in small and mid-cap securities, Portfolio Managers MAY PURCHASE any security of an issuer with a market capitalization of $25 billion or more at the time of the transaction. These transactions must still be pre-cleared as with any other personal trade. SALES AND OTHER DISPOSITIONS a. Absent a showing of hardship or other extraordinary circumstances, a Portfolio Manager MAY NOT SELL a security that he or she owns that is later purchased by the Fund or CLIENT ACCOUNTS advised by that Portfolio Manager, unless and until the Fund or CLIENT ACCOUNTS completely dispose of that security. b. Notwithstanding the restrictions of paragraph 2a above, a Portfolio Manager MAY MAKE AN IRREVOCABLE GIFT of securities to a charitable organization, provided any such gift is first approved by Compliance. ANALYSTS PURCHASES a. Analysts MAY NOT PURCHASE any security within their coverage areas that is owned by the Funds or CLIENT ACCOUNTS. b. Analysts MAY NOT PURCHASE any security within their coverage areas that is followed by CWAM. c. Analysts MAY NOT PURCHASE any security within their coverage areas UNLESS: o The investment is inappropriate for Funds or CLIENT ACCOUNTS because it is not within their investment parameters or is otherwise unsuitable; 14 o The purchase is approved in advance and in writing by the CIO based on that person's independent decision to decline the investment opportunity on the basis that the security is inappropriate for Funds or CLIENT ACCOUNTS, or is otherwise unsuitable; and o The Chief Investment Officer's conclusion is provided in writing to COMPLIANCE in advance of the transaction. d. Because the Funds and CLIENT ACCOUNTS managed by CWAM invest in small and mid-cap securities, Analysts MAY PURCHASE any security of an issuer with a market capitalization of $25 billion or more at the time of the transaction. These transactions must still be pre-cleared as with any other personal trade. SALES AND OTHER DISPOSITIONS a. Absent a showing of hardship or other extraordinary circumstances, an Analyst MAY NOT SELL a security that he or she owns within their coverage area that is later purchased by the Fund or CLIENT ACCOUNTS unless and until the Fund or CLIENT ACCOUNTS completely dispose of that security. b. Notwithstanding the restrictions of paragraph 2a above, an Analyst MAY MAKE AN IRREVOCABLE GIFT of securities to a charitable organization, provided any such gift is first approved by COMPLIANCE. F. EXEMPT TRANSACTIONS The following types of transactions are not subject to the trading restrictions of SECTIONS B, D AND E of Part II of this Code of Ethics. However, except as noted below, all such transactions must be reported pursuant to the Reporting provisions of Part III of this Code. 1. Transactions in securities issued or guaranteed by the US Government or its agencies or instrumentalities; securities issued by other sovereign governments; bankers' acceptances; US bank certificates of deposit; commercial paper; and purchases, redemptions and/or exchanges of EXCLUDED FUND shares. (Transactions in all such securities are also exempt from the reporting requirements of Part III of the Code). 2. Transactions effected pursuant to an Automated Investment Plan not involving a BAC Retirement Plan. Note this does not include transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan. 3. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 4. Transactions which are non-volitional on the part of either the ACCESS PERSON or CWAM (e.g., stock splits, automatic conversions, mergers, dividend reinvestments). 5. Transactions effected in any account in which the ACCESS PERSON may have a beneficial interest, but no direct or indirect influence or CONTROL of investment or trading activity (such as a blind trust or third-party advised discretionary account). (Accounts managed by another ACCESS PERSON would not meet this test.) Such accounts are also exempt from reporting requirements in Part III of this Code.) Transactions in COVERED SECURITIES in any such account are also exempt from the reporting requirements of Part III of the Code. 6. Securities issued by Bank of America and affiliates (Please note that these securities are subject to the requirements of Part II D. 5 (short-term trading) of this Code, and the standards of conduct and liability discussed in the Bank of America Corporation `s General Policy on Insider Trading). 15 7. Such other transactions as the CWAM CODE OF ETHICS COMMITTEE shall approve in their sole discretion, provided that COMPLIANCE shall find that such transactions are consistent with the Statement of General Principles and applicable laws. The CODE OF ETHICS COMMITTEE shall maintain a record of the approval and will communicate to the ACCESS PERSON'S manager(s). 8. Transactions in debt obligations of a state or local government entity (e.g. municipal bonds). 9. Transactions in Index Options. G. RESTRICTION ON SERVICE AS OFFICER OR DIRECTOR BY ACCESS PERSONS ACCESS PERSONS are prohibited from serving as an officer or director of any publicly traded company, other than Bank of America Corporation, absent prior authorization from CWAM COMPLIANCE based on a determination that the board service would not be inconsistent with the interests of any CLIENT ACCOUNT. H. PARTICIPATION IN INVESTMENT CLUBS ACCESS PERSONS (including with respect to assets that are beneficially owned by the ACCESS PERSON) may participate in private investment clubs or other similar groups only upon advance written approval from CWAM COMPLIANCE, subject to such terms and conditions as CWAM COMPLIANCE may determine to impose. I. ADDITIONAL RESTRICTIONS FOR SPECIFIC SUB-GROUPS Specific sub-groups in the organization may be subject to additional restrictions, as determined by COMPLIANCE, because of their specific investment activities or their structure in the company. COMPLIANCE shall keep separate applicable procedures and communicate accordingly to these groups. J. GIFTS No 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 CWAM, or seeks to do business with or on behalf of CWAM. Gifts in excess of this value must either be returned to the donor or paid for by the recipient. The Code does not prohibit the everyday courtesies of business life. Therefore, exempted from this prohibition against accepting gifts 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 and provided that they are not extravagant or excessive. Travel and lodging expenses should not be paid for by third parties. In addition, products given to CWAM analysts by a company for research purposes are also exempted from this prohibition as long as they are given for a legitimate business purpose. ACCESS PERSONS are also prohibited from giving, offering or promising anything of value to an EMPLOYEE of another financial institution in connection with any business of that financial institution if there is a corrupt intent. The same careful consideration and thought should be given for the appropriateness of gifts to customers and suppliers of CWAM as would apply to any gifts received by the ACCESS PERSON. K. PENALTIES FOR NON-COMPLIANCE Upon discovering a violation of this Code, the CWAM CODE OF ETHICS COMMITTEE, after consultation with the members of the Committee and Compliance Risk Management, may take any disciplinary action, as it deems appropriate, including, but not limited to, any or all of the following: o Formal written warning (with copies to supervisor and personnel file); o Cash fines; o Disgorgement of trading profits; o Ban on personal trading; 16 o Suspension of employment; o Termination of employment See the Sanctions Schedule in Appendix E for details. 17 Part III ADMINISTRATION AND REPORTING REQUIREMENTS This Section Applies to All Employees A. NEW EMPLOYEES All new EMPLOYEES will receive a copy of the CWAM CODE OF ETHICS as well as an Initial Certification Form. By completion of this Form, new EMPLOYEES MUST certify to COMPLIANCE that they have read and understand the Code and disclose their personal (and FAMILY/HOUSEHOLD MEMBER) securities holdings (Form A). B. ANNUAL CODE COVERAGE ACKNOWLEDGEMENT AND COMPLIANCE CERTIFICATION All EMPLOYEES will annually furnish acknowledgement of coverage (including FAMILY/HOUSEHOLD MEMBERS) under, and certification of compliance with, the CWAM CODE OF ETHICS (Form C). C. REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS (INCLUDING ALL INVESTMENT PERSONS) 1. INITIAL CERTIFICATION TO THE CODE AND DISCLOSURE OF ALL INVESTMENT ACCOUNTS AND PERSONAL HOLDINGS OF COVERED SECURITIES AND OPEN-END MUTUAL FUND SHARES By no later than 10 calendar-days after you are notified that you are an ACCESS PERSON, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your FAMILY/HOUSEHOLD MEMBERS and that you understand that you are an ACCESS PERSON (and, if applicable, an INVESTMENT PERSON) under the Code. You must also report to COMPLIANCE the following: o INVESTMENT ACCOUNTS in which you or any FAMILY/HOUSEHOLD MEMBER have direct or indirect ownership interest (including those of your family members or your household) which may hold either COVERED SECURITIES or shares of any OPEN-END MUTUAL FUNDS, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. o HOLDINGS of any COVERED SECURITIES or OPEN-END MUTUAL FUND shares in any of the above mentioned accounts, including funds that are not in the Columbia Acorn, Wanger Advisors Trust and Columbia Funds Families o INVESTMENT ACCOUNT INFORMATION AND HOLDINGS OF COVERED SECURITIES INFORMATION THAT IS SUPPLIED TO COMPLIANCE SHALL NOT BE MORE THAN 45 DAYS OLD. o The reporting of this information is done on Form A. 2. QUARTERLY INVESTMENT ACCOUNT AND TRANSACTION REPORT By the 30th day following the end of the calendar quarter, ALL ACCESS PERSONS are required to provide COMPLIANCE with a report of their new investment accounts (including any investment accounts opened during the quarter) and transactions in COVERED SECURITIES and OPEN-END MUTUAL FUNDS that are not reported via duplicate account statements that were sent to CWAM COMPLIANCE during the quarter, including OPEN-END MUTUAL FUNDS that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all investment accounts and COVERED SECURITIES and OPEN-END MUTUAL FUND shares of which you (or a FAMILY/HOUSEHOLD MEMBER) are a BENEFICIAL OWNER, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. o For holdings in a mutual fund which issues statements on a less frequent basis, the most recent statement shall be supplied to COMPLIANCE o The reporting of this information is done on Form B. 18 3. ANNUAL HOLDINGS REPORT By the 30th day after the end of the calendar year, ALL ACCESS PERSONS are required to provide COMPLIANCE with a detailed annual report of ALL of their holdings of any COVERED SECURITIES and OPEN-END MUTUAL FUNDS, including OPEN-END MUTUAL FUNDS that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all investment accounts and COVERED SECURITIES and OPEN-END MUTUAL FUND shares of which you (or a FAMILY/HOUSEHOLD MEMBER) are a BENEFICIAL OWNER, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities, etc. For holdings in a mutual fund that issues statements on a less frequent basis, the most recent statement shall be supplied to COMPLIANCE. 4. DUPLICATE ACCOUNT STATEMENTS AND CONFIRMATIONS Each ACCESS PERSON shall cause every broker-dealer or investment services provider with whom he or she (or a FAMILY/HOUSEHOLD MEMBER) maintains an account to provide duplicate periodic statements and trade confirmations to COMPLIANCE for all accounts holding or transacting trades in COVERED SECURITIES or OPEN-END MUTUAL FUNDS. An ACCESS PERSON will be deemed to have satisfied this requirement for the ACCESS PERSON's transactions executed through CWAM's trading desk, for which the trading department provides to the CCO information about such ACCESS PERSON'S transactions. All duplicate statements and confirmations should be sent to the following address: COLUMBIA WANGER ASSET MANAGEMENT, L.P. ATTENTION: COMPLIANCE 227 WEST MONROE SUITE 3000 CHICAGO, IL 60606 D. EXCEPTIONS FROM THE ABOVE REPORTING REQUIREMENTS SECTION C of the above reporting requirements does not apply to transactions in: o BAC Retirement Plans as defined at Section II.C of this Code (See also the related Note at Section II.C.) o Any non-proprietary 401(k) plan in which you have a beneficial interest (such as that with a previous employer or of a family member) UNLESS the holdings are investments in a fund from the Columbia Acorn Funds, Wanger Advisors Trust, or Columbia Funds Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from the Columbia Acorn Funds, Wanger Advisors Trust, or Columbia Funds Families, the EMPLOYEE must provide a periodic statement of all holdings and trading activity in the account. The existence of this exception must be certified by each ACCESS PERSON annually on Form C. o Investment accounts in which you have a beneficial interest, but no investment discretion, influence or CONTROL. (See Appendix A.) The existence of this exception must be certified by each ACCESS PERSON annually on Form C. o 529 Plans. The existence of this exception must be certified by each ACCESS PERSON annually on Form C. o ACCESS PERSONS on leave who do not have home access will be exempt from the above reporting requirements while on leave. ACCESS PERSONS on leave with home access will be responsible for the above reporting. - -------------------------------------------------------------------------------- NOTE: The exception of any non-proprietary 401(k) plan applies to company-directed 401(k) plans, but does not apply to self-directed 401(k) plans. If you have investments in plans that are self-directed, you are subject to the pre-clearing and reporting requirements of the Code of Ethics. Self-directed 401(k) plans offers the ability to direct stock investments, while company-directed 401(k) plans usually offer a limited number of investment options consisting of mutual funds in which one directs their investments. - -------------------------------------------------------------------------------- 19 E. CODE ADMINISTRATION CWAM has charged COMPLIANCE with the responsibility of attending to the day-to-day administration of this Code. COMPLIANCE will provide CWAM Management and the FUND CCO with quarterly reports that will include all violations noted during the quarterly review process. The quarterly report will include EMPLOYEE name, job title, manager name, description of the violation, and a record of any sanction to be imposed. Material violations will be communicated to the board of directors or trustees of any investment company managed by CWAM at least annually as required by Rule 17j-1 under the Investment Company Act of 1940 and more frequently as requested by the board or the FUND CCO. F. MONITORING OF TRANSACTIONS CWAM's CCO, Compliance Officer and Assistant Compliance Officer shall monitor the trading patterns of ACCESS PERSONS. The COO shall monitor the CCO'S trading. All CWAM EMPLOYEES or affiliated persons also are subject to CWAM's Policies and Procedures Concerning INFORMATION WALL, contained in CWAM's Supervisory Procedures Manual. G. CERTIFICATION OF COMPLIANCE AND RECEIPT OF CODE o PROVISION OF CODE COPY. CWAM shall provide each ACCESS PERSON with a copy of the Code and any amendments. o ACKNOWLEDGEMENT OF RECEIPT. Each ACCESS PERSON shall provide CWAM with a written acknowledgement of such ACCESS PERSON's receipt of the Code and any amendments. (See Form C). o ANNUAL AFFIRMATION BY ACCESS PERSONS. CWAM shall annually distribute a copy of the Code and request certification of receipt by all ACCESS PERSONS. (See Form C) o ANNUAL CERTIFICATION BY ACCESS PERSONS. Each ACCESS PERSON also shall certify annually that he or she has disclosed or reported all personal securities transactions required to be disclosed or reported under the Code. (See Form C) o Each 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. (See Form C) H. NON-PUBLIC INFORMATION COMPLIANCE The acknowledgments and certifications described above include relevant provisions with respect to CWAM EMPLOYEES' compliance with CWAM's Compliance Program Concerning Non-Public Information. I. RESPONSIBILITY The CCO, or such personnel as designated by the CCO, shall be responsible for implementing the provisions of Section G above. J. QUESTIONS Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to the CCO. If the CCO is not available, questions should be directed to the COO. The CMG Legal Department, or counsel for CWAM may be consulted by the CCO or COO. 20 K. COMPLIANCE WITH THE CODE Compliance with this Code is a condition of employment by CWAM. Taking into consideration all relevant circumstances, the Code of Ethics Committee (see Appendix E), and CWAM's President will determine what action is appropriate for any breach of the provisions of the Code. Possible actions include warnings, reprimands, fines, letters of sanction, suspension, termination of employment, or removal from office. See the Sanctions Schedule of Appendix E. L. RETENTION OF RECORDS The CCO or his designee shall maintain the records listed below for a period of not less than 5 years from the end of the fiscal year during which the last entry was made on such record at an easily accessible place the first two years in CWAM's office: o A copy of the Code adopted and implemented pursuant to the Rule as in effect, or at any time within the past five years was in effect. o A record of any violation of the Code and of any action taken as a result of the violation. o A record of all written acknowledgments as required by the Rule for each person who is currently or within the past five years was an ACCESS PERSON. o A record of the names of the persons who are currently, or within the past five years were, ACCESS PERSONS. o A record of any decisions, and the reasons supporting the decision, to approve the acquisition of securities by ACCESS PERSONS for the pre-approval of IPO's and Limited Offerings, for at least five years after the end of the fiscal year in which the approval is granted. M. FURNISHING OF THE CODE UPON REQUEST CWAM shall furnish a copy of the Code to any CLIENT or potential CLIENT upon request. 21 Appendix A Beneficial Ownership For purposes of the CWAM Code of Ethics, the term "BENEFICIAL OWNERSHIP" shall be interpreted in accordance with the definition of "beneficial owner" set forth in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which states that the term "BENEFICIAL OWNER" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in "a security." The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." The pecuniary interest standard looks beyond the record owner of securities. As a result, the definition of BENEFICIAL OWNERSHIP is very broad and encompasses many situations that might not ordinarily be thought to confer a "pecuniary interest" in or "BENEFICIAL OWNERSHIP" of securities. SECURITIES DEEMED TO BE "BENEFICIALLY OWNED" Securities owned "beneficially" would include not only securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit in an account over which you have influence or CONTROL, such as securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes securities held for your account by pledgees, securities owned by a partnership in which you are a general partner, and securities owned by any corporation that you CONTROL. Set forth below are some examples of how BENEFICIAL OWNERSHIP may arise in different contexts. o FAMILY HOLDINGS. Securities held by members of your immediate family sharing the same household with you ("FAMILY/HOUSEHOLD MEMBER") are presumed to be beneficially owned by you. Your "immediate family" includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). The definition also includes adoptive relationships. You may also be deemed to be the beneficial owner of securities held by an immediate family member not living in your household if the family member is economically dependent upon you. o PARTNERSHIP AND CORPORATE HOLDINGS. A general partner of a general or limited partnership will generally be deemed to beneficially own securities held by the partnership, as long as the partner has direct or indirect influence or CONTROL over the management and affairs of the partnership. A limited partner will generally not be deemed to beneficially own securities held by a limited partnership, provided he or she does not own a controlling voting interest in the partnership. If a corporation is your "alter ego" or "personal holding company", the corporation's holdings of securities are attributable to you. o TRUSTS. Securities held by a trust of which you are a beneficiary and over which you have any direct or indirect influence or CONTROL would be deemed to be beneficially owned by you. An example would be where you as settlor have the power to revoke the trust without the consent of another person, or have or share investment CONTROL over the trust. o ESTATES. Ordinarily, the term "BENEFICIAL OWNERSHIP" would not include securities held by executors or administrators in estates in which you are a legatee or beneficiary unless there is a specific bequest to you of such securities, or you are the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such bequest. 22 SECURITIES DEEMED NOT TO BE "BENEFICIALLY OWNED" For purposes of the CWAM Code of Ethics, the term "BENEFICIAL OWNERSHIP" excludes securities or securities accounts held by you for the benefit of someone else if you do not have a pecuniary interest in such securities or accounts. For example, securities held by a trust would not be considered beneficially owned by you if neither you nor an immediate family member is a beneficiary of the trust. This also includes charitable trusts, foundations and charitable endowment programs established by you or an immediate family member where the beneficiaries are exclusively charitable and the ACCESS PERSON has no right to revoke the gift. Another example illustrating the absence of pecuniary interest, and therefore also of BENEFICIAL OWNERSHIP, would be securities held by an immediate family member not living in the same household with you, and who is not economically dependent upon you. "INFLUENCE OR CONTROL" Transactions/Accounts over which neither you nor any other ACCESS PERSON have "ANY DIRECT OR INDIRECT INFLUENCE OR CONTROL" are not subject to the trading restrictions in Part II or reporting requirements in Part III of the Code. To have "influence or CONTROL", you must have an ability to prompt, induce or otherwise effect transactions in the account. Like BENEFICIAL OWNERSHIP, the concept of influence or CONTROL encompasses a wide variety of factual situations. An example of where influence or CONTROL exists would be where you, as a beneficiary of a revocable trust, have significant ongoing business and social relationships with the trustee of the trust. Examples of where influence or CONTROL does not exist would be a true blind trust, or securities held by a limited partnership in which your only participation is as a non-controlling limited partner or a third party discretionary account. The determining factor in each case will be whether you (or any other ACCESS PERSON) have any direct or indirect influence or CONTROL over the securities account. 23 Appendix B CWAM Pre-Clearance Procedures for Personal Transactions in Covered Securities and Open-end Mutual Funds The following procedure should be used by CWAM EMPLOYEES to pre-clear all personal transactions in COVERED SECURITIES (except exempt transactions covered in Part II F of this Code) and redemption or exchange transactions in OPEN-END MUTUAL FUNDS. Please refer to the CWAM Code of Ethics, effective January 1, 2005 for complete definitions of a COVERED SECURITY and an OPEN-END MUTUAL FUND AND ANY EXEMPT SECURITIES. COVERED SECURITIES (OTHER THAN OPEN-END MUTUAL FUNDS) STEP 1: Request authorization from CWAM COMPLIANCE to purchase or sell a COVERED SECURITY by sending an email to Joe LaPalm, Linda Roth or Bruce Lauer (in that order). STEP 2: In the email request, indicate what security you are intending to purchase or sell, the ticker symbol of the security, the number of shares you are intending to trade, and for sales, confirmation that you have held the security for at least 60 days or if not are selling the security at a loss. As indicated in the CWAM Code of Ethics, any gain or loss is based upon a "Last-in" method, which means that the last shares you purchased are the shares considered to be sold for these purposes. STEP 3: Await confirmation for pre-clearance from CWAM COMPLIANCE to place your personal trade order. Once pre-clearance is received from CWAM COMPLIANCE, your preclearance is good until 4 p.m. EST the next business day. STEP 4: Please retain a copy of the pre-clearance confirmation from CWAM COMPLIANCE for your records. OPEN-END MUTUAL FUNDS STEP 1 If you wish to redeem or exchange out of an OPEN-END MUTUAL FUND that you own, you must receive authorization from CWAM COMPLIANCE. To do this, email your request to CWAM COMPLIANCE and have one of the following authorize the transaction: Joe LaPalm, Linda Roth or Bruce Lauer, in that order. One of these individuals will approve or deny your request via email. Include in your request the name of the fund you are redeeming or exchanging out of, the approximate dollar amount or share amount of the transaction, and certification that you have held the fund for at least 60 days - See Step 2 below for more information. STEP 2: Please note that the CWAM Code of Ethics requires that you cannot sell a fund within a 60 day period of purchasing it based on the "Last-in" method, which means that the last shares your purchased are the shares considered to be sold for these purposes. You will need to affirm this each time you request authorization from CWAM COMPLIANCE. STEP 3: After receiving authorization from CWAM COMPLIANCE, you can complete the trade. ACCESS PERSONS on leave who do not have home access will be exempt from the above pre-clearance requirements while on leave. ACCESS PERSONS on leave with home access will be responsible for the above pre-clearance requirements. If you have any questions regarding pre-clearance procedures for personal transactions, please contact either Joe LaPalm at (312) 634-9829. 24 Appendix C CWAM Pre-Clearance Process PROCEDURES In determining whether to approve a personal securities transaction ("proposed trade") for an Access or INVESTMENT PERSON, the CCO or his designee shall undertake the following procedures. ACCESS PERSONS EQUITY RESEARCH DATA BASE The proposed trade shall first be compared to the securities listed in the Equity Research Data Base ("ERDB"). The ERDB should show whether a security is currently held by a CWAM CLIENT or is being followed by an ACCESS PERSON. The ACCESS PERSON should cause the ERDB to list a security: (a) when a recommendation to buy or sell such security has been made for any CLIENT or is pending or (b) when the ACCESS PERSON is monitoring such security. o If the proposed trade involves a security not listed on the ERDB, the proposed trade generally shall be approved. o If the proposed trade involves a security which is listed on the ERDB, the CCO or his designee shall proceed to the Trading System Open Order process. TRADING SYSTEM OPEN ORDERS The proposed trade shall next be checked against the open orders maintained by the McGregor Trading System. No proposed trade may be approved for execution on a day during which any CLIENT has a pending order in the same security until that order is fully executed or withdrawn. o If the proposed trade involves a security which is the subject of an open order as reflected in the Trading System, the proposed trade may not be approved until seven calendar days after completion of the order, provided that the CCO or his designee has a reasonable basis for concluding that the trade is consistent with the Code, including those procedures mentioned in the Trading System History Records Section following. o If the proposed trade does not involve a security which is the subject of an open order, the CCO or his designee shall proceed to the Trading System History Records Section following. TRADING SYSTEM HISTORY RECORDS The proposed trade shall next be compared to recent trades displayed by the McGregor Pre-Trade Clearance System. o If the proposed trade involves a security that has been purchased or sold for a CLIENT within the previous seven calendar days, the proposed trade generally shall not be approved. The CCO or his designee only may approve such proposed trade if he has a reasonable basis to conclude that the trade nevertheless would be consistent with the Code. The CCO or his designee shall, as necessary, consult with portfolio managers or the appropriate analysts to 25 obtain information such as whether the security is under active consideration for purchase or sale in CLIENT ACCOUNTS, in determining whether a proposed trade shall be approved, consistent with this Appendix C. PRE-CLEARANCE PERIOD If the proposed trade is not entered by 4 p.m. EST on the next day after 1" the approval was given, the pre-clearance will expire and the request must be made again. o MONITORING The CCO or his designee shall periodically compare, not less than quarterly, personal securities transactions against recent trades as displayed on the McGregor Pre-Trade Clearance System. Such comparison shall include consideration of the requirements and prohibitions of this Code, including front-running and conflicts of interest. MARKET CAPITALIZATION EXEMPTION If an ACCESS PERSON requests to purchase or sell any COVERED SECURITY of an issuer that has a market capitalization of $25 billion or more at the time of the transaction, the ACCESS PERSON must still pre-clear the trade; however the above pre-clearance procedures regarding Equity Research Data Base, Trading System Open Orders and Trading System History records are not necessary. INVESTMENT PERSONS o The above procedures relating to Equity Research Data Base, Trading System Open Orders, Trading System History Records and Pre-clearance Period also apply to INVESTMENT PERSONS. o See Additional Trading Restrictions Applicable to Investment Persons, Part II E of this Code. 26 Appendix D Exceptions to the Short-Term Profit Trading Ban Exceptions to the short-term trading ban on COVERED SECURITIES may be requested in advance to CCO, and will generally only be granted in rare cases of hardship, gifting of securities or other unusual circumstances where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception from short-term trading restriction might include, for example, among others: o An involuntary transaction that is the result of unforeseen corporate activity; o The disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long-term investment; or o The ACCESS PERSON's economic circumstances materially change in such a manner that enforcement of the short-term trading ban would result in the ACCESS PERSON being subjected to an avoidable, inequitable economic hardship. o An irrevocable charitable gift of securities provided no abuse is intended. 27 Appendix E Code of Ethics Committee Sanctions Schedule for Failure to Comply with the Code The Code of Ethics Committee will meet quarterly or as needed to review employee Code of Ethics violations identified by COMPLIANCE. The Committee shall in its sole discretion, conduct informational hearings, assess mitigating factors, and impose appropriate sanctions guided by those factors set forth in the schedule below. The Committee consists of the CCO, the COO and the CIO of CWAM. The Fund's CCO may also participate as a non-voting member. While the Committee will be the final arbiter as to appropriate sanctions, CWAM's President may determine what actions are appropriate with respect to an ACCESS PERSON's employment, including termination of employment. The sanctions as specified in the schedule do not preclude the imposition of more severe penalties depending on the circumstances surrounding the offense.
---------------------------------------- -------------------------------------------------------------------- Personal Trading Violation Sanctions Guidelines ---------------------------------------- -------------------------------------------------------------------- No Broker/Mutual Fund statements or 1ST OFFENSE: Written Warning confirms on file or evidence that 2ND OFFENSE**: Written Reprimand and/or Monetary Penalty duplicate statements have been 3RD OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts requested. for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading without receiving 1ST OFFENSE**: Written Warning pre-clearance(Covered Securities and 2ND OFFENSE: Written Reprimand and/or Monetary Penalty Mutual Funds)* 3RD OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading after being denied approval* 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Failure to file a required report 1ST OFFENSE: Written Warning (Initial, Quarterly and Annual 2ND OFFENSE**: Written Reprimand and/or Monetary Penalty Reports) within the required time 3RD OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts period for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Purchasing an Initial Public Offering 1ST OR MORE OFFENSES**: Monetary Penalty, Freeze Trading accounts (IPO), Hedge Fund or Private Placement for 30-90 days and/or Suspension / Termination without receiving pre-clearance* ---------------------------------------- -------------------------------------------------------------------- Trading which violates the 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty same-day/open order or recommendation 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts restriction* for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading within the 14 calendar day 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty blackout period* 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Profiting from short-term trading* 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- Trading Mutual Funds in violation of 1ST OFFENSE**: Written Reprimand and/or Monetary Penalty the 60 day restriction* 2ND OR MORE OFFENSES: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination ---------------------------------------- -------------------------------------------------------------------- * Includes disgorgement of profit as applicable ** Requires review by the Ethics Committee
The following schedule details the monetary penalties that may be applied for each offense. o Access Persons $100-$500 o Investment Persons $500-$1,000 28 Appendix F Columbia Management Group Portfolio Holdings Disclosure Policy Columbia Management Group (CMG) considers information regarding portfolio holdings of the open-end mutual funds it advises to be confidential and proprietary. Selective disclosure of such information can have severe, adverse ramifications for a fund's investors if the information is used to make investment decisions regarding the funds' shares, or is otherwise used in a way that would harm the fund. In order to prevent the inappropriate selective disclosure of portfolio information, CMG has adopted and implemented this portfolio holdings disclosure policy (the "Policy"). The Policy is also intended to be described by the Funds in response to Item 11(f) of Form N-1A. Each CMG associate is required to familiarize him or herself with the Policy. A. POLICY APPLICATION The Policy applies to all Funds and CMG operating entities relating to: 1. The disclosure of portfolio holdings for the Columbia, Columbia Acorn, Wanger, Nations Funds and the CMG institutional funds (collectively, the Funds); and 2. The disclosure of the holdings of any advisory product that is substantially similar to / highly correlated with a Fund (e.g., an advisory strategy for a private fund or separately managed account with a portfolio of securities that substantially tracks a Fund) (each, a "Mirror Strategy"). B. PUBLIC DISCLOSURE POLICY 1. No disclosure of portfolio holdings information of a Fund or Mirror Strategy shall be made until the day next following the day on which holdings of the relevant Fund are disclosed publicly, except as expressly provided below. 2. No Fund service provider shall enter into any agreement to disclose Fund portfolio holdings information in exchange for compensation or any other form of consideration. 3. CMG shall publicly disclose Fund holdings in the following manner. A. Equity/Fixed Income Funds o For equity Funds, a complete list of Fund portfolio holdings shall be posted on the Fund's website on a monthly basis, 30 days after month-end. Three consecutive monthly disclosures shall remain posted for each Fund. o For fixed income Funds, a complete list of Fund portfolio holdings shall be posted on the Fund's website on a quarterly basis, 30 days after quarter-end, and shall remain posted until the date on which the Fund files its Form N-CSR or Form N-Q with the Commission for the period that includes the date as of which the website information is current. o Equity Fund portfolio holdings information posted on the website shall include the name of each portfolio security, number of shares held by Fund, value of the security and the security's percentage of the Fund's net asset value. o Fixed-income Fund portfolio holdings information posted on the website shall include the name of each portfolio security, maturity/rate, par, value and the security's percentage of the Fund's net asset value. B. Money Market Funds 29 o Complete list of Fund portfolio holdings shall be publicly available on the fifth day after month-end. o Holdings shall not be posted to the web sites. Holdings shall be made available upon a request to the Funds' designated service provider. o Notice of the availability of holdings shall be made in the applicable Funds' statement of additional information and on the CMG web sites. o In order to receive the holdings, any requesting party shall be required to make such request each time that the requester would like to receive the holdings (i.e., there can be no standing arrangement under which a recipient receives holdings whether or not a formal request was made). C. CRITERIA FOR PRIOR DISCLOSURE 1. No disclosure of Fund portfolio holdings information prior to its public disclosure may be made unless: (i) the Fund has legitimate business purposes for doing so and (ii) the recipient has entered into a confidentiality agreement, which includes a duty not to trade on the nonpublic information. 2. In determining the existence of a legitimate business purpose, the following factors, and any additional relevant factors, shall be considered: a. that any prior disclosure must be consistent with the antifraud provisions of the federal securities laws and CMG's fiduciary duties; b. any conflicts of interest between the interests of Fund shareholders, on the one hand, and those of the Fund's investment adviser, principal underwriter; or any affiliated person of the Fund, its investment adviser, or its principal underwriter, on the other; and c. that prior disclosure to a third party, although subject to a confidentiality agreement, would not make lawful conduct that is otherwise unlawful. (The SEC has provided examples of instances in which selective disclosure of a fund's portfolio securities may be appropriate, subject to confidentiality agreements and trading restrictions, including disclosure for due diligence purposes to an investment adviser that is in merger or acquisition talks with the fund's current adviser, disclosure to a newly hired investment adviser or sub-adviser prior to commencing its duties, or disclosure to a rating agency for use in developing a rating.) 3. Any approved ongoing arrangement to make available information about a Fund's portfolio securities to any person prior to public disclosure must be disclosed in the applicable Fund's statement of additional information, including the identity of the persons who receive the information pursuant to such arrangement. D. APPROVED PRIOR DISCLOSURE 1. In order to facilitate Fund operations, current portfolio information may be provided to the Funds' principal service providers that have entered into appropriate confidentiality agreements. 2. The Funds' advisers may make limited disclosures to broker/dealers who may execute transactions on behalf of the Funds; provided that precautions are taken to avoid any potential misuse of the disclosed information. Adopted September 28, 2004 by Columbia Acorn Trust and September 29, 2004 by Wanger Advisors Trust 30 Form A INITIAL HOLDINGS REPORT For New CWAM Access and Investment Persons PLEASE COMPLETE THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 10 DAYS AFTER YOU BECOME AN ACCESS PERSON OF COLUMBIA WANGER ASSET MANAGEMENT. YOU MUST REPORT: all accounts in which you have "Beneficial Ownership." "Beneficial Ownership" includes shares held in your name and/or the name of (1) your spouse, (2) your minor children, (3) your adult children and relatives who live in your home, (4) any nominee or other person if you can reacquire title now or in the future. Although transactions in the following accounts are not always reportable, you must report the existence of the following types of accounts: (1) 401k plans; (2) accounts in which you have beneficial interest but not trading discretion, influence, or control; and (3) 529 plans. YOU NEED NOT REPORT: US Government Securities, commercial paper, certificates of deposit, repurchase agreements, banker's acceptance, and any other money market instruments, municipal bonds, and index options. NAME: __________________________________________________________________ 1. CODE CLASSIFICATION (refer to pages 5-6 of the Code) I understand that for purposes of the Code I am classified as: [ ] An Access Person [ ] An Investment Person 2. PERSONAL HOLDINGS (refer to page 17 of the Code) [ ] Neither I, nor any member of my Family/Household, have Beneficial Ownership of Investment Accounts or Personal Holdings of any Covered Securities or Open-ended Mutual Funds. [ ] I and/or a member of my Family/Household have Beneficial Ownership of Investment Accounts or Personal Holdings of Covered Securities and/or Open-ended Mutual Funds* 3. INITIAL CERTIFICATION [ ] I have read the Code, and will keep a copy for future reference. I understand my responsibilities under the Code and agree to comply with all of its terms and conditions. In particular, I understand that the Code applies to me and to all investments in which I have Beneficial Ownership, as well as investments in which members of my Family/Household have Beneficial Ownership. All information provided in this Form A is true and complete to the best of my knowledge. Signature: _______________________________ Date: _____________________ * Please provide photocopies of the most recent statements from your reported accounts and holdings. 31 Form B QUARTERLY PERSONAL SECURITIES TRANSACTIONS REPORT For CWAM Access and Investment Persons PLEASE COMPLETE THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 30 DAYS AFTER THE EACH QUARTER-END (MARCH, JUNE, SEPTEMBER, DECEMBER). YOU MUST REPORT: all transactions in which you have "Beneficial Ownership." "Beneficial Ownership" includes shares held in the name of (1) your spouse, (2) your minor children, (3) your adult children and relatives who live in your home, (4) any nominee or other person if you can reacquire title now or in the future. YOU NEED NOT REPORT: Transactions in your or your spouse's company-directed 401k plans, 529 plans, or accounts in which you do not have trading discretion, so long as the accounts themselves have been identified to the Compliance Department on Form C under #5. Also excluded from this report are: US Government Securities, commercial paper, certificates of deposit, repurchase agreements, banker's acceptance, and any other money market instruments, municipal bonds, and index options. NAME:___________________________________________________________________________ STATUS: [ ] ACCESS [ ] INVESTMENT FOR QUARTER: [ ] 1 [ ] 2 [ ] 3 [ ] 4 1. TRANSACTIONS (Please check one.) [ ] I have made no reportable transactions during this quarter. [ ] I have made reportable transactions during this quarter.* 2. STATEMENTS (Please check all that apply.) [ ] I have no reportable accounts and, as such, no statements to submit. [ ] Duplicate statements are sent directly to Compliance from the broker or dealer. [ ] I have provided photocopies of account statements. 3. NEW ACCOUNTS (Please check one.) [ ] I have not opened a new account during the quarter. [ ] I have opened a new account(s) during the quarter.** SIGNATURE: _______________________________ DATE:________________________ * Such transactions should appear in statements submitted to Compliance. Please use the reverse side of this form to describe any transactions that do not appear on submitted statements ** Please submit the following information to Compliance: Name on Account, Institution Name, Account Number, and Date Account was Opened. 32 Form C ANNUAL RECERTIFICATION Code of Ethics, Policy Concerning Material Non-Public Information, & Personal Holdings PLEASE COMPLETE SECTIONS 1-3 OF THIS FORM AND SUBMIT IT TO THE COMPLIANCE DEPARTMENT (37TH FLOOR) NO LATER THAN 30 DAYS AFTER THE YEAR-END. NAME: _________________________________________________________________________ STATUS: [ ] ACCESS [ ] INVESTMENT 1. CODE OF ETHICS (Please initial both affirmations.) A. I have read the Code, and will keep a copy for future reference. I understand my responsibilities under the Code and agree to comply with all of its terms and conditions. In particular, I understand that the Code applies to me and to all investments in which I have Beneficial Ownership, as well as investments in which members of my Family/Household have Beneficial Ownership. INITIALS: ___________ B. I hereby certify that during the year covered by this report December 31, _______ , I complied with all applicable requirements of the Code and have reported to Compliance all transactions required to be reported under the Code. * INITIALS: ___________ * Please describe Code violations or instances of non-compliance on a separate attachment. 2. POLICY & PROCEDURES CONCERNING MATERIAL NON-PUBLIC INFORMATION (Please initial below.) I have read the CWAM Policy & Procedures Concerning Material Non-Public Information and will keep a copy for future reference. I understand my responsibilities under this policy and acknowledge compliance with the policy. INITIALS: ___________ 33 3. PERSONAL HOLDINGS & EXEMPTIONS (Please check all that apply. Refer to pages 17-18 of the Code for additional clarification.) [ ] Neither I, nor any member of my Family/Household, have Beneficial Ownership of Investment Accounts or Personal Holdings of any Covered Securities or Open-ended Mutual Funds. [ ] I and/or a member of my Family/Household have Beneficial Ownership of Investment Accounts or Personal Holdings of Covered Securities and/or Open-ended Mutual Funds. (Please list all such accounts/holdings on a separate attachment.) [ ] I have indicated on my list of reported holdings any accounts in which transactions are exempt from the Code's Reporting Requirements. Transactions in the following types of accounts are exempt under Section D of Part III of the Code: 1) Company-directed, non-proprietary 401(k) plans in which you have a beneficial interest as long as the plans do not include the Columbia Acorn Funds, Wanger Advisors Trust Funds, Columbia Funds or Nation Funds 2) Investment accounts in which you have a beneficial interest but no investment discretion, influence or control 3) 529 Plans you participate in ALL INFORMATION PROVIDED IN THIS FORM C IS TRUE AND COMPLETE TO THE BEST OF MY KNOWLEDGE. SIGNATURE: _______________________________________ DATE: ___________________ 34 Form D COLUMBIA WANGER ASSET MANAGEMENT MULTI-APPROVAL FORM ATTENTION: TO ENSURE EFFICIENT PROCESSING, SUBMIT THE COMPLETED FORM VIA EMAIL TO: JOE LAPALM OR BRUCE LAUER.
- ------------------------------------------------------------------------------------------------------------------------------------ SECTION I: REQUIRED - COMPLETE OR CHECK ALL OF THESE REQUIRED FIELDS. - ------------------------------------------------------------------------------------------------------------------------------------ NAME DATE - ------------------------------------------------------------------------------------------------------------------------------------ SECTION II: IPO, Hedge Fund or Private Placement Transaction Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY NAME / DESCRIPTION: BROKER-DEALER HANDLING THE TRANSACTION: - ------------------------------------------------------------------------------------------------------------------------------------ YOUR RELATIONSHIP TO THE OFFERING: IS THE SECURITY ELIGIBLE FOR ACCOUNTS IN WHICH YOU ARE ASSOCIATED? IF NOT, WHERE WILL THE SECURITY BE HELD? - ------------------------------------------------------------------------------------------------------------------------------------ HOW DID YOU HEAR ABOUT IT? OTHER RELEVANT INFORMATION & ATTACH DOCUMENTATION: - ------------------------------------------------------------------------------------------------------------------------------------ WHAT IS THE PRINCIPAL AMOUNT OF YOUR REQUESTED TRANSACTION? - ------------------------------------------------------------------------------------------------------------------------------------ SECTION III: Bank of America Affiliate Advised Closed-end Fund Transaction Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ SECURITY NAME / DESCRIPTION: BROKER-DEALER HANDLING THE TRANSACTION: - ------------------------------------------------------------------------------------------------------------------------------------ WHAT IS YOUR RELATIONSHIP TO THE OFFERING? IS THE SECURITY ELIGIBLE FOR ACCOUNTS IN WHICH YOU ARE ASSOCIATED? IF NOT, WHERE WILL THE SECURITY BE HELD? - ------------------------------------------------------------------------------------------------------------------------------------ WHAT IS THE PRINCIPAL AMOUNT OF YOUR REQUESTED TRANSACTION? OTHER RELEVANT INFORMATION & ATTACH DOCUMENTATION: - ------------------------------------------------------------------------------------------------------------------------------------ SECTION IV: Investment Club Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ ARE YOU AN INVESTMENT PERSON? YES OR NO WHAT IS THE STRUCTURE OF THE CLUB? LIST DEPARTMENT: - ------------------------------------------------------------------------------------------------------------------------------------ EXPLAIN HOW RESEARCH IS PERFORMED & DECISIONS MADE: EXPLAIN HOW TRADES ARE MADE: - ------------------------------------------------------------------------------------------------------------------------------------ WHAT IS YOUR ROLE IN THE CLUB? OTHER RELEVANT INFORMATION & ATTACH DOCUMENTATION: - ------------------------------------------------------------------------------------------------------------------------------------ Section V: Officer/Director of Public Company Request for Approval - ------------------------------------------------------------------------------------------------------------------------------------ ARE YOU AN INVESTMENT PERSON? YES OR NO POSITION BEING REQUESTED: FIRM NAME: - ------------------------------------------------------------------------------------------------------------------------------------ EXPECTED TIME PERIOD FOR POSITION BEING HELD: EXPLAIN HOW THE POSITION WOULD NOT BE A CONFLICT AND OTHER RELEVANT INFORMATION & ATTACH DOCUMENTATION: - ------------------------------------------------------------------------------------------------------------------------------------ COMPLIANCE DECISION - ------------------------------------------------------------------------------------------------------------------------------------ PERMISSION TO GRANT APPROVAL TO THE CODE REQUIREMENT: __________ YES __________ NO EFFECTIVE DATE: _____________________________ MANAGER APPROVAL _____________________ Compliance Approval: _______________________________________ - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== FOR COMPLIANCE PURPOSES ONLY: Date Compliance Received:__________________________________ Compliance Officer Handling:_____________________________ Date Compliance Responded:_________________________________ Date Associate Notified:___________________________________ Method of Reporting to Associate:________________________ ==================================================================================================================================== Multi-Approval Form 1.1.05
35 EX-99.P.2 12 file012.txt FORM OF CODE OF ETHICS WANGER ADVISORS TRUST CODE OF ETHICS FOR NON-MANAGEMENT TRUSTEES (ADOPTED EFFECTIVE JUNE 15, 1996; AMENDED EFFECTIVE JUNE 8, 1999, SEPTEMBER 29, 2000, JUNE 5, 2001, DECEMBER 28, 2003 AND [JUNE 7], 2006) 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 Columbia Wanger Asset Management, L.P. ("CWAM"), WAT's investment adviser. Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to CWAM's designated compliance officer or WAT's chief compliance officer, 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 COVERED SECURITY held in any account over which the Non-Management Trustee (as defined below) has direct or indirect influence or control - a BENEFICIAL INTEREST. COVERED 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-Management 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 each board member who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act, including any board member who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act but whom the board has determined to treat as an "interested person" of the Fund (the "Non-Management Trustees"). The Non-Management Trustees are listed on Schedule A hereto. III. RESTRICTIONS ON PERSONAL SECURITIES TRANSACTIONS A. NO TRANSACTIONS WITH THE FUNDS. No Non-Management Trustee 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 Non-Management Trustee shall purchase or sell any security in which such Non-Management Trustee 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. QUARTERLY REPORTING OF PERSONAL SECURITIES TRANSACTIONS. 1. Each Non-Management Trustee shall report to CWAM'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 Non-Management Trustee, at the time of the transaction, knew, or in the ordinary course of fulfilling his or her duties as a trustee should have known, that on the day of the transaction or within 15 days before or 2 after that day a purchase or sale of that security was made by or considered for the Fund. 2. Quarterly reports of personal securities transactions for Non-Management Trustees 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. B. MONITORING OF TRANSACTIONS. CWAM's compliance officer will review the quarterly reports of personal securities transactions of the Fund's Non-Management Trustees. C. CERTIFICATION OF COMPLIANCE. Each Non-Management Trustee 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. D. 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: 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; 3 2. shares of open-end investment companies (mutual funds), including but not limited to shares of any series of WAT or Columbia Acorn Trust; 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; F. Purchases or sales in an account managed by an independent investment adviser with discretion where the Non-Management Trustee has no advance knowledge of the transactions before they had been executed; and G. Purchases or sales that receive the prior approval of the Fund's compliance officer 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 a Non-Management Trustee, which may include removal from the board. Reports filed pursuant to the Code will be maintained in confidence but will be reviewed by CWAM 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 CWAM'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; 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. * * * * * 4 SCHEDULE A NON-MANAGEMENT TRUSTEES Jerome L. Duffy Fred D. Hasselbring Dr. Kathryn A. Krueger Ralph Wanger Patricia Werhane 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 APPENDIX A HAVE A BENEFICIAL INTEREST SHOULD BE DIRECTED TO CWAM'S DESIGNATED COMPLIANCE OFFICER OR CHIEF OPERATING OFFICER. ATTACHMENT A 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-Management Trustees (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 EX-99.P.3 13 file013.txt CODE OF ETHICS COLUMBIA MANAGEMENT CODE OF ETHICS* EFFECTIVE JANUARY 1, 2006 - -------------------------------------------------------------------------------- COLUMBIA MANAGEMENT AFFILIATES: CMG INVESTMENT ADVISOR COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") INVESTMENT SERVICES GROUP ADVISORS BANC OF AMERICA INVESTMENT ADVISORS, INC. (BAIA") BANK OF AMERICA CAPITAL ADVISORS, LLC ("BACA") BACAP ALTERNATIVE ADVISORS, INC. CMG DISTRIBUTORS COLUMBIA MANAGEMENT DISTRIBUTORS, INC. ("CMDI") COLUMBIA MANAGEMENT SERVICES, INC. ("CMSI") * This Code of Ethics is for all employees and officers of the direct or indirect affliliates listed above of Columbia Management and employees of Bank of America who receive official notice under this Code of Ethics from Compliance. Employees of Bank of America subject to this Code may include support partners of Columbia Management (such as Legal, Risk, Compliance, and Technology groups) or other divisions that are determined to be subject to this Code. - --------------------------------------------------------------------------------
Table of Contents OVERVIEW AND DEFINITIONS PAGE Overview 1 Things You Need to Know to Use This Code 2 Definitions 3-4 Part I STATEMENT OF GENERAL PRINCIPLES (APPLIES TO ALL EMPLOYEES) A. Compliance with the Spirit of the Code 5 B. Compliance with the Bank of America Corporation Code of Ethics and General Policy on Insider Trading 5 C. Approved Broker-Dealer Requirement for Employee Investment Accounts 5 D. Nonpublic Information 6 E. Reporting Violations of CMG Code of Ethics 6 Part II PROHIBITED TRANSACTIONS AND ACTIVITIES (APPLIES TO ALL EMPLOYEES) A. Prohibition on Fraudulent and Deceptive Acts 7 B. Restrictions Applicable to All Employees with respect to Redemptions or Exchanges of Open-end Mutual Fund Investments 7 C. Restrictions Applicable to All Employees with Respect to Transactions in Bank of America's Retirement Plans 8 D. Trading Restrictions Applicable to All Access Persons 8 1. Prohibition on Trading Securities Being Purchased, Sold or Considered for Purchase or Sale by a Client Account 8-9 2. Pre-clearance of Transactions 9 3. Equity Restricted List 9 4. Initial Public Offerings, Hedge Funds and Private Placements 9 5. Short-Term Trading (60 Calendar Days) 9 6. Excessive Trading 10 7. Closed-end Funds Advised by Bank of America 10 E. Additional Trading Restrictions Applicable to Investment Persons 10 o Fourteen Calendar-Day Blackout Period 10 F. Exempt Transactions 10 G. Restriction on Service as Officer or Director 11 H. Participation in Investment Clubs 11 I. Additional Restrictions for Specific Sub-Groups 11 J. Penalties for Non-Compliance 11 Part III ADMINISTRATION AND REPORTING REQUIREMENTS (APPLIES TO ALL EMPLOYEES) A. New Employees 13 B. Annual Code Coverage Acknowledgement and Compliance Certification 13 C. Reporting Requirements for All Non-Access Persons (Investments in Open-end Mutual Funds) 13 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Open-end Mutual Funds 13 2. Quarterly Investment Account and Open-end Mutual Fund Transaction Report 13 3. Annual Open-end Mutual Fund Holdings Report 13 4. Duplicate Account Statements and Confirmations 13 D. Reporting Requirements for All Access Persons 14 1. Initial Certification to the Code and Disclosure of All Investment Accounts and Personal Holdings of Covered Securities and Mutual Fund Shares 14 2. Quarterly Investment Account and Transaction Report 14 3. Annual Holdings Report 14 4. Duplicate Account Statements and Confirmations 15 E. Exemptions from the Above Reporting Requirements 15 F. Code Administration 15 APPENDICES: Appendix A Beneficial Ownership 16-17 Appendix B Exceptions to the Short-term Trading Ban 18 Appendix C Sanction Schedule 19
COLUMBIA MANAGEMENT GROUP AND AFFILIATES CODE OF ETHICS Effective January 1, 2006 OVERVIEW This is the Code of Ethics for: o All employees and officers of the direct or indirect affiliates of Columbia Management Group (CMG) listed at the front of this Code and employees of Bank of America who receive official notice under this Code of Ethics from Compliance. o The Code is intended to satisfy the requirements of Rule 204A-1 and Rule 17j-1 under the Investment Advisers Act of 1940. In addition, this Code is intended to satisfy certain NASD requirements for registered personnel. The Code covers the following activities: o it prohibits certain activities by EMPLOYEES that involve the potential for conflicts of interest (Part I); o it prohibits certain kinds of PERSONAL SECURITIES TRADING by ACCESS PERSONS (Part II); and o it requires all EMPLOYEES to report their Open-end mutual fund holdings and transactions, and requires ACCESS PERSONS to report ALL of their securities holdings, transactions, and accounts so they can be reviewed for conflicts with the investment activities of CMG CLIENT ACCOUNTS (Part III) and compliance with this Code. Failure to comply with this Code may result in disciplinary action, including termination of employment. 1 THINGS YOU NEED TO KNOW TO USE THIS CODE This Code is divided as follows: o OVERVIEW AND DEFINITIONS o PART I Statement of General Principles: Applies to All Employees (Access and Non-Access) o PART II Prohibited Transactions and Activities: Applies to Access Persons (and to all Employees with respect to Open-End Mutual Funds) o PART III Administration and Reporting Requirements: Applies to Access Persons (and to all Employees with respect to Open-end Mutual Funds) o APPENDICES: Appendix A Beneficial Ownership Appendix B Hardship Exceptions to the Short-Term Trading Ban Appendix C Sanctions Schedule To understand what other parts of this Code apply to you, you need to know whether you fall into one or more of these categories: o ACCESS PERSON o INVESTMENT PERSON o NON-ACCESS PERSON If you don't know which category you belong to, contact COMPLIANCE RISK MANAGEMENT AT (704) 388-3300. 2 DEFINITIONS Terms in BOLDFACE TYPE have special meanings as used in this Code. To understand the Code, you need to read the definitions of these terms below. THESE TERMS HAVE SPECIAL MEANINGS IN THE CODE OF ETHICS: o "ACCESS PERSON" means (i) any EMPLOYEE: (A) Who has access to nonpublic information regarding any purchase or sale of securities in a CLIENT ACCOUNT, or nonpublic information regarding the portfolio holdings of any CLIENT ACCOUNT, or (B) Who is involved in making securities recommendations to a CLIENT ACCOUNT, or who has access to such recommendations that are nonpublic, (ii) any director or officer of a CMG COMPANY, and (iii) any other EMPLOYEE designated as an ACCESS PERSON by Compliance Risk Management. Compliance Risk Management shall maintain a list of EMPLOYEES deemed to be ACCESS PERSONS and will notify each EMPLOYEE of their designation under this Code. o "AUTOMATIC INVESTMENT PLAN" means a plan or other program in which regular periodic purchases or withdrawals are made automatically in or from investment accounts in accordance with a pre-determined schedule and allocation. These may include payroll deduction plans, issuer dividend reinvestment programs ("DRIPs") or 401(k) automatic investment plans. A security is "BEING CONSIDERED FOR PURCHASE OR SALE" when a recommendation to purchase or sell a security has been made and communicated or, with respect to the person making the recommendation, when such person decides to make the recommendation. "BENEFICIAL OWNERSHIP" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in" a security. The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." BENEFICIAL OWNERSHIP INCLUDES accounts of a spouse, minor children and relatives resident in the home of the ACCESS PERSON, as well as accounts of another person if the ACCESS PERSON obtains therefrom benefits substantially equivalent to those of ownership. For additional information, see APPENDIX A. o "CCO" means CMG's Chief Compliance Officer or his/her designee. o "CLIENT" or "CLIENT ACCOUNT" refers to any investment account - including, without limitation, any registered or unregistered investment company or fund - for which any CMG Company has been retained to act as investment adviser or sub-adviser. o "CLOSED-END FUND" refers to a registered investment company whose shares are publicly traded in a secondary market rather than directly, with the fund. o "CMG" refers to Columbia Management Group. Its direct and indirect affiliates that have adopted this Code are referred to as the "CMG COMPANIES". o "CONTROL" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940. o "COVERED SECURITY" means anything that is considered a "security" under the Investment Company Act of 1940, but does not include: 1. Direct obligations of the U.S. Government. 2. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements. 3. Shares of Open-end mutual funds. 4. Futures and options on futures. However, a proposed trade in a "single stock future" (a security future which involves a contract for sale for future delivery of a single security) is subject to the Code's pre-clearance requirement. 3 COVERED SECURITIES therefore include stocks, bonds, debentures, convertible and/or exchangeable securities, notes, options on securities, warrants, rights, and shares of exchange traded funds (ETFs), among other instruments. If you have any question or doubt about whether an investment is a considered a security or a COVERED SECURITY under this Code, ask Compliance Risk Management. o "EMPLOYEE" means any employee of Bank of America who receives official notice of coverage under this Code of Ethics from Compliance Risk Management. o "EXCLUDED FUND" is defined as money market funds or other funds designed to provide short term liquidity. Contact Compliance Risk Management if you have any questions about whether a fund may qualify as an Excluded Fund. o "FAMILY HOLDINGS" and "FAMILY/HOUSEHOLD MEMBER" - defined in Appendix A. o "FEDERAL SECURITIES LAWS" means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a -mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), Title V of the Gramm-Leach-Bliley Act (Pub. L. No. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311 -5314; 5316 - 5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of Treasury. o "INITIAL PUBLIC OFFERING" generally refers to a company's first offer of shares to the public. Specifically, an offering of securities registered under the Securities Act of 1933, 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. o "INVESTMENT PERSON" refers to an ACCESS PERSON who has been designated, by Compliance Risk Management, as such and may include the following CMG Employees: o Portfolio Managers; o Traders; o Research Analysts; and o Certain operations and fund administration personnel o "NON-ACCESS PERSON" refers to an EMPLOYEE who may not have direct or indirect access to trading or portfolio holdings information of CLIENT ACCOUNTS, but is still required to abide by certain requirements in the Code of Ethics. o "OPEN-END MUTUAL FUND" refers to a registered investment company whose shares (usually regarding separate "series" or portfolios of the fund) are continuously offered to and redeemed (or exchanged, for other shares) by investors directly (or through financial intermediaries) based on the "net asset value" of the fund. o "PRIVATE PLACEMENT" generally refers to an offering of securities that is not offered to the public. Specifically, an offering that is exempt from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6) of, or Regulation D under, the Securities Act of 1933. o "PURCHASE OR SALE OF A SECURITY" includes, among other things, the writing of an option to purchase or sell a security. 4 PART I STATEMENT OF GENERAL PRINCIPLES This Section Applies to All Employees The relationship with our clients is fiduciary in nature. This means that you are required to put the interests of our clients before your personal interests. This Code is based on the principle that all officers, directors and EMPLOYEES of each CMG COMPANY are required to conduct their personal securities transactions in a manner that does not interfere with the portfolio transactions of, or take unfair advantage of their relationship with, a CMG COMPANY or CLIENT. This fiduciary duty is owed by all persons covered by this Code to each and all of our advisory CLIENTS. It is imperative that all officers, directors and employees avoid situations that might compromise or call into question their exercise of independent judgment in the interest of CLIENT ACCOUNTS. Areas of concern relating to independent judgment include, among others, taking personal advantage of unusual or limited investment opportunities appropriate for CLIENTS, and receipt of gifts from persons doing or seeking to do business with a CMG COMPANY. All employees must adhere to the specific requirements set forth in this Code, including the requirements related to personal securities trading. A. COMPLIANCE WITH THE SPIRIT OF THE CODE CMG recognizes that sound, responsible personal securities trading by its personnel is an appropriate activity when it is not excessive in nature and conducted in such a manner as to be consistent with the code of ethics and to avoid any actual or potential conflict of interests. However, CMG will not tolerate personal trading activity which is inconsistent with our duties to our clients or which injures the reputation and professional standing of our organization. Therefore, technical compliance with the specific requirements of this Code will not insulate you from scrutiny should a review of your trades indicate breach of your duty of loyalty to the firm's clients or otherwise pose a hazard to the firm's reputation and standing in the industry. The Code of Ethics Oversight Committee has the authority to grant written waivers of the provisions of this Code for Employees. It is expected that this authority will be exercised only in rare instances. The Code of Ethics Oversight Committee may consult with the Legal Department prior to granting any such waivers. B. COMPLIANCE WITH THE BANK OF AMERICA CORPORATION CODE OF ETHICS AND GENERAL POLICY ON INSIDER TRADING All Employees are subject to the Bank of America Corporation Code of Ethics and General Policy on Insider Trading. All Employees are required to read and comply with that Code which includes many further important conflict of interest policies applicable to all Bank of America associates, including policies on insider trading and receipt of gifts by employees. It is available on the intranet links portion of Bank of America's intranet homepage. C. APPROVED BROKER-DEALER REQUIREMENT FOR EMPLOYEE INVESTMENT ACCOUNTS Employees are required to read and comply with the Global Wealth and Investment Management ("Global WIM") Associate Designated Brokerage Account Policy. Unless an exception has been granted, that policy requires Employees to maintain their current and any new Associate Accounts 5 with Banc of America Investment Services, Inc. (BAI) or Merrill Lynch. The policy is available on the intranet links portion of Global WIM's intranet homepage. D. NONPUBLIC INFORMATION Employees are prohibited from disclosing to persons outside the firm any material nonpublic information about any client, the securities investments made by the firm on behalf of a client, information about contemplated securities transactions, or information regarding the firm's trading strategies, except as required to effectuate securities transactions on behalf of a client or for other legitimate business purposes. Disclosure of nonpublic information is a violation of CMG's conflicts of interest policies and a breach of fiduciary duty. E. REPORTING VIOLATIONS OF CMG CODE OF ETHICS Employees must report any conduct by another employee that one reasonably believes constitutes or may constitute a violation of the CMG Code of Ethics. Employees must promptly report all relevant facts and other circumstances indicating a violation of the CMG Code of Ethics to either Linda Wondrack, CMG's Chief Compliance Officer, at 1.617.772.3543 or to the Ethics and Compliance Helpline at 1.888.411.1744 (toll free). If you wish to remain anonymous, use the name "Mr. Columbia" or "Mrs. Columbia" when calling collect. You will not be retaliated against for reporting information in good faith in accordance with this policy. 6 Part II PROHIBITED TRANSACTIONS AND ACTIVITIES This Section Applies to All Employees A. PROHIBITION OF FRAUDULENT AND DECEPTIVE ACTS The Investment Advisers Act of 1940 makes it unlawful for any investment adviser, directly or indirectly, to employ any device, scheme or artifice to defraud any client or prospective client, or to engage in any transaction or practice that operates as a fraud or deceit on such persons. The Investment Company Act of 1940 makes it unlawful for any director, trustee, officer or employee of an investment adviser of an investment company (as well as certain other persons), in connection with the purchase or sale, directly or indirectly, by such person of a "SECURITY HELD OR TO BE ACQUIRED" by the investment company (the "Fund"): 1. To employ any device, scheme or artifice to defraud the Fund; 2. To make to the Fund any untrue statement of a material fact or omit to state to the Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading; 3. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Fund; or 4. To engage in any manipulative practice with respect to the Fund. Note: "SECURITY HELD OR TO BE ACQUIRED" 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 within the scope of clause (i) above. All Employees are required to comply with these and all other applicable FEDERAL SECURITIES LAWS. Requirements of these laws are embodied in the policies and procedures of the CMG Companies. B. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO REDEMPTIONS OR EXCHANGES OF OPEN-END MUTUAL FUND INVESTMENTS 1. No Employee may engage in any purchase and sale or exchange in the same class of shares of an Open-end MUTUAL FUND or a similar investment that occurs within 60 days of one another. (This provision does not apply to any EXCLUDED FUND.) 2. ALL REDEMPTIONS OR EXCHANGES of shares of ANY OPEN-END MUTUAL FUND (except an EXCLUDED FUND), in which an EMPLOYEE has BENEFICIAL OWNERSHIP must be approved using the appropriate pre-clearance procedures. Pre-clearance procedures are available on the Columbia Management intranet homepage. Except in rare cases of hardship, gifting of securities or other unusual circumstances no such redemption or exchange will be approved unless such investment has been held for at least 60 calendar days. All such exceptions require advance approval from the CCO. Therefore, if an Employee purchases shares of an Open-end Mutual Fund, he or she will not be permitted to redeem or exchange out of any shares of that fund for at least 60 calendar days. 7 Exceptions: (1) Transactions in shares of EXCLUDED FUNDS, and (2) as provided immediately below for Bank of America's retirement plans, and (3) at Section F of Part II of this Code regarding other "Exempt Transactions" (as applicable). 3. LATE TRADING PROHIBITION: Late trading of mutual funds is illegal. No Employee shall engage in any transaction in any mutual fund shares where the order is placed after the fund is closed for the day and the transaction is priced using the closing price for that day. Late trading is a violation of CMG's conflicts of interest policies and a breach of fiduciary duty. 4. MARKET TIMING PROHIBITION: No Employee shall engage in mutual fund market timing activities. CMG Management believes that the interests of a mutual fund's long-term shareholders and the ability of a mutual fund to manage its investments may be adversely affected when fund shares are repeatedly bought and sold (or exchanged) by any individual or entity within short periods of time to take advantage of short-term differentials in the net asset values of such funds. This practice, known as "market timing," can occur in several ways: either in direct purchases and sales of mutual fund shares, through rapid reallocation of funds held in for 401(k) or similarly structured retirement or other accounts invested in mutual fund assets, or through the rapid reallocation of funds held in variable annuity and variable life policies invested in mutual fund assets. Mutual fund market timing is a violation of CMG's conflict of interest policies and a breach of fiduciary duty. C. RESTRICTIONS APPLICABLE TO ALL EMPLOYEES WITH RESPECT TO TRANSACTIONS IN BANK OF AMERICA'S RETIREMENT PLANS As a reminder all Employees must comply with the Policy on Excessive Trading and Market Timing in the Bank of America Retirement Plans ("Retirement Plan Policy") located in the Retirement overview section of Personnel Online, under the Benefits tab. The Retirement Plan Policy generally limits the frequency with which an associate can move dollars in and out of any retirement plan investment choice to once every 30 days. Associates who violate this policy will be restricted in their ability to make future fund exchanges and may be subject to disciplinary action - up to and including termination of employment. In addition to the Retirement Plan Policy, all employees participating in the Plans remain subject to the particular restrictions on trading of mutual fund shares contained in the prospectuses of mutual funds offered by the Plans, including but not limited to Columbia Funds. NOTE: Investment holdings and transactions in BAC Retirement Plans are exempt from the pre-clearance requirements in Part II and the reporting requirements of Part III of this Code. D. TRADING RESTRICTIONS APPLICABLE TO ALL ACCESS PERSONS 1. PROHIBITION ON TRADING COVERED SECURITIES BEING PURCHASED, SOLD OR CONSIDERED FOR PURCHASE OR SALE BY ANY CMG CLIENT ACCOUNT No ACCESS PERSON shall purchase or sell, directly or indirectly, any COVERED SECURITY in which such person had, or by reason of such transaction acquires, any direct or indirect BENEFICIAL OWNERSHIP when, at the time of such purchase or sale, the same class of security: o is the subject of an open buy or sell order for a CLIENT ACCOUNT; or o is BEING CONSIDERED FOR PURCHASE OR SALE by a CLIENT ACCOUNT NOTE: This restriction DOES NOT APPLY: o to securities of an issuer that has a MARKET CAPITALIZATION OF $10 BILLION OR MORE at the time of the transactions; however, an ACCESS PERSON must pre-clear these trades as with any other personal trade. o when the personal trade matches with a CMG Client Account which principally follows a passive investment strategy of attempting to replicate the performance of an index. 8 2. PRE-CLEARANCE OF TRANSACTIONS ACCESS PERSONS must pre-clear all transactions in COVERED SECURITIES in which they have BENEFICIAL OWNERSHIP using the appropriate pre-clearance procedures. Pre-clearance procedures are described at Columbia Management's intranet homepage. Employees may rely on the exemptions stated in Section F of Part II of this Code. - -------------------------------------------------------------------------------- NOTE: PRE-CLEARANCE REQUESTS MUST BE SUBMITTED DURING NYSE HOURS. PRE-CLEARANCE APPROVALS ARE VALID UNTIL 4:00 PM ET OF THE SAME BUSINESS DAY AS APPROVAL. (Example: If a pre-clearance approval is granted on Tuesday, the approval is valid only until 4:00 pm ET Tuesday.) - -------------------------------------------------------------------------------- 3. EQUITY RESTRICTED LIST When an equity analyst of CMG initiates coverage or changes a rating on a COVERED SECURITY, the security is put on a restricted list until close of the next trading day. No ACCESS PERSON shall be granted pre-clearance for trades in a security while included on the list. 4. INITIAL PUBLIC OFFERINGS (IPOS), HEDGE FUNDS AND PRIVATE PLACEMENTS No ACCESS PERSON shall acquire BENEFICIAL OWNERSHIP of securities in an Initial Public Offering, Hedge Fund or Private Placement except with the prior written approval of the CCO. (NOTE: REGISTERED PERSONNEL are PROHIBITED from investing in IPOs.) In approving such acquisition, the CCO must determine that the acquisition does not conflict with the Code or its underlying policies, or the interests of CMG or its Clients. In deciding whether such approval should be granted, the CCO shall consider whether the investment opportunity should be reserved for Clients, and whether the opportunity has been offered to the Access Peron because of the Access Person's relationship with Clients. The CCO may approve such acquisition where there are circumstances in which the opportunity to acquire the security has been made available to the Access Person for reasons other than the Access Person's relationship with CMG or its Clients. Such circumstances might include, among other things, o An opportunity to acquire securities of an insurance company converting from a mutual ownership structure to a stockholder ownership structure, if the Access 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 Access Person's pre-existing ownership of an interest in the IPO company or status of an investors in the IPO company; o An opportunity made available to the Access Person's spouse, in circumstances permitting the CCO reasonably to determine that the opportunity is being made available for reasons other than the Access Person's relationship with CMG or its Clients (for example, because of the spouse's employment). 5. SHORT-TERM TRADING (60 CALENDAR DAYS) Any profit realized by an ACCESS PERSON from any purchase and sale, or any sale and purchase, of the SAME CLASS OF COVERED SECURITY (or its equivalent) within any period of 60 CALENDAR DAYS or less is prohibited. Note, regarding this restriction, that: 9 a. The 60 calendar day restriction period commences the day after the purchase or sale of any Covered Security (or its equivalent). b. The 60-day restriction applies on a "last in, first out basis." That's why the restriction refers to "the SAME CLASS OF COVERED SECURITY." In light of this feature, an ACCESS PERSON (or FAMILY/HOUSEHOLD MEMBER) may not buy and sell, or sell and buy, the same class of COVERED SECURITY within 60 days even though the specific shares or other securities involved may have been held longer than 60 days. c. Purchase and sale transactions in the same security within 60 days that result in a loss to the ACCESS PERSON (or FAMILY/HOUSEHOLD MEMBER) are not restricted. d. The 60-day restriction does not apply to the exercise of options to purchase shares of Bank of America stock and the immediate sale of the same or identical shares, including so-called "cashless exercise" transactions. e. Strategies involving options with expirations of less than 60 days may result in violations of the short-term trading ban. f. Exceptions to the short-term trading ban may be requested in writing, addressed to the CCO, in advance of a trade and will generally be granted only in rare cases of hardship, gifting of securities or other unusual circumstances where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. See examples of exceptions in APPENDIX B. 6. EXCESSIVE TRADING FOR PERSONAL ACCOUNTS IS STRONGLY DISCOURAGED ACCESS PERSONS are strongly discouraged from engaging in excessive trading for their personal accounts. Although this Code does not define excessive trading, Access Persons should be aware that if their trades exceed 30 trades per month the trading activity will be reviewed by Compliance Risk Management. 7. CLOSED-END FUNDS ADVISED BY BANK OF AMERICA No ACCESS PERSON shall acquire BENEFICIAL OWNERSHIP of securities of any CLOSED-END FUND advised by CMG or other Bank of America company except with the prior written approval of Compliance Risk Management. E. ADDITIONAL TRADING RESTRICTIONS APPLICABLE TO INVESTMENT PERSONS 1. FOURTEEN CALENDAR DAY BLACKOUT PERIOD No INVESTMENT PERSON shall purchase or sell any COVERED SECURITY (or its equivalent) within a period of seven calendar days before or after a purchase or sale of the same class of security by a CLIENT ACCOUNT with which the INVESTMENT PERSON OR THEIR TEAM are regularly associated. The spirit of this Code (see page 5 above) also requires that no INVESTMENT PERSON may intentionally delay trades on behalf of a CLIENT Account so that their own personal trades avoid falling within the fourteen day blackout period. NOTE: The fourteen calendar day restriction DOES NOT APPLY: o to securities of an issuer that has a MARKET CAPITALIZATION OF $10 BILLION OR MORE at the time of the transactions; however, an INVESTMENT PERSON must pre-clear these trades as with any other personal trade. Also, this exception does not relieve INVESTMENT PERSONS of the duty to refrain from inappropriate trading of securities held or BEING CONSIDERED FOR PURCHASE OR SALE in CLIENT ACCOUNTS with which they are regularly associated. o when the personal trade matches one in a CMG CLIENT ACCOUNT which principally follows a passive index tracking investment strategy. 2. MANGER PRE-APPROVAL REQUIRED FOR IPOS AND PRIVATE PLACEMENTS All Investment Persons are required to obtain written manager pre-approval for personal investments in INITIAL PUBLIC OFFERINGS (IPOS) AND PRIVATE PLACEMENTS. "Manager pre- 10 approval" is approval by an investment person's immediate manager or their designee. After obtaining manger pre-approval, Investment Persons must obtain pre-approval from the CCO. The Request Form and instructions are available on Columbia Management's intranet site under the Compliance tab. F. EXEMPT TRANSACTIONS The following types of transactions are not subject to the trading restrictions of SECTIONS B, D AND E of Part II of this Code of Ethics. However, except as noted below, all such transactions must be reported pursuant to the Reporting provisions of Part III of this Code. 1. Transactions in securities issued or guaranteed by the US Government or its agencies or instrumentalities; bankers' acceptances; US bank certificates of deposit; commercial paper; and purchases, redemptions and/or exchanges of EXCLUDED FUND shares. (Transactions in all such securities are also exempt from the reporting requirements of Part III of the Code). 2. Transactions effected pursuant to an Automated Investment Plan not involving a BAC Retirement Plan. Note this does not include transactions that override or otherwise depart from the pre-determined schedule or allocation features of the investment plan. 3. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. 4. Transactions which are non-volitional on the part of either the Access Person or the CMG Company (e.g., stock splits, automatic conversions). 5. Transactions effected in any account in which the Access Person may have a beneficial interest, but no direct or indirect influence or control of investment or trading activity (such as a blind trust or third-party advised discretionary account). (Accounts managed by another ACCESS PERSON would not meet this test.) Such accounts are also exempt from reporting requirements in Part III of this Code.) Transactions in COVERED SECURITIES in any such account are also exempt from the reporting requirements of Part III of the Code. 6. Securities issued by Bank of America and affiliates (Please note that these securities are subject to the requirements of Part II D. 5 (short-term trading) of this Code, and the standards of conduct and liability discussed in the Bank of America Corporation `s General Policy on Insider Trading). 7. Such other transactions as the CODE OF ETHICS COMMITTEE shall approve in their sole discretion, provided that Compliance Risk Management shall find that such transactions are consistent with the Statement of General Principles and applicable laws. The CODE OF ETHICS COMMITTEE shall maintain a record of the approval and will communicate to the ACCESS PERSON'S manager(s). G. RESTRICTION ON SERVICE AS OFFICER OR DIRECTOR BY ACCESS PERSONS ACCESS PERSONS are prohibited from serving as an officer or director of any publicly traded company, other than Bank of America Corporation, absent prior authorization from Compliance Risk Management based on a determination that the board service would not be inconsistent with the interests of any CLIENT ACCOUNT. H. PARTICIPATION IN INVESTMENT CLUBS ACCESS PERSONS (including with respect to assets that are beneficially owned by the Access Person) may participate in private investment clubs or other similar groups only upon advance 11 written approval from Compliance Risk Management, subject to such terms and conditions as Compliance Risk Management may determine to impose. I. ADDITIONAL RESTRICTIONS FOR SPECIFIC SUB-GROUPS Specific sub-groups in the organization may be subject to additional restrictions, as determined by Compliance Risk Management, because of their specific investment activities or their structure in the company. Compliance Risk Management shall keep separate applicable procedures and communicate accordingly to these groups. J. PENALTIES FOR NON-COMPLIANCE Upon discovering a violation of this Code, the CODE OF ETHICS COMMITTEE, after consultation with the members of the Committee and Compliance Risk Management, may take any disciplinary action, as it deems appropriate, including, but not limited to, any or all of the following: o Formal written warning (with copies to supervisor and personnel file); o Cash fines; o Disgorgement of trading profits; o Ban on personal trading; o Suspension of employment; o Termination of employment See the Sanctions Schedule in APPENDIX C for details (subject to revision). 12 Part III ADMINISTRATION AND REPORTING REQUIREMENTS This Section Applies to All Employees A. NEW EMPLOYEES All new EMPLOYEES will receive a copy of the CMG CODE OF ETHICS as well as an Initial Certification Form. By completion of this Form, new EMPLOYEES MUST certify to Compliance Risk Management that they have read and understand the Code and disclose their personal (and FAMILY/HOUSEHOLD MEMBER) securities holdings. (The exact forms will be provided by Compliance Risk Management). B. ANNUAL CODE COVERAGE ACKNOWLEDGEMENT AND COMPLIANCE CERTIFICATION All EMPLOYEES will annually furnish online acknowledgement of coverage (including FAMILY/HOUSEHOLD MEMBERS ) under, and certification of compliance with, the CMG Code of Ethics. Copies of the Code and any amendments to the Code are required to be provided to all Employees. All Employees are required to provide online acknowledgment of their receipt of the Code and any amendments. C. REPORTING REQUIREMENTS FOR ALL NON-ACCESS PERSONS (INVESTMENTS IN OPEN-END MUTUAL FUNDS) 1. INITIAL CERTIFICATION TO THE CODE AND DISCLOSURE OF ALL INVESTMENT ACCOUNTS AND PERSONAL HOLDINGS OF OPEN-END MUTUAL FUNDS By no later than 10 calendar days after you are notified that you are a NON-ACCESS PERSON, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your FAMILY/HOUSEHOLD MEMBERS and that you understand that you are a NON-ACCESS PERSON under the Code. You must also report to Compliance Risk Management the following: o INVESTMENT ACCOUNTS in which you or any FAMILY/HOUSEHOLD MEMBER have direct or indirect ownership interest (including those of your family members or your household) which may hold shares of any open-end mutual funds, including accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, etc. HOLDINGS of any open-end mutual fund shares in any of the above mentioned accounts, including funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. 2. QUARTERLY INVESTMENT ACCOUNT AND OPEN-END MUTUAL FUND TRANSACTION REPORT By the 30th day after the end of the calendar quarter, ALL NON-ACCESS PERSONS are required to provide Compliance Risk Management with a report of their investment accounts (including any new accounts opened during the quarter) and transactions in Open-end mutual funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds or Nations Funds Families. These requirements include all investment accounts and Open-end mutual fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including (but not limited to) accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, etc. 3. ANNUAL OPEN-END MUTUAL FUND HOLDINGS REPORT By the 30th day after the end of the calendar year, ALL NON-ACCESS PERSONS are required to provide Compliance Risk Management with a detailed annual report of ALL their holdings of any Open-end mutual fund, including open-end mutual funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all 13 investment accounts and open-end mutual fund shares of which you (or a Family/Household Member) are a beneficial owner, held either directly or through another investment vehicle or account, including (but not limited to) accounts with broker-dealers, banks, accounts held directly with the fund, variable annuities/life, etc. 4. DUPLICATE ACCOUNT STATEMENTS AND CONFIRMATIONS Each NON-ACCESS PERSON shall cause every broker-dealer or investment services provider with whom he or she (or a FAMILY/HOUSEHOLD MEMBER) maintains an account to provide duplicate periodic statements and trade confirmations to Compliance Risk Management for all accounts holding or transacting OPEN-END MUTUAL FUNDS. All duplicate statements and confirmations should be sent to the following address: BANK OF AMERICA COMPLIANCE RISK MANAGEMENT PERSONAL TRADING DEPARTMENT NC1-002-32-27 101 SOUTH TRYON STREET, 32ND FLOOR CHARLOTTE, NC 28255 D. REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS (INCLUDING ALL INVESTMENT PERSONS) 1. INITIAL CERTIFICATION TO THE CODE AND DISCLOSURE OF ALL INVESTMENT ACCOUNTS AND PERSONAL HOLDINGS OF COVERED SECURITIES AND OPEN-END MUTUAL FUND SHARES By no later than 10 calendar days after you are notified that you are an ACCESS PERSON, you must acknowledge that you have read and understand this Code, that you understand that it applies to you and to your FAMILY/HOUSEHOLD MEMBERS and that you understand that you are an ACCESS PERSON (and, if applicable, an INVESTMENT PERSON) under the Code. You must also report to Compliance Risk Management the following: o INVESTMENT ACCOUNTS in which you or any FAMILY/HOUSEHOLD MEMBER have direct or indirect ownership interest (including those of your family members or your household) which may hold either COVERED SECURITIES or shares of any OPEN-END MUTUAL FUNDS, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. o HOLDINGS of any COVERED SECURITIES or OPEN-END MUTUAL FUND shares in any of the above mentioned accounts, including funds that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families o Investment account and holdings of COVERED SECURITIES information that is supplied to Compliance Risk Management shall not be more than 45 days old. 2. QUARTERLY INVESTMENT ACCOUNT AND TRANSACTION REPORT By the 30th day following the end of the calendar quarter, ALL ACCESS PERSONS are required to provide Compliance Risk Management with a report of their investment accounts(including investment accounts opened during the quarter) and transactions in COVERED SECURITIES and OPEN-END MUTUAL FUNDS during the quarter, including OPEN-END MUTUAL FUNDS that are not in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all investment accounts and COVERED SECURITIES and OPEN-END MUTUAL FUND shares of which you (or a FAMILY/HOUSEHOLD MEMBER) are a BENEFICIAL OWNER, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. 3. ANNUAL HOLDINGS REPORT By the 30th day after the end of the calendar year, ALL ACCESS PERSONS are required to provide Compliance Risk Management with a detailed annual report of ALL of their holdings of any COVERED SECURITIES and Open-end Mutual Funds, including Open-end mutual funds that are not 14 in the Columbia Acorn, Wanger Advisors Trust, and Columbia Funds Families. These requirements include all investment accounts and COVERED SECURITIES and Open-end Mutual Fund shares of which you (or a FAMILY/HOUSEHOLD MEMBER) are a BENEFICIAL OWNER, held either directly or through another investment vehicle or account, including accounts with broker-dealers, banks, direct holdings, accounts held directly with the fund, variable annuities/life, etc. Investment account and holdings of COVERED SECURITIES information that is supplied to Compliance Risk Management shall not be more than 45 days old. 4. DUPLICATE ACCOUNT STATEMENTS AND CONFIRMATIONS Each ACCESS PERSON shall cause every broker-dealer or investment services provider with whom he or she (or a FAMILY/HOUSEHOLD MEMBER) maintains an account to provide duplicate periodic statements and trade confirmations to Compliance Risk Management for all accounts holding or transacting trades in COVERED SECURITIES or OPEN-END MUTUAL FUNDS. All duplicate statements and confirmations should be sent to the following address: BANK OF AMERICA COMPLIANCE RISK MANAGEMENT PERSONAL TRADING DEPARTMENT NC1-002-32-27 101 SOUTH TRYON STREET, 32ND FLOOR CHARLOTTE, NC 28255 E. EXCEPTIONS FROM THE ABOVE REPORTING REQUIREMENTS SECTIONS C AND D of the above reporting requirements do not apply to transactions in: o BAC Retirement Plans as defined at Section II.C of this Code (See also the related Note at Section II.C.) o Any non-proprietary 401(k) plan in which you have a beneficial interest (such as that with a previous employer or of a family member) UNLESS the holdings are investments in a fund from either the Columbia Funds Families of Funds. If the non-proprietary 401(k) plan holdings are in a fund from the Columbia Acorn, Wanger Advisors Trust, or Columbia Funds Families, the EMPLOYEE must provide a duplicate periodic statement of all holdings and trading activity in the account. o Investment accounts in which you have a beneficial interest, but no investment discretion, influence or control. (See Appendix A.) o 529 Plans o Access persons on leave who do not have home access will be exempt from the above reporting requirements while on leave. Access persons on leave with home access will be responsible for the above reporting. - -------------------------------------------------------------------------------- NOTE: The exception of any non-proprietary 401(k) plan applies to company-directed 401(k) plans, but does not apply to self-directed 401(k) plans. If you have investments in plans that are self-directed, you are subject to the pre-clearing and reporting requirements of the Code of Ethics. Self-directed 401(k) plans offers the ability to direct stock investments, while company-directed 401(k) plans usually offer a limited number of investment options consisting of mutual funds in which one directs their investments. - -------------------------------------------------------------------------------- F. CODE ADMINISTRATION CMG Management has charged Compliance Risk Management with the responsibility of attending to the day-to-day administration of this Code. Compliance Risk Management will provide CMG Management with quarterly reports that will include all violations noted during the quarterly review process. The quarterly report will include associate name, job title, manager name, description of the violation, and a record of any sanction to be imposed. Material violations will be communicated to the board of directors or trustees of any investment company managed by CMG 15 at least annually as required by Rule 17j-1 under the Investment Company Act of 1940 and more frequently as requested by the board. G. QUESTIONS Any questions about the Code or about the applicability of the Code to a personal securities transaction should be directed to Associate Investment Monitoring (AIM) Department at (704) 388-3300 or via email to Corporate Compliance, PST. 16 Appendix A Beneficial Ownership For purposes of the Columbia Management Group Code of Ethics, the term "beneficial ownership" shall be interpreted in accordance with the definition of "beneficial owner" set forth in Rule 16a-l(a)(2) under the Securities Exchange Act of 1934, as amended, which states that the term "BENEFICIAL OWNER" means "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in "a security." The term "pecuniary interest" is further defined to mean "the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities." The pecuniary interest standard looks beyond the record owner of securities. As a result, the definition of beneficial ownership is very broad and encompasses many situations that might not ordinarily be thought to confer a "pecuniary interest" in or "beneficial ownership" of securities. SECURITIES DEEMED TO BE "BENEFICIALLY OWNED" Securities owned "beneficially" would include not only securities held by you for your own benefit, but also securities held (regardless of whether or how they are registered) by others for your benefit in an account over which you have influence or control, such as securities held for you by custodians, brokers, relatives, executors, administrators, or trustees. The term also includes securities held for your account by pledgees, securities owned by a partnership in which you are a general partner, and securities owned by any corporation that you control. Set forth below are some examples of how beneficial ownership may arise in different contexts. o FAMILY HOLDINGS. Securities held by members of your immediate family sharing the same household with you ("FAMILY/HOUSEHOLD MEMBER") are presumed to be beneficially owned by you. Your "immediate family" includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, significant other, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (but does not include aunts and uncles, or nieces and nephews). The definition also includes adoptive relationships. You may also be deemed to be the beneficial owner of securities held by an immediate family member not living in your household if the family member is economically dependent upon you. o PARTNERSHIP AND CORPORATE HOLDINGS. A general partner of a general or limited partnership will generally be deemed to beneficially own securities held by the partnership, as long as the partner has direct or indirect influence or control over the management and affairs of the partnership. A limited partner will generally not be deemed to beneficially own securities held by a limited partnership, provided he or she does not own a controlling voting interest in the partnership. If a corporation is your "alter ego" or "personal holding company", the corporation's holdings of securities are attributable to you. o TRUSTS. Securities held by a trust of which you are a beneficiary and over which you have any direct or indirect influence or control would be deemed to be beneficially owned by you. An example would be where you as settlor have the power to revoke the trust without the consent of another person, or have or share investment control over the trust. o ESTATES. Ordinarily, the term "beneficial ownership" would not include securities held by executors or administrators in estates in which you are a legatee or beneficiary unless there is a specific bequest to you of such securities, or you are the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such bequest. 17 SECURITIES DEEMED NOT TO BE "BENEFICIALLY OWNED" For purposes of the CMG Code of Ethics, the term "beneficial ownership" excludes securities or securities accounts held by you for the benefit of someone else if you do not have a pecuniary interest in such securities or accounts. For example, securities held by a trust would not be considered beneficially owned by you if neither you nor an immediate family member is a beneficiary of the trust. Another example illustrating the absence of pecuniary interest, and therefore also of beneficial ownership, would be securities held by an immediate family member not living in the same household with you, and who is not economically dependent upon you. "INFLUENCE OR CONTROL" Transactions/Accounts over which neither you nor any other ACCESS PERSON have "ANY DIRECT OR INDIRECT INFLUENCE OR CONTROL" are not subject to the trading restrictions in Part II or reporting requirements in Part III of the Code. To have "influence or control", you must have an ability to prompt, induce or otherwise effect transactions in the account. Like beneficial ownership, the concept of influence or control encompasses a wide variety of factual situations. An example of where influence or control exists would be where you, as a beneficiary of a revocable trust, have significant ongoing business and social relationships with the trustee of the trust. Examples of where influence or control does not exist would be a true blind trust, or securities held by a limited partnership in which your only participation is as a non-controlling limited partner. The determining factor in each case will be whether you (or any other ACCESS PERSON) have any direct or indirect influence or control over the securities account. 18 Appendix B Exceptions to the Short-Term Trading Ban Exceptions to the short-term trading ban on COVERED SECURITIES may be requested in advance to the CCO, and will generally only be granted in rare cases of hardship, gifting of securities or other unusual circumstances where it is determined that no abuse is involved and the equities of the situation strongly support an exception to the ban. Circumstances that could provide the basis for an exception from short-term trading restriction might include, for example, among others: o an involuntary transaction that is the result of unforeseen corporate activity; o the disclosure of a previously nonpublic, material corporate, economic or political event or activity that could cause a reasonable person in like circumstances to sell a security even if originally purchased as a long-term investment; or o the ACCESS PERSON's economic circumstances materially change in such a manner that enforcement of the short-term trading ban would result in the ACCESS PERSON being subjected to an avoidable, inequitable economic hardship. o An irrevocable gift of securities provided no abuse is intended. 19 Appendix C Code of Ethics Oversight Committee Sanctions Schedule for failure to comply with the Code The CODE OF ETHICS OVERSIGHT COMMITTEE will meet quarterly or as needed to review employee Code of Ethics violations identified by Compliance Risk Management. The responsibility of the Committee will be to conduct informational hearings, assess mitigating factors, and impose sanctions consistent with the Code's Sanction Guidelines. The Committee will be the final arbiter in determining sanctions imposed under this Code. The sanctions as specified in the schedule do not preclude the imposition of more severe penalties depending on the circumstances surrounding the offense.
- ------ ---------------------------------- ----------------------------------------------------------------------------- # Personal Trading Violation Sanctions Guidelines - ------ ---------------------------------- ----------------------------------------------------------------------------- 1 Trading without proper 1ST OFFENSE: Written Warning pre-clearance (Covered 2ND OFFENSE*: Written Reprimand and/or Monetary Penalty Securities and Mutual Funds) 3RD OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 2 Failure to file an accurate 1ST OFFENSE: Written Warning required report (Initial, 2ND OFFENSE*: Written Reprimand and/or Monetary Penalty Quarterly and Annual Reports) 3RD OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 within the required time period days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 3 Trading after being denied 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty approval 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 4 Failure to timely report a 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty personal investment account, 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 whether existing or newly days and/or Suspension / Termination established. - ------ ---------------------------------- ----------------------------------------------------------------------------- 5 Purchasing an Initial Public 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty Offering (IPO), Hedge Fund or 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 Private Placement without days and/or Suspension / Termination receiving pre-clearance - ------ ---------------------------------- ----------------------------------------------------------------------------- 6 Trading which violates the 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty same-day/open order or 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 restricted list restriction days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 7 Trading within the 14 calendar 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty day blackout period 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 8 Profiting from short-term trading 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 days and/or Suspension / Termination - ------ ---------------------------------- ----------------------------------------------------------------------------- 9 Trading Mutual Funds in 1ST OFFENSE*: Written Warning, Written Reprimand and/or Monetary Penalty violation of the 60 day 2ND OR MORE OFFENSES*: Monetary Penalty, Freeze Trading accounts for 30-90 restriction days and/or Suspension / Termination - ------ ---------------------------------- -----------------------------------------------------------------------------
* Requires review by the Code of Ethics Oversight Committee. The following schedule details the monetary penalties that may be applied for each offense. Monetary penalties may include disgorgement of profits when applicable. o Non-Access and Access Persons $100-$1,000 o Administrative Investment Persons $100-$1,000 o Investment Persons $500-$2,500 o Senior Investment Persons $2,500-$5,000 o Managing Directors $2,500-$5,000 20 -----END PRIVACY-ENHANCED MESSAGE-----