-----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, Guvqrf18JTF5e+bEt0S/SeSYQC3SIPRkk8rBTKaaCO5zqMM4HvB4AOwXUe1EYz0B Xd4kBr2wHJwrrbxVH6xubA== 0000950131-98-006181.txt : 19981120 0000950131-98-006181.hdr.sgml : 19981120 ACCESSION NUMBER: 0000950131-98-006181 CONFORMED SUBMISSION TYPE: N-30B-2 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981119 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-30B-2 SEC ACT: SEC FILE NUMBER: 811-01829 FILM NUMBER: 98755184 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-30B-2 1 THIRD QUARTER REPORT - ACORN INVESTMENT TRUST Acorn The Acorn Family of Funds Third Quarter Report -------------------------------------- September 30, 1998 Managed by Wanger Asset Management, L.P. Acorn's Automated Service Line: 1-800-962-1585 Acorn's Automated Service Line allows you quick, convenient access to your Acorn mutual fund investments anytime you want - 24-hours a day, 7-days a week. It's easy to use, confidential and toll-free. Simply use your touch-tone telephone to call 1-800-962-1585, and follow the easy automated instructions. You can use Acorn's Automated Service Line to: Access account information Request duplicate statements Check fund prices Obtain year-end information Initiate a transaction, such as buying, Request duplicate tax forms selling or exchanging shares Our Web site contains a complete list of the menu items available on the Automated Service Line. The address is www.acornfunds.com. If you'd like to go directly to the Automated Service Line page, the address is www.acornfunds.com/serviceAudio.html. Acorn Family of Funds Third Quarter Report 1998 Table of Contents Squirrel Chatter Modern Portfolio Theory, or Poker With Polly 2 Acorn USA In a Nutshell 4 Performance at a Glance 5 Major Portfolio Changes 10 Statement of Investments 11 Acorn Fund In a Nutshell 6 Performance at a Glance 7 Major Portfolio Changes 14 Statement of Investments 16 Foreign Portfolio Diversification 24 Acorn International In a Nutshell 8 Performance at a Glance 9 Major Portfolio Changes 25 Statement of Investments 27 Portfolio Diversification 31
Estimated Year-End Distributions Acorn Fund Long-term Capital Gains: $0.80/share Acorn International No year-end distributions are anticipated Acorn USA Long-term Capital Gains: $0.81/share Short-term Capital Gains: $0.21/share The record date and payable date for these distributions are tentatively scheduled for early December. Remember that these are preliminary estimates and are subject to change. Watch for Acorn's Tax Guide, which will be mailed with your Form 1099-DIV in early 1999. Modern Portfolio Theory, or Poker With Polly [PHOTO OF RALPH WANGER APPEARS HERE] About 30 years ago, the hottest academic gathering in finance was the Center for Research in Security Prices (CRSP) semi-annual meeting at the University of Chicago. The director of CRSP was our own Jim Lorie, who ran CRSP and also made many valuable contributions to modern finance theory. The beginning of all this effort was a simple question that an officer at Merrill Lynch asked Jim: "If you had owned a typical stock portfolio for a long time, how much money would you have made?" There was no answer available. The Dow-Jones averages existed, but they were (and are) calculated in such an old-fashioned way that they are mathematically worthless. A young professor, Larry Fisher, took on the job of developing good data on stock prices, which sounded no sweat - just look up the prices in the old Wall Street Journal in the university library. It was a whole lot harder than that. After many years of painstaking work, Fisher's team produced data that is now the standard source for most work in financial research. Low-ball poker is ordered by a reverse lexicographic sort. One of the most important theories to come out of the work at Chicago and other universities was the Capital Asset Pricing Model (CAPM). After a long list of unrealistic assumptions, CAPM suggested that owning a bit of everything, called the Market Portfolio, had a better risk/reward profile than more concentrated portfolios. If that were so, an unmanaged, broad portfolio would be a valuable asset, and so the idea of the Index Fund was born. One of the young scholars present was Bill Fouse, who understood financial mathematics not only in theory but also in the real world, for he organized the evening poker games at the CRSP meetings. Experts in mathematical statistics make interesting poker players. In one game, one of the few female members of the group sat in. Polly was a beginner at poker, so when the dealer called a game of "High-Low," she asked Bill Fouse what constituted the winning hand for "Low." Bill thought for a few seconds, and replied, "Simple enough. It is ordered by a reverse lexicographic sort." "Fine," agreed Polly. That was exactly the information she needed to win three of the next five hands. Who says advanced mathematics isn't practical? Despite his own poker-playing prowess, Bill Fouse took a day job. In 1971, he created a pioneering index fund at the Wells-Fargo Bank, and then went to the Mellon Bank and started their index fund department, so he has as good a claim as anyone to be named "Father of the Index Fund." In March 1998, he presented a paper at the Investment Company Institute's annual meeting in Washington, DC. What does the Father of the Index Fund say now? "Based on my analysis, I believe the S&P 500 is likely to underperform the broader market in the foreseeable future. "...My assertion was, and is, that the lower-risk, higher-liquidity large- cap stocks should promise less total return to investors than higher-risk, illiquid small-cap stocks. "As of March 1998, I expect large stocks to soon cease outperforming the average stock. As a result, for some adjustment period (the next five years or so), actively managed portfolios may outperform the S&P 500 by 50 percent or more - which spells more trouble for the already sputtering institutional large- cap core-index fund business."/1/ If Bill Fouse says that his index fund will underperform actively managed small-cap funds over the next five years, I can but bow to his wisdom and experience. Nobody can predict the future, but Bill's idea is a good theory. Small stocks continued to underperform for the six months from his March speech through September, but in the last few weeks small-cap stocks have turned upward. - -------------------------------------------------------------------------------- 1. Quoted in the Financial Analysts Journal, July/August 1998. The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. 2 Acorn Launches Two New Funds This quarter, we are pleased to announce two additions to the Acorn Family of Funds, Acorn Twenty and Acorn Foreign Forty. These funds will invest primarily in the stocks of mid-cap companies -- those with market capitalizations of $1 billion to $10 billion. In October, we mailed information about Acorn Twenty and Acorn Foreign Forty to all current shareholders. The funds will begin trading on November 23. We've received a lot of phone calls since announcing Acorn Twenty and Acorn Foreign Forty. Many of you have asked us why we are launching two new funds in the midst of extreme market volatility. Some of you wonder why we're starting mid-cap funds when our expertise is in small-caps. The answer lies in our experience, which has taught us to follow two rules: (1) stick to what you know and (2) listen to your customers. First, we know how to pick stocks. Over the past 28 years, our extensive research has uncovered great stocks of great companies, some of which were too large for our existing small-cap portfolios. Our analysts' stock-picking process works just as well with mid-caps as it does with small-caps. (Remember that many of the stocks currently in Acorn Fund were small-cap when we bought them, but have grown to mid-cap size.) Acorn Twenty and Acorn Foreign Forty will offer investors access to a select group of larger companies that exhibit the exact same characteristics as our small-cap picks -- stocks with strong growth potential, solid fundamentals, and a reasonable price. As far as the market volatility goes... we think that we may be starting new funds at a time when great bargains are available. We invest with a long- term objective for all of the Acorn funds, and Acorn Twenty and Acorn Foreign Forty are no exception. We're excited about the launch of these funds, and hope you share in our enthusiasm. If you need another copy of the prospectus or have any questions about the new funds, call a shareholder services representative toll-free at 1-800-9-ACORN-9 (1-800-922-6769). Best Regards, /s/ Ralph Wanger Ralph Wanger Chief Investment Officer, Wanger Asset Management Lead Portfolio Manager, Acorn Fund MEET THE TRUSTEES This quarter, we are pleased to introduce two of the most senior members of the Acorn board of trustees: James H. Lorie and David C. Kleinman. Jim Lorie is Vice Chairman of Acorn's board of trustees, and has served Acorn shareholders since 1970. As noted on page 2, Mr. Lorie was the founder and first director of the University of Chicago's Center for Research in Securities Prices. He served as associate dean for U of C' s Graduate School of Business, and was instrumental in developing a long-term plan for its success -- what came to be called The Chicago Approach to Business Education. The approach was the first serious alternative to Harvard's case study model, and it is now the dominant approach to business education. The University of Chicago is now rated as one of the top business schools in the world. Six members of the Acorn investment team are Chicago MBA's. Today, Mr. Lorie is a professor emeritus. David Kleinman is also affiliated with the University of Chicago. He is currently adjunct professor of strategic management at the Graduate School of Business, and has taught finance, strategy and business policy. Mr. Kleinman has participated as a trustee for the Acorn funds since 1972, and also serves on several other corporate boards and is a private business consultant. His experience includes work in the Finance Staff at the Ford Motor Company, where he was responsible for oversight and management of the investment managers of the Company's pension funds. 3 Acorn USA In a Nutshell [PHOTO OF ROBERT A. MOHN APPEARS HERE] Last quarter stocks got a good ol' whupping. Acorn USA dropped 19.3%, just less than the Lipper Small-Cap Fund Average's 21.5% plunge. Year-to-date, the Lipper average is down 16.5% while Acorn USA is down only 8.2%, a semi-heroic result in small-cap land. Of course, it's also 8.2% less than you could have earned in a piggybank. Fear finally dethroned Greed last quarter. Scary stories about credit crunches, Asia's crumbling economy, and the beheading of hedge fund nobles snapped investors out of their bull market trance. The herd deserted stocks and stampeded into safer hiding places (like piggybanks). Our worst stocks were our heavy debtors. Debt adds risk, and risk was a major turn-off. Magellan, Host Marriott, and RCN all have debt dependencies, which gave their stocks the shakes. Each dropped 30-60%. Centennial Cellular and Cable Michigan received takeover bids this year, but wilted along with the high- yield bond market they need to tap to obtain takeout financing. High-yield bonds aren't selling these days. Investors have turned into a bunch of teetotalers who buy bonds from only the soberest of credits. For the moment, our takeover duo doesn't qualify. Small stocks are sinking under a torrent of tax-loss selling. Mutual funds desperately want to take tax losses by October 31 (the day most mutual funds have to measure realized gains and losses for tax purposes). But tax deferral just isn't worth what it used to be, given today's low capital gains tax rates and low interest rates. Still, tax-motivated selling can make a lot of sense... for the buyer. Taxophobes have a perverse instinct to sell stocks at the lowest possible price in order to realize the greatest possible tax loss. We're taking the other side of those trades, buying some of our favorite stocks at firesale prices. Here's to a happy new (tax) year! /s/Robert A. Mohn Robert A. Mohn Lead Portfolio Manager Fund Assets as of 9/30/98: $238.8 million Acorn USA Top 10 Holdings CalEnergy 6.4% Power Plants Micros Systems 4.9% Information Systems for Restaurants & Hotels Lincare Holdings 4.5% Home Health Care Services Acceptance Insurance 3.4% Crop Insurance Centennial Cellular 3.4% Cellular Franchises Atmos Energy 3.4% Natural Gas Utility Host Marriott Services 3.2% Fast Food Kiosks in Airports Mecklermedia 3.1% Internet Trade Shows & Magazines Wackenhut 2.8% Prison Management Data Transmission 2.6% Data Services for Farmers 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. Dynamic Duo Kronos and Micros are our tech twins. Both have dominant shares of budding technology markets (and very Homeric names). Both take common business gadgets (timeclocks for Kronos, cash registers for Micros) and stuff them with computer chips and proprietary software to create "smarter" devices that link to their customers' information management systems (manufacturers for Kronos, restauranteurs for Micros). Both are ensconced in protected tech niches, growing briskly, valued moderately and deserving of our top 12 list. 4 Performance at a Glance The Value of a $10,000 Investment in Acorn USA September 4, 1996 through September 30, 1998 [LINE GRAPH APPEARS HERE] Average Annual Total Return --------------------------- 1 Year Life of Fund -7.8% 18.3%
Date Acorn USA ($) Russell 2000 ($) 09/04/96 10,000 10,000 09/30/96 10,720 10,360 +7.2% 12/31/96 11,650 10,899 +8.7% 03/31/97 11,480 10,335 -1.5% 06/30/97 13,320 12,011 +16.0% 09/30/97 15,340 13,798 +15.2% 12/31/97 15,413 13,335 +0.5% 3/31/98 17,401 14,678 +12.9% 6/30/98 17,525 13,993 +0.7% 9/30/98 14,151 11,174 -19.3%
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 9/30/98 [PIE CHART APPEARS HERE]
Information 35.6% Finance 13.4% Energy/Minerals 15.9% Industrial Goods/Services 11.6% Health Care 8.6% Consumer Goods/Services 3.4% Real Estate 1.5% Cash and other assets less liabilities 10.0% ----- 100.0%
Relative Performance - ------------------------------------------------------------------ 3rd quarter Last 9 mos. Last 12 mos. 1998 Acorn USA -19.3% -8.2% -7.8% Russell 2000 -20.2% -16.2% -19.0% Lipper Small-Cap Funds Avg -21.5% -16.5% -20.6% S&P MidCap 400 -14.5% -7.1% -6.3% S&P 500 -10.0% 6.0% 9.1%
The Russell 2000 is formed by taking the 3,000 largest companies and then eliminating the largest 1,000 leaving a market capitalization-weighted index of 2,000 small companies. The Lipper Small-Cap Funds Avg. is an average of all U.S. small-cap funds tracked by Lipper, which consisted of 676, 625, and 577 funds for the 3rd qtr., last 9 mos., and last 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. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 9/30/98: $13.80 - ----------------------------------------- 5 Acorn Fund In a Nutshell [PHOTOS OF RALPH WANGER AND CHARLES P. McQUAID APPEARS HERE] On August 17, Russia defaulted, triggering a worldwide market panic. Long Term Capital Management, an over-leveraged hedge fund, failed, requiring a $3.5 billion bailout on September 23. Four days later, Japan Leasing Corporation filed for bankruptcy, becoming Japan's biggest financial failure in 50 years. Realizing the risk, investors cut off low-grade lending. Prices for "junk bonds" and financial service companies plunged, and other stocks dropped in sympathy. Acorn Fund lost 19.5% in the quarter, not quite as bad as the Lipper Small- Cap Funds Index (-21.4%) and the Russell 2000 (-20.2%). As shown on page 7, large-caps fared better over the same period. A number of Acorn's stocks got nailed this quarter. Windmere, IFR Systems and Metal Management all collapsed about 80% due to weak sales and the Asian crisis. InfoUSA dropped 59% on an earnings shortfall and management turmoil. Thermo Instruments and Thermo Electron cooled 58% and 56%, respectively, on a drop in their Asian sales. Giga Information, Larscom, and Dunn Computer fell 60- 70% each. These were mostly small positions to start with (even smaller now), so the total portfolio was down a lot less. Acorn's technology stocks held up relatively well. American Power Conversion and Solectron beat EPS estimates, powering respective stock gains of 26% and 14%. Compuware gained another 15%. Financial panics, like emotional panics, are severe but usually short- lived. By late October, the gloom lifted. The Fed reduced interest rates and indicated that it will provide liquidity. Small-cap stocks have begun to recover, and have become excellent values relative to large-caps. The corporate world apparently agrees, resulting in takeovers of our stocks. Zeigler Coal, Altron, Mecklermedia, Fred Meyer, and HBO & Company agreed to sell out. /s/Ralph Wanger Ralph Wanger Lead Portfolio Manager /s/Charles P. McQuaid Charles P. McQuaid Co-Portfolio Manager Fund Assets as of 9/30/98: $3,137.5 million Acorn Fund Top 10 Holdings Liberty Media 4.1% CATV & Satellite Dish Programming Lincare Holdings 3.1% Home Health Care Services Carnival 2.7% Largest Cruise Line AES Corporation 2.1% Power Plants Harley Davidson 2.1% Motorcycles & Related Merchandise HBO and Company 2.0% Hospital Computer Services National Data 1.7% Credit Card/Health Claims Processor Solectron 1.4% Equipment Manufacturing Services SEI Investments 1.4% Mutual Fund Administration First Health Group 1.4% PPO Network 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. Electrifying - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Returns We first bought Solectron in 1989, when its market cap was just $35 million. This electronics outsourcing company had a superior track record, but had a cheap stock because public competitors had erratic results. Since then, the trend to outsourcing accelerated. Solectron bought a number of original equipment manufacturing plants, accompanied with supply contracts. Solectron's worldwide capabilities are a major advantage in serving multinational customers. Since our first purchase, Solectron's sales are up 4000% and its stock is up 6400%. 6 Performance at a Glance The Value of a $10,000 Investment in Acorn Fund June 10, 1970 through September 30, 1998 [LINE GRAPH APPEARS HERE]
Date Acorn Fund ($) S & P ($) 6/10/70 10,000 10,000 1970 13,587 12,676 1971 17,828 14,490 +31% 1972 19,368 17,242 +9% 1973 14,765 14,709 -24% 1974 10,691 10,816 -28% 1975 13,945 14,842 +30% 1976 23,045 18,394 +65% 1977 27,168 17,077 +18% 1978 31,777 18,200 +17% 1979 47,790 21,586 +50% 1980 62,594 28,602 +31% 1981 58,005 27,195 -7% 1982 68,208 33,054 +18% 1983 85,389 40,510 +25% 1984 89,045 43,051 +4% 1985 117,142 56,710 +32% 1986 136,843 67,295 +17% 1987 142,923 70,828 +4% 1988 178,370 82,591 +25% 1989 222,681 108,761 +25% 1990 183,674 105,386 -18% 1991 270,641 137,492 +47% 1992 336,210 147,928 +24% 1993 444,889 162,882 +32% 1994 411,750 165,032 -7% 1995 497,407 227,047 +21% 1996 609,569 279,177 +23% 1997 761,852 372,320 +25% 9/30/98 684,967 394,671 -10.1%
Average Annual Total Return - --------------------------------------------- 1 Year 5 Years 10 Years Life of Fund - -10.7% 9.8% 14.7% 16.1%
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 9/30/98 [PIE CHART APPEARS HERE] Information 30.0% Finance 11.8% Energy/Minerals 8.8% Industrial Goods/Services 8.0% Health Care 9.3% Consumer Goods/Services 9.5% Real Estate 4.6% Foreign 10.2% Cash and other assets less liabilities 7.8% ------ 100.0%
Relative Performance - ---------------------------------------------------------------- 3rd quarter Last 9 mos. Last 12 mos. 1998 Acorn Fund -19.5% -10.1% -10.7% S&P 500 -10.0% 6.0% 9.1% Russell 2000 -20.2% -16.2% -19.0% Lipper Small-Cap Funds Index -21.4% -16.3% -21.2% S&P MidCap 400 -14.5% -7.1% -6.3% Dow-Jones -12.0% 0.4% 0.4%
The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The Russell 2000 is formed by taking the 3,000 largest companies and then eliminating the largest 1,000 leaving a market capitalization-weighted index of 2,000 small companies. The Lipper Small-Cap Funds Index measures the performance of the 30 largest U.S. small-cap funds tracked by Lipper. 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 9/30/98: $15.06 - ----------------------------------------- 7 Acorn International In a Nutshell [PHOTO OF LEAH JOY ZELL APPEARS HERE] The Brazilians call August Mes do Cachorro Louco, or month of the crazy dog. We have had an entire quarter of crazy dog behavior in world markets. As investors around the globe turned away from risk, the prices of equities and all but the highest quality credits crashed. The real world has not changed nearly so much as prices might suggest. The problems of Asia and the parlous state of Russian finances were both well-known in July. What changed was the psychology of financial markets. The large losses on Russian government bonds caused investors in those markets to sell their holdings elsewhere to pay off creditors. The subsequent wave of liquidations triggered sharp markdowns on all types of financial assets and shook investor confidence worldwide. The financial turmoil is now forcing policymakers from Tokyo to Brazil to confront and deal with long-standing unresolved issues. Interest rates are coming down globally. Both of these developments are good for equities long- term. In the future, we will likely remember this volatility as positive. Excesses were wrung out of the system and new initiatives adopted, leaving world economies more resilient to crisis in their wake. The Acorn International portfolio is leaner and cleaner than it was a year ago, having been repeatedly tested in a tough environment. Our relative performance remains solid. We have plenty of cash to give us buying power in the downdrafts. Valuations have improved dramatically and markets are rebounding. With many quality company stocks on sale, we expect to do a lot of shopping between now and year-end. What you should not expect is a large tax bill in December, because we have made a concerted effort to avoid one. With best wishes from our entire team, /s/Leah Joy Zell Leah Joy Zell Lead Portfolio Manager Fund Assets as of 9/30/98: $1,537.7 million Acorn International Top 10 Holdings
Tieto Corporation Finland 4.6% Computer Services/Consulting WM Data Sweden 4.3% Computer Services/Consulting Serco Group United Kingdom 2.3% Facilities Management Atos France 2.1% Computer Services/ Transaction Processing Rhoen Klinikum Germany 2.1% Hospital Management Getronics Netherlands 1.7% Computer Services Cie Fin Richemont Switzerland 1.6% Luxury Goods & Tobacco Venture Manufacturing Singapore 1.5% Contract Electronics Manufacturer Li and Fung Hong Kong 1.5% Sourcing of Consumer Goods Capita Group United Kingdom 1.3% Outsourcing 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. Public Sector - -------------------------------------------------------------------------------- Partner What do scientists at the European Space Agency, air traffic controllers in Australia, and toll booth operators in Hong Kong have in common? They all work for Serco, a facilities management company that handles complex logistical tasks on long-term contract for governments and blue-chip corporations worldwide. The large demand for such services has driven company sales and profits in excess of 25% over the last five years. Serco has been in our portfolio since 1994, over which time its share price has more than tripled. 8 Performance at a Glance The Value of a $10,000 Investment in Acorn International September 23, 1992 through September 30, 1998 [LINE GRAPH APPEARS HERE] Acorn International $20,408 EAFE $16,396
Average Annual Total Return - -------------------------------------------- 1 Year 5 Years Life of Fund -5.7% 8.0% 12.6%
Date Acorn Int'l ($) EAFE ($) 12/31/92 10,679 9,614 +6.8% 12/31/93 15,924 12,745 +49.1% 12/31/94 15,319 13,736 -3.8% 12/31/95 16,686 15,275 +8.9% 12/31/96 20,133 16,199 +20.7% 12/31/97 20,170 16,487 +0.2% 9/30/98 20,408 16,396 +1.2%
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, Australasia 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 9/30/98 [PIE CHART APPEARS HERE] Information 28.0% Finance 7.7% Energy/Minerals 1.6% Industrial Goods/Services 14.5% Health Care 5.5% Consumer Goods/Services 18.7% Other Industries 5.0% Cash and other assets less liabilities 19.0% ------ 100.0%
Relative Performance - ------------------------------------------------------------------------ 3rd quarter Last 9 mos. Last 12 mos. 1998 Acorn International -16.1% 1.2% -5.7% EAFE -14.2% -0.6% -8.3% EMI (World ex-U.S.) -15.1% -0.9% -11.1% Lipper Int'l Small-Cap Funds Index -17.3% -0.9% -10.6% Lipper Int'l Funds Index -15.8% -2.5% -9.9%
EAFE is Morgan Stanley's Europe, Australasia and Far East Index, an unmanaged widely recognized international benchmark that comprises 20 major markets in Europe, Australia, and the Far East. The EMI (World ex-U.S.) 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 Index measures the performance of the 10 largest int'l small-cap funds tracked by Lipper. The Lipper Int'l Funds Index measures the performance of the 30 largest non-U.S. funds tracked by Lipper. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 9/30/98: $18.25 - ----------------------------------------- 9 Acorn USA Major Portfolio Changes in the Third Quarter
Number of Shares -------------------- 6/30/98 9/30/98 Additions Information Activision 0 116,500 Aspect Telecommunications 137,100 146,100 Aztec Technology Partners 0 243,000 InfoUSA, Cl. B (formerly known as American Business Information) 125,400 279,400 International Game Technology 48,000 146,000 RCN 269,400 396,400 Sykes Enterprises 138,800 196,300 - ------------------------------------------------------------ Consumer Goods/Services Fresh Foods 0 40,000 - ------------------------------------------------------------ Finance AmerUs Life Holdings 187,500 210,500 Pioneer Group 0 46,000 UICI 322,000 363,000 - ------------------------------------------------------------ Energy/Minerals Atmos Energy 242,000 283,000 CalEnergy 503,000 573,400 Sales - ------------------------------------------------------------ Information Cablevision Systems 32,000 0 CMP Media 50,000 0 Micros Systems 430,000 391,500 Thermoquest 181,000 102,300 World Color Press 90,000 0 - ------------------------------------------------------------ Health Care Cardiac Pathways 9,600 0 - ------------------------------------------------------------ Finance Penn Treaty American 53,000 0 - ------------------------------------------------------------ Industrial Goods/Services Labor Ready 31,500 0 Gibraltar Steel 28,000 0 - ------------------------------------------------------------ Energy/Minerals GeoScience 252,000 197,000 Equitable Resources 114,000 92,300 - ------------------------------------------------------------ Other Industries Cornerstone Properties 22,000 0
10 Acorn USA Statement of Investments (unaudited) September 30, 1998
Number of Shares Value (000) - ---------------------------------------------------------------------- Common Stocks: 90.0% - ---------------------------------------------------------------------- Information: 35.6% Broadcasting: 2.6% 209,100 Data Transmission Network $ 6,273 Data Services for Farmers Television Programming: 3.6% 312,000 United Video Satellite Group 4,622 CATV & Satellite Dish Programming 106,000 Liberty Media Group, Tele-Communications 3,889 CATV & Satellite Dish Programming - --------------------------------------------------------------------- 8,511 Cable Television: 0.5% 35,100 Cable Michigan 1,220 Cable TV Telephone Services: 3.1% 396,400 RCN 5,153 Metro Market: Voice, Video & Data Services 54,000 Commonwealth Telephone 1,293 10,800 Commonwealth Telephone Rights 31 Rural Market: Local, Long Distance & Internet Access 124,400 Startec Global Communications 855 International Telecommunications - --------------------------------------------------------------------- 7,332 Mobile Communications: 4.4% 254,000 Centennial Cellular 8,128 Cellular Franchises 121,800 COMARCO 2,345 Wireless Network Testing - --------------------------------------------------------------------- 10,473 Telecommunications Equipment: 1.5% 146,100 Aspect Telecommunications 3,506 Call Center Equipment Gaming Equipment: 1.1% 146,000 International Game Technology 2,710 Slot Machines & Progressive Jackpots Computer Services: 1.9% 196,300 Sykes Enterprises 3,337 Call Center Services 243,000 Aztec Technology Partners 1,306 Technology Staffing Services - --------------------------------------------------------------------- 4,643 Consumer Software: 0.5% 116,500 Activision $ 1,311 Entertainment Software Transaction Processors: 2.3% 182,100 National Data 5,622 Credit Card & Health Claims Processor Instrumentation: 1.3% 93,000 Mettler Toledo 1,999 Laboratory Products 102,300 Thermoquest 997 Mass Spectrometry - --------------------------------------------------------------------- 2,996 Internet: 3.1% 378,800 Mecklermedia 7,434 Internet Trade Shows & Magazines Business Information/ Marketing Services: 2.3% 396,200 IntelliQuest Information 2,773 Technology/Market Research 279,400 InfoUSA, Cl. B (formerly known as American Business Information) 1,991 107,000 InfoUSA, Cl. A 622 Business Data for Sales Leads - --------------------------------------------------------------------- 5,386 Computer Hardware/ Related Systems: 7.4% 391,500 Micros Systems 11,745 Information Systems for Restaurants & Hotels 159,100 Kronos 5,887 Time Accounting Software & Clocks - --------------------------------------------------------------------- 17,632 ---------- Information: Total 85,049
11 Acorn USA Statement of Investments (unaudited)
Number of Shares Value (000) - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Health Care: 8.6% Biotechnology/Drug Delivery: 0.5% 78,000 Synaptic Pharmaceuticals $ 1,151 Receptor Targeted Drug Design Services: 8.1% 275,200 Lincare Holdings 10,664 Home Health Care Services 470,000 Magellan Health Services 5,082 Mental Health Services 152,000 First Health 3,686 PPO Network - ------------------------------------------------------------------------------- 19,432 ----------- Health Care: Total 20,583 - ------------------------------------------------------------------------------- Consumer Goods/Services: 3.4% Retail: 3.2% 842,100 Host Marriott Services 7,684 Fast Food Kiosks in Airports Food: 0.2% 40,000 Fresh Foods 380 Prepared Foods ----------- Consumer Goods/Services: Total 8,064 - ------------------------------------------------------------------------------- Finance: 13.4% Savings & Loans: 2.7% 89,000 H.F. Ahmanson 4,939 California Savings & Loan 159,000 Coast Contingency Rights 1,401 Litigation Claim Against US Government - ------------------------------------------------------------------------------- 6,340 Finance Companies: 1.4% 590,000 World Acceptance 3,319 Personal Loans Money Management: 0.3% 46,000 Pioneer Group 759 Equity Mutual Funds - ------------------------------------------------------------------------------- Insurance: 9.0% 392,100 Acceptance Insurance $ 8,161 Crop Insurance 363,000 UICI 5,990 Health Insurance 210,500 AmerUs Life Holdings 4,618 Annuities/Life Insurance 93,000 Leucadia National 2,726 Insurance Holding Company - ------------------------------------------------------------------------------- 21,495 ----------- Finance: Total 31,913 - ------------------------------------------------------------------------------- Industrial Goods/Services: 11.6% Steel: 1.2% 149,000 Atchison Casting 1,481 Steel Foundries 97,300 Schnitzer Steel 1,460 Scrap Steel Processor - ------------------------------------------------------------------------------- 2,941 Industrial Distribution: 0.6% 70,000 Vallen 1,365 Safety Products Distribution Machinery: 1.0% 251,200 Farr Company 2,449 Filters Speciality Chemicals: 1.7% 232,000 Lilly Industries, Cl. A 4,089 Industrial Coatings Other Industrial Services: 7.1% 349,500 Wackenhut, Cl. B 6,597 Prison Management 346,000 Hub Group 5,449 Truck & Rail Freight Forwarder 322,100 Insurance Auto Auctions 4,026 Auto Salvage Services 83,000 Compass International Services 711 Collection Agencies 51,000 Trailer Bridge 115 Tug & Barge Transportation - ------------------------------------------------------------------------------- 16,898 ----------- Industrial Goods/Services: Total 27,742
12
Number of Shares Value (000) - ------------------------------------------------------------------------------- Energy/Minerals: 15.9% Independent Power: 6.3% 573,400 CalEnergy $ 15,195 Power Plants Oil/Gas Producers: 2.4% 439,300 Tesoro Petroleum 5,738 Oil Refinery/Gas Reserves Distribution/Marketing/Refining: 5.7% 283,000 Atmos Energy 8,083 Natural Gas Utility 228,400 Dynegy 3,069 Natural Gas Processing & Marketing 92,300 Equitable Resources 2,348 Natural Gas Utility & Producer - ---------------------------------------------------------------------------- 13,500 Oil Services: 1.5% 197,000 GeoScience 1,921 Offshore Seismic Equipment Company 52,400 J Ray McDermott 1,575 Offshore Construction Company - ---------------------------------------------------------------------------- 3,496 --------- Energy/Minerals: Total 37,929 - ---------------------------------------------------------------------------- Real Estate: 1.5% 101,400 Forest City Enterprises, Cl. A 2,129 Shopping Centers 47,500 Gaylord Entertainment 1,416 Opryland Hotel & Other Assets - ---------------------------------------------------------------------------- 3,545 -------- Real Estate: Total 3,545 Total Common Stocks and -------- Other Equity-Like Securities: 90.0% $214,825 Short-Term Obligations: 9.6% 22,918 Total Investments: 99.6% 237,743 ------- Cash and Other Assets Less Liabilities: 0.4% 1,041 ------- Total Net Assets: 100% $238,784 ============================================================================
13 Acorn Fund Major Portfolio Changes in the Third Quarter
Number of Shares ---------------------- 6/30/98 9/30/98 Additions - ------------------------------------------------------------------------------ Information Activision 0 450,000 Analysts International 427,000 567,000 Aztec Technology Partners 0 1,000,000 Choicepoint 411,000 478,000 Computer Task Group 475,000 600,000 Information Holdings 0 470,000 International Game Technology 2,158,000 2,249,000 Jabil Circuit 350,000 470,000 Mettler Toledo 570,000 810,000 Persetel Q Data (South Africa) 0 407,000 RCM Technologies 390,000 500,000 Sanmina 200,000 250,000 Sterling Commerce 160,000 228,800 Sykes Enterprises 670,000 750,000 Univision Communications 0 43,000 Young Broadcasting 465,000 500,000 - ------------------------------------------------------------------------------ Health Care First Health Group 1,700,000 1,752,000 HBO & Company 1,992,000 2,177,000 Respironics 650,000 798,000 - ------------------------------------------------------------------------------ Consumer Goods/Services Airtours (United Kingdom) 1,350,000 1,650,000 Bally Total Fitness 0 192,000 Barnes & Noble 0 72,000 Coca-Cola Beverages (United Kingdom) 0 1,000,000 Grand Casinos 0 170,000 Resorts World Berhad (Malaysia) 0 750,000 Royal Olympic Cruise 130,000 310,000 St. John Knits 296,000 392,000 - ------------------------------------------------------------------------------ Finance Peoples Bank Bridgeport 1,267,000 1,554,000 Peoples Heritage Financial 0 70,000 Pioneer Group 673,000 819,000 TCF Financial 510,000 695,000 UICI 800,000 1,000,000 - ------------------------------------------------------------------------------ Industrial Goods/Services Clarcor 431,000 535,000 Compass International Services 627,000 804,000 Expeditors Int'l of Washington 900,000 950,000 Labor Ready 670,000 850,000 - ------------------------------------------------------------------------------ Energy/Minerals Atmos Energy 560,000 650,000 Devon Energy 0 300,000 Dynegy 520,000 700,000 Enron Oil & Gas 0 816,000 Equitable Resources 800,000 900,000 J Ray McDermott 350,000 400,000 KN Energy 240,000 340,000 Northstar Energy (Canada) 0 1,000,000 - ------------------------------------------------------------------------------ Other Industries Security Capital Global 398,437 690,625
14
Number of Shares ------------------ 6/30/98 9/30/98 Sales - ------------------------------------------------------------------------------- Information Altron 285,000 185,000 American Management Systems 125,000 0 American Power Conversion 503,000 398,000 BET Holdings, Cl. A 420,000 0 Cablevision Systems 700,000 800,000 (includes effect of 2 for 1 stock split) Cellular Communications International (Italy) 110,000 0 Electro Scientific Industries 125,000 0 Harte Hanks Communications 600,000 200,000 IFR Systems 450,000 250,000 IMS Health (formerly known as Cognizant) 107,955 0 MicroProse 220,000 0 Micros Systems 900,000 786,000 Rohm (Japan) 60,000 0 Solectron 1,000,000 900,000 Systems & Computer Technology 760,000 660,000 Thermo Instrument Systems 1,085,000 885,000 Verilink 282,000 0 WM Data Nordic (Sweden) 1,300,000 1,110,000 World Color Press 1,185,000 910,000 - ------------------------------------------------------------------------------- Health Care Lifco (Sweden) 80,000 0 Medeva (United Kingdom) 3,300,000 0 - ------------------------------------------------------------------------------- Consumer Goods/Services Amway Asia Pacific (Hong Kong) 60,000 0 Carnival 2,760,000 2,690,000 Esselte (Sweden) 125,000 0 Fred Meyer Holdings 871,000 771,000 Newell 480,000 120,000 Rio Hotel & Casino 290,000 110,000 Sky City (New Zealand) 1,700,000 434,000 Windmere Durable Holdings 300,000 0 - ------------------------------------------------------------------------------- Finance ASR Verzekeringsgroep (Netherlands) 161,000 145,000 Banca Fideuram (Italy) 3,000,000 1,500,000 Foremost 741,000 687,000 Highlands Insurance 81,000 0 Protective Life 400,000 200,000 Shohkoh Fund (Japan) 20,000 0 Union Planters 285,000 0 - ------------------------------------------------------------------------------- Industrial Goods/Services Baldor Electric 1,071,000 980,000 Intermet 300,000 0 M A Hanna 600,000 0 Noritsu Koki (Japan) 174,000 76,000 Siderca (Argentina) 2,800,000 1,200,000 Steel Dynamics 300,000 0 Steven Myers & Associates 40,000 0 Thermo Electron 900,000 750,000 Valmont Industries 150,000 0 - ------------------------------------------------------------------------------- Energy/Minerals AES Corporation 2,230,000 1,803,000 Pride International 1,000,000 840,000 Saipem (Italy) 1,500,000 0 Seagull Energy 1,550,000 700,000 Zeigler Coal Holding 800,000 0
15 Acorn Fund Statement of Investments (unaudited) September 30, 1998
Number of Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities: 92.2% - -------------------------------------------------------------------------------- Information: 30.0% Media Broadcasting: 1.4% 819,000 Data Transmission Network $ 24,570 Data Services for Farmers 500,000 Young Broadcasting 17,000 Television Stations 370,000 Granite Broadcasting 2,359 Television Stations 43,000 Univision Communications 1,279 TV Network & Stations - -------------------------------------------------------------------------------- 45,208 Cable Television: 1.5% 800,000 Cablevision Systems 34,550 100,000 Cablevision Systems, Pfd 6,600 Cable TV 140,000 Cable Michigan 4,865 Cable TV - -------------------------------------------------------------------------------- 46,015 Television Programming: 4.8% 3,500,000 Liberty Media Group, Tele-Communications 128,406 CATV & Satellite Dish Programming 1,000,000 United Video Satellite Group 14,813 CATV & Satellite Dish Programming 280,000 Macrovision 8,190 Copyright Protection for Video Tapes & DVDs - -------------------------------------------------------------------------------- 151,409 Telecommunications Telephone Services: 0.9% 1,298,000 RCN 16,874 Metro Market: Voice, Video & Data Services 374,000 Commonwealth Telephone 8,953 74,800 Commonwealth Telephone Rights 215 Rural Market: Local, Long Distance & Internet Access 90,000 Startec Global Communications 619 International Telecommunications - -------------------------------------------------------------------------------- 26,661 Mobile Communications: 1.7% 500,000 Telephone and Data Systems 17,438 Cellular & Telephone Franchises 865,000 SkyTel Communications 15,678 Nationwide Paging 450,000 Centennial Cellular 14,400 Cellular Franchises 355,000 COMARCO 6,834 Wireless Network Testing - -------------------------------------------------------------------------------- 54,350 Telecommunications Equipment: 0.6% 714,000 Aspect Telecommunications 17,136 Call Center Equipment 577,000 Larscom 1,587 Digital Access Equipment - -------------------------------------------------------------------------------- 18,723 Computer Related Hardware Computer Hardware/ Related Systems: 2.0% 650,000 Kronos 24,050 Time Accounting Software & Clocks 786,000 Micros Systems 23,580 Information System for Restaurants & Hotels 398,000 American Power Conversion 15,000 Uninterruptable Power Systems - -------------------------------------------------------------------------------- 62,630 Semiconductors/Related Equipment: 0.3% 350,000 Oak Industries 9,450 CATV Coax Connectors Gaming Equipment: 1.4% 2,249,000 International Game Technology 41,747 Slot Machines & Progressive Jackpots 406,000 Acres Gaming 1,294 Manufacturer of Casino Systems - -------------------------------------------------------------------------------- 43,041 Contract Manufacturing: 2.2% 900,000 Solectron 43,200 Equipment Manufacturing Services 470,000 Jabil Circuit 16,332 Equipment Manufacturing Services 250,000 Sanmina 7,031 Backplanes & Equipment Manufacturing Services 185,000 Altron 2,336 Backplanes & Equipment Manufacturing Services - -------------------------------------------------------------------------------- 68,899
16
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------- Instrumentation: 1.6% 810,000 Mettler Toledo $17,415 Laboratory Products 885,000 Thermo Instrument Systems 9,735 Scientific & Industrial Instruments 613,000 Thermoquest 5,977 $1,500,000 Thermoquest, 5% Note Due 8/15/00 1,429 Mass Spectrometry & Chromatography $5,000,000 Thermo Optek, 5% Note Due 10/15/00 4,619 265,000 Thermo Optek 2,385 Elemental & Molecular Spectroscopy 200,000 Thermo Bio Analysis 2,275 Biochemical Instruments 232,000 Metrika Systems 2,204 Gamma Ray Instrumentation 234,122 Onix Systems 2,049 Field Measurement & Sensor Equipment 280,000 Itron 1,855 Remote-Readable Electric Meters 250,000 IFR Systems 1,062 Test Instruments for Communications - ------------------------------------------------------------------------------- 51,005 Business Software: 1.3% 300,000 Compuware 17,662 Software Tools & Services 660,000 Systems & Computer Technology 8,498 Electronic Commerce Software & Services 228,800 Sterling Commerce 7,922 Electronic Commerce Software & Services 266,000 National Instruments 6,633 Virtual Instruments - ------------------------------------------------------------------------------- 40,715 Consumer Software: 0.8% 350,000 Electronic Arts 15,356 Entertainment Software $6,500,000 Activision, 6.75% Note Due 1/1/05 5,817 450,000 Activision 5,062 Entertainment Software - ------------------------------------------------------------------------------- 26,235 Computer Services: 2.7% 600,000 Computer Task Group $17,587 Application Development & Maintenance Services 567,000 Analysts International 17,010 Technology Staffing Services 750,000 Sykes Enterprises 12,750 Call Center Services 608,000 BRC Holdings 10,336 Technology Outsourcing for Local Governments 231,000 BISYS Group 10,193 Processing for Banks 500,000 RCM Technologies 7,375 Technology Staffing Services 1,000,000 Aztec Technology Partners 5,375 Application Development & Maintenance Services 120,000 Keane 4,215 Application Development & Maintenance Services 300,000 Dunn Computer 994 Custom Computer Systems for Government - ------------------------------------------------------------------------------- 85,835 Software/Services Business Information/ Marketing Services/Publishing: 4.0% 1,300,000 ACNielsen 28,925 Retail Measurement 910,000 World Color Press 28,210 Web-Offset Printing 478,000 Choicepoint 23,004 Fraud Protection Information 500,000 Getty Images 8,687 Photographs for Publications & Electronic Media 300,000 Acxiom 7,444 Database Marketing Services 1,000,000 InfoUSA, Cl. B (formerly known as American Business Information) 7,125 1,200,000 InfoUSA, Cl. A 6,975 Business Data for Sales Leads 470,000 Information Holdings 4,994 Scientific & Medical Books/Journals 200,000 Harte Hanks Communications 4,475 Direct Marketing Services 400,000 CMP Media 4,300 Technology Trade Press - ------------------------------------------------------------------------------- 124,139
17 Acorn Fund Statement of Investments (unaudited)
Number of Shares Value (000) - ------------------------------------------------------------------------------- Internet: 0.4% 305,000 Mecklermedia $ 5,986 Internet Trade Shows & Magazines 2,683 Bigfoot International 4,024 Internet Direct Marketing 342,855 GIGA 1,236 Data on Information Technology - ------------------------------------------------------------------------------- 11,246 Electronics Distribution: 0.5% 1,090,000 Pioneer-Standard Electronics 6,881 Component & Computer Distribution 550,000 Kent Electronics 5,500 Component Distribution & Contract Assembly 450,000 Richey Electronics 3,094 Component Distribution & Contract Assembly 100,000 Richardson Electronics 700 Electron Tubes & Semiconductor Distribution - ------------------------------------------------------------------------------- 16,175 Transaction Processors: 1.9% 1,702,000 National Data 52,549 Credit Card & Health Claims Processor 300,000 Concord EFS 7,744 Credit Card Processor - ------------------------------------------------------------------------------- 60,293 -------- Information: Total 942,029 - ------------------------------------------------------------------------------- Health Care: 9.3% Biotechnology/Drug Delivery: 1.0% 450,000 Inhale Therapeutic Systems 12,600 Pulmonary Drug Delivery 680,000 Synaptic Pharmaceuticals 10,030 Receptor Targeted Drug Design 790,000 Microcide Pharmaceuticals 3,999 Antibiotics 1,600,000 Corvas International 3,300 Rational Drug Design - ------------------------------------------------------------------------------- 29,929 Medical Equipment: 0.6% 798,000 Respironics 8,978 Sleep Apnea Products 300,000 Affymetrix 7,725 Diagnostic Development 470,000 Innovasive Devices 2,467 Soft Tissue Bone Anchors - ------------------------------------------------------------------------------- 19,170 Hospital/Laboratory Supplies: 0.8% 273,000 Hillenbrand Industries 13,377 Hospital Beds & Coffins 644,000 Sybron International 12,317 Laboratory Supplies - ------------------------------------------------------------------------------- 25,694 Services: 6.9% 2,470,000 Lincare Holdings 95,712 Home Health Care Services 2,177,000 HBO & Company 62,861 Hospital Computer Services 1,752,000 First Health Group 42,486 PPO Network 1,410,000 Magellan Health Services 15,246 Mental Health Services 43,000 Spectrum Health Solutions 11 Workman's Compensation - ------------------------------------------------------------------------------- 216,316 -------- Health Care: Total 291,109 - ------------------------------------------------------------------------------- Consumer Goods/Services: 9.5% Goods Leisure Vehicles: 2.4% 2,200,000 Harley Davidson 64,625 Motorcycles & Related Merchandise 480,000 Thor Industries 10,200 Mobile Homes & RVs - ------------------------------------------------------------------------------- 74,825 Hardware & Appliances: 0.2% 120,000 Newell 5,528 Household Appliances Manufacturers: 0.6% 867,000 Unifi 13,384 Polyester & Nylon Fabrics 392,000 St. John Knits 6,321 Upscale Knitware - ------------------------------------------------------------------------------- 19,705
18
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------- Services Retail: 2.6% 1,750,000 Borders Group $38,937 Bookstores 771,000 Fred Meyer Holdings 29,973 Supermarkets in the West 911,000 Host Marriott Services 8,313 Fast Food Kiosks in Airports 634,000 Au Bon Pain 3,863 Bakery & Deli Restaurants 72,000 Barnes & Noble 1,944 Bookstores - ------------------------------------------------------- 83,030 Consumer Services: 0.4% 770,000 Protection One 7,508 Security Alarm Monitoring 192,000 Bally Total Fitness 3,336 Fitness Centers - ------------------------------------------------------- 10,844 Casinos: 0.3% 392,000 Hollywood Park 4,067 Race Track & Casino 535,000 Monarch Casino & Resort 3,009 Casino/Hotel in Reno 110,000 Rio Hotel & Casino 1,519 Casino/Hotel in Las Vegas 170,000 Grand Casinos 1,348 Casino/Hotel in Biloxi $6,250,000 Grand Palais Casino 14% Note Due 2/25/98 313 New Orleans Casino - ------------------------------------------------------- 10,256 Cruise Lines: 3.0% 2,690,000 Carnival 85,576 Largest Cruise Line 240,000 Royal Caribbean Cruises 6,375 Cruises to Caribbean & Alaska 310,000 Royal Olympic Cruise 2,044 Cruises in Mediterranean - ------------------------------------------------------- 93,995 -------- Consumer Goods/Services: Total 298,183 Number of Shares Value (000) - ------------------------------------------------------- Finance: 11.8% Banks: 1.1% 695,000 TCF Financial $13,813 Great Lakes Bank 570,000 Texas Regional Bancshares 12,896 Tex Mex Bank 170,000 CNB Bancshares 7,777 Indiana Bank 70,000 Peoples Heritage Financial 1,256 New England Bank - ------------------------------------------------------- 35,742 Savings & Loans: 3.2% 1,554,000 Peoples Bank Bridgeport 38,073 Connecticut Savings & Loan 435,000 H F Ahmanson 24,142 California Savings & Loan 738,000 Washington Federal 18,450 Washington State Savings & Loan 538,000 Commonwealth Bancorp 8,272 Philadelphia Savings & Loan 554,000 Coast Contingency Rights 4,882 Litigation Claim Against US government 275,000 Imperial Thrift & Loan 3,781 California Savings & Loan 66,000 Washington Mutual 2,228 West Coast Savings & Loan - ------------------------------------------------------- 99,828 Insurance: 3.3% 1,000,000 UICI 16,500 Health Insurance 723,000 Baldwin & Lyons, Cl. B 15,906 Trucking Insurance 511,000 Leucadia National 14,979 Insurance Holding Company 351,000 United Fire & Casualty 13,119 Property & Casualty 612,000 Acceptance Insurance 12,737 Crop Insurance 687,000 Foremost 12,581 Mobile Home & RV Insurance 460,000 AmerUs Life Holdings 10,091 Annuities/Life Insurance 200,000 Protective Life 7,200 Life/Dental Insurance - ------------------------------------------------------- 103,113
19 Acorn Fund Statement of Investments (unaudited)
Number of Shares Value (000) - -------------------------------------------------------------- Money Management: 2.8% 618,000 SEI Investments $ 42,951 Mutual Fund Administration 1,063,000 Baker Fentress 17,340 Closed-End Investment Company 819,000 Pioneer Group 13,514 Equity Mutual Funds 1,777,000 Phoenix Investment Partners 11,995 Mutual Fund & Pension Manager 60,000 Affiliated Managers Group 1,080 Mutual Fund & Pension Manager - -------------------------------------------------------------- 86,880 Finance Companies: 1.4% 935,000 Americredit 22,791 Auto Lending 1,820,000 World Acceptance 10,238 Personal Loans 886,000 Capital Trust 5,759 Whole Mortgage Loans 340,000 DVI Health Services 4,994 Leases for Big Medical Equipment - -------------------------------------------------------------- 43,782 -------- Finance: Total 369,345 - -------------------------------------------------------------- Industrial Goods/Services: 8.0% Steel: 1.4% 1,295,000 Worthington Industries 16,188 Steel Processing 805,000 Gibraltar Steel 14,037 Steel Processing 335,000 A M Castle 5,046 Steel Distribution 420,000 Atchison Casting 4,174 Steel Foundries 190,000 Schnitzer Steel 2,850 Scrap Steel Processor 400,000 Metal Management 1,075 Scrap Steel Processor - -------------------------------------------------------------- 43,370 Machinery: 1.3% 980,000 Baldor Electric 21,437 Electric Motors 535,000 Clarcor 8,226 Filters 365,000 Applied Industrial Technologies 5,954 Industrial Components Distribution 196,000 Applied Power 5,353 Electronic Enclosures - -------------------------------------------------------------- 40,970 Conglomerates: 0.4% 750,000 Thermo Electron 11,297 Instrumentation, Biomedical & Industrial Products Specialty Chemicals: 1.4% 1,000,000 Lilly Industries, Cl. A 17,625 Industrial Coatings 610,000 Cambrex 14,373 Pharmaceutical & Other Specialty Chemicals 295,000 H B Fuller 11,173 Adhesives, Sealants & Coatings - -------------------------------------------------------------- 43,171 Electrical Components/ Industrial Materials: 0.1% 273,000 Spectra Physics Lasers 1,911 Laser Manufacturer 100,000 Brunswick Technologies 612 Fiberglass Fabric for Composites - -------------------------------------------------------------- 2,523 Outsourcing Services & Training: 0.6% 850,000 Labor Ready 12,431 Temporary Manual Labor 398,000 GP Strategies 3,980 Training Programs 500,000 International Total Services 2,812 Aviation Services - -------------------------------------------------------------- 19,223 Logistics: 1.7% 950,000 Expeditors International of Washington 26,362 International Freight Forwarder 759,000 Hub Group 11,954 Truck & Rail Freight Forwarder 500,000 Airnet Systems 8,281 Check & Other Small Package Shipment 400,000 C H Robinson 8,050 Truck Freight Forwarder - -------------------------------------------------------------- 54,647
20
Number of Shares Value (000) - ------------------------------------------------------------------ Other Industrial Services: 1.1% 1,081,000 Wackenhut, Cl. B $ 20,404 45,000 Wackenhut, Cl. A 1,038 Prison Management 804,000 Compass International Services 6,884 Collection Agencies 209,000 HA.LO Industries 6,113 Distributor of Specialty Products 421,000 Trailer Bridge 947 Tug & Barge Transportation - ------------------------------------------------------------------ 35,386 -------- Industrial Goods/Services: Total 250,587 - ------------------------------------------------------------------ Energy/Minerals: 8.8% Independent Power: 3.3% 1,803,000 AES Corporation 66,824 1,852 AES Corporation Warrants 81 Power Plants 1,420,000 CalEnergy 37,630 Power Plants - ------------------------------------------------------------------ 104,535 Oil/Gas Producers: 2.1% 2,000,000 Tesoro Petroleum 26,125 Refinery/Gas Reserves 816,000 Enron Oil & Gas 14,280 Oil & Gas Producer 300,000 Devon Energy 9,881 Oil & Gas Producer 700,000 Seagull Energy 8,619 Oil & Gas Producer 250,000 Evergreen Resources 5,500 Oil & Gas Producer 1,031,000 Tipperary 2,062 Oil & Gas Producer - ------------------------------------------------------------------ 66,467 Distribution/Marketing/Refining: 2.2% 900,000 Equitable Resources 22,894 Natural Gas Utility & Producer 650,000 Atmos Energy 18,566 Natural Gas Utility 340,000 KN Energy 17,425 Natural Gas Pipelines & Processor 700,000 Dynegy 9,406 Natural Gas Processing & Marketing - ------------------------------------------------------------------ 68,291 Oil Services: 1.2% 400,000 J Ray McDermott 12,025 Offshore Construction Company 500,000 Weatherford International (formerly known as EVI) 10,813 Diversified Oil Field Products & Services 398,000 Atwood Oceanics 8,283 Offshore Drilling 840,000 Pride International 6,720 Offshore/Onshore Drilling - ------------------------------------------------------------------ 37,841 -------- Energy/Minerals: Total 277,134 - ------------------------------------------------------------------ Real Estate: 4.6% 829,000 The Rouse Company 22,331 Shopping Malls 690,625 Security Capital Global 13,813 101,000 Security Capital Group, Cl. B 1,818 Strategic Real Estate Investments 1,025,000 LaSalle Hotel Properties 13,325 Upscale/Full Service Hotels 820,000 Cornerstone Properties 12,402 Downtown Office Buildings 485,000 First Industrial Realty Trust 12,367 Industrial Properties 260,000 Equity Residential Properties Trust 10,969 Nationwide Apartments 400,000 Macerich Company 10,750 Regional Shopping Malls 466,000 Forest City Enterprises, Cl. B 10,019 370,000 Forest City Enterprises, Cl. A 7,770 Shopping Centers 945,000 Homestead Village 8,092 Extended Stay Hotels 350,000 Archstone 7,131 Nationwide Apartments 165,000 Weingarten Realty Investors 6,765 Community Shopping Centers 190,000 First Washington Realty Trust 4,512 120,000 First Washington Realty Trust, Cv. Pfd 3,563 Community Shopping Centers - ------------------------------------------------------------------ 145,627 -------- Real Estate: Total 145,627
21 Acorn Fund Statement of Investments (unaudited)
Number of Shares Value (000) - -------------------------------------------------------------------- Foreign Securities: 10.2% Canada: 0.3% 1,000,000 Northstar Energy $ 6,978 Natural Gas Producer 440,000 Shaw Industries, Cl. A 3,330 Oil Field Services - -------------------------------------------------------------------- 10,308 United Kingdom: 2.2% 1,200,000 Serco Group 21,565 Facilities Management 400,000 NTL 17,200 Cable TV & Telephone Systems 650,000 Comcast UK Cable Partners 10,075 Cable TV & Telephone Systems 1,650,000 Airtours 9,884 Tour Operator 1,100,000 N. Brown Group 4,365 Mail Order Clothing in Large Sizes 600,000 Edinburgh Fund Managers 2,738 Investment Management 1,000,000 Coca-Cola Beverages 2,286 Coca-Cola Bottler 700,000 Oriflame 1,588 Natural Cosmetics Sold Door-to-Door 340,000 Powerscreen International 514 Mobile Crushing & Screening Equipment 1,107,000 Ethical Holdings ADR 173 Drug Delivery - -------------------------------------------------------------------- 70,388 Germany/Austria: 0.6% 180,000 Flughafen Wien (Austria) 7,340 Vienna Airport Authority 23,000 Binding-Brauerei 6,399 Brewery 552,000 United International Holdings (Austria) 5,348 Cable Television for Austria & Other Countries - -------------------------------------------------------------------- 19,087 Sweden: 1.8% 1,110,000 WM Data Nordic $37,120 Computer Services/Consulting 630,000 Getinge Industrier 9,891 Sterilization & Disinfection Equipment 320,000 Autoliv 8,800 Seatbelts & Airbags - -------------------------------------------------------------------- 55,811 Netherlands: 0.9% 145,000 ASR Verzekeringsgroep 10,884 Insurance 305,000 Hunter Douglas 10,339 Decorative Window Coverings 167,000 Getronics 7,574 Computer Services - -------------------------------------------------------------------- 28,797 Switzerland: 0.4% 11,000 Cie Fin Richemont 14,065 Luxury Goods & Tobacco France: 0.7% 115,000 Atos 20,457 Computer Services/Transaction Processing Portugal: 0.1% 336,800 Filmes Lusomundo 4,143 Newspapers, Radio, Video, Film Distribution Italy/Greece: 0.8% 1,000,000 Aeroporti di Roma 6,439 Airport Management 325,000 Industrie Natuzzi 6,419 Leather Couches 1,500,000 Banca Fideuram 6,391 Life Insurance & Mutual Funds 250,000 Hellenic Bottling (Greece) 6,167 Coca-Cola Bottler - -------------------------------------------------------------------- 25,416
22
Number of Shares Value (000) - ---------------------------------------------------------- Malaysia: 0.1% 750,000 Resorts World Berhad $ 672 Casino/Hotel Resort 590,000 Berjaya Sports Toto 466 Lottery/Gaming - ---------------------------------------------------------- 1,138 Hong Kong: 0.3% 4,500,000 Varitronix International 8,740 LCD Manufacturer China: 0.1% 200,000 The Investment Company of China 1,102 Closed-End Fund Singapore: 0.4% 8,128,000 Star Cruises 7,864 Cruise Line 1,500,000 Natsteel Electronics 3,294 Contract Electronics Manufacturer - ---------------------------------------------------------- 11,158 Japan: 0.6% 180,000 Nintendo 16,979 Video Games 76,000 Noritsu Koki 1,145 Photo Processing Lab Manufacturer - ---------------------------------------------------------- 18,124 Australia/New Zealand: 0.1% 434,000 Sky City (New Zealand) 1,021 Casino & Hotel 125,000 PetSec Energy ADR 730 490,000 PetSec Energy 551 Oil & Gas Producer - ---------------------------------------------------------- 2,302 South Africa: 0.1% 407,000 Persetel Q Data 3,388 Networks & Computer Systems Mexico: 0.3% 3,300,000 Kimberly Clark de Mexico 8,177 Paper Products 5,960,000 Nadro, Series L 2,398 Pharmaceutical Distributor - ---------------------------------------------------------- 10,575 Other Latin America: 0.4% 320,000 IRSA (Argentina) 6,880 Real Estate Management & Development 140,000,000 Cemig (Brazil) 3,048 Electric Utility 135,000 Banco Latinoamericano de Exportaciones (Panama) 2,168 Trade Financing 1,200,000 Siderca (Argentina) 1,440 Steel Pipe Producer - ---------------------------------------------------------- 13,536 --------- Foreign: Total 318,535 Total Common Stocks and Other Equity-Like Securities: 92.2% 2,892,549 --------- Short-Term Obligations: 7.4% 233,160 --------- Total Investments: 99.6% 3,125,709 --------- Cash and Other Assets Less Liabilities: 0.4% 11,825 --------- Total Net Assets: 100% $3,137,534 ==========================================================
23 Acorn Fund Foreign Portfolio Diversification At September 30, 1998, Acorn Fund's foreign portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - -------------------------------------------------------- Information Computer Services $ 68,539 2.2% Cable Television 32,623 1.1 Semiconductors & Related Equipment 21,565 0.7 Business Information/Publishing 4,143 0.1 Contract Manufacturing 3,294 0.1 - -------------------------------------------------------- 130,164 4.2 Health Care Hospital Services 9,891 0.3 Biotechnology/Drug Delivery 173 0.0 - -------------------------------------------------------- 10,064 0.3 Consumer Goods/Services Travel 17,748 0.6 Consumer Software 16,979 0.5 Beverages 14,852 0.5 Entertainment 14,737 0.5 Nondurable Goods 9,765 0.3 Furniture & Textiles 6,419 0.2 Retail 4,365 0.1 Consumer Goods Distribution 2,398 0.1 Gaming 1,487 0.0 Other Durable Goods 19,139 0.6 - -------------------------------------------------------- 107,889 3.4 Finance Insurance 10,884 0.3 Money Management 9,129 0.3 Banks 2,168 0.1 Closed-End Funds 1,102 0.0 - -------------------------------------------------------- 23,283 0.7 Industrial Goods/Services Electrical Components 8,740 0.3 Machinery 1,659 0.1 Steel 1,440 0.0 - -------------------------------------------------------- 11,839 0.4 Energy/Minerals Oil/Gas Producers 8,259 0.3 Oil Services 3,330 0.1 - -------------------------------------------------------- 11,589 0.4 Other Industries Transportation 13,779 0.5 Real Estate 6,880 0.2 Utilities 3,048 0.1 - -------------------------------------------------------- 23,707 0.8 -------------------- Total Foreign Portfolio $318,535 10.2% ========================================================
24 Acorn International Major Portfolio Changes in the Third Quarter
Number of Shares ------------------- 6/30/98 9/30/98 Additions - ------------------------------------------------------ Europe Germany Merck KGA 75,000 200,000 Denmark ISS International System 0 45,000 Sweden Icon Medialab 0 73,400 Spain Mapfre Vida 300,000 335,000 Prosegur 375,000 525,000 France Assystem 50,000 75,000 SITA 0 35,000 United Kingdom/Ireland Atkins 1,000,000 1,100,000 Coca-Cola Beverages 1,400,000 2,200,000 ITNET 0 250,000 Logica 0 75,000 Parity 0 200,000 Saville Systems ADR (Ireland) 0 295,000 Switzerland Cie Fin Richemont 16,000 19,000 Italy Banca Pop Commercia e Industria 500,000 700,000 Industrie Natuzzi ADR 300,000 405,000 Netherlands Wegener Arcade NV 310,000 370,000 Poland Pick Szeged 30,000 100,000 - ------------------------------------------------------ Asia Singapore Star Cruises 8,300,000 9,495,000 Venture Manufacturing 7,000,000 7,500,000 - ------------------------------------------------------ Latin America Mexico Corp Interamericana de Entretenimiento 1,900,000 3,100,000 - ------------------------------------------------------ Other Countries Canada Celestica 175,000 510,000 Dundee Realty 2,500,000 4,000,000 LGS Group 380,000 580,000 Israel Amdocs 0 165,000
25 Acorn International Major Portfolio Changes in the Third Quarter
Number of Shares -------------------- 6/30/98 9/30/98 Sales - ---------------------------------------------------------------- Europe Germany Boewe Systec 100,000 60,000 IVG Holdings 375,000 89,000 Finland Tieto Corporation, Cl. B 1,310,000 2,195,000 (includes effect of 2 for 1 stock split) Sweden Lifco 120,000 0 Segerstrom & Svensson 360,000 0 France Virbac 52,500 24,000 United Kingdom Computacenter 75,000 0 Dorling Kindersley 1,300,000 190,000 Medeva 3,200,000 0 Powerscreen International 1,500,000 490,000 Switzerland Julius Baer Holdings 1,000 0 PubliGroupe 5,000 0 Sarasin & Cie Bank 5,000 4,260 Italy/Greece Banca Fideuram 5,430,000 2,725,000 Banca Popolare Di Bergamo 700,000 450,000 Cellular Communications International 55,000 0 Ergo Bank (Greece) 70,000 0 Mediolanum 650,000 260,000 Saes Getters 325,000 135,000 Saipem SPA 1,500,000 0 Portugal Lusotur 101,000 0 Televisao Independente 87,500 0 Netherlands ASR Verzekeringsgroep 151,000 130,000 Fugro NV 100,000 0 Kempen 580,000 375,000 Telegraaf Holdings 80,000 0 Hungary Gedeon Richter 80,000 0 Poland Bank Komunalny 140,000 0 Best Company Series D 200,000 0 - ---------------------------------------------------------------- Asia Hong Kong TVB 3,500,000 0 Japan Aiful 10,000 0 Central Uni 80,000 0 Lasertec 161,000 0 Mirai Industry 113,000 0 Orix 90,000 0 Rohm 40,000 0 Shohkoh Fund 15,000 0 Indonesia Medco Energi 1,750,000 0 Philippines Philippine Savings Bank 3,985,000 215,000 Singapore Electronic Resources 4,247,000 0 Electronic Resources Warrants 5,015,000 0 - ---------------------------------------------------------------- Latin America Mexico Tubos de Acero de Mexico ADR 510,000 0 Brazil Bompreco GDS 181,000 0 Argentina Perez Companc 1,400,000 0 Siderca 3,600,000 1,600,000 Peru Telefonica del Peru 250,000 0 Panama Panamerican Beverage 200,000 0 - ---------------------------------------------------------------- Other Countries Australia/New Zealand Sky City Limited 1,750,000 873,000 Canada Bracknell 1,700,000 805,000 Shaw Industries 1,280,000 1,085,000 Ventra Group 1,800,000 0 Israel ZAG Industries 253,000 0 United States AES Corporation 203,000 128,000
26 Acorn International Statement of Investments (unaudited) September 30, 1998
Number of Shares Value (000) - ----------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities: 81.0% - ----------------------------------------------------------------------- Europe: 59.0% Germany/Austria: 4.2% 200,000 Rhoen Klinikum Pfd. $18,188 150,000 Rhoen Klinikum 13,731 Hospital Management 200,000 Merck KGA 8,077 Pharmaceuticals 165,000 Flughafen Wien (Austria) 6,728 Vienna Airport Authority 473,000 United International Holdings (Austria) 4,582 Cable Television for Austria & Other Countries 89,000 IVG Holdings 3,935 Real Estate 200,000 Berzelius Umwelt 3,698 Industrial Waste Recycling 18,500 Cewe Color Holding 2,988 Photographic Developing & Printing 60,000 Boewe Systec 2,154 Envelope Stuffing Machines - ----------------------------------------------------------------------- 64,081 Denmark: 0.6% 50,000 Vest Wood 4,327 Furniture Company 44,000 Kompan International 2,752 Playground Equipment 45,000 ISS International System 2,372 Cleaning Services - ----------------------------------------------------------------------- 9,451 Finland: 6.8% 2,195,000 Tieto Corporation 70,742 Computer Services/Consulting 80,000 Fiskars, Series A 10,219 Scissors & Gardening Tools 574,800 Talentum 8,924 Trade Journals & Multimedia 135,000 KCI Konecranes International 5,309 Cranes & Maintenance 100,000 Spar Finland 5,208 Grocery/Convenience Stores 750,000 Elcoteq Network 5,159 Contract Electronics Manufacturer - ----------------------------------------------------------------------- 105,561 Norway: 0.0% 500,000 Atex Media Solutions 878 Print Media Software Sweden: 7.4% 2,000,000 WM Data Nordic 66,884 Computer Services/Consulting 970,000 Getinge Industrier 15,229 Sterilization & Disinfection Equipment 367,000 Autoliv 10,092 Seatbelts & Airbags 700,000 Bure Investment 9,292 Health Care Services & Investments 525,000 Atle 6,936 Investment Company 309,400 Esselte, Series A 4,621 Office Supplies & Related Equipment 73,400 Icon Medialab 768 Internet Service Bureau - ----------------------------------------------------------------------- 113,822 France: 4.7% 180,000 Atos 32,019 Computer Services/Transaction Processing 60,000 Fininfo 10,394 Data Feeds for French Banks & Brokers 62,000 NRJ 10,066 Radio Network 35,000 SITA 7,687 Waste Hauling & Landfills 95,000 Spir Communications 5,610 Regional Newspapers 13,000 Penauille Polyservice 3,178 Industrial Cleaning 75,000 Assystem 2,154 Nuclear Energy Consulting 24,000 Virbac 1,499 Veterinary Medicine - ----------------------------------------------------------------------- 72,607 United Kingdom/Ireland: 14.5% 2,000,000 Serco Group 35,942 Facilities Management 2,000,000 Capita Group 20,597 Outsourcing Services 467,000 NTL 20,081 Cable TV & Telephone System 1,500,000 Seton Scholl Healthcare 17,882 Pharmaceuticals 13,000,000 Electronics Boutique 17,784 Videogame/Computer Software Stores 510,000 Euro Money Publications 14,192 Financial Publications 1,100,000 Atkins 11,936 Outsourcing Services 1,700,000 Rotork 8,320 Valve Actuators for Oil & Water Pipelines 600,000 AEA Technology 7,086 Nuclear Energy Consulting 2,000,000 Shanks & McEwan 6,577 Landfills & Waste Incinerators
27 Acorn International Statement of Investments (unaudited) Number of Shares Value (000) - -----------------------------------------------------------------------
3,400,000 HALMA $ 5,980 Fire Detection Devices 1,500,000 N. Brown Group 5,952 Mail Order Clothing in Large Sizes 4,400,000 City Centre Restaurants 5,683 Fast Food Restaurants 1,600,000 Dialog Corporation 5,003 Online Business Information 2,200,000 Coca-Cola Beverages 5,029 Coca-Cola Bottler in Europe 2,000,000 Oriflame International 4,537 Natural Cosmetics 950,000 Edinburgh Fund Managers 4,335 Investment Management 295,000 Saville Systems ADR (Ireland) 4,277 Billing & Customer Care Software 1,000,000 Hogg Robinson 4,274 Corporate Travel Management 400,000 Vosper Thornycroft Holdings 3,898 Naval Shipbuilding 600,000 Fairey Group 3,033 Electronic Products 75,000 Logica 2,747 Computer Software & Services 190,000 Professional Staff 2,161 Specialist Temporary Staffing 200,000 Parity 2,056 Computer Software & Services 250,000 ITNET 1,801 Outsourcing Services 490,000 Powerscreen International 741 Mobile Crushing & Screening Equipment 190,000 Dorling Kindersley 626 Reference Books & CD-ROMs - ----------------------------------------------------------------------- 222,530 Switzerland: 5.7% 19,000 Cie Fin Richemont 24,294 Luxury Goods & Tobacco 36,000 Phoenix Mecano 18,984 Electrical Components Manufacturer 60,000 Selecta Group 12,916 Vending Machines 18,000 Societe Generale d'Affichage 7,802 Billboard Advertising 13,500 Bon Appetit 7,509 12,500 Bon Appetit Warrants 10/29/98 45 Cash & Carry Stores/Specialty Restaurants 12,000 Hero 6,761 Packaged Foods 4,260 Sarasin & Cie Bank 5,078 Private Banking 3,200 Pargesa Holdings $ 4,371 Industrial & Media Conglomerate - ----------------------------------------------------------------------- 87,760 Italy/Greece: 7.4% 2,750,000 Autogrill Finanziari 18,140 Tollway Restaurants 2,000,000 Editoriale L'Espresso 15,734 Newspapers & Magazines 700,000 Banco Pop Commercia e Industria 11,882 Regional Bank 2,725,000 Banca Fideuram 11,609 Life Insurance & Mutual Funds 600,000 Gewiss 10,639 Electrical Plugs & Switches 450,000 Banca Popolare Di Bergamo 9,109 Regional Bank 1,160,000 Attica Enterprises (Greece) 8,317 Ferry Line 405,000 Industrie Natuzzi ADR 7,999 Leather Couches 1,000,000 Aeroporti di Roma 6,439 Airport Management 250,000 Hellenic Bottling (Greece) 6,167 Coca-Cola Bottler 260,000 Mediolanum 5,963 Life Insurance & Mutual Funds 135,000 Saes Getters 1,268 Getters used in TVs/PCs ---------------------------------------------------------------------- 113,266 Spain/Portugal: 2.1% 335,000 Mapfre Vida 12,969 Life Insurance & Mutual Funds 525,000 Prosegur 6,504 Security Guards 150,000 Sol Melia 4,751 Hotel Management 220,000 Cortefiel 4,630 Apparel Retailer 134,200 Filmes Lusomundo (Portugal) 1,651 Newspapers, Radio, Video, Film Distribution 133,500 Estoril Sol (Portugal) 1,401 Casino Resort 5,000 Aguas de Barcelona 244 Privatized Water Concessions - ----------------------------------------------------------------------- 32,150 Netherlands: 5.4% 560,000 Getronics 25,399 Computer Services 375,000 Kempen 18,460 Stock Brokerage/Investment Management
28
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------- 130,000 ASR Verzekeringsgroep $ 9,758 Insurance 275,000 Hunter Douglas 9,322 Decorative Window Coverings 370,000 Wegener Arcade NV 7,262 Newspaper 900,000 Scala Business Solutions GIC Units 6,888 50,000 Scala Business Solutions 371 95,775 Scala Business Solutions Warrants 3/31/99 122 95,775 Scala Business Solutions Warrants 3/31/01 106 Enterprise Software 290,000 DOCdata 4,923 Audio CD & CD-ROM Replication - ------------------------------------------------------------------------------- 82,611 Hungary: 0.2% 100,000 Pick Szeged 2,859 Salami Producer ----------- Europe: Total 907,576 - ------------------------------------------------------------------------------- Asia: 11.9% Hong Kong: 2.6% 14,050,000 Li and Fung 22,666 Sourcing of Consumer Goods 8,585,000 Varitronix International 16,675 LCD Manufacturer 10,310,000 Vanda Systems 452 Systems Integrator - ------------------------------------------------------------------------------- 39,793 India: 0.3% 80,000 Housing Development Finance 4,563 Mortgage Lender 2,000,000 Centurion Quantum Growth 302 Closed-End Fund - ------------------------------------------------------------------------------- 4,865 Japan: 4.3% 130,000 Nintendo 12,263 Video Games 125,000 Nidec 9,807 Spindle Motor Manufacturer 250,000 Fuji Software ABC 8,632 Computer Services/Consulting 85,000 Ryohin Keikaku 8,617 Designer & Retailer of Muji Brand Specialty Consumer Goods 390,000 Meitec 8,452 Engineers for Hire 390,000 Hokuto 6,590 Mushroom Grower 204,000 People 4,571 Sports Clubs 255,000 Noritsu Koki 3,840 Photo Processing Lab Manufacturer 271,500 Shinki 2,393 Corporate & Consumer Lending 207,000 Arrk Corporation 1,247 Industrial Modeling - ------------------------------------------------------------------------------- 66,412 Taiwan: 0.2% 965,616 Chroma Ate 2,486 Measuring Instruments Malaysia: 0.1% 1,595,000 Malaysian Oxygen 2,065 Industrial Gases Indonesia: 0.0% 2,126,000 Mustika Ratu 169 Traditional Cosmetics Philippines: 0.6% $8,750,000 Int'l Container Terminal Services Cv. 1.75% 3/13/04 6,212 79,260,000 Int'l Container Terminal Services 2,717 Container Handling Terminals & Port Management 215,000 Philippine Savings Bank 95 Banking - ------------------------------------------------------------------------------- 9,024 Singapore: 3.8% 7,500,000 Venture Manufacturing 23,149 Contract Electronics Manufacturer 5,875,000 Natsteel Electronics 12,903 Contract Electronics Manufacturer 4,400,000 Datacraft Asia 11,880 Network Integration 9,495,000 Star Cruises 9,186 Cruise Line 16,900,000 Genting International 1,183 Investment Holding - ------------------------------------------------------------------------------- 58,301 ----------- Asia: Total 183,115 - ------------------------------------------------------------------------------- Latin America: 4.4% Mexico: 2.4% 6,500,000 Grupo Industrial Bimbo 12,630 Bread, Baked Goods & Snacks 3,500,000 Kimberly Clark de Mexico 8,673 Paper Products
29 Acorn International Statement of Investments (unaudited)
Number of Shares Value (000) - -------------------------------------------------------------------------- 2,300,000 Grupo Continental $ 6,094 Beverages 3,100,000 Corp Interamericana de Entretenimiento 4,867 Special Events & Live Entertainment 8,940,000 Nadro, Series L 3,597 Pharmaceutical Distributor - -------------------------------------------------------------------------- 35,861 Brazil: 0.6% 470,000 Elevadores Atlas 4,878 Elevator Installation & Maintenance 220,000,000 Cemig Pfd 4,789 Electric Utility - -------------------------------------------------------------------------- 9,667 Argentina: 0.8% 500,000 IRSA GDS 10,750 Real Estate Management & Development 1,600,000 Siderca 1,920 Steel Pipe Producer - -------------------------------------------------------------------------- 12,670 Peru: 0.4% 6,500,000 Enrique Ferreyros 6,620 Heavy Machinery Dealer Panama: 0.2% 150,000 Banco Latinoamericano de Exportaciones 2,409 Trade Financing ---------- Latin America: Total 67,227 - -------------------------------------------------------------------------- Other Countries: 5.7% Australia/New Zealand: 1.3% 6,388,936 Tyndall Australia 7,985 Money Management & Insurance 3,070,000 AAPT 5,310 Telecommunications 2,500,000 Anaconda Nickel 4,109 Nickel Mining 873,000 Sky City (New Zealand) 2,054 Casino & Hotel 800,000 PetSec Energy 900 Oil & Gas Producer - -------------------------------------------------------------------------- 20,358 Canada: 2.2% 1,085,000 Shaw Industries 8,211 Oil Field Services 395,000 Power Financial 7,311 Financial Services Holding Company 510,000 Celestica 6,433 Contract Electronics Manufacturer 580,000 LGS Group 4,769 Computer Systems Integration 4,000,000 Dundee Realty 3,800 Real Estate 805,000 Bracknell 2,532 Electrical Contractor & Facilities Management - -------------------------------------------------------------------------- 33,056 Israel: 0.6% 350,000 Blue Square Israel ADR 4,528 Supermarkets & Department Stores 100,000 Orbotech 3,219 Printed Circuit Board Manufacturing Equipment 165,000 Amdocs 1,867 Telecommunications Billing & Customer Care Software - -------------------------------------------------------------------------- 9,614 South Africa: 0.5% 870,000 Persetel Q Data 7,243 Network & Computer Systems 500,000 Energy Africa 910 Oil & Gas Producer - -------------------------------------------------------------------------- 8,153 Russia: 0.1% $1,500,000 Khanty Mansiysk 10% Notes 1,000 195 Khanty Mansiysk 58 Oil Production in Russia - -------------------------------------------------------------------------- 1,058 United States: 1.0% 322,000 Carnival 10,244 Largest Cruise Line 128,000 AES Corporation 4,744 Electric Generating Plants - -------------------------------------------------------------------------- 14,988 ---------- Other: Total 87,227 Total Common Stocks and Other ---------- Equity-Like Securities: 81.0% 1,245,145 ---------- Short-Term Obligations: 18.2% 280,504 ---------- Total Investments: 99.2% 1,525,649 ---------- Cash and Other Assets Less Liabilities: 0.8% 12,040 ---------- Total Net Assets: 100% $1,537,689 ==========================================================================
30 Acorn International Portfolio Diversification At September 30, 1998, the Fund's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - --------------------------------------------------------- Information Computer Services $ 220,777 14.4% Publishing 53,999 3.5 Contract Manufacturing 40,975 2.7 CATV 24,663 1.6 Computer Hardware 20,269 1.3 Business Information 15,397 1.0 Instrumentation 12,873 0.8 Radio 10,066 0.7 Business Software 9,078 0.6 Advertising 7,802 0.5 Computer Systems 5,316 0.3 Telephone Services 5,310 0.3 Marketing 4,867 0.3 - --------------------------------------------------------- 431,392 28.0 Health Care Hospital Management 31,919 2.1 Pharmaceuticals 27,458 1.8 Hospital/Laboratory Supplies 15,229 1.0 Services 9,292 0.6 - --------------------------------------------------------- 83,898 5.5 Consumer Goods/Services Retail 48,399 3.1 Food 36,394 2.4 Consumer Services 25,586 1.7 Entertainment 24,294 1.6 Restaurants 23,823 1.5 Nondurables 23,598 1.5 Durable Goods 19,414 1.3 Beverages 17,290 1.1 Travel 14,643 0.9 Furniture & Textiles 12,326 0.8 Consumer Software 12,263 0.8 Cruise Lines 10,244 0.7 Consumer Goods Distribution 8,805 0.6 Leisure Products 7,323 0.5 Casinos 3,455 0.2 - --------------------------------------------------------- 287,857 18.7 Finance Insurance $ 30,038 2.0% Money Management 29,892 1.9 Banks 28,573 1.9 Brokerage 18,460 1.1 Finance Companies 6,956 0.5 Closed-End Funds 4,673 0.3 - --------------------------------------------------------- 118,592 7.7 Industrial Goods/Services Outsourcing Services 104,126 6.8 Electrical Components 57,890 3.8 Machinery Processing 31,375 2.0 Industrial Services 17,897 1.2 Conglomerates 6,936 0.5 Specialty Chemicals 2,065 0.1 Steel 1,920 0.1 - --------------------------------------------------------- 222,209 14.5 Energy/Minerals Oil Services 8,211 0.5 Oil/Gas Producers 7,489 0.5 Independent Power 4,744 0.3 Non-Ferrous Metals 4,109 0.3 - --------------------------------------------------------- 24,553 1.6 Other Industries Transportation 30,413 2.0 Real Estate 23,236 1.5 Waste Management 17,962 1.2 Regulated Utilities 5,033 0.3 - --------------------------------------------------------- 76,644 5.0 Total Common Stocks and Other Equity-Like Securities 1,245,145 81.0 ========================================================= Short-Term Obligations 280,504 18.2 Total Investments 1,525,649 99.2 ========================================================= Cash and Other Assets less Liabilities 12,040 0.8 ---------------------- Net Assets $1,537,689 100.0% =========================================================
31 The Acorn - ------------------------- Family of Funds Trustees Irving B. Harris Chairman James H. Lorie Vice Chairman Leo A. Guthart Jerome Kahn, Jr. David C. Kleinman Charles P. McQuaid Roger S. Meier Adolph Meyer, Jr. Ralph Wanger Officers Ralph Wanger President Marcel P. Houtzager Vice President Kenneth A. Kalina Assistant Treasurer Merrillyn J. Kosier Senior Vice President and Secretary Bruce H. Lauer Vice President and Treasurer Charles P. McQuaid Senior Vice President Robert A. Mohn Vice President John H. Park Vice President Mark H. Yost Vice President Leah J. Zell Vice President Investment Advisor Wanger Asset Management, L.P. 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) e-mail: acorn@wanger.com Web site: www.acornfunds.com Distributor WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, Massachusetts 02266-8502 Transfer Agent, Dividend Disbursing Agent and Custodian State Street Bank and Trust Company Attention: Acorn Family of Funds P.O. Box 8502 Boston, Massachusetts 02266-8502 1-800-962-1585 Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois This report, including the unaudited schedules of investments, 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. 32 Wanger Asset Management, L.P. ("WAM") is one of the leading global small-cap equity managers in the U.S., with over 28 years of small- to mid-cap investment experience. WAM manages over $6 billion in equities and is also the investment advisor for Wanger Advisors Trust, and separately managed accounts for institutions and high net worth individuals. The Acorn - ------------------------ Family of Funds WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, MA 02266-8502 -----END PRIVACY-ENHANCED MESSAGE-----