-----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, Hb3t4Fpu+CqgLSUgRn1gy0SyvbOATtJ1P0o/iNmV2QiNbIhES9Y4SrurFWXm21fP 6zHsZ6XP2faOWibWz4s1Kg== 0000950131-98-001325.txt : 19980225 0000950131-98-001325.hdr.sgml : 19980225 ACCESSION NUMBER: 0000950131-98-001325 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980224 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: SEC FILE NUMBER: 811-01829 FILM NUMBER: 98548372 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 ANNUAL REPORT--ACORN INVESTMENT TRUST [PHOTO APPEARS HERE] [THE ACORN FAMILY OF FUNDS] ANNUAL REPORT ------------------------------ DECEMBER 31, 1997 Managed by Wanger Asset Management, L.P. ACORN FAMILY OF FUNDS ANNUAL REPORT 1997 TABLE OF CONTENTS Squirrel Chatter WAM at Five 1 The Empress Strikes Back Acorn Fund In a Nutshell 4 Performance at a Glance 5 Major Portfolio Changes 14 Statement of Investments 16 Foreign Portfolio Diversification 22 Acorn International In a Nutshell 6 Performance at a Glance 7 Major Portfolio Changes 23 Statement of Investments 25 Portfolio Diversification 31 Acorn Usa In a Nutshell 2 Performance at a Glance 3 Major Portfolio Changes 10 Statement of Investments 11 Acorn Family of Funds Reflections on the Year 8 Scarlet A Awards 9 Report of Independent Auditors 32 Statements of Assets and Liabilities 33 Statements of Operations 34 Statements of Changes in Net Assets 35 Financial Highlights 36 Notes to Financial Statements 38
SHAREHOLDERS APPROVE NEW AGREEMENTS At a special meeting on December 9, 1997, shareholders of Acorn Fund, Acorn International and Acorn USA voted to approve a proposal that replaced each Fund's investment advisory agreement with a new investment advisory agreement and a separate administrative services agreement. In addition, shareholders voted to ratify the selection of Ernst & Young LLP as each Fund's independent public accountants. The new investment advisory and administrative services agreements took effect on January 1, 1998. The outcome of the vote was as follows:
Record Date Total Share Broker Share Position Position Voted For Against Abstentions Non-Votes - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Acorn Fund 199,901,724.041 - ------------------------------------------------------------------------------------------------------------------------------------ (A) New Advisory Agreement 127,466,115.169 99,093,922.912 24,835,066.632 3,088,699.625 448,486.000 - ------------------------------------------------------------------------------------------------------------------------------------ (B) Ratification of Ernst & Young 127,466,115.169 123,529,336.908 1,457,568.729 2,479,209.532 - ------------------------------------------------------------------------------------------------------------------------------------ Acorn International 89,857,412.428 - ------------------------------------------------------------------------------------------------------------------------------------ (A) New Advisory Agreement 50,074,459.286 38,988,238.591 9,213,188.805 1,387,075.890 485,956.000 - ------------------------------------------------------------------------------------------------------------------------------------ (B) Ratification of Ernst & Young 50,074,459.286 47,831,810.273 994,432.229 1,248,216.784 - ------------------------------------------------------------------------------------------------------------------------------------ Acorn USA 10,407,196.332 - ------------------------------------------------------------------------------------------------------------------------------------ (A) New Advisory Agreement 5,520,517.364 4,781,246.621 576,387.088 104,180.655 58,703.000 - ------------------------------------------------------------------------------------------------------------------------------------ (B) Ratification of Ernst & Young 5,520,517.364 5,352,991.669 82,715.307 84,810.388 - ------------------------------------------------------------------------------------------------------------------------------------
[PHOTO OF RALPH WANGER APPEARS HERE] SQUIRREL CHATTER: WAM at Five The founders of Wanger Asset Management (WAM) announced their desire to become an independent firm five years ago. The negotiations that followed allowed our new firm to start managing the Acorn Fund on June 30, 1992. As shareholders, you ratified the change in investment manager. The Acorn Fund has done well over the five years since then. Acorn International was launched in September 1992, just in time to catch the historic 1993 bull move in foreign stocks, so today Acorn International is a large fund with an excellent team of analysts and portfolio managers. In September 1996, Acorn USA was introduced, and has had excellent investment performance and steady growth of assets. The mutual fund industry has changed a lot in the last five years. The number of mutual funds has grown at an astonishing rate. Tax-exempt retirement plans, such as IRAs and 401(k) plans, have become increasingly important. Financial planners and "fund supermarkets" are now major channels of distribution. In December 1997, shareholders approved a new advisory agreement for the funds, including a fee increase for Acorn Fund. We thank you for your vote of confidence. There were important changes at WAM in 1997. To start, Howard Kastel has joined WAM as CEO. Mr. Kastel is a seasoned attorney, and has been an advisor to me since WAM's creation in 1992. His guidance and opinions were especially valuable during the reorganization of WAM's partnership. His presence will improve internal operations and provide the partners and me relief from many administrative issues, enabling us to fully focus our efforts on portfolio management. WAM has also added employees in trading, accounting, data processing, marketing, and shareholder services. Shareholders have already seen one improvement, our new year-end Consolidated Account Statement. This single statement lists all of a shareholder's regular and retirement account transactions within the three Acorn funds. Other accounts can also be linked upon your request. This means fewer envelopes and easier record keeping for Acorn shareholders. In 1997, Terry Hogan decided to withdraw as a partner to pursue other opportunities. We wish him well. On a brighter note, WAM is pleased to announce the promotion of John Park to partner. John joined the firm in 1993 as WAM's health care specialist. His skill and judgment earned him the promotion. The Empress Strikes Back A PUZZLEMENT: President Clinton has clearly denied having an affair with a young lady, although in my opinion, he obviously did so. The American people treat this as a spicy soap opera plot, a follow-on to O.J. and Princess Di. Why are we titillated instead of scandalized? Perhaps part of the answer follows from a change in the role of the President. In olden times, the federal government was small, and the President was head of the First Family. As a family head, he had to follow family moral ideals. As the government has grown, the President is not head of the First Family, but much more imperial. Any Emperor is expected and encouraged to have concubines, as a sign of virility and strength. Europeans who are used to royalty's sexual amusements, cannot comprehend why this matter is worth gossiping about at all. The royal metaphor helps explain a second puzzle, Mrs. Clinton's response. She clearly rejected the role of betrayed First Lady, but chose instead to blame a "right wing conspiracy." This calculated political response makes more sense for an Empress faced with the possible loss of her throne. May the force be with you, /s/ Ralph Wanger Ralph Wanger Chief Investment Officer, Wanger Asset Management Lead Portfolio Manager, Acorn Fund 1 [PHOTO OF ROBERT A. MOHN APPEARS HERE] ACORN USA IN A NUTSHELL Acorn USA rocked the small-cap world in 1997. Your Fund's +32.3% return in dollars (+208% in Indonesian rupiah!) handily beat the Russell 2000 small-cap index (+22.4%) and Lipper's small-cap mutual fund average (+20.8%). Our precocious portfolio acted more like an adult-cap last year, outdoing the Dow (+24.9%) and nearly matching the jumbo-cap S&P 500 (+33.4%). Group of the year honors went to our cable television stocks. In 1996, paranoid investors fled from cable, fearing digital satellite TV would zap cable TV into extinction. But the cable doubters must have forgotten that sky TV remains expensive and unable to carry most local channels. The dreaded extraterrestrial satellite invasion of 1997 never made it out of the X-Files. Instead, cable companies snatched more viewer bodies, raised rates and roused their stocks. Our own able cable guy, Chuck McQuaid, loaded up on top flight cable providers (Cablevision) and programmers (United Video, Liberty Media) and made us a mint. Other winners in 1997 included Coast Savings, our lone banker. Coast announced it will be acquired by a fellow California thrift, H.F. Ahmanson, which itself is likely prey in today's bank-eat-bank world. Royal Caribbean Cruises rose a titanic 102% last year as more middle-aged middle-Americans vacationed afloat. We also doubled our money in C-Tec (now RCN Corp.), a new wave telephone entrepreneur. C-Tec's fast fiber lines and flair for marketing are giving the Bells fits. We live in the Golden Age of Free Trade, when economic events happening a hemisphere away can ruin or save the day for any company, be it the largest multinational lender or the smallest domestic manufacturer. Recently, the sound of Asian economies toppling like dominoes has left Wall Street dis-Oriented. This volatility may wrack your nerves, but it also creates opportunities. Rational, efficient markets are filled with fairly priced stocks; emotional markets offer up bargains. Here's to more bargains in 1998. Fund Assets as of 12/31/97: $184.6 million Acorn USA Top 10 Holdings COAST SAVINGS 5.9% California Savings & Loan CALENERGY 4.6% Power Plants LINCARE HOLDINGS 4.5% Home Health Care Services ATMOS ENERGY 3.6% Natural Gas Distributor UNITED VIDEO SATELLITE 3.3% CATV & Satellite Dish Programming DATA TRANSMISSION 3.2% Data Services for Farmers ROYAL CARIBBEAN CRUISES 3.1% Cruises to Caribbean and Alaska ACCEPTANCE INSURANCE 3.0% Crop Insurance WACKENHUT 3.0% Prison Management HOST MARRIOTT 2.8% Fast Food Kiosks in Airports
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. - -------------------------------------------------------------------------------- IRA Remember, you have until April 15, 1998 to make your 1997 IRA contribution. For an IRA booklet, including information about the new Roth and Education IRAs (available for 1998), please call 1-800-9-ACORN-9 (1-800-922-6769) - -------------------------------------------------------------------------------- /s/ Robert A. Mohn Robert A. Mohn Lead Portfolio Manager 2 PERFORMANCE AT A GLANCE The Value of a $10,000 Investment in Acorn USA September 4, 1996 through December 31, 1997 ACORN USA MOUNTAIN CHART PLOT POINTS
DATE ACORN USA ($) RUSSELL 2000 ($) - ---- ------------- ---------------- 09/04/96 10,000 10,000 09/30/96 10,720 10,360 12/31/96 11,650 10,899 03/31/97 11,480 10,335 06/30/97 13,320 12,011 09/30/97 15,340 13,798 12/31/97 15,413 13,335 +0.5%
This graph compares the results of $10,000 invested in Acorn USA on September 4, 1996 (the date Fund shares were first offered to the public), with the Russell 2000 Stock Index with dividends reinvested. 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 USA Portfolio Diversification as a % of net assets, as of 12/31/97 [PIE CHART APPEARS HERE] Information 31.2 % Health Care 8.8 % Consumer Goods/Services 5.8 % Finance/Real Estate/Transportation 16.2 % Industrial Goods/Services 11.8 % Energy/Minerals 18.6 % Cash 7.6 % ------- 100.0 %
RELATIVE PERFORMANCE - ------------------------------------------------------------------------ 4th quarter Last 12 mos. 1997 ACORN USA 0.5% 32.3% Russell 2000 -3.4% 22.4% Lipper Small Cap Funds Avg. -5.0% 20.8% S&P MidCap 400 0.8% 32.3% S&P 500 2.9% 33.4% Dow-Jones 0.0% 24.9%
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then eliminating the largest 1,000 leaving a good small company index. The Lipper Small Cap Funds Avg. Is an average of all U.S. small-cap funds tracked by Lipper, which consisted of 552 and 466 funds for the 4th qtr. and 12-mos. periods above. 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 of U.S. blue-chip companies. The Dow Jones Industrial Average includes 30 large companies. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/97: $15.12 - ------------------------------------------ 3 [PHOTO OF RALPH WANGER APPEARS HERE] [PHOTO OF CHARLES P. MCQUAID APPEARS HERE] ACORN FUND IN A NUTSHELL 1997 was a very good year. Acorn's gain of 25.0% beat many of its peers and the Russell 2000, which gained 22.4%. But as shown on page five, large cap indexes fared best in 1997. Acorn Fund fell 0.7% in the fourth quarter; the small cap Russell 2000 index dropped 3.4%. In the quarter, Acorn's best stocks included three takeovers. Quality Food is being eaten by Fred Meyer. Pinnacle Financial is being acquired by CNB Bancshares. Coast Savings is being bought by Ahmanson. All three stocks jumped higher on the news. Acorn USA manager Rob Mohn won the trifecta as he follows all three. Communications stocks also did well. Cablevision Systems plugged into several deals, showing a 51% rise. Mobile Telecommunications signaled a 36% hike as its two-way paging business grew nicely. HSN Inc. successfully shopped for additional programming, buying a 27% gain. Technology was treacherous; the Russell small cap technology index lost 15.5%. MicroProse became microscopic, dropping 65% as its merger with GTI exploded. ACT Manufacturing couldn't get its act together and fell in half. However, Wanger analyst Laura McKenna's analyses of Analysts International and Keane were on target. Both stocks were up over 30% in the quarter. The Asian market collapse hurt our foreign portfolio in the fourth quarter, causing a 6.8% decline. For the year, we had a modest 1.9% profit in our foreign portfolio. Fortunately, our foreign team started a major sell program in August. At year-end, only 12% of Acorn was invested overseas. Acorn's cash position is relatively high at 9.1% and will be put to work as we find good small cap companies at reasonable prices. Fund Assets as of 12/31/97: $3,681.5 million Acorn Fund Top 10 Holdings AES CORPORATION 2.8% Global Power Producer LIBERTY MEDIA 2.4% CATVProgramming CARNIVAL 2.1% Cruise Ship Line LINCARE HOLDINGS 1.9% Home Health Care Services BORDERS 1.7% Bookstores HARLEY DAVIDSON 1.6% Motorcycle Manufacturer INTERNATIONAL GAME TECHNOLOGY 1.4% Gaming Equipment SOLECTRON 1.4% Electronics Contract Manufacturer PEOPLE'S BANK BRIDGEPORT 1.3% Consumer Finance HBO AND CO. 1.3% Health Care Information Systems
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.
Total 1997 - ------------------------------------------------------------- DISTRIBUTIONS Acorn Acorn Acorn Fund International USA ----- ------------- ----- Ordinary Income $0.16 $0.38 -- Short-Term Capital Gain -- -- $0.24 Long-Term Capital Gain $1.61 $0.90 $0.05 TOTAL PER SHARE IN 1997 $1.77 $1.28 $0.29
/s/ Ralph Wanger /s/ Charles P. McQuaid Ralph Wanger Charles P. McQuaid Lead Portfolio Manager Co-Portfolio Manager 4 PERFORMANCE AT A GLANCE The Value of a $10,000 Investment in Acorn Fund June 10, 1970 through December 31, 1997 ACORN FUND MOUNTAIN CHART PLOT POINTS
DATE ACORN FUND($) S&P($) - ---- ------------- ------ 1970 10,000 10,000 1971 17,828 14,490 +31.0% 1972 19,368 17,242 + 9.0% 1973 14,765 14,709 -24.0% 1974 10,691 10,816 -28.0% 1975 13,945 14,842 +30.0% 1976 23,045 18,394 +65.0% 1977 27,168 17,077 +18.0% 1978 31,777 18,200 +17.0% 1979 47,790 21,586 +50.0% 1980 62,594 28,602 +31.0% 1981 58,005 27,195 - 7.0% 1982 68,208 33,054 +18.0% 1983 85,389 40,510 +25.0% 1984 89,045 43,051 + 4.0% 1985 117,142 56,710 +32.0% 1986 136,843 67,295 +17.0% 1987 142,923 70,828 + 4.0% 1988 178,370 82,591 +25.0% 1989 222,681 108,761 +25.0% 1990 183,674 105,386 -18.0% 1991 270,641 137,492 -47.0% 1992 336,210 147,928 +24.0% 1993 444,889 162,882 +32.0% 1994 411,750 165,032 -7.0% 1995 497,407 227,047 +21.0% 1996 609,569 279,177 +23.0% 1997 761,852 372,320 +25.0%
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. 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 12/31/97 [PIE CHART APPEARS HERE] Information 26.6 % Health Care 7.8 % Consumer Goods/Services 8.5 % Finance/Real Estate/Transportation 15.9 % Industrial Goods/Services 8.8 % Energy/Minerals 11.1 % Foreign 12.2 % Cash less liabilities 9.1 % ------- 100.0 %
Relative Performance - -------------------------------------------------------------------------------- 4th quarter Last 12 mos. 1997 Acorn Fund -0.7% 25.0% S&P 500 2.9% 33.4% Russell 2000 -3.4% 22.4% Lipper Small Cap Funds Avg. -5.0% 20.8% S&P MidCap 400 0.8% 32.3% Dow-Jones 0.0% 24.9%
The S&P 500 is a broad market-weighted index, still blue-chip dominated. The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then eliminating the largest 1,000 leaving a good small company index. The Lipper Small Cap Funds Avg. is an average of all U.S. small-cap funds tracked by Lipper, which consisted of 552 and 466 funds for the 4th qtr. and 12-mos. periods above. 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 Dow Jones Industrial Average includes 30 large companies. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/97: $16.99 - ------------------------------------------ 5 ACORN INTERNATIONAL IN A NUTSHELL [Photo of Leah Joy Zell appears here] Acorn International finished 1997 flat for the year. It could have been worse. Markets collapsed all over the world in the fourth quarter. The cash pile we raised in late summer cushioned our losses, but the ride down is never fun. Relative to our peers, we had a good result in the fourth quarter, outperforming the average international small-cap fund by over 2% and the average international large-cap fund by around 1%. The large-caps had a better year in 1997 overall, but gained most of their advantage in the first half. Relative to our benchmarks, we ended 1997 close to EAFE and 9.6% ahead of EMI. (For more detail on the portfolio, see "Reflections on the Year" on page 8.) Looking forward, the crisis in Asia will leave its mark on the world economy in 1998. The good news is that many prices in Asia today are grotesquely depressed. Of course, they could always go down further; sentiment and the tendency to extrapolate trends indefinitely into the future cause markets to overshoot beyond reasonable valuation levels. However, prices do eventually recover if the fundamentals are there to support them. On the other side of the world, European smaller companies are trading at substantial discounts to the large-caps, in spite of frequently better earnings growth prospects. While the broader European indices are at all-time highs, European small-cap relative valuations are at eight-year lows. Smaller companies are more typically oriented to the domestic economy, hence less exposed than the blue-chips to downward earnings pressure from the Asian crises. Most important, the outlook for European equity markets in general--and the small-cap asset category in particular--is rapidly improving, thanks to increased pension fund assets, new listings, government privatizations, and the adoption of investor-friendly policies by corporate management. We intend to participate fully in the upside. Happy New Year! /s/ Leah Joy Zell Leah Joy Zell Lead Portfolio Manager Fund Assets as of 12/31/97: $1,622.9 million Acorn International Top 10 Holdings T T TIETO Finland 3.5% Computer Services/Consulting WM DATA Sweden 2.2% Computer Services/Consulting RHOEN KLINIKUM Germany 1.8% Hospital Management SERCO GROUP United Kingdom 1.8% Facilities Management BANCA FIDEURAM Italy 1.7% Life Insurance/Mutual Funds ATOS France 1.4% Computer Services KEMPEN Netherlands 1.4% Stock Brokerage/ Investment Management LI AND FUNG Hong Kong 1.2% Sourcing of Consumer Goods IRSA Argentina 1.2% Real Estate Management & Development GETRONICS Netherlands 1.1% Computer Services
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. TAX Tax Forms 1099-DIV and 1099-B were mailed to shareholders in January with the Acorn Family of Funds' 1997 Tax Guide. The Tax Guide contains important information that you will need to complete your 1997 tax return, including information about changes in capital gains taxes, taking a foreign tax credit/deduction, income attributable to U.S. Government Obligations, and cost basis. If you did not receive your Form 1099(s), please call 1-800-962-1585 for a duplicate copy. 6 PERFORMANCE AT A GLANCE The Value of a $10,000 Investment in Acorn International September 23, 1992 through December 31, 1997 ACORN INTERNATIONAL MOUNTAIN CHART PLOT POINTS
DATE ACORN INT'L ($) EAFE ($) - ---- --------------- -------- 09/23/92 10,000 10,000 09/30/92 10,010 10,000 12/31/92 10,690 9,614 + 6.8% 03/31/93 12,000 10,767 +12.3% 06/30/93 12,920 11,849 + 7.7% 09/30/93 13,910 12,635 ? 7.7% 12/31/93 15,940 12,745 +14.6% 03/31/94 15,850 13,190 - 0.6% 06/30/94 15,550 13,864 - 1.9% 09/30/94 16,491 13,877 + 6.1% 12/31/94 15,334 13,736 - 7.0% 03/31/95 14,811 13,992 - 3.4% 06/30/95 15,727 14,093 + 6.2% 09/30/95 16,824 14,681 + 7.0% 12/31/95 16,703 15,275 - 0.7% 03/31/96 18,203 15,717 + 9.0% 06/30/96 19,593 15,965 + 7.6% 09/30/96 19,362 15,945 - 1.2% 12/31/96 20,133 16,199 + 4.1% 03/31/97 20,564 15,945 + 2.1% 06/30/97 21,786 18,015 + 5.9% 09/30/97 21,639 17,888 - 0.7% 12/31/97 20,170 16,487 - 6.8%
This graph compares the results of $10,000 invested in Acorn International on September 23, 1992 (the date Fund shares were first offered to the public), with all dividends and capital gains reinvested, with Morgan Stanley's Europe, Australia 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 12/31/97 [PIE CHART APPEARS HERE] Information 22.4% Health Care 5.8% Consumer Goods/Services 20.2% Finance/Real Estate 12.7% Industrial Goods/Services/Transportation 16.1% Energy/Minerals 6.0% Other Industries 4.7% Cash less liabilities 12.1% ------ 100.0%
RELATIVE PERFORMANCE - ----------------------------------------------------------------------------- 4th quarter Last 12 mos. 1997 ACORN INTERNATIONAL -6.8% 0.2% EAFE -7.8% 1.8% EMI (World ex-U.S.) -10.3% -9.4% Lipper Int'l Small Cap Funds Avg. -9.1% -0.3% Lipper Int'l Funds Avg. -7.7% 5.4%
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 EMI is Salomon Brothers' index of the bottom 20% of institutionally investable capital of countries, as selected by Salomon, excluding the U.S. The Lipper Int'l Small Cap Funds Avg. is calculated from the performance of a group of small-cap int'l funds, including Acorn Int'l. For the 4th qtr. and 12-mos. periods above, the group consisted of 48 and 29 funds, respectively. The Lipper Int'l Funds Avg. is an average of all int'l funds tracked by Lipper, excluding the Int'l Small Cap Funds Avg. This group consisted of 484 and 421 funds for the 4th qtr. and 12-mos. periods above, respectively. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/97: $18.39 - ------------------------------------------ 7 ACORN FAMILY OF FUNDS REFLECTIONS ON THE YEAR Acorn USA Acorn USA rose 32% in 1997. We had a lot of stocks go up and very few go down. Fourteen stocks made over $1 million for your Fund, while only one lost over a million. Our two best stocks soared on news of their corporate metamorphoses. Coast Savings got taken over by another California bank, and C-Tec split itself into three new communications companies (RCN Corp., Commonwealth Telephone, and Cable Michigan). Both stocks gained over $4 million for the year. We owned a large helping of cable stocks, one of last year's hottest stock market sectors. Big positions in United Video, C-Tec, Cablevision and Liberty Media were all performance boosters. One of our major investing themes is the world-wide growth of outsourcing. More corporations and governments are focusing only on what they do best and outsourcing the rest to specialists. Last year this theme paid off. The stocks making it into our million-dollar club were Host Marriott (airport food concessions), Wackenhut (privatized prisons), Lincare (home health care services), and Applied Industrial (industrial component warehousing). Our only big loser last year was CalEnergy (operates power plants), with a - 16% return. The good news on CalEnergy: 85% of its business is not in Indonesia. The bad news: 15% is. Acorn Fund Your Fund was up 25% in 1997. What contributed to Acorn Fund's performance for the year? Our best sector by far was broadcasting, mobile communication, CATV system owners, and CATV programming. Our seven best stocks in the sector rose 90-210% in the year and had an aggregate gain of $127 million. A number of these stocks were old holdings that had done well in the years 1991-1993, then drifted down in 1994-1996, finally reigniting in 1997. This go-stop-go pattern is common, and one must have a disciplined long-term outlook to make money in these cases. The financial sector was far above average in 1997. Our savings-and-loan and bank shares were very strong, driven by takeover activity. Our three best stocks, First USA (bought by Bank One), Peoples Bank of Bridgeport, and Coast Savings, gained $69 million in 1997. Insurance and money management companies did well too. Our 20 largest holdings as of December 31, 1997 were up an average of 31% for the year. These big positions were in companies in many industries, but a common factor is industry leadership. Most of the stocks you will recognize because we have owned them for a long time, such as AES Corporation, Carnival, Liberty Media, Thermo Electron, Borders, and International Game Technology. Our 20 largest holdings were 25% of the total assets in the Fund at the beginning of the year, and more at year-end. Since our biggest holdings had above-average results (up 31% vs. 25% for the total Fund), Acorn had a good year. Several sectors lost money in 1997. Oil stocks, biotechnology, and foreign stocks were poor in 1997. Specific companies were down substantially, including ADVANTA (credit card losses increased) and CalEnergy (Indonesian power plants look risky). Acorn International Acorn International's flat net return (+ 0.2%) in 1997 masked some of the most dramatic divergences among regional markets in the portfolio we have ever experienced. Despite a strong dollar, our European stocks did well; we gained 49% in Italy, 38% in the Netherlands, and 37% in Finland. We had some striking success in emerging markets as well, with gains of 86% in Greece and 36% in Argentina. Unfortunately, Asian markets were truly awful. Our 17% loss in Japan looked minor next to the 60%+ drops in value sustained in the Philippines, Malaysia and Indonesia. Fortunately, we reduced allocations to Asia in the third quarter, so that we were out of Korea entirely and had brought overall Asian weightings to under 20% before the October sell-off. Our best individual performers in the portfolio reflected long-term core themes. We made $15 million on Banca Fideuram and million on Kempen, both of which are beneficiaries of the mutual fund mini-boom in Europe. Computer outsourcing also worked, with $42 million of gains on TT Tieto, Capita Group, NTT Data and Atos. We even had a Hong Kong stock among our top ten winners, Li & Fung, with a $6.6 million gain. Currency hedging generated $29 million in profits for the year (although we had currency losses on that portion of the portfolio we did not hedge). 8 An important step we took during 1997 was to examine all of our stocks and invest more of the portfolio in our favorite ideas. As a result, we ended the year with 25% fewer names compared with year-end 1996. We expect to continue this process, in an effort to keep the quality of the companies we own at a high level. The new year has seen Asian markets rally sharply from deeply oversold levels. Today you can find lots of articles in the popular press questioning international diversification as an investment strategy. This is usually a contrarian indicator, suggesting that overseas markets have a fair chance of surprising on the upside in 1998. Scarlet A Awards We went through fire and water, but thou broughtest us out into a wealthy place. In 1997, the U.S. market was blazing hot, while Asia went under water, but we survived fire and water due to owning many excellent stocks in our funds. The ideas for our best stocks are generated by our own analysts in many cases, but many buy ideas come from brokerage house analysts or executives of other companies that we talk to regularly. We have formally acknowledged these contributions since 1983 with our Scarlet A Awards. AES CORPORATION has been an astonishing stock. The company is an independent supplier of electricity. In 1997 sparks flew as the stock doubled, making us $53 million! AES was a winner in 1996 also! We bought the stock in 1991 on the advice of John Hatsopoulos, President of Thermo Electron. Thermo Electron is an Acorn stock that won a Scarlet A in 1995. Acorn has always had an informal network of regional and industry- specialist brokerage firms. Local people often find small but growing companies before the big New York brokers hear about them. For example, Jennifer Black Groves, of Black & Co., a Portland, Oregon broker, gave us a taste for QUALITY FOOD, a Washington grocery chain. Our Rob Mohn did a full checkout and bought the idea. Quality Food recently agreed to be acquired by Fred Meyer, a big Northwest retail company. SYSTEMS AND COMPUTER TECHNOLOGY reappeared near the top of the list by tripling in value, for a $17 million gain. Jordan Cox, who left his job at a firm to go to work for SCTC, got a Scarlet A for the company in 1990, and now repeats. Jordan now works for Kalmar Investments, a counseling firm in Delaware. Technology stocks had mixed results in 1997, but "Year 2000" stocks were strong. Lots of old computer code will get confused when 1999 turns into 2000, and companies that can repair old code are doing well. COMPUWARE was one such company, introduced to Acorn by Ken Goldblatt and Don Rode of S/1/ Technology. KEANE INC. is a similar company and another winner. Keane was discovered by our own Laura McKenna. Barry Ollman at Hanifen, Imhoff in Denver helped convince her that the "Year 2000" problem is for real. Cruising was popular in 1997. CARNIVAL CORPORATION went up $31 million (70%) and ROYAL CARIBBEAN sailed 132%. Peter McMullen of Southeast Research brought us aboard these two. Oil service stocks had a blowout year in 1997. Our best one was EVI, up 103%. EVI makes oil-drilling pipe. The Scarlet A goes to Brian Dutt, now at the money management firm of Centennial Partners. Chuck McQuaid, one of our most senior partners, has over the years purchased a lot of stocks in CATV and programming. In 1997, this group led the market, after three flat years. Liberty Media, Cablevision, and Home Shopping Network all were hits; each won Scarlet A's in the past. Liberty Media, one of our best-ever stocks, won in 1991, 1992, and 1993, and is back on top of the charts again! No Scarlet A though; Chuck has followed this group so long and intensely that now he's the expert. In the international arena, we had many fine stocks, despite the collapse in Asia. European mutual fund management was our top area. KEMPEN, a Dutch broker and fund manager, was sold to us by Mark de Natris, a Kempen broker. In Italy, BANCA FIDEURAM doubled. Carlo Parisi of Intermobiliare gets the Scarlet A. Another Italian company, AUTOGRILL, an operator of restaurants on the highways, was a tasty dish. Prizes go to Pierluigi Gastone and Lucian Snow of SBC Warburg. ________________________________________________________________________________ 1 Banquet Address in Chicago, "Dedication of the New Board of Trade Building," 1885, quoted by W. Cronon, Natures Metropolis: Chicago and the Great West (W.W. Norton, New York City, 1991), p. 348. 9 ACORN USA MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares ----------------------- 9/30/97 12/31/97 ADDITIONS - ------------------------------------------------------ Information Cable Michigan 0 68,050 (spin off from C-Tec) Cablevision Systems 24,000 53,000 Centennial Cellular 41,000 162,000 COMARCO 97,800 121,800 ForeFront Group 0 40,000 Harte Hanks Communications 0 8,000 Kronos 118,000 134,000 Mecklermedia 6,200 109,300 National Data 39,000 86,000 RCN 0 133,100 (spin off from C-Tec) Young Broadcasting 0 3,200 - ------------------------------------------------------ Health Care Lincare Holdings 85,000 147,000 Synaptic Pharmaceuticals 0 78,000 - ------------------------------------------------------ Consumer Goods/Services Host Marriott Services 288,200 342,500 - ------------------------------------------------------ Finance Acceptance Insurance 178,100 231,900 AmerUs Life Holdings 59,500 121,300 Penn Treaty American 51,000 69,000 - ------------------------------------------------------ Industrial Goods/Services Farr Company 125,000 167,500 Lilly Industries, Cl. A 109,000 162,800 - ------------------------------------------------------ Energy/Minerals Atmos Energy 187,000 219,000 CalEnergy 259,000 297,000 Equitable Resources 0 75,000 NGC 131,400 270,600 Seagull Energy 59,100 82,100
Number of Shares ----------------------- 9/30/97 12/31/97 SALES - ------------------------------------------------------ Information Commonwealth Telephone 133,000 54,000 (formerly known as C-Tec) includes effect of 2 for 3 reverse split - ------------------------------------------------------ Health Care Kinetic Concepts 44,000 0 First Health Group 114,000 76,000 (formerly known as HealthCare Compare) ----------------------------------------------------- Consumer Goods/Services Oshkosh B'Gosh 27,000 0 Royal Caribbean Cruises 117,700 106,000 - ------------------------------------------------------ Finance SEI Investments 17,000 0 - ------------------------------------------------------ Industrial Goods/Services Steel Dynamics 57,000 0 Schnitzer Steel 138,300 100,700 Applied Industrial Technologies 138,000 63,000 - ------------------------------------------------------ Energy/Minerals J Ray McDermott 88,600 57,600
10 ACORN USA STATEMENT OF INVESTMENTS DECEMBER 31, 1997
Number of Shares Value (000) - ---------------------------------------------------------------------------------- Common Stocks: 92.4% - ---------------------------------------------------------------------------------- Information: 31.2% BROADCASTING: 3.2% 209,100 Data Transmission Network (b) $ 5,855 Data Services for Farmers 3,200 Young Broadcasting (b) 124 Television Stations - --------------------------------------------------------------------------------- 5,979 TELEVISION PROGRAMMING: 4.9% 213,000 United Video Satellite Group (b) 6,124 CATV & Satellite Dish Programming 80,000 Liberty Media Group, Tele-Communications (b) 2,900 Cable Programming - --------------------------------------------------------------------------------- 9,024 CABLE TELEVISION: 3.6% 53,000 Cablevision Systems (b) 5,075 Cable TV 68,050 Cable Michigan (b) 1,557 Cable TV - --------------------------------------------------------------------------------- 6,632 TELEPHONE SERVICES: 4.3% 133,100 RCN (b) 4,559 Metro Market: Voice, Video & Data Services 87,000 Startec Global Communications (b) 1,947 International Telecommunications 54,000 Commonwealth Telephone (formerly known as C-Tec) (b) 1,397 Rural Market: Local, Long Distance & Internet Access - --------------------------------------------------------------------------------- 7,903 MOBILE COMMUNICATIONS: 3.2% 162,000 Centennial Cellular (b) 3,321 Cellular Franchises 121,800 COMARCO (b) 2,680 Wireless Network Testing - --------------------------------------------------------------------------------- 6,001 TELECOMMUNICATIONS EQUIPMENT: 1.8% 156,000 Aspect Telecommunications (b) 3,256 Call Center Equipment Business Software: 2.9% 278,700 Wonderware (b) 3,937 Industrial Control Software 74,300 Computer Language Research 1,040 Commercial Tax Software
Number of Shares Value (000) - ---------------------------------------------------------------------------------- 40,000 ForeFront Group (b) $ 312 Computer-Based Training Software - --------------------------------------------------------------------------------- 5,289 TRANSACTION PROCESSORS: 1.7% 86,000 National Data 3,107 Credit Card Processing BUSINESS INFORMATION: 3.4% 109,300 Mecklermedia (b) 2,719 Internet Trade Shows & Magazines 100,000 World Color Press (b) 2,656 Consolidating Commercial Printing Industry 8,000 Harte Hanks Communications 297 Direct Marketing Services 26,000 American Business Information, Cl. A (b) 273 26,000 American Business Information, Cl. B (b) 266 Small Business Data - --------------------------------------------------------------------------------- 6,211 COMPUTER HARDWARE/ RELATED EQUIPMENT: 2.2% 134,000 Kronos (b) 4,129 Time Accounting Software & Clocks ----------- INFORMATION: TOTAL 57,531 - --------------------------------------------------------------------------------- Health Care: 8.8% BIOTECHNOLOGY/DRUG DELIVERY: 0.5% 78,000 Synaptic Pharmaceuticals (b) 848 Receptor Targeted Drug Design MEDICAL EQUIPMENT: 1.7% 128,000 Respironics (b) 2,864 Sleep Apnea Products 45,100 Cardiac Pathways (b) 316 Heart Surgery Device - --------------------------------------------------------------------------------- 3,180 SERVICES: 6.6% 147,000 Lincare Holdings (b) 8,379 Home Health Care Services 76,000 First Health Group (formerly known as HealthCare Compare) (b) 3,885 PPO Network - --------------------------------------------------------------------------------- 12,264 ---------- HEALTH CARE: TOTAL 16,292
See accompanying notes to financial statements 11 ACORN USA STATEMENT OF INVESTMENTS
Number of Shares Value (000) - ------------------------------------------------------------------------------------------ Consumer Goods/Services: 5.8% RETAIL: 2.7% 342,500 Host Marriott Services (b) 5,095 Fast Food Kiosks in Airports CRUISE LINES: 3.1% 106,000 Royal Caribbean Cruises 5,651 Cruises to Caribbean & Alaska ----------- CONSUMER GOODS/SERVICES: TOTAL 10,746 - ------------------------------------------------------------------------------------------ Finance: 13.6% SAVINGS & LOANS: 5.9% 159,000 Coast Savings (b) 10,901 California Savings & Loan INSURANCE: 7.7% 231,900 Acceptance Insurance (b) 5,609 Crop Insurance 121,300 AmerUs Life Holdings 4,473 Annuities/Life Insurance 69,000 Penn Treaty American (b) 2,191 Nursing Home Insurance 57,000 Leucadia National 1,966 Insurance Holding Company - ------------------------------------------------------------------------------------------ 14,239 ----------- FINANCE: TOTAL 25,140 - ------------------------------------------------------------------------------------------ Industrial Goods/Services: 11.8% STEEL: 2.8% 100,700 Schnitzer Steel 2,826 Scrap Steel Processor 88,000 Atchison Casting (b) 1,430 Consolidating Foundry Industry 46,100 Gibraltar Steel (b) 910 Steel Processing - ------------------------------------------------------------------------------------------ 5,166 INDUSTRIAL DISTRIBUTION: 0.4% 37,000 Vallen (b) 768 Safety Products Distribution MACHINERY: 2.3% 167,500 Farr Company (b) 2,512 Filters 63,000 Applied Industrial Technologies 1,685 Industrial Components Distributionn - ------------------------------------------------------------------------------------------ 4,197
Number of Shares Value (000) - ------------------------------------------------------------------------------------------ SPECIALTY CHEMICALS: 1.8% 162,800 Lilly Industries, Cl. A 3,358 Industrial Coatings OTHER INDUSTRIAL SERVICES: 4.5% 263,000 Wackenhut, Cl. B 5,556 Prison Management 231,600 Insurance Auto Auctions (b) 2,663 Auto Salvage Services - ------------------------------------------------------------------------------------------ 8,219 ----------- INDUSTRIAL GOODS/SERVICES: TOTAL 21,708 - ------------------------------------------------------------------------------------------ Energy/Minerals: 18.6% INDEPENDENT POWER: 4.6% 297,000 CalEnergy (b) 8,539 Power Plants OIL/GAS PRODUCERS: 3.4% 296,700 Tesoro Petroleum (b) 4,599 Oil Refinery/Gas Producer 82,100 Seagull Energy (b) 1,693 Oil & Gas Producer - ------------------------------------------------------------------------------------------ 6,292 DISTRIBUTION/MARKETING/REFINING: 7.6% 219,000 Atmos Energy 6,625 Natural Gas Utility 270,600 NGC 4,736 Gas Processing/Marketing 75,000 Equitable Resources 2,653 Gas Utility & Gas Producer - ------------------------------------------------------------------------------------------ 14,014 OIL SERVICES: 3.0% 252,000 GeoScience (b) 2,961 Offshore Seismic Equipment Company 57,600 J Ray McDermott (b) 2,477 Offshore Construction Company - ------------------------------------------------------------------------------------------ 5,438 ---------- ENERGY/MINERALS: TOTAL 34,283
See accompanying notes to financial statements 12
Number of Shares Value (000) - -------------------------------------------------------------------------------- Other Industries: 2.6% REAL ESTATE: 2.4% 48,300 Forest City Enterprises Cl. A $ 2,807 Shopping Centers 35,000 Gaylord Entertainment 1,118 Opryland Hotel & Other Assets 22,000 Cornerstone Properties 422 Downtown Office Buildings - -------------------------------------------------------------------------------- 4,347 TRANSPORTATION: 0.2% 51,000 Trailer Bridge (b) 453 Tug & Barge Transporation -------- OTHER INDUSTRIES: TOTAL 4,800 TOTAL COMMON STOCKS AND -------- OTHER EQUITY-LIKE SECURITIES: 92.4% 170,500 (Cost: $139,134)
Principal Amount Value (000) - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS: 9.4% Yield 5.65%6.15% Due 1/21/16/98 $6,202 General Motors Acceptance $ 6,197 $5,701 Hertz 5,697 $5,399 American General 5,398 - -------------------------------------------------------------------------------- (Amortized Cost: $17,292) 17,292 --------- TOTAL INVESTMENTS: 101.8% 187,792 (Cost: $156,426) --------- CASH AND OTHER ASSETS LESS LIABILITIES: (1.8%) (3,168) --------- TOTAL NET ASSETS: 100% $184,624 ================================================================================
________________________________________________________________________________ Notes to Statement of Investments (a) At December 31, 1997, for federal income tax purposes cost of investments was $156,441,000 and net unrealized appreciation was $31,351,000, consisting of gross unrealized appreciation of $34,854,000 and gross unrealized depreciation of $3,503,000. (b) Non-income producing security. 13 ACORN FUND MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares ------------------------ 9/30/97 12/31/97 Additions - ------------------------------------------------------------------------------- Information ACNielsen 1,015,000 1,266,000 Activision 0 13,000,000 American Business Information, Cl. A 830,000 1,000,000 (issued A shares 1 for every regular held) Cablevision Systems, Pfd. 0 100,000 Cablevision Systems 311,000 350,000 Choicepoint 0 174,000 Coherent Communications 115,000 178,000 Computer Task Group 0 340,000 Electro Scientific Industries 0 125,000 Electronic Arts 250,000 350,000 Harte Hanks Communications 0 205,000 International Game Technology 1,880,000 2,050,000 Kent Electronics 300,000 600,000 Larscom 236,000 476,000 Mecklermedia 100,000 248,000 Micros Systems 330,000 375,000 National Data 729,000 1,292,000 National Instruments 0 242,000 Oak Industries 200,000 350,000 Peterson Companies 0 50,000 RCN (spin off from C-Tec Corp) 0 564,000 Solectron 1,090,000 1,220,000 Young Broadcasting 0 465,000 - ------------------------------------------------------------------------------- Health Care Lincare Holdings 1,040,000 1,235,000 Synaptic Pharmaceuticals 0 680,000 - ------------------------------------------------------------------------------- Consumer Goods/Services Cie Fin Richemont (Switzerland) 4,500 10,000 Nintendo (Japan) 110,000 145,000 Rio Hotel & Casino 210,000 290,000 - ------------------------------------------------------------------------------- Finance Affiliated Managers Group 0 60,000 AmerUs Life Holdings 0 170,000 Baker Fentress 865,000 974,000 Capital Trust 0 250,000 Nichiei (Japan) 33,000 45,000 Protective Life 0 200,000 Shohkoh Fund (Japan) 16,000 20,000
Number of Shares ------------------------ 9/30/97 12/31/97 - ------------------------------------------------------------------------------- Industrial Goods/Services A M Castle 295,000 350,000 C H Robinson 0 400,000 Cambrex 12,000 120,000 H B Fuller 150,000 250,000 M A Hanna 176,000 600,000 Lilly Industries, Cl. A 775,000 900,000 Metal Management 0 27,000 Nanophase 0 550,000 Spectra Physics 0 230,000 Steel Dynamics 340,000 475,000 Unifi 625,000 800,000 - ------------------------------------------------------------------------------- Energy/Minerals CalEnergy 1,200,000 1,355,000 Equitable Resources 401,000 600,000 Pride International 600,000 900,000 Seagull Energy 1,300,000 1,450,000 Ranger Oil (Canada) 1,200,000 1,500,000 Saipem (Italy) 1,855,000 2,355,000 Zeigler Coal Holding 400,000 700,000 - ------------------------------------------------------------------------------- Other Industries IRSA (Argentina) 160,000 250,000 Hub Group 430,000 482,000 Security Capital Atlantic 250,000 350,000
14
Number of Shares ------------------------ 9/30/97 12/31/97 Sales - ------------------------------------------------------------------------------- ACT Manufacturing 360,000 137,000 Altron 450,000 285,000 American Management Systems 495,000 225,000 Atos (France) 128,000 115,000 BDM International 405,000 0 Broderbund Software 100,000 0 CACI International 418,000 249,000 HSN 750,000 350,000 Keane 330,000 200,000 NTT Data (Japan) 266 200 Premiere Technologies 350,000 0 Securicor Group, Cl. A (United Kingdom) 1,700,000 0 Systems & Computer Technology 505,000 430,000 Vanguard Cellular Systems 300,000 200,000 WM Data Nordic (Sweden) 1,500,000 1,340,000 - ------------------------------------------------------------------------------- Health Care First Health Group 1,026,000 850,000 (formerly known as HealthCare Compare) Kinetic Concepts 1,179,000 0 Paramount Bed (Japan) 20,000 0 R P Scherer 260,000 64,000 - ------------------------------------------------------------------------------- Consumer Goods/Services Guilbert (France) 12,000 0 Heiwa (Japan) 130,000 0 Hellenic Bottling (Greece) 234,000 400,000 (includes effect of 100% stock bonus) President Enterprises (Taiwan) 453,620 0 Pricer, Cl. B (Sweden) 180,000 50,000 Sankyo (Japan) 90,000 0 Showboat 124,000 0
Principal Amount or Number of Shares ---------------------- 9/30/97 12/31/97 - ------------------------------------------------------------------------------- Finance Amvescap ADR (United Kingdom) 81,000 0 Amvescap (United Kingdom) 1,270,000 960,000 Banc One 412,000 0 Banca Fideuram (Italy) 3,795,000 3,500,000 Cetelem (France) 70,000 0 IS Himalaya Fund (India) 300,000 0 Itau Banco PN (Brazil) 10,000,000 0 Liechtenstein Global Trust (Switzerland) 6,000 0 Orient (Japan) 520,000 0 United Asset Management 862,000 712,000 Washington Mutual 297,000 116,000 - ------------------------------------------------------------------------------- Industrial Goods/Services AirNet Systems 280,000 200,000 Expeditors International of Washington 800,000 775,000 Nordson 75,000 0 Schnitzer Steel 350,000 250,000 Societe Generale de Surveillance (Switzerland) 9,000 6,000 Western Water 9% Cv. Note Due 9/25/05 $ 2,900,000 0 Zoltek 72,000 0 - ------------------------------------------------------------------------------- Energy/Minerals Atwood Oceanics 288,000 516,000 (includes effect of 2 for 1 stock split) Costilla Energy 350,000 165,000 J Ray McDermott 555,000 500,000 United Meridian 275,000 222,000 Veritas DGC 300,000 100,000 Veritas Energy Services (Canada) 115,000 80,000 - ------------------------------------------------------------------------------- Other Industries Vallehermoso (Spain) 185,000 0
15 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1997
Number of Shares Value (000) - -------------------------------------------------------------- Common Stocks and Other Equity-Like Securities 90.9% - -------------------------------------------------------------- INFORMATION: 26.6% MEDIA BROADCASTING 1.2% 819,000 Data Transmission Network (b)(c) $ 22,932 465,000 Young Broadcasting (b) 18,019 370,000 Granite Broadcasting (b) 3,353 - ------------------------------------------------------------- 44,304 CABLE TELEVISION: 1.5% 350,000 Cablevision Systems (b) 33,512 100,000 Cablevision Systems, Pfd. 3,850 300,000 TCA Cable TV 13,800 140,000 Cable Michigan (b) 3,202 - ------------------------------------------------------------- 54,364 TELEVISION PROGRAMMING: 4.3% 2,400,000 Liberty Media Group, Tele-Communications (b) 87,000 850,000 United Video Satellite Group (b) 24,438 420,000 BET Holdings, Cl. A (b) 22,942 350,000 HSN (b) 18,025 280,000 Macrovision (b) 4,445 50,000 Playboy Enterprises (b) 784 - ------------------------------------------------------------- 157,634 TELECOMMUNICATIONS TELEPHONE SERVICES: 0.8% 564,000 RCN (b) 19,317 374,000 Commonwealth Telephone (formerly known as C-Tec) (b) 9,677 - ------------------------------------------------------------- 28,994 MOBILE COMMUNICATIONS: 1.8% 500,000 Telephone and Data Systems 23,281 865,000 Mobile Telecommunication Technologies (b) 19,030 400,000 Centennial Cellular (b) 8,200 355,000 COMARCO (b)(c) 7,810 450,000 PriCellular (b) 4,697 200,000 Vanguard Cellular Systems (b) 2,550 - ------------------------------------------------------------- 65,568
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------- TELECOMMUNICATIONS EQUIPMENT: 0.7% 714,000 Aspect Telecommunications (b) $ 14,905 178,000 Coherent Communications (b) 4,962 476,000 Larscom (b) 4,522 393,000 Verilink (b) 2,407 - ------------------------------------------------------------- 26,796 COMPUTER RELATED HARDWARE COMPUTER HARDWARE/ RELATED SYSTEMS: 1.3% 650,000 Kronos (b)(c) 20,028 375,000 Micros Systems (b) 16,875 453,000 American Power Conversion (b) 10,702 - ------------------------------------------------------------- 47,605 SEMICONDUCTORS/ RELATED EQUIPMENT: 0.4% 350,000 Oak Industries (b) 10,391 125,000 Electro Scientific Industries (b) 4,750 - ------------------------------------------------------------- 15,141 GAMING EQUIPMENT: 1.5% 2,050,000 International Game Technology 51,763 406,000 Acres Gaming (b) 1,776 - ------------------------------------------------------------- 53,539 CONTRACT MANUFACTURING: 1.5% 1,220,000 Solectron (b) 50,706 285,000 Altron (b) 3,776 137,000 ACT Manufacturing (b) 1,935 - ------------------------------------------------------------- 56,417 INSTRUMENTATION: 2.2% 1,085,000 Thermo Instrument Systems (b) 37,365 613,000 Thermoquest (b) 11,111 $1,500,000 Thermoquest, 5% Note Due 8/15/00 1,680 450,000 IFR Systems (c) 6,975 330,000 Itron (b) 5,940 $5,000,000 Thermo Optek, 5% Note Due 10/15/00 5,650 265,000 Thermo Optek (b) 4,074 200,000 Thermo Bio Analysis (b) 3,925 232,000 Metrika Systems (b) 3,538 73,684 Onix Systems (b) 700 37,100 Thermo Vision (b) 301 - ------------------------------------------------------------- 81,259
See accompanying notes to financial statements 16
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------------- BUSINESS SOFTWARE: 1.7% 430,000 Systems & Computer Technology (b) $ 21,339 400,000 Compuware (b) 12,800 600,000 Wonderware (b) 8,475 242,000 National Instruments (b) 7,018 160,000 Sterling Commerce (b) 6,150 400,000 Computer Language Research 5,600 300,000 Walsh International (b) 3,150 - -------------------------------------------------------------------- 64,532 CONSUMER SOFTWARE: 0.8% $13,000,000 Activision, 6.75% Note Due 1/1/05 13,845 350,000 Electronic Arts (b) 13,234 1,100,000 MicroProse (b) 2,406 - -------------------------------------------------------------------- 29,485 COMPUTER SERVICES: 1.5% 427,000 Analysts International 14,731 340,000 Computer Task Group 12,091 254,000 BRC Holdings (b) 9,715 200,000 Keane (b) 8,125 249,000 CACI International (b) 4,933 225,000 American Management Systems (b) 4,387 - -------------------------------------------------------------------- 53,982 Software/Services BUSINESS INFORMATION/ MARKETING SERVICES/PUBLISHING: 3.0% 1,185,000 World Color Press (b) 31,477 1,266,000 ACNielsen (b) 30,859 1,000,000 American Business Information, Cl. A (b) 10,500 900,000 American Business Information, Cl. B (b) 9,225 174,000 Choicepoint (b) 8,308 205,000 Harte Hanks Communications 7,611 248,000 Mecklermedia (b) 6,169 885,714 GIGA Cv. Pfd. (b)(c) 3,100 208,333 Source Informatics Cv. Pfd. (b) 2,360 50,000 Peterson Companies (b) 1,150 - -------------------------------------------------------------------- 110,759 ELECTRONICS DISTRIBUTION: 1.0% 1,090,000 Pioneer-Standard Electronics 16,623 600,000 Kent Electronics (b) 15,075 450,000 Richey Electronics (b) 4,613 - -------------------------------------------------------------------- 36,311
Number of Shares Value (000) - -------------------------------------------------------------------- TRANSACTION PROCESSORS: 1.4% 1,292,000 National Data $ 46,674 200,000 Concord EFS (b) 4,975 - -------------------------------------------------------------------- 51,649 ------- INFORMATION: TOTAL 978,339 - -------------------------------------------------------------------- Health Care: 7.8% BIOTECHNOLOGY/DRUG DELIVERY: 0.7% 450,000 Inhale Therapeutic Systems (b) 11,700 680,000 Synaptic Pharmaceuticals (b)(c) 7,395 64,000 RP Scherer (b) 3,904 800,000 Corvas International (b) 3,100 800,000 Corvas International Warrants (b) 400 - -------------------------------------------------------------------- 26,499 MEDICAL EQUIPMENT: 1.0% 1,162,000 Respironics (b)(c) 26,000 300,000 Affymetrix (b) 9,337 275,000 Innovasive Devices (b) 2,509 - -------------------------------------------------------------------- 37,846 HOSPITAL/LABORATORY SUPPLIES: 0.8% 322,000 Sybron International (b) 15,114 273,000 Hillenbrand Industries 13,974 - -------------------------------------------------------------------- 29,088 SERVICES: 5.3% 1,235,000 Lincare Holdings (b) 70,395 996,000 HBO & Company 47,808 850,000 First Health Group (formerly known as HealthCare Compare) (b) 43,456 1,000,000 Magellan Health Services (b) 21,500 485,000 United Payors and Providers (b) 9,336 43,000 Spectrum Health Solutions (b) 11 - -------------------------------------------------------------------- 192,506 HEALTH CARE: TOTAL --------- 285,939 - -------------------------------------------------------------------- Consumer Goods/Services: 8.5% Goods LEISURE VEHICLES: 1.9% 2,200,000 Harley-Davidson 60,225 320,000 Thor Industries 10,980 - -------------------------------------------------------------------- 71,205 HARDWARE: 0.7% 600,000 Newell 25,500
17 ACRON FUND STATEMENT OF INVESTMENTS
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------------- Services RETAIL: 3.0% 1,960,000 Borders Group (b) $ 61,372 490,000 Quality Food Centers (b) 32,830 731,000 Host Marriott Services (b) 10,874 634,000 Au Bon Pain (b)(c) 4,795 - -------------------------------------------------------------------- 109,871 CONSUMER SERVICES: 0.1% 200,000 Bally Total Fitness (b) 4,375 CASINOS: 0.5% 392,000 Hollywood Park 8,624 290,000 Rio Hotel & Casino (b) 6,090 535,000 Monarch Casino & Resort (b)(c) 2,943 $6,250,000 Grand Palais Casino 14% Note Due 2/25/98 (b) 313 - -------------------------------------------------------------------- 17,970 CRUISE LINES: 2.3% 1,400,000 Carnival 77,525 140,000 Royal Caribbean Cruises 7,464 84,989 --------- CONSUMER GOODS/SERVICES: TOTAL 313,910 - -------------------------------------------------------------------- Finance: 12.0% BANKS: 1.7% 285,000 Union Planters 19,362 570,000 Texas Regional Bancshares 17,385 510,000 TCF Financial 17,308 156,000 Pinnacle Financial 7,703 - -------------------------------------------------------------------- 61,758 SAVINGS & LOANS: 3.5% 1,267,000 Peoples Bank Bridgeport 48,146 538,000 Coast Savings (b) 36,887 671,000 Washington Federal 21,095 538,000 Commonwealth Bancorp 10,693 116,000 Washington Mutual 7,402 280,000 Imperial Thrift & Loan (b) 5,390 - -------------------------------------------------------------------- 129,613
Number of Shares Value (000) - -------------------------------------------------------------------- INSURANCE: 2.9% 823,000 Baldwin & Lyons, Cl. B 19,855 247,000 Foremost 17,228 351,000 United Fire & Casualty 15,532 444,000 Leucadia National 15,318 612,000 Acceptance Insurance (b) 14,803 200,000 Protective Life 11,950 170,000 AmerUs Life Holdings 6,269 210,000 Highlands Insurance (b) 5,959 - -------------------------------------------------------------------- 106,914 MONEY MANAGEMENT: 2.8% 618,000 SEI Investments 25,956 974,000 Baker Fentress 17,775 620,000 Pioneer Group 17,438 712,000 United Asset Management 17,400 1,723,000 Phoenix Duff & Phelps 13,784 231,000 BISYS Group (b) 7,681 60,000 Affiliated Managers Group (b) 1,740 - -------------------------------------------------------------------- 101,774 FINANCE COMPANIES: 1.1% 935,000 Americredit (b) 25,888 1,390,000 World Acceptance (b)(c) 7,471 340,000 DVI Health Services (b) 6,290 250,000 Capital Trust (b) 2,812 - -------------------------------------------------------------------- 42,461 --------- FINANCE: TOTAL 442,520 - -------------------------------------------------------------------- Industrial Goods/Services: 8.8% STEEL: 1.7% 1,295,000 Worthington Industries 21,368 540,000 Gibraltar Steel (b) 10,665 350,000 A M Castle 8,006 475,000 Steel Dynamics (b) 7,600 250,000 Schnitzer Steel 7,016 405,000 Atchison Casting (b) 6,581 200,000 Intermet 3,500 27,000 Metal Management (b) 449 - -------------------------------------------------------------------- 65,185
See accompanying notes to financial statements 18
Number of Shares Value (000) - -------------------------------------------------------------------------------- MACHINERY: 1.4% 1,070,000 Baldor Electric $ 23,206 535,000 Applied Industrial Technologies 14,311 98,000 Applied Power 6,762 270,000 Valmont Industries 5,265 198,000 Hein-Werner (b)(c) 1,448 457,000 Stevens International, Cl. A (b)(c) 714 33,000 Stevens International, Cl. B (b)(c) 128 - -------------------------------------------------------------------------------- 51,834 CONGLOMERATES: 1.1% 900,000 Thermo Electron (b) 40,050 INDUSTRIAL MATERIALS: 0.9% 800,000 Unifi 32,550 SPECIALTY CHEMICALS: 1.6% 900,000 Lilly Industries, Cl. A 18,563 600,000 M A Hanna 15,150 250,000 H B Fuller 12,375 550,000 Nanophase (b) 6,978 120,000 Cambrex 5,520 - -------------------------------------------------------------------------------- 58,586 ELECTRICAL COMPONENTS: 0.1% 230,000 Spectra Physics Lasers (b) 2,875 OTHER INDUSTRIAL SERVICES: 2.0% 775,000 Expeditors International of Washington 29,837 901,000 Wackenhut, Cl. B 19,034 45,000 Wackenhut, Cl. A 1,043 400,000 C H Robinson 8,950 210,000 HA.LO Industries (b) 5,460 330,000 National Patent Development (b) 4,579 200,000 Airnet Systems (b) 4,300 - -------------------------------------------------------------------------------- 73,203 --------- INDUSTRIAL GOODS/SERVICES: TOTAL 324,283 Energy/Minerals: 11.1% INDEPENDENT POWER: 3.9% 2,230,000 AES Corporation (b) 103,974 1,852 AES Corporation Warrants (b) 121 1,355,000 CalEnergy (b) 38,956 - -------------------------------------------------------------------------------- 143,051
Number of Shares Value (000) - -------------------------------------------------------------------------------- OIL/GAS PRODUCERS: 1.9% $ 29,906 1,450,000 Seagull Energy (b) 20,150 1,300,000 Tesoro Petroleum (b) 7,590 460,000 Forest Oil 6,244 222,000 United Meridian (b) 4,188 1,031,000 Tipperary (b)(c) 1,794 165,000 Costilla Energy (b) - -------------------------------------------------------------------------------- 69,872 DISTRIBUTION/MARKETING/REFINING: 2.1% 600,000 Equitable Resources 21,225 560,000 Atmos Energy 16,940 820,000 NGC 14,350 550,000 Southern Union (b) 13,131 190,000 KN Energy 10,260 - -------------------------------------------------------------------------------- 75,906 OIL SERVICES: 2.9% 700,000 EVI (b) 36,225 516,000 Atwood Oceanics (b) 24,445 900,000 Pride International (b) 22,725 500,000 J Ray McDermott (b) 21,500 100,000 Veritas DGC (b) 3,950 - -------------------------------------------------------------------------------- 108,845 MINING: 0.3% 700,000 Zeigler Coal Holding 11,419 --------- ENERGY/MINERALS: TOTAL 409,093 - -------------------------------------------------------------------------------- Other Industries: 3.9% REAL ESTATE: 3.4% 829,000 The Rouse Company 27,150 233,000 Forest City Enterprises, Cl. B 13,441 185,000 Forest City Enterprises, Cl. A 10,753 260,000 Equity Residential Properties Trust 13,146 400,000 Macerich Company 11,400 754,000 Homestead Village (b) 11,357 350,000 Security Capital Atlantic 7,394 101,000 Security Capital Group, Cl. B (b) 3,283 18,000 Security Capital Warrants (b) 95 165,000 Weingarten Realty Investors 7,394 350,000 Cornerstone Properties 6,716 190,000 First Washington Realty Trust 5,225 120,000 First Washington Realty Trust, Cv. Pfd. 4,020 100,000 Gaylord Entertainment 3,194 - -------------------------------------------------------------------------------- 124,568
19 ACORN FUND STATEMENT OF INVESTMENTS
Number of Shares Value(000) - ---------------------------------------------------------------- TRANSPORTATION: 0.5% 482,000 Hub Group (b) $ 14,339 406,000 Trailer Bridge (b) 3,603 - ---------------------------------------------------------------- 17,942 ------- OTHER INDUSTRIES: TOTAL 142,510 - ---------------------------------------------------------------- Foreign Securities: 12.2% CANADA: 0.6% 1,500,000 Ranger Oil 10,313 200,000 Shaw Industries, Cl. A 6,792 80,000 Veritas Energy Services (b) 3,130 200,000 Cogeco Cable 1,824 - ---------------------------------------------------------------- 22,059 UNITED KINGDOM: 2.6% 1,200,000 Serco Group 17,148 400,000 NTL (b) 11,150 700,000 Getty Communications, Cl. A (b)(c) 10,413 3,450,000 Medeva 9,168 960,000 Amvescap 8,261 1,100,000 N. Brown Group 7,556 700,000 Powerscreen International 6,997 330,000 Airtours 6,706 650,000 Comcast UK Cable Partners (b) 6,134 600,000 Edinburgh Fund Managers 4,507 600,000 Oriflame 4,393 530,000 Ethical Holdings (b) 1,656 - ---------------------------------------------------------------- 94,089 GERMANY/AUSTRIA: 0.5% 180,000 Flughafen Wien (Austria) 7,142 552,000 United International Holdings (Austria) (b) 6,348 23,000 Binding-Brauerei 5,436 ---------------------------------------------------------------- 18,926 NORDIC COUNTRIES: 1.4% 1,340,000 WM Data Nordic (Sweden) 24,234 650,000 Getinge Industrier (Sweden) 10,322 254,000 Autoliv (Sweden) 8,319 260,000 Esselte, Series A (Sweden) 4,915 590,000 SensoNor (Norway) (b) 1,801 50,000 Pricer, Cl. B (Sweden) (b) 926 - ---------------------------------------------------------------- $ 50,517
Number of Shares Value(000) - --------------------------------------------------------------- NETHERLANDS: 0.7% 270,000 Hunter Douglas 9,456 160,000 ASR Verzekeringsgroup 8,705 167,000 Getronics 5,321 - ---------------------------------------------------------------- 23,482 SWITZERLAND: 0.6% 6,000 Societe Generale de Surveillance 11,518 10,000 Cie Fin Richemont 10,901 - ---------------------------------------------------------------- 22,419 FRANCE: 0.4% 115,000 Atos (b) 14,834 PORTUGAL: 0.1% 375,000 Filmes Lusomundo (b)(c) 3,468 ITALY/GREECE: 1.8% 400,000 Cellular Communications International (b) 18,700 3,500,000 Banca Fideuram 15,332 2,355,000 Saipem 12,387 400,000 Hellenic Bottling (Greece) 9,291 500,000 Aeroporti di Roma (b) 5,189 214,100 Industrie Natuzzi 4,416 - ---------------------------------------------------------------- 65,315 INDIA: 0.1% 39,373 Housing Development Finance 3,090 HONG KONG: 0.2% 4,499,000 Varitronix International 7,722 CHINA: 0.1% 200,000 The Investment Company of China (b) 988 SINGAPORE: 0.1% 7,250,000 Star Cruises (b) 15,153 7,250,000 Genting International 834 - ---------------------------------------------------------------- 15,987 JAPAN: 1.1% 145,000 Nintendo 14,274 200 NTT Data 10,813 20,000 Shohkoh Fund 6,122 45,000 Nichiei 4,811 174,000 Noritsu Koki 4,309 - ---------------------------------------------------------------- 40,329
see accompanying notes to finanical statements 20
Number of Shares Value (000) - -------------------------------------------------------------------------------- AUSTRALIA/NEW ZEALAND: 0.3% 1,700,000 Sky City (New Zealand) $ 5,775 260,000 PetSec Energy ADR (b) 3,575 600,000 PetSec Energy (b) 1,591 - -------------------------------------------------------------------------------- 10,941 MEXICO: 0.6% 3,100,000 Kimberly Clark de Mexico 15,189 6,000,000 Nadro, Series L 5,195 - -------------------------------------------------------------------------------- 20,384 OTHER LATIN AMERICA: 1.0% 250,000 IRSA (Argentina) 9,406 2,800,000 Siderca (Argentina) 7,786 175,000 Banco Latinoamericano de Export (Panama) 7,241 710,000 Perez Companc (Argentina) (b) 5,070 100,000,000 Cemig (Brazil) 4,345 - -------------------------------------------------------------------------------- 33,848 ----------- FOREIGN: TOTAL 448,398
Principal Amount Value (000) - ------------------------------------------------------------------------------- TOTAL COMMON STOCKS AND OTHER ----------- EQUITY-LIKE SECURITIES: 90.9% $ 3,344,992 (Cost: $1,855,613) SHORT-TERM OBLIGATIONS: 8.8% Yield 5.00%6.15% Due 1/22/12/98 $63,405 General Motors Acceptance 63,237 $57,565 Aon Corp 57,482 $30,945 Associates First Capital 30,861 $30,110 Cigna 30,008 $28,495 Hertz 28,439 $27,805 Baxter International 27,710 $20,975 Commercial Credit 20,927 $19,586 Ford Motor Credit 19,581 $19,240 Sears Acceptance 19,224 $16,560 GE Capital Services 16,495 $12,000 US Treasury Bill 11,930 - -------------------------------------------------------------------------------- (Amortized Cost: $325,894) 325,894 ----------- TOTAL INVESTMENTS: 99.7% 3,670,886 (Cost: $2,181,507) ----------- CASH AND OTHER ASSETS LESS LIABILITIES: 0.3% 10,571 ----------- TOTAL NET ASSETS: 100% $ 3,681,457 - --------------------------------------------------------------------------------
________________________________________________________________________________ NOTES TO STATEMENT OF INVESTMENTS (a) At December 31, 1997, for federal income tax purposes cost of investments was $2,184,478,000 and net unrealized appreciation was $1,486,408,000, consisting of gross unrealized appreciation of $1,573,823,000 and gross unrealized depreciation of $87,415,000. (b) Non-income producing security. (c) On December 31, 1997, the Fund held the following percentages of the outstanding voting shares of the affiliated companies (ownership of at least 5%) listed below: Kronos.................................................... 7.93% Au Bon Pain......................................... 6.23% Tipperary................................................. 7.86% Stevens International............................... 6.18% COMARCO................................................... 7.54% Getty Communications................................ 6.07% World Acceptance.......................................... 7.34% Respironics......................................... 5.87% Data Transmission Network................................. 7.33% Monarch Casino & Resort............................. 5.67% Hein-Werner............................................... 6.85% IFR Systems......................................... 5.48% Synaptic Pharmaceuticals.................................. 6.46% Giga................................................ 5.30% Filmes Lusomundo.......................................... 6.25%
The aggregate cost and value of investments in these companies at December 31, 1997, was $101,604,000 and $129,679,000, respectively. The market value of these securities represents 3.52% of the total net assets at December 31, 1997. During the year ended December 31, 1997, cost of purchases and proceeds from sales in affiliated companies was $19,846,000 and $9,914,000, respectively. Dividends received from these companies amounted to $49,000 and net realized gain on sales of investments in such companies amounted to $180,000. 21 FOREIGN PORTFOLIO DIVERSIFICATION At December 31, 1997 Acorn Fund's foreign portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - ---------------------------------------------------------- INFORMATION Computer Services $ 55,202 1.5% Cable Television 25,456 0.8 Mobile Communications 18,700 0.5 Business Information/Publishing 14,807 0.4 Semiconductors/Related Equipment 1,801 0.0 - ---------------------------------------------------------- 115,966 3.2 HEALTH CARE Hospital/Laboratory Supplies 10,322 0.3 Pharmaceuticals 9,168 0.3 Biotechnology/Drug Delivery 1,656 0.0 - ---------------------------------------------------------- 21,146 0.6 CONSUMER GOODS/SERVICES Nondurable Goods 24,497 0.7 Travel 22,693 0.6 Beverages 14,727 0.4 Consumer Software 14,274 0.4 Retail 7,556 0.2 Gaming 5,775 0.2 Consumer Goods Distribution 5,195 0.1 Furniture/Textiles 4,416 0.1 Other Durable Goods 17,775 0.5 Other Entertainment 10,901 0.3 - ---------------------------------------------------------- 127,809 3.5
Value (000) Percent - ---------------------------------------------------------- FINANCE Money Management $ 28,100 0.8% Finance Companies 14,023 0.4 Insurance 8,705 0.2 Banks 7,241 0.2 Closed-End Funds 988 0.0 - ---------------------------------------------------------- 59,057 1.6 INDUSTRIAL GOODS/SERVICES Outsourcing Services 17,148 0.5 Machinery 11,306 0.3 Steel 7,786 0.2 Electrical Components 7,722 0.2 Other Industrial Services 11,518 0.3 - ---------------------------------------------------------- 55,480 1.5 ENERGY/MINERALS Oil Services 22,309 0.6 Oil/Gas Producers 20,549 0.6 - ---------------------------------------------------------- 42,858 1.2 OTHER INDUSTRIES Transportation 12,331 0.3 Real Estate 9,406 0.2 Utilities 4,345 0.1 - ---------------------------------------------------------- 26,082 0.6 -------------------- TOTAL FOREIGN PORTFOLIO $448,398 12.2% ==========================================================
22 ACORN INTERNATIONAL MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares ------------------- 9/30/97 12/31/97 Additions - ---------------------------------------------------------- Europe GERMANY/AUSTRIA IVG Holdings 290,000 350,000 Rofin Sinar 0 100,000 FINLAND Elcoteq Network 0 245,000 UNITED KINGDOM AEA Technology 0 250,000 WS Atkins 0 500,000 Euro Money Publications 110,000 150,000 Fairey Group 0 600,000 Hogg Robinson 0 955,000 SWITZERLAND Cie Fin Richemont 9,000 12,000 ITALY Industrie Natuzzi ADR 200,000 245,000 Saipem SPA 2,500,000 3,300,000 - ---------------------------------------------------------- Asia JAPAN Aiful 0 60,000 Meitec 350,000 390,000 Nichiei 112,600 140,000 Nidec 0 125,000 Nintendo 110,000 130,000 SINGAPORE Electronic Resources 0 3,900,000 Electronic Resources Warrants 7/17/01 0 3,795,000 Natsteel Electronics 0 1,916,000 - ---------------------------------------------------------- Latin America MEXICO Grupo Continental 0 1,140,000 ARGENTINA IRSA GDS 320,000 500,000 Perez Companc 1,400,000 1,650,000
Number of Shares ------------------- 9/30/97 12/31/97 - ---------------------------------------------------------- Other Countries CANADA Ranger Oil 1,000,000 1,200,000 UNITED STATES Khanty Mansiysk Oil 10% Notes 0 1,500,000 Sales - ---------------------------------------------------------- Europe GERMANY Fresenius 50,000 7,000 Pfleiderer 330,000 260,000 Schaltbau 40,000 30,000 DENMARK Falck 70,000 0 FINLAND Benefon 25,000 0 SWEDEN Pricer, Cl. B 180,000 50,000 WM Data Nordic 2,700,000 1,985,000 FRANCE Atos 200,000 180,000 Cetelem 94,000 0 Groupe AB 350,000 0 Guilbert 15,000 0 UNITED KINGDOM Capita Group 2,750,000 2,000,000 Gentia Software 250,000 0 Premier Oil 6,000,000 0 Tunstall 230,000 0 SWITZERLAND Liechtenstein Global Trust 5,000 0 Societe Gen de Surveillance 9,000 6,000 ITALY/GREECE Banca Fideuram 6,730,000 6,340,000 Dalmine 20,000,000 0 Hellenic Bottling (Greece) 250,000 400,000 (includes effect of 2 for 1 stock split)
See accompanying notes to financial statements 23 ACORN INTERNATIONAL MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares -------------------------- 9/30/97 12/31/97 - ------------------------------------------------------------ SPAIN/PORTUGAL Estoril Sol 214,000 150,000 Vallehermoso 200,000 0 NETHERLANDS Kempen 630,000 570,000 POLAND Bank Inicjatyw Gospodarczych 2,500,000 0 - ----------------------------------------------------------- Asia HONG KONG TVB 3,500,000 3,100,000 INDIA IS Himalaya Fund 300,000 0 Zee Telefilms 1,047,200 0 JAPAN Aderans 440,000 400,000 Heiwa 255,000 0 Konami 235,000 143,000 Long Term Credit Bank 1,500,000 0 Nanto Bank 135,000 0 Nihon Jumbo 65,020 0 NTT Data 350 250 Orient Corporation 1,760,000 0 Orix Corporation 100,000 40,000 Paramount Bed 20,000 0 Sankyo 195,000 0 Softbank Corporation 120,000 0 TAIWAN President Enterprises 473,380 0 INDONESIA Bank Niaga 11,400,000 0 PHILIPPINES Ionics Circuits 12,000,000 9,398,000 THAILAND BEC World Public 815,000 0 Serm Suk 200,000 0 Shinawatra Satellite 500,000 0
Number of Shares -------------------------- 9/30/97 12/31/97 - ------------------------------------------------------------ Latin America MEXICO Bufete Industrial 200,000 0 Corp Interamericana de Entertenimiento 600,000 0 BRAZIL Cemig Pfd. 165,000,000 130,000,000 Itau Banco Pfd. 18,000,000 0 Telemig Pfd. 30,000,000 0 White Martins 310,000 0 CHILE Banco BHIF 260,000 0 - ----------------------------------------------------------- Other Countries AUSTRALIA Hudson Conway 240,000 0 Skilled Engineering 175,000 0 CANADA Cinar Films 250,000 150,000
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1997
Number of Shares Value (000) - ------------------------------------------------------------------------ Common Stocks and Other Equity-Like Securities: 87.9% - ------------------------------------------------------------------------ Europe: 54.5% GERMANY/AUSTRIA: 4.6% 180,000 Rhoen Klinikum Pfd. $ 17,518 125,000 Rhoen Klinikum 12,235 Hospital Management 350,000 IVG Holdings 8,973 Real Estate & Logistics 190,000 Flughafen Wien 7,539 Vienna Airport Authority (Austria) 473,000 United International Holdings (b) 5,439 Cable Television for Austria & Other Countries (Austria) 260,000 Pfleiderer 4,584 Construction Materials 21,000 Cewe Color Holding 4,415 Photographic Developing & Printing 100,000 Boewe Systec 3,281 Envelope Stuffing Machines 30,000 Schaltbau 3,220 Railcar Components 212,000 Berzelius Umwelt 2,830 Industrial Waste Recycling 229,860 Scala Business Solutions (b) 1,526 95,775 Scala Business Solutions Warrants 3/31/99 (b) 106 95,775 Scala Business Solutions Warrants 3/31/01 (b) 83 Financial Accounting Software (Austria) 100,000 Rofin Sinar 1,213 Industrial Machinery 7,000 Fresenius 1,180 Dialysis Equipment & Solutions - ------------------------------------------------------------------------ 74,142 DENMARK: 0.2% 44,000 Kompan International (c) 4,080 Playground Equipment FINLAND: 5.5% 500,000 TT Tieto, Cl. B (c) 56,283 Computer Services/Consulting 80,000 Fiskars, Series A 8,667 Scissors & Gardening Tools 88,000 Vaisala, Cl. A 7,433 Meteorological Instruments 100,000 Sentra, Cl. A (c) 7,345 Grocery Wholesaling & Retailing
Number of Shares Value (000) - ------------------------------------------------------------------------ 550,000 Talentum (c) $ 6,817 Trade Journals 245,000 Elcoteq Network (b) 3,082 Industrial Electrical Components - ------------------------------------------------------------------------ 89,627 NORWAY: 0.2% 800,000 SensoNor (b) 2,442 Electronic Sensors for Airbags 500,000 Atex Media Solutions 1,323 Print Media Software - ------------------------------------------------------------------------ 3,765 SWEDEN: 5.4% 1,985,000 WM Data Nordic 35,899 Computer Services/Consulting 1,000,000 Getinge Industrier 15,880 Sterilization & Disinfection Equipment 350,000 Autoliv 11,463 Seatbelts & Airbags 665,000 Bure Investment 8,758 Health Care Services & Investments 525,000 Atle 8,304 Investment Company 315,000 Esselte, Series A 5,955 Office Supplies & Related Equipment 50,000 Pricer, Cl. B (b) 926 Electronic Shelf Labels for Supermarkets - ------------------------------------------------------------------------ 87,185 FRANCE: 3.3% 180,000 Atos (b) 23,218 Computer Services/Transaction Processing 62,000 NRJ 8,636 Radio Network 60,000 Fininfo 7,131 Data Feeds for French Banks & Brokers 85,000 Spir Communications 5,341 Regional Newspapers 55,000 Virbac 4,516 Drugs for Animals 50,000 Groupe Partouche 2,851 Casinos 50,000 Assystem 1,621 Consultants on Nuclear Power Plants - ------------------------------------------------------------------------ 53,314
See accompanying notes to financial statements 25 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS
Number of shares Value (000) - ----------------------------------------------------------------------- UNITED KINGDOM: 14.4% 2,000,000 Serco Group $ 28,581 Facilities Management 1,600,000 Powerscreen International 15,993 Mobile Crushing & Screening Equipment 2,000,000 Oriflame International 14,644 Natural Cosmetics Sold Door-to-Door 467,000 NTL (b) 13,018 Cable TV & Telephone System 1,450,000 Seton Healthcare Group 12,466 Pharmaceuticals 2,000,000 Capita Group 12,143 Outsourcing Government Services 4,000,000 St. James Place 11,123 Life Insurance 800,000 Vosper Thornycroft Holdings 10,596 Naval Shipbuilding 1,500,000 N. Brown Group 10,304 Mail Order Clothing in Large Sizes 13,000,000 Electronics Boutique (b) 10,160 Videogame/Computer Software Stores 4,500,000 City Centre Restaurants 9,996 Fast Food Restaurants 3,355,000 Medeva 8,915 Drugs for Hyperactive Children 1,700,000 Rotork 7,552 Valve Actuators for Oil & Water Pipelines 950,000 Edinburgh Fund Managers 7,136 Investment Management 790,000 Expro International Group 7,006 Oil Field Services 3,200,000 HALMA 6,134 Fire Detection Devices 2,000,000 Shanks & McEwan 5,134 Landfills & Waste Incinerators 600,000 Fairey Group 5,094 Electronic Products 500,000 Comcast UK Cable Partners (b) 4,719 Cable TV & Telephone System 1,300,000 Dorling Kindersley 4,652 Reference Books & CD-ROMs 955,000 Hogg Robinson 4,015 Corporate Travel Management 150,000 Euro Money Publications 3,906 Financial Publications 1,200,000 Ivory & Sime 3,890 Investment Management 550,000 Eurotherm 3,376 Instruments & Measuring Devices 600,000 Hozelock Group 3,120 Garden Hoses
Number of shares Value (000) - ----------------------------------------------------------------------- 500,000 WS Atkins 2,991 Outsourcing Services 1,600,000 Aberdeen Trust 2,317 Money Management 250,000 AEA Technology 2,213 Nuclear Energy Consulting 670,000 Ethical Holdings ADR (b) 2,094 Drug Delivery 50,000 Vitec 523 Tripods for Cameras & Lighting - ------------------------------------------------------------------------ 233,811 SWITZERLAND: 4.6% 28,000 Phoenix Mecano 14,301 Electrical Components Manufacturer 12,000 Cie Fin Richemont 13,081 Luxury Goods & Tobacco 6,000 Societe Generale de Surveillance 11,518 Inspection/Testing of Trade Goods 45,000 PubliGroupe (formerly known as Publicitas Holding) 9,842 Advertising 60,000 Selecta Group (b) 8,063 Vending Machines 18,000 Societe Generale d'Affichage 7,034 Billboard Advertising 12,000 Hero 6,787 Packaged Foods 10,000 Prodega (c) 4,285 Cash-and-Carry Retailer - ----------------------------------------------------------------------- 74,911 ITALY/GREECE: 9.4% 6,340,000 Banca Fideuram 27,773 Life Insurance & Mutual Funds 3,300,000 Saipem SPA 17,358 Pipeline Construction & Drilling Contractor 2,750,000 Autogrill Finanziari (b) 14,714 Tollway Restaurants 650,000 Mediolanum 12,242 Life Insurance & Mutual Funds 700,000 Banca Popolare Di Bergamo 12,234 Regional Bank 600,000 Gewiss 11,368 Electrical Plugs & Switches 2,000,000 Editoriale L'Espresso 9,615 Newspapers & Magazines 400,000 Hellenic Bottling 9,291 Coca-Cola Bottler (Greece) 500,000 Banco Pop Commercia e Industria 8,343 Regional Bank
see accompying notes to finanical statements 26
Number of Shares Value (000) - ------------------------------------------------------------------------ 160,000 Cellular Communications International (b) $ 7,480 Mobile Communications 480,000 Attica Enterprises 5,363 Ferry Line (Greece) 325,000 Saes Getters 5,220 Getters used in TVs/PCs 500,000 Aeroporti di Roma (b) 5,189 Airport Management 245,000 Industrie Natuzzi ADR 5,053 Leather Couches 130,000 Daniell 893 Steel-making Machinery - ----------------------------------------------------------------------- 152,136 SPAIN/PORTUGAL: 1.3% 290,000 Mapfre Vida 10,198 Life Insurance & Mutual Funds 220,000 Cortefiel 4,417 Apparel Retailer 150,000 Estoril Sol 2,595 Casino Resort (Portugal) 180,000 Lusotur (b) 1,665 Real Estate/Resort Developer (Portugal) 150,000 Filmes Lusomundo 1,387 Newspaper, Radio, Video, Film Distribution (Portugal) 87,500 Televisao Independente (b) 114 Television Station (Portugal) - ----------------------------------------------------------------------- 20,376 NETHERLANDS: 5.2% 570,000 Kempen (C) 21,931 Stock Brakerage/investment Management 560,000 Getronics 17,844 Computer Services 270,000 Hunter Douglas 9,456 Decorative Window Coverings 310,000 Fugro NV 9,450 Consulting & Surveying 160,000 ASR Verzekeringsgroup 8,705 Insurance 310,000 Wegener Arcade NV 5,795 Newspaper Publisher 300,000 Telegraaf Holdings 5,653 Newspaper Publisher 320,000 DOC data (b) 5,604 Audio CD & CD-ROM Replication - ----------------------------------------------------------------------- 84,438 HUNGARY: 0.3% 40,000 Gedeon Richter 4,543 Generic Drugs
Number of Shares Value (000) - ------------------------------------------------------------------------ POLAND: 0.1% 200,000 Best Company Series D (b)(c) 942 Electronics Retailer 140,000 Bank Komunalny 477 Gdansk-Area Bank - ----------------------------------------------------------------------- 1,419 -------- EUROPE: TOTAL 883,747 - ----------------------------------------------------------------------- Asia: 17.8% HONG KONG: 3.1% 14,020,000 Li and Fung 19,632 Sourcing of Consumer Goods 8,499,000 Varitronix International 14,588 LCD Manufacturer 3,100,000 TVB 8,842 Television Broadcasting 20,000,000 China HK Photo Products 5,007 Fuji Film Distributor 8,896,000 Vanda Systems 1,837 Systems Integrator 16,525,000 Golden Harvest Entertainment (b) 746 Movie Distribution & Exhibition - ----------------------------------------------------------------------- 50,652 INDIA: 0.5% 82,682 Housing Development Finance 6,490 Mortgage Lender 389,450 Max India 921 Penicillin & Mobile Phones 810,000 Tube Investment GDR 770 Bicycle Manufacturer 2,000,000 Centurion Quantum Growth (b) 219 Closed-End Fund - ----------------------------------------------------------------------- 8,400 JAPAN: 9.8% 140,000 Nichiei 14,966 Short-Term Loans for Small Businesses 250 NTT Data 13,517 Computer Services/Consulting 130,000 Nintendo 12,798 Video Games 40,000 Shohkoh Fund 12,244 Short-Term Loans for Small Businesses 390,000 Meitec 11,008 Engineering Outsourcing 400,000 Aderans 9,690 Hairpieces & Wigs 164,000 Aeon Credit Service 8,009 Credit Cards
27 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS
Number of Shares Value (000) - ----------------------------------------------------------------------- 226,840 Fuji Software ABC $ 7,798 Computer Services/Consulting 300,000 Hokuto 6,691 Mushroom Grower 270,000 Noritsu Koki 6,686 Photo Processing Lab Manufacturer 40,000 Keyence 5,937 Sensors 300,000 Amway Japan 5,768 Direct Consumer Goods Sales 80,000 Ryohin Keikaku 5,291 Designer & Retailer of Muji Brand Specialty Consumer Goods 125,000 Nidec 5,287 Spindle Motor Manufacturer 310,000 Shinki 4,530 Corporate & Consumer Lending 165,000 Lasertec 4,188 Manufacturer of LCD & Photomask Defect Detectors 60,000 Aiful (b) 4,084 Consumer Lending 143,000 Konami 3,530 Entertainment Software/Hardware 210,000 Arrk Corporation 3,069 Industrial Modeling 275,000 Mirai Industry 3,067 Manufacturer of Plastic Housing Components 160,000 NuSkin Asia Pacific (b) 2,920 Direct Consumer Goods Sales 40,000 Orix Corporation 2,799 Leasing Company 170,000 People 2,615 Sports Clubs 555,000 Chuo Trust & Banking 1,238 Bank 197,000 Central Uni 864 Health Care/Medical Equipment 152,000 Nihon Unisys 684 Data Communications 49,500 Tiemco 503 Fishing Equipment - ---------------------------------------------------------------------- 159,781 MALAYSIA: 0.3% 2,000,000 Malaysian Oxygen 4,470 Industrial Gases
Principal Amount or Number of Shares Value (000) - ----------------------------------------------------------------------- INDONESIA: 0.3% 2,000,000 Medco Energi $ 2,448 Oil & Gas Drilling & Production 2,985,000 Modern Photo Film 869 Fuji Film Distributor 3,000,000 Mustika Ratu 532 Traditional Cosmetics 6,166,000 Tunas Ridean 519 Auto Retailing - ---------------------------------------------------------------------- 4,368 PHILIPPINES: 1.0% 50,000,000 Int'l Container Terminal Services (b) 6,266 $5,000,000 Int'l Container Terminal Services Cv. 1.75% 3/13/04 3,875 Container Handling Terminals & Port Management 9,398,000 Ionics Circuits 3,886 Computers 4,375,000 Philippine Savings Bank (b) 1,508 Banking - ---------------------------------------------------------------------- 15,535 SINGAPORE: 2.7% 8,300,000 Star Cruises (b) 17,347 Asian Cruise Line 4,056,000 Venture Manufacturing 11,313 2,500,000 Venture Manufacturing Warrants 7/26/99 (b) 5,134 Contract Electronics Manufacturer 3,900,000 Electronic Resources 3,958 3,795,000 Electronic Resources Warrants 7/17/01 (b) 2,252 Distribution of Electronic Components 1,916,000 Natsteel Electronics (b) 2,456 Contract Electronics Manufacturer 8,300,000 Genting International 955 Investment Holding - ---------------------------------------------------------------------- 43,415 THAILAND: 0.1% 320,000 Bangkok Insurance 2,348 Finance/Insurance ASIA: TOTAL 288,969
See accompanying notes to Financial statements 28
Number of Shares Value (000) - ----------------------------------------------------------------- Latin America: 9.0% MEXICO: 3.2% 3,300,000 Kimberly Clark de Mexico $16,168 Paper Products 1,500,000 Grupo Industrial Bimbo 14,513 Bread, Baked Goods & Snacks 460,000 Tubos de Acero de Mexico ADR (b) 9,948 Seamless Pipe for Oil Wells 9,000,000 Nadro, Series L 7,792 Pharmaceutical Distributor 1,140,000 Grupo Continental (b) 4,058 Beverages - ----------------------------------------------------------------- 52,479 BRAZIL: 0.9% 130,000,000 Cemig Pfd. 5,648 Electric Utility 350,000 Elevadores Atlas 4,233 Elevator Services 150,000 Bompreco GDS (b) 2,767 Supermarket Chain 23,000,000 Telemig (b) 2,267 Telecommunications - ----------------------------------------------------------------- 14,915 ARGENTINA: 2.5% 500,000 IRSA GDS 18,812 Real Estate Management & Development 1,650,000 Perez Companc 11,783 Oil & Gas Producer 3,600,000 Siderca 10,010 Steel Pipe Producer - ----------------------------------------------------------------- 40,605 CHILE: 0.9% 150,000 Genesis Chile Fund 5,738 Closed-End Fund 220,000 Santa Isabel ADR 3,850 Supermarket Chain 120,000 Embotelladora Andina, Series A ADR 2,497 120,000 Embotelladora Andina, Series B ADR 2,333 Coca-Cola Bottler - ----------------------------------------------------------------- 14,418 PERU: 0.4% 6,000,000 Enrique Ferreyros 6,339 Heavy Machinery Dealer
Number of Shares Value (000) - ----------------------------------------------------------------- PANAMA: 1.1% 195,000 Banco Latinoamericano de Exportaciones $ 8,068 Trade Financing 161,000 Carnival 8,915 Cruise Ship Line 16,983 ------- LATIN AMERICA: TOTAL 145,739 - ----------------------------------------------------------------- Other Countries: 6.6% AUSTRALIA/NEW ZEALAND: 2.6% 2,200,000 Publishing & Broadcasting 9,911 Media & TV Broadcasting 4,600,000 Tyndall Australia 7,194 Management & Insurance 1,750,000 Sky City 5,945 Casino & Hotel (New Zealand) 5,200,000 Sonic Healthcare 5,421 Pathology Labs 1,000,000 Siddons Ramset 5,017 Manufacturer & Distributor of Construction Materials 3,200,000 Anaconda Nickel (b) 4,796 Nickel Mining 1,400,000 Petsec Energy (b) 3,713 Oil & Gas Producer - ----------------------------------------------------------------- 41,997 CANADA: 2.7% 520,000 Shaw Industries 17,659 Oil Field Services 1,200,000 Ranger Oil 8,250 Oil & Gas Producer 150,000 Cinar Films (b) 5,831 Children's Television Programming 1,700,000 Bracknell (b)(c) 5,049 Speciality Contractor 500,000 Cogeco 4,018 Cable TV 300,000 Cogeco Cable 2,736 Cable TV 900,000 Pangea Goldfields (b) 1,069 Gold Mining Exploration - ----------------------------------------------------------------- 44,612 ISRAEL: 0.4% 300,000 Blue Square Israel ADR 3,713 Supermarkets & Department Stores 317,000 ZAG Industries 2,813 Plastic Hardwares - ----------------------------------------------------------------- 6,526
29 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------------------------- SOUTH AFRICA: 0.2% 665,000 Energy Africa (b) $ 3,519 Oil & Gas Producer UNITED STATES: 0.7% 203,000 AES Corporation (b) 9,465 Electric Generating Plants $1,500,000 Khanty Mansiysk Oil 10% Notes 1,500 Oil Production in Russia - -------------------------------------------------------------------------------- 10,965 ---------- OTHER: TOTAL 107,619 Miscellaneous Securities: 0.0% 378 TOTAL COMMON STOCKS AND OTHER ---------- EQUITY-LIKE SECURITIES: 87.9% 1,426,452 (Cost: $1,119,108)
Principal Amount Value (000) - -------------------------------------------------------------------------------- SHORT-TERM OBLIGATIONS: 11.6% Yield 5.70%5.98% Due 1/21/16/98 $48,765 Baxter International $ 48,716 $37,093 Commerical Credit 37,059 $33,250 Cigna Corp 33,172 $26,842 Sears Acceptance 26,804 $24,225 Exxon Imperial 24,194 $17,855 American General Finance 17,838 - -------------------------------------------------------------------------------- (Amortized Cost: $ 187,783) 187,783 ---------- TOTAL INVESTMENTS: 99.5% 1,614,235 (Cost: $1,306,891) ---------- CASH AND OTHER ASSETS LESS LIABILITIES: 0.5% 8,704 ---------- TOTAL NET ASSETS: 100% $1,622,939 ================================================================================
Notes to Statement of Investments (a) At December 31, 1997, for federal income tax purposes cost of investments was $1,325,856,000 and net unrealized appreciation was $288,379,000 consisting of gross unrealized appreciation of $448,505,000 and gross unrealized depreciation of $160,126,000. (b) Non-income producing security. (c) On December 31, 1997, 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% Talentum (Finland)............................... 6.89% Kompan International (Denmark).............................. 9.36% Bracknell (Canada)............................... 6.47% Best Company Series D (Poland).............................. 9.09% Kempen (Netherlands)............................. 5.80% Sentra (Finland)............................................ 8.80% TT Tieto (Finland)............................... 5.69%
The aggregate cost and value of investments in these companies at December 31, 1997, was $43,776,000 and $106,732,000 respectively. The market value of these securities represents 6.58% of the total net assets at December 31, 1997. During the year ended December 31, 1997, the cost of purchases and proceeds from sales in affiliated companies were $16,710,000 and $3,130,000, respectively. Net dividends received from these companies amounted to $1,243,000 and net realized gain on sale of investments in such companies amounted to $1,999,000. See accompanying notes to financial statements 30 ACORN INTERNATIONAL PORTFOLIO DIVERSIFICATION At December 31, 1997, Acorn International's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - ----------------------------------------------------------------- INFORMATION Computer Services $156,396 9.6% Publishing 43,539 2.7 CATV 29,930 1.9 Contract Manufacturing 28,393 1.7 Broadcasting 18,867 1.2 Advertising 16,876 1.0 Instrumentation 16,029 1.0 Radio 8,636 0.5 Mobile Communications 8,401 0.5 Business Information 8,057 0.5 Semiconductors 6,630 0.4 Electronics Distribution 6,210 0.4 Computer Hardware 5,971 0.4 Television Programming 5,831 0.4 Business Software 3,038 0.2 - ----------------------------------------------------------------- 362,804 22.4 HEALTH CARE Pharmaceuticals 30,440 1.9 Hospital Management 29,753 1.8 Hospital/Laboratory Supplies 15,880 1.0 Services 14,179 0.9 Biotechnology/Drug Delivery 2,094 0.1 Medical Equipment 2,044 0.1 - ----------------------------------------------------------------- 94,390 5.8 CONSUMER GOODS/SERVICES Nondurables 46,474 2.9 Retail 46,248 2.8 Food 27,991 1.7 Restaurants 24,710 1.5 Consumer Goods Distribution 23,825 1.5 Travel 22,317 1.4 Beverages 18,179 1.1 Consumer Software 16,328 1.0 Gaming 8,540 0.5 Leisure Products 7,465 0.5 Furniture & Textiles 5,053 0.3 Other Consumer Services 28,044 1.7 Other Durable Goods 27,375 1.7 Other Entertainment 25,593 1.6 - ----------------------------------------------------------------- 328,142 20.2 FINANCE Money Management $ 60,552 3.7% Finance Companies 41,029 2.5 Insurance 32,374 2.0 Banks 31,868 2.0 Brokerage 21,931 1.4 Credit Cards 8,009 0.5 Closed-End Funds 5,957 0.4 Savings & Loans 4,084 0.2 - ----------------------------------------------------------------- 205,804 12.7 INDUSTRIAL GOODS/SERVICES Outsourcing Services 79,404 4.9 Machinery Processing 58,687 3.6 Electrical Components 54,370 3.4 Industrial Services 22,654 1.4 Steel 19,958 1.2 Conglomerates 8,304 0.5 Construction 7,651 0.5 Industrial Materials 5,017 0.3 Speciality Chemicals 4,470 0.3 - ----------------------------------------------------------------- 260,515 16.1 ENERGY/MINERALS Oil Services 51,473 3.2 Oil/Gas Producers 31,213 1.9 Independent Power 9,465 0.6 Non-Ferrous Metals 5,865 0.3 - ----------------------------------------------------------------- 98,016 6.0 OTHER INDUSTRIES Transportation 31,452 1.9 Real Estate 29,450 1.8 Waste Management 7,964 0.5 Regulated Utilities 7,915 0.5 - ----------------------------------------------------------------- 76,781 4.7 TOTAL COMMON STOCKS AND ______________________ OTHER EQUITY-LIKE SECURITIES 1,426,452 87.9 SHORT-TERM OBLIGATIONS 187,783 11.6 ---------------------- TOTAL INVESTMENTS 1,614,235 99.5 CASH AND OTHER ASSETS LESS LIABILITIES 8,704 0.5 ---------------------- NET ASSETS $1,622,939 100.0% =================================================================
See accompanying notes to financial statements 31 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, 1997, the related statements of operations, changes in net assets, and the financial highlights for the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of December 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial 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, 1997, the results of their operations, changes in their net assets, and the financial highlights for the periods indicated thereon, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois February 4, 1998 32 ACORN FAMILY OF FUNDS STATEMENTS OF ASSETS AND LIABILITIES
ACORN (in thousands) ACORN FUND INTERNATIONAL ACORN USA - ---------------------------------------------------------------------------------------------------------------------- 12/31/97 ASSETS Investments, at value (cost: Acorn Fund $2,181,507; Acorn International $1,306,891; Acorn USA $156,426) $3,670,886 $1,614,235 $187,792 Cash 184 428 -- Net unrealized appreciation on foreign forward currency contracts -- 6,117 -- Organization costs -- -- 79 Receivable for: Securities sold 16,427 8,975 32 Fund shares sold 5,480 727 450 Dividends and interest 1,202 3,468 26 Other assets 36 22 1 - ---------------------------------------------------------------------------------------------------------------------- Total assets 3,694,215 1,633,972 188,380 LIABILITIES AND NET ASSETS Payable for: Securities purchased 3,720 4,000 3,537 Fund shares redeemed 8,226 5,836 35 Organization costs -- -- 79 Other 812 1,197 105 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 12,758 11,033 3,756 Net assets applicable to Fund shares outstanding $3,681,457 $1,622,939 $184,624 ====================================================================================================================== Fund shares outstanding 216,645 88,273 12,212 ====================================================================================================================== PRICING OF SHARES Net asset value, offering price and redemption price per share $16.99 $18.39 $15.12 ====================================================================================================================== ANALYSIS OF NET ASSETS Paid-in capital $2,146,869 $1,306,205 $151,677 Accumulated net realized gain on sales of investments, futures and foreign currency transactions 47,522 15,568 1,581 Net unrealized appreciation of investments and other assets (net of unrealized PFIC gains of $2,804 for Acorn Fund and $16,193 for Acorn International) 1,486,568 297,180 31,366 Undistributed net investment income 498 3,986 -- - ---------------------------------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $3,681,457 $1,622,939 $184,624 ======================================================================================================================
See accompanying notes to financial statements 33 ACORN FAMILY OF FUNDS STATEMENTS OF OPERATIONS
ACORN ACORN FUND INTERNATIONAL ACORN USA Year Year Year Year Year Inception9/4 (in thousands) Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1997 1996 1997 1996 INVESTMENT INCOME: Dividends $ 28,012 $ 23,043 $ 27,667 $ 24,877 $ 568 $ 35 Interest 15,566 7,662 8,098 4,023 470 48 - ------------------------------------------------------------------------------------------------------------------------------------ 43,578 30,705 35,765 28,900 1,038 83 Foreign taxes withheld (797) (845) (2,912) (2,681) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total investment income 42,781 29,860 32,853 26,219 1,038 83 EXPENSES: Investment advisory 14,349 12,437 16,235 13,255 1,199 101 Custodian 1,034 1,079 2,489 2,235 24 6 Transfer and dividend disbursing agent 1,328 1,030 1,882 1,558 164 27 Reports to shareholders 564 466 841 706 85 7 Legal and audit 287 152 221 142 29 27 Registration and blue sky 273 174 73 108 72 14 Trustees' and other 441 216 364 209 56 8 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenses 18,276 15,554 22,105 18,213 1,629 190 Less custodian fees paid indirectly -- -- -- -- (2) (6) - ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 18,276 15,554 22,105 18,213 1,627 184 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (loss) 24,505 14,306 10,748 8,006 (589) (101) NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES AND FOREIGN CURRENCY TRANSACTIONS: Net realized gain on sales of investments 361,502 298,665 76,648 48,566 5,521 120 Net realized gain on foreign currency transactions -- 22,816 1,291 -- -- Net realized loss on futures (16,098) (22,053) -- -- -- -- Change in net unrealized appreciation of investments and foreign currency transactions 356,307 250,750 (99,759) 221,576 27,198 4,168 - ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) on investments, futures and foreign currency transactions 701,711 527,362 (295) 221,433 32,719 4,288 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets resulting from operations $726,216 $541,668 $ 10,453 $279,439 $32,130 $ 4,187 ====================================================================================================================================
See accompanying notes to financial statements 34 ACORN FAMILY OF FUNDS STATEMENTS OF CHANGES IN NET ASSETS
ACORN ACORN FUND INTERNATIONAL ACORN USA Year Year Year Year Year Inception 9/4 (in thousands) ended 12/31, ended 12/31, ended 12/31, ended 12/31, ended 12/31, through 12/31 - ------------------------------------------------------------------------------------------------------------------------------------ 1997 1996 1997 1996 1997 1996 FROM OPERATIONS: Net investment income (loss) $ 24,505 $ 14,306 $ 10,748 $ 8,006 $ (589) $ (101) Net realized gain on sales of investments, futures and foreign currency transactions 345,404 276,612 99,464 49,857 5,521 120 Change in net unrealized appreciation of investments and foreign currency transactions 356,307 250,750 (99,759) 221,576 27,198 4,168 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets resulting from operations 726,216 541,668 10,453 279,439 32,130 4,187 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (a) (31,681) (19,687) (33,072) (10,368) -- -- Net realized gain (320,289) (261,454) (77,970) (24,680) (3,351) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions to shareholders (351,970) (281,141) (111,042) (35,048) (3,351) -- FROM FUND SHARE TRANSACTIONS: Reinvestment of dividends and capital gain distributions 320,054 257,125 104,129 33,033 3,178 -- Proceeds from other shares sold 711,329 358,315 468,766 386,765 133,753 49,912 - ------------------------------------------------------------------------------------------------------------------------------------ 1,031,383 615,440 572,895 419,798 136,931 49,912 Payments for shares redeemed (566,224) (432,510) (621,910) (167,890) (34,171) (1,014) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets from Fund share transactions 465,159 182,930 (49,015) 251,908 102,760 48,898 - ------------------------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets 839,405 443,457 (149,604) 496,299 131,539 53,085 NET ASSETS: Beginning of period 2,842,052 2,398,595 1,772,543 1,276,244 53,085 -- End of period (b) $3,681,457 $2,842,052 $1,622,939 $1,772,543 $184,624 $53,085 ====================================================================================================================================
(a) Includes distributions relating to PFIC gains of $7,674 in 1997 and $2,671 in 1996 for Acorn Fund and $24,166 in 1997 and $3,813 in 1996 for Acorn International. (b) Includes undistributed net investment income of $498 in 1997 and $2,578 in 1996 for Acorn Fund and $3,986 in 1997 and $2,144 in 1996 for Acorn International. See accompanying notes to financial statements 35 Acorn Family of Funds Financial Highlights
Years Acorn Fund ended 12/31 - ------------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each year 1997 1996 NET ASSET VALUE, BEGINNING OF YEAR $15.04 $13.60 INCOME FROM INVESTMENT OPERATIONS Net investment income .15 .09 Net realized and unrealized gain (loss) on investments, foreign currency and futures 3.57 2.93 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.72 3.02 LESS DISTRIBUTIONS Dividends from net investment income (0.16) (.11) Distributions from net realized and unrealized gains reportable for federal income taxes (1.61) (1.47) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.77) (1.58) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $16.99 $15.04 =============================================================================================================================== TOTAL RETURN 25.0% 22.6% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets .56% .57% Ratio of net investment income to average net assets .75% .53% Portfolio turnover rate 32% 33% Net assets at end of period (in millions) $3,681 $2,842 Years Acorn International ended 12/31, - ------------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each period 1997 1996 NET ASSET VALUE, BEGINNING OF PERIOD $19.61 $16.59 INCOME FROM INVESTMENT OPERATIONS Net investment income (loss) .40 .13 Net realized and unrealized gain (loss) on investments (.34) 3.29 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations .06 3.42 Less Distributions Dividends from net investment income (.38) (.12) Distributions from net realized and unrealized gains reportable for federal income taxes (.90) (.28) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.28) (.40) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $18.39 $19.61 =============================================================================================================================== TOTAL RETURN 0.2% 20.7% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets 1.19% 1.17% Ratio of net investment income (loss) to average net assets .58% .51% Portfolio turnover rate 39% 34% Net assets at end of period (in millions) $1,623 $1,773 Years Inception 9/4 Acorn USA ended 12/31, through 12/31, - ------------------------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each period 1997 1996 NET ASSET VALUE, BEGINNING OF PERIOD $11.65 $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment loss (e) (.07) (.02) Net realized and unrealized gain on investments 3.83 1.67 - ------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 3.76 1.65 Less Distributions Dividends from net investment income -- -- Distributions from net realized and unrealized gains reportable for federal income taxes (.29) -- - ------------------------------------------------------------------------------------------------------------------------------- Total distributions (.29) -- - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $15.12 $11.65 =============================================================================================================================== Total Return 32.3% 16.5% Ratios/Supplemental Data Ratio of expenses to average net assets (d) 1.35% 1.85%* Ratio of net investment loss to average net assets (.49%) (.99%)* Portfolio turnover rate 33% 20% * Net assets at end of period (in millions) $ 185 $ 53
36
------------------------------------------------------------------------------ 1995 1994 1993 1992 1991 1990 1989 1988* $12.24 $13.95 $11.06 $9.32 $6.51 $8.58 $7.27 $6.48 .11 .06 .04 .07 .11 .12 .13 .12 2.42 (1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47 ------------------------------------------------------------------------------ 2.53 (1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59 (.09) (.11) (.06) (.08) (.10) (.13) (.11) (.16) (1.08) (.56) (.59) (.41) (.15) (.44) (.36) (.64) ------------------------------------------------------------------------------ (1.17) (.67) (.65) (.49) (.25) (.57) (.47) (.80) ------------------------------------------------------------------------------ $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $ 7.27 ------------------------------------------------------------------------------ 20.8% (7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% 24.8% .57% .62% .65% .67% .72% .82% .73% .80% .89% .55% .30% .72% 1.30% 1.60% 1.59% 1.52% 29% 18% 20% 25% 25% 36% 26% 36% $2,399 $1,983 $2,035 $1,449 $1,150 $ 767 $ 855 $ 563
Inception 9/23 through 12/31 --------------------------------------- 1995 1994 1993 1992 $ 15.24 $ 15.94 $ 10.69 $ 10.00 .16 .07 -- (.03) 1.20 (.67) 5.25 .72 --------------------------------------- 1.36 (.60) 5.25 .69 -- -- -- -- (.01) (.10) -- -- --------------------------------------- (.01) (.10) -- -- --------------------------------------- $ 16.59 $ 15.24 $ 15.94 $ 10.69 --------------------------------------- 8.9% (3.8%) 49.1% 6.9% 1.22% 1.24% 1.21% 2.35%* .90% .48% .06% (1.37%)* 26% 20% 19% 20%* $ 1,276 $ 1,363 $ 907 $ 30
________________________________________________________________________________ (a) Average commission rate paid per share on Acorn Fund stock transactions for the years ended December 31, 1997 and December 31, 1996 was $.0128 and $.0194, respectively. (b) Average commission rate paid per share on Acorn International stock transactions for the years ended December 31, 1997 and December 31, 1996 was $.0085 and $.0008, respectively. (c) Average commission rate paid per share on Acorn USA stock transactions for the year ended December 31, 1997 and for the period ended December 31, 1996 was $.0586 and $.0567, respectively. (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% for the period ended December 31, 1996. (e) Net investment loss per share was based upon the average shares outstanding during each period. * Annualized See accompanying notes to financial statements 37 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. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. 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, 1997 in Acorn Fund. There were no futures contracts open at December 31, 1997 in Acorn International. Acorn International entered into forward contracts to sell foreign currency, settling March 19 through March 27, 1998, as described below:
U.S.Dollar Unrealized Foreign Amount Currency Proceeds (000) Gain(Loss)(000) - --------------------------------------------------------------------------- 84,000,000 Swiss Franc $59,093 $ 924 95,000,000 German Mark $54,111 $1,012 200,000,000 French Franc $33,916 $ 505 380,000,000 Hong Kong Dollar $48,597 ($172) 82,405,280,000 Italian Lira $47,482 $ 889 6,785,000,000 Japanese Yen $54,107 $1,248 532,000,000 Swedish Krone $68,921 $1,711 ------ $6,117
Acorn USA did not enter into any futures or forward foreign currency contracts during the year ended December 31, 1997. 38 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 Each Fund has complied with the special provisions of the Internal Revenue Code available to investment companies. 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 $2,483,000 in 1997. Cumulative net unrealized appreciation recognized in prior years on PFICs sold amounted to $7,736,000. Distributions to shareholders from net investment income relating to PFICs were $7,674,000. In accordance with its PFIC election, for the year ended December 31, 1997, Acorn International recognized unrealized appreciation on PFICs of $15,105,000. The cumulative net unrealized appreciation recognized in prior years on PFICs sold in 1997 amounted to $9,539,000. Distributions to shareholders from net investment income relating to PFICs were $24,166,000. Distributions relating to PFICs are treated as ordinary income for federal income tax purposes. Reclassifications have been made between undistributed net investment income and accumulated net realized gain on sales of investments, futures, and foreign currency transactions to reflect differences between financial reporting and income tax bases. Undistributed net investment income has been increased as follows: Acorn Fund, $2,613,000, Acorn International, $9,061,000, and Acorn USA, $589,000. 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 which were in effect for 1997 and 1996, each fund paid WAM an annual management fee, payable monthly, at the rates set forth below. The fees for Acorn Fund and Acorn International were determined at the beginning of each calendar quarter and the fees for Acorn USA were determined and accrued daily:
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%
At a special meeting held on December 9, 1997, shareholders voted to approve a proposal that replaced each Fund's investment management agreement with a new investment management agreement and a separate administrative services agreement. The new agreements are effective beginning January 1, 1998. Under the new administrative services agreement, WAM provides administrative services to each Fund at an annual rate of .05% of average daily net assets. Under the new investment management agreement, fees will be accrued daily and paid monthly to WAM at the annual rates shown in the table below for each Fund.
ACORN FUND - ------------------------------------------------------ Net asset value: For the first $700 million .75% Next $1.3 billion .70% Net assets in excess of $2 billion .65%
ACORN INTERNATIONAL - ------------------------------------------------------ Net asset value: For the first $100 million 1.20% Next $400 million .95% Net assets in excess of $500 million .75%
39 ACORN FAMILY OF FUNDS NOTES TO FINANCIAL STATEMENTS
ACORN USA - ------------------------------------------------------ Net asset value: For the first $200 million .95% Net assets in excess of $200 million .90%
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 $196,000 in 1997 and $115,700 in 1996; Acorn International paid $118,700 in 1997 and $99,700 in 1996 and Acorn USA paid $6,900 in 1997 and $600 in 1996 to trustees not affiliated with WAM. 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 through 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. Subsequent Event The Trust participates in a $250,000,000 credit facility entered into on January 30, 1998 to facilitate portfolio liquidity. No amounts have been borrowed under the facility. 5. 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) 1997 1996 Shares sold 42,779 23,744 Shares issued in reinvestment of dividend and capital gain distributions 19,004 17,382 ---------------- 61,783 41,126 Less shares redeemed 34,056 28,523 ---------------- Net increase in shares outstanding 27,727 12,603 ======================================================================= ACORN INTERNATIONAL - ----------------------------------------------------------------------- (in thousands) 1997 1996 Shares sold 23,235 20,757 Shares issued in reinvestment of dividend and capital gain distributions 5,501 1,708 ------ ------ 28,736 22,465 Less shares redeemed 30,846 8,994 Net increase (decrease) ------ ------ in shares outstanding (2,110) 13,471 ======================================================================= ACORN USA - ----------------------------------------------------------------------- (in thousands) 1997 1996 Shares sold 9,880 4,647 Shares issued in reinvestment of dividend and capital gain distributions 212 -- ------ ------ 10,092 4,647 Less shares redeemed 2,436 91 ------ ------ Net increase in shares outstanding 7,656 4,556 =======================================================================
6. Investment Transactions
ACORN FUND - ----------------------------------------------------------------------- (in thousands) 1997 1996 Investment securities (excluding money market instruments): Purchases $ 928,010 $862,321 Proceeds from sales 1,084,981 924,259 ACORN INTERNATIONAL - ----------------------------------------------------------------------- (in thousands) 1997 1996 Investment securities (excluding money market instruments): Purchases $ 656,789 $612,766 Proceeds from sales 824,939 498,234 ACORN USA - ----------------------------------------------------------------------- (in thousands) 1997 1996 Investment securities (excluding money market instruments): Purchases $ 126,503 $ 45,708 Proceeds from sales 36,965 1,733 =======================================================================
40 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. Ralph Wanger OFFCERS Ralph Wanger President Charles P. McQuaid Senior Vice President Leah J. Zell Vice President Robert A. Mohn Vice President Marcel P. Houtzager Vice President Merrillyn J. Kosier Senior 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 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 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. 41 [PHOTO APPEARS HERE] FIRST CLASS PRE-SORT U.S. POSTAGE PAID CHICAGO,IL PERMIT NO. 1200 THE ACORN FAMILY OF FUNDS WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, MA 02266-8502 -----END PRIVACY-ENHANCED MESSAGE-----