-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RDwZv1Z+kZVKiPjXxWT1d7VV6amZL7NxFsss92jJcdAHjEeSRWWBhk9oxnzGwQjA YPLmMgriCno1e6LV4vyWaQ== 0000950131-98-001398.txt : 19980302 0000950131-98-001398.hdr.sgml : 19980302 ACCESSION NUMBER: 0000950131-98-001398 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980227 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WANGER ADVISORS TRUST CENTRAL INDEX KEY: 0000929521 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-08748 FILM NUMBER: 98551929 BUSINESS ADDRESS: STREET 1: 227 WEST MONROE STREET STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 FORMER COMPANY: FORMER CONFORMED NAME: WANGER ADVISORS TRUT DATE OF NAME CHANGE: 19940902 N-30D 1 WANGER ADVISORS TRUST 1997 ANNUAL REPORT Wanger Advisors Trust 1997 Annual Report [WANGER 97 LOGO APPEARS HERE] [SQUIRREL LOGO APPEARS HERE] Wanger Advisors Trust 1997 Annual Report Contents
1 Squirrel Chatter 3 Funds at a Glance 4 Reflections on the Year Wanger U.S. Small Cap 6 Reflections on the Year Wanger International Small Cap 8 Statement of Investments Wanger U.S. Small Cap 12 Statement of Investments Wanger International Small Cap 16 Portfolio Diversification Wanger International Small Cap 17 Statements of Assets and Liabilities 18 Statements of Operations 19 Statements of Changes in Net Assets 20 Financial Highlights Wanger U.S. Small Cap 21 Financial Highlights Wanger International Small Cap 22 Notes to Financial Statements
Wanger Asset Management, L.P. ("WAM") is one of the leading global small-cap equity managers in the U.S. with 28 years of small-cap investment experience. WAM manages over $6 billion in equities and is the investment adviser to Wanger U.S. Small Cap, Wanger International Small Cap, Acorn Fund, Acorn International and Acorn USA. WAM uses a unique style of catching trends with small, attractively-priced niche companies. For more complete information about our funds including the Acorn funds, fees and expenses, call WAM Brokerage Services, L.L.C., distributor, at 1-800-5-WANGER for a prospectus. Read it carefully before you invest or send money. [SQUIRREL LOGO APPEARS HERE] [WANGER 97 LOGO APPEARS HERE] Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- [SQUIRREL LOGO APPEARS HERE] Squirrel Chatter--A Walk in the Park You've certainly noticed the stock market has had bigger day-to-day swings than it did a couple of years ago. A statistical study of the market shows that from 1992 to 1995 the U.S. stock market had unusually low volatility, but lately, market volatility has moved to levels above the long-term average. How can you manage your investments when the stock market gets wild? The Random Romping of the Retriever Last week I watched a lady walking her golden retriever in the park. The dog romped all over the park. The dog chased a squirrel 50 yards to the north (the squirrel was too smart for him and got away). Then the dog ran the opposite direction to interview a little boy with an ice-cream cone. After that, another dog showed up and they chased each other in circles for awhile. In ten minutes the golden retriever had run a mile in all directions. If you tried to guess where that dog was going to run next, it would be a very difficult forecasting problem! You would have to know where every squirrel, child and dog was in the whole park and then guess what the retriever's response would be. However, there is a simpler way to solve this problem. The dog's owner entered the park at the south entrance. She then walked 3 miles per hour down the sidewalk and left the park at the west entrance after 30 minutes. The dog came in with its owner and left with its owner. You know where the dog started and where the dog ended up, even though for the half-hour in the park the dog's motion was unpredictable. You can think about the stock market in the same way. If you read the morning newspaper or watch the stock market on TV, the journalists will stress the short-term movements of the market in order to deliver an exciting story (and it has been exciting recently!), but all they are doing is recording the random romping of the retriever. However, if you concentrate on the long-term basic economic trends that move smoothly and steadily over multi-year time spans, you know where the lady is going and therefore where the market dog will end up eventually. So Where is the Lady Going? The economy lady is affected by two big trends. First, inflation is dead. Consumer Price Index (CPI) in the U.S. is being reported around 2%. This is just as true in the rest of the world. Over the last 40 years, the poster boy for inflation in Europe was Italy. This is why a plate of pasta in Pisa costs 17,000 lira. The latest CPI figures for Italy are 1.6%, lower than in the U.S. The same dramatic drop in inflation has occurred in almost every other country. This means that long-term bond rates will go down. Japan, which has had falling prices over the last few years, has a long-term government bond rate that has dropped below 2%. I don't think that the U.S. will get to 2%, but 5% is plausible (the U.S. long-term bond rate is currently 5.9%). Why is inflation dead? Over the very long-term, inflation has been associated with wars while during peacetime, prices were stable. The cold war era (1945-89) counted as a war because it forced the U.S. and other countries to spend trillions on military preparedness. A decade ago, many socialist economies were military threats but counted for little in world trade. Russia, Eastern Europe, China, India and Argentina made little of what the rest of the world wanted to buy (except arms), and didn't have (continued) 1 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- [SQUIRREL LOGO APPEARS HERE] Squirrel Chatter--A Walk in the Park enough hard currency to buy what the rest of the world wanted to sell. Now all of these more-or-less ex-socialist countries are back in the economic world. They have well-educated, motivated workers who are willing to work for a fraction of U.S. or European wages. The cold war is over, we won, and inflation has gone away. A second great trend in the world is the privatization of pension schemes. "Pay-as-you-go" funding for social security has many problems. The state systems work only as long as the promised benefits are modest, and the pool of people who "pay" grows at about the same rate as the people who "go." Unfortunately, the promised benefits are in fact fairly extravagant, and the "go" pool is growing while the "pay" pool is shrinking. Both politicians and would-be pensioners are worried they will wake up one day to a giant sucking sound coming from the benefits department of their national retirement administration. This is why we believe that individually funded pension plans will replace pay-as-you-go state run social security systems. Social security privatization has been denounced as "radical," but lots of countries have made the switch. Chile was first, followed by Argentina, Mexico, Australia, and the UK. The USA has been running a large pilot program, in the form of your 401(k) or 403(b) plan. The 401(k) system has been a big hit, partly by producing good investment returns, and also by changing John Doe from the client of a bureaucracy into a free citizen investing his money in a funded program. These new pension plans will demand vast quantities of long duration, high quality assets, so that bonds and high-grade stocks will be in strong demand. Because these individually funded pension plans start off with buying big company stocks, we have seen blue-chip indexes outperform small-cap stock averages in the U.S. and the rest of the world, too. This relative price movement against small-cap stocks has created an enormous disparity. The valuation gap is now starting to close in the U.S. Since May 1997, small-cap stocks have been at least matching the S&P 500 index. This trend change has not yet spread around the world, but it is likely to. If this unfolds as we hope, the Wanger Small Cap portfolios will be rewarding investments over the next several years. Ralph Wanger Chief Investment Officer, Wanger Asset Management [PHOTO OF RALPH WANGER APPEARS HERE] Ralph Wanger Chief Investment Officer 2 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Funds at a Glance ================================================================================
Wanger U.S. Small Cap Results to December 31, 1997 4th Last quarter 12 months Wanger U.S. Small Cap -1.7% 29.4% Russell 2000 -3.4% 22.4% S&P MidCap 400 0.8% 32.3% S&P 500 2.9% 33.4% Dow Jones 0.0% 24.9% Net Asset Value per share as of 12/31/97 $21.46
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Wanger International Small Cap Results to December 31, 1997 4th Last quarter 12 months Wanger Int'l Small Cap -9.6% -1.5% EAFE -7.8% 1.8% Lipper International Small Cap Funds Average -9.1% -0.3% Lipper International Funds Average -7.7% 5.4% EMI (World ex-U.S.) -10.3% -9.4% Net Asset Value per share as of 12/31/97 $17.05
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then eliminating the largest 1,000 leaving a good 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. The Dow Jones Industrial Average includes 30 large U.S. companies. All indexes are unmanaged and include reinvested dividends. EAFE is Morgan Stanley's Europe, Australasia and Far East Index, an unmanaged index of companies throughout the world in proportion to world stock market capitalization, excluding the U.S. and Canada. The Lipper Int'l Small Cap Funds Avg. is calculated from the performance of a group of small-cap int'l funds. For the 4th qtr. and 12-mos. periods above, the group consisted of 48 and 29 funds, respectively. The Lipper Int'l Funds Avg. is an average of all int'l funds tracked by Lipper, excluding the Int'l Small Cap Funds Avg. This group consisted of 484 and 421 funds for the 4th qtr. and 12-mos. periods above, respectively. The EMI is Salomon Brothers' index of the bottom 20% of institutionally investable capital of countries, as selected by Salomon, excluding the U.S. All indexes are unmanaged and returns include reinvested dividends. ================================================================================
Wanger U.S. Small Cap Top 5 Industries As a % of net assets, as of 12/31/97 Information 27.1% Energy/Minerals 18.3% Finance 14.4% Industrial Goods/Services 11.6% Health Care 11.0%
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Wanger International Small Cap Top 5 Countries As a % of net assets, as of 12/31/97 United Kingdom 18.7% Japan 9.0% Italy 7.1% Singapore 6.8% Sweden 6.6%
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Wanger U.S. Small Cap Top 10 Holdings Lincare Holdings 5.2% Home Health Care Services Coast Savings 4.1% California Savings & Loan CalEnergy 3.6% Power Plants First Health Group 3.3% PPO Network Host Marriott 3.2% Fast Food Kiosks in Airports Kronos 3.1% Time Accounting Software & Clocks Tesoro Petroleum 3.1% Oil Refinery/Gas Reserves RCN Corporation 3.0% Metro Market-Voice, Video & Data Services Wackenhut 2.9% Prison Management Acceptance Insurance 2.6% Crop Insurance
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Wanger International Small Cap Top 10 Holdings Mapfre Vida 5.8% Life Insurance/ Mutual Funds-Spain Autogrill Finanziari 3.5% Tollway Restaurants-Italy Oriflame 3.4% Natural Cosmetics Sold Door-to-Door-United Kingdom Li and Fung 3.2% Sourcing of Consumer Goods-Hong Kong Kempen 2.7% Stock Brokerage/Investment Management-Netherlands Tyndall Australia 2.7% Money Management/ Insurance-Australia St. James Place Capital 2.5% Life Insurance- United Kingdom TT Tieto 2.3% Computer Services/ Consulting-Finland Seton Healthcare Group 2.3% Pharmaceuticals- United Kingdom Athens Medical Center 2.3% Hospitals-Greece
- ------------------------------------------------------------------------------- The funds' top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statements of Investments for complete lists of the funds' holdings, including those described under "Reflections on the Year." 3 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Reflections on the Year Wanger U.S. Small Cap Wanger U.S. Small Cap rocked the small-cap world in 1997. Your Fund's +29.4% return in dollars (+201% in Indonesian rupiah!) handily beat the Russell 2000 small-cap index (+22.4%) and Lipper's small-cap mutual fund average (+20.8%). Our precocious portfolio acted more like an adult-cap last year, outperforming the Dow (+24.9%) though still trailing the jumbo-cap S&P 500 (+33.4%). We had a lot of stocks go up and very few go down. Twenty stocks made over $1 million, while only two lost over a million. Group of the year honors went to our cable television stocks. In 1996, paranoid investors fled from cable, fearing digital satellite TV would zap cable TV into extinction. But the cable doubters must have forgotten that sky TV remains expensive and unable to carry most local channels. The dreaded extraterrestrial satellite invasion of 1997 never made it out of the X-Files. Instead, cable companies snatched more viewer bodies, raised rates and roused their stocks. Our own able cable guy, Chuck McQuaid, loaded up on top flight cable providers (Cablevision) and programmers (United Video, Liberty Media) and made us a mint. One of our major investing themes is the worldwide growth of outsourcing. More corporations and governments are focusing only on what they do best and outsourcing the rest to specialists. Last year this theme paid off. The stocks making it into our million-dollar club were Host Marriott (airport food concessions), Wackenhut (privatized prisons), Lincare (home health care services), and Applied Industrial (industrial component warehousing). Our two best stocks soared on news of their corporate metamorphoses. Coast Savings, our lone banker, announced it will be acquired by a fellow California thrift, H.F. Ahmanson, which itself is likely prey in today's bank- eat-bank world. C-Tec split itself into three new communications companies (RCN Corp., Commonwealth Telephone, and Cable Michigan), gaining over $4 million for the year. Another winner, Royal Caribbean Cruises, rose a titanic 102% last year as more middle-aged middle-Americans vacationed afloat. Our only big loser last year was CalEnergy (operates power plants), with a - -16% return. The good news on CalEnergy: 85% of its business is not in Indonesia. The bad news: 15% is. We live in the Golden Age of Free Trade, when economic events happening a hemisphere away can ruin or save the day for any company, be it the largest multinational lender or the smallest domestic manufacturer. Recently, the sound of Asian economies toppling like dominoes has left Wall Street dis- Oriented. This volatility may wrack your nerves, but it also creates opportunities. Rational, efficient markets are filled with fairly priced stocks; emotional markets offer up bargains. Here's to more bargains in 1998. [PHOTO OF ROBERT A. MOHN APPEARS HERE] Robert A. Mohn Lead Portfolio Manager Wanger U.S. Small Cap 4 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- [SQUIRREL LOGO] Wanger U.S. Small Cap Results to December 31, 1997 - -------------------------------------------------------------------------------- The Value of a $10,000 Investment in Wanger U.S. Small Cap Total Return for Each Period May 3, 1995 through December 31, 1997 Wanger U.S. Small Cap
Wanger U.S. Small Cap Russell 2000 % on graph axis --------------------- ------------ --------------- 5/3/95 $10,000 $10,000 6/30/95 $10,770 $10,519 +7.7% 9/30/95 $12,060 $11,558 +12.0% 12/31/95 $11,600 $11,808 -3.8% 3/31/96 $13,297 $12,411 +14.6% 6/30/96 $15,351 $13,031 +15.5% 9/30/96 $15,792 $13,076 +2.9% 12/31/96 $17,004 $13,756 +7.7% 03/31/97 $16,366 $13,044 -3.8% 06/30/97 $19,093 $15,159 +16.7% 09/30/97 $22,395 $17,415 +17.3% 12/31/97 $22,005 $16,830 -1.7%
Wanger U.S. Small Cap $22,005 Russell 2000 $16,830 - -------------------------------------------------------------------------------- This graph compares the results of $10,000 invested in Wanger U.S. Small Cap on May 3, 1995 (the date the Fund began operations) through December 31, 1997, with the Russell 2000 with dividends reinvested. The beginning date of the Russell 2000 is as of May 31, 1995. The performance data quoted is past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Average Annual Total Return 1 year: 29.4% Life: 34.4% 5 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Reflections on the Year Wanger International Small Cap The many world stock markets had both good and bad results in 1997: 1. The US market was very strong, with the S&P 500 up 33%. 2. European stock markets were up similarly in their local currency, but the dollar was strong, so currency losses on European stocks reduced the gains. 3. In Asia, a spectacular collapse buried the markets. Asian stocks and currencies both plunged, mostly in the fourth quarter. 4. Blue-chip outperformed small company stocks in the US, UK, France, and Japan. The Salomon EMI (World ex-US) Index of small companies was down 9.4% for the year, while EAFE (big companies) was up 1.8%. In this treacherous environment, we ended the year down 1.5%, better than the Salomon EMI (World ex-US) Index, but disappointing. The fourth quarter was the culprit. We made money for the first nine months, but then the Asian contagion finally caught up with Singapore and Hong Kong, and the fund lost 9.6% in the final quarter. Although we managed to sell out of Korea, Indonesia, Thailand, and Malaysia completely before the bulk of the damage there was done, Asia still produced some big losers for the portfolio. Japanese photo processor Nihon Jumbo, Philippine casino operator Mondragon, and Hong Kong theater manager Golden Harvest all lost more than 50%. As one would expect, our big winners were European stocks. We more than doubled our money on Greek hospital manager Athens Medical Center, UK retailer Electronics Boutique, and Dutch money manager Kempen. At this time, small company stocks outside the US are looking extraordinarily inexpensive. In Japan, over two-thirds of the smaller companies trading on the over-the-counter market are selling below book value. In the UK, company managements are actively using their own money to buy shares in their companies. We are taking advantage of these low valuations by buying world-class small companies at bargain basement prices for you. [PHOTO OF MARCEL P. HOUTZAGER APPEARS HERE] Marcel P. Houtzager Lead Portfolio Manager Wanger International Small Cap 6 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Results to December 31, 1997 - -------------------------------------------------------------------------------- The Value of a $10,000 Investment in Total Return for Each Period Wanger International Small Cap May 3, 1995 through December 31, 1997 [GRAPH CHART APPEARS HERE]
Wanger Int'l Small Cap EAFE % on graph axis ---------------------- ---- --------------- 5/3/95 $10,000 $10,000 6/30/95 $10,970 $ 9,825 +9.7% 9/30/95 $12,910 $10,234 +17.7% 12/31/95 $13,450 $10,649 +4.2% 3/31/96 $15,499 $10,956 +15.2% 6/30/96 $17,183 $11,130 +10.9% 9/30/96 $17,023 $11,116 -0.9% 12/31/96 $17,755 $11,293 +4.3% 3/31/97 $18,357 $11,112 +3.4% 6/30/97 $19,568 $12,558 +6.6% 9/30/97 $19,363 $12,470 -1.1% 12/31/97 $17,496 $11,493 -9.6%
- -------------------------------------------------------------------------------- This graph compares the results of $10,000 invested in Wanger International Small Cap on May 3, 1995 (the date the Fund began operations) through December 31, 1997, with Morgan Stanley's Europe, Australasia Far East Index (EAFE), with dividends reinvested. The beginning date of EAFE is as of May 31, 1995. The performance data quoted is past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Average Annual Total Return 1 year: -1.5% Life: 23.3% 7 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger U.S. Small Cap Statement of Investments December 31, 1997
- -------------------------------------------------------------------------------- Number of Value Shares Common Stocks--92.1% Information--27.1% - -------------------------------------------------------------------------------- Broadcasting--2.7% 250,600 Data Transmission Network (b) $7,016,800 Data Services for Farmers 4,800 Young Broadcasting (b) 186,000 Television Stations - -------------------------------------------------------------------------------- 7,202,800 - -------------------------------------------------------------------------------- Cable Television--2.9% 61,000 Cablevision Systems (b) 5,840,750 Cable TV 86,000 Cable Michigan (b) 1,967,250 Cable TV - -------------------------------------------------------------------------------- 7,808,000 - -------------------------------------------------------------------------------- Television Programming--4.5% 239,100 United Video Satellite (b) 6,874,125 Cable TV & Satellite Dish Programming 148,000 Liberty Media Group, Tele-Communications (b) 5,365,000 Cable Programming - -------------------------------------------------------------------------------- 12,239,125 - -------------------------------------------------------------------------------- Telephone Services--4.5% 239,200 RCN Corporation (b) 8,192,600 Metro Market--Voice, Video & Data Services 159,000 Commonwealth Telephone (b) 4,114,125 Rural Market--Local, Long Distance & Internet Access - -------------------------------------------------------------------------------- 12,306,725 - -------------------------------------------------------------------------------- Mobile Communications--3.9% 262,000 Centennial Cellular (b) 5,371,000 Cellular Franchises 234,500 COMARCO (b) 5,159,000 Wireless Network Testing - -------------------------------------------------------------------------------- 10,530,000 - -------------------------------------------------------------------------------- Telecommunications Equipment--1.0% 124,000 Aspect Telecommunications (b) 2,588,500 Call Center Equipment - -------------------------------------------------------------------------------- Business Software--2.1% 393,400 Wonderware (b) 5,556,775 Industrial Control Software - -------------------------------------------------------------------------------- Business Information--1.5% 100,000 World Color Press (b) 2,656,250 Consolidating Commercial Printing Industry 14,000 Harte Hanks Communications 519,750 Direct Marketing Services 49,000 American Business Information, Cl. A (b) 514,500 49,000 American Business Information, Cl. B (b) 502,250 Small Business Data - -------------------------------------------------------------------------------- 4,192,750 - -------------------------------------------------------------------------------- Transaction Processors--0.9% 66,000 National Data 2,384,250 Credit Card & Medical Claims Processor - -------------------------------------------------------------------------------- Computer Hardware & Related Equipment--3.1% 276,000 Kronos (b) 8,504,250 Time Accounting Software & Clocks - -------------------------------------------------------------------------------- Information--Total 73,313,175
See accompanying notes to financial statements. 8 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger U.S. Small Cap Statement of Investments December 31, 1997
- -------------------------------------------------------------------------------- Number of Value Shares Health Care--11.0% - -------------------------------------------------------------------------------- Medical Equipment--2.0% 210,000 Respironics (b) $ 4,698,750 Sleep Apnea Products 106,900 Cardiac Pathways (b) 748,300 Heart Surgery Devices - -------------------------------------------------------------------------------- 5,447,050 - -------------------------------------------------------------------------------- Biotechnology/Drug Delivery--0.5% 117,000 Synaptic Pharmaceuticals (b) 1,272,375 Receptor Targeted Drug Design - -------------------------------------------------------------------------------- Services--8.5% 247,000 Lincare Holdings (b) 14,079,000 Home Health Care Services 177,000 First Health Group (b) 9,049,125 (formerly known as HealthCare Compare) PPO Network - -------------------------------------------------------------------------------- 23,128,125 - -------------------------------------------------------------------------------- Health Care--Total 29,847,550 Consumer Goods/Services--6.5% - -------------------------------------------------------------------------------- Retail--3.9% 583,600 Host Marriott Services (b) 8,681,050 Fast Food Kiosks in Airports 60,000 Borders Group (b) 1,878,750 Bookstores - -------------------------------------------------------------------------------- 10,559,800 - -------------------------------------------------------------------------------- Cruise Lines--1.9% 95,000 Royal Caribbean Cruises 5,064,687 Cruises to Caribbean & Alaska - -------------------------------------------------------------------------------- Casinos--0.5% 42,000 Rio Hotel & Casino (b) 882,000 Casino & Hotel 115,200 Monarch Casino & Resort (b) 633,600 Casino & Hotel - -------------------------------------------------------------------------------- 1,515,600 - -------------------------------------------------------------------------------- Other Consumer Goods--0.2% 19,000 Oshkosh B'Gosh 627,000 Childrens Clothing - -------------------------------------------------------------------------------- Consumer Goods/Services--Total 17,767,087 Finance--14.4% - -------------------------------------------------------------------------------- Banks/Savings & Loans--6.7% 160,000 Coast Savings (b) 10,970,000 California Savings & Loan 90,000 Texas Regional Bancshares 2,745,000 TexMex Bank 67,500 Peoples Bank Bridgeport 2,565,000 Consumer Finance 106,000 Imperial Thrift & Loan (b) 2,040,500 California Thrift - -------------------------------------------------------------------------------- 18,320,500 - -------------------------------------------------------------------------------- Insurance--5.7% 293,700 Acceptance Insurance (b) 7,103,873 Crop Insurance 100,000 Penn Treaty American (b) 3,175,000 Nursing Home Insurance 86,100 AmerUs Life Holdings 3,174,937 Annuities/Life Insurance 56,000 Leucadia National 1,932,000 Insurance Holding Company - -------------------------------------------------------------------------------- 15,385,810 - -------------------------------------------------------------------------------- Money Management--2.0% 66,000 SEI Investments 2,772,000 Mutual Fund Administration 140,000 Baker Fentress 2,555,000 Closed-End Investment Company - -------------------------------------------------------------------------------- 5,327,000 - -------------------------------------------------------------------------------- Finance--Total 39,033,310
See accompanying notes to financial statements. 9 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger U.S. Small Cap Statement of Investments December 31, 1997 - --------------------------------------------------------------------------------
- ---------------------------------------------------------- Number of Value Shares Industrial Goods/Services--11.6% - ---------------------------------------------------------- Machinery--2.7% 137,000 Applied Industrial Technologies $3,664,750 Industrial Components Distribution 180,500 Farr (b) 2,707,500 Filters 49,000 Vallen 1,016,750 Safety Products Distribution - ---------------------------------------------------------- 7,389,000 - ---------------------------------------------------------- Steel--3.6% 133,000 Schnitzer Steel 3,732,312 Scrap Steel Processor 181,000 Atchison Casting (b) 2,941,250 Consolidating Foundry Industry 79,900 Gibraltar Steel (b) 1,578,025 Steel Processing 94,000 Worthington Industries 1,551,000 Steel Processing - ---------------------------------------------------------- 9,802,587 - ---------------------------------------------------------- Specialty Chemicals--1.3% 165,800 Lilly Industries, Cl.A 3,419,625 Industrial Coatings - ---------------------------------------------------------- Other Industrial Services--4.0% 367,400 Wackenhut, Cl.B 7,761,325 Prison Management 257,400 Insurance Auto Auctions (b) 2,960,100 Auto Salvage Services - ---------------------------------------------------------- 10,721,425 - ---------------------------------------------------------- Industrial Goods/Services--Total 31,332,637 Energy/Minerals--18.3% - ---------------------------------------------------------- Independent Power--4.3% 343,000 CalEnergy (b) 9,861,250 Power Plants 38,000 AES Corporation (b) 1,771,750 Power Plants - ---------------------------------------------------------- 11,633,000 - ---------------------------------------------------------- Oil/Gas Producers--4.8% 539,300 Tesoro Petroleum (b) 8,359,150 Oil Refinery/Gas Reserves 149,900 Seagull Energy (b) 3,091,687 Oil & Gas Producer 67,000 PetSec Energy ADR (b) 921,250 Oil & Gas Producer 139,000 Tipperary (b) 564,687 Oil & Gas Producer - ---------------------------------------------------------- 12,936,774 - ---------------------------------------------------------- Distribution/Marketing/Refining--5.9% 219,000 Atmos Energy 6,624,750 Natural Gas Distributor 331,600 NGC 5,803,000 Natural Gas Processing/Marketing 103,000 Equitable Resources 3,643,625 Natural Gas Production/Distributor - ---------------------------------------------------------- 16,071,375 - ---------------------------------------------------------- Oil Services--3.3% 123,300 J Ray McDermott (b) 5,301,900 Offshore Construction 221,000 GeoScience (b) 2,596,750 Offshore Seismic Equipment 20,000 Atwood Oceanics (b) 947,500 Offshore Drilling - ---------------------------------------------------------- 8,846,150 - ---------------------------------------------------------- Energy/Minerals--Total 49,487,299
See accompanying notes to financial statements. 10 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger U.S. Small Cap Statement of Investments December 31, 1997
- ------------------------------------------------------------- Number of Value Shares Other Industries-3.2% - ------------------------------------------------------------- Real Estate-2.4% 62,500 Forest City Enterprises, Cl. A $3,632,812 Shopping Centers 65,000 Gaylord Entertainment 2,075,937 Opryland Hotel & Other Assets 45,000 Cornerstone Properties 863,437 Downtown Office Buildings - ------------------------------------------------------------- 6,572,186 - ------------------------------------------------------------- Transportation-0.8% 50,000 Hub Group (b) 1,487,500 Freight Forwarder 66,000 Trailer Bridge (b) 585,750 Tug & Barge Transportation - ------------------------------------------------------------- 2,073,250 - ------------------------------------------------------------- Other Industries-Total 8,645,436 - ------------------------------------------------------------- Total Common Stocks-92.1% $249,426,494 - ------------------------------------------------------------- (Cost: $192,907,268) Short-Term Obligation-9.0% 24,377,000 $24,377,000 State Street Bank Repurchase Agreement 5.00% 1/2/98; 12/31/97 Agreement Collateralized by U.S. Treasury Notes - ------------------------------------------------------------- (Cost: $24,377,000) Total Investments-101.1% 273,803,494 - ------------------------------------------------------------- (Cost: $217,284,268) Cash and Other Assets Less Liabilities-(1.1%) (2,937,667) - ------------------------------------------------------------- Total Net Assets-100% $270,865,827 - -------------------------------------------------------------
Notes to Statement of Investments: (a) At December 31, 1997 for federal income tax purposes cost of investments was $217,297,344 and net unrealized appreciation was $56,506,150 consisting of gross unrealized appreciation of $61,123,418 and gross unrealized depreciation of $4,617,268. (b) Non-income producing security. See accompanying notes to financial statements. 11 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Statement of Investments December 31, 1997
- ------------------------------------------------------------- Number of Value Shares Common Stocks and Other Equity-Like Securities-90.6% Europe-57.8% - ------------------------------------------------------------- Germany/Austria-3.9% 21,000 Rhoen Klinikum $2,055,503 Hospital Management 25,000 KTM Motorradholding (b) 1,260,749 Off-Road Motorcycles (Austria) 7,715 Schaltbau 828,093 Railcar Components 2,780 Cewe Color Holdings 584,416 Photographic Developing/Printing - ------------------------------------------------------------- 4,728,761 - ------------------------------------------------------------- Denmark-0.8% 10,000 Kompan International 927,359 Playground Equipment - ------------------------------------------------------------- Netherlands-3.9% 85,000 Kempen 3,270,359 Stock Brokerage/Investment Management 47,400 Fugro NV 1,444,937 Consulting & Surveying - ------------------------------------------------------------- 4,715,296 - ------------------------------------------------------------- Finland-3.9% 25,000 TT Tieto, Cl. B 2,814,146 Computer Services/Consulting 99,200 Talentum 1,229,596 Trade Journals 6,500 Sentra 477,440 Grocery Wholesaling & Retailing 13,800 Elcoteq Network (b) 173,586 Electrical Components - ------------------------------------------------------------- 4,694,768 - ------------------------------------------------------------- Norway-0.5% 62,500 P4 Radio Helo Norge (b) 551,041 Commercial Radio Station - ------------------------------------------------------------- Sweden-6.6% 106,000 Getinge Industrier 1,683,262 Sterilization & Disinfection Equipment 300,000 Micronic Laser Systems (b) 1,436,745 Electronics Production Equipment 82,500 Elanders (b) 1,133,327 Printer 50,000 Esselte, Series A 945,227 Office Supplies & Related Equipment 125,000 Caran 811,320 Engineering Consulting 225,000 Gylling Optima (b) 757,127 Nondurable Goods 30,200 Mandator (b) 688,906 Computer Services/Consulting 20,000 Tryckindustri (b) 567,136 Printer - ------------------------------------------------------------- 8,023,050 - ------------------------------------------------------------- France-1.0% 10,000 Fininfo 1,188,497 Financial Data Feeds - ------------------------------------------------------------- United Kingdom/Ireland-18.7% 568,000 Oriflame International 4,158,917 Natural Cosmetics Sold Door-to-Door 1,100,000 St. James Place 3,058,798 Life Insurance 323,500 Seton Healthcare Group 2,781,198 Pharmaceuticals 100,000 Euro Money Publications 2,603,845 Financial Publications 120,000 Vosper Thornycroft 1,589,456 Naval Shipbuilding 2,000,000 Electronics Boutique (b) 1,563,129 Videogame/Computer Software Stores
See accompanying notes to financial statements. 12 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Statement of Investments December 31, 1997
- ------------------------------------------------------------------- Number of Value Shares United Kingdom/Ireland-18.7% (cont.) 540,000 Medeva $ 1,434,953 Drugs for Hyperactive Children 310,000 Hogg Robinson 1,303,238 Corporate Travel Management 160,000 Edinburgh Fund Managers 1,201,800 Investment Management 40,000 NTL (b) 1,115,000 Cable TV & Telephone System 620,000 Aberdeen Trust 897,730 Money Management 240,000 Dorling Kindersley 858,898 Reference Books & CD-ROMs - ------------------------------------------------------------------- 22,566,962 - ------------------------------------------------------------------- Spain/Portugal-7.3% 200,000 Mapfre Vida 7,033,197 Life Insurance/Mutual Funds 60,000 Investec (b) 1,778,623 Sports Newspaper (Portugal) - ------------------------------------------------------------------- 8,811,820 - ------------------------------------------------------------------- Switzerland-1.8% 3,000 Societe Generale d'Affichage 1,172,357 Billboard Advertising 1,400 Phoenix Mecano 715,069 Electrical Components 895 Hiestand (b) 316,005 Bakery - ------------------------------------------------------------------- 2,203,431 - ------------------------------------------------------------------- Italy/Greece-9.4% 800,000 Autogrill Finanziari (b) 4,280,423 Tollway Restaurants 232,500 Athens Medical Center (b) 2,749,418 Hospitals (Greece) 40,000 Cellular Communications International (b) 1,870,000 Mobile Communications 100,000 Banca Pop Commercia e Industria 1,668,504 Regional Bank 150,000 Saipem SPA 789,004 Pipeline Construction & Drilling Contractor - ------------------------------------------------------------------- 11,357,349 - ------------------------------------------------------------------- Europe-Total 69,768,334 Asia-20.1% - ------------------------------------------------------------------- Hong Kong-4.0% 2,740,000 Li and Fung 3,836,742 Sourcing of Consumer Goods 4,484,000 Vanda Systems (b) 925,908 Systems Integrator 2,665,000 Golden Harvest Entertainment (b) 120,378 Movie Distribution & Exhibition - ------------------------------------------------------------------- 4,883,028 - ------------------------------------------------------------------- Japan-9.0% 140,040 Shinki 2,046,349 Corporate & Consumer Lending 370,000 Belluna 1,789,886 Catalog Sales 130,000 Kawasumi Labs 1,589,694 Laboratory Supplies 15,300 Ryohin Keikaku 1,011,959 Specialty Consumer Goods Retailer 3,200 Shohkoh Fund 979,503 Short-Term Loans for Small Businesses
See accompanying notes to financial statements. 13 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Statement of Investments December 31, 1997
- -------------------------------------------------------------------------------- Number of Value Shares - -------------------------------------------------------------------------------- Japan--9.0% (cont.) 39,000 Hokuto $ 869,832 Mushroom Grower 85,000 Tecmo 647,183 Commercial Video Games 35,000 NuSkin Asia Pacific (b) 638,750 Personal Care Products 23,600 Konami 582,626 Entertainment Software/Hardware 12,600 Noritsu Koki 312,032 Photo Processing Lab Manufacturer 21,600 Tiemco 219,280 Fishing Equipment 43,920 Central Uni 192,535 Health Care/Medical Equipment - -------------------------------------------------------------------------------- 10,879,629 Philippines--0.3% 17,267,520 Mondragon International (b) 307,266 Casinos/Resorts - -------------------------------------------------------------------------------- Singapore--6.8% 1,300,400 Star Cruises (b) 2,717,838 Cruise Line 912,000 Venture Manufacturing 2,543,857 Contract Electronics Manufacturer 5,571,000 Omni Industries (b) 1,355,554 Contract Electronics Manufacturer 1,111,000 Electronic Resources 1,127,483 474,000 Electronic Resources Wts. 7/17/01 (b) 281,305 Distribution of Electronic Components 1,300,400 Genting International 149,546 Cruise Line - -------------------------------------------------------------------------------- 8,175,583 - -------------------------------------------------------------------------------- Asia-Total 24,245,506 Latin America--4.4% - -------------------------------------------------------------------------------- Mexico--1.6% 1,251,000 Nadro, Series L $1,083,104 Pharmaceutical Distribution 227,500 Grupo Continental (b) 809,879 Coca-Cola Bottler - -------------------------------------------------------------------------------- 1,892,983 - -------------------------------------------------------------------------------- Brazil--1.8% 111,000 Elevadores Atlas 1,342,621 Elevator Services 45,000 Bompreco GDS (b) 830,250 Supermarket Chain - -------------------------------------------------------------------------------- 2,172,871 - -------------------------------------------------------------------------------- Argentina--1.0% 70,000 Patagonia 1,260,266 Supermarkets - -------------------------------------------------------------------------------- Latin America--Total 5,326,120 Other Countries--8.3% - -------------------------------------------------------------------------------- Australia--3.8% 2,050,000 Tyndall 3,205,873 Money Management & Insurance 550,000 Anaconda Nickel (b) 824,273 Nickel Mining 438,200 Australian Hospital Care 585,338 Hospital Management - -------------------------------------------------------------------------------- 4,615,484
See accompanying notes to financial statements. 14 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Statement of Investments December 31, 1997
- -------------------------------------------------------------------------------- Principal Amount or Value Number of Shares Other Countries--8.3% (cont.) - -------------------------------------------------------------------------------- Canada--4.5% 60,000 Shaw Industries $ 2,037,594 Oil Field Services 200,000 Ranger Oil 1,375,000 Oil & Gas Producer 93,100 Milltronics (b) 1,131,954 Industrial Measurement Instruments 85,000 Club Monaco (b) 861,225 Specialty Apparel & Accessories - -------------------------------------------------------------------------------- 5,405,773 - -------------------------------------------------------------------------------- Other--Total 10,021,257 Total Common Stocks and Other Equity-Like Securities--90.6% 109,361,217 - -------------------------------------------------------------------------------- (Cost: $104,352,096) Short-Term Obligation--9.2% 11,094,000 $11,094,000 State Street Bank Repurchase Agreement 5.00% 1/2/98; 12/31/97 Agreement Collateralized by U.S. Treasury Notes - -------------------------------------------------------------------------------- (Cost: $ 11,094,000) Total Investments--99.8% 120,455,217 - -------------------------------------------------------------------------------- (Cost: $115,446,096) Cash and Other Assets Less Liabilities--0.2% 204,941 - -------------------------------------------------------------------------------- Total Net Assets--100% $120,660,158 ================================================================================
Notes to Statement of Investments: (a) At December 31, 1997 for federal income tax purposes cost of investments was $117,252,875 and net unrealized appreciation was $3,202,342 consisting of gross unrealized appreciation of $20,278,652 and gross unrealized depreciation of $17,076,310. (b) Non-income producing security. See accompanying notes to financial statements. 15 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger International Small Cap Portfolio Diversification December 31, 1997 At December 31, 1997 the Fund's portfolio of investments as a percentage of net assets was diversified as follows:
Value Percent ================================================================================ Information Publishing $ 8,171,422 6.8% Computer Services 4,428,960 3.7 Contract Manufacturing 3,899,411 3.2 Mobile Communications 1,870,000 1.5 Semiconductors & Related Equipment 1,436,745 1.2 Electronics Distribution 1,408,788 1.2 Business Information 1,188,497 1.0 Advertising 1,172,357 1.0 CATV 1,115,000 0.9 Radio 551,041 0.4 - -------------------------------------------------------------------------------- 25,242,221 20.9 ================================================================================ Health Care Hospital Management 5,390,259 4.5 Pharmaceuticals 4,216,151 3.5 Hospital/Laboratory Supplies 3,272,954 2.7 Equipment 192,535 0.1 - -------------------------------------------------------------------------------- 13,071,899 10.8 ================================================================================ Consumer Goods/Services Retail 11,597,122 9.6 Nondurable Goods 6,080,546 5.0 Travel 4,170,620 3.4 Consumer Goods Distribution 2,199,293 1.8 Durable Goods 1,260,749 1.0 Consumer Software 1,229,809 1.0 Food 1,185,837 1.0 Leisure Products 927,359 0.8 Beverages 809,879 0.7 Consumer Services 584,416 0.5 Gaming 307,266 0.3 Entertainment 120,378 0.1 - -------------------------------------------------------------------------------- 30,473,274 25.2 ================================================================================ Finance Insurance $10,092,033 8.4 Money Management 5,305,401 4.4 Brokerage 3,270,359 2.7 Finance Companies 3,025,847 2.5 Banks 1,668,504 1.4 - -------------------------------------------------------------------------------- 23,362,144 19.4 ================================================================================ Industrial Goods/Services Outsourcing Services 4,648,062 3.9 Electrical Components 2,020,609 1.7 Machinery 1,901,488 1.5 Services 1,342,621 1.1 - -------------------------------------------------------------------------------- 9,912,780 8.2 ================================================================================ Energy/Minerals Oil Services 4,271,533 3.5 Oil/Gas Producers 1,375,000 1.2 Non Ferrous Metals 824,273 0.7 - -------------------------------------------------------------------------------- 6,470,806 5.4 ================================================================================ Other Industries Transportation 828,093 0.7 ================================================================================ Total Common Stocks and 109,361,217 90.6 Other Equity-Like Securities ================================================================================ Short-Term Obligation 11,094,000 9.2 ================================================================================ Cash and Other Assets less 204,941 0.2 Liabilities ================================================================================ Net Assets $120,660,158 100.0
See accompanying notes to financial statements. 16
Wanger Advisors Trust 1997 Annual Report - ------------------------------------------------------------------------------------------------------------------------- Statements of Assets and Liabilities December 31, 1997 Wanger U.S. Wanger International Small Cap Small Cap - ------------------------------------------------------------------------------------------------------------------------- Assets Investments, at value (cost: Wanger U.S. Small Cap $217,284,268; $273,803,494 $120,455,217 Wanger International Small Cap $115,446,096) Cash 5,525 38,675 Organization costs 46,664 46,664 Receivable for: Securities sold 122,569 213,589 Fund shares sold 430,907 32,618 Dividends and interest 42,315 235,476 Other assets 1,932 1,932 - ------------------------------------------------------------------------------------------------------------------------- Total assets 274,453,406 121,024,171 Liabilities and Net Assets Payable for: Securities purchased 3,499,610 252,791 Fund shares redeemed 4,595 5,303 Amount owed to advisor 47,006 46,796 Other 36,368 59,123 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities 3,587,579 364,013 - ------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $270,865,827 $120,660,158 ========================================================================================================================= Fund shares outstanding 12,623,845 7,078,763 ========================================================================================================================= Pricing of Shares Net asset value, offering price and redemption price per share $21.46 $17.05 ========================================================================================================================= Analysis of Net Assets Paid-in capital $198,937,086 $116,311,524 Accumulated net realized gain (loss) on sales of investments and foreign currency transactions 15,409,515 (797,955) Net unrealized appreciation of investments and foreign currency transactions (net of unrealized PFIC gains of $1,391,583 for Wanger International Small Cap) 56,519,226 3,613,734 Undistributed net investment income -- 1,532,855 - ------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $270,865,827 $120,660,158 =========================================================================================================================
See accompanying notes to financial statements. 17 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Statements of Operations For the Year ended December 31, 1997
Wanger U.S. Wanger International Small Cap Small Cap ======================================================================================================= Investment Income: Dividends (net of foreign taxes of $168,334 for Wanger International Small Cap) $ 1,169,391 $ 1,720,326 Interest 724,088 328,594 - ------------------------------------------------------------------------------------------------------- Total investment income 1,893,479 2,048,920 ======================================================================================================= Expenses: Investment advisory 1,960,795 1,528,703 Custodian 34,787 233,560 Legal and audit 51,124 49,714 Reports to shareholders 19,094 20,294 Amortization of organization costs 19,976 19,976 Transfer agent 19,345 21,345 Trustees' 18,214 18,237 Insurance 5,794 5,785 Other 5,860 5,794 - ------------------------------------------------------------------------------------------------------- Total expenses 2,134,989 1,903,408 Less custodian fees paid indirectly (34,541) (2,759) - ------------------------------------------------------------------------------------------------------- Net expenses 2,100,448 1,900,649 - ------------------------------------------------------------------------------------------------------- Net investment income (loss) (206,969) 148,271 Net realized and unrealized gain (loss) on investments: Net realized gain (loss) on sales of investments 15,616,554 (616,933) Net change in unrealized appreciation 37,057,494 (2,999,052) - ------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 52,674,048 (3,615,985) - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $52,467,079 $(3,467,714) =======================================================================================================
See accompanying notes to financial statements. 18 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Statements of Changes in Net Assets
--------------------------------------- --------------------------------------- Wanger U.S. Small Cap Wanger International Small Cap Year ended Year ended Year ended Year ended December 31, 1997 December 31, 1996 December 31, 1997 December 31, 1996 ================================================================================================================================= From operations: Net investment income (loss) $ (206,969) $ (286,925) $ 148,271 $ (272,469) Net realized gain (loss) on sales of investments 15,616,554 3,926,442 (616,933) 2,570,609 Net change in unrealized appreciation 37,057,494 19,022,289 (2,999,052) 6,894,415 - --------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 52,467,079 22,661,806 (3,467,714) 9,192,555 resulting from operations Distributions to shareholders from: Net investment income - - - (6,530) Net realized gain (3,530,225) (66,519) (2,453,253) (52,334) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders (3,530,225) (66,519) (2,453,253) (58,864) From Fund share transactions: Reinvestment of dividends and capital gain distributions 3,530,225 66,519 2,453,253 58,864 Proceeds from other shares sold 109,491,784 91,019,446 54,111,870 67,872,674 - --------------------------------------------------------------------------------------------------------------------------------- 113,022,009 91,085,965 56,565,123 67,931,538 Payments for shares redeemed (20,050,947) (6,626,877) (14,839,080) (3,579,071) - --------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from Fund share transactions 92,971,062 84,459,088 41,726,043 64,352,467 - --------------------------------------------------------------------------------------------------------------------------------- Total increase in net assets 141,907,916 107,054,375 35,805,076 73,486,158 ================================================================================================================================= Net assets: Beginning of period 128,957,911 21,903,536 84,855,082 11,368,924 - --------------------------------------------------------------------------------------------------------------------------------- End of period (a) $270,865,827 $128,957,911 $120,660,158 $84,855,082 =================================================================================================================================
(a) Includes undistributed net investment income of $1,532,855 for Wanger International Small Cap at December 31, 1997. See accompanying notes to financial statements. 19 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Wanger U.S. Small Cap Financial Highlights
Year ended Year ended May 3, 1995 through December 31, 1997 December 31, 1996 December 31, 1995 ============================================================================================================== Net Asset Value, beginning of period $16.97 $11.60 $10.00 Income From Investment Operations Net investment loss (c) (.02) (.06) (.05) Net realized and unrealized gain on investments 4.90 5.46 1.65 - -------------------------------------------------------------------------------------------------------------- Total from investment operations 4.88 5.40 1.60 Less Distributions Dividends from net investment income -- -- -- Distributions from net realized gain (.39) (.03) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (.39) (.03) -- Net Asset Value, end of period $21.46 $16.97 $11.60% ============================================================================================================== Total Return 29.41% 46.59% 16.00% Ratios/Supplemental Data Ratio of expenses to average net assets (a) (b) 1.06% 1.21% 2.08%* Ratio of net investment loss to average net assets (b) (.10%) (.41%) (1.44)%* Portfolio turnover rate 34% 46% 59%* Net assets at end of period $270,865,827 $128,957,911 $21,903,536
The average commission rates paid per share on stock transactions for the years ended December 31, 1997 and December 31, 1996 were $.0578 and $.0581, respectively. - -------------------------------------------------------------------------------- *Annualized (a) In accordance with a requirement of the Securities and Exchange Commission, this ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.04% for the year ended December 31, 1997, 1.19% for the year ended December 31, 1996 and 2.00% for the period ended December 31, 1995. (b) The Fund was reimbursed by the Advisor for certain expenses from May 3, 1995 through December 31, 1995. Without the reimbursement, the ratio of expenses to average net assets and the ratio of net investment income to average net assets for the period ended December 31, 1995 would have been 2.35% and (1.71%), respectively. (c) Net investment loss per share for the years ended December 31,1997 and December 31, 1996 was based upon the average shares outstanding during the period. See accompanying notes to financial statements. 20
Wanger Advisors Trust 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- Wanger International Small Cap Financial Highlights Year ended Year ended May 3, 1995 through December 31, 1997 December 31, 1996 December 31, 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, beginning of period $17.71 $13.45 $10.00 Income From Investment Operations Net investment income (loss) (c) .02 (.09) (.03) Net realized and unrealized gain on investments (.26) 4.38 3.48 - ---------------------------------------------------------------------------------------------------------------------------------- Total from investment operations (.24) 4.29 3.45 Less Distributions Dividends from net investment income -- -- -- Distributions from net realized and unrealized gain reportable for federal income taxes (.42) (.03) -- - ---------------------------------------------------------------------------------------------------------------------------------- Total distributions (.42) (.03) -- Net Asset Value, end of period $17.05 $17.71 $13.45 ================================================================================================================================== Total Return (1.46%) 32.01 34.50% Ratios/Supplemental Data Ratio of expenses to average net assets (a) (b) 1.60% 1.79% 2.32%* Ratio of net investment income (loss) to average net assets (b) .12% (.56%) (.81%)* Portfolio turnover rate 60% 50% 14%* Net assets at end of period $ 120,660,158 $84,855,082 $11,368,924
The average commission rates paid per share on stock transactions for the years ended December 31, 1997 and December 31, 1996 were $.0078 and $.0130, respectively. - ------------------------------------------------------------------------------- *Annualized (a) In accordance with a requirement of the Securities and Exchange Commission, this ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.59% for the year ended December 31, 1997, 1.75% for the year ended December 31, 1996 and 2.00% for the period ended December 31, 1995. (b) The fund was reimbursed by the Advisor for certain expenses from May 3, 1995 through December 31, 1995. Without the reimbursement, the ratio of expenses to average net assets and the ratio of net investment income to average net assets for the period ended December 31, 1995 would have been 4.20% and (2.69%), respectively. (c) Net investment income (loss) per share for the years ended December 31, 1997 and December 31, 1996 was based upon the average shares outstanding during the period. See accompanying notes to financial statements. 21 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Notes to Financial Statements 1. Nature of Operations Wanger U.S. Small Cap and Wanger International Small Cap ("the Funds") are series of Wanger Advisors Trust ("the Trust"), an open-end management investment company organized as a Massachusetts business trust. The investment objective of each Fund is to seek long-term growth of capital. The Funds are available only for allocation to certain life insurance company separate accounts established for the purpose of funding variable insurance contracts, and may also be offered directly to certain types of pension plans and retirement arrangements. 2. Significant Accounting Policies Security valuation Investments are stated at current value. 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. Securities for which there are no reported sales on the valuation date are valued at the mean of the latest bid and ask quotation or, if there is no ask quotation, at the most recent bid quotation. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. Securities for which quotations are not readily available and any other assets are valued as determined in good faith by the Board of Trustees. 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 money market instruments and on long-term debt instruments when required for federal income tax purposes. 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 generally accepted accounting principles 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 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. Custodian fees Custodian fees are reduced based on each Fund's cash balances maintained with the custodian. This presentation does not affect the determination of net investment income. Federal income taxes, dividends and distributions to shareholders The Funds have complied with the special provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, distribute all of their taxable income, as well as any net realized gain on sales of investments and foreign currency transactions reportable for federal income tax purposes. Wanger International Small Cap has elected to mark-to-market its investments in Passive Foreign Investment Companies ("PFICs") for income tax purposes. In accordance with this election, the Fund recognized unrealized appreciation on PFICs of $1,226,459 for the year ended December 31, 1997. Cumulative net unrealized appreciation recognized in prior years on PFICs sold in 1997 amounted to $22,832. Wanger International Small Cap intends to utilize provisions of the federal income tax law that allows it to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against future realized gains. At December 31, 1997, the Fund had a capital loss carryforward of $382,694 which will expire December 31, 2005. Dividends and distributions payable to each Fund's shareholders are recorded by the Fund on the ex-dividend date. Reclassifications have been made between undistributed net investment income and accumulated net realized gain (loss) on sales of investments and foreign currency transactions to reflect differences between financial reporting and income tax bases. Undistributed net investment income has been increased as follows: Wanger U.S. Small Cap $206,969 and Wanger International Small Cap $158,125. 22 Wanger Advisors Trust 1997 Annual Report - -------------------------------------------------------------------------------- Notes to Financial Statements 3. Transaction with Affiliates The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes continuing investment supervision to the Fund and is responsible for overall management of the Fund's business affairs. Each Fund pays WAM a monthly advisory fee based upon average daily net assets at the following rates:
Wanger U.S. Wanger International Small Cap Small Cap - -------------------------------------------------------------------------------- Average Daily Net Assets: For the first $100 million 1.00% 1.30% Next $150 million .95% 1.20% In excess of $250 million .90% 1.10% - --------------------------------------------------------------------------------
The investment advisory agreement also provides that WAM will reimburse the Funds to the extent that ordinary operating expenses (computed based on net custodian fees) exceed 1.50% for Wanger U.S. Small Cap and 1.90% for Wanger International Small Cap, of average net assets. WAM was not required to reimburse the Funds under these agreements for the year ended December 31, 1997. Certain officers and trustees of the Trust are also principals of WAM. The Trust makes no direct payments to its officers and trustees who are affiliated with WAM. Wanger U.S. Small Cap and Wanger International Small Cap incurred trustees' fees and expenses of $18,214 and $18,237 respectively, for the year ended December 31, 1997 to trustees not affiliated with WAM. WAM advanced $100,000 to each Fund in connection with the organization and initial registration of the Fund. These costs are being amortized and reimbursed to WAM over the period May, 1995 through April, 2000. WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the distributor of each Fund's shares and receives no compensation for its services. - -------------------------------------------------------------------------------- 4. Subsquent Event The Trust participates in a $250,000,000 credit facility entered into on January 30, 1998 to facilitate portfolio liquidity. No amounts have been borrowed under this facility. - -------------------------------------------------------------------------------- 5. 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:
---------------------------------------- Wanger U.S.Small Cap Year ended Year ended December 31, 1997 December 31, 1996 - ------------------------------------------------------------------------------------- Shares sold 5,806,192 6,137,385 Shares issued in reinvestment of dividend and capital gain distributions 210,886 5,157 - ------------------------------------------------------------------------------------- 6,017,078 6,142,542 Less shares redeemed 991,354 432,817 - ------------------------------------------------------------------------------------- Net increase in shares outstanding 5,025,724 5,709,725 =====================================================================================
------------------------------------------------------- Wanger International Small Cap Year ended Year ended December 31, 1997 December 31, 1996 - ----------------------------------------------------------------------------------- Shares sold 2,963,636 4,154,432 Shares issued in reinvestment of dividend and capital gain distributions 136,747 3,911 - ----------------------------------------------------------------------------------- 3,100,383 4,158,343 Less shares redeemed 812,741 212,404 - ----------------------------------------------------------------------------------- Net increase in shares outstanding 2,287,642 3,945,939 ===================================================================================
6. Investment Transactions The aggregate cost of purchases and proceeds from sales other than short-term obligations for the year ended December 31, 1997 were:
Purchases Sales Wanger U.S. Small Cap $142,999,142 $62,631,734 Wanger International Small Cap 100,450,366 66,643,609 - -------------------------------------------------------------------------------------
23 Wanger Advisors Trust 1997 Annual Report Report of Independent Auditors To the Board of Trustees and Shareholders of Wanger Advisors Trust We have audited the accompanying statements of assets and liabilities, including the statements of investments, of the Wanger Advisors Trust comprising the Wanger US Small Cap and the Wanger International Small Cap portfolios, as of December 31, 1997, the related statements of operations for the year then ended and changes in net assets and the financial highlights for the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of December 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial high-lights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios of the Wanger Advisors Trust as of December 31, 1997, the results of their operations and changes in net assets and financial highlights for the periods indicated thereon, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois February 4, 1998 - -------------------------------------------------------------------------------- Special Notice Shareholders Approve New Agreements At a special meeting on December 30, 1997, shareholders of Wanger U.S. Small Cap and Wanger International Small Cap voted to approve a proposal that replaced each Fund's investment advisory agreement with a new investment advisory agreement. In addition, shareholders voted to ratify the selection of Ernst & Young LLP as each Fund's independent public accountants. The new investment advisory agreement took effect on January 1, 1998. The outcome of the vote was as follows:
- -------------------------------------------------------------------------------------------------------------------------- Record Date Total Share For Against Abstentions Share Position Position Voted - -------------------------------------------------------------------------------------------------------------------------- Wanger U.S. Small Cap 12,178,646.515 - -------------------------------------------------------------------------------------------------------------------------- (A) New Advisory Agreement 12,178,626.748 11,247,335.848 290,440.913 640,849.987 - -------------------------------------------------------------------------------------------------------------------------- (B) Ratification of Ernst & Young 12,178,626.748 11,457,282.030 116,911.628 604,433.090 - -------------------------------------------------------------------------------------------------------------------------- Wanger International Small Cap 7,130,915.743 - -------------------------------------------------------------------------------------------------------------------------- (A) New Advisory Agreement 7,130,897.740 6,605,507.970 129,450.867 395,938.903 - -------------------------------------------------------------------------------------------------------------------------- (B) Ratification of Ernst & Young 7,130,897.740 6,710,729.638 49,496.970 370,671.132 - --------------------------------------------------------------------------------------------------------------------------
24 Wanger Advisors Trust Trustees Fred D. Hasselbring Charles P. McQuaid P. Michael Phelps James A. Star Ralph Wanger Officers Ralph Wanger President Charles P. McQuaid Senior Vice President Marcel P. Houtzager Vice President Robert A. Mohn Vice President Leah J. Zell Vice President Merrillyn J. Kosier Senior Vice President and Secretary Bruce H. Lauer Vice President and Treasurer Kenneth A. Kalina Assistant Treasurer Transfer Agent, Dividend Disbursing Agent and Custodian State Street Bank and Trust Company Attention: Wanger Advisors Trust P.O. Box 8502 Boston, Massachusetts 02266-8502 Distributor WAM Brokerage Services, L.L.C. 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-5-WANGER (1-800-592-6437) Investment Advisor Wanger Asset Management, L.P. 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-5-WANGER (1-800-592-6437) Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois Independent Auditor Ernst & Young LLP Chicago, Illinois This report, including the audited 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. Wanger Advisors Trust -----END PRIVACY-ENHANCED MESSAGE-----