0000950135-01-502826.txt : 20011008
0000950135-01-502826.hdr.sgml : 20011008
ACCESSION NUMBER: 0000950135-01-502826
CONFORMED SUBMISSION TYPE: DEFS14A
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011024
FILED AS OF DATE: 20010917
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: WANGER ADVISORS TRUST
CENTRAL INDEX KEY: 0000929521
STANDARD INDUSTRIAL CLASSIFICATION: []
IRS NUMBER: 362692100
STATE OF INCORPORATION: IL
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: DEFS14A
SEC ACT: 1934 Act
SEC FILE NUMBER: 811-08748
FILM NUMBER: 1738316
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
DEFS14A
1
b39929dsdefs14a.txt
WANGER ADVISORS TRUST
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
[X] Definitive Proxy Statement COMMISSION ONLY (ASPERMITTED
[ ] Definitive Additional Materials BY RULE 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Wanger Advisors Trust
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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WANGER ADVISORS TRUST
Dear Shareholder:
On October 24, 2001, we will be holding a special meeting of shareholders of the
Wanger Advisors Trust Family of Funds. The meeting will take place at 2:00 p.m.,
Central time, at the offices of the Trust, 227 West Monroe Street, Suite 3000,
Chicago, Illinois.
Liberty Financial Companies, Inc., the parent company of the Funds' investment
advisor, has entered into an agreement to sell its asset management business to
Fleet National Bank, part of FleetBoston Financial Corporation, a diversified
financial services company. The sale will terminate the Funds' current advisory
agreement but the proposed new advisory agreement is substantially the same as
that currently in place. NO CHANGES IN ADVISORY FEE RATES OR SERVICES ARE BEING
PROPOSED.
Your vote is very important. The Board of Trustees has approved the new
agreement and recommends that you vote "For" the proposal. Please complete, sign
and date the enclosed proxy card and return it in the enclosed postage-paid
return envelope. This will ensure that your vote is counted, even if you cannot
attend the meeting in person. It is important that you vote promptly.
As always, we thank you for investing with us. If you have questions, please
feel free to call 888-492-6437.
Sincerely,
/s/ RALPH WANGER
Ralph Wanger
President
September 17, 2001
G-60/589G-0601
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THIS PAGE IS INTENTIONALLY LEFT BLANK.
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IMPORTANT NEWS
FOR FUND SHAREHOLDERS
WHILE WE ENCOURAGE YOU TO READ THE FULL TEXT OF THE ENCLOSED PROXY STATEMENT,
HERE'S A BRIEF OVERVIEW OF MATTERS TO BE VOTED UPON.
QUESTIONS AND ANSWERS
Q. What am I being asked to vote "For" in this proxy?
A. You are being asked to vote for a proposal to approve a new investment
advisory agreement for your Fund with your Fund's current investment
advisor, on substantially identical terms as the current investment advisory
agreement. NO CHANGE IN ADVISORY FEE RATES OR SERVICES IS BEING PROPOSED.
Q. Why am I being asked to vote on a new agreement?
A. Liberty Financial Companies, Inc. (Liberty Financial), the parent company of
the investment advisor to the Funds listed in the Notice of Special Meeting
of Shareholders, has entered into an agreement to sell its asset management
business, including the Funds' investment advisor, to Fleet National Bank
(Fleet), an indirect wholly owned subsidiary of FleetBoston Financial
Corporation, a U.S. financial holding company. The sale will result in the
termination of the current investment advisory agreement for the Funds. The
sale will not be completed unless a number of conditions are met. One of the
conditions of the sale is that shareholders of a percentage of the Funds and
other accounts managed by Liberty Financial affiliates must approve new
advisory agreements. Your Board of Trustees has approved, and recommends
that you approve, the new investment advisory agreement for your Fund.
Q. What prompted the sale of Liberty Financial's asset management business to
Fleet?
A. On November 1, 2000, Liberty Financial announced that it had retained Credit
Suisse First Boston to help explore strategic alternatives, including the
possible sale of Liberty Financial. Liberty Financial ultimately determined
to sell its asset management business to Fleet.
Q. How will the sale of Liberty Financial's asset management business
potentially benefit me?
A. Your Board of Trustees believes that there may be benefits of scale from
combining the asset management businesses of Fleet and Liberty Financial,
including the ability to attract and retain key
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personnel, greater access to resources for investment professionals of the
advisor, enhanced technology and customer service, and the expected
availability of additional investment options for shareholders of the Funds.
Q. How does the proposed new agreement differ from the current agreement?
A. The proposed agreement is substantially identical to the current agreement.
It differs only in its beginning date and term and certain other minor
provisions. A comparison of the proposed new agreement is included in the
proxy statement under the heading "New Advisory Agreement."
Q. Will this change the advisory fees on my fund?
A. No. Advisory fees will remain the same.
Q. Will there be any advisor or Fund strategy changes?
A. No. Liberty Wanger Asset Management is expected to continue to manage the
Funds after the sale of Liberty Financial's asset management business, using
the same investment strategies and objectives currently in place.
Q. How does the Board of Trustees recommend that I vote on the proposal?
A. The Board of Trustees recommends that you vote "FOR" the proposal. The Board
believes that the proposal is in the best interests of your Fund and its
shareholders.
Q. How can I vote my proxy?
A. There are two ways you can vote:
- By Mail: vote, sign and return the enclosed proxy card
- In person: October 24, 2001, at 2:00 p.m., Central time, at the offices
of the Trust, 227 West Monroe Street, Suite 3000, Chicago, Illinois.
IT IS IMPORTANT THAT YOU VOTE PROMPTLY.
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WANGER ADVISORS TRUST
227 WEST MONROE STREET
SUITE 3000
CHICAGO, ILLINOIS 60606
WANGER U.S. SMALL CAP ADVISOR
WANGER INTERNATIONAL SMALL CAP ADVISOR
WANGER TWENTY
WANGER FOREIGN FORTY
(THE "FUNDS")
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 24, 2001
A Special Meeting of the shareholders of each Fund will be held on Wednesday,
October 24, 2001 at 2:00 p.m., Central time, at the offices of the Trust, 227
West Monroe Street, Suite 3000, Chicago, Illinois 60606 for these purposes:
1. To approve a new Investment Advisory Agreement for each of Wanger U.S. Small
Cap Advisor, Wanger International Small Cap Advisor, Wanger Twenty and Wanger
Foreign Forty;
2. To consider and act upon any other matters that properly come before the
meeting and any adjourned session of the meeting.
Shareholders of record at the close of business on August 23, 2001 are entitled
to notice of and to vote at the meeting and any adjourned session.
By order of the Board of Trustees,
Bruce H. Lauer
Secretary
September 17, 2001
PLEASE RESPOND. YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU
OWN. YOU CAN VOTE EASILY AND QUICKLY BY MAIL OR IN PERSON.
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PROXY STATEMENT
WANGER ADVISORS TRUST
227 WEST MONROE STREET
SUITE 3000
CHICAGO, ILLINOIS 60606
WANGER U.S. SMALL CAP ADVISOR
WANGER INTERNATIONAL SMALL CAP ADVISOR
WANGER TWENTY
WANGER FOREIGN FORTY
(THE "FUNDS")
The Trustees of Wanger Advisors Trust (the "Trustees") are soliciting proxies
from the shareholders of each of the Funds in connection with a Special Meeting
of Shareholders of each Fund (the "Meeting"). The Meeting has been called to be
held on Wednesday, October 24, 2001 at 2:00 p.m., Central time, at the offices
of the Trust, 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. The
meeting notice, this Proxy Statement and proxy cards are being sent to
shareholders beginning on or about September 17, 2001.
The only item of business that the Trustees expect will come before the Meeting
is approval of a new Investment Advisory Agreement for each Fund (the "New
Advisory Agreement") with Liberty Wanger Asset Management, L.P. (the "Advisor").
PROPOSAL 1
NEW ADVISORY AGREEMENT
As explained below, the proposed New Advisory Agreement for each Fund is
substantially identical (except for its term and date and certain other
non-material changes) to the Investment Advisory Agreement currently in effect
for that Fund (the "Current Advisory Agreement").
The reason the Trustees are proposing a New Advisory Agreement for each Fund is
that the Current Advisory Agreement will terminate when the Advisor's parent
company, Liberty Financial Companies, Inc. ("LFC"), sells each of the advisors
and its other subsidiaries that operate its asset management business (the
"Asset Management Segment") to Fleet National Bank, a national banking
association, or a wholly owned subsidiary thereof ("Fleet"). As a result of this
acquisition, the advisors will become direct or indirect, wholly owned
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subsidiaries of Fleet. The Investment Company Act of 1940, as amended (the
"Investment Company Act"), provides generally that the advisory agreement of an
investment company must provide for automatic termination if assigned, such as
when the investment advisor or its parent company undergoes a significant change
of ownership.
In addition, LFC has agreed to sell, in a separate transaction, all of the
issued and outstanding capital stock of the subsidiaries constituting the
annuity segment of LFC's business to Sun Life Assurance Company of Canada, a
Canadian corporation (the "Annuity Sale"). The sale of the Asset Management
Segment to Fleet and the Annuity Sale are not conditioned on each other. LFC has
entered into a Merger Agreement with Liberty Mutual Insurance Company (the
majority stockholder of LFC), which provides that, following the acquisition of
the Asset Management Segment by Fleet and the Annuity Sale, LFC will merge with
and into LFC Acquisition Corporation, a wholly owned subsidiary of Liberty
Mutual Insurance Company, with LFC being the surviving corporation (the
"Merger"). In connection with the Merger, holders of LFC common stock, other
than LFC, Liberty Mutual and their respective direct and indirect subsidiaries
and other than those holders of LFC common stock who validly perfect and
exercise their appraisal rights under Massachusetts law, will be entitled to
receive an amount of cash equal to $33.44, subject to adjustment, per share of
common stock. Once such merger consideration is paid, such shares will be
cancelled.
The Trustees have carefully considered the matter and have concluded that it is
appropriate to enter into the New Advisory Agreement for each Fund, so that the
Advisor can continue, following the acquisition of the Asset Management Segment
by Fleet, to manage each Fund on the same terms as are now in effect. The
Trustees also have approved an interim advisory agreement for each Fund pursuant
to Rule 15a-4 under the Investment Company Act, which will be entered into
immediately following the closing of the acquisition of the Asset Management
Segment by Fleet if (i) the Meeting is not held until after the closing of the
acquisition of the Asset Management Segment by Fleet or (ii) the Fund does not
receive the requisite shareholder vote for the New Advisory Agreement at the
Meeting. See "Basis for the Trustees' Recommendations" below for further
information on the interim agreement.
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The acquisition of the Asset Management Segment by Fleet will occur only if
various conditions are satisfied (or waived by the parties, if permitted by
law). Those conditions include, among others, the receipt of certain government
approvals, approval or consent from investment advisory clients of the Advisor
and other LFC affiliates (including mutual fund clients) which represent a
specified percentage of LFC's total assets under management as of March 31,
2001, the avoidance of a certain level of net redemptions from portfolios
managed by the Advisor and certain of its affiliates that make up the Asset
Management Segment and approval of the acquisition by the requisite vote of the
shareholders of LFC. LFC currently expects that the acquisition will occur
during the latter part of 2001, but the acquisition could be delayed. If the
acquisition does not occur, the New Advisory Agreement would not be needed
because the automatic termination of the Current Advisory Agreement would not
occur.
Under the Investment Company Act, a Fund cannot enter into a New Advisory
Agreement unless the shareholders of that Fund vote to approve the New Advisory
Agreement. The Meeting is being held to seek shareholder approval of the New
Advisory Agreement for each Fund. NO CHANGE IN ADVISORY FEE RATES OR SERVICES IS
BEING PROPOSED.
Shareholders of each Fund will vote separately on the New Advisory Agreement for
that Fund. Each share is entitled to cast one vote, and fractional shares are
entitled to a proportionate fractional vote. Other than shares held in the
Advisor's profit sharing plan, all shares were owned of record by sub-accounts
of separate accounts ("Separate Accounts") of life insurance companies (the
"Participating Insurance Companies") established to fund benefits under variable
annuity contracts and variable life insurance policies issued by the
Participating Insurance Companies. As of the date of this Proxy Statement, the
Participating Insurance Companies are Keyport Life Insurance Company (Keyport),
Keyport Benefit Life Insurance Company (a wholly owned subsidiary of Keyport),
American Express, Aegon Financial Advisors, People's Benefit Life Insurance
Company, Phoenix Home Life Mutual Insurance Company (and its affiliates) and
Safeco. As of the date of this Proxy Statement, Keyport and Keyport Benefit Life
Insurance Company are affiliated with the Advisor.
The Participating Insurance Companies are mailing copies of this proxy material
to the holders of those contracts and policies who, by completing and signing
the accompanying proxy cards, will instruct the
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Separate Accounts how they wish the shares of the Funds to be voted. The
Separate Accounts will vote shares of the Funds as instructed on the proxy cards
by their contract or policy holders. If no instructions are specified on a proxy
returned by a contract or policy holder, the Separate Accounts will vote the
shares of the Fund represented thereby in favor of the New Advisory Agreement.
The Separate Accounts intend to vote shares for which no proxies are returned in
the same proportion as the shares for which proxies are returned.
THE TRUSTEES RECOMMEND THAT THE SHAREHOLDERS OF EACH FUND VOTE TO APPROVE THE
NEW ADVISORY AGREEMENT FOR THEIR FUND.
DESCRIPTION OF THE NEW ADVISORY AGREEMENT
The New Advisory Agreement for each Fund is substantially identical (but for a
few non-material changes) to the Current Advisory Agreement for that Fund. The
date of the New Advisory Agreement for any Fund will be the date that Fleet
acquires the Asset Management Segment, or such later date on which shareholders
of the Fund approve the New Advisory Agreement, and the initial term of the New
Advisory Agreement expires on July 31, 2003. Appendix A to this Proxy Statement
sets forth information about the Current Advisory Agreement, including the date
of the Current Advisory Agreement and the advisory fee rates under both the New
Advisory Agreement and the Current Advisory Agreement. Appendix B to this Proxy
Statement contains the form of the New Advisory Agreement applicable to each
Fund. The next several paragraphs briefly summarize some important provisions of
the New Advisory Agreement, but for a complete understanding of the Agreement,
you should read Appendices A and B.
The New Advisory Agreement for each Fund essentially provides that the Advisor,
under the Trustees' supervision, will (1) decide what securities to buy and sell
for the Fund's portfolio; (2) select brokers and dealers to carry out portfolio
transactions for the Fund and (3) provide officers, office space and certain
administrative services to the Fund.
The New Advisory Agreement for each Fund provides that it will continue in
effect for an initial period beginning on the date Fleet acquires the Asset
Management Segment, or such later date on which the shareholders of the Fund
approve the New Advisory Agreement, and ending on July 31, 2003. After that, it
will continue in effect from year
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to year as long as the continuation is approved at least annually (i) by the
Trustees or by vote of a majority of the outstanding voting securities of the
Fund and (ii) by vote of a majority of the Trustees who are not "interested
persons," as that term is defined in the Investment Company Act, of the Trust or
the Advisor (those Trustees who are not "interested persons" of the Trust or the
Advisor are referred to below as the "Independent Trustees").
The New Advisory Agreement for each Fund may be terminated without penalty by
vote of the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, on sixty days' written notice to the Advisor, or by the
Advisor upon sixty days' written notice to the Trust, and each terminates
automatically in the event of its "assignment" as defined in the Investment
Company Act. The Investment Company Act defines "assignment" to include, in
general, transactions in which a significant change in the ownership of an
investment advisor or its parent company occurs (such as the acquisition of the
Asset Management Segment by Fleet).
The New Advisory Agreement for each Fund provides that the Advisor will not be
liable to the Fund or its shareholders, except for liability arising from the
Advisor's willful misfeasance, bad faith, gross negligence or reckless disregard
of duty.
Liberty Funds Services, Inc. ("LFSI"), One Financial Center, Boston,
Massachusetts 02111, is the transfer and shareholder servicing agent for the
Funds. The aggregate transfer agency fees paid by each Fund to LFSI for the most
recently completed fiscal year are set forth in Appendix E. The transfer agency
arrangements for each Fund will remain in effect if the proposed New Advisory
Agreement is approved.
BASIS FOR THE TRUSTEES' RECOMMENDATIONS
At a meeting of the Board held on July 10, 2001, representatives of LFC made a
presentation regarding the terms of the proposed acquisition and representatives
of Fleet made a presentation regarding Fleet's structure and asset management
business and their plans as they existed at that time for the Asset Management
Segment. In addition, the representatives of Fleet responded to the list of
discussion items furnished to them in advance of the meeting. The Trustees asked
numerous questions relating to the autonomy of Wanger Advisors Trust and the
Advisor, Fleet's process to transition the Asset Management Segment, including
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the Advisor, into its business operations, Fleet's commitment to the asset
management business and Fleet's presence in the annuity business. At that
meeting, the Trustees met in executive session and determined to request that
Fleet enter into a side agreement with Wanger Advisors Trust setting forth
certain of the items discussed at the meeting. The Trustees authorized their
counsel to prepare a memorandum to Fleet setting forth the principal terms of
the proposed agreement. The Trustees also discussed the various alternatives
available if they should determine not to approve the New Advisory Agreement. At
a meeting of the Independent Trustees held on July 16, 2001, the Independent
Trustees reviewed the draft memorandum and requested that their counsel
incorporate into the memorandum suggestions made at the meeting, and forward the
memorandum to representatives of Fleet.
At a meeting of the Independent Trustees held on July 26, 2001, the Independent
Trustees reviewed Fleet's response to their memorandum and reviewed a draft
response thereto prepared by Fred Hasselbring, an Independent Trustee. After
discussion, the Independent Trustees requested that their counsel incorporate
into the draft response to Fleet suggestions made at the meeting, and forward
the response to representatives of Fleet. The Independent Trustees also
discussed portfolio manager retention.
At a meeting held on July 31, 2001, the Independent Trustees met in executive
session to discuss Fleet's proposed agreement responding to the Trustees'
memorandum. Thereafter, the Trustees met with representatives of Fleet and a
representative of LFC, all of whom answered various questions posed by the
Trustees, particularly relating to the status of negotiations concerning the
retention of key employees of the Advisor. The Trustees and Fleet finalized the
terms of the agreement (the "Fleet Agreement") by which Fleet agreed that during
the initial term of the New Advisory Agreement, except as otherwise authorized
by the Trustees, it will:
- preserve the autonomy of Wanger Advisors Trust;
- preserve the independence of the Advisor, including its investment philosophy
and approach to investment operations, research and talent;
- allow the Advisor considerable latitude to recruit and compensate (on
competitive terms) investment management personnel;
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- not interfere with the Advisor's relationships with regional brokers unless
regulatory or compliance concerns dictate and will permit the Advisor to
continue to allocate the commissions and soft dollar payments as it has in the
past; and
- maintain the trading desk at the Advisor for domestic and international
trading activities.
The Trustees requested that Fleet and the Advisor continue to negotiate the
terms of the retention arrangements with key employees of the Advisor, and
agreed to meet on August 15, 2001 to consider approval of the New Advisory
Agreement.
At a meeting of the Board held on August 15, 2001, the representatives of Fleet
and the Advisor updated the Board on the status of the negotiations between
Fleet and key employees of the Advisor. After further discussion and
consideration, the Trustees approved the New Advisory Agreement and determined
to recommend that each Fund's shareholders vote to approve the New Advisory
Agreement for their Fund. The Trustees subsequently gave further consideration
to the proposed acquisition and reaffirmed their recommendation that
shareholders vote to approve the New Advisory Agreement.
In coming to that determination, the Trustees gave particular consideration to
matters relating to the possible effects on the Advisor and the Funds of the
acquisition of the Asset Management Segment by Fleet. Among other things, the
Trustees considered:
- the terms of the Fleet Agreement as described above;
- certain actions taken by LFC and the Advisor to help retain and incent their
key personnel;
- the general reputation, financial resources and business activities of Fleet
and its parent organization;
- the potential benefits of scale from combining the asset management businesses
of Fleet and LFC, including the ability to attract and retain key personnel
and enhance technology and customer service; and
- the stated intention of Fleet to provide investment professionals of the
Advisor with access to greater resources as a result of the acquisition.
In addition, the Trustees considered a wide range of information of the type
they regularly consider when determining whether to continue a
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Fund's advisory agreement as in effect from year to year. The Trustees
considered information about, among other things:
- the Advisor and its respective personnel (including particularly those
personnel with responsibilities for providing services to the Funds),
resources and investment process;
- the terms of the New Advisory Agreement;
- the scope and quality of the services that the Advisor has been providing to
the Funds;
- the investment performance of each Fund and of similar funds managed by other
advisors;
- the advisory fee rates payable to the Advisor by the Funds and by other funds
and client accounts managed by the Advisor, and payable by similar funds
managed by other advisors (Appendix C to this Proxy Statement contains
information comparing each Fund's advisory fee schedule to the fee schedule
for other funds managed by the Advisor that have investment objectives similar
to the particular Fund);
- the total expense ratios of the Funds and of similar funds managed by other
advisors; and
- compensation payable by the Funds to affiliates of the Advisor for other
services (see Appendix E to this Proxy Statement for more information about
that compensation).
In addition, the Trustees considered that the agreement relating to the
acquisition by Fleet provides that Fleet will (subject to certain
qualifications) use all reasonable efforts to assure compliance with Section
15(f) of the Investment Company Act. Section 15(f) provides that a mutual fund
investment advisor or its affiliates may receive benefits or compensation in
connection with a change of control of the investment advisor (such as Fleet's
acquisition of the Asset Management Segment) if two conditions are satisfied.
First, for three years after the change of control, at least 75% of the members
of the board of any registered investment company advised by the advisor must
consist of persons who are not "interested persons," as defined in the
Investment Company Act, of the advisor. (No changes in the current composition
of the Trustees are required to satisfy that condition.) Second, no "unfair
burden" may be imposed on any such registered investment company as a result of
the change of control transaction or any express or implied
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terms, conditions or understandings applicable to the transaction. "Unfair
burden" means any arrangement, during the two years after the transaction, by
which the investment advisor or any "interested person" of the advisor receives
or is entitled to receive any compensation, directly or indirectly, from such
investment company or its security holders (other than fees for bona fide
investment advisory or other services) or from any other person in connection
with the purchase or sale of securities or other property to, from or on behalf
of such investment company.
After carefully considering the information described above, the Trustees,
including the Independent Trustees, unanimously voted to approve the New
Advisory Agreement for each Fund and to recommend that each Fund's shareholders
vote to approve the New Advisory Agreement for their Fund.
In the event that the shareholders have not approved the New Advisory Agreement
at the time of the acquisition of the Asset Management Segment by Fleet, the
Advisor will enter into an interim advisory agreement pursuant to Rule 15a-4
under the Investment Company Act, which will take effect immediately following
the acquisition of the Asset Management Segment by Fleet (at which time the
Current Advisory Agreement will terminate due to an assignment). This interim
advisory agreement will be in substantially the form set forth in Appendix B but
also will include certain provisions required by Rule 15a-4 (such as a maximum
term of 150 days, a provision that the Board of Trustees of Wanger Advisors
Trust or a majority of the Fund's shareholders may terminate the agreement at
any time without penalty on not more than 10 days' written notice, and a
provision that the compensation earned by the Advisor thereunder will be held in
an interest-bearing escrow account until shareholder approval of the New
Advisory Agreement is obtained, after which the amount in the escrow account
(together with any interest) will be paid to the Advisor). If a Fund has not
received the requisite shareholder approval for the New Advisory Agreement
within 150 days after the closing of the acquisition, the Trustees will consider
other appropriate arrangements subject to approval in accordance with the
Investment Company Act.
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INFORMATION ABOUT THE ADVISOR AND THE FLEET/LFC TRANSACTION
LIBERTY WANGER ASSET MANAGEMENT, L.P.
Liberty Wanger Asset Management, L.P. (formerly named Wanger Asset Management,
L.P. ("WAM")), located at 227 West Monroe Street, Suite 3000, Chicago, Illinois
60606, is the Funds' advisor. WAM was renamed Liberty Wanger Asset Management,
L.P. on September 29, 2000, when it became a wholly owned subsidiary of LFC (the
"WAM Merger"). The Advisor and its predecessor have managed mutual funds since
1992. On September 29, 2000, the former investment advisory agreement for each
Fund with WAM terminated and the Current Advisory Agreement became effective. As
of July 31, 2001, the Advisor managed over $8.9 billion in assets.
LFC is a direct majority-owned subsidiary of LFC Management Corporation, which
in turn is a direct wholly owned subsidiary of Liberty Corporate Holdings, Inc.,
which in turn is a direct wholly owned subsidiary of LFC Holdings, Inc., which
in turn is a direct wholly owned subsidiary of Liberty Mutual Equity
Corporation, which in turn is a direct wholly owned subsidiary of Liberty Mutual
Insurance Company ("Liberty Mutual"). As of June 30, 2001, LFC Management
Corporation owned approximately 70.46% of the common stock of LFC and the
balance is held by the public and listed on the New York Stock Exchange. LFC is
a diversified and integrated asset management organization which provides
insurance and investment products to individuals and institutions. The principal
executive office of LFC is located at 600 Atlantic Avenue, 24th Floor, Boston,
Massachusetts 02210. Liberty Mutual is an underwriter of workers' compensation
insurance and a property and casualty insurer in the United States, organized
under the laws of Massachusetts in 1912. The principal business activities of
Liberty Mutual's subsidiaries other than LFC are property-casualty insurance,
insurance services and life insurance (including group life and health insurance
products) marketed through its own sales force. The principal executive offices
of LFC Management Corporation, Liberty Corporate Holdings, Inc., LFC Holdings,
Inc., Liberty Mutual and Liberty Mutual Equity Corporation are located at 175
Berkeley Street, Boston, Massachusetts 02117.
The Advisor is a limited partnership managed by its general partner, WAM
Acquisition GP, Inc. ("WAM GP"). WAM GP is a wholly owned subsidiary of LFC. The
directors of WAM GP are Ralph
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Wanger, Lindsay Cook and J. Andrew Hilbert. Mr. Wanger is the president of WAM
GP. Mr. Cook is an Executive Vice President of LFC. Mr. Hilbert is a Senior Vice
President and the Chief Financial Officer of LFC. The business address of WAM GP
and of Mr. Wanger is 227 West Monroe Street, Suite 3000, Chicago, Illinois
60606. The business address of Messrs. Cook and Hilbert is 600 Atlantic Avenue,
Federal Reserve Plaza, Boston, Massachusetts 02210.
In addition, the following individuals who are officers or Trustees of the Funds
are also officers or directors of the Advisor: Bruce H. Lauer, Kenneth A. Kalina
and Ralph Wanger.
DESCRIPTION OF THE TRANSACTION
On June 4, 2001, LFC announced that it had entered into a Stock Purchase
Agreement with Fleet (the "Purchase Agreement"). Under the Purchase Agreement,
Fleet would acquire the Asset Management Segment for a purchase price of $900
million, plus the assumption of approximately $110 million in debt. This price
may be adjusted:
- upward or downward based on increases or decreases in the amount of portfolios
managed by the subsidiaries that make up the Asset Management Segment
(excluding the effects of market action) from December 31, 2000 until a date
prior to the closing as the result of purchases of and exchanges into and
withdrawals from and exchanges out of those portfolios. The maximum purchase
price adjustment under this provision would be $180 million;
- upward or downward based on increases or decreases in the tangible net worth
of the Asset Management Segment from April 1, 2001 through a date prior to the
closing;
- downward based on decreases of more than 20% (excluding the effects of sales
and redemptions) in the market values of the assets under management of the
Asset Management Segment between March 31, 2001 and a date prior to the
closing; and
- upward or downward based on the estimated value of amounts owing to or by LFC
at the time of closing in respect of taxes with respect to the income of the
Asset Management Segment and the settlement of certain inter-company accounts,
agreements and arrangements between LFC and the subsidiaries that make up the
Asset Management Segment.
11
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The transaction will not occur unless various conditions are satisfied (or
waived by the parties, if permitted by law). One of these conditions is
obtaining approval or consent from investment advisory clients of the Advisor
and other LFC affiliates that constitute the Asset Management Segment (including
fund clients) whose accounts represented 80% of the Asset Management Segment's
assets under management as of March 31, 2001. Because of these conditions,
approval or disapproval by a Fund's shareholders of the New Advisory Agreement
for their Fund, taken together with other clients' consents or approvals, could
affect whether or not the transaction occurs. As described below, certain
Trustees and officers of Wanger Advisors Trust will receive certain material
payments or benefits if the transaction occurs. The transaction will result in
the automatic termination of the Current Advisory Agreement. If for some reason
the transaction does not occur, the automatic termination of the Current
Advisory Agreement will not occur, and the New Advisory Agreement will not be
entered into, even if it has been approved by the Funds' shareholders. If
shareholder approval is not obtained at the time the transaction occurs, a Fund
will enter into an interim advisory agreement with the Advisor. See "Basis for
the Trustees' Recommendations" above for further information on the interim
agreement.
Simultaneously with the signing of the Purchase Agreement, at Fleet's request,
Liberty Mutual and LFC entered into a license agreement with Fleet which
provides that upon the closing of the acquisition of the Asset Management
Segment, Fleet will have a perpetual, royalty free, non-transferable,
non-sublicensable, non-exclusive license to use the Liberty mark and trade name,
the Statue of Liberty design and other associated marks and trade names used in
connection with the Asset Management Segment's business. The license agreement
also contains other covenants and provisions more fully set forth in the Fleet
license agreement. Neither Liberty Mutual nor LFC will receive compensation or
other consideration under the Fleet license agreement.
As a result of the acquisition, the Advisor and certain of its affiliates that
constitute the Asset Management Segment would become wholly owned, direct or
indirect subsidiaries of Fleet. Fleet is a wholly owned subsidiary of
FleetBoston Financial Corporation, a Boston, Massachusetts-based financial
holding company. Fleet and its affiliates offer a comprehensive
12
20
array of financial solutions to approximately 20 million customers in more than
20 countries. Their key lines of business include:
- CONSUMER AND INVESTMENT SERVICES -- includes domestic retail banking to
consumer and small business customers, community banking, student loan
processing, credit card services, and investment services, including mutual
funds and investments, retirement planning, large institutional asset
management and brokerage;
- CORPORATE AND GLOBAL BANKING -- includes commercial finance, including
asset-based lending and leasing; international banking in key Latin American
markets; corporate banking, including specialized industry and institutional
lending; and middle market lending, including commercial lending, government
banking services, trade services and cash management; and
- CAPITAL MARKETS -- includes investment banking services, brokerage,
market-making and principal investing.
CERTAIN INTERESTS OF FUND TRUSTEES AND OFFICERS. Substantially all full-time
employees of LFC and its subsidiaries (including certain officers of Wanger
Advisors Trust) participate in the Liberty Financial Companies, Inc. and
Subsidiaries Non-Commissioned Employee Severance and Retention Plan or the
Liberty Financial Companies, Inc. and Subsidiaries Commissioned Employees
Severance and Retention Plan (the "Retention Plans"). The Retention Plans
provide for cash retention bonuses and the full vesting upon a change of control
of all outstanding options to purchase shares of stock of LFC ("LFC Options")
and shares of restricted stock of LFC ("Restricted Stock") for which the target
price in the applicable restricted stock agreement is less than the value of LFC
common stock on the date of the change of control, even though some of these LFC
Options and Restricted Stock would not otherwise have vested or become fully
exercisable prior to the change of control. The Retention Plans also provide for
enhanced severance benefits to substantially all employees upon a change of
control and additional payments to cover excise tax obligations. With respect to
employees of the subsidiaries that constitute the Asset Management Segment, a
change of control will be deemed to occur under the Retention Plans upon the
completion of the Fleet transaction.
Pursuant to the WAM Merger, in addition to the fixed amount of the purchase
price paid by LFC to the principals of WAM (including Ralph Wanger, a member of
the Board of Trustees of Wanger Advisors Trust),
13
21
additional purchase price amounts would have been payable by LFC if the
Advisor's earnings met certain targets for the 36 and 60 month periods beginning
with the month following the closing of the WAM Merger. If Fleet acquires the
Asset Management Segment, those targets and the related payments will be
reduced. In addition, Fleet has offered to amend the existing bonus compensation
plan for certain employees of the Advisor, including Mr. Wanger and the other
portfolio managers of the Funds. The amended plan would provide for
discretionary bonus compensation based on market comparable compensation and
investment performance, and would no longer tie bonus compensation to the annual
earnings of the Advisor.
CERTAIN BROKERAGE MATTERS
In their consideration of the New Advisory Agreement, the Trustees took account
of the Advisor's practices regarding the selection and compensation of brokers
and dealers that execute portfolio transactions for the Funds, and the brokers'
and dealers' provision of brokerage and research services to the Advisor. The
Advisor has informed the Trustees that it does not expect to change these
practices as a result of Fleet's acquisition of the Asset Management Segment. A
summary of these brokerage and soft-dollar practices is set forth in Appendix D.
OTHER INFORMATION
PRINCIPAL UNDERWRITER'S ADDRESS. The address of the Funds' principal
underwriter, Liberty Funds Distributor, Inc., is One Financial Center, Boston,
Massachusetts 02111.
FUND ANNUAL AND SEMIANNUAL REPORTS. THE FUNDS HAVE PREVIOUSLY SENT THEIR ANNUAL
REPORT AND ANY SUBSEQUENT SEMIANNUAL REPORTS TO THEIR SHAREHOLDERS. YOU CAN
OBTAIN A COPY OF THESE REPORTS WITHOUT CHARGE BY WRITING TO LIBERTY FUNDS
DISTRIBUTOR, INC., ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621 OR BY
CALLING 800-426-3750 OR BY CALLING OR WRITING THE PARTICIPATING INSURANCE
COMPANY THAT ISSUED YOUR VARIABLE ANNUITY CONTRACT OR VARIABLE LIFE INSURANCE
POLICY.
OUTSTANDING SHARES AND SIGNIFICANT SHAREHOLDERS. Shareholders of record at the
close of business on August 23, 2001 are entitled to notice of and to vote at
the Meeting and any adjourned session. Appendix F to this Proxy Statement lists
for each Fund the total number of shares outstanding as of August 23, 2001 for
each Fund entitled to vote at the
14
22
Meeting. It also identifies holders of more than 5% of each Fund and contains
information about the shareholdings in the Funds by the Trustees and the
executive officers of the Funds. Other than shares held in the Advisor's profit
sharing plan, all shares were owned of record by sub-accounts of Separate
Accounts of Participating Insurance Companies established to fund benefits under
variable annuity contracts and variable life insurance policies issued by the
Participating Insurance Companies. As of the date of this Proxy Statement, the
Participating Insurance Companies are Keyport, Keyport Benefit Life Insurance
Company, American Express, Aegon Financial Advisors, People's Benefit Life
Insurance Company, Phoenix Home Life Mutual Insurance Company (and its
affiliates) and Safeco. As of the date of this Proxy Statement, Keyport and
Keyport Benefit Life Insurance Company are affiliated with the Advisor.
INFORMATION ABOUT PROXIES AND THE CONDUCT OF THE MEETING
SOLICITATION OF PROXIES. Proxies will be solicited primarily by mailing this
Proxy Statement and its enclosures, but proxies may also be solicited through
further mailings, telephone calls, personal interviews or e-mail by officers of
the Funds or by employees or agents of the Advisor or of LFC and its affiliated
companies.
COSTS OF SOLICITATION. All of the costs of the Meeting will be paid by LFC or
Fleet. None of these costs will be borne by the Funds or their shareholders.
VOTING AND TABULATION OF PROXIES. Shares represented by duly executed proxies
will be voted as instructed on the proxy. The Participating Insurance Companies
are mailing copies of this proxy material to the holders of these contracts and
policies who, by completing and signing the accompanying proxy cards, will
instruct the Separate Accounts how they wish the shares of the Funds to be
voted. The Separate Accounts will vote shares of the Funds as instructed on the
proxy cards by their contract or policy holders. If no instructions are
specified on a proxy returned by a contract or policy holder, the Separate
Accounts will vote the shares of the Fund represented thereby in favor of the
New Advisory Agreement. The Separate Accounts intend to vote shares for which no
proxies are returned in the same proportion as the shares for which proxies are
received. You may vote by any one of the two following methods: (1) by mailing
the enclosed proxy card or (2) in person at the meeting. If you mail the
enclosed proxy and no choice is indicated for a
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23
proposal listed in the attached Notice of Meeting, your proxy will be voted in
favor of that proposal. At any time before it has been voted, your proxy may be
revoked in one of the following ways: (i) by sending a signed, written letter of
revocation to the Secretary of the Trust; (ii) by properly executing a
later-dated proxy and mailing the proxy or (iii) by attending the Meeting,
requesting return of any previously delivered proxy and voting in person.
Votes cast in person or by proxy at the Meeting will be counted by persons
appointed by the Funds as tellers for the Meeting (the "Tellers"). Thirty
percent of the shares of any Fund outstanding on the record date, present in
person or represented by proxy, constitutes a quorum for the transaction of
business by the shareholders of that Fund at the Meeting. In determining whether
a quorum is present, the Tellers will count shares represented by proxies that
reflect abstentions and "broker non-votes" as shares that are present and
entitled to vote. Since these shares will be counted as present, but not as
voting in-favor of any proposal, these shares will have the same effect as if
they cast votes against the proposal. "Broker non-votes" are shares held by
brokers or nominees as to which (i) the broker or nominee does not have
discretionary voting power and (ii) the broker or nominee has not received
instructions from the beneficial owner or other person who is entitled to
instruct how the shares will be voted.
REQUIRED VOTE. For each Fund, the vote required to approve the New Advisory
Agreement is the lesser of (1) 67% of the shares of that Fund that are present
at the Meeting, if the holders of more than 50% of the shares of the Fund
outstanding as of the record date are present or represented by proxy at the
Meeting, or (2) more than 50% of the shares of the Fund outstanding on the
record date. If the required vote is not obtained for any Fund, the Trustees
will consider what other actions to take in the best interests of the Fund.
ADJOURNMENTS; OTHER BUSINESS. If any Fund has not received enough votes by the
time of the Meeting to approve that Fund's New Advisory Agreement, the persons
named as proxies may propose that the Meeting be adjourned one or more times as
to that Fund to permit further solicitation of proxies. Any adjournment requires
the affirmative vote of a majority of the total number of shares of that Fund
that are present in person or by proxy when the adjournment is being voted on.
The persons named as proxies will vote in favor of any such adjournment all
proxies that they are entitled to vote in favor of the relevant Fund's New
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24
Advisory Agreement. They will vote against any such adjournment any proxy that
directs them to vote against the New Advisory Agreement. They will not vote any
proxy that directs them to abstain from voting on the New Advisory Agreement.
The Meeting has been called to transact any business that properly comes before
it. The only business that management of the Funds intends to present or knows
that others will present is the approval of the New Advisory Agreement. If any
other matters properly come before the Meeting, and on all matters incidental to
the conduct of the Meeting, the persons named as proxies intend to vote the
proxies in accordance with their judgment, unless the Secretary of the Funds has
previously received written contrary instructions from the shareholder entitled
to vote the shares.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS. The Funds do not hold annual or other
regular meetings of shareholders. Shareholder proposals to be presented at any
future meeting of shareholders of the Funds must be received by the applicable
Fund in writing a reasonable time before the Trust begins to print and mail
proxies for that meeting, in order to be considered for inclusion in the proxy
materials for that meeting. You may submit shareholder proposals to the
Secretary of the Funds, 227 West Monroe Street, Suite 3000, Chicago, Illinois
60606.
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APPENDIX A
ADVISORY AGREEMENT
----------------------------------------------------------------------------------------
DESCRIPTION OF
TRUSTEE ACTION DATE OF LAST
REGARDING CURRENT SUBMISSION OF CURRENT
ADVISORY FEE DATE OF INVESTMENT ADVISORY INVESTMENT ADVISORY
RATE SCHEDULE CURRENT AGREEMENT SINCE AGREEMENT FOR
(AS A % OF INVESTMENT BEGINNING SHAREHOLDER APPROVAL
AVERAGE DAILY ADVISORY OF FUND'S LAST AND REASON FOR
NAME OF FUND NET ASSETS) AGREEMENT FISCAL YEAR SUBMISSION
----------------------------------------------------------------------------------------
Wanger U.S. 1.00% on September On July 6, 2000, On September 27, 2000,
Small Cap first $100 29, 2000 the Trustees shareholders approved
million; approved the the current investment
0.95% on next current investment advisory agreement in
$150 million; advisory agreement connection with LFC's
0.90% over in connection with acquisition of the
$250 million LFC's acquisition Advisor.
of the Advisor.
----------------------------------------------------------------------------------------
Wanger 1.30% on September On July 6, 2000, On September 27, 2000,
International first $100 29, 2000 the Trustees shareholders approved
Small Cap million; approved the the current investment
1.20% on next current investment advisory agreement in
$150 million; advisory agreement connection with LFC's
1.10% over in connection with acquisition of the
$250 million LFC's acquisition Advisor.
of the Advisor.
----------------------------------------------------------------------------------------
Wanger 0.95%(1) September On July 6, 2000, On September 27, 2000,
Twenty 29, 2000 the Trustees shareholders approved
approved the the current investment
current investment advisory agreement in
advisory agreement connection with LFC's
in connection with acquisition of the
LFC's acquisition Advisor.
of the Advisor.
----------------------------------------------------------------------------------------
Wanger 1.00%(2) September On July 6, 2000, On September 27, 2000,
Foreign 29, 2000 the Trustees shareholders approved
Forty approved the the current investment
current investment advisory agreement in
advisory agreement connection with LFC's
in connection with acquisition of the
LFC's acquisition Advisor.
of the Advisor.
----------------------------------------------------------------------------------------
(1) The Advisor has undertaken to limit Wanger Twenty's annual expenses
(excluding taxes, interest, extraordinary litigation expenses and
incremental foreign custody costs) to 1.35% of its average net assets. This
expense limitation is contractual and will terminate on September 30, 2002.
(2) The Advisor has undertaken to limit Wanger Foreign Forty's annual expenses
(excluding taxes, interest, extraordinary litigation expenses and
incremental foreign custody costs) to 1.45% of its average net assets. This
expense limitation is contractual and will terminate on September 30, 2002.
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26
APPENDIX B
FORM OF INVESTMENT ADVISORY AGREEMENT
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 LIBERTY WANGER ASSET MANAGEMENT, L.P., a
Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser ("Liberty WAM"), agree that:
1. ENGAGEMENT OF LIBERTY WAM. Liberty WAM shall manage the investment and
reinvestment of the assets of Wanger U.S. Small Cap Advisor, Wanger
International Small Cap Advisor, Wanger Twenty and Wanger Foreign Forty, series
of the Trust (each, a "Fund," and collectively, the "Funds"), subject to the
supervision of the Board of Trustees of the Trust, for the period and on the
terms set forth in this agreement. If the Trust establishes one or more series
in addition to the Funds named above with respect to which it desires to retain
Liberty WAM as investment adviser hereunder, and if Liberty WAM is willing to
provide such services under this agreement, the Trust and Liberty 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 Liberty 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 Liberty WAM may
agree. Upon execution of such a supplement by the Trust and Liberty 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.
Liberty 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. Liberty 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
B-1
27
expressly provided or authorized, shall have no authority to act or represent
the Trust or the Funds in any way.
Liberty 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. Liberty 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.
Liberty 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 Liberty WAM (as well as clients of
other investment advisers affiliated with Liberty WAM, in the event that Liberty
WAM and such affiliated investment advisers share common trading facilities). In
such event, Liberty WAM (or Liberty 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.
2. ADMINISTRATIVE SERVICES. Liberty 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 Liberty 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 Liberty WAM, any affiliate of Liberty WAM, or
any third party administrator.
3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In connection with the
services to be provided by Liberty WAM under this agreement, Liberty WAM may, to
the extent it deems appropriate, and subject to compliance with the requirements
of applicable laws and regulations and
B-2
28
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 Liberty WAM, provided that Liberty 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 Liberty WAM or such parties.
4. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3 under
the 1940 Act, Liberty 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 Liberty WAM may at
its own expense make and retain copies of any such records. Liberty 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 LIBERTY WAM. Liberty WAM shall furnish to the Trust,
at Liberty 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. Liberty 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;
B-3
29
(c) all compensation of trustees other than those affiliated with Liberty 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;
(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.
B-4
30
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 Liberty WAM determines is fair and appropriate, or as otherwise
specified by the Board of Trustees of the Trust.
7. COMPENSATION OF LIBERTY WAM. For the services to be rendered and the
expenses to be assumed and to be paid by Liberty WAM under this agreement, the
Trust on behalf of the respective Funds shall pay to Liberty 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. SMALL CAP
ASSETS RATE OF FEE
------ -----------
First $100 million...................... 1.00%
$100 million to $250 million............ 0.95%
In excess of $250 million............... 0.90%
WANGER INTERNATIONAL SMALL CAP
ASSETS RATE OF FEE
------ -----------
First $100 million...................... 1.30%
$100 million to $250 million............ 1.20%
In excess of $250 million............... 1.10%
WANGER TWENTY
All Assets.............................. 0.95%
WANGER FOREIGN FORTY
All Assets.............................. 1.00%
8. LIMITATION OF EXPENSES OF THE FUND. The total expenses of Wanger U.S. Small
Cap, Wanger International Small Cap, Wanger Twenty and Wanger Foreign Forty
through September 29, 2002, exclusive of taxes, of interest and of extraordinary
litigation expenses, but including fees paid to Liberty WAM, as a percentage of
the Fund's net assets, shall not exceed 2.0%, 2.0%, 1.35% or 1.45% per annum,
respectively, and Liberty
B-5
31
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) 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 Liberty 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 the effective date of this
agreement.
9. SERVICES OF LIBERTY WAM NOT EXCLUSIVE. The services of Liberty WAM to the
Funds hereunder are not to be deemed exclusive, and Liberty 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.
10. SERVICES OTHER THAN AS MANAGER. Liberty WAM (or an affiliate of Liberty
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 Liberty WAM under this
agreement, and, within the limits permitted by law and the Board of Trustees of
the Trust, Liberty WAM (or an affiliate of Liberty 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, Liberty WAM or an affiliate of Liberty 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 Liberty WAM under this
agreement. The Trust hereby authorizes any entity or person associated with
Liberty 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).
B-6
32
11. LIMITATION OF LIABILITY OF LIBERTY WAM. To the extent permitted by
applicable law, neither Liberty 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 Liberty WAM or any of its affiliates in the performance
of Liberty WAM's duties under this agreement, except for liability resulting
from willful misfeasance, bad faith or gross negligence on the part of Liberty
WAM or such affiliate, or by reason of reckless disregard by Liberty WAM or such
affiliate of the obligations and duties of Liberty WAM under this agreement.
12. USE OF "WANGER" OR "LIBERTY" NAME. The Trust may use the name "Wanger
Advisors Trust" or any name using the name "Liberty" 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
Liberty Financial Companies, Inc. and that shall have succeeded to the business
of Liberty 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
"Liberty" 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 Liberty WAM or with any organization which shall have
succeeded to Liberty WAM's business as investment adviser. Liberty WAM's consent
to the use of the name "Wanger" by the Trust shall not prevent Liberty WAM's
permitting any other enterprise, including other investment companies, to use
that name.
13. DURATION AND RENEWAL. This agreement shall be effective on .
Unless terminated as provided in Section 14, this agreement shall continue in
effect until July 31, 2003, 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 Liberty 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.
B-7
33
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 Liberty WAM. This agreement may be terminated by Liberty 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
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
B-8
34
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):
If to Liberty WAM: Liberty 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:
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
Three First National Plaza,
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).
B-9
35
Dated as of the effective time of this agreement
WANGER ADVISORS TRUST
By:
-----------------------------------
LIBERTY WANGER ASSET
MANAGEMENT, L.P.,
By WAM Acquisition GP, Inc.
Its General Partner
By:
-----------------------------------
B-10
36
APPENDIX C
CERTAIN OTHER MUTUAL FUNDS ADVISED/SUB-ADVISED BY THE ADVISOR
The Advisor acts as investment advisor or sub-advisor to the following other
mutual funds that have investment objectives similar to those of the Funds for
compensation at the annual percentage rates of the corresponding average net
asset levels of those funds set forth below.
WANGER INTERNATIONAL SMALL CAP
------------------------------------------------------------------------------------
ADVISOR'S
NET ASSETS OF RELATIONSHIP TO
OTHER FUNDS OTHER FUNDS AT OTHER FUNDS
WITH SIMILAR JULY 31, 2001 (ADVISOR OR
OBJECTIVES (IN THOUSANDS) FEE RATE SUB-ADVISOR)
------------------------------------------------------------------------------------
Liberty Global $1,955 0.85% of the average Sub-Advisor
Young Investor daily net assets of
Fund the portion managed
by the Advisor
------------------------------------------------------------------------------------
Liberty Acorn $1,952,137 1.20% on first $100 Advisor
International million; 0.95% on next
$400 million; 0.75% over
$500 million
------------------------------------------------------------------------------------
WANGER FOREIGN FORTY
------------------------------------------------------------------------------------
ADVISOR'S
NET ASSETS OF RELATIONSHIP TO
OTHER FUNDS OTHER FUNDS AT OTHER FUNDS
WITH SIMILAR JULY 31, 2001 (ADVISOR OR
OBJECTIVES (IN THOUSANDS) FEE RATE SUB-ADVISOR)
------------------------------------------------------------------------------------
Liberty Global $1,955 0.85% of the average Sub-Advisor
Young Investor daily net assets of
Fund the portion managed
by the Advisor
------------------------------------------------------------------------------------
Liberty Acorn $78,480 0.95%(1) Advisor
Foreign Forty
------------------------------------------------------------------------------------
(1) The Advisor has voluntarily agreed to reimburse Liberty Acorn Foreign Forty
to the extent the ordinary operating expenses exceed 1.45% of the average
net assets for Class Z, Class A, Class B and Class C shares. This
arrangement may be modified or terminated by either Liberty WAM or the Fund
on 30 days' notice to the other.
C-1
37
WANGER U.S. SMALL CAP
------------------------------------------------------------------------------------
ADVISOR'S
NET ASSETS OF RELATIONSHIP TO
OTHER FUNDS OTHER FUNDS AT OTHER FUNDS
WITH SIMILAR JULY 31, 2001 (ADVISOR OR
OBJECTIVES (IN THOUSANDS) FEE RATE SUB-ADVISOR)
------------------------------------------------------------------------------------
Liberty $4,609,748 0.75% on first $700 Advisor
Acorn Fund million; 0.70% over
$700 million to $2
billion; 0.65% over
$2 billion
------------------------------------------------------------------------------------
Liberty Acorn $302,053 0.95% on first $200 Advisor
USA million; 0.90% over $200
million
------------------------------------------------------------------------------------
WANGER TWENTY
------------------------------------------------------------------------------------
ADVISOR'S
NET ASSETS OF RELATIONSHIP TO
OTHER FUND OTHER FUND AT OTHER FUND
WITH SIMILAR JULY 31, 2001 (ADVISOR OR
OBJECTIVES (IN THOUSANDS) FEE RATE SUB-ADVISOR)
------------------------------------------------------------------------------------
Liberty Acorn Twenty $89,688 0.90%(2) Advisor
------------------------------------------------------------------------------------
(2) The Advisor has voluntarily agreed to reimburse Liberty Acorn Twenty to the
extent the ordinary operating expenses exceed 1.35% of the average net
assets for Class Z, Class A, Class B and Class C shares. This arrangement
may be modified or terminated by either Liberty WAM or the Fund on 30 days'
notice to the other.
C-2
38
APPENDIX D
BROKERAGE PRACTICES
The following is a summary of the brokerage practices of Liberty Wanger Asset
Management, L.P.:
PORTFOLIO TRANSACTIONS
Liberty Wanger Asset Management, L.P. (Liberty WAM) places the orders for the
purchase and sale of portfolio securities and options and futures contracts for
the Funds. Liberty WAM'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, is an important factor in this decision; however, a number of other
subjective factors may also enter into the decision. These factors include
Liberty WAM'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; Liberty WAM's knowledge of the
financial condition of the broker or dealer selected and such other brokers and
dealers; and Liberty WAM's knowledge of actual or apparent operation problems of
any broker or dealer.
Recognizing the value of these factors, Liberty WAM may cause a Fund to pay a
brokerage commission in excess of that which another broker may have charged for
effecting the same transaction. Liberty WAM has established internal policies
for the guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions effected for
the Funds. Liberty WAM 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 Liberty WAM. Evaluations
of the reasonableness of brokerage commissions, based on the factors described
in the preceding paragraph, are made by Liberty WAM's trading personnel while
effecting portfolio transactions. The general level
D-1
39
of brokerage commissions paid is reviewed by Liberty WAM, and reports are made
annually to the Board of Trustees.
Liberty WAM maintains and periodically updates a list of approved brokers and
dealers which, in Liberty WAM's judgment, are generally capable of providing
best price and execution and are financially stable. Liberty WAM's traders are
directed to use only brokers and dealers on the approved list.
Beginning October 2002, Liberty WAM may place certain trades for the Funds
through its affiliate AlphaTrade Inc. (ATI), pursuant to procedures adopted by
the Board of Trustees. ATI is a wholly owned subsidiary of Colonial Management
Associates, Inc. ATI is a fully disclosed introducing broker that limits its
activities to electronic execution of transactions in listed equity securities.
The Funds will pay ATI a commission for these transactions. The Funds have
adopted procedures consistent with Investment Company Act Rule 17e-1 governing
such transactions.
CONSISTENT WITH THE CONDUCT RULES OF THE NATIONAL ASSOCIATION OF SECURITIES
DEALERS, INC. AND SUBJECT TO SEEKING BEST COMBINATION OF NET PRICE AND EXECUTION
AND SUCH OTHER POLICIES AS THE TRUSTEES OF THE FUNDS MAY DETERMINE, LIBERTY WAM
MAY CONSIDER SALES OF SHARES OF EACH OF THE FUNDS AS A FACTOR IN THE SELECTION
OF BROKER-DEALERS TO EXECUTE SUCH MUTUAL FUND SECURITIES TRANSACTIONS.
INVESTMENT RESEARCH PRODUCTS AND SERVICES FURNISHED
BY BROKERS AND DEALERS
Liberty WAM 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, Liberty WAM 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.
Liberty WAM has a duty to seek the best combination of net price and execution.
Liberty WAM faces a potential conflict of interest with this duty when it uses
Fund trades to obtain soft dollar products. This conflict exists because Liberty
WAM is able to use the soft dollar products in managing its Funds without paying
cash ("hard dollars") for the product. This reduces Liberty WAM's expenses.
D-2
40
Moreover, under a provision of the federal securities laws applicable to soft
dollars, Liberty WAM 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 Liberty
WAM'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, Liberty WAM believes that over time most, if not all,
Funds benefit from soft dollar products such that cross subsidizations even out.
Liberty WAM attempts to reduce or eliminate this conflict by directing Fund
trades for soft dollar products only if Liberty WAM 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 Liberty WAM
considers in determining whether a particular broker is capable of providing the
best net price and execution. Liberty WAM 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.
Liberty WAM acquires two types of soft dollar research products: (i) proprietary
research created by the broker-dealer firm executing the trade and (ii) other
products created by third parties that are supplied to Liberty WAM 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. Liberty WAM's research analysts periodically
rate the quality of proprietary research produced by various broker-dealer
firms. Based on these evaluations, Liberty WAM develops target levels of
commission dollars on a firm-by-firm basis. Liberty WAM attempts to direct
trades to each firm to meet these targets.
D-3
41
Liberty WAM also uses soft dollars to acquire products created by third parties
that are supplied to Liberty WAM 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). These products include the following:
- DATABASE SERVICES -- Comprehensive databases containing current and/or
historical information on companies and industries. Examples include
historical securities prices, earnings estimates, and SEC filings. These
services may include software tools that allow the user to search the database
or to prepare value-added analyses related to the investment process (such as
forecasts and models used in the portfolio management process).
- QUOTATION/TRADING/NEWS SYSTEMS -- Products that provide real time market data
information, such as pricing of individual securities and information on
current trading, as well as a variety of news services.
- ECONOMIC DATA/FORECASTING TOOLS -- Various macro economic forecasting tools,
such as economic data and economic and political forecasts for various
countries or regions.
- QUANTITATIVE/TECHNICAL ANALYSIS -- Software tools that assist in quantitative
and technical analysis of investment data.
- FUNDAMENTAL INDUSTRY ANALYSIS -- industry-specific fundamental investment
research.
- OTHER SPECIALIZED TOOLS -- Other specialized products, such as specialized
economic consulting analyses and attendance at investment-oriented
conferences.
Many third-party products include computer software or on-line data feeds.
Certain products also include computer hardware necessary to use the product.
Certain of these third-party services may be available directly from the vendor
on a hard-dollar basis. Others are available only through broker-dealer firms
for soft dollars. Liberty WAM evaluates each product to determine a cash ("hard
dollars") value of the product to Liberty WAM. Liberty WAM then on a
product-by-product basis targets commission dollars in an amount equal to a
specified multiple of the hard dollar value to the broker-dealer that supplies
the product to Liberty WAM. In general, these multiples range from 1.25 to 1.85
times
D-4
42
the hard dollar value. Liberty WAM attempts to direct trades to each firm to
meet these targets. (For example, if the multiple is 1.5:1.0, assuming a hard
dollar value of $10,000, Liberty WAM will target to the broker-dealer providing
the product trades generating $15,000 in total commissions.)
The targets that Liberty WAM establishes for both proprietary and for third
party research products typically will reflect discussions that Liberty WAM has
with the broker-dealer providing the product regarding the level of commissions
it expects to receive for the product. However, these targets are not binding
commitments, and Liberty WAM does not agree to direct a minimum amount of
commissions to any broker-dealer for soft dollar products. In setting these
targets, Liberty WAM makes a determination that the value of the product is
reasonably commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Liberty WAM will receive the product
whether or not commissions directed to the applicable broker-dealer are less
than, equal to or in excess of the target. Liberty WAM generally will carry over
target shortages and excesses to the next year's target. Liberty WAM believes
that this practice reduces the conflicts of interest associated with soft dollar
transactions, since Liberty WAM can meet the non-binding expectations of
broker-dealers providing soft dollar products over flexible time periods. In the
case of third party products, the third party is paid by the broker-dealer and
not by Liberty WAM. Liberty WAM may enter into a contract with the third party
vendor to use the product. (For example, if the product includes software,
Liberty WAM will enter into a license to use the software from the vendor.)
In certain cases, Liberty WAM may use soft dollars to obtain products that have
both research and non-research purposes. Examples of non-research uses are
administrative and marketing functions. These are referred to as "mixed use"
products. In each case, Liberty WAM makes a good faith evaluation of the
research and non-research uses of these services. These evaluations are based
upon the time spent by Firm personnel for research and non-research uses.
Liberty WAM pays the provider in cash ("hard dollars") for the non-research
portion of its use of these products.
Consistent with industry practice, Liberty WAM 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
D-5
43
therein, 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, Liberty WAM 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-dealer who provides Liberty WAM with a soft
dollar research product. 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. Liberty WAM 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 a third- party soft dollar product
that is not available on a hard-dollars basis. Liberty WAM has not engaged in
step out transactions as a manner of compensating broker-dealers that sell
shares of investment companies managed by Liberty WAM.
As stated above, Liberty WAM's overriding objective in effecting portfolio
transactions for the Funds is to seek to obtain the best combination of price
and execution. However, consistent with the provisions of the Rules of Conduct
of the National Association of Securities Dealers, Inc., Liberty WAM may, in
selecting broker-dealers to effect portfolio transactions for the Funds, and
where more than one broker-dealer is believed capable of providing the best
combination of net price and execution with respect to a particular transaction,
select a broker-dealer in recognition of its sales of VA contracts or VLI
policies offered by Participating Insurance Companies, or sales of Fund shares
to Retirement Plans. Except as described in the next following sentence, neither
the Trust nor any Fund nor Liberty WAM has entered into any agreement with, or
made any commitment to, any unaffiliated broker-dealer which would bind Liberty
WAM, the Trust or any Fund to compensate any such broker-dealer, directly or
indirectly, for sales of VA contracts or VLI policies. Liberty WAM has entered
into arrangements with sponsors of programs for the sale of VA contracts or VLI
policies issued by Participating Insurance Companies which are not affiliates of
Liberty WAM pursuant to which Liberty WAM pays the sponsor from Liberty WAM's
fee for managing the Funds an amount in respect of the Funds' assets allocable
to the Fund shares held in separate accounts of such unaffiliated Participating
Insurance Companies in respect of VA contracts issued by such entities and sold
through such arrangements.
D-6
44
Liberty WAM 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 Liberty WAM 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. Liberty WAM 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, Liberty WAM may also consider the part,
if any, played by the broker or dealer in bringing the security involved to
Liberty WAM's attention, including investment research related to the security
and provided to the Fund.
D-7
45
APPENDIX E
COMPENSATION PAID BY A FUND TO THE ADVISOR AND AFFILIATES
FOR EACH FUND'S LAST FISCAL YEAR
($ IN THOUSANDS)
-----------------------------------------------------------------------------------------------------------------------------------
NET NET
TRANSFER NET BROKERAGE
AGENCY AND FEES FOR NET COMMISSIONS ON
SHAREHOLDER PRICING AND DISTRIBUTION FUND'S PORTFOLIO
NET NET SERVICING BOOKKEEPING AND SERVICE TRANSACTIONS
ADVISORY ADMINISTRATIVE FEES SERVICES (12b-1) PAID TO
FEE PAID FEES PAID TO PAID TO PAID TO FEES PAID TO ADVISORS'
TO ADVISORS' ADVISORS' ADVISORS' ADVISORS' BROKERAGE
NAME OF FUND ADVISOR AFFILIATES AFFILIATES AFFILIATES AFFILIATES AFFILIATES
-----------------------------------------------------------------------------------------------------------------------------------
Wanger US Small Cap $3,597 $ 0 $ 0 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap 4,044 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty 66(a) 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 85(b) 0 0 0 0 0
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------- --------------
PERCENTAGE OF
FUND'S TOTAL
BROKERAGE
COMMISSIONS
PAID TO
ADVISORS'
BROKERAGE
NAME OF FUND AFFILIATES
---------------------------------- --------------
Wanger US Small Cap 0%
-----------------------------------------------------------------
Wanger International Small Cap 0
--------------------------------------------------------------------------------
Wanger Twenty 0
-----------------------------------------------------------------------------------------------
Wanger Foreign Forty 0
--------------------------------------------------------------------------------------------------------------
(a) The Advisor reimbursed the Fund approximately $18,000 toward ordinary
operating expenses of the Fund.
(b) The Advisor reimbursed the Fund approximately $26,000 toward ordinary
operating expenses of the Fund.
E-1
46
APPENDIX F
SHARES OUTSTANDING AND ENTITLED TO VOTE
The number of shares outstanding and entitled to vote at the Meeting as of
August 23, 2001 was as follows:
NUMBER OF SHARES OUTSTANDING AND
NAME OF FUND ENTITLED TO VOTE
------------ --------------------------------
Wanger US Small Cap 21,337,848,412
Wanger International Small Cap 14,820,663.583
Wanger Twenty 1,258,477.526
Wanger Foreign Forty 1,278,831.691
OWNERSHIP OF SHARES
As of August 15, 2001 the Trust believes that the Trustees and executive
officers of the Trust, individually and as a group, owned less than one percent
of each class of shares of each Fund, except as shown below.
PERCENTAGE OF
NUMBER OF OUTSTANDING
NAME FUND SHARES SHARES HELD
---- ---- ----------- -------------
Ralph Wanger(a) Wanger U.S. Small Cap 54,834.899 *
Wagner International
Small Cap 137,277.211 *
Wanger Twenty 65,727.643 5.27%
Wanger Foreign Forty 71,520.091 5.60%
Trustees and
executive officers
as a group(b) Wanger U.S. Small Cap 58,249.938 *
Wanger International
Small Cap 169,355.972 1.15%
Wanger Twenty 82,453.567 6.61%
Wanger Foreign Forty 91,413.257 7.16%
---------------
* less than 1%
(a)Includes shares held under variable insurance contracts owned by Mr. Wanger,
which shares are also reported under the names of the contract issuers in the
tables below.
(b)Includes shares held by the Advisor's employees' profit sharing plan, over
which Bruce Lauer has voting power as a trustee of the plan.
F-1
47
As of August 15, 2001 the following persons owned of record or beneficially 5%
or more of the shares of the noted Fund:
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
WANGER U.S. SMALL CAP ADVISOR OWNED SHARES OWNED
----------------------------- ------------ -------------
Phoenix Home Life*............................. 9,487,257.124 44.59%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Phoenix Variable Life*......................... 6,840,591.117 32.15%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
American Express Financial Advisors............ 4,037,576.845 18.98%
1765 AXP Financial Center
Minneapolis, MN 55474
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
WANGER INTERNATIONAL SMALL CAP ADVISOR OWNED SHARES OWNED
-------------------------------------- ------------ -------------
Phoenix Home Life*............................. 6,195,958.681 42.16%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Phoenix Variable Life*......................... 4,536,368.546 30.86%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
American Express Financial Advisors............ 3,281,057.959 22.32%
1765 AXP Financial Center
Minneapolis, MN 55474
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
WANGER TWENTY OWNED SHARES OWNED
------------- ------------ -------------
Phoenix Home Life*............................. 515,260.169 41.28%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Phoenix Variable Life*......................... 457,387.562 36.65%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Keyport Life Insurance Co...................... 240,815.365 19.29%
125 High Street
Boston, MA 02110
F-2
48
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
WANGER FOREIGN FORTY OWNED SHARES OWNED
-------------------- ------------ -------------
Phoenix Home Life*............................. 560,756.476 43.92%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Phoenix Variable Life*......................... 583,459.550 45.70%
101 Munson Street
P.O. Box 810
Greenfield, MA 01302-0810
Keyport Life Insurance Co...................... 106,299.069 8.33%
125 High Street
Boston, MA 02110
(*) Entity owned 25% or more of the outstanding shares of beneficial interest
of the Fund, and therefore may be presumed to "control" the Fund, as that
term is defined in the Investment Company Act.
F-3
49
WANGER ADVISORS TRUST
* Please fold and detach card at perforation before mailing *
[FUND NAME] PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR A MEETING
OF SHAREHOLDERS TO BE HELD ON OCTOBER 24, 2001
WANGER ADVISORS TRUST
THE UNDERSIGNED HEREBY APPOINTS PATRICIA H. WERHANE, FRED D. HASSELBRING AND P.
MICHAEL PHELPS AND EACH OF THEM, PROXIES OF THE UNDERSIGNED, WITH POWER OF
SUBSTITUTION, TO VOTE AT THE SPECIAL MEETING OF SHAREHOLDERS OF THE FUND LISTED
ABOVE TO BE HELD AT 2:00 P.M. ON WEDNESDAY, OCTOBER 24, 2001, AT 227 WEST MONROE
STREET, SUITE 3000, CHICAGO, ILLINOIS, AND AT ANY ADJOURNMENTS THEREOF.
DATE ______________
[ ]
SIGNATURE(S) (IF JOINT PARTICIPANT)
PLEASE SIGN YOUR NAME OR NAMES EXACTLY AS PRINTED TO THE LEFT TO AUTHORIZE THE
VOTING OF YOUR SHARES AS INDICATED ABOVE. WHERE SHARES ARE REGISTERED WITH JOINT
OWNERS, ALL JOINT OWNERS SHOULD SIGN. PERSONS SIGNING AS EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC. SHOULD SO INDICATE CORPORATE PROXIES SHOULD BE
SIGNED BY AN AUTHORIZED OFFICER.
50
* Please fold and detach card at perforation before mailing *
Please fill in box(es) as shown using black or blue ink or
number 2 pencil. PLEASE DO NOT USE FINE POINT PENS. [X]
BY SIGNING AND DATING THIS CARD, YOU AUTHORIZE THE PROXIES TO VOTE THE PROPOSAL
AS MARKED, OR, IF NOT MARKED, TO VOTE "FOR" THE PROPOSAL AND TO USE THEIR
DISCRETION TO VOTE ON ANY OTHER MATTER THAT MAY COME BEFORE THE SPECIAL MEETING.
IF YOU DO NOT INTEND PERSONALLY TO ATTEND THIS SPECIAL MEETING, PLEASE COMPLETE
AND MAIL THIS CARD AT ONCE IN THE ENCLOSED ENVELOPE.
FOR AGAINST ABSTAIN
1. TO APPROVE A NEW INVESTMENT ADVISORY
AGREEMENT. [ ] [ ] [ ]
2. TO CONSIDER AND ACT UPON ANY OTHER
MATTERS THAT PROPERLY COME BEFORE THE
MEETING AND ANY ADJOURNED SESSION OF
THE MEETING. [ ] [ ] [ ]
51
WANGER ADVISORS TRUST
INSTRUCTIONS OF VARIABLE CONTRACT
PARTICIPANTS FOR VOTING SHARES OF
WANGER ADVISORS TRUST.
** Please fold and detach card at perforation before mailing **
[FUND NAME] VOTING INSTRUCTIONS
[INSURANCE COMPANY NAME] WANGER ADVISORS TRUST
The undersigned, being a Participant under a variable annuity contract or
variable life insurance policy issued by the above-referenced Insurance Company
(the "Insurance Company"), hereby instructs the Insurance Company to cause the
shares of each above-referenced fund (the "Fund") allocable to Participant's
contract or policy to be voted in the manner specified on the reverse side with
respect to the matter described in the accompanying proxy statement.
THE INSURANCE COMPANY WILL FOLLOW VOTING INSTRUCTIONS ONLY IF THEY ARE RECEIVED
AT LEAST ONE DAY PRIOR TO THE DATE OF THE MEETING. IF NO INSTRUCTIONS ARE
SPECIFIED, THE INSURANCE COMPANY WILL VOTE THE SHARES IN FAVOR OF THE PROPOSAL.
** DATE ____________________________
PLEASE MARK, SIGN, DATE AND RETURN THE
VOTING INSTRUCTIONS CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
----------------------------------------
Signature(s) of joint participant
Please date and sign the name or names
as printed hereon. Where there are Joint
Participants, all Joint Participants
should sign. Corporate Instructions
should be signed by an authorized
officer. Executors, administrators,
trustees, etc. should so indicate when
signing.
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* Please fold and detach card at perforation before mailing *
* Please fill in box(es) as shown using black or blue ink or number 2 pencil. *
PLEASE DO NOT USE FINE POINT PENS. [X]
BY SIGNING AND DATING THIS CARD, YOU INSTRUCT THE INSURANCE COMPANY TO VOTE THE
PROPOSAL, AS MARKED, OR, IF NOT MARKED, TO VOTE "FOR" THE PROPOSAL AND TO USE
THEIR DISCRETION TO VOTE ON ANY OTHER MATTER THAT MAY COME BEFORE THE SPECIAL
MEETING. IF YOU DO NOT INTEND PERSONALLY TO ATTEND THE SPECIAL MEETING, PLEASE
COMPLETE AND MAIL THIS CARD AT ONCE IN THE ENCLOSED ENVELOPE.
FOR AGAINST ABSTAIN
1. TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT. [ ] [ ] [ ]
2. TO CONSIDER AND ACT UPON ANY OTHER MATTERS THAT
PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNED
SESSION OF THE MEETING.