-----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, DEuU47DZFd4zptAfiYLmDws2wTh3gSADhqWJGB3zUBg527AQbhckh9EFTHKBp1d9 HmkTrXPSLspgTqJSQZOr2g== 0000950131-99-001169.txt : 19990301 0000950131-99-001169.hdr.sgml : 19990301 ACCESSION NUMBER: 0000950131-99-001169 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19990226 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: 485APOS SEC ACT: SEC FILE NUMBER: 002-34223 FILM NUMBER: 99551529 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-01829 FILM NUMBER: 99551530 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 485APOS 1 POST EFFECTIVE AMENDMENT NO. 64 Securities Act registration no 2-34223 Investment Company Act file no. 811-1829 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A ______________________________ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 64 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 39 ______________________________ ACORN INVESTMENT TRUST (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ______________________________ Ralph Wanger Janet D. Olsen Acorn Investment Trust Bell, Boyd & Lloyd 227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300 Chicago, Illinois 60606 Chicago, Illinois 60602 (Agents for service) _____________________________ Amending Parts A, B, and C, and filing exhibits ______________________________ It is proposed that this filing will become effective: [_] immediately upon filing pursuant to rule 485(b) [_] on pursuant to rule 485(b) [_] 60 days after filing pursuant to rule 485(a)(1) [X] on May 1, 1999 pursuant to rule 485(a)(1) [_] 75 days after filing pursuant to rule 485(a)(2) [_] on ___________ pursuant to rule 485(a)(2). The Acorn Family of Funds Acorn Fund Acorn International Acorn USA Acorn Twenty Acorn Foreign Forty 100% No-Load Funds PROSPECTUS May 1, 1999 The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Acorn Family of Funds --------------- 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) - -------------------------------- ACORN FUND CONTENTS At a Glance (FUND OBJECTIVE, RISKS, FEES AND EXPENSES).......... 3 Acorn Fund................................................. 3 Acorn International........................................ 6 Acorn USA.................................................. 10 Acorn Twenty............................................... 14 Acorn Foreign Forty........................................ 17 Management of the Funds......................................... 20 How the Funds Invest............................................ 22 The Acorn Philosophy....................................... 22 Fund Investments........................................... 23 Managing Risk.............................................. 25 Investing with Acorn....................................... 26 Year 2000.................................................. 26 How to Buy Shares.......................................... 28 How to Sell Shares......................................... 31 Shareholder and Account Policies................................ 32 Statements and Reports..................................... 32 Share Price................................................ 33 Address Changes............................................ 33 Telephone Transactions..................................... 34 Telephone Exchange and Money Market Funds.................. 34 Exchange Plan Restrictions................................. 35 Authorized Agents.......................................... 35 Dividends, Capital Gains and Taxes.............................. 36 Distribution Options....................................... 36 Taxes...................................................... 36 Foreign Income Taxes....................................... 37 Fund Service Providers.......................................... 37 Transfer Agent and Custodian............................... 37 Distributor................................................ 37 Financial Highlights............................................ 38 2 ACORN FUND AT A GLANCE FUND OBJECTIVE Acorn Fund seeks to provide long-term growth of capital. The Fund is a diversified mutual fund that invests primarily in the stocks of small- and medium-size companies. INVESTMENT STRATEGY Acorn Fund generally invests in the stocks of companies around the globe with capitalizations of less than $1 billion with the intention of holding them as they grow and selling them when they become large. The Fund believes that these smaller, less profiled companies may offer higher return potential than the stocks of large companies. Acorn Fund typically looks for the stocks of companies with: . Companies with a strong business franchise that offer growth potential. . Products and services that give them a competitive advantage. . A strong balance sheet and solid management. . A reasonable stock price relative to the assets and earning power of the Company. Acorn Fund is a global fund. It invests the majority of its assets in U.S. companies, but also invests a portion of its holdings in companies outside of the U.S. *RISKS OF INVESTING IN ACORN FUND Smaller company stocks are often more volatile or less liquid than the stocks of larger companies. You could lose money on your investment in the Fund, or the Fund could underperform other investments if any of the following occurs: . The stock market goes down. . Small- to mid-cap stocks trail returns of the overall market. . The stocks selected for the portfolio do not perform as expected. Investments in foreign securities may have special risks in addition to those mentioned above, including: . Political or economic instability . Higher transaction costs . Currency exchange rate fluctuations YOU MAY WANT TO INVEST IF YOU: . Are seeking to complement your existing equity holdings with a global growth fund. . Are seeking a stock fund that emphasizes the less-profiled stocks of small- to medium-sized companies. . Are seeking growth of your capital over the long-term (at least 5 years.) YOU MAY NOT WANT TO INVEST IF YOU: . Are seeking a significant amount of current dividend income. . Are unwilling to accept short-term fluctuations in share price. . Have short-term investment goals or needs. 3 ACORN FUND ACORN FUND PERFORMANCE The chart and table below illustrate annual Fund returns on a $10,000 investment for each of the past 10 years as well as a comparison of returns of Acorn Fund, the S&P 500 and the Russell 2000 for the 1-, 5- and 10-year periods ended 12/31/1998. This information is intended to help you assess the variability of Fund returns over the past 10 years (and consequently the potential rewards and risks of a Fund investment). Acorn Fund's holdings are not identical to the S&P 500, the Russell 2000 or any other market index. Therefore, the performance of the Fund will not mirror the returns of any particular index. [Insert Bar chart] 12/31/89 24.84% 12/31/90 -17.52% 12/31/91 47.35% 12/31/92 24.23% 12/31/93 32.32% 12/31/94 -7.45% 12/31/95 20.80% 12/31/96 22.55% 12/31/97 24.98% 12/31/98 6.02%
For the 10 years ended 12/31/1998, Acorn Fund's highest and lowest quarterly returns were 19.3% and -23.8%, respectively, for the quarters ended 3/31/91 and 9/30/90. The Fund's past performance is not an indication of future performance.
Average Annual Total Returns for Periods Ended 12/31/1998 - ----------------------------------------------- 1 Year 5 Years 10 Years - ----------------------------------------------- Acorn Fund 6.0 12.7 16.3 - ----------------------------------------------- S&P 500* 28.6 24.1 19.2 - ----------------------------------------------- Russell 2000* -2.6 11.9 12.9 - -----------------------------------------------
*The S&P 500 Index is a broad market-weighted average of U.S. blue-chip companies. The Russell 2000 Index is a market capitalization-weighted index of small companies, formed by taking the largest 3,000 companies and eliminating the largest 1,000 companies. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Paid directly from your investment: As noted in this table, you do not pay fees of any kind when you buy, sell, or redeem shares of Acorn Fund. Maximum sales charge None Deferred sales charge None Exchange fee None Redemption fee None ANNUAL FUND OPERATING EXPENSES Deducted from fund assets: Operating expenses include investment advisory fees and the costs of maintaining accounts, providing shareholder services and other activities. Management Fee .69% 12b-1 Fee None Other Expenses .15% ----- Total annual fund operating expenses .84% EXAMPLE. This example is intended to help you compare the cost of investing in the Fund with the costs of investing in other mutual funds. It assumes you invest $10,000 in the Fund for the time period indicated ending on December 31, 1998, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower. 1 Year $ 86 3 Years $ 268 5 Years $ 466 10 Years $1,037 4 ACORN FUND - -------------------------------------------------------------------------------- INVESTMENT ADVISER: Wanger Asset Management PORTFOLIO MANAGERS: Ralph Wanger (lead portfolio manager) and Charles McQuaid (co-portfolio manager) INCEPTION DATE: June 10, 1970 NET ASSETS AS OF 3/31/99: $#,###,### DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December. PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99: LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None MINIMUM INITIAL INVESTMENT: $1,000 ACORN FUND NUMBER: 90 CUSIP NUMBER: 004851101 TICKER SYMBOL: ACRNX - -------------------------------------------------------------------------------- 5 ACORN INTERNATIONAL AT A GLANCE FUND OBJECTIVE Acorn International seeks to provide long-term growth of capital. The Fund is a diversified mutual fund that invests primarily in stocks of non-U.S. small- and medium-size companies. INVESTMENT STRATEGY Acorn International generally invests in the stocks of companies based outside of the U.S. (or whose primary business takes place outside of the U.S.) with capitalizations of less than $1 billion with the intention of holding them as they grow and selling them when they become large. The Fund believes that these smaller, less profiled companies - particularly outside of the U.S. - may offer higher return potential than the stocks of large companies. Acorn International typically looks for the stocks of companies with: . Companies with a strong business franchise that offer growth potential. . Products and services that give them a competitive advantage. . A strong balance sheet and solid management. . A reasonable stock price relative to the assets and earning power of the Company. Acorn International is an international fund and invests the majority (under normal market conditions, at least 75%) of its total assets in the stocks of foreign companies based outside the U.S. * RISKS OF INVESTING IN ACORN INTERNATIONAL Smaller company stocks are often more volatile or less liquid than the stocks of larger companies. You could lose money on your investment in the Fund, or the Fund could underperform other investments if any of the following occurs: . International stock markets go down. . Foreign small- to mid-cap stocks trail returns of the overall market. . The stocks selected for the portfolio do not perform as expected. Investments in foreign securities may have special risks in addition to those mentioned above, including: . Political or economic instability . Higher transaction costs . Currency exchange rate fluctuations YOU MAY WANT TO INVEST IF YOU: . Are seeking to diversify your existing equity holdings with a fund that invests in the stocks of companies outside the U.S. . Are seeking a stock fund that emphasizes the less-profiled stocks of small- to medium-sized companies. . Are seeking growth of your capital over the long-term (at least 5 years.) YOU MAY NOT WANT TO INVEST IF YOU: . Are seeking a significant amount of current dividend income. . Are unwilling to accept short-term fluctuations in share price. . Have short-term investment goals or needs. 6 ACORN INTERNATIONAL ACORN INTERNATIONAL PERFORMANCE The chart and table below illustrate annual fund returns on a $10,000 investment for the past 6 years as well as a comparison of returns of Acorn International, EAFE and EMI for the periods listed. This information is intended to help you assess the variability of Fund returns for the life of the Fund (and consequently the potential rewards and risks of a Fund investment). Acorn International's holdings are not identical to the EAFE, the EMI or any other market index. Therefore, the performance of the Fund will not mirror the returns of any particular index.
DATE RETURN - -------- ------- 12/31/93 49.11% 12/31/94 -3.80% 12/31/95 8.93% 12/31/96 20.65% 12/31/97 0.19% 12/31/98 15.43%
As of 12/31/1998, the Fund's highest and lowest quarterly returns were 18.2% and - - 16.1%, respectively, for the quarters ended 3/31/98 and 9/30/98. The Fund's past performance is not an indication of future performance.
Average Annual Total Returns for Periods Ended 12/31/1998 - ----------------------------------------------------- 1 Year 5 Years Since Inception* - ----------------------------------------------------- Acorn Int'l 15.4 7.9 14.5 - ----------------------------------------------------- EAFE+ 20.0 9.2 11.5 - ----------------------------------------------------- EMI (World ex-U.S.)+ 12.2 4.5 7.4 - -----------------------------------------------------
*Acorn International's inception 9/23/1992. Beginning date for EAFE is 9/30/1992. +Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an unmanaged index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada. EMI (World ex-U.S.) is Salomon Brothers' index of the bottom 20% of institutionally investable capital of countries, selected by Salomon and excluding the U.S. 7 ACORN INTERNATIONAL FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Paid directly from your investment: As noted in this table, you do not pay fees of any kind when you buy, sell, or redeem shares of Acorn International. Maximum sales charge None Deferred sales charge None Exchange fee None Redemption fee None ANNUAL FUND OPERATING EXPENSES Deducted from fund assets: Operating expenses include investment advisory fees and the costs of maintaining accounts, providing shareholder services and other activities. Management fee .82% 12b-1 fee None Other expenses .30% ----- Total annual fund operating expenses 1.12% EXAMPLE. This example is intended to help you compare the cost of investing in the fund with the costs of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated ending on December 31, 1998, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower. 1 Year $ 114 3 Years $ 356 5 Years $ 617 10 Years $1,363 8 ACORN INTERNATIONAL - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION INVESTMENT ADVISER: Wanger Asset Management PORTFOLIO MANAGER: Leah Zell (lead portfolio manager), Margaret Forster (co-portfolio manager) INCEPTION DATE: September 23, 1992 NET ASSETS AS OF 3/31/99: DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December. PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99: LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None MINIMUM INITIAL INVESTMENT: $1,000 ACORN FUND NUMBER: 100 CUSIP NUMBER: 004851200 TICKER SYMBOL: ACINX - -------------------------------------------------------------------------------- 9 ACORN USA AT A GLANCE FUND OBJECTIVE Acorn USA seeks to provide long-term growth of capital. The Fund is a diversified mutual fund that invests primarily in stocks of small- and medium- size U.S. companies. INVESTMENT STRATEGY Acorn USA generally invests in the stocks of U.S. companies with capitalizations of less than $1 billions with the intention of holding them as they grow and selling them when they become large. The Fund believes that these smaller, less profiled companies may offer higher return potential than the stocks of large companies. Acorn USA typically looks for the stocks of companies with: . Companies with a strong business franchise that offer growth potential. . Products and services that give them a competitive advantage. . A strong balance sheet and solid management. . A reasonable stock price relative to the assets and earning power of the company. * RISKS OF INVESTING IN ACORN USA Smaller company stocks are often more volatile or less liquid than the stocks of larger companies. You could lose money on your investment in the Fund, or the Fund could underperform other investments if any of the following occurs: . The stock market goes down. . Small- to mid-cap stocks trail returns of the overall market. . The stocks selected for the portfolio do not perform as expected. YOU MAY WANT TO INVEST IF YOU: . Are seeking to complement your existing domestic equity holdings with an aggressive growth fund. . Are seeking a stock fund that emphasizes the less-profiled stocks of small- to medium-sized companies. . Are seeking growth of your capital over the long-term (at least 5 years.) YOU MAY NOT WANT TO INVEST IF YOU: . Are seeking a significant amount of current dividend income. . Are unwilling to accept short-term fluctuations in share price. . Have short-term investment goals or needs. 10 ACORN USA ACORN USA PERFORMANCE The chart and table below illustrate annual fund returns on a $10,000 investment for the past two years as well as a comparison of returns of Acorn USA and the Russell 2000 for the periods listed. This information is intended to help you assess the variability of Fund returns over the life of the Fund (and consequently the potential rewards and risks of a Fund investment.) Acorn USA's holdings are not identical to the Russell 2000 or any other market index. Therefore, the performance of the Fund will not mirror the returns of any particular index.
Date Return - ------------------------------- 12/31/97 32.30% 12/31/98 5.79%
As of 12/31/1998, the Fund's highest and lowest quarterly returns were 16.0% and - -19.25%, respectively, for the quarters ending 6/30/97 and 9/30/98. The Fund's past performance is not an indication of future performance. Average Annual Total Returns for Periods Ended 12/31/1998
- ---------------------------------------------- 1 Year Since Inception* - ---------------------------------------------- Acorn USA 5.8 23.5 - ---------------------------------------------- Russell 2000+ -2.6 12.0 - ----------------------------------------------
*Acorn USA's inception on 9/4/1996. +The Russell 2000 Index is a market capitalization-weighted index of small companies, formed by taking the largest 3,000 companies and eliminating the largest 1,000 companies. 11 ACORN USA FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Paid directly from your investment: As noted in this table, you do not pay fees of any kind when you buy, sell, or redeem shares of Acorn USA. Maximum sales charge None Deferred sales charge None Exchange fee None Redemption fee None ANNUAL FUND OPERATING EXPENSES Deducted from fund assets: Operating expenses include investment advisory fees and the costs of maintaining accounts, providing shareholder services and other activities. Management fee .94% 12b-1 fee None Other expenses .26% -------- Total annual fund operating expenses 1.20% -------- EXAMPLE. This example is intended to help you compare the cost of investing in the fund with the costs of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated ending on December 31, 1998, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower. 1 Year $ 122 3 Years $ 381 5 Years $ 660 10 Years $1,455 12 ACORN USA - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION INVESTMENT ADVISER: Wanger Asset Management PORTFOLIO MANAGER: Robert Mohn INCEPTION DATE: September 4, 1996 NET ASSETS AS OF 3/31/99: DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December. PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99: LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None MINIMUM INITIAL INVESTMENT: $1,000 ACORN FUND NUMBER: 820 CUSIP NUMBER: 004851309 TICKER SYMBOL: AUSAX - -------------------------------------------------------------------------------- 13 ACORN TWENTY AT A GLANCE FUND OBJECTIVE Acorn Twenty seeks long-term growth of capital. The Fund invests primarily in the stocks of medium- to larger-size U.S. companies. INVESTMENT STRATEGY Acorn Twenty is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of companies (between 20-25) with market capitalizations of $1 billion to $10 billion. The performance of each holding may have a greater impact on the Fund's total return offering the potential to provide above average growth over time. The Fund believes that companies within this capitalization range are less profiled, and may offer higher return potential, than the stocks of companies with capitalizations above $10 billion. Acorn Twenty typically looks for the stocks of companies with: . Companies with a strong business franchise that offer growth potential . Products and services that give them a competitive advantage . . A strong balance sheet and solid management. . A reasonable stock price relative to the assets and earning power of the company. * RISKS OF INVESTING IN ACORN TWENTY Acorn Twenty is a non-diversified fund. Therefore, each stock may represent a significant part of its overall portfolio. Acorn Twenty is designed for investors who are willing to accept the potentially greater price fluctuations of a non-diversified fund. You could lose money on your investment in the Fund, or the Fund could underperform other investments if any of the following occurs: . The stock market goes down. . Mid-cap stocks trail returns of the overall market. . The stocks selected for the portfolio do not perform as expected. YOU MAY WANT TO INVEST IF YOU: . Are seeking to complement your existing domestic equity holdings with a focused stock fund that offers higher return potential. . Are seeking a stock fund that emphasizes the less profiled stocks of medium-to-larger sized companies. . Are seeking growth of your capital over the long-term (at least 5 years.) YOU MAY NOT WANT TO INVEST IF YOU: . Are seeking a significant amount of current dividend income. . Are unwilling to accept short-term fluctuations in share price. . Have short-term investment goals or needs. 14 ACORN TWENTY FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Paid directly from your investment: As noted in this table, you do not pay fees of any kind when you buy, sell, or redeem shares of Acorn Twenty. Maximum sales charge None Deferred sales charge None Exchange fee None Redemption fee None ANNUAL FUND OPERATING EXPENSES Deducted from fund assets: Operating expenses include investment advisory fees and the costs of maintaining accounts, providing shareholder services and other activities. Management Fee .90% 12b-1 Fee None Other Expenses .93% ---- Total annual fund operating expenses (gross)+ 1.83% - ------------------- + WAM has undertaken to limit Acorn Twenty's annual expenses to 1.35% of its average daily net assets. For the period from commencement of operations on November 23, 1998 through December 31, 1998, the reduction in the Fund's expenses was represented by an advisory fee reimbursement of .42% of the Fund's average daily net assets and an earnings credit for cash balances maintained with the custodian of .06% of the Fund's daily net assets. EXAMPLE. This example is intended to help you compare the cost of investing in the fund with the costs of investing in other mutual funds. It assumes you invest $10,000 in the Fund for the time period indicated ending on December 31, 1998, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower. 1 Year $186 3 Years $576 15 ACORN TWENTY - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION INVESTMENT ADVISER: Wanger Asset Management PORTFOLIO MANAGERS: John Park, Mark Yost INCEPTION DATE: November 23, 1998 NET ASSETS AS OF 3/31/99: DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December. PORTFOLIO'S EXPENSES RATIO FOR PERIOD ENDED 3/31/99: LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None MINIMUM INITIAL INVESTMENT: $1,000 ACORN FUND NUMBER: 149 CUSIP NUMBER: 004851408 TICKER SYMBOL: ACTWX - -------------------------------------------------------------------------------- 16 ACORN FOREIGN FORTY AT A GLANCE FUND OBJECTIVE Acorn Foreign Forty seeks long-term growth of capital. The Fund invests primarily in the stocks of medium- to larger-size companies based in developed markets outside the U.S. The Fund invests in at least three countries. INVESTMENT STRATEGY Acorn Foreign Forty is a non-diversified fund that takes advantage of its advisor's research and stock-picking capabilities to invest in a limited number of foreign companies (between 40-60) with market of $1 billion to $10 billion. The performance of each holding may have a greater impact on the Fund's total return offering the potential to provide above average growth over time. The Fund believes that companies within this capitalization range are less profiled, and may offer higher return potential, than the stocks of companies with capitalizations above $10 billion. Acorn Foreign Forty typically looks for the stocks of companies with: . Companies with a strong business franchise that offer growth potential . Products and services that give them a competitive advantage. . A strong balance sheet and solid management. . A reasonable stock price relative to the assets and earning power of the company. Acorn Foreign Forty is an international fund and invests the majority of its assets in the stocks of foreign companies based in developed markets outside the U.S. * RISKS OF INVESTING IN ACORN FOREIGN FORTY Acorn Foreign Forty is a non-diversified fund that ordinarily holds 40 to 60 stocks. The Fund takes larger positions in some of its stocks than others. The performance of each of these larger holdings will have a greater impact on the Fund's total returns, and may make the Fund's returns more volatile in the short-term than a more diversified international fund. You could lose money on your investment in the Fund, or the Fund could underperform other investments if any of the following occurs: . International stock markets go down. . Foreign small- to mid-cap stocks trail returns of the overall market. . The stocks selected for the portfolio do not perform as expected. Investments in foreign securities may have special risks in addition to those mentioned above, including: . Political or economic instability. . Higher transaction costs. . Currency exchange rate fluctuations. YOU MAY WANT TO INVEST IF YOU: . Are seeking to complement your existing equity holdings with an international stock fund that offers higher return potential. . Are seeking a stock fund that emphasizes the less-profiled stocks of medium-to-larger sized companies. . Are seeking growth of your capital over the long-term (at least 5 years.) YOU MAY NOT WANT TO INVEST IF YOU: . Are seeking a significant amount of current dividend income. . Are unwilling to accept short-term fluctuations in share price. . Have short-term investment goals or needs. 17 ACORN FOREIGN FORTY FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES Paid directly from your investment: As noted in this table, you do not pay fees of any kind when you buy, sell, or redeem shares of Acorn Fund. Maximum sales charge None Deferred sales charge None Exchange fee None Redemption fee None ANNUAL FUND OPERATING EXPENSES Deducted from fund assets: Operating expenses include investment advisory fees and the costs of maintaining accounts, providing shareholder services and other activities. Management fee .95% 12b-1 fee None Other expenses 1.75% Total annual fund operating ---- expenses (gross)+ 2.70% - ------------------- + WAM has undertaken to limit Acorn Foreign Forty's annual expenses to 1.45% of its average net assets. For the period from commencement of operations on November 23, 1998 through December 31, 1998, the reduction in the Fund's expenses was represented by an advisory fee reimbursement of .97% of the Fund's average daily net assets and an earnings credit for cash balances maintained with the custodian of .28% of the Fund's daily net assets. EXAMPLE. This example is intended to help you compare the cost of investing in the fund with the costs of investing in other mutual funds. It assumes you invest $10,000 in the fund for the time period indicated, earn a 5% return each year, and that operating expenses remain constant. Your actual returns and costs may be higher or lower. 1 Year $273 3 Years $838 18 ACORN FOREIGN FORTY - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION INVESTMENT ADVISER: Wanger Asset Management PORTFOLIO MANAGER: Marcel Houtzager (lead portfolio manager) INCEPTION DATE: November 23, 1998 NET ASSETS AS OF 3/31/99: DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December. PORTFOLIO'S EXPENSES RATIO FOR PERIOD ENDED 3/31/99: LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None MINIMUM INITIAL INVESTMENT: $1,000 ACORN FUND NUMBER: 163 CUSIP NUMBER: 004851507 TICKER SYMBOL: ACFFX - -------------------------------------------------------------------------------- 19 MANAGEMENT OF THE FUNDS The Acorn Family of Funds is managed by WANGER ASSET MANAGEMENT, L.P. (WAM), 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. WAM chooses the funds' investments and handles their business affairs under the direction of the board of trustees. WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd. WAM manages more than $7 billion in assets. WAM uses a team approach when managing the funds. The management teams consist of a lead portfolio manager (or co-managers), other WAM portfolio managers, and research analysts. Team members share responsibility for providing ideas, information, and knowledge in managing the funds, and each team member has one or more particular areas of expertise. The lead portfolio manager and co- managers are responsible for making daily portfolio selection decisions, and utilize the management team's input and advice when making buy and sell determinations. PORTFOLIO MANAGERS RALPH WANGER Lead portfolio manager, Acorn Fund. Ralph Wanger is chief strategist of the Acorn Family of Funds and has been involved in managing all of the funds and developing their investment strategies since each fund began. He has been president and a member of the board of trustees of Acorn Investment Trust ("Acorn") since 1970, and is a principal of WAM. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees in Industrial Management from the Massachusetts Institute of Technology. CHARLES P. MCQUAID Co-portfolio manager, Acorn Fund. Charles P. McQuaid is a senior vice president and member of Acorn's board of trustees, and is the director of research and a principal of WAM. Mr. McQuaid went to work for Acorn in 1978. He is a CFA, and earned his BBA from the University of Massachusetts and his MBA from the University of Chicago. LEAH J. ZELL Lead portfolio manager, Acorn International. Leah Zell is a vice president of Acorn, and a principal of WAM. She has managed Acorn International since its inception in 1992, and was named lead portfolio manager in 1997. She has worked with Acorn Fund's international securities since 1984. Ms. Zell also manages the foreign portfolio of an investment company whose shares are offered only to non- U.S. investors. She is a CFA and earned her BA from Radcliffe and PhD from Harvard University. MARGARET M. FORSTER Co-portfolio manager, Acorn International. Margaret Forster is a vice president of Acorn. She has been a key member of the international analytical team since 1994 and a principal of WAM since January 1999. Before joining WAM, Ms. Forster was a professor of finance at Northwestern and Ohio State Universities, and an economist with the International Monetary Fund. She is a CFA. Her degrees include a BA from Universidade de Sao Paulo, Escola Politecnica, and an MBA, MS and PhD from Cornell University. ROBERT A. MOHN Lead portfolio manager, Acorn USA. Robert Mohn is a vice president of Acorn. He has been a key member of WAM's domestic analytical team since 1992, and a principal of WAM since 1995. He has managed Acorn USA since its inception in 1996, and also manages the mutual fund portfolio for WAM's variable annuity product and the U.S. portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA, and holds a BS from Stanford University and an MBA from the University of Chicago. 20 MANAGEMENT OF THE FUNDS MARCEL P. HOUTZAGER Lead portfolio manager, Acorn Foreign Forty. Marcel Houtzager is a vice president of Acorn, and has managed Acorn Foreign Forty since its inception in 1998. He has been a key member of WAM's international analytical team since 1992, and a principal of WAM since 1995. Mr. Houtzager also manages the foreign portfolio for WAM's variable annuity product and the foreign portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and a CPA, and earned his BA from Pomona College and his MBA from the University of California at Berkeley. JOHN H. PARK Co-portfolio manager, Acorn Twenty. John Park is a vice president of Acorn, and has co-managed Acorn Twenty since its inception in 1998. He has been a key member of WAM's domestic investment team since 1993, and a principal of WAM since 1998. Mr. Park also manages the mutual fund portfolio for WAM's variable annuity product. He is a CFA and earned both his BA and MBA degrees from the University of Chicago. MARK H. YOST Co-portfolio manager, Acorn Twenty. Mark Yost is a vice president of Acorn, and has co-managed Acorn Twenty since its inception in 1998. He has been a key member of WAM's domestic investment team since 1995. Before joining WAM, Mr. Yost was an investment analyst for First Chicago Corporation. Mr. Yost also manages the WAM Yost Partnership, L.P., a smaller company focused limited partnership, the mutual fund portfolio for WAM's variable annuity product, and the portfolio of an investment company whose shares are offered only to non-U.S. investors. He is a CFA and earned his BA from St. Olaf College and his MBA from the University of Chicago. MANAGEMENT FEES WAM earns the following fees for managing the Acorn Family of Funds: Fee as a % of Average Net Assets (12/31/98) ---------- Fund ---- Acorn Fund .69% Acorn .82% International Acorn USA .94% Acorn Twenty .90% Acorn Foreign .95% Forty WAM also receives an administrative services fee from each fund equal to .05% of that fund's average net assets. 21 THE ACORN INVESTMENT PHILOSOPHY THE INFORMATION EDGE WAM has built a reputation on innovative thinking and unconventional stock picks. We rely primarily on our independent, internally-generated research to uncover companies that may be less profiled than the more popular names. This is where WAM adds the greatest value to Acorn shareholders. WAM's research process is constantly uncovering quality companies that exhibit exciting characteristics-companies that rest on a solid tripod of growth potential, financial strength and fundamental value.
- -------------------------------------------------------------------------------- Growth Potential Financial Strength Fundamental Value - ---------------------------------------------------------------------------------------------- . superior technology . stability . lower stock price . innovative marketing . reduced risk relative to . solid management . competitive advantage growth potential . strategic or niche position and capitalization . superior earnings prospects . growth at a . fast growing economy reasonable price . The realization of this . A strong balance sheet . Once we uncover a great growth potential would likely gives management greater company, we identify a price produce superior performance flexibility to pursue that we believe would also that is sustainable over time. strategic objectives and is make the stock a good value. essential to maintaining a competitive advantage. - ----------------------------------------------------------------------------------------------
STOCK STRENGTH COMES FIRST WAM primarily follows a "bottom-up" approach to portfolio construction, placing greater emphasis on the merits of each individual stock. Our analysts continually screen companies, including making over 1,000 face-to-face visits around the globe each year. We want to know everything we can about each Acorn investment to avoid surprises. To accomplish this, our analysts talk directly to top management whenever possible. Sometimes, WAM's analysts will use a "top-down" investment approach to generate ideas for new investments. This approach is broader in scope than a bottom-up approach. Here, the analytical teams identify current investment themes, or trends, and set regional and industry allocations. We believe that our thorough research helps us maintain lower taxes and transaction costs. In managing the funds, we try to reduce these costs by investing with a long-term time horizon (at least 2-5 years). Occasionally, however, securities purchased on a long-term basis may be sold within 12 months after purchase in light of a change in the circumstances of a particular company or industry, or in general market or economic conditions. 22 FUND INVESTMENTS COMMON STOCKS The Acorn funds invest mostly in common stocks. Common stocks represent an equity (ownership) interest in a corporation. The funds may also invest in other types of equity securities, including preferred stocks and stocks that are convertible into common stocks. Acorn Fund, Acorn International and Acorn USA invest mainly in the common stocks of small and medium-size companies, with market capitalizations of less than $1 billion. Acorn Twenty and Acorn Foreign Forty invest mostly in the stocks of companies with market capitalizations of $1-$10 billion. FOREIGN SECURITIES Acorn International and Acorn Foreign Forty invest most of their assets in non- U.S. securities. Acorn Fund has significant foreign investments, although most of its assets are invested in the U.S. Acorn USA and Acorn Twenty invest most of their assets in the U.S., and only intend to invest a part of their assets overseas under certain circumstances (see Portfolio Allocation below). The foreign securities in which the funds invest are similar to U.S. common stocks. These include American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and other securities underlying shares of foreign issuers. PORTFOLIO ALLOCATION Under normal conditions, the funds' common stock investments (as a percentage of total assets) are limited by the following maximum allocations: Acorn Fund . 100% in U.S. companies . 33% in non-U.S. companies Acorn International . 100% in non-U.S. companies . 25% in U.S. companies Acorn Usa . 100% in U.S. companies . 10% in non-U.S. companies. Acorn Twenty . 100% in U.S. companies . 15% in non-U.S. companies. (Acorn Twenty will normally only invest in a non-U.S. company whose operations are primarily located within the U.S.) Acorn Foreign Forty . 100% in non-U.S. companies . 15% in U.S. companies. (Acorn Foreign Forty will normally only invest in a U.S. company whose operations are primarily located outside of the U.S.) ACORN'S BOARD OF TRUSTEES MAY CHANGE EACH FUND'S INVESTMENT OBJECTIVE WITHOUT SHAREHOLDER APPROVAL. 23 SUMMARIZING RISK When you invest in a mutual fund, you are exposed to certain risks. These include the risk that you may receive little or no return on your investment, or that you may even lose part or all of your investment. Investments that provide higher potential reward also present greater risk. You can lose money by investing in a fund. Likewise, investments with lower potential reward have lower risk. Before investing in one of the Acorn funds, you should carefully consider the risks associated with that particular fund. Because of these risks, you should consider an investment in the any of the Acorn funds a long-term investment. Throughout this prospectus we've identified the areas that contain specific information about risk with *. Please read those areas carefully to fully understand your investment. COMMON STOCKS Over time, common stocks have historically provided superior long-term capital growth potential. However, stock prices may decline over short or even extended periods. Stock markets tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. As a result, the funds should be considered long-term investments, designed to provide the best results when held for several years or more. SMALL AND MEDIUM COMPANIES Acorn prefers small and medium companies over the stocks of companies of large companies. During some periods, the securities of smaller companies and the stocks of medium companies, as a class, have performed better than the securities of larger companies, and in some periods they have performed worse. Securities of smaller companies may be more volatile and less liquid than the stocks of large companies. FOREIGN SECURITIES International investing allows you to achieve greater diversification and to take advantage of changes in foreign economies and market conditions. From time to time, many foreign economies have grown faster than the U.S. economy, and the returns on investments in these countries have exceeded those of similar U.S. investments, although there can be no assurance that these conditions will continue. Investments in foreign securities provide opportunities different from those available in the U.S., and risks that in some ways may be greater than in U.S. investments. These risks include fluctuations in exchange rates of foreign currencies; less public information with respect to issuers of securities; less governmental supervision in how securities are issued or transacted; less liquidity, frequently greater price volatility and higher transactions costs and the possible imposition of foreign taxes. Investing in countries outside the U.S. may also involve political risk. Economies in individual markets may differ favorably or unfavorably from the U.S. economy in such respects as gross domestic product, rates of inflation, debt structure and currency valuation. Emerging countries may be substantially smaller, less developed, less liquid, and more volatile than the securities markets of the U.S. and other developed countries. 24 INVESTING WITH ACORN MANAGING RISK WAM uses various techniques and practices to mitigate the funds' exposure to risk. * INVESTMENT LIMITATIONS Each fund has adopted the following investment limitations (generally based upon a percentage of total assets) that cannot be changed without shareholder approval and are designed to limit risk: . None of the funds may invest more than 5% in securities of any one issuer, except for U.S. government securities.* . None of the funds may invest more than 25% in any one issuer or more than 25% in any one industry (in each case with the exception of U.S. government securities). * This restriction applies to only 75% of the total assets of each of Acorn Fund, Acorn International and Acorn USA, and to only 50% of the total assets of each of Acorn Twenty and Acorn Foreign Forty. * DEFENSIVE INVESTMENT STRATEGIES The funds' portfolio managers may use the following strategies if they believe that a temporary defensive position is advisable. With respect to Acorn International and Acorn Foreign Forty, this includes times when investment in foreign securities appears to be relatively unattractive because of current or anticipated adverse political or economic conditions. . Each fund may invest without limit in U.S. corporate and government obligations. . Each fund may hold cash or cash equivalents. . Each fund may hold cash in domestic and foreign currencies and may invest in domestic and foreign money market securities to meet liquidity needs. (Generally, this is not expected to exceed 25% of total assets.) DURING THESE PERIODS, A FUND'S ASSETS MAY NOT BE INVESTED IN ACCORDANCE WITH ITS STRATEGY, AND THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE. 25 INVESTING WITH ACORN * HEDGING STRATEGIES Each fund may hedge against variations in exchange rates, or to protect against exposure in the equity markets. Portfolio managers try to accomplish this by buying and selling . options, . futures contracts, . options on futures contract, . currency exchange contracts, . swap agreements, or . put and call options. If a fund is not successful when using these techniques, total return could be adversely affected. * YEAR 2000 Some of today's computer systems cannot process date-related information because they are not programmed to distinguish between the year 2000 and the year 1900 (commonly referred to as the Year 2000 problem or Y2K). WAM is working closely with the funds' service providers to ensure the proper functioning of the computer systems on which the funds depend for smooth operation. Based on the information currently available, WAM does not anticipate any material impact on the delivery of services currently provided. There can be no assurance, however, that the steps taken by WAM in preparation for the year 2000 will be sufficient to avoid any adverse impact on the funds. 26 INVESTING WITH ACORN Acorn shareholder service representatives are available Monday through Fridays (except holidays) from 8:00 a.m. to 4:30 p.m. Central time. Call one of the toll-free numbers in the table below to obtain the appropriate representative. - ------------------------------------------------------------------------------ Toll-free number Reason for call - ------------------------------------------------------------------------------ FUND ADVISOR (WAM): . For general fund information . For prices 1-800-9-ACORN . For Acorn literature and account (1-800-922-6769) forms (outside the U.S. call 1-312-634-9240) - ------------------------------------------------------------------------------ TRANSFER AGENT: . To buy, sell, or exchange shares . To change your address 1-800-962-1585 . To establish an account by phone (outside the U.S. call (existing shareholders only) 1-617-328-5000, ext. 5462) . For any other account maintenance or transactions . For IRA assistance . For 24-hour account balances - ------------------------------------------------------------------------------ TRANSFER AGENT/TDD SERVICE TDD service for the deaf and hearing impaired 1-800-306-4567 - ------------------------------------------------------------------------------ WEB SITE: . For daily and historical prices . For general fund information www.acornfunds.com . For fund literature - ------------------ . To email the Acorn funds . For distribution estimates - ------------------------------------------------------------------------------ 27 HOW TO BUY SHARES INVESTMENT MINIMUMS - -------------------------------- To open an account $1,000 To open an IRA $1,000 To add to an account $ 100 - -------------------------------- OPEN A NEW ACORN ACCOUNT To invest with Acorn you must be a U.S. resident with a social security or tax identification number. You can open a new account in any of the following ways. Mail us a completed account application and a check or money order payable to "name of fund" for $1,000 or more. Regular mail State Street Bank and Trust Company Attn: Acorn Family of Funds PO Box 8502 Boston, MA 02266-8502 Overnight mail Boston Financial Data Services Attn: Acorn Family of Funds 66 Brooks Drive Braintree, MA 02184 1-617-328-5000 ext. 5462 Current Acorn shareholders may also open a new, IDENTICALLY REGISTERED Acorn fund account by: using the telephone exchange plan to switch $1,000 or more from your existing Acorn account (or from a money fund offered through the exchange plan) into a new Acorn account. wire by simply calling 1-800-962-1585 to arrange for this transaction. (Not available for IRA accounts.) ADD TO AN EXISTING ACORN ACCOUNT You may add to your existing Acorn account in any of the following ways. Mail a check or money order to "FUND NAME" for $100 or more to either address at left. You may send your check by itself (make sure to identify your Acorn account number on the check), or you may include a stub from an Acorn account statement. Use the telephone exchange plan to switch money from one Acorn account to another (or from one of the money funds offered through the exchange plan). Wire money from your bank account using the following wire instructions: State Street Bank & Trust Company Attn: Mutual Funds Boston, MA 02110 Routing #0110-0002-8 Deposit DDA #9902-990-2 (specify the fund name and account number) Use the telephone purchase plan to move money from your bank account to your Acorn account via ACH transfer. To use the telephone purchase plan, you must select this feature on your account application or add this by completing a "Doing Business With Acorn" form. Note: It takes a day to process your telephone purchase request. Therefore, the price you receive for your purchased shares will be the closing price calculated THE DAY AFTER your instructions are received. Use the automatic investment plan to move money from your bank account to your Acorn account via ACH transfer. You may establish this on a monthly or quarterly basis for $100 to $50,000 per 28 HOW TO BUY SHARES period. Quarterly investments occur in January, April, July and October. The money will be transferred on or about the 15th of the month unless you designate a different day. (If the day you select falls on a Saturday, Sunday, holiday or any other day when the New York Stock Exchange (NYSE) is closed for trading, Acorn will process the transaction on the next business day). You may change your automatic investment amount or frequency by calling 1-800-962-1585 at least one week prior to your next scheduled investment date. 29 HOW TO BUY SHARES GENERAL POLICIES FOR BUYING ACORN SHARES The following policies apply any time you buy shares of the Acorn funds. . All purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. THE ACORN FUNDS DO NOT ACCEPT THIRD PARTY CHECKS, EXCEPT FOR PROPERLY ENDORSED IRA ROLLOVER CHECKS. . Acorn does not accept cash, credit cards, or credit card checks. . If payment for your check or telephone purchase order does not clear, Acorn will cancel your purchase and you will be liable for any losses or fees the fund or its transfer agent incurs. . Your participation in the automatic investment plan and telephone purchase plan may be immediately terminated if any item is unpaid by your financial institution. THE ACORN FUNDS DO NOT PERMIT MARKET-TIMING and have adopted policies to discourage this practice. Each fund reserves the right to reject any specific request to buy shares, including certain purchases through the telephone exchange plan. (See Exchange Plan Restrictions.) Acorn may refuse a purchase if it could disrupt management of the fund or would not be in the best interests of the fund's existing shareholders. 30 HOW TO SELL SHARES You may sell your Acorn shares in several different ways. Mail us a letter of instruction that indicates . your name, . the fund's name and account number, . the dollar amount or number of shares you want to sell, and . any unsigned stock certificates representing the shares you want to sell (if applicable) to: Regular mail State Street Bank and Trust Co. Attn: Acorn Family of Funds P.O. Box 8502 Boston, MA 02266-8502 Overnight mail Boston Financial Data Services Attn: Acorn Family of Funds 66 Brooks Drive Braintree, MA 02184 1-617-328-5000 ext. 5462 Sell your shares by telephone using the telephone redemption plan. The plan lets you sell $100 to $50,000 per day by phone. (You are eligible for the telephone redemption plan service, unless you declined it on your account application.) Note: For your protection, you may not sell shares by telephone or by letter of instruction without a signature guarantee if you have changed your account's address within the past 60 days. Shares must be redeemed with a letter of instruction (as described above), with all registered account owner's signatures guaranteed. Establish the systematic withdrawal plan on your account. This plan allows you to redeem a specified dollar amount of shares from your account on a monthly or quarterly basis. You must have an account balance of at least $25,000 to be eligible for this service. SIGNATURE GUARANTEE In some cases, you will have to make your redemption request in writing, and will have to obtain a signature guarantee. A signature guarantee is designed to protect you and Acorn from fraudulent activities. This requirement applies to any of the following situations: . you request a change to your current account registration, including your name, address or are establishing or changing a TOD beneficiary; . you want to sell more than $50,000 in shares; . you want the check mailed to an address other than the address on your account registration; . you want the check made payable to someone other than the account owner; or . you want to sell shares, and you instruct Acorn to wire the proceeds to a bank or brokerage account, but you do not have the telephone redemption by wire plan on your account. Signature guarantees can be obtained from a bank, broker-dealer, credit union (if authorized under state law), securities exchange or association. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE. 31 HOW TO SELL SHARES GENERAL POLICIES FOR SELLING ACORN SHARES The following policies apply any time you sell shares of any of the Acorn funds. . Normally, Acorn will mail your redemption proceeds within seven days after receiving your redemption request. . Redemption checks are made payable to the shareholder(s) of record, unless otherwise requested in writing with the signatures of all shareholders of record guaranteed. . Redemptions on recent purchases made by check, automatic investment plan, or telephone purchase plan may be held for up to 15 days until your funds for the purchase have been received. If you participate in the telephone redemption by wire/ACH plan, Acorn will send redemption proceeds to your bank (or other financial institution) account via wire or ACH transfer. Your bank may impose a fee for the incoming wire. Payment by wire or ACH is usually credited to your bank account on the next business day after your call. . Acorn may suspend redemptions or postpone payment dates on days when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is restricted, or as permitted by the SEC. . Certain accounts (such as trust accounts, corporate accounts and custodial accounts) may require documentation in addition to the redemption request. (Call 1-800-962-1585 for more information.) . If a check representing (1) redemption proceeds, (2) a withdrawal under the systematic withdrawal plan, or (3) a dividend/capital gains distribution is returned "undeliverable" or remains uncashed for 6 months, Acorn will cancel the check and will reinvest the proceeds in the fund issuing the check at the NAV on the date of cancellation. In addition, after such 6- month period, (1) Acorn will terminate your systematic withdrawal plan and future withdrawals will occur only when requested, or (2) Acorn will automatically reinvest future dividends and distributions in your fund. If the value of your account falls below $1,000 because you sold shares, Acorn reserves the right to close your account and send the proceeds to you. Acorn will redeem your shares at the NAV calculated on the day your account is closed. SHAREHOLDER AND ACCOUNT POLICIES STATEMENTS AND REPORTS To keep you informed about your investment, Acorn sends you various account statements and reports, including: . Confirmation statements that verify a buy or sell transaction, unless that transaction is part of the automatic investment plan. Acorn will automatically confirm your automatic investment plan transactions on a quarterly basis unless you request otherwise by calling 1-800-962-1585. . Quarter-end and year-end consolidated account statements . Quarterly, semi-annual and annual Acorn Family of Funds reports . Average cost statements for those accounts that sold shares during the year Duplicate statements may be sent to a third party if requested by the registered account 32 SHAREHOLDER AND ACCOUNT POLICIES owner. Simply call us toll-free at 1-800-962-1585. If you need copies of your historical account information, please call 1-800- 962-1585. There is a small charge to obtain historical account information for prior years. SHARE PRICE The funds are open for business each day the NYSE is open. The offering price (the price to buy one share) and the redemption price (price to sell one share) are a fund's net asset value (NAV) calculated at the next Closing Time after Acorn (or an authorized broker-dealer or financial services company, some of whom may charge a fee for their services) receives your purchase or redemption order. Closing Time is the time of the close of regular session trading on the NYSE, which is usually 3:00 p.m. Central time but is sometimes earlier. Acorn must receive both your purchase money and your application by Closing Time for you to receive that day's price. Likewise, Acorn must receive your redemption request by Closing Time for you to receive that day's price. NOTE: ACORN REQUIRES ONE DAY TO OBTAIN YOUR PURCHASE MONEY FOR A TELEPHONE PURCHASE ORDER; THEREFORE, A TELEPHONE PURCHASE MADE BEFORE CLOSING TIME WILL GET THE NEXT DAY'S PRICE. NAV. A fund's NAV is the value of a single share of the fund. The NAV is computed by adding up the value of a fund's investments, cash, and other assets, subtracting its liabilities, and then dividing the result by the number of shares outstanding. Acorn generally values each fund's portfolio securities and assets on the basis of market quotations from the primary market in which they are traded. In cases when the quotations are not readily available, Acorn will use a method that Acorn's trustees believe accurately reflects a fair value. Values of foreign securities are translated from the local currency into U.S. dollars using current exchange rates. Because of the different trading hours in various foreign markets, the calculation of NAV does not take place at the same time as the determination of the prices of many foreign securities held by the funds. These timing differences may have a significant effect on a fund's NAV. ADDRESS CHANGES You may easily change your address over a recorded telephone line by calling our transfer agent toll-free at 1-800-962-1585. Acorn will send written confirmation of the change to both your old and new addresses. You may not make a telephone redemption for 60 days after you change your address by phone. During those 60 days, you must request any fund redemptions in writing, and your signature must be guaranteed. 33 SHAREHOLDER AND ACCOUNT POLICIES GENERAL INFORMATION PERTAINING TO ALL TELEPHONE TRANSACTIONS Acorn will not be responsible for any loss resulting from unauthorized transactions if it follows reasonable procedures designed to verify the identity of the caller. Those procedures may include recording the call, requesting additional information, and sending written confirmation of telephone transactions. You should verify the accuracy of telephone transactions immediately upon receipt of your confirmation statement. If you do not want the flexibility of telephone purchase and redemption for your account, decline those services on your account application, or call our transfer agent toll-free at 1-800-962-1585 for instructions. TELEPHONE EXCHANGE PLAN AND MONEY MARKET FUNDS The telephone exchange plan permits you to use the telephone to switch your investment between one Acorn fund and another, or between an Acorn fund and a money market mutual fund participating in the plan. Currently, the money market mutual funds participating in the plan are the Reich & Tang Funds. The Reich & Tang Funds are: Short Term Income Fund, Money Market Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily Tax Free Income Fund; California Daily Tax Free Income Fund; Connecticut Daily Tax Free Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax Free Income Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax Free Income Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania Daily Municipal Income Fund. Each of the Reich & Tang Funds is a no-load fund managed by Reich & Tang Asset Management, L.P. and offers check writing privileges (for accounts other than IRAs) in addition to the Exchange Plan. Only Short Term Income Fund, Money Market Portfolio is available for IRA accounts. EXCHANGE REQUESTS MUST BE RECEIVED BY TIMES NOTED BELOW TO RECEIVE THAT DAY'S CLOSING PRICE. . To exchange between IRA accounts with Acorn or a participating money market fund, call 1-800-962-1585 before Closing Time. . To switch from one Acorn account into another, or from an Acorn account into a participating money market fund, call 1-800-962-1585 before Closing Time. . To switch FROM A PARTICIPATING MONEY MARKET FUND TO AN ACORN FUND, CALL 1-800- 221-3079 BEFORE 11:00 A.M. CENTRAL TIME. If we receive your call AFTER the times noted above, we will process your exchange at the NAV next calculated after receipt of your call. Because of the time needed to exchange money between the Acorn funds and a participating money market fund, you may not exchange into and out of a participating money market fund on the same or successive days; there must be at least one day between exchanges. 34 SHAREHOLDER AND ACCOUNT POLICIES EXCHANGE PLAN RESTRICTIONS THE ACORN FUNDS DO NOT PERMIT MARKET-TIMING and have adopted policies to discourage this practice. . Generally, you will be permitted to make up to 4 round trip exchanges per year (a round trip is an exchange out of one fund into another fund, and then back again). . YOU MAY ONLY EXCHANGE BETWEEN ACCOUNTS THAT ARE REGISTERED IN THE SAME NAME, ADDRESS, AND TAXPAYER IDENTIFICATION NUMBER. . Shares of the fund you are exchanging into must be available for sale in your state. . If you are opening a new account by exchange, your exchange must be at least $1,000. . The exchange plan is not available for shares of a fund for which you have been issued certificates. . If your account is subject to backup withholding, you may not use the exchange plan. . Acorn may temporarily or permanently terminate the exchange plan privilege of any investor who makes excessive use of the plan. Excessive trading can hurt fund performance and shareholders. . Acorn may refuse exchange purchases by any person or group, if Acorn believes the purchase will be harmful to existing shareholders. . Before exchanging into a fund, you should read its prospectus. Call 1-800-9- ACORN-9 (1-800-922-6769) to obtain a prospectus for a participating money market fund. . Exchanges may result in tax consequences for you. . Acorn may terminate or modify the exchange plan at any time, but will try to give prior notice whenever it is reasonably possible. AUTHORIZED AGENTS Acorn may authorize certain financial service companies, broker-dealers or their designees (authorized agents) to accept purchase, redemption, and exchange requests from their clients on whose behalf the authorized agent holds shares of the funds. For purchase orders placed through an authorized agent, a shareholder will pay a fund's NAV next computed after the receipt by the authorized agent of such purchase order, plus any applicable transaction charge imposed by the agent. For redemption orders placed through an authorized agent, a shareholder will receive redemption proceeds which reflect the NAV next computed after the receipt by the authorized agent of the redemption order, less any redemption fees imposed by the agent. Some financial institutions that act as Acorn's agent, or that otherwise maintain nominee accounts with the funds for their clients for whom they hold fund shares, might charge a fee (usually a percentage of the average net assets held in such accounts) for accounting, shareholder servicing, and distribution services the institution provides with respect to the underlying fund shares. WAM pays those fees. 35 DIVIDENDS, CAPITAL GAINS AND TAXES Each fund distributes substantially all of its net income and net realized capital gains to shareholders each year. Normally, the funds pay distributions in June and December. DISTRIBUTION OPTIONS You may receive your fund dividend and/or capital gains distributions in several ways: Reinvestment. Acorn will automatically reinvest your dividends and capital gains distributions in additional shares of your fund. (Acorn will assign this option to your account if you do not indicate a choice on your account application.) Income-Only. Acorn will automatically reinvest your capital gains distributions, but you may receive a check for each dividend. If you prefer, Acorn will send your dividend proceeds via ACH transfer directly to your bank or financial institution. (You must establish this feature at least 10 days prior to the distribution.) Cash. Acorn will automatically send you a check for all dividends and capital gains. If you prefer, Acorn will send your dividend and distribution proceeds via ACH transfer directly to your bank or financial institution. (You must establish this feature at least 10 days prior to the distribution.) Acorn will automatically reinvest distributions for IRA owners who are under 59 1/2 years old. A cash payment of a distribution is a withdrawal of IRA earnings, and is subject to taxes and potential income tax penalties for those under age 59 1/2. Once you reach 59 1/2 years old, and are eligible to withdraw the earnings from your IRA, you may request cash payment of distributions. Acorn will reinvest any distributions at the NAV at Closing Time on the reinvestment date (ex-dividend). For those not reinvesting their distributions, Acorn will normally begin mailing distribution checks on the payable date, which is usually one week after the ex-dividend date. TAXES As with any investment, you should carefully consider how your investment in a fund will be taxed. If your account is a tax-deferred or tax-exempt account (for example, an IRA or an employee benefit plan account), the following tax discussion does not apply. If your account is not tax-deferred or tax-exempt, however, you should be aware of the following tax rules: Taxes on Distributions. Distributions are subject to federal income tax, and may also be subject to state or local taxes. Your distributions are taxable when they are paid, whether you receive them in cash or reinvest them in additional shares. Distributions declared in October, November or December of the prior year and paid in January are taxable as if they were paid on December 31 of the prior year. For federal tax purposes, income and short-term capital gains distributions are taxed as dividends; and long-term capital gains distributions are taxed as long- term capital gains. Every January, Acorn will send you and the IRS a statement called a Form 1099-DIV, which will show the amount of each taxable distribution you received in the previous year. A year-end tax guide will accompany your Form 1099. If the total distributions you received for the year 36 DIVIDENDS, CAPITAL GAINS AND TAXES are less than $10.00, you will not receive a Form 1099. Taxes on Transactions. Your redemptions - including exchanges between funds or into a money fund - are subject to capital gains tax. A capital gain or loss is the difference between the average price you paid (cost) for your shares and the price you receive when you sell them. Whenever you sell shares of a fund, Acorn will send you a confirmation statement showing how many shares you sold and at what price. Acorn will also send you a year-end statement every January, and an average cost statement every February (if applicable) for shares you redeemed, to assist you or your tax preparer. It is up to you or your tax preparer to determine whether any given sale resulted in a capital gain and, if so, the amount of tax you owe. BE SURE TO KEEP YOUR REGULAR ACCOUNT STATEMENTS; the information they contain will be essential in calculating the amount of your capital gains. FOREIGN INCOME TAXES A fund may receive investment income from sources within foreign countries, and that income may be subject to foreign income taxes at the source. If your fund pays non-refundable taxes to foreign governments during the year, the taxes will reduce that fund's dividends but will still be included in your taxable income. You may be able to claim an offsetting credit or deduction on your tax return for your share of foreign taxes paid by Acorn International or Acorn Foreign Forty. The Acorn tax guide, which is mailed with your Form 1099-DIV each year, will contain detailed information about the foreign tax credit/deduction. When you sign your account application, you certify that your social security or taxpayer identification number is correct and that you are not subject to 31% backup withholding for failing to report income to the IRS. If you violate IRS regulations, the IRS can require Acorn to withhold 31% of your taxable distributions and redemption proceeds. FUND SERVICE PROVIDERS TRANSFER AGENT AND CUSTODIAN State Street Bank and Trust Company Attn: Acorn Family of Funds PO Box 8502 Boston, MA 02266-8502 DISTRIBUTOR WAM Brokerage Service, L.L.C. 227 W. Monroe Street Suite 3000 Chicago, IL 60606-5016 Shares of the funds are offered for sale through WAM Brokerage Services, L.L.C. (WAM BD) without any sales commission or charges to the funds or their shareholders. WAM BD is wholly owned by WAM, the funds' investment advisor, and the investment advisor's general partner, Wanger Asset Management, Ltd. WAM pays all distribution expenses relating to the funds, including payment or reimbursement of any expenses incurred by WAM BD. 37 FINANCIAL HIGHLIGHTS The following tables will help you better understand each fund's performance for the past five years, or for the period from the date of a fund's commencement of operations, if less than five years. They are excerpted from each fund's financial statements for the fiscal year ended December 31, 1998, audited by Ernst & Young LLP. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in a fund (assuming reinvestment of all dividends and distributions). You may obtain the complete financial statements and auditor's report by calling 1-800-9-ACORN-9 (1-800-922-6769) and requesting a free copy of a fund's latest annual shareholder report. ACORN FUND ---------- Years ended 12/31,
For a share outstanding throughout each 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- year Net asset value, beginning of year $16.99 $15.04 $13.60 $12.24 $13.95 Income from Investment Operations: - --------------------------------- Net investment income .04 .15 .09 .11 .06 Net realized and unrealized gain (loss) on investments, foreign currency and futures .91 3.57 2.93 2.42 (1.10) ------------------------------------------------------------------- Total from investment operations .95 3.72 3.02 2.53 (1.04) Less distributions: - ------------------ Dividends from net investment income (.03) (.16) (.11) (.09) (.11) Distributions from net realized and unrealized gains reportable for federal income taxes (1.06) (1.61) (1.47) (1.08) (.56) ------------------------------------------------------------------- Total distributions (1.09) (1.77) (1.58) (1.17) (.67) Net asset value, end of year $16.85 $16.99 $15.04 $13.60 $12.24 =================================================================== Total return 6.0 % 25.0% 22.6% 20.8% (7.4%) - ------------ Ratios/supplemental data: - ------------------------ Ratio of expenses to average net .84% .56% .57% .57% .62% assets Ratio of net investment income .30% .75% .53% .89% .55% to average net assets Portfolio turnover rate 24% 32% 33% 29% 18% Net assets at end of year (in millions) $3,549 $3,681 $2,842 $2,399 $1,983
38 ACORN INTERNATIONAL ------------------- Years ended 12/31,
For a share outstanding throughout each 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- year Net asset value, beginning of year $18.39 $19.61 $16.59 $15.24 $15.94 Income from Investment Operations: - --------------------------------- Net investment income .17 .40 .13 .16 .07 Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.68 (.34) 3.29 1.20 (.67) ------------------------------------------------------------------- Total from investment operations 2.85 .06 3.42 1.36 (.60) Less distributions: - ------------------ Dividends from net investment income (.15) (.38) (.12) -- -- Distributions from net realized and unrealized gains reportable for federal income taxes (.27) (.90) (.28) (.01) (.10) ------------------------------------------------------------------- Total distributions (.42) (1.28) (.40) (.01) (.10) Net asset value, end of year 20.82 $18.39 $19.61 $16.59 $15.24 =================================================================== Total return 15.4% 0.2% 20.7% 8.9% (3.8%) - ------------ Ratios/supplemental data: - ------------------------ Ratio of expenses to average net 1.12% 1.19% 1.17% 1.22% 1.24% assets Ratio of net investment income .86% .58% .51% .90% .48% to average net assets Portfolio turnover rate 37% 39% 34% 26% 20% Net assets at end of year (in millions) $1,725 $1,623 $1,773 $1,276 $1,363
39 ACORN USA ---------
For a share outstanding throughout each Year ended Year ended Inception 9/4 ---------- ---------- ------------- period 1998 12/31/97 through 12/31/96 ---- -------- ---------------- Net asset value, beginning of period $15.12 $11.65 $10.00 Income from Investment Operations: --------------------------------- Net investment loss (a)** (.07) (.07) (.02) Net realized and unrealized gain on investments, foreign currency and futures .87 3.83 1.67 -------------------------------------------------- Total from investment operations .80 3.76 1.65 Less distributions: ------------------ Dividends from net investment income --- --- --- Distributions from net realized and (1.12) (.29) --- unrealized gains reportable for federal income taxes -------------------------------------------------- Total distributions (1.12) (.29) --- Net asset value, end of period $14.80 $15.12 $11.65 ================================================== Total return 5.8% 32.3% 16.5% ------------ Ratios/supplemental data: ------------------------ Ratio of expenses to average net assets (b) 1.20% 1.35% 1.85%* Ratio of net investment loss to average net assets (.42%) (.49%) (.99%)* Portfolio turnover rate 42% 33% 20%* Net assets at end of year (in millions) $ 281 $ 185 $53
(a) Net investment loss per share was based upon the average shares outstanding during the period. (b) The ratio of expenses to average net assets for Acorn USA reflects gross custodian fees. This ratio net of custodian fees paid indirectly would have been 1.79% for the period ended December 31, 1996. * Annualized 40 ACORN TWENTY ------------
For a share outstanding throughout the period Inception 11/23 through 12/31/98 - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment income (a) -- Net realized and unrealized gain on investments .71 - ---------------------------------------------------------------------------------------------------------------- Total from investment operations .71 - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.71 - ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN 7.1% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (b)(c) 1.41%* Ratio of net investment income gain to average net 0.22%* assets (c) Portfolio turnover rate 173%* Net assets at end of period (in millions) $ 34
(a) Net investment income (loss) per share was based upon the average shares outstanding during the period. (b) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Twenty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.35% for the period ended December 31, 1998. (c) Acorn Twenty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1998. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 1.83% and (.21%), respectively. * Annualized 41 ACORN FOREIGN FORTY -------------------
For a share outstanding throughout the period Inception 11/23 through 12/31/98 - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 INCOME FROM INVESTMENT OPERATIONS Net investment loss(a) (.01) Net realized and unrealized gain on investments 1.01 - ---------------------------------------------------------------------------------------------------------------- Total from investment operations 1.00 - ---------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $11.00 - ---------------------------------------------------------------------------------------------------------------- TOTAL RETURN 10.0% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets (b)(c) 1.73%* Ratio of net investment loss to average net (.78%)* assets (c) Portfolio turnover rate 90%* Net assets at end of period (in millions) $ 16
(a) Net investment loss per share was based upon the average shares outstanding during the period. (b) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Foreign Forty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.45% for the period ended December 31, 1998. (c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1998. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 2.70% and (1.75%), respectively. * Annualized 42 ACORN FAMILY OF FUNDS The Acorn Family of Funds' semiannual and annual reports to shareholders contain additional information about the funds. These reports provide commentary on market conditions and investment strategies that affected each fund's performance over the past six- and 12-month periods. The Statement of Additional Information (also known as the "SAI") also contains detailed information about the Acorn funds' policies and operations. The SAI is incorporated in this prospectus by reference. You may obtain free copies of a fund's latest semi-annual and annual shareholder reports and/or a fund's SAI. Simply call 1-800-9-ACORN-9 (1-800-922-6769) to make your request, or write to The Acorn Family of Funds, PO Box 8502, Boston, Massachusetts, 02266-8502. Reports may also be viewed and downloaded from our website at www.acornfunds.com. You may also obtain this and other information about the Acorn funds directly from the Securities and Exchange Commission (SEC). You may visit the SEC online at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington DC. You may also request information by calling the SEC at 1-800-SEC-0330 (1-800-732-0330), or sending your request and the appropriate duplicating fee to the SEC's Public Reference Section, Washington, DC 20549-6009. 43 ACORN INVESTMENT TRUST STATEMENT OF ADDITIONAL INFORMATION May 1, 1999 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 1-800-922-6769 ACORN FUND ACORN INTERNATIONAL ACORN USA ACORN TWENTY ACORN FOREIGN FORTY No-Load Funds TABLE OF CONTENTS -----------------
Page ---- Information About the Funds............................................. 2 Investment Objectives and Policies...................................... 2 Investment Techniques and Risks......................................... 3 Investment Restrictions................................................. 21 Performance Information................................................. 27 Investment Adviser...................................................... 30 Distributor............................................................. 32 The Trust............................................................... 32 Trustees and Officers................................................... 33 Purchasing and Redeeming Shares......................................... 37 Additional Tax Information.............................................. 38 Taxation of Foreign Shareholders........................................ 40 Portfolio Transactions.................................................. 40 Custodian............................................................... 42 Independent Auditors.................................................... 42 Appendix - Description of Bond Ratings.................................. 44 Financial Statements.................................................... 45
This Statement of Additional Information ("SAI") is not a prospectus but provides information that should be read in conjunction with the prospectus of ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY dated the date of this SAI and any supplement thereto. A copy of the Acorn Family of Funds 1998 annual report to shareholders accompanies this SAI. A copy of the prospectus and additional copies of the annual reports can be obtained from Acorn at no charge by writing or telephoning Acorn at its address or telephone number shown above. INFORMATION ABOUT THE FUNDS ACORN FUND invests mostly in stocks of small and medium-size companies, generally those with market capitalizations of less than $1 billion. Of those stocks, Acorn Fund invests mostly in U.S. companies, but also may have significant foreign investments. ACORN INTERNATIONAL FUND concentrates its investments in stocks of small and medium-size non-U.S. companies, generally those with market capitalizations of less than $1 billion. ACORN USA invests mostly in stocks of small and medium-sized U.S. companies, generally those with market capitalizations of less than $1 billion. ACORN TWENTY invests primarily in the stocks of U.S. companies with market capitalizations of $1 billion to $10 billion. Acorn Twenty is a non-diversified fund that ordinarily focuses its investments in 20 to 25 U.S. companies. ACORN FOREIGN FORTY invests for long-term capital growth. The fund invests primarily in the stocks of foreign companies with market capitalizations of $1 billion to $10 billion. Acorn Foreign Forty is a non-diversified fund that ordinarily has investments in 40 to 60 companies in developed markets. ACORN FUND, ACORN INTERNATIONAL and ACORN USA are diversified funds under the federal securities laws. ACORN TWENTY and ACORN FOREIGN FORTY are non- diversified under the federal securities laws. However, each of the funds comply with the diversification standards established by the tax laws. See "Investment Techniques and Risks - Diversification" for more information. The funds are series of Acorn Investment Trust ("Acorn" or the "Trust"). All five funds are currently open to new investors; however, Acorn reserves the right to close one or more of the funds to new investors if the board of trustees of Acorn determines that additional cash flow would be detrimental to the management of the funds. The discussion below supplements the description in the prospectus of the funds' investment objectives, policies, and restrictions. INVESTMENT OBJECTIVES AND POLICIES Acorn Fund, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY invest with the objective of long-term growth of capital. The funds are not designed for investors seeking primarily income rather than capital appreciation. The funds are not, alone or together, a balanced investment program, and there can be no assurance that any of the funds will achieve its investment objective. 2 The funds use the techniques and invest in the types of securities described below and in the prospectus. INVESTMENT TECHNIQUES AND RISKS COMMON STOCKS The funds invest mostly in common stocks, which represent an equity interest (ownership) in a corporation. This ownership interest often gives the funds the right to vote on measures affecting the company's organization and operations. The funds also invest in other types of equity securities, including preferred stocks and securities convertible into common stocks. Over time, common stocks have historically provided superior long-term capital growth potential. However, stock prices may decline over short or even extended periods. Stock markets tend to move in cycles, with periods of rising stock prices and periods of falling stock prices. As a result, the funds should be considered long-term investments, designed to provide the best results when held for several years or more. The funds may not be suitable investments if you have a short-term investment horizon or are unwilling to accept fluctuations in share price, including significant declines over a given period. Under normal conditions, the funds' common stock investments (as a percent of total assets) are allocated as follows:
U.S.* FOREIGN COMPANIES COMPANIES ---------------------- FUND MAXIMUM MAXIMUM ------------------------------------------- Acorn Fund 100% 33% Acorn International 25% 100% Acorn USA 100% 10% Acorn Twenty 100% 15% Acorn Foreign Forty 15% 100% -------------------------------------------
Acorn Twenty usually limits its investments in foreign companies to those whose operations are primarily in the U.S. * For Acorn Foreign Forty, includes U.S. investments ( usually limited to companies whose operations are primarily overseas). See also the discussion of foreign securities below. DIVERSIFICATION Diversification is a means of reducing risk by investing in a broad range of stocks or other securities. Because ACORN TWENTY and ACORN FOREIGN FORTY are non-diversified, those funds have the ability to take larger positions in a smaller number of issuers. The appreciation or depreciation of a single stock may have a greater impact on the NAV of a non-diversified fund, because it is likely to have a greater percentage of its assets invested in that stock. As a result, the share price of ACORN TWENTY and ACORN FOREIGN FORTY can be expected to fluctuate more than that of broadly diversified funds investing in similar securities. Because they are non- 3 diversified, those funds are not subject to the limitations under the Investment Company Act of 1940 in the percentage of their assets that they may invest in any one issuer. Both funds, however, intend to comply with the diversification standards for regulated investment companies under Subchapter M of the Internal Revenue Code summarized under "Investment Restrictions"). FOREIGN SECURITIES The funds invest in foreign securities, which may entail a greater degree of risk (including risks relating to exchange rate fluctuations, tax provisions, or expropriation of assets) than does investment in securities of domestic issuers. As noted above, under normal market conditions, each fund may invest in foreign securities (as a percentage of total assets) as set forth below:
FOREIGN COMPANIES ---------------------- FUND MAXIMUM ----------------------------------------------- Acorn Fund 33% Acorn International 100% Acorn USA 10% Acorn Twenty 15% Acorn Foreign Forty 100% -----------------------------------------------
ACORN FOREIGN FORTY invests primarily in developed countries but may invest up to 15% of its total assets in securities of companies with broad international interests that are domiciled in the United States or in countries considered "emerging markets," if the operations of those companies are located primarily in developed overseas markets. The Fund uses the terms "developed markets" and "emerging markets" as those terms are defined by the International Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging markets" as used by the Fund includes markets designated "frontier markets" by the IFC. The Fund does not intend to invest more than 5% of its total assets in those countries included in the "emerging markets" or "frontier markets" categories. The securities markets of emerging markets are substantially smaller, less developed, less liquid, and more volatile than the securities markets of the United States and other more developed countries. Disclosure and regulatory standards in many respects are less stringent than in the United States. There also may be a lower level of monitoring and regulation of emerging markets of traders, insiders, and investors. Enforcement of existing regulations has been extremely limited. ACORN TWENTY usually limits its investments in foreign companies to those whose operations are primarily in the U.S. The funds may invest in securities of foreign issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs) or other securities representing underlying shares of foreign issuers. Positions in these 4 securities are not necessarily denominated in the same currency as the common stocks into which they may be converted. ADRs are receipts typically issued by an American bank or trust company evidencing ownership of the underlying securities. EDRs are European receipts evidencing a similar arrangement. GDRs trade in both U.S. and non-U.S. markets. Generally ADRs, in registered form, are designed for use in the U.S. securities markets and EDRs, in bearer form, are designed for use in European securities markets. The funds may invest in both "sponsored" and "unsponsored" depositary receipts. In a sponsored depositary receipt, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to depositary receipt holders. An unsponsored depositary receipt is created independently of the issuer of the underlying security. The depositary receipt holders generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. Therefore, in the case of an unsponsored depositary receipt, a fund is likely to bear its proportionate share of the expenses of the depository and it may have greater difficulty in receiving shareholder communications than it would have with a sponsored depositary receipt. None of the funds expects to invest 5% or more of its total assets in unsponsored depositary receipt. The funds' investment performance is affected by the strength or weakness of the U.S. dollar against the currencies of the foreign markets in which its securities trade or in which they are denominated. For example, if the dollar falls in value relative to the Japanese yen, the dollar value of a yen- denominated stock held in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value relative to the yen, the dollar value of the yen-denominated stock will fall. (See discussion of transaction hedging and portfolio hedging under "Currency Exchange Transactions.") Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; lack of uniform accounting, auditing, and financial reporting standards; lack of uniform settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; possible imposition of foreign taxes; possible investment in securities of companies in developing as well as developed countries; and sometimes less advantageous legal, operational, and financial protections applicable to foreign subcustodial arrangements. In addition, the costs of investing in foreign securities are higher than the costs of investing in U.S. securities. Although the funds try to invest in companies and governments of countries having stable political environments, there is the possibility of expropriation or confiscatory taxation, seizure or nationalization of foreign bank deposits or other assets, establishment of exchange controls, the adoption of foreign government restrictions, or other adverse political, social, or diplomatic developments that could affect investment in these nations. 5 The countries in which the funds invest include those listed below. A fund may not invest in all the countries listed, and it may invest in other countries as well, when such investments are consistent with that fund's investment objective and policies.
-------------- MATURE MARKETS DEVELOPING MARKETS EMERGING MARKETS -------------- ------------------ ---------------- Australia Argentina Bangladesh Morocco Austria Chile Botswana Pakistan Belgium Greece Brazil Peru Canada Hong Kong China Philippines Denmark Indonesia Colombia Poland Finland Israel Cyprus Sri Lanka France Korea Czech Republic Swaziland Germany Malaysia Ecuador Turkey Ireland Mexico Egypt Uruguay Italy Portugal Ghana Venezuela Japan Singapore Hungary Zambia Luxembourg Taiwan India Zimbabwe Netherlands Thailand Jordan New Zealand Kenya Norway South Africa Spain Sweden Switzerland United Kingdom United States
It may not be feasible for the funds currently to invest in all of these countries due to restricted access to their securities markets or inability to implement satisfactory custodial arrangements. CURRENCY EXCHANGE TRANSACTIONS The funds may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers, are not exchange-traded, and are usually for less than one year, but may be renewed. Forward currency transactions may involve currencies of the different countries in which the funds may invest, and serve as hedges against possible variations in the exchange rate between these currencies. The funds' currency transactions are limited to transaction hedging and portfolio hedging involving either specific transactions or portfolio positions, except to the extent described below under "Synthetic Foreign Money Market Positions." Transaction 6 hedging is the purchase or sale of a forward contract with respect to specific payables or receivables of a fund accruing in connection with the purchase or sale of portfolio securities. Portfolio hedging is the use of a forward contract with respect to a portfolio security position denominated or quoted in a particular currency. The funds may engage in portfolio hedging with respect to the currency of a particular country in amounts approximating actual or anticipated positions in securities denominated in that currency. When a fund owns or anticipates owning securities in countries whose currencies are linked, Wanger Asset Management, L.P. ("WAM"), the funds' investment adviser, may aggregate such positions as to the currency hedged. If a fund enters into a forward contract hedging an anticipated purchase of portfolio securities, assets of that fund having a value at least as great as the fund's commitment under such forward contract will be segregated on the books of the fund and held by the custodian while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency that the fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency that fund is obligated to deliver. If a fund retains the portfolio security and engages in an offsetting transaction, that fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between a fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, a fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the fund of unrealized profits or force the fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for a fund to hedge against a devaluation that is so 7 generally anticipated that the fund is not able to contract to sell the currency at a price above the devaluation level it anticipates. The cost to a fund of engaging in currency exchange transactions varies with such factors as the currency involved, the length of the contract period, and prevailing market conditions. Since currency exchange transactions are usually conducted on a principal basis, no fees or commissions are involved. SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The funds may invest in money ---------------------------------------- market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, the funds may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency (generally U.S. dollars) and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short- term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign money market instruments. The results of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the investment limits set forth in the chart on page 4. OPTIONS AND FUTURES The funds may purchase and write both call options and put options on securities and on indexes, and enter into interest rate and index futures contracts, and may purchase or sell options on such futures contracts ("futures options") in order to provide additional revenue, or to hedge against changes in security prices or interest rates. The funds may also use other types of options, futures contracts and futures options currently traded or subsequently developed and traded, provided the board of trustees determines that their use is consistent with the funds' investment objective. OPTIONS. An option on a security (or index) is a contract that gives the ------- purchaser (holder) of the option, in return for a premium, the right to buy from (call) or sell to (put) the seller (writer) of the option the security underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option (normally not exceeding nine months). The writer of an option on an individual security or on a foreign currency has the obligation upon exercise of the option to deliver the underlying security or foreign currency upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security or foreign currency. Upon exercise, the writer of an option on an index is obligated to 8 pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. (An index is designed to reflect specified facets of a particular financial or securities market, a specific group of financial instruments or securities, or certain economic indicators.) The funds will write call options and put options only if they are "covered." For example, in the case of a call option on a security, the option is "covered" if a fund owns the security underlying the call or has an absolute and immediate right to acquire that security without additional consideration (or, if additional consideration is required, assets having a value at least equal to that amount are segregated on the books of a fund) upon conversion or exchange of other securities held in its portfolio. If an option written by a fund expires, that fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a fund expires, that fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a fund desires. A fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the fund will realize a capital gain or, if it is less, the fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by a fund is an asset of that fund, valued initially at the premium paid for the option. The premium received for an option written by a fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. OTC DERIVATIVES. The funds may buy and sell over-the-counter ("OTC") --------------- derivatives. Unlike exchange-traded derivatives, which are standardized with respect to the underlying instrument, expiration date, contract size, and strike price, the terms of OTC derivatives (derivatives not traded on exchanges) generally are established through negotiation with the other party to the contract. While this type of arrangement allows a fund greater flexibility to tailor an instrument to its needs, OTC derivatives generally involve greater credit risk than exchange-traded derivatives, which are guaranteed by the clearing organization of the exchanges where they are traded. Each fund will limit its investments so that no more than 5% of its total assets will be placed at risk in the use of OTC derivatives. See "Illiquid Securities" below for more information on the risks associated with investing in OTC derivatives. 9 RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with ----------------------------- transactions in options. For example, there are significant differences between the securities markets, the currency markets, and the options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when, and how to use options involves the exercise of skill and judgment, and even a well- conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a fund seeks to close out an option position. If a fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, a fund foregoes, during the option's life, the opportunity to profit from currency appreciation. If trading were suspended in an option purchased or written by one of the funds, that fund would not able to close out the option. If restrictions on exercise were imposed, the fund might be unable to exercise an option it has purchased. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The funds may use -------------------------------------------------- interest rate futures contracts and index futures contracts. An interest rate or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index/1/ at a specified price and time. A public market exists in - futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index; the Value Line Composite Index; the Russell 2000 Index; and the New York Stock Exchange Composite Index) as well as financial instruments (including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes; Eurodollar certificates of deposit; and foreign currencies). Other index and financial instrument futures contracts are available and it is expected that additional futures contracts will be developed and traded. The funds may purchase and write call and put futures options. Futures options possess many of the same characteristics as options on securities and indexes (discussed above). A futures option gives the holder the right, in return for the premium paid, to assume a long ___________ /1/ A futures contract on an index is an agreement pursuant to which two - parties agree to take or make delivery of an amount of cash equal to the difference between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. Although the value of a securities index is a function of the value of certain specified securities, no physical delivery of those securities is made. 10 position (call) or short position (put) in a futures contract at a specified exercise price at any time during the period of the option. Upon exercise of a call option, the holder acquires a long position in the futures contract and the writer is assigned the opposite short position. In the case of a put option, the opposite is true. To the extent required by regulatory authorities having jurisdiction over the funds, the funds will limit their use of futures contracts and futures options to hedging transactions. For example, a fund might use futures contracts to hedge against fluctuations in the general level of stock prices, anticipated changes in interest rates, or currency fluctuations that might adversely affect either the value of the fund's securities or the price of the securities that the fund intends to purchase. The fund's hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the funds' exposure to stock price, interest rate, and currency fluctuations, the funds may be able to hedge their exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on WAM's ability to correctly predict changes in the level and direction of stock prices, interest rates, currency exchange rates, and other factors. Should those predictions be incorrect, a fund's return might have been better had hedging not been attempted; however, in the absence of the ability to hedge, WAM might have taken portfolio actions in anticipation of the same market movements with similar investment results but, presumably, at greater transaction costs. When a purchase or sale of a futures contract is made by a fund, that fund is required to deposit with its custodian or broker a specified amount of cash or U.S. government securities or other securities acceptable to the broker ("initial margin"). The margin required for a futures contract is generally set by the exchange on which the contract is traded; however, the margin requirement may be modified during the term of the contract, and the fund's broker may require margin deposits in excess of the minimum required by the exchange. The initial margin is in the nature of a performance bond or good faith deposit on the futures contract, which is returned to the fund upon termination of the contract, assuming all contractual obligations have been satisfied. The funds expect to earn interest income on their initial margin deposits. A futures contract held by a fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking-to-market." Variation margin paid or received by a fund does not represent a borrowing or loan by the fund but is instead settlement between that fund and the broker of the amount one would owe the other if the futures contract had expired at the close of the previous day. In computing daily net asset value ("NAV"), the funds will mark-to-market their open futures positions. The funds are also required to deposit and maintain margin with respect to put and call options on futures contracts they write. Such margin deposits will vary depending on the nature 11 of the underlying futures contract (and the related initial margin requirements), the current market value of the option, and other futures positions held by the funds. Although some futures contracts call for making or taking delivery of the underlying securities, usually these obligations are closed out prior to delivery by offsetting purchases or sales of matching futures contracts (same exchange, underlying security or index, and delivery month). If an offsetting purchase price is less than the original sale price, the funds realize a capital gain, or if it is more, the funds realize a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the fund engaging in the transaction realizes a capital gain, or if it is less, the fund realizes a capital loss. The transaction costs must also be included in these calculations. RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the ----------------------------- use of futures contracts and futures options as hedging techniques. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures options, and the related securities, including technical influences in futures and futures options trading and differences between the funds' investments being hedged and the securities underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of a fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in a fund's portfolio. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when a fund seeks to close out a futures or futures option position. The fund would be exposed to possible loss on the 12 position during the interval of inability to close, and would continue to be required to meet margin requirements until the position is closed. In addition, many of the contracts discussed above are relatively new instruments without a significant trading history. As a result, there can be no assurance that an active secondary market will develop or continue to exist. LIMITATIONS ON OPTIONS AND FUTURES. A fund will not enter into a futures ---------------------------------- contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by that fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money," /2/ would exceed 5% of the fund's total assets. - When purchasing a futures contract or writing a put option on a futures contract, a fund must maintain with its custodian or broker readily-marketable securities having a fair market value (including any margin) at least equal to the market value of such contract. When writing a call option on a futures contract, a fund similarly will maintain with its custodian readily-marketable securities having a fair market value (including any margin) at least equal to the amount by which such option is in-the-money until the option expires or is closed out by the fund. A fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the "underlying commodity value" of each long position in a commodity contract in which a fund invests will not at any time exceed the sum of: (1) The value of short-term U.S. debt obligations or other U.S. dollar denominated high-quality short-term money market instruments and cash set aside in an identifiable manner, plus any funds deposited as margin on the contract; (2) Unrealized appreciation on the contract held by the broker; and ______________ /2/ A call option is "in-the-money" if the value of the futures contract that - is the subject of the option exceeds the exercise price. A put option is "in-the-money" if the exercise price exceeds the value of the futures contract that is the subject of the option. 13 (3) Cash proceeds from existing investments due in not more than 30 days. "Underlying commodity value" means the size of the contract multiplied by the daily settlement price of the contract. No fund will purchase puts, calls, straddles, spreads, or any combination thereof if by reason of such purchase more than 10% of that fund's total assets would be invested in such securities. TAXATION OF OPTIONS AND FUTURES. If a fund exercises a call or put -------------------------------- option that it holds, the premium paid for the option is added to the cost basis of the security purchased (call) or deducted from the proceeds of the security sold (put). For cash settlement options and futures options exercised by a fund, the difference between the cash received at exercise and the premium paid is a capital gain or loss. If a call or put option written by a fund is exercised, the premium is included in the proceeds of the sale of the underlying security (call) or reduces the cost basis of the security purchased (put). For cash settlement options and futures options written by a fund, the difference between the cash paid at exercise and the premium received is a capital gain or loss. Entry into a closing purchase transaction will result in capital gain or loss. If an option written by a fund is in-the-money at the time it was written and the security covering the option was held for more than the long-term holding period prior to the writing of the option, any loss realized as a result of a closing purchase transaction will be long-term. The holding period of the securities covering an in-the-money option will not include the period of time the option is outstanding. If a fund writes an equity call option/3/ other than a "qualified covered call option," as defined in the Internal Revenue Code, any loss on such option transaction, to the extent it does not exceed the unrealized gains on the securities covering the option, may be subject to deferral until the securities covering the option have been sold. A futures contract held until delivery results in capital gain or loss equal to the difference between the price at which the futures contract was entered into and the settlement price on the earlier of delivery notice date or expiration date. If a fund delivers securities under a futures contract, the fund also realizes a capital gain or loss on those securities. ___________________________ /3/ An equity option is defined to mean any option to buy or sell stock, and - any other option the value of which is determined by reference to an index of stocks of the type that is ineligible to be traded on a commodity futures exchange (e.g., an option contract on a sub-index based on the price of nine hotel-casino stocks). The definition of equity option excludes options on broad-based stock indexes (such as the Standard & Poor's 500 index). 14 For federal income tax purposes, a fund generally is required to recognize for each taxable year its net unrealized gains and losses as of the end of the year on futures, futures options and non-equity options positions ("year- endmark-to-market"). Generally, any gain or loss recognized with respect to such positions (either by year-end mark-to-market or by actual closing of the positions) is considered to be 60% long-term and 40% short-term, without regard to the holding periods of the contracts. However, in the case of positions classified as part of a "mixed straddle," the recognition of losses on certain positions (including options, futures and futures options positions, the related securities and certain successor positions thereto) may be deferred to a later taxable year. Sale of futures contracts or writing of call options (or futures call options) or buying put options (or futures put options) that are intended to hedge against a change in the value of securities held by a fund may affect the holding period of the hedged securities. If a fund were to enter into a short index future, short index futures option or short index option position and the fund's portfolio were deemed to "mimic" the performance of the index underlying such contract, the option or futures contract position and the fund's stock positions may be deemed to be positions in a mixed straddle, subject to the above-mentioned loss deferral rules. The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales or "offsetting notional principal contracts" (as defined by the Act) with respect to, or futures or "forward contracts" (as defined by the Act) with respect to, the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales, offsetting notional principal contracts, and futures or forward contracts to deliver the same or substantially similar property. In order for the funds to continue to qualify for federal income tax treatment as regulated investment companies, at least 90% of each fund's gross income for a taxable year must be derived from qualifying income, i.e., dividends, interest, income derived from loans of securities, and gains from the sale of securities or foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts). Any net gain realized from futures (or futures options) contracts will be considered gain from the sale of securities and therefore be qualifying income for purposes of the 90% requirement. The funds intend to distribute to shareholders annually any capital gains that have been recognized for federal income tax purposes (including year-end mark-to-market gains) on options and futures transactions, together with gains on other fund investments, to the extent such gains exceed recognized capital losses and any net capital loss carryovers of the funds. Shareholders will be advised of the nature of such capital gain distributions. For further information, see the discussion under "Additional Tax Information." 15 SWAP AGREEMENTS. A swap agreement is generally individually negotiated and ---------------- structured to include exposure to a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease a fund's exposure to changes in the value of an index of securities in which the fund might invest, the value of a particular security or group of securities, or foreign currency values. Swap agreements can take many different forms and are known by a variety of names. A fund may enter into any form of swap agreement if WAM determines it is consistent with that fund's investment objective and policies, but each fund will limit its use of swap agreements so that no more than 5% of its total assets will be invested in such agreements. A swap agreement tends to shift a fund's investment exposure from one type of investment to another. For example, if a fund agrees to exchange payments in dollars at a fixed rate for payments in a foreign currency the amount of which is determined by movements of a foreign securities index, the swap agreement would tend to increase that fund's exposure to foreign stock market movements and foreign currencies. Depending on how it is used, a swap agreement may increase or decrease the overall volatility of a fund's investments and its NAV. The performance of a swap agreement is determined by the change in the specific currency, market index, security, or other factors that determine the amounts of payments due to and from a fund. If a swap agreement calls for payments by a fund, that fund must be prepared to make such payments when due. If the counterparty's creditworthiness declines, the value of a swap agreement would be likely to decline, potentially resulting in a loss. WAM expects to be able to eliminate a fund's exposure under any swap agreement either by assignment or by other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. A fund will segregate its assets to cover its current obligations under a swap agreement. If a fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of that fund's accumulated obligations under the swap agreement over the accumulated amount the fund is entitled to receive under the agreement. If a fund enters into a swap agreement on other than a net basis, it will segregate assets with a value equal to the full amount of that fund's accumulated obligations under the agreement. SHORT SALES AGAINST THE BOX Each fund may make short sales of securities if at all times, when a short position is open, the fund owns an equal amount of such securities or securities convertible into or exchangeable for, without payment of any further consideration, securities of the same issue as, and equal in amount to, the securities sold short. This technique is called selling short "against the box." Although permitted by its investment restrictions, the Funds do not currently intend to sell securities short. In a short sale against the box, a fund does not deliver from its portfolio the securities sold and does not receive immediately the proceeds from the short sale. Instead, the fund borrows the securities sold short from a broker-dealer through which the short sale is executed, and the broker-dealer delivers such securities, on behalf of the fund, to the purchaser of such 16 securities. Such broker-dealer is entitled to retain the proceeds from the short sale until the fund delivers to such broker-dealer the securities sold short. In addition, the fund is required to pay to the broker-dealer the amount of any dividends paid on shares sold short. Finally, to secure its obligation to deliver to such broker-dealer the securities sold short, the fund must deposit and continuously maintain in a separate account with State Street an equivalent amount of the securities sold short or securities convertible into or exchangeable for such securities without the payment of additional consideration. The fund is said to have a short position in the securities sold until it delivers to the broker-dealer the securities sold, at which time the fund receives the proceeds of the sale. Because the fund ordinarily will want to continue to hold securities in its portfolio that are sold short, the fund will normally close out a short position by purchasing on the open market and delivering to the broker-dealer an equal amount of the securities sold short, rather than by delivering portfolio securities. Short sales may protect a fund against the risk of losses in the value of its portfolio securities because any unrealized losses with respect to such portfolio securities should be wholly or partially offset by a corresponding gain in the short position. However, any potential gains in such portfolio securities should be wholly or partially offset by a corresponding loss in the short position. The extent to which such gains or losses are offset will depend upon the amount of securities sold short relative to the amount the fund owns, either directly or indirectly, and, in the case where the fund owns convertible securities, changes in the conversion premium. The funds will incur transaction costs in connection with short sales. In addition to enabling the funds to hedge against market risk, short sales may afford a fund an opportunity to earn additional current income to the extent the fund is able to enter into arrangements with broker-dealers through which the short sales are executed to receive income with respect to the proceeds of the short sales during the period the fund's short positions remain open. The Taxpayer Relief Act of 1997 imposed constructive sale treatment for federal income tax purposes on certain hedging strategies with respect to appreciated securities. Under these rules taxpayers will recognize gain, but not loss, with respect to securities if they enter into short sales of "offsetting notional principal contracts" (as defined by the Act) with respect to the same or substantially identical property, or if they enter into such transactions and then acquire the same or substantially identical property. The Secretary of the Treasury is authorized to promulgate regulations that will treat as constructive sales certain transactions that have substantially the same effect as short sales. DEBT SECURITIES The funds may invest in debt securities, including lower-rated securities (i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called "junk bonds"), and securities that are not rated. There are no restrictions as to the ratings of debt securities acquired by the funds or the portion of a fund's assets that may be invested in debt securities in a particular ratings category, except that ACORN INTERNATIONAL may not invest more than 20% of its assets in securities rated 17 below investment grade or considered by the Adviser to be of comparable credit quality. Neither Acorn Fund nor Acorn International expects to invest more than 5% of its net assets in such securities during the current fiscal year. Acorn USA, Acorn Twenty and Acorn Foreign Forty does not intend to invest more than 20% of its total assets in debt securities nor more than 5% of its total assets in securities rated at or lower than the lowest investment grade. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Lower-rated debt securities are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal. Investment in medium- or lower-quality debt securities involves greater investment risk, including the possibility of issuer default or bankruptcy. An economic downturn could severely disrupt the market for such securities and adversely affect the value of such securities. In addition, lower-quality bonds are less sensitive to interest rate changes than higher-quality instruments and generally are more sensitive to adverse economic changes or individual corporate developments. During a period of adverse economic changes, including a period of rising interest rates, the junk bond market may be severely disrupted, and issuers of such bonds may experience difficulty in servicing their principal and interest payment obligations. Medium- and lower-quality debt securities may be less marketable than higher-quality debt securities because the market for them is less broad. The market for unrated debt securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly, and a fund may have greater difficulty selling its portfolio securities. See "Purchasing and Redeeming Shares - Net Asset Value." The market value of these securities and their liquidity may be affected by adverse publicity and investor perceptions. A more complete description of the characteristics of bonds in each ratings category is included in the appendix to this SAI. ILLIQUID SECURITIES The funds may not invest in illiquid securities, including restricted securities and OTC derivatives, if as a result they would comprise more than 10% of the value of the net assets of Acorn Fund, or more than 15% of the value of the net assets of each of ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY. Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect to which a registration statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where registration is required, a fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision to sell and the time the fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the fund might obtain a less favorable price than prevailed when it decided to sell. Restricted securities will be priced at a fair value as determined in good faith by the board of trustees. If, through the appreciation of illiquid securities or the depreciation of liquid securities, Acorn Fund should be in a position where more than 10% of the value of its net assets are invested in illiquid assets, including restricted securities and OTC derivatives (or more than 15% of the 18 value of the net assets of each of ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY), that fund will take appropriate steps to protect liquidity. Notwithstanding the above, a fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule permits certain qualified institutional buyers, such as the funds, to trade in privately placed securities that have not been registered for sale under the 1933 Act. WAM, under the supervision of the board of trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to a fund's restriction of investing no more than 10% (for Acorn Fund) or 15% (for Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign Forty) of its assets in illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination WAM will consider the trading markets for the specific security taking into account the unregistered nature of a Rule 144A security. In addition, WAM could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of market place trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of transfer). The liquidity of Rule 144A securities would be monitored and if, as a result of changed conditions, it is determined that a Rule 144A security is no longer liquid, the funds' holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that a fund does not invest more than the specified percentage of its assets in illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of a fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities. REPURCHASE AGREEMENTS Repurchase agreements are transactions in which a fund purchases a security from a bank or recognized securities dealer and simultaneously commits to resell that security to the bank or dealer at an agreed-upon price, date, and market rate of interest unrelated to the coupon rate or maturity of the purchased security. Although repurchase agreements carry certain risks not associated with direct investments in securities, a fund will enter into repurchase agreements only with banks and dealers WAM believes present minimum credit risks in accordance with guidelines approved by the board of trustees. WAM will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, WAM's prior dealings with the institution, any rating of the institution's senior long-term debt by independent rating agencies, and other relevant factors. A fund will invest only in repurchase agreements collateralized at all times in an amount at least equal to the repurchase price plus accrued interest. To the extent that the proceeds from any sale of such collateral upon a default in the obligation to repurchase were less than the repurchase price, the fund would suffer a loss. If the financial institution which is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings there may be restrictions on a fund's ability to sell the collateral and the fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or 19 liquidation proceedings are subject to the U.S. Bankruptcy Code, each fund intends to comply with provisions under such Code that would allow it immediately to resell such collateral. At present, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY are the only funds that invest in repurchase agreements, and then only with respect to not more than 5% of their respective total assets. ACORN FUND and ACORN INTERNATIONAL have no present intention of investing in repurchase agreements. WHEN-ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS The funds may purchase securities on a when-issued or delayed delivery basis. Although the payment and interest terms of these securities are established at the time the fund enters into the commitment, the securities may be delivered and paid for a month or more after the date of purchase, when their value may have changed. A fund makes such commitments only with the intention of actually acquiring the securities, but may sell the securities before the settlement date if WAM deems it advisable for investment reasons. A fund may utilize spot and forward foreign currency exchange transactions to reduce the risk inherent in fluctuations in the exchange rate between one currency and another when securities are purchased or sold on a when-issued or delayed delivery basis. A fund may enter into reverse repurchase agreements with banks and securities dealers. A reverse repurchase agreement is a repurchase agreement in which the fund is the seller of, rather than the investor in, securities and agrees to repurchase them at an agreed-upon time and price. Use of a reverse repurchase agreement may be preferable to a regular sale and later repurchase of securities because it avoids certain market risks and transaction costs. At the time a fund enters into a binding obligation to purchase securities on a when-issued basis or enters into a reverse repurchase agreement, assets of the fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a fund, may increase NAV fluctuation. The funds have no present intention of investing in reverse repurchase agreements. TEMPORARY STRATEGIES The funds have the flexibility to respond promptly to changes in market and economic conditions. In the interest of preserving shareholders' capital, WAM may employ a temporary defensive investment strategy if it determines such a strategy to be warranted. Pursuant to such a defensive strategy, a fund temporarily may hold cash (U.S. dollars, foreign currencies, multinational currency units) and/or invest up to 100% of its assets in high quality debt securities or money market instruments of U.S. issuers (or, in the case of ACORN FUND, ACORN INTERNATIONAL and ACORN FOREIGN FORTY, those of foreign issuers), and most or all of the fund's investments may be made in the United States and denominated in U.S. dollars. It is impossible to predict whether, when, or for how long a fund might employ defensive strategies. 20 In addition, pending investment of proceeds from new sales of fund shares or to meet ordinary daily cash needs, a fund temporarily may hold cash (U.S. dollars, foreign currencies, or multinational currency units) and may invest any portion of its assets in money market instruments. PORTFOLIO TURNOVER Although the funds do not purchase securities with a view to rapid turnover, there are no limitations on the length of time that portfolio securities must be held. Portfolio turnover can occur for a number of reasons such as general conditions in the securities markets, more favorable investment opportunities in other securities, or other factors relating to the desirability of holding or changing a portfolio investment. Under normal conditions, the funds' portfolio turnover rate will be below 50%. A high rate of portfolio turnover, if it should occur, would result in increased transaction expenses which must be borne by each fund. High portfolio turnover may also result in the realization of capital gains or losses and, to the extent net short-term capital gains are realized, any distributions resulting from such gains will be considered ordinary income for federal income tax purposes. LINE OF CREDIT Acorn maintains a line of credit with a bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowing may be preferable to liquidation of portfolio securities. Any borrowings under that line of credit by the funds would be subject to each fund's restrictions on borrowing under "Investment Restrictions," below. INVESTMENT RESTRICTIONS ACORN FUND In pursuing its investment objective ACORN FUND will not: 1. Invest more than 5% of its assets (valued at time of investment) in securities of any one issuer, except in government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Invest more than 5% of its assets (valued at time of investment) in securities of issuers with less than three years' operation (including predecessors); 21 5. Purchase or retain securities of a company if all of the trustees and officers of the Trust and of its investment adviser who individually own beneficially more than 1/2% of the securities of the company collectively own beneficially more than 5% of such securities; 6. Borrow money except (a) from banks for temporary or emergency purposes at fixed rates of interest in amounts not exceeding 10% of the value of the fund's assets at the time of borrowing, and (b) in connection with transactions in options and in securities index futures [the fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets]; 7. Pledge, mortgage or hypothecate its assets, except for temporary or emergency purposes and then to an extent not greater than 15% of its assets at cost, and except in connection with transactions in options and in securities index futures; 8. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market to not more than 10% of its total assets at the time of acquisition; 9. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 10. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 11. Make margin purchases of securities, except for use of such short- term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 12. Sell securities short or maintain a short position, except short sales against-the-box; 13. Participate in a joint or on a joint or several basis in any trading account in securities; 14. Invest in companies for the purpose of management or the exercise of control; 15. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. 22 ACORN INTERNATIONAL In pursuing its investment objective ACORN INTERNATIONAL will not: 1. With respect to 75% of the value of the fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer that at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Make loans, but this restriction shall not prevent the fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures. [The fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets.]; 6. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market, including repurchase agreements maturing in more than seven days, to not more than 15% of its total assets at the time of acquisition; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises that invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 23 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Sell securities short or maintain a short position, except short sales against-the-box. 11. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. ACORN USA In pursuing its investment objective ACORN USA will not: 1. With respect to 75% of the value of the Fund's total assets, invest more than 5% of its total assets (valued at time of investment) in securities of a single issuer, except securities issued or guaranteed by the government of the U.S., or any of its agencies or instrumentalities; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry, except that this restriction does not apply to investments in U.S. government securities; 4. Make loans, but this restriction shall not prevent the Fund from (a) buying a part of an issue of bonds, debentures, or other obligations that are publicly distributed, or from investing up to an aggregate of 15% of its total assets (taken at market value at the time of each purchase) in parts of issues of bonds, debentures or other obligations of a type privately placed with financial institutions, (b) investing in repurchase agreements, or (c) lending portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 6. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 24 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 9. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 10. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. ACORN TWENTY AND ACORN FOREIGN FORTY In pursuing its investment objective each of ACORN TWENTY and ACORN FOREIGN FORTY will not: 1. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 2. With respect to 50% of the value of the Fund's total assets, purchase the securities of any issuer (other than cash items and U.S. government securities and securities of other investment companies) if such purchase would cause the Fund's holdings of that issuer to exceed 5% of the Fund's total assets; 3. Invest more than 25% of its total assets in a single issuer (other than U.S. government securities); 4. Invest more than 25% of its total assets in the securities of companies in a single industry (excluding U.S. government securities); 5. Make loans, but this restriction shall not prevent the Fund from (a) investing in debt securities, (b) investing in repurchase agreements, or (c) lending its portfolio securities, provided that it may not lend securities if, as a result, the aggregate value of all securities loaned would exceed 33% of its total assets (taken at market value at the time of such loan); 6. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 33% of the value of the Fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures; 7. Underwrite the distribution of securities of other issuers; however, the Fund may acquire "restricted" securities which, in the event of a resale, might be required to be 25 registered under the Securities Act of 1933 on the ground that the Fund could be regarded as an underwriter as defined by that act with respect to such resale; 8. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 9. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) foreign currency contracts; 10. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 11. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. The above restrictions (except the bracketed language) for each fund are "fundamental," which means that they cannot be changed without the approval of the lesser of (i) 67% of each fund's shares present at a meeting if more than 50% of the shares outstanding are present or (ii) more than 50% of each fund's outstanding shares. In addition, ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY are subject to a number of restrictions that may be changed by the board of trustees without shareholder approval. Under those non-fundamental restrictions, the funds will not: a. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940; b. Invest more than 33% of its total assets (valued at time of investment) in securities of foreign issuers [this restriction applies only to Acorn Fund]; c. Invest more than 15% of its total assets in the securities of foreign issuers [this restriction applies only to ACORN TWENTY]. c. Invest more than 10% of its total assets (valued at the time of investment) in securities of non-U.S. issuers, not including securities represented by American Depository Receipts [this restriction applies only to ACORN USA]. e. Invest more than 15% of its total assets in securities of United States issuers, under normal market conditions [this restriction applies only to ACORN FOREIGN FORTY]. d. Invest in companies for the purpose of management or the exercise of control; e. Pledge, mortgage or hypothecate its assets, except as may be necessary in connection with permitted borrowings or in connection with short sales, options, futures and options on futures; 26 f. Invest more than 10% of its total assets (valued at the time of investment) in restricted securities [this restriction applies only to ACORN FUND, ACORN INTERNATIONAL and ACORN USA]; g. Invest more than 15% of its net assets (valued at time of investment) in illiquid securities, including repurchase agreements in maturing in more than seven days; and h. Make short sales of securities unless the Fund owns at least an equal amount of such securities, or owns securities that are convertible or exchangeable, without payment of further consideration, into at least an equal amount of such securities. Notwithstanding the foregoing investment restrictions, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY may purchase securities pursuant to the exercise of subscription rights, provided that, in the case of ACORN INTERNATIONAL and ACORN USA, such purchase will not result in either fund's ceasing to be a diversified investment company. Japanese and European corporations frequently issue additional capital stock by means of subscription rights offerings to existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in a fund's interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, a fund may not always realize full value on the sale of rights. The exception applies in cases where the limits set forth in the investment restrictions would otherwise be exceeded by exercising rights or would have already been exceeded as a result of fluctuations in the market value of ACORN INTERNATIONAL'S portfolio securities with the result that the fund would be forced either to sell securities at a time when it might not otherwise have done so, or to forego exercising its rights. PERFORMANCE INFORMATION From time to time the funds may quote total return figures. "Total Return" for a period is the percentage change in value during the period of an investment in shares of a fund, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return is computed as follows: ERV = P(1+T)/n/ Where: P = the amount of an assumed initial investment in shares of a fund T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period For example, as of December 31, 1998 the Total Return and Average Total Return on a $1,000 investment in the funds for the following periods were: 27
ACORN FUND Average Annual - ---------- Total Return Total Return ------------ -------------- 1 year............................ 6.02% 6.02% 5 years........................... 81.55% 12.67% 10 years.......................... 352.81% 16.29% Life of Fund (inception 6/10/70).. 7,976.85% 16.61% ACORN INTERNATIONAL Average Annual - ------------------- Total Return Total Return ------------ -------------- 1 year............................ 15.43% 15.43% 3 years........................... 39.53% 11.74% 5 years........................... 46.20% 7.89% Life of Fund (inception 9/23/92).. 133.05% 14.45% ACORN USA Average Annual - --------- Total Return Total Return ------------ -------------- 1 Year............................ 5.79% 5.79% Life of Fund (inception 9/4/96)... 63.05% 23.46% ACORN TWENTY Average Annual - ------------ Total Return Total Return ------------ -------------- Life of Fund (inception 11/23/98)........................ 7.10% N/A ACORN FOREIGN FORTY Average Annual - ------------------- Total Return Total Return ------------ -------------- Life of Fund (inception 11/23/98)........................ 10.00% N/A
The funds impose no sales charges and pay no distribution expenses. Income taxes are not taken into account. Performance figures quoted by the funds are not necessarily indicative of future results. Each fund's performance is a function of conditions in the securities markets, portfolio management, and operating expenses. Although information about past performance is useful in reviewing a fund's performance and in providing some basis for comparison with other investment alternatives, it should not be used for comparison with other investments using different reinvestment assumptions or time periods. The funds may note their mention or recognition in newsletters, newspapers, magazines, or other media. Portfolio managers and other members of WAM's staff may make presentations at conferences or trade shows, appear on television or radio programs, or conduct or participate in telephone conference calls, and the Funds may announce those presentations, appearances or 28 calls to some or all shareholders, or to potential investors in the Funds. Biographical and other information about a Fund's portfolio manager, including information about awards received by that portfolio manager or mentions of the manager in the media, may also be described or quoted in Fund advertisements or sales literature. In advertising and sales literature, each fund's performance may be compared with those of market indexes and other mutual funds. In addition to the performance information described above, a fund might use comparative performance as computed in a ranking or rating determined by Lipper Analytical Services, Inc., an independent service that monitors the performance of over 1,000 mutual funds, Morningstar, Inc., or another service. The funds may also use statistics to indicate volatility or risk. The premise of each of these measures is that greater volatility connotes greater risk undertaken in achieving performance. One measure of volatility is beta. Beta is the volatility of a fund's total return relative to the movements of a benchmark index. A beta greater than one indicates volatility greater than the index, and a beta of less than one indicates a volatility less than the index. Another measure of volatility is R-squared. It reflects the percentage of a fund's price movements that are explained by movements in the benchmark index. An R-squared of 1.00 indicates that all movements of a fund's price are completely explained by movements in the index. Generally, a higher R-squared will indicate a more reliable beta figure. Alpha is a measure used to discuss a fund's relative performance. Alpha measures the actual return of a fund compared to the expected return of a fund given its risk (as measured by beta). The expected return of a fund is based on how historical movements of the benchmark index and historical performance of a fund compare to the benchmark index. The expected return is computed by multiplying the advance or decline in a market represented by a fund's beta. A positive alpha quantifies the value that a fund manager has added and a negative alpha quantifies the value that a fund manager has lost. Beta and R-squared are calculated by performing a least squares linear regression using five years of monthly total return figures for each portfolio and benchmark combination. Alpha is calculated by taking the difference between the average monthly portfolio return and the beta-adjusted average monthly benchmark return. The result of this calculation is then geometrically annualized. The following are some benchmark indices utilized by the funds: Salomon Brothers Extended Market Index ("EMI"), an index of the bottom 20% of institutionally investable capital of countries, selected by Salomon, excluding the U.S.; Morgan Stanley's Europe, Australasia Far East Index ("EAFE"), an index of companies throughout the world in proportion to world stock market capitalizations, excluding the U.S. and Canada; the Standard & Poor's 500 Stock Index ("S&P 500"), a broad, market-weighted average of U.S. blue-chip companies; the Standard & Poor's MidCap 400 ("S&P 400"), also a broad, market-weighted average of U.S. companies in the next tier down in size from the S&P 500; and the Russell 2000 Index, an index formed by taking the 3,000 largest U.S. companies and eliminating the largest 1,000, leaving an unweighted index of 2000 small companies. All indexes are unmanaged and included reinvested dividends. 29 As of December 31, 1998, some statistics for the funds are as follows:
R2 Beta Alpha -- ---- ------ Acorn Fund - ---------- vs. S&P 500 0.70 0.89 -6.90% vs. Russell 2000 0.82 0.79 5.74% Acorn International - ------------------- vs. EMI Ex U.S. 0.68 0.80 4.29% vs. EAFE 0.63 0.70 1.58%
Other measures of volatility and relative performance may be used as appropriate. All such measures will fluctuate and do not represent future results. INVESTMENT ADVISER Wanger Asset Management, L.P. ("WAM"), serves as the investment adviser for the funds and for other institutional accounts. As of the date of this SAI, WAM has approximately $7 billion under management, including the funds. WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd. ("WAM Ltd."), whose stockholders are Ralph Wanger, Charles P. McQuaid, Leah J. Zell, Marcel P. Houtzager, Robert A. Mohn, John H. Park and Margaret M. Foster. Ralph Wanger is the president of WAM Ltd. On matters submitted to the shareholders of WAM Ltd., each shareholder has one vote (or a lesser vote in the case of new shareholders). With certain exceptions (including for extraordinary transactions, for which Mr. Wanger's consent is required), decisions are made by majority vote. WAM commenced operations in 1992. WAM furnishes continuing investment supervision to the funds under an investment advisory agreement (the "Agreement") and is responsible for overall management of the funds' business affairs. It furnishes office space, equipment and personnel to the funds; it assumes substantially all expenses for bookkeeping, and assumes the expenses of printing and distributing the funds' prospectus and reports to prospective investors. The Agreement will continue in effect as to each fund through June 30, 1999, and thereafter from year to year so long as its continuance as to each fund is approved at least annually by (i) the board of trustees of Acorn or by the holders of a majority of that fund's outstanding voting securities as defined by the Investment Company Act of 1940 and (ii) a majority of the members of Acorn's board of trustees who are not otherwise affiliated with Acorn or WAM, cast in person at a meeting called for that purpose. Any amendment to the Agreement must be approved in the same manner. The Agreement may be terminated as to a fund without penalty by the vote of the board of trustees of Acorn or the shareholders of that fund (by a majority as defined in the 1940 Act) on sixty days' written notice to WAM or by WAM on sixty days' notice to the fund, and will terminate automatically in the event of its assignment. The fees payable by a fund under the Agreement are the obligation only of that fund and impose no liability on the other funds. 30 The advisory fees the funds pay to WAM are calculated daily and paid monthly, at the annual rates shown below: ACORN FUND Average Daily Net Assets Rate of Fee ------------------------ ----------- First $700 million 0.75% $700 million to $2 billion 0.70% In excess of $2 billion 0.65% ACORN INTERNATIONAL Average Daily Net Assets Rate of Fee ------------------------ ----------- First $100 million 1.20% $100 million to $500 million 0.95% In excess of $500 million 0.75% ACORN USA Average Daily Net Assets Rate of Fee ------------------------ ----------- First $200 million 0.95% In excess of $200 million 0.90% ACORN TWENTY Rate of Fee ----------- 0.90% ACORN FOREIGN FORTY Rate of Fee ----------- 0.95% The advisory fees paid by ACORN FUND for 1998, 1997 and 1996, respectively, were $24,905,000, $14,349,000 and $12,437,000. The investment advisory fees paid by ACORN INTERNATIONAL for 1998, 1997 and 1996 were $14,124,000, $16,235,000 and $13,255,000. For the year ended December 31, 1998 and 1997 and from its inception on September 4, 1996 to December 31, 1996, ACORN USA paid investment advisory fees of $2,336,000, $1,199,000 and $101,000. For the year ended December 31, 1998 since inception on November 23, 1998, ACORN TWENTY and ACORN FOREIGN FORTY paid advisory fees of $26,000 and $11,000, respectively. All advisory fees for the periods before January 1, 1998 were paid at the rates in effect at that time, which, for ACORN FUND were lower than the rates of fee shown. WAM advanced all of ACORN USA'S organizational expenses, which are being amortized and reimbursed to WAM through September 2001. 31 Acorn has a separate administrative services agreement with WAM under which WAM receives a fee, calculated daily and paid monthly, at the annual rate of 0.05 of 1% of each fund's average daily net assets. The funds pay the cost of custodial, stock transfer, dividend disbursing, audit and legal services, and membership in trade organizations. They also pay other expenses such as the cost of maintaining the registration of their shares under federal law, complying with state securities laws, proxy solicitations, printing and distributing notices and copies of the prospectus and shareholder reports furnished to existing shareholders, taxes, insurance premiums and the fees of trustees not affiliated with WAM. DISTRIBUTOR Shares of each fund are offered for sale by WAM Brokerage Services, L.L.C. ("WAM BD") without any sales commissions, 12b-1 fees or other charges to the funds or their shareholders. WAM BD is wholly-owned by WAM and WAM Ltd. All distribution expenses relating to the funds are paid by WAM, including the payment or reimbursement of any expenses incurred by WAM BD. The Distribution Agreement for ACORN FUND, ACORN INTERNATIONAL and ACORN USA will continue in effect through December 31, 1999 and thereafter from year to year provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Trust, and (ii) by a majority of the trustees who are not parties to the Agreement or interested persons of any such party. The Distribution Agreement for ACORN TWENTY and ACORN FOREIGN FORTY will continue in effect through June 30, 1999 and thereafter from year to year provided such continuance is approved annually (i) by a majority of the trustees or by a majority of the outstanding voting securities of the Trust, and (ii) by a majority of the trustees who are not parties to the Agreement or interested persons of any such party. The Trust has agreed to pay all expenses in connection with registration of its shares with the Securities and Exchange Commission and any auditing and filing fees required in compliance with various state securities laws. WAM bears all sales and promotional expenses, including the cost of prospectuses and other materials used for sales and promotional purposes by WAM BD. WAM BD offers the funds' shares only on a best efforts basis. WAM BD is located at 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. THE TRUST The Trust is a Massachusetts business trust organized under an Agreement and Declaration of Trust dated April 21, 1992 (the "Declaration of Trust"). The Declaration of Trust may be amended by a vote of either the Trust's shareholders or its trustees. The Trust may issue an unlimited number of shares, in one or more series as the board of trustees may authorize. Any such series of shares may be further divided, without shareholder approval, into two or more classes of shares having such preferences or special or relative rights or privileges as the trustees may determine. The shares of the funds are not currently divided into classes. ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY are the only series of the Trust currently being offered. The board of trustees may authorize the issuance of additional series if deemed advisable, each with its own investment objective, policies and 32 restrictions. All shares issued will be fully paid and non-assessable and will have no preemptive or conversion rights. Under Massachusetts law, the shareholders of the Trust may, under certain circumstances believed to be remote, be held personally liable for the Trust's obligations. However, the Declaration of Trust disclaims liability of shareholders and the Trust's trustees and officers for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or contract entered into or executed by the Trust or the board of trustees. The Declaration of Trust provides for indemnification out of the assets of the Trust of all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is remote, since it is limited to circumstances in which the disclaimer is inoperative and the Trust itself is unable to meet its obligations. On any matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series except that shares are voted by individual series when required by the Investment Company Act of 1940 or other applicable law, or when the board of trustees determines that the matter affects only the interests of one series, in which case shareholders of the unaffected series are not entitled to vote on such matters. All shares of the Trust are voted together in the election of trustees. TRUSTEES AND OFFICERS The trustees and officers of the Trust, their dates of birth and their principal business activities during the past five years are: Irving B. Harris, trustee and chairman Two North LaSalle Street, Suite 400 Chicago, Illinois 60602; date of birth 8/4/1910; chairman of the executive committee and director, Pittway Corporation (multi-product manufacturer and publisher); chairman, William Harris Investors, Inc. (investment adviser); chairman, The Harris Foundation (charitable foundation); director, Teva Pharmaceutical Industries, Inc. (pharmaceutical manufacturer) Ralph Wanger, trustee and president* 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 6/21/1934; trustee and president, Wanger Advisors Trust; director, Wanger Investment Company plc; principal, Wanger Asset Management, L.P. James H. Lorie, trustee and vice chairman 1101 East 58th Street, Chicago, Illinois 60637; date of birth 2/23/1922; retired; Eli B. and Harriet B. Williams Professor of Business Administration Emeritus, University of Chicago Graduate School of Business; director, Thornburg Mortgage Asset Corp. (REIT) and Santa Fe Natural Tobacco Leo A. Guthart, trustee 165 Eileen Way, Syosset, New York 11791; date of birth 9/26/1937; vice chairman, Pittway Corporation (multi-product manufacturer and publisher); chief executive officer, Pittway Corporation's Security Group of Companies which include ADEMCO (manufacturer of alarm equipment), ADI (distributor of security equipment), Fire Burglary Instruments (supplier of security control panels), First Alert Professional (alarm 33 dealers), Alarm Net (cellular radio service) and Cylink Corporation (supplier of encryption equipment)(chairman); director, AptarGroup, Inc. (producer of dispensing valves, pumps and closures); chairman of the board of trustees, Hofstra University; chairman, Tech Transfer Island Corp. (private investment partnership); director, Long Island Research Institute. Jerome Kahn, Jr., trustee Two North LaSalle Street, Suite 400, Chicago, Illinois 60602; date of birth 4/13/1934; president, William Harris Investors, Inc. (investment adviser); director, Pittway Corporation (multi-product manufacturer and publisher). David C. Kleinman, trustee 1101 East 58/th/ Street, Chicago, Illinois 60637; date of birth 10/12/1935; senior lecturer in business administration, University of Chicago Graduate School of Business; business consultant; director, Irex Corporation (insulation contractor). Charles P. McQuaid, trustee and senior vice president* 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 8/27/1953; trustee and senior vice president, Wanger Advisors Trust; principal and director of research, Wanger Asset Management, L.P. Roger S. Meier, trustee 1211 S. W. Fifth Avenue, Portland, Oregon 97204; date of birth 1/18/1926; president, AMCO, Inc. (investment and real estate management); director, Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited Partnership (hotel chain); director and advisory board member, Key Bank of Oregon (banking); chairman of Investment Council and member of Committee of Legacy Systems (hospital); executive director and chairman of investment committee, Portland Art Museum. Allan B. Muchin, trustee 525 West Monroe Street, Chicago, Illinois 60661; date of birth 1/10/1936; partner, Katten, Muchin & Zavis (law firm); director, Alberto-Culver Company (toiletries). Robert E. Nason, trustee 130 East Randolph Drive, Chicago, Illinois 60601; date of birth 7/29/1936; director, Hach Company (manufacturer and distributor of water testing and monitoring products and agents); director, Fairfax Insurances Limited (privately owned insurance company); from 1990-1998, executive partner and chief executive officer, member of the executive committee and member of the policy board of Grant Thornton International (public accounting firm). Katherine Schipper, trustee 1101 East 58/th/ Street, Chicago, Illinois 60637; date of birth 10/04/1949; Eli B. and Harriet B. Williams Professor of Accounting, KPMG Peat Marwick Faculty Research Scholar and Director of the Institute of Professional Accounting, University of Chicago Graduate School of Business. Margaret M. Forster, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth _________; analyst and portfolio manager, Wanger Asset Management, L.P., since 1994; assistant professor of finance, Kellogg Graduate School of Management, Northwestern University, 1993-1994. 34 Marcel P. Houtzager, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 10/26/1960; vice president, Wanger Advisors Trust; principal, analyst and portfolio manager, Wanger Asset Management, L.P. Kenneth A. Kalina, assistant treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; date of birth 8/4/1959; assistant treasurer, Wanger Advisors Trust; Fund controller, Wanger Asset Management, L.P., since September 1995; prior thereto, treasurer of the Stein Roe Mutual Funds. Bruce H. Lauer, vice president, assistant secretary and treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 7/22/1957; vice president and treasurer, Wanger Advisors Trust; chief administrative officer, Wanger Asset Management, L.P. since April 1995; director, Wanger Investment Company plc; prior thereto, first vice president, investment accounting, Kemper Financial Services, Inc. Robert A. Mohn, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 9/13/1961; vice president, Wanger Advisors Trust; principal, analyst and portfolio manager, Wanger Asset Management, L.P. John H. Park, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 5/30/1967; vice president, Wanger Advisors Trust; principal, analyst and portfolio manager, Wanger Asset Management. L.P. (since 1993); analyst. Mark H. Yost, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 6/28/1963; analyst and portfolio manager, Wanger Asset Management, L.P., (since October 1995); co-portfolio manager; Wanger U.S. Smaller Companies Fund since June 1997; portfolio manager of WAM Yost Partnership, L.P.; prior thereto, investment analyst, First Chicago Corporation. Leah J. Zell, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth 5/23/1949; vice president, Wanger Advisors Trust; principal, analyst and portfolio manager, Wanger Asset Management, L.P. *Messrs. McQuaid and Wanger are trustees who are interested persons of Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs. Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member, of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. As of December 1, 1998, the trustees and officers of Acorn as a group owned beneficially less than 1% of the outstanding shares of the funds. Mr. Wanger and Ms. Zell are married to each other. At January 31, 1999, The State of Illinois Deferred Compensation Plan held 19,974,389 shares, and Charles Schwab & Co., Inc. ("Schwab") held 11,379,160 shares of Acorn Fund as owners of record, but not beneficially (9.80% and 5.58% of the outstanding shares, respectively). Schwab held 12,682,052 shares of Acorn International (15.40% of the outstanding shares) as owner of record, but not beneficially. Schwab held 2,323,554 shares, and National Financial Services Corporation, Donaldson Lufkin & Jenrette and Firstcinco Reinvest held 1,304,791, 1,213,449 and 1,158,744 shares, of Acorn USA (12.39%, 6.96%, 6.47% and 6.18% of the outstanding shares, respectively) as owners of record, but not beneficially. 35 During 1998 the funds paid fees aggregating $302,000 to board members who were not affiliated with WAM. The following table sets forth the total compensation paid by the Trust during the fiscal year ended December 31, 1998 to each of the trustees of the Trust:
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE TOTAL COMP. COMP. COMP.FROM COMP. FROM COMP. FROM COMP. FROM ACORN FUND FROM ACORN ACORN USA ACORN TWENTY+ ACORN FOREIGN FROM Name of Trustee INT. FORTY+ FUND COMPLEX (5) - -------------------------------------------------------------------------------------------------------------------------------- Irving B. Harris 60,800 27,500 2,700 0 0 $91,000 Leo A. Guthart 23,450 10,500 1,050 0 0 $35,000 Jerome Kahn, Jr. 23,450 10,500 1,050 0 0 $35,000 David C. Kleinman 23,450 10,500 1,050 0 0 $35,000 James H. Lorie 23,950 10,500 1,050 0 0 $35,500 Charles P. McQuaid 0 0 0 0 0 0 Roger S. Meier 23,450 10,500 1,050 0 0 $35,000 Adolph Meyer, Jr.* 19,430 8,700 870 0 0 $29,000 Allan B. Muchin** 1,452 650 65 0 0 $2,167 Robert E. Nason** 1,452 650 65 0 0 $2,167 Katherine Schipper** 1,452 650 65 0 0 $2,167 Ralph Wanger 0 0 0 0 0 0 - --------------------------------------------------------------------------------------------------------------------------------
+ Since November 23, 1998. * Served on the Board of the Trust until December 31, 1998. ** Elected to the Board of the Trust effective December 1, 1998. The officers and trustees affiliated with WAM serve without any compensation from the Trust. Acorn has adopted a deferred compensation plan (the "Plan") for its non-interested trustees. Under the Plan, the trustees who are not "interested persons" of Acorn or WAM ("participating trustees") may defer receipt of all or a portion of their compensation from the Trust in order to defer payment of income taxes or for other reasons. The deferred compensation payable to a participating trustee is credited to a book reserve account as of the business day such compensation would have been paid to such trustee. The deferred compensation accrues income from the date of credit in an amount equal to the amount that would have been earned had such deferred compensation (and all income earned thereon) been invested and reinvested in shares of one or more of the funds. If a participating trustee retires, such trustee may elect to receive payments under the plan in a lump sum or in equal annual installments over a period of five years. If a participating trustee dies, any amount payable under the Plan will be paid to that trustee's beneficiaries. Each fund's obligation to make payments under the Plan is a general obligation of that fund. No fund is liable for any other fund's obligations to make payments under the Plan. 36 PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the funds' prospectus under the headings "Your Account - How to Buy Shares" and "Your Account - How to Sell Shares." All of that information is incorporated herein by reference. Acorn may from time to time authorize certain financial services companies, broker-dealers or their designees ("authorized agents") to accept share purchase and redemption orders on behalf of the funds. Some of those authorized agents may charge transaction fees for their services. For purchase orders placed through an authorized agent, a shareholder will pay the fund's NAV per share (see "Purchasing and Redeeming Shares - Net Asset Value," below) next computed after the receipt by the authorized agent of such purchase order, plus any applicable transaction charge imposed by the agent. For redemption orders placed through an authorized agent, a shareholder will receive redemption proceeds which reflect the NAV per share next computed after the receipt by the authorized agent of the redemption order, less any redemption fees imposed by the agent. In some instances, an authorized agent will not charge any transaction fees directly to investors in a fund. However, for accounting and shareholder servicing services provided by such agent with respect to fund share accounts held on behalf of its customers, the agent may charge a fee, generally a percentage of the annual average value of those accounts. WAM pays any such fees. NET ASSET VALUE Share purchase and redemption orders will be priced at a fund's NAV next computed after such orders are received and accepted by: (i) Acorn's transfer agent; (ii) a broker-dealer or other financial services company authorized by Acorn to accept purchase and redemption orders on the fund's behalf; or (iii) such authorized broker-dealer's designee. Each fund's NAV is determined only on days on which the New York Stock Exchange ("NYSE") is open for trading. The NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the third Monday in January, the third Monday in February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of those holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Computation of NAV (and the sale and redemption of fund shares) may be suspended or postponed during any period when (a) trading on the NYSE is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of the funds not reasonably practicable. For purposes of computing the NAV of a fund share, a security traded on a securities exchange, or in an over-the-counter market in which transaction prices are reported, is valued at the last sale price at the time of valuation. A security for which there is no reported sale on the 37 valuation date is valued at the mean of the latest bid and ask quotations or, if there is no ask quotation, at the most recent bid quotation. Securities for which quotations are not available, or for which the market quotation is determined not to represent a fair value, and any other assets are valued at a fair value as determined in good faith by the board of trustees. Money market instruments having a maturity of 60 days or less from the valuation date are valued on an amortized cost basis. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at the mean of the bid and offer prices of such currencies against U.S. dollars quoted by any major bank or dealer. If such quotations are not available, the rate of exchange will be determined in accordance with policies established in good faith by the board of trustees. Trading in the foreign securities of the funds' portfolios may take place in various foreign markets at certain times and on certain days (such as Saturday) when the NYSE is not open for business and the funds do not calculate their NAVs. Conversely, trading in the funds' foreign securities may not occur at times and on days when the NYSE is open. Because of the different trading hours in various foreign markets, the calculation of NAV does not take place contemporaneously with the determinations of the prices of many of the funds' foreign securities. Those timing differences may have a significant effect on a fund's NAV. Acorn has elected to be governed by Rule 18f-1 under the Investment Company Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the NAV of a fund during any 90-day period for any one shareholder. Redemptions in excess of the above amounts will normally be paid in cash, but may be paid wholly or partly by a distribution in kind of securities. If a redemption is made in kind, the redeeming shareholder would bear any transaction costs incurred in selling the securities received. Due to the relatively high cost of maintaining smaller accounts, Acorn reserves the right to redeem shares in any account for their then-current value (which will be promptly paid to the investor) if at any time the account value falls below $1,000 because of share redemptions. An investor will be notified that the value of his account is less than that minimum and allowed at least 30 days to bring the value of the account up to at least $1,000 before the redemption is processed. The Agreement and Declaration of Trust also authorizes Acorn to redeem shares under certain other circumstances as may be specified by the board of trustees. WAM acts as a shareholder servicing agent for the Reich & Tang Money Funds (the "Money Funds") in connection with an exchange plan between the Acorn funds and the Money Funds (the "Switch Plan"). For its services it receives a fee at the rate of 0.35% of the average annual net assets of each account in a Money Fund established through the Switch Plan, pursuant to a 12b-1 plan adopted by the Money Funds. ADDITIONAL TAX INFORMATION Each fund intends to continue to qualify to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code (the "Code") so as to avoid payment of 38 federal income tax on its capital gains and net investment income currently distributed to its shareholders. At the time of your purchase, a fund's NAV may reflect undistributed income, capital gains, or net unrealized appreciation of securities held by that fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, will be taxable either as a dividend or capital gain distribution, whether received in cash or reinvested in additional shares. For federal income tax purposes, any distribution that is paid in January but that was declared in the prior calendar year is deemed paid in the prior calendar year. You will be subject to income tax at ordinary rates on income dividends and distributions of net short-term capital gains. The Internal Revenue Service Restructuring and Reform Act of 1998 eliminated the requirement that capital assets be held for more than 18 months in order to be taxed at the lowest rate in effect under current law, and instead permits capital assets to be so taxed if held for more than one year. This change applies generally to sales transactions which occur during taxable years ending after December 31, 1997. You will be subject to income tax at ordinary rates on income dividends and distributions of net short-term capital gain. Distributions of net long-term capital gains are taxable to you as long-term capital gains (currently taxed at a maximum rate of 20%) regardless of the length of time you have held your shares. Long-term gains are those derived from securities held by the Fund for more than one year. You will be advised annually as to the source of distributions for tax purposes. If you are not subject to tax on your income, you will not be required to pay tax on these amounts. If you realize a loss on the sale of fund shares held for six months or less, your short-term loss is recharacterized as long-term to the extent of any long-term capital gain distributions you have received with respect to those shares. Under certain circumstances, Acorn may be required to withhold 31% federal income tax ("backup withholding") from dividend, capital gain and redemption payments to you. Backup withholding may be required if: (a) you fail to furnish your social security or other tax identification number; (b) you fail to certify that your social security or tax identification number is correct and that you are not subject to backup withholding due to the underreporting of certain income; or (c) the IRS informs Acorn that your tax identification number is incorrect. These certifications are contained in the application that you complete when you open your fund account. Acorn must promptly pay the IRS all amounts withheld. Therefore, it is usually not possible for Acorn to reimburse you for amounts withheld. You may, however, claim the amount withheld as a credit on your federal income tax return. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the income dividend paid by a fund will be increased; if the result is a loss, the income dividend paid by a fund will be decreased. Dividends paid by ACORN INTERNATIONAL and ACORN FOREIGN FORTY are not eligible for the dividends-received deduction for corporate shareholders, if as expected, none of that fund's 39 income consists of dividends paid by United States corporations. A portion of the dividends paid by ACORN FUND, ACORN USA and ACORN TWENTY is expected to be eligible for the dividends-received deduction. Capital gain distributions paid from the funds are never eligible for this deduction. Income received by the funds from sources within various foreign countries will be subject to foreign income taxes withheld at the source. Under the Code, if more than 50% of the value of a fund's total assets at the close of its taxable year comprises securities issued by foreign corporations, that fund may file an election with the IRS to "pass through" to its shareholders the amount of foreign income taxes paid by that fund. Pursuant to this election, shareholders will be required to: (i) include in gross income, even though not actually received, their respective pro rata share of foreign taxes paid by the fund; (ii) treat their pro rata share of foreign taxes as paid by them; and (iii) either deduct their pro rata share of foreign taxes in computing their taxable income, or use it as a foreign tax credit against U.S. income taxes (but not both). No deduction for foreign taxes may be claimed by a shareholder who does not itemize deductions. Each of ACORN INTERNATIONAL and ACORN FOREIGN FORTY intends to meet the requirements of the Code to "pass through" to its shareholders foreign income taxes paid, but there can be no assurance that it will be able to do so. Each shareholder will be notified within 60 days after the close of each taxable year of ACORN INTERNATIONAL or ACORN FOREIGN FORTY, if the foreign taxes paid by the fund will "pass through" for that year, and, if so, the amount of each shareholder's pro rata share (by country) of (i) the foreign taxes paid, and (ii) the fund's gross income from foreign sources. Shareholders who are not liable for federal income taxes, including retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. ACORN FUND, ACORN USA and ACORN TWENTY do not expect to be able to "pass through" foreign tax credits. TAXATION OF FOREIGN SHAREHOLDERS The Code provides that dividends from net income, which are deemed to include for this purpose each shareholder's pro rata share of foreign taxes paid by ACORN INTERNATIONAL and ACORN FOREIGN FORTY (see discussion of "pass through" of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who are not engaged in a business in the U.S., this tax would be imposed at the rate of 30% upon the gross amount of the dividend in the absence of a tax treaty providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. PORTFOLIO TRANSACTIONS Portfolio transactions of the funds are placed with those securities brokers and dealers that WAM believes will provide the best value in transaction and research services for each fund, either in a particular transaction or over a period of time. Although some transactions involve only brokerage services, many involve research services as well. 40 In valuing brokerage services, WAM makes a judgment as to which brokers are capable of providing the most favorable net price (not necessarily the lowest commission) and the best execution in a particular transaction. Best execution connotes not only general competence and reliability of a broker, but specific expertise and effort of a broker in overcoming the anticipated difficulties in fulfilling the requirements of particular transactions, because the problems of execution and the required skills and effort vary greatly among transactions. In valuing research services, WAM makes a judgment of the usefulness of research and other information provided to WAM by a broker in managing each fund's investment portfolio. In some cases, the information, e.g., data or recommendations concerning particular securities, relates to the specific transaction placed with the broker, but for the greater part the research consists of a wide variety of information concerning companies, industries, investment strategy, and economic, financial, and political conditions and prospects, useful to WAM in advising that fund. The reasonableness of brokerage commissions paid by the funds in relation to transaction and research services received is evaluated by WAM's staff on an ongoing basis. The general level of brokerage charges and other aspects of each fund's portfolio transactions are reviewed periodically by the board of trustees and its committee on portfolio transactions. WAM is the principal source of information and advice to the funds, and is responsible for making and initiating the execution of investment decisions by the funds. However, the board of trustees recognizes that it is important for WAM, in performing its responsibilities to the funds, to continue to receive and evaluate the broad spectrum of economic and financial information that many securities brokers have customarily furnished in connection with brokerage transactions, and that in compensating brokers for their services, it is in the interest of the funds to take into account the value of the information received for use in advising the funds. The extent, if any, to which the obtaining of such information may reduce WAM's expenses in providing management services to the funds is not determinable. In addition, the board of trustees understands that other clients of WAM might benefit from the information obtained for the funds, in the same manner that the funds might benefit from information obtained by WAM in performing services to others. Transactions of the funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Brokerage commissions incurred by the funds during the last three fiscal years, not including the gross underwriting spread on securities purchased in underwritten public offerings, were as follows:
FUND 1998 1997 1996 ------------------------------------------------------------------------------------ Acorn Fund $2,766,000 $2,952,000 $3,440,000 Acorn International 4,111,000 5,350,000 3,929,000
41 Acorn USA 305,000 216,000 88,900* Acorn Twenty 53,000** N/A N/A Acorn Foreign Forty 41,000** N/A N/A
* From commencement of operations on September 4, 1996. ** From commencement of operations on November 23, 1998. During 1998, the funds paid brokerage commissions in connection with portfolio transactions involving purchases and sales to brokers who furnished investment research services to the funds, as follows: ACORN FUND paid approximately $1,268,000 in brokerage commissions on purchases and sales aggregating approximately $448 million; ACORN INTERNATIONAL paid approximately $3,619,000 in brokerage commissions on purchases and sales aggregating approximately $1,019 million; ACORN USA paid approximately $80,000 in brokerage commissions aggregating approximately $37 million; ACORN TWENTY paid approximately $22,000 in brokerage commissions aggregating approximately $9 million; and ACORN FOREIGN FORTY paid approximately $37,000 in brokerage commissions aggregating approximately $12 million. The funds and WAM each have adopted a code of ethics that, among other things, regulates the personal transactions in securities of certain officers, directors, partners and employees of Acorn and WAM. Although investment decisions for the funds are made independently from those for other investment advisory clients of WAM, it may develop that the same investment decision is made for one or more of the funds and one or more other advisory clients. If any of the funds and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each. CUSTODIAN State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts 02266-8502 ("State Street") is the custodian for the funds. It is responsible for holding all securities and cash of the funds, receiving and paying for securities purchased, delivering against payment securities sold, receiving and collecting income from investments, making all payments covering expenses of the funds, and performing other administrative duties, all as directed by authorized persons of the funds. State Street does not exercise any supervisory function in such matters as purchase and sale of portfolio securities, payment of dividends, or payment of expenses of the funds. The funds have authorized State Street to deposit certain portfolio securities of the funds in central depository systems as permitted under federal law. The funds may invest in obligations of State Street and may purchase or sell securities from or to State Street. INDEPENDENT AUDITORS Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois 60606 audits and reports on the funds' annual financial statements, reviews certain regulatory reports 42 and the funds' tax returns, and performs other professional accounting, auditing, tax, and advisory services when engaged to do so by the funds. 43 APPENDIX - DESCRIPTION OF BOND RATINGS A rating of a rating service represents the service's opinion as to the credit quality of the security being rated. However, the ratings are general and are not absolute standards of quality or guarantees as to the creditworthiness of an issuer. Consequently, WAM believes that the quality of debt securities in which the funds invest should be continuously reviewed. A rating is not a recommendation to purchase, sell or hold a security, because it does not take into account market value or suitability for a particular investor. When a security has received a rating from more than one service, each rating should be evaluated independently. Ratings are based on current information furnished by the issuer or obtained by the ratings services from other sources which they consider reliable. Ratings may be changed, suspended or withdrawn as a result of changes in or unavailability of such information, or for other reasons. The following is a description of the characteristics of ratings used by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation ("S&P"). MOODY'S RATINGS Aaa--Bonds rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. Although the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such bonds. Aa--Bonds rated Aa are judged to be high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa bonds or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risk appear somewhat larger than in Aaa bonds. A--Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. 44 B--Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or there may be present elements of danger with respect to principal or interest. Ca--Bonds rated Ca represent obligations which are speculative in a high degree. Such bonds are often in default or have other marked shortcomings. S&P RATINGS AAA--Bonds rated AAA have the highest rating. Capacity to pay principal and interest is extremely strong. AA--Bonds rated AA have a very strong capacity to pay principal and interest and differ from AAA bonds only in small degree. A--Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB--Bonds rated BBB are regarded as having an adequate capacity to pay principal and interest. Whereas they normally exhibit protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this capacity than for bonds in higher rated categories. BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation among such bonds and CC the highest degree of speculation. Although such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. 45 FINANCIAL STATEMENTS Acorn Twenty Statement of Investments December 31, 1998
Number of Shares Value (000) - ------------------------------------------------------------------ Common Stocks: 94.4% - ------------------------------------------------------------------ Information: 39.0% Television Programming: 3.4% 25,000 Liberty Media Group, Tele-Communications (b) $1,152 CATV & Satellite Dish Programming Telephone Services: 8.9% 170,000 RCN 3,007 Metro Market: Voice, Video & Data Services Mobile Communications: 11.0% 83,000 Telephone and Data Systems 3,730 Cellular & Telephone Franchises Business Information/ Marketing Services: 15.7% 50,000 Acxiom (b) 1,550 Database Marketing Services 28,000 H & R Block 1,260 Tax Preparation 40,000 TCI Ventures (b) 943 Communication Services 70,000 PRIMEDIA 823 Specialty Magazines & Other Publications 25,000 ACNielsen (b) 706 Retail Measurement - ------------------------------------------------------------------ 5,282 ------- Information: Total 13,171 - ------------------------------------------------------------------ Health Care: 12.8% Services: 12.8% 40,000 Lincare Holdings (b) 1,622 Home Health Care Services 91,000 First Health Group (b) 1,507 PPO Network 41,000 HBO & Company 1,176 Hospital Computer Services 4,305 ------- Health Care: Total 4,305 - ------------------------------------------------------------------ Consumer Goods/Services: 12.1% Cruise Lines: 5.2.% 47,000 Royal Caribbean Cruises $1,739 Cruises to Caribbean & Alaska Leisure Vehicles: 3.4% 24,000 Harley-Davidson 1,137 Motorcycles & Related Merchandise Manufacturers: 3.5% 54,000 Jones Apparel (b) 1,191 Women's Apparel ------- Consumer Goods/Services: Total 4,067 - ------------------------------------------------------------------ Finance: 17.4% Finance Companies: 5.6% 135,000 Americredit (b) 1,865 Auto Lending Insurance: 5.0% 10,000 Progressive 1,694 Auto Insurance Banks: 6.8% 28,000 Republic NY 1,276 Private & Retail Banking 51,000 Peoples Heritage Financial 1,020 New England Bank - ------------------------------------------------------------------ 2,296 ------ Finance: Total 5,855 - ------------------------------------------------------------------ Industrial Goods/Services: 5.6% Logistics: 5.6% 45,000 Expeditors International of Washington 1,890 International Freight Forwarder ------ Industrial Goods/Services: Total 1,890
46
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------- - -------------------------------------------------------------- Energy/Minerals: 7.5% Independent Power: 7.5% 28,000 AES Corporation (b) $ 1,326 Power Plants 35,000 CalEnergy (b) 1,214 Power Plants/Competitive Utility - -------------------------------------------------------------- 2,540 ------- Energy/Minerals: Total 2,540 ------- Total Common Stocks: 94.4% 31,828 (Cost: $29,296) Short-Term Obligations: 2.9% $ 994 State Street Bank Repurchase Agreement 994 2.0% Maturing 1/4/99; 12/31/98 Agreement Collateralized by U.S. Treasury Bonds - -------------------------------------------------------------- (Cost: $994) 994 ------- Total Investments: 97.3% 32,822 (Cost: $30,290) ------- Cash and Other Assets Less Liabilities: 2.7% 902 ------- Total Net Assets: 100% $33,724 ==============================================================
>Notes to Statement of Investments (a) At December 31, 1998, for federal income tax purposes cost of investments was $30,290,000 and net unrealized appreciation was $2,532,000, consisting of gross unrealized appreciation of $2,805,000 and gross unrealized depreciation of $273,000. (b) Non-income producing security. 47 Acorn Foreign Forty Statement of Investments December 31, 1998
Number of Shares Value (000) - ------------------------------------------------------------------ Common Stocks: 90.3% - ------------------------------------------------------------------ Europe: 71.5% Germany: 1.3% 2,000 Rhoen Klinikum $199 Hospital Management Denmark: 2.1% 5,000 ISS International System 325 Cleaning Services Finland: 2.8% 7,500 Helsinki Telephone 449 Telecommunications Operator Sweden: 0.9% 4,000 Autoliv 149 Seatbelts & Airbags France: 7.1% 2,500 Atos (b) 598 Computer Services/Transaction Processing 2,000 SITA 524 Waste Hauling & Landfills - ------------------------------------------------------------------ 1,122 United Kingdom: 23.1% 60,000 Hays 527 Outsourcing Services 9,000 NTL (b) 508 Voice, Video & Data Services 150,000 Smith & Nephew 467 Medical Equipment 30,000 Bodycote 415 Materials Technology & Metal Processing 45,000 Logica 391 Computer Software & Services 60,000 Airtours 383 Markets & Operates Packaged Tour Vacations 20,000 Serco Group (b) 383 Facilities Management 35,000 Sema Group 344 Computer Software & Services 10,000 Energis (b) 224 Telecommunications Services - ------------------------------------------------------------------ 3,642 Switzerland: 5.6% 350 Cie Fin Richemont 495 Luxury Goods, Tobacco & Pay TV 250 Pargesa Holdings 395 Industrial & Media Conglomerate - ------------------------------------------------------------------ 890 Italy: 7.4% 160,000 Olivetti (b) 558 Mobile Telecommunications 42,000 Editoriale L'Espresso 369 Newspapers & Magazines 30,000 Autogrill 242 Tollway Restaurants - ------------------------------------------------------------------ 1,169 7,500 Aguas de Barcelona $ 503 Utility 12,000 Mapfre Vida 452 Life Insurance & Mutual Funds - ------------------------------------------------------------------ 955 Netherlands: 15.1% 23,000 Unique International 527 Temporary Employment 20,000 Kon. Pakhoed 505 Logistics 9,000 Global TeleSystems (b) 502 Telecommunications Services 13,000 Hunter Douglas 431 Decorative Window Coverings 4,543 ASR Verzekeringsgroep 412 Insurance - ------------------------------------------------------------------ 2,377 ------ Europe: Total 11,277 - ------------------------------------------------------------------ Asia: 11.6% Hong Kong: 0.1% 7,000 Li and Fung 14 Sourcing of Consumer Goods Japan: 8.3% 100 NTT Data 497 Computer Services/Data Communications 2,500 Nintendo 243 Video Games 10,000 Terumo 236 Health Care Supplies 2,000 Softbank 120 Software/Network Services 1,500 Takefuji 110 Unsecured Loans 4,500 NuSkin Enterprises (b) 106 Cosmetics Sold Door-to-Door - ------------------------------------------------------------------ 1,312 Singapore: 3.2% 200,000 Natsteel Electronics 509 Electronic Manufacturing Services ----- Asia: Total 1,835 - ------------------------------------------------------------------ Other Countries: 7.2% Canada: 5.8% 19,000 Celestica (b) 468 Electronic Manufacturing Services 20,000 Canadian Natural Resources (b) 299 Oil & Gas Producer 7,000 Power Financial 155 Financial Services Holding Company - ------------------------------------------------------------------ 922 Israel: 0.6% 5,000 Amdocs (b) 86 Telecommunications Billing & Customer Care Software See accompanying notes to financial statements
48
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------------- South Africa: 0.8% 16,000 Comparex Holdings $ 130 Computer Networking & Systems Integration ------ Other: Total 1,138 Total Common Stocks: 90.3% 14,250 (Cost: $13,084) Short-Term Obligations: 10.8% $ 1,709 State Street Bank Repurchase Agreement 1,709 3.25% Maturing 1/4/99; 12/31/98 Agreement Collateralized by U.S. Treasury Bonds - ------------------------------------------------------------------- (Cost: $1,709) 1,709 Total Investments: 101.1% $15,959 (Cost: $14,793) ------- Cash and Other Assets Less Liabilities: (1.1%) (174) ------- Total Net Assets: 100% $15,785 - -------------------------------------------------------------------
Notes to Statement of Investments (a) At December 31, 1998, for federal income tax purposes cost of investments was $14,812,000 and net unrealized appreciation was $1,147,000, consisting of gross unrealized appreciation of $1,289,000 and gross unrealized depreciation of $142,000. (b) Non-income producing security. Portfolio Diversification At December 31, 1998, Acorn Foreign Forty's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent ----------------------------------------------------- Information Computer Services $ 1,960 12.5% Telephone Services 1,175 7.5 Mobile Communications 558 3.5 Contract Manufacturing 509 3.2 CATV 508 3.2 Publishing 489 3.1 Business Software 86 0.5 - ------------------------------------------------------ 5,285 33.5 Health Care Hospital/Laboratory Supplies 467 3.0 Medical Equipment 236 1.5 Hospital Management 199 1.2 - ------------------------------------------------------ 902 5.7 Consumer Goods/Services Durable Goods 580 3.7 Entertainment 495 3.1 Travel 383 2.4 Consumer Software 243 1.5 Restaurants 242 1.5 Nondurables 106 0.8 - ------------------------------------------------------ 2,049 13.0 Finance Insurance 1,019 6.5 Closed-End Funds 395 2.5 Savings & Loan 110 0.7 - ------------------------------------------------------ 1,524 9.7 Industrial Goods/Services Outsourcing Services $ 1,776 11.3% Industrial Services 505 3.2 Electrical Components 468 3.0 Industrial Materials 415 2.5 - ------------------------------------------------------ 3,164 20.0 Energy/Minerals Oil/Gas Producers 299 1.9 Other Industries Waste Management 524 3.3 Regulated Utilities 503 3.2 - ------------------------------------------------------ 1,027 6.5 Total Common Stocks: 14,250 90.3 Short-Term Obligations: 1,709 10.8 - ------------------------------------------------------ Total Investments: 15,959 101.1 Cash and Other Assets less Liabilities: (174) (1.1) - ------------------------------------------------------ Net Assets: $15,785 100.0%
49
Acorn USA Major Portfolio Changes in the Fourth Quarter Number of Shares ------------------ 9/30/98 12/31/98 Additions - ---------------------------------------------------- Information Aspect Telecommunications 146,100 377,100 Aztec Technology Partners 243,000 531,300 Information Management 0 22,000 JDA Software 0 214,000 Micros Systems 391,500 518,500 National Data 182,100 214,300 Sykes Enterprises 196,300 258,500 Systems & Computer Technology 0 210,400 - ---------------------------------------------------- Health Care CuraGen 0 49,100 First Health Group 152,000 352,000 Lincare Holdings 275,200 352,200 - ---------------------------------------------------- Consumer Goods/Services First Years 0 2,500 Host Marriott Services 842,100 930,600 - ---------------------------------------------------- Finance Americredit 0 135,000 Markel 0 13,800 - ---------------------------------------------------- Industrial Goods/Services Compass International Services 83,000 243,000 Wackenhut, Cl. B 349,500 382,200 - ---------------------------------------------------- Energy/Minerals CalEnergy 573,400 674,400 Tesoro Petroleum 439,300 483,800 Sales - ---------------------------------------------------- Information Cable Michigan 35,100 0 Mecklermedia 378,800 0 Mettler Toledo 93,000 56,000 Startec Global Communications 124,400 0 Thermoquest 102,300 0 United Video Satellite Group 312,000 288,000 - ---------------------------------------------------- Finance AmerUs Life Holdings 210,500 184,500 Washington Mutual 149,500 94,400 (includes effect of 1.68 for 1 share merger with H.F. Ahmanson) - ---------------------------------------------------- Industrial Goods/Services Trailer Bridge 51,000 0 - ---------------------------------------------------- Energy/Minerals J Ray McDermott 52,400 37,900
50 Acorn USA Statement of Investments December 31, 1998
Number of Shares Value (000) - ---------------------------------------------------------------------------- Common Stocks: 93.3% - ---------------------------------------------------------------------------- Information: 38.0% Broadcasting: 2.2% 209,100 Data Transmission Network (b) $ 6,038 Data Services for Farmers Television Programming: 4.2% 288,000 United Video Satellite Group (b) 6,804 CATV & Satellite Dish Programming 106,000 Liberty Media Group, Tele-Communications (b) 4,883 CATV & Satellite Dish Programming - ---------------------------------------------------------------------------- 11,687 Telephone Services: 3.3% 402,700 RCN (b) 7,123 Metro Market: Voice, Video & Data Services 65,500 Commonwealth Telephone (b) 2,194 Rural Market: Local, Long Distance & Internet Access - ---------------------------------------------------------------------------- 9,317 Mobile Communications: 4.7% 254,000 Centennial Cellular (b) 10,414 Cellular Franchises 121,800 COMARCO (b) 2,923 Wireless Network Testing - ---------------------------------------------------------------------------- 13,337 Telecommunications Equipment: 2.3% 377,100 Aspect Telecommunications (b) 6,505 Call Center Equipment Gaming Equipment: 1.3% 146,000 International Game Technology 3,550 Slot Machines & Progressive Jackpots Computer Services: 3.5% 258,500 Sykes Enterprises (b) 7,884 Call Center Services 531,300 Aztec Technology Partners (b) 1,926 Technology Staffing Services - ---------------------------------------------------------------------------- 9,810 Consumer Software: 0.4% 111,900 Activision (b) 1,245 Entertainment Software Business Software: 1.8% 210,400 Systems & Computer Technology (b) 2,893 Enterprise Software & Services 214,000 JDA Software (b) 2,073 Applications Software & Services for Retailers 22,000 Information Management (b) 129 Call Center Software - ---------------------------------------------------------------------------- 5,095
Number of Shares Value (000) - ---------------------------------------------------------------------------- Transaction Processors: 3.7% 214,300 National Data $ 10,434 Credit Card & Health Claims Processor Instrumentation: 0.6% 56,000 Mettler Toledo (b) 1,571 Laboratory Products Business Information/ Marketing Services: 1.6% 408,100 IntelliQuest Information (b) 2,755 Technology/Market Research 240,500 Info USA, Cl. B (b) 1,263 107,000 Info USA, Cl. A 522 Business Data for Sales Leads - ---------------------------------------------------------------------------- 4,540 Computer Hardware/ Related Equipment: 8.4% 518,500 Micros Systems (b) 17,046 Information Systems for Restaurants & Hotels 147,100 Kronos (b) 6,518 Time Accounting Software & Clocks - ---------------------------------------------------------------------------- 23,564 -------- Information: Total 106,693 - ---------------------------------------------------------------------------- Health Care: 9.2% Biotechnology/Drug Delivery: 0.5% 78,000 Synaptic Pharmaceuticals (b) 1,170 Receptor Targeted Drug Design 49,100 CuraGen (b) 347 Genomics - ---------------------------------------------------------------------------- 1,517 Services: 8.7% 352,200 Lincare Holdings (b) 14,286 Home Health Care Services 352,000 First Health (b) 5,830 PPO Network 520,000 Magellan Health Services (b) 4,355 Mental Health Services - ---------------------------------------------------------------------------- 24,471 -------- Health Care: Total 25,988 - ---------------------------------------------------------------------------- Consumer Goods/Services: 3.6% Retail: 3.4% 930,600 Host Marriott Services (b) 9,655 Fast Food Kiosks in Airports Nondurables: 0.0% 2,500 First Years 39 Infant & Toddler Products Food: 0.2% 84,700 Fresh Foods (b) 402 Prepared Foods -------- Consumer Goods/Services: Total 10,096
See accompanying notes to financial statements 51 Acorn USA Statement of Investments
Number of Shares Value (000) - ---------------------------------------------------------------------------- - ---------------------------------------------------------------------------- Finance: 13.3% Savings & Loans: 1.7% 94,400 Washington Mutual $ 3,605 West Coast Savings & Loan 156,500 Coast Contingency Rights (b) 1,037 Litigation Claim Against US Government - ---------------------------------------------------------------------------- 4,642 Finance Companies: 2.0% 590,000 World Acceptance (b) 3,835 Personal Loans 135,000 Americredit (b) 1,865 Auto Lending - ---------------------------------------------------------------------------- 5,700 Money Management: 0.4% 52,800 Pioneer Group 1,043 Equity Mutual Funds Insurance: 9.2% 342,700 UICI (b) 8,396 Health Insurance 392,100 Acceptance Insurance (b) 7,940 Crop Insurance 184,500 AmerUs Life Holdings 4,128 Annuities/Life Insurance 93,000 Leucadia National 2,929 Insurance Holding Company 13,800 Markel (b) 2,498 Specialty Insurance - ---------------------------------------------------------------------------- 25,891 -------- Finance: Total 37,276 - ---------------------------------------------------------------------------- Industrial Goods/Services: 11.5% Steel: 0.9% 97,300 Schnitzer Steel 1,399 Scrap Steel Processor 119,000 Atchison Casting (b) 1,101 Steel Foundries - ---------------------------------------------------------------------------- 2,500 Industrial Distribution: 0.5% 70,000 Vallen (b) 1,400 Safety Products Distribution Machinery: 0.8% 221,200 Farr Company (b) 2,239 Filters Specialty Chemicals: 1.6% 225,600 Lilly Industries, Cl. A 4,498 Industrial Coatings
Number of Shares Value (000) - ---------------------------------------------------------------------------- Other Industrial Services: 7.7% 382,200 Wackenhut, Cl. B $ 8,384 Prison Management 346,000 Hub Group (b) 6,704 Truck & Rail Freight Forwarder 334,500 Insurance Auto Auctions (b) 3,972 Auto Salvage Services 243,000 Compass International Services (b) 2,582 Collection Agencies - ---------------------------------------------------------------------------- 21,642 -------- Industrial Goods/Services: Total 32,279 - ---------------------------------------------------------------------------- Energy/Minerals: 16.5% Independent Power: 8.3% 674,400 CalEnergy (b) 23,393 Power Plants/Competitive Utility Oil/Gas Producers: 2.1% 483,800 Tesoro Petroleum (b) 5,866 Oil Refinery/Gas Reserves Distribution/Marketing/Refining: 5.1% 283,000 Atmos Energy 9,127 Natural Gas Utility 92,300 Equitable Resources 2,688 Natural Gas Utility & Producer 228,400 Dynegy 2,498 Natural Gas Processing & Marketing - ---------------------------------------------------------------------------- 14,313 Oil Services: 1.0% 179,000 GeoScience (b) 1,958 Offshore Seismic Equipment Company 37,900 J Ray McDermott (b) 926 Offshore Construction Company - ---------------------------------------------------------------------------- 2,884 -------- Energy/Minerals: Total 46,456 - ---------------------------------------------------------------------------- Real Estate: 1.2% 85,400 Forest City Enterprises Cl. A 2,242 Shopping Centers 39,100 Gaylord Entertainment (b) 1,178 Opryland Hotel & Other Assets - ---------------------------------------------------------------------------- 3,420 -------- Real Estate: Total 3,420
See accompanying notes to financial statements 52
Principal Amount Value (000) - ---------------------------------------------------------------------------- -------- Total Common Stocks: 93.3% $262,208 (Cost: $245,467) Short-Term Obligations: 7.0% Yield 4.90%-6.11% Due 1/4-1/6/99 $8,132 American General 8,126 $6,454 General Motors Acceptance 6,451 $5,003 General Electric Capital 5,000 - ---------------------------------------------------------------------------- (Amortized Cost: $19,577) 19,577 -------- Total Investments: 100.3% 281,785 Cost: $265,044) -------- Cash and Other Assets Less Liabilities: (0.3%) (834) -------- Total Net Assets: 100% $280,951 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- Notes to Statement of Investments (a) At December 31, 1998, for federal income tax purposes cost of investments was $265,251,000 and net unrealized appreciation was $16,534,000, consisting of gross unrealized appreciation of $48,630,000 and gross unrealized depreciation of $32,096,000. (b) Non-income producing security. 53 Acorn International Major Portfolio Changes in the Fourth Quarter
Number of Shares ---------------------- 9/30/98 12/31/98 Additions - -------------------------------------------------------------------------- Europe Denmark Carli Gry 0 100,000 Finland Helsinki Telephone 0 85,000 Sweden Esselte, Series A 309,400 400,000 Mandator 0 50,000 Semcon 0 35,400 France SITA 35,000 45,000 United Kingdom Airtours 0 600,000 Atkins 1,100,000 1,350,000 Bodycote 0 450,000 Energis 0 50,000 HALMA 3,400,000 4,000,000 Hays 0 350,000 (includes effect of 100% stock bonus) Logica 75,000 575,000 (includes effect of 5 for 1 stock split) Ocean Group 0 225,000 (includes effect of 9 for 10 reverse stock split) Parity 200,000 500,000 Premier Oil 0 10,000,000 Sema Group 0 401,908 Smith & Nephew 0 500,000 Taylor Nelson 0 3,500,000 Switzerland Cie Fin Richemont 19,000 20,000 Italy Aeroporti di Roma 1,000,000 1,400,000 Autogrill 2,750,000 2,900,000 Banca Fideuram 2,725,000 3,000,000 Spain/Portugal Aguas de Barcelona 5,000 79,500 Mapfre Vida 335,000 370,000 Jeronimo Martins (Portugal) 0 13,800 Netherlands ASR Verzekeringsgroep 130,000 145,000 Global TeleSystems 0 40,000 Kon. Pakhoed 0 150,000 Hungary Gedeon Richter 0 30,000 Matav 0 750,000
Number of Shares ---------------------- 9/30/98 12/31/98 Additions - -------------------------------------------------------------------------- Asia Hong Kong TVB 0 1,500,000 Varitronix International 8,585,000 9,250,000 Japan Bellsystem 24 0 10,000 NTT Data 0 1,000 NuSkin Enterprises 0 132,000 Orix 0 100,000 Secom 0 54,000 Terumo 0 120,000 Singapore Datacraft Asia 4,400,000 9,999,964 (includes effect of 100% stock bonus) Natsteel Electronics 5,875,000 6,500,000 - -------------------------------------------------------------------------- Latin America Brazil Itau Banco 0 8,000,000 - -------------------------------------------------------------------------- Other Countries Australia AAPT 3,070,000 4,000,000 Mayne Nickless 0 1,250,000 Canada Canadian Natural Resources 0 400,000 Celestica 510,000 600,000 Northstar Energy 0 82,250 Penn West Petroleum 0 300,000 Israel Galileo Technology 0 90,000 South Africa Dimension Data 0 2,000,000 United States AES Corporation 128,000 300,000
54 Number of Shares -------------------- 9/30/98 12/31/98 Sales - ------------------------------------------------------------------ Europe Germany IVG Holdings 89,000 0 Finland Tieto Corporation 2,195,000 1,500,000 Sweden Atle 525,000 315,000 Autoliv 367,000 295,000 Bure Investment 700,000 475,000 Getinge Industrier 970,000 760,000 Icon Medialab 73,400 0 WM Data Nordic 2,000,000 1,800,000 France Virbac 24,000 6,600 United Kingdom Coca-Cola Beverages 2,200,000 0 Capita Group 2,000,000 1,800,000 Dorling Kindersley 190,000 0 Dialog Corporation 1,600,000 350,000 Powerscreen International 490,000 0 Professional Staff 190,000 0 Seton Scholl Healthcare Group 1,500,000 1,000,000 Vosper Thornycroft Holdings 400,000 270,500 Switzerland Phoenix Mecano 36,000 34,000 Italy Banca Popolare Di Bergamo 450,000 250,000 Saes Getters 135,000 0 Portugal Estoril Sol 133,500 0 Netherlands DOCdata 290,000 175,000 Kempen 375,000 300,000
Number of Shares ---------------------- 9/30/98 12/31/98 Sales - --------------------------------------------------------------------- Asia Hong Kong Vanda Systems 10,310,000 0 Japan Hokuto 390,000 108,000 People 204,000 0 Meitec 390,000 0 Fuji Software ABC 250,000 200,000 Indonesia Mustika Ratu 2,126,000 0 Philippines Philippine Savings 215,000 0 Latin America Brazil Cemig Pfd. 220,000,000 160,000,000 Argentina Siderca 1,600,000 0 IRSA GDS 500,000 407,124 (includes effect of 1.78% stock dividend) Other Countries Australia/New Zealand PetSec Energy 800,000 0 Sky City (New Zealand) 873,000 0 Israel Orbotech 100,000 0 South Africa Energy Africa 500,000 0
55
Acorn International Statement of Investments December 31, 1998 Number of Shares Value (000) - ------------------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities: 87.6% - ------------------------------------------------------------------------------- Europe: 60.8% Germany/Austria: 4.1% 200,000 Rhoen Klinikum Pfd. $20,412 160,000 Rhoen Klinikum 15,898 Hospital Management 473,000 United International Holdings (Austria) (b) 9,105 Cable Television for Austria & Other Countries 200,000 Merck KGA 9,006 Pharmaceuticals 165,000 Flughafen Wien (Austria) 8,100 Vienna Airport Authority 18,500 Cewe Color Holding 3,277 Photographic Developing & Printing 200,000 Berzelius Umwelt 3,122 Industrial Waste Recycling 60,000 Boewe Systec 2,450 Envelope Stuffing Machines - ------------------------------------------------------------------------------- 71,370 Denmark: 0.9% 100,000 Carli Gry 6,033 Casual Clothing 50,000 Vest Wood 4,007 Furniture Company 45,000 ISS International System 2,927 Cleaning Services 44,000 Kompan International (c) 2,143 Playground Equipment - ------------------------------------------------------------------------------- 15,110 Finland: 7.0% 1,500,000 Tieto Corporation 67,247 Computer Services/Consulting 1,200,000 Talentum (c) 20,145 Trade Journals & Multimedia 480,000 Fiskars, Series A 9,764 Scissors & Gardening Tools 750,000 Elcoteq Network (c) 8,147 Electronic Manufacturing Services 135,000 KCI Konecranes International 6,132 Cranes & Maintenance 85,000 Helsinki Telephone 5,087 Telecommunications Operator 100,000 Spar Finland (c) 4,345 Grocery/Convenience Stores - ------------------------------------------------------------------------------- 120,867 Norway: 0.0% 500,000 Atex Media Solutions (b) 722 Print Media Software - ------------------------------------------------------------------------------- Sweden: 6.8% 1,800,000 WM Data Nordic 76,834 Computer Services/Consulting 760,000 Getinge Industrier 11,439 Sterilization & Disinfection Equipment 295,000 Autoliv 10,970 Seatbelts & Airbags 475,000 Bure Investment 6,739 Health Care Services & Investments 400,000 Esselte, Series A 6,415 Office Supplies & Related Equipment 315,000 Atle 4,080 Investment Company 50,000 Mandator 392 Computer Services/Consulting 35,400 Semcon 293 Technical Consultant - ------------------------------------------------------------------------------- 117,162 France: 5.1% 180,000 Atos (b) 43,049 Computer Services/Transaction Processing 45,000 SITA 11,801 Waste Hauling & Landfills 62,000 NRJ 11,099 Radio Network 60,000 Fininfo 10,633 Data Feeds for French Banks & Brokers 95,000 Spir Communications 5,672 Regional Newspapers 15,000 Penauille Polyservice 4,189 Industrial Cleaning 38,000 Assystem 875 Nuclear Energy Consulting 6,600 Virbac 508 Veterinary Medicine - ------------------------------------------------------------------------------- 87,826
See accompanying notes to financial statements 56
Number of Shares Value (000) - ---------------------------------------------------------------------------- United Kingdom/Ireland: 14.5% 2,045,000 Serco Group $39,179 Facilities Management 467,000 NTL (b) 26,356 Voice, Video & Data Services 13,000,000 Electronics Boutique 17,466 Videogame/Computer Software Stores 1,800,000 Capita Group 16,636 Outsourcing Services 1,000,000 Seton Scholl Healthcare Group 13,934 Pharmaceuticals 510,000 Euro Money Publications 11,880 Financial Publications 1,350,000 Atkins 11,174 Outsourcing Services 1,700,000 Rotork 10,890 Valve Actuators for Oil & Water Pipelines 4,000,000 HALMA 8,153 Fire Detection Devices 650,000 AEA Technology 7,922 Lithium Batteries/Nuclear Energy Consulting 1,500,000 N. Brown Group 7,262 Mail Order Clothing in Large Sizes 2,000,000 Shanks & McEwan 7,005 Landfills & Waste Incinerators 450,000 Bodycote 6,233 Materials Technology & Metal Processing 325,000 Saville Systems ADR (Ireland) (b) 6,175 Telecommunications Billing & Customer Care Software 2,000,000 Oriflame International 5,707 Cosmetics Sold Door-to-Door 4,400,000 City Centre Restaurants 5,234 Fast Food Restaurants 575,000 Logica 4,999 Computer Software & Services 500,000 Parity 4,763 Computer Software, IT Staffing & Services 3,500,000 Taylor Nelson 4,426 Market Research Services 401,908 Sema Group (b) 3,952 Computer Software & Services 600,000 Airtours 3,833 Markets & Operates Packaged Tour Vacations 1,100,000 Hogg Robinson 3,779 Corporate Travel Management 270,500 Vosper Thornycroft Holdings 3,459 Naval Shipbuilding 766,000 Edinburgh Fund Managers 3,154 Investment Management 350,000 Hays 3,072 Outsourcing Services 700,000 Fairey Group 2,987 Electronic Products 225,000 Ocean Group (b) 2,836 250,000 Ocean Group, Cl. B (b) 266 Logistics 10,000,000 Premier Oil (b) 2,620 Oil & Gas Producer 250,000 ITNET (b) 1,965 IT Outsourcing Services 500,000 Smith & Nephew 1,556 Medical Equipment 50,000 Energis (b) 1,119 Telecommunications Services 350,000 Dialog Corporation (b) 338 Online Business Information - ---------------------------------------------------------------------------- 250,330 Switzerland: 5.9% 20,000 Cie Fin Richemont 28,278 Luxury Goods, Tobacco & Pay TV 34,000 Phoenix Mecano 20,422 Electrical Components Manufacturer 60,000 Selecta Group 16,600 Vending Machines 13,000 Hero 8,897 Packaged Foods 15,000 Bon Appetit 8,179 Cash & Carry Stores/Specialty Restaurants 4,500 Sarasin & Cie Bank 7,994 Private Banking 18,000 Societe Generale d'Affichage 7,024 Billboard Advertising 3,200 Pargesa Holdings 5,056 Industrial & Media Conglomerate - ---------------------------------------------------------------------------- 102,450 Italy/Greece: 8.4% 2,900,000 Autogrill 23,356 Tollway Restaurants 3,000,000 Banca Fideuram 21,477 Life Insurance & Mutual Funds 2,000,000 Editoriale L'Espresso 17,587 Newspapers & Magazines 700,000 Banco Pop Commercia e Industria 14,073 Regional Bank 1,400,000 Aeroporti di Roma 12,226 Airport Management 600,000 Gewiss 12,226 Electrical Plugs & Switches 1,160,000 Attica Enterprises (Greece) 10,397 Ferry Line 1,400,000 Mediolanum 10,401 Life Insurance & Mutual Funds 400,000 Industrie Natuzzi ADR 9,950 Leather Couches 250,000 Hellenic Bottling (Greece) 7,717 Coca-Cola Bottler 250,000 Banca Popolare Di Bergamo 6,080 Regional Bank - ---------------------------------------------------------------------------- 145,490 Spain/Portugal: 2.4% 370,000 Mapfre Vida 13,944 Life Insurance & Mutual Funds 600,000 Prosegur 7,008 Security Guards 250,000 Cortefiel 6,599 Apparel Retailer
57 Acorn International Statement of Investments
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------ 79,750 Aguas de Barcelona $ 5,347 Utility 150,000 Sol Melia 5,240 Hotel Management 118,200 Filmes Lusomundo (Portugal) (b) 1,482 Newspapers, Radio, Video, Film Distribution 13,800 Jeronimo Martins (Portugal) 755 Food - ------------------------------------------------------------------------------ 40,375 Netherlands: 5.1% 560,000 Getronics 27,751 Computer Services/Consulting 300,000 Kempen 15,954 Stock Brokerage/Investment Management 145,000 ASR Verzekeringsgroep 13,135 Insurance 300,000 Hunter Douglas 9,943 Decorative Window Coverings 370,000 Wegener Arcade NV 6,723 Newspaper 900,000 Scala Business Solutions GIC Units (b)(c) 5,837 50,000 Scala Business Solutions (b) 453 95,775 Scala Business Solutions Warrants 3/31/99 (b) 11 95,775 Scala Business Solutions Warrants 3/31/01 (b) 7 Enterprise Software for Small-to-Medium Sized Companies 150,000 Kon. Pakhoed 3,789 Logistics 40,000 Global TeleSystems (b) 2,230 Telecommunications Services 175,000 DOCdata (b) 1,790 Audio CD & CD-ROM Replication - ------------------------------------------------------------------------------ 87,623 Hungary: 0.6% 750,000 Matav (b) 4,288 Telecommunications Operator 100,000 Pick Szeged 4,250 Salami Producer 30,000 Gedeon Richter 1,278 Pharmaceuticals - ------------------------------------------------------------------------------ 9,816 --------- Europe: Total 1,049,141 - ------------------------------------------------------------------------------ Asia: 14.2% Hong Kong: 2.9% 14,327,000 Li and Fung 29,681 Sourcing of Consumer Goods 9,250,000 Varitronix International 17,312 LCD Manufacturer 1,500,000 TVB 3,872 Television Broadcasting - ------------------------------------------------------------------------------ 50,865 India: 0.3% 80,000 Housing Development Finance 4,101 Mortgage Lender 2,000,000 Centurion Quantum Growth (b) 332 Closed-End Fund - ------------------------------------------------------------------------------ 4,433 Japan: 5.0% 125,000 Nidec 15,326 Spindle Motor Manufacturer 130,000 Nintendo 12,620 Video Games 76,500 Ryohin Keikaku 10,207 Designer & Retailer of Muji Brand Specialty Consumer Goods 200,000 Fuji Software ABC 10,195 Computer Services/Consulting 100,000 Orix 7,482 Finance Leasing 255,000 Noritsu Koki 5,539 Photo Processing Lab Manufacturer 1,000 NTT Data 4,973 Computer Services/Consulting 54,000 Secom 4,481 Security Services 270,000 Shinki 3,327 Corporate & Consumer Lending 132,000 NuSkin Enterprises (b) 3,118 Cosmetics Sold Door-to-Door 120,000 Terumo 2,830 Medical Supplies 108,000 Hokuto 2,633 Mushroom Grower 10,000 Bellsystem 24 2,234 Telemarketing 207,000 Arrk Corporation 1,101 Industrial Modeling - ------------------------------------------------------------------------------ 86,066 Taiwan: 0.2% 1,249,616 Chroma Ate (b) 3,316 Measuring Instruments Malaysia: 0.1% 1,595,000 Malaysian Oxygen 2,115 Industrial Gases Philippines: 0.8% $8,750,000 Int'l Container Terminal Services Cv. 1.75% 3/13/04 6,650 79,260,000 Int'l Container Terminal Services (b) 6,622 Container Handling Terminals & Port Management - ------------------------------------------------------------------------------ 13,272 Singapore: 4.9% 7,500,000 Venture Manufacturing 28,636 Electronic Manufacturing Services 9,500,000 Star Cruises (b) 20,045 Cruise Line
See accompanying notes to financial statements 58
Principal Amount or Number of Shares Value (000) - ------------------------------------------------------------------------------ 9,999,964 Datacraft Asia $ 17,700 Network Systems Integration 6,500,000 Natsteel Electronics 16,545 Electronic Manufacturing Services 16,900,000 Genting International (b) 1,775 Investment Holding - ------------------------------------------------------------------------------ 84,701 ------- Asia: Total 244,768 - ------------------------------------------------------------------------------ Latin America: 4.5% Mexico: 2.6% 7,000,000 Grupo Industrial Bimbo 13,448 Bread, Baked Goods & Snacks 3,500,000 Kimberly Clark de Mexico 11,148 Paper Products 3,600,000 Corp Interamericana de Entretenimiento (b) 9,828 Special Events & Live Entertainment 8,940,000 Nadro, Series L 5,695 Pharmaceutical Distributor 2,300,000 Grupo Continental 5,570 Beverages - ------------------------------------------------------------------------------ 45,689 Brazil: 0.7% 470,000 Elevadores Atlas 5,057 Elevator Installation & Maintenance 8,000,000 Itau Banco 3,906 Commercial Banking Services 160,000,000 Cemig Pfd. 3,046 Electric Utility - ------------------------------------------------------------------------------ 12,009 Argentina: 0.7% 407,124 IRSA GDS 11,323 Real Estate Management & Development Peru: 0.3% 6,500,000 Enrique Ferreyros 5,870 Heavy Machinery Dealer Panama: 0.2% 150,000 Banco Latinoamericano de Exportaciones 2,494 Trade Financing ------ Latin America: Total 77,385 - ------------------------------------------------------------------------------ Other Countries: 8.1% Australia: 1.7% 4,000,000 AAPT (b) 10,305 Telecommunications Services 6,500,000 Tyndall Australia 9,968 Money Management & Insurance 1,250,000 Mayne Nickless (b) 4,639 Logistics & Hospital Management 2,500,000 Anaconda Nickel (b) 3,834 Nickel Mining - ------------------------------------------------------------------------------ 28,746 Canada: 3.2% 600,000 Celestica (b) 14,766 Electronic Manufacturing Services 400,000 Power Financial 8,854 Financial Services Holding Company 1,000,000 Shaw Industries 8,138 Oil Field Services 400,000 Canadian Natural Resources (b) 5,990 Oil & Gas Producer 580,000 LGS Group (b) 4,342 Computer Systems Integration 4,000,000 Dundee Realty (b) 3,776 Real Estate 300,000 Penn West Petroleum (b) 3,223 Oil & Gas Producer 800,000 Bracknell (b) 2,917 Electrical Contractor & Facilities Management 82,250 Northstar Energy (b) 2,356 Oil & Gas Producer - ------------------------------------------------------------------------------ 54,362 Israel: 0.5% 350,000 Blue Square Israel ADR 3,631 Supermarkets & Department Stores 165,000 Amdocs (b) 2,826 Telecommunications Billing/Customer Care Software 90,000 Galileo Technology (b) 2,430 Communications Semiconductors - ------------------------------------------------------------------------------ 8,887 South Africa: 0.9% 2,000,000 Dimension Data (b) 8,499 Computer Services/Consulting 1,000,000 Comparex Holdings 8,125 Computer Networking & Systems Integration - ------------------------------------------------------------------------------ 16,624 Russia: 0.0% $1,500,000 Khanty Mansiysk 10% Notes (b) 750 279 Khanty Mansiysk (b) 63 Oil Production in Russia - ------------------------------------------------------------------------------ 813 United States: 1.8% 350,000 Carnival 16,800 Largest Cruise Line 300,000 AES Corporation (b) 14,212 Power Plants - ------------------------------------------------------------------------------ 31,012 ------- Other: Total 140,444
59 Acorn International Statement of Investments
Principal Amount Value (000) - ---------------------------------------------------------- Total Common Stocks and Other ---------- Equity-Like Securities: 87.6% $1,511,738 (Cost: $981,572) Short-Term Obligations: 12.5% Yield 4.85%--6.05% Due 1/4--1/13/99 $54,485 General Motors Acceptance 54,416 $37,270 Ford Motor Credit 37,233 $29,613 Commercial Credit 29,600 $26,815 Xerox Credit 26,773 $26,225 Cigna 26,208 $25,450 General Electric Capital 25,420 $16,063 GTE 16,037 - ---------------------------------------------------------- (Amortized Cost: $215,687) 215,687 ---------- Total Investments: 100.1% 1,727,425 (Cost: $1,197,259) ---------- Cash and Other Assets Less Liabilities: (0.1%) (1,928) ---------- Total Net Assets: 100% $1,725,497 ==========================================================
- -------------------------------------------------------------------------------- Notes to Statement of Investments (a) At December 31, 1998, for federal income tax purposes cost of investments was $1,199,172,000 and net unrealized appreciation was $528,253,000 consisting of gross unrealized appreciation of $625,913,000 and gross unrealized depreciation of $97,660,000. (b) Non-income producing security. (c) On December 31, 1998, the Fund held the following percentages of the outstanding voting shares of the affiliated companies (ownership of at least 5%) listed below: Kompan International (Denmark). . . . . . . 9.36% Spar Finland (Finland). . . . . . . . . . . 8.80% Talentum (Finland). . . . . . . . . . . . . 7.35% Elcoteq Network (Finland) . . . . . . . . . 5.89% Scala Business Solutions (Netherlands). . . 5.68% The aggregate cost and value of investments in these companies at December 31, 1998, was $37,542,000 and $40,616,000 respectively. The market value of these securities represents 2.35% of the total net assets at December 31, 1998. During the year ended December 31, 1998, the cost of purchases in affiliated companies was $12,901,000. There were no sales of these companies for the year ended December 31, 1998. Net dividends received from these companies amounted to $288,000. See accompanying notes to financial statements 60 Acorn International Portfolio Diversification At December 31, 1998, Acorn International's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - ----------------------------------------------------- Information Computer Services $284,504 16.6% Publishing 63,489 3.7 Contract Manufacturing 46,971 2.7 CATV 35,461 2.1 Telephone Services 25,263 1.5 Business Software 20,794 1.2 Computer Hardware 15,326 0.9 Instrumentation 14,456 0.8 Marketing 14,254 0.8 Radio 11,099 0.6 Business Information 10,971 0.6 Advertising 7,024 0.4 Broadcasting 3,872 0.2 Semiconductors 2,430 0.1 - ----------------------------------------------------- 555,914 32.2 Health Care Hospital Management 36,310 2.1 Pharmaceuticals 24,726 1.4 Hospital/Laboratory Supplies 12,995 0.8 Services 11,378 0.7 Medical Equipment 2,830 0.1 - ----------------------------------------------------- 88,239 5.1 Consumer Goods/Services Retail 51,953 3.0 Food 37,407 2.2 Consumer Services 31,367 1.8 Nondurables 29,737 1.7 Travel 29,432 1.7 Restaurants 28,590 1.7 Entertainment 28,278 1.6 Durable Goods 20,913 1.2 Cruise Lines 16,800 1.0 Furniture & Textiles 13,957 0.8 Beverages 13,287 0.8 Consumer Software 12,620 0.7 Consumer Goods Distribution 10,040 0.6 Leisure Products 2,143 0.1 - ----------------------------------------------------- 326,524 18.9 Finance Money Management 45,000 2.6 Insurance 35,933 2.1 Banks 34,547 2.0 Brokerage 15,954 0.9 Finance Companies 14,910 0.9 Closed-End Funds 5,388 0.3 - ----------------------------------------------------- 151,732 8.8 Industrial Goods/Services Outsourcing Services 102,669 6.0 Electrical Components 72,873 4.2 Machinery Processing 34,340 2.0 Industrial Services 21,927 1.3 Industrial Materials 6,233 0.3 Conglomerates 4,080 0.2 Logistics 2,836 0.2 Specialty Chemicals 2,115 0.1 - ----------------------------------------------------- 247,073 14.3 Energy/Minerals Oil/Gas Producers 21,417 1.2 Independent Power 14,212 0.9 Oil Services 8,138 0.5 Non-Ferrous Metals 3,834 0.2 - ----------------------------------------------------- 47,601 2.8 Other Industries Transportation 43,995 2.5 Waste Management 21,928 1.3 Real Estate 20,339 1.2 Regulated Utilities 8,393 0.5 - ----------------------------------------------------- 94,655 5.5 Total Common Stocks and Other Equity-Like Securities: 1,511,738 87.6 ----------- ------ Short-Term Obligations: 215,687 12.5 ----------- ------ Total Investments: 1,727,425 100.1 Cash and Other Assets less Liabilities: (1,928) (0.1) ----------- ------ Net Assets: $1,725,497 100.0% - -----------------------------------------------------
61 Acorn Fund Major Portfolio Changes in the Fourth Quarter
Number of Shares -------------------- 9/30/98 12/31/98 Additions - ------------------------------------------------------------------------------------ Information Aspect Telecommunications 714,000 864,000 Commonwealth Telephone 374,000 454,000 Cumulus Media 0 150,000 Getty Images 500,000 860,000 Information Management 0 68,000 JDA Software 0 400,000 Micros Systems 786,000 886,000 National Data 1,702,000 1,808,000 Playboy Enterprises 0 30,000 PRIMEDIA 0 705,000 RCN 1,298,000 1,584,000 Smart Modular Technology 0 52,000 Softbank (Japan) 0 86,200 Systems & Computer Technology 660,000 950,000 Telephone & Data Systems 500,000 577,000 True North Communications 0 200,000 - ------------------------------------------------------------------------------------ Health Care CuraGen 0 124,000 First Health Group 1,752,000 1,952,000 NPS Pharmaceuticals 0 148,000 - ------------------------------------------------------------------------------------ Consumer Goods/Services Anchor Gaming 0 86,000 First Years 0 139,000 Jones Apparel 0 500,000 - ------------------------------------------------------------------------------------ Finance Americredit 935,000 2,070,000 (includes effect of a 2 for 1 stock split) Capital Trust 886,000 1,375,000 Creditrust 0 165,000 DVI Health Services 340,000 448,000 Phoenix Investment Partners 1,777,000 2,112,000 Pioneer Group 819,000 974,000 Protective Life 200,000 400,000 - ------------------------------------------------------------------------------------ Industrial Goods/Services Advanced Lighting Technologies 0 122,000 Airnet Systems 500,000 600,000 Expeditors Int'l of Washington 950,000 1,000,000 Labor Ready 850,000 1,070,000 Symex 0 445,000 Wackenhut, Cl. B 1,081,000 1,236,000 - ------------------------------------------------------------------------------------ Energy/Minerals Atwood Oceanics 398,000 525,000 Canadian Natural Gas (Canada) 0 400,000 Devon Energy 300,000 650,000 (exchanged from Northstar Energy on a .235 for 1 basis) Dynegy 700,000 800,000 Enron Oil & Gas 816,000 1,220,000 - ------------------------------------------------------------------------------------ Other Industries IRSA (Argentina) 320,000 407,124 (includes effect of a 1.781% stock bonus) Security Capital European Realty 690,625 770,312
62
Number of Shares ------------------ 9/30/98 12/31/98 Sales - ------------------------------------------------------------------- Information American Power Conversion 398,000 200,000 Cable Michigan 140,000 0 Cablevision Systems 800,000 600,000 Choicepoint 478,000 270,000 Comparex Holdings (South Africa) 407,000 200,000 (formerly known as Persetel Q Data) Compuware 300,000 0 Harte Hanks Communications 200,000 100,000 IFR Systems 250,000 0 Itron 280,000 0 Jabil Circuit 470,000 370,000 Keane 120,000 0 Kent Electronics 550,000 400,000 Kronos 650,000 575,000 Larscom 577,000 0 Macrovision 280,000 150,000 Mecklermedia 305,000 0 Mettler Toledo 810,000 672,000 Richardson Electronics 100,000 0 Richey Electronics 450,000 250,000 Sanmina 435,000 250,000 SkyTel Communications 865,000 700,000 Solectron 900,000 770,000 (includes effect of .45 for 1 share merger with Altron) Thermo Instrument Systems 885,000 705,000 WM Data Nordic (Sweden) 1,110,000 1,000,000 - ------------------------------------------------------------------- Health Care Ethical Holdings ADR (United Kingdom) 1,107,000 0 (includes effect of 1 for 10 reverse split) Getinge Industrier (Sweden) 630,000 495,000 Hillenbrand Industries 273,000 253,000 Innovasive Devices 470,000 0 Magellan Health Services 1,410,000 1,110,000 Respironics 798,000 718,000 Sybron International 644,000 544,000 - ------------------------------------------------------------------- Consumer Goods/Services Au Bon Pain 634,000 400,000 Autoliv (Sweden) 320,000 256,000 Barnes & Noble 72,000 10,000 Borders Group 1,750,000 1,550,000 Carnival 2,690,000 2,650,000 Coca-Cola Beverages (United Kingdom) 1,000,000 0 Fred Meyer Holdings 771,000 599,000 Newell 120,000 0 Oriflame (United Kingdom) 700,000 0 Sky City (New Zealand) 434,000 0 Unifi 867,000 600,000 - ------------------------------------------------------------------- Finance AmerUs Life Holdings 460,000 200,000 Imperial Thrift & Loan 275,000 0 SEI Investments 618,000 604,000 UICI 1,000,000 815,000 Washington Mutual 66,000 664,000 (includes effect of 1.68 for 1 share merger with H.F.Ahmanson) - ------------------------------------------------------------------- Industrial Goods/Services Applied Industrial Technologies 365,000 140,000 Applied Power 196,000 0 Baldor Electric 980,000 882,000 H B Fuller 295,000 0 Metal Management 400,000 0 Powerscreen International (United Kingdom) 340,000 0 Siderca (Argentina) 1,200,000 0 Spectra Physics Lasers 273,000 0 Thermo Electron 750,000 650,000 Trailer Bridge 421,000 0 - ------------------------------------------------------------------- Energy/Minerals AES Corporation 1,803,000 1,464,000 KN Energy 340,000 240,000 Northstar Energy (Canada) 1,000,000 0 (exchanged for Devon Energy on a .235 for 1 basis) PetSec Energy (Australia) 490,000 0 PetSec Energy ADR (Australia) 125,000 0 Pride International 840,000 0 Seagull Energy 700,000 0 Weatherford International 500,000 300,000 - ------------------------------------------------------------------- Other Industries First Industrial Realty Trust 485,000 200,000 LaSalle Hotel Properties 1,025,000 699,000 Security Capital Group 101,000 0
63 Acorn Fund Statement of Investments December 31, 1998
Principal Amount or Number of Shares Value (000) - --------------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities: 93.8% - --------------------------------------------------------------------------- Information: 32.3% Media Broadcasting: 1.5% 819,000 Data Transmission Network (b)(c) $ 23,649 Data Services for Farmers 500,000 Young Broadcasting (b) 20,938 Television Stations 567,000 Granite Broadcasting (b)(c) 3,402 Television Stations 85,000 Univision Communications (b) 3,076 TV Network & Stations 150,000 Cumulus Media (b) 2,494 Radio Stations - --------------------------------------------------------------------------- 53,559 Cable Television: 1.1% 600,000 Cablevision Systems (b) 30,112 100,000 Cablevision Systems, Pfd. (b) 7,538 Cable TV - --------------------------------------------------------------------------- 37,650 Television Programming: 5.4% 3,500,000 Liberty Media Group, Tele-Communications (b) 161,219 CATV & Satellite Dish Programming 1,000,000 United Video Satellite Group (b) 23,625 CATV & Satellite Dish Programming 150,000 Macrovision (b) 6,338 Copyright Protection for Video Tapes & DVDs 30,000 Playboy Enterprises (b) 628 CATV & Satellite Dish Programming - --------------------------------------------------------------------------- 191,810 Telecommunications Telephone Services: 1.3% 1,584,000 RCN (b) 28,017 Metro Market: Voice, Video & Data Services 454,000 Commonwealth Telephone (b) 15,209 Rural Market: Local, Long Distance & Internet Access 140,000 Startec Global Communications (b) 1,348 International Telecommunications - --------------------------------------------------------------------------- 44,574 Mobile Communications: 1.9% 577,000 Telephone & Data Systems 25,929 Cellular & Telephone Franchises 450,000 Centennial Cellular (b) 18,450 Cellular Franchises 700,000 SkyTel Communications (b) 15,488 Nationwide Paging 355,000 COMARCO (b)(c) 8,520 Wireless Network Testing - --------------------------------------------------------------------------- 68,387 Telecommunications Equipment: 0.4% 864,000 Aspect Telecommunications (b) 14,904 Call Center Equipment Computer Related Hardware Computer Hardware/ Related Systems: 1.8% 886,000 Micros Systems (b)(c) 29,127 Information System for Restaurants & Hotels 575,000 Kronos (b)(c) 25,480 Time Accounting Software & Clocks 200,000 American Power Conversion (b) 9,687 Uninterruptable Power Systems - --------------------------------------------------------------------------- 64,294 Semiconductors/ Related Equipment: 0.3% 350,000 Oak Industries (b) 12,250 Communications Components Gaming Equipment: 1.7% 2,262,000 International Game Technology 54,995 Slot Machines & Progressive Jackpots 86,000 Anchor Gaming (b) 4,848 Slot Machines & Colorado Casino 380,000 Acres Gaming (b) 926 Manufacturer of Casino Systems - --------------------------------------------------------------------------- 60,769 Contract Manufacturing: 3.3% 770,000 Solectron (b) 71,562 Electronic Manufacturing Services 370,000 Jabil Circuit (b) 27,611 Electronic Manufacturing Services 250,000 Sanmina (b) 15,625 Backplanes & Electronic Manufacturing Services 52,000 Smart Modular Technology (b) 1,443 Memory Module Manufacturing Services - --------------------------------------------------------------------------- 116,241 Instrumentation: 1.5% 672,000 Mettler Toledo (b) 18,858 Laboratory Products 705,000 Thermo Instrument Systems (b) 10,619 Scientific & Industrial Instruments 613,000 Thermoquest (b) 7,931 $1,500,000 Thermoquest, 5% Note Due 8/15/00 1,500 Mass Spectrometry & Chromatography $5,000,000 Thermo Optek, 5% Note Due 10/15/00 4,850 265,000 Thermo Optek (b) 2,302 Elemental & Molecular Spectroscopy 200,000 Thermo Bio Analysis (b) 2,650 Biochemical Instruments 232,000 Metrika Systems (b) 2,001 Gamma Ray Instrumentation 266,122 Onix Systems (b) 1,696 Field Measurement & Sensor Equipment - --------------------------------------------------------------------------- 52,407
See accompanying notes to financial statements 64
Principal Amount or Number of Shares Value (000) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Business Software: 1.0% 950,000 Systems & Computer Technology (b) $13,063 Enterprise Software & Services 228,800 Sterling Commerce (b) 10,296 Electronic Commerce Software & Services 266,000 National Instruments (b) 9,077 Virtual Instruments 400,000 JDA Software (b) 3,875 Applications Software & Services for Retailers 68,000 Information Management (b) 400 Call Center Software - -------------------------------------------------------------------------------- 36,711 Consumer Software: 0.8% 350,000 Electronic Arts (b) 19,644 Entertainment Software $6,500,000 Activision, 6.75% Note Due 1/1/05 5,590 445,000 Activision (b) 4,951 Entertainment Software - -------------------------------------------------------------------------------- 30,185 Computer Services: 2.6% 750,000 Sykes Enterprises (b) 22,875 Call Center Services 590,000 Computer Task Group 16,004 Application Development & Maintenance Services 500,000 RCM Technologies (b) 13,250 Technology Staffing Services 231,000 BISYS (b) 11,925 Processing for Banks 608,000 BRC Holdings (b) 11,400 Technology Outsourcing for Local Governments 535,000 Analysts International 10,299 Technology Staffing Services 1,033,000 Aztec Technology Partners (b) 3,745 Application Development & Maintenance Services 360,000 Dunn Computer (b) 1,485 Custom Computer Systems for Government - -------------------------------------------------------------------------------- 90,983 Software/Services Business Information/ Marketing Services/Publishing: 4.2% 1,278,000 ACNielsen (b) 36,103 Retail Measurement 910,000 World Color Press (b) 27,698 Web-Offset Printing 270,000 Choicepoint (b) 17,415 Fraud Protection Information 860,000 Getty Images (b) 14,781 Photographs for Publications & Electronic Media 350,000 Acxiom (b) 10,850 Database Marketing Services 705,000 PRIMEDIA 8,284 Specialty Magazines & Other Publications 470,000 Information Holdings (b) 7,403 Scientific & Medical Books/Journals 400,000 CMP Media (b)(c) $ 7,300 Technology Trade Press 200,000 True North Communications 5,375 Advertising Agencies 1,400,000 InfoUSA, Cl. A (b) 6,825 1,000,000 InfoUSA, Cl. B (b) 5,250 Business Data for Sales Leads 100,000 Harte Hanks Communications 2,850 Direct Marketing Services - -------------------------------------------------------------------------------- 150,134 Internet: 0.2% 2,683 Bigfoot International (b)(c) 4,024 Internet Direct Marketing 342,855 GIGA (b) 1,563 29,714 GIGA Warrants (b) 6 Data on Information Technology - -------------------------------------------------------------------------------- 5,593 Electronics Distribution: 0.5% 990,000 Pioneer-Standard Electronics 9,281 Component & Computer Distribution 400,000 Kent Electronics (b) 5,100 Component Distribution & Contract Assembly 250,000 Richey Electronics (b) 2,578 Component Distribution & Contract Assembly - -------------------------------------------------------------------------------- 16,959 Transaction Processors: 2.8% 1,808,000 National Data (c) 88,027 Credit Card & Health Claims Processor 300,000 Concord EFS (b) 12,712 Credit Card Processor - -------------------------------------------------------------------------------- 100,739 --------- Information: Total 1,148,149 - -------------------------------------------------------------------------------- Health Care: 8.2% Biotechnology/Drug Delivery: 1.0% 450,000 Inhale Therapeutic Systems (b) 14,850 Pulmonary Drug Delivery 680,000 Synaptic Pharmaceuticals (b)(c) 10,200 Receptor Targeted Drug Design 1,508,000 Corvas International (b)(c) 4,241 Rational Drug Design 915,000 Microcide Pharmaceuticals (b)(c) 3,546 Antibiotics 148,000 NPS Pharmaceuticals (b) 1,138 Small Molecule Drugs 124,000 CuraGen (b) 876 Genomics - -------------------------------------------------------------------------------- 34,851 Medical Equipment: 0.6% 718,000 Respironics (b) 14,382 Sleep Apnea Products 307,000 Affymetrix (b) 7,483 Diagnostic Development - -------------------------------------------------------------------------------- 21,865
65 Acorn Fund Statement of Investments
Number of Shares Value (000) - ---------------------------------------------------------------------------- Hospital/Laboratory Supplies: 0.8% 544,000 Sybron International (b) $ 14,790 Laboratory Supplies 253,000 Hillenbrand Industries 14,389 Hospital Beds & Coffins - ---------------------------------------------------------------------------- 29,179 Services: 5.8% 2,470,000 Lincare Holdings (b) 100,189 Home Health Care Services 2,177,000 HBO & Company 62,453 Hospital Computer Services 1,952,000 First Health Group (b) 32,330 PPO Network 1,110,000 Magellan Health Services (b) 9,296 Mental Health Services 43,000 Spectrum Health Solutions (b) 11 Workman's Compensation - ---------------------------------------------------------------------------- 204,279 -------- Health Care: Total 290,174 - ---------------------------------------------------------------------------- Consumer Goods/Services: 11.3% Goods Leisure Vehicles: 3.3% 2,200,000 Harley-Davidson 104,225 Motorcycles & Related Merchandise 480,000 Thor Industries 12,240 Mobile Homes & RVs - ---------------------------------------------------------------------------- 116,465 Nondurables: 0.1% 139,000 First Years 2,198 Infant & Toddler Products Manufacturers: 0.9% 600,000 Unifi 11,738 Polyester & Nylon Fabrics 500,000 Jones Apparel (b) 11,031 Women's Apparel 340,000 St. John Knits 8,840 Upscale Knitware - ---------------------------------------------------------------------------- 31,609 Services Retail: 2.5% 1,550,000 Borders Group (b) 38,653 Bookstores 599,000 Fred Meyer Holdings (b) 36,090 Supermarkets in the West 911,000 Host Marriott Services (b) 9,452 Fast Food Kiosks in Airports 400,000 Au Bon Pain (b) 2,700 Bakery & Deli Restaurants 10,000 Barnes & Noble (b) 425 Bookstores - ---------------------------------------------------------------------------- 87,320 Consumer Services: 0.3% 770,000 Protection One $ 6,593 Security Alarm Monitoring 236,000 Bally Total Fitness (b) 5,870 Fitness Centers - ---------------------------------------------------------------------------- 12,463 Casinos: 0.3% 420,000 Hollywood Park (b) 3,491 Race Track & Casino 535,000 Monarch Casino & Resort (b)(c) 2,809 Casino/Hotel in Reno 155,000 Rio Hotel & Casino (b) 2,461 Hotel & Casino in Las Vegas 250,000 Grand Casinos (b) 2,016 Casino/Hotel in Biloxi $6,250,000 Grand Palais Casino 14% Note Due 2/25/98 (b) 313 New Orleans Casino - ---------------------------------------------------------------------------- 11,090 Cruise Lines: 3.9% 2,650,000 Carnival 127,200 Largest Cruise Line 240,000 Royal Caribbean Cruises 8,880 Cruises to Caribbean & Alaska 410,000 Royal Olympic Cruise (b) 1,384 Cruises in Mediterranean - ---------------------------------------------------------------------------- 137,464 -------- Consumer Goods/Services: Total 398,609 - ---------------------------------------------------------------------------- Finance: 12.1% Banks: 1.1% 695,000 TCF Financial 16,810 Great Lakes Bank 570,000 Texas Regional Bancshares 14,286 Tex Mex Bank 170,000 CNB Bancshares 7,926 Indiana Bank 70,000 Peoples Heritage Financial 1,400 New England Bank - ---------------------------------------------------------------------------- 40,422 Savings & Loans: 2.8% 1,554,000 Peoples Bank Bridgeport 42,929 Connecticut Savings & Loan 664,000 Washington Mutual 25,357 West Coast Savings & Loan 738,000 Washington Federal 19,695 Washington State Savings & Loan 538,000 Commonwealth Bancorp 8,373 Philadelphia Savings & Loan 554,000 Coast Contingency Rights (b) 3,670 Litigation Claims Against US Government - ---------------------------------------------------------------------------- 100,024
See accompanying notes to financial statements 66
Number of Shares Value (000) - ---------------------------------------------------------------------------- Insurance: 3.2% 815,000 UICI (b) $ 19,968 Health Insurance 723,000 Baldwin & Lyons, Cl. B 17,894 Trucking Insurance 511,000 Leucadia National 16,097 Insurance Holding Company 400,000 Protective Life 15,925 Life/Dental Insurance 687,000 Foremost 14,427 Mobile Home & RV Insurance 612,000 Acceptance Insurance (b) 12,393 Crop Insurance 351,000 United Fire & Casualty 11,802 Property & Casualty 200,000 AmerUs Life Holdings 4,475 Annuities/Life Insurance - ---------------------------------------------------------------------------- 112,981 Money Management: 3.3% 604,000 SEI Investments 60,023 Mutual Fund Administration 974,000 Pioneer Group 19,237 Equity Mutual Funds 2,112,000 Phoenix Investment Partners 17,820 Mutual Fund & Pension Manager 1,063,000 Baker Fentress 16,277 Closed-End Investment Company 80,000 Affiliated Managers Group (b) 2,390 Mutual Fund & Pension Manager - ---------------------------------------------------------------------------- 115,747 Finance Companies: 1.7% 2,070,000 Americredit (b) 28,592 Auto Lending 1,820,000 World Acceptance (b)(c) 11,830 Personal Loans 1,375,000 Capital Trust (b) 8,250 Whole Mortgage Loans 448,000 DVI Health Services (b) 8,120 Leases for Big Medical Equipment 165,000 Creditrust (b) 4,207 Collection Agency - ---------------------------------------------------------------------------- 60,999 -------- Finance: Total 430,173 - ---------------------------------------------------------------------------- Industrial Goods/Services: 7.8% Steel: 1.3% 806,000 Gibraltar Steel (b)(c) 18,336 Steel Processing 1,295,000 Worthington Industries 16,188 Steel Processing 345,000 A M Castle 5,175 Steel Distribution 420,000 Atchison Casting (b)(c) 3,885 Steel Foundries 140,000 Schnitzer Steel 2,013 Scrap Steel Processor - ---------------------------------------------------------------------------- 45,597 Machinery: 0.9% 882,000 Baldor Electric 17,860 Electric Motors 585,000 Clarcor 11,700 Filters 140,000 Applied Industrial Technologies 1,942 Industrial Components Distribution - ---------------------------------------------------------------------------- 31,502 Conglomerates: 0.3% 650,000 Thermo Electron (b) 11,009 Instrumentation, Biomedical & Industrial Products Specialty Chemicals: 1.0% 1,000,000 Lilly Industries, Cl. A 19,938 Industrial Coatings 610,000 Cambrex 14,640 Pharmaceutical & Other Specialty Chemicals 445,000 Symex (b) 2,003 Combinatorial Materials - ---------------------------------------------------------------------------- 36,581 Electrical Components Industrial Materials: 0.0% 100,000 Brunswick Technologies (b) 637 Fiberglass Fabric for Composites Outsourcing Services & Training: 0.8% 1,070,000 Labor Ready (b) 21,066 Temporary Manual Labor 438,000 GP Strategies (b) 6,570 Training Programs 500,000 International Total Services (b)(c) 2,500 Aviation Services - ---------------------------------------------------------------------------- 30,136 Logistics: 2.2% 1,000,000 Expeditors Int'l of Washington 42,000 International Freight Forwarder 759,000 Hub Group (b) 14,706 Truck & Rail Freight Forwarder 435,000 C H Robinson 11,283 Truck Freight Forwarder 600,000 Airnet Systems (b) 8,625 Check & Other Small Package Shipment - ---------------------------------------------------------------------------- 76,614
67 Acorn Fund Statement of Investments
Number of Shares Value (000) - ---------------------------------------------------------------------------- Other Industrial Services: 1.3% 1,236,000 Wackenhut, Cl. B $ 27,115 31,000 Wackenhut, Cl. A 789 Prison Management 806,000 Compass International Services (b)(c) 8,564 Collection Agencies 209,000 HA.LO Industries (b) 7,864 Distributor of Specialty Products 122,000 Advanced Lighting Technologies (b) 1,189 Metal Halide Lighting - ---------------------------------------------------------------------------- 45,521 -------- Industrial Goods/Services: Total 277,597 - ---------------------------------------------------------------------------- Energy/Minerals: 7.9% Independent Power: 3.4% 1,464,000 AES Corporation (b) 69,357 1,852 AES Corporation Warrants (b) 120 Power Plants 1,420,000 CalEnergy (b) 49,256 Power Plants/Competitve Utility - ---------------------------------------------------------------------------- 118,733 Oil/Gas Producers: 2.0% 2,000,000 Tesoro Petroleum (b)(c) 24,250 Oil Refinery/Gas Reserves 1,220,000 Enron Oil & Gas 21,045 Oil & Gas Producer 650,000 Devon Energy 19,947 Oil & Gas Producer 250,000 Evergreen Resources (b) 4,437 Oil & Gas Producer 1,031,000 Tipperary (b)(c) 1,095 Oil & Gas Producer - ---------------------------------------------------------------------------- 70,774 Distribution/Marketing/Refining: 1.8% 900,000 Equitable Resources 26,212 Natural Gas Utility & Producer 650,000 Atmos Energy 20,962 Natural Gas Utility 800,000 Dynegy 8,750 Natural Gas Processing & Marketing 240,000 KN Energy 8,730 Natural Gas Pipelines & Processor - ---------------------------------------------------------------------------- 64,654 Oil Services: 0.7% 400,000 J Ray McDermott (b) 9,775 Offshore Construction Company 525,000 Atwood Oceanics (b) 8,925 Offshore Drilling 300,000 Weatherford International (b) 5,813 Diversfied Oil Field Products & Services - ---------------------------------------------------------------------------- 24,513 -------- Energy/Minerals: Total 278,674 - ---------------------------------------------------------------------------- Other Industries: 3.7% Real Estate: 3.7% 829,000 The Rouse Company 22,798 Shopping Malls 770,312 Security Capital European Realty (b) 15,406 Strategic Real Estate Investments 820,000 Cornerstone Properties 12,812 Downtown Office Buildings 466,000 Forest City Enterprises, Cl. B 11,999 370,000 Forest City Enterprises, Cl. A 9,712 Shopping Centers 260,000 Equity Residential Properties Trust 10,514 Nationwide Apartments 400,000 Macerich Company 10,250 Regional Shopping Malls 165,000 Weingarten Realty Investors 7,363 Community Shopping Centers 699,000 LaSalle Hotel Properties 7,252 Upscale/Full Service Hotels 350,000 Archstone 7,087 Equity Real Estate Investment Trust 200,000 First Industrial Realty Trust 5,362 Industrial Properties 190,000 First Washington Realty Trust 4,501 120,000 First Washington Realty Trust, Cv. Pfd. 3,563 Community Shopping Centers 945,000 Homestead Village (b) 4,253 Extended Stay Hotels - ---------------------------------------------------------------------------- 132,872 -------- Other Industries: Total 132,872 - ---------------------------------------------------------------------------- Foreign Securities: 10.5% Canada: 0.3% 400,000 Canadian Natural Gas (b) 5,990 Oil & Gas Producer 440,000 Shaw Industries, Cl. A 3,581 Oil Field Services - ---------------------------------------------------------------------------- 9,571 United Kingdom: 2.2% 644,000 NTL (b) 36,346 Voice, Video & Data Services 1,200,000 Serco Group 22,990 Facilities Management 1,650,000 Airtours 10,542 Markets & Operates Packaged Tour Vacations 1,100,000 N. Brown Group 5,326 Mail Order Clothing in Large Sizes 484,000 Edinburgh Fund Managers 1,993 Investment Management - ---------------------------------------------------------------------------- 77,197
68
Number of Shares Value (000) - ---------------------------------------------------------------------------- Germany/Austria: 0.7% 552,000 United International Holdings (Austria) (b) $ 10,626 Cable Television for Austria & Other Countries 180,000 Flughafen Wien (Austria) 8,837 Vienna Airport Authority 23,000 Binding-Brauerei 6,352 Brewery - --------------------------------------------------------------------------- 25,815 Sweden: 1.7% 1,000,000 WM Data Nordic 42,685 Computer Services/Consulting 256,000 Autoliv 9,520 Seatbelts & Airbags 495,000 Getinge Industrier 7,450 Sterilization & Disinfection Equipment - --------------------------------------------------------------------------- 59,655 Netherlands: 0.9% 146,407 ASR Verzekeringsgroep 13,262 Insurance 305,000 Hunter Douglas 10,109 Decorative Window Coverings 167,000 Getronics 8,276 Computer Services/Consulting - --------------------------------------------------------------------------- 31,647 Switzerland: 0.4% 11,000 Cie Fin Richemont 15,553 Luxury Goods, Tobacco & Pay TV France: 0.8% 115,000 Atos (b) 27,503 Computer Services/Transaction Processing Portugal: 0.1% 297,200 Filmes Lusomundo (b) 3,727 Newspapers, Radio, Video, Film Distribution Italy/Greece: 1.0% 1,500,000 Banca Fideuram 10,739 Life Insurance & Mutual Funds 1,000,000 Aeroporti di Roma 8,733 Airport Management 325,000 Industrie Natuzzi 8,084 Leather Couches 250,000 Hellenic Bottling (Greece) 7,717 Coca-Cola Bottler - --------------------------------------------------------------------------- 35,273 Malaysia: 0.0% 750,000 Resorts World Berhad 605 Casino/Hotel Resort 590,000 Berjaya Sports Toto 515 Lottery/Gaming - --------------------------------------------------------------------------- 1,120 Hong Kong: 0.2% 4,500,000 Varitronix International 8,422 LCD Manufacturer China: 0.0% 200,000 The Investment Company of China (b) 1,100 Closed-End Fund Singapore: 0.6% 8,128,000 Star Cruises (b) 17,150 Cruise Line 1,500,000 Natsteel Electronics 3,818 Electronic Manufacturing Services - --------------------------------------------------------------------------- 20,968 Japan: 0.7% 180,000 Nintendo 17,473 Video Games 86,200 Softbank Corporation 5,196 Software/Networking Services 76,000 Noritsu Koki 1,651 Photo Processing Lab Manufacturer - --------------------------------------------------------------------------- 24,320 South Africa: 0.1% 200,000 Comparex Holdings 1,625 Computer Networking & Systems Integration Mexico: 0.4% 3,300,000 Kimberly Clark de Mexico 10,511 Paper Products 7,350,000 Nadro, Series L 4,682 Pharmaceutical Distributor - --------------------------------------------------------------------------- 15,193 Other Latin America: 0.4% 407,124 IRSA (Argentina) 11,323 Real Estate Management & Development 135,000 Banco Latinoamericano de Exportaciones (Panama) 2,244 Trade Financing 112,000,000 Cemig (Brazil) 2,131 Electric Utility - --------------------------------------------------------------------------- 15,698 ------- Foreign: Total 374,387
69 Acorn Fund Statement of Investments
Principal Amount Value (000) - -------------------------------------------------------------- Total Common Stocks and Other ---------- Equity-Like Securities: 93.8% $3,330,635 (Cost: $1,884,771) Short-Term Obligations: 7.2% Yield 4.38%-6.01% Due 1/4-2/18/99 $38,320 General Motors Acceptance 38,258 $29,068 American General Finance 29,050 $28,500 Aon 28,483 $27,293 Commercial Credit 27,281 $23,575 Ford Motor Credit 23,551 $21,510 GE Capital Services 21,493 $20,000 American General 19,992 $20,000 Ford Motor Credit 19,977 $18,799 Cigna 18,769 $18,212 GTE 18,182 $10,000 US Treasury Bill 9,942 - ------------------------------------------------------------- (Cost: $254,978) 254,978 --------- Total Investments: 101.0% 3,585,613 (Cost: $2,139,749) ---------- Cash and Other Assets Less Liabilities: (1.0%) (36,152) ---------- Total Net Assets: 100% $3,549,461 - -------------------------------------------------------------
- ------------------------------------------------------------------------------ Notes to Statement of Investments Notes to Statement of Investments: (a) At December 31, 1998, for federal income tax purposes cost of investments was $2,140,654,000 and net unrealized appreciation was $1,444,959,000, consisting of gross unrealized appreciation of $1,619,020,000 and gross unrealized depreciation of $174,061,000. (b) Non-income producing security. (c) On December 31, 1998, the Fund held the following percentages of the outstanding voting shares of the companies listed below:
Bigfoot International......................10.00% Corvas International........................9.99% World Acceptance............................9.48% Microcide Pharmaceuticals...................8.33% Tipperary...................................7.77% International Total Services................7.50% Kronos......................................6.94% COMARCO.....................................6.92% Data Transmission Network...................6.67% Gibraltar Steel.............................6.39% Compass International Services..............6.36% Synaptic Pharmaceuticals....................6.36% Tesoro Petroleum............................6.18% Granite Broadcasting........................5.69% CMP Media...................................5.66% Monarch Casino & Resort.....................5.62% Micros Systems..............................5.52% National Data...............................5.34% Atchison Casting............................5.15%
The aggregate cost and value of investments in these companies at December 31, 1998, was $216,457,000 and $280,785,000, respectively. The market value of these securities represents 7.91% of the total net assets at December 31, 1998. During the year ended December 31, 1998, cost of purchases and proceeds from sales in affiliated companies was $85,641,000 and $36,553,000, respectively. Dividends received from these companies amounted to $486,000 and net realized gain on sales of investments in such companies amounted to $5,984,000. See accompanying notes to financial statements. 70 Acorn Fund Foreign Portfolio Diversification At December 31, 1998 Acorn Fund's foreign portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - -------------------------------------------------------- Information Computer Services $ 80,089 2.3% Cable Television 46,972 1.3 Semiconductors & Related Equipment 22,990 0.6 Business Information/Publishing 8,923 0.2 Contract Manufacturing 3,818 0.1 - -------------------------------------------------------- 162,792 4.5 Health Care Hospital Services 7,450 0.2 Consumer Goods/Services Travel 27,692 0.8 Consumer Software 17,473 0.5 Beverages 14,069 0.4 Nondurable Goods 10,511 0.3 Furniture & Textiles 8,084 0.2 Retail 5,326 0.2 Consumer Goods Distribution 4,682 0.1 Gaming 515 0.0 Other Durable Goods 19,629 0.5 Other Entertainment 16,158 0.5 - -------------------------------------------------------- 124,139 3.5 Finance Insurance 13,262 0.4 Money Management 12,732 0.4 Banks 2,244 0.1 Closed-End Funds 1,100 0.0 - -------------------------------------------------------- 29,338 0.9 Industrial Goods/Services Electrical Components 8,422 0.2 Machinery 1,651 0.0 - -------------------------------------------------------- 10,073 0.2 Energy/Minerals Oil/Gas Producers 5,990 0.2 Oil Services 3,581 0.1 - -------------------------------------------------------- 9,571 0.3 Other Industries Transportation 17,570 0.5 Real Estate 11,323 0.3 Utilities 2,131 0.1 - -------------------------------------------------------- 31,024 0.9 ------------------- Total Foreign Portfolio $374,387 10.5% - --------------------------------------------------------
See accompanying notes to financial statements 71 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, Acorn USA, Acorn Twenty and Acorn Foreign Forty, comprising the Acorn Investment Trust, as of December 31, 1998, the related statements of operations, changes in net assets, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of December 31, 1998, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective Funds of the Acorn Investment Trust as of December 31, 1998, the results of their operations and changes in their net assets and financial highlights for the periods indicated therein, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois February 9, 1999 72 Acorn Family of Funds Statements of Assets and Liabilities
Acorn Acorn Acorn Acorn Acorn (in thousands) Fund International USA Twenty Foreign Forty - ------------------------------------------------------------------------------------------------------------------------ 12/31/98 Assets Investments, at value (cost: Acorn Fund $2,139,749; Acorn Int'l $1,197,259; Acorn USA $265,044; Acorn Twenty $30,290; Acorn Foreign Forty $14,793) $3,585,613 $1,727,425 $281,785 $32,822 $15,959 Cash 327 423 -- 254 -- Organization costs -- -- 57 -- -- Receivable for: Securities sold 8,959 809 129 Fund shares sold 2,868 1,788 1,170 722 777 Dividends and interest 2,078 2,546 46 21 -- Other assets 175 80 9 -- -- - ------------------------------------------------------------------------------------------------------------------------ Total assets 3,600,020 1,733,071 283,196 33,819 16,736 Liabilities and Net Assets Net unrealized depreciation on foreign forward currency contracts 42 969 -- -- -- Payable for: Securities purchased 11,480 2,479 460 60 936 Fund shares redeemed 38,266 1,743 1,628 1 -- Organization costs -- -- 58 -- -- Other 771 2,383 99 34 15 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 50,559 7,574 2,245 95 951 Net assets applicable to Fund shares outstanding $3,549,461 $1,725,497 $280,951 $33,724 $15,785 - ------------------------------------------------------------------------------------------------------------------------ Fund shares outstanding 210,706 82,874 18,986 3,150 1,435 - ------------------------------------------------------------------------------------------------------------------------ Pricing of Shares Net asset value, offering price and redemption price per share $ 16.85 $ 20.82 $ 14.80 $ 10.71 $ 11.00 - ------------------------------------------------------------------------------------------------------------------------ Analysis of Net Assets Paid-in capital $2,067,199 $1,209,014 $263,734 $31,432 $14,558 Accumulated net realized gain (loss) on sales of investments, futures and foreign currency transactions 33,912 (17,845) 476 (246) 74 Net unrealized appreciation of investments and other assets (net of unrealized PFIC gains of $311 for Acorn International and $19 for Acorn Foreign Forty) 1,445,819 528,909 16,741 2,532 1,144 Undistributed net investment income 2,531 5,419 -- 6 9 - ------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Fund shares outstanding $3,549,461 $1,725,497 $280,951 $33,724 $15,785 - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements 73
Acorn Family of Funds Statements of Operations Acorn Acorn Fund International (in thousands) Year ended Year ended Year ended Year ended - ---------------------------------------------------------------------------------- 12/31/1998 12/31/1997 12/31/1998 12/31/1997 Investment Income: Dividends $ 28,483 $ 28,012 $ 26,225 $ 27,667 Interest 13,414 15,566 10,223 8,098 - ---------------------------------------------------------------------------------- 41,897 43,578 36,448 35,765 Foreign taxes withheld (513) (797) (2,521) (2,912) - ---------------------------------------------------------------------------------- Total investment income 41,384 42,781 33,927 32,853 Expenses: Investment advisory 24,905 14,349 14,124 16,235 Administration 1,812 - 858 - Custodian 924 1,034 1,957 2,489 Transfer and dividend disbursing agent 1,414 1,328 1,384 1,882 Reports to shareholders 573 564 575 841 Legal and audit 223 287 97 221 Registration and blue sky 55 273 58 73 Trustees' and other 446 441 166 364 - ---------------------------------------------------------------------------------- Total expenses 30,352 18,276 19,219 22,105 Less custodian fees paid indirectly - - - - Less reimbursement of expenses by advisor - - - - - ---------------------------------------------------------------------------------- Net expenses 30,352 18,276 19,219 22,105 - ---------------------------------------------------------------------------------- Net investment income (loss) 11,032 24,505 14,708 10,748 Net Realized and Unrealized Gain (Loss) on Investments, Futures and Foreign Currency Transactions: Net realized gain (loss) on sales of investments 252,065 361,502 2,408 76,648 Net realized gain (loss) on foreign currency transactions (132) - (6,031) 22,816 Net realized gain (loss) on futures (17,930) (16,098) 7,811 - Change in net unrealized appreciation of investments and foreign currency transactions (43,553) 356,307 215,847 (99,759) - ----------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures and foreign currency transactions 190,450 701,711 220,035 (295) - ----------------------------------------------------------------------------------- Net increase in net assets resulting from operations $201,482 $726,216 $234,743 $ 10,453 - -----------------------------------------------------------------------------------
See accompanying notes to financial statements 74
Acorn Acorn Acorn USA Twenty Foreign Forty Inception Inception Year ended Year ended 11/23 through 11/23 through - -------------------------------------------------------------------------------------- 12/31/1998 12/31/1997 12/31/1998 12/31/1998 $ 882 $ 568 $ 38 $ 6 1,042 470 7 3 - -------------------------------------------------------------------------------------- 1,924 1,038 45 9 - - - (1) - -------------------------------------------------------------------------------------- 1,924 1,038 45 8 2,336 1,199 26 11 124 - 1 1 39 24 2 3 246 164 18 13 126 85 1 1 32 29 1 1 33 72 4 2 43 56 - - - -------------------------------------------------------------------------------------- 2,979 1,629 53 32 (5) (2) (2) (3) - - (12) (11) - -------------------------------------------------------------------------------------- 2,974 1,627 39 18 - -------------------------------------------------------------------------------------- (1,050) (589) 6 (10) 23,791 5,521 (246) 74 - - - - - - - - (14,625) 27,198 2,532 1,163 - -------------------------------------------------------------------------------------- 9,166 32,719 2,286 1,237 - -------------------------------------------------------------------------------------- $ 8,116 $32,130 $2,292 $1,227 - --------------------------------------------------------------------------------------
75 Acorn Family of Funds Statements of Changes in Net Assets
Acorn Acorn Fund International (in thousands) Year ended Year ended Year ended Year ended - ---------------------------------------------------------------------------------- 12/31/1998 12/31/1997 12/31/1998 12/31/1997 From Operations: Net investment income (loss) $ 11,032 $ 24,505 $ 14,708 $ 10,748 Net realized gain (loss) on sales of investments, futures and foreign currency transactions 234,003 345,404 4,188 99,464 Change in net unrealized appreciation of investments and foreign currency transactions (43,553) 356,307 215,847 (99,759) - ---------------------------------------------------------------------------------- Net increase in net assets resulting from operations 201,482 726,216 234,743 10,453 Distributions to Shareholders From: Net investment income (a) (6,284) (31,681) (12,611) (33,072) Net realized gain (219,264) (320,289) (22,701) (77,970) - ---------------------------------------------------------------------------------- Total distributions to shareholders (225,548) (351,970) (35,312) (111,042) From Fund Share Transactions: Reinvestment of dividends and capital gain distributions 204,856 320,054 33,102 104,129 Proceeds from other shares sold 490,137 711,329 406,219 468,766 - ---------------------------------------------------------------------------------- 694,993 1,031,383 439,321 572,895 Payments for shares redeemed (802,923) (566,224) (536,194) (621,910) - ---------------------------------------------------------------------------------- Net increase (decrease) in net assets from Fund share transactions (107,930) 465,159 (96,873) (49,015) - ---------------------------------------------------------------------------------- Total increase (decrease) in net assets (131,996) 839,405 102,558 (149,604) Net Assets: Beginning of period 3,681,457 2,842,052 1,622,939 1,772,543 End of period $ 3,549,461 $3,681,457 $1,725,497 $1,622,939 - ---------------------------------------------------------------------------------- Undistributed Net Investment Income $ 2,531 $ 498 $ 5,419 $ 3,986 - ----------------------------------------------------------------------------------
(a) Includes distributions of unrealized PFIC gains of $7,674 in 1997 for Acorn Fund and $24,166 in 1997 for Acorn International. 76
Acorn Acorn Acorn Twenty Foreign Forty USA Inception Inception Year ended Year ended 11/23 through 11/23 through - --------------------------------------------------------------------------------- 12/31/1998 12/31/1997 12/31/1998 12/31/1997 $ (1,050) $ (589) $ 6 $ (10) 23,791 5,521 (246) 74 (14,625) 27,198 2,532 1,163 - --------------------------------------------------------------------------------- 8,116 32,130 2,292 1,227 -- -- -- -- (19,532) (3,351) -- -- - --------------------------------------------------------------------------------- (19,532) (3,351) -- -- 17,705 3,178 -- -- 175,578 133,753 31,688 14,739 - --------------------------------------------------------------------------------- 193,283 136,931 31,688 14,739 (85,540) (34,171) (256) (181) - --------------------------------------------------------------------------------- 107,743 102,760 31,432 14,558 - --------------------------------------------------------------------------------- 96,327 131,539 33,724 15,785 184,624 53,085 -- -- $ 280,951 $ 184,624 $ 33,724 $ 15,785 - --------------------------------------------------------------------------------- -- -- $ 6 $ 9 - ---------------------------------------------------------------------------------
77 Acorn Family of Funds Financial Highlights
Years Acorn Fund ended 12/31 - ------------------------------------------------------------------------------------------------------------ For a share outstanding throughout each year 1998 1997 Net Asset Value, beginning of year $16.99 $15.04 Income From Investment Operations Net investment income .04 .15 Net realized and unrealized gain (loss) on investments, foreign currency and futures .91 3.57 - ------------------------------------------------------------------------------------------------------------ Total from investment operations .95 3.72 Less Distributions Dividends from net investment income (.03) (.16) Distributions from net realized and unrealized gains reportable for federal income taxes (1.06) (1.61) - ------------------------------------------------------------------------------------------------------------ Total distributions (1.09) (1.77) - ------------------------------------------------------------------------------------------------------------ Net Asset Value, end of year $16.85 $16.99 - ------------------------------------------------------------------------------------------------------------ Total Return 6.0% 25.0% Ratios/Supplemental Data Ratio of expenses to average net assets .84% .56% Ratio of net investment income to average net assets .30% .75% Portfolio turnover rate 24% 32% Net assets at end of period (in millions) $3,549 $3,681 Years Acorn International ended 12/31 - ------------------------------------------------------------------------------------------------------------ For a share outstanding throughout each period 1998 1997 Net Asset Value, beginning of period $18.39 $19.61 Income From Investment Operations Net investment income (loss) .17 .40 Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.68 (.34) - ------------------------------------------------------------------------------------------------------------ Total from investment operations 2.85 .06 Less Distributions Dividends from net investment income (.15) (.38) Distributions from net realized and unrealized gains reportable for federal income taxes (.27) (.90) - ------------------------------------------------------------------------------------------------------------ Total distributions (.42) (1.28) - ------------------------------------------------------------------------------------------------------------ Net Asset Value, end of period $20.82 $18.39 - ------------------------------------------------------------------------------------------------------------ Total Return 15.4% 0.2% Ratios/Supplemental Data Ratio of expenses to average net assets 1.12% 1.19% Ratio of net investment income (loss) to average net assets .86% .58% Portfolio turnover rate 37% 39% Net assets at end of period (in millions) $1,725 $1,623
* Annualized See accompanying notes to financial statements 78
- --------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 1990 1989 $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $7.27 .09 .11 .06 .04 .07 .11 .12 .13 2.93 2.42 (1.10) 3.50 2.16 2.95 (1.62) 1.65 - ---------------------------------------------------------------------------------- 3.02 2.53 (1.04) 3.54 2.23 3.06 (1.50) 1.78 (.11) (.09) (.11) (.06) (.08) (.10) (.13) (.11) (1.47) (1.08) (.56) (.59) (.41) (.15) (.44) (.36) - ---------------------------------------------------------------------------------- (1.58) (1.17) (.67) (.65) (.49) (.25) (.57) (.47) - ---------------------------------------------------------------------------------- $15.04 $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $8.58 - ---------------------------------------------------------------------------------- 22.6% 20.8% (7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% .57% .57% .62% .65% .67% .72% .82% .73% .53% .89% .55% .30% .72% 1.30% 1.60% 1.59% 33% 29% 18% 20% 25% 25% 36% 26% $2,842 $2,399 $1,983 $2,035 $1,449 $1,150 $ 767 $ 855
Inception 9/23 through 12/31, - ------------------------------------------------------------- 1996 1995 1994 1993 1992 $16.59 $15.24 $15.94 $10.69 $10.00 .13 .16 .07 -- (.03) 3.29 1.20 (.67) 5.25 .72 ------------------------------------------------------------- 3.42 1.36 (.60) 5.25 .69 (.12) -- -- -- -- (.28) (.01) (.10) -- -- ------------------------------------------------------------- (.40) (.01) (.10) -- -- ------------------------------------------------------------- $19.61 $16.59 $15.24 $15.94 $10.69 ------------------------------------------------------------- 20.7% 8.9% (3.8%) 49.1% 6.9% 1.17% 1.22% 1.24% 1.21% 2.35%* .51% .90% .48% .06% (1.37%)* 34% 26% 20% 19% 20%* $1,773 $1,276 $1,363 $ 907 $ 30
79 Acorn Family of Funds Financial Highlights
Years Inception 9/4 Acorn USA ended 12/31, through 12/31, - -------------------------------------------------------------------------------------------------------------- For a share outstanding throughout each period 1998 1997 1996 Net Asset Value, beginning of period $15.12 $11.65 $ 10.00 Income From Investment Operations Net investment loss (b) (.07) (.07) (.02) Net realized and unrealized gain on investments .87 3.83 1.67 - -------------------------------------------------------------------------------------------------------------- Total from investment operations .80 3.76 1.65 Less Distributions Dividends from net investment income -- -- -- Distributions from net realized and unrealized gains reportable for federal income taxes (1.12) (.29) -- - -------------------------------------------------------------------------------------------------------------- Total distributions (1.12) (.29) -- - -------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $14.80 $15.12 $ 11.65 - -------------------------------------------------------------------------------------------------------------- Total Return 5.8% 32.3% 16.5% Ratios/Supplemental Data Ratio of expenses to average net assets (a) 1.20% 1.35% 1.85%* Ratio of net investment loss to average net assets (.42%) (.49%) (.99%)* Portfolio turnover rate 42% 33% 20%* Net assets at end of period (in millions) $ 281 $ 185 $ 53
Inception 11/13 Acorn Twenty through 12/31, - ------------------------------------------------------------------------------- For a share outstanding throughout each period 1998 Net Asset Value, beginning of period $ 10.00 Income From Investment Operations Net investment income (b) -- Net realized and unrealized gain on investments .71 - ------------------------------------------------------------------------------- Total from investment operations .71 - ------------------------------------------------------------------------------- Net Asset Value, end of period $ 10.71 - ------------------------------------------------------------------------------- Total Return 7.1% Ratios/Supplemental Data Ratio of expenses to average net assets (c)(d) 1.41%* Ratio of net investment gain to average net assets (d) 0.22%* Portfolio turnover rate 173%* Net assets at end of period (in millions) $ 34
- ------------------------------------------------------------------------------- (a) 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. (b) Net investment income (loss) per share was based upon the average shares outstanding during each period. (c) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Twenty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.35% for the period ended December 31, 1998. (d) Acorn Twenty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1998. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 1.83% and (.21%), respectively. * Annualized See accompanying notes to financial statements 80 Inception 11/23 Acorn Foreign Forty through 12/31, - ------------------------------------------------------------------------ For a share outstanding throughout each period 1998 Net Asset Value, beginning of period $ 10.00 Income From Investment Operations Net investment loss (b) (.01) Net realized and unrealized gain on investments 1.01 - ------------------------------------------------------------------------ Total from investment operations 1.00 - ------------------------------------------------------------------------ Net Asset Value, end of period $ 11.00 - ------------------------------------------------------------------------ Total Return 10.0% Ratios/Supplemental Data Ratio of expenses to average net assets (a)(c) 1.73%* Ratio of net investment loss to average net assets (c) (.78%)* Portfolio turnover rate 90%* Net assets at end of period (in millions) $ 16 - -------------------------------------------------------------------------------- (a) In accordance with a requirement by the Securities and Exchange Commission, the Acorn Foreign Forty ratio reflects total expenses prior to the reduction of custodian fees for cash balances it maintains with the custodian ("custodian fees paid indirectly"). This ratio net of custodian fees paid indirectly would have been 1.45% for the period ended December 31, 1998. (b) Net investment loss per share was based upon the average shares outstanding during the period. (c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses from November 23, 1998 through December 31, 1998. Without the reimbursement, the ratio of expenses (prior to custodian fees paid indirectly) to average net assets and the ratio of net investment income to average net assets would have been 2.70% and (1.75%), respectively. * Annualized 81 Acorn Family of Funds Notes to Financial Statements 1. Nature of Operations Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign Forty (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. The 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. None of the Funds had any futures contracts open at December 31, 1998. Acorn Fund and Acorn International entered into forward contracts to sell foreign currency as described below:
Acorn Fund Foreign Settlement U.S. Dollar Unrealized Amount (000) Currency Date Proceeds (000) Loss (000) - ---------------------------------------------------------------------------- Hong Kong 78,085 Dollar 5/20/99 $10,000 $ (42) Acorn International Unrealized Foreign Settlement U.S.Dollar Gain Amount(000) Currency Date Proceeds (000) (Loss) (000) - ------------------------------------------------------------------------------- 13,500 Swiss Franc 3/19/99 $10,105 $ 198 17,000 German Mark 3/19/99 $10,247 $ (2) 15,000 British Pound 3/19/99 $25,077 $ 174 155,000 Hong Kong Dollar 1/15/99 $19,591 $(411) 4,735,000 Japanese Yen 3/19/99 $41,491 $(928) - ------------------------------------------------------------------------------ Total Unrealized Loss: $(969) =====
82 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. In accordance with the distribution requirements imposed on investment companies, Acorn Fund, Acorn International and Acorn USA paid long-term capital gain distributions in 1998 of $247,613,000, $22,701,000 and $17,598,000, respectively, which was sufficient to allow each fund not to incur any income tax. Acorn Twenty and Acorn Foreign Forty also complied with these provisions and were not required to pay a distribution. Acorn Fund, Acorn International and Acorn Foreign Forty have elected to mark-to-market their investments in Passive Foreign Investment Companies ("PFICs") for Federal income tax purposes. A summary of transactions relating to PFICs is as follows:
Acorn Fund (000) - ---------------------------------------------------------------- Cumulative net unrealized appreciation recognized in prior years at December 31, 1997 $2,804 Unrealized depreciation recognized through December 31, 1998 (232) Cumulative net unrealized appreciation recognized in prior years on PFICs sold through December 31, 1998 (2,572) ------ Cumulative net unrealized appreciation recognized in prior years at December 31, 1998 - ====== A summary of transactions relating to PFICs during 1998 follows: Unrealized depreciation recognized (232) Losses on the sale of PFICs classified as ordinary income (2,483) Acorn International (000) - ---------------------------------------------------------------- Cumulative net unrealized appreciation recognized in prior years at December 31, 1997 $ 16,193 Unrealized appreciation recognized through December 31, 1998 231 Cumulative net unrealized appreciation recognized in prior years on PFICs sold through December 31, 1998 (16,113) ------- Cumulative net unrealized appreciation recognized in prior years at December 31, 1998 311 ======= A summary of transactions relating to PFICs during 1998 follows: Unrealized appreciation recognized 231 Losses on the sale of PFICs classified as ordinary income (540)
Acorn Foreign Forty recognized unrealized appreciation on PFICs of $19,000 for the period ended December 31, 1998. Distributions relating to PFICs are treated as ordinary income for Federal income tax purposes. Acorn International and Acorn Twenty intend to utilize provisions of the federal tax law that allow them to carry a realized capital loss forward for eight years following the year of the loss and offset such losses against future realized gains. At December 31, 1998, Acorn International and Acorn Twenty had capital loss carryforwards of $16,804,000 and $246,000, respectively which will expire December 31, 2006. Dividends payable to shareholders are recorded by the Funds on the ex- dividend date. Reclassifications have been made in 1998 for Acorn Fund and Acorn USA in the accompanying analysis of net assets from accumulated net realized gain on sale of investments to paid-in-capital of $28,349,000 and $4,314,000 respectively. A reclassification was made in Acorn International of $355,000 from accumulated net realized gain on sale of investments to undistributed net income and in Acorn USA of $1,050,000 from undistributed net investment income to accumulated net realized gains. All reclassifications were made to reflect differences between financial reporting and income tax basis and had no impact on net asset value. 83 Acorn Family of Funds Notes to Financial Statements 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 investment management agreements for Acorn Fund, Acorn International and Acorn USA which were in effect for 1997 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% Beginning in 1998, the management agreement for Acorn Fund, Acorn International and Acorn USA was replaced with a new investment management agreement and a separate administrative service agreement as approved by shareholders. Under the new investment management agreement, fees are 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 $1.300 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% Acorn USA - ------------------------------------------- Net asset value: For the first $200 million .95% Net assets in excess of $200 million .90% Acorn Twenty - ------------------------------------------- On average daily net assets .90% Acorn Foreign Forty On average daily net assets .95% Under the new administrative service agreement, WAM provides administrative services to each Fund (including Acorn Twenty and Acorn Foreign Forty) in return for fees, accrued daily and paid monthly at an annual rate of .05% of average daily net assets. 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. The Funds paid trustees' fees and expenses of the following: - ------------------------------------------- (in thousands) 1998 1997 Acorn Fund $ 211 $ 196 Acorn International 94 119 Acorn USA 11 7 Acorn Twenty - - Acorn Foreign Forty - - ------------ $ 316 $ 322 ============ WAM advanced Acorn USA $107,000 in connection with the organization and initial registration of the Fund. These costs are being amortized and reimbursed to WAM over the period September 1996 though August 2001. WAM paid all of the organization costs associated with the organization of Acorn Twenty and Acorn Foreign Forty. These costs amounted to $92,000. WAM will not be reimbursed for these costs by the Funds. 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. Borrowing Arrangements The Trust participates in a $250,000,000 credit facility which was entered into to facilitate portfolio liquidity. No amounts were borrowed under this facility during 1998. 84 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) 1998 1997 Shares sold 28,471 42,779 Shares issued in reinvestment of dividend and capital gain distributions 12,814 19,004 -------------------- 41,285 61,783 Less shares redeemed 47,224 34,056 - ------------------------------------------------------------------------------- Net increase (decrease) in shares outstanding (5,939) 27,727 - ------------------------------------------------------------------------------- Acorn International - ------------------------------------------------------------------------------- (in thousands) 1998 1997 Shares sold 19,818 23,235 Shares issued in reinvestment of dividend and capital gain distributions 1,540 5,501 -------------------- 21,358 28,736 Less shares redeemed 26,757 30,846 -------------------- Net decrease in shares outstanding (5,399) (2,110) - ------------------------------------------------------------------------------- Acorn USA - ------------------------------------------------------------------------------- (in thousands) 1998 1997 Shares sold 11,062 9,880 Shares issued in reinvestment of dividend and capital gain distributions 1,270 212 -------------------- 12,332 10,092 Less shares redeemed 5,558 2,436 -------------------- Net increase in shares outstanding 6,774 7,656 - ------------------------------------------------------------------------------- Acorn Twenty - ------------------------------------------------------------------- (in thousands) 1998 Shares sold 3,176 Less shares redeemed 26 ---------- Net increase in shares outstanding 3,150 - ------------------------------------------------------------------- Acorn Foreign Forty - ------------------------------------------------------------------- (in thousands) 1998 Shares sold 1,453 Less shares redeemed 18 ---------- Net increase in shares outstanding 1,435 - ------------------------------------------------------------------- 6. Investment Transactions Investment Transactions (excluding money market instruments) for each of the Funds are as follows: Acorn Fund - ------------------------------------------------------------------------------- (in thousands) 1998 1997 Purchases $ 830,390 $ 928,010 Proceeds from sales 1,048,096 1,084,981 Acorn International - ------------------------------------------------------------------------------- (in thousands) 1998 1997 Purchases $570,304 $656,789 Proceeds from sales 709,630 824,939 Acorn USA - ------------------------------------------------------------------------------- (in thousands) 1998 1997 Purchases $178,181 $126,503 Proceeds from sales 95,639 36,965 Acorn Twenty - ------------------------------------------------------------------- (in thousands) 1998 Purchases $34,025 Proceeds from sales 4,483 Acorn Foreign Forty - ------------------------------------------------------------------- (in thousands) 1998 Purchases $13,984 Proceeds from sales 974 - -------------------------------------------------------------------
85 PART C OTHER INFORMATION ITEM 23 Exhibits: -------- a. Agreement and declaration of trust(1). b. Bylaws, as amended October 24, 1997 (exhibit 2.3 to post-effective amendment no. 60)(2). c.1 Specimen share certificate - Acorn Fund(3). c.2 Specimen share certificate - Acorn International (exhibit 4.2 to post- effective amendment no. 54)(3). c.3 Specimen share certificate - Acorn USA(4). c.4 Specimen shares certificates - Acorn Twenty and Acorn Foreign Forty(5). d.1 Investment Advisory Agreement among Acorn Fund, Acorn International, Acorn USA and Wanger Asset Management, L.P., dated January 1, 1998(6). d.2 Administration Agreement among Acorn Fund, Acorn International, Acorn USA and Wanger Asset Management, L.P., dated January 1, 1998 (exhibit 5.2 to post-effective amendment no. 61)(6). d.3 Organizational Expenses Agreement between Acorn Investment Trust and Wanger Asset Management, L.P. dated September 3, 1996 (exhibit 5.3 to post-effective amendment no. 61)(6). d.4 Supplement to the Investment Advisory Agreement among Acorn Investment Trust and Wanger Asset Management, L.P. relating to Acorn Twenty and Acorn Foreign Forty dated August 17, 1998. d.5 Amendment to the Administrative Agreement between Acorn Investment Trust and Wanger Asset Management, L.P. relating to Acorn Twenty and Acorn Foreign Forty, dated August 17, 1998. e.1 Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated January 1, 1998 (exhibit 6 to post- effective amendment no. 61)(6). e.2 Amendment to the Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C., relating to Acorn Twenty and Acorn Foreign Forty dated August 17, 1998. f. None g.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992 (exhibit 8.1 to post-effective amendment no. 60)(1) g.2 Letter agreement applying custodian contract (exhibit 8.2 to post- effective amendment no. 60)(1). g.3 Letter agreement applying custodian contract (exhibit 8.1) relating to Acorn USA (exhibit no. 8.3 to post-effective amendment no. 61)(6). g.4 Letter agreement applying custodian contract and transfer agency and service agreement (exhibit 8.1) relating to Acorn Twenty and Acorn Foreign Forty, dated August 17, 1998. h. None i. Consent of Bell, Boyd & Lloyd j. Consent of Ernst & Young LLP k. None l. None m. None n.1 Financial data schedule - Acorn Fund n.2 Financial data schedule - Acorn International n.3 Financial data schedule - Acorn USA n.4 Financial data schedule - Acorn Twenty n.5 Financial data schedule - Acorn Foreign Forty o. None _____________________ (1) Previously filed. Incorporated by reference to exhibit 1 filed in post- effective amendment No. 53 to the registrant's registration statement, Securities Act file number 2-34223 (the "Registration Statement"), filed on April 30, 1996. (2) Previously filed. Incorporated by reference to the exhibit of the same number filed in post-effective amendment No. 60 to the Registration Statement, filed on December 30, 1997. (3) Previously filed. Incorporated by reference to exhibit 4.1 filed in post- effective amendment No. 54 to the Registration Statement, filed on June 18, 1996. (4) Previously filed. Incorporated by reference to exhibit 4.3 filed in post- effective amendment No. 55 to the Registration Statement, filed on September 3, 1996. (5) Previously filed. Incorporated by reference to exhibit 4.4 filed in post- effective amendment No. 62 to the Registration Statement, filed on June 3, 1998. (6) Previously filed. Incorporated by reference to exhibit 5.1 filed in post- effective amendment No. 61 to the Registration Statement filed on April 30, 1998. ITEM 24. Persons Controlled By or Under Common Control with Registrant ------------------------------------------------------------- The Registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with the Registrant within the meaning of this item. The information in the prospectus under the caption "The Funds in Detail - Organization - Management" and in the statement of additional information under the caption "Investment Adviser" is incorporated by reference. ITEM 25. Indemnification --------------- Article VIII of the Agreement and Declaration of Trust of the Registrant (exhibit 1) provides in effect that Registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Registrant, its trustees and officers, its investment adviser and persons affiliated with them are insured under a policy of insurance maintained by Registrant and its investment adviser, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. ITEM 26. Business and Other Connections of Investment Adviser ---------------------------------------------------- The information in the prospectus under the caption " Management of the Funds" is incorporated by reference. Neither Wanger Asset Management, L.P. nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee. ITEM 27. Principal Underwriters ---------------------- WAM Brokerage Services, L.L.C. also acts as principal underwriter for Wanger Advisors Trust. NAME POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH UNDERWRITERS REGISTRANT Bruce H. Lauer President Vice President and Treasurer THE PRINCIPAL BUSINESS OF EACH OFFICER OF WAM BROKERAGE SERVICES, L.L.C. IS 227 WEST MONROE STREET, SUITE 3000, CHICAGO, ILLINOIS 60606. Item 28. Location of Accounts and Records -------------------------------- Bruce H. Lauer, Vice President and Treasurer Acorn Investment Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 ITEM 29. Management Services ------------------- None ITEM 30. Undertakings ------------ Not applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it meets all of the requirements for effectiveness of this registration statement under Rule 485(b) under the Securities Act and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on February 26, 1999. ACORN INVESTMENT TRUST By /s/ Ralph Wanger --------------------------- Ralph Wanger, President Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated. Name Title Date ---- ----- ---- /s/ Irving B. Harris Trustee and chairman ) - ---------------------------- Irving B. Harris ) ) /s/ Leo A. Guthart Trustee ) - ---------------------------- Leo A. Guthart /s/ Jerome Kahn, Jr. Trustee ) - ---------------------------- Jerome Kahn, Jr. ) ) /s/ David C. Kleinman Trustee ) - ---------------------------- David C. Kleinman ) ) Trustee ) - ---------------------------- ) February 26, 1999 James H. Lorie /s/ Charles P. McQuaid Trustee ) - ---------------------------- ) Charles P. McQuaid ) ) /s/ Roger S. Meier Trustee ) - ---------------------------- Roger S. Meier ) ) /s/ Allan B. Muchin Trustee ) - ---------------------------- Allan B. Muchin ) ) /s/ Robert E. Nason Trustee ) - ---------------------------- Robert E. Nason ) ) /s/ Katherine Schipper Trustee ) - ---------------------------- Katherine Schipper ) ) /s/ Ralph Wanger Trustee and President ) - ---------------------------- (principal executive ) Ralph Wanger officer) ) /s/ Bruce H. Lauer Treasurer (principal ) - ---------------------------- financial and accounting ) Bruce H. Lauer officer) ) INDEX OF EXHIBITS FILED WITH THIS AMENDMENT ------------------------------------------- EXHIBIT NUMBER EXHIBIT - ------ ------- d.4 Supplement to the Investment Advisory Agreement among Acorn Investment Trust and Wanger Asset Management, L.P. relating Acorn Twenty and Acorn Foreign Forty d.5 Amendment to the Administration Agreement between Acorn Investment Trust and Wanger Asset Management, L.P. e.2 Amendment to the Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C., relating to Acorn Twenty and Acorn Foreign Forty g.4 Letter agreement applying custodian contract and transfer agent and service agreement to Acorn Twenty and Acorn Foreign Forty i. Consent of Bell, Boyd & Lloyd j Consent of Ernst & Young LLP n.1 Financial data schedule - Acorn Fund n.2 Financial data schedule - Acorn International n.3 Financial data schedule - Acorn USA n.4 Financial data schedule - Acorn Twenty n.5 Financial data schedule - Acorn Foreign Forty EX-99.D.4 2 SUPPLEMENT TO ADVISORY AGREEMENT EXHIBIT D.4 SUPPLEMENT TO THE ADVISORY AGREEMENT This Supplement to the Investment Advisory Agreement dated January 1, 1998, between Acorn Investment Trust, a Massachusetts business trust ("Acorn"), on behalf of its series, Acorn Fund, Acorn International and Acorn USA (the "Funds"), and Wanger Asset Management, L.P., a Delaware limited partnership ("WAM") (the "Agreement"), is made this 17th day of August, 1998. RECITALS In the Agreement, Acorn appointed WAM as the investment adviser to the Funds. The Agreement provides that "if Acorn establishes one or more series in addition to the Funds named above with respect to which it desires to retain WAM as investment adviser hereunder, and if WAM is willing to provide such services under this agreement, Acorn and WAM may add such new series to this agreement, by written supplement to this agreement. Such supplement shall include a schedule of compensation to be paid to WAM by Acorn with respect to such series and such other modifications of the terms of this agreement with respect to such series as Acorn and WAM may agree. Upon execution of such a supplement by Acorn and WAM, that series will become a Fund hereunder and shall be subject to the provisions of this agreement to the same extent as the Funds named above, except as modified by the supplement." Acorn has established two new series, designated Acorn Twenty and Acorn Foreign Forty, respectively, and desires to retain WAM as the investment adviser to each series. WAM is willing to provide such investment advisory services under the Agreement. THEREFORE, Acorn and WAM agree: 1. The series of Acorn designated Acorn Twenty and Acorn Foreign Forty are Funds under the Agreement. 2. For the services to be rendered and the expenses to be assumed on behalf of Acorn Twenty and Acorn Foreign Forty and to be paid by WAM under this agreement, Acorn shall pay to WAM fees accrued daily and paid monthly at the annual rates shown below: FUND Rate of Fee ---- ----------- Acorn Twenty .90% Acorn Foreign Forty .95% EXHIBIT D.4 The fees attributable to each Fund shall be a separate charge to that Fund and shall be the several (and not joint or joint and several) obligation of that Fund. ATTEST: WANGER ASSET MANAGEMENT, L.P. /s/ Merrillyn J. Kosier Secretary By: /s/ Ralph Wanger ATTEST: ACORN INVESTMENT TRUST /s/ Merrillyn J. Kosier By: /s/ Ralph Wanger Secretary EX-99.D.5 3 AMENDMENT TO ADMINISTRATION AGREEMENT EXHIBIT D.5 AMENDMENT TO ADMINISTRATION AGREEMENT between ACORN INVESTMENT TRUST and WANGER ASSET MANAGEMENT, L.P. This Amendment to the Admininstration Agreement dated January 1, 1998 (the "Agreement") between Acorn Investment Trust, a Massachusetts business trust ("Acorn"), on behalf of its series, Acorn Fund, Acorn International and Acorn USA (the "Funds"), and Wanger Asset Management, L.P., a Delaware limited partnership ("WAM") (the "Amendment"), is made this 17th day of August, 1998. RECITALS In the Agreement, Acorn appointed WAM to act as Administrator of the Funds, subject to the supervision and direction of the Board of Trustees of Acorn. The Agreement provides that Schedule A to the Agreement, which lists the Funds for which administrative services are to be provided by WAM, may be amended from time to time in writing. Acorn has established two new series, designated Acorn Twenty and Acorn Foreign Forty, respectively, and desires to retain WAM as the Administrator to each series. WAM is willing to provide such administrative services as contemplated by the Agreement. THEREFORE, Acorn and WAM agree: 1. As used in the Agreement, "Funds" shall include the series of Acorn designated Acorn Twenty and Acorn Foreign Forty. 2. Schedule A to the Agreement is hereby amended as follows: "Funds to which the Administration Agreement is Applicable Acorn Fund Acorn International Acorn USA Acorn Twenty Acorn Foreign Forty" EXHIBIT D.5 ATTEST: WANGER ASSET MANAGEMENT, L.P. /s/ Merrillyn J. Kosier By: /s/ Ralph Wanger Secretary ATTEST: ACORN INVESTMENT TRUST /s/ Merrillyn J. Kosier By: /s/ Ralph Wanger Secretary EX-99.E.2 4 AMENDMENT TO THE DISTRIBUTION AGREEMENT EXHIBIT E.2 AMENDMENT TO DISTRIBUTION AGREEMENT between ACORN INVESTMENT TRUST and WAM BROKERAGE SERVICES, L.L.C. This Amendment to the Distribution Agreement is made this 17th day of August, 1998 by and between ACORN INVESTMENT TRUST, a business trust organized and existing under the laws of the Commonwealth of Massachusetts ("Acorn") and WAM BROKERAGE SERVICES, L.L.C., a limited liability company organized and existing under the laws of the State of Illinois ("WAM BD"). RECITALS Acorn and WAM BD entered into a Distribution Agreement (the "Agreement") dated January 1, 1998 by which Acorn appointed WAM BD as principal underwriter of its Shares. The Agreement defines Shares as the "shares of beneficial interest...which currently are divided into three series, Acorn Fund, Acorn International and Acorn USA, and including shares of any additional series which may from time to time be offered for sale to the public." Acorn has designated and wishes to offer for sale to the public shares of two additional series, Acorn Twenty and Acorn Foreign Forty, and may from time to time hereafter wish to offer for sale to the public shares of yet additional series. Acorn has entered into an investment advisory agreement dated January 1, 1998 with Wanger Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which WAM has agreed to pay all expenses incurred in the sale and promotion of shares of Acorn. THEREFORE, Acorn and WAM BD agree: As used in the Distribution Agreement, "Shares" shall include the shares of beneficial interest of the series of Acorn designated Acorn Twenty and Acorn Foreign Forty. EXHIBIT E.2 ATTEST: WAM BROKERAGE SERVICES, L.L.C. /s/ Merrillyn J. Kosier By: /s/ Ralph Wanger Secretary ATTEST: ACORN INVESTMENT TRUST /s/ Merrillyn J. Kosier By: /s/ Ralph Wanger Secretary ACKNOWLEDGED: WANGER ASSET MANAGEMENT, L.P. By: /s/ Ralph Wanger ATTEST: /s/ Merrillyn J. Kosier Secretary EX-99.G.4 5 LETTER AGREEMENT TO CUSTODIAN AND TA CONTRACT EXHIBIT G.4 Acorn Investment Trust 227 West Monroe Suite 3000 Chicago, Illinois 60606-5016 1-800-9-ACORN-9 (1-800-922-6769) August 17, 1998 State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 Ladies and Gentlemen: This is to advise you that Acorn Investment Trust has established two new series of shares to be known as Acorn Twenty and Acorn Foreign Forty. In accordance with the Additional Funds provision in Section 17 of the Custodian Contract dated July 1, 1992, as amended from time to time, and in Article 10 of the Transfer Agency and Service Agreement dated July 1, 1992 between Acorn Investment Trust and State Street Bank and Trust Company, Acorn Investment Trust hereby requests that you act as Custodian and Transfer Agent for each new series. Please indicate your acceptance of this appointment as Custodian and Transfer Agent by executing three copies of this Letter Agreement, returning two copies to us and retaining one copy for your records. ACORN INVESTMENT TRUST By: /s/ Merrillyn J. Kosier Merrillyn J. Kosier Senior Vice President and Secretary Agreed to this 17/th/ day of August, 1998. STATE STREET BANK AND TRUST COMPANY By: /s/ Ronald E. Logue Name: Ronald E. Logue Title: Executive Vice President EX-99.I 6 CONSENT OF BELL BOYD & LLOYD Exhibit I BELL, BOYD & LLOYD Three First National Plaza 70 West Madison Street, Suite 3300 Chicago, Illinois 60602-4207 312 372 1121 Fax: 312 372 2098 February 26, 1999 As Counsel for Acorn Investment Trust (the "Registrant"), we consent to the incorporation by reference of our opinion for the Registrant's series designated Acorn Fund, Acorn International and Acorn USA dated April 30, 1998, filed with the Registrant's registration statement on Form N-1A on April 30, 1998, and our opinion for the Registrant's series designated Acorn Twenty and Acorn Foreign Forty dated June 2, 1998, filed with the Registrant's registration statement on Form N-1A on June 3, 1998 (Securities Act file no. 2-34223). In giving this consent we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. /s/ Bell, Boyd & Lloyd EX-99.J 7 CONSENT OF INDEPENDENT AUDITORS Exhibit j CONSENT OF INDEPENDENT AUDITORS We consent to the references to our firm under the captions "Financial Highlights" and "Independent Auditors" and to the use of our report dated February 9, 1999 on the 1998 financial statements of Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign Forty, comprising Acorn Investment Trust and its incorporation by reference in the Registration Statement (Form N-1A) and in the related Prospectus and Statement of Additional Information, filed with the Securities and Exchange Commission in this Post- Effective Amendment No. 64 to the Registration Statement under the Securities Act of 1933 (Registration No. 2-34223) and in the Amendment No. 39 to the Registration Statement under the Investment Company Act of 1940 (Registration No. 811-1829). /s/ Ernst & Young LLP Chicago, Illinois February 23, 1999 EX-27.1 8 ACORN FUND
6 The following information is extracted from and qualified by reference to registrant's report on form N-SAR for the period ended December 31, 1998 and the audited financial statements included in registrant's annual report to shareholders. 1 ACORN FUND 1000 YEAR DEC-31-1998 DEC-31-1998 2139749 3585613 13905 502 0 3600020 11480 0 39079 50559 0 2067199 210706 216645 2531 0 33912 0 1445819 3549461 27970 13414 0 30352 11032 254003 (43553) 201682 0 6284 219264 0 28471 47224 12814 (131996) 498 47522 0 0 24905 0 30352 3629987 16.99 .04 .91 .03 1.06 0 16.85 .84 0 0
EX-27.2 9 ACORN INTERNATIONAL
6 The following information is extracted from and qualified by reference to registrant's report on form N-SAR for the period ended December 31, 1998 and the audited financial statements included in registrant's annual report to shareholders. 2 ACORN INTERNATIONAL 1000 YEAR DEC-31-1998 DEC-31-1998 1197259 1727425 5143 503 0 1733071 2479 0 5095 7570 0 1209014 62874 88273 5419 0 (17865) 0 528909 1725497 23704 10223 0 19219 14708 4188 215847 234743 0 12611 22701 0 19518 26757 1540 102558 3986 15568 0 0 14124 0 19219 1718370 18.39 .17 2.68 .15 .27 0 20.82 1.12 0 0
EX-27.3 10 ACORN USA
6 The following information is extracted from and qualified by reference to registrant's report on form N-SAR for the period ended December 31, 1998 and the audited financial statements included in registrant's annual report to shareholders. 3 ACORN USA 1000 YEAR DEC-31-1998 DEC-31-1998 265044 281785 1345 66 0 283196 460 0 1785 2245 0 263734 18986 12212 0 0 476 0 16741 280951 882 1042 0 2974 (1050) 23791 (14625) 8116 0 0 19532 0 11042 9558 1270 96227 0 1581 0 0 2336 0 2979 247195 15.12 (.07) .87 0 1.12 0 14.80 1.20 0 0
EX-27.4 11 ACORN TWENTY
6 The following information is extracted from and qualified by reference to registrant's report on form N-SAR for the period ended December 31, 1998 and the audited financial statements included in registrant's annual report to shareholders. 4 ACORN TWENTY 1000 YEAR DEC-31-1998 DEC-31-1998 30290 32822 743 254 0 33819 60 0 35 95 0 31432 3150 0 6 0 (246) 0 2532 33724 38 7 0 39 6 (246) 2532 2292 0 0 0 0 3176 26 0 33724 0 0 0 0 26 0 53 25254 10.00 0 .71 0 0 0 10.71 1.41 0 0
EX-27.5 12 ACORN FOREIGN FORTY
6 The following information is extracted from and qualified by reference to registrant's report on form N-SAR for the period ended December 31, 1998 and the audited financial statements included in registrant's annual report to shareholders. 5 ACORN FOREIGN FORTY 1000 YEAR DEC-31-1998 DEC-31-1998 14793 15959 777 0 0 16736 936 0 15 951 0 14558 1435 0 9 0 74 0 1144 15785 5 3 0 18 (10) 74 1163 1227 0 0 0 0 1453 18 0 15785 0 0 0 0 11 0 32 11315 10.00 (.01) 1.01 0 0 0 11.00 1.73 0 0
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