-----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, FREP4LfKzmNoDP9bEMqecpZ1PZiIHcPqFY6t3fHguKdl2PpBNEpWSjsglzI+aZ7V BO7maSPYTgKPtqLYCBCw9A== 0000950131-99-001353.txt : 19990308 0000950131-99-001353.hdr.sgml : 19990308 ACCESSION NUMBER: 0000950131-99-001353 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990305 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN INVESTMENT TRUST CENTRAL INDEX KEY: 0000002110 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01829 FILM NUMBER: 99558273 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE ST STE 3000 STREET 2: ATTN: BRUCE LAUER CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 ANNUAL REPORT - ACORN INVESTMENT TRUST [ACORN LOGO APPEARS HERE] The Acorn Family of Funds Annual Report - ---------------------------------- December 31, 1998 Acorn Family of Funds Annual Report 1998 Table of Contents Shareholder News 2 Squirrel Chatter: Up the Amazon in a BVU 3 1998: A Record-Breaking Year 4 Scarlet A Awards 5 Acorn Twenty In a Nutshell 6 Performance at a Glance 7 Statement of Investments 16 Acorn Foreign Forty In a Nutshell 8 Performance at a Glance 9 Statement of Investments 18 Portfolio Diversification 19 Acorn USA In a Nutshell 10 Performance at a Glance 11 Major Portfolio Changes 20 Statement of Investments 21 Acorn International In a Nutshell 12 Performance at a Glance 13 Major Portfolio Changes 24 Statement of Investments 26 Portfolio Diversification 31 Acorn Fund In a Nutshell 14 Performance at a Glance 15 Major Portfolio Changes 32 Statement of Investments 34 Foreign Portfolio Diversification 41 Acorn Family of Funds Report of Independent Auditors 42 Statements of Assets and Liabilities 43 Statements of Operations 44 Statements of Changes in Net Assets 46 Financial Highlights 48 Notes to Financial Statements 52
1 Shareholder News Time is Running Out... Don't forget to make your 1998 IRA contribution before April 15. Use the Internet to immediately print IRA information and applications from our web site (www.acornfunds.com), or call 1-800-922-6769 to request an IRA investment kit. 1998 Tax Information... The 1998 Tax Guide was sent to you at the end of January with your Form(s) 1099. If you did not receive or have misplaced your tax guide, you may immediately print additional copies from our web site (www.acornfunds.com), or call 1-800-922-6769 to request a copy by mail. If you did not receive your Form(s) 1099, call 1-800-962-1585 for a duplicate copy. Our e-mail address is: acorn@wanger.com Find out what's new -- visit our web site at: www.acornfunds.com
Total 1998 Distributions Per Share Acorn Fund Acorn International Acorn USA Ordinary Income $ 0.03/share $ 0.15/share $ 0.22/share Short-Term Capital Gain - - $ 0.06/share Long-Term Capital Gain $ 1.06/share $ 0.27/share $ 0.84/share
2 Squirrel Chatter: Up the Amazon in a BVU [PHOTO APPEARS HERE] Borders Group is one of the two "category-killer" bookstore chains, the other being Barnes and Noble. The company has grown rapidly, a little over 13% per year, and had a good profit margin, 3.5% net-to-sales. The total value of the company is $1.6 billion. Let us define a new unit to measure booksellers, the BVU (Borders Value Unit), so that one BVU equals $1.6 billion. Amazon.com is also in the retail book business, but sells only over the Internet. The Amazon.com web site has been the most successful Internet retail operation so far in terms of sales. Amazon.com sales are now running at a $600 million annual rate, one-fourth of Borders' sales. Amazon.com sales are growing at a dazzling pace, but profitability is a different matter; Amazon.com is losing money at a rate of $80 million per year. Will Amazon.com ever make a profit? Some analysts think it may in the year 2001, but this remains to be seen. Internet book sales are made at steep discounts to list price. Both Borders and Barnes and Noble have web sites that compete with Amazon.com, so gross margins are going to stay low. We must wait to see if Amazon.com can ever get to a positive net margin. Since Borders is large and profitable, and Amazon.com is small and unprofitable, you might think Borders is worth more than Amazon.com. At $200, Amazon.com was selling at 20 times the value of Borders! Amazon.com (AMZN) has 158 million shares outstanding. A ten-point move for AMZN stock, therefore, is a change in value of $1.6 billion, or what we are calling one BVU. In January 1999, there were ten days when AMZN moved more than one BVU. In other words, in one day, Amazon.com's value goes up or down an amount equal to the entire value of Borders! Valuing Amazon.com In the month of January, AMZN traded between $90 and $200 per share. That would be a reasonable yearly range for a speculative stock, but doing it in a month hints of irrational exuberance. What does the market predict for the future of Amazon.com? Since there are no dividends, profits, or cash flow to base a valuation on, we are reduced to looking at the price-to-sales ratio. The price- to-sales ratio should be higher for a company that has high profit margins (net profit to sales) or a high growth rate of sales. Borders has a $1.6 billion market value and $2.6 billion in sales, so the price-to-sales ratio is 0.6 times. Wal-Mart, a highly successful retailer, has a price-to-sales ratio of 1.3 times, not quite twice that of Borders. Home Depot and Gap, fabulous successes, have much higher price-to-sales ratios because their profit margins are higher than Wal-Mart's. A&P, a slow-growth, low-margin supermarket chain, gets a very low price-to-sales-ratio.
Estimated Retail Ratios Net/Sales Growth Rate/1/ Price/Sales - ------------------------------------------------------------------------- A&P 0.4% 2% 0.1x Borders 3.5% 15% 0.6x Wal-Mart 3.2% 20% 1.3x Home Depot 4.6% 20% 2.8x Gap 8.7% 15% 4.1x Amazon.com (now) negative 100% 34.0x Amazon.com ("in five years") 3.5% 73% 3.4x
Where might Amazon.com be in five years? If AMZN stock is $200/share at that time/2/, its market value will be $34 billion. Assume they succeed in making profit margins equivalent to Borders or Wal-Mart; because of Amazon.com's high growth rate, their price-to-sales ratio might be as high as Home Depot or Gap, let us say 3.4 times (one-tenth of AMZN's price-to-sales ratio now). A price-to- sales ratio of 3.4 times means that the company's sales volume would have to be $10 billion. (To get there in five years, sales have to grow at 73% per year.) Since sales for the entire U.S. book-selling industry are only about $17 billion per year/3/, Amazon.com would have to expand internationally and into a number of other retail categories to reach $10 billion in sales. Right. You might think that Borders is worth more than Amazon.com. At $200, Amazon.com was selling at 20 times the value of Borders! Growing at 73% per year and becoming highly profitable would be one of the great stories of the 21st Century and Amazon.com has to succeed at both those goals to justify the price the stock is at now! Amazon.com and its fellow Internet stocks are very over-priced speculations that may be selling for a lot less a year from now. - ------------------------------------------------------------------------------- /1/Estimated Growth Rate is based on a five-year prediction with data as of 12/31/98. /2/If the current price is about $100, any buyer must figure it will be at least $200 in five years. /3/Source: JP Morgan 3 Softbank Amid all of the craze, one of the world's dominant Internet companies is largely overlooked and is trading at a huge discount to its asset value. A Japanese company, Softbank, is a major shareholder of companies such as Yahoo! and Ziff Davis. Softbank has the leading position in setting up Internet companies in Japan. The unrealized gains on Softbank's listed investments alone are worth double the current share price! Value and Internet are two words not often heard together, but we think Softbank is a great stock to own. 1998: A Record-Breaking Year Sports records have been broken all around in 1998. Sammy Sosa broke Roger Maris' long-standing home run record, but, in Chicago Cub style, didn't even get into the record book, because Mark McGuire topped him with even more homers. Michael Jordan retired, and as a mark of respect, the NBA canceled half of its season. In the wrestling world, Jesse "The Body" Ventura was elected Governor of Minnesota and Bill "Your Body" Clinton scored an escape and reversal over the Republicans in Congress. Besides sports and entertainment, economic records were set, too. Japan's record-breaking bear market (nine years and counting) was capped by driving interest rates on short-term government debt below zero for a few days. Malaysia gave enhanced meaning to the term "active monetary policy" by grabbing the Finance Minister, arresting him, beating him in jail, and then trying him for sodomy. Russia wins an Oscar in the "fastest bond default by a new large nation" category. Deflation has returned, inflation has retired to the Old Fear's Home, and world interest rates have plummeted, although not to Japanese levels. Weird fact: the ten-year government bond of Italy now sells at a lower interest rate than the ten-year bond of the USA! Now that is something that no one predicted! Here at home, the federal budget deficit disappeared, going into surplus for the first time in twenty years. Our balance of trade deficit, however, is setting new records every month. Up until 1983, our trade deficit never got much above $20 billion per year; we are now near a $20 billion deficit per month. Our trade imbalance with Japan, up approximately 20% this year, makes the Japanese trade surplus another entry into the record book. The U.S. fixed income market started 1998 in a complacent mode, with very low risk premiums for low-grade credits (such as Russia). The crisis in Southeast Asia, Korea and Russia, however, triggered an enormous jump in risk premiums -- taking a couple of giant hedge funds by surprise. A new record was set for "Most Nobel Prize-Winning Economists Brought Down by Hubris." The stock markets fully kept pace with all this general nuttiness. Europe soared, Japan continued lower, Brazil and other emerging markets collapsed. The U.S. market set new record highs in price and valuations, but in a way that was irritating to us Acorn shareholders. Size Ruled Big companies were strong in 1998, but small-capitalization companies were flat. Mid-cap, logically enough was in the middle. Acorn Fund has a portfolio that is in between small-cap and mid-cap, so the Fund's 6% return was halfway between small-cap funds and mid-cap funds. 1998 Returns/1/ - ---------------------------------------- S&P 500 Index +28% Lipper Mid-Cap Funds +12% Lipper Small-Cap Funds 0 (Data Source: Barrons, Lipper Analytical Services) Even inside the S&P 500 stock group, size ruled. The 100 largest companies (largest quintile) were up 37%, while the smallest 100 companies in the S&P 500 were down 1%, with the middle three quintiles lined up in order. Market-Value Quintile 1998 Returns - ------------------------------------ #1 Largest +37% #2 +19% #3 +9% #4 +9% #5 Smallest -1% (Data Source: Prudential Securities; Standard & Poors) - -------------------------------------------------------------------------------- /1/The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The Lipper Mid-Cap Funds Average is an average of the 1998 performance of all U.S. mid-cap funds tracked by Lipper Analytical Services. The Lipper Small-Cap Funds Average is an average of the 1998 performance of all U.S. small-cap funds tracked by Lipper. 4 Big beat small in 1998 and growth beat value. Growth stocks soared, especially Internet-related companies, generating the joke that any stock could double overnight by just adding ".com" to the company name. The outperformance of large-cap growth companies was so striking in 1998 that one might think that this is the way the world usually works. It isn't. Over the long-term, small-cap stocks have done as well as or better than larger companies. Over the long-term, "value" stocks have done better than growth stocks. Because of the market action in 1998, small company stocks are at record discounts to big companies. Discounts like this always go back to equilibrium over time. As much as one can say anything sensible about stock prices in the future, one can say that the odds strongly favor small-cap stocks outperforming the rest of the market over the next three to five years. Scarlet A Winners 1998 was the year when Mr. McGuire and Mr. Sosa hit 136 home runs between them. Question: how many strikeouts did they have during the season? Answer: it doesn't matter! A home run is a game-winning decisive blow. If you hit home runs for a living, your value to the team, and therefore your pay, depends on your winners. You are going to be out two-thirds of your times-at-bat, but that's okay if you hit enough home runs. Investing in small-company stocks is similar to baseball, except we don't chew tobacco. We can afford to have a lot of small losses if we have a few home runs. What is a stock market home run? WM Data is a home run; Acorn International has a cost of $2.4 million and a market value of $77 million, a 32-bagger! How important are our big winners? Acorn Fund has 232 holdings. In 1998, our portfolio gained $201 million in value. Our four best stocks made us $221 million (Liberty Media, Carnival, Harley-Davidson, Solectron) so all the rest of the portfolio had a minor loss. Finding the big winners is the purpose of the game, so there is plenty of credit to go around for these ideas. We get our ideas from analysts, institutional salesmen, and even some real world people who know their industry. After an idea comes to us, we then start our own analytic process to understand and value the company, but every idea has a source somewhere. Every year we recognize our idea sources with the coveted Scarlet A diplomas. The winners for 1998 all went up at least 64% and made big money for the portfolios as well. Carnival, one of our all-time great stocks, went up 75% in the year and made $60 million in profits for Acorn Fund and Acorn International shareholders. The award goes to Peter McMullin of Southeast Research Partners. Peter won a Scarlet A for Carnival last year too! Harley-Davidson roared ahead 74% in 1998. Tim Reiland gets his third Scarlet A for Harley-Davidson, following awards in 1989 and 1994. Long-term investing can pay off. Our cost on HDI is a little over $3 million, with a current market value of $104 million! Old friend Jack Spears of ABN-AMRO (formerly Chicago Corporation) wins for SEI for a 137% climb in the year. Jabil Circuits is a contract electronics manufacturer. We bet our chips on Jabil on the advice of Jim Savage, who has left Alex Brown and recently joined Thomas Weisel & Company. Donaldson Luftkin Jenrette's Ron Getto talked us into NTL, a CATV operator in the UK. Thanks, DLJ. Another great European winner was Atos, a French computer service company. Herve Pilo of Exane gets the award. Two more winners in the information sector: First, Centennial Cellular. Chicagoan Jennifer Murtaugh of Everen Securities picks up the diploma. Next, United Video Satellite Group. Mark Riely of Media Research Group gets his Scarlet A. 1999 will be another year of market excitement and surprise. We look forward to celebrating a new crop of Scarlet A winners next year. /s/ Ralph Wanger Ralph Wanger Chief Investment Officer, Wanger Asset Management, Lead Portfolio Manager, Acorn Fund 5 Acorn Twenty In a Nutshell [PHOTO APPEARS HERE] Welcome to the Acorn family's newest domestic fund, Acorn Twenty. Launched on November 23 with $18 million in net assets, Acorn Twenty finished 1998 with a 7.1% return and nearly $34 million in total net assets. We are excited to be managing your Fund, and would like to extend our gratitude to all of our fellow shareholders for making Acorn Twenty's launch a great success. Many of you already know the potential benefits of investing in a more concentrated fund. Over time, investing in a select group of companies magnifies an investment manager's stock-picking skills (or lack thereof). Our domestic research team is working hard to find 20-25 mid-cap, high quality, growing businesses, that are selling at reasonable prices. (We believe we have considerable expertise in this area, as many of our successful small-cap ideas have "grown up" past the $1 billion capitalization mark.) Always remember that day-to-day volatility is not unusual with more concentrated funds, because each investment represents a larger percentage of the fund's total portfolio than similar investments in a more diversified fund. We are taking more risk in search of higher return, because we have complete confidence in the stock- picking talents of Acorn's outstanding domestic research team. Ralph Wanger, Chuck McQuaid, Rob Mohn, Jason Selch, Laura McKenna, Todd Narter and Ben Andrews have proven themselves as highly skilled investment professionals, and their contributions to Acorn Twenty and the entire Acorn family are invaluable. We are extremely optimistic about Acorn Twenty's future, and have invested substantial amounts of our own personal savings in the Fund. We believe the future will prove to be prosperous, and look forward to sharing the results of our stock selection with you, our partners and fellow shareholders. Thank you for your support. [SIGNATURE APPEARS HERE] John H. Park Co-Portfolio Manager [SIGNATURE APPEARS HERE] Mark H. Yost Co-Portfolio Manager 6 Performance at a Glance Acorn Twenty Information Ticker Symbol: ACTWX Minimum Initial Investment: $1,000 $1,000 for an IRA Minimum Subsequent Investment: $100 Exchange Fee: None Management Fee*: 0.90% 12b-1 Fee: None Administrative Fee: 0.05% Total Expense Ratio*: 1.35% *Fees and expenses are calculated for the period since the Fund's inception on November 23, 1998 through December 31, 1998. Wanger Asset Management has undertaken to reimburse the Fund for any ordinary operating expenses exceeding 1.35% of its average annual net assets. Fund Net Assets as of 12/31/98: $33.7 million - ------------------------------------------------ Acorn Twenty Top 10 Holdings Telephone & Data Systems 11.1% Cellular & Telephone Franchises RCN 8.9% Metro Market: Voice, Video & Data Services Expeditors Int'l of Washington 5.6% International Freight Forwarder Americredit 5.5% Auto Lending Royal Caribbean Cruises 5.2% Cruises to Caribbean & Alaska Progressive 5.0% Auto Insurance Lincare Holdings 4.8% Home Health Care Services Acxiom 4.6% Database Marketing Services First Health Group 4.5% PPO Network AES Corporation 3.9% Power Plants The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Acorn Twenty Portfolio Diversification - ----------------------------------------- as a % of net assets, as of 12/31/98 Information 39.0% Finance 17.4% Health Care 12.8% Consumer Goods/Services 12.1% Energy/Minerals 7.5% Other* 11.2% * includes "Cash and other assets less liabilities" of 5.6% Relative Performance - --------------------------------------------- Life of Fund* Acorn Twenty 7.1% S&P MidCap 400 11.1% S&P 500 5.8% *Life of Fund Performance is from Acorn Twenty's inception (11/23/98) through 12/31/98. The S&P MidCap 400 is a market value-weighted index of 400 stocks that are in the next tier down from the S&P 500. The S&P 500 is a broad market- weighted average of U.S. blue-chip companies. All indexes are unmanaged and returns include reinvested dividends. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Net Asset Value Per Share 12/31/98: $10.71 - ------------------------------------------ 7 Acorn Foreign Forty In a Nutshell [PHOTO OF MARCEL P. HOUTZAGER APPEARS HERE] We are pleased to report that Acorn Foreign Forty is off to a strong start. The new fund started with $7.5 million on November 23. By year-end its assets had grown to $16 million, and those of us who invested on day 1 had made 10.0% in a little over a month. To put this in context, international large-caps, as measured by EAFE, were up 3.9% for the month of December. There is no widely recognized benchmark for international mid-cap stocks in existence today. Long time Acorn shareholders have seen this before. The best investment returns usually are made before a concept has been measured and formalized. When Acorn Fund first started investing in U.S. small-caps in 1970, there was no small-cap benchmark. After 8 years and a 214% rise in Acorn's NAV (double the return of the S&P!), the benchmark makers finally recognized a good thing and constructed the Russell 2000 index. Does this mean Acorn Foreign Forty shareholders can expect a similar experience? As all mutual fund investors have been told, past performance is no guarantee of future results, but there are good reasons to be optimistic. International mid-cap stocks are available today at substantially lower prices than large-caps, at a time when the growth prospects of the underlying companies look bright. In Europe there are several powerful forces driving the equity markets. Low interest rates, falling barriers to cross border investing, the shift from pay-as-you go towards funded pensions, and privatization of state owned companies, all contribute to an economic environment which resembles the U.S. of six years ago. We are taking full advantage of this climate in several ways. Monies flowing into non-money market mutual funds has more than doubled in each of the past two years in Germany, France and Italy. We hope to capitalize on this trend by investing in financial service companies such as life insurers and mutual fund managers. Technological advances are revolutionizing telecommunications across the continent and we've uncovered a solid group of companies that stand to benefit most from this trend. In Europe...low interest rates, falling barriers to cross border investing, the shift from pay-as-you-go towards funded pensions, and privatization of state owned companies all contribute to an economic environment which resembles the U.S. of six years ago. In Asia, last year's bear market has resulted in good companies trading at bargain prices. We are invested in several world class companies with Asian- based operations but with the majority of their customers in the U.S. and Europe. If our analysis is correct, a substantial portion of these mid-cap companies will become large-cap companies, and the fund will capture both the growth in their profits and the conversion of the mid-cap discount to a large- cap premium. We would like to thank all of our new shareholders for their confidence in our analytical team. As a footnote, we share that confidence, having invested a meaningful portion of our own money in the fund. We look forward to an exciting 1999. /s/ Marcel P. Houtzager - ----------------------- Marcel P. Houtzager Lead Portfolio Manager 8 Performance at a Glance Acorn Foreign Forty Information Ticker Symbol: ACFFX Minimum Initial Investment: $1,000 $1,000 for an IRA Minimum Subsequent Investment: $100 Exchange Fee: None Management Fee*: 0.95% 12b-1 Fee: None Administrative Fee: 0.05% Total Expense Ratio*: 1.45% *Fees and expenses are calculated for the period since the Fund's inception on November 23, 1998 through December 31, 1998. Wanger Asset Management has undertaken to reimburse the Fund for any ordinary operating expenses exceeding 1.45% of its average annual net assets. Fund Net Assets as of 12/31/98: $15.8 million - --------------------------------------------- >Acorn Foreign Forty Top 10 Holdings
Atos France 3.8% Computer Services/ Transaction Processing Olivetti Italy 3.5% Mobile Telecommunications Unique International Netherlands 3.3% Temporary Employment Hays United Kingdom 3.3% Outsourcing Services SITA France 3.3% Waste Hauling & Landfills Natsteel Electronics Singapore 3.2% Electronics Manufacturing Services NTL United Kingdom 3.2% Voice, Video & Data Services Kon. Pakhoed Netherlands 3.2% Logistics Aguas de Barcelona Spain 3.2% Utility Global TeleSystems Netherlands 3.2% Telecommunications Services
The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Acorn Foreign Forty Portfolio Diversification - --------------------------------------------- >as a % of net assets, as of 12/31/98 [PIE CHART APPEARS HERE] Information 33.5% Industrial Goods/Services 20.0% Consumer Goods/Services 13.0% Finance 9.7% Health Care 5.7% Other* 18.1% * includes "Cash and other assets less liabilities" of 9.7% Relative Performance - --------------------------------------------- Life of Fund* Acorn Foreign Forty 10.0% EAFE 3.9% SSB Cap Range $2-10B 4.2% Lipper Int'l Funds Average 3.1% *Life of Fund performance for Acorn Foreign Forty is from inception (11/23/98) through 12/31/98. The performance for EAFE, SSB Cap Range $2-10B and the Lipper Int'l Funds Average is calculated from 11/30/98 through 12/31/98. During this time period, the return for Acorn Foreign Forty was 8.5%. EAFE is Morgan Stanley's Europe, Australasia and Far East Index, an unmanaged widely recognized international benchmark that comprises 20 major markets in Europe, Australia, and the Far East. The SSB Cap Range $2-10B is Salomon Smith Barney's two to ten billion U.S. dollar security market capitalization subset of its Broad Market Index. It represents a mid-cap developed market index, excluding the U.S. The Lipper Int'l Funds Average measures the performance of all non-U.S. funds tracked by Lipper, excluding the International Small Cap Funds group. For the month of December 1998, this consisted of 594 funds. All indexes are unmanaged and returns include reinvested dividends. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Net Asset Value Per Share 12/31/98: $11.00 - ------------------------------------------ 9 Acorn USA In a Nutshell [PHOTO OF ROBERT A. MOHN APPEARS HERE] Last year stocks bounced around like a loose football. They sprang up through summer, fell in the fall, and rebounded with gusto into the new year. What of the stock market's autumn mini-crash? Turned out it was just a mild hallucination, quickly cured with a dose of interest rate drops administered by the Federal Reserve. For the year, Acorn USA gained 5.8%, better than the Russell 2000 small-cap index (-2.6%), but not even in the same galaxy as the heavenly bodies of the large-cap S&P 500 (+28.6%). Wireless was more in 1998. Centennial Cellular nearly doubled in price, earning $5 million for your Fund. Cable TV stocks were strong for the second year running. We owned companies gorging on every piece of the cable pie. United Video Satellite runs on-screen TV guides listing the nature and adventure shows airing on Liberty Media's Discovery Channel carried by Cablevision and Cable Michigan's local cable systems. Each stock gained over 60%, under the watchful eye of our own cable guy, Chuck McQuaid. Technology stocks were tricky last year, but our tech whiz, Laura McKenna, tucked four tech treats into the Fund. Micros, Wonderware, Sykes and Kronos each rose over 40%, for a combined $12 million in profits. Our health care stocks spent last year in sick bay. Magellan discovered it was crazy to own psychiatric hospitals on margin. First Health's national PPO revenue flatlined. Lincare, our largest health care holding, had another bang-up year, but as a group, our health stocks hemorrhaged $5 million. Technology stocks were tricky last year, but our tech whiz tucked four tech treats into the Fund...for a combined $12 million in profits. Six of our 58 companies were taken over last year, but that's no reason to rejoice. Two were top 10 holdings taken from us prematurely. Centennial Cellular's revised sellout deal was struck only one month before a bidding war for cellular stocks erupted. Mecklermedia (Internet trade shows and web sites) sold itself out in October, moments before the dawn of Internet stock hysteria. We'd rather still own both of these dearly departed stocks (but that's just sour grapes). Today's stock market is afflicted with gigantism. The largest of large-cap stocks trade at freakishly high valuations while small-caps of all shapes get ignored. This is only a fad. Small companies are doing just as well as the giants in earnings growth, but represent much more value. When the crowd overpays for bigness, we get to underpay for wonderful, small-cap, Acorn USA kind of stocks. /s/ Robert A. Mohn - ---------------------- Robert A. Mohn Lead Portfolio Manager 10 Performance at a Glance Acorn USA Information Ticker Symbol: AUSAX Minimum Initial Investment: $1,000 $1,000 for an IRA Minimum Subsequent Investment: $100 Exchange Fee: None Management Fee*: 0.94% 12b-1 Fee: None Administrative Fee: 0.05% Total Expense Ratio*: 1.20% *Fees and expenses are for the fiscal year ended December 31, 1998. Fund Net Assets as of 12/31/98: $281.0 million - ---------------------------------------------- Acorn USA Top 10 Holdings CalEnergy 8.3% Power Plants/Competitive Utility Micros Systems 6.1% Information Systems for Restaurants & Hotels Lincare Holdings 5.1% Home Health Care Services National Data 3.7% Credit Card & Health Claims Processor Centennial Cellular 3.7% Cellular Franchises Host Marriott Services 3.4% Fast Food Kiosks in Airports Atmos Energy 3.2% Natural Gas Utility UICI 3.0% Health Insurance Wackenhut 3.0% Prison Management Acceptance Insurance 2.8% Crop Insurance The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Acorn USA Portfolio Diversification - --------------------------------------- as a % of net assets, as of 12/31/98 [PIE CHART APPEARS HERE] Information 38.0% Energy/Minerals 16.5% Finance 13.3% Industrial Goods/Services 11.5% Health Care 9.2% Other* 11.5% * includes: "Cash and other assets less liabilities" of 6.7% Relative Performance - --------------------
4th quarter Last 12 mos. 1998 Acorn USA 15.2% 5.8% Russell 2000 16.3% -2.6% Lipper Small-Cap Funds Avg. 19.1% -0.3% S&P MidCap 400 28.2% 19.1% S&P 500 21.3% 28.6%
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then eliminating the largest 1,000, leaving a market capitalization-weighted index of 2,000 small companies. The Lipper Small-Cap Funds Avg. is an average of all U.S. small-cap funds tracked by Lipper, which consisted of 721 and 638 for the 4th qtr. and 12-mos. periods above. The S&P MidCap 400 is a market value-weighted index of 400 stocks that are in the next tier down from the S&P 500. The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/98: $14.80 - ------------------------------------------ The Value of a $10,000 Investment in Acorn USA - ---------------------------------------------- September 4, 1996 through December 31, 1998 [GRAPH APPEARS HERE] Average Annual Total Return 1 Year Life of Fund 5.8% 23.5%
Date Acorn USA ($) Russell 2000 ($) - ---- ------------- ---------------- 09/04/96 10,000 10,000 09/30/96 10,720 10,360 12/31/96 11,650 10,899 03/31/97 11,480 10,335 06/30/97 13,320 12,011 09/30/97 15,340 13,798 12/31/97 15,413 13,335 03/31/98 17,401 14,678 06/30/98 17,525 13,993 09/30/98 14,151 11,174 12/31/98 16,305 12,997
This graph compares the results of $10,000 invested in Acorn USA on September 4, 1996 (the date Fund shares were first offered to the public), with the Russell 2000 Stock Index with dividends reinvested. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. 11 Acorn International In a Nutshell [PHOTO APPEARS HERE] 1998 was a good year for investors, with the exception of three short months in the middle. Skipping the third quarter would have been a good plan viewed in hindsight. During the panic, equities generally got trashed. When calm prevailed again, prices came back to levels justified by low interest rates, and the fourth quarter turned out to be great. Returns for the last three months came in ahead of our benchmark (EMI World ex-U.S.) and our peer group, the Lipper International Small-Cap Funds Index. For 1998 as a whole, we exceeded our benchmark by 3.2% and our Lipper peer group by 5.7% (see table on opposite page). Big winners in 1998 consisted of both old friends and new acquaintances. WM Data and Tieto each ran up nearly 140% over the past 12 months, contributing a combined $111 million in gains to the portfolio. In the same computer services sector, Atos and Getronics also made it into the top-ten list. Among the newcomers, Nidec in Japan rose 191%, Talentum in Finland rose 176%, and NTL in the UK posted a 103% gain. Topping our losers list were Powerscreen, in the UK, which failed to screen out accounting fraud at a subsidiary; and Oriflame, whose Russian sales went up in smoke when the ruble devalued. In market terms, we made the most money in Finland and Sweden, courtesy of the strength of our largest positions there, with Italy, Switzerland and France following in that order. More interesting is the fact that our Hong Kong and Singapore portfolios were up 15% and 33%, respectively. Of the emerging markets, Greece was the bright spot, with a 71% return on our money there. By contrast, we lost half of our investment in Argentina, and one quarter of it in Mexico and Brazil, mitigated only by having reduced our exposure to Latin America to under 5% at year-end. Smaller companies are the world's real bargains. One of the most striking characteristics of today's investment environment is the preference for large, liquid stocks. Small-cap underperformance is not simply a U.S. phenomenon. Equities with market capitalizations below $1 billion returned 14.3% less than those with capitalizations above $5 billion outside the U.S. last year. This is an improvement on the 27.6% underperformance of 1997, but a poor result nonetheless. While we don't know when the trend will change, we do know that value is on our side. Smaller companies are the world's real bargains. Our core investment philosophy is to buy a) quality companies; with b) managements committed to creating economic value; at c) reasonable prices. European small- and mid-cap companies, where the introduction of the Euro reinforces pressures towards greater efficiency and industry consolidation, look particularly attractive to us. Japanese companies look less so, even though relative market valuations are moving in the right direction, because the incentives to run companies for shareholders are still largely absent. But we are open to changing our minds (and our allocations) if Japan figures it out. We have been busy mainly on the buy side since the fall's turbulence. Our cash levels have dropped from 18.2% at September 30th to 12.4% at year-end. We enter 1999 with the confidence gained from having weathered last year's storms in good form. Our team continues to grow in size, experience and expertise. We hope that the conviction we hold in the companies owned by the Fund translates into superior performance for our shareholders over time. From all of us to all of you, Happy New Year! /s/ Leah Joy Zell Leah Joy Zell Lead Portfolio Manager Performance at a Glance Acorn International Information Ticker Symbol: ACINX Minimum Initial Investment: $1,000 $1,000 for an IRA Minimum Subsequent Investment: $100 Exchange Fee: None Management Fee*: 0.82% 12b-1 Fee: None Administrative Fee: 0.05% Total Expense Ratio*: 1.12% *Fees and expenses are for the fiscal year ended December 31, 1998.
Fund Net Assets as of 12/31/98: $1,725.5 million Acorn International Top 10 Holdings WM Data Sweden 4.5% Computer Services/Consulting Tieto Corporation Finland 3.9% Computer Services/Consulting Atos France 2.5% Computer Services/Transaction Processing Serco Group United Kingdom 2.3% Facilities Management Rhoen Klinikum Germany 2.1% Hospital Management Li and Fung Hong Kong 1.7% Sourcing of Consumer Goods Venture Manufacturing Singapore 1.7% Electronic Manufacturing Services Cie Fin Richemont Switzerland 1.6% Luxury Goods, Tobacco & Pay TV Getronics Netherlands 1.6% Computer Services/Consulting NTL United Kingdom 1.5% Voice, Video & Data Services
The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Acorn International Portfolio Diversification as a % of net assets, as of 12/31/98 [PIE CHART APPEARS HERE] Other* 20.7% Information 32.2% Health Care 5.1% Finance 8.8% Consumer Goods/Services 18.9% Industrial Goods/Services 14.3% * includes "Cash and other assets less liabilities" of 12.4% Relative Performance
4th quarter Last 12 mos. 1998 Acorn International 14.1% 15.4% EMI (World ex-U.S.) 13.2% 12.2% IFCI Composite 18.0% -22.0% Lipper Int'l Small-Cap Funds Index 10.7% 9.7%
EMI World ex-U.S. is Salomon Brothers' index of the bottom 20% of institutionally investable capital of countries, as selected by Salomon, excluding the U.S. The IFCI Composite is the International Finance Corporation's index of 31 emerging markets, which weights securities according to their market capitalization after adjusting for shares held by other constituents in the index. The Lipper Int'l Small-Cap Funds Index measures the performance of the 10 largest int'l small-cap funds tracked by Lipper. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/98: $20.82 The Value of a $10,000 Investment in Acorn Int'l September 23, 1992 through December 31, 1998 [GRAPH APPEARS HERE] Acorn International $23,305 Date Acorn Int'l ($) - ---- --------------- 1992 10,690 1993 15,940 1994 15,334 1995 16,703 1996 20,133 1997 20,170 1998 23,305 Average Annual Total Return 1 Year 5 Years Life of Fund 15.4% 7.9% 14.5% EMI (World ex-U.S.) $15,641 The following are the returns for the EMI (World Ex-US) Index since Acorn International's inception date: 09/23/92 10,000.00 12/31/92 9,590.49 12/31/93 12,573.13 12/31/94 13,639.59 12/31/95 14,355.04 12/31/96 15,392.73 12/31/97 13,946.49 12/31/98 15,641.12 This graph compares the results of $10,000 invested in Acorn International on September 23, 1992 (the date Fund shares were first offered to the public), with all dividends and capital gains reinvested, with the EMI (World ex-U.S.). The beginning value for EMI is as of 9/30/92. In preceding years, the performance of Acorn Int'l was compared to Morgan Stanley's Europe, Australasia Far East Index (EAFE), an unmanaged international benchmark that comprises 20 major markets in Europe, Australia and the Far East. The EMI (World ex-U.S.) more closely approximates the composition of Acorn International's portfolio. For the 12-mos. ended 12/31/98, the EMI showed an increase of 12.2% and EAFE showed an increase of 20.0%, compared to Acorn International's total return of 15.4% for the same period. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. 13 Acorn Fund In a Nutshell [PHOTO APPEARS HERE] 1998 was an amazing year. The market did great in the first quarter, was boring in the second quarter, panicked in the third quarter, and roared back in the fourth quarter. Unfortunately, one factor was consistent -- small-cap stocks underperformed large-caps each quarter. Acorn Fund was up 6.0% for the year and a fantastic 17.9% for the fourth quarter, beating the small-cap Russell 2000's loss of 2.6% for the year and gain of 16.3% for the quarter. Large-cap comparisons are shown on the opposite page. Acorn's longest theme -- owning stocks that benefit from technology improvements and price cuts -- paid off big time in 1998. Our media stocks, which prosper as more channels appear on CATV, were among our biggest winners. Liberty Media jumped 91%, Cablevision 114%, and United Video Satellite 65%. Our contract manufacturing companies, which grow due to increasing unit volumes in technology, also did great. Solectron surged 119%, Jabil 135%, and Sanmina 121%. Computer service companies American Management Systems, Computer Language Research, Wonderware, and Sykes each soared 55% to 70%. Another Acorn theme -- owning stocks that profit from increasing leisure spending -- provided shareholders pleasure. Carnival delivered a 75% gain and Harley roared with a 74% return. Acorn Fund's foreign stocks rose 15.6% in 1998. WM Data, Atos, and Getronics, all European computer service companies, calculated 133%, 85%, and 56% gains, respectively. UK telephone/CATV company NTL wired a 110% rise and Italian cellular franchisee Cellular Communications International signaled a 97% gain. A number of our largest holdings have done so well that they have grown into midcap or large-cap companies. Acorn's energy and health care stocks were disappointing in 1998. We trimmed our energy position to a market weighting, selling service companies and buying some producers. We added to selected health care holdings, including Magellan Health Services and First Health Group. Fourth quarter standouts include Asian cruise company Star Cruises, which cruised to a 118% gain, transactions processor National Data, which processed a 59% return, and investments processor and marketer SEI Investments, which returned 43%. A number of our largest holdings have done so well that they have grown into mid-cap or large-cap companies. We are working to swap funds from some of them into smaller-cap stocks, which now appear to be better values. /s/ Ralph Wanger /s/ Charles P. McQuaid Ralph Wanger Charles P. McQuaid Lead Portfolio Manager Co-Portfolio Manager 14 Performance at a Glance Acorn Fund - ------------------------------------------------ Information Ticker Symbol: ACRNX Minimum Initial Investment: $1,000 $1,000 for an IRA Minimum Subsequent Investment: $100 Exchange Fee: None Management Fee*: 0.69% 12b-1 Fee: None Administrative Fee: 0.05% Total Expense Ratio*: 0.84% *Fees and expenses are for the fiscal year ended December 31, 1998. Fund Net Assets as of 12/31/98: $3,549.5 million - ------------------------------------------------ Acorn Fund Top 10 Holdings Liberty Media 4.5% CATV & Satellite Dish Programming Carnival 3.6% Largest Cruise Line Harley Davidson 2.9% Motorcycles & Related Merchandise Lincare Holdings 2.8% Home Health Care Services National Data 2.5% Credit Card & Health Claims Processor Solectron 2.0% Electronic Manufacturing Services AES Corporation 2.0% Power Plants HBO & Company 1.8% Hospital Computer Services SEI Investments 1.7% Mutual Fund Administration International Game Technology 1.5% Slot Machines & Progressive Jackpots The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings. Acorn Fund Portfolio Diversification - ------------------------------------------------ as a % of net assets, as of 12/31/98 Other* 18.8% Information 36.8% Energy/Minerals 8.2% Health Care 8.4% Consumer Goods/Services 14.8% Finance 13.0% * includes "Cash and other assets less liabilities" of 6.2% Relative Performance - ------------------------------------------------ 4th quarter Last 12 mos. 1998 Acorn Fund 17.9% 6.0% S&P 500 21.3% 28.6% Russell 2000 16.3% -2.6% Lipper Small Cap Funds Index 18.5% -0.9% S&P MidCap 400 28.2% 19.1% The S&P 500 is a broad market-weighted average of U.S. blue-chip companies. The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then eliminating the largest 1,000, leaving a market capitalization-weighted index of 2,000 small companies. The Lipper Small Cap Funds Index measures the performance of the 30 largest U.S. small-cap funds tracked by Lipper. The S&P MidCap 400 is a market value-weighted index of 400 stocks that are in the next tier down from the S&P 500. All indexes are unmanaged and returns include reinvested dividends. Net Asset Value Per Share 12/31/98: $16.85 - ------------------------------------------------ The Value of a $10,000 Investment in Acorn Fund - ------------------------------------------------ June 10, 1970 through December 31, 1998 [CHART APPEARS HERE] Acorn Fund Mountain Chart Plot Points Average Annual Total Return ---------------------------------------- 1 Year 5 Years 10 Years Life of Fund 6.0% 12.7% 16.3% 16.6% Acorn Fund $807,685 Date Acorn Funds ($) S & P ($) - ------- -------------- --------- 1970 $ 13,587 $ 12,676 1974 10,691 10,816 1978 31,777 18,200 1982 68,208 33,054 1986 136,843 67,295 1990 183,674 105,386 1994 411,750 165,032 1998 807,685 478,724 S&P 500 $478,724 This graph compares the results of $10,000 invested in Acorn Fund on June 10, 1970 (the date Fund shares were first offered to the public), with the S&P 500 Stock Index with dividends reinvested. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. 15 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
16
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. 17 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
18
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%
19
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
20 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 21 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 22
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. 23 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
24 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
25
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 26
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
27 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 28
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
29 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 30 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% - -----------------------------------------------------
See accompanying notes to financial statements. 31 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
32
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
33 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 34
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
35 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 36
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
37 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
38
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
39 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. 40 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 41 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 42 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 43
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 44
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 - --------------------------------------------------------------------------------------
45 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. See accompanying notes to financial statements. 46
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 12/31/1998 $ (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 - ---------------------------------------------------------------------------------
47 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 48
- --------------------------------------------------------------------------------- 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
49 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 50 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 51 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) =====
52 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. 53 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. 54 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 - -------------------------------------------------------------------
55 The Acorn Family of Funds Trustees Irving B. Harris Chairman James H. Lorie Vice Chairman Leo A. Guthart Jerome Kahn, Jr. David C. Kleinman Charles P. McQuaid Roger S. Meier Allan B. Muchin Robert E. Nason Katherine Schipper Ralph Wanger Officers Ralph Wanger President Marcel P. Houtzager Vice President Kenneth A. Kalina Assistant Treasurer Bruce H. Lauer Vice President and Treasurer Charles P. McQuaid Senior Vice President Robert A. Mohn Vice President John H. Park Vice President Mark H. Yost Vice President Leah J. Zell Vice President Investment Advisor Wanger Asset Management, L.P. 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) e-mail: acorn@wanger.com Web site: www.acornfunds.com Distributor WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, Massachusetts 02266-8502 Transfer Agent, Dividend Disbursing Agent and Custodian State Street Bank and Trust Company Attention: Acorn Family of Funds P.O. Box 8502 Boston, Massachusetts 02266-8502 1-800-962-1585 Legal Counsel Bell, Boyd & Lloyd Chicago, Illinois Independent Auditors Ernst & Young LLP Chicago, Illinois This report, including the audited schedules of investments, is submitted for the general information of the shareholders of Acorn Investment Trust. This report is not authorized for distribution unless preceded or accompanied by a prospectus. 56 The Acorn - ------------------------ Family of Funds WAM Brokerage Services, L.L.C. P.O. Box 8502 Boston, MA 02266-8502 - ----------------- FIRST CLASS PRE-SORT U.S. POSTAGE PAID CHICAGO, IL PERMIT NO. 1200 - ----------------- -----END PRIVACY-ENHANCED MESSAGE-----