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: 811-8748
Wanger Advisors Trust
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
Date of fiscal year end: 12/31/04
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Date of reporting period: 12/31/04
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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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
WANGER U.S. SMALLER COMPANIES
2004 Annual Report
[LOGO] Wanger Advisors Funds
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managed by Columbia Wanger Asset Management, L.P.
[LOGO] Wanger Advisors Funds
2004 Annual Report
TABLE OF CONTENTS
1 Understanding Your Expenses
2 The Miracle Year
4 Performance Review
6 Statement of Investments
13 Statement of Assets and Liabilities
13 Statement of Operations
14 Statements of Changes in Net Assets
15 Financial Highlights
16 Notes to Financial Statements
20 Report of Independent Registered Public Accounting Firm
21 Board of Trustees and Management of Wanger Advisors Trust
COLUMBIA WANGER ASSET MANAGEMENT, L.P. ("COLUMBIA WAM") IS ONE OF THE LEADING
GLOBAL SMALL-CAP EQUITY MANAGERS IN THE U.S. WITH MORE THAN 30 YEARS OF
SMALL-CAP INVESTMENT EXPERIENCE. COLUMBIA WAM MANAGES MORE THAN $22 BILLION IN
EQUITIES AND IS THE INVESTMENT ADVISER TO WANGER U.S. SMALLER COMPANIES, WANGER
INTERNATIONAL SMALL CAP, WANGER SELECT, WANGER INTERNATIONAL SELECT AND THE
COLUMBIA ACORN FAMILY OF FUNDS.
FOR MORE COMPLETE INFORMATION ABOUT OUR FUNDS, INCLUDING THE COLUMBIA
ACORN FUNDS, OUR FEES, RISKS ASSOCIATED WITH INVESTING, OR EXPENSES, CALL
1-888-4-WANGER FOR A PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY. THIS REPORT IS NOT AN OFFER OF THE SHARES OF THE COLUMBIA ACORN FUND
FAMILY.
THE DISCUSSION IN THE REPORT OF PORTFOLIO COMPANIES IS FOR ILLUSTRATION
ONLY AND IS NOT A RECOMMENDATION OF INDIVIDUAL STOCKS. THE INFORMATION IS
BELIEVED TO BE ACCURATE, BUT THE INFORMATION AND THE VIEWS OF THE PORTFOLIO
MANAGERS MAY CHANGE AT ANY TIME WITHOUT NOTICE AND THE PORTFOLIO MANAGERS MAY
ALTER A FUND'S PORTFOLIO HOLDINGS BASED ON THESE VIEWS AND THE FUND'S
CIRCUMSTANCES AT THAT TIME.
Wanger U.S. Smaller Companies 2004 Annual Report
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UNDERSTANDING YOUR EXPENSES
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to 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 reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period 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 actual operating expenses and total return
for the fund. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and then applies each 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 reporting
period. See the "Compare with other funds" information for details on using the
hypothetical data.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period.
1. Divide your ending account balance by $1,000.00. For example, if an
account balance was $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number is
in the column labeled "actual." Multiply this number by the result
from step 1. Your answer is an estimate of the expenses you paid on
your account during the period.
July 1, 2004 - December 31, 2004
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ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID DURING FUND'S ANNUALIZED
BEGINNING OF THE PERIOD($) END OF THE PERIOD ($) THE PERIOD ($) EXPENSE RATIO (%)*
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ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
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Wanger U.S. Smaller
Companies 1,000.00 1,000.00 1,112.81 1,020.16 5.26 5.03 0.99
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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. AS A SHAREHOLDER OF THE
FUND, YOU DO NOT INCUR ANY TRANSACTION COSTS, SUCH AS SALES CHARGES, REDEMPTION
OR EXCHANGE FEES. EXPENSES PAID DURING THE PERIOD DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. 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.
* FOR THE SIX MONTHS ENDED 12/31/04.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies 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 5% hypothetical example with the 5% hypothetical examples of other
funds. As you compare hypothetical examples of other funds, it is important to
note that hypothetical examples are meant to highlight the continuing cost of
investing in a fund and do not reflect any transactional costs, such as sales
charges or redemption or exchange fees, that may be incurred by shareholders of
other funds. Expenses paid during the period do not include any insurance
charges imposed by your insurance company's separate accounts.
1
Wanger U.S. Smaller Companies 2004 Annual Report
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[LOGO] THE MIRACLE YEAR
Photo of RALPH WANGER
RALPH WANGER
FOUNDER, ADVISOR AND TRUSTEE
COLUMBIA WANGER ASSET MANAGEMENT, L.P.
1905 was a year of surprises. The first surprise was the victory of the Japanese
over the Russians in the Russo-Japanese War. In May 1905, the untested Japanese
Navy annihilated the Russian fleet at Tsushima. This was the first time a
non-white country had beaten the main force of a European colonial power. The
second unexpected event was in physics. 2005 will be celebrated as the
centennial of Albert Einstein's "Miracle Year."
The journal, ANNALEN DER PHYSIK, volume 17, published three articles in
September 1905 all written by Einstein, an obscure clerk in the Swiss patent
office in Bern. He had an undergraduate degree in physics but no Ph.D (it was
granted a year later). Each of the articles were on a different subject and each
one revolutionized its branch of physics. Einstein's papers created 20th century
physics almost single-handedly.
ATOMS
In 1905 there were different theories about the structure of matter. If you take
a glass of water and pour nine-tenths of it out, you still have a glass with
water in it. What happens if you repeat this process of throwing out 90% of the
water in the glass? After you repeat the process a few more times, you have such
a small amount of water that you can only see it under a microscope, and in a
few more steps the water drop will be too small to be seen even under the
microscope. Can you continue the boring job of splitting water forever or do you
finally get to a point where it isn't water anymore? Of course we know the
answer: Once you get down to a single molecule of water you can't split it and
still say that you have water left. Many leading scientists did not accept the
atomic theory in 1905. Einstein looked at the process called Brownian Motion in
which a grain of pollen or other small object moves around in a random way. (The
same mathematical process makes stock prices jiggle.) He deduced that this
motion was caused by billions of atoms bumping into the pollen grain in an
irregular pattern. He was even able to calculate the size of the atoms involved,
thus proving that atoms really existed.
PHOTONS
In 1905 there was still a basic debate about the nature of light. The greatest
achievement of 19th century physics was Maxwell's set of partial differential
equations governing electromagnetic fields, including light. Maxwell's equations
required that light be a wave. The great Max Planck had introduced the idea of a
quantum of energy in 1900 to get an equation that tracked the spectrum of heat
radiation, but most scientists doubted that a light quantum was "real." Heinrich
Hertz, Philip Lenard and others showed that when a beam of ultraviolet light
shines on a piece of metal you produce an electrical current in the metal. There
was no way to explain the photoelectric effect according to the Maxwell wave
theory of light. The second paper Einstein wrote dealt with the problem of the
photoelectric effect. If you cut the amount of energy in a beam of light by 90%
and keep reducing it, you still have a beam of light. If you keep slicing the
amount of light, does the beam of light keep getting smaller and smaller forever
or do you get down to an "atom" of light that can't be split further? Einstein
proved that there was a tiny amount of light that could not be further divided.
The least amount of light that exists is a single photon (or quantum) of light.
1 The photoelectric effect is explained by photons acting as particles, not as a
wave.
Einstein's discovery of the photon had a number of interesting effects. First,
it led to the development of quantum mechanics and thus to most of 20th century
physics. Second, it won Einstein his only Nobel Prize. Third, it uncovered a
paradox that still puzzles students, the duality of light. If you run an
experiment to show that light is a wave, you can prove it's a wave. If you run
an experiment to show that it's a particle, you can prove it's a particle. This
duality principle contradicts common sense but when you study science you have
to get used to it. The fourth effect was that it made Lenard a life-long enemy
of Einstein. Philip Lenard, who received the Nobel Prize in 1905 for his own
work on cathode rays, was close to the solution but Einstein ended up getting
the credit. Lenard became an unrelenting foe of Einstein, and influenced the
Nobel committee's decision not to give Einstein the prize for his theory of
relativity. Later on, Lenard became an ardent Nazi.
RELATIVITY
In 1905, there was also a debate in scientific circles about speed. If you were
in a really powerful rocket ship in space, and you pushed the throttle forward,
you would speed up. If you kept on increasing the power, would you go ever
faster, or was there an absolute speed limit in the universe that you could not
exceed?
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Wanger U.S. Smaller Companies 2004 Annual Report
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The third paper became the best known, Einstein's special theory of relativity.
It explained that there was a cosmic speed limit, the speed of light. Very odd
things happen when your rocket ship is moving close to the speed of light. Time
slows down and you get shorter, under the Lorentz contraction equation, giving
rise to the limerick:
A sexy young techie named Fisk, Had a motion exceedingly brisk. So fast was his
action The Lorentz contraction Shortened his rod to a disk.
In a very brief paper published later in 1905, Einstein added in a note that his
theory of relativity implied the equation E=mc 2. That solved the paradox of
radioactivity; Mme Curie's radium was producing much more energy then could be
explained by 19th century physics. Einstein showed that radioactive energy was
caused by turning a small amount of mass into a lot of energy.
So we had this technical journal containing three papers written by a man
unknown in science, a non-Ph.D, a non-academic, writing on a German-dominated
field with all the fussiness about rank and reputation that you would expect.
Would anyone care? Einstein did not receive any communication from any
physicists for the first couple months after he published, but in early 1906 Max
Planck read and understood the papers. He wrote to Einstein and sent his
assistant, another important physicist, Max von Laue, to visit Einstein in Bern.
Planck's subsequent endorsement made Einstein acceptable to the community of
physicists, and his papers became required study for all physicists, as they
remain.
The compelling human question: How the heck did Einstein do it? How could one
human being produce three revolutionary papers in one year, on three different
subjects, while carrying a full-time job at the patent office to boot? We can
admire but not explain. The "Miracle Year" commemorates one of the greatest
feats of the human mind ever.
1 PLANCK AND EINSTEIN HAD DISCOVERED THE QUANTUM JUMP, WHICH WAS THE SMALLEST
THING THAT COULD POSSIBLY EXIST IN THE UNIVERSE. MODERN WRITERS, FOR REASONS
DIFFICULT TO EXPLAIN, NOW USE THE PHRASE QUANTUM JUMP TO MEAN A BIG EVENT. WHEN
NON-SCIENTISTS START THROWING AROUND SCIENTIFIC TERMS WITHOUT UNDERSTANDING
THEM, FUNNY THINGS HAPPEN. DON'T GET ME STARTED ON THE HEISENBERG UNCERTAINTY
PRINCIPLE.
INCIDENTALLY, ALBERT EINSTEIN'S FATHER, HERMANN, WAS BORN IN THE WURTTEMBERG
VILLAGE OF BUCHAU, WHERE HIS FAMILY HAD LIVED FOR GENERATIONS. HERMANN MOVED 20
MILES FROM BUCHAU TO THE CITY OF ULM, WHERE ALBERT WAS BORN. MY GREAT-GREAT
GRANDFATHER, JOSEPH KOHN, WAS ALSO FROM BUCHAU AND HE HAD MANY EINSTEINS IN HIS
FAMILY TREE. I AM VERY PROUD OF THE EINSTEIN CONNECTION.
SOURCES:
"EINSTEIN: A CELEBRATION," SEMINAR AT THE ASPEN INSTITUTE, AUGUST 8-11, 2004.
EINSTEIN, ALBERT, "IDEAS AND OPINIONS," CROWN PUBLISHERS, 1954.
KAKU, MICHIO, "EINSTEIN COSMOS: HOW ALBERT EINSTEIN'S VISION TRANSFORMED OUR
UNDERSTANDING OF SPACE AND TIME," ATLAS BOOKS, 2004.
"DISCOVER" MAGAZINE, "SPECIAL EINSTEIN ISSUE," SEPTEMBER 2004.
A SPECIAL THANKS TO DOUG STONE OF YALE UNIVERSITY FOR EDITING THIS ESSAY.
3
Wanger U.S. Smaller Companies 2004 Annual Report
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[LOGO] PERFORMANCE REVIEW WANGER U.S. SMALLER COMPANIES
Photo of ROBERT A. MOHN
ROBERT A. MOHN
PORTFOLIO MANAGER
Wanger U.S. Smaller Companies ended the year up 18.33%. Fund performance matched
the benchmark Russell 2000, also up 18.33%. There was a great deal of pessimism
about the market and the political environment going into the final quarter of
2004. Because of this, many institutional investors were reported to be building
up cash positions. After the elections, the money came back into the markets,
fueling a fierce fourth quarter rally.
Some of our biggest winners were health care stocks, which benefited from the
year-end market surge. Lincare Holdings, a provider of home health care
services, increased 42% in the year on news of a higher than expected government
dispensing fee for respiratory medication. Edwards Lifesciences's heart valves
were big sellers, pumping the stock up 37% for the year.
Technology stocks also did well. Micros Systems, a developer of reservation
systems used in hotels and restaurants, gained 80% for the year. On the telecom
side, Western Wireless gained 59% in 2004 (and even more so far in 2005 on news
that Alltel will be buying the company).
While slightly cooler in the fourth quarter, energy stocks were strong 2004
performers. Quicksilver, a natural gas producer, was up an impressive 128% for
the year. Chicago Bridge & Iron, a leading designer and manufacturer of tanks
used to convert liquified natural gas into pipeline gas, was added to the Fund
in '04 and immediately went to work. For the year the stock was up 65%.
The laggards for the year included southeast supermarket chain Winn Dixie
Stores, down 58%. The Fund no longer holds the stock. Novell, a developer of
open source software, failed to meet earnings targets and declined 36% for the
year. NDCHealth Group fell 27% as ancillary businesses, outside its core health
care claims processing business, collapsed.
Generally speaking, we think companies are operating in a healthy economy that
should provide growth going forward. We will continue to search for what we
believe are winning small-cap stocks selling at good prices.
SMALL-CAP STOCKS ARE OFTEN MORE VOLATILE AND LESS LIQUID THAN THE STOCKS OF
LARGER COMPANIES. SMALL COMPANIES MAY HAVE A SHORTER HISTORY OF OPERATIONS THAN
LARGER COMPANIES AND MAY HAVE A LESS DIVERSIFIED PRODUCT LINE, MAKING THEM MORE
SUSCEPTIBLE TO MARKET PRESSURE.
AS OF 12/31/04, THE FUND'S POSITIONS IN THE HOLDINGS MENTIONED WERE: LINCARE
HOLDINGS, 3.2%; EDWARDS LIFESCIENCES, 1.5%; MICROS SYSTEMS, 2.2%; WESTERN
WIRELESS, 2.2%; QUICKSILVER, 0.5%; CHICAGO BRIDGE & IRON, 1.9%; WINN DIXIE
STORES, 0.0%; NOVELL, 0.9%; NDCHEALTH GROUP, 0.8%.
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Wanger U.S. Smaller Companies 2004 Annual Report
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VALUE OF A $10,000 INVESTMENT IN WANGER U.S. SMALLER COMPANIES
TOTAL RETURN FOR EACH PERIOD, MAY 3, 1995 (INCEPTION DATE)
THROUGH DECEMBER 31, 2004
[LINE GRAPH APPEARS HERE]
WANGER U.S
SMALLER
COMPANIES RUSSELL 2000:
5/3/1995 10000 10000
5/31/1995 9870 10179
6/30/1995 10770 10707
7/31/1995 11560 11324
8/31/1995 11940 11559
9/30/1995 12060 11765
10/31/1995 11380 11239
11/30/1995 11640 11711
12/31/1995 11600 12020
1/31/1996 11950 12007
2/29/1996 12580 12381
3/31/1996 13297 12633
4/30/1996 14690 13309
5/31/1996 15471 13833
6/30/1996 15351 13265
7/31/1996 14529 12107
8/31/1996 15090 12810
9/30/1996 15792 13310
10/31/1996 15902 13105
11/30/1996 16423 13645
12/31/1996 17004 14003
1/31/1997 17475 14282
2/28/1997 16994 13936
3/31/1997 16366 13279
4/30/1997 16355 13316
5/31/1997 17986 14797
6/30/1997 19093 15431
7/31/1997 20201 16149
8/31/1997 20703 16519
9/30/1997 22395 17728
10/31/1997 21995 16949
11/30/1997 21892 16839
12/31/1997 22005 17134
1/31/1998 21554 16864
2/28/1998 23379 18111
3/31/1998 24865 18858
4/30/1998 25803 18962
5/31/1998 24887 17941
6/30/1998 25361 17978
7/31/1998 23959 16523
8/31/1998 20358 13315
9/30/1998 20875 14356
10/31/1998 21598 14942
11/30/1998 22601 15725
12/31/1998 23916 16698
1/31/1999 23453 16920
2/28/1999 22223 15549
3/31/1999 22388 15792
4/30/1999 24321 17207
5/31/1999 25005 17459
6/30/1999 26375 18248
7/31/1999 27216 17747
8/31/1999 25677 17090
9/30/1999 25389 17094
10/31/1999 26940 17163
11/30/1999 28202 18188
12/31/1999 29909 20247
1/31/2000 28911 19922
2/29/2000 30029 23212
3/31/2000 29077 21682
4/30/2000 26164 20377
5/31/2000 24858 19189
6/30/2000 25545 20862
7/31/2000 25174 20191
8/31/2000 26672 21731
9/30/2000 26741 21093
10/31/2000 26768 20151
11/30/2000 25147 18083
12/31/2000 27469 19636
1/31/2001 27936 20658
2/28/2001 27469 19302
3/31/2001 26306 18358
4/30/2001 29276 19794
5/31/2001 30473 20281
6/30/2001 31669 20981
7/31/2001 31710 19845
8/31/2001 30308 19204
9/30/2001 26567 16619
10/31/2001 27214 17592
11/30/2001 28988 18954
12/31/2001 30597 20124
1/31/2002 30528 19914
2/28/2002 29634 19369
3/31/2002 32219 20925
4/30/2002 32247 21116
5/31/2002 30652 20179
6/30/2002 28754 19178
7/31/2002 25027 16281
8/31/2002 24959 16240
9/30/2002 23226 15073
10/31/2002 24546 15557
11/30/2002 26499 16945
12/31/2002 25454 16002
1/31/2003 24959 15559
2/28/2003 24601 15089
3/31/2003 24670 15283
4/30/2003 26815 16732
5/31/2003 29125 18528
6/30/2003 29717 18863
7/31/2003 31463 20043
8/31/2003 33168 20962
9/30/2003 32549 20575
10/31/2003 35643 22303
11/30/2003 36193 23094
12/31/2003 36455 23563
1/31/2004 38105 24587
2/29/2004 37789 24807
3/31/2004 37417 25038
4/30/2004 36592 23762
5/31/2004 37857 24140
6/30/2004 38765 25157
7/31/2004 36578 23463
8/31/2004 36358 23342
9/30/2004 37665 24438
10/31/2004 38999 24919
11/30/2004 41763 27080
12/31/2004 43138 27882
AVERAGE ANNUAL RETURN
--------------------------------
1 year 5 years Life of fund
18.33% 7.60% 16.33%
This graph compares the results of $10,000 invested in Wanger U.S. Smaller
Companies on May 3,1995 (the date the Fund began operations) through December
31, 2004 with the Russell 2000. Dividends and capital gains are reinvested. DUE
TO ONGOING MARKET VOLATILITY, PERFORMANCE IS SUBJECT TO SUBSTANTIAL SHORT-TERM
FLUCTUATIONS. Wanger U.S. Smaller Companies is a diversified fund that invests
primarily in the stocks of small- and medium-size U.S. companies. Smaller
company stocks are often more volatile or less liquid than the stocks of larger
companies.
PERFORMANCE SHOWN HERE IS PAST PERFORMANCE, WHICH CANNOT GUARANTEE FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE
CHANGES OVER TIME. CURRENT RETURNS FOR THE FUND MAY BE DIFFERENT THAN THAT
SHOWN. FOR MONTHLY PERFORMANCE UPDATES, PLEASE CONTACT US AT 1-888-4-WANGER.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
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RESULTS AS OF DECEMBER 31, 2004
4TH QUARTER 1 YEAR
WANGER U.S. SMALLER
COMPANIES 14.53% 18.33%
Russell 2000 14.09 18.33
S&P MidCap 400 12.16 16.48
S&P 500 9.23 10.88
NAV AS OF 12/31/04: $31.37
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then
eliminating the largest 1,000, leaving a mainly small company index. The S&P
MidCap 400 is a market value-weighted index of 400 U.S. stocks that are in the
next tier down from the S&P 500. The S&P 500 is a broad market-weighted average
of blue-chip U.S. companies. All indexes are unmanaged and include reinvested
dividends. It is not possible to invest directly in an index.
Portfolio holdings will vary in the future.
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TOP 5 INDUSTRIES
As a % of net assets, as of 12/31/04
Information 28.5%
Consumer Goods/Services 18.2
Health Care 12.5
Energy/Minerals 12.1
Finance 9.4
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TOP 10 HOLDINGS
As a % of net assets, as of 12/31/04
1. ITT Educational Services 4.0%
TECHNOLOGY ORIENTED POST SECONDARY DEGREE PROGRAMS
2. Lincare Holdings 3.2%
HOME HEALTH CARE SERVICES
3. Kronos 2.8%
LABOR MANAGEMENT SOLUTIONS
4. AmeriCredit 2.4%
AUTO LENDING
5. Micros Systems 2.2%
INFORMATION SYSTEMS FOR RESTAURANTS & HOTELS
6. Western Wireless 2.2%
RURAL CELLULAR PHONE SERVICES
7. Chicago Bridge & Iron 1.9%
ENGINEERING & CONSTRUCTION FOR PETROCHEMICALS & LNG
8. Equitable Resources 1.9%
NATURAL GAS UTILITY & PRODUCER
9. Esco Technologies 1.6%
AUTOMATIC ELECTRIC METER READERS
10. Commonwealth Telephone 1.6%
RURAL PHONE FRANCHISES & CLEC
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Wanger U.S. Smaller Companies 2004 Annual Report
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WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
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NUMBER OF VALUE
SHARES
COMMON STOCKS-90.7%
INFORMATION-28.5%
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BUSINESS/CONSUMER SOFTWARE - 8.8%
622,825 Kronos (b) $ 31,845,042
LABOR MANAGEMENT SOLUTIONS
322,900 Micros Systems (b) 25,205,574
INFORMATION SYSTEMS FOR RESTAURANTS & HOTELS
1,030,000 JDA Software Group (b) 14,028,600
APPLICATIONS/SOFTWARE & SERVICES FOR RETAILERS
1,510,000 Novell (b) 10,192,500
SECURITY & IDENTITY MANAGEMENT SOFTWARE
710,600 Mapics (b) 7,496,830
MID MARKET ERP SOFTWARE
429,800 MRO Software (b) 5,595,996
ENTERPRISE MAINTENANCE SOFTWARE
628,200 E.Piphany (b) 3,034,206
CRM SOFTWARE
60,000 Maximus (b) 1,867,200
OUTSOURCER FOR GOVERNMENT
820,000 Indus International (b) 1,753,980
ENTERPRISE ASSET MANAGEMENT SOFTWARE
66,800 SPSS (b) 1,044,752
STATISTICAL/BUSINESS ANALYSIS SOFTWARE
- ------------------------------------------------------------------------------
102,064,680
- ------------------------------------------------------------------------------
MOBILE COMMUNICATIONS - 3.3%
857,000 Western Wireless (b) 25,110,100
RURAL CELLULAR PHONE SERVICES
495,000 Crown Castle International (b) 8,236,800
COMMUNICATION TOWERS
46,000 Telephone & Data Systems 3,539,700
CELLULAR & TELEPHONE SERVICES
40,000 American Tower (b) 736,000
COMMUNICATION TOWERS IN USA & MEXICO
- ------------------------------------------------------------------------------
37,622,600
- ------------------------------------------------------------------------------
COMPUTER HARDWARE/RELATED SYSTEMS - 3.1%
720,000 Symbol Technologies 12,456,000
MOBILE COMPUTERS & BARCODE SCANNERS
415,800 Seachange International (b) 7,251,552
SYSTEMS FOR VIDEO ON DEMAND & AD INSERTION
960,000 3Com (b) 4,003,200
NETWORKING EQUIPMENT
81,600 Rogers (b) 3,516,960
PCB LAMINATES & HIGH PERFORMANCE FOAMS
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
120,000 Unova (b) $ 3,034,800
BARCODE & WIRELESS LAN SYSTEMS
195,000 CTS 2,591,550
ELECTRONIC COMPONENTS, SENSORS & EMS
50,000 Avocent (b) 2,026,000
COMPUTER CONTROL SWITCHES
35,000 Applied Films (b) 754,600
THIN-FILM GLASS COATING EQUIPMENT
301,205 SensAble Technologies Series C Pfd. (b)(d) 275,813
1,581,292 SensAble Technologies (b)(d) 31,626
SENSORY DEVICES FOR COMPUTER BASED SCULPTING
- ------------------------------------------------------------------------------
35,942,101
- ------------------------------------------------------------------------------
BUSINESS INFORMATION/BUSINESS
SERVICES/PUBLISHING - 2.1%
153,700 Getty Images (b) 10,582,245
PHOTOGRAPHS FOR PUBLICATIONS & ELECTRONIC MEDIA
345,000 Navigant Consulting (b) 9,177,000
FINANCIAL CONSULTING FIRM
200,000 InfoUSA (b) 2,238,000
BUSINESS DATA FOR SALES LEADS
90,000 Ceridian (b) 1,645,200
HR SERVICES & PAYMENT PROCESSING
- ------------------------------------------------------------------------------
23,642,445
- ------------------------------------------------------------------------------
TRANSACTION PROCESSORS - 1.9%
273,440 Global Payments 16,007,178
CREDIT CARD PROCESSOR
448,000 Pegasus Systems (b) 5,644,800
TRANSACTION PROCESSOR FOR HOTEL INDUSTRY
- ------------------------------------------------------------------------------
21,651,978
- ------------------------------------------------------------------------------
TELECOMMICATIONS/WIRELINE COMMUNICATIONS - 1.6%
368,300 Commonwealth Telephone (b) 18,289,778
RURAL PHONE FRANCHISES & CLEC
- ------------------------------------------------------------------------------
RADIO - 1.6%
355,900 Salem Communications (b) 8,879,705
RADIO STATIONS FOR RELIGIOUS PROGRAMMING
515,000 Spanish Broadcasting (b) 5,438,400
SPANISH LANGUAGE RADIO STATIONS
130,900 Saga Communications (b) 2,205,665
RADIO STATIONS IN SMALL & MID-SIZED CITIES
See accompanying notes to financial statements.
6
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
RADIO - 1.6% (CONT)
110,000 Cumulus Media, Cl. A (b) $ 1,658,800
RADIO STATIONS IN SMALL CITIES
- ------------------------------------------------------------------------------
18,182,570
- ------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 1.3%
837,800 Aspect Telecommunications (b) 9,333,092
CALL CENTER EQUIPMENT
340,000 Andrew (b) 4,634,200
WIRELESS INFRASTRUCTURE EQUIPMENT
100,000 Symmetricom (b) 971,000
NETWORK TIMING & SYNCHRONIZATION DEVICES
- ------------------------------------------------------------------------------
14,938,292
- ------------------------------------------------------------------------------
SEMICONDUCTORS/RELATED EQUIPMENT - 1.2%
325,000 Integrated Circuit Systems (b) 6,799,000
SILICON TIMING DEVICES
360,000 Pericom Semiconductor (b) 3,394,800
SEMICONDUCTORS: INTERFACE INTEGRATED CIRCUITS
70,000 Littelfuse (b) 2,391,200
LITTLE FUSES
125,900 IXYS (b) 1,299,288
POWER SEMICONDUCTORS
- ------------------------------------------------------------------------------
13,884,288
- ------------------------------------------------------------------------------
INSTRUMENTATION - 1.1%
288,000 Tektronix 8,700,480
ANALYTICAL INSTRUMENTS
90,000 Trimble Navigation (b) 2,973,600
GPS-BASED INSTRUMENTS
25,000 Mettler Toledo (b) 1,282,750
LABORATORY EQUIPMENT
- ------------------------------------------------------------------------------
12,956,830
- ------------------------------------------------------------------------------
INTERNET - 0.8%
355,000 ValueClick (b) 4,732,150
INTERNET ADVERTISING
355,600 DoubleClick (b) 2,766,568
INTERNET ADVERTISING & DIRECT MARKETING
STATISTICAL DATA
310,000 Skillsoft Publishing (b) 1,751,500
PROVIDER OF WEB-BASED LEARNING SOLUTIONS
(E-LEARNING)
- ------------------------------------------------------------------------------
9,250,218
- ------------------------------------------------------------------------------
COMPUTER SERVICES - 0.7%
753,000 RCM Technologies (b)(c) 3,788,343
TECHNOLOGY ENGINEERING SERVICES
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
705,500 AnswerThink Consulting (b) $ 3,287,630
IT INTEGRATOR FOR FORTUNE 2000
256,600 Analysts International (b) 1,026,400
TECHNOLOGY STAFFING SERVICES
- ------------------------------------------------------------------------------
8,102,373
- ------------------------------------------------------------------------------
TV/SATELLITE BROADCASTING - 0.4%
600,000 Entravision Communications (b) 5,010,000
SPANISH LANGUAGE TV, RADIO & OUTDOOR
TELEVISION PROGRAMMING - 0.4%
138,500 Gray Television 2,146,750
MID MARKET AFFILIATED TV STATIONS
310,000 Mediacom Communications (b) 1,937,500
CABLE TELEVISION FRANCHISES
- ------------------------------------------------------------------------------
4,084,250
- ------------------------------------------------------------------------------
CONTRACT MANUFACTURING - 0.2%
220,000 Plexus (b) 2,862,200
ELECTRONIC MANUFACTURING SERVICES
- ------------------------------------------------------------------------------
INFORMATION - TOTAL 328,484,603
CONSUMER GOODS/SERVICES - 18.2%
- ------------------------------------------------------------------------------
RETAIL - 7.2%
280,000 Abercrombie & Fitch 13,146,000
TEEN APPAREL RETAILER
405,750 Aeropostale (b) 11,941,223
MALL BASED TEEN RETAILER
290,000 Petco Animal Supplies (b) 11,449,200
PET SUPPLIES & SERVICES
339,150 Christopher & Banks 6,257,318
WOMEN'S APPAREL RETAILER
198,000 Zale Corp (b) 5,914,260
SPECIALTY RETAILER OF JEWELRY
265,000 Ann Taylor (b) 5,705,450
WOMENS APPAREL RETAILER
115,000 Chico's Fas (b) 5,235,950
WOMEN'S SPECIALTY RETAIL
163,000 Genesco (b) 5,075,820
MULTI-CONCEPT BRANDED FOOTWARE RETAILER
130,000 Sports Authority (b) 3,347,500
SPORTING GOODS STORE
See accompanying notes to financial statements.
7
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
RETAIL - 7.2% (CONT)
100,000 Michaels Stores $ 2,997,000
CRAFT & HOBBY SPECIALTY RETAILER
129,900 Brookstone (b) 2,539,545
SPECIALTY CONSUMER PRODUCT RETAILER
145,750 Hot Topic (b) 2,505,443
MUSIC INSPIRED RETAILER OF APPAREL,
ACCESSORIES & GIFTS
388,404 Restoration Hardware (b) 2,229,439
HOME FURNISHING RETAILER
48,200 Urban Outfitters (b) 2,140,080
ECLECTIC HOME & APPAREL RETAILER
60,000 West Marine (b) 1,485,000
LARGEST RETAILER OF BOATING SUPPLIES
150,000 Gaiam (b) 922,500
HEALTHLY LIVING CATALOG & E-COMMERCE
- ------------------------------------------------------------------------------
82,891,728
- ------------------------------------------------------------------------------
CONSUMER SERVICES - 5.7%
972,000 ITT Educational Services (b) 46,218,600
TECHNOLOGY ORIENTED POST SECONDARY DEGREE PROGRAMS
390,000 Coinstar (b) 10,463,700
OWNER/OPERATOR OF COIN COUNTING MACHINES
413,500 Central Parking 6,264,525
OWNER, OPERATER & MANAGER OF PARKING LOTS & GARAGES
80,000 Weight Watchers (b) 3,285,600
WEIGHT LOSS PROGRAM
- ------------------------------------------------------------------------------
66,232,425
- ------------------------------------------------------------------------------
APPAREL - 2.7%
212,000 Coach (b) 11,956,800
DESIGNER & RETAILER OF BRANDED LEATHER ACCESSORIES
254,200 Oxford Industries 10,498,460
BRANDED & PRIVATE LABEL APPAREL
427,000 Steven Madden (b) 8,053,220
WHOLESALER/RETAILER OF FASHION FOOTWARE
- ------------------------------------------------------------------------------
30,508,480
- ------------------------------------------------------------------------------
ENTERTAINMENT/LEISURE PRODUCTS - 1.1%
111,300 International Speedway Motors 5,876,640
LARGEST MOTORSPORT RACETRACK OWNER & OPERATOR
390,000 Callaway Golf 5,265,000
PREMIUM GOLF CLUBS & BALLS
45,000 Speedway Motorsports 1,763,100
MOTORSPORT RACETRACK OWNER & OPERATOR
- ------------------------------------------------------------------------------
12,904,740
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
FURNITURE & TEXTILES - 1.0%
84,000 American Woodmark $ 3,669,120
KITCHEN CABINET MANUFACTURER
110,000 Herman Miller 3,039,300
OFFICE FURNITURE
33,000 Mohawk Industries (b) 3,011,250
CARPET & FLOORING
40,000 HNI 1,722,000
OFFICE FURNITURE & FIREPLACES
- ------------------------------------------------------------------------------
11,441,670
- ------------------------------------------------------------------------------
NON-DURABLES - 0.3%
47,000 Scotts Company (b) 3,455,440
CONSUMER LAWN & GARDEN PRODUCTS
- ------------------------------------------------------------------------------
FOOD - 0.1%
62,000 NBTY (b) 1,488,620
VITAMINS & SUPPLEMENTS
- ------------------------------------------------------------------------------
CASINOS - 0.1%
105,000 Alliance Gaming (b) 1,450,050
DIVERSIFIED GAMING COMPANY
- ------------------------------------------------------------------------------
CONSUMER GOODS/SERVICES - TOTAL 210,373,153
HEALTH CARE - 12.5%
- ------------------------------------------------------------------------------
SERVICES - 5.5%
866,000 Lincare Holdings (b) 36,934,900
HOME HEALTH CARE SERVICES
963,000 First Health Group (b) 18,017,730
PPO NETWORK
481,800 NDCHealth Group 8,956,662
HEALTH CLAIMS PROCESSING & DRUG MARKETING SERVICES
- ------------------------------------------------------------------------------
63,909,292
- ------------------------------------------------------------------------------
MEDICAL EQUIPMENT - 3.5%
412,000 Edwards Lifesciences (b) 16,999,120
HEART VALVES
166,300 Diagnostic Products 9,154,815
IMMUNODIAGNOSTIC KITS
248,600 Visx (b) 6,431,281
LASER EYE SURGERY EQUIPMENT
93,500 Orthofix International (b) 3,691,287
BONE FIXATION & STIMULATION DEVICES
See accompanying notes to financial statements.
8
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
MEDICAL EQUIPMENT - 3.5% (CONT)
115,700 ICU Medical (b) $ 3,163,238
INTRAVENOUS THERAPY PRODUCTS
35,000 CTI Molecular Imaging (b) 496,650
MEDICAL DIAGNOSTIC DEVICES
15,450 Intermagnetics General (b) 392,585
MRI EQUIPMENT
- ------------------------------------------------------------------------------
40,328,976
- ------------------------------------------------------------------------------
BIOTECHNOLOGY/DRUG DELIVERY - 2.3%
350,000 AtheroGenics (b) 8,246,000
DRUGS FOR ATHEROSCLEROSIS
270,000 Nektar Therapeutics (b) 5,464,800
DRUG DELIVERY TECHNOLOGIES
86,500 Neurocrine Biosciences (b) 4,264,450
DRUGS FOR SLEEP, DIABETES, MS & ENDOMETRIOSIS
310,000 Ligand Pharmaceuticals (b) 3,608,400
DRUGS FOR PAIN, CANCER, OSTEOPOROSIS, & DIABETES
400,000 Lexicon Genetics (b) 3,102,000
DRUG DISCOVERY
154,231 SYRRX, Series C (b)(d) 771,155
X-RAY CRYSTALLOGRAPHY
250,000 Locus Discovery, Series D Pfd. (b)(d) 500,000
HIGH THROUGHPUT RATIONAL DRUG DESIGN
- ------------------------------------------------------------------------------
25,956,805
- ------------------------------------------------------------------------------
PHARMACEUTICALS - 0.9%
237,000 Par Pharmaceuticals (b) 9,807,060
GENERICS
- ------------------------------------------------------------------------------
MEDICAL SUPPLIES - 0.3%
100,700 Techne (b) 3,917,230
CYTOKINES, ANTIBODIES, OTHER REAGENTS
FOR LIFE SCIENCES
- ------------------------------------------------------------------------------
HEALTH CARE - TOTAL 143,919,363
ENERGY/MINERALS - 12.1%
- ------------------------------------------------------------------------------
OIL SERVICES - 6.0%
550,000 Chicago Bridge & Iron 22,000,000
ENGINEERING & CONSTRUCTION FOR PETROCHEMICALS & LNG
490,700 FMC Technologies (b) 15,800,540
OIL & GAS WELL HEAD MANUFACTURER
625,000 Hanover Compressor (b) 8,831,250
NATURAL GAS COMPRESSOR RENTAL
105,000 Carbo Ceramics 7,245,000
NATURAL GAS WELL STIMULANTS
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
1,231,000 Newpark Resources (b) $ 6,339,650
DRILLING FLUID SERVICES TO OIL & GAS INDUSTRY
195,000 Pride International (b) 4,005,300
OFFSHORE DRILLING CONTRACTOR
205,000 Key Energy Services (b) 2,419,000
OIL & GAS WELL WORKOVER SERVICES
215,000 Pioneer Drilling (b) 2,169,350
OIL & GAS WELL DRILLER
- ------------------------------------------------------------------------------
68,810,090
- ------------------------------------------------------------------------------
DISTRIBUTION/MARKETING/REFINING - 3.5%
358,000 Equitable Resources 21,716,280
NATURAL GAS UTILITY & PRODUCER
460,000 Oneok 13,073,200
NATURAL GAS UTILITY, MARKETING & PROCESSING
231,000 Atmos Energy 6,317,850
NATURAL GAS UTILITY
- ------------------------------------------------------------------------------
41,107,330
- ------------------------------------------------------------------------------
OIL/GAS PRODUCERS - 2.6%
215,000 Ultra Petroleum (b) 10,347,950
NATURAL GAS PRODUCER
296,000 Western Gas 8,658,000
OIL PRODUCER & COAL SEAM GAS PRODUCER
150,000 Quicksilver Resources 5,517,000
NATURAL GAS & COAL SEAM GAS PRODUCER
48,400 Southwestern Energy (b) 2,453,396
OIL & GAS EXPLORATION/PRODUCTION
75,000 Range Resources 1,534,500
OIL & GAS PRODUCER
71,500 McMoRan Exploration (b) 1,337,050
NATURAL GAS PRODUCERS & LNG DEVELOPER
- ------------------------------------------------------------------------------
29,847,896
- ------------------------------------------------------------------------------
ENERGY/MINERALS - TOTAL 139,765,316
FINANCE - 9.4%
- ------------------------------------------------------------------------------
INSURANCE - 3.4%
447,000 HCC Insurance Holdings 14,804,640
SPECIALTY INSURANCE
39,000 Markel (b) 14,196,000
SPECIALTY INSURANCE
92,000 Leucaudia National 6,392,160
INSURANCE HOLDING COMPANY
See accompanying notes to financial statements.
9
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
INSURANCE - 3.4% (CONT)
35,000 Philadelphia Consolidated Holding (b) $ 2,314,900
SPECIALTY INSURANCE
77,000 United National Group (b) 1,433,740
SPECIALTY INSURANCE
- ------------------------------------------------------------------------------
39,141,440
- ------------------------------------------------------------------------------
FINANCE COMPANIES - 2.9%
1,135,400 AmeriCredit (b) 27,760,530
AUTO LENDING
217,100 World Acceptance (b) 5,972,420
PERSONAL LOANS
- ------------------------------------------------------------------------------
33,732,950
- ------------------------------------------------------------------------------
BANKS/SAVINGS & LOANS - 1.9%
317,000 TCF Financial 10,188,380
GREAT LAKES BANK
131,875 Chittenden 3,788,769
VERMONT & WESTERN MASSACHUSETTS BANK
53,000 Downey Financial 3,021,000
CALIFORNIA HOME LENDER
80,025 Texas Regional Bancshares 2,615,216
TEXMEX BANK
85,200 Anchor Bancorp Wisconsin 2,483,580
WISCONSIN THRIFT
10,000 West Bancorporation 176,100
DES MOINES SMALL BUSINESS BANK
2,900 First Financial Bankshares 129,949
WEST TEXAS COMMUNITY BANK
- ------------------------------------------------------------------------------
22,402,994
- ------------------------------------------------------------------------------
MONEY MANAGEMENT - 1.2%
321,000 SEI Investments 13,459,530
MUTUAL FUND ADMINISTRATION & INVESTMENT MANAGEMENT
- ------------------------------------------------------------------------------
FINANCE - TOTAL 108,736,914
INDUSTRIAL GOODS/SERVICES - 9.3%
- ------------------------------------------------------------------------------
MACHINERY - 2.6%
243,000 Esco Technologies (b) 18,625,950
AUTOMATIC ELECTRIC METER READERS
210,000 Ametek 7,490,700
AEROSPACE/INDUSTRIAL INSTRUMENTS
78,000 Pentair 3,397,680
PUMPS, WATER TREATMENT & TOOLS
- ------------------------------------------------------------------------------
29,514,330
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
INDUSTRIAL GOODS - 2.4%
152,000 Genlyte Group (b) $ 13,023,360
COMMERCIAL LIGHTING FIXTURES
135,300 Mine Safety Appliances 6,859,710
SAFETY EQUIPMENT
98,000 Clarcor 5,367,460
MOBILE & INDUSTRIAL FILTERS
75,000 Donaldson 2,443,500
INDUSTRIAL AIR FILTRATION
- ------------------------------------------------------------------------------
27,694,030
- ------------------------------------------------------------------------------
INDUSTRIAL SERVICES - 1.0%
412,100 Insurance Auto Auctions (b) 9,239,282
AUTO SALVAGE SERVICES
125,000 Clark (b) 1,940,000
EXECUTIVE COMPENSATION & BENEFITS CONSULTING
- ------------------------------------------------------------------------------
11,179,282
- ------------------------------------------------------------------------------
LOGISTICS - 0.7%
109,000 Hub Group (b) 5,691,980
TRUCK & RAIL FREIGHT FORWARDER
59,600 Forward Air (b) 2,664,120
FREIGHT TRANSPORTATION BETWEEN AIRPORTS
- ------------------------------------------------------------------------------
8,356,100
- ------------------------------------------------------------------------------
WATER - 0.7%
133,000 Cuno (b) 7,900,200
FILTRATION & FLUIDS CLARIFICATION
- ------------------------------------------------------------------------------
CONSTRUCTION - 0.7%
127,600 Florida Rock Industries 7,596,028
CONCRETE & AGGREGATES
- ------------------------------------------------------------------------------
INDUSTRIAL DISTRIBUTION - 0.5%
100,000 Aviall (b) 2,297,000
AIRCRAFT REPLACEMENT PARTS DISTRIBUTOR
100,000 Nuco2 (b) 2,219,000
BULK CO2 GAS DISTRIBUTION TO RESTAURANTS
50,000 Airgas 1,325,500
INDUSTRIAL GAS DISTRIBUTOR
- ------------------------------------------------------------------------------
5,841,500
See accompanying notes to financial statements.
10
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
SPECIALTY CHEMICALS & INDUSTRIAL MATERIALS - 0.4%
114,400 Spartech $ 3,099,096
PLASTICS DISTRIBUTION & COMPOUNDING
70,000 Schulman 1,498,700
PLASTICS DISTRIBUTION & COMPOUNDING
- ------------------------------------------------------------------------------
4,597,796
- ------------------------------------------------------------------------------
OUTSOURCING SERVICES - 0.2%
288,900 Quanta Services (b) 2,311,200
ELECTRICAL & TELECOM CONSTRUCTION SERVICES
- ------------------------------------------------------------------------------
STEEL - 0.2%
75,000 Gibraltar Steel 1,771,500
STEEL PROCESSING
- ------------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES - TOTAL 106,761,966
OTHER INDUSTRIES - 0.7%
- ------------------------------------------------------------------------------
REGULATED UTILITIES - 0.5%
345,000 Northeast Utilities 6,503,250
REGULATED ELECTRIC UTILITY
- ------------------------------------------------------------------------------
REAL ESTATE - 0.2%
100,000 Crescent Real Estate Equities 1,826,000
CLASS A OFFICE BUILDINGS
25,000 Highland Hospitality 281,000
HOTEL REAL ESTATE INVESTMENT TRUST
- ------------------------------------------------------------------------------
2,107,000
- ------------------------------------------------------------------------------
OTHER INDUSTRIES - TOTAL 8,610,250
TOTAL COMMON STOCKS (COST: $639,829,541) - 90.7% 1,046,651,565
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PRINCIPAL VALUE
AMOUNT
SHORT-TERM OBLIGATIONS - 9.6%
- --------------------------------------------------------------------------------
$28,000,000 Colgate Palmolive 2.17% 1/07/05 (e)$27,989,873
27,000,000 American General Finance 2.27% 1/03/05 26,996,595
27,000,000 American Express Credit 2.26% 1/04/05 26,994,915
27,000,000 Toyota Credit 2.30% 1/05/05 26,993,100
1,967,000 Repurchase Agreement with State
Street Bank & Trust Co., 1,967,000
dated 12/31/04, due 1/03/05 at 1.90%
collateralized by Federal National
Mortgage Association Notes, maturing
1/05/05, market value $2,008,995
(repurchase proceeds: $1,967,311)
- ------------------------------------------------------------------------------
(AMORTIZED COST: $110,941,483) 110,941,483
Total Investments (Cost: $750,771,024) - 100.3% (a) 1,157,593,048
- ------------------------------------------------------------------------------
Cash and Other Assets Less Liabilities - (0.3%) (4,039,895)
- ------------------------------------------------------------------------------
Total Net Assets - 100% $ 1,153,553,153
- ------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
(a) At December 31, 2004, for federal income tax purposes cost of investments
was $751,166,437 and net unrealized appreciation was $406,426,611
consisting of gross unrealized appreciation of $434,455,384 and gross
unrealized depreciation of $28,028,773.
(b) Non-income producing security.
(c) An affiliate may include any company in which the Fund owns five percent or
more of its outstanding voting shares. On December 31, 2004, the Fund held
five percent or more of the outstanding voting securities of the following
companies:
RCM Technologies 6.63%
The aggregate cost and value of this company at December 31, 2004, was
$5,474,962 and $3,788,343, respectively. Investments in affiliate companies
represent 0.33% of total net assets at December 31, 2004. The change in
unrealized loss in affiliated companies amounted to $1,761,267 during the
twelve months ended December 31, 2004. There was no other investment
activity during the period.
See accompanying notes to financial statements.
11
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES STATEMENT OF INVESTMENTS DECEMBER 31, 2004
NOTES TO STATEMENT OF INVESTMENTS (CONT):
(d) Denotes a restricted security, which is subject to restrictions on resale
under federal securities laws. These securities are valued in good faith by
the Board of Trustees. At December 31, 2004, these securities amounted to
$1,578,594 which represents 0.14% of net assets.
Additional information on these securities is as follows:
ACQUISITION
SECURITY DATES SHARES COST VALUE
- --------------------------------------------------------------------------------
Locus Discovery,
Series D Pfd. 9/5/01 250,000 $ 1,000,000 $ 500,000
SensAble Technologies
Series C Pfd. 4/4/00 301,205 1,000,000 275,813
SensAble Technologies
common 6/28/04 1,581,292 0 31,626
SYRRX, Series C 1/8/01 154,231 1,002,502 771,155
----------- -----------
$ 3,002,502 $ 1,578,594
=========== ===========
(e) Security exempt from registration under Section 4(2) of the Securities Act
of 1933. This security may only be resold in exempt transactions to
qualified buyers. Private resales of this security to qualified
institutional buyers are also exempt from registration pursuant to Rule
144A under the Securities Act of 1933. At December 31, 2004, the value of
this security represents 2.43% of net assets.
At December 31, 2004, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
----------------------------------------------------------------------
Information 28.5%
Consumer Goods/Services 18.2
Health Care 12.5
Energy/Minerals 12.1
Finance 9.4
Industrial Goods/Services 9.3
Other Industries 0.7
Short-Term Obligations 9.6
Cash and Other Assets Less Liabilities (0.3)
----------
100.0%
----------
See accompanying notes to financial statements.
12
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
- ------------------------------------------------------------------------------
ASSETS
Unaffiliated investments, at cost $ 745,296,062
Affiliated investments, at cost (See Note 4) 5,474,962
- ------------------------------------------------------------------------------
Unaffiliated investments, at value $1,153,804,705
Affiliated investments, at value (See Note 4) 3,788,343
Cash 579
Receivable for:
Fund shares sold 202,369
Dividends and interest 190,155
Foreign tax reclaims 2,200
Other assets 14,967
- ------------------------------------------------------------------------------
Total Assets 1,158,003,318
LIABILITIES
Payable for:
Investments purchased 2,770,838
Fund shares repurchased 1,540,327
Transfer agent fees 72
Trustees' fees 6,347
Custody fees 2,663
Legal and audit fees 71,910
Registration fees 16,352
Reports to shareholders 29,817
Other liabilities 11,839
- ------------------------------------------------------------------------------
Total Liabilities 4,450,165
- ------------------------------------------------------------------------------
Net Assets $1,153,553,153
==============================================================================
COMPOSITION OF NET ASSETS
Paid in capital $ 752,454,393
Accumulated net realized loss (5,723,264)
Net unrealized appreciation on investments 406,822,024
- ------------------------------------------------------------------------------
Net Assets $1,153,553,153
- ------------------------------------------------------------------------------
Fund shares outstanding 36,776,633
- ------------------------------------------------------------------------------
Net asset value, offering price and
redemption price per share $ 31.37
==============================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
- ------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income (net of foreign taxes of $7,970) $ 3,705,086
Interest income 1,119,869
- ------------------------------------------------------------------------------
Total investment income 4,824,955
EXPENSES:
Investment advisory fees 8,747,399
Reports to shareholders 276,826
Legal and audit fees 211,322
Transfer agent fees 2,269
Trustees' fees 150,206
Custody fees 37,241
Non-recurring costs (See Note 8) 50,701
Compliance fees 13,923
Other expenses 60,305
- ------------------------------------------------------------------------------
Total expenses 9,550,192
Less custody fees paid indirectly (2,855)
Non-recurring costs reimbursed (See Note 8) (50,701)
- ------------------------------------------------------------------------------
Net Expenses 9,496,636
- ------------------------------------------------------------------------------
Net Investment Income (Loss) (4,671,681)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain on investments 29,992,766
Net change in unrealized appreciation
(depreciation) on:
Unaffiliated investments 147,729,467
Affiliated investments (See Note 4) (1,761,267)
- ------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) 145,968,200
- ------------------------------------------------------------------------------
Net Gain 175,960,966
- ------------------------------------------------------------------------------
Net Increase in Net Assets from Operations $ 171,289,285
==============================================================================
See accompanying notes to financial statements.
13
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2004 DECEMBER 31, 2003
- ------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ (4,671,681) $ (2,916,699)
Net realized gain on investments 29,992,766 16,030,419
Net change in unrealized appreciation (depreciation)
on investments 145,968,200 208,755,524
- ------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 171,289,285 221,869,244
SHARE TRANSACTIONS:
Subscriptions 231,841,890 218,524,438
Redemptions (72,236,517) (89,461,181)
------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 159,605,373 129,063,257
- ------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 330,894,658 350,932,501
NET ASSETS:
Beginning of period 822,658,495 471,725,994
- ------------------------------------------------------------------------------------------------------
End of period $ 1,153,553,153 $ 822,658,495
- ------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ 163,258
======================================================================================================
See accompanying notes to financial statements.
14
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.51 $ 18.51 $ 22.25 $ 19.99 $ 24.88
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) (0.14) (0.11) (0.10) (0.04) 0.02
Net realized and unrealized gain (loss) on investments 5.00 8.11 (3.64) 2.31 (1.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.86 8.00 (3.74) 2.27 (1.80)
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- -- -- (0.01) (0.03)
From net realized capital gains -- -- -- -- (3.06)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- (0.01) (3.09)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 31.37 $ 26.51 $ 18.51 $ 22.25 $ 19.99
=================================================================================================================================
Total Return (b) 18.33% 43.22% (16.81)% 11.39% (8.16)%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.00%(c) 0.99%(c) 1.05%(c) 0.99% 1.00%(c)
Net investment income (loss) (0.49)%(c) (0.48)%(c) (0.47)%(c) (0.20)% 0.07%(c)
Portfolio turnover rate 15% 10% 16% 18% 36%
Net assets, end of period (000's) $ 1,153,553 $ 822,658 $ 471,726 $ 498,186 $ 403,306
- --------------------------------------------------------------------------------
(a) Net investment income (loss) per share was based upon the average shares
outstanding during the period.
(b) Total return at net asset value assuming all distributions are reinvested.
(c) The benefits derived from custody fees paid indirectly had no impact.
See accompanying notes to financial statements.
15
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Wanger U.S. Smaller Companies (the "Fund"), is a series of Wanger Advisors Trust
(the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The investment objective of the Fund is to seek
long-term growth of capital. The Fund is available only for allocation to
certain life insurance company separate accounts established for the purpose of
funding qualified and non-qualified variable annuity contracts, and may also be
offered directly to certain types of pension plans and retirement arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
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 a fair
value determined in accordance with procedures established by the Board of
Trustees. Securities traded on securities exchanges or in over-the-counter
markets in which transaction prices are reported are valued at the last sales
price at the time of valuation. If a security is traded principally on the
Nasdaq Stock Market Inc., the Nasdaq Official Closing Price will be applied.
Securities for which there are no reported sales on the valuation date are
valued at the latest bid quotation. Short-term debt obligations having a
maturity of 60 days or less from the valuation date are valued on an amortized
cost basis. Securities for which quotations are not readily available and any
other assets are valued as determined in good faith by the Board of Trustees.
The Trust has retained an independent statistical fair value pricing service to
assist in the fair valuation process for securities principally traded in a
foreign market in order to adjust for possible changes in value that may occur
between the close of the foreign exchange and the time at which fund shares are
priced. If a security is valued at a "fair value", that value may be different
from the last quoted market price for the security.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. The Fund, through its
custodians, receives delivery of underlying securities collateralizing each
repurchase agreement. The Fund's investment advisor determines that the value of
the underlying securities is at all times at least equal to the repurchase price
including interest. In the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
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 an
accrual basis and includes amortization of discounts on short-term debt
obligations and on long-term debt obligations when required for federal income
tax purposes. Short-term debt obligations having a maturity of 60 days or less
from the valuation date are valued on an amortized cost basis, which
approximates fair value. Realized gains and losses from security transactions
are reported on an identified cost basis.
The Fund estimates components of distributions from Real Estate Investment
Trusts ("REITS"). Distributions received in excess of income are recorded as a
reduction of the cost of the related investments. Results of operations for the
year reflect a change in estimate of these components using more current tax
reporting received from REIT investments. The change in estimate has no impact
on the Fund's net assets.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from registration. In
some cases, the issuer of restricted securities has agreed to register such
securities for resale at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resale.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimated.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange ("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.
CUSTODY FEES/CREDITS
Custody fees are reduced based on the Fund's cash balances maintained with the
custodian. The Fund could have invested a portion of the assets utilized in
connection with the expense offset arrangement in an income-producing asset if
it had not entered into such an agreement. The amount is disclosed as a
reduction of total expenses in the Statement of Operations.
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 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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
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.
For the year ended December 31, 2004, permanent book and tax basis
differences resulting primarily from differing treatments for net operating
losses and REIT adjustments were identified and reclassified among the
components of the Fund's net assets as follows:
Accumulated Accumulated
Net Investment Net Realized
Loss LossPaid In Capital
-------------- ------------- --------------
$4,751,216 $67,255 $(4,818,471)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
16
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- --------------
$-- $-- $406,426,611
* The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from
wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on
cost of investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------- ------------- --------------
$434,455,384 $(28,028,773) $406,426,611
The following capital loss carryforwards, determined as of December 31,
2004, are available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
- --------- --------------
2010 $5,327,851
Expired capital loss carryforwards, if any, are recorded as a reduction of
paid-in capital.
Capital loss carryforwards of $30,060,021 were utilized during the year
ended December 31, 2004 for the Fund.
4. TRANSACTIONS WITH AFFILIATES
Columbia Wanger Asset Management, L.P., ("Columbia WAM") an indirect
wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a
wholly owned subsidiary of Bank of America Corporation ("BOA"), furnishes
continuing investment supervision to the Fund and is responsible for the overall
management of the Fund's business affairs. Prior to April 1, 2004, Columbia was
a wholly-owned subsidiary of Fleet National Bank, which in turn was a
wholly-owned subsidiary of FleetBoston Financial Corporation ("Fleet"). On April
1, 2004, Fleet was acquired by BOA.
Under the Fund's investment management agreement, fees are accrued daily
and paid monthly to Columbia WAM at the annual rates shown in the table below:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
For the first $100 million 1.00%
Next $150 million 0.95%
In excess of $250 million 0.90%
For the year ended December 31, 2004, the Fund's effective investment
advisory fee rate was 0.92%.
The investment advisory agreement also provides that Columbia WAM will
reimburse the Fund to the extent that ordinary operating expenses (computed
based on net custodian fees) exceed an annual percentage of 2.00% of the average
daily net assets. There was no reimbursement for the year ended December 31,
2004.
In accordance with the terms of the NYAG Settlement (as defined and
discussed further under Note 8 to these Financial Statements - "Legal
Proceedings"), Columbia WAM waived a portion of the fees payable under the
Fund's investment management agreement so that those fees are retained at the
following rates as a percentage of average daily net assets: 0.990% - up to $100
million; 0.940% - $100 million to $250 million; 0.890% - $250 million and over.
The fee waiver was effective as of February 10, 2005 but applied as if it had
gone into effect on December 1, 2004. The financial statements, as of December
31, 2004, are not reflective of these changes.
Certain officers and trustees of the Trust are also officers of Columbia
WAM. The Trust makes no direct payments to its officers and trustees who are
affiliated with Columbia WAM. For the year ended December 31, 2004, the Fund
paid $150,206 to trustees not affiliated with Columbia WAM. Effective April
2004, the Board of Trustees appointed a Chief Compliance Officer to the Fund in
accordance with federal securities regulations. The Fund will pay its pro-rata
share of the expenses associated with the Office of the Chief Compliance
Officer. These expenses are disclosed separately on the Statement of Operations.
Columbia Funds Distributor, Inc. ("CFDI"), an indirect wholly-owned
subsidiary of BOA, serves as the principal underwriter of the Trust and receives
no compensation for its services.
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect
wholly-owned subsidiary of BOA, provides shareholder services to the Fund. For
such services, the Transfer Agent receives a fee, paid monthly, at the annual
rate of $28.00 per open account. The Transfer Agent also receives reimbursement
for certain out-of-pocket expenses. Effective February 1, 2004 the Transfer
Agent made the decision to waive the reimbursement for certain out-of-pocket
expenses. Prior to February 1, 2004, the Transfer Agent was entitled to receive
a flat rate charge based on the number of shareholder accounts and transactions.
An affiliate may include any company in which a fund owns five percent or
more of its outstanding voting shares. On December 31, 2004, the Fund held five
percent or more of the outstanding voting securities of one or more companies.
Details of investments in those affiliated companies are presented on page 11.
During the year ended December 31, 2004, the Fund engaged in purchases and
sales transactions with funds that have a common investment advisor (or
affiliated investment advisors), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions complied with the provisions of
Rule 17a-7 under the Investment Company Act of 1940 and were $0 and $1,094,400,
respectively.
5. BORROWING ARRANGEMENTS
The Trust participates in a $150,000,000 credit facility, which was entered into
to facilitate portfolio liquidity. Interest is charged to each participating
fund based on its borrowings at a rate per annum equal to the Federal Funds rate
plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and
apportioned among the participating funds based on their pro-rata portion of the
unutilized line of credit. The commitment fee is included in "Other expenses" on
the Statement of Operations. No amounts were borrowed under this facility for
the year ended December 31, 2004.
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:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- --------------------------------------------------------------------------------
Shares sold 8,353,055 9,675,283
- --------------------------------------------------------------------------------
Less shares redeemed 2,612,387 4,118,462
- --------------------------------------------------------------------------------
Net increase in shares outstanding 5,740,668 5,556,821
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended December 31, 2004 were $237,217,747 and
$127,578,937.
17
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
8. LEGAL PROCEEDINGS
On March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"),
the advisor to the Columbia Funds, and CFDI (collectively with Columbia
Management, "Columbia") the distributor of the shares of the Columbia Funds, the
Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the
Columbia Family of Funds"), entered into agreements in principle with the staff
of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New
York Attorney General ("NYAG") to resolve the proceedings brought in connection
with the SEC's and NYAG's investigations of frequent trading and market timing
in certain Columbia mutual funds. Columbia WAM, the advisor to the Columbia
Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either
proceeding nor were any of its officers or directors.
On February 9, 2005, Columbia entered into an Assurance of Discontinuance
(the "NYAG Settlement") with the NYAG and consented to the entry of a
cease-and-desist order by the SEC (the "SEC Order" and together, the
"Settlements"). The Settlements contain substantially the same terms and
conditions as outlined in the agreements in principle. Although none of the
Wanger Advisors Trust Funds is a party to the Settlement orders, under the terms
of the Settlements and in order for Columbia Management to continue to provide
administrative services to the Wanger Advisors Funds, the Board of Trustees of
the Wanger Advisors Trust Funds agreed to conform to certain governance
requirements, including the election of an independent board chair.
Under the terms of the SEC Order, Columbia has agreed, among other things,
to: pay $70 million in disgorgement and $70 million in civil money penalties;
cease and desist from violations of the antifraud provisions and certain other
provisions of the federal securities laws; maintain certain compliance and
ethics oversight structures; retain an independent consultant to review
Columbia's applicable supervisory, compliance, control and other policies and
procedures; and retain an independent distribution consultant (see below). The
NYAG Settlement also, among other things, requires Columbia and its affiliates,
Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce
management fees paid by the Columbia Family of Funds, Nations Funds and other
related mutual funds collectively by $32 million per year for five years, for a
projected total of $160 million in management fee reductions based on net assets
as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the
settlement amounts will be distributed in accordance with a distribution plan to
be developed by an independent distribution consultant, who is acceptable to the
SEC staff and the independent trustees of the funds. The distribution plan must
be based on a methodology developed in consultation with Columbia and the
independent trustees of the funds and not unacceptable to the staff of the SEC.
More specific information on the distribution plan will be communicated by
Columbia WAM and/or its affiliates at a later date.
Columbia WAM, the Columbia Acorn Trust, another mutual fund family advised
by Columbia WAM, and the trustees of Columbia Acorn Trust are defendants in
several derivative and class action lawsuits that allege, in summary, defendants
permitted investors to engage in improper trading of shares of various funds in
violation of certain federal and state laws. All of these lawsuits have been
consolidated with similar suits in a Multi-District Litigation proceeding in
Baltimore, Maryland and consolidated class action and derivative complaints have
been filed.
The Columbia Acorn Trust and Columbia WAM are also defendants in a class
action lawsuit that alleges, in summary, that the Columbia Acorn Trust and
Columbia WAM exposed shareholders of Columbia Acorn International Fund to
trading by market timers by allegedly (a) failing to properly evaluate daily
whether a significant event affecting the value of that Fund's securities had
occurred after foreign markets had closed but before the calculation of the
Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV.
Columbia WAM and the trustees of Columbia Acorn Trust are also defendants
in a lawsuit alleging that Columbia WAM used Fund assets to make undisclosed
payments to brokers as an incentive for the brokers to market the Columbia Acorn
Funds over other mutual funds to investors. The complaint alleges Columbia WAM
and the trustees of Columbia Acorn Trust breached certain common laws duties and
federal laws.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Acorn Trust and Columbia WAM. The lawsuit alleges that defendants
violated common law duties to fund shareholders as well as sections of the
Investment Company Act of 1940, by failing to ensure that the Columbia Acorn
Trust funds and other affiliated funds participated in securities class action
settlements for which the funds were eligible. Specifically, plaintiffs allege
that defendants failed to submit Proof of Claims in connection with settlements
of securities class action lawsuits filed against companies in which the funds
held positions. The complaint seeks compensatory and punitive damages, and the
disgorgement of all fees paid to the Columbia WAM and affiliated advisers.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously. The Columbia Acorn Trust does not believe that the pending actions
will have a material adverse effect on the financial statements of any Columbia
Acorn Fund, and Columbia WAM does not believe that the pending actions will have
a material adverse effect on its ability to perform under its contracts with the
Fund.
As a result of these matters or any adverse publicity or other
developments resulting from them, there may be increased redemptions or reduced
sales of Fund shares, which could increase transaction costs or operating
expenses, or have other adverse consequences for the Fund.
In connection with the events described in detail above, various parties
have filed suit again certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot be currently made.
For the year ended December 31, 2004, CMG has assumed $50,701 in
consulting services and legal fees incurred by the Fund in connection with these
matters.
18
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Effective April 13, 2004, the audit committee of the Trust requested that Ernst
& Young LLP ("E&Y") resign as the auditors of the Fund. Also effective July 14,
2004, upon the recommendation of the audit committee, the Trust selected
PricewaterhouseCoopers LLP ("PWC") as independent registered public accounting
firm to audit the books and records of the Fund for its fiscal year ending
December 31, 2004. The cessation of the relationship with E&Y was based on the
impairment of E&Y's independence resulting from the consummation of the merger
of FleetBoston Financial Corporation and Bank of America Corporation and
accordingly, E&Y's ability to provide audit services to the Fund.
E&Y's report on the financial statements of the Fund for the past two
years did not contain an adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the period E&Y was engaged, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to E&Y's satisfaction, would
have caused it to make reference to that matter in connection with its report.
19
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM_
To the Board of Trustees and Shareholders of Wanger U.S. Smaller Companies Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Wanger U.S. Smaller Companies Fund
(a series of the Wanger Advisors Trust, hereinafter referred to as the "Fund")
at December 31, 2004, the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets for the year ended December
31, 2003 and financial highlights of the Fund for the periods ended December 31,
2003 and prior were audited by other independent auditors report dated February
6, 2004 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 14, 2005
20
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
The Board of Trustees of the Trust has overall management responsibility for the
Trust and the Funds. Each trustee serves a term of unlimited duration, provided
that a majority of trustees always has been elected by shareholders. The
trustees appoint their own successors, provided that at least two-thirds of the
trustees, after such appointment, have been elected by shareholders.
Shareholders may remove a trustee, with or without cause, upon the vote of
two-thirds of the Trust's outstanding shares at any meeting called for that
purpose. A trustee may be removed, with or without cause, upon the vote of a
majority of the trustees.
The names of the trustees and officers of the Trust, the date each was
first elected or appointed to office, their principal business occupations
during at least the last five years, and other directorships they hold are shown
below. Each trustee serves in such capacity for each of the four series of the
Trust.
The business address of each trustee and officer of the Trust is Columbia
Wanger Asset Management, L.P., 227 West Monroe, Suite 3000, Chicago, Illinois
60606, except for Messrs. Clark, Connaughton, and Pietropaolo, whose address is
Columbia Management Group, Inc., 245 Summer Street, Boston, Massachusetts,
02210. Wanger's Statement of Additional Information includes additional
information about Columbia Wanger's trustees and officers. You may obtain a free
copy of the Statement of Additional Information on our website, www.wanger.com,
or by writing or calling toll-free:
Columbia Wanger Asset Management, L.P.
Shareholder Services Group
227 W. Monroe, Suite 3000
Chicago, IL 60606
888-4-Wanger (888-492-6437)
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------ ----------- ---------------------------------------- -------------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST:
JEROME L. DUFFY, 68, 2003 Retired since December 31, 1997; prior None.
Trustee thereto, senior vice president, Kemper
Financial Services and treasurer, Kemper
Funds.
FRED D. HASSELBRING, 63, 1994 Retail industry, general project None.
Trustee development and business computer
systems consultant; voice over
specialist for industrial and
institutional applications; former
chairman of the board of the Trust
(September 2004 to November 2004);
former lead independent trustee (August
2003 to September 2004).
KATHRYN A. KRUEGER, M.D., 47, 2003 Medical Fellow I, Cardiovascular None.
Trustee Therapeutic Area, Lilly Research
Laboratories (May 2004 to present);
Medical Advisor, Cardiovascular
Therapeutic Area, Lilly Research
Laboratories (January 2003 to April
2004); Medical Director, Cardiovascular
Therapeutic Area, Lilly Research
Laboratories (October 2002 to December
2002); Medical Director, Neptune Product
Team, Lilly Research Laboratories
(October 2001 to October 2002); Acting
Director and Senior Clinical Research
Physician, Lilly Research Laboratories
(April 2001 to September 2001); Senior
Clinical Research Physician, Lilly
Research Laboratories (January 2000 to
March 2001); Clinical Research
Physician, Lilly Research Laboratories
(June 1996 to December 1999).
PATRICIA H. WERHANE, 69, 1998 Ruffin Professor of Business Ethics, None.
Chair of the Board and Trustee Darden Graduate School of Business
Administration, University of Virginia,
since 1993; Senior Fellow since 2004 and
Co-Director of the Olsson Center for
Applied Ethics, Darden Graduate School
of Business Administration, University
of Virginia, from 2001-2004; and
Wicklander Chair of Business Ethics and
Director of the Institute for Business
and Professional Ethics, DePaul
University (since September 2003).
TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST:
RALPH WANGER, 70, 1994 Founder, former president, chief Columbia
Trustee investment officer and portfolio Acorn
manager, Columbia Wanger Asset Trust.
Management, L.P. (CWAM) (1992-2003);
former president, Columbia Acorn Trust
from April 1992 through September 2003;
former president, Wanger Advisors Trust
(1994 through September 2003);
principal, WAM from July 1992 until
September 2000; president, WAM Ltd. from
July 1992 to September 2000; director,
Wanger Investment Company plc.;
Director, CWAM.
21
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------ ----------- ---------------------------------------- --------------
OFFICERS OF WANGER ADVISORS TRUST:
BEN ANDREWS, 39, 2004 Analyst and portfolio manager, CWAM None.
Vice President since 1998; vice president, Columbia
Acorn Trust.
J. KEVIN CONNAUGHTON, 40, 2001 Treasurer of the Columbia Funds and of None.
Assistant Treasurer the Liberty All-Star Funds since
December 2000 (formerly controller of
the Columbia Funds and of the Columbia
All-Star Funds from February 1998 to
October 2000); treasurer of the Galaxy
Funds since September 2002; treasurer,
Columbia Management Multi-Strategy Hedge
Fund, LLC since December 2002 (prior
thereto, vice president of Colonial
Management Associates from February 1998
to October 2000).
MICHAEL G. CLARKE, 34, 2004 Chief accounting officer of the Columbia None.
Assistant Treasurer Funds, Liberty Funds, Stein Roe Funds
and All-Star Funds since October 2004;
Controller of the Columbia Funds,
Liberty Funds, Stein Roe Funds and
All-Star Funds from May 2004 to October
2004; Assistant Treasurer from June 2002
to May 2004; Vice President, Product
Strategy & Development of the Liberty
Funds and Stein Roe Funds from February
2001 to June 2002; Assistant Treasurer
of the Liberty Funds, Stein Roe Funds
and the All-Star Funds from August 1999
to February 2001.
KENNETH A. KALINA, 45, 1995 Chief Compliance Officer, CWAM since May None.
Assistant Treasurer 2004; treasurer and Chief financial
officer, CWAM since April 2000;
assistant treasurer, Columbia Acorn
Trust; fund controller, CWAM since
September 1995; director, New Americas
Small Cap Fund.
BRUCE H. LAUER, 47, 1995 Chief operating officer, CWAM since None.
Vice President, Secretary April 1995; principal, WAM from January
and Treasurer 2000 to September 2000; vice president,
treasurer and secretary, Columbia Acorn
Trust; director, Wanger Investment
Company plc and New Americas Small Cap
Fund.
CHARLES P. MCQUAID, 51, 1994 President, CWAM since October 2003; Columbia
President Chief investment officer, CWAM since Acorn
September 2003; senior vice president of Trust.
the Trust from 1994 through September
2003; portfolio manager since 1995 and
director of research since July 1992
through December 2003; CWAM interim
director of international research from
October 2003 until December 2004;
principal, WAM from July 1995 to
September 2000; trustee since 1992 and
president since 2003, Columbia Acorn
Trust.
ROBERT A. MOHN, 43, 1997 Director of domestic research, CWAM, None.
Vice President since March 2004; analyst and portfolio
manager, CWAM since August 1992;
principal, WAM from 1995 to September
2000; vice president, Columbia Acorn
Trust.
TODD M. NARTER, 41, 2001 Analyst and portfolio manager, CWAM None.
Vice President since June 1997; vice president,
Columbia Acorn Trust.
CHRISTOPHER J. OLSON, 40, 2001 Analyst and portfolio manager, CWAM None.
Vice President since January 2001; vice president,
Columbia Acorn Trust; prior to 2001,
director and portfolio strategy analyst
with UBS Asset Management/Brinson
Partners.
VINCENT P. PIETROPAOLO, 39, 2001 Assistant General Counsel, Bank of None.
Assistant Secretary America (and its predecessors) since
December 1999.
ROBERT SCALES, 52, 2004 Deputy General Counsel, Grant Thornton None.
Chief Compliance Officer, LLP (2002-2004); Associate General
Senior Vice President Counsel, UBS PaineWebber (broker-dealer)
and General Counsel (1997-2002).
22
Wanger U.S. Smaller Companies 2004 Annual Report
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This page intentionally left blank.
Wanger U.S. Smaller Companies 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] WANGER ADVISORS TRUST
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts
02111-2621
INVESTMENT ADVISER
Columbia Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
www.wanger.com
1-888-4-WANGER
(1-888-492-6437)
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, Illinois
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Chicago, Illinois
This report, including the schedules of investments and financial statements, is
submitted for the general information of the shareholders of the Wanger Advisors
Trust. This report is not authorized for distribution unless preceded or
accompanied by a prospectus.
A description of the fund's proxy voting policies and procedures is available
(i) on the fund's website, www.wanger.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 888-492-6437. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website.
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 Public Reference Room may be obtained by calling 1-800-SEC-0330.
24
WANGER ADVISORS TRUST
SHR-02/094 U-0205 05/4317
WANGER INTERNATIONAL SMALL CAP
2004 Annual Report
[LOGO] WANGER ADVISORS FUND
- --------------------------------------------------------------------------------
MANAGED BY COLUMBIA WANGER ASSETS MANAGEMENT,L.P.
[LOGO] WANGER INTERNATIONAL SMALL CAP
2004 ANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 The Miracle Year
4 Performance Review
6 Statement of Investments
12 Statement of Assets and Liabilities
12 Statement of Operations
13 Statements of Changes in Net Assets
14 Financial Highlights
15 Notes to Financial Statements
19 Report of Independent Registered Public Accounting Firm
20 Board of Trustees and Management of Wanger Advisors Trust
COLUMBIA WANGER ASSET MANAGEMENT, L.P. ("COLUMBIA WAM") IS ONE OF THE LEADING
GLOBAL SMALL-CAP EQUITY MANAGERS IN THE U.S. WITH MORE THAN 30 YEARS OF
SMALL-CAP INVESTMENT EXPERIENCE. COLUMBIA WAM MANAGES MORE THAN $22 BILLION IN
EQUITIES AND IS THE INVESTMENT ADVISER TO WANGER U.S. SMALLER COMPANIES, WANGER
INTERNATIONAL SMALL CAP, WANGER SELECT, WANGER INTERNATIONAL SELECT AND THE
COLUMBIA ACORN FAMILY OF FUNDS.
FOR MORE COMPLETE INFORMATION ABOUT OUR FUNDS, INCLUDING THE COLUMBIA
ACORN FUNDS, OUR FEES, RISKS ASSOCIATED WITH INVESTING, OR EXPENSES, CALL
1-888-4-WANGER FOR A PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY. THIS REPORT IS NOT AN OFFER OF THE SHARES OF THE COLUMBIA ACORN FUND
FAMILY.
THE DISCUSSION IN THE REPORT OF PORTFOLIO COMPANIES IS FOR ILLUSTRATION
ONLY AND IS NOT A RECOMMENDATION OF INDIVIDUAL STOCKS. THE INFORMATION IS
BELIEVED TO BE ACCURATE, BUT THE INFORMATION AND THE VIEWS OF THE PORTFOLIO
MANAGERS MAY CHANGE AT ANY TIME WITHOUT NOTICE AND THE PORTFOLIO MANAGERS MAY
ALTER A FUND'S PORTFOLIO HOLDINGS BASED ON THESE VIEWS AND THE FUND'S
CIRCUMSTANCES AT THAT TIME.
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
UNDERSTANDING YOUR EXPENSES
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to 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 reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period 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 actual operating expenses and total return
for the fund. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and then applies each 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 reporting
period. See the "Compare with other funds" information for details on using the
hypothetical data.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period.
1. Divide your ending account balance by $1,000.00. For example, if an
account balance was $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number
is in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you
paid on your account during the period.
July 1, 2004 - December 31, 2004
- --------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID DURING FUND'S ANNUALIZED
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) THE PERIOD ($) EXPENSE RATIO (%)*
- --------------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- --------------------------------------------------------------------------------------------------------------------------------
Wanger International
Small Cap 1,000.00 1,000.00 1,181.99 1,018.30 7.46 6.90 1.36
- --------------------------------------------------------------------------------------------------------------------------------
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. AS A SHAREHOLDER OF THE
FUND, YOU DO NOT INCUR ANY TRANSACTION COSTS, SUCH AS SALES CHARGES, REDEMPTION
OR EXCHANGE FEES. 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.
* FOR THE SIX MONTHS ENDED 12/31/04.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies 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 5% hypothetical example with the 5% hypothetical examples of other
funds. As you compare hypothetical examples of other funds, it is important to
note that hypothetical examples are meant to highlight the continuing cost of
investing in a fund and do not reflect any transactional costs, such as sales
charges or redemption or exchange fees, that may be incurred by shareholders of
other funds. Expenses paid during the period do not include any insurance
charges imposed by your insurance company's separate accounts.
1
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] THE MIRACLE YEAR
Photo of RALPH WANGER
RALPH WANGER
FOUNDER, ADVISOR AND TRUSTEE
COLUMBIA WANGER ASSET MANAGEMENT, L.P.
1905 was a year of surprises. The first surprise was the victory of the Japanese
over the Russians in the Russo-Japanese War. In May 1905, the untested Japanese
Navy annihilated the Russian fleet at Tsushima. This was the first time a
non-white country had beaten the main force of a European colonial power. The
second unexpected event was in physics. 2005 will be celebrated as the
centennial of Albert Einstein's "Miracle Year."
The journal, ANNALEN DER PHYSIK, volume 17, published three articles in
September 1905 all written by Einstein, an obscure clerk in the Swiss patent
office in Bern. He had an undergraduate degree in physics but no Ph.D (it was
granted a year later). Each of the articles were on a different subject and each
one revolutionized its branch of physics. Einstein's papers created 20th century
physics almost single-handedly.
ATOMS
In 1905 there were different theories about the structure of matter. If you take
a glass of water and pour nine-tenths of it out, you still have a glass with
water in it. What happens if you repeat this process of throwing out 90% of the
water in the glass? After you repeat the process a few more times, you have such
a small amount of water that you can only see it under a microscope, and in a
few more steps the water drop will be too small to be seen even under the
microscope. Can you continue the boring job of splitting water forever or do you
finally get to a point where it isn't water anymore? Of course we know the
answer: Once you get down to a single molecule of water you can't split it and
still say that you have water left. Many leading scientists did not accept the
atomic theory in 1905. Einstein looked at the process called Brownian Motion in
which a grain of pollen or other small object moves around in a random way. (The
same mathematical process makes stock prices jiggle.) He deduced that this
motion was caused by billions of atoms bumping into the pollen grain in an
irregular pattern. He was even able to calculate the size of the atoms involved,
thus proving that atoms really existed.
PHOTONS
In 1905 there was still a basic debate about the nature of light. The greatest
achievement of 19th century physics was Maxwell's set of partial differential
equations governing electromagnetic fields, including light. Maxwell's equations
required that light be a wave. The great Max Planck had introduced the idea of a
quantum of energy in 1900 to get an equation that tracked the spectrum of heat
radiation, but most scientists doubted that a light quantum was "real." Heinrich
Hertz, Philip Lenard and others showed that when a beam of ultraviolet light
shines on a piece of metal you produce an electrical current in the metal. There
was no way to explain the photoelectric effect according to the Maxwell wave
theory of light. The second paper Einstein wrote dealt with the problem of the
photoelectric effect. If you cut the amount of energy in a beam of light by 90%
and keep reducing it, you still have a beam of light. If you keep slicing the
amount of light, does the beam of light keep getting smaller and smaller forever
or do you get down to an "atom" of light that can't be split further? Einstein
proved that there was a tiny amount of light that could not be further divided.
The least amount of light that exists is a single photon (or quantum) of light.
1 The photoelectric effect is explained by photons acting as particles, not as a
wave.
Einstein's discovery of the photon had a number of interesting effects. First,
it led to the development of quantum mechanics and thus to most of 20th century
physics. Second, it won Einstein his only Nobel Prize. Third, it uncovered a
paradox that still puzzles students, the duality of light. If you run an
experiment to show that light is a wave, you can prove it's a wave. If you run
an experiment to show that it's a particle, you can prove it's a particle. This
duality principle contradicts common sense but when you study science you have
to get used to it. The fourth effect was that it made Lenard a life-long enemy
of Einstein. Philip Lenard, who received the Nobel Prize in 1905 for his own
work on cathode rays, was close to the solution but Einstein ended up getting
the credit. Lenard became an unrelenting foe of Einstein, and influenced the
Nobel committee's decision not to give Einstein the prize for his theory of
relativity. Later on, Lenard became an ardent Nazi.
RELATIVITY
In 1905, there was also a debate in scientific circles about speed. If you were
in a really powerful rocket ship in space, and you pushed the throttle forward,
you would speed up. If you kept on increasing the power, would you go ever
faster, or was there an absolute speed limit in the universe that you could not
exceed?
2
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
The third paper became the best known, Einstein's special theory of relativity.
It explained that there was a cosmic speed limit, the speed of light. Very odd
things happen when your rocket ship is moving close to the speed of light. Time
slows down and you get shorter, under the Lorentz contraction equation, giving
rise to the limerick:
A sexy young techie named Fisk, Had a motion exceedingly brisk. So fast was his
action The Lorentz contraction Shortened his rod to a disk.
In a very brief paper published later in 1905, Einstein added in a note that his
theory of relativity implied the equation E=mc 2. That solved the paradox of
radioactivity; Mme Curie's radium was producing much more energy then could be
explained by 19th century physics. Einstein showed that radioactive energy was
caused by turning a small amount of mass into a lot of energy.
So we had this technical journal containing three papers written by a man
unknown in science, a non-Ph.D, a non-academic, writing on a German-dominated
field with all the fussiness about rank and reputation that you would expect.
Would anyone care? Einstein did not receive any communication from any
physicists for the first couple months after he published, but in early 1906 Max
Planck read and understood the papers. He wrote to Einstein and sent his
assistant, another important physicist, Max von Laue, to visit Einstein in Bern.
Planck's subsequent endorsement made Einstein acceptable to the community of
physicists, and his papers became required study for all physicists, as they
remain.
The compelling human question: How the heck did Einstein do it? How could one
human being produce three revolutionary papers in one year, on three different
subjects, while carrying a full-time job at the patent office to boot? We can
admire but not explain. The "Miracle Year" commemorates one of the greatest
feats of the human mind ever.
1 PLANCK AND EINSTEIN HAD DISCOVERED THE QUANTUM JUMP, WHICH WAS THE SMALLEST
THING THAT COULD POSSIBLY EXIST IN THE UNIVERSE. MODERN WRITERS, FOR REASONS
DIFFICULT TO EXPLAIN, NOW USE THE PHRASE QUANTUM JUMP TO MEAN A BIG EVENT. WHEN
NON-SCIENTISTS START THROWING AROUND SCIENTIFIC TERMS WITHOUT UNDERSTANDING
THEM, FUNNY THINGS HAPPEN. DON'T GET ME STARTED ON THE HEISENBERG UNCERTAINTY
PRINCIPLE.
INCIDENTALLY, ALBERT EINSTEIN'S FATHER, HERMANN, WAS BORN IN THE WURTTEMBERG
VILLAGE OF BUCHAU, WHERE HIS FAMILY HAD LIVED FOR GENERATIONS. HERMANN MOVED 20
MILES FROM BUCHAU TO THE CITY OF ULM, WHERE ALBERT WAS BORN. MY GREAT-GREAT
GRANDFATHER, JOSEPH KOHN, WAS ALSO FROM BUCHAU AND HE HAD MANY EINSTEINS IN HIS
FAMILY TREE. I AM VERY PROUD OF THE EINSTEIN CONNECTION.
SOURCES:
"EINSTEIN: A CELEBRATION," SEMINAR AT THE ASPEN INSTITUTE, AUGUST 8-11, 2004.
EINSTEIN, ALBERT, "IDEAS AND OPINIONS," CROWN PUBLISHERS, 1954.
KAKU, MICHIO, "EINSTEIN COSMOS: HOW ALBERT EINSTEIN'S VISION TRANSFORMED OUR
UNDERSTANDING OF SPACE AND TIME," ATLAS BOOKS, 2004.
"DISCOVER" MAGAZINE, "SPECIAL EINSTEIN ISSUE," SEPTEMBER 2004.
A SPECIAL THANKS TO DOUG STONE OF YALE UNIVERSITY FOR EDITING THIS ESSAY.
3
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] PERFORMANCE REVIEW WANGER INTERNATIONAL SMALL CAP
Photo of TODD M. NARTER Photo of CHRISTOPHER J. OLSON
TODD M. NARTER CHRISTOPHER J. OLSON
CO-PORTFOLIO MANAGER CO-PORTFOLIO MANAGER
Wanger International Small Cap rose 30.27% in 2004. The Fund finished the year
ahead of the Citigroup EMI Global ex-US Index, up 29.27%. Wanger International
Small Cap also substantially outperformed the large-cap MSCI EAFE Index, up
20.25% in 2004. A weak U.S. dollar, particularly against the euro, aided
performance throughout the year.
The Fund's biggest percentage winners in 2004 came from very different
industries and regions of the world. Edgars Consolidated Stores, a South African
retailer first purchased in 2004, returned 151% for the year on strong earnings
growth. Another new 2004 purchase, Natura Cosmeticos, a manufacturer and direct
seller of Brazilian cosmetics, gained 139% for the year.
ComfortDelGro, a Singaporean transport company expanding into taxicab franchises
in China, was the third best annual performer, returning 107%. Within Europe,
Amplifon, an Italian manufacturer of hearing aids, surged 95%. Other winners
included Aalberts Industries, a Netherlands diversified industrial company,
which rose over 90%, and Tullow Oil, up 93%, an UK-based oil exploration company
benefiting from the rise in energy prices.
Technology-related stocks were among the leading detractors to portfolio
performance during the year. ASE Test, a Taiwanese tester of semiconductor
devices, was the Funds largest percentage loser, declining 55% on weak earnings.
Ngai Lik Industrial, a Hong Kong-based manufacturer of audio equipment, declined
37% as higher raw material costs squeezed margins. Another loser was Kappa
Create, a Japanese sushi chain operator. Rising over 50% from January to June,
the stock declined sharply in the second half when increased competition caused
reduced sales. The stock ended the year down 31%.
International small caps have outperformed large caps for a fifth year in a row
and valuations are now close to long-term average valuations relative to large
caps, whereas two years ago they traded at a moderate discount. Fortunately, our
international small-cap universe is comprised of over 4,400 potential investment
opportunities from which we need to extract but a few. With a dedicated team of
nine international analysts we feel we have the resources to sift through this
universe and still find attractive investment candidates for our shareholders.
INVESTMENTS IN FOREIGN SECURITIES HAVE SPECIAL RISKS, INCLUDING POLITICAL OR
ECONOMIC INSTABILITY, HIGHER COSTS, DIFFERENT REGULATIONS, ACCOUNTING STANDARDS,
TRADING PRACTICES AND LEVELS OF INFORMATION, AND CURRENCY EXCHANGE RATE
FLUCTUATIONS. SMALL-CAP STOCKS ARE OFTEN MORE VOLATILE AND LESS LIQUID THAN THE
STOCKS OF LARGER COMPANIES. SMALL COMPANIES MAY HAVE A SHORTER HISTORY OF
OPERATIONS THAN LARGER COMPANIES AND MAY HAVE A LESS DIVERSIFIED PRODUCT LINE,
MAKING THEM MORE SUSCEPTIBLE TO MARKET PRESSURE.
AS OF 12/31/04, THE FUND'S POSITIONS IN THE HOLDINGS MENTIONED WERE: EDGARS
CONSOLIDATED STORES, 0.9%; NATURA COSMETICOS, 1.0%; COMFORTDELGRO, 0.6%;
AMPLIFON, 1.5%; AALBERTS INDUSTRIES, 1.1%; TULLOW OIL, 0.8%; ASE TEST, 0.4%;
NGAI LIK INDUSTRIAL, 0.4%; KAPPA CREATE, 0.5%.
4
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT IN TOTAL RETURN FOR EACH PERIOD,
WANGER INTERNATIONAL SMALL CAP MAY 3, 1995 (INCEPTION DATE)
THROUGH DECEMBER 31, 2004
[LINE CHART APPEARS HERE]
WANGER CITIGROUP
INTERNATIONAL EMI GLOBAL
SMALL CAP ex-US
5/3/1995 10000 10000
5/31/1995 10790 9821
6/30/1995 10970 9710
7/31/1995 11910 10255
8/31/1995 12290 10003
9/30/1995 12910 10074
10/31/1995 12700 9784
11/30/1995 12660 9865
12/31/1995 13450 10246
1/31/1996 14260 10479
2/29/1996 15170 10609
3/31/1996 15499 10830
4/30/1996 16251 11390
5/31/1996 16782 11301
6/30/1996 17183 11304
7/31/1996 16722 10859
8/31/1996 17023 10969
9/30/1996 17023 11029
10/31/1996 17183 10959
11/30/1996 17705 11136
12/31/1996 17755 10951
1/31/1997 18246 10792
2/28/1997 18687 11011
3/31/1997 18357 10874
4/30/1997 18204 10729
5/31/1997 18983 11359
6/30/1997 19568 11651
7/31/1997 19558 11538
8/31/1997 18460 11032
9/30/1997 19363 11210
10/31/1997 18388 10662
11/30/1997 17968 10166
12/31/1997 17496 9953
1/31/1998 18142 10265
2/28/1998 19589 11042
3/31/1998 21306 11575
4/30/1998 21867 11669
5/31/1998 21887 11768
6/30/1998 21410 11353
7/31/1998 21099 11281
8/31/1998 17904 9798
9/30/1998 17437 9581
10/31/1998 18101 10241
11/30/1998 19605 10595
12/31/1998 20352 10820
1/31/1999 20694 10744
2/28/1999 20570 10543
3/31/1999 21564 10999
4/30/1999 23400 11671
5/31/1999 23727 11383
6/30/1999 25404 11826
7/31/1999 27556 12208
8/31/1999 28928 12422
9/30/1999 29266 12366
10/31/1999 30088 12253
11/30/1999 36176 12694
12/31/1999 46072 13558
1/31/2000 46800 13300
2/29/2000 56295 13811
3/31/2000 54789 13872
4/30/2000 46481 12961
5/31/2000 42601 12691
6/30/2000 44628 13461
7/31/2000 43055 13015
8/31/2000 45584 13388
9/30/2000 41179 12701
10/31/2000 36798 11932
11/30/2000 33454 11407
12/31/2000 33244 11852
1/31/2001 34910 12073
2/28/2001 32556 11604
3/31/2001 29862 10705
4/30/2001 30389 11406
5/31/2001 31170 11383
6/30/2001 29743 10997
7/31/2001 28026 10674
8/31/2001 27907 10645
9/30/2001 23692 9259
10/31/2001 24780 9635
11/30/2001 25749 10031
12/31/2001 26174 10114
1/31/2002 25715 9931
2/28/2002 25358 10097
3/31/2002 27006 10755
4/30/2002 28179 10979
5/31/2002 28485 11330
6/30/2002 27635 10880
7/31/2002 24729 9958
8/31/2002 23743 9898
9/30/2002 21143 8984
10/31/2002 21415 9187
11/30/2002 22333 9531
12/31/2002 22554 9417
1/31/2003 22299 9259
2/28/2003 21534 9094
3/31/2003 21069 9005
4/30/2003 22980 9854
5/31/2003 24942 10694
6/30/2003 25778 11093
7/31/2003 26614 11488
8/31/2003 27893 12038
9/30/2003 29087 12588
10/31/2003 31356 13504
11/30/2003 32090 13750
12/31/2003 33574 14599
1/31/2004 35229 15123
2/29/2004 36662 15645
3/31/2004 36608 16028
4/30/2004 35801 15489
5/31/2004 35715 15491
6/30/2004 37003 15989
7/31/2004 36075 15425
8/31/2004 36041 15591
9/30/2004 37518 16172
10/31/2004 38755 16668
11/30/2004 41727 17980
12/31/2004 43737 18872
Average Annual Return
---------------------------------
1 year 5 years Life of fund
30.27% -1.03% 16.49%
This graph compares the results of $10,000 invested in Wanger International
Small Cap on May 3,1995 (the date the Fund began operations) through December
31, 2004 with the Citigroup EMI Global ex-US. Dividends and capital gains are
reinvested. DUE TO ONGOING MARKET VOLATILITY, PERFORMANCE IS SUBJECT TO
SUBSTANTIAL SHORT-TERM FLUCTUATIONS. Wanger International Small Cap is a
diversified fund that invests primarily in the stocks of non-U.S. companies with
capitalizations of less than $3 billion. Smaller company stocks are often more
volatile or less liquid than the stocks of larger companies. Investments in
foreign securities have special risks, including political or economic
instability, higher costs, different regulations, accounting standards, trading
practices and levels of information and currency exchange rate fluctuations.
PERFORMANCE SHOWN HERE IS PAST PERFORMANCE, WHICH CANNOT GUARANTEE FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE
CHANGES OVER TIME. CURRENT RETURNS FOR THE FUND MAY BE DIFFERENT THAN THAT
SHOWN. FOR MONTHLY PERFORMANCE UPDATES, PLEASE CONTACT US AT 1-888-4-WANGER.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
- --------------------------------------------------------------------------------
RESULTS TO DECEMBER 31, 2004
4TH QUARTER 1 YEAR
WANGER INTERNATIONAL
SMALL CAP 16.58% 30.27%
Citigroup EMI Global ex-US 16.70 29.27
MSCI EAFE 15.32 20.25
Lipper International Small Cap
Funds Index 16.27 29.50
NAV AS OF 12/31/04: $25.46
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
The Citigroup EMI Global ex-US is an index of the bottom 20% of institutionally
investable capital of developed and emerging countries, selected by the index
sponsor, outside the United States. MSCI EAFE is Morgan Stanley's Europe,
Australasia and Far East Index, an index of companies throughout the world in
proportion to world stock market capitalization, excluding the U.S. and Canada.
Lipper Indexes include the largest funds tracked by Lipper, Inc. in the named
category. The Lipper International Small Cap Funds Index is made up of the 10
largest non-U.S. funds investing in small-cap companies. All indexes are
unmanaged and returns include reinvested dividends. It is not possible to invest
directly in an index.
Portfolio holdings will vary in the future.
- --------------------------------------------------------------------------------
TOP 5 COUNTRIES
As a % of net assets, as of 12/31/04
United Kingdom 13.3%
Japan 10.8
Ireland 7.8
Netherlands 7.6
France 7.2
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 12/31/04
1. Anglo Irish Bank 2.0%
SMALL BUSINESS & MIDDLE MARKET BANKING - IRELAND
2. Major Drilling Group International 1.5%
MINING EXPLORATION DRILLER - CANADA
3. Vallourec 1.5%
SEAMLESS TUBES - FRANCE
4. Amplifon 1.5%
HEARING AID RETAILER - ITALY
5. Grafton Group 1.3%
BUILDERS, WHOLESALERS & DIY RETAILING - IRELAND
6. Fugro 1.3%
SURVEY & GPS SERVICES - NETHERLANDS
7. PT Perusahaan Gas Negara 1.2%
GAS PIPELINE OPERATOR - INDONESIA
8. Hexagon 1.2%
DIVERSIFIED ENGINEERING - SWEDEN
9. Koninklijke Ten Cate 1.2%
ADVANCED TEXTILES & INDUSTRIAL FABRICS - NETHERLANDS
10. United Drug 1.1%
PHARMACEUTICAL WHOLESALER & OUTSOURCER - IRELAND
5
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
COMMON STOCKS AND OTHER
EQUITY-LIKE SECURITIES - 91.9%
EUROPE - 59.8%
- ------------------------------------------------------------------------------
UNITED KINGDOM/IRELAND - 21.2%
500,000 Anglo Irish Bank (Ireland) $ 12,122,772
SMALL BUSINESS & MIDDLE MARKET BANKING
739,000 Grafton Group (Ireland) 8,007,802
BUILDERS, WHOLESALERS & DIY RETAILING
1,455,000 United Drug (Ireland) 6,858,374
PHARMACEUTICAL WHOLESALER & OUTSOURCER
700,000 Kensington 6,392,823
NON-CONFORMING MORTGAGE COMPANY
525,000 Business Post Group 6,263,692
UK PARCEL & EXPRESS MAIL SERVICE
350,000 IAWS Group (Ireland) 5,783,714
MANUFACTURER OF BAKED GOODS
400,000 Exel 5,542,810
GLOBAL LOGISTICS & FREIGHT FORWARDING
1,200,000 Charles Taylor Group 5,381,816
INSURANCE
840,000 International Greetings 5,288,669
PRIVATE LABEL GREETING PRODUCTS
300,000 Depfa Bank (Ireland) (e) 5,017,383
INTERNATIONAL PUBLIC SECTOR FINANCE
294,000 Jurys Doyle Hotel (Ireland) 4,906,106
OWNER/OPERATOR OF MID-PRICED HOTELS
200,000 Kerry Group (Ireland) 4,781,384
FOOD INGREDIENTS
1,621,000 Tullow Oil 4,737,886
OIL & GAS PRODUCER
800,000 Bloomsbury Publishing 4,645,841
PUBLISHING
221,000 Intermediate Capital 4,616,900
EUROPEAN PROVIDER OF MEZZANINE CAPITAL
1,556,000 RPS Group 4,540,447
ENVIRONMENTAL CONSULTING
600,000 Expro International 4,128,359
OFFSHORE OIL FIELD SERVICES
245,000 Northgate 4,010,104
LIGHT COMMERCIAL VEHICLE RENTAL SPECIALIST
90,000 Workspace Group 3,760,371
REAL ESTATE COMPANY
500,000 Care UK 3,699,040
NURSING HOME & PSYCHIATRIC CARE FACILITIES
155,000 Cobham 3,674,795
AEROSPACE COMPONENTS
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
500,000 Spectris $ 3,660,708
ELECTRONIC INSTRUMENTS & CONTROLS
750,000 French Connection 3,528,942
CLOTHING WHOLESALER & RETAILER
250,000 Viridian Group 3,497,797
NORTHERN IRELAND ELECTRIC UTILITY
350,000 Vitec Group 1,918,518
PHOTO, FILM PRODUCTION & BROADCAST ACCESSORIES
350,000 Offshore Hydrocarbon Mapping (b) 1,583,112
EXPLORATION TECHNOLOGY CONTRACTOR
- ------------------------------------------------------------------------------
128,350,165
- ------------------------------------------------------------------------------
GERMANY/AUSTRIA - 7.7%
125,000 Wienerberger (Austria) (e) 5,957,302
BRICKS & CLAY ROOFING TILES
70,000 Wincor Nixdorf (b) (e) 5,617,372
RETAIL POS SYSTEMS & ATM MACHINES
155,000 Hugo Boss Designs (e) 5,141,069
FASHION APPAREL
75,000 Rhoen-Klinikum Pfd. (e) 4,580,502
HOSPITAL MANAGEMENT
315,000 Deutsche Beteiligung (b)(e) 4,500,513
PRIVATE EQUITY & INVESTMENT MANAGEMENT
110,000 GFK (e) 4,266,759
MARKET RESEARCH SERVICES
45,200 Rational (e) 4,191,118
COMMERCIAL OVEN MANUFACTURER
383,000 Takkt (e) 4,019,999
MAIL ORDER RETAILER OF OFFICE & WAREHOUSE DURABLES
65,000 Grenke Leasing (e) 3,069,403
FINANCING FOR IT EQUIPMENT
70,000 Bilfinger Berger (e) 2,868,230
CONSTRUCTION & RELATED SERVICES
50,000 Vossloh (e) 2,461,668
RAIL INFRASTRUCTURE & DIESEL LOCOMOTIVES
- ------------------------------------------------------------------------------
46,673,935
- ------------------------------------------------------------------------------
FRANCE/BELGIUM - 7.6%
60,000 Vallourec 8,939,698
SEAMLESS TUBES
60,000 Imerys 5,018,421
INDUSTRIAL MINERALS PRODUCER
90,000 Norbert Dentressangle 4,973,723
TRANSPORT
See accompanying notes to financial statements.
6
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
FRANCE/BELGIUM - 7.6% (CONT)
55,000 Neopost $ 4,261,256
POSTAGE METER MACHINES
41,000 Camaieu 4,065,124
WOMEN'S APPAREL RETAILER
100,000 Iliad 3,776,345
HIGH SPEED INTERNET SERVICE PROVIDER
41,000 Bacou Dalloz 3,276,535
SAFETY EQUIPMENT
97,000 Fininfo 2,990,356
DATA FEEDS FOR FRENCH BANKS & BROKERS
61,000 Omega Pharma (Belgium) 2,912,513
OTC PRODUCTS, PHARMACY & DENTAL SUPPLIES
103,000 April Group 2,650,756
INSURANCE POLICY CONSTRUCTION
178,000 Cerep (b) 2,519,505
HEALTH CARE
19,000 Carbone Lorraine (b) 1,003,684
ADVANCED INDUSTRIAL MATERIALS
- ------------------------------------------------------------------------------
46,387,916
- ------------------------------------------------------------------------------
NETHERLANDS - 7.6%
92,347 Fugro 7,680,156
SURVEY & GPS SERVICES
96,000 Koninklijke Ten Cate (b) 7,047,733
ADVANCED TEXTILES & INDUSTRIAL FABRICS
138,000 Aalberts Industries 6,673,078
FLOW CONTROL & HEAT TREATMENT
103,000 OPG Groep 5,999,079
HEALTHCARE SUPPLIES & PHARMACIES
116,000 Sligro Food Group 5,703,527
FOOD SERVICE & WHOLESALING
217,000 United Services Goup 5,055,534
TEMPORARY STAFFING SERVICES
138,000 IM Tech 4,850,599
TECHNICAL ENGINEERING
37,600 Hunter Douglas 1,998,971
WINDOW SHADES & VENETIAN BLINDS
65,000 Unit 4 Aggresso (b) 1,003,684
BUSINESS & SECURITY SOFTWARE
23,000 AM NV 222,436
PROPERTY DEVELOPER
- ------------------------------------------------------------------------------
46,234,797
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
SWEDEN - 3.3%
150,000 Hexagon (e) $7,125,164
DIVERSIFIED ENGINEERING
289,000 Sweco (e) 5,510,113
NORDIC INFRASTRUCTURE/ENVIRONMENT CONSULTING
316,000 Nobia (e) 5,217,878
KITCHEN CABINET MANUFACTURING & DISTRIBUTION
1,660,000 Biotage (b) (e) 2,432,472
DISCOVERY CHEMISTRY (MICROWAVES & PURIFICATION)
- ------------------------------------------------------------------------------
20,285,627
- ------------------------------------------------------------------------------
ITALY - 3.2%
160,000 Amplifon (e) 8,844,181
HEARING AID RETAILER
402,000 Granitifiandre (e) 3,632,815
INNOVATIVE STONEWARE
50,000 Davide Campari 3,216,031
SPIRITS & WINE
200,000 Credit Emiliano (e) 1,979,807
REGIONAL BANK
1,400,000 Ducati Motor (b)(e) 1,667,099
MOTORCYCLES & RELATED MERCHANDISE
- ------------------------------------------------------------------------------
19,339,933
- ------------------------------------------------------------------------------
SWITZERLAND - 2.0%
10,400 Sika (e) 6,213,224
CHEMICALS FOR CONSTRUCTION & INDUSTRIAL APPLICATION
8,000 Geberit International (e) 5,833,514
PLUMBING SUPPLIES
- ------------------------------------------------------------------------------
12,046,738
- ------------------------------------------------------------------------------
FINLAND - 1.9%
480,000 Sponda (e) 4,667,023
OFFICE & WAREHOUSE PROPERTY COMPANY
122,000 Jaakko Poyry (e) 3,668,666
ENGINEERING CONSULTANTS IN FORESTRY & ENERGY
189,000 Amer Group (e) 3,290,803
BRANDED SPORTING GOODS
- ------------------------------------------------------------------------------
11,626,492
See accompanying notes to financial statements.
7
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
SPAIN - 1.5%
76,000 Bankinter (e) $ 4,033,792
MORTGAGE LENDER
279,100 Abengoa (e) 2,747,225
ENGINEERING & CONSTRUCTION
100,000 Red Electrica (e) 2,238,143
SPANISH POWER GRID
- ------------------------------------------------------------------------------
9,019,160
- ------------------------------------------------------------------------------
NORWAY - 0.9%
238,000 Ekornes (e) 5,161,409
NICHE FURNITURE MANUFACTURER
- ------------------------------------------------------------------------------
CZECH REPUBLIC - 0.8%
34,200 Komercni Banka (e) 4,975,962
LEADING CZECH UNIVERSAL BANK
- ------------------------------------------------------------------------------
POLAND - 0.8%
167,000 Central European Distribution 4,933,180
SPIRITS & WINE DISTRIBUTION
- ------------------------------------------------------------------------------
GREECE - 0.8%
190,000 Intralot 4,637,536
LOTTERY & GAMING SYSTEMS & SERVICES
- ------------------------------------------------------------------------------
DENMARK - 0.4%
10,500 Kobenhavns Lufthavne (e) 2,223,655
COPENHAGEN AIRPORT MANAGER
- ------------------------------------------------------------------------------
RUSSIA - 0.1%
29,300 Mechel Steel Group (b) 654,855
MET COAL ASSETS OBSCURED BY STEEL BIZ
- ------------------------------------------------------------------------------
EUROPE - TOTAL 362,551,360
ASIA - 21.0%
- ------------------------------------------------------------------------------
JAPAN - 10.8%
124,000 Daito Trust Construction 5,883,986
APARTMENT BUILDER
116,000 ARRK 4,744,949
PROTOTYPES & MOLDS FOR NEW PRODUCT DEVELOPMENT
386,000 Wacoal 4,637,955
WOMEN'S SPECIALTY APPAREL
123,500 Meitec 4,593,752
STAFFING COMPANY SPECIALIZING IN RD ENGINEERS
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
273,500 NIFCO $ 4,570,020
MOLDED PLASTIC COMPONENTS
160,000 Shimano 4,559,547
BICYCLE COMPONENTS & FISHING TACKLE
129,600 Sugi Pharmacy 4,395,321
DRUGSTORE OPERATOR
225,000 Park 24 4,023,762
PARKING LOT OPERATOR
111,000 Eneserve 4,023,257
POWER GENERATORS
179,000 Ushio 3,331,323
INDUSTRIAL LIGHT SOURCES
162,500 Ain Pharmaciez 3,240,260
DISPENSING PHARMACY/DRUGSTORE OPERATOR
265,900 Toyo Technica 3,069,372
VALUE ADDED RESELLER OF IMPORTED INSTRUMENTATION
94,600 Kappa Create 2,824,368
SUSHI CHAIN RESTAURANT OPERATOR
58,000 Hogy Medical 2,725,212
DISPOSABLE SURGICAL PRODUCTS
33,000 Fast Retailing 2,503,005
APPAREL RETAILER
470,400 Hiroshima Bank 2,485,124
REGIONAL BANK
83,600 Chiyoda Integre 1,684,864
PLASTIC COMPONENTS FOR CONSUMER ELECTRONICS
195,000 Fukuoka Bank 1,281,565
REGIONAL BANK
180,000 Bank of Yokohama (b) 1,130,753
REGIONAL BANK
- ------------------------------------------------------------------------------
65,708,395
- ------------------------------------------------------------------------------
TAIWAN - 3.4%
4,419,300 Phoenixtec Power 5,324,290
UNINTERRUPTABLE POWER SUPPLIES
3,217,000 Taiwan Fu Hsing 3,501,359
DOOR LOCK MANUFACTURER
395,000 ASE Test (b) 2,670,200
SEMICONDUCTOR PACKAGING & TEST SERVICES
1,083,616 Springsoft Systems 2,317,895
ELECTRONIC DESIGN AUTOMATION SOFTWARE
2,119,000 Chicony Electronics 2,152,995
PC POWER SUPPLIES & KEYBOARDS
See accompanying notes to financial statements.
8
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
TAIWAN - 3.4% (CONT)
1,644,021 Wah Lee Industrial $ 2,146,174
DISTRIBUTOR OF CHEMICALS, MATERIALS & EQUIPMENT
2,530,000 Bank of Kaohsiung 2,013,495
COMMERCIAL BANKING
137,000 Advantech 331,834
EMBEDDED COMPUTERS
- ------------------------------------------------------------------------------
20,458,242
- ------------------------------------------------------------------------------
HONG KONG/CHINA - 3.3%
7,000,000 Global Bio-Chem Technology Group (China) 4,637,849
375,000 Global Bio-Chem Technology Group
Warrants (China) 17,850
REFINER OF CORN-BASED COMMODITIES
2,000,000 Techtronic Industries 4,374,116
MANUFACTURER OF POWER TOOLS & MOTORIZED APPLIANCES
11,000,000 Linmark 3,962,434
SOURCING OF CONSUMER GOODS
1,000,000 Hong Kong Exchanges & Clearing 2,682,362
HONG KONG EQUITY & DERIVATIVES OPERATOR
10,000,000 Ngai Lik Industrial 2,521,549
CONSUMER ELECTRONICS MANUFACTURER
12,000,000 Lerado Group 1,790,814
BABY STROLLERS & INFANT CAR SEATS MANUFACTURER
- ------------------------------------------------------------------------------
19,986,974
- ------------------------------------------------------------------------------
INDONESIA - 1.2%
35,000,000 PT Perusahaan Gas Negara (e) 7,162,886
GAS PIPELINE OPERATOR
- ------------------------------------------------------------------------------
INDIA - 0.9%
300,000 Housing Development Finance 5,313,988
PREMIER MORTGAGE LENDER IN INDIA
- ------------------------------------------------------------------------------
SOUTH KOREA - 0.8%
31,582 Yuhan (e) 2,654,381
OTC & PRESCRIPTION DRUG MANUFACTURER
205,000 Samyoung Heat Exchange (e) 2,101,958
POWER PLANT RELATED MACHINERY
- ------------------------------------------------------------------------------
4,756,339
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES OR
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------
SINGAPORE - 0.6%
4,000,000 ComfortDelGro $ 3,797,158
TAXI & MASS TRANSIT SERVICE
- ------------------------------------------------------------------------------
ASIA - TOTAL 127,183,982
OTHER COUNTRIES - 7.9%
- ------------------------------------------------------------------------------
CANADA - 4.3%
823,500 Major Drilling Group International (b) 9,125,984
MINING EXPLORATION DRILLER
600,000 Fairborne Energy (b) 6,024,247
OIL & GAS PRODUCER
CAD$ Main Street Equity
3,175,000 Conv., 7.25%, 09/30/11 (d) 2,486,771
CANADIAN MULTI-FAMILY REAL ESTATE
120,000 Enerflex Systems 2,355,706
NATURAL GAS COMPRESSOR
300,000 Kinross Gold (b) 2,112,236
GOLD MINING
100,000 Corus Entertainment 2,083,073
TELEVISION PROGRAMMING & RADIO STATIONS
250,000 Ivanhoe Mines (b) 1,801,858
COPPER MINING IN MONGOLIA
- ------------------------------------------------------------------------------
25,989,875
- ------------------------------------------------------------------------------
AUSTRALIA/NEW ZEALAND - 2.7%
600,000 Billabong International 5,368,563
SURFWEAR APPAREL MANUFACTURER
1,222,500 Sky City Entertainment (New Zealand) 4,723,966
CASINO/ENTERTAINMENT COMPLEX
70,000 Perpetual Trustees 3,440,725
AUSTRALIAN MUTUAL FUND MANAGER
1,300,000 Pacific Brands 3,240,674
AUSTRALIAN BRANDED APPAREL
- ------------------------------------------------------------------------------
16,773,928
- ------------------------------------------------------------------------------
SOUTH AFRICA - 0.9%
100,000 Edgars Consolidated Stores 5,354,296
LEADING RETAIL CONGLOMERATE
- ------------------------------------------------------------------------------
OTHER COUNTRIES - TOTAL 48,118,099
See accompanying notes to financial statements.
9
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES OR
PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------
LATIN AMERICA - 3.2%
MEXICO - 1.7%
220,000 Grupo Aeroportaurio Del Sureste $ 6,017,000
CANCUN & COZUMEL AIRPORT OPERATOR
1,000,000 Consorcio ARA (b) 3,005,293
AFFORDABLE HOUSING BUILDER
375,000 URBI Desarrollo (b) 1,638,333
AFFORDABLE HOUSING BUILDER
- ------------------------------------------------------------------------------
10,660,626
- ------------------------------------------------------------------------------
BRAZIL - 1.0%
200,000 Natura Cosmeticos 5,835,843
DIRECT RETAILER OF COSMETICS
44,750 Diagnosticos (b) 402,683
LARGEST PRIVATE DIAGNOSTIC SERVICES COMPANY IN BRAZIL
- ------------------------------------------------------------------------------
6,238,526
- ------------------------------------------------------------------------------
CHILE - 0.5%
100,000 CorpBanca (b) 2,875,000
CHILEAN LOCAL BANK
- ------------------------------------------------------------------------------
LATIN AMERICA - TOTAL 19,774,152
TOTAL COMMON STOCKS AND OTHER EQUITY-LIKE SECURITIES
(COST: $379,819,703) - 91.9% 557,627,593
SHORT-TERM OBLIGATIONS - 7.1%
- ------------------------------------------------------------------------------
$42,975,000 Repurchase Agreement with State
Street Bank & Trust Co., dated 12/31/04,
due 1/03/05 at 1.90% collateralized by
Federal National Mortgage Association
notes, maturing 1/05/05,
market value $43,838,070
(repurchase proceeds: $42,981,804) 42,975,000
- ------------------------------------------------------------------------------
(AMORTIZED COST: $42,975,000) 42,975,000
TOTAL INVESTMENTS (COST: $422,794,703) - 99.0% (a)(c) 600,602,593
- ------------------------------------------------------------------------------
Cash and Other Assets Less Liabilities - 1.0% 6,170,089
- ------------------------------------------------------------------------------
Total Net Assets - 100% $ 606,772,682
NOTES TO STATEMENT OF INVESTMENTS:
(a) At December 31, 2004, for federal income tax purposes cost of investments
was $427,824,239 and net unrealized appreciation was $172,778,354
consisting of gross unrealized appreciation of $181,296,783 and gross
unrealized depreciation of $8,518,429.
(b) Non-income producing security.
(c) On December 31, 2004, the Fund's total investments were denominated in
currencies as follows:
% OF NET
CURRENCY VALUE ASSETS
- ------------------------------------------------------------------------------
Euro Dollars $ 231,397,301 38.2%
British Pounds 80,872,630 13.3
Japanese Yen 65,708,395 10.8
U.S. Dollars 60,125,235 9.9
Other currencies less than
5% of total net assets 162,499,032 26.8
------------- ----------
$ 600,602,593 99.0%
============= ==========
(d) Denotes a restricted security, which is subject to restrictions on resale
under federal securities laws. This security is valued in good faith by
the Board of Trustees. At December 31, 2004, this security amounted to
$2,486,771, which represents 0.41% of net assets.
Additional information on this security is as follows:
ACQUISITION
SECURITY DATE PAR COST VALUE
- ------------------------------------------------------------------------------
Main Street
Equity Conv.,
7.25%,
09/30/11 10/8/04 $3,175,000 $2,527,263 $2,486,771
(e) Represents a security valued by an independent statistical fair value
pricing service at 12/31/04. Foreign securities which had a market holiday
on 12/31/04 were valued under this method. See Security Valuation in Note
2 for further information.
10
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP PORTFOLIO DIVERSIFICATION DECEMBER 31, 2004
AT DECEMBER 31, 2004, THE FUND'S PORTFOLIO INVESTMENTS AS A PERCENT OF NET
ASSETS WAS DIVERSIFIED AS FOLLOWS:
VALUE PERCENT
- ------------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES
Industrial Services $ 33,857,364 5.6%
Industrial Materials 31,126,186 5.1
Construction 18,210,877 3.0
Conglomerates 16,545,467 2.7
Machinery 13,016,000 2.1
Outsourcing & Training Services 9,649,286 1.6
Steel 8,939,698 1.5
Electrical Components 8,690,982 1.4
Industrial Distribution 8,007,802 1.3
Specialty Chemicals 6,213,224 1.0
- ------------------------------------------------------------------------------
154,256,886 25.3
- ------------------------------------------------------------------------------
CONSUMER GOODS/SERVICES
Retail 31,931,129 5.3
Apparels 22,350,695 3.7
Food 16,268,625 2.7
Durable Goods 12,519,280 2.1
Furniture & Textiles 12,378,258 2.0
Non Durable Goods 11,124,512 1.8
Consumer Services 5,814,576 1.0
Goods Distribution 4,933,180 0.8
Travel 4,906,106 0.8
Casinos 4,723,966 0.8
Gaming 4,637,536 0.8
Leisure Products 3,290,803 0.5
Beverage 3,216,031 0.5
Restaurants 2,824,368 0.5
- ------------------------------------------------------------------------------
140,919,065 23.3
- ------------------------------------------------------------------------------
FINANCE
Banks 33,881,861 5.6
Finance Companies 18,089,230 3.0
Savings & Loans 9,347,780 1.5
Insurance 8,032,572 1.3
Money Management 7,941,238 1.3
77,292,681 12.7
VALUE PERCENT
- ------------------------------------------------------------------------------
ENERGY/MINERALS
Oil Services $ 15,747,333 2.6%
Non-Ferrous Metals 11,238,220 1.9
Oil/Gas Producers 10,762,133 1.8
Oil Refining/Marketing/Distribution 7,162,886 1.2
Agricultural Commodities 4,655,699 0.8
Independent Power 4,023,257 0.7
Mining 2,456,713 0.4
- ------------------------------------------------------------------------------
56,046,241 9.4
- ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY
Computer Hardware & Related Equipment 13,426,491 2.2
Business Information & Marketing Services 11,797,562 1.9
Instrumentation 6,730,080 1.1
Publishing 4,645,841 0.8
Internet Related 3,776,345 0.6
Business Software 3,321,579 0.6
Financial Processors 2,682,362 0.4
Semiconductors & Related Equipment 2,670,200 0.4
Contract Manufacturing 2,521,549 0.4
Electronics Distribution 2,146,174 0.4
Television Programming 2,083,073 0.3
- ------------------------------------------------------------------------------
55,801,256 9.1
- ------------------------------------------------------------------------------
OTHER
Transportation 17,011,536 2.8
Real Estate 15,780,227 2.6
Regulated Utilities 5,735,940 0.9
- ------------------------------------------------------------------------------
38,527,703 6.3
- ------------------------------------------------------------------------------
HEALTHCARE
Pharmaceuticals 14,944,773 2.5
Services 9,698,119 1.6
Hospital Management 4,580,502 0.8
Hospital/ Laboratory Supplies 3,127,895 0.5
Medical Equipment 2,432,472 0.4
- ------------------------------------------------------------------------------
34,783,761 5.8
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS AND OTHER
EQUITY-LIKE SECURITIES 557,627,593 91.9
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 42,975,000 7.1
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS 600,602,593 99.0
- ------------------------------------------------------------------------------
CASH & OTHER ASSETS
LESS LIABILITIES 6,170,089 1.0
- ------------------------------------------------------------------------------
NET ASSETS 606,772,682 100.0%
==============================================================================
11
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
==============================================================================
ASSETS
Investments, at cost $ 422,794,703
- ------------------------------------------------------------------------------
Investments, at value $ 600,602,593
Cash 811
Foreign currency (cost of $6,395,269) 6,481,930
Receivable for:
Investments sold 1,329,964
Fund shares sold 153,966
Dividends and interest 533,353
Foreign tax reclaims 123,717
- ------------------------------------------------------------------------------
Total Assets 609,226,334
LIABILITIES
Payable for:
Investments purchased 1,592,128
Fund shares repurchased 769,822
Transfer agent fees 44
Trustees' fees 3,050
Custody fees 34,704
Legal and audit fees 42,309
Other liabilities 11,595
- ------------------------------------------------------------------------------
Total Liabilities 2,453,652
- ------------------------------------------------------------------------------
Net Assets $ 606,772,682
==============================================================================
COMPOSITION OF NET ASSETS
Paid in capital $ 484,245,953
Undistributed net investment income 2,410,578
Accumulated net realized loss (57,798,133)
Net unrealized appreciation on:
Investments 177,807,890
Foreign currency translations 106,394
- ------------------------------------------------------------------------------
Net Assets $ 606,772,682
==============================================================================
Fund shares outstanding 23,834,955
==============================================================================
Net asset value, offering price and
redemption price per share $ 25.46
==============================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
==============================================================================
INVESTMENT INCOME:
Dividend income (net of foreign taxes of $1,035,281) $ 8,772,449
Interest income 363,722
- ------------------------------------------------------------------------------
Total investment income 9,136,171
EXPENSES:
Investment advisory fees 5,493,529
Reports to shareholders 179,770
Legal and audit fees 96,953
Transfer agent fees 2,269
Trustees' fees 70,268
Custody fees 479,439
Compliance fees 6,957
Non-recurring costs (See Note 8) 24,900
Other expenses 34,102
- ------------------------------------------------------------------------------
Total Expenses 6,388,187
Less custody fees paid indirectly (95)
Non-recurring costs reimbursed (See Note 8) (24,900)
- ------------------------------------------------------------------------------
Net Expenses 6,363,192
- ------------------------------------------------------------------------------
Net Investment Income 2,772,979
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain on:
Investments 37,890,695
Foreign currency transactions 312,747
- ------------------------------------------------------------------------------
Net realized gain 38,203,442
- ------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on:
Investments 90,729,335
Foreign currency translations 67,497
- ------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) 90,796,832
- ------------------------------------------------------------------------------
Net Gain 129,000,274
- ------------------------------------------------------------------------------
Net Increase in Net Assets from Operations $ 131,773,253
==============================================================================
See accompanying notes to financial statements.
12
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2004 DECEMBER 31, 2003
- ---------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $ 2,772,979 $ 2,281,656
Net realized gain (loss) on investments and foreign currency transactions 38,203,442 (3,515,007)
Net change in unrealized appreciation (depreciation) on investments
and foreign currency transactions 90,796,832 115,867,350
- ---------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 131,773,253 114,633,999
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,991,364) (778,511)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (2,991,364) (778,511)
SHARE TRANSACTIONS:
Subscriptions 172,565,632 152,933,800
Distributions reinvested 2,991,364 778,511
Redemptions (78,291,925) (102,925,641)
- ---------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 97,265,071 50,786,670
- ---------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 226,046,960 164,642,158
NET ASSETS:
Beginning of period 380,725,722 216,083,564
- ---------------------------------------------------------------------------------------------------------------------
End of period $ 606,772,682 $ 380,725,722
- ---------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 2,410,578 $ 2,935,123
=====================================================================================================================
See accompanying notes to financial statements.
13
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD 2004 2003 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.68 $ 13.27 $ 15.40 $ 28.53 $ 43.67
- --------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.13 0.13 0.07 0.02 (0.26)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 5.80 6.33 (2.20) (5.12) (9.75)
- --------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 5.93 6.46 (2.13) (5.10) (10.01)
- --------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.15) (0.05) -- -- --
From net realized gain and unrealized gain reportable
for federal income taxes -- -- -- (8.03) (5.13)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.15) (0.05) -- (8.03) (5.13)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 25.46 $ 19.68 $ 13.27 $ 15.40 $ 28.53
================================================================================================================================
Total Return (b) 30.27% 48.86% (13.83)% (21.27)% (27.84)%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (c) 1.36% 1.41% 1.47% 1.43% 1.41%
Net investment income (loss) (c) 0.59% 0.85% 0.46% 0.10% (0.68)%
Portfolio turnover rate 47% 45% 54% 56% 67%
Net assets, end of period (000's) $ 606,773 $ 380,726 $ 216,084 $ 230,626 $ 271,675
- --------------------------------------------------------------------------------
(a) Net investment income (loss) per share was based upon the average shares
outstanding during the period.
(b) Total return at net asset value assuming all distributions are reinvested.
(c) The benefits derived from custody fees paid indirectly had no impact.
See accompanying notes to financial statements.
14
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Wanger International Small Cap (the "Fund"), is a series of Wanger Advisors
Trust (the "Trust"), an open-end management investment company organized as a
Massachusetts business trust. The investment objective of the Fund is to seek
long-term growth of capital. The Fund is available only for allocation to
certain life insurance company separate accounts established for the purpose of
funding qualified and non-qualified variable annuity contracts, and may also be
offered directly to certain types of pension plans and retirement arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
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 a fair
value determined in accordance with procedures established by the Board of
Trustees. Securities traded on securities exchanges or in over-the-counter
markets in which transaction prices are reported are valued at the last sales
price at the time of valuation. If a security is traded principally on the
Nasdaq Stock Market Inc., the Nasdaq Official Closing Price will be applied.
Securities for which there are no reported sales on the valuation date are
valued at the latest bid quotation. Short-term debt obligations having a
maturity of 60 days or less from the valuation date are valued on an amortized
cost basis. Securities for which quotations are not readily available and any
other assets are valued as determined in good faith by the Board of Trustees.
The Trust has retained an independent statistical fair value pricing service to
assist in the fair valuation process for securities principally traded in a
foreign market in order to adjust for possible changes in value that may occur
between the close of the foreign exchanges and the time at which fund shares are
priced. If a security is valued at a "fair value", that value may be different
from the last quoted market price for the security.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. The Fund, through its
custodians, receives delivery of underlying securities collateralizing each
repurchase agreement. The Fund's investment advisor determines that the value of
the underlying securities is at all times at least equal to the repurchase price
including interest. In the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
FOREIGN CURRENCY TRANSLATIONS
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on an
accrual basis and includes amortization of discounts on short-term debt
obligations and on long-term debt obligations when required for federal income
tax purposes. Short-term debt obligations having a maturity of 60 days or less
from the valuation date are valued on an amortized cost basis, which
approximates fair value. Realized gains and losses from security transactions
are reported on an identified cost basis.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from registration. In
some cases, the issuer of restricted securities has agreed to register such
securities for resale at the issuer's expense either upon demand by the
Fund/Trust or in connection with another registered offering of the securities.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resale.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimated.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange ("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.
CUSTODY FEES/CREDITS
Custody fees are reduced based on the Fund's cash balances maintained with the
custodian. The Fund could have invested a portion of the assets utilized in
connection with the expense offset arrangement in an income-producing asset if
it had not entered into such an agreement. The amount is disclosed as a
reduction of total expenses in the Statement of Operations.
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 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
Realized gains in certain countries may be subject to foreign taxes at the fund
level, at rates ranging from 10%-30%. The Fund accrues for such foreign taxes on
net realized and unrealized gains at the appropriate rate for each jurisdiction.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
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.
For the year ended December 31, 2004, permanent differences resulting
primarily from differing treatments for foreign currency transactions, foreign
15
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
capital gain tax reclasses and passive foreign company adjustments ("PFIC") were
identified and reclassified among the components of the Fund's net assets as
follows:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED UNREALIZED
INCOME LOSS APPRECIATION
-------------- ------------ ------------
$(306,160) $(307,968) $614,128
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December
31, 2004 and December 31, 2003 was as follows:
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
Distributions paid from:
Ordinary Income $2,991,364 $778,511
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED NET
ORDINARY LONG-TERM UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------ ------------- ------------
$6,913,269 $-- $172,886,626
* The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from
wash sales, foreign currency transactions and PFIC adjustments.
Unrealized appreciation and depreciation at December 31, 2004, based on
cost of investments for federal income tax purposes, was:
NET
UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
-------------- ------------ --------------
$181,296,783 $(8,518,429) $172,778,354
The following capital loss carryforwards, determined as of December 31,
2004, are available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARDS
- ---------- -------------
2009 $ 18,435,084
2010 36,103,588
2011 2,734,494
-------------
Total $ 52,273,166
Expired capital loss carryforwards, if any, are recorded as a reduction of
paid-in capital.
Capital loss carryforwards of $37,528,270 were utilized during the year ended
December 31, 2004 for the Fund.
4. TRANSACTIONS WITH AFFILIATES
Columbia Wanger Asset Management, L.P., ("Columbia WAM") an indirect
wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a
wholly owned subsidiary of Bank of America Corporation ("BOA"), furnishes
continuing investment supervision to the Fund and is responsible for the overall
management of the Fund's business affairs. Prior to April 1, 2004, Columbia was
a wholly-owned subsidiary of Fleet National Bank, which in turn was a
wholly-owned subsidiary of FleetBoston Financial Corporation ("Fleet"). On April
1, 2004, Fleet was acquired by BOA.
Under the Fund's investment management agreement, fees are accrued daily
and paid monthly to Columbia WAM at the annual rates shown in the table below:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
For the first $100 million 1.30%
Next $150 million 1.20%
In excess of $250 million 1.10%
For the year ended December 31, 2004, the Fund's effective investment advisory
fee rate was 1.17%.
The investment advisory agreement also provides that Columbia WAM will
reimburse the Fund to the extent that ordinary operating expenses (computed
based on net custodian fees) exceed an annual percentage of 2.00% of the average
daily net assets. There was no reimbursement for the year ended December 31,
2004.
In accordance with the terms of the NYAG Settlement (as defined and
discussed further under Note 8 to these Financial Statements - "Legal
Proceedings"), Columbia WAM waived a portion of the fees payable under the
Fund's investment management agreement so that those fees are retained at the
following rates as a percent of average daily net assets: 1.150% - up to $100
million; 1.000% - $100 million to $250 million; 0.950% - $250 million and over.
The fee waiver was effective as of February 10, 2005 but applied as if it had
gone into effect on December 1, 2004. The financial statements, as of December
31, 2004, are not reflective of these changes.
Certain officers and trustees of the Trust are also officers of Columbia
WAM. The Trust makes no direct payments to its officers and trustees who are
affiliated with Columbia WAM. For the year ended December 31, 2004, the Fund
paid $70,268 to trustees not affiliated with Columbia WAM. Effective April 2004,
the Board of Trustees appointed a Chief Compliance Officer to the Fund in
accordance with federal securities regulations. The Fund will pay its pro-rata
share of the expenses associated with the Office of the Chief Compliance
Officer. These expenses are disclosed separately on the Statement of Operations.
Columbia Funds Distributor, Inc. ("CFDI"), an indirect wholly-owned
subsidiary of BOA, serves as the principal underwriter of the Trust and receives
no compensation for its services.
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect
wholly-owned subsidiary of BOA, provides shareholder services to the Fund. For
such services, the Transfer Agent receives a fee, paid monthly, at the annual
rate of $28.00 per open account. The Transfer Agent also receives reimbursement
for certain out-of-pocket expenses. Effective February 1, 2004 the Transfer
Agent made the decision to waive the reimbursement for certain out-of-pocket
expenses. Prior to February 1, 2004, the Transfer Agent was entitled to receive
a flat rate charge based on the number of shareholder accounts and transactions.
During the year ended December 31, 2004, the Fund engaged in purchases and
sales transactions with funds that have a common investment advisor (or
affiliated investment advisors), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions complied with the provisions of
Rule 17a-7 under the Investment Company Act of 1940 and were $11,599 and
$3,626,822, respectively.
16
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
5. BORROWING ARRANGEMENTS
The Trust participates in a $150,000,000 credit facility, which was entered into
to facilitate portfolio liquidity. Interest is charged to each participating
fund based on its borrowings at a rate per annum equal to the Federal Funds rate
plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and
apportioned among the participating funds based on their pro-rata portion of the
unutilized line of credit. The commitment fee is included in "Other expenses" on
the Statement of Operations. No amounts were borrowed under this facility for
the year ended December 31, 2004.
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:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- -------------------------------------------------------------------------------
Shares sold 8,009,022 10,174,171
- -------------------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 140,969 61,737
- -------------------------------------------------------------------------------
Less shares redeemed 3,663,834 7,169,275
- -------------------------------------------------------------------------------
Net increase in shares outstanding 4,486,157 3,066,633
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the year ended December 31, 2004 were $279,998,219
and $210,236,220.
8. LEGAL PROCEEDINGS
On March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"),
the advisor to the Columbia Funds, and CFDI (collectively with Columbia
Management, "Columbia") the distributor of the shares of the Columbia Funds, the
Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the
Columbia Family of Funds"), entered into agreements in principle with the staff
of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New
York Attorney General ("NYAG") to resolve the proceedings brought in connection
with the SEC's and NYAG's investigations of frequent trading and market timing
in certain Columbia mutual funds. Columbia WAM, the advisor to the Columbia
Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either
proceeding nor were any of its officers or directors.
On February 9, 2005, Columbia entered into an Assurance of Discontinuance
(the "NYAG Settlement") with the NYAG and consented to the entry of a
cease-and-desist order by the SEC (the "SEC Order" and together, the
"Settlements"). The Settlements contain substantially the same terms and
conditions as outlined in the agreements in principle. Although none of the
Wanger Advisors Trust Funds is a party to the Settlement orders, under the terms
of the Settlements and in order for Columbia Management to continue to provide
administrative services to the Wanger Advisors Funds, the Board of Trustees of
the Wanger Advisors Trust Funds agreed to conform to certain governance
requirements, including the election of an independent board chair.
Under the terms of the SEC Order, Columbia has agreed, among other things,
to: pay $70 million in disgorgement and $70 million in civil money penalties;
cease and desist from violations of the antifraud provisions and certain other
provisions of the federal securities laws; maintain certain compliance and
ethics oversight structures; retain an independent consultant to review
Columbia's applicable supervisory, compliance, control and other policies and
procedures; and retain an independent distribution consultant (see below). The
NYAG Settlement also, among other things, requires Columbia and its affiliates,
Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce
management fees paid by the Columbia Family of Funds, Nations Funds and other
related mutual funds collectively by $32 million per year for five years, for a
projected total of $160 million in management fee reductions based on net assets
as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the
settlement amounts will be distributed in accordance with a distribution plan to
be developed by an independent distribution consultant, who is acceptable to the
SEC staff and the independent trustees of the funds. The distribution plan must
be based on a methodology developed in consultation with Columbia and the
independent trustees of the funds and not unacceptable to the staff of the SEC.
More specific information on the distribution plan will be communicated by
Columbia WAM and/or its affiliates at a later date.
Columbia WAM, the Columbia Acorn Trust, another mutual fund family advised
by Columbia WAM, and the trustees of Columbia Acorn Trust are defendants in
several derivative and class action lawsuits that allege, in summary, defendants
permitted investors to engage in improper trading of shares of various funds in
violation of certain federal and state laws. All of these lawsuits have been
consolidated with similar suits in a Multi-District Litigation proceeding in
Baltimore, Maryland and consolidated class action and derivative complaints have
been filed.
The Columbia Acorn Trust and Columbia WAM are also defendants in a class
action lawsuit that alleges, in summary, that the Columbia Acorn Trust and
Columbia WAM exposed shareholders of Columbia Acorn International Fund to
trading by market timers by allegedly (a) failing to properly evaluate daily
whether a significant event affecting the value of that Fund's securities had
occurred after foreign markets had closed but before the calculation of the
Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV.
Columbia WAM and the trustees of Columbia Acorn Trust are also defendants
in a lawsuit alleging that Columbia WAM used Fund assets to make undisclosed
payments to brokers as an incentive for the brokers to market the Columbia Acorn
Funds over other mutual funds to investors. The complaint alleges Columbia WAM
and the trustees of Columbia Acorn Trust breached certain common laws duties and
federal laws.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Acorn Trust and Columbia WAM. The lawsuit alleges that defendants
violated common law duties to fund shareholders as well as sections of the
Investment Company Act of 1940, by failing to ensure that the Columbia Acorn
Trust funds and other affiliated funds participated in securities class action
settlements for which the funds were eligible. Specifically, plaintiffs allege
that defendants failed to submit Proof of Claims in connection with settlements
of securities class action lawsuits filed against companies in which the funds
held positions. The complaint seeks compensatory and punitive damages, and the
disgorgement of all fees paid to the Columbia WAM and affiliated advisers.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously. The Columbia Acorn Trust does not believe that the pending actions
will have a material adverse effect on the financial statements of any Columbia
Acorn Fund, and Columbia WAM does not believe that the pending actions will have
a material adverse effect on its ability to perform under its contracts with the
Fund.
As a result of these matters or any adverse publicity or other
developments resulting from them, there may be increased redemptions or reduced
sales of Fund shares, which could increase transaction costs or operating
expenses, or have other adverse consequences for the Fund.
In connection with the events described in detail above, various parties
have filed suit again certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot be currently made.
For the year ended December 31, 2004, CMG has assumed $24,900 in
consulting services and legal fees incurred by the Fund in connection with these
matters.
17
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Effective April 13, 2004, the audit committee of the Trust requested that Ernst
& Young LLP ("E&Y") resign as the auditors of the Fund. Also effective July 14,
2004, upon the recommendation of the audit committee, the Trust selected
PricewaterhouseCoopers LLP ("PWC") as independent registered public accounting
firm to audit the books and records of the Fund for its fiscal year ending
December 31, 2004. The cessation of the relationship with E&Y was based on the
impairment of E&Y's independence resulting from the consummation of the merger
of FleetBoston Financial Corporation and Bank of America Corporation and
accordingly, E&Y's ability to provide audit services to the Fund.
E&Y's report on the financial statements of the Fund for the past two
years did not contain an adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the period E&Y was engaged, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to E&Y's satisfaction, would
have caused it to make reference to that matter in connection with its report.
18
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Wanger International Small Cap
Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Wanger International Small Cap Fund
(a series of the Wanger Advisors Trust, hereinafter referred to as the "Fund")
at December 31, 2004, the results of its operations, the changes in its net
assets and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets for the year ended December
31, 2003 and financial highlights of the Fund for the periods ended December 31,
2003 and prior were audited by other independent auditors whose report dated
February 6, 2004 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 14, 2005
19
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
The Board of Trustees of the Trust has overall management responsibility for the
Trust and the Funds. Each trustee serves a term of unlimited duration, provided
that a majority of trustees always has been elected by shareholders. The
trustees appoint their own successors, provided that at least two-thirds of the
trustees, after such appointment, have been elected by shareholders.
Shareholders may remove a trustee, with or without cause, upon the vote of
two-thirds of the Trust's outstanding shares at any meeting called for that
purpose. A trustee may be removed, with or without cause, upon the vote of a
majority of the trustees.
The names of the trustees and officers of the Trust, the date each was
first elected or appointed to office, their principal business occupations
during at least the last five years, and other directorships they hold are shown
below. Each trustee serves in such capacity for each of the four series of the
Trust.
The business address of each trustee and officer of the Trust is Columbia
Wanger Asset Management, L.P., 227 West Monroe, Suite 3000, Chicago, Illinois
60606, except for Messrs. Clark, Connaughton, and Pietropaolo, whose address is
Columbia Management Group, Inc., 245 Summer Street, Boston, Massachusetts,
02210. Wanger's Statement of Additional Information includes additional
information about Columbia Wanger's trustees and officers. You may obtain a free
copy of the Statement of Additional Information on our website, www.wanger.com,
or by writing or calling toll-free:
Columbia Wanger Asset Management, L.P.
Shareholder Services Group
227 W. Monroe, Suite 3000
Chicago, IL 60606
888-4-Wanger (888-492-6437)
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------ ------------------ --------------------------------------------- -------------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST:
JEROME L. DUFFY, 68, 2003 Retired since December 31, 1997; prior None.
Trustee thereto, senior vice president, Kemper
Financial Services and treasurer, Kemper
Funds.
FRED D. HASSELBRING, 63, 1994 Retail industry, general project development None.
Trustee and business computer systems consultant;
voice over specialist for industrial and
institutional applications; former chairman
of the board of the Trust (September 2004 to
November 2004); former lead independent
trustee (August 2003 to September 2004).
KATHRYN A. KRUEGER, M.D., 47, 2003 Medical Fellow I, Cardiovascular Therapeutic None.
Trustee Area, Lilly Research Laboratories (May 2004
to present); Medical Advisor, Cardiovascular
Therapeutic Area, Lilly Research Laboratories
(January 2003 to April 2004); Medical
Director, Cardiovascular Therapeutic Area,
Lilly Research Laboratories (October 2002 to
December 2002); Medical Director, Neptune
Product Team, Lilly Research Laboratories
(October 2001 to October 2002); Acting
Director and Senior Clinical Research
Physician, Lilly Research Laboratories (April
2001 to September 2001); Senior Clinical
Research Physician, Lilly Research
Laboratories (January 2000 to March 2001);
Clinical Research Physician, Lilly Research
Laboratories (June 1996 to December 1999).
PATRICIA H. WERHANE, 69, 1998 Ruffin Professor of Business Ethics, Darden None.
Chair of the Board and Trustee Graduate School of Business Administration,
University of Virginia, since 1993; Senior
Fellow since 2004 and Co-Director of the
Olsson Center for Applied Ethics, Darden
Graduate School of Business Administration,
University of Virginia, from 2001-2004; and
Wicklander Chair of Business Ethics and
Director of the Institute for Business and
Professional Ethics, DePaul University (since
September 2003).
TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST:
RALPH WANGER, 70, 1994 Founder, former president, chief investment Columbia
Trustee officer and portfolio manager, Columbia Acorn
Wanger Asset Management, L.P. (CWAM) Trust.
(1992-2003); former president, Columbia Acorn
Trust from April 1992 through September 2003;
former president, Wanger Advisors Trust (1994
through September 2003); principal, WAM from
July 1992 until September 2000; president,
WAM Ltd. from July 1992 to September 2000;
director, Wanger Investment Company plc.;
Director, CWAM.
20
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------------ ------------------ --------------------------------------------- -------------
OFFICERS OF WANGER ADVISORS TRUST:
BEN ANDREWS, 39, 2004 Analyst and portfolio manager, CWAM since None.
Vice President 1998; vice president, Columbia Acorn Trust.
J. KEVIN CONNAUGHTON, 40, 2001 Treasurer of the Columbia Funds and of the None.
Assistant Treasurer Liberty All-Star Funds since December 2000
(formerly controller of the Columbia Funds
and of the Columbia All-Star Funds from
February 1998 to October 2000); treasurer of
the Galaxy Funds since September 2002;
treasurer, Columbia Management Multi-Strategy
Hedge Fund, LLC since December 2002 (prior
thereto, vice president of Colonial
Management Associates from February 1998 to
October 2000).
MICHAEL G. CLARKE, 34, 2004 Chief accounting officer of the Columbia None.
Assistant Treasurer Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds since October 2004; Controller
of the Columbia Funds, Liberty Funds, Stein
Roe Funds and All-Star Funds from May 2004 to
October 2004; Assistant Treasurer from June
2002 to May 2004; Vice President, Product
Strategy & Development of the Liberty Funds
and Stein Roe Funds from February 2001 to
June 2002; Assistant Treasurer of the Liberty
Funds, Stein Roe Funds and the All-Star Funds
from August 1999 to February 2001.
KENNETH A. KALINA, 45, 1995 Chief Compliance Officer, CWAM since May None.
Assistant Treasurer 2004; treasurer and Chief financial officer,
CWAM since April 2000; assistant treasurer,
Columbia Acorn Trust; fund controller, CWAM
since September 1995; director, New Americas
Small Cap Fund.
BRUCE H. LAUER, 47, 1995 Chief operating officer, CWAM since April None.
Vice President, Secretary 1995; principal, WAM from January 2000 to
and Treasurer September 2000; vice president, treasurer and
secretary, Columbia Acorn Trust; director,
Wanger Investment Company plc and New
Americas Small Cap Fund.
CHARLES P. MCQUAID, 51, 1994 President, CWAM since October 2003; Chief Columbia
President investment officer, CWAM since September Acorn
2003; senior vice president of the Trust from Trust
1994 through September 2003; portfolio
manager since 1995 . and director of research
since July 1992 through December 2003; CWAM
interim director of international research
from October 2003 until December 2004;
principal, WAM from July 1995 to September
2000; trustee since 1992 and president since
2003, Columbia Acorn Trust.
ROBERT A. MOHN, 43, 1997 Director of domestic research, CWAM, since None.
Vice President March 2004; analyst and portfolio manager,
CWAM since August 1992; principal, WAM from
1995 to September 2000; vice president,
Columbia Acorn Trust.
TODD M. NARTER, 41, 2001 Analyst and portfolio manager, CWAM since None.
Vice President June 1997; vice president, Columbia Acorn
Trust.
CHRISTOPHER J. OLSON, 40, 2001 Analyst and portfolio manager, CWAM since None.
Vice President January 2001; vice president, Columbia Acorn
Trust; prior to 2001, director and portfolio
strategy analyst with UBS Asset
Management/Brinson Partners.
VINCENT P. PIETROPAOLO, 39, 2001 Assistant General Counsel, Bank of America None.
Assistant Secretary (and its predecessors) since December 1999.
ROBERT SCALES, 52, 2004 Deputy General Counsel, Grant Thornton LLP None.
Chief Compliance Officer, (2002-2004); Associate General Counsel, UBS
Senior Vice President PaineWebber (broker-dealer) (1997-2002).
and General Counsel
21
Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
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Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
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Wanger International Small Cap 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] WANGER ADVISORS TRUST
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts
02111-2621
INVESTMENT ADVISER
Columbia Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
www.wanger.com
1-888-4-WANGER
(1-888-492-6437)
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, Illinois
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Chicago, Illinois
This report, including the schedules of investments and financial statements, is
submitted for the general information of the shareholders of the Wanger Advisors
Trust. This report is not authorized for distribution unless preceded or
accompanied by a prospectus.
A description of the fund's proxy voting policies and procedures is available
(i) on the fund's website, www.wanger.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 888-492-6437. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website.
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 Public Reference Room may be obtained by calling 1-800-SEC-0330.
24
Wanger Advisors Trust
SHR-02/467U-0205 05/4314
WANGER SELECT
2004 Annual Report
[Logo] WANGER ADVISORS FUNDS
- ----------------------------------------------------------
MANAGED BY COLUMBIA WANGER ASSET MANAGMENT, L.P.
[Logo] WANGER SELECT
2004 ANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 The Miracle Year
4 Performance Review
6 Statement of Investments
8 Statement of Assets and Liabilities
8 Statement of Operations
9 Statements of Changes in Net Assets
10 Financial Highlights
11 Notes to Financial Statements
15 Report of Independent Registered Public Accounting Firm
16 Federal Income Tax Information
17 Board of Trustees and Management of Wanger Advisors Trust
COLUMBIA WANGER ASSET MANAGEMENT, L.P. ("COLUMBIA WAM") IS ONE OF THE LEADING
GLOBAL SMALL-CAP EQUITY MANAGERS IN THE U.S. WITH MORE THAN 30 YEARS OF
SMALL-CAP INVESTMENT EXPERIENCE. COLUMBIA WAM MANAGES MORE THAN $22 BILLION IN
EQUITIES AND IS THE INVESTMENT ADVISER TO WANGER U.S. SMALLER COMPANIES, WANGER
INTERNATIONAL SMALL CAP, WANGER SELECT, WANGER INTERNATIONAL SELECT AND THE
COLUMBIA ACORN FAMILY OF FUNDS.
FOR MORE COMPLETE INFORMATION ABOUT OUR FUNDS, INCLUDING THE COLUMBIA
ACORN FUNDS, OUR FEES, RISKS ASSOCIATED WITH INVESTING, OR EXPENSES, CALL
1-888-4-WANGER FOR A PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY. THIS REPORT IS NOT AN OFFER OF THE SHARES OF THE COLUMBIA ACORN FUND
FAMILY.
THE DISCUSSION IN THE REPORT OF PORTFOLIO COMPANIES IS FOR ILLUSTRATION
ONLY AND IS NOT A RECOMMENDATION OF INDIVIDUAL STOCKS. THE INFORMATION IS
BELIEVED TO BE ACCURATE, BUT THE INFORMATION AND THE VIEWS OF THE PORTFOLIO
MANAGERS MAY CHANGE AT ANY TIME WITHOUT NOTICE AND THE PORTFOLIO MANAGERS MAY
ALTER A FUND'S PORTFOLIO HOLDINGS BASED ON THESE VIEWS AND THE FUND'S
CIRCUMSTANCES AT THAT TIME.
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
UNDERSTANDING YOUR EXPENSES
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to 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 reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period 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 actual operating expenses. The amount listed
in the "hypothetical" column assumes that the return each year is 5% before
expenses and then applies each 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 reporting period. See the "Compare with
other funds" information for details on using the hypothetical data.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period.
1. Divide your ending account balance by $1,000.00. For example, if an
account balance was $8,600.00 at the end of the period, the result would
be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number is in
the column labeled "actual." Multiply this number by the result from step
1. Your answer is an estimate of the expenses you paid on your account
during the period.
July 1, 2004 - December 31, 2004
- --------------------------------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid during Fund's annualized
beginning of the period ($ ) end of the period ($) the period ($) expense ratio (%)*
- --------------------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical
- --------------------------------------------------------------------------------------------------------------------
Wanger Select 1,000.00 1,000.00 1,102.20 1,019.61 5.81 5.58 1.10
- --------------------------------------------------------------------------------------------------------------------
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. AS A SHAREHOLDER OF THE
FUND, YOU DO NOT INCUR ANY TRANSACTION COSTS, SUCH AS SALES CHARGES, REDEMPTION
OR EXCHANGE FEES. EXPENSES PAID DURING THE PERIOD DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS.~ 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.
* FOR THE SIX MONTHS ENDED 12/31/04.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies 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 5% hypothetical example with the 5% hypothetical examples of other
funds. As you compare hypothetical examples of other funds, it is important to
note that hypothetical examples are meant to highlight the continuing cost of
investing in a fund and do not reflect any transactional costs, such as sales
charges or redemption or exchange fees, that may be incurred by shareholders of
other funds. Expenses paid during the period do not include any insurance
charges imposed by your insurance company's separate accounts.
1
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO ] THE MIRACLE YEAR
Photo of RALPH WANGER
RALPH WANGER
FOUNDER, ADVISOR AND TRUSTEE
COLUMBIA WANGER ASSET MANAGEMENT, L.P.
1905 was a year of surprises. The first surprise was the victory of the Japanese
over the Russians in the Russo-Japanese War. In May 1905, the untested Japanese
Navy annihilated the Russian fleet at Tsushima. This was the first time a
non-white country had beaten the main force of a European colonial power. The
second unexpected event was in physics. 2005 will be celebrated as the
centennial of Albert Einstein's "Miracle Year."
The journal, ANNALEN DER PHYSIK, volume 17, published three articles in
September 1905 all written by Einstein, an obscure clerk in the Swiss patent
office in Bern. He had an undergraduate degree in physics but no Ph.D (it was
granted a year later). Each of the articles were on a different subject and each
one revolutionized its branch of physics. Einstein's papers created 20th century
physics almost single-handedly.
ATOMS
In 1905 there were different theories about the structure of matter. If you take
a glass of water and pour nine-tenths of it out, you still have a glass with
water in it. What happens if you repeat this process of throwing out 90% of the
water in the glass? After you repeat the process a few more times, you have such
a small amount of water that you can only see it under a microscope, and in a
few more steps the water drop will be too small to be seen even under the
microscope. Can you continue the boring job of splitting water forever or do you
finally get to a point where it isn't water anymore? Of course we know the
answer: Once you get down to a single molecule of water you can't split it and
still say that you have water left. Many leading scientists did not accept the
atomic theory in 1905. Einstein looked at the process called Brownian Motion in
which a grain of pollen or other small object moves around in a random way. (The
same mathematical process makes stock prices jiggle.) He deduced that this
motion was caused by billions of atoms bumping into the pollen grain in an
irregular pattern. He was even able to calculate the size of the atoms involved,
thus proving that atoms really existed.
PHOTONS
In 1905 there was still a basic debate about the nature of light. The greatest
achievement of 19th century physics was Maxwell's set of partial differential
equations governing electromagnetic fields, including light. Maxwell's equations
required that light be a wave. The great Max Planck had introduced the idea of a
quantum of energy in 1900 to get an equation that tracked the spectrum of heat
radiation, but most scientists doubted that a light quantum was "real." Heinrich
Hertz, Philip Lenard and others showed that when a beam of ultraviolet light
shines on a piece of metal you produce an electrical current in the metal. There
was no way to explain the photoelectric effect according to the Maxwell wave
theory of light. The second paper Einstein wrote dealt with the problem of the
photoelectric effect. If you cut the amount of energy in a beam of light by 90%
and keep reducing it, you still have a beam of light. If you keep slicing the
amount of light, does the beam of light keep getting smaller and smaller forever
or do you get down to an "atom" of light that can't be split further? Einstein
proved that there was a tiny amount of light that could not be further divided.
The least amount of light that exists is a single photon (or quantum) of light.
1 The photoelectric effect is explained by photons acting as particles, not as a
wave.
Einstein's discovery of the photon had a number of interesting effects. First,
it led to the development of quantum mechanics and thus to most of 20th century
physics. Second, it won Einstein his only Nobel Prize. Third, it uncovered a
paradox that still puzzles students, the duality of light. If you run an
experiment to show that light is a wave, you can prove it's a wave. If you run
an experiment to show that it's a particle, you can prove it's a particle. This
duality principle contradicts common sense but when you study science you have
to get used to it. The fourth effect was that it made Lenard a life-long enemy
of Einstein. Philip Lenard, who received the Nobel Prize in 1905 for his own
work on cathode rays, was close to the solution but Einstein ended up getting
the credit. Lenard became an unrelenting foe of Einstein, and influenced the
Nobel committee's decision not to give Einstein the prize for his theory of
relativity. Later on, Lenard became an ardent Nazi.
RELATIVITY
In 1905, there was also a debate in scientific circles about speed. If you were
in a really powerful rocket ship in space, and you pushed the throttle forward,
you would speed up. If you kept on increasing the power, would you go ever
faster, or was there an absolute speed limit in the universe that you could not
exceed?
2
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
The third paper became the best known, Einstein's special theory of relativity.
It explained that there was a cosmic speed limit, the speed of light. Very odd
things happen when your rocket ship is moving close to the speed of light. Time
slows down and you get shorter, under the Lorentz contraction equation, giving
rise to the limerick:
A sexy young techie named Fisk, Had a motion exceedingly brisk. So fast was his
action The Lorentz contraction Shortened his rod to a disk.
In a very brief paper published later in 1905, Einstein added in a note that his
theory of relativity implied the equation E=mc2. That solved the paradox of
radioactivity; Mme Curie's radium was producing much more energy then could be
explained by 19th century physics. Einstein showed that radioactive energy was
caused by turning a small amount of mass into a lot of energy.
So we had this technical journal containing three papers written by a man
unknown in science, a non-Ph.D, a non-academic, writing on a German-dominated
field with all the fussiness about rank and reputation that you would expect.
Would anyone care? Einstein did not receive any communication from any
physicists for the first couple months after he published, but in early 1906 Max
Planck read and understood the papers. He wrote to Einstein and sent his
assistant, another important physicist, Max von Laue, to visit Einstein in Bern.
Planck's subsequent endorsement made Einstein acceptable to the community of
physicists, and his papers became required study for all physicists, as they
remain.
The compelling human question: How the heck did Einstein do it? How could one
human being produce three revolutionary papers in one year, on three different
subjects, while carrying a full-time job at the patent office to boot? We can
admire but not explain. The "Miracle Year" commemorates one of the greatest
feats of the human mind ever.
1 PLANCK AND EINSTEIN HAD DISCOVERED THE QUANTUM JUMP, WHICH WAS THE SMALLEST
THING THAT COULD POSSIBLY EXIST IN THE UNIVERSE. MODERN WRITERS, FOR REASONS
DIFFICULT TO EXPLAIN, NOW USE THE PHRASE QUANTUM JUMP TO MEAN A BIG EVENT. WHEN
NON-SCIENTISTS START THROWING AROUND SCIENTIFIC TERMS WITHOUT UNDERSTANDING
THEM, FUNNY THINGS HAPPEN. DON'T GET ME STARTED ON THE HEISENBERG UNCERTAINTY
PRINCIPLE.
INCIDENTALLY, ALBERT EINSTEIN'S FATHER, HERMANN, WAS BORN IN THE WURTTEMBERG
VILLAGE OF BUCHAU, WHERE HIS FAMILY HAD LIVED FOR GENERATIONS. HERMANN MOVED 20
MILES FROM BUCHAU TO THE CITY OF ULM, WHERE ALBERT WAS BORN. MY GREAT-GREAT
GRANDFATHER, JOSEPH KOHN, WAS ALSO FROM BUCHAU AND HE HAD MANY EINSTEINS IN HIS
FAMILY TREE. I AM VERY PROUD OF THE EINSTEIN CONNECTION.
SOURCES:
"EINSTEIN: A CELEBRATION," SEMINAR AT THE ASPEN INSTITUTE, AUGUST 8-11, 2004.
EINSTEIN, ALBERT, "IDEAS AND OPINIONS," CROWN PUBLISHERS, 1954.
KAKU, MICHIO, "EINSTEIN COSMOS: HOW ALBERT EINSTEIN'S VISION TRANSFORMED OUR
UNDERSTANDING OF SPACE AND TIME," ATLAS BOOKS, 2004.
"DISCOVER" MAGAZINE, "SPECIAL EINSTEIN ISSUE," SEPTEMBER 2004.
A SPECIAL THANKS TO DOUG STONE OF YALE UNIVERSITY FOR EDITING THIS ESSAY.
3
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO ] PERFORMANCE REVIEW WANGER SELECT*
Photo of BEN ANDREWS
BEN ANDREWS
PORTFOLIO MANAGER
It was a good year for Wanger Select. The Fund gained 19.31% during 2004,
outperforming the S&P MidCap 400's 16.48% return and the S&P 500's 10.88% gain.
McAfee, ITT Educational Services and Abercrombie & Fitch all did well for the
Fund for the annual period. McAfee was up 83% for the 12 months while ITT
Educational Services increased 65%. Together these two stocks made up over 6% of
the Fund's return for the year. Abercrombie & Fitch, up an impressive 91% in the
year, was another big contributor to Fund performance.
On the downside, Skillsoft cost the Fund some performance as the stock slid due
to continued pricing pressure from its largest competitor, Netg. Skillsoft was
down 29% for the 12 months. The largest detractors to performance, however, were
Synopsys, down 42%, and Interpublic Group, down 32%. We are evaluating whether
or not Synopsys has turn around potential. Interpublic Group was sold in the
fourth quarter.
Also during the fourth quarter, Oracle purchased one of the Fund's holdings,
PeopleSoft, after a lengthy and much publicized takeover battle. During the
17-month negotiation process for PeopleSoft, its board of directors received a
lot of bad press for not having the shareholders' best interests in mind. Our
firm's due diligence refuted this and we backed the board. In the end, the
board's moves did put its customer and shareholder interests first when trying
to negotiate with a very adversarial suitor. We received the cash proceeds from
the PeopleSoft transaction two days before the end of the year.
We also added six new names to the portfolio during the final three months of
the year while deleting one (PeopleSoft). New ideas include an investment in the
cable industry with UnitedGlobalCom and Liberty Media International. Both stocks
focus on serving foreign markets. The Fund also purchased IAC/InterActive, one
of the five big Internet companies, as its stock price reached a two-year low.
FMC Technologies was added as we believe offshore deep-water oil drilling will
increase over the next several years. The Fund also purchased Aspect
Communications and AnswerThink Consulting.
WANGER SELECT IS A NON-DIVERSIFIED FUND. THE PERFORMANCE OF EACH OF ITS HOLDINGS
WILL HAVE A GREATER IMPACT ON THE FUND'S TOTAL RETURN, AND MAY MAKE THE FUND'S
RETURNS MORE VOLATILE THAN A MORE DIVERSIFIED FUND. MID-CAP STOCKS TEND TO BE
MORE VOLATILE AND MAY BE LESS LIQUID THAN THE STOCKS OF LARGER COMPANIES.
As of 12/31/04, the Fund's positions in the holdings mentioned were: McAfee,
7.4%; ITT Educational Services, 5.4%; Abercrombie & Fitch, 3.6%; Skillsoft,
4.0%; Netg, 0.0%; Synopsys, 1.5%; Interpublic Group, 0.0%; Oracle, 0.0%;
PeopleSoft, 0.0%; UnitedGlobalCom, 0.9%; Liberty Media International, 0.9%;
IAC/InterActive, 1.6%; FMC Technologies, 0.9%; Aspect Communications, 0.1%;
AnswerThink Consulting, 0.2%.
* Wanger Twenty was renamed Wanger Select on May, 1, 2004.
4
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT IN
WANGER SELECT*
TOTAL RETURN FOR EACH PERIOD,
FEBRUARY 1, 1999 (INCEPTION DATE) THROUGH DECEMBER 31, 2004
[LINE CHART APPEARS HERE]
WANGER S&P
SELECT MIDCAP 400
2/01/1999 9750 9476.42
3/31/1999 10530 9741.15
4/30/1999 12150 10509.5
5/31/1999 12220 10555.1
6/30/1999 12530 11120.2
7/31/1999 12510 10883.9
8/31/1999 11420 10510.9
9/30/1999 11410 10186.3
10/31/1999 12250 10705.4
11/30/1999 12510 11267.2
12/31/1999 13430 11936.9
1/31/2000 13090 11600.7
2/29/2000 13100 12412.6
3/31/2000 13696.7 13451.5
4/30/2000 13049.5 12981.8
5/31/2000 12694.5 12819.8
6/30/2000 13822 13008.1
7/31/2000 13404.4 13213.6
8/31/2000 14782.4 14688.9
9/30/2000 15064.3 14588.3
10/31/2000 15126.9 14093.6
11/30/2000 13748.9 13029.8
12/31/2000 14698.9 14026.6
1/31/2001 15231.3 14339
2/28/2001 14312.6 13520.7
3/31/2001 13790.7 12515.5
4/30/2001 14761.5 13896.1
5/31/2001 15555 14219.7
6/30/2001 15220.9 14162.3
7/31/2001 15053.9 13951.4
8/31/2001 14427.5 13495
9/30/2001 13592.3 11816.4
10/31/2001 13895.1 12339.1
11/30/2001 15387.9 13257
12/31/2001 16035.2 13941.9
1/31/2002 15763.8 13869.5
2/28/2002 15398.4 13886.5
3/31/2002 15920.3 14879.2
4/30/2002 15043.4 14809.6
5/31/2002 15481.9 14559.9
6/30/2002 15210.5 13494.2
7/31/2002 14302.2 12187.1
8/31/2002 14698.9 12248.4
9/30/2002 13978.6 11261.6
10/31/2002 14813.8 11749.6
11/30/2002 15450.6 12429.3
12/31/2002 14813.8 11918.6
1/31/2003 14709.4 11570.2
2/28/2003 14751.1 11294.7
3/31/2003 15022.5 11389.9
4/30/2003 15889 12216.9
5/31/2003 16786.8 13229.3
6/30/2003 17277.5 13398
7/31/2003 17997.8 13873.3
8/31/2003 18718.2 14502.6
9/30/2003 18311 14280.6
10/31/2003 19083.5 15360.4
11/30/2003 18979.1 15895.6
12/31/2003 19365.4 16163.8
1/31/2004 19908.3 16514.1
2/29/2004 20472 16910.6
3/31/2004 20481.1 16982.4
4/30/2004 19906.4 16425
5/31/2004 20219.9 16765.7
6/30/2004 20961.8 17147.3
7/31/2004 20000.5 16347.2
8/31/2004 19749.7 16304.4
9/30/2004 20167.6 16787.2
10/31/2004 21035 17055.8
11/30/2004 22362 18071.5
12/31/2004 23,104 18,828.2
AVERAGE ANNUAL RETURN
------------------------------
1 Year 5 years Life of fund
19.31% 11.46% 15.21%
This graph compares the results of $10,000 invested in Wanger Select on February
1, 1999 (the date the Fund began operations) through December 31, 2004, to the
S&P MidCap 400 Index, with dividends and capital gains reinvested. DUE TO
ONGOING MARKET VOLATILITY, PERFORMANCE IS SUBJECT TO SUBSTANTIAL SHORT-TERM
FLUCTUATIONS. Part of the performance shown is due to the Fund's purchase of
securities in IPOs. The impact of IPO purchases declines as a Fund grows large.
Wanger Select is a non-diversified fund that invests primarily in the stocks of
medium- to larger-size U.S. companies. Each stock may represent a significant
part of its overall portfolio. The performance of each of these larger holdings
will have a greater impact on Wanger Select's total return and may make the
fund's returns more volatile than a more diversified fund. Mid-cap stocks are
more volatile and may be less liquid than large-cap stocks. Performance results
reflect any voluntary waivers or reimbursements of Fund expenses by the Advisor
or its affiliates. Absent these waivers or reimbursement arrangements,
performance results would have been lower.
PERFORMANCE SHOWN HERE IS PAST PERFORMANCE, WHICH CANNOT GUARANTEE FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE
CHANGES OVER TIME. CURRENT RETURNS FOR THE FUND MAY BE DIFFERENT THAN THAT
SHOWN. FOR MONTHLY PERFORMANCE UPDATES, PLEASE CONTACT US AT 1-888-4-WANGER.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
- --------------------------------------------------------------------------------
RESULTS TO DECEMBER 31, 2004
4TH QUARTER 1 YEAR
WANGER SELECT 14.56% 19.31%
S&P MidCap 400 12.16 16.48
S&P 500 9.23 10.88
Lipper Mid-Cap Growth Index 13.78 14.03
NAV AS OF 12/31/04: $22.11
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
The S&P MidCap 400 is a market value-weighted index of 400 U.S. stocks that are
in the next tier down from the S&P 500. The S&P 500 is a broad market-weighted
average of blue-chip U.S. companies. The Lipper Mid-Cap Growth Index measures
the performance of the 30 largest mid-cap growth funds tracked by Lipper. All
indexes are unmanaged and include reinvested dividends. It is not possible to
invest directly in an index.
Portfolio holdings will vary in the future.
* Wanger Twenty was renamed Wanger Select on May 1, 2004.
- --------------------------------------------------------------------------------
TOP 5 INDUSTRIES
As a % of net assets, as of 12/31/04
Information 32.7%
Consumer Goods/Services 30.6
Finance 14.5
Health Care 8.7
Industrial Goods/Services 2.7
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 12/31/04
1. McAfee 7.4%
SECURITY SOFTWARE & SERVICES
2. ITT Educational Services 5.4%
TECHNOLOGY ORIENTED POST SECONDARY DEGREE PROGRAMS
3. TCF Financial 5.0%
GREAT LAKES BANK
4. Harley-Davidson 4.9%
MOTORCYCLES & RELATED MERCHANDISE
5. First Health 4.5%
PPO NETWORK
6. Lincare Holdings 4.1%
HOME HEALTH CARE SERVICES
7. Safeway 4.0%
RETAIL FOOD & DRUG STORES
8. Skillsoft 4.0%
PROVIDER OF WEB-BASED LEARNING SOLUTIONS
9. Tellabs 3.8%
TELECOMMUNICATIONS EQUIPMENT
10. Abercrombie & Fitch 3.6%
TEEN APPAREL RETAILER
5
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER SELECT STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- -------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
COMMON STOCKS - 90.1%
INFORMATION - 32.7%
- -------------------------------------------------------------------------
BUSINESS/CONSUMER SOFTWARE - 9.8%
210,000 McAfee (b) $ 6,075,300
SECURITY SOFTWARE & SERVICES
64,700 Synopsys (b) 1,269,414
SOFTWARE FOR DESIGNING SEMICONDUCTOR CHIPS
101,300 Novell (b) 683,775
DIRECTORY, OPERATING SYSTEM & IDENTITY
MANAGEMENT SOFTWARE
4,800 Aspect Communications (b) 53,472
CALL CENTER SOFTWARE
- -------------------------------------------------------------------------
8,081,961
- -------------------------------------------------------------------------
BUSINESS INFORMATION/ADVERTISING - 6.1%
31,000 Moody's 2,692,350
RATINGS SERVICE FOR CREDIT OBLIGATIONS
63,000 Fair Isaac 2,310,840
CREDIT SCORING & DECISION ANALYTIC SOFTWARE
- -------------------------------------------------------------------------
5,003,190
- -------------------------------------------------------------------------
INTERNET - 5.6%
588,100 Skillsoft (b) 3,322,765
PROVIDER OF WEB-BASED LEARNING SOLUTIONS
(E-LEARNING)
47,000 IAC/InterActive 1,298,140
DOMINATE INTERNET MIDDLEMAN
- -------------------------------------------------------------------------
4,620,905
- -------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 3.8%
364,000 Tellabs (b) 3,126,760
TELECOMMUNICATIONS EQUIPMENT
- -------------------------------------------------------------------------
MOBILE COMMUNICATIONS - 3.0%
135,000 American Tower (b) 2,484,000
COMMUNICATION TOWERS IN USA & MEXICO
- -------------------------------------------------------------------------
INSTRUMENTATION - 2.6%
65,000 Tektronix 1,963,650
ANALYTICAL INSTRUMENTS
- -------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
TELEVISION PROGRAMMING/CATV - 1.8%
16,000 Liberty Media International (b) $ 739,680
CATV HOLDING COMPANY
75,000 UnitedGlobalCom (b) 724,500
VIDEO, VOICE & DATA SERVICES OUTSIDE THE USA
- -------------------------------------------------------------------------
1,464,180
- -------------------------------------------------------------------------
COMPUTER SERVICES - 0.2%
41,900 AnswerThink Consulting (b) 195,254
IT INTEGRATOR FOR FORTUNE 2000
- -------------------------------------------------------------------------
INFORMATION - TOTAL 26,939,900
CONSUMER GOODS/SERVICES - 30.6%
- -------------------------------------------------------------------------
RETAIL - 10.3%
169,000 Safeway (b) 3,336,060
RETAIL FOOD & DRUG STORES
64,000 Abercrombie & Fitch 3,004,800
TEEN APPAREL RETAILER
45,000 Costco 2,178,450
WAREHOUSE SUPERSTORES
- -------------------------------------------------------------------------
8,519,310
- -------------------------------------------------------------------------
CONSUMER SERVICES - 7.7%
93,000 ITT Educational Services (b) 4,422,150
TECHNOLOGY ORIENTED POST SECONDARY
DEGREE PROGRAMS
47,600 Weight Watchers (b) 1,954,932
WEIGHT LOSS PROGRAM
- -------------------------------------------------------------------------
6,377,082
- -------------------------------------------------------------------------
LEISURE VEHICLES - 4.9%
67,000 Harley-Davidson 4,070,250
MOTORCYCLES & RELATED MERCHANDISE
- -------------------------------------------------------------------------
APPAREL - 3.2%
46,000 Coach (b) 2,594,400
DESIGNER & RETAILER OF BRANDED
LEATHER ACCESSORIES
- -------------------------------------------------------------------------
FURNITURE/TEXTILES - 2.6%
78,000 Herman Miller 2,155,140
OFFICE FURNITURE
See accompanying notes to financial statements.
6
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER SELECT STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- -------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- -------------------------------------------------------------------------
ENTERTAINMENT - 1.9%
29,000 International Speedway Motors $ 1,531,200
LARGEST MOTORSPORT RACETRACK OWNER & OPERATOR
- -------------------------------------------------------------------------
CONSUMER GOODS/SERVICES - TOTAL 25,247,382
FINANCE - 14.5%
- -------------------------------------------------------------------------
BANKS - 7.3%
128,000 TCF Financial 4,113,920
GREAT LAKES BANK
57,000 Associated Banc-Corp 1,892,970
MIDWEST BANK
- -------------------------------------------------------------------------
6,006,890
- -------------------------------------------------------------------------
MONEY MANAGEMENT - 4.1%
48,100 SEI Investments 2,016,833
MUTUAL FUND ADMINISTRATION & INVESTMENT
MANAGEMENT
82,000 Janus Capital 1,378,420
MANAGES MUTUAL FUNDS
- -------------------------------------------------------------------------
3,395,253
- -------------------------------------------------------------------------
INSURANCE - 3.1%
7,100 Markel (b) 2,584,400
SPECIALTY INSURANCE
- -------------------------------------------------------------------------
FINANCE - TOTAL 11,986,543
HEALTH CARE - 8.7%
- -------------------------------------------------------------------------
SERVICES - 8.7%
199,000 First Health Group (b) 3,723,290
PPO NETWORK
80,000 Lincare Holdings (b) 3,412,000
HOME HEALTH CARE SERVICES
- -------------------------------------------------------------------------
HEALTH CARE - TOTAL 7,135,290
INDUSTRIAL GOODS/SERVICES - 2.7%
- -------------------------------------------------------------------------
LOGISTICS - 2.7%
40,000 Expeditors International of Washington 2,235,200
INTERNATIONAL FREIGHT FORWARDER
- -------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES - TOTAL 2,235,200
- -------------------------------------------------------------------------
NUMBER OF SHARES VALUE
OR PRINCIPAL AMOUNT
- -------------------------------------------------------------------------
ENERGY & MINERALS - 0.9%
OIL SERVICES - 0.9%
24,000 FMC Technologies (b) $ 772,800
OIL & GAS WELL HEAD MANUFACTURER
- -------------------------------------------------------------------------
ENERGY & MINERALS - TOTAL 772,800
TOTAL COMMON STOCKS (COST: $56,631,470) - 90.1% 74,317,115
- -------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 10.2%
- -------------------------------------------------------------------------
$ 8,407,000 Repurchase Agreement with
State Street Bank & Trust Co., dated
12/31/04, due 1/03/05 at 1.90%
collateralized by a Federal Home
Loan Bank Note, maturing 4/02/18,
market value $8,577,713
(repurchase proceeds: $8,408,331)
- -------------------------------------------------------------------------
(AMORTIZED COST: $8,407,000) 8,407,000
Total Investments (Cost: $65,038,470) - 100.3% (a) 82,724,115
- -------------------------------------------------------------------------
Cash and Other Assets Less Liabilities - (0.3%) (259,106)
- -------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $82,465,009
- -------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
(a) At December 31, 2004, cost for federal income tax purposes is $65,143,798.
The net unrealized appreciation was $17,580,317 consisting of gross
unrealized appreciation of $19,288,651 and gross unrealized depreciation
of $1,708,334.
(b) Non-income producing security.
At December 31, 2004, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
------------------------------------------------------------
Information 32.7%
Consumer Goods/Services 30.6
Finance 14.5
Health Care 8.7
Industrial Goods/Services 2.7
Energy & Minerals 0.9
Short-Term Obligations 10.2
Cash and Other Assets Less Liabilities (0.3)
-----
100.0%
-----
See accompanying notes to financial statements.
7
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
- -------------------------------------------------------------------------
ASSETS
Investments, at cost $65,038,470
- -------------------------------------------------------------------------
Investments, at value $74,317,115
Repurchase agreements 8,407,000
Cash 801
Receivable for:
Fund shares sold 83,396
Dividends and interest 10,909
- -------------------------------------------------------------------------
Total Assets 82,819,221
LIABILITIES
Payable for:
Investments purchased 13,464
Fund shares repurchased 302,857
Transfer agent fees 35
Trustees' fees 393
Custody fees 391
Reports to shareholders 13,432
Other liabilities 23,640
- -------------------------------------------------------------------------
Total Liabilities 354,212
- -------------------------------------------------------------------------
Net Assets $82,465,009
=========================================================================
COMPOSITION OF NET ASSETS
Paid in capital $59,111,308
Accumulated net realized gain 5,668,056
Net unrealized appreciation on investments 17,685,645
- -------------------------------------------------------------------------
Net Assets $82,465,009
=========================================================================
Fund shares outstanding 3,729,713
- -------------------------------------------------------------------------
Net asset value, offering price and
redemption price per share $ 22.11
=========================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
- -------------------------------------------------------------------------
INVESTMENT INCOME:
Dividend income $300,393
Interest income 81,601
- -------------------------------------------------------------------------
Total Investment Income 381,994
EXPENSES:
Investment advisory fees 598,432
Transfer agent fees 1,875
Trustees' fees 10,118
Custody fees 4,930
Reports to shareholders 38,114
Compliance fees 928
Non-recurring costs (See Note 8) 3,354
Other expenses 39,357
- -------------------------------------------------------------------------
Total Expenses 697,108
Less custody fees paid indirectly (89)
Non-recurring costs reimbursed (See Note 8) (3,354)
- -------------------------------------------------------------------------
Net Expenses 693,665
- -------------------------------------------------------------------------
Net Investment Loss (311,671)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain on investments 5,987,773
Net change in unrealized appreciation
(depreciation) on investments 6,113,815
- -------------------------------------------------------------------------
Net Gain 12,101,588
- -------------------------------------------------------------------------
Net Increase in Net Assets from Operations $11,789,917
=========================================================================
See accompanying notes to financial statements.
8
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
DECEMBER 31,2004 DECEMBER 31, 2003
INCREASE (DECREASE) IN NET ASSETS
- --------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss $ (311,671) $ (244,604)
Net realized gain on investments 5,987,773 562,443
Net change in unrealized appreciation (depreciation)
on investments 6,113,815 9,417,172
- --------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 11,789,917 9,735,011
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (56,308) --
- --------------------------------------------------------------------------------------
Total distributions to shareholders (56,308) --
SHARE TRANSACTIONS:
Subscriptions 29,505,736 20,698,376
Distributions reinvested 56,308 --
Redemptions (10,942,589) (4,445,362)
- --------------------------------------------------------------------------------------
Net Increase from Share Transactions 18,619,455 16,253,014
- --------------------------------------------------------------------------------------
Total Increase in Net Assets 30,353,064 25,988,025
NET ASSETS:
Beginning of period 52,111,945 26,123,920
- --------------------------------------------------------------------------------------
End of period $ 82,465,009 $ 52,111,945
- --------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ -- $ --
======================================================================================
See accompanying notes to financial statements.
9
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Year Ended December 31,
Selected data for a share outstanding throughout each period 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.55 $ 14.19 $ 15.36 $ 14.08 $ 13.43
- -------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) (0.10) (0.11) (0.09) (0.05) (0.03)
Net realized and unrealized gain (loss) on investments 3.68 4.47 (1.08) 1.33 1.23
- -------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.58 4.36 (1.17) 1.28 1.20
- -------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net realized capital gains (0.02) -- -- -- (0.55)
- -------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.02) -- -- -- (0.55)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 22.11 $ 18.55 $ 14.19 $ 15.36 $ 14.08
================================================================================================================================
Total Return (b) 19.31% 30.73% (7.62)% 9.09% 9.45%(c)
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.10%(d) 1.15%(d) 1.18%(d) 1.33%(d) 1.39%(e)
Net investment loss (0.49)%(d) (0.65)%(d) (0.62)%(d) (0.34)%(d) (0.24)%(e)
Reimbursement -- -- -- -- 0.21%
Portfolio turnover rate 36% 21% 45% 76% 86%
Net assets, end of period (000's) $ 82,465 $52,112 $26,124 $21,429 $12,129
- --------------------------------------------------------------------------------
(a) Net investment loss per share was based upon the average shares
outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Advisor not reimbursed a portion of its expenses, total return
would have been reduced.
(d) The benefits derived from custody fees paid indirectly had no impact.
(e) In accordance with a requirement of the Securities and Exchange
Commission, this ratio reflects total expenses prior to the reduction of
custody fees for cash balances it maintains with the custodian ("custody
fees paid indirectly"). The ratios of expenses to average daily net assets
and net investment income to average daily net assets net of custody fees
paid indirectly would have been 1.35% and (0.20%), respectively, for the
year ended December 31, 2000.
See accompanying notes to financial statements.
10
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Wanger Select (known prior to May 1, 2004 as Wanger Twenty)(the "Fund"), is a
series of Wanger Advisors Trust (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust. The investment objective of
the Fund is to seek long-term growth of capital. The Fund is available only for
allocation to certain life insurance company separate accounts established for
the purpose of funding qualified and non-qualified variable annuity contracts,
and may also be offered directly to certain types of pension plans and
retirement arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
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 a fair
value determined in accordance with procedures established by the Board of
Trustees. Securities traded on securities exchanges or in over-the-counter
markets in which transaction prices are reported are valued at the last sales
price at the time of valuation. If a security is traded principally on the
Nasdaq Stock Market Inc., the Nasdaq Official Closing Price will be applied.
Securities for which there are no reported sales on the valuation date are
valued at the latest bid quotation. Short-term debt obligations having a
maturity of 60 days or less from the valuation date are valued on an amortized
cost basis. Securities for which quotations are not readily available and any
other assets are valued as determined in good faith by the Board of Trustees.
The Trust has retained an independent statistical fair value pricing service to
assist in the fair valuation process for securities principally traded in a
foreign market in order to adjust for possible changes in value that may occur
between the close of the foreign exchange and the time at which fund shares are
priced. If a security is valued at a "fair value", that value may be different
from the last quoted market price for the security.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. The Fund, through its
custodians, receives delivery of underlying securities collateralizing each
repurchase agreement. The Fund's investment advisor determines that the value of
the underlying securities is at all times at least equal to the repurchase price
including interest. In the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
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 an
accrual basis and includes amortization of discounts on short-term debt
obligations and on long-term debt obligations when required for federal income
tax purposes. Short-term debt obligations having a maturity of 60 days or less
from the valuation date are valued on an amortized cost basis, which
approximates fair value. Realized gains and losses from security transactions
are reported on an identified cost basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimated.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange ("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.
CUSTODY FEES/CREDITS
Custody fees are reduced based on the Fund's cash balances maintained with the
custodian. The Fund could have invested a portion of the assets utilized in
connection with the expense offset arrangement in an income-producing asset if
it had not entered into such agreement. The amount is disclosed as a reduction
of total expenses in the Statement of Operations.
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 all their 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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
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.
For the year ended December 31, 2004, permanent differences resulting
primarily from differing treatments for net operating losses were identified and
reclassified among the components of the Fund's net assets as follows:
ACCUMULATED ACCUMULATED PAID IN
NET INVESTMENT LOSS NET REALIZED GAIN CAPITAL
------------------- -------------------- --------
$311,671 $(311,669) $(2)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December
31, 2004 and December 31, 2003 was as follows:
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
Distributions paid from:
Ordinary Income $ -- $ --
Long-Term Capital Gain 56,308 --
11
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- -------------- --------------
$550,044 $5,223,340 $17,580,317
* The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from
wash sales.
Unrealized appreciation and depreciation at December 31, 2004, based on
cost of investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------- ------------- ------------
$19,288,651 $(1,708,334) $17,580,317
4. TRANSACTIONS WITH AFFILIATES
Columbia Wanger Asset Management, L.P., ("Columbia WAM") an indirect
wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a
wholly owned subsidiary of Bank of America Corporation ("BOA"), furnishes
continuing investment supervision to each Fund and is responsible for the
overall management of each Fund's business affairs. Prior to April 1, 2004,
Columbia was a wholly-owned subsidiary of Fleet National Bank, which in turn was
a wholly-owned subsidiary of FleetBoston Financial Corporation ("Fleet"). On
April 1, 2004, Fleet was acquired by BOA.
Under the Fund's investment management agreement, fees are accrued daily
and paid monthly to Columbia WAM at the annual rate of 0.95% of average daily
net assets.
The investment advisory agreement also provides that Columbia WAM will
reimburse the Fund to the extent that ordinary operating expenses (computed
based on net custodian fees) exceed an annual percentage of 1.35% of average
daily net assets. There was no reimbursement for the year ended December 31,
2004.
In accordance with the terms of the NYAG Settlement (as defined and
discussed further under Note 8 to these financial statements - "Legal
Proceedings"), Columbia WAM waived a portion of the fees payable under the
Fund's investment management agreement so that those fees are retained at 0.850%
on average daily net assets. The fee waiver was effective as of February 10,
2005 but applied as if it had gone into effect on December 1, 2004. The
financial statements, as of December 31, 2004, are not reflective of these
changes.
Certain officers and trustees of the Trust are also officers of Columbia
WAM. The Trust makes no direct payments to its officers and trustees who are
affiliated with Columbia WAM. The Fund paid $10,118 to trustees not affiliated
with Columbia WAM for the year ended December 31, 2004. Effective April 2004,
the Board of Trustees appointed a Chief Compliance Officer to the Fund in
accordance with federal securities regulations. The Fund will pay its pro-rata
share of the expenses associated with the Office of the Chief Compliance
Officer. These expenses are disclosed separately on the Statement of Operations.
Columbia Funds Distributor, Inc. ("CFDI"), an indirect wholly-owned
subsidiary of BOA, serves as the principal underwriter of the Trust and receives
no compensation for its services.
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect
wholly-owned subsidiary of BOA, provides shareholder services to the Fund. For
such services, the Transfer Agent receives a fee, paid monthly, at the annual
rate of $28.00 per open account. The Transfer Agent also receives reimbursement
for certain out-of-pocket expenses. Effective February 1, 2004 the Transfer
Agent made the decision to waive the reimbursement for certain out-of-pocket
expenses. Prior to February 1, 2004, the Transfer Agent was entitled to receive
a flat rate charge based on the number of shareholder accounts and transactions.
During the year ended December 31, 2004, the Fund engaged in purchase and
sales transactions with funds that have a common investment advisor (or
affiliated investment advisors), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions complied with the provisions of
Rule 17a-7 under the Investment Company Act of 1940 and were $64,400 and $0,
respectively.
5. BORROWING ARRANGEMENTS
The Trust participates in a $150,000,000 credit facility, which was entered into
to facilitate portfolio liquidity. Interest is charged to each participating
fund based on its borrowings at rate per annum equal to the Federal Funds rate
plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and
apportioned among the participating funds based on their pro-rata portion of the
unutilized line of credit. The commitment fee is included in "Other expenses" on
the Statement of Operations. No amounts were borrowed under this facility for
the year ended December 31, 2004.
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:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- ----------------------------------------------------------------------
Shares sold 1,465,607 1,249,090
- ----------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 2,911 --
- ----------------------------------------------------------------------
Less shares redeemed 547,475 281,941
- ----------------------------------------------------------------------
Net increase in shares outstanding 921,043 967,149
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended December 31, 2004 were $34,726,401 and
$20,726,726.
8. LEGAL PROCEEDINGS
On March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"),
the advisor to the Columbia Funds, and CFDI (collectively with Columbia
Management, "Columbia") the distributor of the shares of the Columbia Funds, the
Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the
Columbia Family of Funds"), entered into agreements in principle with the staff
of the U.S. Securities and Exchange Commission ("SEC") and the Office of the New
York Attorney General ("NYAG") to resolve the proceedings brought in connection
with the SEC's and NYAG's investigations of frequent trading and market timing
in certain Columbia mutual funds. Columbia WAM, the advisor to the Columbia
Acorn Funds and the Wanger Advisors Trust Funds, was not a respondent in either
proceeding nor were any of its officers or directors.
On February 9, 2005, Columbia entered into an Assurance of Discontinuance
(the "NYAG Settlement") with the NYAG and consented to the entry of a
cease-and-desist order by the SEC (the "SEC Order" and together, the
"Settlements"). The Settlements contain substantially the same terms and
conditions as outlined in the agreements in principle. Although none of the
Wanger Advisors Trust Funds is a party to the Settlement orders, under the terms
of the Settlements and in order for Columbia Management to continue to provide
administrative services to the Wanger Advisors Funds, the Board of Trustees of
the Wanger Advisors Trust Funds agreed to conform to certain governance
requirements, including the election of an independent board chair.
Under the terms of the SEC Order, Columbia has agreed, among other things,
to: pay $70 million in disgorgement and $70 million in civil money penalties;
cease and desist from violations of the antifraud provisions and certain other
provisions of the federal securities laws; maintain certain compliance and
ethics oversight structures; retain an independent consultant to review
Columbia's applicable supervisory, compliance, control and other
12
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
policies and procedures; and retain an independent distribution consultant (see
below). The NYAG Settlement also, among other things, requires Columbia and its
affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC
to reduce management fees paid by the Columbia Family of Funds, Nations Funds
and other related mutual funds collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions based
on net assets as of March 15, 2004. Pursuant to the procedures set forth in the
SEC Order, the settlement amounts will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the independent trustees of the funds. The
distribution plan must be based on a methodology developed in consultation with
Columbia and the independent trustees of the funds and not unacceptable to the
staff of the SEC. More specific information on the distribution plan will be
communicated by Columbia WAM and/or its affiliates at a later date.
Columbia WAM, the Columbia Acorn Trust, another mutual fund family advised
by Columbia WAM, and the trustees of Columbia Acorn Trust are defendants in
several derivative and class action lawsuits that allege, in summary, defendants
permitted investors to engage in improper trading of shares of various funds in
violation of certain federal and state laws. All of these lawsuits have been
consolidated with similar suits in a Multi-District Litigation proceeding in
Baltimore, Maryland and consolidated class action and derivative complaints have
been filed.
The Columbia Acorn Trust and Columbia WAM are also defendants in a class
action lawsuit that alleges, in summary, that the Columbia Acorn Trust and
Columbia WAM exposed shareholders of Columbia Acorn International Fund to
trading by market timers by allegedly (a) failing to properly evaluate daily
whether a significant event affecting the value of that Fund's securities had
occurred after foreign markets had closed but before the calculation of the
Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV.
Columbia WAM and the trustees of Columbia Acorn Trust are also defendants
in a lawsuit alleging that Columbia WAM used Fund assets to make undisclosed
payments to brokers as an incentive for the brokers to market the Columbia Acorn
Funds over other mutual funds to investors. The complaint alleges Columbia WAM
and the trustees of Columbia Acorn Trust breached certain common laws duties and
federal laws.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Acorn Trust and Columbia WAM. The lawsuit alleges that defendants
violated common law duties to fund shareholders as well as sections of the
Investment Company Act of 1940, by failing to ensure that the Columbia Acorn
Trust funds and other affiliated funds participated in securities class action
settlements for which the funds were eligible. Specifically, plaintiffs allege
that defendants failed to submit Proof of Claims in connection with settlements
of securities class action lawsuits filed against companies in which the funds
held positions. The complaint seeks compensatory and punitive damages, and the
disgorgement of all fees paid to the Columbia WAM and affiliated advisers.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously. The Columbia Acorn Trust does not believe that the pending actions
will have a material adverse effect on the financial statements of any Columbia
Acorn Fund, and Columbia WAM does not believe that the pending actions will have
a material adverse effect on its ability to perform under its contracts with the
Funds.
As a result of these matters or any adverse publicity or other
developments resulting from them, there may be increased redemptions or reduced
sales of Fund shares, which could increase transaction costs or operating
expenses, or have other adverse consequences for the Funds.
In connection with the events described in detail above, various parties
have filed suit again certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot be currently made.
For the year ended December 31, 2004, CMG has assumed $3,354 in consulting
services and legal fees incurred by the Fund in connection with these matters.
13
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Effective April 13, 2004, the audit committee of the Trust requested that Ernst
& Young LLP ("E&Y") resign as the auditors of the Fund. Also effective July 14,
2004, upon the recommendation of the audit committee, the Trust selected
PricewaterhouseCoopers LLP ("PWC") as independent registered public accounting
firm to audit the books and records of the Fund for its fiscal year ending
December 31, 2004. The cessation of the relationship with E&Y was based on the
impairment of E&Y's independence resulting from the consummation of the merger
of FleetBoston Financial Corporation and Bank of America Corporation and
accordingly, E&Y's ability to provide audit services to the Fund.
E&Y's report on the financial statements of the Fund for the past two years
did not contain an adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the period E&Y was engaged, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to E&Y's satisfaction, would
have caused it to make reference to that matter in connection with its report.
14
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Wanger Select Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Wanger Select Fund (a series of the
Wanger Advisors Trust, hereinafter referred to as the "Fund") at December 31,
2004, the results of its operations, the changes in its net assets and the
financial highlights for the year then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets for the year ended December
31, 2003 and the financial highlights of the Fund for the periods ended December
31, 2003 and prior were audited by other independent auditors whose report dated
February 6, 2004 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 14, 2005
15
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
For the fiscal year ended December 31, 2004, the Wanger Select Fund designates
long-term capital gains of $5,231,386.
16
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
The Board of Trustees of the Trust has overall management responsibility for the
Trust and the Funds. Each trustee serves a term of unlimited duration, provided
that a majority of trustees always has been elected by shareholders. The
trustees appoint their own successors, provided that at least two-thirds of the
trustees, after such appointment, have been elected by shareholders.
Shareholders may remove a trustee, with or without cause, upon the vote of
two-thirds of the Trust's outstanding shares at any meeting called for that
purpose. A trustee may be removed, with or without cause, upon the vote of a
majority of the trustees.
The names of the trustees and officers of the Trust, the date each was first
elected or appointed to office, their principal business occupations during at
least the last five years, and other directorships they hold are shown below.
Each trustee serves in such capacity for each of the four series of the Trust.
The business address of each trustee and officer of the Trust is Columbia
Wanger Asset Management, L.P., 227 West Monroe, Suite 3000, Chicago, Illinois
60606, except for Messrs. Clark, Connaughton, and Pietropaolo, whose address is
Columbia Management Group, Inc., 245 Summer Street, Boston, Massachusetts,
02210. Wanger's Statement of Additional Information includes additional
information about Columbia Wanger's trustees and officers. You may obtain a free
copy of the Statement of Additional Information on our website, www. wanger.com,
or by writing or calling toll-free:
Columbia Wanger Asset Management, L.P.
Shareholder Services Group
227 W. Monroe, Suite 3000
Chicago, IL 60606
888-4-Wanger (888-492-6437)
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------- --------- ----------------------------------------------------------- -------------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST:
JEROME L. DUFFY, 68, 2003 Retired since December 31, 1997; prior thereto, senior vice None.
Trustee president, Kemper Financial Services and treasurer, Kemper
Funds.
FRED D. HASSELBRING, 63, 1994 Retail industry, general project development and business None.
Trustee computer systems consultant; voice over specialist for
industrial and institutional applications; former chairman
of the board of the Trust (September 2004 to November 2004);
former lead independent trustee (August 2003 to September
2004).
KATHRYN A. KRUEGER, M.D., 47, 2003 Medical Fellow I, Cardiovascular Therapeutic Area, Lilly None.
Trustee Research Laboratories (May 2004 to present); Medical
Advisor, Cardiovascular Therapeutic Area, Lilly Research
Laboratories (January 2003 to April 2004); Medical Director,
Cardiovascular Therapeutic Area, Lilly Research Laboratories
(October 2002 to December 2002); Medical Director, Neptune
Product Team, Lilly Research Laboratories (October 2001 to
October 2002); Acting Director and Senior Clinical Research
Physician, Lilly Research Laboratories (April 2001 to
September 2001); Senior Clinical Research Physician, Lilly
Research Laboratories (January 2000 to March 2001); Clinical
Research Physician, Lilly Research Laboratories (June 1996
to December 1999).
PATRICIA H. WERHANE, 69, 1998 Ruffin Professor of Business Ethics, Darden Graduate School None.
Chair of the Board and Trustee of Business Administration, University of Virginia, since
1993; Senior Fellow since 2004 and Co-Director of the Olsson
Center for Applied Ethics, Darden Graduate School of
Business Administration, University of Virginia, from
2001-2004; and Wicklander Chair of Business Ethics and
Director of the Institute for Business and Professional
Ethics, DePaul University (since September 2003).
TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST:
RALPH WANGER, 70, 1994 Founder, former president, chief investment officer and Columbia
Trustee portfolio manager, Columbia Wanger Asset Management, L.P. Acorn
(CWAM) (1992-2003); former president, Columbia Acorn Trust Trust.
from April 1992 through September 2003; former president,
Wanger Advisors Trust (1994 through September 2003);
principal, WAM from July 1992 until September 2000;
president, WAM Ltd. from July 1992 to September 2000;
director, Wanger Investment Company plc.; Director, CWAM.
17
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------- --------- ----------------------------------------------------------- -------------
OFFICERS OF WANGER ADVISORS TRUST:
BEN ANDREWS, 39, 2004 Analyst and portfolio manager, CWAM since 1998; vice None.
Vice President president, Columbia Acorn Trust.
J. KEVIN CONNAUGHTON, 40, 2001 Treasurer of the Columbia Funds and of the Liberty All-Star None.
Assistant Treasurer Funds since December 2000 (formerly controller of the
Columbia Funds and of the Columbia All-Star Funds from
February 1998 to October 2000); treasurer of the Galaxy
Funds since September 2002; treasurer, Columbia Management
Multi-Strategy Hedge Fund, LLC since December 2002 (prior
thereto, vice president of Colonial Management Associates
from February 1998 to October 2000).
MICHAEL G. CLARKE, 34, 2004 Chief accounting officer of the Columbia Funds, Liberty None.
Assistant Treasurer Funds, Stein Roe Funds and All-Star Funds since October
2004; Controller of the Columbia Funds, Liberty Funds, Stein
Roe Funds and All-Star Funds from May 2004 to October 2004;
Assistant Treasurer from June 2002 to May 2004; Vice
President, Product Strategy & Development of the Liberty
Funds and Stein Roe Funds from February 2001 to June 2002;
Assistant Treasurer of the Liberty Funds, Stein Roe Funds
and the All-Star Funds from August 1999 to February 2001.
KENNETH A. KALINA, 45, 1995 Chief Compliance Officer, CWAM since May 2004; treasurer and None.
Assistant Treasurer Chief financial officer, CWAM since April 2000; assistant
treasurer, Columbia Acorn Trust; fund controller, CWAM since
September 1995; director, New Americas Small Cap Fund.
BRUCE H. LAUER, 47, 1995 Chief operating officer, CWAM since April 1995; principal, None.
Vice President, Secretary WAM from January 2000 to September 2000; vice president,
and Treasurer treasurer and secretary, Columbia Acorn Trust; director,
Wanger Investment Company plc and New Americas Small Cap
Fund.
CHARLES P. MCQUAID, 51, 1994 President, CWAM since October 2003; Chief investment Columbia
President officer, CWAM since September 2003; senior vice president of Acorn
the Trust from 1994 through September 2003; portfolio Trust.
manager since 1995 Trust. and director of research since
July 1992 through December 2003; CWAM interim director of
international research from October 2003 until December
2004; principal, WAM from July 1995 to September 2000;
trustee since 1992 and president since 2003, Columbia Acorn
Trust.
ROBERT A. MOHN, 43, 1997 Director of domestic research, CWAM, since March 2004; None.
Vice President analyst and portfolio manager, CWAM since August 1992;
principal, WAM from 1995 to September 2000; vice president,
Columbia Acorn Trust.
TODD M. NARTER, 41, 2001 Analyst and portfolio manager, CWAM since June 1997; vice None.
Vice President president, Columbia Acorn Trust.
CHRISTOPHER J. OLSON, 40, 2001 Analyst and portfolio manager, CWAM since January 2001; vice None.
Vice President president, Columbia Acorn Trust; prior to 2001, director and
portfolio strategy analyst with UBS Asset Management/Brinson
Partners.
VINCENT P. PIETROPAOLO, 39, 2001 Assistant General Counsel, Bank of America (and its None.
Assistant Secretary predecessors) since December 1999.
ROBERT SCALES, 52, 2004 Deputy General Counsel, Grant Thornton LLP (2002-2004); None.
Chief Compliance Officer, Associate General Counsel, UBS PaineWebber (broker-dealer)
Senior Vice President (1997-2002).
and General Counsel
18
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
This page intentionally left blank.
Wanger Select 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] WANGER ADVISORS TRUST
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts
02111-2621
INVESTMENT ADVISER
Columbia Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
www.wanger.com
1-888-4-WANGER
(1-888-492-6437)
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, Illinois
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Chicago, Illinois
This report, including the schedules of investments and financial statements, is
submitted for the general information of the shareholders of the Wanger Advisors
Trust. This report is not authorized for distribution unless preceded or
accompanied by a prospectus.
A description of the fund's proxy voting policies and procedures is available
(i) on the fund's website, www.wanger.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 888-492-6437. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website.
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 Public Reference Room may be obtained by calling 1-800-SEC-0330.
20
WANGER ADVISORS TRUST
SHR-02/468U-0205 05/4315
WANGER INTERNATIONAL SELECT
2004 Annual Report
[LOGO] WANGER ADVISORS FUNDS
- --------------------------------------------------------------------------------
MANAGED BY COLUMBIA WANGER ASSET MANAGEMENT, L.P.
[LOGO] WANGER INTERNATIONAL SELECT
2004 ANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 The Miracle Year
4 Performance Review
6 Statement of Investments
9 Statement of Assets and Liabilities
9 Statement of Operations
10 Statements of Changes in Net Assets
11 Financial Highlights
12 Notes to Financial Statements
16 Report of Independent Registered Public Accounting Firm
17 Board of Trustees and Management of Wanger Advisors Trust
COLUMBIA WANGER ASSET MANAGEMENT, L.P. ("COLUMBIA WAM") IS ONE OF THE LEADING
GLOBAL SMALL-CAP EQUITY MANAGERS IN THE U.S. WITH MORE THAN 30 YEARS OF
SMALL-CAP INVESTMENT EXPERIENCE. COLUMBIA WAM MANAGES MORE THAN $22 BILLION IN
EQUITIES AND IS THE INVESTMENT ADVISER TO WANGER U.S. SMALLER COMPANIES, WANGER
INTERNATIONAL SMALL CAP, WANGER SELECT, WANGER INTERNATIONAL SELECT AND THE
COLUMBIA ACORN FAMILY OF FUNDS.
FOR MORE COMPLETE INFORMATION ABOUT OUR FUNDS, INCLUDING THE COLUMBIA
ACORN FUNDS, OUR FEES, RISKS ASSOCIATED WITH INVESTING, OR EXPENSES, CALL
1-888-4-WANGER FOR A PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST OR SEND
MONEY. THIS REPORT IS NOT AN OFFER OF THE SHARES OF THE COLUMBIA ACORN FUND
FAMILY.
THE DISCUSSION IN THE REPORT OF PORTFOLIO COMPANIES IS FOR ILLUSTRATION
ONLY AND IS NOT A RECOMMENDATION OF INDIVIDUAL STOCKS. THE INFORMATION IS
BELIEVED TO BE ACCURATE, BUT THE INFORMATION AND THE VIEWS OF THE PORTFOLIO
MANAGERS MAY CHANGE AT ANY TIME WITHOUT NOTICE AND THE PORTFOLIO MANAGERS MAY
ALTER A FUND'S PORTFOLIO HOLDINGS BASED ON THESE VIEWS AND THE FUND'S
CIRCUMSTANCES AT THAT TIME.
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
UNDERSTANDING YOUR EXPENSES
As a fund shareholder, you incur two types of costs. There are transaction
costs, which generally include sales charges on purchases and may include
redemption or exchange fees. There are also continuing costs, which generally
include investment advisory, Rule 12b-1 fees, and other fund expenses. The
information on this page is intended to help you understand your ongoing costs
of investing in the fund and to 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 reporting period. The
information in the following table is based on an initial investment of
$1,000.00, which is invested at the beginning of the reporting period 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 actual operating expenses and total return
for the fund. The amount listed in the "hypothetical" column assumes that the
return each year is 5% before expenses and then applies each 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 reporting
period. See the "Compare with other funds" information for details on using the
hypothetical data.
ESTIMATING YOUR ACTUAL EXPENSES
To estimate the expenses that you paid over the period, first you will need your
account balance at the end of the period.
1. Divide your ending account balance by $1,000.00. For example, if an
account balance was $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number
is in the column labeled "actual." Multiply this number by the
result from step 1. Your answer is an estimate of the expenses you
paid on your account during the period.
July 1, 2004 - December 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNT VALUE AT THE ACCOUNT VALUE AT THE EXPENSES PAID DURING FUND'S ANNUALIZED
BEGINNING OF THE PERIOD ($) END OF THE PERIOD ($) THE PERIOD ($) EXPENSE RATIO (%)*
- ------------------------------------------------------------------------------------------------------------------------------------
ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL ACTUAL HYPOTHETICAL
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger International
Select 1,000.00 1,000.00 1,152.08 1,017.85 7.84 7.35 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
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. AS A SHAREHOLDER OF THE
FUND, YOU DO NOT INCUR ANY TRANSACTION COSTS, SUCH AS SALES CHARGES, REDEMPTION
OR EXCHANGE FEES. EXPENSES PAID DURING THE PERIOD DO NOT INCLUDE ANY INSURANCE
CHARGES IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. 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.
* FOR THE SIX MONTHS ENDED 12/31/04.
COMPARE WITH OTHER FUNDS
Since all mutual fund companies 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 5% hypothetical example with the 5% hypothetical examples of other
funds. As you compare hypothetical examples of other funds, it is important to
note that hypothetical examples are meant to highlight the continuing cost of
investing in a fund and do not reflect any transactional costs, such as sales
charges or redemption or exchange fees, that may be incurred by shareholders of
other funds. Expenses paid during the period do not include any insurance
charges imposed by your insurance company's separate accounts.
1
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] THE MIRACLE YEAR
Photo of RALPH WANGER
RALPH WANGER
FOUNDER, ADVISOR AND TRUSTEE
COLUMBIA WANGER ASSET MANAGEMENT, L.P.
1905 was a year of surprises. The first surprise was the victory of the Japanese
over the Russians in the Russo-Japanese War. In May 1905, the untested Japanese
Navy annihilated the Russian fleet at Tsushima. This was the first time a
non-white country had beaten the main force of a European colonial power. The
second unexpected event was in physics. 2005 will be celebrated as the
centennial of Albert Einstein's "Miracle Year."
The journal, ANNALEN DER PHYSIK, volume 17, published three articles in
September 1905 all written by Einstein, an obscure clerk in the Swiss patent
office in Bern. He had an undergraduate degree in physics but no Ph.D (it was
granted a year later). Each of the articles were on a different subject and each
one revolutionized its branch of physics. Einstein's papers created 20th century
physics almost single-handedly.
ATOMS
In 1905 there were different theories about the structure of matter. If you take
a glass of water and pour nine-tenths of it out, you still have a glass with
water in it. What happens if you repeat this process of throwing out 90% of the
water in the glass? After you repeat the process a few more times, you have such
a small amount of water that you can only see it under a microscope, and in a
few more steps the water drop will be too small to be seen even under the
microscope. Can you continue the boring job of splitting water forever or do you
finally get to a point where it isn't water anymore? Of course we know the
answer: Once you get down to a single molecule of water you can't split it and
still say that you have water left. Many leading scientists did not accept the
atomic theory in 1905. Einstein looked at the process called Brownian Motion in
which a grain of pollen or other small object moves around in a random way. (The
same mathematical process makes stock prices jiggle.) He deduced that this
motion was caused by billions of atoms bumping into the pollen grain in an
irregular pattern. He was even able to calculate the size of the atoms involved,
thus proving that atoms really existed.
PHOTONS
In 1905 there was still a basic debate about the nature of light. The greatest
achievement of 19th century physics was Maxwell's set of partial differential
equations governing electromagnetic fields, including light. Maxwell's equations
required that light be a wave. The great Max Planck had introduced the idea of a
quantum of energy in 1900 to get an equation that tracked the spectrum of heat
radiation, but most scientists doubted that a light quantum was "real." Heinrich
Hertz, Philip Lenard and others showed that when a beam of ultraviolet light
shines on a piece of metal you produce an electrical current in the metal. There
was no way to explain the photoelectric effect according to the Maxwell wave
theory of light. The second paper Einstein wrote dealt with the problem of the
photoelectric effect. If you cut the amount of energy in a beam of light by 90%
and keep reducing it, you still have a beam of light. If you keep slicing the
amount of light, does the beam of light keep getting smaller and smaller forever
or do you get down to an "atom" of light that can't be split further? Einstein
proved that there was a tiny amount of light that could not be further divided.
The least amount of light that exists is a single photon (or quantum) of light.
1 The photoelectric effect is explained by photons acting as particles, not as a
wave.
Einstein's discovery of the photon had a number of interesting effects. First,
it led to the development of quantum mechanics and thus to most of 20th century
physics. Second, it won Einstein his only Nobel Prize. Third, it uncovered a
paradox that still puzzles students, the duality of light. If you run an
experiment to show that light is a wave, you can prove it's a wave. If you run
an experiment to show that it's a particle, you can prove it's a particle. This
duality principle contradicts common sense but when you study science you have
to get used to it. The fourth effect was that it made Lenard a life-long enemy
of Einstein. Philip Lenard, who received the Nobel Prize in 1905 for his own
work on cathode rays, was close to the solution but Einstein ended up getting
the credit. Lenard became an unrelenting foe of Einstein, and influenced the
Nobel committee's decision not to give Einstein the prize for his theory of
relativity. Later on, Lenard became an ardent Nazi.
RELATIVITY
In 1905, there was also a debate in scientific circles about speed. If you were
in a really powerful rocket ship in space, and you pushed the throttle forward,
you would speed up. If you kept on increasing the power, would you go ever
faster, or was there an absolute speed limit in the universe that you could not
exceed?
2
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
The third paper became the best known, Einstein's special theory of relativity.
It explained that there was a cosmic speed limit, the speed of light. Very odd
things happen when your rocket ship is moving close to the speed of light. Time
slows down and you get shorter, under the Lorentz contraction equation, giving
rise to the limerick:
A sexy young techie named Fisk, Had a motion exceedingly brisk. So fast was his
action The Lorentz contraction Shortened his rod to a disk.
In a very brief paper published later in 1905, Einstein added in a note that his
theory of relativity implied the equation E=mc 2. That solved the paradox of
radioactivity; Mme Curie's radium was producing much more energy then could be
explained by 19th century physics. Einstein showed that radioactive energy was
caused by turning a small amount of mass into a lot of energy.
So we had this technical journal containing three papers written by a man
unknown in science, a non-Ph.D, a non-academic, writing on a German-dominated
field with all the fussiness about rank and reputation that you would expect.
Would anyone care? Einstein did not receive any communication from any
physicists for the first couple months after he published, but in early 1906 Max
Planck read and understood the papers. He wrote to Einstein and sent his
assistant, another important physicist, Max von Laue, to visit Einstein in Bern.
Planck's subsequent endorsement made Einstein acceptable to the community of
physicists, and his papers became required study for all physicists, as they
remain.
The compelling human question: How the heck did Einstein do it? How could one
human being produce three revolutionary papers in one year, on three different
subjects, while carrying a full-time job at the patent office to boot? We can
admire but not explain. The "Miracle Year" commemorates one of the greatest
feats of the human mind ever.
1 PLANCK AND EINSTEIN HAD DISCOVERED THE QUANTUM JUMP, WHICH WAS THE SMALLEST
THING THAT COULD POSSIBLY EXIST IN THE UNIVERSE. MODERN WRITERS, FOR REASONS
DIFFICULT TO EXPLAIN, NOW USE THE PHRASE QUANTUM JUMP TO MEAN A BIG EVENT. WHEN
NON-SCIENTISTS START THROWING AROUND SCIENTIFIC TERMS WITHOUT UNDERSTANDING
THEM, FUNNY THINGS HAPPEN. DON'T GET ME STARTED ON THE HEISENBERG UNCERTAINTY
PRINCIPLE.
INCIDENTALLY, ALBERT EINSTEIN'S FATHER, HERMANN, WAS BORN IN THE WURTTEMBERG
VILLAGE OF BUCHAU, WHERE HIS FAMILY HAD LIVED FOR GENERATIONS. HERMANN MOVED 20
MILES FROM BUCHAU TO THE CITY OF ULM, WHERE ALBERT WAS BORN. MY GREAT-GREAT
GRANDFATHER, JOSEPH KOHN, WAS ALSO FROM BUCHAU AND HE HAD MANY EINSTEINS IN HIS
FAMILY TREE. I AM VERY PROUD OF THE EINSTEIN CONNECTION.
SOURCES:
"EINSTEIN: A CELEBRATION," SEMINAR AT THE ASPEN INSTITUTE, AUGUST 8-11, 2004.
EINSTEIN, ALBERT, "IDEAS AND OPINIONS," CROWN PUBLISHERS, 1954.
KAKU, MICHIO, "EINSTEIN COSMOS: HOW ALBERT EINSTEIN'S VISION TRANSFORMED OUR
UNDERSTANDING OF SPACE AND TIME," ATLAS BOOKS, 2004.
"DISCOVER" MAGAZINE, "SPECIAL EINSTEIN ISSUE," SEPTEMBER 2004.
A SPECIAL THANKS TO DOUG STONE OF YALE UNIVERSITY FOR EDITING THIS ESSAY.
3
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
[LOGO] PERFORMANCE REVIEW WANGER INTERNATIONAL SELECT*
Photo of TODD M. NARTER
TODD M. NARTER
CO-PORTFOLIO MANAGER
Photo of CHRISTOPHER J. OLSON
CHRISTOPHER J. OLSON
CO-PORTFOLIO MANAGER
International markets surged in 2004. Wanger International Select ended the year
up 24.34%, a solid return but behind the 25.22% return for the Citigroup World
ex-US Cap Range $2-10B Index. The relative underperformance was due in large
part to holding some cash as the markets rallied in the fourth quarter of the
year. We opted to take profits in a number of positions to look for better
values elsewhere. We believe that the Fund is well positioned for future growth.
Letting our winners run was a successful strategy this past year. Anglo Irish
Bank was the Fund's largest contributor to performance. The stock finished the
year up 56% and is the Fund's largest position. Other significant winners for
the Fund included large holdings with great franchises. Neopost, a maker of
franking machines in France and the Fund's second largest position, had another
strong year, up 58%. Tenaris, a maker of steel pipes for the oil and gas
industry, jumped 49%. Lion Nathan, the major beer brewer and distributor in
Australia and New Zealand, rose 55% and Daito Trust Construction, a major
apartment builder and manager in Japan, finished the year up 62%.
Several stocks in the portfolio reduced the Fund's gains. Topping the list of
poor performers in the Fund this year was Sugi Pharmacy, a drugstore chain in
Japan. Shares were down 13% as the company reported higher costs than expected
during its expansion program. Funai Electric, a maker of consumer electronic
products in Japan, was down 13% as the retail environment in the United States
was weaker than expected. Other weak performers included Venture, an electronic
manufacturing services company in Singapore, down 15%, and Compass Group, a
catering services provider in the UK, which fell 29% on an earnings downgrade
driven by a weak dollar and issues with a supplier.
Share prices have risen strongly in the past two years. While stocks are not as
cheap as they once were, we continue to find well-run companies with good
strategies and strong balance sheets that we believe will be good investments.
MID-CAP STOCKS TEND TO BE MORE VOLATILE AND MAY BE LESS LIQUID THAN THE STOCKS
OF LARGER COMPANIES. INVESTMENTS IN FOREIGN SECURITIES HAVE SPECIAL RISKS,
INCLUDING POLITICAL OR ECONOMIC INSTABILITY, HIGHER COSTS, DIFFERENT
REGULATIONS, ACCOUNTING STANDARDS, TRADING PRACTICES AND LEVELS OF INFORMATION,
AND CURRENCY EXCHANGE RATE FLUCTUATIONS.
As of 12/31/04, the Fund's positions in the holdings mentioned were: Anglo Irish
Bank, 6.3%; Neopost, 4.2%; Tenaris, 2.1%; Lion Nathan, 3.8%; Daito Trust
Construction, 3.4%; Sugi Pharmacy, 1.9%; Funai Electric, 2.4%; Venture, 0.9%;
Compass Group, 2.0%.
* Wanger Foreign Forty was renamed Wanger International Select on May 1, 2004.
4
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT IN TOTAL RETURN FOR EACH PERIOD,
WANGER INTERNATIONAL SELECT* FEBRUARY 1, 1999 (INCEPTION DATE)
THROUGH DECEMBER 31, 2004
[LINE CHART APPEARS HERE]
WANGER INTERNATIONAL CITIGROUP WORLD
SELECT EX-US $2-10B
-------------------- ---------------
2/01/1999 10020 9749.77
3/31/1999 10190 10135.2
4/30/1999 10620 10700.9
5/31/1999 10480 10249.1
6/30/1999 11350 10623.5
7/31/1999 11650 11020.5
8/31/1999 11800 11144.4
9/30/1999 11650 11183.3
10/31/1999 12160 11188.5
11/30/1999 14530 11507.9
12/31/1999 18390 12387.9
1/31/2000 17890 11789.1
2/29/2000 21580 11940.8
3/31/2000 20853 12298.7
4/30/2000 20915.8 11806
5/31/2000 19303.7 11615.9
6/30/2000 20193.5 12231.9
7/31/2000 19816.6 11836.4
8/31/2000 20863.4 12208.1
9/30/2000 19827.1 11802.4
10/31/2000 19356 11436.7
11/30/2000 17042.5 11096.1
12/31/2000 18099.8 11637.7
1/31/2001 18884.9 11579.9
2/28/2001 16812.2 11159.3
3/31/2001 14664.2 10288.7
4/30/2001 15748.3 11048.3
5/31/2001 15702.7 10953.9
6/30/2001 15052.2 10668.9
7/31/2001 14333.2 10401.2
8/31/2001 14082.2 10306.9
9/30/2001 11811.2 9109.73
10/31/2001 12404.6 9475.62
11/30/2001 12941 9814.29
12/31/2001 13283.4 9835.46
1/31/2002 12655.7 9545.09
2/28/2002 12495.9 9690.43
3/31/2002 12918.2 10244.8
4/30/2002 13237.7 10432.4
5/31/2002 13351.8 10763.9
6/30/2002 12906.8 10390.2
7/31/2002 11537.3 9459.68
8/31/2002 11731.3 9437.26
9/30/2002 10864 8592.87
10/31/2002 10898.3 8746.3
11/30/2002 11217.8 9191.66
12/31/2002 11252 8932.62
1/31/2003 10704.3 8708.44
2/28/2003 10270.6 8545.54
3/31/2003 10357.9 8399.58
4/30/2003 11343.3 9141.85
5/31/2003 12317.2 9797.43
6/30/2003 12386 10076.9
7/31/2003 12603.7 10481.4
8/31/2003 13142.2 11085.7
9/30/2003 13600.5 11542.5
10/31/2003 14528.6 12433.7
11/30/2003 14860.9 12538.3
12/31/2003 15892.1 13367.3
1/31/2004 16190 13648.3
2/29/2004 16877.4 13976.5
3/31/2004 17001 14520
4/30/2004 16702.1 14025.9
5/31/2004 16725.1 13987
6/30/2004 17150.4 14341.7
7/31/2004 16736.6 13798.2
8/31/2004 16725.1 13925.2
9/30/2004 17403.3 14372.6
10/31/2004 17886.1 14856.8
11/30/2004 19012.6 16031
12/31/2004 19760.0 16739.0
AVERAGE ANNUAL RETURN
-------------------------------
1 year 5 years Life of fund
24.34% 1.45% 12.20%
This graph compares the results of $10,000 invested in Wanger International
Select on February 1, 1999 (the date the Fund began operations) through December
31, 2004, to the Citigroup World ex-US Cap Range $2-10B Index, with dividends
and capital gains reinvested. DUE TO ONGOING MARKET VOLATILITY, PERFORMANCE IS
SUBJECT TO SUBSTANTIAL SHORT-TERM FLUCTUATIONS. Wanger International Select is a
diversified fund that invests in the stocks of medium- to larger-size companies
with market capitalizations of $2 to $25 billion. Prior to 2/1/02, Wanger
International Select was a non-diversified fund, meaning that the performance of
its holdings would have a greater impact on Wanger International Select's total
return and may make the fund's returns more volatile than a more diversified
international fund. Mid-cap stocks are more volatile and may be less liquid than
large-cap stocks. Investments in foreign securities have special risks,
including political or economic instability, higher costs, different
regulations, accounting standards, trading practices and levels of information,
and currency exchange rate fluctuations. Performance results reflect any
voluntary waivers or reimbursements of Fund expenses by the Advisor or its
affiliates. Absent these waivers or reimbursement arrangements, performance
results would have been lower.
PERFORMANCE SHOWN HERE IS PAST PERFORMANCE, WHICH CANNOT GUARANTEE FUTURE
RESULTS. CURRENT PERFORMANCE MAY BE HIGHER OR LOWER. THE INVESTMENT RETURN AND
PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT FUND SHARES,
WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PERFORMANCE
CHANGES OVER TIME. CURRENT RETURNS FOR THE FUND MAY BE DIFFERENT THAN THAT
SHOWN. FOR MONTHLY PERFORMANCE UPDATES, PLEASE CONTACT US AT 1-888-4-WANGER.
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
- --------------------------------------------------------------------------------
RESULTS TO DECEMBER 31, 2004
4TH QUARTER 1 YEAR
WANGER INTERNATIONAL SELECT 13.54% 24.34%
Citigroup World ex-US
Cap Range $2-10B 16.46 25.22
MSCI EAFE 15.32 20.25
Lipper International Funds Index 14.39 18.59
NAV AS OF 12/31/04: $17.19
PERFORMANCE NUMBERS REFLECT ALL FUND EXPENSES BUT DO NOT INCLUDE ANY INSURANCE
CHARGE IMPOSED BY YOUR INSURANCE COMPANY'S SEPARATE ACCOUNTS. IF PERFORMANCE
INCLUDED THE EFFECT OF THESE ADDITIONAL CHARGES, IT WOULD BE LOWER.
The Citigroup World ex-U.S. Cap Range $2-10B is a subset of the broad market,
selected by the index sponsor, representing the mid-cap developed market,
excluding the United States. MSCI EAFE is Morgan Stanley's Europe, Australasia
and Far East Index, a widely recognized international benchmark that comprises
20 major markets in Europe, Australia and the Far East. Lipper Indexes include
the largest funds tracked by Lipper, Inc. in the named category. The Lipper
International Funds Index is made up of the 30 largest non-U.S. funds. All
indexes are unmanaged and returns include reinvested dividends. It is not
possible to invest directly in an index.
Portfolio holdings will vary in the future.
* Wanger Foreign Forty was renamed Wanger International Select on May 1, 2004.
- --------------------------------------------------------------------------------
TOP 5 COUNTRIES
As a % of net assets, as of 12/31/04
Japan 20.9%
Ireland 13.4
Switzerland 11.2
United Kingdom 8.3
France 8.2
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 12/31/04
1. Anglo Irish Bank 6.3%
SMALL BUSINESS & MIDDLE MARKET BANKING - IRELAND
2. Neopost 4.2%
POSTAGE METER MACHINES - FRANCE
3. Komercni Banka 4.1%
LEADING CZECH UNIVERSAL BANK - CZECH REPUBLIC
4. Exel 3.9%
GLOBAL LOGISTICS & FREIGHT FORWARDING - UNITED KINGDOM
5. Lion Nathan 3.8%
BEER BREWER/DISTRIBUTOR - AUSTRALIA
6. SES Global 3.5%
SATELLITE BROADCASTING SERVICES - LUXEMBOURG
7. Daito Trust Construction 3.4%
APARTMENT BUILDER - JAPAN
8. Depfa Bank 3.3%
INTERNATIONAL PUBLIC SECTOR FINANCE - IRELAND
9. Shimano 3.0%
BICYCLE COMPONENTS & FISHING TACKLE - JAPAN
10. Hoya 2.7%
OPTO-ELECTRICAL COMPONENTS & EYEGLASS LENSES - JAPAN
5
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
COMMON STOCKS-95.0%
EUROPE - 58.4%
- ------------------------------------------------------------------------------
UNITED KINGDOM/IRELAND - 21.7%
91,000 Anglo Irish Bank (Ireland) $ 2,206,344
SMALL BUSINESS & MIDDLE MARKET BANKING
100,000 Exel 1,385,703
GLOBAL LOGISTICS & FREIGHT FORWARDING
70,000 Depfa Bank (Ireland) (d) 1,170,723
INTERNATIONAL PUBLIC SECTOR FINANCE
150,000 Compass Group 707,945
INTERNATIONAL CONCESSION & CONTRACT CATERER
63,000 Grafton Group (Ireland) 682,668
BUILDERS, WHOLESALERS & DIY RETAILING
28,000 Kerry Group (Ireland) 669,394
FOOD INGREDIENTS
45,000 British Sky Broadcasting (b) 484,708
DIGITAL SATELLITE BROADCASTING
11,000 Cobham 260,792
AEROSPACE COMPONENTS
4,000 Intermediate Capital 83,564
EUROPEAN PROVIDER OF MEZZANINE CAPITAL
- ------------------------------------------------------------------------------
7,651,841
- ------------------------------------------------------------------------------
SWITZERLAND - 11.2%
1,200 Geberit International (d) 875,027
PLUMBING SUPPLIES
3,400 Kuehne & Nagel (d) 729,398
FREIGHT FORWARDING/LOGISTICS
4,700 Swatch Group (d) 688,630
WATCH & ELECTRONICS MANUFACTURER
6,100 Synthes Startec (d) 680,946
PRODUCTS FOR ORTHOPEDIC SURGERY
1,700 Schindler (d) 671,459
ELEVATOR MANUFACTURER & SERVICE PROVIDER
435 Givaudan (d) 286,012
INDUSTRIAL FRAGRANCES & FLAVORS
- ------------------------------------------------------------------------------
3,931,472
- ------------------------------------------------------------------------------
FRANCE - 8.2%
19,300 Neopost 1,495,313
POSTAGE METER MACHINES
9,900 Imerys 828,040
INDUSTRIAL MINERALS PRODUCER
7,100 Essilor International 554,417
EYEGLASS LENSES
- ------------------------------------------------------------------------------
2,877,770
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
CZECH REPUBLIC - 4.1%
9,900 Komercni Banka (d) $ 1,440,410
LEADING CZECH UNIVERSAL BANK
- ------------------------------------------------------------------------------
LUXEMBOURG - 3.5%
95,000 SES Global 1,235,304
SATELLITE BROADCASTING SERVICES
- ------------------------------------------------------------------------------
NORWAY - 3.3%
92,300 Den Norske Bank (d) 905,565
LARGEST NORWEGIAN BANK
8,000 Orkla (d) 261,509
FOOD & DIVERSIFIED CONSUMER GOODS
- ------------------------------------------------------------------------------
1,167,074
- ------------------------------------------------------------------------------
GERMANY - 2.8%
8,200 Rhoen-Klinikum (d) 502,770
HOSPITAL MANAGEMENT
8,000 Deutsche Boerse (d) 479,592
TRADING, CLEARING & SETTLEMENT SERVICES
FOR FINANCIAL MARKETS
- ------------------------------------------------------------------------------
982,362
- ------------------------------------------------------------------------------
SPAIN - 2.2%
35,200 Red Electrica (d) 787,826
SPANISH POWER GRID
- ------------------------------------------------------------------------------
ITALY - 1.4%
30,000 Autogrill (b)(d) 499,192
RESTAURANTS & CATERING FOR TRAVELERS
- ------------------------------------------------------------------------------
EUROPE - TOTAL 20,573,251
- ------------------------------------------------------------------------------
ASIA - 26.3%
JAPAN - 20.9%
25,000 Daito Trust Construction (d) 1,186,287
APARTMENT BUILDER
37,000 Shimano (d) 1,054,395
BICYCLE COMPONENTS & FISHING TACKLE
8,400 Hoya (d) 948,395
OPTO-ELECTRICAL COMPONENTS & EYEGLASS LENSES
6,900 Funai Electric (d) 855,980
CONSUMER ELECTRONICS
41,000 Ushio (d) 763,041
INDUSTRIAL LIGHT SOURCES
See accompanying notes to financial statements.
6
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT STATEMENT OF INVESTMENTS DECEMBER 31, 2004
- ------------------------------------------------------------------------------
NUMBER OF VALUE
SHARES
- ------------------------------------------------------------------------------
JAPAN - 20.9% (CONT.)
19,300 Sugi Pharmacy (d) $ 654,550
DRUGSTORE OPERATOR
110,000 Hiroshima Bank (d) 581,130
REGIONAL BANK
6,900 Fast Retailing (d) 523,356
APPAREL RETAILER
190 Dentsu (d) 510,999
ADVERTISING AGENCY
14,000 Olympus Optical (d) 298,329
MEDICAL EQUIPMENT & CAMERAS
- ------------------------------------------------------------------------------
7,376,462
HONG KONG/CHINA - 3.3%
309,000 Hong Kong Exchanges & Clearing 828,850
HONG KONG EQUITY & DERIVATIVES OPERATOR
500,000 Global Bio-Chem Technology Group (China) 331,275
CHINESE REFINER OF CORN-BASED COMMODITIES
- ------------------------------------------------------------------------------
1,160,125
- ------------------------------------------------------------------------------
SINGAPORE - 2.1%
450,000 Comfort Group 427,180
TAXI & MASS TRANSIT SERVICE
31,000 Venture 301,873
ELECTRONIC CONTRACT MANUFACTURER
- ------------------------------------------------------------------------------
729,053
ASIA - TOTAL 9,265,640
- ------------------------------------------------------------------------------
OTHER COUNTRIES - 8.2%
CANADA - 4.4%
26,900 Talisman Energy 725,089
OIL & GAS PRODUCER
30,000 Noranda 526,434
DIVERSIFIED MINING HOLDING COMPANY
40,000 Kinross Gold (b) 281,631
GOLD MINING
- ------------------------------------------------------------------------------
1,533,154
- ------------------------------------------------------------------------------
AUSTRALIA - 3.8%
200,000 Lion Nathan 1,344,094
BEER BREWER/DISTRIBUTOR
- ------------------------------------------------------------------------------
OTHER COUNTRIES - TOTAL 2,877,248
- ------------------------------------------------------------------------------
NUMBER OF SHARES VALUE
OR PRINCIPAL AMOUNT
- ------------------------------------------------------------------------------
LATIN AMERICA - 2.1%
ARGENTINA - 2.1%
15,000 Tenaris $ 733,500
STEEL PIPE FOR OIL WELLS & PIPELINES
- ------------------------------------------------------------------------------
LATIN AMERICA - TOTAL 733,500
TOTAL COMMON STOCKS (COST: $23,708,342) - 95.0% 33,449,639
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 5.4%
- ------------------------------------------------------------------------------
$1,916,000 Repurchase Agreement with State
Street Bank & Trust Co., dated 12/31/04,
due 1/03/05 at 1.90%, collateralized by
Federal Home Loan Bank Notes,
maturing 4/02/18, market value
$1,957,631 (repurchase proceeds:
$1,916,303)
- ------------------------------------------------------------------------------
(AMORTIZED COST: $1,916,000) 1,916,000
TOTAL INVESTMENTS (COST: $25,624,341) - 100.4% (A) (C) 35,365,639
- ------------------------------------------------------------------------------
CASH AND OTHER ASSETS LESS LIABILITIES - (0.4%) (133,981)
- ------------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $35,231,658
- ------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
(a) At December 31, 2004, cost for federal income tax purposes is $26,232,065.
The net unrealized appreciation was $9,133,574 consisting of gross
unrealized appreciation of $9,546,892 and gross unrealized depreciation of
$413,318.
(b) Non-income producing security.
(c) On December 31, 2004, the Fund's total investments were denominated in
currencies as follows:
% of Net
CURRENCY VALUE ASSETS
- ---------------------------------------------------------------------
Euro Dollars $11,111,583 31.5%
Japanese Yen 7,376,462 20.9
Swiss Francs 3,931,472 11.2
British Pounds 2,922,712 8.3
U.S. Dollars 2,649,500 7.5
Other currencies less than
5% of total net assets 7,373,910 21.0
----------- --------
35,365,639 100.4%
=========== ========
(d) Represents a security valued by an independent statistical fair value
pricing service at 12/31/04. Foreign securities which had a market holiday
on 12/31/04 were valued under this method. See Security Valuation in Note
2 for further information.
See accompanying notes to financial statements.
7
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT PORTFOLIO DIVERSIFICATION DECEMBER 31, 2004
AT DECEMBER 31, 2004, THE FUND'S PORTFOLIO INVESTMENTS AS A PERCENT OF NET
ASSETS WAS DIVERSIFIED AS FOLLOWS:
VALUE PERCENT
- ------------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES
Industrial Services $ 2,786,560 7.9%
Industrial Materials 1,703,067 4.8
Machinery 1,495,313 4.2
Construction 1,186,287 3.4
Electrical Components 1,023,833 2.9
Steel 733,500 2.1
Industrial Distribution 682,668 2.0
Speciality Chemicals 286,012 0.8
- ------------------------------------------------------------------------------
9,897,240 28.1
- ------------------------------------------------------------------------------
CONSUMER GOODS/SERVICES
Durable Goods 1,743,025 5.0
Beverage 1,344,094 3.8
Restaurants 1,207,137 3.4
Retail 1,177,906 3.3
Food 930,903 2.7
Consumer Electronics 855,980 2.4
- ------------------------------------------------------------------------------
7,259,045 20.6
- ------------------------------------------------------------------------------
FINANCE
Banks 6,304,172 17.9
Finance Companies 83,564 0.2
- ------------------------------------------------------------------------------
6,387,736 18.1
VALUE PERCENT
- ------------------------------------------------------------------------------
INFORMATION TECHNOLOGY
COMPUTER RELATED HARDWARE
Semiconductors & Related Equipment $ 948,395 2.7%
Contract Manufacturing 301,873 0.9
- ------------------------------------------------------------------------------
1,250,268 3.6
MEDIA
Satellite Broadcasting and Services 1,235,304 3.5
TV Broadcasting 484,708 1.4
- ------------------------------------------------------------------------------
1,720,012 4.9
SOFTWARE AND SERVICES
Financial Processors 1,308,442 3.7
Advertising 510,999 1.5
- ------------------------------------------------------------------------------
1,819,441 5.2
- ------------------------------------------------------------------------------
4,789,721 13.7
- ------------------------------------------------------------------------------
HEALTHCARE
Medical Equipment 1,533,692 4.4
Hospital Management 502,770 1.4
- ------------------------------------------------------------------------------
2,036,462 5.8
- ------------------------------------------------------------------------------
ENERGY/MINERALS
Oil/Gas Producers 725,089 2.1
Mining 526,434 1.5
Agricultural Commodities 331,275 0.9
Non-Ferrous Metals 281,631 0.8
- ------------------------------------------------------------------------------
1,864,429 5.3
- ------------------------------------------------------------------------------
OTHER
Regulated Utilities 787,826 2.2
Transportation 427,180 1.2
- ------------------------------------------------------------------------------
1,215,006 3.4
- ------------------------------------------------------------------------------
TOTAL COMMON STOCKS 33,449,639 95.0
- ------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 1,916,000 5.4
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS 35,365,639 100.4
- ------------------------------------------------------------------------------
CASH AND OTHER ASSETS
LESS LIABILITIES (133,981) (0.4)
- ------------------------------------------------------------------------------
NET ASSETS $ 35,231,658 100.0%
================================================================================
8
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
- ------------------------------------------------------------------------------
ASSETS
Investments, at cost $ 25,624,341
- ------------------------------------------------------------------------------
Investments, at value $ 35,365,639
Cash 302
Foreign currency (cost of $18,796) 18,704
Receivable for:
Investments sold 10,840
Fund shares sold 17,373
Dividends and interest 46,267
Foreign tax reclaims 8,857
Expense reimbursement due from
Investment Advisor 735
- ------------------------------------------------------------------------------
Total Assets 35,468,717
LIABILITIES
Payable for:
Investments purchased 31,414
Fund shares repurchased 170,791
Transfer agent fees 57
Trustees' fees 253
Audit fees 19,000
Custody fees 4,959
Reports to shareholders 7,768
Other liabilities 2,817
- ------------------------------------------------------------------------------
Total Liabilities 237,059
- ------------------------------------------------------------------------------
Net Assets $ 35,231,658
==============================================================================
COMPOSITION OF NET ASSETS
Paid in capital $ 29,905,578
Undistributed net investment income 173,486
Accumulated net realized loss (4,590,097)
Net unrealized appreciation on:
Investments 9,741,298
Foreign currency translations 1,393
- ------------------------------------------------------------------------------
Net Assets $ 35,231,658
==============================================================================
Fund shares outstanding 2,048,961
==============================================================================
Net asset value, offering price and
redemption price per share $ 17.19
==============================================================================
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
- ------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income (net of foreign taxes of $52,789) $ 464,788
Interest income 21,310
- ------------------------------------------------------------------------------
Total investment income 486,098
EXPENSES:
Investment advisory fees 281,849
Transfer agent fees 1,826
Trustees' fees 6,323
Custody fees 47,787
Audit fees 23,472
Reports to shareholders 25,755
Compliance fees 404
Non-recurring costs (See Note 8) 1,500
Other expenses 16,657
- ------------------------------------------------------------------------------
Total Expenses 405,573
Less custody fees paid indirectly (6)
Non-recurring costs reimbursed (See Note 8) (1,500)
- ------------------------------------------------------------------------------
Net Expenses 404,067
- ------------------------------------------------------------------------------
Net Investment Income 82,031
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain (loss) on:
Investments 3,329,294
Foreign currency transactions (943)
- ------------------------------------------------------------------------------
Net realized gain 3,328,351
- ------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) on:
Investments 3,073,053
Foreign currency translations (2,588)
- ------------------------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) 3,070,465
- ------------------------------------------------------------------------------
Net Gain 6,398,816
- ------------------------------------------------------------------------------
Net Increase in Net Assets from Operations $ 6,480,847
==============================================================================
See accompanying notes to financial statements.
9
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
FROM OPERATIONS:
Net investment income $ 82,031 $ 67,099
Net realized gain (loss) on investments and foreign currency transactions 3,328,351 (474,983)
Net change in unrealized appreciation (depreciation)
on investments and foreign currency transactions 3,070,465 7,046,414
- ------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 6,480,847 6,638,530
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (87,061) (50,019)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (87,061) (50,019)
SHARE TRANSACTIONS:
Subscriptions 15,850,018 14,037,658
Distributions reinvested 87,061 50,019
Redemptions (14,026,796) (7,831,407)
- ------------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 1,910,283 6,256,270
- ------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 8,304,069 12,844,781
NET ASSETS:
Beginning of period 26,927,589 14,082,808
- ------------------------------------------------------------------------------------------------------------------------
End of period $ 35,231,658 $ 26,927,589
- ------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 173,486 $ 82,012
========================================================================================================================
See accompanying notes to financial statements.
10
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
YEAR ENDED DECEMBER 31,
SELECTED DATA FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD 2004 2003 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 13.87 $ 9.86 $ 11.64 $ 17.29 $ 18.39
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.04 0.04 0.04 (0.03) (0.04)
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions 3.33 4.01 (1.82) (4.46) (0.10)
- ----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.37 4.05 (1.78) (4.49) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.05) (0.04) -- (0.02) (0.01)
From net realized capital gains -- -- -- (1.14) (0.95)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.05) (0.04) -- (1.16) (0.96)
- ----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.19 $ 13.87 $ 9.86 $ 11.64 $ 17.29
==================================================================================================================================
Total Return (b) 24.34% 41.24%(c) (15.29)%c) (26.61)% (1.58)%(c)
- ----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses (d) 1.43% 1.45% 1.45% 1.45% 1.45%
Net investment income (loss) (d) 0.29% 0.39% 0.35% (0.20)% (0.20)%
Reimbursement -- 0.09% 0.10% -- 0.23%
Portfolio turnover rate 71% 59% 113% 72% 96%
Net assets, end of period (000's) $ 35,232 $ 26,928 $ 14,083 $ 15,431 $ 15,496
- --------------------------------------------------------------------------------
(a) Net investment income (loss) per share was based upon the average shares
outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Advisor not reimbursed a portion of expenses, total return would be
reduced.
(d) The benefits derived from custody fees paid indirectly had no impact.
See accompanying notes to financial statements.
11
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Wanger International Select (known prior to May 1, 2004 as Wanger Foreign Forty)
(the "Fund") is a series of Wanger Advisors Trust (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust. The
investment objective of the Fund is to seek long-term growth of capital. The
Fund is available only for allocation to certain life insurance company separate
accounts established for the purpose of funding qualified and non-qualified
variable annuity contracts, and may also be offered directly to certain types of
pension plans and retirement arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
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 a fair
value determined in accordance with procedures established by the Board of
Trustees. Securities traded on securities exchanges or in over-the-counter
markets in which transaction prices are reported are valued at the last sales
price at the time of valuation. If a security is traded principally on the
Nasdaq Stock Market Inc., the Nasdaq Official Closing Price will be applied.
Securities for which there are no reported sales on the valuation date are
valued at the latest bid quotation. Short-term debt obligations having a
maturity of 60 days or less from the valuation date are valued on an amortized
cost basis. Securities for which quotations are not readily available and any
other assets are valued as determined in good faith by the Board of Trustees.
The Trust has retained an independent statistical fair value pricing service to
assist in the fair valuation process for securities principally traded in a
foreign market in order to adjust for possible changes in value that may occur
between the close of the foreign exchange and the time at which Fund shares are
priced. If a security is valued at a "fair value", that value may be different
from the last quoted market price for the security.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions. The Fund, through its
custodians, receives delivery of underlying securities collateralizing each
repurchase agreement. The Fund's investment advisor determines that the value of
the underlying securities is at all times at least equal to the repurchase price
including interest. In the event of default or bankruptcy by the other party to
the agreement, realization and/or retention of the collateral may be subject to
legal proceedings.
FOREIGN CURRENCY TRANSLATIONS
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
SECURITY TRANSACTIONS AND INVESTMENT INCOME
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on an
accrual basis and includes amortization of discounts on short-term debt
obligations and on long-term debt obligations when required for federal income
tax purposes. Short-term debt obligations having a maturity of 60 days or less
from the valuation date are valued on an amortized cost basis, which
approximates fair value. Realized gains and losses from security transactions
are reported on an identified cost basis.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results may differ from
those estimated.
FUND SHARE VALUATION
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange ("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.
CUSTODY FEES/CREDITS
Custody fees are reduced based on the Fund's cash balances maintained with the
custodian.The Fund could have invested a portion of the assets utilized in
connection with the expense offset arrangement in an income-producing asset if
it had not entered into such an agreement. The amount is disclosed as a
reduction of total expenses in the Statement of Operations.
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 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
Realized gains in certain countries may be subject to foreign taxes at the fund
level, at rates ranging from 10%-30%. The Fund accrues for such foreign taxes on
net realized and unrealized gains at the appropriate rate for each jurisdiction.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-date.
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.
For the year ended December 31, 2004, permanent differences resulting
primarily from differing treatments for foreign currency transactions and
passive foreign investment company adjustments ("PFICs") were identified and
reclassified among the components of the Fund's net assets as follows:
UNDISTRIBUTED ACCUMULATED PAID IN
NET INVESTMENT INCOME NET REALIZED LOSS CAPITAL
--------------------- ----------------- -------
$96,504 $(96,502) $(2)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended December 31,
2004 and December 31, 2003 was as follows:
12
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
Distributions paid from:
Ordinary Income $87,061 $50,019
As of December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS APPRECIATION*
------------- -------------- --------------
$765,798 $-- $9,134,912
* The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to deferral of losses from
wash sales and PFIC adjustments.
Unrealized appreciation and depreciation at December 31, 2004, based on
cost of investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------
$9,546,892 $(413,318) $9,133,574
The following capital loss carryforwards, determined as of December 31,
2004, are available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARDS
---------- --------------
2010 $ 3,592,626
2011 982,004
--------------
Total $ 4,574,630
Expired capital loss carryforwards, if any, are recorded as a reduction of
paid-in capital.
Capital loss carryforwards of $3,213,886 were utilized during the year
ended December 31, 2004 for the Fund.
4. TRANSACTIONS WITH AFFILIATES
Columbia Wanger Asset Management, L.P., ("Columbia WAM") an indirect
wholly-owned subsidiary of Columbia Management Group, Inc., which in turn is a
wholly owned subsidiary of Bank of America Corporation ("BOA"), furnishes
continuing investment supervision to the Fund and is responsible for the overall
management of the Fund's business affairs. Prior to April 1, 2004, Columbia was
a wholly-owned subsidiary of Fleet National Bank, which in turn was a
wholly-owned subsidiary of FleetBoston Financial Corporation ("Fleet"). On April
1, 2004, Fleet was acquired by BOA.
Under the Fund's investment management agreement, fees are accrued daily
and paid monthly to Columbia WAM at the annual percentage of 1.00% of average
daily net assets.
The investment advisory agreement also provides that Columbia WAM will
reimburse the Fund to the extent that ordinary operating expenses (computed
based on net custodian fees) exceed an annual rate of 1.45% of average daily net
assets. There was no reimbursement for the year ended December 31, 2004.
In accordance with the terms of the NYAG Settlement (as defined and
discussed further under Note 8 to these Financial Statements - "Legal
Proceedings"), Columbia WAM waived a portion of the fees payable under the
Fund's investment management agreement so that those fees are retained at 0.990%
on average daily net assets. The fee waiver was effective as of February 10,
2005 but applied as if it had gone into effect on December 1, 2004. The
financial statements, as of December 31, 2004, are not reflective of these
changes.
Certain officers and trustees of the Trust are also officers of Columbia
WAM. The Trust makes no direct payments to its officers and trustees who are
affiliated with Columbia WAM. The Fund paid $6,323 to trustees not affiliated
with Columbia WAM for the year ended December 31, 2004. Effective April 2004,
the Board of Trustees appointed a Chief Compliance Officer to the Fund in
accordance with federal securities regulations. The Fund will pay its pro-rata
share of the expenses associated with the Office of the Chief Compliance
Officer. These expenses are disclosed separately on the Statement of Operations.
Columbia Funds Distributor, Inc. ("CFDI"), an indirect wholly-owned
subsidiary of BOA, serves as the principal underwriter of the Trust and receives
no compensation for its services.
Columbia Funds Services, Inc. (the "Transfer Agent"), an indirect
wholly-owned subsidiary of BOA, provides shareholder services to the Fund. For
such services, the Transfer Agent receives a fee, paid monthly, at the annual
rate of $28.00 per open account. The Transfer Agent also receives reimbursement
for certain out-of-pocket expenses. Effective February 1, 2004 the Transfer
Agent made the decision to waive the reimbursement for certain out-of-pocket
expenses. Prior to February 1, 2004, the Transfer Agent was entitled to receive
a flat rate charge based on the number of shareholder accounts and transactions.
During the year ended December 31, 2004, the Fund engaged in purchases and
sales transactions with funds that have a common investment advisor (or
affiliated investment advisors), common Directors/Trustees, and/or common
Officers. These purchase and sale transactions complied with the provisions of
Rule 17a-7 under the Investment Company Act of 1940 and were $405,544 and
$1,192,967, respectively.
5. BORROWING ARRANGEMENTS
The Trust participates in a $150,000,000 credit facility, which was entered into
to facilitate portfolio liquidity. Interest is charged to each participating
fund based on its borrowings at a rate per annum equal to the Federal Funds rate
plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and
apportioned among the participating funds based on their pro-rata portion of the
unutilized line of credit. The commitment fee is included in "Other expenses" on
the Statement of Operations. No amounts were borrowed under this facility for
the year ended December 31, 2004.
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:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
- --------------------------------------------------------------------------------
Shares sold 1,041,265 1,237,004
- --------------------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 6,025 5,607
- --------------------------------------------------------------------------------
Less shares redeemed 940,310 728,804
- --------------------------------------------------------------------------------
Net increase in shares outstanding 106,980 513,807
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the year ended December 31, 2004 were $20,505,298 and
$19,332,247.
8. LEGAL PROCEEDINGS
On March 15, 2004, Columbia Management Advisors, Inc. ("Columbia Management"),
the advisor to the Columbia Funds, and CFDI (collectively with Columbia
Management, "Columbia") the distributor of the shares of the Columbia Funds, the
Columbia Acorn Funds and the Wanger Advisors Trust Funds (collectively, "the
Columbia Family of Funds"), entered into agreements
13
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
in principle with the staff of the U.S. Securities and Exchange Commission
("SEC") and the Office of the New York Attorney General ("NYAG") to resolve the
proceedings brought in connection with the SEC's and NYAG's investigations of
frequent trading and market timing in certain Columbia mutual funds. Columbia
WAM, the advisor to the Columbia Acorn Funds and the Wanger Advisors Trust
Funds, was not a respondent in either proceeding nor were any of its officers or
directors.
On February 9, 2005, Columbia entered into an Assurance of Discontinuance
(the "NYAG Settlement") with the NYAG and consented to the entry of a
cease-and-desist order by the SEC (the "SEC Order" and together, the
"Settlements"). The Settlements contain substantially the same terms and
conditions as outlined in the agreements in principle. Although none of the
Wanger Advisors Trust Funds is a party to the Settlement orders, under the terms
of the Settlements and in order for Columbia Management to continue to provide
administrative services to the Wanger Advisors Funds, the Board of Trustees of
the Wanger Advisors Trust Funds agreed to conform to certain governance
requirements, including the election of an independent board chair.
Under the terms of the SEC Order, Columbia has agreed, among other things,
to: pay $70 million in disgorgement and $70 million in civil money penalties;
cease and desist from violations of the antifraud provisions and certain other
provisions of the federal securities laws; maintain certain compliance and
ethics oversight structures; retain an independent consultant to review
Columbia's applicable supervisory, compliance, control and other policies and
procedures; and retain an independent distribution consultant (see below). The
NYAG Settlement also, among other things, requires Columbia and its affiliates,
Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce
management fees paid by the Columbia Family of Funds, Nations Funds and other
related mutual funds collectively by $32 million per year for five years, for a
projected total of $160 million in management fee reductions based on net assets
as of March 15, 2004. Pursuant to the procedures set forth in the SEC Order, the
settlement amounts will be distributed in accordance with a distribution plan to
be developed by an independent distribution consultant, who is acceptable to the
SEC staff and the independent trustees of the funds. The distribution plan must
be based on a methodology developed in consultation with Columbia and the
independent trustees of the funds and not unacceptable to the staff of the SEC.
More specific information on the distribution plan will be communicated by
Columbia WAM and/or its affiliates at a later date.
Columbia WAM, the Columbia Acorn Trust, another mutual fund family advised
by Columbia WAM and the trustees of Columbia Acorn Trust, are defendants in
several derivative and class action lawsuits that allege, in summary, defendants
permitted investors to engage in improper trading of shares of various funds in
violation of certain federal and state laws. All of these lawsuits have been
consolidated with similar suits in a Multi-District Litigation proceeding in
Baltimore, Maryland and consolidated class action and derivative complaints have
been filed.
The Columbia Acorn Trust and Columbia WAM are also defendants in a class
action lawsuit that alleges, in summary, that the Columbia Acorn Trust and
Columbia WAM exposed shareholders of Columbia Acorn International Fund to
trading by market timers by allegedly (a) failing to properly evaluate daily
whether a significant event affecting the value of that Fund's securities had
occurred after foreign markets had closed but before the calculation of the
Fund's net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV.
Columbia WAM and the trustees of Columbia Acorn Trust are also defendants
in a lawsuit alleging that Columbia WAM used Fund assets to make undisclosed
payments to brokers as an incentive for the brokers to market the Columbia Acorn
Funds over other mutual funds to investors. The complaint alleges Columbia WAM
and the trustees of Columbia Acorn Trust breached certain common laws duties and
federal laws.
On January 11, 2005 a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Acorn Trust and Columbia WAM. The lawsuit alleges that defendants
violated common law duties to fund shareholders as well as sections of the
Investment Company Act of 1940, by failing to ensure that the Columbia Acorn
Trust funds and other affiliated funds participated in securities class action
settlements for which the funds were eligible. Specifically, plaintiffs allege
that defendants failed to submit Proof of Claims in connection with settlements
of securities class action lawsuits filed against companies in which the funds
held positions. The complaint seeks compensatory and punitive damages, and the
disgorgement of all fees paid to the Columbia WAM and affiliated advisers.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously. The Columbia Acorn Trust does not believe that the pending actions
will have a material adverse effect on the financial statements of any Columbia
Acorn Fund, and Columbia WAM does not believe that the pending actions will have
a material adverse effect on its ability to perform under its contracts with the
Funds.
As a result of these matters or any adverse publicity or other
developments resulting from them, there may be increased redemptions or reduced
sales of Fund shares, which could increase transaction costs or operating
expenses, or have other adverse consequences for the Fund.
In connection with the events described in detail above, various parties
have filed suit again certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot be currently made.
For the year ended December 31, 2004, CMG has assumed $1,500 in consulting
services and legal fees incurred by the Fund in connection with these matters.
14
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Effective April 13, 2004, the audit committee of the Trust requested that Ernst
& Young LLP ("E&Y") resign as the auditors of the Fund. Also effective July 14,
2004, upon the recommendation of the audit committee, the Trust selected
PricewaterhouseCoopers LLP ("PWC") as independent registered public accounting
firm to audit the books and records of the Fund for its fiscal year ending
December 31, 2004. The cessation of the relationship with E&Y was based on the
impairment of E&Y's independence resulting from the consummation of the merger
of FleetBoston Financial Corporation and Bank of America Corporation and
accordingly, E&Y's ability to provide audit services to the Fund.
E&Y's report on the financial statements of the Fund for the past two
years did not contain an adverse opinion or disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the period E&Y was engaged, there were no disagreements with E&Y on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to E&Y's satisfaction, would
have caused it to make reference to that matter in connection with its report.
15
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees and Shareholders of Wanger International Select Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Wanger International Select Fund (a
series of the Wanger Advisors Trust, hereinafter referred to as the "Fund") at
December 31, 2004, the results of its operations, the changes in its net assets
and the financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at December 31, 2004 by
correspondence with the custodian and brokers, provides a reasonable basis for
our opinion. The statement of changes in net assets for the year ended December
31, 2003 and financial highlights of the Fund for the periods ended December 31,
2003 and prior were audited by other independent auditors whose report dated
February 6, 2004 expressed an unqualified opinion on those financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 14, 2005
16
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
The Board of Trustees of the Trust has overall management responsibility for the
Trust and the Funds. Each trustee serves a term of unlimited duration, provided
that a majority of trustees always has been elected by shareholders. The
trustees appoint their own successors, provided that at least two-thirds of the
trustees, after such appointment, have been elected by shareholders.
Shareholders may remove a trustee, with or without cause, upon the vote of
two-thirds of the Trust's outstanding shares at any meeting called for that
purpose. A trustee may be removed, with or without cause, upon the vote of a
majority of the trustees.
The names of the trustees and officers of the Trust, the date each was
first elected or appointed to office, their principal business occupations
during at least the last five years, and other directorships they hold are shown
below. Each trustee serves in such capacity for each of the four series of the
Trust.
The business address of each trustee and officer of the Trust is Columbia
Wanger Asset Management, L.P., 227 West Monroe, Suite 3000, Chicago, Illinois
60606, except for Messrs. Clark, Connaughton, and Pietropaolo, whose address is
Columbia Management Group, Inc., 245 Summer Street, Boston, Massachusetts,
02210. Wanger's Statement of Additional Information includes additional
information about Columbia Wanger's trustees and officers. You may obtain a free
copy of the Statement of Additional Information on our website, www.wanger.com,
or by writing or calling toll-free:
Columbia Wanger Asset Management, L.P.
Shareholder Services Group
227 W. Monroe, Suite 3000
Chicago, IL 60606
888-4-Wanger (888-492-6437)
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------ ------------ --------------------------------------------------------- --------------
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF WANGER ADVISORS TRUST:
JEROME L. DUFFY, 68, 2003 Retired since December 31, 1997; prior thereto, senior None.
Trustee vice president, Kemper Financial Services and treasurer,
Kemper Funds.
FRED D. HASSELBRING, 63, 1994 Retail industry, general project development and business None.
Trustee computer systems consultant; voice over specialist for
industrial and institutional applications; former
chairman of the board of the Trust (September 2004 to
November 2004); former lead independent trustee (August
2003 to September 2004).
KATHRYN A. KRUEGER, M.D., 47, 2003 Medical Fellow I, Cardiovascular Therapeutic Area, Lilly None.
Trustee Research Laboratories (May 2004 to present); Medical
Advisor, Cardiovascular Therapeutic Area, Lilly Research
Laboratories (January 2003 to April 2004); Medical
Director, Cardiovascular Therapeutic Area, Lilly Research
Laboratories (October 2002 to December 2002); Medical
Director, Neptune Product Team, Lilly Research
Laboratories (October 2001 to October 2002); Acting
Director and Senior Clinical Research Physician, Lilly
Research Laboratories (April 2001 to September 2001);
Senior Clinical Research Physician, Lilly Research
Laboratories (January 2000 to March 2001); Clinical
Research Physician, Lilly Research Laboratories (June
1996 to December 1999).
PATRICIA H. WERHANE, 69, 1998 Ruffin Professor of Business Ethics, Darden Graduate None.
Chair of the Board and Trustee School of Business Administration, University of
Virginia, since 1993; Senior Fellow since 2004 and
Co-Director of the Olsson Center for Applied Ethics,
Darden Graduate School of Business Administration,
University of Virginia, from 2001-2004; and Wicklander
Chair of Business Ethics and Director of the Institute
for Business and Professional Ethics, DePaul University
(since September 2003).
TRUSTEE WHO IS AN INTERESTED PERSON OF WANGER ADVISORS TRUST:
RALPH WANGER, 70, 1994 Founder, former president, chief investment officer and Columbia
Trustee portfolio manager, Columbia Wanger Asset Management, L.P. Acorn
(CWAM) (1992-2003); former president, Columbia Acorn Trust.
Trust from April 1992 through September 2003; former
president, Wanger Advisors Trust (1994 through September
2003); principal, WAM from July 1992 until September
2000; president, WAM Ltd. from July 1992 to September
2000; director, Wanger Investment Company plc.; Director,
CWAM.
17
Wanger International Select 2004 Annual Report
- --------------------------------------------------------------------------------
BOARD OF TRUSTEES AND MANAGEMENT OF WANGER ADVISORS TRUST
NAME, POSITION(S) WITH YEAR FIRST
WANGER ADVISORS TRUST ELECTED OR
AND AGE AT APPOINTED PRINCIPAL OCCUPATION(S) DURING OTHER
DECEMBER 31, 2004 TO OFFICE PAST FIVE YEARS DIRECTORSHIPS
- ------------------------ ------------ --------------------------------------------------------- --------------
OFFICERS OF WANGER ADVISORS TRUST:
BEN ANDREWS, 39, 2004 Analyst and portfolio manager, CWAM since 1998; vice None.
Vice President president, Columbia Acorn Trust.
J. KEVIN CONNAUGHTON, 40, 2001 Treasurer of the Columbia Funds and of the Liberty None.
Assistant Treasurer All-Star Funds since December 2000 (formerly controller
of the Columbia Funds and of the Columbia All-Star Funds
from February 1998 to October 2000); treasurer of the
Galaxy Funds since September 2002; treasurer, Columbia
Management Multi-Strategy Hedge Fund, LLC since December
2002 (prior thereto, vice president of Colonial
Management Associates from February 1998 to October
2000).
MICHAEL G. CLARKE, 34, 2004 Chief accounting officer of the Columbia Funds, Liberty None.
Assistant Treasurer Funds, Stein Roe Funds and All-Star Funds since October
2004; Controller of the Columbia Funds, Liberty Funds,
Stein Roe Funds and All-Star Funds from May 2004 to
October 2004; Assistant Treasurer from June 2002 to May
2004; Vice President, Product Strategy & Development of
the Liberty Funds and Stein Roe Funds from February 2001
to June 2002; Assistant Treasurer of the Liberty Funds,
Stein Roe Funds and the All-Star Funds from August 1999
to February 2001.
KENNETH A. KALINA, 45, 1995 Chief Compliance Officer, CWAM since May 2004; treasurer None.
Assistant Treasurer and Chief financial officer, CWAM since April 2000;
assistant treasurer, Columbia Acorn Trust; fund
controller, CWAM since September 1995; director, New
Americas Small Cap Fund.
BRUCE H. LAUER, 47, 1995 Chief operating officer, CWAM since April 1995; None.
Vice President, Secretary principal, WAM from January 2000 to September 2000; vice
and Treasurer president, treasurer and secretary, Columbia Acorn Trust;
director, Wanger Investment Company plc and New Americas
Small Cap Fund.
CHARLES P. MCQUAID, 51, 1994 President, CWAM since October 2003; Chief investment Columbia
President officer, CWAM since September 2003; senior vice president Acorn
of the Trust from 1994 through September 2003; portfolio Trust.
manager since 1995 and director of research since July
1992 through December 2003; CWAM interim director of
international research from October 2003 until December
2004; principal, WAM from July 1995 to September 2000;
trustee since 1992 and president since 2003, Columbia
Acorn Trust.
ROBERT A. MOHN, 43, 1997 Director of domestic research, CWAM, since March 2004; None.
Vice President analyst and portfolio manager, CWAM since August 1992;
principal, WAM from 1995 to September 2000; vice
president, Columbia Acorn Trust.
TODD M. NARTER, 41, 2001 Analyst and portfolio manager, CWAM since June 1997; vice None.
Vice President president, Columbia Acorn Trust.
CHRISTOPHER J. OLSON, 40, 2001 Analyst and portfolio manager, CWAM since January 2001; None.
Vice President vice president, Columbia Acorn Trust; prior to 2001,
director and portfolio strategy analyst with UBS Asset
Management/Brinson Partners.
VINCENT P. PIETROPAOLO, 39, 2001 Assistant General Counsel, Bank of America (and its None.
Assistant Secretary predecessors) since December 1999.
ROBERT SCALES, 52, 2004 Deputy General Counsel, Grant Thornton LLP (2002-2004); None.
Chief Compliance Officer, Associate General Counsel, UBS PaineWebber
Senior Vice President (broker-dealer) (1997-2002).
and General Counsel
18
Wanger International Select 2004 Annual Report
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Wanger International Select 2004 Annual Report
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WANGER ADVISORS TRUST
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Funds Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Funds Distributor, Inc.
One Financial Center
Boston, Massachusetts
02111-2621
INVESTMENT ADVISER
Columbia Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
www.wanger.com
1-888-4-WANGER
(1-888-492-6437)
LEGAL COUNSEL
Bell, Boyd & Lloyd LLC
Chicago, Illinois
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Chicago, Illinois
This report, including the schedules of investments and financial statements, is
submitted for the general information of the shareholders of the Wanger Advisors
Trust. This report is not authorized for distribution unless preceded or
accompanied by a prospectus.
A description of the fund's proxy voting policies and procedures is available
(i) on the fund's website, www.wanger.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 888-492-6437. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website.
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 Public Reference Room may be obtained by calling 1-800-SEC-0330.
20
WANGER ADVISORS TRUST
SHR-02/469U-0205 05/4316
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this report,
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(b) During the period covered by this report, there were not any amendments to
a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Jerome L. Duffy, who is a
member of the registrant's Board of Trustees and Audit Committee, qualifies as
an audit committee financial expert. Mr. Duffy is an independent trustee, as
defined in paragraph (a)(2) of this item's instructions.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Effective July 14, 2004, the registrant engaged new independent accountants.
Unless otherwise noted, fees disclosed below represent fees paid or accrued to
the current and predecessor principal accountants while each was engaged by the
registrant.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are approximately as follows:
2004 2003
$82,000 $78,800
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended December 31, 2004
and December 31, 2003 are approximately as follows:
2004 2003
$10,400 $16,000
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported in Audit Fees
above. In both fiscal years 2004 and 2003, Audit-Related Fees include certain
agreed-upon procedures performed for semi-annual shareholder reports.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are approximately as follows:
2004 2003
$11,000 $12,100
Tax Fees in both fiscal years 2004 and 2003 consist primarily of the review of
annual tax returns and include amounts for professional services by the
predecessor principal accountant for tax compliance, tax advice and tax
planning.
(d) Aggregate All Other Fees billed by the principal accountant for professional
services rendered during the fiscal years ended December 31, 2004 and December
31, 2003 are as follows:
2004 2003
$0 $0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) above.
None of the amounts described in paragraphs (a) through (d) above were approved
pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The policy of the registrant's Audit Committee is to specifically pre-approve
(i) all audit and non-audit (including audit related, tax and all other)
services provided by the registrant's independent auditor to the registrant and
individual funds (collectively "Fund Services") and (ii) all non-audit services
provided by the registrant's independent auditor to the funds' adviser or a
control affiliate of the adviser, that relate directly to the funds' operations
and financial reporting (collectively "Fund-related Adviser Services"). A
"control affiliate" is an entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the funds, and the
term "adviser" is deemed
to exclude any unaffiliated sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser.
If such Fund Services or Fund-related Adviser Services are required during the
period between the Audit Committee's regularly scheduled meetings, the Chairman
of the Audit Committee has the authority to pre-approve the service, with
reporting to the full Audit Committee at the next regularly scheduled meeting.
The Audit Committee will waive pre-approval of Fund Services or Fund-related
Adviser Services provided that the requirements under paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X are met.
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
December 31, 2004 and December 31, 2003 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended December 31, 2004 and
December 31, 2003 are disclosed in (b) through (d) of this Item.
During the fiscal years ended December 31, 2004 and December 31, 2003, there
were no Audit-Related Fees or Tax Fees that were approved for services to the
investment adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser) and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant under paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X. During the fiscal years ended
December 31, 2004 and December 31, 2003, All Other Fees that were approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X were
approximately $93,500 and $95,000, respectively. For both fiscal years, All
Other Fees relate to internal controls reviews of the registrant's transfer
agent performed by the current principal accountant.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to be
approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were
approved under the "de minimis" exception during both fiscal years ended
December 31, 2004 and December 31, 2003 was zero.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with
maintaining the principal accountant's independence. The Audit Committee
determined that the provision of such services is compatible with maintaining
the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
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.
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.
On September 29, 2004, the registrant adopted procedures for consideration of
Trustee candidates submitted by shareholders. The Trust's Governance Committee
(the "Committee") is responsible for identifying and nominating candidates for
appointment as Trustees. Although the registrant's investment adviser, Trustees,
or shareholders may submit suggested candidates for Independent Trustees to the
Committee, neither the Committee nor the Independent Trustees as a group shall
consider those candidates on a preferential basis as opposed to other possible
candidates. Any shareholders may submit the name of a candidate for
consideration by the Committee by submitting the recommendation to the Trust's
Secretary in accordance with the procedures. A copy of these procedures, which
include the information required to be submitted in a shareholder nomination,
may be obtained by contacting the Secretary of the Trust, at the address of the
principal executive offices of the Trust. The Secretary will forward any such
recommendation to the Chairman of the Committee promptly upon receipt.
Recommendations for candidates for Trustees will be evaluated, among other
things, in light of whether the number of Trustees
is expected to change and whether the Trustees expect any vacancies. Shareholder
recommendations will be kept on file until active recruitment is underway.
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 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 were no changes 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
attached hereto as Exhibit 99.CODE ETH.
(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.
(registrant) Wanger Advisors Trust
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By (Signature and Title) /S/ Charles P. McQuaid
------------------------------------------------------
Charles P. McQuaid, President
Date February 28, 2005
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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/ Charles P. McQuaid
------------------------------------------------------
Charles P. McQuaid, President
Date February 28, 2005
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By (Signature and Title) /S/ Bruce H. Lauer
------------------------------------------------------
Bruce H. Lauer, Treasurer
Date February 28, 2005
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