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: 12/31/05
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Date of reporting period: 06/30/05
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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
2005 Semiannual Report
[Graphic: squirrel]
WANGER ADVISORS FUNDS
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managed by Columbia Wanger Asset Management, L.P.
[Graphic: squirrel]
WANGER U.S. SMALLER COMPANIES
2005 SEMIANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 Discipline and Creativity
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
19 Management Fee Evaluation of the Senior Officer
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 $23.5 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.
COLUMBIA MANAGEMENT IS THE PRIMARY INVESTMENT MANAGEMENT DIVISION OF BANK
OF AMERICA CORPORATION. COLUMBIA MANAGEMENT ENTITIES FURNISH INVESTMENT
MANAGEMENT SERVICES AND ADVISE INSTITUTIONAL AND MUTUAL FUND PORTFOLIOS.
COLUMBIA WAM IS AN SEC-REGISTERED INVESTMENT ADVISER AND WHOLLY OWNED SUBSIDIARY
OF BANK OF AMERICA, N.A. COLUMBIA WANGER IS PART OF COLUMBIA MANAGEMENT.
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 WANGER ADVISORS FUNDS.
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 2005 Semiannual 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 ongoing 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 $8,600.00 at the end of the period, the result would be 8.6.
2. In the section of the table below titled "Expenses paid during the period,"
locate the amount for your fund. You will find this number is in the column
labeled "actual." Multiply this number by the result from step 1. Your
answer is an estimate of the expenses you paid on your account during the
period.
January 1, 2005 - June 30, 2005
Account value at the Account value at the Expenses paid during Fund's annualized
beginning of the period ($) 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 1,033.52 1,020.08 4.79 4.76 0.95
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
365.
Had the investment adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
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 6/30/05.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 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 2005 Semiannual Report
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[Graphic: squirrel]
DISCIPLINE AND CREATIVITY
Photo of: RALPH WANGER
RALPH WANGER
Founder, Advisor and Trustee
Columbia Wanger Asset Management, L.P.
A popular new book by Tom Friedman, "The World Is Flat: A Brief History of the
Twenty-First Century," recounts how developing countries such as India and China
are using modern technology to compete with the United States in both
manufacturing and services. He contrasts the success of China and India to the
failure of the Arab states to participate in the modern world. He deplores the
influence of Yamani, the former Saudi oil minister, who used oil as an economic
weapon, and Osama Bin Laden who uses terror as a political weapon. Friedman
compares the stagnant current state of Arab culture with its peak in the 12th
century. "What makes Yamanism and Bin Ladenism unfortunate as strategies for the
Arabic world is that they ignore the examples within the Arab culture and
civilization - when it was at its height - of discipline, hard work, knowledge,
achievement, scientific inquiry, and pluralism."1
The popular Susan Hockfield was just installed as president of MIT. In her
inaugural speech she invoked her list of virtues. She said, "The value of
engineering - the rigor; the unflappable curiosity; the discipline and
creativity; the appetite for good, old fashioned hard work; the passionate,
enthusiastic, can do, hands-on, fix-it-now attitude - these values are and
always will be the values of MIT."
The rules for success in the world don't seem to have changed very much. Twelfth
century Cordoba and 21st century Cambridge are completely different in almost
every way, but the characteristics that make you successful have not changed.
Any financial analyst or serious investor should apply the engineer's
characteristics of discipline, hard work, knowledge and enthusiasm to investing.
President Hockfield's linking of discipline and creativity is interesting. It's
widely believed that we should diversify and balance our investments. We balance
stocks vs. bonds, growth stocks vs. value stocks, big-cap vs. small-cap stocks,
and U.S. stocks vs. international, but it is unusual to think of the balance
between discipline and creativity; yet this balance is what I believe brings
good investment results. Discipline without creativity is sterile - you tend to
get an index fund. Index funds run by computer algorithm are boring and backward
looking - although they have a significant place in investment portfolios.
Creativity without discipline tends to result in wild speculation and
money-losing results. We all remember the dot.com's in 1999 when the market was
dominated by speculators who ignored valuation in favor of science-fiction
fantasies. The resulting bubble was a seductive, narcotic experience for a year
or two but of course ended very badly. We believe the Wanger Funds have been
successful because our analysts have been able to maintain a balance between
discipline and creativity.
WE ARE NOT MANUFACTURERS
Organizations that are in the business of marketing mutual funds often prefer
discipline and are made nervous by creativity. For instance, Raymond "Chip"
Mason, chairman of Legg Mason, a major force in the mutual fund business, said
recently, "For two years we've been looking to cross the line and become pure
asset management. All the regulators have been pointing toward the need to
separate the manufacturing and distribution businesses."2
I have been in corporate meetings in which mutual fund portfolio management was
called "manufacturing" but this is a strange and inapt metaphor. Manufacturers
make products. Mutual funds are not a product. Cap'n Crunch cereal is a product.
When you go to the store to buy a new box of Cap'n Crunch you expect the taste
and nutrition performance to be exactly like the last box. Manufacturing cereal
is very disciplined resulting in high quality and high reliability, so that
every box is identical. Since you are a mutual fund shareholder you know that a
mutual fund could be a lot better or a lot worse than you expected when you
bought it. Investing involves forecasting the future, but forecasting is an
uncertain and sloppy process. While discipline is important, you need a lot of
creativity as well.
Predicting the future does not require a fortune teller with a crystal ball. It
is more like watching a skilled athlete. When you go to a baseball game and a
batter hits a fly ball to left field, the fielder will see the ball heading his
direction and, by experience, run to where the ball is going to land and make
what looks like a routine catch. The fielder has to predict the flight of the
ball, which for a physicist would require solving a complicated equation, but
the player shows that it is not an impossible task. Like the outfielder, we have
figured out where trends are likely going to land with reasonable success. As in
baseball, the ball can elude the fielder and the batter ends up on second base.
Sometimes our analysts miss the ball too, but for the full season we tend to
catch more balls than we miss.
TWO WHEELS GOOD, FOUR WHEELS BAD
Other teams haven't done so well. Forty years ago, major U.S. car makers were
among the largest companies in the world and were highly profitable. Since then,
the U.S. automotive industry has fallen into a long slump. Their corporate bonds
have been downgraded in quality, which is a definite sign of financial problems.
I believe that these companies were complacent and arrogant, so the German and
Japanese car makers beat them up.
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Wanger U.S. Smaller Companies 2005 Semiannual Report
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A long time ago, perhaps 1966, I attended a meeting of the Chicago Science
Analysts with the General Time Corporation. The company's main business was
making name-brand clocks like Seth Thomas and Big Ben. It also made automobile
clocks. The clocks were sold as accessories with the car. They were mechanical
clocks because electronic clocks hadn't yet been invented. They worked for about
three months and then broke. The U.S. automotive giant that bought the clocks
from General Time paid $3.25 per clock and resold it to the customer for $21. I
asked the president of General Time why his clocks didn't work better. I knew
this was an impertinent question but I wanted to see how he would react. I
expected him to take a defensive position retorting that the clocks were fine
but weren't being used correctly. To my surprise he admitted that the clocks
were lousy and he explained why.
General Time couldn't make a good clock for $3.25. The clock needed an
additional component that would have made it a sturdy, reliable device, but this
improvement would have raised the selling price to $3.75. Its customer, the
automobile manufacturer, was adamant about sticking to the lower price. Even to
an inexperienced analyst, as I was in 1966, I did not see how the automaker
could prosper if it was not delivering a high-quality car. Such a successful
company could have paid $3.75 for a clock and sold it for a decent profit even
if it kept the price at $21. While this would have been a less enormous markup,
the car likely would have been a better vehicle. If the automaker was willing to
sell a crummy clock, then I thought that customers would perceive that it was
cutting corners on all the other components of the vehicle too. Bad clock, bad
car. This willingness to forego quality for price made room for the imports.
Why am I bringing up an anecdote from 40 years ago? I think there are some
useful lessons here for financial analysts and investors. First, in a management
meeting it is okay to ask tough questions. You get more meaningful answers that
way. Second, you can find out a lot about a company by talking to its suppliers
or customers. Company spokesmen will only give you their own corporate press
release. Third, a long-term trend will take a long time to develop but it is
enormously important.
At the time of my 1966 meeting, U.S. automakers were riding high because foreign
car imports were not yet a problem. In 1960, Japan exported only 39,000
vehicles. By 1970, the Japanese were starting to exploit the lower quality of
U.S. cars and exported 1.1 million cars. In 1980, exports rose to 6 million and
the Japanese were producing more vehicles than U.S. manufacturers. U.S.
automotive companies had to react to the loss of market share from high-quality
imports. However, once there is a loss of market share, it is not usually
readily reversible.
DAVID ALWAYS BEATS GOLIATH
There are several lessons we can learn from the decline of Arab civilization and
the problems of U.S. auto companies: (1) To operate a successful business, the
world is too competitive to be complacent. Like baseball players, companies have
to fight to keep their position on the team. Great U.S. businesses must
constantly compete in the world market and it is darn tough. (2) Big companies
are often just big targets. Small companies are hungry to succeed and are
constantly focused on improving with the hope of taking some of the flabby
giant's customers. (3) History provides a useful context. Discipline,
creativity, hard work, knowledge, achievement, and a can-do, hands-on,
fix-it-now attitude worked in the past and will work now. (4) We believe
small-cap investing works if you can identify the hungry, small companies whose
employees embrace our list of exemplary values. The core investment strategy of
the Wanger Advisors Funds has always been to try to find small- and mid-cap
companies that are on the way up. We don't want to own once-great companies that
are now on their way down. This is partly a matter of personal taste, because we
find following big, sick companies to be depressing. Even though there are
occasional turnarounds in these big companies, it seems to us that is not the
way to bet.
SO LONG AND BEST REGARDS!
This is my final "Squirrel Chatter." I am retiring from Columbia Wanger Asset
Management as of September 30. While I considered writing a few more essays,
current regulatory rules are not conducive to the free-ranging thought that was
characteristic of these essays. I have great confidence in Chuck McQuaid and his
team of analysts and portfolio managers to keep the performance of the Funds at
a competitive level. Thank you, fellow shareholders, for your support over 35
years. I regard myself as truly fortunate to have been able to build a career in
this exciting industry. I am especially proud that we have enabled thousands of
our shareholders to pursue their economic goals by investing in our funds.
COLUMBIA WAM NEWS
We are pleased to announce that Ashish Kohli has joined our domestic analyst
team to follow health care. Jason Selch, who followed energy, departed in May.
We are searching for his replacement and continue to talk to some promising
candidates. Your Wanger Advisors Trust investment team includes 20 investment
analysts and portfolio managers.
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1 Friedman, Thomas, The World Is Flat: A Brief History of the Twenty-first
Century, Farrar, Straus and Giroux, 2005. Page 405.
2 Raymond "Chip" Mason, chairman of Legg Mason, The Wall Street Journal, June
27, 2005, page C1.
3
[Graphic: squirrel]
Wanger U.S. Smaller Companies 2005 Semiannual Report
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PERFORMANCE REVIEW WANGER U.S. SMALLER COMPANIES
PHOTO OF: ROBERT A. MOHN
ROBERT A. MOHN
Portfolio Manager
Wanger U.S. Smaller Companies finished the first half of 2005 up 3.35%, nicely
ahead of the Russell 2000 Index's loss of 1.25%. Performance data quoted
represents past performance and current performance may be lower or higher. Past
performance is no guarantee of future results. The investment return and
principal value will fluctuate so that shares, when redeemed, may be worth more
or less than the original cost. Please visit www.columbiafunds.com for daily and
most recent month-end performance updates.
Rising oil prices lifted energy stocks over the last six months. Our energy
portfolio was stocked with companies benefiting not only from higher commodity
prices, but also from strong internal production growth. Top holdings
Quicksilver, up 74%, and Southwestern Energy, up 85%, had exciting new drilling
prospects in the Barnet and Fayetteville gas fields. Cuno, a water filtration
company, spiked after announcing it was being acquired. Many of the Fund's
holdings had been attractive to larger corporate acquirers. Cuno was the fifth
company in the Fund to be bought out this year, joining Western Wireless and
Brookstone.
Other winners for the six-month period were retailers Chico's FAS, up 51%, and
home-goods and furnishings retailer Restoration Hardware, up 44%.
Our worst-performing group year-to-date was technology. SeaChange International
dropped 60% as sales of its video-on-demand servers fell short. The turnaround
at mobile computing and bar-code scanner company Symbol Technologies, down 43%,
has taken longer than hoped, which sent its stock lower.
The U.S. stock market has been stuck in a see-saw trading range for the past 18
months. Flat markets like this one may not make for exciting business headlines
but were just as plentiful with investment opportunities as the good old Roaring
Nineties bull markets.
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 6/30/05, the Fund's positions in the stocks mentioned were: Quicksilver
Resources, 0.7%; Southwestern Energy, 0.4%; Cuno, 0.7%; Western Wireless, 2.7.%;
Brookstone, 0.2%; Chico's FAS, 0.6%; Restoration Hardware, 0.3%; SeaChange
International, 0.2%; Symbol Technologies, 0.7%.
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Wanger U.S. Smaller Companies 2005 Semiannual 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 JUNE 30, 2005
AVERAGE ANNUAL RETURN
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1 year 5 years 10 years Life of fund
15.01% 11.78% 15.26% 15.85%
LINE CHART:
WANGER U.S.
SMALLER COMPANIES Russell 2000
5/3/95 10000 10000
9870 10179
6/30/95 10770 10707
11560 11324
11940 11559
9/30/95 12060 11765
11380 11239
11640 11711
12/31/95 11600 12020
11950 12007
12580 12381
3/31/96 13297 12633
14690 13309
15471 13833
6/30/96 15351 13265
14529 12107
15090 12810
9/30/96 15792 13310
15902 13105
16423 13645
12/31/96 17004 14003
17475 14282
16994 13936
3/31/97 16366 13279
16355 13316
17986 14797
6/30/97 19093 15431
20201 16149
20703 16519
9/30/97 22395 17728
21995 16949
21892 16839
12/31/97 22005 17134
21554 16864
23379 18111
3/31/98 24865 18858
25803 18962
24887 17941
6/30/98 25361 17978
23959 16523
20358 13315
9/30/98 20875 14356
21598 14942
22601 15725
12/31/98 23916 16698
23453 16920
22223 15549
3/31/99 22388 15792
24321 17207
25005 17459
6/30/99 26375 18248
27216 17747
25677 17090
9/30/99 25389 17094
26940 17163
28202 18188
12/31/99 29909 20247
28911 19922
30029 23212
3/31/00 29077 21682
26164 20377
24858 19189
6/30/00 25545 20862
25174 20191
26672 21731
9/30/00 26741 21093
26768 20151
25147 18083
12/31/00 27469 19636
27936 20658
27469 19302
3/31/01 26306 18358
29276 19794
30473 20281
6/30/01 31669 20981
31710 19845
30308 19204
9/30/01 26567 16619
27214 17592
28988 18954
12/31/01 30597 20124
30528 19914
29634 19369
3/31/02 32219 20925
32247 21116
30652 20179
6/30/02 28754 19178
25027 16281
24959 16240
9/30/02 23226 15073
24546 15557
26499 16945
12/31/02 25454 16002
24959 15559
24601 15089
3/31/03 24670 15283
26815 16732
29125 18528
6/30/03 29717 18863
31463 20043
33168 20962
9/30/03 32549 20575
35643 22303
36193 23094
12/31/03 36455 23563
38105 24587
37789 24807
3/31/04 37417 25038
36592 23762
37857 24140
6/30/04 38765 25157
36578 23463
36358 23342
9/30/04 37665 24438
38999 24919
41763 27080
12/31/04 43138 27882
42368 26719
43124 27171
3/31/05 42794 26393
40786 24882
42973 26510
6/30/05 44582 27533
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 June 30,
2005, 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.
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RESULTS AS OF JUNE 30, 2005
Year
2nd quarter to date 1 year
WANGER U.S. SMALLER
COMPANIES 4.18% 3.35% 15.01%
Russell 2000 4.32 -1.25 9.45
S&P MidCap 400 4.26 3.85 14.03
S&P 500 1.37 -0.81 6.32
NAV AS OF 6/30/05: $32.42
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.
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TOP 5 SECTORS
As a % of net assets, as of 6/30/05
Information 26.4%
Consumer Goods/Services 20.0
Health Care 12.9
Energy/Minerals 12.6
Industrial Goods/Services 9.8
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TOP 10 HOLDINGS
As a % of net assets, as of 6/30/05
1. ITT Educational Services 4.1%
Technology Oriented Postsecondary Degree Programs
2. Lincare Holdings 2.8%
Home Health Care Services
3. Western Wireless 2.7%
Rural Cellular Phone Services
4. AmeriCredit 2.3%
Auto Lending
5. Micros Systems 2.1%
Information Systems for Restaurants & Hotels
6. Esco Technologies 1.9%
Automatic Electric Meter Readers
7. Chicago Bridge & Iron 1.9%
Engineering & Construction for Petrochemicals & LNG
8. Kronos 1.8%
Labor Management Solutions
9. Genlyte Group 1.6%
Commercial Lighting Fixtures
10. Abercrombie & Fitch 1.5%
Teen Apparel Retailer
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Wanger U.S. Smaller Companies 2005 Semiannual Report
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WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
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Number of Value
Shares
COMMON STOCKS - 90.7%
INFORMATION - 26.4%
- --------------------------------------------------------------------------------
BUSINESS/CONSUMER SOFTWARE - 7.0%
595,800 Micros Systems (b) $26,662,050
Information Systems for Restaurants & Hotels
563,437 Kronos (b) 22,757,220
Labor Management Solutions
2,030,000 Novell (b) 12,586,000
Security & Identity Management Software
1,030,000 JDA Software Group (b) 11,721,400
Applications/Software & Services for Retailers
429,800 MRO Software (b) 6,279,378
Enterprise Maintenance Software
218,500 SSA Global Technologies (b) 2,622,000
Enterprise Resource Planning (ERP) Software
628,200 E.Piphany (b) 2,186,136
CRM Software
60,000 Maximus 2,117,400
Outsourcer For Government
820,000 Indus International 2,017,200
Enterprise Asset Management Software
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88,948,784
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TELECOMMUNICATION SERVICES - 6.0%
807,000 Western Wireless (b) 34,136,100
Rural Cellular Phone Services
368,300 Commonwealth Telephone 15,435,453
Rural Phone Franchises & CLEC
640,000 American Tower (b) 13,452,800
Communication Towers in USA & Mexico
495,000 Crown Castle International (b) 10,058,400
Communication Towers
46,000 Telephone & Data Systems 1,877,260
46,000 Telephone & Data Systems Cl. S 1,763,640
Cellular & Telephone Services
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76,723,653
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 2.2%
1,315,000 Tellabs (b) 11,440,500
Telecommunications Equipment
997,800 Aspect Telecommunications (b) 11,205,294
Call Center Equipment
340,000 Andrew (b) 4,338,400
Wireless Infrastructure Equipment
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
100,000 Symmetricom (b) $1,037,000
Network Timing & Synchronization Devices
- --------------------------------------------------------------------------------
28,021,194
- --------------------------------------------------------------------------------
TRANSACTION PROCESSORS - 1.9%
273,440 Global Payments 18,539,232
Credit Card Processor
448,000 Pegasus Systems (b) 4,995,200
Transaction Processor for Hotel Industry
- --------------------------------------------------------------------------------
23,534,432
- --------------------------------------------------------------------------------
BUSINESS INFORMATION/BUSINESS
SERVICES/PUBLISHING - 1.8%
153,700 Getty Images (b) 11,413,762
Photographs for Publications & Electronic Media
443,200 Navigant Consulting (b) 7,826,912
Financial Consulting Firm
200,000 InfoUSA (b) 2,340,000
Business Data for Sales Leads
90,000 Ceridian (b) 1,753,200
HR Services & Payment Processing
- --------------------------------------------------------------------------------
23,333,874
- --------------------------------------------------------------------------------
COMPUTER HARDWARE/RELATED SYSTEMS - 1.8%
880,000 Symbol Technologies 8,685,600
Mobile Computers & Barcode Scanners
81,600 Rogers (b) 3,308,880
PCB Laminates & High Performance Foams
120,000 Unova 3,195,600
Barcode & Wireless LAN Systems
415,800 Seachange International (b) 2,918,916
Systems for Video on Demand & Ad Insertion
195,000 CTS 2,396,550
Electronic Components, Sensors & EMS
50,000 Avocent (b) 1,307,000
Computer Control Switches
35,000 Applied Films (b) 896,000
Thin-Film Glass Coating Equipment
301,205 SensAble Technologies Series C Pfd. (b)(d) 280,121
1,581,292 SensAble Technologies (b)(d) 63,252
Sensory Devices for Computer Based Sculpting
- --------------------------------------------------------------------------------
23,051,919
See accompanying notes to financial statements.
6
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
RADIO - 1.4%
455,900 Salem Communications (b) $9,045,056
Radio Stations for Religious Programming
515,000 Spanish Broadcasting (b) 5,144,850
Spanish Language Radio Stations
130,900 Saga Communications (b) 1,832,600
Radio Stations in Small & Mid-sized Cities
110,000 Cumulus Media, Cl. A 1,295,800
Radio Stations in Small Cities
- --------------------------------------------------------------------------------
17,318,306
- --------------------------------------------------------------------------------
SEMICONDUCTORS/RELATED EQUIPMENT - 1.2%
325,000 Integrated Circuit Systems (b) 6,708,000
Silicon Timing Devices
445,000 Entegris (b) 4,405,500
Semiconductor Wafer Shipping & Handling Products
70,000 Littelfuse (b) 1,949,500
Little Fuses
125,900 IXYS (b) 1,785,262
Power Semiconductors
41,229 Pericom Semiconductor (b) 335,604
Interface Integrated Circuits
- --------------------------------------------------------------------------------
15,183,866
- --------------------------------------------------------------------------------
INSTRUMENTATION - 0.9%
288,000 Tektronix 6,701,760
Analytical Instruments
90,000 Trimble Navigation (b) 3,507,300
GPS-Based Instruments
25,000 Mettler Toledo (b) 1,164,500
Laboratory Equipment
- --------------------------------------------------------------------------------
11,373,560
- --------------------------------------------------------------------------------
INTERNET - 0.7%
355,000 ValueClick (b) 4,377,150
Internet Advertising
355,600 DoubleClick (b) 2,983,484
Internet Advertising & Direct Marketing Statistical Data
310,000 Skillsoft Publishing (b) 1,069,500
Provider of Web-Based Learning Solutions (E-Learning)
- --------------------------------------------------------------------------------
8,430,134
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
COMPUTER SERVICES - 0.5%
753,000 RCM Technologies (b)(c) $3,192,720
Technology Engineering Services
705,500 AnswerThink Consulting 2,504,525
IT Consultant Offering Best Practices Benchmarking
256,600 Analysts International (b) 877,572
Technology Staffing Services
- --------------------------------------------------------------------------------
6,574,817
- --------------------------------------------------------------------------------
TV/SATELLITE BROADCASTING - 0.4%
700,000 Entravision Communications (b) 5,453,000
Spanish Language TV, Radio & Outdoor
- --------------------------------------------------------------------------------
CONTRACT MANUFACTURING - 0.3%
220,000 Plexus (b) 3,130,600
Electronic Manufacturing Services
- --------------------------------------------------------------------------------
ELECTRONICS DISTRIBUTION - 0.2%
40,000 CDW 2,283,600
Technology Reseller
- --------------------------------------------------------------------------------
TELEVISION PROGRAMMING - 0.1%
138,500 Gray Television 1,670,310
Mid Market Affiliated TV Stations
- --------------------------------------------------------------------------------
INFORMATION - TOTAL 335,032,049
CONSUMER GOODS/SERVICES - 20.0%
- --------------------------------------------------------------------------------
RETAIL - 7.7%
280,000 Abercrombie & Fitch 19,236,000
Teen Apparel Retailer
405,750 Aeropostale (b) 13,633,200
Mall Based Teen Retailer
430,000 Petco Animal Supplies (b) 12,607,600
Pet Supplies & Services
230,000 Chico's FAS (b) 7,884,400
Women's Specialty Retail
265,000 Ann Taylor (b) 6,434,200
Womens Apparel Retailer
198,000 Zale Corp (b) 6,274,620
Specialty Retailer of Jewelry
339,150 Christopher & Banks 6,192,879
Women's Apparel Retailer
163,000 Genesco (b) 6,045,670
Multi-Concept Branded Footware Retailer
See accompanying notes to financial statements.
7
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
RETAIL - 7.7% (CONT)
530,000 Restoration Hardware (b) $4,335,400
Home Furnishing Retailer
100,000 Michaels Stores 4,137,000
Craft & Hobby Specialty Retailer
130,000 Sports Authority (b) 4,134,000
Sporting Goods Store
145,750 Hot Topic (b) 2,786,740
Music Inspired Retailer of Apparel, Accessories & Gifts
141,200 Brookstone (b) 2,665,856
Specialty Consumer Product Retailer
60,000 West Marine (b) 1,083,600
Largest Retailer of Boating Supplies
150,000 Gaiam (b) 1,044,000
Healthly Living Catalogs & E-Commerce
- --------------------------------------------------------------------------------
98,495,165
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 5.6%
972,000 ITT Educational Services (b) 51,924,240
Technology Oriented Post Secondary Degree Programs
390,000 Coinstar (b) 8,849,100
Owner/Operator of Coin Counting Machines
426,500 Central Parking 5,864,375
Owner, Operater & Manager of Parking Lots & Garages
80,000 Weight Watchers (b) 4,128,800
Weight Loss Program
- --------------------------------------------------------------------------------
70,766,515
- --------------------------------------------------------------------------------
APPAREL - 2.6%
424,000 Coach (b) 14,233,680
Designer & Retailer of Branded Leather Accessories
254,200 Oxford Industries 10,943,310
Branded & Private Label Apparel
427,000 Steven Madden (b) 7,583,520
Wholesaler/Retailer of Fashion Footware
- --------------------------------------------------------------------------------
32,760,510
- --------------------------------------------------------------------------------
ENTERTAINMENT/LEISURE PRODUCTS - 2.1%
336,300 International Speedway Motors 18,920,238
Largest Motorsport Racetrack Owner & Operator
390,000 Callaway Golf 6,017,700
Premium Golf Clubs & Balls
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
45,000 Speedway Motorsports $1,645,200
Motorsport Racetrack Owner & Operator
- --------------------------------------------------------------------------------
26,583,138
- --------------------------------------------------------------------------------
FURNITURE & TEXTILES - 1.1%
100,000 HNI 5,115,000
Office Furniture & Fireplaces
110,000 Herman Miller 3,392,400
Office Furniture
33,000 Mohawk Industries (b) 2,722,500
Carpet & Flooring
84,000 American Woodmark 2,520,840
Kitchen Cabinet Manufacturer
- --------------------------------------------------------------------------------
13,750,740
- --------------------------------------------------------------------------------
NON-DURABLES - 0.7%
117,000 Scotts Company (b) 8,331,570
Consumer Lawn & Garden Products
38,900 Prestige Brands (b) 758,550
OTC, Household & Personal Care Products
- --------------------------------------------------------------------------------
9,090,120
- --------------------------------------------------------------------------------
FOOD - 0.1%
62,000 NBTY (b) 1,608,280
Vitamins & Supplements
- --------------------------------------------------------------------------------
CASINOS - 0.1%
105,000 Alliance Gaming (b) 1,472,100
Diversified Gaming Company
- --------------------------------------------------------------------------------
CONSUMER GOODS/SERVICES - TOTAL 254,526,568
HEALTH CARE - 12.9%
- --------------------------------------------------------------------------------
SERVICES - 5.8%
866,000 Lincare Holdings (b) 35,367,440
Home Health Care Services
172,473 Coventry Health Care (b) 12,202,465
PPO Network
180,000 Charles River Laboratories (b) 8,685,000
Pharmaceutical Research
481,800 NDCHealth Group 8,657,946
Health Claims Processing & Drug Marketing Services
405,000 Serologicals (b) 8,606,250
Blood Collection & Antibody Production
- --------------------------------------------------------------------------------
73,519,101
See accompanying notes to financial statements.
8
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
MEDICAL EQUIPMENT - 4.0%
412,000 Edwards Lifesciences (b) $17,724,240
Heart Valves
246,300 Diagnostic Products 11,657,379
Immunodiagnostic Kits
190,000 Arrow International 6,061,000
Disposable Catheters
137,227 Advanced Medical Optics (b) 5,454,773
Medical Devices for Eye Care
93,500 Orthofix International (b) 4,024,240
Bone Fixation & Stimulation Devices
115,700 ICU Medical (b) 3,722,069
Intravenous Therapy Products
90,450 Intermagnetics General (b) 2,782,242
MRI Equipment
- --------------------------------------------------------------------------------
51,425,943
- --------------------------------------------------------------------------------
BIOTECHNOLOGY/DRUG DELIVERY - 1.9%
246,500 Neurocrine Biosciences (b) 10,367,790
Drugs for Sleep, Diabetes, MS & Endometriosis
350,000 AtheroGenics (b) 5,593,000
Drugs for Atherosclerosis
270,000 Nektar Therapeutics (b) 4,546,800
Drug Delivery Technologies
400,000 Lexicon Genetics (b) 1,976,000
Drug Discovery
232,500 Ligand Pharmaceuticals (b) 1,615,875
Drugs for Pain, Cancer, Osteoporosis, & Diabetes
250,000 Locus Discovery, Series D Pfd. (d) 500,000
High Throughput Rational Drug Design
- --------------------------------------------------------------------------------
24,599,465
- --------------------------------------------------------------------------------
PHARMACEUTICALS - 0.8%
315,500 Par Pharmaceuticals (b) 10,036,055
Generics
- --------------------------------------------------------------------------------
MEDICAL SUPPLIES - 0.4%
100,700 Techne (b) 4,623,137
Cytokines, Antibodies, Other Reagents For Life Sciences
- --------------------------------------------------------------------------------
HEALTH CARE - TOTAL 164,203,701
- --------------------------------------------------------------------------------
Number of Value
Shares
ENERGY/MINERALS - 12.6%
- --------------------------------------------------------------------------------
OIL SERVICES - 6.7%
1,065,000 Chicago Bridge & Iron $24,345,900
Engineering & Construction for Petrochemicals & LNG
490,700 FMC Technologies (b) 15,687,679
Oil & Gas Well Head Manufacturer
580,000 Pride International (b) 14,906,000
Offshore Drilling Contractor
1,231,000 Newpark Resources (b) 9,232,500
Drilling Fluid Services to Oil & Gas Industry
95,000 Carbo Ceramics 7,501,200
Natural Gas Well Stimulants
625,000 Hanover Compressor (b) 7,193,750
Natural Gas Compressor Rental
266,800 Pioneer Drilling (b) 4,071,368
Oil & Gas Well Driller
205,000 Key Energy Services (b) 2,480,500
Oil & Gas Well Workover Services
- --------------------------------------------------------------------------------
85,418,897
- --------------------------------------------------------------------------------
OIL/GAS PRODUCERS - 3.1%
430,000 Ultra Petroleum (b) 13,054,800
Natural Gas Producer
296,000 Western Gas 10,330,400
Oil Producer & Coal Seam Gas Producer
130,000 Quicksilver Resources (b) 8,310,900
Natural Gas & Coal Seam Gas Producer
96,800 Southwestern Energy (b) 4,547,664
Oil & Gas Exploration/Production
450,000 Vaalco Energy (b) 1,557,000
Oil & Gas Producer
71,500 McMoran Exploration (b) 1,394,965
Natural Gas Producers & LNG Developer
- --------------------------------------------------------------------------------
39,195,729
- --------------------------------------------------------------------------------
DISTRIBUTION/MARKETING/REFINING - 2.8%
460,000 Oneok 15,019,000
Natural Gas Utility, Marketing & Processing
208,000 Equitable Resources 14,144,000
Natural Gas Producer & Utility
231,000 Atmos Energy 6,652,800
Natural Gas Utility
- --------------------------------------------------------------------------------
35,815,800
- --------------------------------------------------------------------------------
ENERGY/MINERALS - TOTAL 160,430,426
See accompanying notes to financial statements.
9
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
INDUSTRIAL GOODS/SERVICES - 9.8%
- --------------------------------------------------------------------------------
MACHINERY - 3.6%
243,000 Esco Technologies (b) $24,494,400
Automatic Electric Meter Readers
210,000 Ametek 8,788,500
Aerospace/Industrial Instruments
211,800 Nordson 7,260,504
Dispensing Systems for Adhesives & Coatings
78,000 Pentair 3,339,180
Pumps, Water Treatment & Tools
50,000 Kaydon 1,392,500
Specialized Friction & Motion Control Products
- --------------------------------------------------------------------------------
45,275,084
- --------------------------------------------------------------------------------
INDUSTRIAL GOODS - 2.8%
408,000 Genlyte Group (b) 19,885,920
Commercial Lighting Fixtures
165,300 Mine Safety Appliances 7,636,860
Safety Equipment
196,000 Clarcor 5,733,000
Mobile & Industrial Filters
75,000 Donaldson 2,274,750
Industrial Air Filtration
- --------------------------------------------------------------------------------
35,530,530
- --------------------------------------------------------------------------------
WATER - 0.8%
133,000 Cuno (b) 9,501,520
Filtration & Fluids Clarification
- --------------------------------------------------------------------------------
CONSTRUCTION - 0.7%
127,600 Florida Rock Industries 9,359,460
Concrete & Aggregates
- --------------------------------------------------------------------------------
INDUSTRIAL DISTRIBUTION - 0.6%
100,000 Aviall (b) 3,159,000
Aircraft Replacement Parts Distributor
113,000 Nuco2 (b) 2,900,710
Bulk CO2 Gas Distribution to Restaurants
50,000 Airgas 1,233,500
Industrial Gas Distributor
- --------------------------------------------------------------------------------
7,293,210
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS & INDUSTRIAL MATERIALS - 0.5%
357,500 Spartech $6,363,500
Plastics Distribution & Compounding
- --------------------------------------------------------------------------------
OUTSOURCING SERVICES - 0.3%
450,000 Quanta Services (b) 3,960,000
Electrical & Telecom Construction Services
- --------------------------------------------------------------------------------
LOGISTICS - 0.3%
130,000 Forward Air 3,675,100
Freight Transportation Between Airports
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES - 0.1%
125,000 Clark 1,791,250
Executive Compensation & Benefits Consulting
- --------------------------------------------------------------------------------
STEEL - 0.1%
75,000 Gibraltar Industries 1,390,500
Steel Processing
- --------------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES - TOTAL 124,140,154
FINANCE - 8.0%
- --------------------------------------------------------------------------------
INSURANCE - 3.1%
447,000 HCC Insurance Holdings 16,927,890
Specialty Insurance
36,500 Markel (b) 12,373,500
Specialty Insurance
138,000 Leucaudia National 5,330,940
Insurance Holding Company
35,000 Philadelphia Consolidated Holding (b) 2,966,600
Specialty Insurance
77,000 United America Indemnity (b) 1,323,630
Specialty Insurance
- --------------------------------------------------------------------------------
38,922,560
- --------------------------------------------------------------------------------
FINANCE COMPANIES - 2.8%
1,135,400 AmeriCredit (b) 28,952,700
Auto Lending
217,100 World Acceptance (b) 6,523,855
Personal Loans
- --------------------------------------------------------------------------------
35,476,555
See accompanying notes to financial statements.
10
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
BANKS/SAVINGS & LOANS - 1.2%
317,000 TCF Financial $8,203,960
Great Lakes Bank
131,875 Chittenden 3,587,000
Vermont & Western Massachusetts Bank
85,200 Anchor Bancorp Wisconsin 2,578,152
Wisconsin Thrift
20,000 First Financial BankShares 676,800
West Texas Bank
30,000 West Bancorporation 564,000
Des Moines Commercial Bank
- --------------------------------------------------------------------------------
15,609,912
- --------------------------------------------------------------------------------
MONEY MANAGEMENT - 0.9%
321,000 SEI Investments 11,989,350
Mutual Fund Administration & Investment Management
- --------------------------------------------------------------------------------
FINANCE - TOTAL 101,998,377
OTHER INDUSTRIES - 1.0%
- --------------------------------------------------------------------------------
REGULATED UTILITIES - 0.6%
345,000 Northeast Utilities 7,196,700
Regulated Electric Utility
- --------------------------------------------------------------------------------
REAL ESTATE - 0.2%
100,000 Crescent Real Estate Equities 1,875,000
Class A Office Buildings
25,000 Highland Hospitality 261,250
Hotel Real Estate Investment Trust
- --------------------------------------------------------------------------------
2,136,250
- --------------------------------------------------------------------------------
TRANSPORTATION - 0.1%
87,800 Heartland Express 1,705,954
Regional Trucker
- --------------------------------------------------------------------------------
WASTE MANAGEMENT - 0.1%
42,800 Waste Connections (b) 1,596,012
Solid Waste Management
- --------------------------------------------------------------------------------
OTHER INDUSTRIES- TOTAL 12,634,916
TOTAL COMMON STOCKS - 90.7% 1,152,966,191
- --------------------------------------------------------------------------------
(COST $737,343,416)
- --------------------------------------------------------------------------------
Principal Value
Amount
SHORT-TERM OBLIGATIONS - 9.6%
- --------------------------------------------------------------------------------
$32,000,000 Verizon Network 3.26% - 7/8/05 $31,979,716
30,000,000 Prudential Funding 3.10% - 7/1/05 30,000,000
30,000,000 General Electric Capital 3.25% -
7/7/05 29,983,750
26,000,000 Toyota Credit 3.25% - 7/6/05 25,988,264
4,492,000 Repurchase Agreement with State
Street Bank & Trust dated 6/30/05 due 7/1/05 at 3.00%
collateralized by Federal National Mortgage Association Notes,
maturing 3/24/08, market value $4,586,625
(repurchase proceeds: $4,492,374) 4,492,000
- --------------------------------------------------------------------------------
(AMORTIZED COST $122,443,730) 122,443,730
TOTAL INVESTMENTS (COST: $859,787,146) - 100.3% (a) 1,275,409,921
- --------------------------------------------------------------------------------
CASH AND OTHER ASSETS LESS LIABILITIES - (0.3%) (4,031,247)
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $1,271,378,674
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
(a) At June 30, 2005, for federal income tax purposes cost of investments was
$859,787,146 and net unrealized appreciation was $415,622,775 consisting of
gross unrealized appreciation of $458,005,672 and gross unrealized
depreciation of $42,382,897
(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 June 30, 2005, the Fund held five
percent or more of the outstanding voting securities of the following
company:
RCM Technologies 6.61%
The aggregate cost and value of this company at June 30, 2005, was
$5,474,962 and $3,192,720, respectively. Investments in affiliate companies
represent 0.25% of total net assets at June 30, 2005. The change in
unrealized loss in affiliated companies amounted to $595,623 during the six
months ended June 30, 2005. There were proceeds from sales of affiliate
companies of $0 and net realized losses of $0 during the six months ended
June 30, 2005. There was no other investment activity during the period.
See accompanying notes to financial statements.
11
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER U.S. SMALLER COMPANIES
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
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
under consistently applied procedures as established by and under the
general supervision of the Board of Trustees. At June 30, 2005, these
securities amounted to $843,373 which represents 0.1% 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 1,000,000 280,121
SensAble Technologies
common 6/28/04 1,581,292 0 63,252
---------- --------
$2,000,000 $843,373
========== ========
At June 30, 2005, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
- --------------------------------------------------------------------------------
Information 26.4%
Consumer Goods/Services 20.0
Health Care 12.9
Energy/Minerals 12.6
Industrial Goods/Services 9.8
Finance 8.0
Other Industries 1.0
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 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
ASSETS
Unaffiliated investments, at cost $854,312,184
Affiliated investments, at cost (See Note 4) 5,474,962
- ----------------------------------------------------------------
Unaffiliated investments, at value $1,272,217,201
Affiliated investments, at value (See Note 4) 3,192,720
Cash 586
Receivable for:
Fund shares sold 358,469
Dividends and interest 224,716
Liquidated security 53,982
Foreign tax reclaims 6,495
- ----------------------------------------------------------------
Total Assets 1,276,054,169
LIABILITIES
Payable for:
Investments purchased 2,655,284
Fund shares repurchased 991,381
Investment advisory fees 913,204
Transfer agent fees 470
Custody fees 523
Trustees' fees 12,613
Legal and audit fees 58,203
Reports to shareholders 25,080
Other liabilities 18,737
- ----------------------------------------------------------------
Total Liabilities 4,675,495
- ----------------------------------------------------------------
Net Assets $1,271,378,674
================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $828,111,613
Undistributed net investment income 3,026,296
Accumulated net realized gain 24,564,008
Net unrealized appreciation on:
Investments 415,622,775
Liquidated security 53,982
- ----------------------------------------------------------------
Net Assets $1,271,378,674
================================================================
Fund shares outstanding 39,218,116
- ----------------------------------------------------------------
Net asset value, offering price and
redemption price per share $32.42
================================================================
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
INVESTMENT INCOME:
Dividend income (net of foreign taxes of $9,963) $7,008,317
Interest income 1,531,516
- ----------------------------------------------------------------
Total investment income 8,539,833
EXPENSES:
Investment advisory fees 5,271,869
Transfer agent fees 637
Trustees' fees 65,030
Custody fees 18,895
Compliance fees 21,595
Non-recurring costs (See Note 8) 9,743
Other expenses 161,134
- ----------------------------------------------------------------
Total expenses 5,548,903
Fees waived by Investment Advisor (See Note 4) (21,040)
Less custody fees paid indirectly (4,583)
Non-recurring costs reimbursed (See Note 8) (9,743)
- ----------------------------------------------------------------
Net Expenses 5,513,537
- ----------------------------------------------------------------
Net Investment Income 3,026,296
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain on investments 30,287,272
Net change in unrealized appreciation
(depreciation) on:
Unaffiliated investments 9,396,374
Affiliated investments (See Note 4) (595,623)
Liquidated security 53,982
- ----------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) 8,854,733
- ----------------------------------------------------------------
Net Gain 39,142,005
- ----------------------------------------------------------------
Net Increase in Net Assets from Operations $42,168,301
================================================================
See accompanying notes to financial statements.
13
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Six Months ended Year ended
INCREASE (DECREASE) IN NET ASSETS June 30, 2005 December 31, 2004
- -------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income (loss) $ 3,026,296 $ ($4,671,681)
Net realized gain on investments 30,287,272 29,992,766
Net change in unrealized appreciation (depreciation)
on investments 8,854,733 145,968,200
- -------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 42,168,301 171,289,285
SHARE TRANSACTIONS:
Subscriptions 119,222,535 231,841,890
Redemptions (43,565,315) (72,236,517)
- -------------------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 75,657,220 159,605,373
- -------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 117,825,521 330,894,658
NET ASSETS:
Beginning of period 1,153,553,153 822,658,495
- -------------------------------------------------------------------------------------------------------------------------------
End of period $1,271,378,674 $1,153,553,153
- -------------------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $ 3,026,296 $ --
===============================================================================================================================
See accompanying notes to financial statements.
14
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
Selected data for a share outstanding Six Months Ended Year Ended December 31,
throughout each period June 30, 2005 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $31.37 $26.51 $18.51 $22.25 $19.99 $24.88
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.08 (0.14) (0.11) (0.10) (0.04) 0.02
Net realized and unrealized gain (loss)
on investments 0.97 5.00 8.11 (3.64) 2.31 (1.82)
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.05 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 $32.42 $31.37 $26.51 $18.51 $22.25 $19.99
=================================================================================================================================
Total Return (b) 3.35% (c)(d) 18.33% 43.22% (16.81)% 11.39% (8.16)%
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses 0.95% (e)(f) 1.00% (e) 0.99% (e) 1.05% (e) 0.99% 1.00% (e)
Net investment income (loss) 0.52% (e)(f) (0.49)% (e) (0.48)% (e) (0.47)% (e) (0.20)% 0.07% (e)
Waiver 0.00% (f)(g) -- -- -- -- --
Portfolio turnover rate 9% (c) 15% 10% 16% 18% 36%
Net assets, end of period (000's) $1,271,379 $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) Not annualized.
(d) Had the investment adviser not waived a portion of expenses, total return
would have been reduced.
(e) The benefits derived from custody fees paid indirectly had no impact.
(f) Annualized.
(g) Rounds to less than 0.01%.
See accompanying notes to financial statements.
15
Wanger U.S. Smaller Companies 2005 Semiannual Report
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 under consistently applied
procedures established by and under the general supervision of 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
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes, was
UNREALIZED UNREALIZED NET UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------- ------------- --------------
$458,005,672 $42,382,897 $415,622,775
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
16
Wanger U.S. Smaller Companies 2005 Semiannual Report
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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.
Effective March 8, 2005, under the Fund's investment management agreement,
fees are accrued daily and paid monthly to Columbia WAM at the annual rates show
in the table below:
AVERAGE DAILY NET ASSETS ANNUAL FEE RATE
For the first $100 million 0.99%
Next $150 million 0.94%
In excess of $250 million 0.89%
Prior to March 8, 2005, under the Fund's investment management agreement,
fees were 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%
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 were retained at the following annual
rates as a percentage of average daily net assets: 0.99% - up to 100 million;
0.94% - $100 million to $250 million; 0.89% - $250 million and over. The fee
waiver was effective from January 1, 2005 through March 8, 2005, but applied as
if it had gone into effect on December 1, 2004.
The investment advisory agreement also provides that Columbia WAM will
reimburse the Fund to the extent that ordinary operating expenses, (computed
based on the net custodian fees) exceed an annual percentage of 2.00% of average
daily net assets. There was no reimbursement for the six months ended June 30,
2005.
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.90%.
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 six months ended June 30, 2005, the Fund
paid $65,030 to trustees not affiliated with Columbia WAM. 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 and
has subcontracted with Boston Financial Data Services ("BFDS") to serve as
subtransfer agent. For such services, the Transfer Agent receives a fee, paid
monthly, at the annual rate of $21.00 per open account. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
An affiliate may include any company in which a fund owns five percent or
more of its outstanding voting shares. On June 30, 2005, 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 six months ended June 30, 2005, 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 $372,750.
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 six months ended June 30, 2005.
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:
Six months ended Year ended
June 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------
Shares sold 3,848,756 8,353,055
- --------------------------------------------------------------------------------
Less shares redeemed 1,407,273 2,612,387
- --------------------------------------------------------------------------------
Net increase in shares outstanding 2,441,483 5,740,668
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the six months ended June 30, 2005 were $159,172,746 and
$91,873,640.
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
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as 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, the Columbia Group 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
17
Wanger U.S. Smaller Companies 2005 Semiannual Report
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
to review the Columbia Group'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 certain Columbia Funds, Nations Funds and other mutual funds
management fees 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, settlement amounts
described above 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 the Columbia Group and
the Fund's independent trustees 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, Columbia Acorn Trust, another mutual fund family advised by
Columbia WAM, and the trustees of Columbia Acorn Trust, are named as defendants
in class and derivative complaints which have been consolidated in a
Multi-District Action in the federal district court for the District of
Massachusetts. These lawsuits contend that defendants permitted certain
investors to market time their trades in certain Columbia Acorn Funds. The
Multi-District Action is ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot currently be made.
Columbia WAM, the Columbia Acorn Funds and the trustees of Columbia Acorn
Trust are defendants in a consolidated lawsuit filed in the federal district
court of Massachusetts 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 the Trust breached certain common laws duties
and federal laws.
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
Funds' net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV
(the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the
district court. However, plaintiffs are in the process of appealing that
decision.
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 Columbia WAM and affiliated advisers. The
trustees of Columbia Acorn Trust and Columbia WAM have been dismissed as
defendants in this lawsuit.
On March 21, 2005, a class action complaint was filed against the Columbia
Acorn Trust and Columbia WAM seeking to rescind the Contingent Deferred Sales
Charges assessed upon redemption of Class B shares of Columbia Acorn Funds due
to the alleged market timing of the Columbia Acorn Funds. In addition to the
rescission of sales charges, plaintiffs seek recovery of actual damages,
attorneys' fees and costs. The case has been removed to the federal district
court of Massachusetts.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of Fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the Funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. However, based on currently available
information, the Columbia Acorn Trust believes that the likelihood that these
lawsuits will have a material adverse impact on any fund is remote, and Columbia
WAM believes that the lawsuits are not likely to materially affect its ability
to provide investment management services to the Funds.
For the six months ended June 30, 2005, CMG has assumed $9,743 in consulting
services and legal fees incurred by the Fund in connection with these matters.
9. SUBSEQUENT EVENT
Effective August 22, 2005, the Fund's distributor will be Columbia Management
Distributors, Inc. and the Fund's transfer agent will be Columbia Management
Services, Inc.
18
Wanger U.S. Smaller Companies 2005 Semiannual Report
- --------------------------------------------------------------------------------
[EXCERPTS FROM:]
Wanger Advisors Trust
Management Fee Evaluation of the Senior Officer
Prepared Pursuant to the New York Attorney General's
Assurance of Discontinuance
July 2005
19
Wanger U.S. Smaller Companies 2005 Semiannual Report
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Introduction
The New York Attorney General's Assurance of Discontinuance ("Order") entered
into by Columbia Management Advisors, Inc. ("CMAI") and Columbia Funds
Distributor, Inc., ("CFDI" and collectively with "CMAI," "CMG") in February
2005, allows CMAI to manage or advise a mutual fund, including the Wanger
Advisors Trust's family of funds (the "WAT Funds" or "WAT" or "Trust"), only if
the trustees of the WAT Funds appoint a "Senior Officer" to perform specified
duties and responsibilities. One of these responsibilities includes "managing
the process by which proposed management fees (including but not limited to,
advisory fees) to be charged the WAT Fund[s] are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance."
The Order also provides that the Board of Trustees of the WAT Funds ("Board")
must determine the reasonableness of proposed "management fees" by using either
an annual competitive bidding process supervised by the Senior Officer or
Independent Fee Consultant, or by obtaining "an annual independent written
evaluation prepared by or under the direction of the Senior Officer or the
Independent Fee Consultant."
"Management fees" are only part of the costs and expenses paid by mutual fund
shareholders. The expenses can vary depending upon the class of shares held but
usually include: (1) investment management or advisory fees to compensate
analysts and portfolio managers for stock research and portfolio management, as
well as the cost of operating a trading desk; (2) administrative expenses
incurred to prepare registration statements and tax returns, calculate the
Funds' net asset values, maintain effective compliance procedures and perform
recordkeeping services; (3) transfer agency costs for establishing accounts,
accepting and disbursing funds, as well as overseeing trading in Fund shares;
(4) custodial expenses incurred to hold the securities purchased by the Funds;
and (5) distribution expenses, including commissions paid to brokers that sell
the Fund shares to investors.
Columbia Wanger Asset Management, L.P. ("CWAM"), the adviser to the WAT Funds,
has proposed that the Trust enter into an agreement that "bundles" the first two
categories listed above: advisory and administrative services. The fees paid
under this agreement are referred to as "management fees." Other fund expenses
are governed by separate agreements, in particular agreements with two CWAM
affiliates: CFDI, the broker-dealer that underwrites and distributes the WAT
Funds' shares, and Columbia Funds Services, Inc. ("CFSI"), the Funds' transfer
agent. In conformity with the terms of the Order, this evaluation, therefore,
addresses only the advisory and administrative contract between CWAM and the
Trust, and does not extend to the other agreements.
According to the Order, the Senior Officer's evaluation must consider at least
the following:
(1) Management fees (including components thereof) charged to
institutional and other clients of CWAM for like services;
(2) Management fees (including any components thereof) charged by other
mutual fund companies for like services;
(3) Costs to CWAM and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
(4) Profit margins of CWAM and its affiliates from supplying such
services;
(5) Possible economies of scale as the WAT Funds grow larger; and
(6) The nature and quality of CWAM's services, including the performance
of each WAT Fund.
On November 17, 2004, the Board appointed me Senior Officer under the Order. The
Board also determined not to pursue a competitive bidding process and instead,
charged me with the responsibility of evaluating the WAT Funds' proposed
advisory and administrative fee contract with CWAM in conformity with the
requirements of the Order. This Report is an annual evaluation required under
the Order. In discharging their responsibilities, the independent Trustees have
also consulted independent, outside counsel.
* * *
This evaluation was performed in cooperation and regular communication with the
Compliance/Contract Renewal Committee of the Board.
Process and Independence
The objectives of the Order are to ensure the independent evaluation of the
advisory fees paid by the WAT Funds as well as to ensure that all relevant
factors are considered. In my view, the contract renewal process has been
conducted at arms-length and with independence in gathering, considering and
evaluating relevant data. For example, the selection of fund peer groups is
critical in assessing a fund's relative performance and cost. I have required
Lipper and Morningstar, Inc. to prepare their reports without input or
commentary from CWAM; the engagement letters with them reflect this requirement.
As a result, the peer groups reflected in the Morningstar, Inc. and Lipper
reports were determined independently. After submission of the reports, I asked
CWAM to comment on them to avoid errors and to establish a clear record of
CWAM's views on which funds, in its judgment, constitute an appropriate peer
group.
Similarly, I discussed CWAM's profitability analysis with its management but
also sought the independent views of Ernst &Young on the reasonableness of
CWAM's cost allocation methodology and on the adequacy of the financial data it
provided. The evaluation of CWAM's profitability was performed in the context of
the limited industry data available.
My evaluation of the advisory contract was shaped by my experience as WAT's
Chief Compliance Officer ("CCO"). As CCO, I report solely to the Board and have
no reporting obligation to or employment relationship with CMG or its
affiliates, except for administrative purposes. This too contributes to the
independence of this evaluation. I have made several comments on compliance
matters in evaluating the quality of service provided by CWAM and CMG.
20
Wanger U.S. Smaller Companies 2005 Semiannual Report
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Finally, this Report, its supporting materials and the data contained in other
materials submitted to the Compliance/Contract Renewal Committee of the Board,
in my view, provide a thorough factual basis upon which the Board, in
consultation with independent counsel as it deems appropriate, may conduct
management fee negotiations that are in the best interests of the WAT Funds'
shareholders.
* * *
VI. Conclusions
My review of the data and other material above leads to the following
conclusions with respect to the factors identified in the Order.
1. Performance. The WAT Funds generally have achieved outstanding
performance and rank very favorably against their peers. The
international funds have good recent performance records, but weaker
long-term performance relative to the domestic WAT Funds. Recent
management changes have been followed by improved performance. The
domestic WAT Funds and International Select typically achieve their
performance with less risk than their competitors; relative risks are
greater for International Small Cap.
2. Management Fees relative to Peers. The management fee rankings of the
Funds are generally well below the respective medians and, hence, less
favorable to shareholders than their peer group funds.
3. Administrative Fees. The WAT Funds pay a bundled fee that combines
advisory fees and administrative expense, so ranking these fees
separately was not possible.
4. Management Fees relative to Other Accounts. CWAM's focus is its mutual
funds. It does not actively seek to manage separate or institutional
accounts. The few institutional accounts it does manage vary in rate
structures. Some pay advisory fees commensurate with or higher than
the WAT Funds. In a few instances, however, sub-advised accounts pay
lower management fees than do the WAT Funds.
5. Costs to CWAM and its Affiliates. CWAM's costs do not appear
excessive, and, in my view, it uses appropriate methodologies to
allocate overhead costs. CWAM's affiliates do not appear to profit
indirectly from CWAM's management agreement with the WAT Funds.
6. Profit Margins. CWAM's firm-wide profit margins are at the upper end
of the industry, though these comparisons are hampered by limited
industry data. High profit margins are not unexpected for firms that
manage large, successful funds and have provided outstanding
investment performance for investors. Profit margins for the WAT Funds
are lower than the margins for other accounts managed by CWAM because
of payments made to intermediaries that offer the WAT Funds through
variable annuity products. CMAI, the Funds' administrator, currently
experiences losses rather than profits, in connection with its
activities relating to the WAT Funds.
7. Economies of Scale. Economies of scale do exist at CWAM and will
expand, if the assets of the WAT Funds get larger. They are, however,
only partially reflected in the management fee schedule for two of the
four WAT Funds. If the Funds' assets continue to grow, under the
Funds' current fee schedules, shareholders might not benefit in a
manner generally commensurate with CWAM's increased profits
8. Nature and quality of services. This category includes a variety of
considerations that are difficult to quantify, yet can have a
significant bearing on the performance of the WAT Funds. Several areas
merit comment.
a. Continuity of Management. It is critical that capable and
experienced portfolio managers remain committed to the Funds and
are able to hire and retain analysts to assist them. CWAM must
have in place appropriate incentive plans that align its
management's interests with those of investors. Further, CWAM
must maintain the independence of its investment process. It
should also be supported by effective information technology.
b. Compliance. CWAM has an effective compliance program and a
variety of related services that are valuable to shareholders,
such as, systems to ensure best execution of portfolio
transactions and the daily review of security prices to ensure
accuracy of the WAT Funds' NAV.
c. Administration Services. The WAT Funds benefit from a variety of
administrative services that are performed by CWAM and CMAI,
including preparation of registration statements, calculation of
Fund NAV's, accounting services, shareholder services, and other
functions
In my opinion, these conclusions, taken together, generally support the
reasonableness of the proposed management agreement. In reaching this
conclusion, I weighed heavily the outstanding performance of the WAT Funds
relative to their peers. Performance is an investor's first concern. The expense
incurred by shareholders to enjoy this performance is, however, high relative to
competing funds, though expenses for the WAT Funds are (with one exception)
comparable to the parallel Acorn Funds. Nonetheless, a more complete breakpoint
schedule could address this issue as well as share with investors more fully the
benefits of economies of scale.
21
Wanger U.S. Smaller Companies 2005 Semiannual Report
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VII. Recommendations
The Trustees should consider the following proposals to address the issues
identified in this Report. Some of these recommendations require the collection
and evaluation of more data. This work cannot be accomplished effectively before
the expiration of the existing advisory contract on July 31, 2005. Therefore, I
recommend that the Trustees consider extending the existing contract pending
consideration of these recommendations.
These recommendations do not purport to offer the only avenues to address the
opinions and conclusions I have expressed in this Report. Economies of scale,
for example, can be addressed in a variety of ways in a management contract.
Sound business judgment will guide how any particular area is addressed with due
consideration given to all the factors that must be weighed in reaching a
management agreement that best serves the WAT Fund shareholders.
I believe the Trustees should consider the following:
1. Restructure the management fee schedule beyond the current breakpoints
to reflect more fully economies of scale. The Trustees might consider
several ways to accomplish this objective, including instituting a
two-tier fee structure that incorporates a complex- or CWAM-wide fee
(including assets held in separate accounts) and a fund specific fee,
with each containing breakpoints to reflect their separate economies
of scale. Another approach is to consider uniform breakpoints for all
WAT Funds, including breakpoints above and below current asset levels.
2. Conduct further study to ensure that the costs paid to insurance
company intermediaries are transparent. The Trustees could consider
forming an ad hoc committee to gather and evaluate data regarding
CWAM's payments to intermediaries and the services provided by those
intermediaries. Such a committee might also seek the assistance of a
consultant such as E&Y.
3. Administrative Fees. Administrative and advisory fees could be
unbundled to allow greater transparency and to permit distinct
comparisons among peers. An administrative fee could also be
formulated with a breakpoint schedule that shares the economies of
scale available with shareholders.
4. Condition contract renewal on submission of an employment agreements
or a management incentive plan designed to ensure the continued
employment of senior management, under terms that align management's
incentives with the interests of the WAT Funds' shareholders. Any
incentive plan should be designed to permit CWAM to attract and retain
the highest caliber investment professionals and support them with
effective and reliable information technology systems.
5. Review with CWAM its anticipated capacity limitations and the degree
to which increased staffing and effective incentives may address those
issues.
Robert P. Scales
July 25, 2005
* * *
More complete copies of the Management Fee Evaluation of the Senior Officer
of the Wanger Advisors Trust, edited to delete certain confidential or
proprietary information, are available upon written request to:
R. Scott Henderson
Bank of America
MA-515-11-05
One Financial Center
Boston, MA 02111
22
Wanger U.S. Smaller Companies 2005 Semiannual Report
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23
Wanger U.S. Smaller Companies 2005 Semiannual Report
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[Graphic: squirrel]
TRUSTEES
Patricia H. Werhane, Chairperson
Jerome L. Duffy
Fred D. Hasselbring
Kathryn A. Krueger, M.D.
Ralph Wanger
OFFICERS
Ben Andrews
Vice President
J. Kevin Connaughton
Assistant Treasurer
Michael G. Clarke
Assistant Treasurer
Kenneth A. Kalina
Assistant Treasurer
Bruce H. Lauer
Vice President, Secretary
and Treasurer
Charles P. McQuaid
President
Robert A. Mohn
Vice President
Todd M. Narter
Vice President
Christopher J. Olson
Vice President
Vincent P. Pietropaolo
Assistant Secretary
Robert P. Scales
Chief Compliance Officer, Senior Vice President and General Counsel
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Management Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Management
Distributors, 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
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
SHC-44/89022-0705 05/7140
WANGER INTERNATIONAL SMALL CAP
2005 Semiannual Report
[Graphic: squirrel]
WANGER ADVISORS FUNDS
- --------------------------------------------------------------------------------
managed by Columbia Wanger Asset Management, L.P.
[Graphic: squirrel]
WANGER INTERNATIONAL SMALL CAP
2005 SEMIANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 Discipline and Creativity
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
18 Management Fee Evaluation of the Senior Officer
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 $23.5 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.
COLUMBIA MANAGEMENT IS THE PRIMARY INVESTMENT MANAGEMENT DIVISION
OF BANK OF AMERICA CORPORATION. COLUMBIA MANAGEMENT ENTITIES FURNISH INVESTMENT
MANAGEMENT SERVICES AND ADVISE INSTITUTIONAL AND MUTUAL FUND PORTFOLIOS.
COLUMBIA WAM IS AN SEC-REGISTERED INVESTMENT ADVISER AND WHOLLY OWNED SUBSIDIARY
OF BANK OF AMERICA, N.A. COLUMBIA WANGER IS PART OF COLUMBIA MANAGEMENT.
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 WANGER ADVISORS FUNDS.
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 2005 Semiannual 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 ongoing 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 $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number is
in the column labeled "actual." Multiply this number by the result
from step 1. Your answer is an estimate of the expenses you paid on
your account during the period.
January 1, 2005 - June 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid during Fund's annualized
beginning of the period ($) end of the period ($) the period ($) expense ratio (%)*
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger International
Small Cap 1,000.00 1,000.00 1,038.28 1,019.29 5.61 5.56 1.11
- ------------------------------------------------------------------------------------------------------------------------------------
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
365.
Had the investment adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
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 6/30/05.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 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 2005 Semiannual Report
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[Graphic: squirrel]
DISCIPLINE AND CREATIVITY
PHOTO OF: RALPH WANGER
RALPH WANGER
Founder, Advisor and Trustee
Columbia Wanger Asset Management, L.P.
A popular new book by Tom Friedman, "The World Is Flat: A Brief History of the
Twenty-First Century," recounts how developing countries such as India and China
are using modern technology to compete with the United States in both
manufacturing and services. He contrasts the success of China and India to the
failure of the Arab states to participate in the modern world. He deplores the
influence of Yamani, the former Saudi oil minister, who used oil as an economic
weapon, and Osama Bin Laden who uses terror as a political weapon. Friedman
compares the stagnant current state of Arab culture with its peak in the 12th
century. "What makes Yamanism and Bin Ladenism unfortunate as strategies for the
Arabic world is that they ignore the examples within the Arab culture and
civilization - when it was at its height - of discipline, hard work, knowledge,
achievement, scientific inquiry, and pluralism."1
The popular Susan Hockfield was just installed as president of MIT. In her
inaugural speech she invoked her list of virtues. She said, "The value of
engineering - the rigor; the unflappable curiosity; the discipline and
creativity; the appetite for good, old fashioned hard work; the passionate,
enthusiastic, can do, hands-on, fix-it-now attitude - these values are and
always will be the values of MIT."
The rules for success in the world don't seem to have changed very much. Twelfth
century Cordoba and 21st century Cambridge are completely different in almost
every way, but the characteristics that make you successful have not changed.
Any financial analyst or serious investor should apply the engineer's
characteristics of discipline, hard work, knowledge and enthusiasm to investing.
President Hockfield's linking of discipline and creativity is interesting. It's
widely believed that we should diversify and balance our investments. We balance
stocks vs. bonds, growth stocks vs. value stocks, big-cap vs. small-cap stocks,
and U.S. stocks vs. international, but it is unusual to think of the balance
between discipline and creativity; yet this balance is what I believe brings
good investment results. Discipline without creativity is sterile - you tend to
get an index fund. Index funds run by computer algorithm are boring and backward
looking - although they have a significant place in investment portfolios.
Creativity without discipline tends to result in wild speculation and
money-losing results. We all remember the dot.com's in 1999 when the market was
dominated by speculators who ignored valuation in favor of science-fiction
fantasies. The resulting bubble was a seductive, narcotic experience for a year
or two but of course ended very badly. We believe the Wanger Funds have been
successful because our analysts have been able to maintain a balance between
discipline and creativity.
WE ARE NOT MANUFACTURERS
Organizations that are in the business of marketing mutual funds often prefer
discipline and are made nervous by creativity. For instance, Raymond "Chip"
Mason, chairman of Legg Mason, a major force in the mutual fund business, said
recently, "For two years we've been looking to cross the line and become pure
asset management. All the regulators have been pointing toward the need to
separate the manufacturing and distribution businesses."2
I have been in corporate meetings in which mutual fund portfolio management was
called "manufacturing" but this is a strange and inapt metaphor. Manufacturers
make products. Mutual funds are not a product. Cap'n Crunch cereal is a product.
When you go to the store to buy a new box of Cap'n Crunch you expect the taste
and nutrition performance to be exactly like the last box. Manufacturing cereal
is very disciplined resulting in high quality and high reliability, so that
every box is identical. Since you are a mutual fund shareholder you know that a
mutual fund could be a lot better or a lot worse than you expected when you
bought it. Investing involves forecasting the future, but forecasting is an
uncertain and sloppy process. While discipline is important, you need a lot of
creativity as well.
Predicting the future does not require a fortune teller with a crystal ball. It
is more like watching a skilled athlete. When you go to a baseball game and a
batter hits a fly ball to left field, the fielder will see the ball heading his
direction and, by experience, run to where the ball is going to land and make
what looks like a routine catch. The fielder has to predict the flight of the
ball, which for a physicist would require solving a complicated equation, but
the player shows that it is not an impossible task. Like the outfielder, we have
figured out where trends are likely going to land with reasonable success. As in
baseball, the ball can elude the fielder and the batter ends up on second base.
Sometimes our analysts miss the ball too, but for the full season we tend to
catch more balls than we miss.
TWO WHEELS GOOD, FOUR WHEELS BAD
Other teams haven't done so well. Forty years ago, major U.S. car makers were
among the largest companies in the world and were highly profitable. Since then,
the U.S. automotive industry has fallen into a long slump. Their corporate bonds
have been downgraded in quality, which is a definite sign of financial problems.
I believe that these companies were complacent and arrogant, so the German and
Japanese car makers beat them up.
2
Wanger International Small Cap 2005 Semiannual Report
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A long time ago, perhaps 1966, I attended a meeting of the Chicago Science
Analysts with the General Time Corporation. The company's main business was
making name-brand clocks like Seth Thomas and Big Ben. It also made automobile
clocks. The clocks were sold as accessories with the car. They were mechanical
clocks because electronic clocks hadn't yet been invented. They worked for about
three months and then broke. The U.S. automotive giant that bought the clocks
from General Time paid $3.25 per clock and resold it to the customer for $21. I
asked the president of General Time why his clocks didn't work better. I knew
this was an impertinent question but I wanted to see how he would react. I
expected him to take a defensive position retorting that the clocks were fine
but weren't being used correctly. To my surprise he admitted that the clocks
were lousy and he explained why.
General Time couldn't make a good clock for $3.25. The clock needed an
additional component that would have made it a sturdy, reliable device, but this
improvement would have raised the selling price to $3.75. Its customer, the
automobile manufacturer, was adamant about sticking to the lower price. Even to
an inexperienced analyst, as I was in 1966, I did not see how the automaker
could prosper if it was not delivering a high-quality car. Such a successful
company could have paid $3.75 for a clock and sold it for a decent profit even
if it kept the price at $21. While this would have been a less enormous markup,
the car likely would have been a better vehicle. If the automaker was willing to
sell a crummy clock, then I thought that customers would perceive that it was
cutting corners on all the other components of the vehicle too. Bad clock, bad
car. This willingness to forego quality for price made room for the imports.
Why am I bringing up an anecdote from 40 years ago? I think there are some
useful lessons here for financial analysts and investors. First, in a management
meeting it is okay to ask tough questions. You get more meaningful answers that
way. Second, you can find out a lot about a company by talking to its suppliers
or customers. Company spokesmen will only give you their own corporate press
release. Third, a long-term trend will take a long time to develop but it is
enormously important.
At the time of my 1966 meeting, U.S. automakers were riding high because foreign
car imports were not yet a problem. In 1960, Japan exported only 39,000
vehicles. By 1970, the Japanese were starting to exploit the lower quality of
U.S. cars and exported 1.1 million cars. In 1980, exports rose to 6 million and
the Japanese were producing more vehicles than U.S. manufacturers. U.S.
automotive companies had to react to the loss of market share from high-quality
imports. However, once there is a loss of market share, it is not usually
readily reversible.
DAVID ALWAYS BEATS GOLIATH
There are several lessons we can learn from the decline of Arab civilization and
the problems of U.S. auto companies: (1) To operate a successful business, the
world is too competitive to be complacent. Like baseball players, companies have
to fight to keep their position on the team. Great U.S. businesses must
constantly compete in the world market and it is darn tough. (2) Big companies
are often just big targets. Small companies are hungry to succeed and are
constantly focused on improving with the hope of taking some of the flabby
giant's customers. (3) History provides a useful context. Discipline,
creativity, hard work, knowledge, achievement, and a can-do, hands-on,
fix-it-now attitude worked in the past and will work now. (4) We believe
small-cap investing works if you can identify the hungry, small companies whose
employees embrace our list of exemplary values. The core investment strategy of
the Wanger Advisors Funds has always been to try to find small- and mid-cap
companies that are on the way up. We don't want to own once-great companies that
are now on their way down. This is partly a matter of personal taste, because we
find following big, sick companies to be depressing. Even though there are
occasional turnarounds in these big companies, it seems to us that is not the
way to bet.
SO LONG AND BEST REGARDS!
This is my final "Squirrel Chatter." I am retiring from Columbia Wanger Asset
Management as of September 30. While I considered writing a few more essays,
current regulatory rules are not conducive to the free-ranging thought that was
characteristic of these essays. I have great confidence in Chuck McQuaid and his
team of analysts and portfolio managers to keep the performance of the Funds at
a competitive level. Thank you, fellow shareholders, for your support over 35
years. I regard myself as truly fortunate to have been able to build a career in
this exciting industry. I am especially proud that we have enabled thousands of
our shareholders to pursue their economic goals by investing in our funds.
COLUMBIA WAM NEWS
We are pleased to announce that Ashish Kohli has joined our domestic analyst
team to follow health care. Jason Selch, who followed energy, departed in May.
We are searching for his replacement and continue to talk to some promising
candidates. Your Wanger Advisors Trust investment team includes 20 investment
analysts and portfolio managers.
- --------------------------------------------------------------------------------
1 Friedman, Thomas, The World Is Flat: A Brief History of the Twenty-first
Century, Farrar, Straus and Giroux, 2005. Page 405.
2 Raymond "Chip" Mason, chairman of Legg Mason, The Wall Street Journal, June
27, 2005, page C1.
3
Wanger International Small Cap 2005 Semiannual Report
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[Graphic: squirrel]
Photo of: TODD M. NARTER
Photo of: CHRISTOPHER J. OLSON
TODD M. NARTER
Co-Portfolio Manager
CHRISTOPHER J. OLSON
Co-Portfolio Manager
Wanger International Small Cap finished the first half of 2005 up 3.83%, which
put it ahead of the S&P/Citigroup EMI Global ex-US return of 2.79% and well
ahead of the MSCI EAFE Index's loss of 1.17%. As has been the case for several
years, international small-cap stocks continued to substantially outperform
their large- cap counterparts. Performance data quoted represents past
performance and current performance may be lower or higher. Past performance is
no guarantee of future results. The investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original cost. Please visit www.columbiafunds.com for daily and most recent
month-end performance updates.
Steel pipe manufacturers seemed unlikely candidates as the year-to-date big
winners considering the poor performance of the steel sector in general, but one
of the Fund's investments, Vallourec, earned this distinction by returning more
than 90% to shareholders. Its specialty steel products are critical to the
successful development of oil and gas fields globally. In the past year, the
company has seen strong volume and price increases as high energy prices
stimulated oil and gas companies to increase spending on exploration and
pipelines. This type of company has been central to our strategy of taking
advantage of an anticipated rebound in oil-field service spending. As Vallourec
was among the Fund's top holdings at the beginning of the quarter, its
contribution to overall return was substantial. Other positive performers were
Samyoung Heat Exchange, the South Korean power plant-related machinery company,
which rose 53%, and Perusahaan Gas Negara, an Indonesian gas pipeline operator,
up 42%.
The U.S. dollar reversed its recent slide against most world currencies
year-to-date, appreciating more than 12% against the euro. This compounded
otherwise moderate weakness on several of our long-term European winners, such
as Nobia (kitchen cabinets) and Sligro Food Group (food distribution), each of
which fell more than 10% in dollar terms. Other holdings negatively affecting
performance came from various regions, including Fininfo in France and Pacific
Brands in Australia.
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 6/30/05, the Fund's positions in the holdings mentioned were: Vallourec,
2.4%; Samyoung Heat Exchange, 0.4%; Perusahaan Gas Negara, 0.5%; Nobia, 0.6%;
Sligro Food Group, 0.7%; Fininfo, 0.3%; Pacific Brands, 0.2%.
4
Wanger International Small Cap 2005 Semiannual Report
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VALUE OF $10,000 INVESTMENT IN
WANGER INTERNATIONAL SMALL CAP
TOTAL RETURN FOR EACH PERIOD,
MAY 3, 1995 (INCEPTION DATE) THROUGH JUNE 30, 2005
AVERAGE ANNUAL RETURN
- --------------------------------------------------------------------------------
1 year 5 years 10 years Life of fund
22.73% 0.35% 15.26% 16.06%
LINE CHART:
WANGER INTERNATIONAL S&P/Citigroup
SMALL CAP EMI Global ex-US
5/3/95 10000 10000
5/31/95 10790 9821
6/30/95 10970 9710
11910 10255
12290 10003
9/30/95 12910 10074
12700 9784
12660 9865
12/31/95 13450 10246
14260 10479
15170 10609
3/31/96 15499 10830
16251 11390
16782 11301
6/30/96 17183 11304
16722 10859
17023 10969
9/30/96 17023 11029
17183 10959
17705 11136
12/31/96 17755 10951
18246 10792
18687 11011
3/31/97 18357 10874
18204 10729
18983 11359
6/30/97 19568 11651
19558 11538
18460 11032
9/30/97 19363 11210
18388 10662
17968 10166
12/31/97 17496 9953
18142 10265
19589 11042
3/31/98 21306 11575
21867 11669
21887 11768
6/30/98 21410 11353
21099 11281
17904 9798
9/30/98 17437 9581
18101 10241
19605 10595
12/31/98 20352 10820
20694 10744
20570 10543
3/31/99 21564 10999
23400 11671
23727 11383
6/30/99 25404 11826
27556 12208
28928 12422
9/30/99 29266 12366
30088 12253
36176 12694
12/31/99 46072 13558
46800 13300
56295 13811
3/31/00 54789 13872
46481 12961
42601 12691
6/30/00 44628 13461
43055 13015
45584 13388
9/30/00 41179 12701
36798 11932
33454 11407
12/31/00 33244 11852
34910 12073
32556 11604
3/31/01 29862 10705
30389 11406
31170 11383
6/30/01 29743 10997
28026 10674
27907 10645
9/30/01 23692 9259
24780 9635
25749 10031
12/31/01 26174 10114
25715 9931
25358 10097
3/31/02 27006 10755
28179 10979
28485 11330
6/30/02 27635 10880
24729 9958
23743 9898
9/30/02 21143 8984
21415 9187
22333 9531
12/31/02 22554 9417
22299 9259
21534 9094
3/31/03 21069 9005
22980 9854
24942 10694
6/30/03 25778 11093
26614 11488
27893 12038
9/30/03 29087 12588
31356 13504
32090 13750
12/31/03 33574 14599
35229 15123
36662 15645
3/31/04 36608 16028
35801 15489
35715 15491
6/30/04 37003 15989
36075 15425
36041 15591
9/30/04 37518 16172
38755 16668
41727 17980
12/31/04 43737 18872
44648 19050
47139 19978
3/31/05 45916 19476
44458 18864
44337 18998
6/30/05 45413 19399
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 June 30,
2005, to the S&P/Citigroup EMI Global ex-US Index, with dividends and capital
gains 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 $5 billion at the time of initial purchase. 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.
- --------------------------------------------------------------------------------
RESULTS TO JUNE 30, 2005
Year
2nd quarter to date 1 year
WANGER INTERNATIONAL
SMALL CAP -1.10% 3.83% 22.73%
S&P/Citigroup EMI
Global ex-US -0.40 2.79 21.33
MSCI EAFE -1.01 -1.17 13.65
Lipper International
Small Cap Funds Index -0.22 3.62 20.72
NAV AS OF 6/30/05: $26.17
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/Citigroup EMI Global ex-U.S. 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.
- --------------------------------------------------------------------------------
TOP 5 COUNTRIES
As a % of net assets, as of 6/30/05
United Kingdom 15.8%
France 8.6
Netherlands 8.5
Germany 7.9
Ireland 7.1
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 6/30/05
1. Vallourec 2.4%
Seamless Tubes - France
2. Anglo Irish Bank 1.5%
Small Business & Middle Market Banking - Ireland
3. Fugro 1.3%
Survey & GPS Services - Netherlands
4. Hexagon 1.3%
Measurement Equipment & Polymers - Sweden
5. Koninklijke Ten Cate 1.2%
Advanced Textiles & Industrial Fabrics - Netherlands
6. Paragon Group 1.2%
Buy-to-Let Finance Company - United Kingdom
7. Smit International 1.1%
Harbor & Offshore Towage & Marine Services - Netherlands
8. Major Drilling Group International 1.1%
Mining Exploration Driller - Canada
9. April Group 1.1%
Insurance Policy Construction - France
10. United Drug 1.1%
Pharmaceutical Wholesaler & Outsourcer - Ireland
5
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
COMMON STOCKS AND OTHER EQUITY-LIKE SECURITIES - 95.2%
EUROPE - 65.2%
- --------------------------------------------------------------------------------
UNITED KINGDOM/IRELAND - 22.9%
880,000 Anglo Irish Bank (Ireland) $10,899,997
Small Business & Middle Market Banking
1,100,000 Paragon Group 8,323,514
Buy-to-Let Finance Company
1,804,700 United Drug (Ireland) 7,743,641
Pharmaceutical Wholesaler & Outsourcer
650,000 Grafton Group (Ireland) 7,521,733
Building Materials Wholesaling & DIY Retailing
525,000 IAWS (Ireland) 7,334,674
Manufacturer of Baked Goods
700,000 Kensington 7,052,464
Non-Conforming Mortgage Company
1,600,000 Charles Taylor Group 6,922,362
Insurance Services
840,000 International Greetings 6,846,106
Private Label Greeting Products
600,000 Business Post Group 6,834,421
UK Parcel & Express Mail Service
445,000 Exel 6,736,429
Global Logistics & Freight Forwarding
811,700 Expro International 6,589,486
Offshore Oil Field Services
951,807 Bloomsbury Publishing 6,418,606
Publishing
335,000 Intermediate Capital 6,251,354
European Provider of Mezzanine Capital
1,429,100 Workspace Group 6,032,658
Real Estate Company
713,600 Ulster Television 5,988,154
Television & Radio Station Operator
1,700,000 Tullow Oil 5,666,659
Oil & Gas Producer
500,000 William Hill 4,810,587
Largest Bookmaker
300,000 Depfa Bank (Ireland) 4,794,050
International Public Sector Finance
275,000 Paddy Power (Ireland) 4,693,392
Irish Betting Services
280,000 Northgate 4,530,746
Light Commercial Vehicle Rental Specialist
500,000 Spectris 4,423,135
Electronic Instruments & Controls
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
731,274 Vitec Group $4,373,925
Photo, Film, Production & Broadcast Accessories
229,500 Jurys Doyle Hotel (Ireland) 4,303,300
Owner/Operator of Mid-Priced Hotels
155,000 Cobham 3,927,993
Aerospace Components
150,000 Kerry Group (Ireland) 3,699,317
Food Ingredients
250,000 Viridian Group 3,488,637
Northern Ireland Electric Utility
400,000 Care UK 2,984,373
Nursing Home & Psychiatric Care Facilities
825,700 Debt Free Direct Group 2,947,388
Consumer Debt Reduction & Management Solutions
850,000 RPS Group 2,345,444
Environmental Consulting
350,000 Offshore Hydrocarbon Mapping (b) 1,333,910
Exploration Technology Contractor
- --------------------------------------------------------------------------------
165,818,455
- --------------------------------------------------------------------------------
FRANCE/BELGIUM - 9.1%
60,000 Vallourec 17,228,427
Seamless Tubes
253,700 April Group 7,887,421
Insurance Policy Construction
100,000 Imerys 6,873,975
Industrial Minerals Producer
148,800 Iliad 5,557,507
High Speed Internet Service Provider
350,000 SES Global 5,268,263
Satellite Broadcasting Services
55,000 Neopost 4,833,915
Postage Meter Machines
90,000 Norbert Dentressangle 4,243,032
Transport
41,000 Bacou Dalloz 3,353,498
Safety Equipment
61,000 Omega Pharma (Belgium) 3,149,342
OTC Products, Pharmacy & Dental Supplies
62,000 Carbone Lorraine (b) 2,941,959
Advanced Industrial Materials
178,000 Cerep 2,141,071
Health Care
97,000 Fininfo 2,031,695
Data Feeds for French Banks & Brokers
- --------------------------------------------------------------------------------
65,510,105
See accompanying notes to financial statements.
6
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
GERMANY/AUSTRIA - 8.7%
90,000 Wincor Nixdorf (b) $7,352,892
Retail POS Systems & ATM Machines
68,000 Rational 7,315,395
Commercial Oven Manufacturer
155,000 Bilfinger Berger 7,215,432
Construction & Related Services
160,000 GFK 6,308,538
Market Research Services
125,000 Wienerberger (Austria) 5,792,645
Bricks & Clay Roofing Tiles
75,000 Rhoen Klinikum Pfd. 5,193,857
Hospital Management
155,000 Hugo Boss Designs 5,084,433
Fashion Apparel
315,000 Deutsche Beteiligung (b) 4,910,638
Private Equity & Investment Management
97,300 Grenke Leasing 4,123,657
Financing for IT Equipment
383,000 Takkt 3,695,211
Mail Order Retailer of Office & Warehouse Durables
75,000 Vossloh 3,506,921
Rail Infrastructure & Diesel Locomotives
46,000 CTS Eventim 1,930,784
Event Ticket Sales
23,782 Masterflex 800,387
Specialty Hoses for Industrial & Medical Use
- --------------------------------------------------------------------------------
63,230,790
- --------------------------------------------------------------------------------
NETHERLANDS - 8.5%
378,076 Fugro 9,383,338
Survey & GPS Services
96,357 Koninklijke Ten Cate (b) 8,661,182
Advanced Textiles & Industrial Fabrics
179,000 Smit International 8,298,678
Harbor & Offshore Towage & Marine Services
103,000 OPG Groep 7,172,297
Healthcare Supplies & Pharmacies
140,509 Aalberts Industries 6,420,558
Flow Control & Heat Treatment
232,100 United Services Group 6,124,984
Temporary Staffing Services
163,000 IM Tech 5,696,512
Technical Engineering
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
118,900 Sligro Food Group $4,775,489
Food Service & Wholesaling
310,000 Unit 4 Aggresso (b) 4,730,615
Business & Security Software
- --------------------------------------------------------------------------------
61,263,653
- --------------------------------------------------------------------------------
SWEDEN - 3.5%
457,200 Hexagon 9,228,260
Measurement Equipment & Polymers
367,900 Sweco 6,630,097
Nordic Infrastructure/Environment Consulting
316,000 Nobia 4,586,095
Kitchen Cabinet Manufacturing & Distribution
3,091,200 Biotage (b) 4,178,432
Discovery Chemistry (Microwaves & Purification)
56,400 Medicover 559,613
2,071 Medicover Subscription Rights 20,681
Central European Health Clinics
- --------------------------------------------------------------------------------
25,203,178
- --------------------------------------------------------------------------------
SWITZERLAND - 3.1%
10,400 Sika 6,472,870
Chemicals for Construction & Industrial Application
25,000 Kuehne & Nagel 5,286,306
Freight Forwarding/Logistics
8,000 Geberit International 5,104,782
Plumbing Supplies
6,000 Givaudan 3,480,118
Industrial Fragrances & Flavors
36,710 BKW Energie 2,294,192
Electric Utility
- --------------------------------------------------------------------------------
22,638,268
- --------------------------------------------------------------------------------
ITALY - 2.6%
112,302 Amplifon 7,125,053
Hearing Aid Retailer
500,000 Davide Campari 3,653,306
Spirits & Wine
402,000 Granitifiandre 3,524,862
Innovative Stoneware
130,000 Sabaf 2,552,311
Supplier to White Goods OEMS
1,441,501 Ducati Motor (b) 1,706,648
Motorcycles & Related Merchandise
- --------------------------------------------------------------------------------
18,562,180
See accompanying notes to financial statements.
7
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
SPAIN/PORTUGAL - 1.6%
230,000 Red Electrica $6,348,377
Spanish Power Grid
76,000 Bankinter 3,874,687
Mortgage Lender
99,700 Abengoa 1,155,135
Engineering & Construction
- --------------------------------------------------------------------------------
11,378,199
- --------------------------------------------------------------------------------
FINLAND - 1.2%
480,000 Sponda 4,933,799
Office & Warehouse Property Company
122,000 Jaakko Poyry 3,652,228
Engineering Consultants in Forestry, Energy
- --------------------------------------------------------------------------------
8,586,027
- --------------------------------------------------------------------------------
RUSSIA - 0.9%
213,000 RBC Information Systems (b) 3,535,800
Financial Information, Media, & IT Services
107,000 Mechel Steel Group (b) 2,717,800
Coking Coal
- --------------------------------------------------------------------------------
6,253,600
- --------------------------------------------------------------------------------
GREECE - 0.8%
380,000 Intralot 5,796,831
Lottery & Gaming Systems & Services
- --------------------------------------------------------------------------------
CZECH REPUBLIC - 0.8%
46,200 Komercni Banka 5,786,752
Leading Czech Universal Bank
- --------------------------------------------------------------------------------
POLAND - 0.7%
132,000 Central Euro Distribution (b) 4,927,560
Spirits & Wine Distribution
- --------------------------------------------------------------------------------
NORWAY - 0.5%
192,200 Ekornes 3,717,593
Niche Furniture Manufacturer
- --------------------------------------------------------------------------------
DENMARK - 0.3%
10,500 Kobenhavns Lufthavne 2,485,395
Copenhagen Airport Manager
- --------------------------------------------------------------------------------
EUROPE - TOTAL 471,158,586
- --------------------------------------------------------------------------------
Number of Value
Shares
ASIA - 17.3%
- --------------------------------------------------------------------------------
JAPAN - 7.0%
117,900 Ito En $6,045,711
Bottled Tea & Other Beverages
253,000 Park 24 4,997,790
Parking Lot Operator
124,000 Daito Trust Construction 4,630,351
Apartment Builder
103,000 Hogy Medical 4,594,172
Disposable Surgical Products
160,000 Shimano 4,540,041
Bicycle Components & Fishing Tackle
250,000 Ushio 4,430,450
Industrial Light Sources
137,000 Meitec 4,204,745
Staffing Company Specializing in R&D Engineers
162,500 Ain Pharmaciez 3,283,967
Dispensing Pharmacy/Drugstore Operator
140,000 Sato 3,122,909
Bar Code Printers & Supplies
265,900 Toyo Technica 3,046,390
Value Added Reseller of Imported Instrumentation
194,000 Wacoal 2,461,462
Women's Specialty Apparel
470,400 Hiroshima Bank 2,138,237
Regional Bank
195,000 Fukuoka Bank 1,151,361
Regional Bank
180,000 Bank of Yokohama (b) 1,034,299
Regional Bank
19,000 Eneserve 566,579
Power Generators
192 Jupiter Telecommunications 161,335
Largest Cable Service Provider in Japan
5,100 NIFCO 77,245
Molded Plastic Components
- --------------------------------------------------------------------------------
50,487,044
- --------------------------------------------------------------------------------
TAIWAN - 4.6%
4,290,000 Taiwan Fu Hsing 4,817,438
Door Lock Manufacturer
4,419,300 Phoenixtec Power 4,741,240
Uninterruptable Power Supplies
See accompanying notes to financial statements.
8
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
TAIWAN - 4.6% (CONT)
2,000,000 Advantech $4,713,661
Embedded Computers
539,400 ASE Test (b) 3,473,736
Semiconductor Packaging & Test Services
1,577,616 Springsoft Systems 3,279,267
Electronic Design Automation Software
3,169,000 Chicony Electronics 3,277,789
PC Power Supplies & Keyboards
1,800,000 Sunplus Technology 2,519,439
Fabless Semiconductor Designer
1,644,021 Wah Lee Industrial 2,446,816
Distributor of Chemicals, Materials & Equipment
550,000 Novatek Microelectronics 2,338,624
LCD Related IC Designer
2,530,000 Bank of Kaohsiung 1,786,287
Commercial Banking
- --------------------------------------------------------------------------------
33,394,297
- --------------------------------------------------------------------------------
HONG KONG/CHINA - 2.8%
2,000,000 Hong Kong Exchanges & Clearing 5,180,355
Hong Kong Equity & Derivatives Operator
2,000,000 Techtronic Industries 5,038,295
Manufacturer Power Tools & Motorized Appliances
7,000,000 Global Bio-Chem Technology Group (China) 4,334,769
363,000 Global Bio-Chem Technology Group
Warrants (China) 6,072
Refiner of Corn-Based Commodities
11,000,000 Linmark 3,143,718
Sourcing of Consumer Goods
7,819,000 Ngai Lik Industrial 1,542,263
Consumer Electronics Manufacturer
11,782,000 Lerado Group 1,242,295
Baby Strollers & Infant Car Seats Manufacturer
- --------------------------------------------------------------------------------
20,487,767
- --------------------------------------------------------------------------------
SINGAPORE - 1.1%
5,000,000 Comfort Del Gro 4,997,917
Taxi & Mass Transit Service
6,500,000 LMA International 3,072,899
Medical Equipment & Supplies
- --------------------------------------------------------------------------------
8,070,816
- --------------------------------------------------------------------------------
Number of Value
Shares or
Principal Amount
- --------------------------------------------------------------------------------
INDIA - 0.9%
300,000 Housing Development Finance $6,089,929
Premier Mortgage Lender in India
- --------------------------------------------------------------------------------
INDONESIA - 0.5%
12,000,000 PT Perusahaan Gas Negara 3,541,026
Gas Pipeline Operator
- --------------------------------------------------------------------------------
SOUTH KOREA - 0.4%
205,000 Samyoung Heat Exchange 3,145,344
Power Plant Related Machinery
- --------------------------------------------------------------------------------
ASIA - TOTAL 125,216,223
OTHER COUNTRIES - 7.2%
- --------------------------------------------------------------------------------
CANADA - 4.2%
823,500 Major Drilling Group International (b) 8,118,920
Mining Exploration Driller
500,000 Shawcor 7,341,318
Oil & Gas Pipeline Products
1,000,000 Kinross Gold (b) 6,110,975
Gold Mining
120,000 Enerflex Systems 2,463,945
Natural Gas Compressor
1,000,000 Northern Orion Resources 2,460,686
Mining of Copper & Gold in Argentina
CAD $3,175,000 Main Street Equity, Conv,
7.25%, 9/30/11 (d) 2,070,877
17,000 Main Street Equity (b) 72,721
Canadian Multi-Family Real Estate
250,000 Ivanhoe Mines (b) 1,939,217
Copper Mining in Mongolia
- --------------------------------------------------------------------------------
30,578,659
- --------------------------------------------------------------------------------
AUSTRALIA/NEW ZEALAND - 2.4%
600,000 Billabong International 6,198,593
Action Sports Apparel Brand Manager
1,300,000 Sky City Entertainment (New Zealand) 4,040,002
Casino/Entertainment Complex
70,000 Perpetual Trustees 3,046,406
Australian Mutual Fund Manager
457,200 ABC Learning Center 1,935,851
Childcare Centers
1,009,500 Pacific Brands 1,734,161
Australian Branded Apparel
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
SOUTH AFRICA - 0.6%
100,000 Edgars Consolidated Stores $ 4,337,930
Leading Retail Conglomerate
- --------------------------------------------------------------------------------
OTHER - TOTAL 51,871,602
LATIN AMERICA - 5.5%
- --------------------------------------------------------------------------------
BRAZIL - 2.5%
215,000 Natura Cosmeticos 6,860,396
Direct Retailer of Cosmetics
100,000 America Latina Logistics 2,960,801
Rail Operator in Brazil & Argentina
330,000 Porto Seguro 2,952,706
Auto & Life Insurance
135,000,000 Ultrapar 2,360,045
Specialty Chemicals & Liquid Propane Gas Distribution
2,260,000 Caemi 2,118,439
Iron Ore/Kaolin Producer
50,000 Diagnosticos (b) 677,450
Medical Diagnostic Services
- --------------------------------------------------------------------------------
17,929,837
- --------------------------------------------------------------------------------
MEXICO - 2.0%
240,000 Grupo Aeroportaurio Del Sureste 7,644,000
Cancun & Cozumel Airport Operator
1,000,000 Consorcio ARA (b) 3,452,747
Affordable Housing Builder
600,000 URBI Desarrollo (b) 3,294,041
Affordable Housing Builder
- --------------------------------------------------------------------------------
14,390,788
- --------------------------------------------------------------------------------
CHILE - 1.0%
47,000 Sociedad Quimica Y Minera de Chile 4,700,000
Producer of Specialty Fertilizers, Lithium & Iodine
100,000 CorpBanca (b) 2,610,000
Chilean Local Bank
- --------------------------------------------------------------------------------
7,310,000
- --------------------------------------------------------------------------------
LATIN AMERICA - TOTAL 39,630,625
TOTAL COMMON STOCKS AND OTHER
EQUITY-LIKE SECURITIES - 95.2% 687,877,036
- --------------------------------------------------------------------------------
(COST $517,846,756)
- --------------------------------------------------------------------------------
Principal Amount Value
SHORT-TERM OBLIGATIONS - 4.2%
- --------------------------------------------------------------------------------
$30,497,000 Repurchase Agreement with State
Street Bank & Trust dated 6/30/05,
due 7/1/05 at 3.00% collateralized
by Federal National Mortgage
Association Notes, maturing 2/22/08,
market value $31,111,106
(repurchase proceeds: $30,499,541) $30,497,000
- --------------------------------------------------------------------------------
(AMORTIZED COST $30,497,000) 30,497,000
TOTAL INVESTMENTS (COST $ 548,343,756) - 99.4% (a) 718,374,036
- --------------------------------------------------------------------------------
Cash and Other Assets Less Liabilities - 0.6% 4,167,224
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $722,541,260
NOTES TO STATEMENT OF INVESTMENTS:
(a) At June 30, 2005, for federal income tax purposes cost of investments was
$548,343,756 and net unrealized appreciation was $170,030,280 consisting of
gross unrealized appreciation of $189,376,879 and gross unrealized
depreciation of $ 19,346,599.
(b) Non-income producing security.
(c) On June 30, 2005, the Fund's total investments were denominated in
currencies as follows:
% of Net
Currency Value Assets
- --------------------------------------------------------------------------------
Euro Dollars $285,317,890 39.5%
British Pounds 114,828,300 15.9
U.S. Dollars 60,105,897 8.3
Japanese Yen 50,487,045 7.0
Other currencies less than
5% of total net assets 207,634,904 28.7
------------ ----
$718,374,036 99.4%
============ ====
(d) Denotes a restricted security, which is subject to restrictions on resale
under federal securities laws. These securities are valued in good faith
under consistently applied procedures as established by and under the
general supervision of the Board of Trustees. At June 30, 2005, these
securities amounted to $2,070,877 which represents 0.3% of net assets.
Additional information on this security is as follows:
ACQUISITION
SECURITY DATE PAR COST VALUE
- --------------------------------------------------------------------------------
Mainstreet
Equity
Conv.,
7.25%
9/30/11 10/8/04 CAD$ 3,175,000 $2,527,263 $2,070,877
CAD Canadian Dollar
10
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SMALL CAP
PORTFOLIO DIVERSIFICATION (Unaudited) JUNE 30, 2005
AT JUNE 30, 2005, THE FUND'S PORTFOLIO INVESTMENTS AS A PERCENT OF NET ASSETS
WAS DIVERSIFIED AS FOLLOWS:
Value Percent
- -----------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES
Other Industrial Services $38,189,491 5.3%
Industrial Materials 31,679,603 4.4
Construction 22,455,866 3.1
Machinery 21,924,484 3.0
Steel 17,228,427 2.4
Specialty Chemicals 17,013,033 2.4
Conglomerates 16,803,953 2.3
Outsourcing & Training Services 10,329,729 1.4
Electrical Components 8,358,443 1.2
Industrial Distribution 7,521,733 1.0
- -----------------------------------------------------------------
191,504,762 26.5
- -----------------------------------------------------------------
CONSUMER GOODS/SERVICES
Apparels 18,622,367 2.6
Durable Goods 18,211,220 2.5
Food 15,809,480 2.2
Gaming 15,300,810 2.1
Retail 14,746,950 2.0
Non Durable Goods 13,706,502 1.9
Beverage 9,699,017 1.3
Furniture & Textiles 8,303,688 1.1
Consumer Services 8,175,936 1.1
Goods Distribution 4,927,560 0.7
Travel 4,303,300 0.6
Casinos 4,040,002 0.6
Entertainment 1,930,784 0.3
- -----------------------------------------------------------------
137,777,616 19.0
- -----------------------------------------------------------------
FINANCE
Finance Companies 33,229,123 4.6
Banks 30,200,983 4.2
Insurance 17,762,489 2.5
Savings & Loans 9,964,616 1.4
Money Management 7,957,044 1.1
- -----------------------------------------------------------------
99,114,255 13.8
Value Percent
- -----------------------------------------------------------------
INFORMATION TECHNOLOGY
Computer Hardware & Related Equipment $20,085,582 2.8%
Business Information &
Marketing Services 10,685,677 1.5
Semiconductors & Related Equipment 8,331,799 1.2
Business Software 8,009,882 1.1
Instrumentation 7,469,525 1.0
Publishing 6,418,606 0.9
Television Programming 5,988,154 0.8
Internet Related 5,557,507 0.8
Satellite Broadcasting & Services 5,268,263 0.7
Financial Processors 5,180,355 0.7
Computer Services 3,535,800 0.5
Electronics Distribution 2,446,816 0.3
Contract Manufacturing 1,542,263 0.2
Cable Television 161,335 0.0
- -----------------------------------------------------------------
90,681,564 12.5
- -----------------------------------------------------------------
ENERGY/MINERALS
Oil Services 27,111,997 3.8
Non-Ferrous Metals 14,229,895 2.0
Mining 9,236,142 1.3
Oil/Gas Producers 5,666,659 0.8
Agricultural Commodities
(includes Forestry) 4,340,841 0.6
Oil Refining/Marketing/Distribution 3,541,026 0.5
Independent Power 566,579 0.1
- -----------------------------------------------------------------
64,693,139 9.1
- -----------------------------------------------------------------
OTHER
Transportation 30,629,823 4.2
Real Estate 19,856,843 2.7
Regulated Utilities 12,131,206 1.7
- -----------------------------------------------------------------
62,617,872 8.6
- -----------------------------------------------------------------
HEALTHCARE
Pharmaceuticals 13,034,054 1.8
Services 10,736,964 1.5
Medical Equipment 7,251,331 1.0
Hospital/ Laboratory Supplies 5,271,622 0.7
Hospital Management 5,193,857 0.7
- -----------------------------------------------------------------
41,487,828 5.7
- -----------------------------------------------------------------
TOTAL COMMON STOCKS &
OTHER EQUITY-LIKE SECURITIES 687,877,036 95.2
- -----------------------------------------------------------------
SHORT-TERM OBLIGATIONS 30,497,000 4.2
- -----------------------------------------------------------------
TOTAL INVESTMENTS 718,374,036 99.4
- -----------------------------------------------------------------
CASH & OTHER ASSETS
LESS LIABILITIES 4,167,224 0.6
- -----------------------------------------------------------------
NET ASSETS $722,541,260 100.0%
=================================================================
11
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (Unaudited)
- ----------------------------------------------------------------
ASSETS
Investments, at cost $548,343,756
- ----------------------------------------------------------------
Investments, at value $718,374,036
Cash 144
Foreign currency (cost of $3,903,655) 3,884,103
Receivable for:
Investments sold 5,552,753
Fund shares sold 898,232
Dividends and interest 1,442,928
Foreign tax reclaims 184,653
- ----------------------------------------------------------------
Total Assets 730,336,849
LIABILITIES
Payable for:
Investments purchased 7,024,111
Fund shares repurchased 110,838
Investment advisory fees 564,928
Transfer agent fees 518
Trustees' fees 5,020
Reports to shareholders 77,324
Other liabilities 12,850
- ----------------------------------------------------------------
Total Liabilities 7,795,589
- ----------------------------------------------------------------
Net Assets $722,541,260
================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $583,195,788
Undistributed net investment income 1,182,421
Accumulated net realized loss (31,818,062)
Net unrealized appreciation (depreciation) on:
Investments 170,030,280
Foreign currency translations (49,167)
- ----------------------------------------------------------------
Net Assets $722,541,260
================================================================
Fund shares outstanding 27,607,100
================================================================
Net asset value, offering price and
redemption price per share $26.17
================================================================
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (Unaudited)
- ----------------------------------------------------------------
INVESTMENT INCOME:
Dividend income (net of foreign taxes $737,800) $8,972,689
Interest income 434,457
- ----------------------------------------------------------------
Total investment income 9,407,146
EXPENSES:
Investment advisory fees 3,390,595
Transfer agent fees 623
Trustees' fees 34,086
Custody fees 275,971
Compliance fees 11,992
Non-recurring costs (See Note 8) 5,552
Other expenses 143,819
- ----------------------------------------------------------------
Total expenses 3,862,638
Fees waived by Investment Adviser (See Note 4) (188,761)
Non-recurring costs reimbursed (See Note 8) (5,552)
- ----------------------------------------------------------------
Net Expenses 3,668,325
- ----------------------------------------------------------------
Net Investment Income 5,738,821
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 26,321,600
Foreign currency transactions (341,529)
- ----------------------------------------------------------------
Net realized gain 25,980,071
- ----------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on:
Investments (7,777,610)
Foreign currency translations (155,561)
- ----------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) (7,933,171)
- ----------------------------------------------------------------
Net Gain 18,046,900
- ----------------------------------------------------------------
Net Increase in Net Assets from Operations $23,785,721
================================================================
See accompanying notes to financial statements.
12
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Six Months ended Year ended
INCREASE (DECREASE) IN NET ASSETS: June 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $5,738,821 $2,772,979
Net realized gain on investments and foreign currency transactions 25,980,071 38,203,442
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (7,933,171) 90,796,832
- --------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 23,785,721 131,773,253
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (6,966,978) (2,991,364)
- --------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (6,966,978) (2,991,364)
SHARE TRANSACTIONS:
Subscriptions 120,328,172 172,565,632
Distributions reinvested 6,966,978 2,991,364
Redemptions (28,345,315) (78,291,925)
- --------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 98,949,835 97,265,071
- --------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 115,768,578 226,046,960
NET ASSETS:
Beginning of period 606,772,682 380,725,722
- --------------------------------------------------------------------------------------------------------------------
End of period $722,541,260 $606,772,682
- --------------------------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME $1,182,421 $2,410,578
====================================================================================================================
See accompanying notes to financial statements.
13
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months
Selected data for a share Ended Year Ended December 31,
outstanding throughout each period June 30, 2005 2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $25.46 $19.68 $13.27 $15.40 $28.53 $43.67
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.22 0.13 0.13 0.07 0.02 (0.26)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.77(b) 5.80 6.33 (2.20) (5.12) (9.75)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.99 5.93 6.46 (2.13) (5.10) (10.01)
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.28) (0.15) (0.05) -- -- --
From net realized gain and unrealized gain reportable
for federal income taxes -- -- -- -- (8.03) (5.13)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.28) (0.15) (0.05) -- (8.03) (5.13)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $26.17 $25.46 $19.68 $13.27 $15.40 $28.53
===================================================================================================================================
Total Return (c) 3.83%(d)(e) 30.27% 48.86% (13.83)% (21.27)% (27.84)%
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses(f) 1.11%(g) 1.36% 1.41% 1.47% 1.43% 1.41%
Net investment income (loss)(f) 1.73%(g) 0.59% 0.85% 0.46% 0.10% (0.68)%
Waiver 0.06%(g) -- -- -- -- --
Portfolio turnover rate 14%(d) 47% 45% 54% 56% 67%
Net assets, end of period (000's) $722,541 $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) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of
repurchases of Fund shares in relation to fluctuating market values of the
investments of the Fund.
(c) Total return at net asset value assuming all distributions are reinvested.
(d) Not annualized.
(e) Had the investment adviser not waived or reimbursed a portion of expenses,
total return would have been reduced.
(f) The benefits derived from custody fees paid indirectly had no impact.
(g) Annualized.
See accompanying notes to financial statements.
14
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 under consistently applied
procedures established by and under the general supervision of 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 the
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 in to 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,
distribute 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%-15%. 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 tax character of distributions paid during the year ended December 31, 2004
was as follows:
DECEMBER 31, 2004
-----------------
Distributions paid from:
Ordinary Income $2,991,364
15
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------- ------------- --------------
$189,376,879 $(19,346,599) $170,030,280
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
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.
Effective March 8, 2005, 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 1.15%
Next $150 million 1.00%
In excess of $250 million 0.95%
Prior to March 8, 2005, under the Fund's investment management agreement,
fees were 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%
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 were retained at the following annual
rates as a percent of average daily net assets: 1.15% - up to $100 million;
1.00% - $100 million to $250 million; 0.95% - $250 million and over. The fee
waiver was effective from January 1, 2005 though March 8, 2005, but applied as
if it had gone into effect on December 1, 2004.
Effective August 1, 2005, under the fund's investment management agreement,
fees will be 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 1.15%
Next $150 million 1.00%
Next $250 million 0.95%
In excess of $500 million 0.85%
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 average
daily net assets. There was no reimbursement for the six months ended June 30,
2005.
For the six months ended June 30, 2005, the Fund's annualized effective
investment advisory fee rate was 0.97%.
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 six months ended June 30, 2005, the Fund
paid $34,086 to trustees not affiliated with Columbia WAM. 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 and has
subcontracted with Boston Financial Data Services ("BFDS") to serve as
subtransfer agent. For such services, the Transfer Agent receives a fee, paid
monthly, at the annual rate of $21.00 per open account. The Transfer Agent also
receives a reimbursement for certain out-of-pocket expenses.
During the six months ended June 30, 2005, 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 $6,221,592 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 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 six months ended June 30, 2005.
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:
Six months ended Year ended
June 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------
Shares sold 4,602,207 8,009,022
- --------------------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 252,061 140,969
- --------------------------------------------------------------------------------
Less shares redeemed 1,082,123 3,663,834
- --------------------------------------------------------------------------------
Net increase in shares outstanding 3,772,145 4,486,157
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the six months ended June 30, 2005 were $202,305,862
and $90,407,265.
16
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as 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, the Columbia Group 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 the Columbia Group'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 certain Columbia Funds, Nations Funds and other mutual funds
management fees 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, settlement amounts
described above 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 the Columbia Group and
the Fund's independent trustees 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, Columbia Acorn Trust, another mutual fund family advised by
Columbia WAM, and the trustees of Columbia Acorn Trust, are named as defendants
in class and derivative complaints which have been consolidated in a
Multi-District Action in the federal district court for the District of
Massachusetts. These lawsuits contend that defendants permitted certain
investors to market time their trades in certain Columbia Acorn Funds. The
Multi-District Action is ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot currently be made.
Columbia WAM, the Columbia Acorn Funds and the trustees of Columbia Acorn
Trust are defendants in a consolidated lawsuit filed in the federal district
court of Massachusetts 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 the Trust breached certain common laws duties
and federal laws.
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
Funds' net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV
(the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the
district court. However, plaintiffs are in the process of appealing that
decision.
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 Columbia WAM and affiliated advisers. The
trustees of Columbia Acorn Trust and Columbia WAM have been dismissed as
defendants in this lawsuit.
On March 21, 2005, a class action complaint was filed against the Columbia
Acorn Trust and Columbia WAM seeking to rescind the Contingent Deferred Sales
Charges assessed upon redemption of Class B shares of Columbia Acorn Funds due
to the alleged market timing of the Columbia Acorn Funds. In addition to the
rescission of sales charges, plaintiffs seek recovery of actual damages,
attorneys' fees and costs. The case has been removed to the federal district
court of Massachusetts.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of Fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the Funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. However, based on currently available
information, the Columbia Acorn Trust believes that the likelihood that these
lawsuits will have a material adverse impact on any fund is remote, and Columbia
WAM believes that the lawsuits are not likely to materially affect its ability
to provide investment management services to the Funds.
For the six months ended June 30, 2005, CMG has assumed $5,552 in consulting
services and legal fees incurred by the Fund in connection with these matters.
9. SUBSEQUENT EVENT
Effective August 22, 2005, the Fund's distributor will be Columbia Management
Distributors, Inc. and the Fund's transfer agent will be Columbia Management
Services, Inc.
17
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
[EXCERPTS FROM:]
WANGER ADVISORS TRUST
Management Fee Evaluation of the Senior Officer
Prepared Pursuant to the New York Attorney General's
Assurance of Discontinuance
July 2005
18
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
Introduction
The New York Attorney General's Assurance of Discontinuance ("Order") entered
into by Columbia Management Advisors, Inc. ("CMAI") and Columbia Funds
Distributor, Inc., ("CFDI" and collectively with "CMAI," "CMG") in February
2005, allows CMAI to manage or advise a mutual fund, including the Wanger
Advisors Trust's family of funds (the "WAT Funds" or "WAT" or "Trust"), only if
the trustees of the WAT Funds appoint a "Senior Officer" to perform specified
duties and responsibilities. One of these responsibilities includes "managing
the process by which proposed management fees (including but not limited to,
advisory fees) to be charged the WAT Fund[s] are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance."
The Order also provides that the Board of Trustees of the WAT Funds ("Board")
must determine the reasonableness of proposed "management fees" by using either
an annual competitive bidding process supervised by the Senior Officer or
Independent Fee Consultant, or by obtaining "an annual independent written
evaluation prepared by or under the direction of the Senior Officer or the
Independent Fee Consultant."
"Management fees" are only part of the costs and expenses paid by mutual fund
shareholders. The expenses can vary depending upon the class of shares held but
usually include: (1) investment management or advisory fees to compensate
analysts and portfolio managers for stock research and portfolio management, as
well as the cost of operating a trading desk; (2) administrative expenses
incurred to prepare registration statements and tax returns, calculate the
Funds' net asset values, maintain effective compliance procedures and perform
recordkeeping services; (3) transfer agency costs for establishing accounts,
accepting and disbursing funds, as well as overseeing trading in Fund shares;
(4) custodial expenses incurred to hold the securities purchased by the Funds;
and (5) distribution expenses, including commissions paid to brokers that sell
the Fund shares to investors.
Columbia Wanger Asset Management, L.P. ("CWAM"), the adviser to the WAT Funds,
has proposed that the Trust enter into an agreement that "bundles" the first two
categories listed above: advisory and administrative services. The fees paid
under this agreement are referred to as "management fees." Other fund expenses
are governed by separate agreements, in particular agreements with two CWAM
affiliates: CFDI, the broker-dealer that underwrites and distributes the WAT
Funds' shares, and Columbia Funds Services, Inc. ("CFSI"), the Funds' transfer
agent. In conformity with the terms of the Order, this evaluation, therefore,
addresses only the advisory and administrative contract between CWAM and the
Trust, and does not extend to the other agreements.
According to the Order, the Senior Officer's evaluation must consider at least
the following:
(1) Management fees (including components thereof) charged to
institutional and other clients of CWAM for like services;
(2) Management fees (including any components thereof) charged by other
mutual fund companies for like services;
(3) Costs to CWAM and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
(4) Profit margins of CWAM and its affiliates from supplying such
services;
(5) Possible economies of scale as the WAT Funds grow larger; and
(6) The nature and quality of CWAM's services, including the performance
of each WAT Fund.
On November 17, 2004, the Board appointed me Senior Officer under the Order. The
Board also determined not to pursue a competitive bidding process and instead,
charged me with the responsibility of evaluating the WAT Funds' proposed
advisory and administrative fee contract with CWAM in conformity with the
requirements of the Order. This Report is an annual evaluation required under
the Order. In discharging their responsibilities, the independent Trustees have
also consulted independent, outside counsel.
* * *
This evaluation was performed in cooperation and regular communication with the
Compliance/Contract Renewal Committee of the Board.
Process and Independence
The objectives of the Order are to ensure the independent evaluation of the
advisory fees paid by the WAT Funds as well as to ensure that all relevant
factors are considered. In my view, the contract renewal process has been
conducted at arms-length and with independence in gathering, considering and
evaluating relevant data. For example, the selection of fund peer groups is
critical in assessing a fund's relative performance and cost. I have required
Lipper and Morningstar, Inc. to prepare their reports without input or
commentary from CWAM; the engagement letters with them reflect this requirement.
As a result, the peer groups reflected in the Morningstar, Inc. and Lipper
reports were determined independently. After submission of the reports, I asked
CWAM to comment on them to avoid errors and to establish a clear record of
CWAM's views on which funds, in its judgment, constitute an appropriate peer
group.
Similarly, I discussed CWAM's profitability analysis with its management but
also sought the independent views of Ernst &Young on the reasonableness of
CWAM's cost allocation methodology and on the adequacy of the financial data it
provided. The evaluation of CWAM's profitability was performed in the context of
the limited industry data available.
My evaluation of the advisory contract was shaped by my experience as WAT's
Chief Compliance Officer ("CCO"). As CCO, I report solely to the Board and have
no reporting obligation to or employment relationship with CMG or its
affiliates, except for administrative purposes. This too contributes to the
independence of this evaluation. I have made several comments on compliance
matters in evaluating the quality of service provided by CWAM and CMG.
19
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
Finally, this Report, its supporting materials and the data contained in other
materials submitted to the Compliance/Contract Renewal Committee of the Board,
in my view, provide a thorough factual basis upon which the Board, in
consultation with independent counsel as it deems appropriate, may conduct
management fee negotiations that are in the best interests of the WAT Funds'
shareholders.
* * *
VI. Conclusions
My review of the data and other material above leads to the following
conclusions with respect to the factors identified in the Order.
1. Performance. The WAT Funds generally have achieved outstanding
performance and rank very favorably against their peers. The
international funds have good recent performance records, but weaker
long-term performance relative to the domestic WAT Funds. Recent
management changes have been followed by improved performance. The
domestic WAT Funds and International Select typically achieve their
performance with less risk than their competitors; relative risks are
greater for International Small Cap.
2. Management Fees relative to Peers. The management fee rankings of the
Funds are generally well below the respective medians and, hence, less
favorable to shareholders than their peer group funds.
3. Administrative Fees. The WAT Funds pay a bundled fee that combines
advisory fees and administrative expense, so ranking these fees
separately was not possible.
4. Management Fees relative to Other Accounts. CWAM's focus is its mutual
funds. It does not actively seek to manage separate or institutional
accounts. The few institutional accounts it does manage vary in rate
structures. Some pay advisory fees commensurate with or higher than
the WAT Funds. In a few instances, however, sub-advised accounts pay
lower management fees than do the WAT Funds.
5. Costs to CWAM and its Affiliates. CWAM's costs do not appear
excessive, and, in my view, it uses appropriate methodologies to
allocate overhead costs. CWAM's affiliates do not appear to profit
indirectly from CWAM's management agreement with the WAT Funds.
6. Profit Margins. CWAM's firm-wide profit margins are at the upper end
of the industry, though these comparisons are hampered by limited
industry data. High profit margins are not unexpected for firms that
manage large, successful funds and have provided outstanding
investment performance for investors. Profit margins for the WAT Funds
are lower than the margins for other accounts managed by CWAM because
of payments made to intermediaries that offer the WAT Funds through
variable annuity products. CMAI, the Funds' administrator, currently
experiences losses rather than profits, in connection with its
activities relating to the WAT Funds.
7. Economies of Scale. Economies of scale do exist at CWAM and will
expand, if the assets of the WAT Funds get larger. They are, however,
only partially reflected in the management fee schedule for two of the
four WAT Funds. If the Funds' assets continue to grow, under the
Funds' current fee schedules, shareholders might not benefit in a
manner generally commensurate with CWAM's increased profits
8. Nature and quality of services. This category includes a variety of
considerations that are difficult to quantify, yet can have a
significant bearing on the performance of the WAT Funds. Several areas
merit comment.
a. Continuity of Management. It is critical that capable and
experienced portfolio managers remain committed to the Funds and
are able to hire and retain analysts to assist them. CWAM must
have in place appropriate incentive plans that align its
management's interests with those of investors. Further, CWAM
must maintain the independence of its investment process. It
should also be supported by effective information technology.
b. Compliance. CWAM has an effective compliance program and a
variety of related services that are valuable to shareholders,
such as, systems to ensure best execution of portfolio
transactions and the daily review of security prices to ensure
accuracy of the WAT Funds' NAV.
c. Administration Services. The WAT Funds benefit from a variety of
administrative services that are performed by CWAM and CMAI,
including preparation of registration statements, calculation of
Fund NAV's, accounting services, shareholder services, and other
functions
In my opinion, these conclusions, taken together, generally support the
reasonableness of the proposed management agreement. In reaching this
conclusion, I weighed heavily the outstanding performance of the WAT Funds
relative to their peers. Performance is an investor's first concern. The expense
incurred by shareholders to enjoy this performance is, however, high relative to
competing funds, though expenses for the WAT Funds are (with one exception)
comparable to the parallel Acorn Funds. Nonetheless, a more complete breakpoint
schedule could address this issue as well as share with investors more fully the
benefits of economies of scale.
20
Wanger International Small Cap 2005 Semiannual Report
- --------------------------------------------------------------------------------
VII. Recommendations
The Trustees should consider the following proposals to address the issues
identified in this Report. Some of these recommendations require the collection
and evaluation of more data. This work cannot be accomplished effectively before
the expiration of the existing advisory contract on July 31, 2005. Therefore, I
recommend that the Trustees consider extending the existing contract pending
consideration of these recommendations.
These recommendations do not purport to offer the only avenues to address the
opinions and conclusions I have expressed in this Report. Economies of scale,
for example, can be addressed in a variety of ways in a management contract.
Sound business judgment will guide how any particular area is addressed with due
consideration given to all the factors that must be weighed in reaching a
management agreement that best serves the WAT Fund shareholders.
I believe the Trustees should consider the following:
1. Restructure the management fee schedule beyond the current breakpoints
to reflect more fully economies of scale. The Trustees might consider
several ways to accomplish this objective, including instituting a
two-tier fee structure that incorporates a complex- or CWAM-wide fee
(including assets held in separate accounts) and a fund specific fee,
with each containing breakpoints to reflect their separate economies
of scale. Another approach is to consider uniform breakpoints for all
WAT Funds, including breakpoints above and below current asset levels.
2. Conduct further study to ensure that the costs paid to insurance
company intermediaries are transparent. The Trustees could consider
forming an ad hoc committee to gather and evaluate data regarding
CWAM's payments to intermediaries and the services provided by those
intermediaries. Such a committee might also seek the assistance of a
consultant such as E&Y.
3. Administrative Fees. Administrative and advisory fees could be
unbundled to allow greater transparency and to permit distinct
comparisons among peers. An administrative fee could also be
formulated with a breakpoint schedule that shares the economies of
scale available with shareholders.
4. Condition contract renewal on submission of an employment agreements
or a management incentive plan designed to ensure the continued
employment of senior management, under terms that align management's
incentives with the interests of the WAT Funds' shareholders. Any
incentive plan should be designed to permit CWAM to attract and retain
the highest caliber investment professionals and support them with
effective and reliable information technology systems.
5. Review with CWAM its anticipated capacity limitations and the degree
to which increased staffing and effective incentives may address those
issues.
Robert P. Scales
July 25, 2005
* * *
More complete copies of the Management Fee Evaluation of the Senior Officer
of the Wanger Advisors Trust, edited to delete certain confidential or
proprietary information, are available upon written request to:
R. Scott Henderson
Bank of America
MA-515-11-05
One Financial Center
Boston, MA 02111
21
Wanger International Small Cap 2005 Semiannual Report
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[Graphic: squirrel]
WANGER ADVISORS TRUST
TRUSTEES
Patricia H. Werhane, Chairperson
Jerome L. Duffy
Fred D. Hasselbring
Kathryn A. Krueger, M.D.
Ralph Wanger
OFFICERS
Ben Andrews
Vice President
J. Kevin Connaughton
Assistant Treasurer
Michael G. Clarke
Assistant Treasurer
Kenneth A. Kalina
Assistant Treasurer
Bruce H. Lauer
Vice President, Secretary
and Treasurer
Charles P. McQuaid
President
Robert A. Mohn
Vice President
Todd M. Narter
Vice President
Christopher J. Olson
Vice President
Vincent P. Pietropaolo
Assistant Secretary
Robert P. Scales
Chief Compliance Officer, Senior Vice President and General Counsel
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Management Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Management
Distributors, 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
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
SHC-44/88226-0705 05/7139
WANGER SELECT
2005 Semiannual Report
[Graphic: squirrel]
WANGER ADVISORS FUNDS
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managed by Columbia Wanger Asset Management, L.P.
[Graphic: squirrel]
WANGER SELECT
2005 SEMIANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 Discipline and Creativity
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
15 Management Fee Evaluation of the Senior Officer
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 $23.5 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.
COLUMBIA MANAGEMENT IS THE PRIMARY INVESTMENT MANAGEMENT DIVISION OF
BANK OF AMERICA CORPORATION. COLUMBIA MANAGEMENT ENTITIES FURNISH INVESTMENT
MANAGEMENT SERVICES AND ADVISE INSTITUTIONAL AND MUTUAL FUND PORTFOLIOS.
COLUMBIA WAM IS AN SEC-REGISTERED INVESTMENT ADVISER AND WHOLLY OWNED SUBSIDIARY
OF BANK OF AMERICA, N.A. COLUMBIA WANGER IS PART OF COLUMBIA MANAGEMENT.
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 WANGER ADVISORS FUNDS.
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 2005 Semiannual 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 ongoing 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 $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number is
in the column labeled "actual." Multiply this number by the result
from step 1. Your answer is an estimate of the expenses you paid on
your account during the period.
January 1, 2005 - June 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid during Fund's annualized
beginning of the period ($) end of the period ($) the period ($) expense ratio (%)*
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger Select 1,000.00 1,000.00 991.82 1,020.13 4.64 4.71 0.94
- ------------------------------------------------------------------------------------------------------------------------------------
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
365.
Had the investment adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
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 6/30/05.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 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.
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Wanger Select 2005 Semiannual Report
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[Graphic: squirrel]
DISCIPLINE AND CREATIVITY
Photo of: RALPH WANGER
RALPH WANGER
Founder, Advisor and Trustee
Columbia Wanger Asset Management, L.P.
A popular new book by Tom Friedman, "The World Is Flat: A Brief History of the
Twenty-First Century," recounts how developing countries such as India and China
are using modern technology to compete with the United States in both
manufacturing and services. He contrasts the success of China and India to the
failure of the Arab states to participate in the modern world. He deplores the
influence of Yamani, the former Saudi oil minister, who used oil as an economic
weapon, and Osama Bin Laden who uses terror as a political weapon. Friedman
compares the stagnant current state of Arab culture with its peak in the 12th
century. "What makes Yamanism and Bin Ladenism unfortunate as strategies for the
Arabic world is that they ignore the examples within the Arab culture and
civilization - when it was at its height - of discipline, hard work, knowledge,
achievement, scientific inquiry, and pluralism."1
The popular Susan Hockfield was just installed as president of MIT. In her
inaugural speech she invoked her list of virtues. She said, "The value of
engineering - the rigor; the unflappable curiosity; the discipline and
creativity; the appetite for good, old fashioned hard work; the passionate,
enthusiastic, can do, hands-on, fix-it-now attitude - these values are and
always will be the values of MIT."
The rules for success in the world don't seem to have changed very much. Twelfth
century Cordoba and 21st century Cambridge are completely different in almost
every way, but the characteristics that make you successful have not changed.
Any financial analyst or serious investor should apply the engineer's
characteristics of discipline, hard work, knowledge and enthusiasm to investing.
President Hockfield's linking of discipline and creativity is interesting. It's
widely believed that we should diversify and balance our investments. We balance
stocks vs. bonds, growth stocks vs. value stocks, big-cap vs. small-cap stocks,
and U.S. stocks vs. international, but it is unusual to think of the balance
between discipline and creativity; yet this balance is what I believe brings
good investment results. Discipline without creativity is sterile - you tend to
get an index fund. Index funds run by computer algorithm are boring and backward
looking - although they have a significant place in investment portfolios.
Creativity without discipline tends to result in wild speculation and
money-losing results. We all remember the dot.com's in 1999 when the market was
dominated by speculators who ignored valuation in favor of science-fiction
fantasies. The resulting bubble was a seductive, narcotic experience for a year
or two but of course ended very badly. We believe the Wanger Funds have been
successful because our analysts have been able to maintain a balance between
discipline and creativity.
WE ARE NOT MANUFACTURERS
Organizations that are in the business of marketing mutual funds often prefer
discipline and are made nervous by creativity. For instance, Raymond "Chip"
Mason, chairman of Legg Mason, a major force in the mutual fund business, said
recently, "For two years we've been looking to cross the line and become pure
asset management. All the regulators have been pointing toward the need to
separate the manufacturing and distribution businesses."2
I have been in corporate meetings in which mutual fund portfolio management was
called "manufacturing" but this is a strange and inapt metaphor. Manufacturers
make products. Mutual funds are not a product. Cap'n Crunch cereal is a product.
When you go to the store to buy a new box of Cap'n Crunch you expect the taste
and nutrition performance to be exactly like the last box. Manufacturing cereal
is very disciplined resulting in high quality and high reliability, so that
every box is identical. Since you are a mutual fund shareholder you know that a
mutual fund could be a lot better or a lot worse than you expected when you
bought it. Investing involves forecasting the future, but forecasting is an
uncertain and sloppy process. While discipline is important, you need a lot of
creativity as well.
Predicting the future does not require a fortune teller with a crystal ball. It
is more like watching a skilled athlete. When you go to a baseball game and a
batter hits a fly ball to left field, the fielder will see the ball heading his
direction and, by experience, run to where the ball is going to land and make
what looks like a routine catch. The fielder has to predict the flight of the
ball, which for a physicist would require solving a complicated equation, but
the player shows that it is not an impossible task. Like the outfielder, we have
figured out where trends are likely going to land with reasonable success. As in
baseball, the ball can elude the fielder and the batter ends up on second base.
Sometimes our analysts miss the ball too, but for the full season we tend to
catch more balls than we miss.
TWO WHEELS GOOD, FOUR WHEELS BAD
Other teams haven't done so well. Forty years ago, major U.S. car makers were
among the largest companies in the world and were highly profitable. Since then,
the U.S. automotive industry has fallen into a long slump. Their corporate bonds
have been downgraded in quality, which is a definite sign of financial problems.
I believe that these companies were complacent and arrogant, so the German and
Japanese car makers beat them up.
2
Wanger Select 2005 Semiannual Report
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A long time ago, perhaps 1966, I attended a meeting of the Chicago Science
Analysts with the General Time Corporation. The company's main business was
making name-brand clocks like Seth Thomas and Big Ben. It also made automobile
clocks. The clocks were sold as accessories with the car. They were mechanical
clocks because electronic clocks hadn't yet been invented. They worked for about
three months and then broke. The U.S. automotive giant that bought the clocks
from General Time paid $3.25 per clock and resold it to the customer for $21. I
asked the president of General Time why his clocks didn't work better. I knew
this was an impertinent question but I wanted to see how he would react. I
expected him to take a defensive position retorting that the clocks were fine
but weren't being used correctly. To my surprise he admitted that the clocks
were lousy and he explained why.
General Time couldn't make a good clock for $3.25. The clock needed an
additional component that would have made it a sturdy, reliable device, but this
improvement would have raised the selling price to $3.75. Its customer, the
automobile manufacturer, was adamant about sticking to the lower price. Even to
an inexperienced analyst, as I was in 1966, I did not see how the automaker
could prosper if it was not delivering a high-quality car. Such a successful
company could have paid $3.75 for a clock and sold it for a decent profit even
if it kept the price at $21. While this would have been a less enormous markup,
the car likely would have been a better vehicle. If the automaker was willing to
sell a crummy clock, then I thought that customers would perceive that it was
cutting corners on all the other components of the vehicle too. Bad clock, bad
car. This willingness to forego quality for price made room for the imports.
Why am I bringing up an anecdote from 40 years ago? I think there are some
useful lessons here for financial analysts and investors. First, in a management
meeting it is okay to ask tough questions. You get more meaningful answers that
way. Second, you can find out a lot about a company by talking to its suppliers
or customers. Company spokesmen will only give you their own corporate press
release. Third, a long-term trend will take a long time to develop but it is
enormously important.
At the time of my 1966 meeting, U.S. automakers were riding high because foreign
car imports were not yet a problem. In 1960, Japan exported only 39,000
vehicles. By 1970, the Japanese were starting to exploit the lower quality of
U.S. cars and exported 1.1 million cars. In 1980, exports rose to 6 million and
the Japanese were producing more vehicles than U.S. manufacturers. U.S.
automotive companies had to react to the loss of market share from high-quality
imports. However, once there is a loss of market share, it is not usually
readily reversible.
DAVID ALWAYS BEATS GOLIATH
There are several lessons we can learn from the decline of Arab civilization and
the problems of U.S. auto companies: (1) To operate a successful business, the
world is too competitive to be complacent. Like baseball players, companies have
to fight to keep their position on the team. Great U.S. businesses must
constantly compete in the world market and it is darn tough. (2) Big companies
are often just big targets. Small companies are hungry to succeed and are
constantly focused on improving with the hope of taking some of the flabby
giant's customers. (3) History provides a useful context. Discipline,
creativity, hard work, knowledge, achievement, and a can-do, hands-on,
fix-it-now attitude worked in the past and will work now. (4) We believe
small-cap investing works if you can identify the hungry, small companies whose
employees embrace our list of exemplary values. The core investment strategy of
the Wanger Advisors Funds has always been to try to find small- and mid-cap
companies that are on the way up. We don't want to own once-great companies that
are now on their way down. This is partly a matter of personal taste, because we
find following big, sick companies to be depressing. Even though there are
occasional turnarounds in these big companies, it seems to us that is not the
way to bet.
SO LONG AND BEST REGARDS!
This is my final "Squirrel Chatter." I am retiring from Columbia Wanger Asset
Management as of September 30. While I considered writing a few more essays,
current regulatory rules are not conducive to the free-ranging thought that was
characteristic of these essays. I have great confidence in Chuck McQuaid and his
team of analysts and portfolio managers to keep the performance of the Funds at
a competitive level. Thank you, fellow shareholders, for your support over 35
years. I regard myself as truly fortunate to have been able to build a career in
this exciting industry. I am especially proud that we have enabled thousands of
our shareholders to pursue their economic goals by investing in our funds.
COLUMBIA WAM NEWS
We are pleased to announce that Ashish Kohli has joined our domestic analyst
team to follow health care. Jason Selch, who followed energy, departed in May.
We are searching for his replacement and continue to talk to some promising
candidates. Your Wanger Advisors Trust investment team includes 20 investment
analysts and portfolio managers.
- ---------------
1 Friedman, Thomas, The World Is Flat: A Brief History of the Twenty-first
Century, Farrar, Straus and Giroux, 2005. Page 405.
2 Raymond "Chip" Mason, chairman of Legg Mason, The Wall Street Journal, June
27, 2005, page C1.
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PERFORMANCE REVIEW WANGER SELECT
Photo of: Ben Andrews
BEN ANDREWS
Portfolio Manager
Wanger Select year-to-date was down 0.82% versus the S&P MidCap 400 Index's gain
of 3.85% and it was even with the S&P 500 Index's loss of 0.81%. During the
second quarter, the Fund made up some ground from its weak first quarter. The
Fund was up 4.90% in the second quarter beating the S&P 400's gain of 4.26% and
the S&P 500's return of 1.37%. Performance data quoted represents past
performance and current performance may be lower or higher. Past performance is
no guarantee of future results. The investment return and principal value will
fluctuate so that shares, when redeemed, may be worth more or less than the
original cost. Please visit www.columbiafunds.com for daily and most recent
month-end performance updates.
One of the Fund's winners year-to-date was Mine Safety Appliances (MSA), up 27%
as strong demand for combat helmets from the U.S. army drove higher than
expected earnings. The stock was added in the second quarter. MSA manufactures
products designed to protect the safety and health of workers worldwide.
On the down side Harley-Davidson lost 18% in the first half of 2005. Harley cut
production and its earnings forecast and sales slowed for its heavy-weight
bikes. We believe this hiccup will be overcome in the next several quarters. In
addition to MSA, there were five new companies added to the portfolio during the
quarter (Conseco, Nuveen Investments, Spartech, Tribune, and Worthington) while
three were sold (McAfee, Moodys, and Synopsys). We also lost a fourth company
when Liberty Media International purchased United Global Communications. The
combined company is now called Liberty Global and remains in the portfolio.
We continue to search for what we believe are the best risk/return investments
for the Fund. As always, we appreciate your investment in Wanger Select.
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 6/30/05, the Fund's positions in the stocks mentioned were: Mine Safety
Appliances, 1.5%; Harley-Davidson, 3.9%; Conseco, 2.9%; Nuveen Investments,
1.1%; Spartech, 0.2%; Tribune Company, 1.1%; Worthington Industries, 2.1%;
McAfee, 0.0%; Moodys, 0.0%; Synopsys, 0.0%; Liberty Media International, 0.0%;
United Global Communications, 0.0%; Liberty Global, 2.6%.
4
Wanger Select 2005 Semiannual Report
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VALUE OF $10,000 INVESTMENT IN
WANGER SELECT
TOTAL RETURN FOR EACH PERIOD,
FEBRUARY 1, 1999 (INCEPTION DATE) THROUGH JUNE 30, 2005
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------------------------------------
1 year 5 years Life of fund
9.31% 10.64% 13.81%
LINE CHART:
WANGER SELECT S&P MidCap 400
2/1/99 10000 10000
2/1/99 9750 9476
3/31/99 10530 9741
12150 10510
12220 10555
6/30/99 12530 11120
12510 10884
11420 10511
9/30/99 11410 10186
12250 10705
12510 11267
12/31/99 13430 11937
13090 11601
13100 12413
3/31/00 13697 13451
13049 12982
12695 12820
6/30/00 13822 13008
13404 13214
14782 14689
9/30/00 15064 14588
15127 14094
13749 13030
12/31/00 14699 14027
15231 14339
14313 13521
3/31/01 13791 12515
14762 13896
15555 14220
6/30/01 15221 14162
15054 13951
14427 13495
9/30/01 13592 11816
13895 12339
15388 13257
12/31/01 16035 13942
15764 13869
15398 13887
3/31/02 15920 14879
15043 14810
15482 14560
6/30/02 15210 13494
14302 12187
14699 12248
9/30/02 13979 11262
14814 11750
15451 12429
12/31/02 14814 11919
14709 11570
14751 11295
3/31/03 15023 11390
15889 12217
16787 13229
6/30/03 17277 13398
17998 13873
18718 14503
9/30/03 18311 14281
19084 15360
18979 15896
12/31/03 19365 16164
19908 16514
20472 16911
3/31/04 20481 16982
19906 16425
20220 16766
6/30/04 20962 17147
20000 16347
19750 16304
9/30/04 20168 16787
21035 17056
22362 18072
12/31/04 23104 18828
22278 18348
21965 18963
3/31/05 21844 18753
20987 18024
21934 19110
6/30/05 22913 19552
This graph compares the results of $10,000 invested in Wanger Select on February
1, 1999 (the date the Fund began operations) through June 30, 2005, 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.
- --------------------------------------------------------------------------------
RESULTS TO JUNE 30, 2005
Year
2nd quarter to date 1 year
WANGER SELECT 4.90% -0.82% 9.31%
S&P MidCap 400 4.26 3.85 14.03
S&P 500 1.37 -0.81 6.32
Lipper Mid-Cap
Growth Index 3.14 -0.92 7.31
NAV AS OF 6/30/05: $20.34
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.
- --------------------------------------------------------------------------------
TOP 5 SECTORS
As a % of net assets, as of 6/30/05
Consumer Goods/Services 31.9%
Information 26.0
Finance 16.5
Industrial Goods/Services 7.8
Health Care 6.7
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 6/30/05
1. ITT Educational Services 5.8%
Technology Oriented Postsecondary Degree Programs
2. Tellabs 5.2%
Telecommunications Equipment
3. Safeway 5.0%
Retail Food & Drug Stores
4. Abercrombie & Fitch 4.5%
Teen Apparel Retailer
5. Harley-Davidson 3.9%
Motorcycles & Related Merchandise
6. TCF Financial 3.8%
Great Lakes Bank
7. Lincare Holdings 3.8%
Home Health Care Services
8. Coach 3.6%
Designer & Retailer of Branded Leather Accessories
9. American Tower 3.4%
Communication Towers in USA & Mexico
10. Pride International 3.2%
Offshore Drilling Contractor
5
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER SELECT
STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
COMMON STOCKS - 93.0%
CONSUMER GOODS/SERVICES - 31.9%
- --------------------------------------------------------------------------------
RETAIL - 12.2%
190,000 Safeway $4,292,100
Retail Food & Drug Stores
57,000 Abercrombie & Fitch 3,915,900
Teen Apparel Retailer
51,000 CostCo 2,285,820
Warehouse Superstores
- --------------------------------------------------------------------------------
10,493,820
- --------------------------------------------------------------------------------
CONSUMER SERVICES - 8.7%
94,000 ITT Educational Services (b) 5,021,480
Technology Oriented Post Secondary Degree Programs
47,600 Weight Watchers (b) 2,456,636
Weight Loss Program
- --------------------------------------------------------------------------------
7,478,116
- --------------------------------------------------------------------------------
LEISURE VEHICLES - 3.8%
67,000 Harley-Davidson 3,323,200
Motorcycles & Related Merchandise
- --------------------------------------------------------------------------------
APPAREL - 3.6%
92,000 Coach (b) 3,088,440
Designer & Retailer of Branded Leather Accessories
- --------------------------------------------------------------------------------
ENTERTAINMENT - 2.5%
38,000 International Speedway Motors 2,137,880
Largest Motorsport Racetrack Owner & Operator
- --------------------------------------------------------------------------------
FURNITURE/TEXTILES - 1.1%
31,700 Herman Miller 977,628
Office Furniture
- --------------------------------------------------------------------------------
CONSUMER GOODS/SERVICES - TOTAL 27,499,084
INFORMATION - 26.0%
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT - 5.2%
510,000 Tellabs (b) 4,437,000
Telecommunications Equipment
- --------------------------------------------------------------------------------
BUSINESS/CONSUMER SOFTWARE - 3.9%
291,000 Novell (b) 1,804,200
Directory, Operating System & Identity
Management Software
137,000 Aspect Communications (b) 1,538,510
Call Center Software
- --------------------------------------------------------------------------------
3,342,710
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
INTERNET - 3.7%
600,000 Skillsoft Publishing (b) $2,070,000
Provider of Web-Based Learning Solutions
(E-Learning)
47,000 IAC/Interactive Corp (b) 1,130,350
Dominate Internet Middleman
- --------------------------------------------------------------------------------
3,200,350
- --------------------------------------------------------------------------------
MOBILE COMMUNICATIONS - 3.4%
140,000 American Tower (b) 2,942,800
Communication Towers in USA & Mexico
- --------------------------------------------------------------------------------
TELEVISION PROGRAMMING/CATV - 2.6%
48,102 Liberty Global (formerly known
as Liberty Media International) (b) 2,244,920
CATV Holding Company
- --------------------------------------------------------------------------------
ELECTRONICS DISTRIBUTION - 1.9%
29,000 CDW 1,655,610
Technology Reseller
- --------------------------------------------------------------------------------
INSTRUMENTATION - 1.9%
70,000 Tektronix 1,628,900
Analytical Instruments
- --------------------------------------------------------------------------------
BUSINESS INFORMATION/ADVERTISING - 1.6%
35,000 Fair Isaac 1,277,500
Credit Scoring & Decision Analytic Software
5,400 FTI Consulting (b) 112,860
Financial Consulting Firm
- --------------------------------------------------------------------------------
1,390,360
- --------------------------------------------------------------------------------
PUBLISHING - 1.2%
28,000 Tribune Company 985,040
Newspapers & TV Stations
- --------------------------------------------------------------------------------
COMPUTER SERVICES - 0.6%
152,000 AnswerThink Consulting (b) 539,600
IT Integration & Best Practice Research
- --------------------------------------------------------------------------------
INFORMATION - TOTAL 22,367,290
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
6
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER SELECT STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
FINANCE - 16.5%
- --------------------------------------------------------------------------------
BANKS - 6.1%
128,000 TCF Financial $3,312,640
Great Lakes Bank
57,000 Associated Banc-Corp 1,918,620
Midwest Bank
- --------------------------------------------------------------------------------
5,231,260
- --------------------------------------------------------------------------------
INSURANCE - 5.7%
114,900 Conseco (b) 2,507,118
Individual Life Insurance & Annuity Products
7,100 Markel (b) 2,406,900
Specialty Insurance
- --------------------------------------------------------------------------------
4,914,018
- --------------------------------------------------------------------------------
MONEY MANAGEMENT - 4.7%
48,100 SEI Investments 1,796,535
Mutual Fund Administration & Investment
Management
89,000 Janus Capital 1,338,560
Manages Mutual Funds
25,000 Nuveen Investments 940,500
Specialty Mutual Funds
- --------------------------------------------------------------------------------
4,075,595
- --------------------------------------------------------------------------------
FINANCE - TOTAL 14,220,873
INDUSTRIAL GOODS/SERVICES - 7.8%
- --------------------------------------------------------------------------------
LOGISTICS - 2.5%
43,000 Expeditors International of Washington 2,141,830
International Freight Forwarder
- --------------------------------------------------------------------------------
STEEL - 2.2%
117,000 Worthington Industries 1,848,600
Steel Processing
- --------------------------------------------------------------------------------
INDUSTRIAL GOODS - 1.5%
28,400 Mine Safety Appliances 1,312,080
Safety Equipment
- --------------------------------------------------------------------------------
OUTSOURCING SERVICES & TRAINING - 1.4%
135,000 Quanta Services (b) 1,188,000
Electrical & Telecom Construction Services
- --------------------------------------------------------------------------------
Number of Shares Value
or Principal Amount
- --------------------------------------------------------------------------------
SPECIALTY CHEMICALS & INDUSTRIAL MATERIALS - 0.2%
11,100 Spartech $197,580
Plastics Distribution & Compounding
- --------------------------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES - TOTAL 6,688,090
HEALTH CARE - 6.7%
- --------------------------------------------------------------------------------
SERVICES - 6.7%
80,000 Lincare Holdings 3,267,200
Home Health Care Services
35,640 Coventry Health Care (b) 2,521,530
PPO Network
- --------------------------------------------------------------------------------
5,788,730
- --------------------------------------------------------------------------------
HEALTH CARE - TOTAL 5,788,730
ENERGY & MINERALS - 4.1%
- --------------------------------------------------------------------------------
OIL SERVICES - 4.1%
107,000 Pride International (b) 2,749,900
Offshore Drilling Contractor
24,000 FMC Technologies (b) 767,280
Oil & Gas Well Head Manufacturer
- --------------------------------------------------------------------------------
3,517,180
- --------------------------------------------------------------------------------
ENERGY & MINERALS - TOTAL 3,517,180
TOTAL COMMON STOCKS - 93.0% 80,081,247
- --------------------------------------------------------------------------------
(COST $65,134,167)
SHORT-TERM OBLIGATIONS - 6.3%
- --------------------------------------------------------------------------------
$5,404,000 Repurchase Agreement with
State Street Bank & Trust dated
6/30/05, due 7/1/05 at 3.00%
collateralized by Federal Home
Loan Mortgage Association
Notes, maturing 9/15/09, market
value $5,516,000
(repurchase proceeds: $5,404,450) 5,404,000
- --------------------------------------------------------------------------------
(AMORTIZED COST $5,404,000) 5,404,000
TOTAL INVESTMENTS (COST $70,538,167) - 99.3% (A) 85,485,247
- --------------------------------------------------------------------------------
CASH AND OTHER ASSETS LESS LIABILITIES - 0.7% 630,457
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $86,115,704
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
7
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER SELECT STATEMENT OF INVESTMENTS (Unaudited) JUNE 30, 2005
NOTES TO STATEMENT OF INVESTMENTS:
(a) At June 30, 2005, cost for federal income tax purposes is $70,538,167. The
net unrealized appreciation was $14,947,080 consisting of gross unrealized
appreciation of $17,549,993 and gross unrealized depreciation of
$2,602,913.
(b) Non-income producing security.
At June 30, 2005, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
- -----------------------------------------------------------------
Consumer Goods/Services 31.9%
Information 26.0
Finance 16.5
Industrial Goods/Services 7.8
Health Care 6.7
Energy & Minerals 4.1
Short-Term Obligations 6.3
Cash and Other Assets Less Liabilities 0.7
--------
100.0%
--------
See accompanying notes to financial statements.
8
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
ASSETS
Investments, at cost $70,538,167
- ----------------------------------------------------------------
Investments, at value $85,485,247
Cash 23
Receivable for:
Investments sold 829,242
Fund shares sold 246,914
Dividends and interest 16,009
- ----------------------------------------------------------------
Total Assets 86,577,435
LIABILITIES
Payable for:
Investments purchased 174,350
Fund shares repurchased 188,181
Investment advisory fees 57,691
Transfer agent fees 421
Trustees' fees 874
Custody fees 125
Reports to shareholders 25,580
Other liabilities 14,509
- ----------------------------------------------------------------
Total Liabilities 461,731
- ----------------------------------------------------------------
Net Assets $86,115,704
================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $68,996,532
Accumulated net investment loss (90,761)
Accumulated net realized gain 2,262,853
Net unrealized appreciation on investments 14,947,080
- ----------------------------------------------------------------
Net Assets $86,115,704
================================================================
Fund shares outstanding 4,233,140
================================================================
Net asset value, offering price and
redemption price per share $20.34
================================================================
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
INVESTMENT INCOME:
Dividends $212,416
Interest Income 66,767
- ----------------------------------------------------------------
Total Investment Income 279,183
EXPENSES:
Investment advisory fees 344,898
Transfer agent fees 498
Trustees' fees 4,545
Custody fees 3,614
Compliance fees 1,487
Non-recurring costs (See Note 8) 665
Other expenses 30,173
- ----------------------------------------------------------------
Total expenses 385,880
Fees waived by Investment Adviser (See Note 4) (14,597)
Non-recurring costs reimbursed (See Note 8) (665)
Less custody fees paid indirectly (674)
- ----------------------------------------------------------------
Net Expenses 369,944
- ----------------------------------------------------------------
Net Investment Loss (90,761)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS:
Net realized gain on investments 2,381,373
Net change in unrealized appreciation
(depreciation) on investments (2,738,565)
- ----------------------------------------------------------------
Net Loss (357,192)
- ----------------------------------------------------------------
Net Decrease in Net Assets from Operations $(447,953)
================================================================
See accompanying notes to financial statements.
9
Wanger Select 2005 Semiannual Report
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(Unaudited)
Six Months ended Year ended
INCREASE (DECREASE) IN NET ASSETS June 30, 2005 December 31, 2004
- -----------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment loss $ (90,761) $ (311,671)
Net realized gain on investments 2,381,373 5,987,773
Net change in unrealized appreciation (depreciation)
on investments (2,738,565) 6,113,815
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (447,953) 11,789,917
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gains (5,786,576) (56,308)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders (5,786,576) (56,308)
SHARE TRANSACTIONS:
Subscriptions 11,897,304 29,505,736
Distributions reinvested 5,786,576 56,308
Redemptions (7,798,656) (10,942,589)
- -----------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 9,885,224 18,619,455
- -----------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 3,650,695 30,353,064
NET ASSETS:
Beginning of period 82,465,009 52,111,945
- -----------------------------------------------------------------------------------------------------------------------
End of period $86,115,704 $82,465,009
- -----------------------------------------------------------------------------------------------------------------------
ACCUMULATED NET INVESTMENT LOSS $ (90,761) $ --
=======================================================================================================================
See accompanying notes to financial statements.
10
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months
Selected data for a share outstanding Ended Year Ended December 31,
throughout each period June 30, 2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $22.11 $18.55 $14.19 $15.36 $14.08 $13.43
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (a) (0.02) (0.10) (0.11) (0.09) (0.05) (0.03)
Net realized and unrealized gain
(loss) on investments (0.22) 3.68 4.47 (1.08) 1.33 1.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.24) 3.58 4.36 (1.17) 1.28 1.20
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net realized capital gains (1.53) (0.02) -- -- -- (0.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (1.53) (0.02) -- -- -- (0.55)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $20.34 $22.11 $18.55 $14.19 $15.36 $14.08
====================================================================================================================================
Total Return (b) (0.82)%(c)(d) 19.31% 30.73% (7.62)% 9.09% 9.45%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.94%(e)(g) 1.10%(e) 1.15%(e) 1.18%(e) 1.33%(e) 1.39%(f)
Net investment loss (0.23)%(e)(g) (0.49)%(e) (0.65)%(e) (0.62)%(e) (0.34)%(e) (0.24)%(f)
Waiver/Reimbursement 0.04%(g) -- -- -- -- 0.21%
Portfolio turnover rate 22%(c) 36% 21% 45% 76% 86%
Net assets, end of period (000's) $86,116 $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) Not annualized.
(d) Had the investment adviser not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) The benefits derived from custody fees paid indirectly had no impact.
(f) In accordance with a requirement of the U.S. Securities and Exchange
Commission, this ratio reflects total expenses prior to the reduction of
custody fees for cash balances the Fund 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.
(g) Annualized.
11
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 under consistently applied
procedures established by and under the general supervision of 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 tax character of distributions paid during the year ended December 31, 2004
was as follows:
DECEMBER 31, 2004
-----------------
Distributions paid from:
Ordinary Income* $ --
Long-Term Capital Gain 56,308
*For tax purposes short-term capital gains distributions, if any, are considered
ordinary income distributions.
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
-------------- -------------- --------------
$17,549,993 $(2,602,913) $14,947,080
12
Wanger Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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.
Effective March 8, 2005, under the Fund's investment management agreement,
fees are accrued daily and paid monthly to Columbia WAM at the annual rate of
0.85% of average daily net assets.
Prior to March 8, 2005, under the Fund's investment management agreement,
fees were accrued daily and paid monthly to Columbia WAM at the annual rate of
0.95% of average daily net assets.
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 were retained at the annual rate of
0.85% of average daily net assets. The fee waiver was effective from January 1,
2005 through March 8, 2005, but applied as if it had gone into effect on
December 1, 2004.
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 six months ended June 30,
2005.
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 six months ended June 30, 2005, the Fund
paid $4,545 to trustees not affiliated with Columbia WAM. 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 and
has subcontracted with Boston Financial Data Services ("BFDS") to serve as
subtransfer agent. For such services, the Transfer Agent receives a fee, paid
monthly, at the annual rate of $21.00 per open account. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
During the six months ended June 30, 2005, 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 $0 and $72,621,
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 annual 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 six months ended June 30, 2005.
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:
Six months ended Year ended
June 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------
Shares sold 592,630 1,465,607
- --------------------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 294,782 2,911
- --------------------------------------------------------------------------------
Less shares redeemed 383,985 547,475
- --------------------------------------------------------------------------------
Net increase in shares outstanding 503,427 921,043
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than
short-term obligations for the six months ended June 30, 2005 were $22,783,181
and $16,661,857.
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
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as 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, the Columbia Group 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 the Columbia Group'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 certain Columbia Funds, Nations Funds and other mutual funds
management fees 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.
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Wanger Select 2005 Semiannual Report
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
Pursuant to the procedures set forth in the SEC order, settlement amounts
described above 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 the Columbia Group and
the Fund's independent trustees 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, Columbia Acorn Trust, another mutual fund family advised by
Columbia WAM, and the trustees of Columbia Acorn Trust, are named as defendants
in class and derivative complaints which have been consolidated in a
Multi-District Action in the federal district court for the District of
Massachusetts. These lawsuits contend that defendants permitted certain
investors to market time their trades in certain Columbia Acorn Funds. The
Multi-District Action is ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot currently be made.
Columbia WAM, the Columbia Acorn Funds and the trustees of Columbia Acorn
Trust are defendants in a consolidated lawsuit filed in the federal district
court of Massachusetts 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 the Trust breached certain common laws duties
and federal laws.
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
Funds' net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV
(the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the
district court. However, plaintiffs are in the process of appealing that
decision.
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 Columbia WAM and affiliated advisers. The
trustees of Columbia Acorn Trust and Columbia WAM have been dismissed as
defendants in this lawsuit.
On March 21, 2005, a class action complaint was filed against the Columbia
Acorn Trust and Columbia WAM seeking to rescind the Contingent Deferred Sales
Charges assessed upon redemption of Class B shares of Columbia Acorn Funds due
to the alleged market timing of the Columbia Acorn Funds. In addition to the
rescission of sales charges, plaintiffs seek recovery of actual damages,
attorneys' fees and costs. The case has been removed to the federal district
court of Massachusetts.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of Fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the Funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. However, based on currently available
information, the Columbia Acorn Trust believes that the likelihood that these
lawsuits will have a material adverse impact on any fund is remote, and Columbia
WAM believes that the lawsuits are not likely to materially affect its ability
to provide investment management services to the Funds.
For the six months ended June 30, 2005, CMG has assumed $665 in consulting
services and legal fees incurred by the Fund in connection with these matters.
9. SUBSEQUENT EVENT
Effective August 22, 2005, the Fund's distributor will be Columbia Management
Distributors, Inc. and the Fund's transfer agent will be Columbia Management
Services, Inc.
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[EXCERPTS FROM:]
Wanger Advisors Trust
Management Fee Evaluation of the Senior Officer
Prepared Pursuant to the New York Attorney General's
Assurance of Discontinuance
July 2005
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Introduction
The New York Attorney General's Assurance of Discontinuance ("Order") entered
into by Columbia Management Advisors, Inc. ("CMAI") and Columbia Funds
Distributor, Inc., ("CFDI" and collectively with "CMAI," "CMG") in February
2005, allows CMAI to manage or advise a mutual fund, including the Wanger
Advisors Trust's family of funds (the "WAT Funds" or "WAT" or "Trust"), only if
the trustees of the WAT Funds appoint a "Senior Officer" to perform specified
duties and responsibilities. One of these responsibilities includes "managing
the process by which proposed management fees (including but not limited to,
advisory fees) to be charged the WAT Fund[s] are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance."
The Order also provides that the Board of Trustees of the WAT Funds ("Board")
must determine the reasonableness of proposed "management fees" by using either
an annual competitive bidding process supervised by the Senior Officer or
Independent Fee Consultant, or by obtaining "an annual independent written
evaluation prepared by or under the direction of the Senior Officer or the
Independent Fee Consultant."
"Management fees" are only part of the costs and expenses paid by mutual fund
shareholders. The expenses can vary depending upon the class of shares held but
usually include: (1) investment management or advisory fees to compensate
analysts and portfolio managers for stock research and portfolio management, as
well as the cost of operating a trading desk; (2) administrative expenses
incurred to prepare registration statements and tax returns, calculate the
Funds' net asset values, maintain effective compliance procedures and perform
recordkeeping services; (3) transfer agency costs for establishing accounts,
accepting and disbursing funds, as well as overseeing trading in Fund shares;
(4) custodial expenses incurred to hold the securities purchased by the Funds;
and (5) distribution expenses, including commissions paid to brokers that sell
the Fund shares to investors.
Columbia Wanger Asset Management, L.P. ("CWAM"), the adviser to the WAT Funds,
has proposed that the Trust enter into an agreement that "bundles" the first two
categories listed above: advisory and administrative services. The fees paid
under this agreement are referred to as "management fees." Other fund expenses
are governed by separate agreements, in particular agreements with two CWAM
affiliates: CFDI, the broker-dealer that underwrites and distributes the WAT
Funds' shares, and Columbia Funds Services, Inc. ("CFSI"), the Funds' transfer
agent. In conformity with the terms of the Order, this evaluation, therefore,
addresses only the advisory and administrative contract between CWAM and the
Trust, and does not extend to the other agreements.
According to the Order, the Senior Officer's evaluation must consider at least
the following:
(1) Management fees (including components thereof) charged to
institutional and other clients of CWAM for like services;
(2) Management fees (including any components thereof) charged by other
mutual fund companies for like services;
(3) Costs to CWAM and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
(4) Profit margins of CWAM and its affiliates from supplying such
services;
(5) Possible economies of scale as the WAT Funds grow larger; and
(6) The nature and quality of CWAM's services, including the performance
of each WAT Fund.
On November 17, 2004, the Board appointed me Senior Officer under the Order. The
Board also determined not to pursue a competitive bidding process and instead,
charged me with the responsibility of evaluating the WAT Funds' proposed
advisory and administrative fee contract with CWAM in conformity with the
requirements of the Order. This Report is an annual evaluation required under
the Order. In discharging their responsibilities, the independent Trustees have
also consulted independent, outside counsel.
* * *
This evaluation was performed in cooperation and regular communication with the
Compliance/Contract Renewal Committee of the Board.
Process and Independence
The objectives of the Order are to ensure the independent evaluation of the
advisory fees paid by the WAT Funds as well as to ensure that all relevant
factors are considered. In my view, the contract renewal process has been
conducted at arms-length and with independence in gathering, considering and
evaluating relevant data. For example, the selection of fund peer groups is
critical in assessing a fund's relative performance and cost. I have required
Lipper and Morningstar, Inc. to prepare their reports without input or
commentary from CWAM; the engagement letters with them reflect this requirement.
As a result, the peer groups reflected in the Morningstar, Inc. and Lipper
reports were determined independently. After submission of the reports, I asked
CWAM to comment on them to avoid errors and to establish a clear record of
CWAM's views on which funds, in its judgment, constitute an appropriate peer
group.
Similarly, I discussed CWAM's profitability analysis with its management but
also sought the independent views of Ernst &Young on the reasonableness of
CWAM's cost allocation methodology and on the adequacy of the financial data it
provided. The evaluation of CWAM's profitability was performed in the context of
the limited industry data available.
My evaluation of the advisory contract was shaped by my experience as WAT's
Chief Compliance Officer ("CCO"). As CCO, I report solely to the Board and have
no reporting obligation to or employment relationship with CMG or its
affiliates, except for administrative purposes. This too contributes to the
independence of this evaluation. I have made several comments on compliance
matters in evaluating the quality of service provided by CWAM and CMG.
16
Wanger Select 2005 Semiannual Report
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Finally, this Report, its supporting materials and the data contained in other
materials submitted to the Compliance/Contract Renewal Committee of the Board,
in my view, provide a thorough factual basis upon which the Board, in
consultation with independent counsel as it deems appropriate, may conduct
management fee negotiations that are in the best interests of the WAT Funds'
shareholders.
* * *
VI. Conclusions
My review of the data and other material above leads to the following
conclusions with respect to the factors identified in the Order.
1. Performance. The WAT Funds generally have achieved outstanding
performance and rank very favorably against their peers. The
international funds have good recent performance records, but weaker
long-term performance relative to the domestic WAT Funds. Recent
management changes have been followed by improved performance. The
domestic WAT Funds and International Select typically achieve their
performance with less risk than their competitors; relative risks are
greater for International Small Cap.
2. Management Fees relative to Peers. The management fee rankings of the
Funds are generally well below the respective medians and, hence, less
favorable to shareholders than their peer group funds.
3. Administrative Fees. The WAT Funds pay a bundled fee that combines
advisory fees and administrative expense, so ranking these fees
separately was not possible.
4. Management Fees relative to Other Accounts. CWAM's focus is its mutual
funds. It does not actively seek to manage separate or institutional
accounts. The few institutional accounts it does manage vary in rate
structures. Some pay advisory fees commensurate with or higher than
the WAT Funds. In a few instances, however, sub-advised accounts pay
lower management fees than do the WAT Funds.
5. Costs to CWAM and its Affiliates. CWAM's costs do not appear
excessive, and, in my view, it uses appropriate methodologies to
allocate overhead costs. CWAM's affiliates do not appear to profit
indirectly from CWAM's management agreement with the WAT Funds.
6. Profit Margins. CWAM's firm-wide profit margins are at the upper end
of the industry, though these comparisons are hampered by limited
industry data. High profit margins are not unexpected for firms that
manage large, successful funds and have provided outstanding
investment performance for investors. Profit margins for the WAT Funds
are lower than the margins for other accounts managed by CWAM because
of payments made to intermediaries that offer the WAT Funds through
variable annuity products. CMAI, the Funds' administrator, currently
experiences losses rather than profits, in connection with its
activities relating to the WAT Funds.
7. Economies of Scale. Economies of scale do exist at CWAM and will
expand, if the assets of the WAT Funds get larger. They are, however,
only partially reflected in the management fee schedule for two of the
four WAT Funds. If the Funds' assets continue to grow, under the
Funds' current fee schedules, shareholders might not benefit in a
manner generally commensurate with CWAM's increased profits
8. Nature and quality of services. This category includes a variety of
considerations that are difficult to quantify, yet can have a
significant bearing on the performance of the WAT Funds. Several areas
merit comment.
a. Continuity of Management. It is critical that capable and
experienced portfolio managers remain committed to the Funds and
are able to hire and retain analysts to assist them. CWAM must
have in place appropriate incentive plans that align its
management's interests with those of investors. Further, CWAM
must maintain the independence of its investment process. It
should also be supported by effective information technology.
b. Compliance. CWAM has an effective compliance program and a
variety of related services that are valuable to shareholders,
such as, systems to ensure best execution of portfolio
transactions and the daily review of security prices to ensure
accuracy of the WAT Funds' NAV.
c. Administration Services. The WAT Funds benefit from a variety of
administrative services that are performed by CWAM and CMAI,
including preparation of registration statements, calculation of
Fund NAV's, accounting services, shareholder services, and other
functions
In my opinion, these conclusions, taken together, generally support the
reasonableness of the proposed management agreement. In reaching this
conclusion, I weighed heavily the outstanding performance of the WAT Funds
relative to their peers. Performance is an investor's first concern. The expense
incurred by shareholders to enjoy this performance is, however, high relative to
competing funds, though expenses for the WAT Funds are (with one exception)
comparable to the parallel Acorn Funds. Nonetheless, a more complete breakpoint
schedule could address this issue as well as share with investors more fully the
benefits of economies of scale.
17
Wanger Select 2005 Semiannual Report
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VII. Recommendations
The Trustees should consider the following proposals to address the issues
identified in this Report. Some of these recommendations require the collection
and evaluation of more data. This work cannot be accomplished effectively before
the expiration of the existing advisory contract on July 31, 2005. Therefore, I
recommend that the Trustees consider extending the existing contract pending
consideration of these recommendations.
These recommendations do not purport to offer the only avenues to address the
opinions and conclusions I have expressed in this Report. Economies of scale,
for example, can be addressed in a variety of ways in a management contract.
Sound business judgment will guide how any particular area is addressed with due
consideration given to all the factors that must be weighed in reaching a
management agreement that best serves the WAT Fund shareholders.
I believe the Trustees should consider the following:
1. Restructure the management fee schedule beyond the current breakpoints
to reflect more fully economies of scale. The Trustees might consider
several ways to accomplish this objective, including instituting a
two-tier fee structure that incorporates a complex- or CWAM-wide fee
(including assets held in separate accounts) and a fund specific fee,
with each containing breakpoints to reflect their separate economies
of scale. Another approach is to consider uniform breakpoints for all
WAT Funds, including breakpoints above and below current asset levels.
2. Conduct further study to ensure that the costs paid to insurance
company intermediaries are transparent. The Trustees could consider
forming an ad hoc committee to gather and evaluate data regarding
CWAM's payments to intermediaries and the services provided by those
intermediaries. Such a committee might also seek the assistance of a
consultant such as E&Y.
3. Administrative Fees. Administrative and advisory fees could be
unbundled to allow greater transparency and to permit distinct
comparisons among peers. An administrative fee could also be
formulated with a breakpoint schedule that shares the economies of
scale available with shareholders.
4. Condition contract renewal on submission of an employment agreements
or a management incentive plan designed to ensure the continued
employment of senior management, under terms that align management's
incentives with the interests of the WAT Funds' shareholders. Any
incentive plan should be designed to permit CWAM to attract and retain
the highest caliber investment professionals and support them with
effective and reliable information technology systems.
5. Review with CWAM its anticipated capacity limitations and the degree
to which increased staffing and effective incentives may address those
issues.
Robert P. Scales
July 25, 2005
* * *
More complete copies of the Management Fee Evaluation of the Senior Officer
of the Wanger Advisors Trust, edited to delete certain confidential or
proprietary information, are available upon written request to:
R. Scott Henderson
Bank of America
MA-515-11-05
One Financial Center
Boston, MA 02111
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Wanger Select 2005 Semiannual Report
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[Graphic: squirrel]
WANGER ADVISORS TRUST
TRUSTEES
Patricia H. Werhane, Chairperson
Jerome L. Duffy
Fred D. Hasselbring
Kathryn A. Krueger, M.D.
Ralph Wanger
OFFICERS
Ben Andrews
Vice President
J. Kevin Connaughton
Assistant Treasurer
Michael G. Clarke
Assistant Treasurer
Kenneth A. Kalina
Assistant Treasurer
Bruce H. Lauer
Vice President, Secretary
and Treasurer
Charles P. McQuaid
President
Robert A. Mohn
Vice President
Todd M. Narter
Vice President
Christopher J. Olson
Vice President
Vincent P. Pietropaolo
Assistant Secretary
Robert P. Scales
Chief Compliance Officer, Senior Vice President and General Counsel
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Management Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Management
Distributors, 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
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
SHC-44/88911-0705 05/7138
WANGER INTERNATIONAL SELECT
2005 Semiannual Report
[Graphic: Squirrel]
WANGER ADVISORS FUNDS
- --------------------------------------------------------------------------------
managed by Columbia Wanger Asset Management, L.P.
[Graphic: Squirrel]
WANGER INTERNATIONAL SELECT
2005 SEMIANNUAL REPORT
TABLE OF CONTENTS
1 Understanding Your Expenses
2 Discipline and Creativity
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
15 Management Fee Evaluation of the Senior Officer
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 $23.5 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.
COLUMBIA MANAGEMENT IS THE PRIMARY INVESTMENT MANAGEMENT DIVISION OF BANK OF
AMERICA CORPORATION. COLUMBIA MANAGEMENT ENTITIES FURNISH INVESTMENT MANAGEMENT
SERVICES AND ADVISE INSTITUTIONAL AND MUTUAL FUND PORTFOLIOS. COLUMBIA WAM IS AN
SEC-REGISTERED INVESTMENT ADVISER AND WHOLLY OWNED SUBSIDIARY OF BANK OF
AMERICA, N.A. COLUMBIA WANGER IS PART OF COLUMBIA MANAGEMENT.
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 SHARE OF THE WANGER ADVISORS FUNDS.
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 2005 Semiannual 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 ongoing 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 $8,600.00 at the end of the period, the result
would be 8.6.
2. In the section of the table below titled "Expenses paid during the
period," locate the amount for your fund. You will find this number is
in the column labeled "actual." Multiply this number by the result
from step 1. Your answer is an estimate of the expenses you paid on
your account during the period.
January 1, 2005 - June 30, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Account value at the Account value at the Expenses paid during Fund's annualized
beginning of the period ($) end of the period ($) the period ($) expense ratio (%)*
- ------------------------------------------------------------------------------------------------------------------------------------
Actual Hypothetical Actual Hypothetical Actual Hypothetical
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger International
Select 1,000.00 1,000.00 1,005.31 1,018.30 6.51 6.56 1.31
- ------------------------------------------------------------------------------------------------------------------------------------
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
365.
Had the investment adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
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 6/30/05.
COMPARE WITH OTHER FUNDS
Since all mutual funds are required to include the same hypothetical
calculations about expenses in shareholder reports, you can use this information
to compare the ongoing cost of investing in the fund with other funds. To do so,
compare the 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
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[Graphic: squirrel]
DISCIPLINE AND CREATIVITY
Photo of: Ralph Wanger
RALPH WANGER
Founder, Advisor and Trustee
Columbia Wanger Asset Management, L.P.
A popular new book by Tom Friedman, "The World Is Flat: A Brief History of the
Twenty-First Century," recounts how developing countries such as India and China
are using modern technology to compete with the United States in both
manufacturing and services. He contrasts the success of China and India to the
failure of the Arab states to participate in the modern world. He deplores the
influence of Yamani, the former Saudi oil minister, who used oil as an economic
weapon, and Osama Bin Laden who uses terror as a political weapon. Friedman
compares the stagnant current state of Arab culture with its peak in the 12th
century. "What makes Yamanism and Bin Ladenism unfortunate as strategies for the
Arabic world is that they ignore the examples within the Arab culture and
civilization - when it was at its height - of discipline, hard work, knowledge,
achievement, scientific inquiry, and pluralism."1
The popular Susan Hockfield was just installed as president of MIT. In her
inaugural speech she invoked her list of virtues. She said, "The value of
engineering - the rigor; the unflappable curiosity; the discipline and
creativity; the appetite for good, old fashioned hard work; the passionate,
enthusiastic, can do, hands-on, fix-it-now attitude - these values are and
always will be the values of MIT."
The rules for success in the world don't seem to have changed very much. Twelfth
century Cordoba and 21st century Cambridge are completely different in almost
every way, but the characteristics that make you successful have not changed.
Any financial analyst or serious investor should apply the engineer's
characteristics of discipline, hard work, knowledge and enthusiasm to investing.
President Hockfield's linking of discipline and creativity is interesting. It's
widely believed that we should diversify and balance our investments. We balance
stocks vs. bonds, growth stocks vs. value stocks, big-cap vs. small-cap stocks,
and U.S. stocks vs. international, but it is unusual to think of the balance
between discipline and creativity; yet this balance is what I believe brings
good investment results. Discipline without creativity is sterile - you tend to
get an index fund. Index funds run by computer algorithm are boring and backward
looking - although they have a significant place in investment portfolios.
Creativity without discipline tends to result in wild speculation and
money-losing results. We all remember the dot.com's in 1999 when the market was
dominated by speculators who ignored valuation in favor of science-fiction
fantasies. The resulting bubble was a seductive, narcotic experience for a year
or two but of course ended very badly. We believe the Wanger Funds have been
successful because our analysts have been able to maintain a balance between
discipline and creativity.
WE ARE NOT MANUFACTURERS
Organizations that are in the business of marketing mutual funds often prefer
discipline and are made nervous by creativity. For instance, Raymond "Chip"
Mason, chairman of Legg Mason, a major force in the mutual fund business, said
recently, "For two years we've been looking to cross the line and become pure
asset management. All the regulators have been pointing toward the need to
separate the manufacturing and distribution businesses."2
I have been in corporate meetings in which mutual fund portfolio management was
called "manufacturing" but this is a strange and inapt metaphor. Manufacturers
make products. Mutual funds are not a product. Cap'n Crunch cereal is a product.
When you go to the store to buy a new box of Cap'n Crunch you expect the taste
and nutrition performance to be exactly like the last box. Manufacturing cereal
is very disciplined resulting in high quality and high reliability, so that
every box is identical. Since you are a mutual fund shareholder you know that a
mutual fund could be a lot better or a lot worse than you expected when you
bought it. Investing involves forecasting the future, but forecasting is an
uncertain and sloppy process. While discipline is important, you need a lot of
creativity as well.
Predicting the future does not require a fortune teller with a crystal ball. It
is more like watching a skilled athlete. When you go to a baseball game and a
batter hits a fly ball to left field, the fielder will see the ball heading his
direction and, by experience, run to where the ball is going to land and make
what looks like a routine catch. The fielder has to predict the flight of the
ball, which for a physicist would require solving a complicated equation, but
the player shows that it is not an impossible task. Like the outfielder, we have
figured out where trends are likely going to land with reasonable success. As in
baseball, the ball can elude the fielder and the batter ends up on second base.
Sometimes our analysts miss the ball too, but for the full season we tend to
catch more balls than we miss.
TWO WHEELS GOOD, FOUR WHEELS BAD
Other teams haven't done so well. Forty years ago, major U.S. car makers were
among the largest companies in the world and were highly profitable. Since then,
the U.S. automotive industry has fallen into a long slump. Their corporate bonds
have been downgraded in quality, which is a definite sign of financial problems.
I believe that these companies were complacent and arrogant, so the German and
Japanese car makers beat them up.
2
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
A long time ago, perhaps 1966, I attended a meeting of the Chicago Science
Analysts with the General Time Corporation. The company's main business was
making name-brand clocks like Seth Thomas and Big Ben. It also made automobile
clocks. The clocks were sold as accessories with the car. They were mechanical
clocks because electronic clocks hadn't yet been invented. They worked for about
three months and then broke. The U.S. automotive giant that bought the clocks
from General Time paid $3.25 per clock and resold it to the customer for $21. I
asked the president of General Time why his clocks didn't work better. I knew
this was an impertinent question but I wanted to see how he would react. I
expected him to take a defensive position retorting that the clocks were fine
but weren't being used correctly. To my surprise he admitted that the clocks
were lousy and he explained why.
General Time couldn't make a good clock for $3.25. The clock needed an
additional component that would have made it a sturdy, reliable device, but this
improvement would have raised the selling price to $3.75. Its customer, the
automobile manufacturer, was adamant about sticking to the lower price. Even to
an inexperienced analyst, as I was in 1966, I did not see how the automaker
could prosper if it was not delivering a high-quality car. Such a successful
company could have paid $3.75 for a clock and sold it for a decent profit even
if it kept the price at $21. While this would have been a less enormous markup,
the car likely would have been a better vehicle. If the automaker was willing to
sell a crummy clock, then I thought that customers would perceive that it was
cutting corners on all the other components of the vehicle too. Bad clock, bad
car. This willingness to forego quality for price made room for the imports.
Why am I bringing up an anecdote from 40 years ago? I think there are some
useful lessons here for financial analysts and investors. First, in a management
meeting it is okay to ask tough questions. You get more meaningful answers that
way. Second, you can find out a lot about a company by talking to its suppliers
or customers. Company spokesmen will only give you their own corporate press
release. Third, a long-term trend will take a long time to develop but it is
enormously important.
At the time of my 1966 meeting, U.S. automakers were riding high because foreign
car imports were not yet a problem. In 1960, Japan exported only 39,000
vehicles. By 1970, the Japanese were starting to exploit the lower quality of
U.S. cars and exported 1.1 million cars. In 1980, exports rose to 6 million and
the Japanese were producing more vehicles than U.S. manufacturers. U.S.
automotive companies had to react to the loss of market share from high-quality
imports. However, once there is a loss of market share, it is not usually
readily reversible.
DAVID ALWAYS BEATS GOLIATH
There are several lessons we can learn from the decline of Arab civilization and
the problems of U.S. auto companies: (1) To operate a successful business, the
world is too competitive to be complacent. Like baseball players, companies have
to fight to keep their position on the team. Great U.S. businesses must
constantly compete in the world market and it is darn tough. (2) Big companies
are often just big targets. Small companies are hungry to succeed and are
constantly focused on improving with the hope of taking some of the flabby
giant's customers. (3) History provides a useful context. Discipline,
creativity, hard work, knowledge, achievement, and a can-do, hands-on,
fix-it-now attitude worked in the past and will work now. (4) We believe
small-cap investing works if you can identify the hungry, small companies whose
employees embrace our list of exemplary values. The core investment strategy of
the Wanger Advisors Funds has always been to try to find small- and mid-cap
companies that are on the way up. We don't want to own once-great companies that
are now on their way down. This is partly a matter of personal taste, because we
find following big, sick companies to be depressing. Even though there are
occasional turnarounds in these big companies, it seems to us that is not the
way to bet.
SO LONG AND BEST REGARDS!
This is my final "Squirrel Chatter." I am retiring from Columbia Wanger Asset
Management as of September 30. While I considered writing a few more essays,
current regulatory rules are not conducive to the free-ranging thought that was
characteristic of these essays. I have great confidence in Chuck McQuaid and his
team of analysts and portfolio managers to keep the performance of the Funds at
a competitive level. Thank you, fellow shareholders, for your support over 35
years. I regard myself as truly fortunate to have been able to build a career in
this exciting industry. I am especially proud that we have enabled thousands of
our shareholders to pursue their economic goals by investing in our funds.
COLUMBIA WAM NEWS
We are pleased to announce that Ashish Kohli has joined our domestic analyst
team to follow health care. Jason Selch, who followed energy, departed in May.
We are searching for his replacement and continue to talk to some promising
candidates. Your Wanger Advisors Trust investment team includes 20 investment
analysts and portfolio managers.
- -------------------
1 Friedman, Thomas, The World Is Flat: A Brief History of the Twenty-first
Century, Farrar, Straus and Giroux, 2005. Page 405.
2 Raymond "Chip" Mason, chairman of Legg Mason, The Wall Street Journal, June
27, 2005, page C1.
3
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
[Graphic: squirrel]
PERFORMANCE REVIEW WANGER INTERNATIONAL SELECT
Photo of: Todd M. Narter
Photo of: Christopher J. Olson
TODD M. NARTER
Co-Portfolio Manager
CHRISTOPHER J. OLSON
Co-Portfolio Manager
Wanger International Select was up 0.53% in the first six-months of the
year, slightly below the 0.79% return of the S&P/Citigroup World ex-US Cap Range
$2-10B Index and ahead of the MSCI EAFE Index's loss of 1.17%. Performance data
quoted represents past performance and current performance may be lower or
higher. Past performance is no guarantee of future results. The investment
return and principal value will fluctuate so that shares, when redeemed, may be
worth more or less than the original cost. Please visit www.columbiafunds.com
for daily and most recent month-end performance updates.
Argentina's Tenaris, a manufacturer of seamless pipes used by oil and gas
producers, and the Fund's second largest holding, continued its strong
performance as the stock gained 65% through the first half of the year. High oil
prices continued to drive energy exploration and investment, and tight capacity
in the seamless-pipe industry gave Tenaris strong pricing power. Another large
holding, SES Global, had good year-to-date performance, up 19% due to continued
demand for satellite services from the switch to HDTV. The company also
indicated it will launch two new satellites which will increase its capacity
even further. SES Global also reported that it will buy back 10% of its
outstanding shares, which highlights its strong balance sheet and cash flow.
Utilities BKW Energie in Switzerland, a new holding in the second quarter, and
Red Electrica in Spain were strong performers as well, up 12% and 25%,
respectively.
Two of our weaker holdings year-to-date were in Japan. Fast Retailing was down
27% after several months of disappointing same-store sales and Daito Trust
Construction was down 21% after several months of weak orders.
In addition to BKW Energie, we also added Gambro, which manufactures dialyzers
and blood collection and separation equipment; William Hill, a United Kingdom
betting shop and internet gaming operator; Jupiter Telecommunications, the
largest Japanese cable TV provider; Ito En, a maker of green tea and other
beverages; Belgacom, a Belgian telecommunications provider; Bank of Yokohama,
one of the largest regional banks in Japan; and IAWS, an Irish manufacturer of
baked goods.
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 6/30/05, the Fund's positions in the holdings mentioned were: Tenaris,
4.1%; SES Global, 4.0%; BKW Energie, 0.8%; Red Electrica, 3.0%; Fast Retailing,
0.0%; Daito Trust Construction, 2.8%; Gambro, 0.7%; William Hill, 1.0%; Jupiter
Telecommunications, 2.0%; Ito En, 2.3%; Belgacom, 1.6%; Bank of Yokohama, 0.8%;
IAWS Group, 2.6%.
4
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
VALUE OF A $10,000 INVESTMENT IN
WANGER INTERNATIONAL SELECT
TOTAL RETURN FOR EACH PERIOD,
FEBRUARY 1, 1999 (INCEPTION DATE) THROUGH JUNE 30, 2005
AVERAGE ANNUAL RETURN
- --------------------------------------------------------------------------------
1 year 5 years Life of fund
15.83% -0.33% 11.30%
LINE CHART:
S&P/Citigroup World
WANGER INTERNATIONAL SELECT ex-US $2-10B
2/1/99 10000 10000
2/28/99 10020 9750
3/31/99 10190 10135
10620 10701
10480 10249
6/30/99 11350 10624
11650 11021
11800 11144
9/30/99 11650 11183
12160 11188
14530 11508
12/31/99 18390 12388
17890 11789
21580 11941
3/31/00 20853 12299
20916 11806
19304 11616
6/30/00 20193 12232
19817 11836
20863 12208
9/30/00 19827 11802
19356 11437
17042 11096
12/31/00 18100 11638
18885 11580
16812 11159
3/31/01 14664 10289
15748 11048
15703 10954
6/30/01 15052 10669
14333 10401
14082 10307
9/30/01 11811 9110
12405 9476
12941 9814
12/31/01 13283 9835
12656 9545
12496 9690
3/31/02 12918 10245
13238 10432
13352 10764
6/30/02 12907 10390
11537 9460
11731 9437
9/30/02 10864 8593
10898 8746
11218 9192
12/31/02 11252 8933
10704 8708
10271 8546
3/31/03 10358 8400
11343 9142
12317 9797
6/30/03 12386 10077
12604 10481
13142 11086
9/30/03 13600 11543
14529 12434
14861 12538
12/31/03 15892 13367
16190 13648
16877 13977
3/31/04 17001 14520
16702 14026
16725 13987
6/30/04 17150 14342
16737 13798
16725 13925
9/30/04 17403 14373
17886 14857
19013 16031
12/31/04 19760 16739
19587 16649
20691 17361
3/31/05 20053 16921
19361 16432
19361 16531
6/30/05 19865 16872
This graph compares the results of $10,000 invested in Wanger International
Select on February 1, 1999 (the date the Fund began operations) through June 30,
2005, to the S&P/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 at the time of initial
purchase. Prior to 2/1/02, Wanger International Select was a non-diversified
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.
RESULTS TO JUNE 30, 2005
- --------------------------------------------------------------------------------
Year
2nd quarter to date 1 year
WANGER INTERNATIONAL
SELECT -0.94% 0.53% 15.83%
S&P/Citigroup World ex-US
Cap Range $2-10B -0.29 0.79 17.64
MSCI EAFE -1.01 -1.17 13.65
Lipper International
Funds Index -0.60 -0.65 13.45
NAV AS OF 6/30/05: $16.95
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/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.
- --------------------------------------------------------------------------------
TOP 5 COUNTRIES
As a % of net assets, as of 6/30/05
Japan 17.9%
Ireland 13.1
Switzerland 12.4
France 12.2
United Kingdom 10.4
- --------------------------------------------------------------------------------
TOP 10 HOLDINGS
As a % of net assets, as of 6/30/05
1. Anglo Irish Bank 4.7%
Small Business & Middle Market Banking - Ireland
2. Tenaris 4.1%
Steel Pipe for Oil Wells & Pipelines - Argentina
3. Excel 4.1%
Global Logistics & Freight Forwarding - United Kingdom
4. Neopost 4.0%
Postage Meter Machines - France
5. SES Global 4.0%
Satellite Broadcasting Services - Luxembourg
6. Kuehne & Nagel 3.1%
Freight Forwarding/Logistics - Switzerland
7. Komercni Banka 3.1%
Leading Czech Universal Bank - Czech Republic
8. Red Electrica 3.0%
Spanish Power Grid - Spain
9. Depfa Bank 2.9%
International Public Sector Finance - Ireland
10. Lion Nathan 2.9%
Beer Brewer/ Distributor - Australia
5
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
COMMON STOCKS - 98.8%
EUROPE - 62.1%
- --------------------------------------------------------------------------------
UNITED KINGDOM/IRELAND - 23.5%
143,000 Anglo Irish Bank (Ireland) $1,771,249
Small Business & Middle Market Banking
103,000 Exel 1,559,218
Global Logistics & Freight Forwarding
68,500 Depfa Bank (Ireland) 1,094,642
International Public Sector Finance
70,000 IAWS Group (Ireland) 977,957
Manufacturer of Baked Goods
220,000 Compass Group 922,826
International Concession & Contract Caterer
55,000 Grafton Group (Ireland) 636,454
Building Materials Wholesaling & DIY Retailing
18,000 Kerry Group (Ireland) 443,918
Food Ingredients
45,000 British Sky Broadcasting (b) 424,039
Digital Satellite Broadcasting
40,000 William Hill 384,847
Largest Bookmaker
20,000 Intermediate Capital 373,215
European Provider of Mezzanine Capital
11,000 Cobham 278,761
Aerospace Components
- --------------------------------------------------------------------------------
8,867,126
- --------------------------------------------------------------------------------
FRANCE/BELGIUM - 13.8%
17,300 Neopost 1,520,486
Postage Meter Machines
100,000 SES Global 1,505,218
Satellite Broadcasting Services
15,000 Imerys 1,031,096
Industrial Minerals Producer
17,600 Belgacom (Belgium) 599,270
Telecom Service Provider
8,200 Essilor International 558,002
Eyeglass Lenses
- --------------------------------------------------------------------------------
5,214,072
- --------------------------------------------------------------------------------
SWITZERLAND - 12.4%
5,550 Kuehne & Nagel 1,173,560
Freight Forwarding/Logistics
7,500 Swatch Group 1,049,458
Watch & Electronics Manufacturer
- --------------------------------------------------------------------------------
Number of Value
Shares
- --------------------------------------------------------------------------------
1,100 Geberit International $701,907
Plumbing Supplies
5,700 Synthes 623,782
Products for Orthopedic Surgery
1,300 Schindler 467,932
Elevator Manufacturer & Service Provider
630 Givaudan 365,412
Industrial Fragrances & Flavors
5,000 BKW Energie 312,475
Electric Utility
- --------------------------------------------------------------------------------
4,694,526
- --------------------------------------------------------------------------------
CZECH REPUBLIC - 3.1%
9,360 Komercni Banka 1,172,381
Leading Czech Universal Bank
- --------------------------------------------------------------------------------
SPAIN - 3.0%
41,000 Red Electrica 1,131,667
Spanish Power Grid
- --------------------------------------------------------------------------------
GERMANY - 2.8%
7,500 Deutsche Boerse 585,114
Trading, Clearing & Settlement Services
for Financial Markets
7,000 Rhoen Klinikum 483,846
Hospital Management
- --------------------------------------------------------------------------------
1,068,960
- --------------------------------------------------------------------------------
NORWAY - 2.8%
74,300 Den Norske Bank 769,912
Largest Norwegian Bank
8,000 Orkla 293,323
Food & Diversified Consumer Goods
- --------------------------------------------------------------------------------
1,063,235
- --------------------------------------------------------------------------------
SWEDEN - 0.7%
19,400 Gambro 258,877
Products/Services for Renal Care
- --------------------------------------------------------------------------------
EUROPE - TOTAL 23,470,844
See accompanying notes to financial statements.
6
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT STATEMENT OF INVESTMENTS (UNAUDITED) JUNE 30, 2005
- --------------------------------------------------------------------------------
Number of Value
Shares
ASIA - 24.4%
- --------------------------------------------------------------------------------
JAPAN - 17.9%
28,000 Daito Trust Construction $1,045,563
Apartment Builder
35,000 Shimano 993,134
Bicycle Components & Fishing Tackle
8,400 Hoya 965,154
Opto-Electrical Components & Eyeglass Lenses
17,100 Ito En 876,859
Bottled Tea & Other Beverages
914 Jupiter Telecommunications 768,024
Largest Cable Service Provider in Japan
41,000 Ushio 726,594
Industrial Light Sources
5,600 Funai Electric 572,576
Consumer Electronics
110,000 Hiroshima Bank 500,013
Regional Bank
55,000 Bank of Yokohama 316,036
Regional Bank
- --------------------------------------------------------------------------------
6,763,953
- --------------------------------------------------------------------------------
HONG KONG/CHINA - 4.1%
350,000 Hong Kong Exchanges & Clearing 906,562
Hong Kong Equity & Derivatives Operator
1,000,000 Global Bio-Chem Technology Group (China) 619,253
Refiner of Corn-Based Commodities
- --------------------------------------------------------------------------------
1,525,815
- --------------------------------------------------------------------------------
SINGAPORE - 2.4%
900,000 Comfort Del Gro 899,625
Taxi & Mass Transit Service
- --------------------------------------------------------------------------------
ASIA - TOTAL 9,189,393
OTHER COUNTRIES - 8.2%
- --------------------------------------------------------------------------------
CANADA - 5.3%
175,000 Kinross Gold (b) 1,069,421
Gold Mining
24,900 Talisman Energy 931,239
Oil & Gas Producer
- --------------------------------------------------------------------------------
2,000,660
- --------------------------------------------------------------------------------
AUSTRALIA - 2.9%
190,000 Lion Nathan 1,092,302
Beer Brewer/Distributor
- --------------------------------------------------------------------------------
OTHER - TOTAL 3,092,962
- --------------------------------------------------------------------------------
Number of Shares Value
or Principal Amount
LATIN AMERICA - 4.1%
- --------------------------------------------------------------------------------
ARGENTINA - 4.1%
20,000 Tenaris $1,565,400
Steel Pipe for Oil Wells & Pipelines
- --------------------------------------------------------------------------------
LATIN AMERICA - TOTAL 1,565,400
TOTAL COMMON STOCKS - 98.8% 37,318,599
- --------------------------------------------------------------------------------
(COST $28,469,817)
SHORT-TERM OBLIGATIONS - 0.9%
- --------------------------------------------------------------------------------
$ 353,000 Repurchase Agreement with State
Street Bank & Trust dated 6/30/05,
due 7/1/05 at 3.00% collateralized by
Federal Home Loan Mortgage
Corporation Notes, maturing 11/15/11,
market value $362,770
(repurchase proceeds: $353,000) 353,000
- --------------------------------------------------------------------------------
(AMORTIZED COST $353,000) 353,000
TOTAL INVESTMENTS (COST: $28,822,817) - 99.7% (a) (c) 37,671,599
- --------------------------------------------------------------------------------
CASH AND OTHER ASSETS LESS LIABILITIES - 0.3% 118,079
- --------------------------------------------------------------------------------
TOTAL NET ASSETS - 100% $37,789,678
- --------------------------------------------------------------------------------
NOTES TO STATEMENT OF INVESTMENTS:
(a) At June 30, 2005, cost for federal income tax purposes is $28,822,817. The
net unrealized appreciation was $8,848,782 consisting of gross unrealized
appreciation of $9,985,217 and gross unrealized depreciation of $1,136,435.
(b) Non-income producing security.
(c) On June 30, 2005, the Fund's total investments were denominated in
currencies as follows:
%
of Net
Currency Value Assets
- --------------------------------------------------------------------------------
Euro Dollars $ 12,338,919 32.7%
Japanese Yen 6,763,952 17.9
Swiss Francs 4,694,527 12.4
British Pounds 3,942,906 10.4
Canadian Dollars 2,000,660 5.3
U.S. Dollars 1,918,400 5.1
Other currencies less than 6,012,235 15.9
------------ ----
5% of total net assets $ 37,671,599 99.7%
============ ====
See accompanying notes to financial statements.
7
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
WANGER INTERNATIONAL SELECT PORTFOLIO DIVERSIFICATION (UNAUDITED) JUNE 30, 2005
AT JUNE 30, 2005, THE FUND'S PORTFOLIO INVESTMENTS AS A PERCENT OF NET ASSETS
WAS DIVERSIFIED AS FOLLOWS:
Value Percent
- -----------------------------------------------------------------
INDUSTRIAL GOODS/SERVICES
Industrial Services $3,200,710 8.5%
Industrial Materials 1,733,003 4.6
Steel 1,565,400 4.1
Machinery 1,520,486 4.0
Construction 1,045,563 2.8
Electrical Components 1,005,355 2.7
Industrial Distribution 636,454 1.7
Speciality Chemicals 365,412 1.0
- -----------------------------------------------------------------
11,072,383 29.4
- -----------------------------------------------------------------
CONSUMER GOODS/SERVICES
Durable Goods 2,042,592 5.4
Beverage 1,969,161 5.2
Food 1,421,875 3.8
Restaurants 922,826 2.4
Consumer Electronics 572,576 1.5
Gaming 384,847 1.0
Nondurables 293,323 0.8
- -----------------------------------------------------------------
7,607,200 20.1
- -----------------------------------------------------------------
FINANCE
Banks 5,624,233 14.9
Finance Companies 373,215 1.0
- -----------------------------------------------------------------
5,997,448 15.9
- -----------------------------------------------------------------
INFORMATION TECHNOLOGY
Computer Related Hardware
Semiconductors & Related Equipment 965,154 2.6
- -----------------------------------------------------------------
965,154 2.6
- -----------------------------------------------------------------
Media
Satellite Broadcasting and Services 1,505,218 4.0
Cable Television 768,024 2.0
TV Broadcasting 424,039 1.1
- -----------------------------------------------------------------
2,697,281 7.1
- -----------------------------------------------------------------
Software and Services
Financial Processors 1,491,676 3.9
- -----------------------------------------------------------------
1,491,676 3.9
- -----------------------------------------------------------------
Telecommunications
Telephone Services 599,270 1.6
- -----------------------------------------------------------------
599,270 1.6
- -----------------------------------------------------------------
5,753,381 15.2
- -----------------------------------------------------------------
ENERGY/MINERALS
Non-Ferrous Metals 1,069,421 2.8
Oil/Gas Producers 931,239 2.5
Agricultural Commodities
(includes Forestry) 619,253 1.6
- -----------------------------------------------------------------
2,619,913 6.9
Value Percent
- -----------------------------------------------------------------
OTHER
Regulated Utilities 1,444,142 3.8
Transportation 899,625 2.4
- -----------------------------------------------------------------
2,343,767 6.2
- -----------------------------------------------------------------
HEALTHCARE
Medical Equipment 1,181,784 3.1
Hospital Management 483,846 1.3
Services 258,877 0.7
- -----------------------------------------------------------------
1,924,507 5.1
- -----------------------------------------------------------------
TOTAL COMMON STOCKS 37,318,599 98.8
- -----------------------------------------------------------------
SHORT-TERM OBLIGATIONS 353,000 0.9
- -----------------------------------------------------------------
TOTAL INVESTMENTS 37,671,599 99.7
- -----------------------------------------------------------------
CASH AND OTHER ASSETS
LESS LIABILITIES 118,079 0.3
- -----------------------------------------------------------------
NET ASSETS $37,789,678 100.0%
=================================================================
8
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
ASSETS
Investments, at cost $28,822,817
- ----------------------------------------------------------------
Investments, at value $37,671,599
Foreign currency (cost of $28,118) 28,135
Receivable for:
Fund shares sold 128,821
Dividends and interest 54,685
Foreign tax reclaims 21,991
Expense reimbursement due from
Investment Advisor 734
- ----------------------------------------------------------------
Total Assets 37,905,965
LIABILITIES
Payable to custodian bank 8,260
Payable for:
Investments purchased 41,038
Investment advisory fees 29,632
Transfer agent fees 441
Trustees' fees 639
Audit fees 8,733
Custody fees 7,295
Reports to shareholders 16,404
Other liabilities 3,845
- ----------------------------------------------------------------
Total Liabilities 116,287
- ----------------------------------------------------------------
Net Assets $37,789,678
- ----------------------------------------------------------------
COMPOSITION OF NET ASSETS
Paid-in capital $33,105,625
Distributions in excess of net investment income (298,081)
Accumulated net realized loss (3,863,714)
Net unrealized appreciation (depreciation) on:
Investments 8,848,782
Foreign currency translations (2,934)
- ----------------------------------------------------------------
Net Assets $37,789,678
================================================================
Fund shares outstanding 2,229,492
================================================================
Net asset value, offering price and
redemption price per share $16.95
================================================================
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 (UNAUDITED)
- ----------------------------------------------------------------
INVESTMENT INCOME
Dividend income (net of foreign taxes of $48,122) $532,979
Interest income 10,385
- ----------------------------------------------------------------
Total investment income 543,364
EXPENSES:
Investment advisory fees 184,818
Transfer agent fees 457
Trustees' fees 2,249
Custody fees 27,481
Compliance fees 693
Non-recurring costs (See Note 8) 312
Other expenses 29,165
- ----------------------------------------------------------------
Total expenses 245,175
Fees waived by Investment Adviser (See Note 4) (674)
Non-recurring costs reimbursed (See Note 8) (312)
- ----------------------------------------------------------------
Net Expenses 244,189
- ----------------------------------------------------------------
Net Investment Income 299,175
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 734,108
Foreign currency transactions (7,725)
- ----------------------------------------------------------------
Net realized gain 726,383
- ----------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments (892,516)
Foreign currency translations (4,327)
- ----------------------------------------------------------------
Net change in unrealized
appreciation (depreciation) (896,843)
- ----------------------------------------------------------------
Net Loss (170,460)
- ----------------------------------------------------------------
Net Increase in Net Assets from Operations $128,715
================================================================
See accompanying notes to financial statements.
9
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
Six Months ended Year ended
INCREASE (DECREASE) IN NET ASSETS June 30, 2005 December 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
Net investment income $299,175 $82,031
Net realized gain on investments 726,383 3,328,351
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (896,843) 3,070,465
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 128,715 6,480,847
DISTRIBUTIONS TO SHAREHOLDERS FROM:
From net investment income (770,742) (87,061)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (770,742) (87,061)
SHARE TRANSACTIONS:
Subscriptions 6,263,708 15,850,018
Distributions reinvested 770,742 87,061
Redemptions (3,834,403) (14,026,796)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase from Share Transactions 3,200,047 1,910,283
- -----------------------------------------------------------------------------------------------------------------------------------
Total Increase in Net Assets 2,558,020 8,304,069
NET ASSETS:
Beginning of period 35,231,658 26,927,589
- -----------------------------------------------------------------------------------------------------------------------------------
End of period $37,789,678 $35,231,658
- -----------------------------------------------------------------------------------------------------------------------------------
(DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME)/ UNDISTRIBUTED NET INVESTMENT INCOME $(298,081) $173,486
===================================================================================================================================
See accompanying notes to financial statements.
10
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
(Unaudited)
Six Months
Selected data for a share outstanding Ended Year Ended December 31,
throughout each period June 30, 2005 2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $17.19 $13.87 $9.86 $11.64 $17.29 $18.39
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (loss) (a) 0.14 0.04 0.04 0.04 (0.03) (0.04)
Net realized and unrealized gain (loss)
on investments
and foreign currency transactions (0.03) 3.33 4.01 (1.82) (4.46) (0.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.11 3.37 4.05 (1.78) (4.49) (0.14)
- ------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.35) (0.05) (0.04) -- (0.02) (0.01)
From net realized capital gains -- -- -- -- (1.14) (0.95)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.05) (0.04) -- (1.16) (0.96)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.95 $17.19 $13.87 $9.86 $11.64 $17.29
====================================================================================================================================
Total Return (b) 0.53%(c)(d) 24.34% 41.24%(d) (15.29)%(d) (26.61)% (1.58)%(d)
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses(e) 1.31%(f) 1.43% 1.45% 1.45% 1.45% 1.45%
Net investment income (loss)(e) 1.61%(f) 0.29% 0.39% 0.35% (0.20)% (0.20)%
Waiver/Reimbursement 0.00%(f)(g) -- 0.09% 0.10% -- 0.23%
Portfolio turnover rate 19%(c) 71% 59% 113% 72% 96%
Net assets, end of period (000's) $37,790 $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) Not annualized.
(d) Had the investment adviser not waived or reimbursed a portion of expenses,
total return would have been reduced.
(e) The benefits derived from custody fees paid indirectly had no impact.
(f) Annualized.
(g) Rounds to less than 0.01%
See accompanying notes to financial statements.
11
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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 under consistently applied
procedures established by and under the general supervision of 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
prices 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%-15%. 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 tax character of distributions paid during the year ended December 31, 2004
was as follows:
DECEMBER 31, 2004
-----------------
Distributions paid from:
Ordinary Income $87,061
Unrealized appreciation and depreciation at June 30, 2005, based on cost of
investments for federal income tax purposes, was:
NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
--------------- --------------- ---------------
$9,985,217 $(1,136,435) $8,848,782
12
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
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
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.
Effective March 8, 2005, under the Fund's investment management agreement,
fees are accrued daily and paid monthly to Columbia WAM at the annual rate of
0.99% of average daily net assets.
Prior to March 8, 2005, under the Fund's investment management agreement,
fees were accrued daily and paid monthly to Columbia WAM at the annual rate of
1.00% of average daily net assets.
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 were retained at the annual rate of
0.99% of average daily net assets. The fee waiver was effective from January 1,
2005 through March 8, 2005, but applied as if it had gone into effect on
December 1, 2004.
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 six months ended June 30, 2005.
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 six months ended June 30, 2005, the Fund
paid $2,249 to trustees not affiliated with Columbia WAM. 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 and
has subcontracted with Boston Financial Data Services ("BFDS") to serve as
subtransfer agent. For such services, the Transfer Agent receives a fee, paid
monthly, at the annual rate of $21.00 per open account. The Transfer Agent also
receives reimbursement for certain out-of-pocket expenses.
During the six months ended June 30, 2005, 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 $419,565 and
$4,475,603, 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 six months ended June 30, 2005.
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:
Six months ended Year ended
June 30, 2005 December 31, 2004
- --------------------------------------------------------------------------------
Shares sold 365,013 1,041,265
- --------------------------------------------------------------------------------
Shares issued in reinvestment
of dividend distributions 43,155 6,025
- --------------------------------------------------------------------------------
Less shares redeemed 227,637 940,310
- --------------------------------------------------------------------------------
Net increase in shares outstanding 180,531 106,980
7. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the six months ended June 30, 2005 were $10,850,493 and
$6,819,863.
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
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as 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, the Columbia Group 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 the Columbia Group'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,
13
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds
and other mutual funds management fees 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, settlement amounts
described above 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 the Columbia Group and
the Fund's independent trustees 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, Columbia Acorn Trust, another mutual fund family advised by
Columbia WAM, and the trustees of Columbia Acorn Trust, are named as defendants
in class and derivative complaints which have been consolidated in a
Multi-District Action in the federal district court for the District of
Massachusetts. These lawsuits contend that defendants permitted certain
investors to market time their trades in certain Columbia Acorn Funds. The
Multi-District Action is ongoing. Accordingly, an estimate of the financial
impact of this litigation on any fund, if any, cannot currently be made.
Columbia WAM, the Columbia Acorn Funds and the trustees of Columbia Acorn
Trust are defendants in a consolidated lawsuit filed in the federal district
court of Massachusetts 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 the Trust breached certain common laws duties
and federal laws.
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
Funds' net asset value ("NAV"); (b) failing to implement the Fund's portfolio
valuation and share pricing policies and procedures; and (c) failing to know and
implement applicable rules and regulations concerning the calculation of NAV
(the "Fair Valuation Lawsuit"). The plaintiffs' complaint was dismissed by the
district court. However, plaintiffs are in the process of appealing that
decision.
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 Columbia WAM and affiliated advisers. The
trustees of Columbia Acorn Trust and Columbia WAM have been dismissed as
defendants in this lawsuit.
On March 21, 2005, a class action complaint was filed against the Columbia
Acorn Trust and Columbia WAM seeking to rescind the Contingent Deferred Sales
Charges assessed upon redemption of Class B shares of Columbia Acorn Funds due
to the alleged market timing of the Columbia Acorn Funds. In addition to the
rescission of sales charges, plaintiffs seek recovery of actual damages,
attorneys' fees and costs. The case has been removed to the federal district
court of Massachusetts.
The Columbia Acorn Trust and Columbia WAM intend to defend these suits
vigorously.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of Fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the Funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or BOA (and affiliated
entities). These suits are ongoing. However, based on currently available
information, the Columbia Acorn Trust believes that the likelihood that these
lawsuits will have a material adverse impact on any fund is remote, and Columbia
WAM believes that the lawsuits are not likely to materially affect its ability
to provide investment management services to the Funds.
For the six months ended June 30, 2005, CMG has assumed $312 in consulting
services and legal fees incurred by the Fund in connection with these matters.
9. SUBSEQUENT EVENT
Effective August 22, 2005, the Fund's distributor will be Columbia Management
Distributors, Inc. and the Fund's transfer agent will be Columbia Management
Services, Inc.
14
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
[EXCERPTS FROM:]
WANGER ADVISORS TRUST
Management Fee Evaluation of the Senior Officer
Prepared Pursuant to the New York Attorney General's
Assurance of Discontinuance
July 2005
15
Wanger International Select 2005 Semiannual Report
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Introduction
The New York Attorney General's Assurance of Discontinuance ("Order") entered
into by Columbia Management Advisors, Inc. ("CMAI") and Columbia Funds
Distributor, Inc., ("CFDI" and collectively with "CMAI," "CMG") in February
2005, allows CMAI to manage or advise a mutual fund, including the Wanger
Advisors Trust's family of funds (the "WAT Funds" or "WAT" or "Trust"), only if
the trustees of the WAT Funds appoint a "Senior Officer" to perform specified
duties and responsibilities. One of these responsibilities includes "managing
the process by which proposed management fees (including but not limited to,
advisory fees) to be charged the WAT Fund[s] are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance."
The Order also provides that the Board of Trustees of the WAT Funds ("Board")
must determine the reasonableness of proposed "management fees" by using either
an annual competitive bidding process supervised by the Senior Officer or
Independent Fee Consultant, or by obtaining "an annual independent written
evaluation prepared by or under the direction of the Senior Officer or the
Independent Fee Consultant."
"Management fees" are only part of the costs and expenses paid by mutual fund
shareholders. The expenses can vary depending upon the class of shares held but
usually include: (1) investment management or advisory fees to compensate
analysts and portfolio managers for stock research and portfolio management, as
well as the cost of operating a trading desk; (2) administrative expenses
incurred to prepare registration statements and tax returns, calculate the
Funds' net asset values, maintain effective compliance procedures and perform
recordkeeping services; (3) transfer agency costs for establishing accounts,
accepting and disbursing funds, as well as overseeing trading in Fund shares;
(4) custodial expenses incurred to hold the securities purchased by the Funds;
and (5) distribution expenses, including commissions paid to brokers that sell
the Fund shares to investors.
Columbia Wanger Asset Management, L.P. ("CWAM"), the adviser to the WAT Funds,
has proposed that the Trust enter into an agreement that "bundles" the first two
categories listed above: advisory and administrative services. The fees paid
under this agreement are referred to as "management fees." Other fund expenses
are governed by separate agreements, in particular agreements with two CWAM
affiliates: CFDI, the broker-dealer that underwrites and distributes the WAT
Funds' shares, and Columbia Funds Services, Inc. ("CFSI"), the Funds' transfer
agent. In conformity with the terms of the Order, this evaluation, therefore,
addresses only the advisory and administrative contract between CWAM and the
Trust, and does not extend to the other agreements.
According to the Order, the Senior Officer's evaluation must consider at least
the following:
(1) Management fees (including components thereof) charged to
institutional and other clients of CWAM for like services;
(2) Management fees (including any components thereof) charged by other
mutual fund companies for like services;
(3) Costs to CWAM and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
(4) Profit margins of CWAM and its affiliates from supplying such
services;
(5) Possible economies of scale as the WAT Funds grow larger; and
(6) The nature and quality of CWAM's services, including the performance
of each WAT Fund.
On November 17, 2004, the Board appointed me Senior Officer under the Order. The
Board also determined not to pursue a competitive bidding process and instead,
charged me with the responsibility of evaluating the WAT Funds' proposed
advisory and administrative fee contract with CWAM in conformity with the
requirements of the Order. This Report is an annual evaluation required under
the Order. In discharging their responsibilities, the independent Trustees have
also consulted independent, outside counsel.
* * *
This evaluation was performed in cooperation and regular communication with the
Compliance/Contract Renewal Committee of the Board.
Process and Independence
The objectives of the Order are to ensure the independent evaluation of the
advisory fees paid by the WAT Funds as well as to ensure that all relevant
factors are considered. In my view, the contract renewal process has been
conducted at arms-length and with independence in gathering, considering and
evaluating relevant data. For example, the selection of fund peer groups is
critical in assessing a fund's relative performance and cost. I have required
Lipper and Morningstar, Inc. to prepare their reports without input or
commentary from CWAM; the engagement letters with them reflect this requirement.
As a result, the peer groups reflected in the Morningstar, Inc. and Lipper
reports were determined independently. After submission of the reports, I asked
CWAM to comment on them to avoid errors and to establish a clear record of
CWAM's views on which funds, in its judgment, constitute an appropriate peer
group.
Similarly, I discussed CWAM's profitability analysis with its management but
also sought the independent views of Ernst & Young on the reasonableness of
CWAM's cost allocation methodology and on the adequacy of the financial data it
provided. The evaluation of CWAM's profitability was performed in the context of
the limited industry data available.
My evaluation of the advisory contract was shaped by my experience as WAT's
Chief Compliance Officer ("CCO"). As CCO, I report solely to the Board and have
no reporting obligation to or employment relationship with CMG or its
affiliates, except for administrative purposes. This too contributes to the
independence of this evaluation. I have made several comments on compliance
matters in evaluating the quality of service provided by CWAM and CMG.
16
Wanger International Select 2005 Semiannual Report
- --------------------------------------------------------------------------------
Finally, this Report, its supporting materials and the data contained in other
materials submitted to the Compliance/Contract Renewal Committee of the Board,
in my view, provide a thorough factual basis upon which the Board, in
consultation with independent counsel as it deems appropriate, may conduct
management fee negotiations that are in the best interests of the WAT Funds'
shareholders.
* * *
VI. Conclusions
My review of the data and other material above leads to the following
conclusions with respect to the factors identified in the Order.
1. Performance. The WAT Funds generally have achieved outstanding
performance and rank very favorably against their peers. The
international funds have good recent performance records, but weaker
long-term performance relative to the domestic WAT Funds. Recent
management changes have been followed by improved performance. The
domestic WAT Funds and International Select typically achieve their
performance with less risk than their competitors; relative risks are
greater for International Small Cap.
2. Management Fees relative to Peers. The management fee rankings of the
Funds are generally well below the respective medians and, hence, less
favorable to shareholders than their peer group funds.
3. Administrative Fees. The WAT Funds pay a bundled fee that combines
advisory fees and administrative expense, so ranking these fees
separately was not possible.
4. Management Fees relative to Other Accounts. CWAM's focus is its mutual
funds. It does not actively seek to manage separate or institutional
accounts. The few institutional accounts it does manage vary in rate
structures. Some pay advisory fees commensurate with or higher than
the WAT Funds. In a few instances, however, sub-advised accounts pay
lower management fees than do the WAT Funds.
5. Costs to CWAM and its Affiliates. CWAM's costs do not appear
excessive, and, in my view, it uses appropriate methodologies to
allocate overhead costs. CWAM's affiliates do not appear to profit
indirectly from CWAM's management agreement with the WAT Funds.
6. Profit Margins. CWAM's firm-wide profit margins are at the upper end
of the industry, though these comparisons are hampered by limited
industry data. High profit margins are not unexpected for firms that
manage large, successful funds and have provided outstanding
investment performance for investors. Profit margins for the WAT Funds
are lower than the margins for other accounts managed by CWAM because
of payments made to intermediaries that offer the WAT Funds through
variable annuity products. CMAI, the Funds' administrator, currently
experiences losses rather than profits, in connection with its
activities relating to the WAT Funds.
7. Economies of Scale. Economies of scale do exist at CWAM and will
expand, if the assets of the WAT Funds get larger. They are, however,
only partially reflected in the management fee schedule for two of the
four WAT Funds. If the Funds' assets continue to grow, under the
Funds' current fee schedules, shareholders might not benefit in a
manner generally commensurate with CWAM's increased profits
8. Nature and quality of services. This category includes a variety of
considerations that are difficult to quantify, yet can have a
significant bearing on the performance of the WAT Funds. Several areas
merit comment.
a. Continuity of Management. It is critical that capable and
experienced portfolio managers remain committed to the Funds and
are able to hire and retain analysts to assist them. CWAM must
have in place appropriate incentive plans that align its
management's interests with those of investors. Further, CWAM
must maintain the independence of its investment process. It
should also be supported by effective information technology.
b. Compliance. CWAM has an effective compliance program and a
variety of related services that are valuable to shareholders,
such as, systems to ensure best execution of portfolio
transactions and the daily review of security prices to ensure
accuracy of the WAT Funds' NAV.
c. Administration Services. The WAT Funds benefit from a variety of
administrative services that are performed by CWAM and CMAI,
including preparation of registration statements, calculation of
Fund NAV's, accounting services, shareholder services, and other
functions
In my opinion, these conclusions, taken together, generally support the
reasonableness of the proposed management agreement. In reaching this
conclusion, I weighed heavily the outstanding performance of the WAT Funds
relative to their peers. Performance is an investor's first concern. The expense
incurred by shareholders to enjoy this performance is, however, high relative to
competing funds, though expenses for the WAT Funds are (with one exception)
comparable to the parallel Acorn Funds. Nonetheless, a more complete breakpoint
schedule could address this issue as well as share with investors more fully the
benefits of economies of scale.
17
Wanger International Select 2005 Semiannual Report
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VII. Recommendations
The Trustees should consider the following proposals to address the issues
identified in this Report. Some of these recommendations require the collection
and evaluation of more data. This work cannot be accomplished effectively before
the expiration of the existing advisory contract on July 31, 2005. Therefore, I
recommend that the Trustees consider extending the existing contract pending
consideration of these recommendations.
These recommendations do not purport to offer the only avenues to address the
opinions and conclusions I have expressed in this Report. Economies of scale,
for example, can be addressed in a variety of ways in a management contract.
Sound business judgment will guide how any particular area is addressed with due
consideration given to all the factors that must be weighed in reaching a
management agreement that best serves the WAT Fund shareholders.
I believe the Trustees should consider the following:
1. Restructure the management fee schedule beyond the current breakpoints
to reflect more fully economies of scale. The Trustees might consider
several ways to accomplish this objective, including instituting a
two-tier fee structure that incorporates a complex- or CWAM-wide fee
(including assets held in separate accounts) and a fund specific fee,
with each containing breakpoints to reflect their separate economies
of scale. Another approach is to consider uniform breakpoints for all
WAT Funds, including breakpoints above and below current asset levels.
2. Conduct further study to ensure that the costs paid to insurance
company intermediaries are transparent. The Trustees could consider
forming an ad hoc committee to gather and evaluate data regarding
CWAM's payments to intermediaries and the services provided by those
intermediaries. Such a committee might also seek the assistance of a
consultant such as E&Y.
3. Administrative Fees. Administrative and advisory fees could be
unbundled to allow greater transparency and to permit distinct
comparisons among peers. An administrative fee could also be
formulated with a breakpoint schedule that shares the economies of
scale available with shareholders.
4. Condition contract renewal on submission of an employment agreements
or a management incentive plan designed to ensure the continued
employment of senior management, under terms that align management's
incentives with the interests of the WAT Funds' shareholders. Any
incentive plan should be designed to permit CWAM to attract and retain
the highest caliber investment professionals and support them with
effective and reliable information technology systems.
5. Review with CWAM its anticipated capacity limitations and the degree
to which increased staffing and effective incentives may address those
issues.
Robert P. Scales
July 25, 2005
* * *
More complete copies of the Management Fee Evaluation of the Senior Officer
of the Wanger Advisors Trust, edited to delete certain confidential or
proprietary information, are available upon written request to:
R. Scott Henderson
Bank of America
MA-515-11-05
One Financial Center
Boston, MA 02111
18
Wanger International Select 2005 Semiannual Report
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Wanger International Select 2005 Semiannual Report
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[Grahic: squirrel]
WANGER ADVISORS TRUST
TRUSTEES
Patricia H. Werhane, Chairperson
Jerome L. Duffy
Fred D. Hasselbring
Kathryn A. Krueger, M.D.
Ralph Wanger
OFFICERS
Ben Andrews
Vice President
J. Kevin Connaughton
Assistant Treasurer
Michael G. Clarke
Assistant Treasurer
Kenneth A. Kalina
Assistant Treasurer
Bruce H. Lauer
Vice President, Secretary
and Treasurer
Charles P. McQuaid
President
Robert A. Mohn
Vice President
Todd M. Narter
Vice President
Christopher J. Olson
Vice President
Vincent P. Pietropaolo
Assistant Secretary
Robert P. Scales
Chief Compliance Officer, Senior Vice President and General Counsel
TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
Columbia Management Services, Inc.
P.O. Box 8081
Boston, Massachusetts
02266-8081
DISTRIBUTOR
Columbia Management
Distributors, 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
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
SHC-44/89023-0705 05/7141
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
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.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
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: Not
applicable at this time.
(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 August 24, 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 August 24, 2005
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By (Signature and Title) /S/ Bruce H. Lauer
------------------------------------------------------
Bruce H. Lauer, Treasurer
Date August 24, 2005
--------------------------------------------------------------------------