Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08748
Wanger Advisors Trust
(Exact name of registrant as specified in charter)
227 W. Monroe Street
Suite 3000
Chicago, IL 60606
(Address of principal executive offices) (Zip code)
Ryan C. Larrenaga
c/o Columbia Management
Investment Advisers, LLC
225 Franklin Street
Boston, MA 02110
Alan Berkshire
Columbia Acorn Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Mary C. Moynihan
Perkins Coie LLP
700 13th Street, NW
Suite 600
Washington, DC 20005
(Name and address of agent for service)
Registrant’s telephone number, including area code: (312) 634-9200
Date of fiscal year end: December 31
Date of reporting period: June 30, 2018
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Table of Contents
Item 1. Reports to Stockholders.
Table of Contents
Wanger USA
Managed by Columbia Wanger Asset Management,
LLC
Please remember that you may not buy (nor will you own)
shares of the Fund directly. The Fund is available through variable annuity contracts and variable life insurance policies offered by the separate accounts of participating insurance companies as well as qualified pension and retirement plans.
Please contact your financial advisor or insurance representative for more information.
Not FDIC Insured • No bank guarantee • May lose
value
Table of Contents
Table of Contents
Fund at a Glance
(Unaudited)
(Unaudited)
Investment objective
Wanger USA (the Fund) seeks long-term
capital appreciation.
Portfolio
management
Matthew A. Litfin,
CFA
Lead
Portfolio Manager since 2016
Service with the
Fund since 2015
Richard Watson,
CFA
Co-Portfolio
Manager since November 2017
Service with the
Fund since 2006
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Fund at a Glance (continued)
(Unaudited)
(Unaudited)
| 4 | Wanger USA | Semiannual Report 2018 |
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Manager Discussion of Fund Performance
(Unaudited)
(Unaudited)
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Manager Discussion of Fund Performance (continued)
(Unaudited)
(Unaudited)
Lastly, shares of
Dave & Busters, a family-focused restaurant concept that offers a variety of entertainment including video gaming, retreated due to disappointing fourth-quarter results driven by a combination of challenging comparisons for gaming revenue,
weather and competition.
U.S. trade policy disputes and
interest rate concerns have been persistent sources of market volatility in 2018. In our view, higher volatility levels and the increased number of economic and market divergences that are occurring on a global scale have the potential to create
attractive opportunities. We believe that an investment philosophy that favors higher quality, faster growing companies, as measured across return on invested capital, revenue and earnings growth, and superior debt ratios, can be particularly
advantageous in this environment.
Columbia Wanger has
specialized in investing in small- and mid-cap stocks since 1970. While cognizant of macroeconomic trends, our investment process takes a bottom-up approach, relying on intensive fundamental research and disciplined valuation techniques. We are
focused on investing the Fund in companies with sustainable competitive advantages, entrepreneurial management and the potential to gain market share. Our team creates and closely monitors a specific and unique investment thesis for every company in
which the Fund invests. We will continue to employ our time-tested process to look for opportunities for investors to benefit from growth in undervalued small- and mid-cap businesses.
Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. Investments in small and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more
established companies. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to
unfavorable developments in the sector.
The views
expressed in this report reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results
may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be
relied on as investment advice and, because investment decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to
specific securities should not be construed as a recommendation or investment advice.
| 6 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Understanding Your Fund’s Expenses
(Unaudited)
(Unaudited)
As a shareholder, you incur three types of costs. There are
transaction costs, which may include redemption fees. There are also ongoing costs, which generally include investment advisory fees and other expenses for Wanger USA (the Fund). Lastly, there may be additional fees or charges imposed by the
insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs
with the ongoing costs of investing in other mutual funds.
Analyzing your Fund’s expenses
To illustrate these ongoing costs, we have provided an
example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the
entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “Actual” column is calculated using the Fund’s actual operating expenses and total return
for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the “Hypothetical” column assumes a 5% annual rate of return before expenses (which is not the Fund’s actual return) and
then applies the Fund’s actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you
paid during the period. See “Compare with other funds” below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same
hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any
transaction costs, such as redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs
were included in these calculations, your costs would be higher.
| January 1, 2018 — June 30, 2018 | |||||||
| Account
value at the beginning of the period ($) |
Account
value at the end of the period ($) |
Expenses
paid during the period ($) |
Fund’s
annualized expense ratio (%) | ||||
| Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | Actual | |
| Wanger USA | 1,000.00 | 1,000.00 | 1,156.00 | 1,020.04 | 5.27 | 4.94 | 0.98 |
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 manager and/or certain of its affiliates not
waived/reimbursed certain fees and expenses, account value at the end of the period would have been reduced. See Note 3 to the Financial Statements.
It is important to note that the expense amounts shown in the
table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate account. The hypothetical example provided is useful in
comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
(Percentages represent value of investments compared to net
assets)
Investments in securities
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 8 | Wanger USA | Semiannual Report 2018 |
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Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 10 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Notes to Portfolio of Investments
| (a) | Non-income producing security. |
| (b) | All or a portion of this security was on loan at June 30, 2018. The total market value of securities on loan at June 30, 2018 was $19,716,937. |
| (c) | The rate shown is the seven-day current annualized yield at June 30, 2018. |
| (d) | Investment made with cash collateral received from securities lending activity. |
Fair value measurements
Various inputs are used in determining the value
of the Fund’s investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed below:
| ■ | Level 1 – quoted prices in active markets for identical securities |
| ■ | Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others) |
| ■ | Level 3 – prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management’s own assumptions about the factors market participants would use in pricing an investment) |
The inputs or methodology
used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Examples of the types of securities in which the
Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose net asset values are published each day and exchange traded
foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at
amortized cost. Additionally, securities fair valued by Columbia Wanger Asset Management’s Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any
security fair valued by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Wanger
Advisors Trust Portfolio Pricing Policy and the Columbia Wanger Asset Management pricing procedures (the Policies), which are approved by and subject to the oversight of the Board of Trustees.
The Committee meets as necessary, and no less
frequently than quarterly, to determine fair values for securities for which market quotations are not readily available or for which Columbia Wanger Asset Management believes that available market quotations are unreliable. The Committee also
reviews the continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other
things: circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under
which securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund’s investment manager. The
Committee may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the
Policies.
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 12 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Fair value
measurements (continued)
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund’s securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund’s securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
The following table is a summary of the inputs used to value the
Fund’s investments at June 30, 2018:
| Level
1 quoted prices in active markets for identical assets ($) |
Level
2 other significant observable inputs ($) |
Level
3 significant unobservable inputs ($) |
Total ($) | |
| Investments in Securities | ||||
| Common Stocks | ||||
| Consumer Discretionary | 121,166,060 | — | — | 121,166,060 |
| Consumer Staples | 35,184,610 | — | — | 35,184,610 |
| Energy | 10,801,312 | — | — | 10,801,312 |
| Financials | 101,734,700 | — | — | 101,734,700 |
| Health Care | 187,211,239 | — | — | 187,211,239 |
| Industrials | 71,255,452 | — | — | 71,255,452 |
| Information Technology | 127,874,108 | — | — | 127,874,108 |
| Materials | 20,166,088 | — | — | 20,166,088 |
| Real Estate | 24,292,130 | — | — | 24,292,130 |
| Telecommunication Services | 3,569,220 | — | — | 3,569,220 |
| Total Common Stocks | 703,254,919 | — | — | 703,254,919 |
| Limited Partnerships | ||||
| Consumer Discretionary | 3,415,142 | — | — | 3,415,142 |
| Total Limited Partnerships | 3,415,142 | — | — | 3,415,142 |
| Securities Lending Collateral | 20,098,095 | — | — | 20,098,095 |
| Money Market Funds | 33,325,254 | — | — | 33,325,254 |
| Total Investments in Securities | 760,093,410 | — | — | 760,093,410 |
There were no transfers of financial
assets between levels during the period.
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
USA | Semiannual Report 2018 |
13 |
Table of Contents
Statement of Assets and Liabilities
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
| Assets | |
| Investments in securities, at value* | |
| Unaffiliated issuers (cost $580,890,752) | $760,093,410 |
| Receivable for: | |
| Investments sold | 3,980,817 |
| Capital shares sold | 203,727 |
| Dividends | 390,468 |
| Securities lending income | 21,476 |
| Foreign tax reclaims | 346 |
| Prepaid expenses | 5,248 |
| Trustees’ deferred compensation plan | 231,005 |
| Total assets | 764,926,497 |
| Liabilities | |
| Due upon return of securities on loan | 20,098,095 |
| Payable for: | |
| Investments purchased | 6,783,171 |
| Capital shares purchased | 1,434,867 |
| Investment advisory fee | 17,469 |
| Administration fees | 1,011 |
| Trustees’ fees | 1,476 |
| Other expenses | 85,377 |
| Trustees’ deferred compensation plan | 231,005 |
| Total liabilities | 28,652,471 |
| Net assets applicable to outstanding capital stock | $736,274,026 |
| Represented by | |
| Paid in capital | 498,021,615 |
| Excess of distributions over net investment income | (39,592) |
| Accumulated net realized gain | 59,089,345 |
| Unrealized appreciation (depreciation) on: | |
| Investments - unaffiliated issuers | 179,202,658 |
| Total - representing net assets applicable to outstanding capital stock | $736,274,026 |
| Shares outstanding | 30,285,434 |
| Net asset value per share | 24.31 |
| * Value of securities on loan | 19,716,937 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 14 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Statement of Operations
Six Months Ended June 30, 2018 (Unaudited)
Six Months Ended June 30, 2018 (Unaudited)
| Net investment income | |
| Income: | |
| Dividends — unaffiliated issuers | $3,382,714 |
| Income from securities lending — net | 183,633 |
| Foreign taxes withheld | (26,439) |
| Total income | 3,539,908 |
| Expenses: | |
| Investment advisory fee | 3,035,202 |
| Service fees | 275,914 |
| Administration fees | 175,473 |
| Trustees’ fees | 34,802 |
| Custodian fees | 4,848 |
| Printing and postage fees | 80,290 |
| Audit fees | 20,071 |
| Legal fees | 53,721 |
| Compensation of chief compliance officer | 1,084 |
| Other | 21,658 |
| Total expenses | 3,703,063 |
| Fees waived by transfer agent | (275,914) |
| Total net expenses | 3,427,149 |
| Net investment income | 112,759 |
| Realized and unrealized gain (loss) — net | |
| Net realized gain (loss) on: | |
| Investments — unaffiliated issuers | 60,533,296 |
| Net realized gain | 60,533,296 |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments — unaffiliated issuers | 41,568,285 |
| Net change in unrealized appreciation (depreciation) | 41,568,285 |
| Net realized and unrealized gain | 102,101,581 |
| Net increase in net assets resulting from operations | $102,214,340 |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| Wanger
USA | Semiannual Report 2018 |
15 |
Table of Contents
Statement of Changes in Net Assets
| Six
Months Ended June 30, 2018 (Unaudited) |
Year
Ended December 31, 2017 | |
| Operations | ||
| Net investment income (loss) | $112,759 | $(528,477) |
| Net realized gain | 60,533,296 | 163,958,845 |
| Net change in unrealized appreciation (depreciation) | 41,568,285 | (42,319,867) |
| Net increase in net assets resulting from operations | 102,214,340 | 121,110,501 |
| Distributions to shareholders | ||
| Net realized gains | (161,321,944) | (108,009,366) |
| Total distributions to shareholders | (161,321,944) | (108,009,366) |
| Increase in net assets from capital stock activity | 110,669,740 | 7,375,038 |
| Total increase in net assets | 51,562,136 | 20,476,173 |
| Net assets at beginning of period | 684,711,890 | 664,235,717 |
| Net assets at end of period | $736,274,026 | $684,711,890 |
| Excess of distributions over net investment income | $(39,592) | $(152,351) |
| Six Months Ended | Year Ended | |||
| June 30, 2018 (Unaudited) | December 31, 2017 | |||
| Shares | Dollars ($) | Shares | Dollars ($) | |
| Capital stock activity | ||||
| Subscriptions | 310,144 | 8,566,760 | 368,297 | 9,709,107 |
| Distributions reinvested | 6,497,058 | 161,321,944 | 4,399,567 | 108,009,366 |
| Redemptions | (2,125,342) | (59,218,964) | (4,199,383) | (110,343,435) |
| Total net increase | 4,681,860 | 110,669,740 | 568,481 | 7,375,038 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 16 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Financial Highlights
The
following table is intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated
based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if
any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If
such transactions were included, the Fund’s portfolio turnover rate may be higher.
| Six
Months Ended June 30, 2018 (Unaudited) |
Year Ended December 31, | |||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||
| Per share data | ||||||
| Net asset value, beginning of period | $26.74 | $26.53 | $31.75 | $37.71 | $41.13 | $33.84 |
| Income from investment operations: | ||||||
| Net investment income (loss) | 0.00 (a) | (0.02) | (0.04) | (0.12) | (0.06) | (0.05) |
| Net realized and unrealized gain | 4.31 | 4.81 | 3.56 | 0.45 | 1.70 | 10.79 |
| Total from investment operations | 4.31 | 4.79 | 3.52 | 0.33 | 1.64 | 10.74 |
| Less distributions to shareholders from: | ||||||
| Net investment income | — | — | — | — | — | (0.06) |
| Net realized gains | (6.74) | (4.58) | (8.74) | (6.29) | (5.06) | (3.39) |
| Total distributions to shareholders | (6.74) | (4.58) | (8.74) | (6.29) | (5.06) | (3.45) |
| Net asset value, end of period | $24.31 | $26.74 | $26.53 | $31.75 | $37.71 | $41.13 |
| Total return | 15.60% (b) | 19.58% (b) | 13.69% | (0.61)% | 4.78% | 33.75% |
| Ratios to average net assets | ||||||
| Total gross expenses(c) | 1.06% (d) | 1.03% | 1.00% | 1.01% | 0.96% | 0.96% |
| Total net expenses(c) | 0.98% (d) | 0.99% | 1.00% | 1.01% | 0.96% | 0.96% |
| Net investment income (loss) | 0.03% (d) | (0.08)% | (0.16)% | (0.34)% | (0.15)% | (0.12)% |
| Supplemental data | ||||||
| Portfolio turnover | 35% | 96% | 118% | 45% | 14% | 15% |
| Net assets, end of period (in thousands) | $736,274 | $684,712 | $664,236 | $692,605 | $800,933 | $912,143 |
| Notes to Financial Highlights | |
| (a) | Rounds to zero. |
| (b) | Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced. |
| (c) | In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests. Such indirect expenses are not included in the Fund’s reported expense ratios. |
| (d) | Annualized. |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
USA | Semiannual Report 2018 |
17 |
Table of Contents
Notes to Financial Statements
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 1. Organization
Wanger USA (the Fund), a series of Wanger Advisors Trust
(the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term
capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be
offered directly to certain qualified pension and retirement plans.
Note 2. Summary of significant accounting
policies
Basis of preparation
The Fund is an investment company that applies the accounting
and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services - Investment Companies (ASC 946). The financial statements are prepared
in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a
market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued
at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees. A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at
the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange-traded funds are valued at their closing net asset value as reported on the applicable exchange. A
security for which there is no reported sale on the valuation date is valued by comparison of the mean of the latest bid and ask quotations.
Foreign equity securities are generally valued based on the
closing price on the foreign exchange in which such securities are primarily traded. If any foreign equity security closing prices are not readily available, the securities are valued at the mean of the latest quoted bid and ask prices on such
exchanges or markets. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange; therefore, the closing
prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. In situations where foreign markets are closed, where a significant event has
occurred after the foreign exchange closes but before the time at which the Fund’s share price is calculated, and in the event of significant movement in the trigger index for the statistical fair valuation process established by the Board of
Trustees, foreign securities will be fair valued pursuant to a policy adopted by the Board of Trustees. The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair
valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security
is valued at a fair value, that value may be different from the last quoted market price for the security.
Short-term investments maturing in 60 days or less are valued
at amortized cost, which approximates market value.
| 18 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
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 New York Stock 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.
GAAP requires disclosure regarding the inputs and valuation
techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category. This information is disclosed following the Fund’s Portfolio of Investments.
Securities lending
The Fund may lend securities up to one-third of the value of
its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the
security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of
the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the
cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund’s lending agent, and borrower
rebates. The Fund’s investment manager, Columbia Wanger Asset Management, LLC (the Investment Manager or CWAM), does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use
the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending
agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2018, is included in the Statement of Operations.
The following table indicates the total amount of securities
loaned by type, reconciled to gross liability payable upon return of the securities loaned by the Fund as of June 30, 2018:
| Overnight
and continuous |
Up
to 30 days |
30-90
days |
Greater
than 90 days |
Total | |
| Wanger USA | |||||
| Securities lending transactions | |||||
| Equity securities | $19,716,937 | $— | $— | $— | $19,716,937 |
| Gross amount of recognized liabilities for securities lending (collateral received) | 20,098,095 | ||||
| Amounts due to counterparty in the event of default | $381,158 |
Offsetting of assets and
liabilities
The following table presents the
Fund’s gross and net amount of assets and liabilities available for offset under netting arrangements as well as any related collateral received or pledged by the Fund as of June 30, 2018:
| Goldman
Sachs ($) | |
| Liabilities | |
| Collateral on Securities loaned | 20,098,095 |
| Total Liabilities | 20,098,095 |
| Total Financial and Derivative Net Assets | (20,098,095) |
| Financial Instruments | 19,716,937 |
| Net Amount (a) | (381,158) |
| (a) | Represents the net amount due from/(to) counterparties in the event of default. |
| Wanger
USA | Semiannual Report 2018 |
19 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Security transactions and investment income
Security transactions are accounted for on the trade date
(date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded
on the accrual basis and includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Income recognition
Corporate actions and dividend income are generally recorded
net of any non-reclaimable tax withholdings, on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities.
The Fund may receive distributions from holdings in equity
securities, exchange traded funds (ETFs), limited partnerships (LPs), other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These
distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable
securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund’s management. Management’s estimates
are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Awards, if any, from class action litigation related to
securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
Expenses
General expenses of the Trust are allocated to the Fund and
the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Federal income tax status
The Fund intends to comply with the provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner provided therein, intends to distribute substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions
reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund meets the exception under Internal Revenue Code Section 4982(f) and the Fund expects not to be
subject to federal excise tax.
Foreign taxes
Gains in certain countries may be subject to foreign taxes at
the fund level. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend
date.
Guarantees and indemnification
In the normal course of business, the Trust on behalf of the
Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund.
Also under the Trust’s organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these warranties and indemnities to be remote.
| 20 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Recent
accounting pronouncement
Accounting Standards Update
2017-08 Premium Amortization on Purchased Callable Debt Securities
In March 2017, the Financial Accounting Standards Board issued
Accounting Standards Update (ASU) No. 2017-08 Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 updates the accounting standards to shorten the amortization period for certain purchased callable debt securities, held at a
premium, to be amortized to the earliest call date. The update applies to securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. The standard is effective for annual periods beginning after
December 15, 2018 and interim periods within those fiscal years. At this time, management is evaluating the implication of this guidance and the impact it will have on the financial statement amounts and footnote disclosures, if any.
Note 3. Fees and other transactions with
affiliates
Management services fees
CWAM is a wholly owned subsidiary of Columbia Management
Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the overall
management of the Fund’s business affairs.
CWAM
receives a monthly advisory fee based on the Fund’s daily net assets at the following annual rates:
| Average daily net assets | Annual
fee rate |
| Up to $100 million | 0.94% |
| $100 million to $250 million | 0.89% |
| $250 million to $2 billion | 0.84% |
| $2 billion and over | 0.80% |
For the six months ended June 30,
2018, the annualized effective investment advisory fee rate was 0.86% of the Fund’s average daily net assets.
Administration fees
CWAM provides administrative services and receives an
administration fee from the Fund at the following annual rates:
| Aggregate average daily net assets of the Trust | Annual
fee rate |
| Up to $4 billion | 0.05% |
| $4 billion to $6 billion | 0.04% |
| $6 billion to $8 billion | 0.03% |
| $8 billion and over | 0.02% |
For the six months ended June 30,
2018, the annualized effective administration fee rate was 0.05% of the Fund’s average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Compensation of board members
Certain officers and trustees of the Trust are also officers
of CWAM or Columbia Management. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM or Columbia Management. The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a
trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value
of Institutional Class shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
| Wanger
USA | Semiannual Report 2018 |
21 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Compensation of Chief Compliance Officer
The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. As disclosed in the Statement of Operations, a portion of the Chief Compliance Officer’s total compensation is allocated to the Fund, along with other allocations to affiliated
funds governed by the Board of Trustees, based on relative net assets.
Service fees
Pursuant to the Transfer, Dividend Disbursing and Shareholder
Servicing Agreement between the Fund and Columbia Management Investment Services Corp. (the Transfer Agent), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, the Fund bears a service fee paid to the
Transfer Agent to compensate it for amounts paid to Participating Insurance Companies and other financial intermediaries (together, Participating Organizations) for various sub-transfer agency and other shareholder services each Participating
Organization provides to its clients, customers and participants that are invested directly or indirectly in the Fund, up to a cap approved by the Board of Trustees from time to time.
The Transfer Agent may retain as compensation for its services
revenues from fees for wire, telephone and redemption orders, account transcripts due the Transfer Agent from Fund shareholders and interest (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection
with its services to the Fund.
Effective July 1, 2018
through June 30, 2019, the Transfer Agent has contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund does not exceed 0.04% of the Fund’s average daily net assets, unless
sooner terminated at the sole discretion of the Board of Trustees. Prior to July 1, 2018, the Transfer Agent had contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund did not
exceed 0.00% of the Fund’s average daily net assets.
Distributor
Columbia Management Investment Distributors, Inc., a wholly
owned subsidiary of Ameriprise Financial, serves as the Fund’s distributor and principal underwriter.
Note 4. Federal tax information
The timing and character of income and capital gain
distributions are determined in accordance with income tax regulations, which may differ from GAAP because of temporary or permanent book to tax differences.
At June 30, 2018, the approximate cost of all investments for
federal income tax purposes and the aggregate gross approximate unrealized appreciation and depreciation based on that cost was:
| Federal
tax cost ($) |
Gross
unrealized appreciation ($) |
Gross
unrealized (depreciation) ($) |
Net
unrealized appreciation ($) |
| 580,891,000 | 192,054,000 | (12,852,000) | 179,202,000 |
Tax cost of investments and
unrealized appreciation/(depreciation) may also include timing differences that do not constitute adjustments to tax basis.
Management is required to determine whether a tax position of
the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be
recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to,
new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
| 22 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 5. Portfolio information
The aggregate cost of purchases and proceeds from sales
other than short-term obligations for the six months ended June 30, 2018, were $241,471,766 and $315,411,261, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
Note 6. Line of credit
The Fund has access to a revolving credit facility with a
syndicate of banks led by Citibank, N.A., HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A. whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility, which is
a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permits collective borrowings up to $1 billion. Interest is charged to each participating fund based on its borrowings at a
rate equal to the higher of (i) the overnight federal funds rate plus 1.00% or (ii) the one-month LIBOR rate plus 1.00%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a
commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.15% per annum. The commitment fee is included in other expenses in the Statement of Operations.
The Fund had no borrowings during the six months ended June
30, 2018.
Note 7. Significant risks
Health care sector risk
The Fund may be more susceptible to the particular risks that
may affect companies in the health care sector than if it were invested in a wider variety of companies in unrelated sectors. Companies in the health care sector are subject to certain risks, including restrictions on government reimbursement for
medical expenses, government approval of medical products and services, competitive pricing pressures, and the rising cost of medical products and services (especially for companies dependent upon a relatively limited number of products or
services). Performance of such companies may be affected by factors including, government regulation, obtaining and protecting patents (or the failure to do so), product liability and other similar litigation as well as product obsolescence.
Shareholder concentration risk
At June 30, 2018, two unaffiliated shareholders of record
owned 33.9% of the outstanding shares of the Fund in one or more accounts. The Fund has no knowledge about whether any portion of those shares was owned beneficially. Affiliated shareholders of record owned 59.5% of the outstanding shares of the
Fund in one or more accounts. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund. In the case of a large redemption, the Fund may be forced to sell investments at inopportune
times, including its liquid positions, which may result in Fund losses and the Fund holding a higher percentage of less liquid positions. Large redemptions could result in decreased economies of scale and increased operating expenses for
non-redeeming Fund shareholders.
Note
8. Subsequent events
Management has evaluated the
events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
Note 9. Information regarding pending and settled
legal proceedings
Ameriprise Financial and certain of
its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their
business activities. Ameriprise Financial believes that the Fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are
likely to have a material adverse effect on the Fund or the ability of Ameriprise Financial or its affiliates
| Wanger
USA | Semiannual Report 2018 |
23 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
to perform under
their contracts with the Fund. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary, 8-K filings with the Securities and Exchange Commission (SEC) on legal and regulatory matters that relate to Ameriprise
Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse
publicity associated with them, will not result in increased Fund redemptions, reduced sale of Fund shares or other adverse consequences to the Fund. Further, although we believe proceedings are not likely to have a material adverse effect on the
Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result.
An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of
Ameriprise Financial.
| 24 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Board Consideration and Approval of Advisory
Agreement
Wanger
Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger USA (the "Fund). More than 75% of the trustees of the Trust (the
"Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent Trustees"). The
Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board
of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board
determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does
the Board’s Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the
Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and
Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and
request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the
Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several
occasions. In all, the Contract Committee convened formally on five separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract
Committee’s status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees,
reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee")
made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the
Trustees included, among other items: (i) information on the investment performance of the Fund relative to an independently selected peer group of funds and the Fund’s performance benchmark over various time periods, as presented and analyzed
by an independent consultant; (ii) information on the Fund’s advisory fees and other expenses, including information comparing the Fund’s fees and expenses to those of a peer group of funds and information about any applicable expense
limitations and fee breakpoints; (iii) data on sales and redemptions of Fund shares; and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as
a result of their relationships with the Fund. The Contract Committee and the Board also considered other information such as: (i) CWAM’s financial condition; (ii) the Fund’s investment objective and strategy; (iii) the size, education,
experience and resources of CWAM’s investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund; (iv) turnover of investment management personnel; (v) the portfolio
manager compensation framework; (vi) the allocation of the Fund’s brokerage, and the use of "soft" commission dollars to pay for research products and services; (vii) CWAM’s risk management program; (viii) the resources devoted to, and
the record of compliance with, the Fund’s investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures; and (ix) CWAM’s and its affiliates’ conflicts of
interest.
At a meeting held on June 12, 2018, the Board
considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself
was considered dispositive. The material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the Advisory Agreement are discussed below.
| Wanger
USA | Semiannual Report 2018 |
25 |
Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
Nature, quality and extent of services
The Trustees reviewed the nature, quality and extent of the
services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held
on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other
services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund’s investment restrictions; providing
support services for the Board and committees of the Board; managing the Fund’s securities lending program; communicating with shareholders; serving as the Fund’s administrator; and overseeing the activities of the Fund’s other
service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM’s compliance record.
The Trustees took into account the changes made by CWAM in the
past year to improve Fund performance. This included but was not limited to: the continued addition of more systematic and quantitative tools and risk-based analyses into the portfolio and construction management process; the significant reduction
in the number of Fund holdings since 2015 and increased concentration of the portfolio in fewer high conviction names; and certain portfolio manager and analyst changes.
The Trustees concluded that the nature, quality and extent of
the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM
currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that
Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment
and operational personnel. The Trustees therefore believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund
The Trustees reviewed information comparing the Fund’s
performance with that of its primary benchmark and with the performance of comparable peer funds as identified by Broadridge. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, including over the
one-, three- and five-year periods ended December 31, 2017, which showed that the Fund had outperformed its Broadridge peer group median for the three-year period but had underperformed for the one- and five-year periods. Relative to the
Fund’s primary benchmark, the Trustees determined that the Fund performed satisfactorily for the more recent periods relative to the Fund’s primary benchmark. They also considered data as of April 30, 2018 in order to evaluate
CWAM’s progress in improving Fund performance, noting that the Fund’s returns were satisfactory verses peers and its primary benchmark.
The Trustees concluded that CWAM had taken and continued to
take a number of corrective steps to improve the Fund’s performance, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund’s performance closely. In addition, the
Trustees considered that CWAM’s Chief Investment Officer and Director of Research (U.S.) had each reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve the
Fund’s performance.
Costs of services and
profits realized by CWAM
At various Committee and
Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge. The Trustees took into account that while the Fund’s net expenses and
actual advisory fees paid were higher than the median of its Broadridge peer group, the Fund’s advisory fees were generally comparable to the advisory fees of Columbia Acorn USA, which is managed almost identically to Wanger USA, at the same
asset levels.
| 26 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
The Trustees also reviewed the advisory fee rates charged by
CWAM for managing another investment company as a sub-adviser that had investment strategies similar to the Fund, as detailed in materials provided to the Contract Committee by CWAM. The Trustees determined that the Fund’s advisory fees were
somewhat higher than CWAM’s sub-advisory fees. The Trustees considered the information provided by CWAM regarding its performance of significant additional services for the Fund that it did not provide to sub-advisory clients, including
administrative and fund accounting services, oversight of the Fund’s other service providers, Trustee support, regulatory compliance and numerous other services, and that, in servicing the Fund, CWAM assumed many legal and business risks that
it did not assume in servicing many of its sub-advisory clients.
The Trustees reviewed the analysis of CWAM’s
profitability in serving as the Fund’s investment manager and of CWAM and its affiliates in their other service provider relationships with the Fund. The Contract Committee and the Board met with representatives from Ameriprise to discuss its
methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and fund-by-fund basis. The Trustees also reviewed the methodology used by CWAM
and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from a third-party consultant, Strategic Insight,
which compared CWAM’s profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of
consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts
managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM’s profitability in light of the resources that had been, and would continue to be, provided to the Fund by
Ameriprise to assist in improving Fund performance.
Economies of scale
At various Committee and Board meetings and other informal
meetings, the Trustees considered information about the extent to which CWAM realized economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund included breakpoints in the rate
of fees at various asset levels. The Trustees concluded that the fee structure of the Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other benefits to CWAM
The Trustees also reviewed benefits that accrued to CWAM and
its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund’s transfer agency services were performed by Columbia Management Investment Services Corp., an affiliate of
Ameriprise, which received compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc., served as the Fund’s distributor under an
underwriting agreement but received no fees for its services to the Fund. In addition, they considered that Columbia Management provided sub-administration services to the Fund. The Contract Committee and the Board received information regarding the
profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM
might potentially benefit from their relationship with each other. For example, the Trustees considered CWAM’s use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the
Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM’s annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM’s soft dollar spending. The Trustees also
considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM’s execution of the Fund’s portfolio transactions. The Trustees determined that CWAM’s use of the
Fund’s "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefitted from the receipt of proprietary research products and services
acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM’s receipt of those products and services as well as research products and services acquired through commissions paid by other
clients of CWAM.
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
After full consideration of the above factors, as well as
other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the Advisory Agreement was in
the best interest of the Fund. At the Board meeting held on June 12, 2018, the Trustees approved continuation of the Advisory Agreement for the Fund through July 31, 2019.
| 28 | Wanger USA | Semiannual Report 2018 |
Table of Contents
Additional information
Proxy
voting policies and procedures
The policy of the Board
of Trustees is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling
800.345.6611; contacting your financial intermediary or searching the website of the SEC at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31st for the most recent 12-month
period ending June 30th of that year, and is available without charge by visiting columbiathreadneedleus.com/investor/, or searching the website of the SEC at sec.gov.
Quarterly schedule of investments
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 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 800.SEC.0330. The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q, can also be obtained without charge, upon request, by calling
800.345.6611.
Additional Fund information
Fund investment manager
Columbia Wanger Asset Management, LLC
227 West Monroe, Suite 3000
Chicago, IL 60606
888.4.WANGER
(888.492.6437)
Fund distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, MA 02110
Fund transfer agent
Columbia Management Investment Services Corp.
P.O. Box 8081
Boston, MA 02266-8081
| Wanger
USA | Semiannual Report 2018 |
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Table of Contents
Additional information (continued)
Trustees
Laura M. Born, Chair of the
Board
David J. Rudis, Vice
Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Eric A. Feldstein
John C. Heaton
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan, President
Alan G. Berkshire, Vice
President
Michael G. Clarke,
Assistant Treasurer
David L.
Frank, Vice President
Paul B.
Goucher, Assistant Secretary
Tae Han (Simon) Kim, Vice
President
John M. Kunka, Vice
President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak, Vice
President
Joseph C. LaPalm,
Vice President
Ryan C.
Larrenaga, Assistant Secretary
Matthew A. Litfin, Vice
President
Satoshi Matsunaga,
Vice President
Thomas P.
McGuire, Chief Compliance Officer
Louis J. Mendes, Vice President
Julian Quero, Assistant
Treasurer
Martha A. Skinner,
Assistant Treasurer
Richard Watson, Vice President
Linda K.
Roth-Wiszowaty, Secretary
Charles Young, Vice President
| 30 | Wanger USA | Semiannual Report 2018 |
Table of Contents
[THIS PAGE INTENTIONALLY LEFT BLANK]
Table of Contents
Please read and consider the investment objectives, risks,
charges and expenses for any fund carefully before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should
contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing. Columbia Wanger Funds are distributed by Columbia Management
Investment Distributors, Inc., member FINRA, and are managed by Columbia Wanger Asset Management, LLC.
Columbia Threadneedle Investments (Columbia Threadneedle) is
the global brand name of the Columbia and Threadneedle group of companies. All rights reserved. Columbia Management Investment Distributors, Inc., 225 Franklin Street, Boston, MA 02110-2804
© 2018 Columbia Management Investment Advisers, LLC.
C-1470 AM
(8/18)
Table of Contents
Wanger Select
Managed by Columbia Wanger Asset Management,
LLC
Please remember that you may not buy (nor will you own)
shares of the Fund directly. The Fund is available through variable annuity contracts and variable life insurance policies offered by the separate accounts of participating insurance companies as well as qualified pension and retirement plans.
Please contact your financial advisor or insurance representative for more information.
Not FDIC Insured • No bank guarantee • May lose
value
Table of Contents
Table of Contents
Fund at a Glance
(Unaudited)
(Unaudited)
Investment objective
Wanger Select (the Fund) seeks
long-term capital appreciation.
Portfolio
management
David L. Frank,
CFA
Portfolio
Manager since 2015
Service with
Fund since 2002
| Wanger
Select | Semiannual Report 2018 |
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Table of Contents
Fund at a Glance (continued)
(Unaudited)
(Unaudited)
| 4 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Manager Discussion of Fund Performance
(Unaudited)
(Unaudited)
| Wanger
Select | Semiannual Report 2018 |
5 |
Table of Contents
Manager Discussion of Fund Performance (continued)
(Unaudited)
(Unaudited)
believe that LKQ is
well positioned to benefit from increased usage of its lower cost alternative parts, as it consolidates certain regional markets. Natus Medical provides newborn, neurological and audiological diagnostic equipment to hospitals and clinics. Weakening
growth across segments and poor operational execution has led to impaired earnings power that we believe is likely to persist. The Fund exited the position during the period.
U.S. trade policy disputes and interest rate concerns have
been persistent sources of market volatility in 2018. In our view, the higher volatility and greater number of economic and market divergences that have occurred on a global scale may have the potential to create good opportunities for stock
pickers. We believe an investment philosophy that favors higher quality, faster growing companies, as measured across metrics such as return on invested capital, revenue and earnings growth and superior debt ratios, can be particularly advantageous
in this environment.
While cognizant of macroeconomic
trends, our investment process takes a bottom-up approach, relying on intensive fundamental research and disciplined valuation techniques. We are focused on investing the Fund in companies with sustainable competitive advantages, entrepreneurial
management and the potential to gain market share. Our team creates and closely monitors a specific and unique investment thesis for each company in which the Fund invests. We will continue to employ our time-tested process to look for opportunities
for investors to benefit from growth in undervalued small- and mid-cap businesses.
Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. Investments in small and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more
established companies. Foreign investments subject the Fund to risks, including political, economic, market, social and other risks, within a particular country, as well as to potential currency instabilities
and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. The Fund may invest significantly in issuers within a particular
sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector. See the Fund’s prospectus for more
information on these and other risks.
The views
expressed in this report reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results
may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be
relied on as investment advice and, because investment decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to
specific securities should not be construed as a recommendation or investment advice.
| 6 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Understanding Your Fund’s Expenses
(Unaudited)
(Unaudited)
As a shareholder, you incur three types of costs. There are
transaction costs, which may include redemption fees. There are also ongoing costs, which generally include investment advisory fees and other expenses for Wanger Select (the Fund). Lastly, there may be additional fees or charges imposed by the
insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs
with the ongoing costs of investing in other mutual funds.
Analyzing your Fund’s expenses
To illustrate these ongoing costs, we have provided an
example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the
entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “Actual” column is calculated using the Fund’s actual operating expenses and total return
for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the “Hypothetical” column assumes a 5% annual rate of return before expenses (which is not the Fund’s actual return) and
then applies the Fund’s actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you
paid during the period. See “Compare with other funds” below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same
hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any
transaction costs, such as redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs
were included in these calculations, your costs would be higher.
| January 1, 2018 — June 30, 2018 | |||||||
| Account
value at the beginning of the period ($) |
Account
value at the end of the period ($) |
Expenses
paid during the period ($) |
Fund’s
annualized expense ratio (%) | ||||
| Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | Actual | |
| Wanger Select | 1,000.00 | 1,000.00 | 1,063.30 | 1,021.19 | 3.86 | 3.78 | 0.75 |
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 manager and/or certain of its affiliates not
waived/reimbursed certain fees and expenses, account value at the end of the period would have been reduced. See Note 3 to the Financial Statements.
It is important to note that the expense amounts shown in the
table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate account. The hypothetical example provided is useful in
comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
| Wanger
Select | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
(Percentages represent value of investments compared to net
assets)
Investments in securities
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 8 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Notes to Portfolio of Investments
| (a) | Non-income producing security. |
| (b) | The rate shown is the seven-day current annualized yield at June 30, 2018. |
Fair value measurements
Various inputs are used in determining the value
of the Fund’s investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed below:
| ■ | Level 1 – quoted prices in active markets for identical securities |
| ■ | Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others) |
| ■ | Level 3 – prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management’s own assumptions about the factors market participants would use in pricing an investment) |
The inputs or methodology
used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
Select | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Fair value
measurements (continued)
Examples of the types of securities in which the Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose net asset values are published each day and exchange traded foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost. Additionally, securities fair valued by Columbia Wanger Asset Management’s Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued by the Committee that relies on significant unobservable inputs.
Examples of the types of securities in which the Fund would typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose net asset values are published each day and exchange traded foreign equities that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost. Additionally, securities fair valued by Columbia Wanger Asset Management’s Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Wanger Advisors
Trust Portfolio Pricing Policy and the Columbia Wanger Asset Management pricing procedures (the Policies), which are approved by and subject to the oversight of the Board of Trustees.
The Committee meets as necessary, and no less frequently than
quarterly, to determine fair values for securities for which market quotations are not readily available or for which Columbia Wanger Asset Management believes that available market quotations are unreliable. The Committee also reviews the
continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other things:
circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under which
securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund’s investment manager. The Committee
may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the Policies.
For investments categorized as Level 3, the significant
unobservable inputs used in the fair value measurement of the Fund’s securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar
security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in
fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes
to inputs, assumptions and models are not required with the same frequency.
The following table is a summary of the inputs used to value the
Fund’s investments at June 30, 2018:
| Level
1 quoted prices in active markets for identical assets ($) |
Level
2 other significant observable inputs ($) |
Level
3 significant unobservable inputs ($) |
Total ($) | |
| Investments in Securities | ||||
| Common Stocks | ||||
| Consumer Discretionary | 27,838,599 | — | — | 27,838,599 |
| Financials | 21,032,987 | — | — | 21,032,987 |
| Health Care | 19,611,965 | — | — | 19,611,965 |
| Industrials | 22,230,214 | — | — | 22,230,214 |
| Information Technology | 32,987,431 | — | — | 32,987,431 |
| Materials | 4,504,038 | — | — | 4,504,038 |
| Real Estate | 6,752,988 | — | — | 6,752,988 |
| Total Common Stocks | 134,958,222 | — | — | 134,958,222 |
| Money Market Funds | 3,163,943 | — | — | 3,163,943 |
| Total Investments in Securities | 138,122,165 | — | — | 138,122,165 |
There were no transfers of financial
assets between levels during the period.
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 10 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Statement of Assets and Liabilities
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
| Assets | |
| Investments in securities, at value | |
| Unaffiliated issuers (cost $102,898,300) | $138,122,165 |
| Receivable for: | |
| Investments sold | 614,936 |
| Capital shares sold | 1,501 |
| Dividends | 103,333 |
| Prepaid expenses | 1,008 |
| Total assets | 138,842,943 |
| Liabilities | |
| Payable for: | |
| Investments purchased | 563,307 |
| Capital shares purchased | 83,274 |
| Investment advisory fee | 2,269 |
| Administration fees | 189 |
| Trustees’ fees | 45,548 |
| Other expenses | 48,699 |
| Total liabilities | 743,286 |
| Net assets applicable to outstanding capital stock | $138,099,657 |
| Represented by | |
| Paid in capital | 95,195,603 |
| Undistributed net investment income | 312,746 |
| Accumulated net realized gain | 7,367,443 |
| Unrealized appreciation (depreciation) on: | |
| Investments - unaffiliated issuers | 35,223,865 |
| Total - representing net assets applicable to outstanding capital stock | $138,099,657 |
| Shares outstanding | 6,955,554 |
| Net asset value per share | 19.85 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
Select | Semiannual Report 2018 |
11 |
Table of Contents
Statement of Operations
Six Months Ended June 30, 2018 (Unaudited)
Six Months Ended June 30, 2018 (Unaudited)
| Net investment income | |
| Income: | |
| Dividends — unaffiliated issuers | $862,722 |
| Income from securities lending — net | 758 |
| Total income | 863,480 |
| Expenses: | |
| Investment advisory fee | 553,933 |
| Service fees | 103,498 |
| Administration fees | 34,621 |
| Trustees’ fees | 7,449 |
| Custodian fees | 1,930 |
| Printing and postage fees | 23,052 |
| Audit fees | 14,666 |
| Legal fees | 10,819 |
| Compensation of chief compliance officer | 224 |
| Other | 10,212 |
| Total expenses | 760,404 |
| Fees waived by transfer agent | (103,498) |
| Advisory fee waiver | (138,483) |
| Total net expenses | 518,423 |
| Net investment income | 345,057 |
| Realized and unrealized gain (loss) — net | |
| Net realized gain (loss) on: | |
| Investments — unaffiliated issuers | 7,500,141 |
| Net realized gain | 7,500,141 |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments — unaffiliated issuers | 660,115 |
| Net change in unrealized appreciation (depreciation) | 660,115 |
| Net realized and unrealized gain | 8,160,256 |
| Net increase in net assets resulting from operations | $8,505,313 |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| 12 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Statement of Changes in Net Assets
| Six
Months Ended June 30, 2018 (Unaudited) |
Year
Ended December 31, 2017 | |
| Operations | ||
| Net investment income | $345,057 | $247,316 |
| Net realized gain | 7,500,141 | 15,047,757 |
| Net change in unrealized appreciation (depreciation) | 660,115 | 15,936,463 |
| Net increase in net assets resulting from operations | 8,505,313 | 31,231,536 |
| Distributions to shareholders | ||
| Net investment income | — | (229,911) |
| Net realized gains | (15,021,272) | (17,779,427) |
| Total distributions to shareholders | (15,021,272) | (18,009,338) |
| Increase in net assets from capital stock activity | 3,402,643 | 2,491,048 |
| Total increase (decrease) in net assets | (3,113,316) | 15,713,246 |
| Net assets at beginning of period | 141,212,973 | 125,499,727 |
| Net assets at end of period | $138,099,657 | $141,212,973 |
| Undistributed (excess of distributions over) net investment income | $312,746 | $(32,311) |
| Six Months Ended | Year Ended | |||
| June 30, 2018 (Unaudited) | December 31, 2017 | |||
| Shares | Dollars ($) | Shares | Dollars ($) | |
| Capital stock activity | ||||
| Subscriptions | 133,830 | 2,853,107 | 229,255 | 4,453,222 |
| Distributions reinvested | 727,070 | 15,021,272 | 990,881 | 18,009,338 |
| Redemptions | (679,806) | (14,471,736) | (1,016,605) | (19,971,512) |
| Total net increase | 181,094 | 3,402,643 | 203,531 | 2,491,048 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
Select | Semiannual Report 2018 |
13 |
Table of Contents
Financial Highlights
The
following table is intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated
based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if
any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If
such transactions were included, the Fund’s portfolio turnover rate may be higher.
| Six
Months Ended June 30, 2018 (Unaudited) |
Year Ended December 31, | |||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||
| Per share data | ||||||
| Net asset value, beginning of period | $20.84 | $19.10 | $24.18 | $32.99 | $36.41 | $27.54 |
| Income from investment operations: | ||||||
| Net investment income (loss) | 0.05 | 0.04 | 0.03 | (0.02) | (0.07) | (0.05) |
| Net realized and unrealized gain | 1.36 | 4.62 | 2.48 | 0.69 | 1.07 | 9.46 |
| Total from investment operations | 1.41 | 4.66 | 2.51 | 0.67 | 1.00 | 9.41 |
| Less distributions to shareholders from: | ||||||
| Net investment income | — | (0.03) | (0.03) | (0.00) (a) | — | (0.09) |
| Net realized gains | (2.40) | (2.89) | (7.56) | (9.48) | (4.42) | (0.45) |
| Total distributions to shareholders | (2.40) | (2.92) | (7.59) | (9.48) | (4.42) | (0.54) |
| Net asset value, end of period | $19.85 | $20.84 | $19.10 | $24.18 | $32.99 | $36.41 |
| Total return | 6.33% (b) | 26.67% (b) | 13.31% (b) | 0.26% (b) | 3.17% | 34.58% |
| Ratios to average net assets | ||||||
| Total gross expenses(c) | 1.10% (d) | 1.05% | 0.93% (e) | 0.98% | 0.93% (f) | 0.93% |
| Total net expenses(c) | 0.75% (d) | 0.77% | 0.73% (e) | 0.85% | 0.93% (f) | 0.93% |
| Net investment income (loss) | 0.50% (d) | 0.19% | 0.17% | (0.06)% | (0.20)% | (0.15)% |
| Supplemental data | ||||||
| Portfolio turnover | 33% | 52% | 93% | 59% | 18% | 24% |
| Net assets, end of period (in thousands) | $138,100 | $141,213 | $125,500 | $135,841 | $191,647 | $257,911 |
| Notes to Financial Highlights | |
| (a) | Rounds to zero. |
| (b) | Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced. |
| (c) | In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests, if any. Such indirect expenses are not included in the Fund’s reported expense ratios. |
| (d) | Annualized. |
| (e) | Expenses have been reduced due to a reimbursement of expenses overbilled by a third party. If the reimbursement had been excluded, the expense ratios would have been higher by 0.03%. All fee waivers and expense reimbursements by the Investment Manager and its affiliates were applied before giving effect to this third party reimbursement. |
| (f) | Ratios include line of credit interest expense which is less than 0.01%. |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 14 | Wanger Select | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 1. Organization
Wanger Select (the Fund), a series of Wanger Advisors Trust
(the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term
capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be
offered directly to certain qualified pension and retirement plans.
Note 2. Summary of significant accounting
policies
Basis of preparation
The Fund is an investment company that applies the accounting
and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services - Investment Companies (ASC 946). The financial statements are prepared
in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a
market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued
at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees. A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at
the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange-traded funds are valued at their closing net asset value as reported on the applicable exchange. A
security for which there is no reported sale on the valuation date is valued by comparison of the mean of the latest bid and ask quotations.
Foreign equity securities are generally valued based on the
closing price on the foreign exchange in which such securities are primarily traded. If any foreign equity security closing prices are not readily available, the securities are valued at the mean of the latest quoted bid and ask prices on such
exchanges or markets. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange; therefore, the closing
prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. In situations where foreign markets are closed, where a significant event has
occurred after the foreign exchange closes but before the time at which the Fund’s share price is calculated, and in the event of significant movement in the trigger index for the statistical fair valuation process established by the Board of
Trustees, foreign securities will be fair valued pursuant to a policy adopted by the Board of Trustees. The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair
valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security
is valued at a fair value, that value may be different from the last quoted market price for the security.
Short-term investments maturing in 60 days or less are valued
at amortized cost, which approximates market value.
| Wanger
Select | Semiannual Report 2018 |
15 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
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 New York Stock 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.
GAAP requires disclosure regarding the inputs and valuation
techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category. This information is disclosed following the Fund’s Portfolio of Investments.
Securities lending
The Fund may lend securities up to one-third of the value of
its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the
security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of
the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the
cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund’s lending agent, and borrower
rebates. The Fund’s investment manager, Columbia Wanger Asset Management, LLC (CWAM) or the Investment Manager, does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use
the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending
agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2018, is included in the Statement of Operations.
Security transactions and investment income
Security transactions are accounted for on the trade date
(date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded
on the accrual basis and includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Income recognition
Corporate actions and dividend income are generally recorded
net of any non-reclaimable tax withholdings, on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities.
The Fund may receive distributions from holdings in equity
securities, exchange traded funds (ETFs), limited partnerships (LPs), other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These
distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable
securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund’s management. Management’s estimates
are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Awards, if any, from class action litigation related to
securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
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Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Expenses
General expenses of the Trust are allocated to the Fund and
the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Federal income tax status
The Fund intends to comply with the provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner provided therein, intends to distribute substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions
reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund meets the exception under Internal Revenue Code Section 4982(f) and the Fund expects not to be
subject to federal excise tax.
Distributions to
shareholders
Distributions to shareholders are recorded
on the ex-dividend date.
Guarantees and
indemnification
In the normal course of business, the
Trust on behalf of the Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future
claims against the Fund. Also under the Trust’s organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the
Fund expects the risk of loss due to these warranties and indemnities to be remote.
Recent accounting pronouncement
Accounting Standards Update 2017-08 Premium Amortization on
Purchased Callable Debt Securities
In March 2017, the
Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2017-08 Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 updates the accounting standards to shorten the amortization period for certain
purchased callable debt securities, held at a premium, to be amortized to the earliest call date. The update applies to securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. The standard is
effective for annual periods beginning after December 15, 2018 and interim periods within those fiscal years. At this time, management is evaluating the implication of this guidance and the impact it will have on the financial statement amounts and
footnote disclosures, if any.
Note 3. Fees and
other transactions with affiliates
Management services
fees
CWAM is a wholly owned subsidiary of Columbia
Management Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the
overall management of the Fund’s business affairs.
CWAM receives a monthly advisory fee based on the Fund’s
daily net assets at the following annual rates:
| Average daily net assets | Annual
fee rate |
| Up to $500 million | 0.80% |
| $500 million and over | 0.78% |
Through April 30, 2019, CWAM has
contractually agreed to waive 0.20% of the advisory fee otherwise payable to it by the Fund. When determining whether the Fund’s total expenses exceed the contractual expense cap described below, the Fund’s net advisory fee, reflecting
application of the 0.20% waiver, will be used to calculate the Fund’s total expenses. This arrangement may only be modified or amended with approval from the Fund and CWAM.
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Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
For
the six months ended June 30, 2018, the annualized effective investment advisory fee rate, net of fee waivers, was 0.60% of the Fund’s average daily net assets.
Administration fees
CWAM provides administrative services and receives an
administration fee from the Fund at the following annual rates:
| Aggregate average daily net assets of the Trust | Annual
fee rate |
| Up to $4 billion | 0.05% |
| $4 billion to $6 billion | 0.04% |
| $6 billion to $8 billion | 0.03% |
| $8 billion and over | 0.02% |
For the six months ended June 30,
2018, the annualized effective administration fee rate was 0.05% of the Fund’s average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Compensation of board members
Certain officers and trustees of the Trust are also officers
of CWAM or Columbia Management. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM or Columbia Management. The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a
trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value
of Institutional Class shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
Compensation of Chief Compliance Officer
The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. As disclosed in the Statement of Operations, a portion of the Chief Compliance Officer’s total compensation is allocated to the Fund, along with other allocations to affiliated
funds governed by the Board of Trustees, based on relative net assets.
Service fees
Pursuant to the Transfer, Dividend Disbursing and Shareholder
Servicing Agreement between the Fund and Columbia Management Investment Services Corp. (the Transfer Agent), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, the Fund bears a service fee paid to the
Transfer Agent to compensate it for amounts paid to Participating Insurance Companies and other financial intermediaries (together, Participating Organizations) for various sub-transfer agency and other shareholder services each Participating
Organization provides to its clients, customers and participants that are invested directly or indirectly in the Fund, up to a cap approved by the Board of Trustees from time to time.
The Transfer Agent may retain as compensation for its services
revenues from fees for wire, telephone and redemption orders, account transcripts due the Transfer Agent from Fund shareholders and interest (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection
with its services to the Fund.
Effective July 1, 2018
through June 30, 2019, the Transfer Agent has contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund does not exceed 0.07% of the Fund’s average daily net assets, unless
sooner terminated at the sole discretion of the Board of Trustees. Prior to July 1, 2018, the Transfer Agent had contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund did not
exceed 0.00% of the Fund’s average daily net assets.
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Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Distributor
Columbia Management Investment Distributors, Inc., a wholly
owned subsidiary of Ameriprise Financial, serves as the Fund’s distributor and principal underwriter.
Other expenses waived/reimbursed by the Investment Manager and
its affiliates
Through April 30, 2018, CWAM had
contractually agreed to bear a portion of the Fund’s expenses so that its ordinary operating expenses (excluding transaction costs and certain other investment-related expenses, interest and fees on borrowings and expenses associated with the
Fund’s investment in other investment companies, if any), after giving effect to any balance credits from the Fund’s custodian, did not exceed the annual rate of 1.35% of the Fund’s average daily net assets.
Note 4. Federal tax information
The timing and character of income and capital gain
distributions are determined in accordance with income tax regulations, which may differ from GAAP because of temporary or permanent book to tax differences.
At June 30, 2018, the approximate cost of all investments for
federal income tax purposes and the aggregate gross approximate unrealized appreciation and depreciation based on that cost was:
| Federal
tax cost ($) |
Gross
unrealized appreciation ($) |
Gross
unrealized (depreciation) ($) |
Net
unrealized appreciation ($) |
| 102,898,000 | 37,190,000 | (1,966,000) | 35,224,000 |
Tax cost of investments and
unrealized appreciation/(depreciation) may also include timing differences that do not constitute adjustments to tax basis.
Management is required to determine whether a tax position of
the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be
recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to,
new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
Note 5. Portfolio information
The aggregate cost of purchases and proceeds from sales
other than short-term obligations for the six months ended June 30, 2018, were $44,281,781 and $55,873,745, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
Note 6. Line of credit
The Fund has access to a revolving credit facility with a
syndicate of banks led by Citibank, N.A., HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A. whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility, which is
a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permits collective borrowings up to $1 billion. Interest is charged to each participating fund based on its borrowings at a
rate equal to the higher of (i) the overnight federal funds rate plus 1.00% or (ii) the one-month LIBOR rate plus 1.00%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a
commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.15% per annum. The commitment fee is included in other expenses in the Statement of Operations.
The Fund had no borrowings during the six months ended June
30, 2018.
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Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 7. Significant risks
Consumer discretionary sector risk
The Fund may be more susceptible to the particular risks that
may affect companies in the consumer discretionary sector than if it were invested in a wider variety of companies in unrelated sectors. Companies in the consumer discretionary sector are subject to certain risks, including fluctuations in the
performance of the overall domestic and international economy, interest rate changes, increased competition and consumer confidence. Performance of such companies may be affected by factors including reduced disposable household income, reduced
consumer spending, changing demographics and consumer tastes.
Shareholder concentration risk
At June 30, 2018, two unaffiliated shareholders of record
owned 89.2% of the outstanding shares of the Fund in one or more accounts. The Fund has no knowledge about whether any portion of those shares was owned beneficially. Subscription and redemption activity by concentrated accounts may have a
significant effect on the operations of the Fund. In the case of a large redemption, the Fund may be forced to sell investments at inopportune times, including its liquid positions, which may result in Fund losses and the Fund holding a higher
percentage of less liquid positions. Large redemptions could result in decreased economies of scale and increased operating expenses for non-redeeming Fund shareholders.
Technology and technology-related investment risk
The Fund may be more susceptible to the particular risks that
may affect companies in the information technology sector, as well as other technology-related sectors (collectively, the technology sectors) than if it were invested in a wider variety of companies in unrelated sectors. Companies in the technology
sectors are subject to certain risks, including the risk that new services, equipment or technologies will not be accepted by consumers and businesses or will become rapidly obsolete. Performance of such companies may be affected by factors
including obtaining and protecting patents (or the failure to do so) and significant competitive pressures, including aggressive pricing of their products or services, new market entrants, competition for market share and short product cycles due to
an accelerated rate of technological developments. Such competitive pressures may lead to limited earnings and/or falling profit margins. As a result, the value of their securities may fall or fail to rise. In addition, many technology sector
companies have limited operating histories and prices of these companies’ securities historically have been more volatile than other securities, especially over the short term.
Note 8. Subsequent events
Management has evaluated the events and transactions that
have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
Note 9. Information regarding pending and settled
legal proceedings
Ameriprise Financial and certain of
its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their
business activities. Ameriprise Financial believes that the Fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are
likely to have a material adverse effect on the Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary,
8-K filings with the Securities and Exchange Commission (SEC) on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse
publicity associated with them, will not result in increased Fund redemptions, reduced sale of Fund shares or other adverse consequences to the Fund. Further, although we believe proceedings are not likely to have a material adverse effect on the
Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result.
An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of
Ameriprise Financial.
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Table of Contents
Board Consideration and Approval of Advisory
Agreement
Wanger
Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger Select (the "Fund”). More than 75% of the trustees of the Trust
(the "Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent
Trustees"). The Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board
of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board
determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does
the Board’s Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the
Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and
Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and
request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the
Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several
occasions. In all, the Contract Committee convened formally on five separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract
Committee’s status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees,
reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee")
made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the
Trustees included, among other items: (i) information on the investment performance of the Fund relative to an independently selected peer group of funds and the Fund’s performance benchmark over various time periods, as presented and analyzed
by an independent consultant; (ii) information on the Fund’s advisory fees and other expenses, including information comparing the Fund’s fees and expenses to those of a peer group of funds and information about any applicable expense
limitations and fee breakpoints; (iii) data on sales and redemptions of Fund shares; and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as
a result of their relationships with the Fund. The Contract Committee and the Board also considered other information such as: (i) CWAM’s financial condition; (ii) the Fund’s investment objective and strategy; (iii) the size, education,
experience and resources of CWAM’s investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund; (iv) turnover of investment management personnel; (v) the portfolio
manager compensation framework; (vi) the allocation of the Fund’s brokerage, and the use of "soft" commission dollars to pay for research products and services; (vii) CWAM’s risk management program; (viii) the resources devoted to, and
the record of compliance with, the Fund’s investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures; and (ix) CWAM’s and its affiliates’ conflicts of
interest.
At a meeting held on June 12, 2018, the Board
considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself
was considered dispositive. The material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the Advisory Agreement are discussed below.
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Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
Nature, quality and extent of services
The Trustees reviewed the nature, quality and extent of the
services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held
on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other
services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund’s investment restrictions; providing
support services for the Board and committees of the Board; managing the Fund’s securities lending program; communicating with shareholders; serving as the Fund’s administrator; and overseeing the activities of the Fund’s other
service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM’s compliance record.
The Trustees took into account the changes made by CWAM in the
past year to improve Fund performance. This included but was not limited to: the continued addition of more systematic and quantitative tools and risk-based analyses into the portfolio and construction management process; the significant reduction
in the number of Fund holdings since 2015 and increased concentration of the portfolio in fewer high conviction names; and certain analyst changes.
The Trustees concluded that the nature, quality and extent of
the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM
currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that
Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment
and operational personnel. The Trustees therefore believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund
The Trustees reviewed information comparing the Fund’s
performance with that of its primary benchmark and with the performance of comparable peer funds as identified by Broadridge. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, which showed that
the Fund had outperformed against its peer group median for the one-, three- and five-year periods ended December 31, 2017. They also considered more recent Fund performance. The Trustees took into account that for the one-year period ended April
30, 2018, the Fund had achieved above median peer performance and had outperformed its primary benchmark, which they believed indicated that CWAM’s performance remediation efforts, including the additional management resources provided to the
Fund over the past two years, were having a positive impact.
The Trustees concluded that CWAM had taken and continued to
take a number of corrective steps to improve the Fund’s performance, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund’s performance closely. In addition, the
Trustees considered that CWAM’s Chief Investment Officer and Director of Research (U.S.) had each reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve the
Fund’s performance.
Costs of services and
profits realized by CWAM
At various Committee and
Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge. The Trustees noted that the Fund’s net expenses were lower than the
median of its Broadridge peer group, and that the actual advisory fees paid by the Fund were lower than its peer group median. The Trustees considered that the Fund’s advisory fees were generally comparable to Columbia Acorn Select’s
advisory fees at the same asset levels.
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Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
The Trustees considered that CWAM did not manage other
investment companies as a sub-adviser or other institutional separate accounts that had investment strategies similar to the Fund.
The Trustees reviewed the analysis of CWAM’s
profitability in serving as the Fund’s investment manager and of CWAM and its affiliates in their other service provider relationships with the Fund. The Contract Committee and the Board met with representatives from Ameriprise to discuss its
methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and fund-by-fund basis. The Trustees also reviewed the methodology used by CWAM
and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from a third-party consultant, Strategic Insight,
which compared CWAM’s profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of
consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts
managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM’s profitability in light of the resources that had been, and would continue to be, provided to the Fund by
Ameriprise to assist in improving Fund performance.
Economies of scale
At various Committee and Board meetings and other informal
meetings, the Trustees considered information about the extent to which CWAM realized economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund included breakpoints in the rate
of fees at various asset levels. In evaluating whether CWAM was sharing economies of scale with Fund shareholders, the Trustees also took into account the fee waivers/reimbursements and expense caps that CWAM had agreed to for Wanger Select for
2017, 2018 and 2019. The Trustees concluded that the fee structure of the Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other benefits to CWAM
The Trustees also reviewed benefits that accrued to CWAM and
its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund’s transfer agency services were performed by Columbia Management Investment Services Corp., an affiliate of
Ameriprise, which received compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc., served as the Fund’s distributor under an
underwriting agreement but received no fees for its services to the Fund. In addition, they considered that Columbia Management provided sub-administration services to the Fund. The Contract Committee and the Board received information regarding the
profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM
might potentially benefit from their relationship with each other. For example, the Trustees considered CWAM’s use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the
Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM’s annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM’s soft dollar spending. The Trustees also
considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM’s execution of the Fund’s portfolio transactions. The Trustees determined that CWAM’s use of the
Fund’s "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefitted from the receipt of proprietary research products and services
acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM’s receipt of those products and services as well as research products and services acquired through commissions paid by other
clients of CWAM.
After full consideration of the above
factors, as well as other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the
Advisory Agreement was in the best interest of the Fund. At the Board meeting held on June 12, 2018, the Trustees approved continuation of the Advisory Agreement for the Fund through July 31, 2019.
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Table of Contents
Additional information
Proxy
voting policies and procedures
The policy of the Board
of Trustees is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling
800.345.6611; contacting your financial intermediary or searching the website of the SEC at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31st for the most recent 12-month
period ending June 30th of that year, and is available without charge by visiting columbiathreadneedleus.com/investor/, or searching the website of the SEC at sec.gov.
Quarterly schedule of investments
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 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 800.SEC.0330. The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q, can also be obtained without charge, upon request, by calling
800.345.6611.
Additional Fund information
Fund investment manager
Columbia Wanger Asset Management, LLC
227 West Monroe, Suite 3000
Chicago, IL 60606
888.4.WANGER
(888.492.6437)
Fund distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, MA 02110
Fund transfer agent
Columbia Management Investment Services Corp.
P.O. Box 8081
Boston, MA 02266-8081
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Table of Contents
Additional information (continued)
Trustees
Laura M. Born, Chair of the
Board
David J. Rudis, Vice
Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Eric A. Feldstein
John C. Heaton
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan, President
Alan G. Berkshire, Vice
President
Michael G. Clarke,
Assistant Treasurer
David L.
Frank, Vice President
Paul B.
Goucher, Assistant Secretary
Tae Han (Simon) Kim, Vice
President
John M. Kunka, Vice
President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak, Vice
President
Joseph C. LaPalm,
Vice President
Ryan C.
Larrenaga, Assistant Secretary
Matthew A. Litfin, Vice
President
Satoshi Matsunaga,
Vice President
Thomas P.
McGuire, Chief Compliance Officer
Louis J. Mendes, Vice President
Julian Quero, Assistant
Treasurer
Martha A. Skinner,
Assistant Treasurer
Richard Watson, Vice President
Linda K.
Roth-Wiszowaty, Secretary
Charles Young, Vice President
| Wanger
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Please read and consider the investment objectives, risks,
charges and expenses for any fund carefully before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should
contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing. Columbia Wanger Funds are distributed by Columbia Management
Investment Distributors, Inc., member FINRA, and are managed by Columbia Wanger Asset Management, LLC.
Columbia Threadneedle Investments (Columbia Threadneedle) is
the global brand name of the Columbia and Threadneedle group of companies. All rights reserved. Columbia Management Investment Distributors, Inc., 225 Franklin Street, Boston, MA 02110-2804
© 2018 Columbia Management Investment Advisers, LLC.
C-1465 AM
(8/18)
Table of Contents
Wanger International
Managed by Columbia Wanger Asset Management,
LLC
Please remember that you may not buy (nor will you own)
shares of the Fund directly. The Fund is available through variable annuity contracts and variable life insurance policies offered by the separate accounts of participating insurance companies as well as qualified pension and retirement plans.
Please contact your financial advisor or insurance representative for more information.
Not FDIC Insured • No bank guarantee • May lose
value
Table of Contents
Table of Contents
Fund at a Glance
(Unaudited)
(Unaudited)
Investment objective
Wanger International (the Fund) seeks
long-term capital appreciation.
Portfolio
management
Louis J. Mendes,
CFA
Co-Portfolio
Manager since 2005
Service with
Fund since 2001
Tae Han (Simon)
Kim, CFA
Co-Portfolio
Manager since December 2017
Service with
Fund since 2011
| Wanger
International | Semiannual Report 2018 |
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Table of Contents
Fund at a Glance (continued)
(Unaudited)
(Unaudited)
| 4 | Wanger International | Semiannual Report 2018 |
Table of Contents
Manager Discussion of Fund Performance
(Unaudited)
(Unaudited)
| Wanger
International | Semiannual Report 2018 |
5 |
Table of Contents
Manager Discussion of Fund Performance (continued)
(Unaudited)
(Unaudited)
At
the close of the period, our bottom-up process translated to overweight positions in the industrials, consumer discretionary, and information technology sectors. Conversely, the Fund’s most sizable underweights were in materials, real estate
and utilities. The Fund was also underweight in the energy sector, where the performance of individual stocks is tied more to the direction of commodity prices than organic, bottom-up growth trends.
We believe the global economy remains on a solid footing.
However, the divergences in economic trends in the first half of the year represented a departure from the synchronized global growth that helped support equities in 2017. Given the ongoing strength in corporate revenues and bottom-line earnings, we
view these divergences — and the associated market volatility — as a source of opportunity for individual stock selection.
Columbia Wanger has specialized in investing in small- and
mid-cap stocks since 1970. While cognizant of macroeconomic trends, our investment process takes a bottom-up approach, relying on intensive fundamental research and disciplined valuation techniques. We are focused on investing the Fund in companies
with sustainable competitive advantages, entrepreneurial management and the potential to gain market share. Our team creates and closely monitors a specific and unique investment thesis for every company in which the Fund invests. We will continue
to employ our time-tested process to look for opportunities for investors to benefit from growth in undervalued small- and mid-cap businesses.
Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different,
potentially less stringent, financial and accounting standards than those generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies.
The views expressed in this report reflect the current views of
the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results may differ significantly from the views expressed.
These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment
decisions for a Columbia Wanger Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Wanger Fund. References to specific securities should not be construed as a
recommendation or investment advice.
| 6 | Wanger International | Semiannual Report 2018 |
Table of Contents
Understanding Your Fund’s Expenses
(Unaudited)
(Unaudited)
As a shareholder, you incur three types of costs. There are
transaction costs, which may include redemption fees. There are also ongoing costs, which generally include investment advisory fees and other expenses for Wanger International (the Fund). Lastly, there may be additional fees or charges imposed by
the insurance company that sponsors your variable annuity and/or variable life insurance product. The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these
costs with the ongoing costs of investing in other mutual funds.
Analyzing your Fund’s expenses
To illustrate these ongoing costs, we have provided an
example and calculated the expenses paid by investors in the Fund during the period. The actual and hypothetical information in the table below is based on an initial investment of $1,000 at the beginning of the period indicated and held for the
entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “Actual” column is calculated using the Fund’s actual operating expenses and total return
for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the results by the expenses paid during the period under the Actual column. The amount listed in the “Hypothetical” column assumes a 5% annual rate of return before expenses (which is not the Fund’s actual return) and
then applies the Fund’s actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end of the period or the expenses you
paid during the period. See “Compare with other funds” below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same
hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing cost of investing in a fund only and do not reflect any
transaction costs, such as redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If transaction costs
were included in these calculations, your costs would be higher.
| January 1, 2018 — June 30, 2018 | |||||||
| Account
value at the beginning of the period ($) |
Account
value at the end of the period ($) |
Expenses
paid during the period ($) |
Fund’s
annualized expense ratio (%) | ||||
| Actual | Hypothetical | Actual | Hypothetical | Actual | Hypothetical | Actual | |
| Wanger International | 1,000.00 | 1,000.00 | 986.70 | 1,019.40 | 5.50 | 5.59 | 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 manager and/or certain of its affiliates not
waived/reimbursed certain fees and expenses, account value at the end of the period would have been reduced. See Note 3 to the Financial Statements.
It is important to note that the expense amounts shown in the
table are meant to highlight only ongoing costs of investing in the Fund. Expenses paid during the period do not include any insurance charges imposed by your insurance company’s separate account. The hypothetical example provided is useful in
comparing ongoing costs only and will not help you determine the relative total costs of owning different funds whose shareholders may incur transaction costs.
| Wanger
International | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
(Percentages represent value of investments compared to net
assets)
Investments in securities
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 8 | Wanger International | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| Wanger
International | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 10 | Wanger International | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
The accompanying Notes to Financial Statements are an integral part
of this statement.
| Wanger
International | Semiannual Report 2018 |
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Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
| Money Market Funds 1.5% | ||
| Shares | Value ($) | |
| JPMorgan
U.S. Government Money Market Fund, Agency Shares, 1.713%(c) |
142,916 | 142,916 |
| JPMorgan
U.S. Government Money Market Fund, IM Shares, 1.819%(c) |
7,975,018 | 7,975,018 |
| Total
Money Market Funds (Cost: $8,117,934) |
8,117,934 | |
| Total
Investments in Securities (Cost: $420,467,494) |
539,266,455 | |
| Obligation to Return Collateral for Securities Loaned | (2,839,250) | |
| Other Assets & Liabilities, Net | 863,428 | |
| Net Assets | $537,290,633 | |
Notes to Portfolio of Investments
| (a) | Non-income producing security. |
| (b) | All or a portion of this security was on loan at June 30, 2018. The total market value of securities on loan at June 30, 2018 was $2,770,527. |
| (c) | The rate shown is the seven-day current annualized yield at June 30, 2018. |
| (d) | Investment made with cash collateral received from securities lending activity. |
Abbreviation Legend
| ADR | American Depositary Receipt |
| GDR | Global Depositary Receipt |
Fair value
measurements
Various inputs are used in determining the
value of the Fund’s investments, following the input prioritization hierarchy established by accounting principles generally accepted in the United States of America (GAAP). These inputs are summarized in the three broad levels listed
below:
| ■ | Level 1 – quoted prices in active markets for identical securities |
| ■ | Level 2 – prices determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others) |
| ■ | Level 3 – prices determined using significant unobservable inputs where quoted prices or observable inputs are unavailable or less reliable (including management’s own assumptions about the factors market participants would use in pricing an investment) |
The inputs or methodology used for
valuing securities are not necessarily an indication of the risk associated with investing in those securities.
Examples of the types of securities in which the Fund would
typically invest and how they are classified within this hierarchy are as follows. Typical Level 1 securities include exchange traded domestic equities, mutual funds whose net asset values are published each day and exchange traded foreign equities
that are not statistically fair valued. Typical Level 2 securities include exchange traded foreign equities that are statistically fair valued, forward foreign currency exchange contracts and short-term investments valued at amortized cost.
Additionally, securities fair valued by Columbia Wanger Asset Management’s Valuation Committee (the Committee) that rely on significant observable inputs are also included in Level 2. Typical Level 3 securities include any security fair valued
by the Committee that relies on significant unobservable inputs.
The Committee is responsible for applying the Wanger Advisors
Trust Portfolio Pricing Policy and the Columbia Wanger Asset Management pricing procedures (the Policies), which are approved by and subject to the oversight of the Board of Trustees.
The Committee meets as necessary, and no less frequently than
quarterly, to determine fair values for securities for which market quotations are not readily available or for which Columbia Wanger Asset Management believes that available market quotations are unreliable. The Committee also reviews the
continuing appropriateness of the Policies. In circumstances where a security has been fair valued, the Committee will also review the continuing appropriateness of the current value of the security. The Policies address, among other things:
circumstances under which market quotations will be deemed readily available; selection of third party pricing vendors; appropriate pricing methodologies; events that require fair valuation and fair value techniques; circumstances under which
securities will be deemed to pose a potential for stale pricing, including when securities are illiquid, restricted, or in default; and certain delegations of authority to determine fair values to the Fund’s investment manager. The Committee
may also meet to discuss additional valuation matters, which may include review of back-testing results, review of time-sensitive information or approval of other valuation related actions, and to review the appropriateness of the Policies.
The accompanying
Notes to Financial Statements are an integral part of this statement.
| 12 | Wanger International | Semiannual Report 2018 |
Table of Contents
Portfolio of Investments (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Fair value
measurements (continued)
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund’s securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
For investments categorized as Level 3, the significant unobservable inputs used in the fair value measurement of the Fund’s securities may include: (i) data specific to the issuer or comparable issuers, (ii) general market or specific sector news and (iii) quoted prices and specific or similar security transactions. The Committee considers this data and any changes from prior periods in order to assess the reasonableness of observable and unobservable inputs, any assumptions or internal models used to value those securities and changes in fair value. Significant changes in any of these factors could result in lower or higher fair value measurements. Various factors impact the frequency of monitoring (which may occur as often as daily), however the Committee may determine that changes to inputs, assumptions and models are not required with the same frequency.
The following table is a summary of the inputs used to value the
Fund’s investments at June 30, 2018:
| Level
1 quoted prices in active markets for identical assets ($) |
Level
2 other significant observable inputs ($) |
Level
3 significant unobservable inputs ($) |
Total ($) | |
| Investments in Securities | ||||
| Common Stocks | ||||
| Australia | — | 10,949,321 | — | 10,949,321 |
| Belgium | — | 3,649,649 | — | 3,649,649 |
| Brazil | 3,191,909 | — | — | 3,191,909 |
| Cambodia | — | 8,269,550 | — | 8,269,550 |
| Canada | 23,101,329 | — | — | 23,101,329 |
| Cayman Islands | 4,086,757 | 12,634,103 | — | 16,720,860 |
| China | 1,855,648 | 2,324,486 | — | 4,180,134 |
| Denmark | — | 14,579,964 | — | 14,579,964 |
| Finland | — | 4,042,475 | — | 4,042,475 |
| France | — | 7,046,796 | — | 7,046,796 |
| Germany | — | 47,107,352 | — | 47,107,352 |
| Hong Kong | — | 14,175,152 | — | 14,175,152 |
| India | — | 10,652,934 | — | 10,652,934 |
| Indonesia | — | 5,308,813 | — | 5,308,813 |
| Ireland | — | 6,018,548 | — | 6,018,548 |
| Italy | — | 15,670,949 | — | 15,670,949 |
| Japan | — | 114,666,910 | — | 114,666,910 |
| Malta | — | 8,968,276 | — | 8,968,276 |
| Mexico | 2,708,107 | — | — | 2,708,107 |
| Netherlands | — | 6,656,242 | — | 6,656,242 |
| New Zealand | — | 7,239,340 | — | 7,239,340 |
| Norway | — | 10,556,340 | — | 10,556,340 |
| Poland | — | 2,427,439 | — | 2,427,439 |
| Russian Federation | — | 4,083,261 | — | 4,083,261 |
| Singapore | — | 4,862,045 | — | 4,862,045 |
| South Africa | — | 10,435,819 | — | 10,435,819 |
| South Korea | — | 23,127,306 | — | 23,127,306 |
| Spain | — | 4,466,566 | — | 4,466,566 |
| Sweden | — | 16,910,331 | — | 16,910,331 |
| Switzerland | — | 15,577,685 | — | 15,577,685 |
| Taiwan | — | 16,657,944 | — | 16,657,944 |
| Thailand | — | 6,934,984 | — | 6,934,984 |
| Turkey | — | 1,995,892 | — | 1,995,892 |
| United Kingdom | — | 69,305,005 | — | 69,305,005 |
| United States | 6,064,044 | — | — | 6,064,044 |
| Total Common Stocks | 41,007,794 | 487,301,477 | — | 528,309,271 |
| Securities Lending Collateral | 2,839,250 | — | — | 2,839,250 |
| Money Market Funds | 8,117,934 | — | — | 8,117,934 |
| Total Investments in Securities | 51,964,978 | 487,301,477 | — | 539,266,455 |
The Fund’s assets assigned to
the Level 2 input category are generally valued using a market approach, in which a security’s value is determined through its correlation to prices and information from observable market transactions for similar or identical assets. Foreign
equities are generally valued at the last sale price on the foreign exchange or market on which they trade. The Fund may use a statistical fair valuation model, in accordance with the policy adopted by the Board of Trustees, provided by an
independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. These models take into account
available market data including intraday index, ADR, and ETF movements.
There were no transfers of financial assets between levels
during the period.
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
International | Semiannual Report 2018 |
13 |
Table of Contents
Statement of Assets and Liabilities
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
| Assets | |
| Investments in securities, at value* | |
| Unaffiliated issuers (cost $420,467,494) | $539,266,455 |
| Foreign currency (cost $155,359) | 155,381 |
| Receivable for: | |
| Investments sold | 415,550 |
| Capital shares sold | 137,386 |
| Dividends | 683,411 |
| Securities lending income | 9,923 |
| Foreign tax reclaims | 514,093 |
| Prepaid expenses | 4,253 |
| Trustees’ deferred compensation plan | 234,740 |
| Total assets | 541,421,192 |
| Liabilities | |
| Due to custodian | 92,589 |
| Due upon return of securities on loan | 2,839,250 |
| Payable for: | |
| Investments purchased | 553,149 |
| Capital shares purchased | 220,495 |
| Investment advisory fee | 13,773 |
| Administration fees | 728 |
| Trustees’ fees | 239 |
| Other expenses | 175,596 |
| Trustees’ deferred compensation plan | 234,740 |
| Total liabilities | 4,130,559 |
| Net assets applicable to outstanding capital stock | $537,290,633 |
| Represented by | |
| Paid in capital | 394,014,128 |
| Excess of distributions over net investment income | (2,655,293) |
| Accumulated net realized gain | 27,129,396 |
| Unrealized appreciation (depreciation) on: | |
| Investments - unaffiliated issuers | 118,798,961 |
| Foreign currency translations | 3,441 |
| Total - representing net assets applicable to outstanding capital stock | $537,290,633 |
| Shares outstanding | 20,152,326 |
| Net asset value per share | 26.66 |
| * Value of securities on loan | 2,770,527 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 14 | Wanger International | Semiannual Report 2018 |
Table of Contents
Statement of Operations
Six Months Ended June 30, 2018 (Unaudited)
Six Months Ended June 30, 2018 (Unaudited)
| Net investment income | |
| Income: | |
| Dividends — unaffiliated issuers | $8,304,428 |
| Interest | 677 |
| Income from securities lending — net | 145,075 |
| Foreign taxes withheld | (711,869) |
| Total income | 7,738,311 |
| Expenses: | |
| Investment advisory fee | 2,677,210 |
| Service fees | 208,123 |
| Administration fees | 143,174 |
| Trustees’ fees | 28,420 |
| Custodian fees | 105,261 |
| Printing and postage fees | 101,164 |
| Audit fees | 52,177 |
| Legal fees | 45,030 |
| Compensation of chief compliance officer | 907 |
| Other | 20,000 |
| Total expenses | 3,381,466 |
| Fees waived by transfer agent | (208,123) |
| Total net expenses | 3,173,343 |
| Net investment income | 4,564,968 |
| Realized and unrealized gain (loss) — net | |
| Net realized gain (loss) on: | |
| Investments — unaffiliated issuers | 28,500,769 |
| Foreign currency translations | (151,563) |
| Net realized gain | 28,349,206 |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments — unaffiliated issuers | (39,372,877) |
| Foreign currency translations | (11,777) |
| Net change in unrealized appreciation (depreciation) | (39,384,654) |
| Net realized and unrealized loss | (11,035,448) |
| Net decrease in net assets resulting from operations | $(6,470,480) |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| Wanger
International | Semiannual Report 2018 |
15 |
Table of Contents
Statement of Changes in Net Assets
| Six
Months Ended June 30, 2018 (Unaudited) |
Year
Ended December 31, 2017 | |
| Operations | ||
| Net investment income | $4,564,968 | $5,060,397 |
| Net realized gain | 28,349,206 | 64,149,569 |
| Net change in unrealized appreciation (depreciation) | (39,384,654) | 85,449,197 |
| Net increase (decrease) in net assets resulting from operations | (6,470,480) | 154,659,163 |
| Distributions to shareholders | ||
| Net investment income | (10,078,520) | (6,572,360) |
| Net realized gains | (60,271,441) | (4,004,590) |
| Total distributions to shareholders | (70,349,961) | (10,576,950) |
| Increase (decrease) in net assets from capital stock activity | 36,023,268 | (60,789,221) |
| Total increase (decrease) in net assets | (40,797,173) | 83,292,992 |
| Net assets at beginning of period | 578,087,806 | 494,794,814 |
| Net assets at end of period | $537,290,633 | $578,087,806 |
| Undistributed (excess of distributions over) net investment income | $(2,655,293) | $2,858,259 |
| Six Months Ended | Year Ended | |||
| June 30, 2018 (Unaudited) | December 31, 2017 | |||
| Shares | Dollars ($) | Shares | Dollars ($) | |
| Capital stock activity | ||||
| Subscriptions | 145,271 | 4,478,960 | 501,656 | 13,324,413 |
| Distributions reinvested | 2,508,020 | 70,349,961 | 366,553 | 10,576,950 |
| Redemptions | (1,242,819) | (38,805,653) | (3,058,127) | (84,690,584) |
| Total net increase (decrease) | 1,410,472 | 36,023,268 | (2,189,918) | (60,789,221) |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 16 | Wanger International | Semiannual Report 2018 |
Table of Contents
Financial Highlights
The
following table is intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share held for the periods shown. Per share net investment income (loss) amounts are calculated
based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of the expenses that apply to the variable accounts or contract charges, if
any. Total return and portfolio turnover are not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If
such transactions were included, the Fund’s portfolio turnover rate may be higher.
| Six
Months Ended June 30, 2018 (Unaudited) |
Year Ended December 31, | |||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||
| Per share data | ||||||
| Net asset value, beginning of period | $30.84 | $23.64 | $26.32 | $29.07 | $34.55 | $31.19 |
| Income from investment operations: | ||||||
| Net investment income | 0.25 | 0.25 | 0.31 | 0.31 | 0.36 | 0.39 |
| Net realized and unrealized gain (loss) | (0.46) | 7.49 | (0.56) | (0.09) | (1.56) | 6.18 |
| Total from investment operations | (0.21) | 7.74 | (0.25) | 0.22 | (1.20) | 6.57 |
| Less distributions to shareholders from: | ||||||
| Net investment income | (0.57) | (0.34) | (0.29) | (0.41) | (0.48) | (0.88) |
| Net realized gains | (3.40) | (0.20) | (2.14) | (2.57) | (3.80) | (2.33) |
| Total distributions to shareholders | (3.97) | (0.54) | (2.43) | (2.98) | (4.28) | (3.21) |
| Proceeds from regulatory settlements | — | — | — | 0.01 | — | — |
| Net asset value, end of period | $26.66 | $30.84 | $23.64 | $26.32 | $29.07 | $34.55 |
| Total return | (1.33)% (a) | 32.91% (a) | (1.41)% | 0.10% (b) | (4.40)% | 22.37% |
| Ratios to average net assets | ||||||
| Total gross expenses(c) | 1.18% (d) | 1.16% | 1.08% (e) | 1.12% | 1.05% | 1.07% |
| Total net expenses(c) | 1.11% (d) | 1.12% | 1.08% (e) | 1.12% | 1.05% | 1.07% |
| Net investment income | 1.59% (d) | 0.92% | 1.23% | 1.11% | 1.10% | 1.19% |
| Supplemental data | ||||||
| Portfolio turnover | 22% | 55% | 56% | 53% | 28% | 44% |
| Net assets, end of period (in thousands) | $537,291 | $578,088 | $494,795 | $586,629 | $667,023 | $784,977 |
| Notes to Financial Highlights | |
| (a) | Had the Investment Manager and/or its affiliates not waived a portion of expenses, total return would have been reduced. |
| (b) | The Fund received proceeds from regulatory settlements. Had the Fund not received these proceeds, the total return would have been lower by 0.02%. |
| (c) | In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests. Such indirect expenses are not included in the Fund’s reported expense ratios. |
| (d) | Annualized. |
| (e) | Expenses have been reduced due to a reimbursement of expenses overbilled by a third party. If the reimbursement had been excluded, the expense ratios would have been higher by 0.05%. All fee waivers and expense reimbursements by the Investment Manager and its affiliates were applied before giving effect to this third party reimbursement. |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| Wanger
International | Semiannual Report 2018 |
17 |
Table of Contents
Notes to Financial Statements
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 1. Organization
Wanger International (the Fund), a series of Wanger Advisors
Trust (the Trust), is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. The investment objective of the Fund is to seek long-term
capital appreciation. The Fund is available only for allocation to certain life insurance company separate accounts established for the purpose of funding participating variable annuity contracts and variable life insurance policies and may also be
offered directly to certain qualified pension and retirement plans.
Note 2. Summary of significant accounting
policies
Basis of preparation
The Fund is an investment company that applies the accounting
and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services - Investment Companies (ASC 946). The financial statements are prepared
in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Security valuation
Securities of the Fund are valued at market value or, if a
market quotation for a security is not readily available or is deemed not to be reliable because of events or circumstances that have occurred between the market quotation and the time as of which the security is to be valued, the security is valued
at its fair value determined in good faith under consistently applied procedures established by the Board of Trustees. A security traded on a securities exchange or in an over-the-counter market in which transaction prices are reported is valued at
the last sales price at the time of valuation. A security traded principally on NASDAQ is valued at the NASDAQ official closing price. Exchange-traded funds are valued at their closing net asset value as reported on the applicable exchange. A
security for which there is no reported sale on the valuation date is valued by comparison of the mean of the latest bid and ask quotations.
Foreign equity securities are generally valued based on the
closing price on the foreign exchange in which such securities are primarily traded. If any foreign equity security closing prices are not readily available, the securities are valued at the mean of the latest quoted bid and ask prices on such
exchanges or markets. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange; therefore, the closing
prices for securities in such markets or on such exchanges may not fully reflect events that occur after such close but before the close of the New York Stock Exchange. In situations where foreign markets are closed, where a significant event has
occurred after the foreign exchange closes but before the time at which the Fund’s share price is calculated, and in the event of significant movement in the trigger index for the statistical fair valuation process established by the Board of
Trustees, foreign securities will be fair valued pursuant to a policy adopted by the Board of Trustees. The Trust has retained an independent statistical fair value pricing service that employs a systematic methodology to assist in the fair
valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign market and the time as of which the securities are to be valued. If a security
is valued at a fair value, that value may be different from the last quoted market price for the security.
Short-term investments maturing in 60 days or less are valued
at amortized cost, which approximates market value.
| 18 | Wanger International | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
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 New York Stock 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.
GAAP requires disclosure regarding the inputs and valuation
techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category. This information is disclosed following the Fund’s Portfolio of Investments.
Foreign currency transactions and translations
Values of investments denominated in foreign currencies are
converted into U.S. dollars using the New York spot market rate of exchange at the time of valuation. Purchases and sales of investments and dividend and interest income are translated into U.S. dollars using the spot market rate of exchange
prevailing on the respective dates of such transactions. The gain or loss resulting from changes in foreign exchange rates is included with net realized and unrealized gain or loss from investments, as appropriate.
Securities lending
The Fund may lend securities up to one-third of the value of
its total assets to certain approved brokers, dealers and other financial institutions to earn additional income. The Fund retains the benefits of owning the securities, including the economic equivalent of dividends or interest generated by the
security. The Fund also receives a fee for the loan. The Fund has the ability to recall the loans at any time and could do so in order to vote proxies or to sell the loaned securities. Each loan is collateralized by cash that exceeded the value of
the securities on loan. The market value of the loaned securities is determined daily at the close of business of the Fund and any additional required collateral is delivered to each Fund on the next business day. The Fund has elected to invest the
cash collateral in the Dreyfus Government Cash Management Fund. The income earned from the securities lending program is paid to the Fund, net of any fees remitted to Goldman Sachs Agency Lending, the Fund’s lending agent, and borrower
rebates. The Fund’s investment manager, Columbia Wanger Asset Management, LLC (the Investment Manager or CWAM), does not retain any fees earned by the lending program. Generally, in the event of borrower default, the Fund has the right to use
the collateral to offset any losses incurred. In the event the Fund is delayed or prevented from exercising its right to dispose of the collateral, there may be a potential loss to the Fund. Some of these losses may be indemnified by the lending
agent. The Fund bears the risk of loss with respect to the investment of collateral. The net lending income earned by the Fund as of June 30, 2018, is included in the Statement of Operations.
The following table indicates the total amount of securities
loaned by type, reconciled to gross liability payable upon return of the securities loaned by the Fund as of June 30, 2018:
| Overnight
and continuous |
Up
to 30 days |
30-90
days |
Greater
than 90 days |
Total | |
| Wanger International | |||||
| Securities lending transactions | |||||
| Equity securities | $2,770,527 | $— | $— | $— | $2,770,527 |
| Gross amount of recognized liabilities for securities lending (collateral received) | 2,839,250 | ||||
| Amounts due to counterparty in the event of default | $68,723 |
| Wanger
International | Semiannual Report 2018 |
19 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Offsetting of assets and liabilities
The following table presents the Fund’s gross and net
amount of assets and liabilities available for offset under netting arrangements as well as any related collateral received or pledged by the Fund as of June 30, 2018:
| Goldman
Sachs ($) | |
| Liabilities | |
| Collateral on Securities loaned | 2,839,250 |
| Total Liabilities | 2,839,250 |
| Total Financial and Derivative Net Assets | (2,839,250) |
| Financial Instruments | 2,770,527 |
| Net Amount (a) | (68,723) |
| (a) | Represents the net amount due from/(to) counterparties in the event of default. |
Security transactions and investment income
Security transactions are accounted for on the trade date
(date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon as the information is available to the Fund. Interest income is recorded
on the accrual basis and includes amortization of discounts on debt obligations when required for federal income tax purposes. Realized gains and losses from security transactions are recorded on an identified cost basis.
Income recognition
Corporate actions and dividend income are generally recorded
net of any non-reclaimable tax withholdings, on the ex-dividend date or upon receipt of ex-dividend notification in the case of certain foreign securities.
The Fund may receive distributions from holdings in equity
securities, exchange traded funds (ETFs), limited partnerships (LPs), other regulated investment companies (RICs), and real estate investment trusts (REITs), which report information on the tax character of their distributions annually. These
distributions are allocated to dividend income, capital gain and return of capital based on actual information reported. Return of capital is recorded as a reduction of the cost basis of securities held. If the Fund no longer owns the applicable
securities, return of capital is recorded as a realized gain. With respect to REITs, to the extent actual information has not yet been reported, estimates for return of capital may be made by the Fund’s management. Management’s estimates
are subsequently adjusted when the actual character of the distributions is disclosed by the REITs, which could result in a proportionate change in return of capital to shareholders.
Awards, if any, from class action litigation related to
securities owned may be recorded as a reduction of cost of those securities. If the applicable securities are no longer owned, the proceeds are recorded as realized gains.
Expenses
General expenses of the Trust are allocated to the Fund and
the other series of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund.
Federal income tax status
The Fund intends to comply with the provisions of the Internal
Revenue Code available to regulated investment companies and, in the manner provided therein, intends to distribute substantially all its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions
reportable for federal income tax purposes. Accordingly, the Fund paid no federal income taxes and no federal income tax provision was required. The Fund meets the exception under Internal Revenue Code Section 4982(f) and the Fund expects not to be
subject to federal excise tax.
| 20 | Wanger International | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Foreign taxes
Gains in certain countries may be subject to foreign taxes at
the fund level. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction. The amount, if any, is disclosed as a liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend
date.
Guarantees and indemnification
In the normal course of business, the Trust on behalf of the
Fund enters into contracts that contain a variety of representations and warranties and that provide general indemnities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund.
Also under the Trust’s organizational documents, the trustees and officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these warranties and indemnities to be remote.
Recent accounting pronouncement
Accounting Standards Update 2017-08 Premium Amortization on
Purchased Callable Debt Securities
In March 2017, the
Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2017-08 Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 updates the accounting standards to shorten the amortization period for certain
purchased callable debt securities, held at a premium, to be amortized to the earliest call date. The update applies to securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. The standard is
effective for annual periods beginning after December 15, 2018 and interim periods within those fiscal years. At this time, management is evaluating the implication of this guidance and the impact it will have on the financial statement amounts and
footnote disclosures, if any.
Note 3. Fees and
other transactions with affiliates
Management services
fees
CWAM is a wholly owned subsidiary of Columbia
Management Investment Advisers, LLC (Columbia Management), which in turn is a wholly owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). CWAM furnishes continuing investment supervision to the Fund and is responsible for the
overall management of the Fund’s business affairs.
CWAM receives a monthly advisory fee based on the Fund’s
daily net assets at the following annual rates:
| Average daily net assets | Annual
fee rate |
| Up to $100 million | 1.10% |
| $100 million to $250 million | 0.95% |
| $250 million to $500 million | 0.90% |
| $500 million to $1 billion | 0.80% |
| $1 billion and over | 0.72% |
For the six months ended June 30,
2018, the annualized effective investment advisory fee rate was 0.93% of the Fund’s average daily net assets.
| Wanger
International | Semiannual Report 2018 |
21 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Administration fees
CWAM provides administrative services and receives an
administration fee from the Fund at the following annual rates:
| Aggregate average daily net assets of the Trust | Annual
fee rate |
| Up to $4 billion | 0.05% |
| $4 billion to $6 billion | 0.04% |
| $6 billion to $8 billion | 0.03% |
| $8 billion and over | 0.02% |
For the six months ended June 30,
2018, the annualized effective administration fee rate was 0.05% of the Fund’s average daily net assets. CWAM has delegated to Columbia Management responsibility to provide certain sub-administrative services to the Fund.
Compensation of board members
Certain officers and trustees of the Trust are also officers
of CWAM or Columbia Management. The Trust makes no direct payments to its officers and trustees who are affiliated with CWAM or Columbia Management. The Trust offers a deferred compensation plan for its independent trustees. Under that plan, a
trustee may elect to defer all or a portion of his or her compensation. Amounts deferred are retained by the Trust and may represent an unfunded obligation of the Trust. The value of amounts deferred is determined by reference to the change in value
of Institutional Class shares of one or more series of Columbia Acorn Trust or a money market fund as specified by the trustee. Benefits under the deferred compensation plan are payable in accordance with the plan.
Compensation of Chief Compliance Officer
The Board of Trustees has appointed a Chief Compliance Officer
to the Fund in accordance with federal securities regulations. As disclosed in the Statement of Operations, a portion of the Chief Compliance Officer’s total compensation is allocated to the Fund, along with other allocations to affiliated
funds governed by the Board of Trustees, based on relative net assets.
Transactions with affiliates
For the six months ended June 30, 2018, the Fund engaged in
purchase and/or sale transactions with affiliates and/or accounts that have a common investment manager (or affiliated investment managers), common directors/trustees, and/or common officers. Those purchase and sale transactions complied with
provisions of Rule 17a-7 under the 1940 Act and were $2,042,880 and $0, respectively.
Service fees
Pursuant to the Transfer, Dividend Disbursing and Shareholder
Servicing Agreement between the Fund and Columbia Management Investment Services Corp. (the Transfer Agent), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, the Fund bears a service fee paid to the
Transfer Agent to compensate it for amounts paid to Participating Insurance Companies and other financial intermediaries (together, Participating Organizations) for various sub-transfer agency and other shareholder services each Participating
Organization provides to its clients, customers and participants that are invested directly or indirectly in the Fund, up to a cap approved by the Board of Trustees from time to time.
The Transfer Agent may retain as compensation for its services
revenues from fees for wire, telephone and redemption orders, account transcripts due the Transfer Agent from Fund shareholders and interest (net of bank charges) earned with respect to balances in accounts the Transfer Agent maintains in connection
with its services to the Fund.
| 22 | Wanger International | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Effective July 1, 2018 through June 30, 2019, the Transfer
Agent has contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund does not exceed 0.03% of the Fund’s average daily net assets, unless sooner terminated at the sole
discretion of the Board of Trustees. Prior to July 1, 2018, the Transfer Agent had contractually agreed to waive a portion of the service fee payable by the Fund such that the annual service fee paid by the Fund did not exceed 0.00% of the
Fund’s average daily net assets.
Distributor
Columbia Management Investment Distributors, Inc., a wholly
owned subsidiary of Ameriprise Financial, serves as the Fund’s distributor and principal underwriter.
Note 4. Federal tax information
The timing and character of income and capital gain
distributions are determined in accordance with income tax regulations, which may differ from GAAP because of temporary or permanent book to tax differences.
At June 30, 2018, the approximate cost of all investments for
federal income tax purposes and the aggregate gross approximate unrealized appreciation and depreciation based on that cost was:
| Federal
tax cost ($) |
Gross
unrealized appreciation ($) |
Gross
unrealized (depreciation) ($) |
Net
unrealized appreciation ($) |
| 420,467,000 | 141,062,000 | (22,263,000) | 118,799,000 |
Tax cost of investments and
unrealized appreciation/(depreciation) may also include timing differences that do not constitute adjustments to tax basis.
Management is required to determine whether a tax position of
the Fund is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be
recognized by the Fund is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Management is not aware of any tax positions in the Fund for which it is reasonably possible
that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. However, management’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to,
new tax laws, regulations, and administrative interpretations (including relevant court decisions). The Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the Internal Revenue Service.
Note 5. Portfolio information
The aggregate cost of purchases and proceeds from sales
other than short-term obligations for the six months ended June 30, 2018, were $123,915,144 and $154,214,002, respectively. The amount of purchase and sales activity impacts the portfolio turnover rate reported in the Financial Highlights.
Note 6. Line of credit
The Fund has access to a revolving credit facility with a
syndicate of banks led by Citibank, N.A., HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A. whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility, which is
a collective agreement between the Fund and certain other funds managed by the Investment Manager, severally and not jointly, permits collective borrowings up to $1 billion. Interest is charged to each participating fund based on its borrowings at a
rate equal to the higher of (i) the overnight federal funds rate plus 1.00% or (ii) the one-month LIBOR rate plus 1.00%. Each borrowing under the credit facility matures no later than 60 days after the date of borrowing. The Fund also pays a
commitment fee equal to its pro rata share of the amount of the credit facility at a rate of 0.15% per annum. The commitment fee is included in other expenses in the Statement of Operations.
The Fund had no borrowings during the six months ended June
30, 2018.
| Wanger
International | Semiannual Report 2018 |
23 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 7. Significant risks
Consumer discretionary sector risk
The Fund may be more susceptible to the particular risks that
may affect companies in the consumer discretionary sector than if it were invested in a wider variety of companies in unrelated sectors. Companies in the consumer discretionary sector are subject to certain risks, including fluctuations in the
performance of the overall domestic and international economy, interest rate changes, increased competition and consumer confidence. Performance of such companies may be affected by factors including reduced disposable household income, reduced
consumer spending, changing demographics and consumer tastes.
Foreign securities and emerging market countries risk
Investing in foreign securities may include certain risks and
considerations not typically associated with investing in U.S. securities, such as fluctuating currency values and changing local and regional economic, political and social conditions, which may result in greater market volatility. In addition,
certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may accentuate these risks. These countries are also more likely to experience high levels of inflation, deflation or currency devaluation which could
hurt their economies and securities markets. To the extent that the Fund concentrates its investment exposure to any one or a few specific countries, the Fund will be particularly susceptible to the various conditions, events or other factors
impacting those countries and may, therefore, have a greater risk than that of a fund which is more geographically diversified.
Industrial sector risk
The Fund may be more susceptible to the particular risks that
may affect companies in the industrials sector than if it were invested in a wider variety of companies in unrelated sectors. Companies in the industrials sector are subject to certain risks, including changes in supply and demand for their specific
product or service and for industrial sector products in general, including decline in demand for such products due to rapid technological developments and frequent new product introduction. Performance of such companies may be affected by factors
including government regulation, world events and economic conditions and risks for environmental damage and product liability claims.
Shareholder concentration risk
At June 30, 2018, one unaffiliated shareholder of record owned
18.7% of the outstanding shares of the Fund in one or more accounts. The Fund has no knowledge about whether any portion of those shares was owned beneficially. Affiliated shareholders of record owned 60.6% of the outstanding shares of the Fund in
one or more accounts. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund. In the case of a large redemption, the Fund may be forced to sell investments at inopportune times,
including its liquid positions, which may result in Fund losses and the Fund holding a higher percentage of less liquid positions. Large redemptions could result in decreased economies of scale and increased operating expenses for non-redeeming Fund
shareholders.
Technology and technology-related investment
risk
The Fund may be more susceptible to the particular
risks that may affect companies in the information technology sector, as well as other technology-related sectors (collectively, the technology sectors) than if it were invested in a wider variety of companies in unrelated sectors. Companies in the
technology sectors are subject to certain risks, including the risk that new services, equipment or technologies will not be accepted by consumers and businesses or will become rapidly obsolete. Performance of such companies may be affected by
factors including obtaining and protecting patents (or the failure to do so) and significant competitive pressures, including aggressive pricing of their products or services, new market entrants, competition for market share and short product
cycles due to an accelerated rate of technological developments. Such competitive pressures may lead to limited earnings and/or falling profit margins. As a result, the value of their securities may fall or fail to rise. In addition, many technology
sector companies have limited operating histories and prices of these companies’ securities historically have been more volatile than other securities, especially over the short term.
| 24 | Wanger International | Semiannual Report 2018 |
Table of Contents
Notes to Financial Statements (continued)
June 30, 2018 (Unaudited)
June 30, 2018 (Unaudited)
Note 8. Subsequent events
Management has evaluated the events and transactions that
have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
Note 9. Information regarding pending and settled
legal proceedings
Ameriprise Financial and certain of
its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their
business activities. Ameriprise Financial believes that the Fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are
likely to have a material adverse effect on the Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary,
8-K filings with the Securities and Exchange Commission (SEC) on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse
publicity associated with them, will not result in increased Fund redemptions, reduced sale of Fund shares or other adverse consequences to the Fund. Further, although we believe proceedings are not likely to have a material adverse effect on the
Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund, these proceedings are subject to uncertainties and, as such, we are unable to estimate the possible loss or range of loss that may result.
An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated financial condition or results of operations of
Ameriprise Financial.
| Wanger
International | Semiannual Report 2018 |
25 |
Table of Contents
Board Consideration and Approval of Advisory
Agreement
Wanger
Advisors Trust (the "Trust") has an investment advisory agreement (the "Advisory Agreement") with Columbia Wanger Asset Management, LLC ("CWAM") under which CWAM manages Wanger International (the "Fund). More than 75% of the trustees of the Trust
(the "Trustees") are persons who have no direct or indirect interest in the Advisory Agreement and are not "interested persons" (as defined in the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust (the "Independent
Trustees"). The Trustees oversee the management of the Fund and, as required by law, determine at least annually whether to continue the Advisory Agreement for the Fund.
The Contract Committee (the "Contract Committee") of the Board
of Trustees (the "Board"), which is comprised solely of Independent Trustees, makes recommendations to the Board regarding any proposed continuation of the Advisory Agreement. After the Contract Committee has made its recommendations, the full Board
determines whether to approve continuation of the Advisory Agreement. The Board also considers matters bearing on the Advisory Agreement at its various meetings throughout the year, meets at least quarterly with CWAM investment personnel (as does
the Board’s Investment Performance Analysis Committee (the "Performance Committee")), and receives monthly reports from CWAM on the performance of the Fund.
In connection with their most recent consideration of the
Advisory Agreement for the Fund, the Contract Committee and all Trustees received and reviewed a substantial amount of information provided by CWAM, Columbia Management Investment Advisers, LLC ("Columbia Management") and the parent of CWAM and
Columbia Management, Ameriprise Financial, Inc. ("Ameriprise") in response to written requests from the Independent Trustees and their independent legal counsel. Throughout the process, the Trustees had numerous opportunities to ask questions of and
request additional materials from CWAM, Columbia Management and Ameriprise.
During each meeting at which the Contract Committee or the
Independent Trustees considered the Advisory Agreement, they met in at least one executive session with their independent legal counsel. The Contract Committee also met with representatives of CWAM, Columbia Management and Ameriprise on several
occasions. In all, the Contract Committee convened formally on five separate occasions to consider the continuation of the Advisory Agreement. The Board and/or some or all of the Independent Trustees met on other occasions to receive the Contract
Committee’s status reports, receive presentations from CWAM, Columbia Management and Ameriprise representatives, and/or to discuss outstanding issues. In addition, the Performance Committee, also comprised exclusively of Independent Trustees,
reviewed the performance of the Fund, met in joint meetings with the Contract Committee, and reported to the Board and/or the Contract Committee throughout the year. The chair of the Compliance Committee of the Board (the "Compliance Committee")
made available relevant information with respect to matters within the realm of its oversight responsibilities.
The materials reviewed by the Contract Committee and the
Trustees included, among other items: (i) information on the investment performance of the Fund relative to an independently selected peer group of funds and the Fund’s performance benchmark over various time periods, as presented and analyzed
by an independent consultant; (ii) information on the Fund’s advisory fees and other expenses, including information comparing the Fund’s fees and expenses to those of a peer group of funds and information about any applicable expense
limitations and fee breakpoints; (iii) data on sales and redemptions of Fund shares; and (iv) information on the profitability to CWAM and Ameriprise, as well as potential "fall-out" or ancillary benefits that CWAM and its affiliates may receive as
a result of their relationships with the Fund. The Contract Committee and the Board also considered other information such as: (i) CWAM’s financial condition; (ii) the Fund’s investment objective and strategy; (iii) the size, education,
experience and resources of CWAM’s investment staff and its use of technology, external research and trading cost measurement tools and level of resources devoted to the Fund; (iv) turnover of investment management personnel; (v) the portfolio
manager compensation framework; (vi) the allocation of the Fund’s brokerage, and the use of "soft" commission dollars to pay for research products and services; (vii) CWAM’s risk management program; (viii) the resources devoted to, and
the record of compliance with, the Fund’s investment policies and restrictions, policies on personal securities transactions and other compliance policies and procedures; and (ix) CWAM’s and its affiliates’ conflicts of
interest.
At a meeting held on June 12, 2018, the Board
considered and unanimously approved the continuation of the Advisory Agreement. In considering the continuation of the Advisory Agreement, the Trustees reviewed and analyzed various factors that they determined were relevant, none of which by itself
was considered dispositive. The material factors and conclusions that formed the basis for the Trustees’ determination to approve the continuation of the Advisory Agreement are discussed below.
| 26 | Wanger International | Semiannual Report 2018 |
Table of Contents
Board Consideration and Approval of Advisory
Agreement (continued)
Nature, quality and extent of services
The Trustees reviewed the nature, quality and extent of the
services provided by CWAM and its affiliates to the Fund under the Advisory Agreement, taking into account the investment objective and strategy of the Fund, its shareholder base, and knowledge gained from meetings with management, which were held
on at least a quarterly basis. In addition, the Trustees reviewed the available resources and key personnel of CWAM and its affiliates, especially those providing investment management services to the Fund. The Trustees also considered other
services provided to the Fund by CWAM and its affiliates, including: managing the execution of portfolio transactions and selecting broker-dealers for those transactions; monitoring adherence to the Fund’s investment restrictions; providing
support services for the Board and committees of the Board; managing the Fund’s securities lending program; communicating with shareholders; serving as the Fund’s administrator; and overseeing the activities of the Fund’s other
service providers, including monitoring for compliance with various policies and procedures as well as applicable securities laws and regulations. The Trustees also noted the quality of CWAM’s compliance record.
The Trustees took into account the changes made by CWAM in the
past year to improve Fund performance. This included but was not limited to: changes to the Fund’s portfolio composition, which began in 2015; the continued addition of more risk-based analyses into the portfolio management and construction
process; an investment emphasis on more liquid stocks with more growth potential; and changes to the Fund’s portfolio managers and analyst.
The Trustees concluded that the nature, quality and extent of
the services provided by CWAM and its affiliates to the Fund under the Advisory Agreement were appropriate for the Fund and that the Fund was likely to benefit from the continued provision of those services by CWAM. They also concluded that CWAM
currently had sufficient personnel, with appropriate education and experience, to serve the Fund effectively, and that the firm had demonstrated its continuing ability to attract and retain well-qualified personnel. The Trustees also considered that
Ameriprise had previously committed to the Board that CWAM would have sufficient investment management resources to continue to improve performance, including but not limited to resources to continue hiring additional analysts and other investment
and operational personnel. The Trustees therefore believed that CWAM would have sufficient resources to attract and retain personnel as necessary to improve performance.
Performance of the Fund
The Trustees reviewed information comparing the Fund’s
performance with that of its benchmarks and with the performance of the universe of comparable funds as identified by independent consultant Broadridge Financial Solutions, Inc. (“Broadridge”). It was noted that Broadridge could not
provide a peer group for the Fund because there were limited peer funds available. The Trustees therefore considered the universe performance and peer group information provided by Broadridge for Columbia Acorn International, which CWAM manages
similarly to the Fund. The Trustees evaluated the performance and risk characteristics of the Fund over various time periods, including the one-, three- and five-year periods ended December 31, 2017, which showed that the Fund had outperformed the
Broadridge universe and its primary benchmark for the one-year period but had underperformed for the three- and five-year periods. The Trustees also considered more recent Fund performance as of April 2018 in order to evaluate CWAM’s progress
in improving Fund performance, which indicated that both universe and benchmark performance was satisfactory.
The Trustees concluded that CWAM had taken and continued to
take a number of corrective steps to improve the Fund’s performance, although it would take some time to determine their effectiveness, and that the Performance Committee was monitoring the Fund’s performance closely. In addition, the
Trustees considered that CWAM’s Chief Investment Officer and Director of International Research had each reported to them at numerous Contract Committee, Performance Committee and Board meetings on the corrective steps being taken to improve
the Fund’s performance.
Costs of services and
profits realized by CWAM
At various Committee and
Board meetings, the Trustees examined detailed information on the fees and expenses of the Fund in comparison to information for comparable funds provided by Broadridge. The Trustees noted that the Fund’s net expenses and actual advisory fees
were higher than its Broadridge peer group median. The Trustees also considered that the Fund’s advisory fees were generally comparable to Columbia Acorn International’s advisory fees at the same asset levels.
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Board Consideration and Approval of Advisory
Agreement (continued)
The Trustees also reviewed the advisory fee rates charged by
CWAM for managing other investment companies as a sub-adviser, and other institutional separate accounts that had investment strategies similar to the Fund, as detailed in materials provided to the Contract Committee by CWAM. The Trustees determined
that the Fund’s advisory fees were somewhat higher than CWAM’s sub-advisory and institutional separate account fees. The Trustees considered the information provided by CWAM regarding its performance of significant additional services
for the Fund that it did not provide to sub-advisory and non-mutual fund clients, including administrative and fund accounting services, oversight of the Fund’s other service providers, Trustee support, regulatory compliance and numerous other
services, and that, in servicing the Fund, CWAM assumed many legal and business risks that it did not assume in servicing many of its non-fund clients.
The Trustees reviewed the analysis of CWAM’s
profitability in serving as the Fund’s investment manager and of CWAM and its affiliates in their other service provider relationships with the Fund. The Contract Committee and the Board met with representatives from Ameriprise to discuss its
methodologies for calculating profitability and allocating costs. They considered that Ameriprise calculated profitability and allocated costs on a contract-by-contract and fund-by-fund basis. The Trustees also reviewed the methodology used by CWAM
and Ameriprise in determining compensation payable to portfolio managers and the competitive market for investment management talent. The Trustees were also provided with profitability information from a third-party consultant, Strategic Insight,
which compared CWAM’s profitability to other similar investment managers in the mutual fund industry. The Trustees discussed, however, that profitability comparisons among fund managers may not always be meaningful due to the lack of
consistency in data, small number of publicly-owned managers, and the fact that profitability of any investment manager is affected by numerous factors, including its particular organizational structure, the types of funds and other accounts
managed, other lines of business, expense allocation methodology, capital structure and other factors. The Trustees evaluated CWAM’s profitability in light of the resources that had been, and would continue to be, provided to the Fund by
Ameriprise to assist in improving Fund performance.
Economies of scale
At various Committee and Board meetings and other informal
meetings, the Trustees considered information about the extent to which CWAM realized economies of scale in connection with an increase in Fund assets. The Trustees noted that the advisory fee schedule for the Fund included breakpoints in the rate
of fees at various asset levels. The Trustees concluded that the fee structure of the Advisory Agreement for the Fund reflected a sharing of economies of scale between CWAM and the Fund.
Other benefits to CWAM
The Trustees also reviewed benefits that accrued to CWAM and
its affiliates from their relationships with the Fund, based upon information provided to them by Ameriprise. They noted that the Fund’s transfer agency services were performed by Columbia Management Investment Services Corp., an affiliate of
Ameriprise, which received compensation from the Fund for its transfer agent services. They considered that another affiliate of Ameriprise, Columbia Management Investment Distributors, Inc., served as the Fund’s distributor under an
underwriting agreement but received no fees for its services to the Fund. In addition, they considered that Columbia Management provided sub-administration services to the Fund. The Contract Committee and the Board received information regarding the
profitability of these Fund agreements to the CWAM affiliates and also reviewed information about and discussed the capabilities of each affiliated entity in performing its respective duties.
The Trustees considered other ways that the Fund and CWAM
might potentially benefit from their relationship with each other. For example, the Trustees considered CWAM’s use of commissions paid by the Fund on its portfolio brokerage transactions to obtain research products and services benefiting the
Fund and/or other clients of CWAM. They noted that the Compliance Committee reviewed CWAM’s annual "soft dollar" report during the year and met with representatives from CWAM to review CWAM’s soft dollar spending. The Trustees also
considered that the Compliance Committee regularly reviewed third-party prepared reports that evaluated the quality of CWAM’s execution of the Fund’s portfolio transactions. The Trustees determined that CWAM’s use of the
Fund’s "soft" commission dollars to obtain research products and services was consistent with current regulatory requirements and guidance. They also concluded that CWAM benefitted from the receipt of proprietary research products and services
acquired through commissions paid on portfolio transactions of the Fund, and that the Fund benefitted from CWAM’s receipt of those products and services as well as research products and services acquired through commissions paid by other
clients of CWAM.
| 28 | Wanger International | Semiannual Report 2018 |
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Board Consideration and Approval of Advisory
Agreement (continued)
After full consideration of the above factors, as well as
other factors that were instructive in evaluating the Advisory Agreement, the Trustees, including the Independent Trustees by separate vote, concluded that the advisory fees were reasonable and that the continuation of the Advisory Agreement was in
the best interest of the Fund. At the Board meeting held on June 12, 2018, the Trustees approved continuation of the Advisory Agreement for the Fund through July 31, 2019.
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Table of Contents
Additional information
Proxy
voting policies and procedures
The policy of the Board
of Trustees is to vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling
800.345.6611; contacting your financial intermediary or searching the website of the SEC at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed with the SEC by August 31st for the most recent 12-month
period ending June 30th of that year, and is available without charge by visiting columbiathreadneedleus.com/investor/, or searching the website of the SEC at sec.gov.
Quarterly schedule of investments
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 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 800.SEC.0330. The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q, can also be obtained without charge, upon request, by calling
800.345.6611.
Additional Fund information
Fund investment manager
Columbia Wanger Asset Management, LLC
227 West Monroe, Suite 3000
Chicago, IL 60606
888.4.WANGER
(888.492.6437)
Fund distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, MA 02110
Fund transfer agent
Columbia Management Investment Services Corp.
P.O. Box 8081
Boston, MA 02266-8081
| 30 | Wanger International | Semiannual Report 2018 |
Table of Contents
Additional information (continued)
Trustees
Laura M. Born, Chair of the
Board
David J. Rudis, Vice
Chair of the Board
Maureen M. Culhane
P. Zachary Egan
Margaret M. Eisen
Eric A. Feldstein
John C. Heaton
Charles R. Phillips
Ralph Wanger (Trustee Emeritus)
Officers
P. Zachary Egan, President
Alan G. Berkshire, Vice
President
Michael G. Clarke,
Assistant Treasurer
David L.
Frank, Vice President
Paul B.
Goucher, Assistant Secretary
Tae Han (Simon) Kim, Vice
President
John M. Kunka, Vice
President, Treasurer and Principal Financial and Accounting Officer
Stephen Kusmierczak, Vice
President
Joseph C. LaPalm,
Vice President
Ryan C.
Larrenaga, Assistant Secretary
Matthew A. Litfin, Vice
President
Satoshi Matsunaga,
Vice President
Thomas P.
McGuire, Chief Compliance Officer
Louis J. Mendes, Vice President
Julian Quero, Assistant
Treasurer
Martha A. Skinner,
Assistant Treasurer
Richard Watson, Vice President
Linda K.
Roth-Wiszowaty, Secretary
Charles Young, Vice President
| Wanger
International | Semiannual Report 2018 |
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Table of Contents
Please read and consider the investment objectives, risks,
charges and expenses for any fund carefully before investing. For variable fund and variable contract prospectuses, which contain this and other important information, including the fees and expenses imposed under your contract, investors should
contact their financial advisor or insurance representative. Read the prospectus for the Fund and your variable contract carefully before investing. Columbia Wanger Funds are distributed by Columbia Management
Investment Distributors, Inc., member FINRA, and are managed by Columbia Wanger Asset Management, LLC.
Columbia Threadneedle Investments (Columbia Threadneedle) is
the global brand name of the Columbia and Threadneedle group of companies. All rights reserved. Columbia Management Investment Distributors, Inc., 225 Franklin Street, Boston, MA 02110-2804
© 2018 Columbia Management Investment Advisers, LLC.
C-1460 AM
(8/18)
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Item 2. Code of Ethics.
Not applicable for semiannual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semiannual reports.
Item 4. Principal Accountant Fees and Services.
Not applicable for semiannual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments
| (a) | The registrant’s “Schedule I – Investments in securities of unaffiliated issuers” (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. |
| (b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders may recommend nominees to the registrant’s board of directors.
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Item 11. Controls and Procedures.
| (a) | The registrant’s principal executive officer and principal financial officers, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that material information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. |
| (b) | There was no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable.
Item 13. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not applicable for semiannual reports.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
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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 | |||||||
| By (Signature and Title) | /s/ Alan Berkshire | |||||||
| Alan Berkshire, President and Principal Executive Officer | ||||||||
| Date | August 17, 2018 | |||||||
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/ Alan Berkshire | |||||||
| Alan Berkshire, President and Principal Executive Officer | ||||||||
| Date | August 17, 2018 | |||||||
| By (Signature and Title) | /s/ John M. Kunka | |||||||
| John M. Kunka, Treasurer and Principal Accounting and Financial Officer | ||||||||
| Date | August 17, 2018 | |||||||