UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-08748 | |||||||
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Wanger Advisors Trust | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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227 W. Monroe Street Suite 3000 Chicago, IL |
| 60606 | ||||||
(Address of principal executive offices) |
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Mary C. Moynihan Perkins Coie LLP 700 13th Street, NW Suite 600 Washington, DC 20005
Paul B. Goucher, Esq. Columbia Management Investment Advisers, LLC 100 Park Avenue New York, New York 10017
P. Zachary Egan Columbia Acorn Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (312) 634-9200 |
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Date of fiscal year end: | December 31 |
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Date of reporting period: | June 30, 2016 |
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Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. Reports to Stockholders.
SEMIANNUAL REPORT
June 30, 2016
COLUMBIA WANGER FUNDS
Managed by Columbia Wanger Asset Management, LLC
WANGER INTERNATIONAL
Wanger International
2016 Semiannual Report
Table of Contents
2 | A View on Brexit | ||||||
3 | Understanding Your Expenses | ||||||
4 | Performance Review | ||||||
6 | Statement of Investments | ||||||
13 | Statement of Assets and Liabilities | ||||||
13 | Statement of Operations | ||||||
14 | Statement of Changes in Net Assets | ||||||
15 | Financial Highlights | ||||||
16 | Notes to Financial Statements | ||||||
19 | Board Approval of the Advisory Agreement |
Columbia Wanger Asset Management, LLC (CWAM) is one of the leading global small- and mid-cap equity managers in the United States with over 45 years of small- and mid-cap investment experience. As of June 30, 2016, CWAM managed $17 billion in assets. CWAM is the investment manager to Wanger USA, Wanger International and Wanger Select (together, the Columbia Wanger Funds) and the Columbia Acorn Family of Funds.
An important note: Columbia Wanger Funds are available only through variable annuity contracts and variable life insurance policies issued by participating insurance companies or certain eligible retirement plans. Columbia Wanger Funds are not offered directly to the public and are not available in all contracts, policies or plans. Contact your financial advisor or insurance representative for more information. Columbia Wanger Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA, and are managed by CWAM.
Investors should carefully consider investment objectives, risks and expenses of the Fund before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing.
The views expressed in "A View on Brexit" and in the Performance Review reflect the current views of the respective authors. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to specific company securities should not be construed as a recommendation or investment advice.
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Wanger International 2016 Semiannual Report
A View on Brexit
Global equity markets were caught on the back foot by the outcome of the UK referendum on continued European Union (EU) membership. The long-term political and economic implications of this decision are potentially vast and impossible to discern at this stage, not least because they will be shaped by how policymakers respond. As investors globally reprice risk and reposition portfolios in light of currency sensitivity and how they expect this outcome to bear differently on sectors, countries and companies, there will be mispricing opportunities. This is good for stock pickers and we expect to be active. We will be looking closely at how strong players in diverse industries might improve their competitive positions, as growth opportunities become more scarce and costs of capital among competitors more differentiated. We expect the relatively high balance sheet and business model quality of the stocks that we hold in the Columbia Wanger Funds to prove helpful in coming quarters because the risk premium has gone up, as evidenced by increased volatility, compressed multiples in some pockets of the market such as European banks, and sharp currency swings.
This political development is nonetheless clearly a negative one. The United Kingdom is the fifth largest economy in the world and the second largest within the EU. It has been a member of the European Economic Community (precursor to the EU) since 1973.i The UK exit raises uncertainties about global growth, heightens risk aversion, and it will preoccupy European policymakers at a time when they are already challenged by anemic growth, high unemployment, refugee immigration flows, and international and domestic security concerns.
While many market observers view the outcome of the referendum as a comment on, and existential threat to, the overall European integration project, it may, rather, reflect a larger process at work, namely increasing middle-class discontent with the perceived consequences of globalization in industrialized democracies. Rising populism and nativist resentments in Europe and the United States could be
harbingers of future policy regimes that place less value on minimizing trade friction, and the mobility of capital and labor, all of which have contributed to global prosperity. The evolving framework for global trade and investment over the last 25 years has been an enormous engine of global growth. During this period, a substantial percentage of the world's population once living within largely economically isolated communist states was integrated into the modern global economy as producers and consumers. This has raised standards of living in emerging markets and reduced the cost of consumer goods in industrialized countries, while creating new and growing markets for the sort of technologically sophisticated exports that support high-paying jobs in industrialized countries.
The Columbia Wanger Funds have benefited meaningfully from these trends. With Brexit, the EU will lose its strongest advocate of economic liberalism, which has served as an important counterpoint to statist perspectives in Germany and France. At a minimum, it appears that domestic policies are poised to pivot toward the populist issue of economic inequality, which in Europe may manifest itself in a slowdown or reversal of structural reforms in EU labor markets, with negative consequences for productivity and, with it, standards of living. Fiscal tightening, where necessary, could be scaled back as a salve to populists, and it seems likely that industrialized countries will see increased constraints on immigration, even where demographically driven labor shortages exist.
While this could well be regarded as overall bad news for asset owners, opportunities will likely present themselves. For many years, the Columbia Wanger Funds have explored how factory automation is deployed to reduce labor costs or to replace labor altogether, trends which could be accelerated by a reduction in immigration. London will fight hard to retain its role as the center of European finance, but bank chiefs are already talking about decamping elsewhere, which could create opportunity in continental European real estate and
construction. As corporate investment decision-making and household spending slow amidst the uncertainty, fiscal stimulus could be sought via public infrastructure projects, which would be good for constructors and suppliers of building materials. Public policy that increases labor's share of income would benefit consumer companies oriented to a lower middle class demographic. Other policy interventions could result in continued ultra-low interest rates, with implications for interest-rate sensitive businesses. In any case, it seems that earnings growth will continue to be a scarce factor in a low-growth world.
P. Zachary Egan
President and Global Chief Investment Officer
Columbia Wanger Asset Management, LLC
i http://ukandeu.ac.uk/fact-figures/when-did-britain-decide-to-join-the-european-union/
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Wanger International 2016 Semiannual Report
Understanding Your Expenses
As a shareholder, you incur three types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption fees. There are also ongoing costs, which generally include management fees and other expenses for Wanger International (the Fund). Lastly, there may be additional fees or charges imposed by the insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs with the ongoing costs of investing in other mutual funds.
Analyzing your Fund's expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "Actual" column is calculated using the Fund's actual operating expenses and total return for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the "Hypothetical" column assumes a 5% annual rate of return before expenses (which is not the Fund's actual return) and then applies the Fund's actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during the period. See "Compare with other funds" below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any transaction costs, such as sales charges, redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs were included in these calculations, your costs would be higher.
January 1, 2016 – June 30, 2016
Account value at the beginning of the period ($) | Account value at the end of the period ($) | Expenses paid during period ($) | Fund's annualized expense ratio (%)* | ||||||||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | ||||||||||||||||||||||||||
Wanger International | 1,000.00 | 1,000.00 | 998.40 | 1,019.19 | 5.66 | 5.72 | 1.14 |
* Expenses paid during the period are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in the Fund's most recent fiscal half-year and divided by 366.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company's separate account. The hypothetical example provided is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
3
Wanger International 2016 Semiannual Report
Performance Review Wanger International
P. Zachary Egan Co-Portfolio Manager | Louis J. Mendes Co-Portfolio Manager |
Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different, potentially less stringent, financial and accounting standards than those generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies.
Wanger International ended the semiannual period down 0.16%, performing in line with the Fund's primary benchmark, the MSCI ACWI Ex USA Small Cap Index (Net), which was down 0.20%. Major factors impacting markets during the period were the surprise outcome of the Brexit vote in the United Kingdom, continued strong performance from the commodities sector, and signs of strength in a number of developing economies, particularly in Southeast Asia.
As discussed in our letter at the front of this report, the United Kingdom's decision to exit the European Union was somewhat unexpected by global markets and triggered a short-term flight to safety as investors considered the potential consequences of this action. The immediate reaction was a rise in the U.S. dollar and the Japanese yen, while the UK pound fell to its lowest levels in the last 30 years. Renewed discussions of a prolonged low interest rate environment in most developed economies provided a positive jolt to many emerging markets with economies sensitive to global rates. While the Fund declined nearly 9% over the two trading days following the Brexit vote, it regained over half of this drop within a week. As long-term investors, our focus remained on the medium-term impacts this decision could have on Fund holdings, and the adjustments we made to the portfolio were modest. We took advantage of short-term price volatility around Brexit to add to UK self-storage company Big Yellow, where we struggle to see how Brexit will materially change prospects going forward. In continental Europe, the Fund's long-standing strategic underweight in European banks proved positive, as the uncertainty raised by the referendum weighed heavily on these stocks.
One area that performed well throughout the period was commodities. Year to date, the energy and basic materials sectors of the benchmark were up 9% and 13%, respectively, in U.S. dollars (USD). Continued stable economic growth and very low interest rates across developed economies, combined with the positive effects of China's stimulus policies enacted in 2015, have reignited confidence in the underlying price for a number of basic materials. Those emerging markets dependent upon commodity exports outperformed but were modest weights within the Fund and benchmark. Year to date within the Fund's small-cap equity benchmark, Brazil (+48% in USD), Russia (+58% in USD) and South Africa
(+28% in USD) all rallied strongly with strengthening currencies after a mostly dismal 2015 performance. A long-term Fund position in Tahoe Resources, a low-cost silver miner based in Guatemala, was a top contributor in the period, rising 73% on the rebound in silver prices.
Current political uncertainty appears likely to drive a continuation of loose monetary policy in Japan and Europe for the near term. The low interest rate environment is driving a global search for yield, buoying the prices of stable, cash-generative and dividend-paying stocks. Unprecedented intervention to keep interest rates low will eventually reverse, which we believe will make current valuations assigned to these "safe haven" securities hard to justify, particularly where there is little earnings growth. Accordingly, we have worked hard over the period to increase the Fund's exposure to companies with solid earnings growth. We expect these businesses to prove more resilient, should interest rates normalize. If this mean reversion takes longer than expected, this will likely be because of ongoing weak demand globally, in which case companies with growing earnings should command a valuation premium, also not a bad outcome for long-term growth investors. New Fund positions that reflect this focus on growth include DIP, an operator of online websites and mobile applications for temporary job listings in Japan. DIP is capitalizing on an aging Japanese population that is driving a labor shortage; a corporate preference for temporary workers to maintain flexibility and curb costs; and increased user preference for Internet and mobile job listings. Since 2009, full-time workers in Japan have declined by 2.35 million, while part-time jobs have increased by 1.17 million.
Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.
4
Wanger International 2016 Semiannual Report
Growth of a $10,000 Investment in Wanger International
May 3, 1995 (inception date) through June 30, 2016
Performance data shown represents past performance and is not a guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance data shown. Performance results reflect any fee waivers or reimbursements of Fund expenses by the investment adviser and/or any of its affiliates. Absent these fee waivers and/or expense reimbursement arrangements, performance results would have been lower. For most recent month-end performance updates, please visit investor.columbiathreadneedleus.com.
This graph compares the results of $10,000 invested in Wanger International on May 3, 1995 (the date the Fund began operations) through June 30, 2016, to the MSCI ACWI Ex USA Small Cap Index (Net) and the S&P Global Ex-U.S. Between $500M and $5B Index with dividends and capital gains reinvested. Although the index is provided for use in assessing the Fund's performance, the Fund's holdings may differ significantly from those in the index.
Top 10 Holdings
As a percentage of net assets, as of 6/30/16
1. CCL Industries (Canada) Global Label Converter | 2.0 | % | |||||
2. Seria (Japan) 100 Yen Discount Stores | 1.6 | ||||||
3. SimCorp (Denmark) Software for Investment Managers | 1.6 | ||||||
4. Aurelius (Germany) European Turnaround Investor | 1.5 | ||||||
5. Domino's Pizza Enterprises (Australia) Domino's Pizza Operator in Australia & New Zealand | 1.4 | ||||||
6. Trelleborg (Sweden) Manufacturer of Sealing, Dampening & Protective Solutions for Industry | 1.4 | ||||||
7. Elior Group (France) Contract Caterer & Travel Concessionary | 1.4 | ||||||
8. Halma (United Kingdom) Health & Safety Sensor Technology | 1.3 | ||||||
9. Ag Growth (Canada) Manufacturer of Augers & Grain Handling Equipment | 1.3 | ||||||
10. Distribuidora Internacional de Alimentación (Spain) Discount Retailer in Spain & Latin America | 1.3 |
Top holdings exclude short-term holdings and cash, if applicable.
Top 5 Countries
As a percentage of net assets, as of 6/30/16
Japan | 22.5 | % | |||||
United Kingdom | 12.2 | ||||||
Germany | 6.9 | ||||||
Canada | 6.4 | ||||||
Sweden | 6.1 |
Results as of June 30, 2016
2nd quarter* | Year to date* | 1 year | 5 years | 10 years | |||||||||||||||||||
Wanger International | -1.13 | % | -0.16 | % | -4.97 | % | 3.34 | % | 5.52 | % | |||||||||||||
MSCI ACWI Ex USA Small Cap Index (Net)** | -0.87 | -0.20 | -5.46 | 2.28 | 4.09 | ||||||||||||||||||
S&P Global Ex-U.S. Between $500M and $5B Index | 0.24 | 1.98 | -5.35 | 2.49 | 4.76 |
NAV as of 6/30/16: $24.15
* Not annualized.
** The Fund's primary benchmark effective January 1, 2016. Prior to January 1, 2016, the S&P Global Ex-U.S. Between $500M and $5B Index was the Fund's primary benchmark.
Performance numbers reflect all Fund expenses but do not include any fees and expenses imposed under your variable annuity contract or life insurance policy or qualified pension or retirement plan. If performance numbers included the effect of these additional charges, they would be lower.
The Fund's annual operating expense ratio of 1.11% is stated as of the Fund's prospectus dated May 1, 2016, and differences in expense ratios disclosed elsewhere in this report may result from including fee waivers and/or expense reimbursements as well as different time periods used in calculating the ratios.
All results shown assume reinvestment of distributions.
The MSCI ACWI Ex USA Small Cap Index (Net) captures small-cap representation across 22 of 23 developed market countries (excluding the United States) and 23 emerging markets countries. The S&P Global Ex-U.S. Between $500M and $5B Index is a subset of the broad market selected by the index sponsor representing the mid- and small-cap developed and emerging markets, excluding the United States. Indexes are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.
Portfolio characteristics and holdings are subject to change periodically and may not be representative of current characteristics and holdings.
5
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Equities – 98.0% | |||||||||||
Asia – 41.7% | |||||||||||
Japan – 22.5% | |||||||||||
102,700 | Seria 100 Yen Discount Stores | $ | 8,500,064 | ||||||||
109,600 | FamilyMart Convenience Store Operator | 6,679,165 | |||||||||
477,700 | Aeon Mall Suburban Shopping Mall Developer, Owner & Operator | 6,250,246 | |||||||||
192,900 | Bandai Namco Branded Toys & Related Content | 4,978,077 | |||||||||
84,800 | Yonex (a) Branded Sporting Goods Manufacturer | 4,723,574 | |||||||||
195,771 | Doshisha Consumer Goods Wholesaler | 3,761,055 | |||||||||
319,700 | Ushio Industrial Light Sources | 3,756,022 | |||||||||
44,300 | Hikari Tsushin Office IT/Mobiles/Insurance Distribution | 3,711,163 | |||||||||
133,600 | Glory Currency Handling Systems & Related Equipment | 3,635,199 | |||||||||
228,600 | Santen Pharmaceutical Specialty Pharma (Ophthalmic Medicine) | 3,592,949 | |||||||||
1,074,000 | Seven Bank ATM Processing Services | 3,333,602 | |||||||||
123,400 | DIP Mobile Temporary Job Information Provider | 3,329,291 | |||||||||
379,000 | NOF Specialty Chemicals, Life Science & Rocket Fuels | 3,145,683 | |||||||||
145,200 | Aeon Financial Service Diversified Consumer-related Finance Company in Japan | 3,144,007 | |||||||||
429,300 | iStyle Cosmetics Review Portal & Retailer | 3,089,206 | |||||||||
1,125 | Kenedix Retail REIT Retail REIT in Japan | 3,028,943 | |||||||||
24,450 | Hirose Electric Electrical Connectors | 3,006,518 | |||||||||
82,800 | Japan Airport Terminal (a) Airport Terminal Operator at Haneda | 3,004,089 | |||||||||
2,922 | LaSalle Logiport REIT (b) Logistics REIT in Japan | 2,974,266 |
Number of Shares | Value | ||||||||||
65,020 | Milbon Hair Products for Salons | $ | 2,931,814 | ||||||||
31,900 | Disco Semiconductor Dicing & Grinding Equipment | 2,885,030 | |||||||||
148,000 | Daiseki Waste Disposal & Recycling | 2,862,213 | |||||||||
69,300 | JIN (a) Eyeglasses Retailer | 2,719,748 | |||||||||
162,200 | OSG Consumable Cutting Tools | 2,701,979 | |||||||||
48,500 | OBIC Computer Software | 2,669,747 | |||||||||
90,400 | Nakanishi Dental Tools & Machinery | 2,661,254 | |||||||||
56,000 | Otsuka One-stop IT Services & Office Supplies Provider | 2,618,635 | |||||||||
111,400 | Aica Kogyo Laminated Sheets, Building Materials & Chemical Adhesives | 2,545,861 | |||||||||
77,000 | MonotaRO Online Maintenance, Repair & Operations Goods Distributor in Japan | 2,545,693 | |||||||||
52,000 | Asahi Intecc Medical Guidewires for Surgery | 2,541,054 | |||||||||
126,500 | Icom Two Way Radio Communication Equipment | 2,479,609 | |||||||||
420 | Industrial & Infrastructure Fund Industrial REIT in Japan | 2,341,780 | |||||||||
452,000 | Dowa Holdings Environmental/Recycling, Nonferrous Metals, Electronic Material & Metal Processing | 2,329,759 | |||||||||
244,000 | Yamaguchi Financial Group Regional Bank in Yamaguchi, Fukuoka & Hiroshima | 2,307,336 | |||||||||
180,600 | Kintetsu World Express Airfreight Logistics | 2,187,879 | |||||||||
139,300 | NGK Spark Plug Automobile Parts | 2,102,703 | |||||||||
71,400 | Sega Sammy Holdings Gaming Software/Hardware & Leisure Facilities | 768,985 | |||||||||
121,844,198 |
See accompanying notes to financial statements.
6
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Korea – 3.9% | |||||||||||
143,008 | Koh Young Technology Inspection Systems for Printed Circuit Boards | $ | 5,108,793 | ||||||||
101,272 | Korea Investment Holdings Brokerage & Asset Management | 3,733,602 | |||||||||
10,330 | KCC Paint & Housing Material Manufacturer | 3,435,921 | |||||||||
114,800 | ModeTour Network Travel Services | 2,770,947 | |||||||||
48,100 | Kepco Plant Service & Engine Power Plant & Grid Maintenance | 2,719,442 | |||||||||
17,922 | Nongshim Holdings Holding Company of Food Conglomerate | 2,291,692 | |||||||||
977 | Orion Corp Confectionery & Snack Manufacturer | 801,946 | |||||||||
20,862,343 | |||||||||||
Taiwan – 3.1% | |||||||||||
386,000 | Silergy Chinese Provider of Analog & Mixed Digital Integrated Circuits | 4,565,830 | |||||||||
140,000 | St. Shine Optical Disposable Contact Lens Original Equipment Manufacturer | 3,163,737 | |||||||||
277,000 | Ginko International Contact Lens Maker in China | 2,893,965 | |||||||||
171,803 | Voltronic Power Uninterruptible Power Supply Products & Solar Inverters | 2,401,628 | |||||||||
302,349 | Advantech Industrial PC & Components | 2,305,491 | |||||||||
104,000 | PChome Online Taiwanese E-commerce Company | 1,152,810 | |||||||||
16,483,461 | |||||||||||
India – 2.8% | |||||||||||
527,518 | Amara Raja Indian Maker of Auto & Industrial Batteries, Mostly for the Replacement Market | 6,804,284 | |||||||||
603,779 | TVS Motor Indian Maker of Scooters, Mopeds, Motorcycles, & Three-wheelers | 2,778,648 | |||||||||
245,385 | United Breweries Indian Brewer | 2,739,092 |
Number of Shares | Value | ||||||||||
399,460 | Zee Entertainment Enterprises Indian Programmer of Pay Television Content | $ | 2,711,451 | ||||||||
15,033,475 | |||||||||||
China – 2.3% | |||||||||||
116,227 | 51job – ADR (a) (b) Integrated Human Resource Services | 3,406,613 | |||||||||
17,300,000 | Jiangnan Group Cable & Wire Manufacturer | 2,778,755 | |||||||||
5,560,000 | AMVIG Holdings Chinese Tobacco Packaging Material Supplier | 2,192,381 | |||||||||
786,000 | TravelSky Technology Chinese Air Travel Transaction Processor | 1,519,512 | |||||||||
4,536,000 | NewOcean Energy Southern China Liquefied Petroleum Gas Distributor | 1,489,648 | |||||||||
6,453,000 | Sihuan Pharmaceutical Holdings Group Chinese Generic Drug Manufacturer | 1,232,614 | |||||||||
12,619,523 | |||||||||||
Singapore – 2.1% | |||||||||||
4,032,673 | Mapletree Commercial Trust Retail & Office Property Landlord | 4,435,851 | |||||||||
8,400,000 | China Everbright Water Waste Water Treatment Operator | 3,978,841 | |||||||||
6,404,900 | SIIC Environment (b) Waste Water Treatment Operator | 2,954,831 | |||||||||
11,369,523 | |||||||||||
Hong Kong – 2.0% | |||||||||||
6,104,000 | Value Partners Mutual Fund Management | 5,652,270 | |||||||||
2,853,000 | Vitasoy International Hong Kong Soy Food Brand | 5,190,089 | |||||||||
10,842,359 | |||||||||||
Philippines – 1.3% | |||||||||||
51,759,301 | Melco Crown (Philippines) Resorts (b) Integrated Resort Operator in Manila | 4,188,930 | |||||||||
3,453,000 | Puregold Price Club Supermarket Operator in the Philippines | 3,093,553 | |||||||||
7,282,483 |
See accompanying notes to financial statements.
7
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Cambodia – 1.1% | |||||||||||
8,652,000 | Nagacorp Casino & Entertainment Complex in Cambodia | $ | 5,777,223 | ||||||||
Indonesia – 0.6% | |||||||||||
8,839,200 | Link Net Fixed Broadband & CATV Service Provider | 2,724,077 | |||||||||
2,800,000 | Media Nusantara Citra Media Company in Indonesia | 469,749 | |||||||||
3,193,826 | |||||||||||
Total Asia | 225,308,414 | ||||||||||
Europe – 41.5% | |||||||||||
United Kingdom – 12.2% | |||||||||||
535,093 | Halma Health & Safety Sensor Technology | 7,277,806 | |||||||||
460,000 | Shaftesbury London Prime Retail REIT | 5,413,097 | |||||||||
103,000 | Rightmove Internet Real Estate Listings | 5,030,617 | |||||||||
1,292,559 | Regus Rental Office Space in Full Service Business Center | 4,997,867 | |||||||||
1,900,000 | Rentokil Initial Pest Control, Washroom & Workwear Service Provider | 4,906,578 | |||||||||
465,737 | Big Yellow UK Self Storage | 4,849,703 | |||||||||
229,513 | WH Smith Newsprint, Books & General Stationery Retailer | 4,821,725 | |||||||||
1,287,825 | Polypipe Manufacturer of Plastic Piping & Fittings | 4,464,340 | |||||||||
350,902 | Abcam Online Sales of Antibodies | 3,614,986 | |||||||||
776,943 | Domino's Pizza UK & Ireland Pizza Delivery in the UK, Ireland & Switzerland | 3,451,876 | |||||||||
56,865 | Spirax Sarco Steam Systems & Pumps for Manufacturing & Process Industries | 2,847,486 | |||||||||
3,659,853 | Assura UK Primary Health Care Property REIT | 2,679,400 |
Number of Shares | Value | ||||||||||
508,087 | DS Smith Packaging | $ | 2,628,696 | ||||||||
1,210,014 | Connect Group Newspaper & Magazine Distributor | 2,385,405 | |||||||||
609,228 | PureCircle (b) Natural Sweeteners | 2,380,386 | |||||||||
761,673 | Ocado (a) (b) Online Grocery Retailer | 2,350,148 | |||||||||
482,000 | Halfords UK Retailer of Leisure Goods & Auto Parts | 2,072,381 | |||||||||
66,172,497 | |||||||||||
Germany – 6.9% | |||||||||||
136,750 | Aurelius European Turnaround Investor | 8,036,843 | |||||||||
144,425 | Wirecard (a) Online Payment Processing & Risk Management | 6,361,330 | |||||||||
57,781 | MTU Aero Engines Airplane Engine Components & Services | 5,398,358 | |||||||||
59,700 | Fielmann Retail Optician Chain | 4,366,422 | |||||||||
91,367 | NORMA Group Clamps for Automotive & Industrial Applications | 4,329,022 | |||||||||
80,400 | Ströer (a) Out of Home & Online Advertising | 3,698,335 | |||||||||
131,597 | Elringklinger (a) Automobile Components | 2,590,630 | |||||||||
5,316 | Rational Commercial Ovens | 2,460,189 | |||||||||
37,241,129 | |||||||||||
Sweden – 6.1% | |||||||||||
424,154 | Trelleborg Manufacturer of Sealing, Dampening & Protective Solutions for Industry | 7,526,812 | |||||||||
673,803 | Unibet European Online Gaming Operator | 6,190,049 | |||||||||
389,377 | Recipharm (a) Contract Development Manufacturing Organization | 5,442,083 | |||||||||
300,923 | Sweco (a) Engineering Consultants | 5,220,708 |
See accompanying notes to financial statements.
8
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Sweden – 6.1% (cont) | |||||||||||
74,809 | Millicom Telecoms Operator in Latin America & Africa | $ | 4,588,735 | ||||||||
183,503 | Mekonomen (a) Nordic Integrated Wholesaler/Retailer of Automotive Parts & Service | 3,947,374 | |||||||||
22,835 | Byggmax Nordic Discount DIY Retail Chain | 173,407 | |||||||||
33,089,168 | |||||||||||
Spain – 3.3% | |||||||||||
1,220,000 | Distribuidora Internacional de Alimentación Discount Retailer in Spain & Latin America | 7,121,010 | |||||||||
941,860 | Prosegur Security Guards | 5,676,149 | |||||||||
53,000 | Viscofan Sausage Casings Maker | 2,941,536 | |||||||||
83,000 | Bolsas y Mercados Españoles Spanish Stock Markets | 2,332,671 | |||||||||
18,071,366 | |||||||||||
Denmark – 2.6% | |||||||||||
171,577 | SimCorp Software for Investment Managers | 8,420,406 | |||||||||
278,825 | William Demant Holding (b) Manufacture & Distribution of Hearing Aids & Diagnostic Equipment | 5,427,548 | |||||||||
13,847,954 | |||||||||||
Netherlands – 2.4% | |||||||||||
175,987 | Aalberts Industries Flow Control & Heat Treatment | 5,275,785 | |||||||||
66,960 | Gemalto Digital Security Solutions | 4,056,700 | |||||||||
193,387 | Brunel Temporary Specialist & Energy Staffing | 3,530,656 | |||||||||
12,863,141 | |||||||||||
Finland – 2.0% | |||||||||||
332,599 | Tikkurila Decorative & Industrial Paint in Scandinavia, Central & Eastern Europe | 6,022,562 | |||||||||
122,354 | Konecranes Manufacture & Service of Industrial Cranes & Port Handling Equipment | 3,106,085 |
Number of Shares | Value | ||||||||||
405,068 | Sponda Office, Retail & Logistics Properties | $ | 1,763,956 | ||||||||
10,892,603 | |||||||||||
Italy – 1.9% | |||||||||||
96,664 | Brembo High Performance Auto Braking Systems Supplier | 5,324,799 | |||||||||
84,000 | Industria Macchine Automatiche Food & Drugs Packaging & Machinery | 5,056,415 | |||||||||
10,381,214 | |||||||||||
France – 1.9% | |||||||||||
337,514 | Elior Group Contract Caterer & Travel Concessionary | 7,323,766 | |||||||||
7,529 | Eurofins Scientific Food, Pharmaceuticals & Materials Screening & Testing | 2,789,287 | |||||||||
10,113,053 | |||||||||||
Norway – 1.0% | |||||||||||
537,507 | Atea Nordic IT Hardware/Software Reseller & Integrator | 5,122,173 | |||||||||
Belgium – 0.7% | |||||||||||
62,000 | Melexis Analog & Custom IC Designer | 3,895,971 | |||||||||
Switzerland – 0.5% | |||||||||||
7,961 | Inficon Gas Detection Instruments | 2,694,620 | |||||||||
Total Europe | 224,384,889 | ||||||||||
Other Countries – 13.8% | |||||||||||
Canada – 6.4% | |||||||||||
62,716 | CCL Industries Global Label Converter | 10,914,560 | |||||||||
227,742 | Ag Growth Manufacturer of Augers & Grain Handling Equipment | 7,218,573 | |||||||||
132,947 | Vermilion Energy Canadian Exploration & Production Company | 4,233,476 | |||||||||
87,200 | Boardwalk Real Estate Investment Trust Canadian Residential REIT | 3,885,005 |
See accompanying notes to financial statements.
9
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Canada – 6.4% (cont) | |||||||||||
159,000 | Prairie Sky Royalty (a) Canadian Owner of Oil & Gas Mineral Interests | $ | 3,017,671 | ||||||||
111,000 | ShawCor Oil & Gas Pipeline Products | 2,751,910 | |||||||||
215,516 | CAE Flight Simulator Equipment & Training Centers | 2,603,974 | |||||||||
34,625,169 | |||||||||||
Australia – 3.0% | |||||||||||
146,615 | Domino's Pizza Enterprises Domino's Pizza Operator in Australia & New Zealand | 7,544,443 | |||||||||
4,520,881 | TFS Corporation Indian Sandalwood Plantation | 4,775,341 | |||||||||
572,000 | Estia Health Residential Aged Care Facility Operator | 1,983,911 | |||||||||
249,211 | Challenger Financial Annuity Provider in Australia | 1,628,154 | |||||||||
269,796 | Spotless Facility Management & Catering Company | 228,331 | |||||||||
16,160,180 | |||||||||||
United States – 1.3% | |||||||||||
79,814 | LivaNova (b) Neuromodulation & Cardiac Devices | 4,009,057 | |||||||||
93,000 | Cepheid (b) Molecular Diagnostics | 2,859,750 | |||||||||
6,868,807 | |||||||||||
South Africa – 1.2% | |||||||||||
733,480 | Coronation Fund Managers South African Fund Manager | 3,327,214 | |||||||||
356,306 | Famous Brands Quick Service Restaurant & Cafe Franchise System in Africa | 3,072,438 | |||||||||
6,399,652 | |||||||||||
Guatemala – 0.8% | |||||||||||
289,255 | Tahoe Resources Silver & Gold Projects in Guatemala, Canada & Peru | 4,332,276 |
Number of Shares | Value | ||||||||||
Egypt – 0.6% | |||||||||||
658,688 | Commercial International Bank of Egypt Private Universal Bank in Egypt | $ | 2,965,358 | ||||||||
New Zealand – 0.5% | |||||||||||
904,200 | Sky City Entertainment Casino & Entertainment Complex | 2,959,733 | |||||||||
Total Other Countries | 74,311,175 | ||||||||||
Latin America – 1.0% | |||||||||||
Mexico – 1.0% | |||||||||||
34,570 | Grupo Aeroportuario del Sureste – ADR Mexican Airport Operator | 5,515,644 | |||||||||
Total Latin America | 5,515,644 | ||||||||||
Total Equities (Cost: $450,875,054) – 98.0% | 529,520,122 | (c) | |||||||||
Short-Term Investments – 0.3% | |||||||||||
$ | 1,607,078 | JPMorgan U.S. Government Money Market Fund, IM Shares (7 day yield of 0.29%) | 1,607,078 | ||||||||
Total Short-Term Investments (Cost: $1,607,078) – 0.3% | 1,607,078 | ||||||||||
Securities Lending Collateral – 3.5% | |||||||||||
19,135,017 | Dreyfus Government Cash Management Fund, Institutional Shares (7 day yield of 0.24%) (d) | 19,135,017 | |||||||||
Total Securities Lending Collateral (Cost: $19,135,017) – 3.5% | 19,135,017 | ||||||||||
Total Investments (e) (Cost: $471,617,149) – 101.8% | 550,262,217 | ||||||||||
Obligation to Return Collateral for Securities Loaned – (3.5)% | (19,135,017 | ) | |||||||||
Cash and Other Assets Less Liabilities – 1.7% | 9,434,651 | ||||||||||
Net Assets – 100.0% | $ | 540,561,851 |
ADR = American Depositary Receipts
REIT = Real Estate Investment Trust
See accompanying notes to financial statements.
10
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
> Notes to Statement of Investments
(a) All or a portion of this security was on loan at June 30, 2016. The total market value of securities on loan at June 30, 2016 was $18,401,815.
(b) Non-income producing security.
(c) On June 30, 2016, the Fund's total equity investments were denominated in currencies as follows:
Currency | Value | Percentage of Net Assets | |||||||||
Japanese Yen | $ | 121,844,198 | 22.6 | ||||||||
Euro | 103,458,477 | 19.1 | |||||||||
British Pound | 66,172,497 | 12.3 | |||||||||
Canadian Dollar | 38,957,445 | 7.2 | |||||||||
Swedish Krona | 33,089,168 | 6.1 | |||||||||
Other currencies less than 5% of total net assets | 165,998,337 | 30.7 | |||||||||
Total Equities | $ | 529,520,122 | 98.0 |
(d) Investment made with cash collateral received from securities lending activity.
(e) At June 30, 2016, for federal income tax purposes, the cost of investments was approximately $471,617,149 and net unrealized appreciation was $78,645,068 consisting of gross unrealized appreciation of $106,850,961 and gross unrealized depreciation of $28,205,893.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed below:
• Level 1 – quoted prices in active markets for identical securities
• Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others)
• Level 3 – prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management's own assumptions about the factors market participants would use in pricing an investment)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Examples of the types of securities in which the Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose NAVs are published each day and exchange traded foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost. Additionally, securities fair valued by CWAM's Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Trust's Portfolio Pricing Policy and the CWAM pricing procedures (the Policies), which are approved by and subject to the oversight of the Board.
The Committee meets as necessary, and no less frequently than quarterly, to determine fair values for securities for which market quotations are not readily available or for which the investment manager believes that available market quotations are unreliable. The Committee also reviews the continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other things: circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under which securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund's investment manager. The Committee may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the Policies.
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund's securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
The following table summarizes the inputs used, as of June 30, 2016, in valuing the Fund's assets:
Investment Type | Quoted Prices (Level 1) | Other Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||
Equities | |||||||||||||||||||
Asia | $ | 3,406,613 | $ | 221,901,801 | $ | — | $ | 225,308,414 | |||||||||||
Europe | — | 224,384,889 | — | 224,384,889 | |||||||||||||||
Other Countries | 45,826,252 | 28,484,923 | — | 74,311,175 | |||||||||||||||
Latin America | 5,515,644 | — | — | 5,515,644 | |||||||||||||||
Total Equities | 54,748,509 | 474,771,613 | — | 529,520,122 | |||||||||||||||
Total Short-Term Investments | 1,607,078 | — | — | 1,607,078 | |||||||||||||||
Total Securities Lending Collateral | 19,135,017 | — | — | 19,135,017 | |||||||||||||||
Total Investments | $ | 75,490,604 | $ | 474,771,613 | $ | — | $ | 550,262,217 |
The Fund's assets assigned to the Level 2 input category are generally valued using a market approach, in which a security's value is determined through its correlation to prices and information from observable market transactions for similar or identical assets. Foreign equities are generally valued at the last sale price on the foreign exchange or market on which they trade. The Fund may use a statistical fair valuation model, in
See accompanying notes to financial statements.
11
Wanger International 2016 Semiannual Report
Wanger International
Statement of Investments (Unaudited), June 30, 2016
accordance with the policy adopted by the Board, provided by an independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. These models take into account available market data including intraday index, ADR, and ETF movements.
There were no transfers of financial assets between Levels 1 and 2 during the period.
Financial assets were transferred from Level 3 to Level 2 as trading resumed during the period.
The following table shows transfers between Level 2 and Level 3 of the fair value hierarchy:
Transfers In | Transfers Out | ||||||||||||||
Level 2 | Level 3 | Level 2 | Level 3 | ||||||||||||
$ | 2,776,146 | $ | — | $ | — | $ | 2,776,146 |
Transfers into and/or out of Level 3 are determined based on the fair value at the beginning of the period for security positions held throughout the period.
See accompanying notes to financial statements.
12
Wanger International 2016 Semiannual Report
Statement of Assets and Liabilities
June 30, 2016 (Unaudited)
Assets: | |||||||
Investments, at cost | $ | 471,617,149 | |||||
Investments, at value (including securities on loan of $18,401,815) | $ | 550,262,217 | |||||
Cash | 86,399 | ||||||
Foreign currency (cost of $1,692,854) | 1,693,483 | ||||||
Receivable for: | |||||||
Investments sold | 11,559,568 | ||||||
Fund shares sold | 1,145,615 | ||||||
Securities lending income | 155,948 | ||||||
Dividends | 539,391 | ||||||
Foreign tax reclaims | 459,499 | ||||||
Trustees' deferred compensation plan | 175,875 | ||||||
Prepaid expenses | 35,183 | ||||||
Total Assets | 566,113,178 | ||||||
Liabilities: | |||||||
Collateral on securities loaned | 19,135,017 | ||||||
Payable for: | |||||||
Investments purchased | 4,714,544 | ||||||
Fund shares redeemed | 1,334,738 | ||||||
Investment advisory fee | 13,818 | ||||||
Administration fee | 731 | ||||||
Transfer agent fee | 2 | ||||||
Trustees' fees | 3,572 | ||||||
Custody fee | 72,482 | ||||||
Reports to shareholders | 57,035 | ||||||
Trustees' deferred compensation plan | 175,875 | ||||||
Other liabilities | 43,513 | ||||||
Total Liabilities | 25,551,327 | ||||||
Net Assets | $ | 540,561,851 | |||||
Composition of Net Assets: | |||||||
Paid-in capital | $ | 454,924,677 | |||||
Undistributed net investment income | 1,343,776 | ||||||
Accumulated net realized gain | 5,690,186 | ||||||
Net unrealized appreciation (depreciation) on: | |||||||
Investments | 78,645,068 | ||||||
Foreign currency translations | (41,856 | ) | |||||
Net Assets | $ | 540,561,851 | |||||
Fund Shares Outstanding | 22,380,302 | ||||||
Net asset value, offering price and redemption price per share | $ | 24.15 |
Statement of Operations
For the Six Months Ended June 30, 2016 (Unaudited)
Investment Income: | |||||||
Dividends (net foreign taxes withheld of $842,339) | $ | 7,366,910 | |||||
Interest | 62 | ||||||
Income from securities lending—net | 463,495 | ||||||
Total Investment Income | 7,830,467 | ||||||
Expenses: | |||||||
Investment advisory fee | 2,584,950 | ||||||
Transfer agent fees | 314 | ||||||
Administration fee | 137,473 | ||||||
Trustees' fees | 27,073 | ||||||
Custody fees | 116,274 | ||||||
Reports to shareholders | 128,007 | ||||||
Audit fees | 34,404 | ||||||
Legal fees | 57,226 | ||||||
Chief compliance officer expenses | 24,832 | ||||||
Commitment fee for line of credit (Note 5) | 10,600 | ||||||
Other expenses | 18,376 | ||||||
Total Expenses | 3,139,529 | ||||||
Net Investment Income | 4,690,938 | ||||||
Net Realized and Unrealized Gain (Loss) on Investments: | |||||||
Net realized gain (loss) on: | |||||||
Investments | 7,458,765 | ||||||
Foreign currency translations | 50,187 | ||||||
Net realized gain | 7,508,952 | ||||||
Net change in unrealized appreciation (depreciation) on: | |||||||
Investments | (13,794,766 | ) | |||||
Foreign currency translations | (5,186 | ) | |||||
Net change in unrealized depreciation | (13,799,952 | ) | |||||
Net realized and unrealized loss | (6,291,000 | ) | |||||
Net Decrease in Net Assets from Operations | $ | (1,600,062 | ) |
See accompanying notes to financial statements.
13
Wanger International 2016 Semiannual Report
Statements of Changes in Net Assets
Increase (Decrease) in Net Assets | (Unaudited) Six Months Ended June 30, 2016 | Year Ended December 31, 2015 | |||||||||
Operations: | |||||||||||
Net investment income | $ | 4,690,938 | $ | 7,165,545 | |||||||
Net realized gain (loss) on: | |||||||||||
Investments | 7,458,765 | 50,409,289 | |||||||||
Foreign currency translations | 50,187 | (346,363 | ) | ||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Investments | (13,794,766 | ) | (55,119,081 | ) | |||||||
Foreign currency translations | (5,186 | ) | 29,388 | ||||||||
Net Increase (Decrease) in Net Assets from Operations | (1,600,062 | ) | 2,138,778 | ||||||||
Distributions to Shareholders From: | |||||||||||
Net investment income | (1,831,842 | ) | (9,178,114 | ) | |||||||
Net realized gains | (44,383,757 | ) | (56,072,696 | ) | |||||||
Total Distributions to Shareholders | (46,215,599 | ) | (65,250,810 | ) | |||||||
Share Transactions: | |||||||||||
Subscriptions | 4,322,805 | 12,302,455 | |||||||||
Distributions reinvested | 46,215,599 | 65,250,810 | |||||||||
Redemptions | (48,789,699 | ) | (94,967,225 | ) | |||||||
Net Increase (Decrease) from Share Transactions | 1,748,705 | (17,413,960 | ) | ||||||||
Proceeds from regulatory settlements | — | 131,912 | |||||||||
Total Decrease in Net Assets | (46,066,956 | ) | (80,394,080 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 586,628,807 | 667,022,887 | |||||||||
End of period | $ | 540,561,851 | $ | 586,628,807 | |||||||
Undistributed (Overdistributed) net investment income | $ | 1,343,776 | $ | (1,515,320 | ) |
See accompanying notes to financial statements.
14
Wanger International 2016 Semiannual Report
Financial Highlights
The following table is intended to help you understand the Fund's financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If such transactions were included, the Fund's portfolio turnover rate may be higher.
(Unaudited) Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||
Selected data for a share outstanding throughout each period | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 26.32 | $ | 29.07 | $ | 34.55 | $ | 31.19 | $ | 28.79 | $ | 36.16 | |||||||||||||||
Income from Investment Operations: | |||||||||||||||||||||||||||
Net investment income | 0.22 | 0.31 | 0.36 | 0.39 | 0.46 | 0.42 | |||||||||||||||||||||
Net realized and unrealized gain (loss) | (0.16 | ) | (0.09 | ) | (1.56 | ) | 6.18 | 5.27 | (5.31 | ) | |||||||||||||||||
Reimbursement from affiliate | — | — | — | — | — | 0.00 | (a) | ||||||||||||||||||||
Total from Investment Operations | 0.06 | 0.22 | (1.20 | ) | 6.57 | 5.73 | (4.89 | ) | |||||||||||||||||||
Less Distributions to Shareholders: | |||||||||||||||||||||||||||
Net investment income | (0.09 | ) | (0.41 | ) | (0.48 | ) | (0.88 | ) | (0.38 | ) | (1.64 | ) | |||||||||||||||
Net realized gains | (2.14 | ) | (2.57 | ) | (3.80 | ) | (2.33 | ) | (2.95 | ) | (0.84 | ) | |||||||||||||||
Total Distributions to Shareholders | (2.23 | ) | (2.98 | ) | (4.28 | ) | (3.21 | ) | (3.33 | ) | (2.48 | ) | |||||||||||||||
Proceeds from regulatory settlements | — | 0.01 | — | — | — | — | |||||||||||||||||||||
Net Asset Value, End of Period | $ | 24.15 | $ | 26.32 | $ | 29.07 | $ | 34.55 | $ | 31.19 | $ | 28.79 | |||||||||||||||
Total Return | (0.16 | )% | 0.10 | %(b) | (4.40 | )% | 22.37 | % | 21.56 | %(c) | (14.62 | )%(c) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||||
Total gross expenses (d) | 1.14 | %(e) | 1.12 | % | 1.05 | % | 1.07 | % | 1.08 | % | 1.06 | % | |||||||||||||||
Total net expenses (d) | 1.14 | %(e) | 1.12 | % | 1.05 | % | 1.07 | % | 1.05 | %(f) | 1.00 | %(f) | |||||||||||||||
Net investment income | 1.71 | %(e) | 1.11 | % | 1.10 | % | 1.19 | % | 1.51 | % | 1.25 | % | |||||||||||||||
Portfolio turnover rate | 36 | % | 53 | % | 28 | % | 44 | % | 34 | % | 36 | % | |||||||||||||||
Net assets, end of period (000s) | $ | 540,562 | $ | 586,629 | $ | 667,023 | $ | 784,977 | $ | 702,667 | $ | 682,217 |
Notes to Financial Highlights
(a) Rounds to zero.
(b) The Fund received proceeds from regulatory settlements. Had the Fund not received these proceeds, the total return would have been lower by 0.01%.
(c) Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced.
(d) In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests, if any. Such indirect expenses are not included in the Fund's reported expense ratios.
(e) Annualized.
(f) The benefits derived from custody fees paid indirectly had an impact of less than 0.01%.
See accompanying notes to financial statements.
15
Wanger International 2016 Semiannual Report
Notes to Financial Statements (Unaudited)
1. Nature of Operations
Wanger International (the Fund), a series of Wanger Advisors Trust (the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be offered directly to certain qualified pension and retirement plans.
2. Summary of Significant Accounting Policies
Basis of preparation
The Fund is an investment company that applies the accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services—Investment Companies (ASC 946). The financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees (the Board). A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange traded funds (ETFs) are valued at their closing net asset value as reported on the applicable exchange. A security for which there is no reported sale on the valuation date is valued at the mean of the latest bid and ask quotations.
Short-term investments maturing in 60 days or less are valued at amortized cost, which approximates market value.
The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security is valued at a fair value, that value may be different from the last quoted market price for the security.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S. dollars using the New York spot market rate of exchange at the time of valuation. Purchases and sales of investments and dividend and interest income are translated into U.S. dollars using the spot market rate of exchange prevailing on the respective dates of such transactions. The gain or loss resulting from changes in foreign exchange rates is included with net realized and unrealized gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except
that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded on the accrual basis and includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Awards, if any, from class action litigation related to securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
The Fund may receive distributions from holdings in equity securities, ETFs, other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund's management. Management's estimates are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Expenses
General expenses of the Trust are allocated to the Fund and the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of trading on the New York Stock Exchange (the Exchange) on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding.
Securities lending
The Fund may lend securities up to one-third of the value of its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund's lending agent, and borrower rebates. The Fund's investment manager, Columbia Wanger Asset Management, LLC (CWAM), does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2016, is included in the Statement of Operations.
16
Wanger International 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
Offsetting of assets and liabilities
The following table presents the Fund's gross and net amount of assets and liabilities available for offset under netting agreements and under a securities lending agreement as well as the related collateral received by the Fund as of June 30, 2016:
Goldman Sachs ($) | |||||||
Liabilities | |||||||
Collateral on securities loaned | 19,135,017 | ||||||
Total liabilities | 19,135,017 | ||||||
Total financial and derivative net assets | (19,135,017 | ) | |||||
Financial instruments | 18,401,815 | ||||||
Net amount (a) | (733,202 | ) |
(a) Represents the net amount due from/ (to) counterparties in the event of default.
Securities lending transactions
The following table indicates the total amount of securities loaned by type, reconciled to gross liability payable upon return of the securities loaned by the Fund as of June 30, 2016:
Overnight and Continuous | Up to 30 Days | 30 – 90 Days | Greater than 90 Days ($) | Total ($) | |||||||||||||||||||
Securities lending transactions | |||||||||||||||||||||||
Equity securities | $ | 18,401,815 | $ | — | $ | — | $ | — | $ | 18,401,815 | |||||||||||||
Gross amount of recognized liabilities for securities lending (collateral received) | 19,135,017 | ||||||||||||||||||||||
Amounts due to counterparty | $ | 733,202 |
Federal income taxes
The Fund has complied with the provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, distributes substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
Foreign capital gains taxes
Gains in certain countries may be subject to foreign taxes at the fund level. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Indemnification
In the normal course of business, the Trust on behalf of the Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund. Also under the Trust's organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of loss due to these warranties and indemnities to be remote.
3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
Management is required to determine whether a tax position of the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management's conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
4. Transactions with Affiliates
CWAM is a wholly owned subsidiary of Columbia Management Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the overall management of the Fund's business affairs.
CWAM receives a monthly advisory fee based on the Fund's average daily net assets at the following annual rates:
Average Daily Net Assets | Annual Fee Rate | ||||||
Up to $100 million | 1.10 | % | |||||
$100 million to $250 million | 0.95 | % | |||||
$250 million to $500 million | 0.90 | % | |||||
$500 million to $1 billion | 0.80 | % | |||||
$1 billion and over | 0.72 | % |
For the six months ended June 30, 2016, the annualized effective investment advisory fee rate, was 0.94% of the Fund's average daily net assets.
CWAM provides administrative services and receives an administration fee from the Fund at the following annual rates:
Wanger Advisors Trust Aggregate Average Daily Net Assets of the Trust | Annual Fee Rate | ||||||
Up to $4 billion | 0.05 | % | |||||
$4 billion to $6 billion | 0.04 | % | |||||
$6 billion to $8 billion | 0.03 | % | |||||
$8 billion and over | 0.02 | % |
For the six months ended June 30, 2016, the annualized effective administration fee rate was 0.05% of the Fund's average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Columbia Management Investment Distributors, Inc. (CMID), a wholly owned subsidiary of Ameriprise Financial, serves as the Fund's distributor and principal underwriter.
Columbia Management Investment Services Corp. (CMIS), a wholly owned subsidiary of Ameriprise Financial, is the transfer agent to the Fund. For its services, the Fund pays CMIS a monthly fee at the annual rate of $21.00 per open account. CMIS also receives reimbursement from the Fund for certain out-of-pocket expenses.
Certain officers and trustees of the Trust are also officers of CWAM. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM.
17
Wanger International 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
The Board has appointed a Chief Compliance Officer of the Trust in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of certain of the expenses associated with the office of the Chief Compliance Officer.
The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value of Class Z shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
For the six months ended June 30, 2016, the Fund engaged in purchase and sales transactions with funds that have a common investment manager (or affiliated investment managers), common directors/trustees, and/or common officers. Those purchase and sale transactions complied with provisions of Rule 17a-7 under the 1940 Act and were $19,408,444 and $5,462,621, respectively. The sale transactions resulted in a net realized gain of $1,808,732.
5. Borrowing Arrangements
During the period January 1, 2016 through April 28, 2016, the Trust participated in a revolving credit facility in the amount of $400 million with a syndicate of banks led by JPMorgan Chase Bank, N.A., along with Columbia Acorn Trust, another trust managed by CWAM. Effective April 28, 2016, the credit facility was renewed in the amount of $200 million with a syndicate of banks led by JPMorgan Chase Bank, N.A. Under each facility, interest is charged to each participating Fund based on its borrowings at a rate per annum equal to the Federal Funds Rate plus 1.00%. In addition, a commitment fee of 0.08% (before April 28, 2016) and 0.15% (after April 28, 2016) per annum of the unutilized line of credit is accrued and apportioned among the participating Funds based on their relative net assets. The commitment fee is disclosed as a part of "Other expenses" in the Statement of Operations. The Trust expects to renew this line of credit for one year durations each April at then current market rates and terms.
No amounts were borrowed for the benefit of the Fund under the line of credit during the six months ended June 30, 2016.
6. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following numbers of shares:
(Unaudited) Six months ended June 30, 2016 | Year ended December 31, 2015 | ||||||||||
Shares sold | 170,738 | 431,818 | |||||||||
Shares issued in reinvestment of dividend distributions | 1,831,046 | 2,291,751 | |||||||||
Less shares redeemed | (1,910,180 | ) | (3,377,227 | ) | |||||||
Net increase (decrease) in shares outstanding | 91,604 | (653,658 | ) |
7. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than short-term obligations for the six months ended June 30, 2016, were $196,645,747 and $230,814,351, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
8. Shareholder Concentration
At June 30, 2016, two unaffiliated shareholder accounts owned an aggregate of 29.3% of the outstanding shares of the Fund. The Fund has no knowledge about whether any portion of those shares was owned beneficially by such accounts. Affiliated shareholder accounts owned 60.2% of the outstanding shares of the Fund. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund.
9. Subsequent Events
Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
10. Information Regarding Pending and Settled Legal Proceedings
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
18
Wanger International 2016 Semiannual Report
Board Approval of the Advisory Agreement
Wanger Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger International (the "Fund"). More than 75% of the trustees of the Trust (the "Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent Trustees"). The Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does the Board's Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several occasions. In all, the Contract Committee convened formally on seven separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract Committee's status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees, reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee") serves on the Contract Committee and made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the Trustees included, among other items, (i) information on the investment performance of the Fund relative to independently selected peer groups of funds and the Fund's performance benchmark(s) over various time periods, as presented and analyzed by independent consultants, (ii) information on the Fund's advisory fees and other expenses, including information comparing the Fund's fees and expenses to those of peer groups of funds and information about any applicable expense limitations and fee breakpoints, (iii) data on sales and redemptions of Fund shares, and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as a result of their relationships with the Fund. The Contract Committee and the Trustees also considered other information such as (i) CWAM's financial condition, (ii) the Fund's investment objective and strategy, (iii) the size, education and experience of CWAM's investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund, (iv) the portfolio manager compensation framework, (v) the allocation of the Fund's brokerage, and the use of "soft" commission dollars to pay for research products and services, (vi) CWAM's risk management program, (vii) the resources devoted to, and the record of compliance with, the Fund's
investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures, and (viii) CWAM's and its affiliates' conflicts of interest.
At a meeting held on June 7, 2016, the Board considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself was considered dispositive. The material factors and conclusions that formed the basis for the Trustees' determination to approve the continuation of the Advisory Agreement are discussed below.
Nature, quality and extent of services. The Trustees reviewed the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund's investment restrictions; producing shareholder reports; providing support services for the Board and committees of the Board; managing the Fund's securities lending program; communicating with shareholders; serving as the Fund's administrator; and overseeing the activities of the Fund's other service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM's compliance record.
The Trustees took into account changes made by CWAM in the past year to improve Fund performance, including but not limited to: changes to Fund portfolio holdings in 2015; the addition of more risk-based analysis into the portfolio management process; an emphasis on more liquid stocks with more growth potential; and changing certain portfolio managers and analysts.
The Trustees concluded that the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment and operational personnel. Based on these changes and assurances, the Trustees believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund. The Trustees received and considered detailed performance information at various meetings of the Board, the Contract Committee and the Performance Committee throughout the year. They reviewed information comparing the Fund's performance with that of its benchmark(s) and with the performance of comparable funds and peer groups as identified by independent consultants Broadridge Financial Solutions, Inc. ("Broadridge") and Morningstar, Inc. ("Morningstar") taking into account that each service had a different methodology for calculating the Fund's total returns. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, including over the one-, three- and five-year periods ended December 31, 2015. The Trustees also considered peer performance rankings for similar time periods and with respect to the change to the Fund's primary benchmark effective January 1, 2016.
The Trustees noted that the Fund had underperformed against its Morningstar peer group median over the one-, three and five-year periods and noted that Broadridge had been unable to construct an appropriate peer group. The Trustees considered that the Fund's performance was being monitored closely by the Board and the Performance Committee and that CWAM had provided the Contract
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Wanger International 2016 Semiannual Report
Board Approval of the Advisory Agreement, continued
Committee with an explanation for the underperformance and the measures being taken to address the issue as described above.
The Trustees concluded that CWAM had taken and continued to take a number of corrective steps to improve performance of the Fund, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund's performance closely. In addition the Trustees considered that the Chief Investment Officer (the "CIO") of CWAM had reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve Fund performance, and that members of the Contract Committee had met separately with the CIO on multiple occasions to discuss the Fund. The Trustees also took into consideration the Fund's performance versus its current and former benchmark as reported by both Morningstar and Broadridge, noting that each service calculated the Fund's total return using a different methodology with varying results.
Costs of Services and Profits Realized by CWAM. At various Committee and Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge and Morningstar. The Trustees noted that the Fund's net expenses and actual advisory fees were higher than the Broadridge peer group median, but lower than the Morningstar peer group median.
The Trustees also reviewed the advisory fee rates charged by CWAM for managing other investment companies, sub-advised funds and other institutional separate accounts, as detailed in materials provided to the Contract Committee by CWAM. The Trustees noted that the Fund's advisory fees were generally comparable to Columbia Acorn International's advisory fees at the same asset levels. The Trustees also examined CWAM's institutional separate account fees for parallel investment strategies and determined that institutional account advisory fees tended to be lower than the Fund. The Trustees considered the information provided by CWAM regarding its performance of significant additional services for the Fund that it does not provide to sub-advised funds or non-mutual fund clients, including administrative and fund accounting services, oversight of the Fund's other service providers, Trustee support, regulatory compliance and numerous other services, and that, in servicing the Fund, CWAM assumes many legal and business risks that it does not assume in servicing many of its non-fund clients.
The Trustees reviewed the analysis of the historic profitability of CWAM in serving as the Fund's investment manager and of CWAM and its affiliates in their relationships with the Fund. The Contract Committee and Trustees met with representatives from Ameriprise to discuss its methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and Fund-by-Fund basis. The Trustees also reviewed the methodology used by CWAM and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from third-party consultant Strategic Insight, which compared CWAM's profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM's profitability in light of the additional resources that had been, and would continue to be, provided to it by Ameriprise to assist in improving performance.
Economies of Scale. At various Committee and Board meetings and other informal meetings, the Trustees considered information about the extent to which CWAM realizes economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund includes breakpoints in the rate of fees at various asset levels. The Trustees concluded that the fee structure of the Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other Benefits to CWAM. The Trustees also reviewed benefits that accrue to CWAM and its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund's transfer agency services are performed by Columbia Management Investment Services Corp., an affiliate of Ameriprise, which receives compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc. ("CMID"), serves as the Fund's distributor under an underwriting agreement but receives no fees for its services to the Fund. In addition, Columbia Management provides sub-administration services to the Fund. The Contract Committee and the Board received information regarding the profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM may potentially benefit from their relationship with each other. For example, the Trustees considered CWAM's use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM's annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM's soft dollar spending. The Trustees also considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM's execution of the Fund's portfolio transactions. The Trustees noted that these reports showed that CWAM's execution capabilities were generally better than industry peers. The Trustees determined that CWAM's use of the Fund's "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefits from the receipt of proprietary research products and services acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM's receipt of those products and services as well as research products and services acquired through commissions paid by other clients of CWAM.
After full consideration of the above factors, as well as other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the Advisory Agreement was in the best interest of the Fund. At the Board meeting held on June 7, 2016, the Trustees approved continuation of the Advisory Agreement through July 31, 2017.
20
Wanger International 2016 Semiannual Report
Columbia Wanger Funds
Trustees
Laura M. Born, Chair of the Board
David J. Rudis, Vice Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Thomas M. Goldstein
John C. Heaton
Steven N. Kaplan
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan
President
Alan G. Berkshire
Vice President
Michael G. Clarke
Assistant Treasurer
William J. Doyle
Vice President
David L. Frank
Vice President
Paul B. Goucher
Assistant Secretary
Fritz Kaegi
Vice President
John M. Kunka
Vice President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak
Vice President
Joseph C. LaPalm
Vice President
Ryan C. Larrenaga
Assistant Secretary
Matthew A. Litfin
Vice President
Satoshi Matsunaga
Vice President
Thomas P. McGuire
Chief Compliance Officer
Louis J. Mendes
Vice President
Christopher J. Olson
Vice President
Julian Quero
Assistant Treasurer
Martha A. Skinner
Assistant Treasurer
Matthew S. Szafranski
Vice President
Andreas Waldburg-Wolfegg
Vice President
Linda K. Roth-Wiszowaty
Secretary
Investment Manager
Columbia Wanger Asset Management, LLC
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-888-4-WANGER
(1-888-492-6437)
Transfer Agent,
Dividend Disbursing Agent
Columbia Management Investment Services Corp.
P.O. Box 8081
Boston, Massachusetts
02266-8081
Distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, Massachusetts
02110
Legal Counsel to the Funds
Perkins Coie LLP
Washington, DC
Legal Counsel to the Independent Trustees
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Chicago, Illinois
This document contains Global Industry Classification Standard data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Standard & Poor's Financial Services LLC ("S&P") and is licensed for use by Columbia Wanger Asset Management, LLC ("CWAM"). Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
This report, including the schedules of investments and financial statements, is submitted for the general information of the shareholders of the Wanger Advisors Trust.
A description of the Fund's proxy voting policies and procedures and a copy of the Fund's voting record for the most recent 12-month period ended June 30 are available (i) on our website at investor.columbiathreadneedleus.com/disclosures/proxy-voting-report, (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 888-492-6437.
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Pubic Reference Room may be obtained by calling 800-SEC-0330. The Fund's complete portfolio holdings are disclosed at investor.columbiathreadneedleus.com approximately 30 to 40 days after each month-end.
COLUMBIA WANGER FUNDS
© 2016 Columbia Management Investment Advisers, LLC. All rights reserved. C-1460 AK (8/16) 1571994
SEMIANNUAL REPORT
June 30, 2016
COLUMBIA WANGER FUNDS
Managed by Columbia Wanger Asset Management, LLC
WANGER SELECT
Wanger Select
2016 Semiannual Report
Table of Contents
2 | A View on Brexit | ||||||
3 | Understanding Your Expenses | ||||||
4 | Performance Review | ||||||
6 | Statement of Investments | ||||||
9 | Statement of Assets and Liabilities | ||||||
9 | Statement of Operations | ||||||
10 | Statement of Changes in Net Assets | ||||||
11 | Financial Highlights | ||||||
12 | Notes to Financial Statements | ||||||
15 | Board Approval of the Advisory Agreement |
Columbia Wanger Asset Management, LLC (CWAM) is one of the leading global small- and mid-cap equity managers in the United States with over 45 years of small- and mid-cap investment experience. As of June 30, 2016, CWAM managed $17 billion in assets. CWAM is the investment manager to Wanger USA, Wanger International and Wanger Select (together, the Columbia Wanger Funds) and the Columbia Acorn Family of Funds.
An important note: Columbia Wanger Funds are available only through variable annuity contracts and variable life insurance policies issued by participating insurance companies or certain eligible retirement plans. Columbia Wanger Funds are not offered directly to the public and are not available in all contracts, policies or plans. Contact your financial advisor or insurance representative for more information. Columbia Wanger Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA, and are managed by CWAM.
Investors should carefully consider investment objectives, risks and expenses of the Fund before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing.
The views expressed in "A View on Brexit" and in the Performance Review reflect the current views of the respective authors. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to specific company securities should not be construed as a recommendation or investment advice.
1
Wanger Select 2016 Semiannual Report
A View on Brexit
Global equity markets were caught on the back foot by the outcome of the UK referendum on continued European Union (EU) membership. The long-term political and economic implications of this decision are potentially vast and impossible to discern at this stage, not least because they will be shaped by how policymakers respond. As investors globally reprice risk and reposition portfolios in light of currency sensitivity and how they expect this outcome to bear differently on sectors, countries and companies, there will be mispricing opportunities. This is good for stock pickers and we expect to be active. We will be looking closely at how strong players in diverse industries might improve their competitive positions, as growth opportunities become more scarce and costs of capital among competitors more differentiated. We expect the relatively high balance sheet and business model quality of the stocks that we hold in the Columbia Wanger Funds to prove helpful in coming quarters because the risk premium has gone up, as evidenced by increased volatility, compressed multiples in some pockets of the market such as European banks, and sharp currency swings.
This political development is nonetheless clearly a negative one. The United Kingdom is the fifth largest economy in the world and the second largest within the EU. It has been a member of the European Economic Community (precursor to the EU) since 1973.i The UK exit raises uncertainties about global growth, heightens risk aversion, and it will preoccupy European policymakers at a time when they are already challenged by anemic growth, high unemployment, refugee immigration flows, and international and domestic security concerns.
While many market observers view the outcome of the referendum as a comment on, and existential threat to, the overall European integration project, it may, rather, reflect a larger process at work, namely increasing middle-class discontent with the perceived consequences of globalization in industrialized democracies. Rising populism and nativist resentments in Europe and the United States could be
harbingers of future policy regimes that place less value on minimizing trade friction, and the mobility of capital and labor, all of which have contributed to global prosperity. The evolving framework for global trade and investment over the last 25 years has been an enormous engine of global growth. During this period, a substantial percentage of the world's population once living within largely economically isolated communist states was integrated into the modern global economy as producers and consumers. This has raised standards of living in emerging markets and reduced the cost of consumer goods in industrialized countries, while creating new and growing markets for the sort of technologically sophisticated exports that support high-paying jobs in industrialized countries.
The Columbia Wanger Funds have benefited meaningfully from these trends. With Brexit, the EU will lose its strongest advocate of economic liberalism, which has served as an important counterpoint to statist perspectives in Germany and France. At a minimum, it appears that domestic policies are poised to pivot toward the populist issue of economic inequality, which in Europe may manifest itself in a slowdown or reversal of structural reforms in EU labor markets, with negative consequences for productivity and, with it, standards of living. Fiscal tightening, where necessary, could be scaled back as a salve to populists, and it seems likely that industrialized countries will see increased constraints on immigration, even where demographically driven labor shortages exist.
While this could well be regarded as overall bad news for asset owners, opportunities will likely present themselves. For many years, the Columbia Wanger Funds have explored how factory automation is deployed to reduce labor costs or to replace labor altogether, trends which could be accelerated by a reduction in immigration. London will fight hard to retain its role as the center of European finance, but bank chiefs are already talking about decamping elsewhere, which could create opportunity in continental European real estate and
construction. As corporate investment decision-making and household spending slow amidst the uncertainty, fiscal stimulus could be sought via public infrastructure projects, which would be good for constructors and suppliers of building materials. Public policy that increases labor's share of income would benefit consumer companies oriented to a lower middle class demographic. Other policy interventions could result in continued ultra-low interest rates, with implications for interest-rate sensitive businesses. In any case, it seems that earnings growth will continue to be a scarce factor in a low-growth world.
P. Zachary Egan
President and Global Chief Investment Officer
Columbia Wanger Asset Management, LLC
i http://ukandeu.ac.uk/fact-figures/when-did-britain-decide-to-join-the-european-union/
2
Wanger Select 2016 Semiannual Report
Understanding Your Expenses
As a shareholder, you incur three types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption fees. There are also ongoing costs, which generally include management fees and other expenses for Wanger Select (the Fund). Lastly, there may be additional fees or charges imposed by the insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs with the ongoing costs of investing in other mutual funds.
Analyzing your Fund's expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "Actual" column is calculated using the Fund's actual operating expenses and total return for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the "Hypothetical" column assumes a 5% annual rate of return before expenses (which is not the Fund's actual return) and then applies the Fund's actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during the period. See "Compare with other funds" below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any transaction costs, such as sales charges, redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs were included in these calculations, your costs would be higher.
January 1, 2016 – June 30, 2016
Account value at the beginning of the period ($) | Account value at the end of the period ($) | Expenses paid during period ($) | Fund's annualized expense ratio (%)* | ||||||||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | ||||||||||||||||||||||||||
Wanger Select | 1,000.00 | 1,000.00 | 998.00 | 1,020.98 | 3.87 | 3.92 | 0.78 |
* Expenses paid during the period are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in the Fund's most recent fiscal half-year and divided by 366.
Had the investment manager and/or certain of its affiliates not waived/reimbursed certain fees and expenses, account value at the end of the period would have been reduced. See Note 4 to the Financial Statements (Unaudited).
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company's separate account. The hypothetical example provided is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
3
Wanger Select 2016 Semiannual Report
Performance Review Wanger Select
David L. Frank Co-Portfolio Manager | Matthew S. Szafranski Co-Portfolio Manager |
Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Foreign investments subject the Fund to risks, including political, economic, market, social and other risks, within a particular country, as well as to potential currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector.
Wanger Select ended the semiannual period down 0.20%, underperforming the 7.93% gain of the Fund's primary benchmark, the S&P MidCap 400 Index. The Fund's growth-oriented portfolio struggled in an investment environment that favored value during much of the six-month period. We also saw a move toward more defensive areas of the market like utility and material stocks, which were top-performing sectors within the benchmark but are significant underweights in the Fund. Late in the period, the United Kingdom's vote to exit the European Union negatively impacted several Fund holdings with European exposure, detracting 1.5% from performance in this concentrated portfolio. On Page 2 of this report, you will find a letter from CWAM's global chief investment officer with additional thoughts on Brexit.
Looking at the Fund's biggest detractors for the six-month period, Wanger Select no longer has positions in eight of the 10 names. As a relatively new management team for the Fund, we actively refashioned holdings in the Fund during the period, adding 16 new names to the portfolio and selling 22 names. Bankrate, a provider of internet advertising for the insurance, credit card and banking markets, retraced 2015 gains, falling 33% in the first half of 2016 before we sold the stock on concerns around increased competition from Google. Blackhawk Network, a third-party distributor of prepaid content like gift cards, fell 26% and was also sold in the period. The company announced an earnings miss driven by changes at the retailer level that negatively impacted its business. Union Agriculture, a farmland operator in Uruguay, ended the period down 55%. We decided to exit the position.
As mentioned, the Fund owned stock in several U.S. companies that were hurt in the quarter by their exposure to Europe and the United Kingdom. Robert Half, a provider of temporary and permanent staffing, fell 18% on a deceleration of company growth and on Brexit worries, which accentuated the decline in this cyclical stock. Jones Lang LaSalle, a provider of commercial real estate services worldwide, fell 19% on concerns of a decline in commercial real estate transaction and leasing volumes in China. Following the Brexit vote, these concerns expanded to include the United Kingdom and Europe. Lazard, a provider of corporate advisory and asset management services, ended the half down 16%. The company's merger advisory services in Europe are expected to see sharp declines through the rest of 2016, and a strong dollar could negatively impact its asset management business in the near term. We do not believe that Brexit has diminished
the long-term value of these companies, and the Fund continued to hold all three names at period end.
Leading contributors for the half-year period included Nordson, a manufacturer of dispensing systems for adhesives and coatings, which gained 30%. After experiencing lackluster sales in 2015 like many industrials dependent on overseas revenues, Nordson returned to growth in the first half of 2016, benefiting from launches in new technology like mobile phones that utilize the company's cutting edge dispensing and testing technologies. Pizza franchisor Papa John's International gained 23%, as the company proved its ability to drive solid earnings in a promotional pizza environment. EdR, a provider of student housing, outstripped even the stout returns of real estate investment trusts (REITs) in a yield-hungry environment by continuing to show strong momentum in its development pipeline. Up 24% for the half year, the company continues to have success signing up universities to build and operate on-campus living facilities. Align Technology, the manufacturer behind the Invisalign system used to straighten teeth, gained 21% for the period. The company is taking market share away from traditional braces, and its 2015 sales force realignment and launch of a new digital scanner also helped drive an acceleration in product use.
Fund performance also benefited from our participation in the April 15 initial public offering of Bats Global Markets, a diversified financial company. The company offered strong results for the first quarter of the year, driving a 20% gain in the stock. We sold the Fund's position to capture the gains.
While we are disappointed with the Fund's underperformance in the first half of the year, we believe it is important to remember that in a concentrated portfolio like Wanger Select's returns will fluctuate. As we've reshaped the Fund's portfolio during the period, we have moved away from owning more speculative names and have focused on creating a portfolio of our analyst team's current top ideas. At June 30, the Fund held 34 names, nearly half of which were added to the portfolio in the first six months of the year. The Fund's tilt toward the consumer discretionary and industrial sectors continues. Most importantly, we have refocused on durable, growth-at-a-reasonable price businesses that we believe will outperform over time.
Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.
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Wanger Select 2016 Semiannual Report
Growth of a $10,000 Investment in Wanger Select
February 1, 1999 (inception date) through June 30, 2016
Performance data shown represents past performance and is not a guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance data shown. Performance results reflect any fee waivers or reimbursements of Fund expenses by the investment manager and/or any of its affiliates. Absent these fee waivers and/or expense reimbursement arrangements, performance results would have been lower. For most recent month-end performance updates, please visit investor.columbiathreadneedleus.com.
This graph compares the results of $10,000 invested in Wanger Select on February 1, 1999 (the date the Fund began operations) through June 30, 2016, to the S&P MidCap 400 Index, with dividends and capital gains reinvested. Although the index is provided for use in assessing the Fund's performance, the Fund's holdings may differ significantly from those in the index.
Top 10 Holdings
As a percentage of net assets, as of 6/30/16
1. LKQ Alternative Auto Parts Distribution | 5.2 | % | |||||
2. Align Technology Invisalign System to Correct Malocclusion (Crooked Teeth) | 4.4 | ||||||
3. SVB Financial Group Bank to Venture Capitalists | 4.3 | ||||||
4. HRG Group Holding Company | 4.1 | ||||||
5. Amerco North American Moving & Storage | 4.1 | ||||||
6. HealthSouth Inpatient Rehabilitation Facilities & Home Health Care | 4.1 | ||||||
7. Papa John's International Franchisor of Pizza Restaurants | 3.9 | ||||||
8. Crown Castle International Communications Towers | 3.7 | ||||||
9. EdR Student Housing | 3.7 | ||||||
10. Nordson Dispensing Systems for Adhesives & Coatings | 3.6 |
Top holdings exclude short-term holdings and cash, if applicable.
Top 5 Industries
As a percentage of net assets, as of 6/30/16
Consumer Discretionary | 24.7 | % | |||||
Industrials | 22.7 | ||||||
Financials | 19.4 | ||||||
Health Care | 15.6 | ||||||
Information Technology | 7.1 |
Results as of June 30, 2016
2nd quarter* | Year to date* | 1 year | 5 years | 10 years | |||||||||||||||||||
Wanger Select | -0.45 | % | -0.20 | % | -5.57 | % | 6.43 | % | 6.06 | % | |||||||||||||
S&P MidCap 400 Index | 3.99 | 7.93 | 1.33 | 10.55 | 8.55 |
NAV as of 6/30/16: $16.85
* Not annualized.
Performance numbers reflect all Fund expenses but do not include any fees and expenses imposed under your variable annuity contract or life insurance policy or qualified pension or retirement plan. If performance numbers included the effect of these additional charges, they would be lower.
The Fund's annual operating expense ratio of 0.76% is stated in the Fund's prospectus dated May 1, 2016, and differences in expense ratios disclosed elsewhere in this report may result from including fee waivers and/or expense reimbursements as well as different time periods used in calculating the ratios.
All results shown assume reinvestment of distributions.
The S&P MidCap 400 Index is a market value-weighted index that tracks the performance of 400 mid-cap U.S. companies. Indexes are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.
Portfolio characteristics and holdings are subject to change periodically and may not be representative of current characteristics and holdings.
5
Wanger Select 2016 Semiannual Report
Wanger Select
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Equities – 96.1% | |||||||||||
Consumer Discretionary – 24.7% | |||||||||||
Hotels, Restaurants & Leisure – 7.2% | |||||||||||
70,700 | Papa John's International Franchisor of Pizza Restaurants | $ | 4,807,600 | ||||||||
29,445 | Vail Resorts Ski Resort Operator & Developer | 4,070,182 | |||||||||
8,877,782 | |||||||||||
Distributors – 5.2% | |||||||||||
201,870 | LKQ (a) Alternative Auto Parts Distribution | 6,399,279 | |||||||||
Media – 3.8% | |||||||||||
139,300 | Liberty Global Series A (a) Cable TV Franchises Outside of the United States | 4,048,058 | |||||||||
17,381 | Liberty Global Latin America Group (a) Cable TV & Broadband in Latin America | 560,689 | |||||||||
4,608,747 | |||||||||||
Textiles, Apparel & Luxury Goods – 2.9% | |||||||||||
144,000 | Hanesbrands Apparel Wholesaler | 3,618,720 | |||||||||
Household Durables – 2.4% | |||||||||||
85,300 | iRobot (a) Home Robots (Vacuums, Pool Cleaners) & Battlefield Reconnaissance Robots | 2,992,324 | |||||||||
Internet & Catalog Retail – 2.0% | |||||||||||
110,700 | Liberty TripAdvisor Holdings Class A (a) Holding Company for Trip Advisor | 2,422,116 | |||||||||
Specialty Retail – 1.2% | |||||||||||
39,937 | Cato Women's Apparel Retailing, Focusing on Private Labels & Low Prices | 1,506,424 | |||||||||
Total Consumer Discretionary | 30,425,392 | ||||||||||
Industrials – 22.7% | |||||||||||
Machinery – 9.0% | |||||||||||
53,188 | Nordson Dispensing Systems for Adhesives & Coatings | 4,447,049 | |||||||||
32,500 | Middleby (a) Manufacturer of Cooking Equipment | 3,745,625 | |||||||||
42,000 | Wabtec Freight & Transit Component Supplier | 2,949,660 | |||||||||
11,142,334 |
Number of Shares | Value | ||||||||||
Road & Rail – 7.5% | |||||||||||
13,500 | Amerco North American Moving & Storage | $ | 5,056,425 | ||||||||
52,000 | JB Hunt Transport Services Truck & Intermodal Carrier | 4,208,360 | |||||||||
9,264,785 | |||||||||||
Electrical Equipment – 3.1% | |||||||||||
108,240 | Generac (a) Standby Power Generators | 3,784,070 | |||||||||
Professional Services – 3.1% | |||||||||||
98,540 | Robert Half International Temporary & Permanent Staffing in Finance, Accounting & Other Professions | 3,760,286 | |||||||||
Total Industrials | 27,951,475 | ||||||||||
Financials – 19.4% | |||||||||||
Real Estate Investment Trusts (REITs) – 8.6% | |||||||||||
45,565 | Crown Castle International Communications Towers | 4,621,658 | |||||||||
98,277 | EdR Student Housing | 4,534,501 | |||||||||
14,770 | Extra Space Storage Self Storage Facilities | 1,366,816 | |||||||||
10,522,975 | |||||||||||
Capital Markets – 4.3% | |||||||||||
95,000 | Lazard Corporate Advisory & Asset Management | 2,829,100 | |||||||||
71,160 | Eaton Vance Specialty Mutual Funds | 2,514,794 | |||||||||
5,343,894 | |||||||||||
Banks – 4.3% | |||||||||||
55,800 | SVB Financial Group (a) Bank to Venture Capitalists | 5,309,928 | |||||||||
Real Estate Management & Development – 2.2% | |||||||||||
27,600 | Jones Lang LaSalle Real Estate Services | 2,689,620 | |||||||||
Total Financials | 23,866,417 |
See accompanying notes to financial statements.
6
Wanger Select 2016 Semiannual Report
Wanger Select
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Health Care – 15.6% | |||||||||||
Health Care Equipment & Supplies – 5.8% | |||||||||||
66,942 | Align Technology (a) Invisalign System to Correct Malocclusion (Crooked Teeth) | $ | 5,392,178 | ||||||||
34,407 | LivaNova (a) Neuromodulation & Cardiac Devices | 1,728,264 | |||||||||
7,120,442 | |||||||||||
Health Care Providers & Services – 4.1% | |||||||||||
129,300 | HealthSouth Inpatient Rehabilitation Facilities & Home Health Care | 5,019,426 | |||||||||
Life Sciences Tools & Services – 3.2% | |||||||||||
137,400 | VWR (a) Distributor of Lab Supplies | 3,970,860 | |||||||||
Biotechnology – 2.5% | |||||||||||
88,690 | Cepheid (a) Molecular Diagnostics | 2,727,218 | |||||||||
8,895 | Ultragenyx Pharmaceutical (a) Biotech Focused on "Ultra-Orphan" Drugs | 435,054 | |||||||||
3,162,272 | |||||||||||
Total Health Care | 19,273,000 | ||||||||||
Information Technology – 7.1% | |||||||||||
Software – 4.9% | |||||||||||
41,190 | Ansys (a) Simulation Software for Engineers & Designers | 3,737,993 | |||||||||
10,660 | Ultimate Software (a) Human Capital Management Systems | 2,241,691 | |||||||||
5,979,684 | |||||||||||
Internet Software & Services – 2.2% | |||||||||||
45,000 | SPS Commerce (a) Supply Chain Management Software Delivered via the Web | 2,727,000 | |||||||||
Total Information Technology | 8,706,684 | ||||||||||
Consumer Staples – 4.1% | |||||||||||
Household Products – 4.1% | |||||||||||
369,000 | HRG Group (a) Holding Company | 5,066,370 | |||||||||
Total Consumer Staples | 5,066,370 |
Number of Shares | Value | ||||||||||
Materials – 2.5% | |||||||||||
Chemicals – 2.5% | |||||||||||
117,876 | Axalta Coating Systems (a) Global Manufacturer of High Performance Coatings | $ | 3,127,250 | ||||||||
Total Materials | 3,127,250 | ||||||||||
Total Equities (Cost: $107,083,742) – 96.1% | 118,416,588 | ||||||||||
Short-Term Investments – 5.1% | |||||||||||
$ | 6,291,332 | JPMorgan U.S. Government Money Market Fund, IM Shares (7 day yield of 0.29%) | 6,291,332 | ||||||||
Total Short-Term Investments (Cost: $6,291,332) – 5.1% | 6,291,332 | ||||||||||
Total Investments (Cost: $113,375,074)(b) – 101.2% | 124,707,920 | ||||||||||
Cash and Other Assets Less Liabilities – (1.2)% | (1,421,946 | ) | |||||||||
Net Assets – 100.0% | $ | 123,285,974 |
Notes to Statement of Investments
(a) Non-income producing security.
(b) At June 30, 2016, for federal income tax purposes, the cost of investments was approximately $113,375,074 and net unrealized appreciation was $11,332,846 consisting of gross unrealized appreciation of $15,476,352 and gross unrealized depreciation of $4,143,506.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed below:
• Level 1 — quoted prices in active markets for identical securities
• Level 2 — prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others)
• Level 3 — prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management's own assumptions about the factors market participants would use in pricing an investment)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
See accompanying notes to financial statements.
7
Wanger Select 2016 Semiannual Report
Wanger Select
Statement of Investments (Unaudited), June 30, 2016
Examples of the types of securities in which the Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose NAVs are published each day and exchange traded foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost. Additionally, securities fair valued by CWAM's Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Trust's Portfolio Pricing Policy and the CWAM pricing procedures (the Policies), which are approved by and subject to the oversight of the Board.
The Committee meets as necessary, and no less frequently than quarterly, to determine fair values for securities for which market quotations are not readily available or for which the investment manager believes that available market quotations are unreliable. The Committee also reviews the continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other things: circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under which securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund's investment manager. The Committee may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the Policies.
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund's securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
The following table summarizes the inputs used, as of June 30, 2016, in valuing the Fund's assets:
Investment Type | Other Quoted Prices (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||
Equities | |||||||||||||||||||
Consumer Discretionary | $ | 30,425,392 | $ | — | $ | — | $ | 30,425,392 | |||||||||||
Industrials | 27,951,475 | — | — | 27,951,475 | |||||||||||||||
Financials | 23,866,417 | — | — | 23,866,417 | |||||||||||||||
Health Care | 19,273,000 | — | — | 19,273,000 | |||||||||||||||
Information Technology | 8,706,684 | — | — | 8,706,684 | |||||||||||||||
Consumer Staples | 5,066,370 | — | — | 5,066,370 | |||||||||||||||
Materials | 3,127,250 | — | — | 3,127,250 | |||||||||||||||
Total Equities | 118,416,588 | — | — | 118,416,588 | |||||||||||||||
Total Short-Term Investments | 6,291,332 | — | — | 6,291,332 | |||||||||||||||
Total Investments | $ | 124,707,920 | $ | — | $ | — | $ | 124,707,920 |
There were no transfers of financial assets between levels during the period.
See accompanying notes to financial statements.
8
Wanger Select 2016 Semiannual Report
Statement of Assets and Liabilities
June 30, 2016 (Unaudited)
Assets: | |||||||
Investments, at cost | $ | 113,375,074 | |||||
Investments, at value | $ | 124,707,920 | |||||
Receivable for: | |||||||
Fund shares sold | 71,218 | ||||||
Securities lending income | 4 | ||||||
Dividends | 61,180 | ||||||
Prepaid expenses | 7,941 | ||||||
Total Assets | 124,848,263 | ||||||
Liabilities: | |||||||
Payable for: | |||||||
Investments purchased | 1,108,615 | ||||||
Fund shares redeemed | 357,434 | ||||||
Investment advisory fee | 2,003 | ||||||
Administration fee | 167 | ||||||
Transfer agent fee | 1 | ||||||
Trustees' fees | 47,493 | ||||||
Custody fee | 2,106 | ||||||
Reports to shareholders | 27,867 | ||||||
Other liabilities | 16,603 | ||||||
Total Liabilities | 1,562,289 | ||||||
Net Assets | $ | 123,285,974 | |||||
Composition of Net Assets: | |||||||
Paid-in capital | $ | 102,691,047 | |||||
Undistributed net investment income | 133,613 | ||||||
Accumulated net realized gain | 9,128,468 | ||||||
Net unrealized appreciation (depreciation) on: | |||||||
Investments | 11,332,846 | ||||||
Net Assets | $ | 123,285,974 | |||||
Fund Shares Outstanding | 7,315,388 | ||||||
Net asset value, offering price and redemption price per share | $ | 16.85 |
Statement of Operations
For the Six Months Ended June 30, 2016 (Unaudited)
Investment Income: | |||||||
Dividends (net foreign taxes withheld of $1,890) | $ | 660,255 | |||||
Income from securities lending – net | 1,913 | ||||||
Total Investment Income | 662,168 | ||||||
Expenses: | |||||||
Investment advisory fee | 499,949 | ||||||
Transfer agent fees | 115 | ||||||
Administration fee | 31,247 | ||||||
Trustees' fees | 6,228 | ||||||
Custody fees | 3,534 | ||||||
Reports to shareholders | 24,083 | ||||||
Audit fees | 14,213 | ||||||
Legal fees | 12,996 | ||||||
Chief compliance officer expenses | 5,640 | ||||||
Commitment fee for line of credit (Note 5) | 2,557 | ||||||
Other expenses | 9,195 | ||||||
Total Expenses | 609,757 | ||||||
Less advisory fee waiver | (124,987 | ) | |||||
Net Expenses | 484,770 | ||||||
Net Investment Income | 177,398 | ||||||
Net Realized and Unrealized Gain (Loss) on Investments: | |||||||
Net realized gain (loss) on: | |||||||
Investments | 9,282,423 | ||||||
Foreign currency translations | (531 | ) | |||||
Net realized gain | 9,281,892 | ||||||
Net change in unrealized appreciation (depreciation) on: | |||||||
Investments | (10,015,115 | ) | |||||
Foreign currency translations | (245 | ) | |||||
Net change in unrealized depreciation | (10,015,360 | ) | |||||
Net realized and unrealized loss | (733,468 | ) | |||||
Net Decrease in Net Assets from Operations | $ | (556,070 | ) |
See accompanying notes to financial statements.
9
Wanger Select 2016 Semiannual Report
Statement of Changes in Net Assets
Increase (Decrease) in Net Assets | (Unaudited) Six Months Ended June 30, 2016 | Year Ended December 31, 2015 | |||||||||
Operations: | |||||||||||
Net investment income (loss) | $ | 177,398 | $ | (90,805 | ) | ||||||
Net realized gain (loss) on: | |||||||||||
Investments | 9,282,423 | 39,599,660 | |||||||||
Foreign currency translations | (531 | ) | (933 | ) | |||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Investments | (10,015,115 | ) | (38,165,496 | ) | |||||||
Foreign currency translations | (245 | ) | 245 | ||||||||
Net Increase (Decrease) in Net Assets from Operations | (556,070 | ) | 1,342,671 | ||||||||
Distributions to Shareholders From: | |||||||||||
Net investment income | — | (17,514 | ) | ||||||||
Net realized gains | (39,392,500 | ) | (46,251,052 | ) | |||||||
Total Distributions to Shareholders | (39,392,500 | ) | (46,268,566 | ) | |||||||
Share Transactions: | |||||||||||
Subscriptions | 1,162,243 | 2,861,649 | |||||||||
Distributions reinvested | 39,392,500 | 46,268,566 | |||||||||
Redemptions | (13,161,025 | ) | (60,010,018 | ) | |||||||
Net Increase (Decrease) from Share Transactions | 27,393,718 | (10,879,803 | ) | ||||||||
Total Decrease in Net Assets | (12,554,852 | ) | (55,805,698 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 135,840,826 | 191,646,524 | |||||||||
End of period | $ | 123,285,974 | $ | 135,840,826 | |||||||
Undistributed (Overdistributed) net investment income | $ | 133,613 | $ | (43,785 | ) |
See accompanying notes to financial statements.
10
Wanger Select 2016 Semiannual Report
Financial Highlights
The following table is intended to help you understand the Fund's financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If such transactions were included, the Fund's portfolio turnover rate may be higher.
(Unaudited) | |||||||||||||||||||||||||||
Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||
Selected data for a share outstanding throughout each period | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 24.18 | $ | 32.99 | $ | 36.41 | $ | 27.54 | $ | 23.35 | $ | 28.99 | |||||||||||||||
Income from Investment Operations: | |||||||||||||||||||||||||||
Net investment income (loss) | 0.03 | (0.02 | ) | (0.07 | ) | (0.05 | ) | 0.16 | (0.06 | ) | |||||||||||||||||
Net realized and unrealized gain (loss) | 0.20 | (a) | 0.69 | 1.07 | 9.46 | 4.15 | (4.99 | ) | |||||||||||||||||||
Total from Investment Operations | 0.23 | 0.67 | 1.00 | 9.41 | 4.31 | (5.05 | ) | ||||||||||||||||||||
Less Distributions to Shareholders: | |||||||||||||||||||||||||||
Net investment income | — | (0.00 | )(b) | — | (0.09 | ) | (0.12 | ) | (0.59 | ) | |||||||||||||||||
Net realized gains | (7.56 | ) | (9.48 | ) | (4.42 | ) | (0.45 | ) | — | — | |||||||||||||||||
Total Distributions to Shareholders | (7.56 | ) | (9.48 | ) | (4.42 | ) | (0.54 | ) | (0.12 | ) | (0.59 | ) | |||||||||||||||
Net Asset Value, End of Period | $ | 16.85 | $ | 24.18 | $ | 32.99 | $ | 36.41 | $ | 27.54 | $ | 23.35 | |||||||||||||||
Total Return | (0.20 | )%(c) | 0.26 | %(c) | 3.17 | % | 34.58 | % | 18.46 | % | (17.68 | )% | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||||
Total gross expenses (d) | 0.98 | %(e) | 0.98 | % | 0.93 | %(f) | 0.93 | % | 0.92 | % | 0.93 | % | |||||||||||||||
Total net expenses (d) | 0.78 | %(e) | 0.85 | % | 0.93 | %(f) | 0.93 | % | 0.91 | %(g) | 0.93 | %(g) | |||||||||||||||
Net investment income (loss) | 0.28 | %(e) | (0.06 | )% | (0.20 | )% | (0.15 | )% | 0.60 | % | (0.24 | )% | |||||||||||||||
Portfolio turnover rate | 62 | % | 59 | % | 18 | % | 24 | % | 20 | % | 23 | % | |||||||||||||||
Net assets, end of period (000s) | $ | 123,286 | $ | 135,841 | $ | 191,647 | $ | 257,911 | $ | 235,155 | $ | 242,543 |
Notes to Financial Highlights
(a) Calculation of the net gain (loss) per share (both realized and unrealized) does not correlate to the aggregate realized and unrealized gain (loss) presented in the Statement of Operations due to the timing of subscriptions and redemptions of Fund shares in relation to fluctuations in the market value of the portfolio.
(b) Rounds to zero.
(c) Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced.
(d) In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests, if any. Such indirect expenses are not included in the Fund's reported expense ratios.
(e) Annualized.
(f) Ratios include line of credit interest expense which is less than 0.01%.
(g) The benefits derived from custody fees paid indirectly had an impact of less than 0.01%.
See accompanying notes to financial statements.
11
Wanger Select 2016 Semiannual Report
Notes to Financial Statements (Unaudited)
1. Nature of Operations
Wanger Select (the Fund), a series of Wanger Advisors Trust (the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be offered directly to certain qualified pension and retirement plans.
2. Summary of Significant Accounting Policies
Basis of preparation
The Fund is an investment company that applies the accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services—Investment Companies (ASC 946). The financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees (the Board). A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange traded funds (ETFs) are valued at their closing net asset value as reported on the applicable exchange. A security for which there is no reported sale on the valuation date is valued at the mean of the latest bid and ask quotations.
Short-term investments maturing in 60 days or less are valued at amortized cost, which approximates market value.
The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security is valued at a fair value, that value may be different from the last quoted market price for the security.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S. dollars using the New York spot market rate of exchange at the time of valuation. Purchases and sales of investments and dividend and interest income are translated into U.S. dollars using the spot market rate of exchange prevailing on the respective dates of such transactions. The gain or loss resulting from changes in foreign exchange rates is included with net realized and unrealized gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded on the accrual basis and
includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Awards, if any, from class action litigation related to securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
The Fund may receive distributions from holdings in equity securities, ETFs, other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund's management. Management's estimates are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Expenses
General expenses of the Trust are allocated to the Fund and the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of trading on the New York Stock Exchange (the Exchange) on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding.
Securities lending
The Fund may lend securities up to one-third of the value of its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund's lending agent, and borrower rebates. The Fund's investment manager, Columbia Wanger Asset Management, LLC (CWAM), does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2016, is included in the Statement of Operations. There were no securities on loan on June 30, 2016.
Federal income taxes
The Fund has complied with the provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, distributes substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
12
Wanger Select 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
Foreign capital gains taxes
Gains in certain countries may be subject to foreign taxes at the fund level. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Indemnification
In the normal course of business, the Trust on behalf of the Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund. Also under the Trust's organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of loss due to these warranties and indemnities to be remote.
3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
Management is required to determine whether a tax position of the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management's conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
4. Transactions with Affiliates
CWAM is a wholly owned subsidiary of Columbia Management Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the overall management of the Fund's business affairs.
CWAM receives a monthly advisory fee based on the Fund's average daily net assets at the following annual rates:
Average Daily Net Assets | Annual Fee Rate | ||||||
Up to $500 million | 0.80 | % | |||||
$500 million and over | 0.78 | % |
Through April 30, 2017, CWAM has contractually agreed to waive 0.20% of the advisory fee otherwise payable to it by the Fund. When determining whether the Fund's total expenses exceed the contractual expense cap described below, the Fund's net advisory fee, reflecting application of the 0.20% waiver, will be used to calculate the Fund's total expenses. This arrangement may be modified or amended with approval from the Fund and CWAM.
For the six months ended June 30, 2016, the annualized effective investment advisory fee rate, net of fee waivers, was 0.60% of the Fund's average daily net assets.
Through April 30, 2017, CWAM has contractually agreed to bear a portion of the Fund's expenses so that its ordinary operating expenses (excluding transaction costs and certain other investment-related expenses, interest and fees on borrowings and expenses associated with the Fund's investment in other investment companies, if any), after giving effect to any balance credits from the Fund's custodian, do not exceed the annual rate of 1.35% of the Fund's average daily net assets. This expense arrangement may only be modified or amended with approval from the Fund and CWAM. For the six months ended June 30, 2016, the Fund was not reimbursed any expenses by CWAM.
CWAM provides administrative services and receives an administration fee from the Fund at the following annual rates:
Wanger Advisors Trust Aggregate Average Daily Net Assets of the Trust | Annual Fee Rate | ||||||
Up to $4 billion | 0.05 | % | |||||
$4 billion to $6 billion | 0.04 | % | |||||
$6 billion to $8 billion | 0.03 | % | |||||
$8 billion and over | 0.02 | % |
For the six months ended June 30, 2016, the annualized effective administration fee rate was 0.05% of the Fund's average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Columbia Management Investment Distributors, Inc. (CMID), a wholly owned subsidiary of Ameriprise Financial, serves as the Fund's distributor and principal underwriter.
Columbia Management Investment Services Corp. (CMIS), a wholly owned subsidiary of Ameriprise Financial, is the transfer agent to the Fund. For its services, the Fund pays CMIS a monthly fee at the annual rate of $21.00 per open account. CMIS also receives reimbursement from the Fund for certain out-of-pocket expenses.
Certain officers and trustees of the Trust are also officers of CWAM. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM.
The Board has appointed a Chief Compliance Officer of the Trust in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of certain of the expenses associated with the office of the Chief Compliance Officer.
The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value of Class Z shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
For the six months ended June 30, 2016, the Fund engaged in sales transactions with funds that have a common investment manager (or affiliated investment managers), common directors/trustees, and/or common officers. Those sale transactions complied with provisions of Rule 17a-7 under the 1940 Act and were $289,799. The sale transactions resulted in a net realized loss of $999,007.
5. Borrowing Arrangements
During the period January 1, 2016 through April 28, 2016, the Trust participated in a revolving credit facility in the amount of $400 million with a syndicate of banks led by JPMorgan Chase Bank, N.A., along with Columbia Acorn Trust, another trust managed by CWAM. Effective April 28, 2016, the credit facility was renewed in the amount of $200 million with a syndicate of banks led by JPMorgan Chase Bank, N.A. Under each facility, interest is charged to each participating Fund based on its borrowings at a rate per annum equal to the Federal Funds Rate plus 1.00%. In addition, a commitment fee of 0.08% (before April 28, 2016) and 0.15% (after April 28, 2016) per annum of the unutilized line of credit is accrued and apportioned among the participating Funds based on their relative net assets. The commitment fee is disclosed as a part of "Other expenses" in the Statement of Operations. The Trust
13
Wanger Select 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
expects to renew this line of credit for one year durations each April at then current market rates and terms.
No amounts were borrowed for the benefit of the Fund under the line of credit during the six months ended June 30, 2016.
6. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following numbers of shares:
(Unaudited) Six Months Ended June 30, 2016 | Year Ended December 31, 2015 | ||||||||||
Shares sold | 51,847 | 107,262 | |||||||||
Shares issued in reinvestment of dividend distributions | 2,252,287 | 1,795,481 | |||||||||
Less shares redeemed | (607,771 | ) | (2,093,759 | ) | |||||||
Net increase (decrease) in shares outstanding | 1,696,363 | (191,016 | ) |
7. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than short-term obligations for the six months ended June 30, 2016, were $75,833,962 and $85,805,406, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
8. Shareholder Concentration
At June 30, 2016, two unaffiliated shareholder accounts owned 89.6% of the outstanding shares of the Fund. The Fund has no knowledge about whether any portion of those shares was owned beneficially by such account. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund.
9. Subsequent Events
Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
10. Information Regarding Pending and Settled Legal Proceedings
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
14
Wanger Select 2016 Semiannual Report
Board Approval of the Advisory Agreement
Wanger Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger Select (the "Fund"). More than 75% of the trustees of the Trust (the "Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent Trustees"). The Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does the Board's Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several occasions. In all, the Contract Committee convened formally on seven separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract Committee's status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees, reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee") serves on the Contract Committee and made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the Trustees included, among other items, (i) information on the investment performance of the Fund relative to independently selected peer groups of funds and the Fund's performance benchmark(s) over various time periods, as presented and analyzed by independent consultants, (ii) information on the Fund's advisory fees and other expenses, including information comparing the Fund's fees and expenses to those of peer groups of funds and information about any applicable expense limitations and fee breakpoints, (iii) data on sales and redemptions of Fund shares, and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as a result of their relationships with the Fund. The Contract Committee and the Trustees also considered other information such as (i) CWAM's financial condition, (ii) the Fund's investment objective and strategy, (iii) the size, education and experience of CWAM's investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund, (iv) the portfolio manager compensation framework, (v) the allocation of the Fund's brokerage, and the use of "soft" commission dollars to pay for research products and services, (vi) CWAM's risk management program, (vii) the resources devoted to, and the record of compliance with, the Fund's
investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures, and (viii) CWAM's and its affiliates' conflicts of interest.
At a meeting held on June 7, 2016, the Board considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself was considered dispositive. The material factors and conclusions that formed the basis for the Trustees' determination to approve the continuation of the Advisory Agreement are discussed below.
Nature, quality and extent of services. The Trustees reviewed the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund's investment restrictions; producing shareholder reports; providing support services for the Board and committees of the Board; managing the Fund's securities lending program; communicating with shareholders; serving as the Fund's administrator; and overseeing the activities of the Fund's other service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM's compliance record.
The Trustees took into account the extensive process changes made by CWAM in the past year to improve Fund performance, including but not limited to: the hiring of a new director of research (U.S.); the addition of more systematic and quantitative tools and risk-based analysis into the portfolio management process; the significant reduction in the number of Fund holdings in 2015 and increased concentration of the portfolio in fewer high conviction names; and certain other portfolio manager and analyst changes.
The Trustees concluded that the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment and operational personnel. Based on these changes and assurances, the Trustees believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund. The Trustees received and considered detailed performance information at various meetings of the Board, the Contract Committee and the Performance Committee throughout the year. They reviewed information comparing the Fund's performance with that of its benchmark(s) and with the performance of comparable funds and peer groups as identified by independent consultants Broadridge Financial Solutions, Inc. ("Broadridge") and Morningstar, Inc. ("Morningstar") taking into account that each service had a different methodology for calculating the Fund's total returns. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, including over the one-, three- and five-year periods ended December 31, 2015. The Trustees also considered peer performance rankings for similar time periods, although they generally focused on more recent performance in order to evaluate CWAM's remediation efforts.
The Trustees considered that the Fund had outperformed its Morningstar peer group median over the one-year period ended December 31, 2015 and had performed at or slightly under its Morningstar and Broadridge peer group medians for the three-year period but continued to lag peers for the five-year period. The Trustees
15
Wanger Select 2016 Semiannual Report
Board Approval of the Advisory Agreement, continued
considered that CWAM had taken steps to reduce risk and volatility in the Fund's portfolio and made the personnel and other changes described above in order to improve performance. The Trustees believed that CWAM was devoting appropriate resources to the Fund's performance.
The Trustees concluded that CWAM had taken and continued to take a number of corrective steps to improve performance of the Fund, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund's performance closely. In addition the Trustees considered that the Chief Investment Officer (the "CIO") of CWAM had reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve Fund performance, and that members of the Contract Committee had met separately with the CIO on multiple occasions to discuss the Fund. The Trustees also took into account that the new director of research (U.S.) had met several times with the Contract Committee and the Performance Committee to review the changes made to the Fund's investment process to improve performance.
The Trustees also took into consideration the Fund's performance versus its current benchmark as reported by both Morningstar and Broadridge, noting that each service calculated the Fund's total return using a different methodology with varying results.
Costs of Services and Profits Realized by CWAM. At various Committee and Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge and Morningstar. The Trustees noted that the Fund's net expenses were lower than the median of the Morningstar peer group, but approximately equal to the median of the Broadridge peer group. The Trustees also took into account that the actual advisory fees paid by the Fund were lower than the median of the Broadridge peer group, but slightly higher than the median of the Morningstar peer group. The Trustees considered that CWAM had contractually waived 20 basis points of its advisory fee for the years ended April 30, 2016 and April 30, 2017.
The Trustees also reviewed the advisory fee rates charged by CWAM for managing other investment companies, sub-advised funds and other institutional separate accounts, as detailed in materials provided to the Contract Committee by CWAM. The Trustees noted that the Fund's advisory fees were generally comparable to Columbia Acorn Select's advisory fees at the same asset levels. The Trustees also examined CWAM's institutional separate account fees for parallel investment strategies and determined that institutional account advisory fees tended to be lower than the Fund. The Trustees considered the information provided by CWAM regarding its performance of significant additional services for the Fund that it does not provide to sub-advised funds or non-mutual fund clients, including administrative and fund accounting services, oversight of the Fund's other service providers, Trustee support, regulatory compliance and numerous other services, and that, in servicing the Fund, CWAM assumes many legal and business risks that it does not assume in servicing many of its non-fund clients.
The Trustees reviewed the analysis of the historic profitability of CWAM in serving as the Fund's investment manager and of CWAM and its affiliates in their relationships with the Fund. The Contract Committee and Trustees met with representatives from Ameriprise to discuss its methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and Fund-by-Fund basis. The Trustees also reviewed the methodology used by CWAM and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from third-party consultant Strategic Insight, which compared CWAM's profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM's profitability in light of the additional
resources that had been, and would continue to be, provided to it by Ameriprise to assist in improving performance.
Economies of Scale. At various Committee and Board meetings and other informal meetings, the Trustees considered information about the extent to which CWAM realizes economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund includes breakpoints in the rate of fees at various asset levels. The Trustees concluded that the fee structure of the Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other Benefits to CWAM. The Trustees also reviewed benefits that accrue to CWAM and its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund's transfer agency services are performed by Columbia Management Investment Services Corp., an affiliate of Ameriprise, which receives compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc. ("CMID"), serves as the Fund's distributor under an underwriting agreement but receives no fees for its services to the Fund. In addition, Columbia Management provides sub-administration services to the Fund. The Contract Committee and the Board received information regarding the profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM may potentially benefit from their relationship with each other. For example, the Trustees considered CWAM's use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM's annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM's soft dollar spending. The Trustees also considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM's execution of the Fund's portfolio transactions. The Trustees noted that these reports showed that CWAM's execution capabilities were generally better than industry peers. The Trustees determined that CWAM's use of the Fund's "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefits from the receipt of proprietary research products and services acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM's receipt of those products and services as well as research products and services acquired through commissions paid by other clients of CWAM.
After full consideration of the above factors, as well as other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the Advisory Agreement was in the best interest of the Fund. At the Board meeting held on June 7, 2016, the Trustees approved continuation of the Advisory Agreement through July 31, 2017.
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Wanger Select 2016 Semiannual Report
Columbia Wanger Funds
Trustees
Laura M. Born, Chair of the Board
David J. Rudis, Vice Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Thomas M. Goldstein
John C. Heaton
Steven N. Kaplan
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan
President
Alan G. Berkshire
Vice President
Michael G. Clarke
Assistant Treasurer
William J. Doyle
Vice President
David L. Frank
Vice President
Paul B. Goucher
Assistant Secretary
Fritz Kaegi
Vice President
John M. Kunka
Vice President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak
Vice President
Joseph C. LaPalm
Vice President
Ryan C. Larrenaga
Assistant Secretary
Matthew A. Litfin
Vice President
Satoshi Matsunaga
Vice President
Thomas P. McGuire
Chief Compliance Officer
Louis J. Mendes
Vice President
Christopher J. Olson
Vice President
Julian Quero
Assistant Treasurer
Martha A. Skinner
Assistant Treasurer
Matthew S. Szafranski
Vice President
Andreas Waldburg-Wolfegg
Vice President
Linda K. Roth-Wiszowaty
Secretary
Investment Manager
Columbia Wanger Asset Management, LLC
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-888-4-WANGER
(1-888-492-6437)
Transfer Agent,
Dividend Disbursing Agent
Columbia Management Investment Services Corp.
P.O. Box 8081
Boston, Massachusetts
02266-8081
Distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, Massachusetts
02110
Legal Counsel to the Funds
Perkins Coie LLP
Washington, DC
Legal Counsel to the Independent Trustees
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Chicago, Illinois
This document contains Global Industry Classification Standard data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Standard & Poor's Financial Services LLC ("S&P") and is licensed for use by Columbia Wanger Asset Management, LLC ("CWAM"). Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
This report, including the schedules of investments and financial statements, is submitted for the general information of the shareholders of the Wanger Advisors Trust.
A description of the Fund's proxy voting policies and procedures and a copy of the Fund's voting record for the most recent 12-month period ended June 30 are available (i) on our website, at investor.columbiathreadneedleus.com/disclosures/proxy-voting-report, (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 888-492-6437.
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Pubic Reference Room may be obtained by calling 800-SEC-0330. The Fund's complete portfolio holdings are disclosed at investor.columbiathreadneedleus.com. approximately 30 to 40 days after each month-end.
COLUMBIA WANGER FUNDS
© 2016 Columbia Management Investment Advisers, LLC. All rights reserved. C-1461 AK (8/16) 1572009
SEMIANNUAL REPORT
June 30, 2016
COLUMBIA WANGER FUNDS
Managed by Columbia Wanger Asset Management, LLC
WANGER USA
Wanger USA
2016 Semiannual Report
Table of Contents
2 | A View on Brexit | ||||||
3 | Understanding Your Expenses | ||||||
4 | Performance Review | ||||||
6 | Statement of Investments | ||||||
12 | Statement of Assets and Liabilities | ||||||
12 | Statement of Operations | ||||||
13 | Statement of Changes in Net Assets | ||||||
14 | Financial Highlights | ||||||
15 | Notes to Financial Statements | ||||||
18 | Board Approval of the Advisory Agreement |
Columbia Wanger Asset Management, LLC (CWAM) is one of the leading global small- and mid-cap equity managers in the United States with over 45 years of small- and mid-cap investment experience. As of June 30, 2016, CWAM managed $17 billion in assets. CWAM is the investment manager to Wanger USA, Wanger International and Wanger Select (together, the Columbia Wanger Funds) and the Columbia Acorn Family of Funds.
An important note: Columbia Wanger Funds are available only through variable annuity contracts and variable life insurance policies issued by participating insurance companies or certain eligible retirement plans. Columbia Wanger Funds are not offered directly to the public and are not available in all contracts, policies or plans. Contact your financial advisor or insurance representative for more information. Columbia Wanger Funds are distributed by Columbia Management Investment Distributors, Inc., member FINRA, and are managed by CWAM.
Investors should carefully consider investment objectives, risks and expenses of the Fund before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing.
The views expressed in "A View on Brexit" and in the Performance Review reflect the current views of the respective authors. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to specific company securities should not be construed as a recommendation or investment advice.
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Wanger USA 2016 Semiannual Report
A View on Brexit
Global equity markets were caught on the back foot by the outcome of the UK referendum on continued European Union (EU) membership. The long-term political and economic implications of this decision are potentially vast and impossible to discern at this stage, not least because they will be shaped by how policymakers respond. As investors globally reprice risk and reposition portfolios in light of currency sensitivity and how they expect this outcome to bear differently on sectors, countries and companies, there will be mispricing opportunities. This is good for stock pickers and we expect to be active. We will be looking closely at how strong players in diverse industries might improve their competitive positions, as growth opportunities become more scarce and costs of capital among competitors more differentiated. We expect the relatively high balance sheet and business model quality of the stocks that we hold in the Columbia Wanger Funds to prove helpful in coming quarters because the risk premium has gone up, as evidenced by increased volatility, compressed multiples in some pockets of the market such as European banks, and sharp currency swings.
This political development is nonetheless clearly a negative one. The United Kingdom is the fifth largest economy in the world and the second largest within the EU. It has been a member of the European Economic Community (precursor to the EU) since 1973.i The UK exit raises uncertainties about global growth, heightens risk aversion, and it will preoccupy European policymakers at a time when they are already challenged by anemic growth, high unemployment, refugee immigration flows, and international and domestic security concerns.
While many market observers view the outcome of the referendum as a comment on, and existential threat to, the overall European integration project, it may, rather, reflect a larger process at work, namely increasing middle-class discontent with the perceived consequences of globalization in industrialized democracies. Rising populism and nativist resentments in Europe and the United States could be
harbingers of future policy regimes that place less value on minimizing trade friction, and the mobility of capital and labor, all of which have contributed to global prosperity. The evolving framework for global trade and investment over the last 25 years has been an enormous engine of global growth. During this period, a substantial percentage of the world's population once living within largely economically isolated communist states was integrated into the modern global economy as producers and consumers. This has raised standards of living in emerging markets and reduced the cost of consumer goods in industrialized countries, while creating new and growing markets for the sort of technologically sophisticated exports that support high-paying jobs in industrialized countries.
The Columbia Wanger Funds have benefited meaningfully from these trends. With Brexit, the EU will lose its strongest advocate of economic liberalism, which has served as an important counterpoint to statist perspectives in Germany and France. At a minimum, it appears that domestic policies are poised to pivot toward the populist issue of economic inequality, which in Europe may manifest itself in a slowdown or reversal of structural reforms in EU labor markets, with negative consequences for productivity and, with it, standards of living. Fiscal tightening, where necessary, could be scaled back as a salve to populists, and it seems likely that industrialized countries will see increased constraints on immigration, even where demographically driven labor shortages exist.
While this could well be regarded as overall bad news for asset owners, opportunities will likely present themselves. For many years, the Columbia Wanger Funds have explored how factory automation is deployed to reduce labor costs or to replace labor altogether, trends which could be accelerated by a reduction in immigration. London will fight hard to retain its role as the center of European finance, but bank chiefs are already talking about decamping elsewhere, which could create opportunity in continental European real estate and
construction. As corporate investment decision-making and household spending slow amidst the uncertainty, fiscal stimulus could be sought via public infrastructure projects, which would be good for constructors and suppliers of building materials. Public policy that increases labor's share of income would benefit consumer companies oriented to a lower middle class demographic. Other policy interventions could result in continued ultra-low interest rates, with implications for interest-rate sensitive businesses. In any case, it seems that earnings growth will continue to be a scarce factor in a low-growth world.
P. Zachary Egan
President and Global Chief Investment Officer
Columbia Wanger Asset Management, LLC
i http://ukandeu.ac.uk/fact-figures/when-did-britain-decide-to-join-the-european-union/
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Wanger USA 2016 Semiannual Report
Understanding Your Expenses
As a shareholder, you incur three types of costs. There are transaction costs, which generally include sales charges on purchases and may include redemption fees. There are also ongoing costs, which generally include management fees and other expenses for Wanger USA (the Fund). Lastly, there may be additional fees or charges imposed by the insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs with the ongoing costs of investing in other mutual funds.
Analyzing your Fund's expenses
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the "Actual" column is calculated using the Fund's actual operating expenses and total return for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the "Hypothetical" column assumes a 5% annual rate of return before expenses (which is not the Fund's actual return) and then applies the Fund's actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you paid during the period. See "Compare with other funds" below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any transaction costs, such as sales charges, redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs were included in these calculations, your costs would be higher.
January 1, 2016 – June 30, 2016
Account value at the beginning of the period ($) | Account value at the end of the period ($) | Expenses paid during period ($) | Fund's annualized expense ratio (%)* | ||||||||||||||||||||||||||||
Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | ||||||||||||||||||||||||||
Wanger USA | 1,000.00 | 1,000.00 | 1,017.30 | 1,019.84 | 5.07 | 5.07 | 1.01 |
* Expenses paid during the period are equal to the Fund's annualized expense ratio, multiplied by the average account value over the period, then multiplied by the number of days in the Fund's most recent fiscal half-year and divided by 366.
It is important to note that the expense amounts shown in the table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company's separate account. The hypothetical example provided is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
3
Wanger USA 2016 Semiannual Report
Performance Review Wanger USA
Matthew A. Litfin Lead Portfolio Manager | William J. Doyle Co-Portfolio Manager |
Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector.
Wanger USA gained 1.73% in the first half of 2016, underperforming the 2.22% gain of the Fund's primary benchmark, the Russell 2000 Index. Value stocks solidly outpaced growth stocks during the period, holding back the relative performance of the Fund's growth-oriented portfolio.
Our analysts have been working hard and we have, in recent months, found many new opportunities to add higher-quality names to the Fund's portfolio. Our efforts have paid off, as strong stock selection drove Fund performance in the second quarter to a 7.45% gain, which was more than three full percentage points above the benchmark's return for the three-month period. We believe the portfolio that we established (and that we will continue to monitor and strive to improve upon) in the first half of 2016 should allow us to focus even more tightly on value creation and risk-adjusted performance for shareholders.
On an industry and sector basis for the semiannual period, real estate investment trusts (REITs) and utilities were strong performers within the benchmark, as investors went searching for yield in an uncertain economic environment. Materials stocks were also strong in the Russell 2000, benefiting from the period's recovery in commodity prices. The Fund's underweight in these sectors detracted from performance. However, stock selection in the consumer discretionary and health care sectors contributed to performance, although the health care sector was a weak area of the market during the period. The Fund was overweight in both sectors relative to the benchmark. The Fund has little exposure to REITs and utilities because many do not fit its growth-oriented style.
Looking at top contributors in the semiannual period, Drew Industries, a maker of RV and manufactured home components, continues to gain market share in the components portion of its business and has benefited from robust demand for RVs. Its stock gained 40% in the half year. Toro, a manufacturer of turf maintenance equipment, gained 22% on positive earnings reports. Up 51%, AMN Healthcare, a leader in temporary health care staffing, has benefited from a record shortage of health care professionals. As the U.S. population ages and demands on the health care system increase, hospitals are leaning on AMN to solve their long-term staffing needs.
The Fund participated in the June 23, 2016, initial public offering (IPO) of Twilio, a business software company offering an in-application communications software
platform. Our analysis of the stock suggested the company had a competitive advantage in its market niche and would enjoy strong revenue growth for the long term. The market agreed with our assessment, and the stock rose dramatically following the IPO, gaining 139% in just a week.
In the health care sector, Ultragenyx Pharmaceutical, a developer of ultra-orphan drugs, fell 58%, declining with a general sell-off in biotechnology stocks that occurred early in the period. Celldex Therapeutics, a cancer drug developer, fell 78% after its brain cancer drug, Rintega, failed in a Phase III trial. Cepheid, a supplier of molecular diagnostic equipment, fell 20% on delays in the commercial release of an important new product for the company. We sold the Fund's position in Celldex and Cepheid but we maintained a position in biotech Ultragenyx Pharmaceuticals. Biotechnology is one of a decreasing number of industries in which the United States has a comparative advantage over other nations and, while biotech stocks are inherently volatile, the Fund has enjoyed significant upside from exposure to biotech names in the past.
Down 14%, SPS Commerce, a provider of supply chain management software that is delivered via the web, was also a detractor in the semiannual period. A disruption in the company's sales force early in the year caused SPS to set 2016 growth guidance below market expectations and led to a significant drop in its stock in the first quarter. Our due diligence following the news suggested the issues were a short-term concern, and our opinion was validated when the stock rebounded in the second quarter.
During the first half of 2016, we made significant adjustments to the Fund's portfolio, pruning lower-conviction, sub-scale positions and adding companies with high rates of return that are industry leaders with significant future growth potential and the ability to reinvest new capital at above-average rates of return. In total, we added 46 new names and sold 60 names. We believe this focus on adding higher quality names will benefit relative returns as we move forward. We intend to continue to find interesting new ideas for the Fund, and are optimistic about the outlook for small-cap stocks. Applying our time-tested valuation discipline, we will continue to scour the landscape to find the very best small-cap companies across industries.
Fund holdings are as of the date given, are subject to change at any time, and are not recommendations to buy or sell any security.
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Wanger USA 2016 Semiannual Report
Growth of a $10,000 Investment in Wanger USA
May 3, 1995 (inception date) through June 30, 2016
Performance data shown represents past performance and is not a guarantee of future results. The investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than the original cost. Current performance may be lower or higher than the performance data shown. Performance results reflect any fee waivers or reimbursements of Fund expenses by the investment manager and/or any of its affiliates. Absent these fee waivers and/or expense reimbursement arrangements, performance results would have been lower. For most recent month-end performance updates, please visit investor.columbiathreadneedleus.com.
This graph compares the results of $10,000 invested in Wanger USA on May 3, 1995 (the date the Fund began operations) through June 30, 2016, to the Russell 2000 Index, with dividends and capital gains reinvested. Although the index is provided for use in assessing the Fund's performance, the Fund's holdings may differ significantly from those in the index.
Top 10 Holdings
As a percentage of net assets, as of 6/30/16
1. Toro Turf Maintenance Equipment | 2.3 | % | |||||
2. Drew Industries RV & Manufactured Home Components | 2.0 | ||||||
3. VWR Distributor of Lab Supplies | 1.9 | ||||||
4. Papa John's International Franchisor of Pizza Restaurants | 1.9 | ||||||
5. HealthSouth Inpatient Rehabilitation Facilities & Home Health Care | 1.8 | ||||||
6. MarketAxess Bond Exchange | 1.8 | ||||||
7. Medidata Solutions Cloud-based Software for Drug Studies | 1.8 | ||||||
8. UniFirst Uniform Rental | 1.6 | ||||||
9. CoStar Group Commercial Real Estate Data Aggregator & Web Marketing for Retail Landlords | 1.6 | ||||||
10. Ligand Pharmaceuticals Royalties from Licensing Drug Delivery Technology | 1.6 |
Top holdings exclude short-term holdings and cash, if applicable.
Top 5 Industries
As a percentage of net assets, as of 6/30/16
Health Care | 23.3 | % | |||||
Information Technology | 18.3 | ||||||
Industrials | 18.1 | ||||||
Consumer Discretionary | 16.7 | ||||||
Financials | 15.3 |
Results as of June 30, 2016
2nd quarter* | Year to date* | 1 year | 5 years | 10 years | |||||||||||||||||||
Wanger USA | 7.45 | % | 1.73 | % | -6.27 | % | 8.12 | % | 6.83 | % | |||||||||||||
Russell 2000 Index | 3.79 | 2.22 | -6.73 | 8.35 | 6.20 |
NAV as of 6/30/16: $23.74
* Not annualized.
Performance numbers reflect all Fund expenses but do not include any fees and expenses imposed under your variable annuity contract or life insurance policy or qualified pension or retirement plan. If performance numbers included the effect of these additional charges, they would be lower.
The Fund's annual operating expense ratio of 1.01% is stated as of the Fund's prospectus dated May 1, 2016, and differences in expense ratios disclosed elsewhere in this report may result from including fee waivers and/or expense reimbursements as well as different time periods used in calculating the ratios.
All results shown assume reinvestment of distributions.
The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. Indexes are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.
Portfolio characteristics and holdings are subject to change periodically and may not be representative of current characteristics and holdings.
5
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Equities – 96.6% | |||||||||||
Health Care – 23.3% | |||||||||||
Biotechnology – 5.8% | |||||||||||
85,177 | Ligand Pharmaceuticals (a) Royalties from Licensing Drug Delivery Technology | $ | 10,159,061 | ||||||||
337,137 | Repligen (a) Supplier to Biopharma Industry | 9,224,068 | |||||||||
140,477 | Seattle Genetics Antibody-based Therapies for Cancer | 5,676,676 | |||||||||
325,000 | Exact Sciences (a) (b) Molecular Diagnostics | 3,981,250 | |||||||||
61,307 | Ultragenyx Pharmaceutical (a) Biotech Focused on "Ultra-Orphan" Drugs | 2,998,525 | |||||||||
50,684 | Agios Pharmaceuticals (a) (b) Biotech Focused on Cancer & Orphan Diseases | 2,123,406 | |||||||||
14,041 | Intercept Pharmaceuticals (a) (b) Biotech Developing Drugs for Several Diseases | 2,003,370 | |||||||||
69,028 | Sarepta Therapeutics (b) Biotech Focused on Rare Diseases | 1,316,364 | |||||||||
37,482,720 | |||||||||||
Health Care Providers & Services – 5.6% | |||||||||||
305,547 | HealthSouth Inpatient Rehabilitation Facilities & Home Health Care | 11,861,335 | |||||||||
129,588 | Mednax (a) Physician Management for Pediatric & Anesthesia Practices | 9,386,059 | |||||||||
161,271 | AMN Healthcare Services (a) Temporary Healthcare Staffing | 6,446,002 | |||||||||
84,522 | VCA (a) Animal Hospitals & Laboratory Services | 5,714,532 | |||||||||
69,038 | TeamHealth (a) Healthcare Professionals Outsourcing | 2,807,775 | |||||||||
36,215,703 | |||||||||||
Life Sciences Tools & Services – 4.8% | |||||||||||
424,387 | VWR (a) Distributor of Lab Supplies | 12,264,784 | |||||||||
79,310 | Bio-Techne Maker of Consumables & Systems for the Life Science Market | 8,943,789 | |||||||||
132,564 | Cambrex (a) Developer of Active Pharmaceutical Ingredients for Small Molecule Drugs | 6,857,536 | |||||||||
8,995 | Mettler-Toledo International (a) Laboratory Equipment | 3,282,455 | |||||||||
31,348,564 |
Number of Shares | Value | ||||||||||
Health Care Equipment & Supplies – 4.3% | |||||||||||
108,388 | West Pharmaceutical Services Components & Systems for Injectable Drug Delivery | $ | 8,224,481 | ||||||||
224,457 | ZELTIQ Aesthetics (a) (b) Systems & Consumables for Aesthetics | 6,134,410 | |||||||||
484,080 | Endologix (a) Minimally Invasive Treatment of Abdominal Aortic Aneurysm (AAA) | 6,031,637 | |||||||||
34,850 | Abiomed (a) Medical Devices for Cardiac Conditions | 3,808,757 | |||||||||
235,670 | LeMaitre Vascular Medical Devices for Peripheral Vascular Disease | 3,363,011 | |||||||||
27,562,296 | |||||||||||
Health Care Technology – 1.8% | |||||||||||
243,290 | Medidata Solutions (a) Cloud-based Software for Drug Studies | 11,403,002 | |||||||||
Pharmaceuticals – 1.0% | |||||||||||
239,453 | Akorn (a) Developer, Manufacturer & Distributor of Specialty Generic Drugs | 6,820,819 | |||||||||
Total Health Care | 150,833,104 | ||||||||||
Information Technology – 18.3% | |||||||||||
Internet Software & Services – 6.8% | |||||||||||
46,594 | CoStar Group (a) Commercial Real Estate Data Aggregator & Web Marketing for Retail Landlords | 10,188,244 | |||||||||
156,215 | SPS Commerce Supply Chain Management Software Delivered via the Web | 9,466,629 | |||||||||
406,551 | NIC Government Web Portal Development & Management Outsourcing | 8,919,729 | |||||||||
290,361 | Q2 Holdings (a) Online & Mobile Banking Software | 8,135,915 | |||||||||
114,047 | J2 Global Communications Communication Technology & Digital Media | 7,204,349 | |||||||||
43,914,866 | |||||||||||
Software – 5.2% | |||||||||||
137,867 | Guidewire (a) Software for Global Property & Casualty Insurance Carriers | 8,514,666 | |||||||||
124,850 | Manhattan Associates (a) Supply Chain Management Software & Services | 8,006,631 |
See accompanying notes to financial statements.
6
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Software – 5.2% (cont) | |||||||||||
76,287 | Ansys (a) Simulation Software for Engineers & Designers | $ | 6,923,045 | ||||||||
40,769 | Tyler Technologies (a) Financial, Tax, Court & Document Management Systems for Local Governments | 6,796,600 | |||||||||
47,153 | NetSuite (a) Enterprise Software Delivered via the Web | 3,432,738 | |||||||||
33,673,680 | |||||||||||
IT Services – 4.2% | |||||||||||
155,057 | ExlService Holdings (a) Business Process Outsourcing | 8,126,537 | |||||||||
123,019 | Maximus Outsourcer for Government Program Administration | 6,811,562 | |||||||||
236,554 | WNS – ADR (a) Offshore Business Process Outsourcing Services | 6,386,958 | |||||||||
155,449 | CoreLogic (a) Data Processing Services for Real Estate, Insurance & Mortgages | 5,981,678 | |||||||||
27,306,735 | |||||||||||
Semiconductors & Semiconductor Equipment – 1.2% | |||||||||||
114,764 | Monolithic Power Systems High Performance Analog & Mixed Signal Integrated Circuits | 7,840,677 | |||||||||
Electronic Equipment, Instruments & Components – 0.9% | |||||||||||
39,423 | IPG Photonics (a) Fiber Lasers | 3,153,840 | |||||||||
48,252 | Rogers Printed Circuit Materials & High Performance Foams | 2,948,197 | |||||||||
6,102,037 | |||||||||||
Total Information Technology | 118,837,995 | ||||||||||
Industrials – 18.1% | |||||||||||
Machinery – 6.1% | |||||||||||
171,815 | Toro Turf Maintenance Equipment | 15,154,083 | |||||||||
175,118 | ESCO Technologies Industrial Filtration & Advanced Measurement Equipment | 6,994,213 | |||||||||
143,458 | Oshkosh Corporation Specialty Truck Manufacturer | 6,844,381 |
Number of Shares | Value | ||||||||||
46,094 | Middleby (a) Manufacturer of Cooking Equipment | $ | 5,312,334 | ||||||||
60,368 | Nordson Dispensing Systems for Adhesives & Coatings | 5,047,368 | |||||||||
39,352,379 | |||||||||||
Commercial Services & Supplies – 4.3% | |||||||||||
90,542 | UniFirst Uniform Rental | 10,477,520 | |||||||||
290,829 | Knoll Office & Residential Furniture | 7,061,328 | |||||||||
140,208 | Healthcare Services Group Outsourced Services to Long-term Care Industry | 5,801,807 | |||||||||
98,444 | Copart (a) Auto Salvage Services | 4,824,741 | |||||||||
28,165,396 | |||||||||||
Professional Services – 3.7% | |||||||||||
218,316 | ICF International (a) Professional Service Company | 8,929,124 | |||||||||
70,181 | WageWorks (a) Healthcare Consumer Directed Benefits & Commuter Account Management | 4,197,526 | |||||||||
65,914 | Corporate Executive Board Best Practices Advisory & HR Solutions/Analytics | 4,065,575 | |||||||||
229,283 | Navigant Consulting (a) Financial Consulting Firm | 3,702,920 | |||||||||
153,774 | Korn/Ferry International Executive Search & Corporate Leadership/Talent Consulting | 3,183,122 | |||||||||
24,078,267 | |||||||||||
Aerospace & Defense – 2.9% | |||||||||||
120,161 | HEICO FAA-Approved Aircraft Replacement Parts | 6,446,638 | |||||||||
178,299 | Taser (a) Manufacturer of Electrical Weapons & Body Cameras | 4,436,079 | |||||||||
79,490 | Moog (a) Motion Control Products for Aerospace, Defense & Industrial Markets | 4,286,101 | |||||||||
108,117 | Astronics (a) Designer & Manufacturer of Aircraft Electrical Components & Testing Equipment | 3,595,971 | |||||||||
18,764,789 |
See accompanying notes to financial statements.
7
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Trading Companies & Distributors – 0.8% | |||||||||||
36,294 | Watsco HVAC Distribution | $ | 5,106,203 | ||||||||
Building Products – 0.3% | |||||||||||
186,586 | PGT (a) Wind Resistant Windows & Doors | 1,921,836 | |||||||||
Total Industrials | 117,388,870 | ||||||||||
Consumer Discretionary – 16.7% | |||||||||||
Hotels, Restaurants & Leisure – 6.2% | |||||||||||
177,044 | Papa John's International Franchisor of Pizza Restaurants | 12,038,992 | |||||||||
68,161 | Vail Resorts Ski Resort Operator & Developer | 9,421,895 | |||||||||
161,197 | Texas Roadhouse Rural-focused Full Service Steakhouse | 7,350,583 | |||||||||
134,815 | Zoës Kitchen (a) (b) Fast, Casual Mediterranean Food | 4,889,740 | |||||||||
71,759 | Choice Hotels Franchisor of Budget Hotel Brands | 3,417,164 | |||||||||
142,109 | Fiesta Restaurant Group (a) Owner/Operator of Two Restaurant Chains: Pollo Tropical & Taco Cabana | 3,099,397 | |||||||||
40,217,771 | |||||||||||
Auto Components – 4.5% | |||||||||||
155,671 | Drew Industries RV & Manufactured Home Components | 13,207,128 | |||||||||
133,606 | Dorman Products (a) Aftermarket Auto Parts Distributor | 7,642,263 | |||||||||
144,626 | Gentherm (a) Climate Control Systems for Car Seats, Mattresses & Other | 4,953,440 | |||||||||
218,558 | Gentex Manufacturer of Auto Parts | 3,376,721 | |||||||||
29,179,552 | |||||||||||
Household Durables – 2.0% | |||||||||||
100,515 | Cavco Industries (a) Manufactured Homes | 9,418,256 | |||||||||
103,605 | iRobot (a) Home Robots (Vacuums, Pool Cleaners) & Battlefield Reconnaissance Robots | 3,634,463 | |||||||||
13,052,719 |
Number of Shares | Value | ||||||||||
Specialty Retail – 1.3% | |||||||||||
103,256 | Five Below (a) Low-price Specialty Retailer Targeting Pre-Teens, Teens & Parents | $ | 4,792,111 | ||||||||
55,955 | Monro Muffler Brake Automotive Services | 3,556,500 | |||||||||
8,348,611 | |||||||||||
Leisure Products – 1.0% | |||||||||||
140,231 | Brunswick Corp Boats, Boat Engines, Exercise & Bowling Equipment | 6,355,269 | |||||||||
Distributors – 0.9% | |||||||||||
60,165 | Pool Swimming Pool Supplies & Equipment Distributor | 5,657,315 | |||||||||
Diversified Consumer Services – 0.8% | |||||||||||
131,459 | ServiceMaster (a) Pest & Termite Control, Home Warranty & Other Home Services | 5,232,068 | |||||||||
Total Consumer Discretionary | 108,043,305 | ||||||||||
Financials – 15.3% | |||||||||||
Banks – 7.3% | |||||||||||
91,596 | SVB Financial Group Bank to Venture Capitalists | 8,716,275 | |||||||||
212,047 | MB Financial Chicago Bank | 7,693,065 | |||||||||
386,700 | Associated Banc-Corp Midwest Bank | 6,631,905 | |||||||||
133,643 | Lakeland Financial Indiana Bank | 6,282,558 | |||||||||
254,181 | First Busey Illinois Bank | 5,436,932 | |||||||||
164,019 | LegacyTexas Texas Thrift | 4,413,751 | |||||||||
148,572 | Sandy Spring Bancorp Baltimore & Washington, D.C. Bank | 4,317,502 | |||||||||
132,776 | TriCo Bancshares California Central Valley Bank | 3,664,618 | |||||||||
47,156,606 |
See accompanying notes to financial statements.
8
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Diversified Financial Services – 2.6% | |||||||||||
80,598 | MarketAxess Bond Exchange | $ | 11,718,949 | ||||||||
190,687 | BATS Global Markets (a) U.S. & European Equity, U.S. Options, & Global FX Exchange | 4,898,749 | |||||||||
16,617,698 | |||||||||||
Capital Markets – 2.1% | |||||||||||
399,102 | Virtu Financial High Speed Trader | 7,183,836 | |||||||||
138,919 | SEI Investments Mutual Fund Administration & Investment Management | 6,683,393 | |||||||||
13,867,229 | |||||||||||
Real Estate Management & Development – 1.6% | |||||||||||
124,298 | FirstService Owner, Operator & Manager of Residential & Commercial Properties | 5,696,578 | |||||||||
139,959 | Colliers International Group Real Estate Services | 4,778,200 | |||||||||
10,474,778 | |||||||||||
Real Estate Investment Trusts (REITs) — 1.2% | |||||||||||
124,000 | Corrections Corp of America Prison Owner & Operator | 4,342,480 | |||||||||
35,642 | Extra Space Storage Self Storage Facilities | 3,298,311 | |||||||||
7,640,791 | |||||||||||
Insurance – 0.5% | |||||||||||
89,603 | Allied World Assurance Company Holdings Commercial Lines Insurance/Reinsurance | 3,148,649 | |||||||||
Total Financials | 98,905,751 |
Number of Shares | Value | ||||||||||
Energy – 3.4% | |||||||||||
Energy Equipment & Services – 1.8% | |||||||||||
55,443 | Core Labs (Netherlands) (b) Oil & Gas Reservoir Consulting | $ | 6,868,833 | ||||||||
309,254 | Frank's International (Netherlands) (b) Global Provider of Casing Running Services Post Drilling of Wells | 4,518,201 | |||||||||
11,387,034 | |||||||||||
Oil, Gas & Consumable Fuels – 1.6% | |||||||||||
169,600 | Carrizo Oil & Gas (a) Oil & Gas Producer | 6,080,160 | |||||||||
74,696 | PDC Energy (a) Oil & Gas Producer in the United States | 4,303,237 | |||||||||
10,383,397 | |||||||||||
Total Energy | 21,770,431 | ||||||||||
Consumer Staples – 0.9% | |||||||||||
Household Products – 0.9% | |||||||||||
50,265 | WD-40 Manufacturer of Industrial Lubrications | 5,903,624 | |||||||||
Total Consumer Staples | 5,903,624 | ||||||||||
Telecommunication Services – 0.6% | |||||||||||
Diversified Telecommunication Services – 0.6% | |||||||||||
322,754 | Lumos Networks (a) Telephone & Fiber Optic Data Services | 3,905,323 | |||||||||
Total Telecommunication Services | 3,905,323 | ||||||||||
Total Equities (Cost: $470,804,720) — 96.6% | 625,588,403 | (c) | |||||||||
Short-Term Investments – 2.1% | |||||||||||
13,556,145 | JPMorgan U.S. Government Money Market Fund, Agency Shares (7 day yield of 0.20%) | 13,556,145 | |||||||||
Total Short-Term Investments (Cost: $13,556,145) — 2.1% | 13,556,145 |
See accompanying notes to financial statements.
9
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
Number of Shares | Value | ||||||||||
Securities Lending Collateral – 2.7% | |||||||||||
17,697,775 | Dreyfus Government Cash Management Fund, Institutional Shares (7 day yield of 0.24%) (d) | $ | 17,697,775 | ||||||||
Total Securities Lending Collateral (Cost: $17,697,775) — 2.7% | 17,697,775 | ||||||||||
Total Investments (Cost: $502,058,640) (e) — 101.4% | 656,842,323 | ||||||||||
Obligation to Return Collateral for Securities Loaned – (2.7)% | (17,697,775 | ) | |||||||||
Cash and Other Assets Less Liabilities – 1.3% | 8,337,207 | ||||||||||
Net Assets – 100.0% | $ | 647,481,755 |
ADR – American Depositary Receipts
Notes to Statement of Investments
(a) Non-income producing security.
(b) All or a portion of this security was on loan at June 30, 2016. The total market value of securities on loan at June 30, 2016 was $17,304,643.
(c) On June 30, 2016, the market value of foreign securities represented 1.76% of total net assets. The Fund's foreign portfolio was diversified as follows:
Country | Value | Percentage of Net Assets | |||||||||
Netherlands | 11,387,034 | 1.76 |
(d) Investment made with cash collateral received from securities lending activity.
(e) At June 30, 2016, for federal income tax purposes, the cost of investments was approximately $502,058,640 and net unrealized appreciation was $154,783,683 consisting of gross unrealized appreciation of $166,287,646 and gross unrealized depreciation of $11,503,963.
Fair Value Measurements
Various inputs are used in determining the value of the Fund's investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed below:
• Level 1 – quoted prices in active markets for identical securities
• Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others)
• Level 3 – prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management's own assumptions about the factors market participants would use in pricing an investment)
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Examples of the types of securities in which the Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose NAVs are published each day and exchange traded foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost. Additionally, securities fair valued by CWAM's Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Trust's Portfolio Pricing Policy and the CWAM pricing procedures (the Policies), which are approved by and subject to the oversight of the Board.
The Committee meets as necessary, and no less frequently than quarterly, to determine fair values for securities for which market quotations are not readily available or for which the investment manager believes that available market quotations are unreliable. The Committee also reviews the continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other things: circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under which securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund's investment manager. The Committee may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the Policies.
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund's securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
See accompanying notes to financial statements.
10
Wanger USA 2016 Semiannual Report
Wanger USA
Statement of Investments (Unaudited), June 30, 2016
The following table summarizes the inputs used, as of June 30, 2016, in valuing the Fund's assets:
Investment Type | Other Quoted Prices (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||||
Equities | |||||||||||||||||||
Health Care | $ | 150,833,104 | $ | — | $ | — | $ | 150,833,104 | |||||||||||
Information Technology | 118,837,995 | — | — | 118,837,995 | |||||||||||||||
Industrials | 117,388,870 | — | — | 117,388,870 | |||||||||||||||
Consumer Discretionary | 108,043,305 | — | — | 108,043,305 | |||||||||||||||
Financials | 98,905,751 | — | — | 98,905,751 | |||||||||||||||
Energy | 21,770,431 | — | — | 21,770,431 | |||||||||||||||
Consumer Staples | 5,903,624 | — | — | 5,903,624 | |||||||||||||||
Telecommunication Services | 3,905,323 | — | — | 3,905,323 | |||||||||||||||
Total Equities | 625,588,403 | — | — | 625,588,403 | |||||||||||||||
Total Short-Term Investments | 13,556,145 | — | — | 13,556,145 | |||||||||||||||
Total Securities Lending Collateral | 17,697,775 | — | — | 17,697,775 | |||||||||||||||
Total Investments | $ | 656,842,323 | $ | — | $ | — | $ | 656,842,323 |
There were no transfers of financial assets between levels during the period.
See accompanying notes to financial statements.
11
Wanger USA 2016 Semiannual Report
Statement of Assets and Liabilities
June 30, 2016 (Unaudited)
Assets: | |||||||
Investments, at cost | $ | 502,058,640 | |||||
Investments, at value (including securities on loan of $17,304,643) | $ | 656,842,323 | |||||
Receivable for: | |||||||
Investments sold | 9,580,196 | ||||||
Fund shares sold | 102,205 | ||||||
Securities lending income | 11,247 | ||||||
Dividends | 369,673 | ||||||
Foreign tax reclaims | 2,067 | ||||||
Trustees' deferred compensation plan | 165,606 | ||||||
Prepaid expenses | 40,574 | ||||||
Total Assets | 667,113,891 | ||||||
Liabilities: | |||||||
Collateral on securities loaned | 17,697,775 | ||||||
Payable for: | |||||||
Fund shares redeemed | 1,645,839 | ||||||
Investment advisory fee | 15,127 | ||||||
Administration fee | 872 | ||||||
Transfer agent fee | 2 | ||||||
Trustees' fees | 4,077 | ||||||
Custody fee | 4,098 | ||||||
Reports to shareholders | 55,741 | ||||||
Trustees' deferred compensation plan | 165,606 | ||||||
Other liabilities | 42,999 | ||||||
Total Liabilities | 19,632,136 | ||||||
Net Assets | $ | 647,481,755 | |||||
Composition of Net Assets: | |||||||
Paid-in capital | $ | 437,064,513 | |||||
Overdistributed net investment income | (641,868 | ) | |||||
Accumulated net realized gain | 56,275,427 | ||||||
Net unrealized appreciation (depreciation) on: | |||||||
Investments | 154,783,683 | ||||||
Net Assets | $ | 647,481,755 | |||||
Fund Shares Outstanding | 27,276,902 | ||||||
Net asset value, offering price and redemption price per share | $ | 23.74 |
Statement of Operations
For the Six Months Ended June 30, 2016 (Unaudited)
Investment Income: | |||||||
Dividends (net foreign taxes withheld of $17,729) | $ | 2,551,609 | |||||
Income from securities lending — net | 99,834 | ||||||
Total Investment Income | 2,651,443 | ||||||
Expenses: | |||||||
Investment advisory fee | 2,703,871 | ||||||
Transfer agent fees | 293 | ||||||
Administration fee | 155,765 | ||||||
Trustees' fees | 30,757 | ||||||
Custody fees | 14,189 | ||||||
Reports to shareholders | 105,010 | ||||||
Audit fees | 19,489 | ||||||
Legal fees | 64,844 | ||||||
Chief compliance officer expenses | 28,576 | ||||||
Commitment fee for line of credit (Note 5) | 12,415 | ||||||
Other expenses | 17,563 | ||||||
Total Expenses | 3,152,772 | ||||||
Net Investment Loss | (501,329 | ) | |||||
Net Realized and Unrealized Gain (Loss) on Investments: | |||||||
Net realized gain (loss) on: | |||||||
Investments | 59,439,163 | ||||||
Net realized gain | 59,439,163 | ||||||
Net change in unrealized appreciation (depreciation) on: | |||||||
Investments | (51,184,250 | ) | |||||
Net change in unrealized depreciation | (51,184,250 | ) | |||||
Net realized and unrealized gain | 8,254,913 | ||||||
Net Increase in Net Assets from Operations | $ | 7,753,584 |
See accompanying notes to financial statements.
12
Wanger USA 2016 Semiannual Report
Statements of Changes in Net Assets
Increase (Decrease) in Net Assets | (Unaudited) Six Months Ended June 30, 2016 | Year Ended December 31, 2015 | |||||||||
Operations: | |||||||||||
Net investment loss | $ | (501,329 | ) | $ | (2,618,992 | ) | |||||
Net realized gain (loss) on: | |||||||||||
Investments | 59,439,163 | 176,459,137 | |||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Investments | (51,184,250 | ) | (175,148,605 | ) | |||||||
Net Increase (Decrease) in Net Assets from Operations | 7,753,584 | (1,308,460 | ) | ||||||||
Distributions to Shareholders From: | |||||||||||
Net realized gains | (177,478,615 | ) | (125,247,249 | ) | |||||||
Total Distributions to Shareholders | (177,478,615 | ) | (125,247,249 | ) | |||||||
Share Transactions: | |||||||||||
Subscriptions | 5,235,108 | 13,842,692 | |||||||||
Distributions reinvested | 177,478,615 | 125,247,249 | |||||||||
Redemptions | (58,111,686 | ) | (120,862,266 | ) | |||||||
Net Increase from Share Transactions | 124,602,037 | 18,227,675 | |||||||||
Total Decrease in Net Assets | (45,122,994 | ) | (108,328,034 | ) | |||||||
Net Assets: | |||||||||||
Beginning of period | 692,604,749 | 800,932,783 | |||||||||
End of period | $ | 647,481,755 | $ | 692,604,749 | |||||||
Overdistributed net investment income | $ | (641,868 | ) | $ | (140,539 | ) |
See accompanying notes to financial statements.
13
Wanger USA 2016 Semiannual Report
Financial Highlights
The following table is intended to help you understand the Fund's financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If such transactions were included, the Fund's portfolio turnover rate may be higher.
(Unaudited) Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||
Selected data for a share outstanding throughout each period | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 31.75 | $ | 37.71 | $ | 41.13 | $ | 33.84 | $ | 29.80 | $ | 33.86 | |||||||||||||||
Income from Investment Operations: | |||||||||||||||||||||||||||
Net investment income (loss) | (0.02 | ) | (0.12 | ) | (0.06 | ) | (0.05 | ) | 0.15 | (0.13 | ) | ||||||||||||||||
Net realized and unrealized gain (loss) | 0.75 | 0.45 | 1.70 | 10.79 | 5.63 | (0.82 | ) | ||||||||||||||||||||
Total from Investment Operations | 0.73 | 0.33 | 1.64 | 10.74 | 5.78 | (0.95 | ) | ||||||||||||||||||||
Less Distributions to Shareholders: | |||||||||||||||||||||||||||
Net investment income | — | — | — | (0.06 | ) | (0.11 | ) | — | |||||||||||||||||||
Net realized gains | (8.74 | ) | (6.29 | ) | (5.06 | ) | (3.39 | ) | (1.63 | ) | (3.11 | ) | |||||||||||||||
Total Distributions to Shareholders | (8.74 | ) | (6.29 | ) | (5.06 | ) | (3.45 | ) | (1.74 | ) | (3.11 | ) | |||||||||||||||
Net Asset Value, End of Period | $ | 23.74 | $ | 31.75 | $ | 37.71 | $ | 41.13 | $ | 33.84 | $ | 29.80 | |||||||||||||||
Total Return | 1.73 | % | (0.61 | )% | 4.78 | % | 33.75 | % | 20.02 | %(a) | (3.49 | )%(a) | |||||||||||||||
Ratios to Average Net Assets/Supplemental Data: | |||||||||||||||||||||||||||
Total gross expenses (b) | 1.01 | %(c) | 1.01 | % | 0.96 | % | 0.96 | % | 0.96 | % | 0.94 | % | |||||||||||||||
Total net expenses (b) | 1.01 | %(c) | 1.01 | % | 0.96 | % | 0.96 | % | 0.96 | %(d) | 0.93 | %(d) | |||||||||||||||
Net investment income (loss) | (0.16 | )%(c) | (0.34 | )% | (0.15 | )% | (0.12 | )% | 0.45 | % | (0.40 | )% | |||||||||||||||
Portfolio turnover rate | 75 | % | 45 | % | 14 | % | 15 | % | 12 | % | 10 | % | |||||||||||||||
Net assets, end of period (000s) | $ | 647,482 | $ | 692,605 | $ | 800,933 | $ | 912,143 | $ | 782,222 | $ | 757,562 |
Notes to Financial Highlights
(a) Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced.
(b) In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests, if any. Such indirect expenses are not included in the Fund's reported expense ratios.
(c) Annualized.
(d) The benefits derived from custody fees paid indirectly had an impact of less than 0.01%.
See accompanying notes to financial statements.
14
Wanger USA 2016 Semiannual Report
Notes to Financial Statements (Unaudited)
1. Nature of Operations
Wanger USA (the Fund), a series of Wanger Advisors Trust (the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be offered directly to certain qualified pension and retirement plans.
2. Summary of Significant Accounting Policies
Basis of preparation
The Fund is an investment company that applies the accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services—Investment Companies (ASC 946). The financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP) which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees (the Board). A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange traded funds (ETFs) are valued at their closing net asset value as reported on the applicable exchange. A security for which there is no reported sale on the valuation date is valued at the mean of the latest bid and ask quotations.
Short-term investments maturing in 60 days or less are valued at amortized cost, which approximates market value.
The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security is valued at a fair value, that value may be different from the last quoted market price for the security.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded on the accrual basis and includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Awards, if any, from class action litigation related to securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
The Fund may receive distributions from holdings in equity securities, ETFs, other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund's management. Management's estimates are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Expenses
General expenses of the Trust are allocated to the Fund and the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net asset value per share is determined daily as of the close of trading on the New York Stock Exchange (the Exchange) on each day the Exchange is open for trading by dividing the total value of the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding.
Securities lending
The Fund may lend securities up to one-third of the value of its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund's lending agent, and borrower rebates. The Fund's investment manager, Columbia Wanger Asset Management, LLC (CWAM), does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2016, is included in the Statement of Operations.
15
Wanger USA 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
Offsetting of assets and liabilities
The following table presents the Fund's gross and net amount of assets and liabilities available for offset under netting agreements and under a securities lending agreement as well as the related collateral received by the Fund as of June 30, 2016:
Goldman Sachs ($) | |||||||
Liabilities | |||||||
Collateral on securities loaned | 17,697,775 | ||||||
Total liabilities | 17,697,775 | ||||||
Total financial and derivative net assets | (17,697,775 | ) | |||||
Financial instruments | (17,304,643 | ) | |||||
Net amount (a) | (393,132 | ) |
(a) Represents the net amount due from/(to) counterparties in the event of default.
Securities lending transactions
The following table indicates the total amount of securities loaned by type, reconciled to gross liability payable upon return of the securities loaned by the Fund as of June 30, 2016:
Overnight and Continuous | Up to 30 Days | 30 – 90 Days | Greater than 90 Days ($) | Total ($) | |||||||||||||||||||
Securities lending transactions | |||||||||||||||||||||||
Equity securities | $ | 17,304,643 | $ | — | $ | — | $ | — | $ | 17,304,643 | |||||||||||||
Gross amount of recognized liabilities for securities lending (collateral received) | 17,697,775 | ||||||||||||||||||||||
Amounts due to counterparty | $ | 393,132 |
Federal income taxes
The Fund has complied with the provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, distributes substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required.
Foreign capital gains taxes
Gains in certain countries may be subject to foreign taxes at the fund level. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Indemnification
In the normal course of business, the Trust on behalf of the Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund. Also under the Trust's organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of loss due to these warranties and indemnities to be remote.
3. Federal Tax Information
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
Management is required to determine whether a tax position of the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management's conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund's federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
4. Transactions with Affiliates
CWAM is a wholly owned subsidiary of Columbia Management Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the overall management of the Fund's business affairs.
CWAM receives a monthly advisory fee based on the Fund's average daily net assets at the following annual rates:
Average Daily Net Assets | Annual Fee Rate | ||||||
Up to $100 million | 0.94 | % | |||||
$100 million to $250 million | 0.89 | % | |||||
$250 million to $2 billion | 0.84 | % | |||||
$2 billion and over | 0.80 | % |
For the six months ended June 30, 2016, the annualized effective investment advisory fee rate was 0.87% of the Fund's average daily net assets.
CWAM provides administrative services and receives an administration fee from the Fund at the following annual rates:
Wanger Advisors Trust Aggregate Average Daily Net Assets of the Trust | Annual Fee Rate | ||||||
Up to $4 billion | 0.05 | % | |||||
$4 billion to $6 billion | 0.04 | % | |||||
$6 billion to $8 billion | 0.03 | % | |||||
$8 billion and over | 0.02 | % |
For the six months ended June 30, 2016, the annualized effective administration fee rate was 0.05% of the Fund's average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Columbia Management Investment Distributors, Inc. (CMID), a wholly owned subsidiary of Ameriprise Financial, serves as the Fund's distributor and principal underwriter.
Columbia Management Investment Services Corp. (CMIS), a wholly owned subsidiary of Ameriprise Financial, is the transfer agent to the Fund. For its services, the Fund pays CMIS a monthly fee at the annual rate of $21.00 per open account. CMIS also receives reimbursement from the Fund for certain out-of-pocket expenses.
Certain officers and trustees of the Trust are also officers of CWAM. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM.
16
Wanger USA 2016 Semiannual Report
Notes to Financial Statements, continued (Unaudited)
The Board has appointed a Chief Compliance Officer of the Trust in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of certain of the expenses associated with the office of the Chief Compliance Officer.
The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value of Class Z shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
For the six months ended June 30, 2016, the Fund engaged in sales transactions with funds that have a common investment manager (or affiliated investment managers), common directors/trustees, and/or common officers. Those sale transactions complied with provisions of Rule 17a-7 under the 1940 Act and were $17,603,965. The sale transactions resulted in a net realized gain of $3,999,285.
5. Borrowing Arrangements
During the period January 1, 2016 through April 28, 2016, the Trust participated in a revolving credit facility in the amount of $400 million with a syndicate of banks led by JPMorgan Chase Bank, N.A., along with Columbia Acorn Trust, another trust managed by CWAM. Effective April 28, 2016, the credit facility was renewed in the amount of $200 million with a syndicate of banks led by JPMorgan Chase Bank, N.A. Under each facility, interest is charged to each participating Fund based on its borrowings at a rate per annum equal to the Federal Funds Rate plus 1.00%. In addition, a commitment fee of 0.08% (before April 28, 2016) and 0.15% (after April 28, 2016) per annum of the unutilized line of credit is accrued and apportioned among the participating Funds based on their relative net assets. The commitment fee is disclosed as a part of "Other expenses" in the Statement of Operations. The Trust expects to renew this line of credit for one year durations each April at then current market rates and terms.
No amounts were borrowed for the benefit of the Fund under the line of credit during the six months ended June 30, 2016.
6. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the Statement of Changes in Net Assets are in respect of the following numbers of shares:
(Unaudited) Six months ended June 30, 2016 | Year ended December 31, 2015 | ||||||||||
Shares sold | 183,355 | 393,619 | |||||||||
Shares issued in reinvestment of dividend distributions | 7,321,725 | 3,591,834 | |||||||||
Less shares redeemed | (2,043,115 | ) | (3,411,642 | ) | |||||||
Net increase in shares outstanding | 5,461,965 | 573,811 |
7. Investment Transactions
The aggregate cost of purchases and proceeds from sales other than short-term obligations for the six months ended June 30, 2016, were $459,418,004 and $492,668,106, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
8. Shareholder Concentration
At June 30, 2016, two unaffiliated shareholder accounts owned an aggregate of 32.5% of the outstanding shares of the Fund. The Fund has no knowledge about whether any portion of those shares was owned beneficially by such accounts. Affiliated shareholder accounts owned 60.6% of the outstanding shares of the Fund. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund.
9. Subsequent Events
Management has evaluated the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
10. Information Regarding Pending and Settled Legal Proceedings
Ameriprise Financial and certain of its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their business activities. Ameriprise Financial believes that the Funds are not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary, 8-K filings with the Securities and Exchange Commission on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse publicity associated with them, will not result in increased fund redemptions, reduced sale of fund shares or other adverse consequences to the Funds. Further, although we believe proceedings are not likely to have a material adverse effect on the Funds or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Funds, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of Ameriprise Financial.
17
Wanger USA 2016 Semiannual Report
Board Approval of the Advisory Agreement
Wanger Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger USA (the "Fund"). More than 75% of the trustees of the Trust (the "Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent Trustees"). The Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does the Board's Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several occasions. In all, the Contract Committee convened formally on seven separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract Committee's status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees, reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee") serves on the Contract Committee and made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the Trustees included, among other items, (i) information on the investment performance of the Fund relative to independently selected peer groups of funds and the Fund's performance benchmark(s) over various time periods, as presented and analyzed by independent consultants, (ii) information on the Fund's advisory fees and other expenses, including information comparing the Fund's fees and expenses to those of peer groups of funds and information about any applicable expense limitations and fee breakpoints, (iii) data on sales and redemptions of Fund shares, and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as a result of their relationships with the Fund. The Contract Committee and the Trustees also considered other information such as (i) CWAM's financial condition, (ii) the Fund's investment objective and strategy, (iii) the size, education and experience of CWAM's investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund, (iv) the portfolio manager compensation framework, (v) the allocation of the Fund's brokerage, and the use of "soft" commission dollars to pay for research products and services, (vi) CWAM's risk management program, (vii) the resources devoted to, and the record of compliance with, the Fund's
investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures, and (viii) CWAM's and its affiliates' conflicts of interest.
At a meeting held on June 7, 2016, the Board considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself was considered dispositive. The material factors and conclusions that formed the basis for the Trustees' determination to approve the continuation of the Advisory Agreement are discussed below.
Nature, quality and extent of services. The Trustees reviewed the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund's investment restrictions; producing shareholder reports; providing support services for the Board and committees of the Board; managing the Fund's securities lending program; communicating with shareholders; serving as the Fund's administrator; and overseeing the activities of the Fund's other service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM's compliance record.
The Trustees took into account the extensive process changes made by CWAM in the past year to improve Fund performance, including but not limited to: the hiring of a new portfolio manager for Wanger USA and director of research (U.S.); the addition of more systematic and quantitative tools and risk-based analysis into the portfolio management process; the significant reduction in the number of Fund holdings in 2015 and increased concentration of the portfolio in fewer high conviction names; and certain other portfolio manager and analyst changes.
The Trustees concluded that the nature, quality and extent of the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment and operational personnel. Based on these changes and assurances, the Trustees believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund. The Trustees received and considered detailed performance information at various meetings of the Board, the Contract Committee and the Performance Committee throughout the year. They reviewed information comparing the Fund's performance with that of its benchmark(s) and with the performance of comparable funds and peer groups as identified by independent consultants Broadridge Financial Solutions, Inc. ("Broadridge") and Morningstar, Inc. ("Morningstar") taking into account that each service had a different methodology for calculating the Fund's total returns. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, including over the one-, three- and five-year periods ended December 31, 2015. The Trustees also considered peer performance rankings for similar time periods, although they generally focused on more recent performance in order to evaluate CWAM's remediation efforts.
The Trustees considered that the Fund had outperformed its Morningstar and Broadridge peer group medians for the one-year period ended December 31, 2015 but lagged for the three- and five-year periods. The Trustees also considered the Fund's risk ratings versus its peers. The Trustees considered CWAM's explanation for
18
Wanger USA 2016 Semiannual Report
Board Approval of the Advisory Agreement, continued
the Fund's longer term underperformance versus peers and believed the changes described above would help improve the Fund's performance.
The Trustees concluded that CWAM had taken and continued to take a number of corrective steps to improve performance of the Fund, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund's performance closely. In addition the Trustees considered that the Chief Investment Officer (the "CIO") of CWAM had reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve Fund performance, and that members of the Contract Committee had met separately with the CIO on multiple occasions to discuss the Fund. The Trustees also took into account that the new director of research (U.S.) had met several times with the Contract Committee and the Performance Committee to review the changes made to the Fund's investment process to improve performance.
The Trustees also took into consideration the Fund's performance versus its current benchmark as reported by both Morningstar and Broadridge, noting that each service calculated the Fund's total return using a different methodology with varying results.
Costs of Services and Profits Realized by CWAM. At various Committee and Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge and Morningstar. The Trustees noted that the Fund's net expenses and actual advisory fees paid were higher than the median of both the Broadridge and Morningstar peer groups.
The Trustees also reviewed the advisory fee rates charged by CWAM for managing other investment companies, sub-advised funds and other institutional separate accounts, as detailed in materials provided to the Contract Committee by CWAM. The Trustees noted that the Fund's advisory fees were generally comparable to Columbia Acorn USA's advisory fees at the same asset levels. The Trustees also examined CWAM's institutional separate account fees for parallel investment strategies and determined that institutional account advisory fees tended to be lower than the Fund. The Trustees considered the information provided by CWAM regarding its performance of significant additional services for the Fund that it does not provide to sub-advised funds or non-mutual fund clients, including administrative and fund accounting services, oversight of the Fund's other service providers, Trustee support, regulatory compliance and numerous other services, and that, in servicing the Fund, CWAM assumes many legal and business risks that it does not assume in servicing many of its non-fund clients.
The Trustees reviewed the analysis of the historic profitability of CWAM in serving as the Fund's investment manager and of CWAM and its affiliates in their relationships with the Fund. The Contract Committee and Trustees met with representatives from Ameriprise to discuss its methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and Fund-by-Fund basis. The Trustees also reviewed the methodology used by CWAM and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from third-party consultant Strategic Insight, which compared CWAM's profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM's profitability in light of the additional resources that had been, and would continue to be, provided to it by Ameriprise to assist in improving performance.
Economies of Scale. At various Committee and Board meetings and other informal meetings, the Trustees considered information about the extent to which CWAM realizes economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund includes breakpoints in the rate of fees at various asset levels. The Trustees concluded that the fee structure of the
Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other Benefits to CWAM. The Trustees also reviewed benefits that accrue to CWAM and its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund's transfer agency services are performed by Columbia Management Investment Services Corp., an affiliate of Ameriprise, which receives compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc. ("CMID"), serves as the Fund's distributor under an underwriting agreement but receives no fees for its services to the Fund. In addition, Columbia Management provides sub-administration services to the Fund. The Contract Committee and the Board received information regarding the profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM may potentially benefit from their relationship with each other. For example, the Trustees considered CWAM's use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM's annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM's soft dollar spending. The Trustees also considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM's execution of the Fund's portfolio transactions. The Trustees noted that these reports showed that CWAM's execution capabilities were generally better than industry peers. The Trustees determined that CWAM's use of the Fund's "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefits from the receipt of proprietary research products and services acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM's receipt of those products and services as well as research products and services acquired through commissions paid by other clients of CWAM.
After full consideration of the above factors, as well as other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the Advisory Agreement was in the best interest of the Fund. At the Board meeting held on June 7, 2016, the Trustees approved continuation of the Advisory Agreement through July 31, 2017.
19
Wanger USA 2016 Semiannual Report
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20
Wanger USA 2016 Semiannual Report
Columbia Wanger Funds
Trustees
Laura M. Born, Chair of the Board
David J. Rudis, Vice Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Thomas M. Goldstein
John C. Heaton
Steven N. Kaplan
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan
President
Alan G. Berkshire
Vice President
Michael G. Clarke
Assistant Treasurer
William J. Doyle
Vice President
David L. Frank
Vice President
Paul B. Goucher
Assistant Secretary
Fritz Kaegi
Vice President
John M. Kunka
Vice President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak
Vice President
Joseph C. LaPalm
Vice President
Ryan C. Larrenaga
Assistant Secretary
Matthew A. Litfin
Vice President
Satoshi Matsunaga
Vice President
Thomas P. McGuire
Chief Compliance Officer
Louis J. Mendes
Vice President
Christopher J. Olson
Vice President
Julian Quero
Assistant Treasurer
Martha A. Skinner
Assistant Treasurer
Matthew S. Szafranski
Vice President
Andreas Waldburg-Wolfegg
Vice President
Linda K. Roth-Wiszowaty
Secretary
Investment Manager
Columbia Wanger Asset Management,LLC
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
1-888-4-WANGER
(1-888-492-6437)
Transfer Agent,
Dividend Disbursing Agent
Columbia Management Investment Services Corp.
P.O.Box 8081
Boston, Massachusetts
02266-8081
Distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, Massachusetts
02110
Legal Counsel to the Funds
Perkins Coie LLP
Washington, DC
Legal Counsel to the Independent Trustees
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Chicago, Illinois
This document contains Global Industry Classification Standard data. The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of MSCI Inc. ("MSCI") and Standard & Poor's Financial Services LLC ("S&P") and is licensed for use by Columbia Wanger Asset Management, LLC ("CWAM"). Neither MSCI, S&P, nor any other party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
This report, including the schedules of investments and financial statements, is submitted for the general information of the shareholders of the Wanger Advisors Trust.
A description of the Fund's proxy voting policies and procedures and a copy of the Fund's voting record for the most recent 12-month period ended June 30 are available (i) on our website at investor.columbiathreadneedleus.com/disclosures/proxy-voting-report, (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 888-492-6437.
The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Pubic Reference Room may be obtained by calling 800-SEC-0330. The Fund's complete portfolio holdings are disclosed at investor.columbiathreadneedleus.com approximately 30 to 40 days after each month end.
COLUMBIA WANGER FUNDS
© 2016 Columbia Management Investment Advisers, LLC. All rights reserved. C-1466 AK (8/16) 1572016
Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments
(a) The registrant’s “Schedule I — Investments in securities of unaffiliated issuers” (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officers, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that material information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) There was no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not applicable for semiannual reports.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Wanger Advisors Trust |
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By (Signature and Title) |
| /s/ P. Zachary Egan |
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| P. Zachary Egan, President and Principal Executive Officer |
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Date |
| August 19, 2016 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title) |
| /s/ P. Zachary Egan |
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| P. Zachary Egan, President and Principal Executive Officer |
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Date |
| August 19, 2016 |
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By (Signature and Title) |
| /s/ John M. Kunka |
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| John M. Kunka, Treasurer and Principal Accounting and Financial Officer |
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Date |
| August 19, 2016 |
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