-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P/xCeXrQocVsTFn/ff9drSqkxLG0apkfmXcZpavgjUMiuaI0aCZtkN8gJsipw8XJ EZC9lQTXAvLWr2HH9YUBzg== 0000950131-97-001514.txt : 19970304 0000950131-97-001514.hdr.sgml : 19970304 ACCESSION NUMBER: 0000950131-97-001514 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970303 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN INVESTMENT TRUST CENTRAL INDEX KEY: 0000002110 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01829 FILM NUMBER: 97549102 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE ST STE 3000 STREET 2: ATTN: BRUCE LAUER CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 ACORN - ANNUAL REPORT The Acorn Family of Funds Annual Report ------------------------------ December 31, 1996 Managed by Wanger Asset Management, L.P.
Acorn Family of Funds Annual Report 1996 .Table of Contents Squirrel Chatter .Excerpt from A Zebra in Lion Country 1 Acorn USA .In a Nutshell 2 .Performance at a Glance 3 .Statement of Investments 10 Acorn Fund .In a Nutshell 2 .Performance at a Glance 5 .Major Portfolio Changes 12 .Statement of Investments 14 .Foreign Portfolio Diversification 20 Acorn International .In a Nutshell 6 .Performance at a Glance 7 .Major Portfolio Changes 21 .Statement of Investments 23 .Portfolio Diversification 30 Acorn Family of Funds .Tax News 3 .The Scarlet A Awards 8 .Reflections on the Year 9 .Report of Independent Auditors 31 .Financial Highlights 32 .Statements of Assets 34 and Liabilities .Statements of Operations 35 .Statements of Changes in 36 Net Assets .Notes to Financial 37 Statements
Press Recognition .On February 3, 1997, BusinessWeek ran a cover story entitled, "The Best Mutual Funds". A prominent financial planner recommended Acorn International for his model portfolio. In the same issue, Acorn Fund was one of three small-cap growth funds featured in a comparison of five-year risk-adjusted returns. .A few days later, on February 10, 1997, Forbes printed a remarkably similar story entitled, "How to Build a Mutual Fund Portfolio." Acorn Fund was one of the four recommended "good buys" among small-company funds. .Squirrel Chatter People ought to invest at least a minimum in Acorn Fund if only to get hold of Acorn's quarterly reports and read the president's tale..... - --Mutual Funds Magazine, July 1996 A Zebra in Lion Country, by Ralph Wanger, is due out in bookstores in April. Published by Simon & Schuster, this book is a witty survival guide to investing. It also features some of Ralph Wanger's letters to shareholders which investors have enjoyed reading over the years. An excerpt from his 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. 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 apiece, 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. 1 Acorn USA .In a Nutshell Acorn USA's first baby step was a grown-up leap. From launch date (September 4, 1996) through year-end, your Fund rocketed 16.5%, nearly double the return of the small-cap Russell 2000 index. Nobody (including us) can maintain that pace, but we're certainly off to a great start. Acorn USA's stellar performance was not the result of any single stock or sector concentration. Rather, our top stocks were a multi-industrial group, exhibiting the virtue of portfolio diversification. Our best performing energy stock was NGC Corp., a natural gas broker benefiting from buoyant gas prices and utility deregulation. 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. Best banker was Coast Savings, caught in the California S&L merger wave. Our growth utility (no oxymoron) CalEnergy benefited from a strong jolt caused by its recent acquisition of a UK electric company. We even cashed in on some Internet hysteria. Our top tech stock was American Business Information (ABII), a collector and vendor of financial data on small businesses. The stock crashed mid-year on overblown fears that free Internet data sources would send ABII's business the way of the buggy whip. Funny thing... the over-hyped Internet stocks got the whipping, while our Internet 'victim' soared 60%. Be 1997 bull or bear or somewhere in between, we're sticking to the same stock-by-stock fundamentals- based investment style that has so far proved very valuable getting Acorn USA off to a good start. /s/ Robert A. Mohn Robert A. Mohn Portfolio Manager Fund Assets as of 12/31/96: $53.1 million .Acorn USA Top 10 Holdings
CalEnergy 8.2% Power Plants NGC 6.1% Gas Processing/Marketing Coast Savings 4.8% California Savings & Loan GeoScience 4.7% Offshore Seismic Equipment Wackenhut 4.5% Prison Management Respironics 4.2% Sleep Apnea Products Lincare Holdings 3.7% Home Health Care Services World Color Press 3.6% Printing Data Transmission 3.6% Data Services for Farmers Seagull Energy 3.6% Oil/Gas Producer
The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Fund - ----------------------------------- facts Our e-mail address has changed! The new address is acorn@wanger.com Find out what's new at Acorn. Visit our interactive web site at www.wanger.com 2 .Performance at a Glance Acorn USA Portfolio Diversification .as a % of net assets, as of 12/31/96 [PIE CHART APPEARS HERE]
Information 18.3% Health Care 12.6% Consumer Goods/Services 6.0% Finance 9.0% Industrial Goods/Services 17.9% Energy/Minerals 27.1% Cash 9.1% ------ 100.0%
Acorn Family of Funds .Tax News Residents of Florida and Pennsylvania may be required to pay an intangibles tax or a personal property tax on a portion of the year-end value of any of the Acorn funds. The taxable NAVs for each Acorn fund are listed below:
Taxable NAVs ---------------------------------------- Acorn Acorn Fund International Acorn USA FL Intangibles Tax $14.99 $19.61 $11.65 PA Personal Property Tax $11.94 $17.99 $ 7.27
Relative Performance - ----------------------------------------------------------------- 4th quarter since inception 1996 (9/4/96) Acorn USA 8.7% 16.5% Russell 2000 5.2% 9.0% S&P MidCap 400 6.1% 10.7% S&P 500 8.3% 13.8% Dow-Jones 10.2% 15.7%
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 beginning value used to compute the Dow Jones "since inception" return in the chart above is as of 8/31/96. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/96: $11.65 A I U IRA - --------------------------------------------------- Reminder Remember, you have until April 15, 1997 to make your 1996 IRA contribution. For an IRA booklet, please call 1-800-9-ACORN-9 (1-800-922-6769). 3 Acorn Fund .In a Nutshell Acorn Fund went up 4.2% in the fourth quarter. That makes eight consecutive up quarters. 1996 was a good year for us. Our gain of 22.6% is a fine absolute result, and ahead of the small-cap market averages (S&P MidCap 400, Russell 2000, Lipper Small Company Growth Funds Index) in the relative performance table on page 5. Our foreign stocks matched our strong domestic results. Our results are analyzed in detail on page 9. Our best stocks in the fourth quarter included some long-term holdings and some new names. We first purchased Expeditors International way back in 1987 for $3.00. The airfreight forwarder flew high for us, soaring 30 percent and boosting the Fund $6 million. ACT Manufacturing gave us a wonderful 46.5%+ performance in the quarter. This contract assembler serves the burgeoning telecommunications industry, and it built a $4.8 million gain. We got a tingle from American Power Conversion, which gained 86% in the quarter. APC makes back-up power supplies for computers. Our summer purchase sparked a fast $4 million fourth quarter gain. U.S. blue chip companies have had an awesome run over the last two years. Small capitalization stocks are up, but not nearly as much. Over the long-run, small company stocks have done better than large-cap stocks in the past. We can't predict the future, but we think the reasons for that superior long-term performance are still true. We're patient, long-term investors, and we're still finding fine companies that have stocks selling at prices we think are fair. /s/ Charles P. McQuaid /s/ Terence M. Hogan Charles P. McQuaid Terence M. Hogan Co-Portfolio Manager Co-Portfolio Manager
Fund Assets as of 12/31/96: $2,842.1 million .Acorn Fund Top 10 Holdings ADVANTA 1.9% Credit Cards Harley Davidson 1.8% Recreational Vehicles Manufacturer Carnival 1.6% Cruise Ship Line Liberty Media 1.6% CATVProgramming AES Corporation 1.6% Global Power Producer Lincare Holdings 1.4% Home Health Care Services Thermo Electron 1.4% Energy Systems/Processing Equipment First USA 1.3% Credit Cards Seagull Energy 1.2% Oil/Gas Producer Borders 1.2% Bookstores
The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings, including those described under "In a Nutshell."
Fund - ---------------------------------------------------------------- facts Full Year Distributions ---------------------------------------- Acorn Fund Acorn Int'l Acorn USA Ordinary Income $0.11 $0.12 -- Short-Term Capital Gain $0.13 - -- Long-Term Capital Gain $1.34 $0.28 -- Total Per Share in 1996: $1.58 $0.40 --
4 .Performance at a Glance The Value of a $10,000 Investment in Acorn Fund .June 10, 1970 through December 31, 1996 [GRAPH APPEARS HERE] Average Annual Total Return - --------------------------------------------------- 1 Year 5 Years 10 Years Life of Fund 22.6% 17.6% 16.1% 16.7%
Acorn Fund Mountain Chart Plot Points Date Acorn Fund ($) S & P ($) - ---- -------------- --------- 1970 10,000 10,000 1971 17,828 14,490 1972 19,368 17,242 1973 14,765 14,709 1974 10,691 10,816 1975 13,945 14,842 1976 23,045 18,394 1977 27,168 17,077 1978 31,777 18,200 1979 47,790 21,586 1980 62,594 28,602 1981 58,005 27,195 1982 68,208 33,054 1983 85,389 40,510 1984 89,045 43,051 1985 117,142 56,710 1986 136,843 67,295 1987 142,923 70,828 1988 178,370 82,591 1989 222,681 108,761 1990 183,674 105,386 1991 270,641 137,492 1992 336,210 147,928 1993 444,889 162,882 1994 411,750 165,032 1995 497,407 227,047 9/30/96 584,766 257,697 12/31/96 609,569 279,177 Acorn Fund S&P 500 - ---- -------------- --------- $609,569 $279,177
This graph compares the results of $10,000 invested in Acorn Fund on June 10, 1970 (the date Fund shares were first offered to the public), with all dividends and capital gains reinvested, with the Standard & Poor's 500 Stock Index with dividends reinvested (source: Salomon Brothers Inc Stock Facts and Shaw Data Services, Inc.). Past performance 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. Acorn Fund Portfolio Diversification .as a % of net assets, as of 12/31/96 [PIE CHART APPEARS HERE]
Information 17.9% Health Care 9.1% Consumer Goods/Services 9.1% Finance 15.8% Industrial Goods/Services 10.6% Energy/Minerals 10.4% Real Estate 2.8% Foreign 22.3% Cash 2.0% ------ 100.0%
Relative Performance - --------------------------------------------------- 4th quarter Last 12 mos. 1996 Acorn Fund 4.2% 22.6% Dow-Jones 10.2% 28.9% S&P 500 8.3% 23.0% S&P MidCap 400 6.1% 19.2% Russell 2000 5.2% 16.5% Lipper Small Company Growth Funds Index -0.9% 14.5%
The Dow Jones Industrial Average includes 30 large companies. The S&P 500 is a broad market-weighted average, still blue-chip dominated. 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 Russell 2000 is formed by taking 3,000 companies and then eliminating the largest 1,000 leaving a good small company index. The Lipper Small Company Growth Funds Index is composed of the 30 largest small company growth funds tracked by Lipper Analytical Services. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/96: $15.04 - ------------------------------------------ 5 Acorn International .In a Nutshell Markets stayed on trend in the fourth quarter. The Goldilocks theory of a U.S. economy neither "too hot nor too cold" powered a strong rally here. Overseas, Europe continued to outperform and Asia to underperform. The Fund made the most money in Sweden, Finland and the U.K., and lost the most in Japan. Acorn International rose 4.1% over the three-month period, 1.3% ahead of our small-cap peers, as reported by Lipper Analytical Services. We finished 1996 with an excellent gain of 20.7%. We take special pride in returning 7.4% more than the average international small-cap fund and 8.9% more than the average international large-cap fund, as reported by Lipper. Our investment philosophy is to find good companies and hold them long-term. This works. WM Data is a shining example. It was the biggest dollar winner in the portfolio for the second year in a row, earning our shareholders $32.4 million in 1996 on top of a $24.7 million gain in 1995. It also helped us define an outsourcing theme which we used to guide us to other names. Of our top five winners in 1996, three were European computer service companies. The U.S. economy has been the strongest major economy in the world in recent years, and many foreign economies have been in recession. They will catch up. As the world economy improves, the earnings of companies in our portfolio (who have stayed profitable when times were tough) should flourish. Happy New Year! /s/ Leah Joy Zell Leah Joy Zell Co-Portfolio Manager
Fund Assets as of 12/31/96: $1,772.5 million .Acorn International Top 10 Holdings WM Data Sweden 3.4% Computer Services/Consulting T T Tieto Finland 2.4% Computer Services/Consulting Rhoen Klinikum Germany 1.5% Hospital Management Fresenius Germany 1.4% Dialysis Equipment/Solutions Getronics Netherlands 1.4% Computer Consulting Korea Mobile Telecom Korea 1.2% Mobile Communications Serco Group United Kingdom 1.2% Facilities Management Hennes & Mauritz Sweden 1.2% Apparel Stores Capita Group United Kingdom 0.9% Outsourcing Government Services Oriflame International United Kingdom 0.9% Natural Cosmetics Sold Door-to-Door
The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings, including those described under "In a Nutshell." Fund - ---------------------------------------- facts Tax Forms 1099-DIV and 1099-B were mailed to shareholders in January with an informative Tax Guide. The Tax Guide contains important information about claiming a foreign tax credit/deduction (which is new for Acorn International shareholders this year), the income attributable to U.S. Government Obligations, and cost basis. If you did not receive your 1099(s), please call 1-800-962-1585 for a duplicate copy. 6 .Performance at a Glance The Value of a $10,000 Investment in Acorn International .September 23, 1992 through December 31, 1996 [GRAPH APPEARS HERE] Average Annual Total Return - ---------------------------------- 1 Year 3 Years Life of Fund 20.7% 8.1% 17.8%
Acorn Fund Mountain Chart Plot Points Date Acorn Int'l ($) EAFE ($) - ---- --------------- -------- 09/23/92 10,000 10,000 09/30/92 10,010 10,000 12/31/92 10,690 9,614 03/31/93 12,000 10,767 06/30/93 12,920 11,849 09/30/93 13,910 12,635 12/31/93 15,940 12,745 03/31/94 15,850 13,190 06/30/94 15,550 13,864 09/30/94 16,491 13,877 12/31/94 15,334 13,736 03/31/95 14,811 13,992 06/30/95 15,727 14,093 09/30/95 16,824 14,681 12/31/95 16,703 15,275 03/31/96 18,203 15,717 06/30/96 19,593 15,965 09/30/96 19,362 15,945 12/31/96 20,133 16,199 Acorn Fund EAFE International - ---- -------------- --------- $20,133 $16,199
This graph compares the results of $10,000 invested in Acorn International on September 23, 1992 (the date the Fund began operations), with all dividends and capital gains reinvested, with Morgan Stanley's Europe, Australia and Far East Index (EAFE). The beginning value of EAFE is as of 9/30/92. Past performance 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. Acorn International Portfolio Diversification .as a % of net assets, as of 12/31/96 [PIE CHART APPEARS HERE]
Information 24.5% Health Care 7.4% Consumer Goods/Services 24.2% Finance 17.8% Industrial Goods/Services 10.1% Energy/Minerals 5.7% Real Estate 1.3% Transportation 0.7% Cash 8.3% ------ 100.0%
Relative Performance - --------------------------------------------------------- 4th quarter Last 12 mos. 1996 Acorn International 4.1% 20.7% EAFE 1.6% 6.1% Lipper International Small Company Funds Average 2.8% 13.3% Lipper International Funds Average 3.9% 11.8%
EAFE is Morgan Stanley's Europe, Australia 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 International Small Company Funds Average is calculated from the performance of a group of small company international funds, including Acorn International. For the 4th quarter period above, the group consisted of 28 funds. For the 12-month period above, the group consisted of 12 funds. The Lipper International Funds Average is an average of 386 international funds tracked by Lipper Analytical Services. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/96: $19.61 - ------------------------------------------ 7 Acorn Family of Funds .The Scarlet A Awards Wanger Asset Management has 14 skilled investment professionals constantly seeking great stocks. Our ideas come from numerous sources. We do a lot of work to confirm the validity of a stock idea, whether it is initially suggested internally or brought to us by one of our many friends in the brokerage industry. The prestigious Scarlet A award goes to the original source of the idea. The Acorn funds had lots of great stocks in 1996, so only spectacular performers won this year. Each Scarlet A stock soared over 90% and earned our shareholders over $9 million. No stock can grow like that forever (or even for very long), but it's great while it lasts. Acorn International Co-Portfolio Manager Leah Zell is our Stockholm stock stalker, checking in at the Swedish capital twice a year. The international boom in outsourcing continues to be one of our most successful themes, and WM Data stands out as one of our best stocks. This company, a facilities management and data processing organization, carried on its 1995 success and made Acorn International $32 million and Acorn Fund $18.6 million by climbing 91% in 1996. Mikael Randel of Carnegie Securities in Copenhagen wins a Scarlet A for the second year in a row. He introduced Leah to the company back in 1993. Our analysts watch for spinouts, which often outperform the market. Acorn Fund Co-Portfolio Manager Terry Hogan saw K-Mart distributing its specialty retail divisions. Borders Group, a bookstore chain, earned Acorn Fund $17.0 million as it rose 94%. The Scarlet A goes to Terry Hogan for finding this great blue-light special. (If you want to help an Acorn company, buy your copy of A Zebra in Lion Country at Borders or Walden.) We often advocate a patient style of investing. Our willingness to wait for other investors to recognize value paid off with AES Corporation. AES, a global power producer, flickered modest returns for several years, but then surged 95% in 1996, generating a $15.8 million profit for Acorn Fund. Terry Hogan first purchased this stock in 1991 after learning of it from John Hatsopoulos, President of long-time Acorn holding Thermo Electron. Thermo also invested in AES. Scarlet A fans may recall that Thermo Electron appeared on last year's winning list. John Hatsopoulos will receive the coveted Scarlet A this year. The energy sector warmed our hearts and your wallets in 1996. Jason Selch, WAM's oil and gas guru, identified United Meridian in 1996. The Houston-based producer has particular expertise in 3-D seismic and off-shore finds, and has a terrific acquisition record. UMC made $13.9 million for Acorn Fund as it gushed 199% last year. The Scarlet A goes to Hanifen Imhoff's Greg McMichael, who delivered a great study of United Meridian to Jason. We also pay tribute to Ralph Bard, an expert on oil and mining, who helped us over the years. Mr. Bard passed away in late 1996. Jason's second great energy stock was Atwood Oceanics, which provided a $12.1 million profit - a 152% gain. Atwood operates off-shore drilling rigs. The company benefited from rising day-rates for its rigs, which remain well below replacement costs. Atwood was an old-time Acorn holding, dating back to 1990. Mike Breard of Dominick and Dominick presented the idea originally. Mario Cibelli of Robotti & Eng resold the intrinsic value of Atwood Oceanics to Jason, who verified Atwood's attractive attributes and doubled our position. Many thanks to both Mike Breard and Mario Cibelli, two more 1996 Scarlet A winners. Still more wins in the oil service industry were Digicon, a U.S. company in 3-D seismic services, and Veritas, a Canadian company in the same business. Digicon and Veritas merged to become Veritas DGC. The Scarlet A goes to Marshall Adkins, now at Raymond James. Finland is home to TT Tieto and Raision Tehtaat. TT Tieto is a fast-growing computer services/consulting company. This year the stock jumped 160% and brought Acorn International $26 million in profits. Raision Tehtaat is a potato processing co-operative that also deals in paper and pulp specialty chemicals. This stock provided an $18 million profit for Acorn International and a 373% return in 1996. Scarlet A's for both of these great stock ideas go to Leah Zell. Last but not least, we award our first-ever Scarlet A for astute stock selling to Acorn USA Portfolio Manager, Robert Mohn. Rob followed Acorn Fund holding, Mercury Finance. Last year, Mercury's profitable auto loan business shifted into reverse. Rob didn't trust that the company could continue to meet its 20% earnings growth pledge. He began selling the stock in 1996 and completely closed out the position in early 8 January 1997. Soon after, Mercury Finance's CEO resigned as the company publicly admitted to fraudulent earnings statements. Mercury's stock plummeted from $15 to $2 overnight, and now the company is fighting to avoid bankruptcy. Rob's savvy decision saved Acorn shareholders $18 million. Congratulations to all our Scarlet A winners. .Reflections on the Year The "In a Nutshell" section featured in every quarterly shareholder report provides a detailed analysis of your funds' performance for the preceding 3 months. We encourage you to read these performance summaries written by your Co- Portfolio Managers. With this report, we have added to these summaries by reflecting on other factors that contributed to your funds' outstanding performance for the full year. Acorn Fund - -------------------------------------------------------------------------- What contributed to your Fund's performance in 1996? Early in the year, we recognized the potential in the energy sector so we emphasized this group. The commitment paid off. Our oil and gas stocks exploded, up 69% for the year. Perhaps next time you have to pay $1.68 for a gallon of gasoline, you will feel better knowing that you own some oil wells. Our 20 largest holdings were up an average of 29%. These positions represent companies in a number of industries but all share a common factor - they are leaders in their field. Many of the stocks you will recognize, as we have owned them for some time - Harley Davidson, Borders Group and Carnival. Our 20 largest holdings comprised 25% of the total assets in the fund at year-end. Since our biggest positions had above-average results, the Fund as a whole did well. Stock-picking made a difference. Acorn Fund's 20 top-performing stocks were up a whopping 91% on average and made the Fund $249 million. Acorn Fund is highly diversified across companies and industries. The benefit of diversification is to minimize the impact of individual underperforming stocks (although it also limits the total effect of top performers). With over 350 stocks in the portfolio, there will always be some losers. This year, our 20 worst-performing stocks were down an average of 35%, costing the portfolio $90 million. But as you can see from our overall 22.6% return, superior stock selection and diversification paid off this year. Acorn International - ----------------------------------------------------------------------------- There were four key factors that influenced Acorn International's total twelve- month return - stock selection, country allocation, local market returns and currency. The following summary explains where we achieved our outstanding performance in 1996:
Good stock picking + 9.0% Weighting markets correctly + 3.2 Gains in local markets +11.9 Currency - 3.4 ------- +20.7%
Acorn International's 20 top-performing stocks were up an astonishing 118% on average, and made the Fund $204 million. Big winners included WM Data, TT Tieto and Getronics. Our top performers represent a number of industries, but these three companies are European computer consulting firms. By comparison, our 20 worst-performing stocks were down an average of 40%, costing the portfolio $73 million. We gained an advantage over EAFE by overweighting strong markets like Sweden, Finland and the UK, and underweighting weak markets like Japan. This contributed a full three percentage points to your Fund's total 20.7% return. Your Fund also benefited from healthy stock markets overseas. Approximately half of the total return was attributable to country stock market performance. The last factor that impacted your Fund's total return was currency. We purchase international stocks so we must consider the value of the U.S. dollar in relation to other currencies. This past year, the dollar's strength resulted in a currency loss on the portfolio of 3.4%. As you can see, investing overseas is complicated but our 20.7% gain in 1996 was well worth the effort. 9 Acorn USA >Statement of Investments December 31, 1996 Number of Shares Value (000) - --------------------------------------------------------- Common Stocks: 90.9% - ---------------------------------------------------------
Information: 18.3% >Broadcasting/CATV: 1.8% 39,000 C-Tec (b) $ 946 Cable TV/Local Telephone >Programming for CATV/TV/ Satellites: 6.3% 85,400 Data Transmission Network (b) 1,900 Data Services for Farmers 50,000 Tele-Communications, Liberty Media Group (b) 1,428 Cable TV Programming - -------------------------------------------------------- 3,328 >Mobile Communications: 0.9% 26,800 COMARCO (b) 489 Wireless Network Testing >Computer Software/Services: 2.8% 80,000 Simulation Sciences (b) 1,190 Process Control Software 10,300 CACI International (b) 216 Computer Software Systems 9,200 Computer Language Research 99 Commercial Tax Software - -------------------------------------------------------- 1,505 >Consumer Software:0.7% 80,000 The 3DO Company (b) 385 Entertainment Software >Business Information: 0.7% 17,000 American Business Information (b) 378 Provides Data on Small Businesses >Distribution: 0.3% 13,700 Richey Electronics (b) 159 Distributes Electronic Components >Computer Systems: 2.1% 41,700 ACT Manufacturing (b) 1,100 Contract Manufacturing >Components/Peripherals: 2.7% 44,000 Kronos (b) 1,408 Time Accounting Software & Clocks ----- Information: Total 9,698
Health Care: 12.6% >Medical Equipment: 8.1% 128,000 Respironics (b) $ 2,224 Sleep Apnea Products 30,000 Invacare 825 Wheelchairs, Patient Aids & Beds 16,000 Steris (b) 696 Sterilization Equipment 44,000 Kinetic Concepts 539 Hospital Beds - -------------------------------------------------------- 4,284 >Services: 4.5% 48,000 Lincare Holdings (b) 1,968 Home Health Care Services 30,000 United Payors & Providers (b) 412 Medical Claims Repricing - -------------------------------------------------------- 2,380 ----- Health Care: Total 6,664 - -------------------------------------------------------- Consumer Goods/Services: 6.0% >Retail: 2.3% 108,100 Host Marriott Services (b) 986 Runs Airport Restaurants 7,000 Borders Group (b) 251 Bookstores - -------------------------------------------------------- 1,237 >Entertainment/Leisure: 2.5% 30,000 Fairfield Communities (b) 743 Vacation Timeshares 33,000 Showboat 569 Casinos - -------------------------------------------------------- 1,312 >Manufacturers: 1.2% 65,200 Rawlings (b) 652 Baseball Equipment ----- Consumer Goods/Services: Total 3,201 - -------------------------------------------------------- Finance: 9.0% >Savings & Loans: 5.4% 69,000 Coast Savings (b) 2,527 California Savings & Loan 11,000 Peoples Bank Bridgeport 318 Consumer Finance - -------------------------------------------------------- 2,845
See accompanying notes to financial statements 10
Number of Shares Value (000) - ------------------------------------------------------------------------------- .Insurance: 3.0% 51,000 Penn Treaty American (b) $ 1,326 Nursing Home Insurance 11,000 Leucadia National 294 Insurance Holding Company - ------------------------------------------------------------------------------- 1,620 .Other: 0.6% 28,000 Jayhawk (b) 315 Finances Used Autos -------- Finance: Total 4,780 - ------------------------------------------------------------------------------- Industrial Goods/Services: 17.9% .Steel: 5.6% 48,500 Steel Dynamics (b) 928 Steel Mini-Mill 50,000 Atchison Casting (b) 900 Steel Foundries 32,000 Schnitzer Steel 820 Scrap Steel 12,000 Gibraltar Steel (b) 315 Steel Processing - ------------------------------------------------------------------------------- 2,963 .Machinery: 1.0% 30,500 Farr (b) 507 Filters .Industrial Suppliers: 3.2% 33,000 Bearings 920 Distributes Industrial Components 28,000 Lilly Industries, Cl. A 511 Industrial Coatings 18,000 Aftermarket Technology (b) 311 Auto Transmission Remanufacturer - ------------------------------------------------------------------------------- 1,742 .Services: 8.1% 155,200 Wackenhut, Cl. B 2,367 Prison Management 100,000 World Color Press (b) 1,925 Printing - ------------------------------------------------------------------------------- 4,292 -------- Industrial Goods/Services: Total 9,504
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Energy/Minerals: 27.1% .Independent Power: 8.1% 128,000 CalEnergy (b) $ 4,304 Power Plants .Oil/Gas Producers: 7.0% 86,000 Seagull Energy (b) 1,892 Oil & Gas Producer 129,000 Tesoro Petroleum (b) 1,806 Oil Refinery/Gas Reserves - ------------------------------------------------------------------------------- 3,698 .Distribution/Marketing/Refining: 6.5% 139,000 NGC 3,232 Gas Processing/Marketing 9,100 United Cities Natural Gas (b) 205 Natural Gas Distributor - ------------------------------------------------------------------------------- 3,437 .Oil Services: 5.5% 191,000 GeoScience (b) 2,483 Offshore Seismic Equipment Company 4,000 Atwood Oceanics (b) 254 Offshore Drilling Company 10,000 J Ray McDermott (b) 220 Offshore Construction Company - ------------------------------------------------------------------------------- 2,957 -------- Energy/Minerals: Total 14,396 -------- Total Common Stocks: 90.9% 48,243 (Cost: $44,075) Short-Term Obligations:10.5% $2,577 Prudential Funding 1/2/97 6.25% 2,577 $2,576 Capital Services 1/2/97 6.50% 2,576 $400 State Street Bank Repurchase Agreement 1/02/97 2.00%; 12/31/96 Agreement Collateralized by U.S. Treasury Notes 400 - ------------------------------------------------------------------------------- (Amortized Cost: $5,553) 5,553 -------- Total Investments: 101.4% 53,796 (Cost: $49,628) -------- Cash and Other Assets Less Liabilities: (1.4%) (711) -------- Total Net Assets: 100% $53,085 ===============================================================================
- ------------------------------------------------------------------------------- .Notes to Statement of Investments (a) At December 31, 1996, for federal income tax purposes cost of investments was $49,628,000 and net unrealized appreciation was $4,168,000, consisting of gross unrealized appreciation of $5,070,000 and gross unrealized depreciation of $902,000. (b) Non-income producing security. 11 Acorn Fund .Major Portfolio Changes in the Fourth Quarter
Number of Shares ------------------------ 9/30/96 12/31/96 Additions - ------------------------------------------------------------------------------- Information Axime Ex Segin 20,000 50,000 BDM International 104,000 140,000 C-Tec 200,000 300,000 Computer Language Research 183,000 310,000 Gaylord Entertainment 0 300,000 IFR Systems 228,000 300,000 Informix 0 330,000 Kronos 423,000 550,000 Metrika Systems 0 65,000 NTT Data 115 246 Simulation Sciences 0 70,000 Sterling Commerce 0 160,000 TCI Satellite Entertainment 0 130,000 (spinoff from Telecom Inc., Cl. A) Thermo Instrument Systems 535,000 685,000 - ------------------------------------------------------------------------------- Health Care Gedeon Richter 0 20,000 Medeva 2,700,000 3,100,000 Getinge Industrier 0 650,000 Respironics 582,000 1,162,000 HealthCare Compare 0 573,000 MDL Information Systems 185,000 275,000 - ------------------------------------------------------------------------------- Consumer Goods/Services Airtours 0 200,000 Hellenic Bottling 200,000 260,000 Designer Holdings 0 290,000 Esselte 180,000 260,000 Kimberly Clark de Mexico 400,000 500,000 Escada 20,000 30,000 Host Marriott Services 332,000 663,000 - ------------------------------------------------------------------------------- Finance Foremost 197,000 247,000 Baker Fentress 784,000 865,000 Invesco Funding 0 340,000 Cetelem 26,000 70,000 (includes effect of 100% stock dividend) World Acceptance 700,000 1,190,000 Coast Savings 418,000 528,000
Number of Shares ------------------------ 9/30/96 12/31/96 - ------------------------------------------------------------------------------- Industrial Goods/Services Aftermarket Tech 0 108,000 Schnitzer Steel 220,000 300,000 Hunter Douglas 50,000 110,000 Steel Dynamics 0 225,000 Wackenhut, Cl. B 660,000 851,000 World Color Press 760,000 1,185,000 - ------------------------------------------------------------------------------- Energy/Minerals Cemig 190,000,000 235,000,000 Costilla Energy 0 400,000 United Cities Natural Gas 0 80,000 RAO Gazprom 0 62,500 Seagull Energy 600,000 1,600,000 (includes effect of merger with Global Natural Resources) J Ray McDermott 200,000 400,000 Saipem 0 1,000,000 - ------------------------------------------------------------------------------- Real Estate First Washington Realty Trust 80,000 150,000 Homestead Village 0 88,000 Macerich 0 400,000 - ------------------------------------------------------------------------------- Transportation Flughafen Wien 120,000 180,000
12
Number of Shares --------------------- 9/30/96 12/31/96 Sales - ------------------------------------------------------------------------------- Information ACT Manufacturing 505,000 350,000 Bell Microproducts 201,000 0 CACI International 618,000 461,000 Century Communications, Cl. A 500,000 0 Cognos 150,000 100,000 Daktronics 50,000 0 Datum 85,000 0 Jones Intercable, Cl. A 440,000 325,000 Jones Intercable 22,500 0 Learning Company 350,000 0 Oak Industries 500,000 350,000 Providence Journal 400,000 0 Shaw Communications, Cl. B 800,000 580,000 Tele-Communications, Series A TCI Group 1,500,000 1,000,000 Triad Systems 700,000 0 WM Data Nordic 460,000 400,000 - ------------------------------------------------------------------------------- Health Care Pharmaceutical Marketing Services 235,000 0 Renal Treatment Centers 462,000 0 Space Labs Medical 345,000 0 Steris 684,000 0 Thermedics 552,000 268,000 - ------------------------------------------------------------------------------- Consumer Goods/Services Alliance Entertainment 445,000 0 Aucnet 90,000 55,000 (includes effect of 10% stock dividend) Grupo Herdez 4,200,000 0 International Cosmetics 56,100 0 Mayora Indah 1,884,000 0 Mr Max 209,000 134,900 Newell 1,650,000 825,000 Royal 120,000 0 Thai President Foods 200,000 0 Toy Biz 251,000 0 - ------------------------------------------------------------------------------- Finance Cash America 620,000 0 Credicorp 300,000 0 First American 105,000 70,000 Mercury Finance 898,000 818,000 Promise 60,000 20,000 Seoul International Trust 80,000 0 T. Rowe Price 174,000 145,000 Thailand Fund 70,000 30,000 Washington Federal 756,000 645,000 - ------------------------------------------------------------------------------- Industrial Goods/Services Douglas & Lomason 255,000 0 Expeditors International 600,000 1,000,000 (includes effect of 2 for 1 stock split) HA.LO Industries 384,000 353,000 (includes effect of 5 for 4 stock split) Sealed Air 240,000 0 Thermo Electron 1,125,000 975,000 - ------------------------------------------------------------------------------- Energy/Minerals Abraxas Petroleum 360,000 0 AES Corporation 1,000,000 955,000 Devon Energy 500,000 300,000 Louis Dreyfus Natural Gas 440,000 350,000 Pittencrieff Resources 700,000 0 United Meridian 300,000 200,000 Veritas Energy Services 180,000 115,000 - ------------------------------------------------------------------------------- Real Estate Fondo Opcion, Series B 600,000 0
13 Acorn Fund .Statement of Investments December 31, 1996
Number of Shares Value (000) - ----------------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities: 98.0% - ----------------------------------------------------------------------------- Information: 17.9% .Broadcasting/CATV: 1.7% 1,000,000 Tele-Communications, Series A TCI Group (b) $ 13,062 47,000 Tele-Communications, Cum. Pfd. 3,125 300,000 TCA Cable TV 9,037 300,000 C-Tec (b) 7,275 170,000 Argyle Television (b) 4,165 325,000 Jones Intercable, Cl. A (b) 3,372 300,000 Granite Broadcasting (b) 3,187 80,000 Cablevision Systems (b) 2,450 130,000 TCI Satellite Entertainment (b) 1,284 - ----------------------------------------------------------------------------- 46,957 .Programming for CATV/TV/ Satellites: 3.7% 1,600,000 Tele-Communications, Liberty Media Group (b) 45,700 750,000 Data Transmission Network (b) (c) 16,687 700,000 International Family Entertainment (b) 10,850 567,000 United Video Satellite (b) 9,922 300,000 BET Holdings, Cl. A (b) 8,625 300,000 HSN (formerly known as Silver King Communications) (b) 7,125 300,000 Gaylord Entertainment 6,862 - ----------------------------------------------------------------------------- 105,771 .Mobile Communications: 2.1% 500,000 Telephone and Data Systems 18,125 450,000 Cellular Communications of Puerto Rico (b) 8,887 465,000 Vanguard Cellular Systems (b) 7,324 800,000 Mobile Telecommunication Technologies (b) 6,800 355,000 COMARCO (b) (c) 6,479 450,000 PriCellular (b) 5,175 350,000 Palmer Wireless (b) 3,675 300,000 Centennial Cellular (b) 3,637 - ----------------------------------------------------------------------------- 60,102 .Computer Software/Services: 3.0% 259,000 BRC Holdings (b) 11,590 360,000 Analysts International 10,170 461,000 CACI International (b) 9,681 480,000 Systems & Computer Technology (b) 7,680 153,000 Compuware (b) 7,669 Principal Amount or Number of Shares Value (000) - ----------------------------------------------------------------------------- 140,000 BDM International (b) 7,595 330,000 Informix (b) 6,724 210,000 Keane (b) 6,667 160,000 Sterling Commerce (b) 5,640 200,000 American Management Systems (b) 4,900 310,000 Computer Language Research 3,332 208,333 Source Informatics Cv. Pfd. (b) 2,360 70,000 Simulation Sciences (b) 1,041 170,000 Kurzweil Applied Intelligence (b) 510 - ----------------------------------------------------------------------------- 85,559 .Gaming Equipment: 1.1% 1,800,000 International Game Technology 32,850 .Consumer Software: 0.2% 280,000 Activision (b) 3,605 350,000 Spectrum HoloByte (b) 2,625 180,000 The 3DO Company (b) 866 - ----------------------------------------------------------------------------- 7,096 .Business Information: 0.7% 700,000 American Business Information (b) 15,575 885,714 GIGA Cv. Pfd. (b) (c) 3,100 - ----------------------------------------------------------------------------- 18,675 .Computer Systems: 1.7% 600,000 Solectron (b) 32,025 350,000 ACT Manufacturing (b) 9,231 287,000 Altron (b) 6,027 - ----------------------------------------------------------------------------- 47,283 .Instrumentation: 1.3% 685,000 Thermo Instrument Systems (b) 22,691 5,000,000 Thermo Optek, 5% Note Due 10/15/00 5,150 300,000 IFR Systems (b) (c) 4,725 1,500,000 Thermoquest, 5% Note Due 8/15/00 1,545 20,000 Thermoquest (b) 257 100,000 Thermo Bio Analysis (b) 1,350 65,000 Metrika Systems (b) 488 - ----------------------------------------------------------------------------- 36,206 .Distribution: 0.9% 1,000,000 Pioneer-Standard Electronics 13,125 300,000 Kent Electronics (b) 7,725 400,000 Richey Electronics (b) 4,650 - ----------------------------------------------------------------------------- 25,500 .Components/Peripherals: 1.5% 550,000 Kronos (b) (c) 17,600
See accompanying notes to financial statements 14
Number of Shares Value (000) - ----------------------------------------------------------------- 325,000 American Power Conversion (b) $ 8,856 350,000 Oak Industries (b) 8,050 325,000 Planar Systems (b) 3,819 250,000 Exide Electronics Group (b) 3,687 - ----------------------------------------------------------------- 42,012 Information: Total 508,011 - ----------------------------------------------------------------- Health Care: 9.1% .Biotechnology/Drug Delivery: 2.1% 450,000 Watson Pharmaceuticals (b) 20,222 260,000 RP Scherer (b) 13,065 228,000 Biogen (b) 8,835 450,000 Inhale Therapeutic Systems (b) 6,806 800,000 Corvas International (b) 4,500 800,000 Corvas International Warrants (b) 1,600 200,000 Genome Therapeutics (b) 2,150 280,000 CIMA Labs (b) 1,715 - ----------------------------------------------------------------- 58,893 .Medical Equipment: 2.4% 750,000 Invacare 20,625 1,162,000 Respironics (b) (c) 20,190 1,000,000 Kinetic Concepts 12,250 350,000 Affymetrix (b) 6,217 268,000 Thermedics (b) 4,857 267,000 Innovasive Devices (b) 2,069 125,000 Trex Medical (b) 1,625 - ----------------------------------------------------------------- 67,833 .Hospital/Laboratory Supplies: 0.7% 322,000 Sybron International (b) 10,626 273,000 Hillenbrand Industries 9,896 - ----------------------------------------------------------------- 20,522 .Services: 3.9% 1,000,000 Lincare Holdings (b) 41,000 498,000 HBO & Company 29,569 573,000 HealthCare Compare (b) 24,281 505,000 United Payors and Providers (b) 6,944 275,000 MDL Information Systems (b) 5,122 100,000 ThermoTrex (b) 2,738 300,000 Walsh International (b) 2,521 - ----------------------------------------------------------------- 112,175 --------- Health Care: Total 259,423 - ----------------------------------------------------------------- Principal Amount or Number of Shares Value (000) - ----------------------------------------------------------------- Consumer Goods/Services: 9.1% .Retail: 2.0% 980,000 Borders Group (b) 35,157 295,000 Quality Food Centers (b) 9,956 663,000 Host Marriott Services (b) 6,050 200,000 Duckwall Alco Stores (b) 2,850 84,000 Mac Frugal's (b) 2,194 - ----------------------------------------------------------------- 56,207 .Recreational Vehicles: 2.1% 1,100,000 Harley-Davidson 51,700 320,000 Thor Industries 8,080 - ----------------------------------------------------------------- 59,780 .Food: 0.4% 725,000 Shoney's (b) 5,075 634,000 Au Bon Pain (b) (c) 4,121 125,000 Morton's Restaurant Group (b) 2,109 60,000 Dave & Buster's (b) 1,207 - ----------------------------------------------------------------- 12,512 .Entertainment/Leisure: 2.8% 1,400,000 Carnival 46,200 215,000 GC Companies (b) 7,444 276,000 Carmike Cinemas (b) 7,003 472,000 Hollywood Park, Cv. Pfd. 6,254 265,000 Royal Caribbean Cruises 6,194 180,000 Rio Hotel & Casino (b) 2,632 100,000 Showboat 1,725 535,000 Monarch Casino & Resort (b) (c) 1,070 $6,250,000 Grand Palais Casino 14% Note Due 2/25/98 (b) 313 - ----------------------------------------------------------------- 78,835 .Manufacturers: 1.8% 825,000 Newell 25,987 565,000 Wolverine World Wide 16,385 290,000 Designer Holdings (b) 4,676 232,000 Norwood Promotional (b) 4,234 - ----------------------------------------------------------------- 51,282 -------- Consumer Goods/Services: Total 258,616 - ----------------------------------------------------------------- Finance: 15.8% .Banks: 1.1% 380,000 Texas Regional Bancshares 12,920 285,000 Union Planters 11,115
15 Acorn Fund .Statement of Investments
Number of Shares Value (000) - ------------------------------------------------------------------ 70,000 First American $ 4,034 104,000 Riverside National Bank 1,807 - ------------------------------------------------------------------ 29,876 .Savings & Loans: 3.7% 845,000 Peoples Bank Bridgeport 24,399 528,000 Coast Savings (b) 19,338 645,000 Washington Federal 17,092 390,000 Washington Mutual 16,892 260,000 TCF 11,310 538,000 Commonwealth Bancorp 8,070 280,000 Imperial Thrift & Loan (b) 4,200 156,000 Indiana Federal 3,491 - ------------------------------------------------------------------ 104,792 .Insurance: 2.2% 836,000 Baldwin & Lyons, Cl. B 15,362 247,000 Foremost 14,820 351,000 United Fire & Casualty 12,373 350,000 PXRE Corporation 8,663 216,000 Leucadia National 5,778 318,000 ALLIED Life (c) 5,565 - ------------------------------------------------------------------ 62,561 .Money Management: 2.7% 880,000 United Asset Management 23,430 865,000 Baker Fentress 14,597 618,000 SEI 13,751 1,621,000 Phoenix Duff and Phelps 11,550 231,000 BISYS (b) 8,561 145,000 T. Rowe Price 6,308 - ------------------------------------------------------------------ 78,197 .Credit Cards: 4.4% 1,088,000 First USA 37,672 767,000 ADVANTA, Cl. A 32,789 520,000 ADVANTA, Cl. B 21,255 575,000 National Data 25,013 275,000 Concord EFS (b) 7,769 - ------------------------------------------------------------------ 124,498 .Other: 1.7% 1,049,000 Americredit (b) 21,505 818,000 Mercury Finance 10,021 1,190,000 World Acceptance (b) (c) 8,181 496,000 Jayhawk (b) 5,580 310,000 DVI Health Services (b) 4,030 - ------------------------------------------------------------------ 49,317 ------- Finance: Total 449,241 - ------------------------------------------------------------------ Industrial Goods/Services: 10.6% .Steel: 2.0% 1,110,000 Worthington Industries 20,119 440,000 Gibraltar Steel (b) 11,550 300,000 Schnitzer Steel 7,688 374,000 Atchison Casting (b) (c) 6,732 300,000 A M Castle 5,775 225,000 Steel Dynamics (b) 4,303 - ------------------------------------------------------------------ 56,167 .Machinery: 3.1% 975,000 Thermo Electron (b) 40,219 800,000 Baldor Electric 19,700 150,000 Nordson 9,563 675,000 Thermo Fibertek (b) 6,286 135,000 Valmont Industries 5,569 110,000 Applied Power 4,359 189,000 Hein-Werner (b) (c) 1,252 500,000 Stevens International, Cl. A (b) (c) 750 34,000 Stevens International, Cl. B (b) (c) 91 - ------------------------------------------------------------------ 87,789 .Industrial Suppliers: 1.9% 600,000 Unifi 19,275 750,000 Lilly Industries, Cl. A 13,688 320,000 Bearings 8,920 96,000 Mine Safety Appliances 5,112 244,000 U. S. Can (b) 4,118 108,000 Aftermarket Technology (b) 1,863 35,000 Zoltek (b) 1,273 - ------------------------------------------------------------------ 54,249 .Services: 3.6% 1,000,000 Expeditors International of Washington 23,000 1,185,000 World Color Press (b) 22,811 851,000 Wackenhut, Cl. B 12,978 45,000 Wackenhut, Cl. A 776 430,000 Hub Group (b) 11,503
See accompanying notes to financial statements 16
Principal Amount or Number of Shares Value (000) - ----------------------------------------------------------------- 353,000 HA.LO Industries (b) $ 9,708 450,000 Material Sciences (b) 8,100 530,000 Thermo TerraTech (b) 5,234 374,000 Thomas Group (b) (c) 3,366 $2,900,000 Western Water, 9% Cv. Note Due 9/25/05 2,900 119,000 AG Services of America (b) 1,978 - ----------------------------------------------------------------- 102,354 -------- Industrial Goods/Services: Total 300,559 - ----------------------------------------------------------------- Energy/Minerals: 10.4% .Independent Power: 3.0% 955,000 AES Corporation (b) 44,408 1,852 AES Corporation Warrants (b) 38 868,000 CalEnergy (b) 29,187 585,000 Thermo Ecotek (b) 8,921 285,000 Thermo Power (b) 2,262 85,000 Thermo Optek (b) 967 - ----------------------------------------------------------------- 85,783 .Oil/Gas Producers: 3.6% 1,600,000 Seagull Energy (b) 35,200 900,000 Tesoro Petroleum (b) 12,600 700,000 Forest Oil (b) 12,338 300,000 Devon Energy 10,425 200,000 United Meridian (b) 10,350 350,000 Louis Dreyfus Natural Gas (b) 5,994 400,000 Costilla Energy (b) 5,450 200,000 St. Mary Land & Exploration 4,975 800,000 Tipperary (b) (c) 3,700 110,000 Abraxas Petroleum CVR Units (b) 1,133 - ----------------------------------------------------------------- 102,165 .Distribution/Marketing/Refining: 1.6% 750,000 NGC 17,438 630,000 Southern Union (b) 13,860 303,000 Atmos Energy 7,234 150,000 KN Energy 5,888 80,000 United Cities Natural Gas 1,800 - ----------------------------------------------------------------- 46,220 .Oil Services: 1.9% 320,000 Atwood Oceanics (b) 20,320 350,000 Energy Ventures (b) 17,806 400,000 J Ray McDermott (b) 8,800 400,000 Veritas DGC (b) 7,400 - ----------------------------------------------------------------- 54,326 .Mining: 0.3% 300,000 Zeigler Coal Holding 6,413 -------- Energy/Minerals: Total 294,907 - ----------------------------------------------------------------- Real Estate: 2.8% 829,000 The Rouse Company (b) 26,321 400,000 Macerich 10,450 155,000 Forest City Enterprises, Cl. B 9,378 123,000 Forest City Enterprises, Cl. A 7,442 210,000 Equity Residential Properties Trust 8,663 165,000 Weingarten Realty Investors 6,703 150,000 First Washington Realty Trust 3,525 120,000 First Washington Realty Trust, Cv. Pfd. 3,270 243,000 Sunstone Hotel Investors 3,189 88,000 Homestead Village (b) 1,584 1,000 Homestead Village Warrants (b) 8 -------- Real Estate: Total 80,533 - ----------------------------------------------------------------- Foreign Securities: 22.3% .Canada: 0.9% 800,000 Ranger Oil 7,900 200,000 Shaw Industries, Cl. A 4,042 125,000 BCE Mobile Communications (b) 3,702 580,000 Shaw Communications, Cl. B 3,216 100,000 Cognos (b) 2,813 115,000 Veritas Energy Services (exchangeable into Veritas DGC) (b) 2,181 200,000 Cogeco Cable 1,284 - ----------------------------------------------------------------- 25,138 .United Kingdom: 4.0% 1,200,000 Serco Group 13,841 3,100,000 Medeva 13,554 400,000 International CableTel (b) 10,100 2,000,000 Securicor Group, Cl. A 9,566 650,000 Comcast UK Cable Partners (b) 8,856 1,130,000 N. Brown Group 8,673 1,700,000 Invesco 7,549 68,000 Invesco ADS 3,018 340,000 Invesco Funding (b) 1,510 13,600 Invesco Funding LLC (b) 602
17 Acorn Fund .Statement of Investments
Number of Shares Value (000) - ----------------------------------------------------------------- 700,000 Powerscreen International $ 6,768 393,000 Getty Communications, Cl. A (b) 5,895 600,000 Edinburgh Fund Managers 5,791 580,000 Oriflame 5,310 1,200,000 Body Shop International 4,159 200,000 Airtours 2,781 1,000,000 Capital 2,738 350,000 Ethical Holdings (b) 2,034 4,500,000 Electronics Boutique (b) 1,579 - ----------------------------------------------------------------- 114,324 .Germany/Austria: 0.8% 180,000 Flughafen Wien (Austria) 9,166 425,000 United International Holdings (Austria) (b) 5,206 30,000 Escada 4,847 8,000 Binding-Brauerei 2,544 - ----------------------------------------------------------------- 21,763 .Nordic Countries: 3.3% 400,000 WM Data Nordic (Sweden) 34,564 100,000 Hennes & Mauritz, Cl. B (Sweden) 13,825 650,000 Getinge Industrier (Sweden) 12,804 240,000 Autoliv (Sweden) 10,510 725,000 SensoNor (Norway) (b) 6,699 260,000 Esselte, Series A (Sweden) 5,902 220,000 Pricer, Cl. B (Sweden) (b) 5,413 50,000 Sentra, Cl. A (Finland) 1,654 90,000 Benefon (Finland) 1,560 130,000 Sysdeco Group (Norway) (b) 521 - ----------------------------------------------------------------- 93,452 .Netherlands: 0.7% 110,000 Hunter Douglas 7,408 270,000 Getronics 7,320 180,000 Telegraaf Holdings 3,788 - ----------------------------------------------------------------- 18,516 .Switzerland: 0.8% 6,000 Societe Generale de Surveillance 14,701 14,000 Liechtenstein Global Trust 7,152 - ----------------------------------------------------------------- 21,853 .France: 1.2% 45,000 Guilbert 8,786 65,000 Sligos 8,502 70,000 Cetelem 8,079 50,000 Axime Ex Segin (b) 5,771 17,000 Canal Plus 3,747 - ----------------------------------------------------------------- 34,885 .Spain/Portugal: 0.4% 375,000 Filmes Lusomundo (Portugal) (b) 4,314 185,000 Vallehermoso 4,004 70,000 Cortefiel 2,099 - ----------------------------------------------------------------- 10,417 .Italy/Greece: 1.4% 4,300,000 Banca Fideuram 9,423 300,000 Cellular Communications International (b) 8,700 260,000 Hellenic Bottling (Greece) 8,331 1,000,000 Saipem 4,616 170,000 Industrie Natuzzi 3,910 1,100,000 Tecnost 2,952 1,200,000 Costa Crociere 2,904 - ----------------------------------------------------------------- 40,836 .Israel: 0.1% 200,000 Pec Israel Economic (b) 3,350 .Eastern Europe - 0.1% 20,000 Gedeon Richter (Hungary) 1,169 62,500 RAO Gazprom (Russia) (b) 1,103 - ----------------------------------------------------------------- 2,272 .India: 0.2% 300,000 IS Himalaya Fund (b) 3,870 39,393 Housing Development Finance 2,429 - ----------------------------------------------------------------- 6,299 .Hong Kong: 0.5% 4,500,000 Varitronix International 8,145 7,318,000 JCG Holdings 7,143 - ----------------------------------------------------------------- 15,288 .China: 0.4% 810,000 AES China Generating (b) (c) 10,328 200,000 The Investment Company of China (b) 1,366 - ----------------------------------------------------------------- 11,694 .Singapore: 0.4% 5,100,000 Genting International 12,240
See accompanying notes to financial statements 18
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------- .Malaysia: 0.6% 1,450,000 Resorts World (b) $ 6,603 1,125,000 Kian Joo Can Factory (b) 6,236 440,000 O.Y.L. Industries 4,660 - -------------------------------------------------------------- 17,499 .Thailand: 0.1% 30,000 The Thailand Fund (b) 1,838 3,300,000 Sinpinyo Fund V (b) 1,448 - -------------------------------------------------------------- 3,286 .Korea/Taiwan: 1.4% 120,000 Formosa Fund (Taiwan) (b) 11,340 460,000 President Enterprises (Taiwan) (b) 8,280 5,300 Korea Mobile Telecom 5,431 283,250 Korea Mobile Telecom GDS (b) 3,647 275,000 Kookmin Bank 4,376 110,956 Shinsegae 4,068 7,843 Shinsegae (New) 288 300,000 Korea-Europe Fund 1,530 - -------------------------------------------------------------- 38,960 .Indonesia/Philippines: 0.4% 7,000,000 PILTEL (Philippines) (b) 5,922 195,501 Unilever Indonesia 3,351 1,728,000 Tigaraksa Satria 2,414 - -------------------------------------------------------------- 11,687 .Japan: 1.7% 120,000 Nintendo 8,571 246 NTT Data 7,185 145,000 Noritsu Koki 6,808 100,000 Paramount Bed 6,375 75,000 Secom 4,530 40,000 Nichiei 2,946 90,000 Sankyo 2,629 720,000 Tokyu Land (b) 2,506 130,000 Heiwa 2,038 134,900 Mr. Max 1,790 55,000 Aucnet 1,777 20,000 Promise 982 - -------------------------------------------------------------- 48,137 .Australia / New Zealand: 0.8% 1,700,000 Sky City (New Zealand) 9,261 1,600,000 Village Roadshow 6,265 750,000 Village Roadshow Pfd. 2,037 2,500,000 Burswood Property Trust 3,197 600,000 Petroleum Securities Australia (b) 2,635 - -------------------------------------------------------------- 23,395 .Mexico: 0.7% 500,000 Kimberly Clark de Mexico 9,877 2,000,000 Nadro, Series L 5,971 600,000 Grupo Radio Centro (b) 4,125 170,000 Cofar, Series B 238 - -------------------------------------------------------------- 20,211 .Brazil: 0.5% 235,000,000 Cemig 8,006 12,000,000 Itau Banco PN 5,197 - -------------------------------------------------------------- 13,203 .Other Latin America: 0.9% 4,000,000 Siderca (Argentina) 7,301 130,000 Banco Latinoamericano de Export (Panama) 6,598 160,000 IRSA (Argentina) 5,100 100,000 Panamerican Beverages (Panama) 4,688 160,000 Siderar (Argentina) (b) 461 - -------------------------------------------------------------- 24,148 --------- Foreign: Total 632,853 43,200 Miscellaneous Securities: 0.0% 22 Total Common Stocks and Other --------- Equity-Like Securities: 98.0% 2,784,165 (Cost: $1,651,100) Short-Term Obligations: 2.4% Yield 4.82% -- 6.09% Due 1/02 -- 2/20/97 $19,879 American General Finance 19,861 $18,434 General Motors Acceptance 18,429 $10,568 Hertz 10,555 $10,000 Travelers Insurance 9,989 $10,000 US Treasury Bill 9,933 - -------------------------------------------------------------- (Amortized Cost: $68,767) 68,767 --------- Total Investments: 100.4% 2,852,932 (Cost: $1,719,867) --------- Cash and Other Assets Less Liabilities: (0.4%) (10,880) --------- Total Net Assets: 100% $2,842,052 - --------------------------------------------------------------
19 Acorn Fund .Notes to Statements of Investments (a) At December 31, 1996, for federal income tax purposes cost of investments was $1,727,925,000 and net unrealized appreciation was $1,125,008,000, consisting of gross unrealized appreciation of $1,216,175,000 and gross unrealized depreciation of $91,167,000. (b) Non-income producing security. (c) On December 31, 1996, the Fund held the following percentages of the outstanding voting shares of the affiliated companies (ownership of at least 5%) listed below:
COMARCO................................................................ 7.40% ALLIED Life............................................................ 7.08% Hein-Werner............................................................ 6.86% Data Transmission Network.............................................. 6.81% Atchison Casting....................................................... 6.76% Kronos................................................................. 6.76% Thomas Group........................................................... 6.37% Au Bon Pain............................................................ 6.30% World Acceptance....................................................... 6.30% Tipperary.............................................................. 6.13% Respironics............................................................ 5.90% Monarch Casino & Resort................................................ 5.65% Stevens International.................................................. 5.65% IFR Systems............................................................ 5.59% Giga................................................................... 5.30% AES China Generating................................................... 5.13%
The aggregate cost and value of investments in these companies at December 31, 1996, was $98,155,000 and $113,937,000, respectively. The market value of these securities represents 4.01% of the total net assets at December 31, 1996. During the year ended December 31, 1996, the cost of purchases and proceeds from sales in affiliated companies were $41,214,000 and $31,560,000, respectively. Dividends received from these companies amounted to $126,780 and the net realized gain on sales of investments in such companies amounted to $12,839,000. .Foreign Portfolio Diversification At December 31, 1996, Acorn Fund's foreign portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - -------------------------------------------------------------------------------- .Information Computer Systems $ 57,214 2.0% Mobile Communications 38,528 1.4 Broadcasting/CATV 36,534 1.3 Software/Services 32,073 1.1 Distribution 12,090 0.4 - -------------------------------------------------------------------------------- 176,439 6.2 .Health Care Biotechnology/Drug Delivery 27,280 1.0 Equipment 12,804 0.4 Hospital/Laboratory Supplies 6,375 0.2 - -------------------------------------------------------------------------------- 46,459 1.6 .Consumer Goods/Services Retail 59,615 2.1 Manufacturers 57,590 2.0 Entertainment/Leisure 41,762 1.5 Food 25,497 0.9 - -------------------------------------------------------------------------------- 184,464 6.5 .Finance Money Management 49,285 1.7 Banks 30,466 1.1 Other 28,277 1.0 - -------------------------------------------------------------------------------- 108,028 3.8 .Industrial Goods/Services Services 35,737 1.3 Machinery Processing 16,419 0.6 Steel 461 0.0 - -------------------------------------------------------------------------------- 52,617 1.9 .Energy/Minerals Independent Power 18,334 0.7 Oil/Gas Producers 13,819 0.5 Oil Services 11,917 0.4 - -------------------------------------------------------------------------------- 44,070 1.6 .Real Estate 11,610 0.4 .Transportation 9,166 0.3 -------- ---- Total Foreign Portfolio $632,853 22.3% - --------------------------------------------------------------------------------
See accompanying notes to financial statements 20 Acorn International .Major Portfolio Changes in the Fourth Quarter
Number of Shares ------------------- 9/30/96 12/31/96 Additions - ------------------------------------------------------------------ Europe .Germany/Austria Flughafen Wien 120,000 190,000 Rhoen Klinikum 90,000 100,000 Rhoen Klinikum Pfd. 135,000 165,000 .Denmark Falck 0 16,000 .Sweden Bure Investment 0 300,000 Scala International 0 35,000 Hexagon 0 160,000 Esselte, Series A 225,000 315,000 Getinge Industrier 650,000 800,000 .France Canal Plus 15,000 20,000 Cetelem 42,000 94,000 (includes effect of 100% stock dividend) Groupe Partouche 0 15,000 .United Kingdom Expro International Group 0 500,000 Peek 2,214,000 3,000,000 Planning Sciences 0 150,000 Premier Oil 10,000,000 12,000,000 St James Place 0 3,500,000 .Italy/Greece Attica Enterprises 200,000 400,000 Hellenic Bottling 170,000 275,000 Mediolanum 250,000 400,000 .Netherlands Hunter Douglas 50,000 110,000 .Hungary Gedeon Richter 0 20,000 .Russia RAO Gazprom 0 62,500 - ------------------------------------------------------------------ Asia .Hong Kong Television Broadcast 0 65,000 Vanda Systems 0 1,500,000 .Japan Aderans 0 50,000 Amway Japan 0 70,000 Arrk 0 130,000 Belluna 0 80,000 Chuo Trust & Banking 382,000 570,000 Meitec 275,000 325,000 Mirai Industry 140,000 200,000 NTT Data 215 300 NuSkin Asia Pacific 0 120,000 Orix 0 25,000 Shinki 0 50,000 Tiemco 3,000 50,000 .Korea S1 Corporation 0 10,260 S1 Corporation (New) 0 4,740 .Philippines Mondragon International 0 3,700,000 .Singapore Datacraft Asia 0 430,000 - ------------------------------------------------------------------ Latin America .Brazil Elevadores Atlas 0 150,000 .Argentina IRSA 280,000 320,000 Perez Companc 0 230,000 .Chile Embotelladora Andina 0 70,000 - ------------------------------------------------------------------ Other Countries .Australia Siddons Ramset 0 272,000 Skilled Engineering 1,200,000 1,900,000 .Canada Cinar Films 150,000 215,000 .Israel ZAG Industries 0 75,000
21 Acorn International .Major Portfolio Changes in the Fourth Quarter
Number of Shares ------------------- 9/30/96 12/31/96 Sales - ----------------------------------------------------------------- Europe .Germany/Austria Biotest 80,000 0 BWT 16,500 0 Fresenius Pfd. 14,000 5,000 .Finland Raision Tehtaat, Series V 70,000 0 .Norway Aker Maritime (formerly known as Maritime Group) 300,000 500,000 (includes effect of merger with Maritime Group) Elkjoep Norge 300,000 200,000 Sysdeco 1,000,000 660,000 .Sweden Allgon, Series B 200,000 0 Frontec, Series B 400,000 300,000 WM Data Nordic 800,000 700,000 .United Kingdom Pittencrieff Resources 1,750,000 0 .Switzerland Bobst 2,250 0 .Greece Ergo Bank 120,000 100,000 .Netherlands Toolex Alpha 145,000 0 - ----------------------------------------------------------------- Asia .India Industrial Credit & Investment Corporation of India 987,800 2,200 .Japan Aucnet 165,000 110,000 (includes effect of 10% stock dividend) Daimon 90,000 0 IX Corporation 60,000 0 Japan Information Processing 27,000 0 King 100,000 0 Mr. Max 198,000 120,000 Promise 150,000 70,000 Royal 150,000 0 .Indonesia Mayora Indah 5,416,000 0 Suba Indah 702,000 0 .Thailand International Cosmetics 173,100 0 Srithai Superware 97,200 0 Thai President Foods 300,000 0 - ----------------------------------------------------------------- Latin America .Brazil Banco Itau Pfd. 26,000,000 23,000,000 .Peru Credicorp 370,000 0 - ----------------------------------------------------------------- Other Countries .Australia Command Petroleum Holdings 12,000,000 0 Petroleum Securities Australia 1,700,000 1,400,000 Village Roadshow Pfd. 750,000 0 .Canada Shaw Communications 1,000,000 710,000 Veritas Energy Services (exchangeable into Veritas DGC) 460,000 395,000 .Israel Alliance Tire 397,810 0 .South Africa Kersaf Investments 460,000 0
22 Acorn International .Statement of Investments December 31, 1996
Number of Shares Value (000) - ------------------------------------------------------------------ Common Stocks and Other Equity-Like Securities: 91.7% - ------------------------------------------------------------------ Europe: 50.3% .Germany/Austria: 5.3% 120,000 Fresenius $ 24,139 5,000 Fresenius Pfd. 1,032 Dialysis Equipment & Solutions 165,000 Rhoen Klinikum Pfd. 16,381 100,000 Rhoen Klinikum 10,447 Hospital Management 190,000 Flughafen Wien 9,676 Vienna Airport Authority (Austria) 50,000 Marschollek Lautenschlager 7,787 Financial Planning 40,000 Escada 6,463 Fancy Dresses 400,000 United International Holdings (b) 4,900 Cable Television for Austria & Other Countries (Austria) 15,000 Binding-Brauerei 4,769 Brewer 21,000 Cewe Color Holding 4,769 Photographic Developing & Printing 15,000 Pfleiderer 4,127 Construction Materials 5,000 KTM-Motorradholding (b) 279 Off-Road Motorcycles - ------------------------------------------------------------------ 94,769 .Denmark: 0.6% 16,000 Falck 4,774 Emergency Services 31,000 Kompan International (c) 4,362 Playground Equipment 20,000 Carli Gry (b) 956 Casual Clothing - ------------------------------------------------------------------ 10,092 .Finland: 3.6% 500,000 TT Tieto, Cl. B (c) 42,189 Computer Services/Consulting 100,000 Vaisala, Cl. A 6,509 Meteorological Instruments 370,000 Benefon (c) 6,414 Mobile Telephones 80,000 Fiskars, Series A 5,988 Scissors & Gardening Tools 105,000 Sentra, Cl. A (c) 3,474 Food Retailer - ------------------------------------------------------------------ 64,574 .Norway: 1.4% 1,000,000 SensoNor (b) 9,240 Electronic Sensors for Airbags 500,000 Aker Maritime (formerly known as Maritime Group) 6,812 Oil Field Equipment & Services 200,000 Elkjoeb Norge 5,857 Consumer Electronics Retailer 660,000 Sysdeco (b) 2,646 Software "Toolsets" & Systems - ------------------------------------------------------------------ 24,555 .Sweden: 8.2% 700,000 WM Data Nordic 60,486 Computer Services/Consulting 150,000 Hennes & Mauritz, Cl. B 20,738 Apparel Stores 800,000 Getinge Industrier 15,759 Sterilization & Disinfection Equipment 320,000 Autoliv 14,013 Seatbelts & Airbags 450,000 Pricer, Cl. B (b) 11,072 Electronic Shelf Labels for Supermarkets 315,000 Esselte, Series A 7,151 Office Supplies & Related Equipment 300,000 Frontec, Series B (b) 5,185 Electronic Commerce Software & Services 160,000 Hexagon 4,171 Industrial Conglomerate 300,000 Bure Investment 3,559 Health Care Services & Investments 35,000 Scala International (b) 3,178 Accounting Software - ------------------------------------------------------------------ 145,312 .France: 4.4% 100,000 Sligos 13,080 Computer Services/Credit Card Processing 94,000 Cetelem 10,849 Credit Cards 80,000 Axime Ex Segin (b) 9,233 Computer Services 45,000 Guilbert 8,786 Office Supplies Distributor 62,000 NRJ 7,847 Radio Network 70,000 Spir Communications 6,650 Regional Newspapers 42,000 Virbac 4,985 Drugs for Animals 50,000 Technip 4,684 Engineering & Construction
See accompanying notes to financial statements 23 Acorn International .Statement of Investments
Number of Shares Value (000) - ------------------------------------------------------------------- 20,000 Canal Plus 4,409 Pay TV 40,000 Fininfo 4,232 Financial Data Feeds 30,000 CEP Communications 2,115 Trade Magazines & Book Publisher 15,000 Groupe Partouche 1,226 Casinos 30,000 Groupe AB (b) 431 Television Programming - ------------------------------------------------------------------- 78,527 .United Kingdom: 12.7% 1,800,000 Serco Group 20,761 Facilities Management 2,000,000 Capita Group 16,651 Outsourcing Government Services 1,800,000 Oriflame International 16,480 Natural Cosmetics Sold Door-to-Door 1,550,000 Powerscreen International 14,987 Mobile Crushing & Screening Equipment 3,000,000 Medeva 13,117 Drugs for Hyperactive Children 1,610,000 N. Brown Group 12,357 Mail Order Clothing in Large Sizes 467,000 International CableTel (b) 11,792 Cable TV & Telephone System 3,700,000 City Centre Restaurants 8,738 Fast Food Restaurants 1,700,000 Securicor Group, Cl. A 8,131 Mobile Communications 1,700,000 Rotork 7,491 Valve Actuators for Oil & Water Pipelines 12,000,000 Premier Oil (b) 7,290 Oil & Gas Producer 710,000 Edinburgh Fund Managers 6,853 Investment Management 2,500,000 Capital 6,845 Classy Casinos 500,000 Comcast UK Cable Partners (b) 6,813 Cable TV & Telephone System 1,800,000 Body Shop International 6,238 Natural Cosmetics & Toiletries 410,000 Vosper Thornycroft Holdings 6,097 Naval Shipbuilding 3,500,000 St. James Place 5,900 Life Insurance 1,330,000 Ivory & Sime 5,679 Investment Management 720,000 Seton Healthcare Group 5,600 Pharmaceuticals 700,000 Dorling Kindersley 4,929 Reference Books & CD-ROMs 3,000,000 Peek 4,826 Traffic Control Systems 13,000,000 Electronics Boutique (b) 4,561 Videogame/Computer Software Stores 1,400,000 HALMA 4,540 Fire Detection Devices & Burglar Alarms 900,000 Tunstall 4,135 "I've fallen and I can't get up" Monitors 500,000 Expro International Group 4,043 Oil Field Services 670,000 Ethical Holdings (b) (c) 3,894 Drug Delivery 1,100,000 Bluebird Toys 3,699 "Polly Pocket" Toy Manufacturer 150,000 Planning Sciences (b) 1,800 Database & Business Intelligence Software 5,000 Hozelock Group 39 Manufacturer of Garden Hoses - ------------------------------------------------------------------- 224,286 .Switzerland: 3.0% 6,500 Societe Generale de Surveillance 15,926 Inspection/Testing of Trade Goods 25,000 Phoenix Mecano 13,070 Electrical Components Manufacturer 13,000 Liechtenstein Global Trust 6,641 Banking & Investment Management 7,000 Suedelektra Holding (b) 6,386 Diversified Pool of Commodity-Related Projects 12,000 Societe Generale d'Affichage 5,362 Billboard Advertising 1,500 Disetronic Holding (b) 3,307 Medical Equipment 10,000 Prodega (c) 2,871 Cash-and-Carry Retailer - ------------------------------------------------------------------- 53,563 .Italy/Greece: 5.4% 7,100,000 Banca Fideuram 15,559 Life Insurance & Mutual Funds 2,400,000 Saipem SPA 11,077 Pipeline Construction & Drilling Contractor 550,000 Banca Popolare Di Bergamo 9,043 Regional Bank 275,000 Hellenic Bottling 8,811 Coca-Cola Bottler (Greece) 600,000 Gewiss 7,892 Electrical Plugs & Switches 3,100,000 Costa Crociere 7,503 Mediterranean Cruise Line
See accompanying notes to financial statements 24
Number of Shares Value (000) - ----------------------------------------------------------------------- 2,000,000 Editoriale L'Espresso (b) $ 5,524 Newspapers & Magazines 100,000 Ergo Bank 5,069 Bank (Greece) 200,000 Industrie Natuzzi 4,600 Leather Couches 1,100,000 Banca Di Legnano 4,401 Regional Bank 1,600,000 Tecnost 4,293 ATM, Lotto, Toll Collection Equipment Manufacturer 400,000 Mediolanum (b) 3,775 Life Insurance & Mutual Funds 150,000 Intracom (b) 3,374 Telecommunications Equipment (Greece) 400,000 Attica Enterprises 2,756 Ferry Line (Greece) 80,000 Cellular Communications International (b) 2,320 Mobile Communications - ----------------------------------------------------------------------- 95,997 .Turkey: 0.0% 48,974,000 Sabah Yayincilik 628 Newspapers, Magazines .Spain/Portugal: 1.8% 100,000 Mapfre Vida 6,919 Life Insurance & Mutual Funds 110,000 Campofrio Alimentacion (formerly known as Conservera Campofrio) 5,209 Sausage Maker 160,000 Cortefiel 4,797 Apparel Retailer 200,000 Vallehermoso 4,328 Residential Property Developer & Landlord 250,000 Estoril Sol (b) 2,979 Casino Resort (Portugal) 170,000 Lusotur (b) 2,628 Real Estate/Resort Developer (Portugal) 16,000 Zardoya Otis 1,857 Elevator Maintenance 150,000 Filmes Lusomundo (b) 1,726 Newspapers, Radio, Video, Film Distribution (Portugal) 350,000 Televisao Independente (b) 1,037 Television Station (Portugal) 7,000 Oscar Mayer S.A. 28 Sausage Maker - ----------------------------------------------------------------------- 31,508 .Netherlands: 3.4% 920,000 Getronics 24,944 Computer Consulting 620,000 Kempen (c) 12,186 Stock Brokerage/Investment Management 110,000 Hunter Douglas 7,408 Blinds 280,000 Telegraaf Holdings 5,892 Newspaper Publisher 300,000 Fugro McClelland 5,324 Engineering, Consulting & Surveying 40,000 Wegener 3,704 Newspaper Publisher - ----------------------------------------------------------------------- 59,458 .Hungary: 0.3% 125,000 Cofinec (b) 3,781 Consumer Goods Packaging 20,000 Gedeon Richter 1,169 Generic Drugs - ----------------------------------------------------------------------- 4,950 .Eastern Europe: 0.2% 200,000 Bank Komunalny 1,888 Bank (Poland) 62,500 RAO Gazprom 1,103 Gas Pipelines & Production (Russia) - ----------------------------------------------------------------------- 2,991 -------- Europe: Total 891,210 - ----------------------------------------------------------------------- Asia: 25.8% .China: 0.3% 390,000 AES China Generating (b) 4,973 Independent Power .Hong Kong: 2.8% 11,000,000 JCG Holdings 10,737 Consumer Finance 5,500,000 Varitronix International 9,955 LCD Manufacturer 10,000,000 Li and Fung 8,856 Sourcing of Consumer Goods 20,000,000 Golden Harvest Entertainment 6,723 Movie Distribution & Exhibition 15,000,000 Vitasoy International Holdings 6,545 Soya Milk Manufacturer 12,000,000 Manhattan Card 6,089 Chase's Local Credit Card 1,000,000 Chen Hsong Holdings 608 Plastic Injection Moulding Machines 1,500,000 Vanda Systems 393 Computer Services 65,000 Television Broadcast 260 Television Broadcasting - ----------------------------------------------------------------------- 50,166
25 Acorn International .Statement of Investments
Principal Amount or Number of Shares Value (000) - --------------------------------------------------------------------- .India/Pakistan: 1.0% 82,702 Housing Development Finance $ 5,100 Mortgage Lender 300,000 IS Himalaya Fund (b) 3,870 Closed-End Fund 1,047,800 Zee Telefilms (c) 2,581 Hindi Television Programming & Broadcasting 299,450 Max India 1,834 Rs 50,000 Max India Zero Coupon 306 50,000 Max India New Shares 306 Penicillin & Mobile Phones 810,000 Tube Investment GDR 1,418 Bicycle Manufacturer 219,035 Pakistan State Oil 1,404 Oil Distribution (Pakistan) 342,100 Kotak Mahindra Finance 700 Consumer Finance 2,000,000 Centurion Quantum Growth (b) 223 Closed-End Fund - --------------------------------------------------------------------- 17,742 .Japan: 9.9% 225,000 Noritsu Koki 10,565 Photo Processing Lab Manufacturer 230,000 Hokuto 10,086 Mushroom Grower 163,000 Secom 9,844 Security Alarm Systems 130,000 Nichiei 9,576 Lender to Small & Medium Size Businesses 300 NTT Data 8,762 Data Communications 120,000 Nintendo 8,571 Video Games 220,000 Konami 7,487 Entertainment Software/Hardware 110,000 Sanyo Shinpan 6,871 Consumer Finance 100,000 Paramount Bed 6,375 Hospital Bed Manufacturer 325,000 Meitec 6,188 Engineering Outsourcing 195,000 Sankyo 5,695 Pachinko Machine Manufacturer 200,000 Mirai Industry 5,428 Manufacturer of Plastic Housing Components 110,000 HIS 5,307 Travel Agent 570,000 Chuo Trust & Banking 4,857 Banking 1,330,000 Tokyu Land (b) 4,629 Real Estate 200,000 Central Uni 4,566 Health Care/Medical Equipment 165,000 Lasertec 4,492 Manufacturer of LCD & Photomask Defect Detectors 150,000 Itariyard 4,045 Designer/Wholesaler of Women's Apparel 135,000 Xebio 4,013 Sporting Goods Retailer 255,000 Heiwa 3,998 Pachinko Machine Manufacturer 113,720 Nihon Jumbo 3,958 Photo Processing Lab 120,000 NuSkin Asia Pacific (b) 3,705 Personal Care Products 50,000 Ryohin Keikaku 3,705 Muji Brand Designer & Specialty Retailer 142,000 Mars Engineering 3,609 Gaming Systems & Machinery 110,000 Aucnet 3,554 Used Auto Auctions Via Satellite 70,000 Promise 3,438 Consumer Finance 50,000 Tiemco (b) 3,196 Fishing Equipment 130,000 Arrk 3,002 Industrial Modeling 430,000 Nanto Bank 2,845 Banking 70,000 Amway Japan 2,243 Network Sales 60,000 People 1,809 Sports Clubs 120,000 Mr. Max 1,592 Household Goods & Appliance Retailer 150,000 Cats 1,422 Pest Control 165,000 Sochiko 1,422 Film, Television & Kabuki Producer 50,000 Aderans 1,219 Hairpieces & Wigs 80,000 Belluna 1,199 Catalog Sales 50,000 Shinki 1,154 Corporate & Consumer Lending 25,000 Orix 1,038 Leasing Company - --------------------------------------------------------------------- 175,465 .Korea/Taiwan: 4.3% 20,500 Korea Mobile Telecom 21,007 Mobile Communications
See accompanying notes to financial statements 26
Number of Shares Value (000) - ----------------------------------------------------------------------- 480,000 President Enterprises (b) $ 8,640 Food Manufacturer & Distributor (Taiwan) 80,000 Formosa Fund (b) 7,560 Closed-End Fund (Taiwan) 460,000 Kookmin Bank 7,320 Retail Bank 215,000 Dongbu Fire & Marine Insurance (b) 7,176 Non-Life Insurance 95,000 Daehan City Gas 6,854 Gas Utility 70,000 Taipei Fund (b) 6,405 Closed-End Fund (Taiwan) 230,000 Formosa Growth Fund (b) 3,594 Closed-End Fund (Taiwan) 74,161 Shinsegae 2,719 5,039 Shinsegae (New) (b) 185 Department Stores 10,260 S1 Corporation (b) 1,881 4,740 S1 Corporation (New) (b) 779 Systems Security 150,000 Baring Taiwan Fund (b) 1,575 Closed-End Fund (Taiwan) - ---------------------------------------------------------------------- 75,695 .Malaysia: 2.2% 2,350,000 Malaysian Assurance Alliance 11,445 Insurance 1,900,000 Malaysian Oxygen 9,780 Industrial Gases 1,615,000 Arab Malaysian Finance 9,017 Consumer Finance 770,000 O.Y.L. Industries 8,156 Air Conditioners - ---------------------------------------------------------------------- 38,398 .Indonesia: 1.4% 3,000,000 Bank Niaga 7,111 Banking 1,500,000 Modern Photo Film 4,762 Fuji Film Distributor 2,939,900 Tigaraksa Satria (b) (c) 4,107 Distributor of Consumer Goods 3,000,000 Mustika Ratu 4,063 Traditional Cosmetics 230,000 Unilever 3,943 Consumer Goods - ---------------------------------------------------------------------- 23,986 .Philippines: 1.6% 25,000,000 Int'l Container Terminal Services (b) 13,070 Container Handling Terminals & Port Management 3,000,000 Philippine Savings Bank (b) 7,186 Banking 8,000,000 PILTEL (b) 6,768 Mobile Communications 3,700,000 Mondragon International (b) 1,653 Casinos/Resort - ---------------------------------------------------------------------- 28,677 .Singapore: 1.4% 5,400,000 Genting International 12,960 Cruise Line 2,999,600 Venture Manufacturing 7,463 2,457,000 Venture Manufacturing Warrants 7/26/99 (b) 3,952 Contract Electronics Manufacturer 430,000 Datacraft Asia 718 Network Services - ---------------------------------------------------------------------- 25,093 .Thailand: 0.9% 5,000,000 Shinawatra Satellite 5,655 Satellite Leasing 200,000 Serm Suk 5,343 Pepsi Bottler 320,000 Bangkok Insurance 4,543 Finance/Insurance 2,600,000 Sinpinyo Fund V (b) 1,141 Closed-End Fund - ---------------------------------------------------------------------- 16,682 -------- Asia: Total 456,877 - ---------------------------------------------------------------------- Latin America: 8.1% .Mexico: 2.7% 600,000 Kimberly Clark de Mexico 11,852 Paper Products 450,000 Bufete Industrial (b) 9,563 Engineering & Construction 3,000,000 Nadro, Series L 8,956 Pharmaceutical Distributor 1,200,000 Grupo Industrial Bimbo 7,165 Bread, Baked Goods & Snacks 700,000 Grupo Radio Centro (b) 4,813 Radio Stations & Networks 2,100,000 Fondo Opcion, Series B (b) 1,814 Real Estate Investment Fund 5,500,000 Grupo Herdez, Series B 1,502 Sauces & Condiments 353,375 GBM Atlantico (b) 972 Bank & Brokerage 107,000 Cofar 150 Drug Stores - ---------------------------------------------------------------------- 46,787
27 Acorn International .Statement of Investments
Number of Shares Value (000) - ------------------------------------------------------------------------ .Brazil: 1.8% 23,000,000 Banco Itau Pfd. $ 9,961 Bank 215,000,000 Cemig Pfd. 7,325 Electric Utility 35,000,000 Telemig 4,378 35,000,000 Telemig Pfd. 4,328 Telecommunications 3,000,000 White Martins 4,331 Industrial Gases 150,000 Elevadores Atlas 1,472 Elevator Services 1,000,000 Brazilian Smaller Companies Warrants 475 Closed-End Fund - ------------------------------------------------------------------------ 32,270 .Argentina: 1.5% 6,000,000 Siderca 10,952 Steel Pipe Producer 320,000 IRSA 10,200 Real Estate Management & Development 1,400,000 Cresud (b) 2,478 Agriculture 230,000 Perez Companc (b) 1,617 Oil & Gas Producer 240,000 Siderar (b) 691 Flat Rolled Steel 229,500 Cerveceria Biekert (b) 390 Brewer - ------------------------------------------------------------------------ 26,328 .Chile: 1.0% 280,000 Santa Isabel 6,335 Grocery Stores 150,000 Genesis Chile Fund 5,513 Closed-End Fund 260,000 Banco BHIF (b) 4,257 Financial Services 70,000 Embotelladora Andina 2,135 Coca-Cola Bottler - ------------------------------------------------------------------------ 18,240 .Peru: 0.1% 2,527,334 Enrique Ferreyros 2,433 Heavy Machinery Dealer .Other Latin America: 1.0% 150,000 Banco Latinoamericano de Exportaciones 7,613 Trade Financing (Panama) 100,000 Ceteco Holdings 5,752 Appliances Retailer (Central America) 100,000 Panamerican Beverages 4,688 Coca-Cola Bottler (Panama) 450,000 Global Casinos Cv. Pfd. (b) 340 22,500 Global Casinos (b) 96 Casino Operator (Aruba) - ------------------------------------------------------------------------ 18,489 ------- Latin America: Total 144,547 - ------------------------------------------------------------------------ Other Countries: 7.2% .Australia/New Zealand: 4.1% 4,000,000 Village Roadshow Pfd. Cl. A 10,866 Film Distribution, Exhibition & Production 2,000,000 Publishing & Broadcasting 9,722 Media & TV Broadcasting 1,750,000 Sky City 9,534 Casino & Hotel (New Zealand) 1,900,000 Skilled Engineering 6,414 Temporary Skilled Labor 4,000,000 Austereo 6,354 Radio Stations 1,400,000 Petroleum Securities Australia (b) 6,149 Oil & Gas Producer 3,600,000 Tyndall Australia 6,148 Money Management & Insurance 4,600,000 Sonic Healthcare 5,481 Pathology Labs 3,700,000 Burswood Property Trust 4,732 Perth Casino & Resort 600,000 PDL Holdings 3,243 Electrical Equipment Manufacturer & Distributor (New Zealand) 175,000 Hudson Conway (b) 2,224 Casino Managers 272,000 Siddons Ramset 1,448 Manufacturer & Distributor of Construction Materials ------- 72,315 .Canada: 2.6% 1,000,000 Ranger Oil 9,875 Oil & Gas Producer 435,000 Shaw Industries, Cl.A 8,791 Oil Field Services 395,000 Veritas Energy Services (exchangeable into Veritas DGC) (b) 7,493 Geophysical Contractor 215,000 Cinar Films, Cl. B (b) 5,590 Children's Television Programming 1,400,000 Pan East Petroleum (b) 5,005 Oil & Gas Producer 710,000 Shaw Communications 3,937 Cable TV 500,000 Cogeco (b) 2,626 Cable TV
See accompanying notes to financial statements 28 Number of Shares Value (000) - ------------------------------------------------------------------------------- 300,000 Cogeco Cable $ 1,926 Cable TV 250,000 Fundy Cable (b) 1,386 Cable TV - ------------------------------------------------------------------------------- 46,629 >Israel: 0.5% 325,000 Blue Square Israel (b) 4,631 Supermarkets & Department Stores 200,000 Pec Israel Economic (b) 3,350 Industrial Holdings 75,000 ZAG Industries (b) 1,238 Plastic Hardwares - ------------------------------------------------------------------------------- 9,219 --------- Other: Total 128,163 - ------------------------------------------------------------------------------- Foreign Corporations, Operations in the U.S.: 0.3% 161,000 Carnival 5,313 Cruise Ship Line (Panama) --------- Foreign Corporations, Operations in the U.S.: Total 5,313 4,744 Miscellaneous Securities: 0.0% 12
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------- Total Common Stocks and Other --------- Equity-Like Securities: 91.7% $1,626,122 (Cost: $1,212,620) Short-Term Obligations: 8.6% Yield 5.40% -- 5.80% Due January 1997 $28,628 Whirlpool Finance 28,596 $23,440 Commercial Credit 23,414 $18,694 Cargill 18,649 $18,315 Sears Acceptance 18,293 $17,765 Prudential Funding 17,740 $14,533 General Motors Acceptance 14,522 $12,834 Hertz 12,822 $12,346 Travelers Insurance 12,321 $6,220 American Brands 6,205 - ------------------------------------------------------------------------------- (Amortized Cost: $152,562) 152,562 --------- Total Investments: 100.3% 1,778,684 (Cost: $1,365,182) --------- Cash and Other Assets Less Liabilities: (0.3)% (6,141) --------- Total Net Assets: 100% $1,772,543 ===============================================================================
.Notes to Statement of Investments (a) At December 31, 1996, for federal income tax purposes cost of investments was $1,375,809,000 and net unrealized appreciation was $402,875,000 consisting of gross unrealized appreciation of $515,699,000 and gross unrealized depreciation of $112,824,000. (b) Non-income producing security. (c) On December 31, 1996, the Fund held the following percentages of the outstanding voting shares of the affiliated companies (ownership of at least 5%) listed below: Prodega (Switzerland)..............................................10.00% Estoril Sol (Portugal)............................................. 9.71% Sentra (Finland)................................................... 9.24% Benefon (Finland).................................................. 8.91% Tigaraksa Satria (Indonesia)....................................... 7.26% Kompan International (Denmark)..................................... 6.58% Kempen (Netherlands)............................................... 6.31% Fondo Opcion....................................................... 6.28% TT Tieto (Finland)................................................. 5.69% Zee Telefilms (India).............................................. 5.61% Ethical Holdings (UK).............................................. 5.14% The aggregate cost and value of investments in these companies at December 31, 1996, was $60,279,000 and $86,872,000 respectively. The market value of these securities represents 4.90% of the total net assets at December 31, 1996. During the year ended December 31, 1996, the cost of purchases and proceeds from sales in affiliated companies were $10,221,000 and $25,879,000, respectively. Net dividends received from these companies amounted to $1,495,000 and net realized gain on sale of investments in such companies amounted to $1,948,000. 29 Acorn International +Portfolio Diversification At December 31, 1996, the Fund's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - --------------------------------------------------------------------------- +Information Computer Systems $ 115,669 6.5% Software/Services 94,040 5.3 Broadcasting/CATV 77,846 4.4 Distribution 67,860 3.8 Mobile Communications 40,440 2.3 Consumer Electronics 28,882 1.6 Instrumentation 6,517 0.4 Equipment 3,374 0.2 - --------------------------------------------------------------------------- 434,628 24.5 +Health Care Biotechnology/Drug Delivery 40,205 2.3 Hospital/Laboratory Supplies 37,027 2.1 Services 30,387 1.7 Equipment 23,632 1.3 - --------------------------------------------------------------------------- 131,251 7.4 +Consumer Goods/Services Retail 173,969 9.8 Manufacturers 108,279 6.1 Entertainment/Leisure 75,210 4.3 Food 69,982 3.9 Recreational Vehicles 1,697 0.1 - --------------------------------------------------------------------------- 429,137 24.2 +Finance Money Management 100,276 5.7 Banks 74,911 4.2 Insurance 26,425 1.5 Other 112,394 6.4 - --------------------------------------------------------------------------- 314,006 17.8
Value (000) Percent - --------------------------------------------------------------------------- +Industrial Goods/Services Services $ 110,650 6.2% Machinery Processing 57,752 3.3 Steel 6,788 0.4 Forest Products/Construction 4,127 0.2 - --------------------------------------------------------------------------- 179,317 10.1 +Energy/Minerals Oil/Gas Producers 42,163 2.4 Oil Services 32,884 1.8 Independent Power 19,152 1.1 Mining 6,149 0.3 Refining/Marketing 1,404 0.1 - --------------------------------------------------------------------------- 101,752 5.7 +Real Estate 23,599 1.3 +Transportation 12,432 0.7 Total Short Term Obligations 152,562 8.6 ----------------------- Total Investments: $1,778,684 100.3% ===========================================================================
See accompanying notes to financial statements 30 Acorn Family of Funds .Report of Independent Auditors To the Board of Trustees and Shareholders of Acorn Investment Trust: We have audited the accompanying statements of assets and liabilities, including the schedule of investments of Acorn Fund, Acorn International and Acorn USA as of December 31, 1996, and the related statements of operations and changes in net assets for the periods indicated thereon, 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 Acorn Fund, Acorn International and Acorn USA, as of December 31, 1996, the results of their operations and the changes in their net assets for the periods indicated thereon, and the financial highlights for the periods indicated thereon, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 31, 1997 31
Acorn Family of Funds .Financial Highlights Acorn Fund Years ended 12/31, - ------------------------------------------------------------------------------------------------------------------------ For a share outstanding throughout each year 1996 1995 Net Asset Value, beginning of year $13.60 $12.24 Income From Investment Operations Net investment income .09 .11 Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.93 2.42 - ------------------------------------------------------------------------------------------------------------------------ Total from investment operations 3.02 2.53 Less Distributions Dividends from net investment income (.11) (.09) Distributions from net realized and unrealized gains reportable for federal income taxes (1.47) (1.08) - ------------------------------------------------------------------------------------------------------------------------ Total distributions (1.58) (1.17) - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of year $15.04 $13.60 ======================================================================================================================== Total Return 22.6% 20.8% Ratios/Supplemental Data Ratio of expenses to average net assets .57% .57% Ratio of net investment income to average net assets .53% .89% Portfolio turnover rate 33% 29% Net assets at end of year (in millions) $2,842 $2,399 Acorn International Years ended 12/31, - ------------------------------------------------------------------------------------------------------------------------ For a share outstanding throughout each period 1996 1995 Net Asset Value, beginning of period $16.59 $15.24 Income From Investment Operations Net investment income (loss) .13 .16 Net realized and unrealized gain (loss) on investments and foreign currency 3.29 1.20 - ------------------------------------------------------------------------------------------------------------------------ Total from investment operations 3.42 1.36 Less Distributions Dividends from net investment income (loss) (.12) - Distributions from net realized and unrealized gains reportable for federal income taxes (.28) (.01) - ------------------------------------------------------------------------------------------------------------------------ Total distributions (.40) (.01) - ------------------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $19.61 $16.59 ======================================================================================================================== Total Return 20.7% 8.9% Ratios/Supplemental Data Ratio of expenses to average net assets 1.17% 1.22% Ratio of net investment income (loss) to average net assets .51% .90% Portfolio turnover rate 34% 26% Net assets at end of period (in millions) $1,773 $1,276
Acorn USA Inception 9/4 through 12/31, - --------------------------------------------------------------------------------------------------------------- For a share outstanding throughout period 1996 Net Asset Value, beginning of period $10.00 Income From Investment Operations Net investment loss (.02) Net realized and unrealized gain (loss) on investments 1.67 - --------------------------------------------------------------------------------------------------------------- Total from investment operations 1.65 - --------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $11.65 =============================================================================================================== Total Return 16.5% Ratios/Supplemental Data Ratio of expenses to average net assets (d) 1.85%* Ratio of net investment loss to average net assets (.99%)* Portfolio turnover rate 20%* Net assets at end of period (in millions) $53
See accompanying notes to financial statements 32
- ------------------------------------------------------------------------------------ 1994 1993 1992 1991 1990 1989 1988 1987 $13.95 $11.06 $9.32 $6.51 $8.58 $7.27 $6.48 $7.45 .06 .04 .07 .11 .12 .13 .12 .14 (1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47 .12 - ------------------------------------------------------------------------------------ (1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59 .26 (.11) (.06) (.08) (.10) (.13) (.11) (.16) (.15) (.56) (.59) (.41) (.15) (.44) (.36) (.64) (1.08) - ------------------------------------------------------------------------------------ (.67) (.65) (.49) (.25) (.57) (.47) (.80) (1.23) - ------------------------------------------------------------------------------------ $12.24 $13.95 $11.06 $9.32 $6.51 $8.58 $7.27 $6.48 ==================================================================================== (7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% 24.8% 4.4% .62% .65% .67% .72% .82% .73% .80% .82% .55% .30% .72% 1.30% 1.60% 1.59% 1.52% 1.85% 18% 20% 25% 25% 36% 26% 36% 52% $1,983 $2,035 $1,449 $1,150 $767 $855 $563 $418 Inception 9/23 through 12/31, - ----------------------------------------- 1994 1993 1992 $15.94 $10.69 $10.00 .07 .00 (.03) (.67) 5.25 .72 - ---------------------------------------- (.60) 5.25 .69 - - - (.10) - - - ---------------------------------------- (.10) - - - ---------------------------------------- $15.24 $15.94 $10.69 - ---------------------------------------- (3.8%) 49.1% 6.9% 1.24% 1.21% 2.35%* .48% .06% (1.37%)* 20% 19% 20%* $1,363 $907 $30
(a) Average commission rate paid per share on Acorn Fund stock transactions for the year ended December 31, 1996 was $.0194. (b) Average commission rate paid per share on Acorn International stock transactions for the year ended December 31, 1996 was $.0008. (c) Average commission rate paid per share on Acorn USA stock transactions for the period ended December 31, 1996 was $.0567. (d) In accordance with a requirement by the Securities and Exchange Commission, the Acorn USA ratio reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.79%. * Annualized 33 Acorn Family of Funds .Statements of Assets and Liabilities
Acorn (in thousands) Acorn Fund International Acorn USA - ------------------------------------------------------------------------------------------------------------------------- 12/31/96 Assets Investments, at value (cost: Acorn Fund $1,719,867; Acorn International $1,365,182; Acorn USA $49,628) $2,852,932 $1,778,684 $53,796 Cash - 1,657 28 Organization costs - 11 100 Receivable for: Securities sold 6,715 6,107 144 Fund shares sold 3,612 1,872 552 Dividends and interest 1,378 1,557 13 Other assets 26 15 - - ------------------------------------------------------------------------------------------------------------------------ Total assets 2,864,663 1,789,903 54,633 Liabilities and Net Assets Net unrealized depreciation on foreign forward currency contracts - 365 - Payable for: Securities purchased 6,620 15,290 1,391 Fund shares redeemed 14,673 725 1 Organization costs - 9 101 Other 1,318 971 55 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities 22,611 17,360 1,548 Net assets applicable to Fund shares outstanding $2,842,052 $1,772,543 $53,085 ========================================================================================================================= Fund shares outstanding 188,918 90,383 4,556 ========================================================================================================================= Pricing of Shares Net asset value, offering price and redemption price per share $15.04 $19.61 $11.65 ========================================================================================================================= Analysis of Net Assets Paid-in capital $1,681,710 $1,355,220 $48,898 Accumulated net realized gain on sales of investments, futures and foreign currency transactions 32,756 12,674 19 Net unrealized appreciation of investments and other assets (net of unrealized PFIC gains of $8,057 for Acorn Fund and $10,627 for Acorn International) 1,125,008 402,505 4,168 Undistributed net investment income (loss) 2,578 2,144 - - ------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $2,842,052 $1,772,543 $53,085 =========================================================================================================================
See accompanying notes to financial statements 34
Acorn Family of Funds .Statements of Operations Acorn Acorn Fund International Acorn USA (in thousands) Years ended 12/31 Years ended 12/31 Inception - ------------------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 9/4-12/31 1996 Investment Income: Dividends $ 23,043 $ 23,864 $ 24,877 $ 26,345 $ 35 Interest 7,662 9,264 4,023 3,969 48 - ------------------------------------------------------------------------------------------------------------------------ 30,705 33,128 28,900 30,314 83 Foreign taxes withheld (845) (916) (2,681) (2,816) - - ------------------------------------------------------------------------------------------------------------------------ Total investment income 29,860 32,212 26,219 27,498 83 Expenses: Investment advisory 12,437 10,429 13,255 11,667 101 Custodian 1,079 737 2,235 1,804 6 Transfer and dividend disbursing agent 1,030 733 1,558 1,360 27 Reports to shareholders 466 331 706 431 7 Legal and audit 152 118 142 119 27 Registration and blue sky 174 26 108 92 14 Trustees' and other 216 239 209 383 8 - ------------------------------------------------------------------------------------------------------------------------ Total expenses 15,554 12,613 18,213 15,856 190 Less custodian fees paid indirectly - - - - (6) - ------------------------------------------------------------------------------------------------------------------------ Net expenses 15,554 12,613 18,213 15,856 184 - ------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) 14,306 19,599 8,006 11,642 (101) Net Realized and Unrealized Gain (Loss) on Investments, Futures and Foreign Currency Transactions: Net realized gain (loss) on sales of investments 298,665 198,606 48,566 (1,937) 120 Net realized gain (loss) on foreign currency transactions - (118) 1,291 (16,959) - Net realized loss on futures (22,053) (12,798) - - - Change in net unrealized appreciation on investments and foreign currency transactions 250,750 211,069 221,576 114,583 4,168 - ------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain on investments, futures and foreign currency transactions 527,362 396,759 271,433 95,687 4,288 - ------------------------------------------------------------------------------------------------------------------------ Net increase in net assets resulting from operations $541,668 $416,358 $279,439 $107,329 $ 4,187 ========================================================================================================================
See accompanying notes to financial statements 35 Acorn Family of Funds .Statements of Changes in Net Assets
Acorn Acorn Fund International Acorn USA (in thousands) Years ended 12/31 Years ended 12/31 Inception - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 9/4-12/31 1996 From Operations: Net investment income (loss) $ 14,306 $ 19,599 $ 8,006 $ 11,642 $ (101) Net realized gain (loss) on sales of investments, futures and foreign currency transactions 276,612 185,690 49,857 (18,896) 120 Change in net unrealized appreciation of investments and foreign currency transactions 250,750 211,069 221,576 114,583 4,168 - -------------------------------------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 541,668 416,358 279,439 107,329 4,187 Distributions to Shareholders From: Net investment income (a) (19,687) (14,810) (10,368) - - Net realized gain (261,454) (177,941) (24,680) (1,050) - - -------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders (281,141) (192,751) (35,048) (1,050) - From Fund Share Transactions: Reinvestment of dividends and capital gain distributions 257,125 173,543 33,033 1,001 - Proceeds from other shares sold 358,315 292,683 386,765 147,138 49,912 - -------------------------------------------------------------------------------------------------------------------------- 615,440 466,226 419,798 148,139 49,912 Payments for shares redeemed (432,510) (274,314) (167,890) (340,704) (1,014) - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Fund share transactions 182,930 191,912 251,908 (192,565) 48,898 - -------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 443,457 415,519 496,299 (86,286) 53,085 Net Assets: Beginning of period 2,398,595 1,983,076 1,276,244 1,362,530 - End of period (b) $2,842,052 $2,398,595 $1,772,543 $1,276,244 $ 53,085 ==========================================================================================================================
(a) Includes distributions of unrealized PFIC gains of $2,671 in 1996 and $592 in 1995 for Acorn Fund and $3,813 in 1996 for Acorn International. (b) Includes undistributed net investment income (loss) of $2,578 in 1996 and $5,288 in 1995 for Acorn Fund; $2,144 in 1996 and $693 in 1995 for Acorn International; and $0 in 1996 for Acorn USA. See accompanying notes to financial statements 36 Acorn Family of Funds .Notes to Financial Statements 1. Nature of Operations Acorn Fund, Acorn International and Acorn USA (the "Funds") are series of Acorn Investment 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. 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 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 Funds. Interest income is recorded on the accrual basis and includes amortization of discounts on money market instruments and 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. For Acorn Fund, net realized gains include distributions of realized gains from other investment companies of $1,395,520 in 1996 and $877,200 in 1995. For Acorn USA, net realized gains include distributions of realized gains from other investment companies of $21,360 in 1996. .Financial instruments Each Fund may purchase or sell exchange-traded financial futures contracts, which are contracts that obligate that Fund to make or take delivery of a financial instrument or the cash value of a securities index at a specified future date at a specified price. The Funds enter into such contracts to hedge a portion of their portfolio. Gains and losses are reflected as "Net Realized Gain (Loss) on Futures" in the Statements of Operations. Additionally, each Fund may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell foreign currencies. The Statements of Operations reflect gains and losses as realized for closed forward foreign currency contracts and unrealized for open contracts. A Fund bears the market risk that arises from changes in the value of financial instruments and securities indices (futures contracts) or from changes in foreign currency rates (forward foreign currency contracts) and the credit risk should a counterparty fail to perform under such contracts. There were no futures contracts or forward foreign currency contracts open at December 31, 1996 in Acorn Fund. There were no futures contracts open at December 31, 1996 in Acorn International. Acorn International entered into forward contracts to sell foreign currency, settling March 20 through June 19, 1997, as described below:
U.S. Dollar Unrealized Gain Foreign Amount Currency Proceeds (000) (Loss) (000) - ----------------------------------------------------------------------- 54,000,000 Swiss Franc $40,617 $149 91,000,000 German Mark $58,820 ($506) 200,000,000 Hong Kong Dollar $25,834 ($8) ----- ($365)
37 Acorn Family of Funds .Notes to Financial Statements Acorn USA did not enter into any futures or forward foreign currency contracts during the period ended December 31, 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 each Fund's investments and other assets, less liabilities, by the respective number of Fund shares outstanding. .Federal income taxes, dividends and distributions to shareholders Acorn Fund and Acorn International have complied with the special provisions of the Internal Revenue Code available to investment companies for the years ended December 31, 1996 and December 31, 1995. In accordance with the distribution requirements imposed on investment companies, Acorn Fund and Acorn International paid long-term capital gain distributions in 1996 of $241,989,000 and $24,680,000, respectively, which was sufficient to allow each fund not to incur any income tax. Acorn USA also complied with these provisions for the period ended December 31, 1996 and was not required to pay a distribution. Dividends payable to shareholders are recorded by the Funds on the ex- dividend date. Acorn Fund and Acorn International have elected to mark-to-market their investments in Passive Foreign Investment Companies ("PFICs") for federal income tax purposes. In accordance with this election, Acorn Fund recognized unrealized appreciation on PFICs of $2,671,000 in 1996. Cumulative net unrealized appreciation recognized in prior years on PFICs sold in 1996 amounted to $7,124,000. Distributions to shareholders from net investment income relating to PFICs were $2,671,000 in 1996. In accordance with its PFIC election, for the year ended December 31, 1996, Acorn International recognized unrealized appreciation on PFICs of $3,813,000. The cumulative net unrealized appreciation recognized in prior years on PFICs sold in 1996 amounted to $5,306,000. Distributions to shareholders from net investment income relating to PFICs were $3,813,000. Prior to 1996, the Fund recognized unrealized PFIC gains of $11,427,000, which were offset by accumulated net realized losses on foreign currency transactions and therefore were not required to be distributed. Distributions relating to PFICs are treated as ordinary income for Federal income tax purposes. Reclassifications have been made in 1996 for Acorn USA in the accompanying analysis of net assets from undistributed net investment loss to accumulated net realized gain on sales of investments of $101,000 to reflect differences between financial reporting and income tax bases. 3. Transactions With Affiliates The Funds' investment advisor, Wanger Asset Management, L.P. ("WAM") furnishes continuing investment supervision to the Funds and is responsible for the overall management of the Funds' business affairs. Under the Funds' investment management agreements with WAM, each fund pays the advisor an annual management fee, payable monthly, at the rates set forth below, which are determined at the beginning of each calendar quarter: Acorn Fund - ------------------------------------------ Net asset value: For the first $100 million .75% Next $1.4 billion .50% Net assets in excess of $1.5 billion .40% Acorn International - ------------------------------------------ Net asset value: For the first $100 million 1.25% Next $400 million 1.00% Net assets in excess of $500 million .80% Acorn USA - ------------------------------------------ Net asset value: For the first $200 million 1.00% Net assets in excess of $200 million .95% 38 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. Acorn Fund paid trustees' fees and expenses of $115,700 in 1996 and $134,000 in 1995; Acorn International paid $99,700 in 1996 and $89,000 in 1995 and Acorn USA paid $600 in 1996 to trustees not affiliated with WAM. Included in these fees are amounts paid to the Chairman of the Board of $43,200 and $49,000 by Acorn Fund and $37,600 and $32,000 by Acorn International for 1996 and 1995, respectively, and $200 by Acorn USA for 1996. WAM advanced Acorn International $71,000 in connection with the organization and initial registration of the Fund. These costs are being amortized and reimbursed to WAM over the period January, 1993 though September, 1997. WAM advanced Acorn USA $107,000 in connection with the organization and initial registration of the Fund. These costs are being amortized and reimbursed to WAM over the period September, 1996 though August, 2001. WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the distributor of the Funds' 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:
Acorn Fund - ---------------------------------------------------------- (in thousands) 1996 1995 Shares sold 23,744 21,831 Shares issued in reinvestment of dividend and capital gain distributions 17,382 12,817 -------------- 41,126 34,648 Less shares redeemed 28,523 20,322 -------------- Net increase in shares outstanding 12,603 14,326 ========================================================== Acorn International - ---------------------------------------------------------- (in thousands) 1996 1995 Shares sold 20,757 9,482 Shares issued in reinvestment of dividend and capital gain distributions 1,708 62 -------------- 22,465 9,544 Less shares redeemed 8,994 22,013 Net increase (decrease) in -------------- shares outstanding 13,471 (12,469) ========================================================== Acorn USA - --------------------------------------------------- (in thousands) 1996 Shares sold 4,647 Less shares redeemed 91 ----- Net increase in shares outstanding 4,556 =================================================== 5. Investment transactions Acorn Fund - ------------------------------------------------------------- (in thousands) 1996 1995 Investment securities (excluding money market instruments): Purchases $862,321 $636,015 Proceeds from sales 924,259 584,550 Acorn International - ------------------------------------------------------------- (in thousands) 1996 1995 Investment securities (excluding money market instruments): Purchases $612,766 $318,862 Proceeds from sales 498,234 416,451 Acorn USA - --------------------------------------------------- (in thousands) 1996 Investment securities (excluding money market instruments): Purchases $ 45,708 Proceeds from sales 1,733 ===================================================
39 The Acorn - ---------------------------- Family of Funds .Trustees Irving B. Harris Chairman James H. Lorie Vice Chairman Leo A. Guthart Jerome Kahn, Jr. David C. Kleinman Charles P. McQuaid Roger S. Meier Adolph Meyer, Jr. Malcolm N. Smith Ralph Wanger .Officers Ralph Wanger President Charles P. McQuaid Senior Vice President Terence M. Hogan Vice President Leah J. Zell Vice President Merrillyn J. Kosier Vice President and Secretary Bruce H. Lauer Vice President and Treasurer Kenneth A. Kalina Assistant Treasurer .Investment Advisor Wanger Asset Management, L.P. 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) e-mail: acorn@wanger.com web site: www.wanger.com .Distributor WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, Massachusetts 02266-8502 .Transfer Agent, Dividend Disbursing Agent and Custodian State Street Bank and Trust Company Attention: Acorn Family of Funds P.O. Box 8502 Boston, Massachusetts 02266-8502 1-800-962-1585 .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 Acorn Investment Trust. This report is not authorized for distribution unless preceded or accompanied by a prospectus. 40 A Zebra In Lion Country A Zebra in Lion Country: Ralph Wanger's Investment Survival Guide, will hit bookstores in April. Mr. Wanger wants to meet fellow Acorn shareholders! If you live in or around one of the following cities, drop by, introduce yourself, and let him personally sign your copy of the book. >April 8 Barnes & Noble 160 E. 54th Street, New York, NY >April 15 Schwartz Books 219 N. Milwaukee Street, Milwaukee, WI >April 17 Baxter Books 608 2nd Avenue, Minneapolis, MN >April 22 Borders Books & Music North Michigan Avenue, Chicago, IL [PICTURE OF ACORN] The Acorn - ------------------------ Family of Funds WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, MA 02266-8502 FIRST CLASS U.S. POSTAGE PAID CHICAGO,IL PERMIT NO. 1200 -----END PRIVACY-ENHANCED MESSAGE-----