<PAGE>
Wanger Advisors Trust 1998 Annual Report
Wanger
98
[WANGER LOGO APPEARS HERE]
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Wanger Advisors Trust
1998 Annual Report
Contents
1 1998: A record-breaking year
3 Funds at a Glance
4 Performance Review
Wanger U.S. Small Cap
6 Performance Review
Wanger International
Small Cap
8 Statement of Investments
Wanger U.S. Small Cap
12 Statement of Investments
Wanger International
Small Cap
16 Portfolio Diversification
Wanger International
Small Cap
17 Statements of Assets
and Liabilities
18 Statements of Operations
19 Statements of Changes in
Net Assets
20 Financial Highlights
Wanger U.S. Small Cap
21 Financial Highlights
Wanger International
Small Cap
22 Notes to Financial Statements
24 Report of Independent Auditors
Wanger Asset Management, L.P. ("WAM") is one of the leading global small-cap
equity managers in the U.S. with 28 years of small-cap investment experience.
WAM manages over $7 billion in equities and is the investment adviser to Wanger
U.S. Small Cap, Wanger International Small Cap, and the Acorn Family of Funds.
WAM uses a unique style of catching trends with small, attractively priced niche
companies. For more complete information about our funds including the Acorn
funds, fees and expenses, call WAM Brokerage Services, L.L.C., distributor, at
1-800-5-WANGER for a prospectus. Read it carefully before you invest or send
money.
[WANGER LOGO APPEARS HERE]
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Wanger Advisors Trust 1998 Annual Report
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[WANGER LOGO APPEARS HERE]
1998: A record-breaking year
Sports records have been broken all around in 1998. Sammy Sosa broke Roger
Maris' long-standing home run record, but, in Chicago Cub style, didn't even get
into the record book, because Mark McGwire topped him with even more homers.
Michael Jordan retired, and as a mark of respect, the NBA canceled half of its
season. In the wrestling world, Jesse "The Body" Ventura was elected Governor of
Minnesota and Bill "Your Body" Clinton scored an escape and reversal over the
Republicans in Congress.
Besides sports and entertainment, economic records were set, too. Japan's
record-breaking bear market (nine years and counting) was capped by driving
interest rates on short-term government debt below zero for a few days. Malaysia
gave enhanced meaning to the term "active monetary policy" by grabbing the
Finance Minister, arresting him, beating him in jail, and then trying him for
sodomy. Russia wins an Oscar in the "fastest bond default by a new large nation"
category. Deflation has returned, inflation has retired to the Old Fear's Home,
and world interest rates have plummeted, although not to Japanese levels. Weird
fact: the ten-year government bond of Italy now sells at a lower interest rate
than the ten-year bond of the USA! Now that is something that no one predicted!
Here at home, the federal budget deficit disappeared, going into surplus for the
first time in twenty years. Our balance of trade deficit, however, is setting
new records every month. Up until 1983, our trade deficit never got much above
$20 billion per year; we are now near a $20 billion deficit per month. Our trade
imbalance with Japan, up approximately 20% this year, makes the Japanese trade
surplus another entry into the record book.
The U.S. fixed income market started 1998 in a complacent mode, with very
low risk premiums for low-grade credits (such as Russia). The crisis in
Southeast Asia, Korea and Russia, however, triggered an enormous jump in risk
premiums--taking a couple of giant hedge funds by surprise. A new record was set
for "Most Nobel Prize-Winning Economists Brought Down by Hubris."
The stock markets fully kept pace with all this general nuttiness. Europe
soared, Japan continued lower, Brazil and other emerging markets collapsed. The
U.S. market set new record highs in price and valuations, but in a way that was
irritating to us Wanger Advisors Trust shareholders.
Size Ruled--Big companies were strong in 1998, but small-capitalization
companies were flat. Mid-cap, logically enough was in the middle.
<TABLE>
<CAPTION>
- ------------------------------------------
1998 Returns/1/
<S> <C>
S&P 500 Index +28%
Lipper Mid-Cap Funds +12%
Lipper Small-Cap Funds 0
</TABLE>
(Data Source: Barrons, Lipper Analytical Services)
Even inside the S&P 500 stock group, size ruled. The 100 largest companies
(largest quintile) were up 37%, while the smallest 100 companies in the S&P 500
were down 1%, with the middle three quintiles lined up in order.
<TABLE>
<CAPTION>
- --------------------------------------
Market-Value Quintile 1998 Returns
<S> <C>
#1 Largest +37%
#2 +19%
#3 +9%
#4 +9%
#5 Smallest -1%
</TABLE>
(Data Source: Prudential Securities; Standard & Poors)
Big beat small in 1998 and growth beat value. Growth stocks soared, especially
Internet-related companies, generating the joke that any stock could double
overnight by just adding ".com" to the company name. The outperformance of
large-cap growth companies was so striking in 1998 that one might think that
this is the way the world usually works. It isn't. Over the long-term, small-cap
stocks have done as well as or better than larger companies. Over the long-term,
"value" stocks have done better than growth stocks. Because of the market action
in 1998, small company stocks are at record discounts to big companies.
Discounts like this always go back to equilibrium over time. As much as one can
say anything sensible about stock prices in the future, one can say that the
odds strongly favor small-cap stocks outperforming the rest of the market over
the next three to five years.
Up the Amazon in a BVU
Borders Group is one of the two "category-killer" bookstore chains, the other
being Barnes and Noble. The company has grown rapidly, a little over 13% per
year, and had a good profit margin, 3.5% net-to-sales. The total value of the
company is $1.6 billion. Let us define a new unit to measure booksellers, the
BVU (Borders Value Unit), so that one BVU equals $1.6 billion.
Amazon.com is also in the retail book business, but sells only over the
Internet. The Amazon.com web site has been the most successful Internet retail
operation so far in terms of sales. Amazon.com sales are now running at a $600
million annual rate, one-fourth of Borders' sales. Amazon.com sales are growing
at a
(continued)
1
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Wanger Advisors Trust 1998 Annual Report
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[LOGO] Up the Amazon in a BVU cont.
dazzling pace, but profitability is a different matter; Amazon.com is losing
money at a rate of $80 million per year. Will Amazon.com ever make a profit?
Some analysts think it may in the year 2001, but this remains to be seen.
Internet book sales are made at steep discounts to list price. Both Borders and
Barnes and Noble have web sites that compete with Amazon.com, so gross margins
are going to stay low. We must wait to see if Amazon.com can ever get to a
positive net margin. Since Borders is large and profitable, and Amazon.com is
small and unprofitable, you might think Borders is worth more. At $200,
Amazon.com was selling at 20 times the value of Borders.
Amazon.com has 158 million shares outstanding. A ten-point move for AMZN
stock, therefore, is a change in value of $1.6 billion, or what we are calling
one BVU. In January 1999, there were ten days when AMZN moved more than one BVU.
In other words, in one day, Amazon.com's value goes up or down an amount equal
to the entire value of Borders!
Valuing Amazon.com--In the month of January, AMZN traded between $90 and $200
per share. That would be a reasonable yearly range for a speculative stock, but
doing it in a month hints of irrational exuberance. What does the market predict
for the future of Amazon.com? Since there are no dividends, profits, or cash
flow to base a valuation on, we are reduced to looking at the price-to-sales
ratio. The price-to-sales ratio should be higher for a company that has high
profit margins (net profit to sales) or a high growth rate of sales. Borders has
a $1.6 billion market value and $2.6 billion in sales, so the price-to-sales
ratio is 0.6 times. Wal-Mart, a highly successful retailer, has a price-to-sales
ratio of 1.3 times, not quite twice that of Borders. Home Depot and Gap,
fabulous successes, have much higher price-to-sales ratios because their profit
margins are higher than Wal-Mart's. A&P, a slow-growth, low-margin supermarket
chain, gets a very low price-to-sales-ratio.
<TABLE>
<CAPTION>
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Retail Ratios
Net/Sales Estimated Price/Sales
Growth Rate/2/
<S> <C> <C> <C>
A&P 0.4% 2% 0.1x
Borders 3.5% 15% 0.6x
Wal-Mart 3.2% 20% 1.3x
Home Depot 4.6% 20% 2.8x
Gap 8.7% 15% 4.1x
Amazon.com (now) negative 100% 34.0x
Amazon.com 3.5% 73% 3.4x
(in five years)
</TABLE>
Where might Amazon.com be in five years? If AMZN stock is $200/share at that
time,/3/ its market value will be $34 billion. Assume they succeed in making
profit margins equivalent to Borders or Wal-Mart; because of Amazon.com's high
growth rate, their price-to-sales ratio might be as high as Home Depot or Gap,
let us say 3.4 times (one-tenth of AMZN's price-to-sales ratio now). A price-to-
sales ratio of 3.4 times means that the company's sales volume would have to be
$10 billion. (To get there in five years, sales have to grow at 73% per year.)
Since sales for the entire U.S. book-selling industry are only about $17 billion
per year/4/, Amazon.com would have to expand internationally and into a number
of other retail categories to reach $10 billion in sales. Right.
Growing at 73% per year and becoming highly profitable would be one of the
great stories of the 21st Century--and Amazon.com has to succeed at both those
goals to justify the price the stock is at now! Amazon.com and its fellow
Internet stocks are very over-priced speculations that may be selling for a lot
less a year from now.
Softbank--Amid all of the craze, one of the world's dominant Internet companies
is largely overlooked and is trading at a huge discount to its asset value. A
Japanese company, Softbank, is a major shareholder of companies such as Yahoo!
and Ziff Davis. Softbank has the leading position in setting up Internet
companies in Japan. The unrealized gains on Softbank's listed investments alone
are worth double the current share price! Value and Internet are two words not
often heard together, but we think Softbank is a good stock to own.
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Endnotes:
1
The S&P 500 is a broad market-weighted average of U.S. blue-chip companies.
The Lipper Mid-Cap Funds average is an average of the performance of all U.S.
mid-cap funds tracked by Lipper Analytical Services. The Lipper Small-Cap Funds
average is an average of the performance of all U.S. Small-Cap funds tracked by
Lipper.
2
Estimated Growth Rate is based on five-year prediction with data as of 12/31/98.
3
If the current price is about $100, any buyer must figure it will be at least
$200 in five years.
4
Source: JP Morgan
[PHOTO OF RALPH WANGER APPEARS HERE]
Ralph Wanger
Chief Investment Officer
Wanger Asset Management, L.P.
2
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Wanger Advisors Trust 1998 Annual Report
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Funds at a Glance
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Wanger U.S. Small Cap
Results to December 31, 1998
<TABLE>
<CAPTION>
4th qtr Last 12
months
<S> <C> <C>
Wanger U.S. Small Cap 14.6% 8.7%
Russell 2000 16.3% -2.6%
S&P MidCap 400 28.2% 19.1%
S&P 500 21.3% 28.6%
</TABLE>
Wanger U.S. Small Cap N.A.V. as of 12/31/98: $22.18
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then
eliminating the largest 1,000 leaving a market capitalization-weighted index of
2,000 small companies. The S&P MidCap 400 is a market value-weighted index of
400 U.S. stocks that are in the next tier down from the S&P 500. The S&P 500 is
a broad market-weighted average of blue-chip U.S. companies. All indexes are
unmanaged and include reinvested dividends.
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Top 5 Industries
As a % of net assets, as of 12/31/98
<TABLE>
<S> <C>
Information 39.4%
Energy/Minerals 15.9%
Finance 14.0%
Health Care 9.7%
Industrial Goods/Services 8.5%
</TABLE>
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Wanger U.S. Small Cap Top 10 Holdings
<TABLE>
<S> <C> <C> <C>
CalEnergy 7.0% National Data 3.5%
Power Plants/ Credit Card & Health
Competitive Utility Claims Processor
Lincare Holdings 6.0% Wackenhut 3.1%
Home Health Care Services Prison Management
Centennial Cellular 5.0% Liberty Media 3.0%
Cellular Franchises Cable TV & Satellite
Dish Programming
Micros Systems 4.0% RCN Corporation 3.0%
Information Systems for Metro Market: Voice,
Restaurants & Hotels Video & Data Services
Kronos 3.9% UICI 2.5%
Time Accounting Health Insurance
Software & Clocks
</TABLE>
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The funds top 10 holdings and portfolio diversification vary with changes in
portfolio investments. See the Statements of Investments for complete lists of
the funds holdings, including those described under Performance Review.
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Wanger International Small Cap
Results to December 31, 1998
<TABLE>
<CAPTION>
4th qtr Last 12
months
<S> <C> <C>
Wanger Int'l Small Cap 16.7% 16.3%
EAFE 20.7% 20.0%
Lipper Int'l Small Cap Funds Index 10.7% 9.7%
Lipper Int'l Funds Index 15.5% 12.7%
EMI (World ex-US) 13.2% 12.2%
</TABLE>
Wanger Int'l Small Cap N.A.V. as of 12/31/98: $19.62
EAFE is Morgan Stanley's Europe, Australasia and Far East Index, an unmanaged
index of companies throughout the world in proportion to world stock market
capitalization, excluding the U.S. and Canada. The Lipper Int'l Small Cap Funds
Index measures the performance of the 10 largest international small-cap funds
tracked by Lipper. The Lipper Int'l Funds Index measures the performance of the
30 largest non-U.S. funds tracked by Lipper. The EMI is Salomon Brothers' index
of the bottom 20% of institutionally investable capital of countries, as
selected by Salomon, excluding the U.S. All indexes are unmanaged and returns
include reinvested dividends.
- --------------------------------------------------------------------------------
Wanger International Small Cap Top 5 Countries
As a % of net assets, as of 12/31/98
<TABLE>
<S> <C>
United Kingdom 20.2%
Singapore 9.7%
Finland 7.5%
Japan 6.8%
Sweden 6.6%
</TABLE>
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Wanger International Small Cap Top 10 Holdings
<TABLE>
<S> <C> <C> <C>
Seton Scholl 3.5% Parity 2.7%
Healthcare Group Computer Software, IT Staffing
Pharmaceuticals-- & Services--United Kingdom
United Kingdom
Mapfre Vida 2.7%
Autogrill 3.4% Life Insurance/
Tollway Restaurants--Italy Mutual Funds--Spain
Talentum 3.0% Star Cruises 2.6%
Trade Journals & Asian Cruise Line--Singapore
Multimedia--Finland
Li and Fung 2.4%
Tieto Corporation 2.9% Sourcing of Consumer
Computer Services/ Goods--Hong Kong
Consulting--Finland
NTL 2.4%
Venture Manufacturing 2.8% Voice, Video & Data Services--
Electronic Manufacturing United Kingdom
Services--Singapore
</TABLE>
3
<PAGE>
Wanger Advisors Trust 1998 Annual Report
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Performance Review Wanger U.S. Small Cap
Last year stocks bounced around like a loose football. They sprang up through
summer, fell in the fall, and rebounded with gusto into the new year. What of
the stock market's autumn mini-crash? Turned out it was just a mild
hallucination, quickly cured with a dose of interest rate drops administered by
the Federal Reserve. For the year, Wanger U.S. Small Cap gained 8.7%, better
than the Russell 2000 small-cap index (-2.6%), but not even in the same galaxy
as the heavenly bodies of the large-cap S&P 500 (+28.6%). Over the past three
years, your Fund has returned an annualized 27.3%, sharing the stratosphere with
the S&P 500 (+28.2%).
Wireless was more in 1998. Centennial Cellular nearly doubled in price,
earning $8 million for your Fund. Cable TV stocks were strong for the second
year running. We owned companies gorging on every piece of the cable pie. United
Video runs on-screen TV guides listing the nature and adventure shows airing on
Liberty Media's Discovery Channel carried by Cablevision and Cable Michigan's
local cable systems. Each stock gained over 60%, under the watchful eye of our
own cable guy, Chuck McQuaid. Technology stocks were tricky last year, but our
tech whiz, Laura McKenna, tucked four tech treats into the Fund. Micros,
Wonderware, Sykes and Kronos each rose over 40%, for a combined $13 million in
profits.
Two of our health care stocks spent last year in sick bay. Magellan
discovered it was crazy to own psychiatric hospitals on margin. First Health's
national PPO revenue flatlined. Lincare, our largest health care holding, had
another bang-up year, but not enough to keep our health stocks as a group from
out of the red.
Six of our 62 companies were taken over last year, but that's no reason to
rejoice. Two were larger holdings taken from us prematurely. Centennial
Cellular's revised sellout deal was struck only one month before a bidding war
for cellular stocks erupted. Mecklermedia (Internet trade shows and Web sites)
sold itself out in October, moments before the dawn of Internet stock hysteria.
We'd rather still own both of these dearly departed stocks (but that's just sour
grapes).
Today's stock market is afflicted with gigantism. The largest of large-cap
stocks trade at freakishly-high valuations while small-caps of all shapes get
ignored. This is only a fad. Small companies are doing just as well as the
giants in earning growth, but represent much more value. When the crowd overpays
for bigness, we get to underpay for wonderful, small-cap, Wanger kind of stocks.
[PHOTO OF ROBERT A. MOHN APPEARS HERE]
Robert A. Mohn
Lead Portfolio Manager
Wanger U.S. Small Cap
4
<PAGE>
Wanger Advisors Trust 1998 Annual Report
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[WANGER LOGO APPEARS HERE]
Wanger U.S. Small Cap Results to December 31, 1998
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The Value of a $10,000 Investment in Total Return for Each Period
Wanger U.S. Small Cap May 3, 1995 through December 31, 1998
[GRAPH APPEARS HERE]
Wanger U.S. Small Cap Mountain Chart Plot Points
<TABLE>
<CAPTION>
Wanger U.S. Small Cap Russell 2000
<S> <C> <C>
05/03/95 $10,000 $10,000
06/30/95 $10,770 $10,519
09/30/95 $12,060 $11,558
12/31/95 $11,600 $11,808
03/31/96 $13,297 $12,411
06/30/96 $15,351 $13,031
09/30/96 $15,792 $13,076
12/31/96 $17,004 $13,756
03/31/97 $16,366 $13,044
06/30/97 $19,093 $15,159
09/30/97 $22,395 $17,415
12/31/97 $22,005 $16,830
03/31/98 $24,865 $18,525
06/30/98 $25,361 $17,661
12/31/98 $23,916 $16,404
</TABLE>
Average Annual
Total Return
1 year: 8.7%
3 Years: 27.3%
Life: 26.8%
This graph compares the results of $10,000 invested in Wanger U.S. Small Cap on
May 3, 1995 (the date the Fund began operations) through December 31, 1998 with
the Russell 2000 with dividends reinvested. The beginning date of the Russell
2000 is as of May 3, 1995. The performance data quoted is past performance and
does not guarantee future results. The investment return and principal value of
an investment will fluctuate so that investors' shares, when redeemed, may be
worth more or less than their original cost.
5
<PAGE>
Wanger Advisors Trust 1998 Annual Report
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Performance Review Wanger International Small Cap
1998 was a turbulent but ultimately profitable year for Wanger International
Small Cap investors. International markets climbed to record highs in the first
quarter, then emerging markets crashed in the second quarter. In the third
quarter, nearly all the markets fell. Then in the fourth quarter, many markets
came roaring back.
Amid this tumult, your Fund returned a robust 16.3% for the year. Although
we trailed the exclusively large-cap EAFE Index, which returned 20.7%, we beat
all the other indices handily, including the Lipper International Small Cap
Funds Index which returned 9.7%. The Salomon EMI international index, which
tracks small-cap stocks, returned 12.2%, and the Barings Emerging Markets index
came in at a negative 20.3%./1/
What drove our strong returns in 1998? Many factors contributed, such as
keeping only a small amount of cash, and favoring Europe over Japan. Stock-
picking, however, outweighed all the other investing decisions in pushing us up
4.1% over our EMI benchmark. Big hits for the year included Tieto, a Finnish
information technology company that rose 139% and made us $3.4 million.
Talentum, which publishes trade magazines in Finland, returned 175% and earned
$2.5 million. In fact, four more of our stocks more than doubled this year, and
two of them, NTL and NuSkin, made us more than $1 million. NTL is a competitive
private telephone and cable TV company in the UK, and NuSkin is a door-to-door
cosmetics company making money hand over fist in Japan.
As for risk, the fund may be less volatile than you think. Many investors
reason this way: "Small-cap stocks are risky, and international stocks seem
risky, too, so a small-cap international stock fund must be twice as risky!/2/
In fact, Wanger International Small Cap's standard deviation (a common measure
of risk) for 1998 was similar to the S&P 500 (22.8% versus 21.5%), and actually
lower than that of the S&P 500 for the trailing three years combined (15.8%
versus 16.2%).
We are optimistic about your portfolio's performance for 1999 and beyond.
We are excited about numerous extremely well-positioned smaller companies
selling at very attractive prices. As you know, we eat our own cooking, and
continue to invest a substantial amount of our own money in the fund.
[PHOTO OF MARCEL P. HOUTZAGER APPEARS HERE]
Marcel P. Houtzager
Lead Portfolio Manager
Wanger International Small Cap
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Footnotes
1. The ING Barings Emerging Markets World Index is an unmanaged index of
companies from 24 emerging market countries. Using a foreign available market
capitalization weighting algorithm, this index seeks to achieve an accurate
measure of foreign institutional investibility in the global emerging
markets.
2. While during some periods, the stocks of small companies have performed
better than the stocks of large companies, during other periods they have
performed worse. Stocks of small companies tend to be more volatile and may
have a smaller public market than stocks of large companies. Small companies
may have a shorter history of operations than large companies, may not have
the ability to raise capital as easily as large companies, and may have a
less diversifield product line, making them more susceptible to market
pressure.
International investing involves risks not associated with investing in
the U.S. Those risks include currency fluctuations and possible political,
economic and social instability. Companies in other countries are not subject
to uniform accounting, financial and regulatory oversight, and the markets
for their shares tend to be smaller, resulting in less liquidity and higher
volatility. In addition, the cost of investing in overseas markets exceeds
the cost of investing in the U.S.
6
<PAGE>
Wanger Advisors Trust 1998 Annual Report
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[WANGER LOGO]
Wanger International Small Cap Results to December 31, 1998
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in Total Return for Each Period
Wanger International Small Cap May 3, 1995 through December 31, 1998
[GRAPH APPEARS HERE]
Wanger Int'l Small Cap Mountain Chart Plot Points
<TABLE>
<CAPTION>
Wanger Int'l Small Cap EAFE
---------------------- ----
<S> <C> <C>
05/03/95 $10,000 $10,000
06/30/95 $10,970 $ 9,825
09/30/95 $12,910 $10,234
12/31/95 $13,450 $10,649
03/31/96 $15,499 $10,956
06/30/96 $17,183 $11,130
09/30/96 $17,023 $11,116
12/31/96 $17,755 $11,293
03/31/97 $18,357 $11,112
06/30/97 $19,568 $12,558
09/30/97 $19,363 $12,470
12/31/97 $17,496 $11,493
03/31/98 $21,306 $13,184
06/30/98 $21,410 $13,324
12/31/98 $20,352 $13,792
</TABLE>
Average Annual
Total Return
1 year: 16.3%
3 Years: 14.8%
Life: 21.4%
This graph compares the results of $10,000 invested in Wanger International
Small Cap on May 3, 1995 (the date the Fund began operations) through December
31, 1998 with Morgan Stanley's Europe, Australasia Far East Index (EAFE), with
dividends reinvested. The beginning date of EAFE is as of May 3, 1995. The
performance data quoted is past performance and does not guarantee future
results. The investment return and principal value of an investment will
fluctuate so that investors' shares, when redeemed, may be worth more or less
than their original cost.
7
<PAGE>
Wanger Advisors Trust--1998 Annual Report
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Wanger U.S. Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C>
Common Stocks--93.0%
Information--39.4%
- --------------------------------------------------------------------------------
Broadcasting--2.1%
250,600 Data Transmission Network (b) $7,236,075
Data Services for Farmers
- --------------------------------------------------------------------------------
Television Programming--5.3%
222,000 Liberty Media Group, 10,225,875
Tele-Communications (b)
CATV & Satellite Dish Programming
330,200 United Video Satellite Group (b) 7,800,975
CATV & Satellite Dish Programming
- --------------------------------------------------------------------------------
18,026,850
- --------------------------------------------------------------------------------
Telephone Services--5.1%
577,600 RCN Corporation (b) 10,216,300
Metro Market: Voice, Video & Data Services
193,300 Commonwealth Telephone (b) 6,475,550
Rural Market: Local, Long Distance
& Internet Access
68,600 Startec Global Communications (b) 660,275
International Telecommunications
- --------------------------------------------------------------------------------
17,352,125
- --------------------------------------------------------------------------------
Mobile Communications--6.6%
411,000 Centennial Cellular (b) 16,851,000
Cellular Franchises
234,500 COMARCO (b) 5,628,000
Wireless Network Testing
- --------------------------------------------------------------------------------
22,479,000
- --------------------------------------------------------------------------------
Telecommunications Equipment--2.2%
425,900 Aspect Telecommunications (b) 7,346,775
Call Center Equipment
- --------------------------------------------------------------------------------
Instrumentation--0.7%
85,000 Mettler Toledo (b) 2,385,314
Laboratory Products
- --------------------------------------------------------------------------------
Business Software--1.5%
314,000 JDA Software 3,041,875
Software & Services for Retailers
137,600 Systems & Computer Technology (b) 1,892,000
Enterprise Software & Services
- --------------------------------------------------------------------------------
4,933,875
- --------------------------------------------------------------------------------
Business Information and
Marketing Services--1.1%
353,400 IntelliQuest Information (b) 2,385,450
Technology Market Research
178,100 InfoUSA, Cl. B 935,025
116,000 InfoUSA, Cl. A 565,500
Business Data for Sales Leads
- --------------------------------------------------------------------------------
3,885,975
- --------------------------------------------------------------------------------
Transaction Processors--3.6%
247,300 National Data 12,040,418
Credit Card & Health Claims Processor
- --------------------------------------------------------------------------------
Computer Hardware & Related Systems--8.0%
417,100 Micros Systems (b) 13,712,164
Information Systems for Restaurants & Hotels
300,600 Kronos (b) 13,320,337
Time Accounting Software & Clocks
- --------------------------------------------------------------------------------
27,032,501
- --------------------------------------------------------------------------------
Gaming Equipment--0.8%
113,000 International Game Technology 2,747,315
Slot Machines & Progressive Jackpots
- --------------------------------------------------------------------------------
Computer Services--2.4%
222,900 Sykes Enterprises (b) 6,798,450
Call Center Services
344,000 Aztec Technology Partners (b) 1,247,000
Technology Staffing Services
- --------------------------------------------------------------------------------
8,045,450
- --------------------------------------------------------------------------------
Information--Total 133,511,673
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C>
Health Care--9.7%
- --------------------------------------------------------------------------------
Biotechnology/Drug Delivery--0.5%
117,000 Synaptic Pharmaceuticals (b) $1,755,000
Receptor Targeted Drug Design
- --------------------------------------------------------------------------------
Health Care Services--9.2%
506,800 Lincare Holdings (b) 20,557,075
Home Health Care Services
475,000 First Health (b) 7,867,187
PPO Network
321,500 Magellan Health Services (b) 2,692,563
Mental Health Services
- --------------------------------------------------------------------------------
31,116,825
- --------------------------------------------------------------------------------
Health Care--Total 32,871,825
Consumer Goods/Services--2.7%
- --------------------------------------------------------------------------------
Retail--2.5%
809,000 Host Marriott Services (b) 8,393,375
Fast Food Kiosks in Airports
- --------------------------------------------------------------------------------
Casinos--0.2%
115,200 Monarch Casino & Resort (b) 604,800
Casino/Hotel in Reno
- --------------------------------------------------------------------------------
Consumer Goods/Services--Total 8,998,175
Finance--14.0%
- --------------------------------------------------------------------------------
Banks/Savings & Loans--2.8%
111,500 Washington Mutual 4,257,906
West Coast Savings & Loan
90,000 Texas Regional Bancshares 2,255,625
TexMex Bank
67,500 Peoples Bank Bridgeport 1,864,687
Mortgage & Credit Card Lender
157,500 Coast Contingency Rights (b) 1,043,439
Litigation Claim Against US Government
- --------------------------------------------------------------------------------
9,421,657
- --------------------------------------------------------------------------------
Finance Companies--0.7%
232,000 World Acceptance (b) 1,508,000
Personal Loans
70,000 Americredit 966,875
Auto Lending
- --------------------------------------------------------------------------------
2,474,875
- --------------------------------------------------------------------------------
Insurance--7.8%
348,600 UICI (b) 8,540,700
Health Insurance
403,900 Acceptance Insurance (b) 8,178,975
Crop Insurance
21,000 Markel (b) 3,801,000
Property & Casualty Insurance
135,000 AmerUs Life Holdings 3,020,625
Annuities/Life Insurance
92,000 Leucadia National 2,898,000
Insurance Holding Company
- --------------------------------------------------------------------------------
26,439,300
- --------------------------------------------------------------------------------
Money Management--2.7%
66,000 SEI Investments 6,558,750
Mutual Fund Administration
167,817 Baker Fentress 2,569,697
Closed-End Investment Company
- --------------------------------------------------------------------------------
9,128,447
- --------------------------------------------------------------------------------
Finance--Total 47,464,279
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C>
Industrial Goods/Services--8.5%
- --------------------------------------------------------------------------------
Machinery--1.3%
270,700 Farr (b) $2,740,837
Filters
91,000 Vallen (b) 1,820,000
Safety Products Distribution
- --------------------------------------------------------------------------------
4,560,837
- --------------------------------------------------------------------------------
Steel--1.2%
232,400 Atchison Casting (b) 2,149,700
Steel Foundries
126,400 Schnitzer Steel 1,817,000
Scrap Steel Processor
- --------------------------------------------------------------------------------
3,966,700
- --------------------------------------------------------------------------------
Specialty Chemicals--1.1%
189,600 Lilly Industries, Cl. A 3,780,150
Industrial Coatings
- --------------------------------------------------------------------------------
Other Industrial Services--4.9%
476,200 Wackenhut, Cl. B 10,446,637
Prison Management
398,700 Insurance Auto Auctions (b) 4,734,562
Auto Salvage Services
140,900 Compass International Services (b) 1,497,062
Collection Agencies
- --------------------------------------------------------------------------------
16,678,261
- --------------------------------------------------------------------------------
Industrial Goods/Services--Total 28,985,948
Energy/Minerals--15.9%
- --------------------------------------------------------------------------------
Independent Power--7.6%
689,600 CalEnergy (b) 23,920,500
Power Plants/Competitive Utility
38,000 AES Corporation (b) 1,800,250
Power Plants
- --------------------------------------------------------------------------------
25,720,750
- --------------------------------------------------------------------------------
Oil/Gas Producers--2.5%
698,900 Tesoro Petroleum (b) 8,474,163
Oil Refinery/Gas Reserves
139,000 Tipperary (b) 147,687
Oil & Gas Producer
- --------------------------------------------------------------------------------
8,621,850
- --------------------------------------------------------------------------------
Oil Refining/Marketing/Distribution--4.5%
258,000 Atmos Energy 8,320,500
Natural Gas Utility
137,000 Equitable Resources 3,990,125
Natural Gas Utility & Producer
279,100 Dynegy 3,052,656
Natural Gas Processing/Marketing
- --------------------------------------------------------------------------------
15,363,281
- --------------------------------------------------------------------------------
Oil Services--1.3%
93,000 J Ray McDermott (b) 2,272,687
Offshore Construction Company
198,000 GeoScience (b) 2,165,625
Offshore Seismic Equipment
- --------------------------------------------------------------------------------
4,438,312
- --------------------------------------------------------------------------------
Energy/Minerals--Total 54,144,193
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares or Principal
Amount
<S> <C>
Other Industries--2.8%
- --------------------------------------------------------------------------------
Real Estate--1.8%
125,600 Forest City Enterprises Cl. A $3,297,000
Shopping Centers
64,900 Gaylord Entertainment (b) 1,955,112
Opryland Hotel & Other Assets
45,000 Cornerstone Properties 703,125
Downtown Office Buildings
- --------------------------------------------------------------------------------
5,955,237
- --------------------------------------------------------------------------------
Transportation--1.0%
174,000 Hub Group (b) 3,371,250
Freight Forwarder
66,000 Trailer Bridge (b) 101,062
Tug & Barge Transportation
- --------------------------------------------------------------------------------
3,472,312
- --------------------------------------------------------------------------------
Other Industries--Total 9,427,549
Total Common Stocks--93.0% 315,403,642
- --------------------------------------------------------------------------------
(Cost: $265,298,784)
- --------------------------------------------------------------------------------
Short-Term Obligations--7.6%
$13,412,000 Ford Motor Credit 5.21% Maturing 01/04/99 13,406,177
$12,469,000 State Street Bank Repurchase Agreement 12,469,000
4.25% Maturing 01/04/99; 12/31/98 Agreement
Collateralized by U.S. Treasury Notes
- --------------------------------------------------------------------------------
(Amortized Cost: $25,875,177) 25,875,177
- --------------------------------------------------------------------------------
Total Investments--100.6% 341,278,819
(Cost: $291,173,961)
Cash and Other Assets Less Liabilities--(0.6%) (2,159,938)
- --------------------------------------------------------------------------------
Total Net Assets--100% $339,118,881
================================================================================
</TABLE>
Notes to Statement of Investments:
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $291,578,447 and net unrealized appreciation was $49,700,372 consisting
of gross unrealized appreciation of $79,338,202 and gross unrealized
depreciation of $29,637,830.
(b) Non-income producing security.
See accompanying notes to financial statements.
11
<PAGE>
Wanger Advisors Trust--1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C>
Common Stocks--96.6%
Europe--66.0%
- --------------------------------------------------------------------------------
Germany/Austria--3.1%
34,000 Rhoen Klinikum $ 3,378,362
Hospital Management
160,000 Scala Business Solutions 1,037,684
GIC Units (b)
ERP Software (Austria)
- --------------------------------------------------------------------------------
4,416,046
- --------------------------------------------------------------------------------
Denmark--1.1%
20,000 Vest Wood 1,602,639
Furniture
- --------------------------------------------------------------------------------
Netherlands--5.9%
92,000 Hunter Douglas 3,049,182
Decorative Window Coverings
44,000 Kempen 2,339,851
Stock Brokerage/Investment Management
100,000 Unique International 2,291,255
Human Resources
26,051 Computer Service Solutions (b) 617,720
Computer Services
- --------------------------------------------------------------------------------
8,298,008
- --------------------------------------------------------------------------------
Finland--7.5%
248,800 Talentum 4,176,640
Trade Journals & Multimedia
90,000 Tieto, Cl. B 4,034,838
Computer Services/Consulting
150,000 Elcoteq Network 1,629,339
Electrical Components
70,000 Rapala Normark (b) 608,286
Fishing & Hunting Equipment
1,550 Spar Finland 67,346
Grocery/Convenience Stores
- --------------------------------------------------------------------------------
10,516,449
- --------------------------------------------------------------------------------
Norway--0.3%
149,800 P4 Radio Hele Norge 462,042
Commercial Radio Station
7,490 Electric Farm (b) 1,970
Internet Services
- --------------------------------------------------------------------------------
464,012
- --------------------------------------------------------------------------------
Sweden--6.6%
125,000 Elanders 2,344,000
Printer
230,800 Semcon 1,907,720
Technical Consulting
125,000 Caran 1,542,105
Engineering Consulting
300,000 Micronic Laser Systems (b) 1,406,400
Electronics Production Equipment
175,000 Mandator 1,370,931
Computer Services/Consulting
350,000 Gylling Optima Class Q (b) 410,200
325,000 Gylling Optima Class B (b) 400,947
Batteries
- --------------------------------------------------------------------------------
9,382,303
- --------------------------------------------------------------------------------
France--2.7%
15,000 Fininfo 2,658,336
Financial Data Feeds
14,919 Cie des Signaux 1,094,985
Computer Services/Telecom Equipment
- --------------------------------------------------------------------------------
3,753,321
- --------------------------------------------------------------------------------
United Kingdom--20.2%
350,000 Seton Scholl Healthcare Group 4,877,011
Pharmaceuticals
400,000 Parity 3,810,100
IT Staffing & Services
60,000 NTL (b) 3,386,250
Voice, Video & Data Services
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C> <C>
United Kingdom--cont.
- --------------------------------------------------------------------------------
1,000,000 Workplace Technologies $3,277,685
Network Integration
600,000 Informa Group 2,840,105
Trade Journals & Conferences
2,000,000 Electronics Boutique 2,687,036
Videogame/Computer Software Stores
1,500,000 Taylor Nelson 1,896,731
Market Research
500,000 Hogg Robinson 1,717,875
Corporate Travel Management
58,600 Euro Money Publications 1,364,981
Financial Publications
400,000 Oriflame International 1,141,366
Cosmetics Sold Door-to-Door
50,600 Vosper Thornycroft 646,986
Naval Shipbuilding
129,000 Edinburgh Fund Managers 531,210
Investment Management
350,000 Dialog (b) 337,751
Online Business Information
- --------------------------------------------------------------------------------
28,515,087
- --------------------------------------------------------------------------------
Spain/Portugal--6.3%
100,000 Mapfre Vida 3,768,645
Life Insurance/Mutual Funds
250,000 Prosegur 2,919,991
Security Guards
100,000 Filmes Lusomundo (b) 1,254,012
Newspapers, Radio, Video,
Film Distribution (Portugal)
18,200 Jeronimo Martins 995,642
Hypermarkets/Supermarkets (Portugal)
- --------------------------------------------------------------------------------
8,938,290
- --------------------------------------------------------------------------------
Switzerland--4.7%
4,000 Phoenix Mecano 2,402,621
Electrical Components
1,500 Pargesa 2,369,860
Industrial & Media Conglomerate
3,000 Affichage 1,170,731
Billboard Advertising
2,600 Hiestand 681,470
Bakery
- --------------------------------------------------------------------------------
6,624,682
- --------------------------------------------------------------------------------
Italy/Greece--7.6%
600,000 Autogrill 4,832,190
Tollway Restaurants
150,000 Banca Pop Commercia e Industria 3,015,570
Regional Bank
150,000 Athens Medical Center 2,943,224
Hospitals (Greece)
- --------------------------------------------------------------------------------
10,790,984
- --------------------------------------------------------------------------------
Europe--Total 93,301,821
Asia--19.6%
- --------------------------------------------------------------------------------
Hong Kong--2.9%
1,640,000 Li and Fung 3,397,570
Sourcing of Consumer Goods
950,000 Dickson Concepts 735,740
Luxury Goods Retailer
- --------------------------------------------------------------------------------
4,133,310
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31,1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Value
Shares
<S> <C>
Japan--6.8%
90,000 NuSkin Enterprises (b) $2,126,250
Cosmetics Sold Door-to-Door
60,000 Enix Corporation 1,962,765
Game Software Developer
13,800 Ryohin Keikaku 1,841,223
Specialty Consumer Goods Retailer
75,000 Kawasumi Labs 1,476,065
Medical Supplies
75,700 Shinki 932,830
Loans to Consumers and Small Businesses
16,000 Nichii Gakkan 666,666
Hospital Administrative Services
12,500 Hokuto 304,742
Mushroom Grower
49,500 Tecmo 302,792
Game Software Developer
- --------------------------------------------------------------------------------
9,613,333
- --------------------------------------------------------------------------------
Malaysia--0.2%
388,000 Computer Systems Advisor 270,100
Systems Integration & Software Services
- --------------------------------------------------------------------------------
Singapore--9.7%
1,037,000 Venture Manufacturing 3,959,454
Electronic Manufacturing Services
1,700,400 Star Cruises (b) 3,587,844
Cruise Line
8,000,000 Omni Industries 2,569,696
Electronic Manufacturing Services
800,000 Datacraft Asia 1,416,000
Network Systems Integration
4,233,000 Datapulse Technology (b) 1,192,936
CD-ROM Replication
350,000 Natsteel Electronics 890,909
Electronic Manufacturing Services
- --------------------------------------------------------------------------------
13,616,839
- --------------------------------------------------------------------------------
Asia--Total 27,633,582
Latin America--4.3%
- --------------------------------------------------------------------------------
Mexico--3.2%
800,000 Grupo Continental 1,937,310
Coca-Cola Bottler
641,000 Corp Interamericana 1,749,950
de Entretenimiento (b)
Special Events & Live Entertainment
1,240,000 Nadro, Series L 789,888
Pharmaceutical Distribution
- --------------------------------------------------------------------------------
4,477,148
- --------------------------------------------------------------------------------
Brazil--1.1%
150,000 Elevadores Atlas 1,613,837
Elevator Services
- --------------------------------------------------------------------------------
Latin America--Total 6,090,985
Other Countries--6.7%
- --------------------------------------------------------------------------------
Australia--1.6%
1,128,352 Tyndall Australia 1,730,329
Money Management & Insurance
362,965 Anaconda Nickel (b) 556,606
Nickel Mining
- --------------------------------------------------------------------------------
2,286,935
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
Wanger Advisors Trust--1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31,1998
<TABLE>
<CAPTION>
Number of Value
Shares or
Principal
Amount
<S> <C>
- --------------------------------------------------------------------------------
Canada--3.9%
270,000 LGS Group (b) $2,021,485
Computer Systems Integration
100,000 MDSI Mobil Data Solutions (b) 1,787,500
Wireless Software
122,900 Shaw Industries 1,000,165
Oil Field Services
50,000 Architel Systems (b) 651,041
Software for Telecommunications
- --------------------------------------------------------------------------------
5,460,191
- --------------------------------------------------------------------------------
Israel--0.6%
30,000 Galileo Technology (b) 810,000
Semiconductors
- --------------------------------------------------------------------------------
South Africa--0.6%
552,700 Energy Africa (b) 845,566
Oil & Gas Producer
- --------------------------------------------------------------------------------
Other--Total 9,402,692
Total Common Stocks--96.6% 136,429,080
- --------------------------------------------------------------------------------
(Cost: $109,875,402)
Short-Term Obligation--3.3% 4,723,000
- --------------------------------------------------------------------------------
$4,723,000 State Street Bank Repurchase Agreement
3.25% 01/04/99; 12/31/98 Agreement
Collateralized by U.S. Treasury Notes
(Cost: $4,723,000)
Total Investments--99.9% 141,152,080
- --------------------------------------------------------------------------------
(Cost: $ 114,598,402)
Cash and Other Assets Less Liabilities--0.1% 101,229
- --------------------------------------------------------------------------------
Total Net Assets--100% $141,253,309
================================================================================
</TABLE>
Notes to Statement of Investments:
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $114,696,573 and net unrealized appreciation was $26,455,507 consisting
of gross unrealized appreciation of $37,317,390 and gross unrealized
depreciation of $10,861,883.
(b) Non-income producing security.
See accompanying notes to financial statements.
15
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Portfolio Diversification December 31, 1998
At December 31, 1998 the Fund's portfolio of investments
as a percentage of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value Percent
- -----------------------------------------------------------------
<S> <C> <C>
Information
Computer Services $ 19,821,559 14.0%
Publishing 9,139,634 6.5
Contract Manufacturing 8,612,997 6.1
Business Information &
Marketing Services 4,892,818 3.5
Business Software 4,528,832 3.2
CATV 3,386,250 2.4
Semiconductors & Related Equipment 2,216,400 1.6
Gaming Equipment 1,962,766 1.4
Domestic Consumer Software 1,787,500 1.3
Advertising 1,170,732 0.8
Radio 464,008 0.3
- -----------------------------------------------------------------
57,983,496 41.1
- -----------------------------------------------------------------
Health Care
Hospital Management 6,321,587 4.5
Pharmaceuticals 4,877,012 3.5
Hospital/Laboratory Supplies 1,476,064 1.0
Health Care Services 666,667 0.5
- -----------------------------------------------------------------
13,341,330 9.5
- -----------------------------------------------------------------
Consumer Goods/Services
Retail 6,259,642 4.4
Travel 5,305,717 3.8
Restaurants 4,832,189 3.4
Nondurables 3,267,616 2.3
Beverages 1,937,310 1.4
Furniture/Textile 1,602,640 1.2
Food 986,214 0.7
Consumer Goods Distribution 857,235 0.6
Leisure Products 608,287 0.4
International Consumer Software 302,793 0.2
Other Durable Goods 3,860,330 2.7
Other Entertainment 1,749,949 1.2
- -----------------------------------------------------------------
31,569,922 22.3
- -----------------------------------------------------------------
Finance
Insurance 3,768,642 2.6
Banks 3,015,570 2.1
Closed-End Funds 2,369,858 1.7
Brokerage 2,339,852 1.7
Money Management 2,261,537 1.6
Finance Companies 932,828 0.7
- -----------------------------------------------------------------
14,688,287 10.4
- -----------------------------------------------------------------
Industrial Goods/Services
Outsourcing and Training Services 10,150,924 7.2
Electrical Components 4,031,961 2.8
Other Industrial Services 1,613,838 1.1
Machinery 646,985 0.5
- -----------------------------------------------------------------
16,443,708 11.6
- -----------------------------------------------------------------
Energy/Minerals
Oil Services 1,000,163 0.7
Oil/Gas Producers 845,567 0.6
Non-Ferrous Metals 556,607 0.4
- -----------------------------------------------------------------
2,402,337 1.7
- -----------------------------------------------------------------
Total Common Stocks 136,429,080 96.6
Short-Term Obligations 4,723,000 3.3
- -----------------------------------------------------------------
Cash and Other Assets Less Liabilities 101,229 0.1
- -----------------------------------------------------------------
Net Assets $141,253,309 100.0%
- -----------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------------------------------------------
Statements of Assets and Liabilities December 31, 1998
Wanger U.S. Wanger International
Small Cap Small Cap
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at value (cost: Wanger U.S. Small Cap $291,173,961; $341,278,819 $141,152,080
Wanger International Small Cap $114,598,402)
Cash 900 --
Organization costs 26,688 26,688
Receivable for:
Securities sold 128,796 320,926
Fund shares sold 455,068 18,010
Dividends and interest 78,895 158,549
Other assets 3,366 2,275
- ---------------------------------------------------------------------------------------------------------------------
Total assets 341,972,532 141,678,528
Liabilities and Net Assets
Cash Overdraft -- 19,998
Payable for:
Securities purchased 2,644,341 255,760
Fund shares redeemed 142,326 53,377
Amount owed to advisor 27,098 26,732
Other 39,886 69,352
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 2,853,651 425,219
- ---------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $339,118,881 $141,253,309
- ---------------------------------------------------------------------------------------------------------------------
Fund shares outstanding 15,290,823 7,197,954
- ---------------------------------------------------------------------------------------------------------------------
Pricing of Shares
Net asset value, offering price and redemption price per share $22.18 $19.62
- ---------------------------------------------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $258,403,736 $119,664,782
Undistributed net realized gain (loss) on sales of investments 30,610,287 (7,277,677)
Net unrealized appreciation of investments and foreign currency
transactions
(net of unrealized PFIC gains of $83,762 for Wanger International Small Cap) 50,104,858 26,470,102
Undistributed net investment income -- 2,396,102
- ---------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $339,118,881 $141,253,309
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Statements of Operations For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Wanger U.S. Wanger International
Small Cap Small Cap
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income:
Dividends (net of foreign taxes of $220,936 for Wanger International Small Cap) $ 1,186,818 $ 1,946,183
Interest 1,201,904 408,617
- -----------------------------------------------------------------------------------------------------------------------------
Total investment income 2,388,722 2,354,800
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory 2,972,442 1,751,136
Custodian 42,548 233,512
Legal and audit 44,236 42,701
Reports to shareholders 35,986 36,902
Amortization of organization costs 19,976 19,976
Transfer agent 22,675 19,500
Trustees 20,787 20,787
Insurance 3,067 2,450
Other 16,257 8,483
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 3,177,974 2,135,447
Less custodian fees paid indirectly (5,829) (785)
- -----------------------------------------------------------------------------------------------------------------------------
Net expenses 3,172,145 2,134,662
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (783,423) 220,138
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) on sales of investments 31,406,965 (2,995,916)
Net change in unrealized appreciation of investments (6,414,368) 21,548,547
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 24,992,597 18,552,631
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 24,209,174 $ 18,772,769
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
-------------------------------------- --------------------------------------
Wanger U.S. Small Cap Wanger International Small Cap
Year ended Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (783,423) $ (206,969) $ 220,138 $ 148,271
Net realized gain (loss) on sales of investments 31,406,965 15,616,554 (2,995,916) (616,933)
Net change in unrealized appreciation (6,414,368) 37,057,494 21,548,547 (2,999,052)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 24,209,174 52,467,079 18,772,769 (3,467,714)
Distributions to shareholders from:
Net investment income -- -- (1,532,876) --
Net realized gain (15,422,770) (3,530,225) -- (2,453,253)
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (15,422,770) (3,530,225) (1,532,876) (2,453,253)
From Fund share transactions:
Reinvestment of dividends and capital
gain distributions 15,407,847 3,530,225 1,530,069 2,453,253
Proceeds from other shares sold 94,608,919 109,491,784 26,836,486 54,111,870
- --------------------------------------------------------------------------------------------------------------------------------
110,016,766 113,022,009 28,366,555 56,565,123
Payments for shares redeemed (50,550,116) (20,050,947) (25,013,297) (14,839,080)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 59,466,650 92,971,062 3,353,258 41,726,043
- --------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 68,253,054 141,907,916 20,593,151 35,805,076
- --------------------------------------------------------------------------------------------------------------------------------
Net assets:
Beginning of period 270,865,827 128,957,911 120,660,158 84,855,082
- --------------------------------------------------------------------------------------------------------------------------------
End of period (a) $339,118,881 $270,865,827 $141,253,309 $120,660,158
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes accumulated net investment income
of $2,396,211 and $1,532,855 for Wanger International Small Cap
at December 31, 1998 and 1997, respectively.
See accompanying notes to financial statements.
19
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Financial Highlights
<TABLE>
<CAPTION>
Year ended Year ended Year ended May 3, 1995 through
December 31, 1998 December 31, 1997 December 31, 1996 December 31,1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, beginning of period $ 21.46 $ 16.97 $ 11.60 $ 10.00
Income From Investment Operations
Net investment loss (c) (.05) (.02) (.06) (.05)
Net realized and unrealized gain on investments 1.93 4.90 5.46 1.65
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.88 4.88 5.40 1.60
Less Distributions
Dividends from net investment income -- -- -- --
Distributions from net realized gain (1.16) (.39) (.03) --
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.16) (.39) (.03) --
Net Asset Value, end of period $ 22.18 $ 21.46 $ 16.97 $ 11.60
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 8.68% 29.41% 46.59% 16.00%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.02% 1.06% 1.21% 2.08%
Ratio of net investment loss to average net assets (b) (.25%) (.10%) (.41%) (1.44%)
Portfolio turnover rate 34% 34% 46% 59%
Net assets at end of period $339,118,881 $270,865,827 $128,957,911 $21,903,536
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.04% for the year ended December 31, 1997, 1.19% for the year ended
December 31, 1996 and 2.00% for the period ended December 31, 1995.
(b) The fund was reimbursed by the Advisor for certain expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses (prior to custodian fees paid indirectly) to average net assets
and the ratio of net investment income to average net assets for the period
ended December 31, 1995 would have been 2.35% and (1.71%), respectively.
(c) Net investment loss per share for the years ended December 31, 1998, 1997
and 1996 was based upon the average shares outstanding during the period.
See accompanying notes to financial statements.
20
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Financial Highlights
<TABLE>
<CAPTION>
Year ended Year ended Year ended May 3, 1995 through
December 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
<S> <C> <C> <C> <C>
====================================================================================================================================
Net Asset Value, beginning of period $17.05 $17.71 $13.45 $10.00
Income From Investment Operations
Net investment income (loss)(c) .03 .02 (.09) (.03)
Net realized and unrealized gain on investments 2.76 (.26) (4.38) (3.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.79 (.24) 4.29 3.45
Less Distributions
Dividends from net investment income (.22) -- -- --
Distributions from net realized gain and unrealized
gain reportable for federal income taxes -- (.42) (.03) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.42) (.03) --
Net Asset Value, end of period $19.62 $17.05 $17.71 $13.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 16.33% (1.46%) 32.01% 34.50%
Ratios/Supplemental Data Ratio of expenses to
average net assets (a)(b) 1.55% 1.60% 1.79% 2.32%*
Ratio of net investment income (loss)
to average net assets (b) .16% .12% (.56%) (.81%)*
Portfolio turnover rate 56% 60% 50% 14%*
Net assets at end of period 141,253,309 120,660,158 84,855,082 11,368,924
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects total expenses prior to the reduction of custodian fees
for cash balances it maintains with the custodian ("custodian fees paid
indirectly"). This ratio net of custodian fees paid indirectly would have
been 1.59% for the year ended December 31, 1997, 1.75% for the year ended
December 31, 1996 and 2.00% for the period ended December 31, 1995.
(b) The fund was reimbursed by the Advisor for certain expenses from May 3, 1995
through December 31, 1995. Without the reimbursement, the ratio of expenses
(prior to custodian fees paid indirectly) to average net assets and the
ratio of net investment income to average net assets for the period ended
December 31, 1995 would have been 4.20% and (2.69%), respectively.
(c) Net investment income (loss) per share for the years ended December 31,
1998, 1997 and 1996 was based upon the average shares outstanding during the
period.
See accompanying notes to financial statements.
21
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
1. Nature of Operations
Wanger U.S. Small Cap and Wanger International Small Cap ("the Funds") are
series of Wanger Advisors Trust ("the Trust"), an open-end management investment
company organized as a Massachusetts business trust. The investment objective of
each Fund is to seek long-term growth of capital. The Funds are available only
for allocation to certain life insurance company separate accounts established
for the purpose of funding qualified and non-qualified variable annuity
contracts, and may also be offered directly to certain types of pension plans
and retirement arrangements.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not readily available and any other assets
are valued as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Fund. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and on long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Use of estimates
The preparation of financial statements in conformity with generally accepted
counting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimated.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on each Fund's cash balances maintained with
the custodian. This presentation does not affect the determination of Fund
shares outstanding.
Federal income taxes, dividends and distributions to shareholders
The Funds have complied with the special provisions of the Internal Revenue Code
available to regulated investment companies and, in the manner provided therein,
distribute all of their taxable income, as well as any net realized gain on
sales of investments and foreign currency transactions reportable for federal
income tax purposes.
Wanger International Small Cap has elected to mark-to-market its investments
in Passive Foreign Investment Companies ("PFICS") for income tax purposes. In
accordance with this election, the Fund recognized unrealized appreciation on
PFICs of $83,762 for the year ended December 31, 1998. Cumulative net unrealized
appreciation recognized in prior years on PFICs sold in 1998 amounted to
$1,391,583.
Wanger International Small Cap intends to utilize provisions of the federal
income tax law that allows it to carry a realized capital loss forward for eight
years following the year of the loss and offset such losses against future
realized gains. At December 31, 1998, the Fund had a capital loss carryforward
of $7,263,202 of which $382,694 will expire December 31, 2005 and $6,880,508
will expire December 31, 2006.
Dividends and distributions payable to each Fund's shareholders are recorded
by the Fund on the ex-dividend date.
Reclassifications have been made in 1998 for Wanger U.S. Small Cap in the
accompanying analysis of net assets from undistributed net investment income
to net realized gain on the sale of investments of $783,423 to reflect
differences between financial reporting and income tax basis and had no impact
on net asset value. Reclassifications have also been made in 1998 for Wanger
International Small Cap from accumulated net realized gain on sale of
investments to undistributed net investment income of $2,092,223 to reflect
differences between financial reporting and income tax basis.
22
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
3. Transaction with Affiliates
The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes
continuing investment supervision to the Fund and is responsible for overall
management of the Fund's business affairs. Each Fund pays WAM a monthly
advisory fee based upon average daily net assets at the following rates:
<TABLE>
<CAPTION>
Wanger U.S. Wanger International
Small Cap Small Cap
- ------------------------------------------------------------------
<S> <C> <C>
Average Daily Net Assets:
For the first $100 million 1.00% 1.30%
Next $150 million .95% 1.20%
In excess of $250 million .90% 1.10%
- ------------------------------------------------------------------
</TABLE>
The investment advisory agreement also provides that WAM will reimburse the
Funds to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 1.50% for Wanger U.S. Small Cap and 1.90% for Wanger
International Small Cap, of average net assets. WAM was not required to
reimburse the Funds under these agreements for the year ended December 31, 1998.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. Wanger U.S. Small Cap and Wanger International Small Cap each incurred
trustees' fees and expenses of $20,787 for the year ended December 31, 1998 to
trustees not affiliated with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the
distributor of each Fund's shares and receives no compensation for its services.
4. Borrowing Arrangements
The trust participates in a $250,000,000 credit facility which was entered into
to facilitate portfolio liquidity. No amounts have been borrowed under this
facility.
5. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
------------------------------------------ --------------------------------------
Wanger U.S.Small Cap Wanger International Small Cap
Year ended Year ended Year ended Year ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 4,370,518 5,806,192 1,389,310 2,963,636
Shares issued in reinvestment of dividend and
capital gain distributions 686,318 210,886 76,657 136,747
- -----------------------------------------------------------------------------------------------------------------------------
5,056,836 6,017,078 1,465,967 3,100,383
Less shares redeemed 2,389,858 991,354 1,346,776 812,741
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in shares outstanding 2,666,978 5,025,724 119,191 2,287,642
=============================================================================================================================
</TABLE>
6. Investment Transactions
The aggregate costs of purchases and proceeds from sales other than short-term
obligations for the year ended December 31, 1998 were:
<TABLE>
<CAPTION>
<S> <C> <C>
Wanger U.S. Wanger International
Small Cap Small Cap
Purchases $139,040,448 $80,409,567
Sales 97,581,546 71,890,345
- ------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Wanger Advisors Trust 1998 Annual Report
- --------------------------------------------------------------------------------
Report of Independent Auditors
To the Board of Trustees and Shareholders of
Wanger Advisors Trust
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments of Wanger U.S. Small Cap and the Wanger
International Small Cap portfolios, comprising the Wanger Advisors Trust, as of
December 31, 1998, the related statements of operations, changes in net assets,
and the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective Funds of the Wanger Advisors Trust as of December 31, 1998,
the results of their operations and changes in their net assets and financial
highlights for the periods indicated therein, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 12, 1999
24
<PAGE>
Wanger Advisors Trust
Trustees
Fred D. Hasselbring
Charles P. McQuaid
P. Michael Phelps
Ralph Wanger
Patricia H. Werhane
Officers
Ralph Wanger
President
Charles P. McQuaid
Senior Vice President
Marcel P. Houtzager
Vice President
Robert A. Mohn
Vice President
Leah J. Zell
Vice President
John H. Park
Vice President
Mark H. Yost
Vice President
Bruce H. Lauer
Vice President and
Treasurer
Kenneth A. Kalina
Assistant Treasurer
Transfer Agent,
Dividend Disbursing Agent
and Custodian
State Street Bank
and Trust Company
Attention:
Wanger Advisors Trust
P.O. Box 8502
Boston, Massachusetts
02266-8502
Distributor
WAM Brokerage
Services, L.L.C.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Investment Advisor
Wanger Asset
Management, L.P.
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-5-WANGER
(1-800-592-6437)
Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
Independent Auditors
Ernst & Young LLP
Chicago, Illinois
This report, including the audited schedules of investments and financial
statements, is submitted for the general information of the shareholders of the
Wanger Advisors Trust. This report is not authorized for distribution unless
preceded or accompanied by a prospectus.
<PAGE>
Wanger Advisors Trust
OL2568A 2/99
