<PAGE>
Wanger Advisors Trust
1996 Annual Report
Contents
1 Squirrel Chatter
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
Wanger Asset Management, L.P., ("WAM") is one of the leading global small-cap
equity managers in the U.S. with 26 years of small-cap investment experience.
WAM manages over $5.4 billion in equities and is the investment adviser to
Wanger U.S. Small Cap, Wanger International Small Cap, Acorn Fund, Acorn
International and Acorn USA.
WAM uses a unique style of catching trends with small, attractively-priced
niche companies. For more complete information about our funds including the
Acorn Funds, fees and expenses, call WAM Brokerage Services, L.L.C.,
distributor, at 1-800-5WANGER for a prospectus. Read it carefully before you
invest or send money.
Wanger
[LOGO] [9]6
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
[LOGO] Squirrel Chatter
Ralph Wanger is the President of Wanger Asset Management, L.P., and the
portfolio manager of Wanger Advisors Trust and Acorn Investment Trust. Mr.
Wanger has been featured in Forbes, Money, The Wall Street Journal, Newsweek and
Barron's. Mr. Wanger was also featured in Bill Griffeth's 1994 book, The Mutual
Fund Masters. In a USA Today national survey, professional money managers were
asked to name their favorite investment professional. Wanger was voted #1.
A Zebra in Lion Country, by Ralph Wanger, is due out in bookstores in
March. Published by Simon & Schuster, this book is a witty survival guide to
investing. It also features some of Wanger's letters to Acorn Fund shareholders
which investors have enjoyed reading over the years. An excerpt from this new
book follows.
Every bad idea starts from a good idea. We all know this from our own
experience. We go to a party and have a glass of champagne. Good idea. We feel
better, more relaxed. The party is now more interesting, the toasts more lively,
the girls prettier, the dancing more fun. So we have a second glass of
champagne. Another good idea.
The jokes now have gone from humorous to hilarious, the people you're meeting
are the most interesting and glamorous you've ever known, and the dancing is
wild and you've never been better at it. But after the third glass, and the
fourth... well, what started as a good idea turns into a very bad idea, with
your head already beginning to pound from a headache you know will terminate in
a humdinger of a hangover.
It happens all the time in the stock market. Technology stocks have been
the rage for a long time, albeit with some periods of "consolidation." The boom
started with a very good idea. American technology leads the world. Personal
computers and the software to run them, and other electronic and communications
devices, have become inexpensive and relatively easy to use, and we all buy
them. Companies like Microsoft, Motorola, Intel are well-run--indeed fabulous--
companies. All this is correct, a great investment idea. The people who were
in early have made a lot of money.
But as the party lengthens, the stocks get taken over by people who don't
particularly understand what's happening; they are just playing a trend.
(continued)
1
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
[LOGO] Squirrel Chatter (continued)
New companies are invented to meet their demands. The securities industry, you
know, is not a service industry. It is a manufacturing industry. If you want a
stock, Wall Street will make it for you. Any business, any kind you want.
Recently, the Internet being the rage, the investment bankers have worked
overtime creating a stream of IPOs to meet the demand. And people love them, to
judge by their P/Es, some of which have soared into the triple-digit
stratosphere.
Remember back in the early '80's when the hard disk drive for computers was
invented? It was an important, crucial invention, and investors were eager to
be part of this technology. More than 70 disk drive companies were formed and
their stocks were sold to the public. Each company had to get 20 percent of the
market share to survive. For some reason, they didn't all do it.
Anything can get overdone. In the financial world, things get taken to extremes
all the time, like the tulip scandal of 1637. That started with a good idea. The
tulip was a terrific invention. The flower had not previously been seen in
Europe, and it was a great hit, and new varieties and colors increased its
popularity. There was nothing wrong with the idea. But after a few years people
started selling tulip bulbs for hundreds of thousands of dollars a piece, if
they were of a rare variety, and a good idea went to speculative madness.
The tulip was a good idea, disk drives were a good idea, the Internet is a
good idea. They have to be good ideas or they would not become widely popular.
Come up with a concept that's patently silly or harmful and people won't want
it. So, only a good idea can become so popular that it becomes a bad idea.
[PHOTO OF RALPH WANGER APPEARS HERE]
Ralph Wanger, President
2
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Funds at a Glance
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap
Results to December 31, 1996
<TABLE>
<CAPTION>
4th Quarter Last 12 months
<S> <C> <C>
Wanger U.S. Small Cap 7.7% 46.6%
Russell 2000 5.2% 16.5%
S&P MidCap 400 6.1% 19.2%
S&P 500 8.3% 23.0%
Dow-Jones 10.2% 28.9%
966 Variable Insurance
Funds Average 13.4%
</TABLE>
Net Asset Value per share as of 12/31/96: $16.97
The Russell 2000 is formed by taking 3,000 companies and then eliminating the
largest 1,000 leaving a good small company index. The S&P MidCap 400 is a market
value-weighted index of 400 stocks that are in the next tier down from the S&P
500. The S&P 500 is a broad market-weighted average, still blue chip dominated.
The Dow Jones Industrial Average includes 30 large companies. The Lipper
Variable Funds average includes both funds. All indices are unmanaged and
include reinvested dividends.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Wanger International Small Cap
Results to December 31, 1996
4th Quarter Last 12 months
<S> <C> <C>
Wanger Int'l Small Cap 4.3% 32.0%
EAFE 1.6% 6.1%
Lipper International Small Co. 2.8% 13.3%
Funds Average
Lipper International Fund Index 5.2% 14.4%
966 Variable Insurance
Funds Average 13.4%
71 International Variable Insurance
Funds Average 14.9%
</TABLE>
Net Asset Value per share as of 12/31/96: $17.71
EAFE is Morgan Stanley's Europe, Australia and Far East Index, an index of
companies throughout the world in proportion to world market capitalization,
excluding the U.S. and Canada. The Lipper International Small Company Funds
Average is comprised of 12 small company international funds. The Lipper
International Fund Index is an equal-weighted index of the 30 largest
international funds. The Lipper Variable Funds average include both funds; the
International Average includes Wanger Int'l Small Cap. All indices are unmanaged
and include reinvested dividends.
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Top 5 Industries
As a % of net assets, as of 12/31/96
<TABLE>
<CAPTION>
<S> <C>
Energy/Minerals 23.9%
Information 17.9%
Industrial Goods/Services 14.4%
Finance 14.0%
Health Care 13.2%
</TABLE>
- --------------------------------------------------------------------------------
Wanger International Small Cap Top 5 Countries
As a % of net assets, as of 12/31/96
<TABLE>
<CAPTION>
<S> <C>
United Kingdom 16.1%
Japan 14.6%
Sweden 7.6%
Singapore 5.8%
Australia 5.5%
</TABLE>
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Top 10 Holdings
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CalEnergy 4.9 % Respironics 2.8 %
Power Plants Sleep Apnea Products
Tesoro Petroleum 3.8 % Wackenhut 2.7%
Oil Refinery/Gas Reserves Prison Management
NGC 3.8% Atwood Oceanics 2.6%
Gas Processing/Marketing Offshore Drilling
Lincare Holdings 3.6 % Coast Savings 2.4%
Home Health Care Services California Savings/Loan
Seagull Energy 3.6 % Kronos 2.4 %
Oil/Gas Producer Time Accounting
Software & Clocks
</TABLE>
- --------------------------------------------------------------------------------
Wanger International Small Cap Top 10 Holdings
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TT Tieto 3.4% Oriflame International 2.0%
Computer Services/ Natural Cosmetics
Consulting--Finland United Kingdom
Tyndall 2.9% Kempen 2.0%
Money Management/ Stock Brokerage/Investment
Insurance--Australia Management--Netherlands
Genting International 2.8% Grupo Radio Centro 1.9%
Cruise Line--Singapore Radio Broadcasting/
Networks Mexico
Getinge Industrier 2.3%
Sterilization & Disinfection International Container 1.9%
Equipment--Sweden Terminal Services
Container Handling Terminals
Medeva 2.1% & Port Management--Philippines
Pharmaceuticals
United Kingdom Premier Oil 1.8%
Oil/Gas Producer
United Kingdom
- --------------------------------------------------------------------------------
</TABLE>
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."
3
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Performance Review
Wanger U.S. Small Cap had a career year in 1996. One number says it all: +46.6%.
Your Fund's 46.6% return was the third best of all 966 variable insurance funds
in the U.S. tracked by Lipper Analytical Services, Inc. This ranking is based on
the one year total return ending 12/31/96. In other words, we ranked in the top
0.3% of our class. That's summa summa cum laude material.
At the head of our own class were our oil and gas stocks. We accumulated an
outsized energy position in the first half of the year, buying up bustling
companies like NGC Corp. (natural gas brokerage), Atwood Oceanics (deep-sea
drilling rigs), Seagull Energy and United Meridian (oil & gas explorers) on the
cheap. Ten-gallon hats off to Jason Selch, our resident oilman, for tapping into
those gusher stocks.
Small-cap investing was at a handicap last year. Small-cap indices like the
Russell 2000 (+ 16.5%) lagged behind the S&P 500's 23% return as mutual fund
managers poured their record cash inflows into the most liquid large-cap stocks.
The popularity of index investing and the revival of the Nifty Fifty were both
signs of the market's big-cap fetish. We produced our own nifty returns without
the benefit of bigness. We jumped into energy stocks early in the year when the
stocks were slow to follow the price of oil's lead. And we stayed clear of the
fancy-multiple high-tech stocks that soared in the first quarter, but littered
the new lows list soon after.
Our other big winners were a multi-industrial group. Technology was represented
by ACT Manufacturing, an electronics assembler with a bulging backlog of new
customers. Health care winner was Steris, a sterilization equipment company
recovering from acquisition indigestion. Our growth utility (no oxymoron)
CalEnergy was buoyed by its recent acquisition of a UK electric company. And our
best banker was Texas Regional, the grandest bank in the Rio Grande Valley.
Small-cap investing can be volatile and 1996 will be a hard act to follow. Our
team of analysts will continue to work hard to reward the confidence you've
shown in us.
- --------------------------------------------------------------------------------
Fund Facts
The U.S. stock market was red hot and the large company indexes, like the S&P
500 and the Dow Jones Industrial Average, enjoyed another banner year. Remember,
the S&P 500 is a broad market-weighted, blue-chip dominated index and the Dow
Jones is made up of the 30 largest U.S. companies' returns. Most Wanger U.S.
Small Cap companies are not found in the S&P 500 or the Dow; rather, the Fund
primarily invests in small and mid-size companies in the U.S.
4
<PAGE>
[LOGO]
[LOGO] Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Results to December 31, 1996
The Value of a $10,000 Investment in Total Return for Each Period
Wanger U.S. Small Cap May 3, 1995 through December 31, 1996
Wanger U.S. Small Cap
$17,004
Russell 2000
$13,756
[GRAPH APPEARS HERE]
- -------------------------------------------------------------------------------
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) with the Russell 2000 with
dividends reinvested. Past performances does not guarantee future results. The
investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost.
Average Annual Total Return
1 year: 46.6% Life: 37.4%
5
<PAGE>
Wanger Advisors Trust 1996 Annual Report
Performance Review
- --------------------------------------------------------------------------------
Wanger International Small Cap
Wanger International Small Cap had a spectacular year in 1996. Our total return
for the year was 32%. Lipper Analytical Services, Inc. tracks 966 variable
insurance mutual funds; our total return for 1996 ranked us #16, in the top 2%.
We are one of 71 international variable insurance mutual funds; we were #2 in
the international arena. Our return was more than double that of the average of
our competitors.
How did we do it? Market conditions were mixed with the most commonly used
international stock index, EAFE, up only 6% for the year. That we were able to
produce a return over five times as large was in part achieved by underweighting
Japanese stocks (the Jasdaq index of smaller Japanese companies was down almost
14% in 1996, on top of which the Japanese Yen declined about 11%) and
overweighting European stocks (a number of European stock markets were up over
20% and most of their currencies declined less than the Yen).
A second important factor which helped us to outperform was our exposure to
energy and technology stocks. The former sector took off along with the price of
oil, and the latter benefited from the current profit growth wave in the
industry, along with newfound interest by U.S. institutions tired of paying sky
high prices for domestic technology stocks.
Finally, our bottom up, research driven approach to stock picking paid off with
our analysts by and large outperforming their respective countries and sectors
in 1996.
For example, our aforementioned energy portfolio benefited from the skill and
enthusiasm brought to bear by our intrepid Jason Selch, whose stocks in the fund
rose an incredible 176% in 1996.
How much risk did we take? Recall that in the investing world, risk is usually
measured by the degree to which prices bounce up and down. We all know that by
this measure cash is the best behaved (least volatile) asset, followed by short-
term bonds, then long-term bonds, blue chip stocks, and finally smaller company
stocks. Where does your Fund fit in in 1996? This might surprise you, but our
weekly volatility during 1996 was somewhere between long-term bonds and blue
chip stocks, even though the Fund invests in smaller company stocks and even
though individual foreign markets can be quite volatile (1).
Your Fund enjoyed lower volatility in 1996 than the blue chips because of its
high level of diversification across countries (over 25) and industries (more
than 20). To illustrate, our top five performers in 1996 included the Finnish
computer consultant TT Tieto, Canadian oil service company Shaw, Dutch mutual
fund manager Kempen, Argentine steel producer Siderca, and Australian life
insurer Tyndall.
We like these stocks because they have high management ownership, low or no
research coverage by brokerage analysts, and above average returns on equity.
Our globe trotting team of security analysts is already at work trying to
uncover more niche companies to add to your portfolio in 1997!!
- --------------------------------------------------------------------------------
(1) We calculated the weekly volatility (technically the standard deviation of
the weekly returns) in 1996 for each of these asset classes and observed the
following:
Cash 0%
Bonds (Lipper U.S. Government Bond Index) 0.8%
Wanger International Small Cap 1.1%
Blue chip stocks (S&P 500 Index) 1.7%
Small company stocks (NASDAQ Composite Index) 2.0%
Volatility or variability in expected return is one measure of risk. Higher
numbers indicate greater volatility. The information shown represents relative
volatility over past periods and does not necessarily indicate relative future
volatility.
6
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- ------------------------------------------------------------------------------
Wanger International Small Cap Results to December 31, 1996
- ------------------------------------------------------------------------------
[WANGER INTERNATIONAL SMALL CAP GRAPH APPEARS HERE]
The value of a $10,000 Investment in
Wanger International Small Cap
Wanger International Small Cap
$17,755
EAFE
$11,293
- ------------------------------------------------------------------------------
This graph compares the results of $10,000 invested in Wanger International
Small Cap on May 3, 1995 (the date the Fund began operations) with Morgan
Stanley's Europe, Australia and Far East Index (EAFE). Past performances does
not guarantee future results. The investment return and principal value of an
investment in the Fund will fluctuate so that Fund shares, when redeemed, may be
worth more or less than their original cost.
Average Annual Total Return
1 year: 32.0% Life: 41.0%
7
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
Common Stocks and Other Equity-Like
Securities--90.3%
Information--17.9%
- --------------------------------------------------------------------------------
<S> <C> <C>
Broadcasting/CATV--1.9%
100,000 C-Tec(b) $ 2,425,000
Cable TV/Local Telephone
- --------------------------------------------------------------------------------
Programming for CATV/TV/Satellites--6.4%
113,400 Data Transmission (b) 2,523,150
Data Services for Farmers
88,000 Tele-Communications,
Liberty Media Group (b) 2,513,500
Cable TV Programming
70,000 Gaylord Entertainment 1,601,250
Cable TV Programming
58,000 International Family Entertainment (b) 899,000
Cable TV Programming
42,000 United Video Satellite (b) 735,000
Cable TV Programming
- --------------------------------------------------------------------------------
Total 8,271,900
- --------------------------------------------------------------------------------
Mobile Communications--1.9%
112,500 COMARCO (b) 2,053,125
Wireless Network Testing
40,000 Palmer Wireless (b) 420,000
Cellular Phone Services
- --------------------------------------------------------------------------------
Total 2,473,125
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
Computer Software/Services--4.2%
<S> <C> <C>
103,600 CACI International, ClA (b) 2,175,600
Computer Software Systems
46,600 Analysts International 1,316,450
Contract Programming
80,000 Simulation Sciences (b) 1,190,000
Process Control Software
14,000 Compuware (b) 701,750
Computer Services & Software
- --------------------------------------------------------------------------------
Total 5,383,800
- --------------------------------------------------------------------------------
Computer Systems--1.1%
55,400 ACT Manufacturing (b) $ 1,461,175
Contract Manufacturing
- --------------------------------------------------------------------------------
Components/Peripherals--2.4%
96,000 Kronos (b) 3,072,000
Time Accounting Software & Clocks
- --------------------------------------------------------------------------------
Information Total 23,087,000
Healthcare--13.2%
- --------------------------------------------------------------------------------
Biotechnology/Drug Delivery--1.4%
40,000 Watson Pharmaceuticals (b) 1,797,500
Generic Pharmaceuticals
- --------------------------------------------------------------------------------
Medical Equipment--7.1%
210,000 Respironics (b) 3,648,750
Sleep Apnea Products
59,100 Steris (b) 2,570,850
Sterilization Equipment
76,000 Invacare 2,090,000
Wheelchairs, Patient Aids & Beds
70,000 Kinetic Concepts 857,500
Hospital Beds
- --------------------------------------------------------------------------------
Total 9,167,100
- --------------------------------------------------------------------------------
Services--4.7%
114,000 Lincare Holdings (b) 4,674,000
Home Health Care Services
100,800 United Payors & Providers (b) 1,386,000
Medical Claims Repricing
- --------------------------------------------------------------------------------
Total 6,060,000
- --------------------------------------------------------------------------------
Health Care Total 17,024,600
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
Consumber Goods/services--6.9%
- --------------------------------------------------------------------------------
<S> <C>
Retail--3.1%
322,900 Host Mariott Services (b) $ 2,946,463
Runs Airport Restaurants
30,000 Borders Group (b) 1,076,250
Bookstores
- --------------------------------------------------------------------------------
Total 4,022,713
- --------------------------------------------------------------------------------
Entertainment/Leisure--1.4%
63,000 Showboat 1,086,750
Casino/Hotels
42,000 Rio Hotel & Casino (b) 614,250
Casino/Hotel
60,000 Monarch Casino & Resort (b) 120,000
Casino/Hotel
- --------------------------------------------------------------------------------
Total 1,821,000
- --------------------------------------------------------------------------------
Food--0.4%
70,000 Shoney's (b) 490,000
Restaurants
- --------------------------------------------------------------------------------
Manufacturers--2.0%
163,500 Rawlings (b) 1,635,000
Baseball Equipment
28,000 Newell 882,000
Household Goods
- --------------------------------------------------------------------------------
Total 2,517,000
- --------------------------------------------------------------------------------
Consumer Goods/Services Total 8,850,713
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
Finance--14.0%
- --------------------------------------------------------------------------------
Banks/Savings & Loans--7.4%
<S> <C> <C>
84,000 Coast Savings (b) 3,076,500
California Savings & Loan
60,000 Texas Regional Bancshares 2,040,000
TexMex Bank
56,000 Peoples Bank Bridgeport 1,617,000
Consumer Finance
106,000 Imperial Thrift & Loan (b) 1,590,000
California Thrift
80,000 Commonwealth Bancorp 1,200,000
Pennsylvania Savings & Loan
- --------------------------------------------------------------------------------
Total 9,523,500
- --------------------------------------------------------------------------------
Insurance--1.6%
64,000 Penn Treaty American (b) 1,664,000
Nursing Home Equipment
17,000 Leucadia National 454,750
Insurance Holding Company
- --------------------------------------------------------------------------------
Total 2,118,750
- --------------------------------------------------------------------------------
Money Management--2.7%
125,000 Baker Fentress 2,109,375
Closed-End Investment Company
63,000 SEI 1,401,750
Mutual Fund Distributor
- --------------------------------------------------------------------------------
Total 3,511,125
- --------------------------------------------------------------------------------
Credit Cards--1.1%
31,000 National Data 1,348,500
Credit Card & Medical Claims Processor
- --------------------------------------------------------------------------------
Other--1.2%
86,500 Jayhawk (b) 973,125
Used Auto Finance
28,000 Americredit (b) 574,000
Used Auto Finance
- --------------------------------------------------------------------------------
Total 1,547,125
- --------------------------------------------------------------------------------
Finance Total 18,049,000
</TABLE>
See accompanying notes to financial statements
9
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Statement of Investments December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
<S> <C> <C>
Industrial Goods/Services--14.4%
Machinery--0.4%
30,500 Farr (b) $507,062
Filters
- --------------------------------------------------------------------------------
Steel--5.5%
135,900 Atchison Casting (b) 2,446,200
Steel Foundries
91,000 Worthington Industries 1,649,375
Steel Processing
56,000 Gibraltar Steel (b) 1,470,000
Steel Processing
105,000 Universal Stainless (b) 918,750
Semi-finished Stainless Steel Producer
35,300 Steel Dynamics (b) 675,113
Steel Mini-Mill
- --------------------------------------------------------------------------------
Total 7,159,438
- --------------------------------------------------------------------------------
Industrial Suppliers--3.2%
92,000 Applied Industrial Technologies 2,564,500
Distribution of Industrial Components
75,000 Lilly Industries, Cl. A 1,368,750
Industrial Coatings
10,500 Aftermarket Technology (b) 181,125
Auto Transmission Remanufacturer
- --------------------------------------------------------------------------------
Total 4,114,375
- --------------------------------------------------------------------------------
Services--5.3%
230,600 Wackenhut, Cl. B 3,516,650
Prison Management
100,000 World Color Press (b) 1,925,000
Printing
50,000 Hub Group (b) 1,337,500
Freight Forwarder
- --------------------------------------------------------------------------------
Total 6,779,150
- --------------------------------------------------------------------------------
Industrial Goods/Services Total 18,560,025
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
Energy/Minerals--23.9%
- --------------------------------------------------------------------------------
Independent Power--6.1%
<S> <C> <C>
189,000 CalEnergy (b) $6,355,125
Power Plants
19,000 AES Corporation (b) 883,500
Power Plants
38,500 Thermo Ecotek (b) 587,125
Biomass Operator
- --------------------------------------------------------------------------------
Total 7,825,750
- --------------------------------------------------------------------------------
Oil/Gas Producers--8.6%
352,000 Tesoro Petroleum (b) 4,928,000
Oil Refinery/Gas Reserves
209,000 Seagull Energy (b) 4,598,000
Oil & Gas Producer
22,000 United Meridian (b) 1,138,500
Oil & Gas Producer
100,000 Tipperary (b) 462,500
Oil & Gas Producer
- --------------------------------------------------------------------------------
Total 11,127,000
- --------------------------------------------------------------------------------
Distribution/Marketing/Refining--4.2%
210,000 NGC 4,882,500
Gas Processing/Marketing
23,000 United Cities Natural Gas 517,500
Natural Gas Utility
- --------------------------------------------------------------------------------
Total 5,400,000
- --------------------------------------------------------------------------------
Oil Services--5.0%
53,700 Atwood Oceanics (b) 3,409,950
Offshore Drilling
145,000 GeoScience (b) 1,885,000
Offshore Seismic Equipment
53,000 J Ray McDermott (b) 1,166,000
Offshore Construction
- --------------------------------------------------------------------------------
Total 6,460,950
- --------------------------------------------------------------------------------
Energy/Minerals Total 30,813,700
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount Value
<S> <C>
Total Common Stocks and Other
Equity-Like Securities--90.3% $116,385,038
- --------------------------------------------------------------------------------
(Cost: $96,923,306)
Short-Term Obligation--7.5% 9,690,000
$9,690,000 State Street Bank Repurchase
Agreement 4.75% 01/02/97;
12/31/96 Agreement Collateralized by U.S. Treasury Bonds
- --------------------------------------------------------------------------------
(Cost: $9,690,000)
Total Investments--97.8% 126,075,038
- --------------------------------------------------------------------------------
(Cost: $106,613,306)
Cash and Other Assets Less Liabilities--2.2% 2,882,873
- --------------------------------------------------------------------------------
Total Net Assets--100% $128,957,911
</TABLE>
- --------------------------------------------------------------------------------
Notes to Statement of Investments:
(a) At December 31, 1996, for federal income tax purposes cost of investments
was $106,613,306 and net unrealized appreciation was $19,461,732,
consisting of gross unrealized appreciation of $21,927,316 and gross
unrealized depreciation of $2,465,584.
(b) Non-income producing security.
See accompanying notes to financial statements.
11
<PAGE>
Wanger Advisors Trust 1996 Annual Report
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1996
<S> <C> <C>
- ---------------------------------------------------------------------------
Number Value
of Shares
Common Stocks and Other Equity-Like
Securities-93.3%
Europe-42.3%
- ---------------------------------------------------------------------------
Germany/Austria-2.0%
10,000 Rhoen Klinikum Ord. $1,044,708
1,200 Rhoen Klinikum Pfd. 119,136
Hospital Management
2,500 Cewe Color Holdings 567,776
Photographic Developing/Printing
- ---------------------------------------------------------------------------
Total 1,731,620
- ---------------------------------------------------------------------------
Denmark-0.8%
5,000 Kompan International (b) 703,521
Playground Equipment
- ---------------------------------------------------------------------------
Netherlands-2.0%
86,000 Kempen (b) 1,690,369
Stock Brokerage/Investment Management
- ---------------------------------------------------------------------------
Finland-3.4%
34,000 TT Tieto, Cl. B 2,868,865
Computer Services/Consulting
- ---------------------------------------------------------------------------
Norway-0.9%
62,500 P4 Radio Helo Norge (b) 567,701
Commercial Radio Station
55,000 Sysdeco Group (b) 220,503
Software "Tool" Sets & Systems
- ---------------------------------------------------------------------------
Total 788,204
- ---------------------------------------------------------------------------
Sweden-7.6%
100,000 Getinge Industrier 1,969,830
Sterilization & Disinfection Equipment
50,000 Esselte, Series A 1,135,032
Office Supplies & Related Equipment
60,000 Mandator (b) 984,183
Computer Services/Consulting
8,000 Scala International (b) 726,421
Accounting Software
40,000 Frontec, Series B. (b) 691,271
Computer Services & Software
</TABLE>
- ---------------------------------------------------------------------------
Number
of Shares Value
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Sweden-7.6% (cont.)
<S> <C> <C>
20,000 Tryckindustri $ 600,469
Printer
13,714 Pricer, Cl. B (b) 337,427
Electronic Shelf Labels for Supermarkets
- ---------------------------------------------------------------------------
Total 6,444,633
- ---------------------------------------------------------------------------
France-2.6%
12,000 Axime Ex Segin (b) 1,384,935
Computer Services/Consulting
7,250 Fininfo 767,004
Financial Data Feeds
- ---------------------------------------------------------------------------
Total 2,151,939
- ---------------------------------------------------------------------------
United Kingdom/Ireland-16.1%
402,361 Medeva 1,759,272
Drugs for Hyperactive Children
185,000 Oriflame International 1,693,759
Natural Cosmetics Sold Door-to-Door
2,500,000 Premier Oil (b) 1,518,779
Oil & Gas Producer
799,700 St James Place 1,347,999
Life Insurance
40,000 Euro Money Publications 960,039
Financial Publications & Databases
117,000 Seton Healthcare Group 910,010
Pharmaceuticals
170,000 Tunstall 781,123
Monitoring Equipment
80,000 Edinburgh Fund Managers 772,139
Investment Management
223,500 Bluebird Toys 751,564
"Polly Pocket" Toy Manufacturer
2,000,000 Electronics Boutique (b) 701,633
Videogame/Computer Software Stores
58,500 Serco Group 674,749
Facilities Management
80,000 N. Brown Group 614,014
Mail Order Clothing in Large Sizes
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
<S> <C>
- --------------------------------------------------------------------------------
United Kingdom/Ireland-16.1% (cont.)
65,000 Dorling Kindersley $457,730
Reference Books & CD-ROMs
35,000 Planning Sciences (b) 420,000
Database & Business Intelligence Software
13,000 International Cabletel (b) 328,250
Cable TV & Telephone System
- --------------------------------------------------------------------------------
Total 13,691,060
- --------------------------------------------------------------------------------
Portugal-0.6%
45,400 Filmes Lusomundo (b) 522,283
Newspapers, Radio, Video, Film Distribution
- --------------------------------------------------------------------------------
Switzerland-1.9%
2,000 Societe Generale d'Affichage 893,655
Billboard Advertising
1,400 Phoenix Mecano 731,903
Electrical Components
- --------------------------------------------------------------------------------
Total 1,625,558
- --------------------------------------------------------------------------------
Hungary-0.2%
5,000 Cofinec (b) 151,250
Consumer Goods Packaging
- --------------------------------------------------------------------------------
Italy/Greece-4.2%
399,000 Banca Fideuram 874,362
Life Insurance & Mutual Funds
120,000 Athens Medical Center 841,474
Hospitals (Greece)
300,000 Costa Crociere 726,077
Mediterranean Cruise Line
30,000 Intracom (b) 674,881
Telecommunications Equipment (Greece)
15,000 Cellular Communications International (b) 435,000
Mobile Communications
- --------------------------------------------------------------------------------
Total 3,551,794
- --------------------------------------------------------------------------------
Europe Total 35,921,096
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
<S> <C>
Asia-30.7%
- --------------------------------------------------------------------------------
Hong Kong/China-2.7%
3,500,000 Golden Harvest Entertainment 1,176,471
Movie Distribution & Exhibition
1,300,000 Li and Fung 1,151,260
Sourcing of Consumer Goods
- --------------------------------------------------------------------------------
Total 2,327,731
- --------------------------------------------------------------------------------
Japan-14.6%
30,000 Hokuto 1,315,585
Mushroom Grower
51,600 Central Uni 1,178,082
Health Care/Medical Equipment
30,000 Konami 1,020,936
Entertainment Software/Hardware
20,300 HIS 979,409
Travel Agent
15,000 Tiemco (b) 958,904
Fishing Equipment
40,000 Arrk 923,581
Industrial Modeling
30,000 People 904,627
Sports Clubs
25,000 Nihon Jumbo 870,165
Photo Processing Lab
27,000 NuSkin Asia Pacific (b) 833,625
Personal Care Products
10,000 Ryohin Keikaku 740,932
Specialty Consumer Goods Retailer
11,400 Paramount Bed 726,803
Hospital Bed Manufacturer
30,000 Shinki 692,685
Corporate & Consumer Lending
10,500 Noritsu Koki 493,021
Photo Processing Lab Manufacturer
32,000 Belluna 479,711
Catalog Sales
10,000 Mars Engineering 254,157
150 Mars Engineering Warrants 1/25/00 18,750
Gaming Systems & Machinery
- --------------------------------------------------------------------------------
Total 12,390,973
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Statement of Investments December 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
<S> <C>
- --------------------------------------------------------------------------------
Malaysia-1.7%
300,000 Malaysian Assurance Alliance $1,461,097
Insurance
- --------------------------------------------------------------------------------
Indonesia/Philippines-2.6%
3,000,000 Int'l Container Terminal Services (b) 1,568,441
Container Handling Terminals
& Port Management (Philippines)
600,000 PILTEL (b) 507,605
Mobile Communications (Philippines)
214,800 Suba Indah 131,835
Beverage and Food
- --------------------------------------------------------------------------------
Total 2,207,881
- --------------------------------------------------------------------------------
India-0.5%
30,000 IS Himalaya Fund (b) 387,000
Closed-End Fund
- --------------------------------------------------------------------------------
Korea-1.8%
35,000 Dongbu Fire & Marine Insurance (b) 1,168,267
Non-Life Insurance
1,500 S-1 Corporation New (b) 246,600
500 S-1 Corporation 91,662
Alarm Monitoring
- --------------------------------------------------------------------------------
Total 1,506,529
- --------------------------------------------------------------------------------
Singapore-5.8%
1,000,000 Genting International 2,400,000
Cruise Line
599,956 Venture Manufacturing 1,492,599
411,134 Venture Manufacturing Warrants 7/26/99 (b) 661,318
Contract Electronics Manufacturer
200,000 Datacraft Asia 334,000
Computer Consulting
- --------------------------------------------------------------------------------
Total 4,887,917
- --------------------------------------------------------------------------------
Thailand-1.0%
769,000 Shinawatra Satellite 869,774
Satellite Leasing
- --------------------------------------------------------------------------------
Asia Total 26,038,902
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number Value
of Shares
<S> <C>
Latin America-9.2%
- --------------------------------------------------------------------------------
Mexico-3.4%
235,000 Grupo Radio Centro (b) 1,615,625
Radio Broadcasting/Networks
417,000 Nadro, Series L 1,244,855
Pharmaceutical Distribution
- --------------------------------------------------------------------------------
Total 2,860,480
- --------------------------------------------------------------------------------
Argentina-3.8%
700,000 Siderca 1,277,755
Seamless Pipe for Oil Wells
120,000 Patagonia 1,128,226
Supermarkets
412,000 Cresud (b) 729,386
Agriculture
28,000 Siderar (b) 80,656
Flat Rolled Steel
- --------------------------------------------------------------------------------
Total 3,216,023
- --------------------------------------------------------------------------------
Other Latin America-2.0%
15,000 Genesis Chile Fund 551,250
Closed-End Fund (Chile)
50,000 Elevadores Atlas 490,809
Elevator Services (Brazil)
8,000 Ceteco Holdings 460,169
Appliances Retailer (Central America)
550,000 Brazilian Smaller Companies Warrants 261,250
Closed-End Fund
- --------------------------------------------------------------------------------
Total 1,763,478
- --------------------------------------------------------------------------------
Latin America Total 7,839,981
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Wanger International Small Cap Statement of Investments December 31, 1996
- --------------------------------------------------------------------------------
Number Value
of Shares
Other Countries--11.1%
- --------------------------------------------------------------------------------
<S> <C> <C>
Australia--5.5%
1,417,976 Tyndall $ 2,421,542
Money Management & Insurance
800,000 Austereo 1,270,880
Radio Broadcasting
500,000 Australian Hospital Care (b) 992,875
Hospital Management
- --------------------------------------------------------------------------------
Total 4,685,297
- --------------------------------------------------------------------------------
Israel--1.2%
70,100 Blue Square Israel (b) 998,925
Supermarkets & Department Stores
- --------------------------------------------------------------------------------
Canada--4.4%
70,000 Shaw Industries 1,414,606
Oil Field Services
140,000 Ranger Oil 1,382,500
Oil & Gas Producer
250,000 Pan East Petroleum (b) 893,704
Oil & Gas Producer
- --------------------------------------------------------------------------------
Total 3,690,810
- --------------------------------------------------------------------------------
Other Countries Total 9,375,032
</TABLE>
- --------------------------------------------------------------------------------
Principal Amount Value
<TABLE>
<CAPTION>
<S> <C>
Total Common Stocks and Other
Equity-Like Securities--93.3% $79,175,011
- --------------------------------------------------------------------------------
(Cost: $71,170,835)
Short-Term Obligation--6.1% 5,185,000
$5,185,000 State Street Bank Repurchase
Agreement 4.75% 01/02/97;
12/31/96 Agreement Collateralized by U.S. Treasury Bonds
- --------------------------------------------------------------------------------
(Cost: $5,185,000)
Total Investments--99.4% 84,360,011
- --------------------------------------------------------------------------------
(Cost: $76,355,835)
Cash and Other Assets Less Liabilities--0.6% 495,071
- --------------------------------------------------------------------------------
Total Net Assets--100% $84,855,082
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Notes to Statement of Investments:
(a) At December 31, 1996, for federal income tax purposes cost of investments
was $76,543,791 and net unrealized appreciation was $7,816,220 consisting
of gross unrealized appreciation of $13,081,776 and gross unrealized
depreciation of $5,265,556.
(b) Non-income producing security.
See accompanying notes to financial statements.
15
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Wanger International Small Cap Portfolio Diversification December 31, 1996
- --------------------------------------------------------------------------------
Percent Value
<S> <C>
At December 31, 1996, the
Fund's portfolio
of investments as a
percentage of net assets
was diversified as follows
- --------------------------------------------------------------------------------
Information
10.3% Software/Services $ 8,734,816
4.4 Broadcasting/CATV 3,782,456
2.1 Mobile Communications 1,812,379
1.7 Distribution 1,417,769
0.9 Consumer Electronics 731,903
0.8 Equipment 674,881
- --------------------------------------------------------------------------------
20.2 Total 17,154,204
- --------------------------------------------------------------------------------
Health Care
5.3 Biotechnology/Drug Delivery 4,436,420
3.7 Equipment 3,147,912
3.2 Services 2,746,250
2.0 Hospital/Laboratory Supplies 1,719,678
- --------------------------------------------------------------------------------
14.2 Total 12,050,260
- --------------------------------------------------------------------------------
Consumer Goods/Services
11.7 Retail 9,974,101
7.9 Entertainment/Leisure 6,738,105
6.2 Manufacturers 5,229,551
2.6 Food 2,176,806
- --------------------------------------------------------------------------------
28.4 Total 24,118,563
</TABLE>
- --------------------------------------------------------------------------------
Percent Value
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Finance
<S> <C>
9.8% Money Management $ 8,305,911
3.2 Other 2,752,369
3.1 Insurance 2,629,364
- --------------------------------------------------------------------------------
16.1 Total 13,687,644
- --------------------------------------------------------------------------------
Industrial Goods/Services
8.3 Services 7,010,946
0.1 Steel 80,656
- --------------------------------------------------------------------------------
8.4 Total 7,091,602
- --------------------------------------------------------------------------------
Energy/Minerals
4.5 Oil/Gas Producers 3,794,983
1.5 Oil Services 1,277,755
- --------------------------------------------------------------------------------
6.0 Total 5,072,738
- --------------------------------------------------------------------------------
93.3 Total Common Stocks and 79,175,011
Other Equity-Like Securities
- --------------------------------------------------------------------------------
6.1 Short-Term Obligations 5,185,000
- --------------------------------------------------------------------------------
0.6 Cash and Other Assets less Liabilities 495,071
- --------------------------------------------------------------------------------
100.0 Net Assets $84,855,082
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities December 31, 1996
<TABLE>
<CAPTION>
Wanger U.S. Wanger
Small Cap International
Small Cap
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments, at value (cost: Wanger U.S. Small
Cap $106,613,306; Wanger International Small
Cap $76,355,835) $126,075,038 $84,360,011
Cash 5,875 360,529
Organization costs 66,641 66,641
Receivable for:
Securities sold 1,454,509 102,948
Fund shares sold 2,802,009 674,765
Dividends and interest 35,315 60,965
- --------------------------------------------------------------------------------
Total assets 130,439,387 85,625,859
- --------------------------------------------------------------------------------
Liabilities and Net Assets
Payable for:
Securities purchased 1,373,760 651,443
Amount owed to advisor 66,812 66,693
Other 40,904 52,641
- --------------------------------------------------------------------------------
Total liabilities 1,481,476 770,777
- --------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $128,957,911 $84,855,082
- --------------------------------------------------------------------------------
Fund shares outstanding 7,598,121 4,791,121
- --------------------------------------------------------------------------------
Pricing of Shares
Net asset value, offering price and redemption
price per share $16.97 $17.71
- --------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $105,966,024 $74,585,481
Undistributed net realized gain on sales of
investments and foreign currency transactions 3,530,155 2,453,188
Unrealized appreciation of investments and
foreign currency transactions 19,461,732 7,816,413
(net of unrealized PFIC gains of $187,956
for Wanger International Small Cap)
Net investment loss -- --
- --------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $128,957,911 $84,855,082
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust 1996 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------------
Statements of Operations For the Year Ended December 31, 1996
Wanger U.S. Wanger International
Small Cap Small Cap
- -----------------------------------------------------------------------------------------------------------------------------------
Investment Income:
<S> <C> <C>
Dividends (net of foreign taxes of $51,646 for Wanger International Small Cap) $ 338,661 $ 474,929
Interest 217,556 106,849
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment income 556,217 581,778
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Investment advisory 704,115 631,977
Legal and audit fees 56,103 56,023
Amortization of organization costs 20,031 20,031
Transfer agent 18,440 18,174
Reports to shareholders 16,857 17,483
Trustees' 15,524 15,400
Insurance 7,017 7,037
Custodian 17,508 102,609
Other 5,055 6,375
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 860,650 875,109
Less custodian fees paid indirectly (17,508) (20,862)
- -----------------------------------------------------------------------------------------------------------------------------------
Net expenses 843,142 854,247
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment loss (286,925) (272,469)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 3,926,442 2,570,609
Net change in unrealized appreciation 19,022,289 6,894,415
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 22,948,731 9,465,024
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $22,661,806 $9,192,555
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
--------------------------------------- ---------------------------------------
Wanger U.S. Small Cap Wanger International Small Cap
Year ended May 3, 1995 through Year ended May 3, 1995 through
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
From operations:
Net investment loss $(286,925) $(102,659) $(272,469) $(27,334)
Net realized gain on sales of investments 3,926,442 59,816 2,570,609 53,290
Net change in unrealized appreciation 19,022,289 439,443 6,894,415 1,109,954
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 22,661,806 396,600 9,192,555 1,135,910
Distributions to shareholders from:
Net investment income - - (6,530) -
Net realized gain (66,519) - (52,334) -
- -----------------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders (66,519) - (58,864) -
From Fund share transactions:
Reinvestment of dividends and capital gain
distributions 66,519 - 58,864 -
Proceeds from shares sold 91,019,446 24,819,962 67,872,674 11,951,601
- -----------------------------------------------------------------------------------------------------------------------------------
91,085,965 24,819,962 67,931,538 11,951,601
Payments for shares redeemed (6,626,877) (3,438,708) (3,579,071) (1,844,269)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share
transactions 84,459,088 21,381,254 64,352,467 10,107,332
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets 107,054,375 21,777,854 73,486,158 11,243,242
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets:
Beginning of Period 21,903,536 125,682 11,368,924 125,682
- -----------------------------------------------------------------------------------------------------------------------------------
End of Period (a) $128,957,911 $21,903,536 $84,855,082 $11,368,924
===================================================================================================================================
</TABLE>
(a) Includes accumulated net investment loss of $102,659 for Wanger U.S. Small
Cap and $27,401 for Wanger International Small Cap in 1995.
See accompanying notes to financial statements.
19
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Financial Highlights
<TABLE>
<CAPTION>
Year ended May 3, 1995 through
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning of period $ 11.60 $ 10.00
Income From Investment Operations
Net investment loss (c) (.06) (.05)
Net realized and unrealized gain on investments 5.46 1.65
- ---------------------------------------------------------------------------------------------------
Total from investment operations 5.40 1.60
Less Distributions
Dividends from net investment income -- --
Distributions from net realized gain (0.03) --
- --------------------------------------------------------------------------------------------------
Total distributions (0.03) --
Net Asset Value, end of period $ 16.97 $ 11.60
- --------------------------------------------------------------------------------------------------
Total Return 46.59% 16.00%
Ratios/Supplemental Data:
Ratio of expenses to average net assets (a)(b) 1.21% 2.08% *
Ratio of net investment loss to average net assets (b) (.41%) (1.44%)*
Portfolio turnover rate 46% 59% *
Net assets at end of period $128,957,911 $21,903,536
The average commissions paid per share on stock transactions for the
year ended December 31, 1996 was $.0581.
- ---------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 1.19% 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 net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss 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 year ended December 31, 1996 was
based upon the average shares outstanding during the year.
See accompanying notes to financial statements.
20
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Wanger International Small Cap Financial Highlights
<TABLE>
<CAPTION>
Year ended May 3, 1995 through
December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, beginning of period $13.45 $10.00
Income From Investment Operations
Net investment loss (c) (.09) (.03)
Net realized and unrealized gain on investments 4.38 3.48
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.29 3.45
Less Distributions
Dividends from net investment income -- --
Distributions from net realized gain (.03) --
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (.03) --
Net Asset Value, end of period $17.71 $13.45
- ------------------------------------------------------------------------------------------------------------------------
Total Return 32.01% 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 1.79% 2.32% *
Ratio of net investment loss to average net assets (b) (0.56%) (0.81%)*
Portfolio turnover rate 50% 14% *
Net assets at end of period 84,855,082 11,368,924
The average commissions paid per share on stock transactions
for the year ended December 31, 1996 was $.0130.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
(a) In accordance with a requirement of the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 1.75% for the year ended December 31, 1996
and 2.00% for the period ended December 31, 1995.
(b) The Fund was reimbursed by the Advisor for certain expenses from May 3, 1995
through December 31, 1995. Without the reimbursement, the ratio of expenses
to average net assets and the ratio of net investment income to average net
assets for the period ended December 31, 1995 would have been 4.20% and
(2.69)%, respectively.
(c) Net investment loss per share for the year ended December 31, 1996 was
based upon the average shares outstanding during the year.
See accompanying notes to financial statements.
21
<PAGE>
Wanger Advisors Trust 1996 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 at a fair value 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. Net realized gains for Wanger U.S. Small Cap include
distributions of realized gains from other investment companies of $202,920 in
1996.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on each Fund's cash balances maintained with
the custodian. This presentation does not affect the determination of net
investment income.
Federal income taxes, dividends and distributions to shareholders
The Funds have complied with the special provisions of the Internal Revenue Code
available to regulated investment companies and, in the manner provided therein,
distribute all of their taxable income, as well as any net realized gain on
sales of investments and foreign currency transactions reportable for federal
income tax purposes.
Wanger International Small Cap has elected to mark-to-market its investment
in Passive Foreign Investment Companies ("PFICS") for income tax purposes. In
accordance with this election, the Fund recognized cumulative net unrealized
appreciation on PFICS of $210,309 for the year ended December 31, 1996. The
amount for 1996 is treated as ordinary income for federal income tax purposes,
and as such, is used to offset the net investment loss incurred by the Fund.
Cumulative net unrealized appreciation recognized in prior years on PFICs sold
in 1996 amounted to $22,353.
Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.
Reclassifications have been made in 1996 for Wanger U.S. Small Cap and
Wanger International Small Cap in the accompanying analysis of net assets from
accumulated net investment loss to undistributed net realized gains on sales of
investments of $389,584 and $96,091, respectively, to reflect differences
between financial reporting and income tax bases.
22
<PAGE>
[LOGO]
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Notes to Financial Statements
3. Transactions with Affiliates
The Fund's investment advisor, Wanger Asset Management, L.P. ("WAM"), furnishes
continuing investment supervision to the Funds and is responsible for overall
management of the Funds' 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 agreements also provide that WAM will reimburse the
Funds to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 1.50% (2.00% in 1995) for Wanger U.S. Small Cap and 1.90%
(2.00% in 1995) 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, 1996.
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. Wanger U.S. Small Cap and Wanger International Small Cap incurred
trustees' fees and expenses of $15,524 and $15,400 respectively, for the year
ended December 31, 1996 to trustees not affiliated with WAM.
WAM advanced $100,000 to each Fund in connection with their organization
and initial registration. 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. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statements 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 Period ended Year ended Period ended
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 6,137,385 2,170,461 4,154,432 986,106
Shares issued in reinvestment of dividend and
capital gain distributions 5,157 - 3,911 -
- -----------------------------------------------------------------------------------------------------------------------------------
6,142,542 2,170,461 4,158,343 986,106
Less shares redeemed 432,817 294,633 212,404 153,492
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in shares outstanding 5,709,725 1,875,828 3,945,939 832,614
===================================================================================================================================
</TABLE>
5. Investment transactions
The aggregate cost of purchases and proceeds from sales other than short-term
obligations for the year ended December 31, 1996 were:
<TABLE>
<CAPTION>
Purchases Sales
<S> <C> <C>
Wanger U.S. Small Cap $103,202,082 $30,342,586
Wanger International Small Cap 82,019,311 23,145,432
</TABLE>
23
<PAGE>
Wanger Advisors Trust 1996 Annual Report
- --------------------------------------------------------------------------------
Report of Independent Auditors
To the Shareholders and the Board of Trustees
of Wanger Advisors Trust
We have audited the accompanying statements of assets and liabilities, including
the statements of investments, of the Wanger Advisors Trust, comprising the U.S.
Small Cap and Wanger International Small Cap portfolios, as of December 31,
1996, the related statements of operations for the year then ended and changes
in net assets and the financial highlights for the periods indicated thereon.
These financial statements and financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, 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 portfolios of the Wanger Advisors Trust as of December
31, 1996, the results of their operations for the year then ended and changes in
net assets and financial highlights for the periods indicated thereon, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1997
24
<PAGE>
<TABLE>
<CAPTION>
Wanger Advisors Trust
<S> <C>
Trustees Transfer Agent,
Fred D. Hasselbring Dividend Disbursing Agent
Charles P. McQuaid and Custodian
P. Michael Phelps
James A. Star State Street Bank
Ralph Wanger and Trust Company
Attention:
Officers Wanger Advisors Trust
P.O. Box 8502
Ralph Wanger Boston, Massachusetts
President 02266-8502
Charles P. McQuaid Distributor
Senior Vice President WAM Brokerage
Services, L.L.C.
Terence M. Hogan 227 West Monroe Street
Vice President Suite 3000
Chicago, Illinois 60606
Leah J. Zell 1-800-5-WANGER
Vice President (1-800-592-6437)
Merrillyn J. Kosier Investment Advisor
Vice President and Wanger Asset
Secretary Management, L.P.
227 West Monroe Street
Bruce H. Lauer Suite 3000
Vice President and Chicago, Illinois 60606
Treasurer 1-800-5-WANGER
(1-800-592-6437)
Kenneth A. Kalina
Assistant Treasurer Legal Counsel
Bell, Boyd & Lloyd
Chicago, Illinois
Independent Auditors
Ernst & Young LLP
Chicago, Illinois
</TABLE>
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.
