<PAGE>
[PHOTO APPEARS HERE]
[THE ACORN FAMILY OF FUNDS]
ANNUAL REPORT
------------------------------
DECEMBER 31, 1997
Managed by Wanger Asset Management, L.P.
<PAGE>
ACORN FAMILY OF FUNDS ANNUAL REPORT 1997
TABLE OF CONTENTS
<TABLE>
<S> <C>
Squirrel Chatter
WAM at Five 1
The Empress Strikes Back
Acorn Fund
In a Nutshell 4
Performance at a Glance 5
Major Portfolio Changes 14
Statement of Investments 16
Foreign Portfolio Diversification 22
Acorn International
In a Nutshell 6
Performance at a Glance 7
Major Portfolio Changes 23
Statement of Investments 25
Portfolio Diversification 31
Acorn Usa
In a Nutshell 2
Performance at a Glance 3
Major Portfolio Changes 10
Statement of Investments 11
Acorn Family of Funds
Reflections on the Year 8
Scarlet A Awards 9
Report of Independent Auditors 32
Statements of Assets and Liabilities 33
Statements of Operations 34
Statements of Changes in Net Assets 35
Financial Highlights 36
Notes to Financial Statements 38
</TABLE>
SHAREHOLDERS APPROVE NEW AGREEMENTS
At a special meeting on December 9, 1997, shareholders of Acorn Fund, Acorn
International and Acorn USA voted to approve a proposal that replaced each
Fund's investment advisory agreement with a new investment advisory agreement
and a separate administrative services agreement. In addition, shareholders
voted to ratify the selection of Ernst & Young LLP as each Fund's independent
public accountants. The new investment advisory and administrative services
agreements took effect on January 1, 1998. The outcome of the vote was as
follows:
<TABLE>
<CAPTION>
Record Date Total Share Broker
Share Position Position Voted For Against Abstentions Non-Votes
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Acorn Fund 199,901,724.041
- ------------------------------------------------------------------------------------------------------------------------------------
(A) New Advisory Agreement 127,466,115.169 99,093,922.912 24,835,066.632 3,088,699.625 448,486.000
- ------------------------------------------------------------------------------------------------------------------------------------
(B) Ratification of Ernst & Young 127,466,115.169 123,529,336.908 1,457,568.729 2,479,209.532
- ------------------------------------------------------------------------------------------------------------------------------------
Acorn International 89,857,412.428
- ------------------------------------------------------------------------------------------------------------------------------------
(A) New Advisory Agreement 50,074,459.286 38,988,238.591 9,213,188.805 1,387,075.890 485,956.000
- ------------------------------------------------------------------------------------------------------------------------------------
(B) Ratification of Ernst & Young 50,074,459.286 47,831,810.273 994,432.229 1,248,216.784
- ------------------------------------------------------------------------------------------------------------------------------------
Acorn USA 10,407,196.332
- ------------------------------------------------------------------------------------------------------------------------------------
(A) New Advisory Agreement 5,520,517.364 4,781,246.621 576,387.088 104,180.655 58,703.000
- ------------------------------------------------------------------------------------------------------------------------------------
(B) Ratification of Ernst & Young 5,520,517.364 5,352,991.669 82,715.307 84,810.388
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[PHOTO OF RALPH WANGER APPEARS HERE]
SQUIRREL CHATTER:
WAM at Five
The founders of Wanger Asset Management (WAM) announced their desire to become
an independent firm five years ago. The negotiations that followed allowed our
new firm to start managing the Acorn Fund on June 30, 1992. As shareholders, you
ratified the change in investment manager. The Acorn Fund has done well over the
five years since then. Acorn International was launched in September 1992, just
in time to catch the historic 1993 bull move in foreign stocks, so today Acorn
International is a large fund with an excellent team of analysts and portfolio
managers. In September 1996, Acorn USA was introduced, and has had excellent
investment performance and steady growth of assets.
The mutual fund industry has changed a lot in the last five years. The
number of mutual funds has grown at an astonishing rate. Tax-exempt retirement
plans, such as IRAs and 401(k) plans, have become increasingly important.
Financial planners and "fund supermarkets" are now major channels of
distribution. In December 1997, shareholders approved a new advisory agreement
for the funds, including a fee increase for Acorn Fund. We thank you for your
vote of confidence.
There were important changes at WAM in 1997. To start, Howard Kastel has
joined WAM as CEO. Mr. Kastel is a seasoned attorney, and has been an advisor to
me since WAM's creation in 1992. His guidance and opinions were especially
valuable during the reorganization of WAM's partnership. His presence will
improve internal operations and provide the partners and me relief from many
administrative issues, enabling us to fully focus our efforts on portfolio
management.
WAM has also added employees in trading, accounting, data processing,
marketing, and shareholder services. Shareholders have already seen one
improvement, our new year-end Consolidated Account Statement. This single
statement lists all of a shareholder's regular and retirement account
transactions within the three Acorn funds. Other accounts can also be linked
upon your request. This means fewer envelopes and easier record keeping for
Acorn shareholders.
In 1997, Terry Hogan decided to withdraw as a partner to pursue other
opportunities. We wish him well. On a brighter note, WAM is pleased to announce
the promotion of John Park to partner. John joined the firm in 1993 as WAM's
health care specialist. His skill and judgment earned him the promotion.
The Empress Strikes Back
A PUZZLEMENT: President Clinton has clearly denied having an affair with a young
lady, although in my opinion, he obviously did so. The American people treat
this as a spicy soap opera plot, a follow-on to O.J. and Princess Di. Why are we
titillated instead of scandalized? Perhaps part of the answer follows from a
change in the role of the President. In olden times, the federal government was
small, and the President was head of the First Family. As a family head, he had
to follow family moral ideals. As the government has grown, the President is not
head of the First Family, but much more imperial. Any Emperor is expected and
encouraged to have concubines, as a sign of virility and strength. Europeans who
are used to royalty's sexual amusements, cannot comprehend why this matter is
worth gossiping about at all.
The royal metaphor helps explain a second puzzle, Mrs. Clinton's response. She
clearly rejected the role of betrayed First Lady, but chose instead to blame a
"right wing conspiracy." This calculated political response makes more sense for
an Empress faced with the possible loss of her throne.
May the force be with you,
/s/ Ralph Wanger
Ralph Wanger
Chief Investment Officer, Wanger Asset Management
Lead Portfolio Manager, Acorn Fund
1
<PAGE>
[PHOTO OF ROBERT A. MOHN APPEARS HERE]
ACORN USA
IN A NUTSHELL
Acorn USA rocked the small-cap world in 1997. Your Fund's +32.3% return in
dollars (+208% in Indonesian rupiah!) handily beat the Russell 2000 small-cap
index (+22.4%) and Lipper's small-cap mutual fund average (+20.8%). Our
precocious portfolio acted more like an adult-cap last year, outdoing the Dow
(+24.9%) and nearly matching the jumbo-cap S&P 500 (+33.4%).
Group of the year honors went to our cable television stocks. In 1996,
paranoid investors fled from cable, fearing digital satellite TV would zap cable
TV into extinction. But the cable doubters must have forgotten that sky TV
remains expensive and unable to carry most local channels. The dreaded
extraterrestrial satellite invasion of 1997 never made it out of the X-Files.
Instead, cable companies snatched more viewer bodies, raised rates and roused
their stocks. Our own able cable guy, Chuck McQuaid, loaded up on top flight
cable providers (Cablevision) and programmers (United Video, Liberty Media) and
made us a mint.
Other winners in 1997 included Coast Savings, our lone banker. Coast
announced it will be acquired by a fellow California thrift, H.F. Ahmanson,
which itself is likely prey in today's bank-eat-bank world. Royal Caribbean
Cruises rose a titanic 102% last year as more middle-aged middle-Americans
vacationed afloat. We also doubled our money in C-Tec (now RCN Corp.), a new
wave telephone entrepreneur. C-Tec's fast fiber lines and flair for marketing
are giving the Bells fits.
We live in the Golden Age of Free Trade, when economic events happening a
hemisphere away can ruin or save the day for any company, be it the largest
multinational lender or the smallest domestic manufacturer. Recently, the sound
of Asian economies toppling like dominoes has left Wall Street dis-Oriented.
This volatility may wrack your nerves, but it also creates opportunities.
Rational, efficient markets are filled with fairly priced stocks; emotional
markets offer up bargains. Here's to more bargains in 1998.
<TABLE>
<S> <C>
Fund Assets as of 12/31/97: $184.6 million
Acorn USA Top 10 Holdings
COAST SAVINGS 5.9%
California Savings & Loan
CALENERGY 4.6%
Power Plants
LINCARE HOLDINGS 4.5%
Home Health Care Services
ATMOS ENERGY 3.6%
Natural Gas Distributor
UNITED VIDEO SATELLITE 3.3%
CATV & Satellite Dish Programming
DATA TRANSMISSION 3.2%
Data Services for Farmers
ROYAL CARIBBEAN CRUISES 3.1%
Cruises to Caribbean and Alaska
ACCEPTANCE INSURANCE 3.0%
Crop Insurance
WACKENHUT 3.0%
Prison Management
HOST MARRIOTT 2.8%
Fast Food Kiosks in Airports
</TABLE>
The Fund's top 10 holdings and portfolio diversification vary with changes
in portfolio investments. See the Statement of Investments for a complete list
of the Fund's holdings.
- --------------------------------------------------------------------------------
IRA
Remember, you have until April 15, 1998 to make your 1997 IRA contribution.
For an IRA booklet, including information about the new Roth and Education
IRAs (available for 1998), please call
1-800-9-ACORN-9 (1-800-922-6769)
- --------------------------------------------------------------------------------
/s/ Robert A. Mohn
Robert A. Mohn
Lead Portfolio Manager
2
<PAGE>
PERFORMANCE AT A GLANCE
The Value of a $10,000 Investment in Acorn USA
September 4, 1996 through December 31, 1997
ACORN USA MOUNTAIN CHART PLOT POINTS
<TABLE>
<CAPTION>
DATE ACORN USA ($) RUSSELL 2000 ($)
- ---- ------------- ----------------
<S> <C> <C>
09/04/96 10,000 10,000
09/30/96 10,720 10,360
12/31/96 11,650 10,899
03/31/97 11,480 10,335
06/30/97 13,320 12,011
09/30/97 15,340 13,798
12/31/97 15,413 13,335 +0.5%
</TABLE>
This graph compares the results of $10,000 invested in Acorn USA on September 4,
1996 (the date Fund shares were first offered to the public), with the Russell
2000 Stock Index with dividends reinvested. Past performance does not guarantee
future results. The investment return and principal value of an investment in
the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or
less than their original cost.
Acorn USA Portfolio Diversification
as a % of net assets, as of 12/31/97
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Information 31.2 %
Health Care 8.8 %
Consumer Goods/Services 5.8 %
Finance/Real Estate/Transportation 16.2 %
Industrial Goods/Services 11.8 %
Energy/Minerals 18.6 %
Cash 7.6 %
-------
100.0 %
</TABLE>
<TABLE>
<CAPTION>
RELATIVE PERFORMANCE
- ------------------------------------------------------------------------
4th quarter Last 12 mos.
1997
<S> <C> <C>
ACORN USA 0.5% 32.3%
Russell 2000 -3.4% 22.4%
Lipper Small Cap
Funds Avg. -5.0% 20.8%
S&P MidCap 400 0.8% 32.3%
S&P 500 2.9% 33.4%
Dow-Jones 0.0% 24.9%
</TABLE>
The Russell 2000 is formed by taking the 3,000 largest U.S. companies and then
eliminating the largest 1,000 leaving a good small company index. The Lipper
Small Cap Funds Avg. Is an average of all U.S. small-cap funds tracked by
Lipper, which consisted of 552 and 466 funds for the 4th qtr. and 12-mos.
periods above. The S&P MidCap 400 is a market value-weighted index of 400 stocks
that are in the next tier down from the S&P 500. The S&P 500 is a broad market-
weighted average of U.S. blue-chip companies. The Dow Jones Industrial Average
includes 30 large companies. All indexes are unmanaged and returns include
reinvested dividends.
Net Asset Value Per Share 12/31/97: $15.12
- ------------------------------------------
3
<PAGE>
[PHOTO OF RALPH WANGER APPEARS HERE]
[PHOTO OF CHARLES P. MCQUAID APPEARS HERE]
ACORN FUND
IN A NUTSHELL
1997 was a very good year. Acorn's gain of 25.0% beat many of its peers and the
Russell 2000, which gained 22.4%. But as shown on page five, large cap indexes
fared best in 1997. Acorn Fund fell 0.7% in the fourth quarter; the small cap
Russell 2000 index dropped 3.4%.
In the quarter, Acorn's best stocks included three takeovers. Quality Food
is being eaten by Fred Meyer. Pinnacle Financial is being acquired by CNB
Bancshares. Coast Savings is being bought by Ahmanson. All three stocks jumped
higher on the news. Acorn USA manager Rob Mohn won the trifecta as he follows
all three.
Communications stocks also did well. Cablevision Systems plugged into
several deals, showing a 51% rise. Mobile Telecommunications signaled a 36% hike
as its two-way paging business grew nicely. HSN Inc. successfully shopped for
additional programming, buying a 27% gain.
Technology was treacherous; the Russell small
cap technology index lost 15.5%. MicroProse became microscopic, dropping 65% as
its merger with GTI exploded.
ACT Manufacturing couldn't get its act together and fell in half. However,
Wanger analyst Laura McKenna's analyses of Analysts International and Keane
were on target. Both stocks were up over 30% in the quarter.
The Asian market collapse hurt our foreign portfolio in the fourth quarter,
causing a 6.8% decline. For the year, we had a modest 1.9% profit in our foreign
portfolio. Fortunately, our foreign team started a major sell program in August.
At year-end, only 12% of Acorn was invested overseas.
Acorn's cash position is relatively high at 9.1% and will be put to work as
we find good small cap companies at reasonable prices.
Fund Assets as of 12/31/97: $3,681.5 million
Acorn Fund Top 10 Holdings
<TABLE>
<S> <C>
AES CORPORATION 2.8%
Global Power Producer
LIBERTY MEDIA 2.4%
CATVProgramming
CARNIVAL 2.1%
Cruise Ship Line
LINCARE HOLDINGS 1.9%
Home Health Care Services
BORDERS 1.7%
Bookstores
HARLEY DAVIDSON 1.6%
Motorcycle Manufacturer
INTERNATIONAL GAME TECHNOLOGY 1.4%
Gaming Equipment
SOLECTRON 1.4%
Electronics Contract Manufacturer
PEOPLE'S BANK BRIDGEPORT 1.3%
Consumer Finance
HBO AND CO. 1.3%
Health Care Information Systems
</TABLE>
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.
<TABLE>
<CAPTION>
Total 1997
- -------------------------------------------------------------
DISTRIBUTIONS
Acorn Acorn Acorn
Fund International USA
----- ------------- -----
<S> <C> <C> <C>
Ordinary Income $0.16 $0.38 --
Short-Term Capital Gain -- -- $0.24
Long-Term Capital Gain $1.61 $0.90 $0.05
TOTAL PER SHARE IN 1997 $1.77 $1.28 $0.29
</TABLE>
/s/ Ralph Wanger /s/ Charles P. McQuaid
Ralph Wanger Charles P. McQuaid
Lead Portfolio Manager Co-Portfolio Manager
4
<PAGE>
PERFORMANCE AT A GLANCE
The Value of a $10,000 Investment in Acorn Fund
June 10, 1970 through December 31, 1997
ACORN FUND MOUNTAIN CHART PLOT POINTS
<TABLE>
<CAPTION>
DATE ACORN FUND($) S&P($)
- ---- ------------- ------
<S> <C> <C> <C>
1970 10,000 10,000
1971 17,828 14,490 +31.0%
1972 19,368 17,242 + 9.0%
1973 14,765 14,709 -24.0%
1974 10,691 10,816 -28.0%
1975 13,945 14,842 +30.0%
1976 23,045 18,394 +65.0%
1977 27,168 17,077 +18.0%
1978 31,777 18,200 +17.0%
1979 47,790 21,586 +50.0%
1980 62,594 28,602 +31.0%
1981 58,005 27,195 - 7.0%
1982 68,208 33,054 +18.0%
1983 85,389 40,510 +25.0%
1984 89,045 43,051 + 4.0%
1985 117,142 56,710 +32.0%
1986 136,843 67,295 +17.0%
1987 142,923 70,828 + 4.0%
1988 178,370 82,591 +25.0%
1989 222,681 108,761 +25.0%
1990 183,674 105,386 -18.0%
1991 270,641 137,492 -47.0%
1992 336,210 147,928 +24.0%
1993 444,889 162,882 +32.0%
1994 411,750 165,032 -7.0%
1995 497,407 227,047 +21.0%
1996 609,569 279,177 +23.0%
1997 761,852 372,320 +25.0%
</TABLE>
This graph compares the results of $10,000 invested in Acorn Fund on June 10,
1970 (the date Fund shares were first offered to the public), with all dividends
and capital gains reinvested, with the Standard & Poor's 500 Stock Index with
dividends reinvested. Past performance does not guarantee future results. The
investment return and principal value of an investment in the Fund will
fluctuate so that Fund shares, when redeemed, may be worth more or less than
their original cost.
Acorn Fund Portfolio Diversification
as a % of net assets, as of 12/31/97
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Information 26.6 %
Health Care 7.8 %
Consumer Goods/Services 8.5 %
Finance/Real Estate/Transportation 15.9 %
Industrial Goods/Services 8.8 %
Energy/Minerals 11.1 %
Foreign 12.2 %
Cash less liabilities 9.1 %
-------
100.0 %
</TABLE>
<TABLE>
<CAPTION>
Relative Performance
- --------------------------------------------------------------------------------
<S> <C> <C>
4th quarter Last 12 mos.
1997
Acorn Fund -0.7% 25.0%
S&P 500 2.9% 33.4%
Russell 2000 -3.4% 22.4%
Lipper Small Cap
Funds Avg. -5.0% 20.8%
S&P MidCap 400 0.8% 32.3%
Dow-Jones 0.0% 24.9%
</TABLE>
The S&P 500 is a broad market-weighted index, still blue-chip dominated. The
Russell 2000 is formed by taking the 3,000 largest U.S. companies and then
eliminating the largest 1,000 leaving a good small company index. The Lipper
Small Cap Funds Avg. is an average of all U.S. small-cap funds tracked by
Lipper, which consisted of 552 and 466 funds for the 4th qtr. and 12-mos.
periods above. The S&P MidCap 400 is a market value-weighted index of 400 stocks
that are in the next tier down from the S&P 500. The Dow Jones Industrial
Average includes 30 large companies. All indexes are unmanaged and returns
include reinvested dividends.
Net Asset Value Per Share 12/31/97: $16.99
- ------------------------------------------
5
<PAGE>
ACORN INTERNATIONAL
IN A NUTSHELL
[Photo of Leah Joy Zell appears here]
Acorn International finished 1997 flat for the year. It could have been
worse. Markets collapsed all over the world in the fourth quarter. The cash pile
we raised in late summer cushioned our losses, but the ride down is never fun.
Relative to our peers, we had a good result in the fourth quarter,
outperforming the average international small-cap fund by over 2% and the
average international large-cap fund by around 1%. The large-caps had a better
year in 1997 overall, but gained most of their advantage in the first half.
Relative to our benchmarks, we ended 1997 close to EAFE and 9.6% ahead of EMI.
(For more detail on the portfolio, see "Reflections on the Year" on page 8.)
Looking forward, the crisis in Asia will leave its mark on the world
economy in 1998. The good news is that many prices in Asia today are grotesquely
depressed. Of course, they could always go down further; sentiment and the
tendency to extrapolate trends indefinitely into the future cause markets to
overshoot beyond reasonable valuation levels. However, prices do eventually
recover if the fundamentals are there to support them.
On the other side of the world, European smaller companies are trading at
substantial discounts to the large-caps, in spite of frequently better earnings
growth prospects. While the broader European indices are at all-time highs,
European small-cap relative valuations are at eight-year lows. Smaller companies
are more typically oriented to the domestic economy, hence less exposed than the
blue-chips to downward earnings pressure from the Asian crises.
Most important, the outlook for European equity markets in general--and the
small-cap asset category in particular--is rapidly improving, thanks to
increased pension fund assets, new listings, government privatizations, and the
adoption of investor-friendly policies by corporate management. We intend to
participate fully in the upside.
Happy New Year!
/s/ Leah Joy Zell
Leah Joy Zell
Lead Portfolio Manager
Fund Assets as of 12/31/97: $1,622.9 million
Acorn International Top 10 Holdings
<TABLE>
<S> <C> <C>
T T TIETO Finland 3.5%
Computer Services/Consulting
WM DATA Sweden 2.2%
Computer Services/Consulting
RHOEN KLINIKUM Germany 1.8%
Hospital Management
SERCO GROUP United Kingdom 1.8%
Facilities Management
BANCA FIDEURAM Italy 1.7%
Life Insurance/Mutual Funds
ATOS France 1.4%
Computer Services
KEMPEN Netherlands 1.4%
Stock Brokerage/
Investment Management
LI AND FUNG Hong Kong 1.2%
Sourcing of Consumer Goods
IRSA Argentina 1.2%
Real Estate Management &
Development
GETRONICS Netherlands 1.1%
Computer Services
</TABLE>
The Fund's top 10 holdings and portfolio diversification vary with changes in
portfolio investments. See the Statement of Investments for a complete list of
the Fund's holdings.
TAX
Tax Forms 1099-DIV and 1099-B were mailed to shareholders in January with the
Acorn Family of Funds' 1997 Tax Guide. The Tax Guide contains important
information that you will need to complete your 1997 tax return, including
information about changes in capital gains taxes, taking a foreign tax
credit/deduction, income attributable to U.S. Government Obligations, and cost
basis. If you did not receive your Form 1099(s), please call 1-800-962-1585 for
a duplicate copy.
6
<PAGE>
PERFORMANCE AT A GLANCE
The Value of a $10,000 Investment in Acorn International
September 23, 1992 through December 31, 1997
ACORN INTERNATIONAL MOUNTAIN CHART PLOT POINTS
<TABLE>
<CAPTION>
DATE ACORN INT'L ($) EAFE ($)
- ---- --------------- --------
<S> <C> <C> <C>
09/23/92 10,000 10,000
09/30/92 10,010 10,000
12/31/92 10,690 9,614 + 6.8%
03/31/93 12,000 10,767 +12.3%
06/30/93 12,920 11,849 + 7.7%
09/30/93 13,910 12,635 ? 7.7%
12/31/93 15,940 12,745 +14.6%
03/31/94 15,850 13,190 - 0.6%
06/30/94 15,550 13,864 - 1.9%
09/30/94 16,491 13,877 + 6.1%
12/31/94 15,334 13,736 - 7.0%
03/31/95 14,811 13,992 - 3.4%
06/30/95 15,727 14,093 + 6.2%
09/30/95 16,824 14,681 + 7.0%
12/31/95 16,703 15,275 - 0.7%
03/31/96 18,203 15,717 + 9.0%
06/30/96 19,593 15,965 + 7.6%
09/30/96 19,362 15,945 - 1.2%
12/31/96 20,133 16,199 + 4.1%
03/31/97 20,564 15,945 + 2.1%
06/30/97 21,786 18,015 + 5.9%
09/30/97 21,639 17,888 - 0.7%
12/31/97 20,170 16,487 - 6.8%
</TABLE>
This graph compares the results of $10,000 invested in Acorn International on
September 23, 1992 (the date Fund shares were first offered to the public), with
all dividends and capital gains reinvested, with Morgan Stanley's Europe,
Australia Far East Index (EAFE). The beginning value of EAFE is as of 9/30/92.
Past performance does not guarantee future results. The investment return and
principal value of an investment in the Fund will ?fluctuate so that Fund
shares, when redeemed, may be worth more or less than their original cost.
Acorn International Portfolio Diversification
as a % of net assets, as of 12/31/97
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Information 22.4%
Health Care 5.8%
Consumer Goods/Services 20.2%
Finance/Real Estate 12.7%
Industrial Goods/Services/Transportation 16.1%
Energy/Minerals 6.0%
Other Industries 4.7%
Cash less liabilities 12.1%
------
100.0%
</TABLE>
<TABLE>
<CAPTION>
RELATIVE PERFORMANCE
- -----------------------------------------------------------------------------
4th quarter Last 12 mos.
1997
<S> <C> <C>
ACORN INTERNATIONAL -6.8% 0.2%
EAFE -7.8% 1.8%
EMI (World ex-U.S.) -10.3% -9.4%
Lipper Int'l Small Cap
Funds Avg. -9.1% -0.3%
Lipper Int'l Funds Avg. -7.7% 5.4%
</TABLE>
EAFE is Morgan Stanley's Europe, Australia and Far East Index, an unmanaged
index of companies throughout the world in proportion to world stock market
capitalization, excluding the U.S. and Canada. The EMI is Salomon Brothers'
index of the bottom 20% of institutionally investable capital of countries, as
selected by Salomon, excluding the U.S. The Lipper Int'l Small Cap Funds Avg. is
calculated from the performance of a group of small-cap int'l funds, including
Acorn Int'l. For the 4th qtr. and 12-mos. periods above, the group consisted of
48 and 29 funds, respectively. The Lipper Int'l Funds Avg. is an average of all
int'l funds tracked by Lipper, excluding the Int'l Small Cap Funds Avg. This
group consisted of 484 and 421 funds for the 4th qtr. and 12-mos. periods above,
respectively. All indexes are unmanaged and returns include reinvested
dividends.
Net Asset Value Per Share 12/31/97: $18.39
- ------------------------------------------
7
<PAGE>
ACORN FAMILY OF FUNDS
REFLECTIONS ON THE YEAR
Acorn USA
Acorn USA rose 32% in 1997. We had a lot of stocks go up and very few go down.
Fourteen stocks made over $1 million for your Fund, while only one lost over a
million.
Our two best stocks soared on news of their corporate metamorphoses. Coast
Savings got taken over by another California bank, and C-Tec split itself into
three new communications companies (RCN Corp., Commonwealth Telephone, and Cable
Michigan). Both stocks gained over $4 million for the year.
We owned a large helping of cable stocks, one of last year's hottest stock
market sectors. Big positions in United Video, C-Tec, Cablevision and Liberty
Media were all performance boosters.
One of our major investing themes is the world-wide growth of outsourcing.
More corporations and governments are focusing only on what they do best and
outsourcing the rest to specialists. Last year this theme paid off. The stocks
making it into our million-dollar club were Host Marriott (airport food
concessions), Wackenhut (privatized prisons), Lincare (home health care
services), and Applied Industrial (industrial component warehousing).
Our only big loser last year was CalEnergy (operates power plants), with
a - 16% return. The good news on CalEnergy: 85% of its business is not in
Indonesia. The bad news: 15% is.
Acorn Fund
Your Fund was up 25% in 1997. What contributed to Acorn Fund's performance for
the year? Our best sector by far was broadcasting, mobile communication, CATV
system owners, and CATV programming. Our seven best stocks in the sector rose
90-210% in the year and had an aggregate gain of $127 million. A number of these
stocks were old holdings that had done well in the years 1991-1993, then drifted
down in 1994-1996, finally reigniting in 1997. This go-stop-go pattern is
common, and one must have a disciplined long-term outlook to make money in these
cases.
The financial sector was far above average in 1997. Our savings-and-loan
and bank shares were very strong, driven by takeover activity. Our three best
stocks, First USA (bought by Bank One), Peoples Bank of Bridgeport, and Coast
Savings, gained $69 million in 1997. Insurance and money management companies
did well too.
Our 20 largest holdings as of December 31, 1997 were up an average of 31%
for the year. These big positions were in companies in many industries, but a
common factor is industry leadership. Most of the stocks you will recognize
because we have owned them for a long time, such as AES Corporation, Carnival,
Liberty Media, Thermo Electron, Borders, and International Game Technology. Our
20 largest holdings were 25% of the total assets in the Fund at the beginning of
the year, and more at year-end. Since our biggest holdings had above-average
results (up 31% vs. 25% for the total Fund), Acorn had a good year.
Several sectors lost money in 1997. Oil stocks, biotechnology, and foreign
stocks were poor in 1997. Specific companies were down substantially, including
ADVANTA (credit card losses increased) and CalEnergy (Indonesian power plants
look risky).
Acorn International
Acorn International's flat net return (+ 0.2%) in 1997 masked some of the most
dramatic divergences among regional markets in the portfolio we have ever
experienced. Despite a strong dollar, our European stocks did well; we gained
49% in Italy, 38% in the Netherlands, and 37% in Finland. We had some striking
success in emerging markets as well, with gains of 86% in Greece and 36% in
Argentina. Unfortunately, Asian markets were truly awful. Our 17% loss in Japan
looked minor next to the 60%+ drops in value sustained in the Philippines,
Malaysia and Indonesia. Fortunately, we reduced allocations to Asia in the third
quarter, so that we were out of Korea entirely and had brought overall Asian
weightings to under 20% before the October sell-off.
Our best individual performers in the portfolio reflected long-term core
themes. We made $15 million on Banca Fideuram and million on Kempen, both of
which are beneficiaries of the mutual fund mini-boom in Europe. Computer
outsourcing also worked, with $42 million of gains on TT Tieto, Capita Group,
NTT Data and Atos. We even had a Hong Kong stock among our top ten winners, Li &
Fung, with a $6.6 million gain. Currency hedging generated $29 million in
profits for the year (although we had currency losses on that portion of the
portfolio we did not hedge).
8
<PAGE>
An important step we took during 1997 was to examine all of our stocks and
invest more of the portfolio in our favorite ideas. As a result, we ended the
year with 25% fewer names compared with year-end 1996. We expect to continue
this process, in an effort to keep the quality of the companies we own at a high
level.
The new year has seen Asian markets rally sharply from deeply oversold
levels. Today you can find lots of articles in the popular press questioning
international diversification as an investment strategy. This is usually a
contrarian indicator, suggesting that overseas markets have a fair chance of
surprising on the upside in 1998.
Scarlet A Awards
We went through fire and water, but thou broughtest us out into a wealthy
place.
In 1997, the U.S. market was blazing hot, while Asia went under water, but we
survived fire and water due to owning many excellent stocks in our funds. The
ideas for our best stocks are generated by our own analysts in many cases, but
many buy ideas come from brokerage house analysts or executives of other
companies that we talk to regularly. We have formally acknowledged these
contributions since 1983 with our Scarlet A Awards.
AES CORPORATION has been an astonishing stock. The company is an
independent supplier of electricity. In 1997 sparks flew as the stock doubled,
making us $53 million! AES was a winner in 1996 also! We bought the stock in
1991 on the advice of John Hatsopoulos, President of Thermo Electron. Thermo
Electron is an Acorn stock that won a Scarlet A in 1995.
Acorn has always had an informal network of regional and industry-
specialist brokerage firms. Local people often find small but growing companies
before the big New York brokers hear about them. For example, Jennifer Black
Groves, of Black & Co., a Portland, Oregon broker, gave us a taste for QUALITY
FOOD, a Washington grocery chain. Our Rob Mohn did a full checkout and bought
the idea. Quality Food recently agreed to be acquired by Fred Meyer, a big
Northwest retail company.
SYSTEMS AND COMPUTER TECHNOLOGY reappeared near the top of the list by
tripling in value, for a $17 million gain. Jordan Cox, who left his job at a
firm to go to work for SCTC, got a Scarlet A for the company in 1990, and now
repeats. Jordan now works for Kalmar Investments, a counseling firm in Delaware.
Technology stocks had mixed results in 1997, but "Year 2000" stocks were
strong. Lots of old computer code will get confused when 1999 turns into 2000,
and companies that can repair old code are doing well. COMPUWARE was one such
company, introduced to Acorn by Ken Goldblatt and Don Rode of S/1/ Technology.
KEANE INC. is a similar company and another winner. Keane was discovered by our
own Laura McKenna. Barry Ollman at Hanifen, Imhoff in Denver helped convince her
that the "Year 2000" problem is for real.
Cruising was popular in 1997. CARNIVAL CORPORATION went up $31 million
(70%) and ROYAL CARIBBEAN sailed 132%. Peter McMullen of Southeast Research
brought us aboard these two.
Oil service stocks had a blowout year in 1997. Our best one was EVI, up
103%. EVI makes oil-drilling pipe. The Scarlet A goes to Brian Dutt, now at the
money management firm of Centennial Partners.
Chuck McQuaid, one of our most senior partners, has over the years
purchased a lot of stocks in CATV and programming. In 1997, this group led the
market, after three flat years. Liberty Media, Cablevision, and Home Shopping
Network all were hits; each won Scarlet A's in the past. Liberty Media, one of
our best-ever stocks, won in 1991, 1992, and 1993, and is back on top of the
charts again! No Scarlet A though; Chuck has followed this group so long and
intensely that now he's the expert.
In the international arena, we had many fine stocks, despite the collapse
in Asia. European mutual fund management was our top area. KEMPEN, a Dutch
broker and fund manager, was sold to us by Mark de Natris, a Kempen broker. In
Italy, BANCA FIDEURAM doubled. Carlo Parisi of Intermobiliare gets the Scarlet
A.
Another Italian company, AUTOGRILL, an operator of restaurants on the
highways, was a tasty dish. Prizes go to Pierluigi Gastone and Lucian Snow of
SBC Warburg.
________________________________________________________________________________
1 Banquet Address in Chicago, "Dedication of the New Board of Trade Building,"
1885, quoted by W. Cronon, Natures Metropolis: Chicago and the Great West (W.W.
Norton, New York City, 1991), p. 348.
9
<PAGE>
ACORN USA
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE>
<CAPTION>
Number of Shares
-----------------------
9/30/97 12/31/97
ADDITIONS
- ------------------------------------------------------
<S> <C> <C>
Information
Cable Michigan 0 68,050
(spin off from C-Tec)
Cablevision Systems 24,000 53,000
Centennial Cellular 41,000 162,000
COMARCO 97,800 121,800
ForeFront Group 0 40,000
Harte Hanks Communications 0 8,000
Kronos 118,000 134,000
Mecklermedia 6,200 109,300
National Data 39,000 86,000
RCN 0 133,100
(spin off from C-Tec)
Young Broadcasting 0 3,200
- ------------------------------------------------------
Health Care
Lincare Holdings 85,000 147,000
Synaptic Pharmaceuticals 0 78,000
- ------------------------------------------------------
Consumer Goods/Services
Host Marriott Services 288,200 342,500
- ------------------------------------------------------
Finance
Acceptance Insurance 178,100 231,900
AmerUs Life Holdings 59,500 121,300
Penn Treaty American 51,000 69,000
- ------------------------------------------------------
Industrial Goods/Services
Farr Company 125,000 167,500
Lilly Industries, Cl. A 109,000 162,800
- ------------------------------------------------------
Energy/Minerals
Atmos Energy 187,000 219,000
CalEnergy 259,000 297,000
Equitable Resources 0 75,000
NGC 131,400 270,600
Seagull Energy 59,100 82,100
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
-----------------------
9/30/97 12/31/97
SALES
- ------------------------------------------------------
<S> <C> <C>
Information
Commonwealth Telephone 133,000 54,000
(formerly known as C-Tec)
includes effect of 2 for
3 reverse split
- ------------------------------------------------------
Health Care
Kinetic Concepts 44,000 0
First Health Group 114,000 76,000
(formerly known as
HealthCare Compare)
-----------------------------------------------------
Consumer Goods/Services
Oshkosh B'Gosh 27,000 0
Royal Caribbean Cruises 117,700 106,000
- ------------------------------------------------------
Finance
SEI Investments 17,000 0
- ------------------------------------------------------
Industrial Goods/Services
Steel Dynamics 57,000 0
Schnitzer Steel 138,300 100,700
Applied Industrial Technologies 138,000 63,000
- ------------------------------------------------------
Energy/Minerals
J Ray McDermott 88,600 57,600
</TABLE>
10
<PAGE>
ACORN USA
STATEMENT OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------------
Common Stocks: 92.4%
- ----------------------------------------------------------------------------------
<S> <C> <C>
Information: 31.2%
BROADCASTING: 3.2%
209,100 Data Transmission Network (b) $ 5,855
Data Services for Farmers
3,200 Young Broadcasting (b) 124
Television Stations
- ---------------------------------------------------------------------------------
5,979
TELEVISION PROGRAMMING: 4.9%
213,000 United Video Satellite Group (b) 6,124
CATV & Satellite Dish Programming
80,000 Liberty Media Group,
Tele-Communications (b) 2,900
Cable Programming
- ---------------------------------------------------------------------------------
9,024
CABLE TELEVISION: 3.6%
53,000 Cablevision Systems (b) 5,075
Cable TV
68,050 Cable Michigan (b) 1,557
Cable TV
- ---------------------------------------------------------------------------------
6,632
TELEPHONE SERVICES: 4.3%
133,100 RCN (b) 4,559
Metro Market: Voice, Video & Data Services
87,000 Startec Global Communications (b) 1,947
International Telecommunications
54,000 Commonwealth Telephone
(formerly known as C-Tec) (b) 1,397
Rural Market: Local, Long Distance &
Internet Access
- ---------------------------------------------------------------------------------
7,903
MOBILE COMMUNICATIONS: 3.2%
162,000 Centennial Cellular (b) 3,321
Cellular Franchises
121,800 COMARCO (b) 2,680
Wireless Network Testing
- ---------------------------------------------------------------------------------
6,001
TELECOMMUNICATIONS EQUIPMENT: 1.8%
156,000 Aspect Telecommunications (b) 3,256
Call Center Equipment
Business Software: 2.9%
278,700 Wonderware (b) 3,937
Industrial Control Software
74,300 Computer Language Research 1,040
Commercial Tax Software
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------------
<S> <C> <C>
40,000 ForeFront Group (b) $ 312
Computer-Based Training Software
- ---------------------------------------------------------------------------------
5,289
TRANSACTION PROCESSORS: 1.7%
86,000 National Data 3,107
Credit Card Processing
BUSINESS INFORMATION: 3.4%
109,300 Mecklermedia (b) 2,719
Internet Trade Shows & Magazines
100,000 World Color Press (b) 2,656
Consolidating Commercial Printing Industry
8,000 Harte Hanks Communications 297
Direct Marketing Services
26,000 American Business Information, Cl. A (b) 273
26,000 American Business Information, Cl. B (b) 266
Small Business Data
- ---------------------------------------------------------------------------------
6,211
COMPUTER HARDWARE/
RELATED EQUIPMENT: 2.2%
134,000 Kronos (b) 4,129
Time Accounting Software & Clocks
-----------
INFORMATION: TOTAL 57,531
- ---------------------------------------------------------------------------------
Health Care: 8.8%
BIOTECHNOLOGY/DRUG DELIVERY: 0.5%
78,000 Synaptic Pharmaceuticals (b) 848
Receptor Targeted Drug Design
MEDICAL EQUIPMENT: 1.7%
128,000 Respironics (b) 2,864
Sleep Apnea Products
45,100 Cardiac Pathways (b) 316
Heart Surgery Device
- ---------------------------------------------------------------------------------
3,180
SERVICES: 6.6%
147,000 Lincare Holdings (b) 8,379
Home Health Care Services
76,000 First Health Group (formerly known
as HealthCare Compare) (b) 3,885
PPO Network
- ---------------------------------------------------------------------------------
12,264
----------
HEALTH CARE: TOTAL 16,292
</TABLE>
See accompanying notes to financial statements 11
<PAGE>
ACORN USA
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------------------------
Consumer Goods/Services: 5.8%
<S> <C> <C>
RETAIL: 2.7%
342,500 Host Marriott Services (b) 5,095
Fast Food Kiosks in Airports
CRUISE LINES: 3.1%
106,000 Royal Caribbean Cruises 5,651
Cruises to Caribbean & Alaska
-----------
CONSUMER GOODS/SERVICES: TOTAL 10,746
- ------------------------------------------------------------------------------------------
Finance: 13.6%
SAVINGS & LOANS: 5.9%
159,000 Coast Savings (b) 10,901
California Savings & Loan
INSURANCE: 7.7%
231,900 Acceptance Insurance (b) 5,609
Crop Insurance
121,300 AmerUs Life Holdings 4,473
Annuities/Life Insurance
69,000 Penn Treaty American (b) 2,191
Nursing Home Insurance
57,000 Leucadia National 1,966
Insurance Holding Company
- ------------------------------------------------------------------------------------------
14,239
-----------
FINANCE: TOTAL 25,140
- ------------------------------------------------------------------------------------------
Industrial Goods/Services: 11.8%
STEEL: 2.8%
100,700 Schnitzer Steel 2,826
Scrap Steel Processor
88,000 Atchison Casting (b) 1,430
Consolidating Foundry Industry
46,100 Gibraltar Steel (b) 910
Steel Processing
- ------------------------------------------------------------------------------------------
5,166
INDUSTRIAL DISTRIBUTION: 0.4%
37,000 Vallen (b) 768
Safety Products Distribution
MACHINERY: 2.3%
167,500 Farr Company (b) 2,512
Filters
63,000 Applied Industrial Technologies 1,685
Industrial Components Distributionn
- ------------------------------------------------------------------------------------------
4,197
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SPECIALTY CHEMICALS: 1.8%
162,800 Lilly Industries, Cl. A 3,358
Industrial Coatings
OTHER INDUSTRIAL SERVICES: 4.5%
263,000 Wackenhut, Cl. B 5,556
Prison Management
231,600 Insurance Auto Auctions (b) 2,663
Auto Salvage Services
- ------------------------------------------------------------------------------------------
8,219
-----------
INDUSTRIAL GOODS/SERVICES: TOTAL 21,708
- ------------------------------------------------------------------------------------------
Energy/Minerals: 18.6%
INDEPENDENT POWER: 4.6%
297,000 CalEnergy (b) 8,539
Power Plants
OIL/GAS PRODUCERS: 3.4%
296,700 Tesoro Petroleum (b) 4,599
Oil Refinery/Gas Producer
82,100 Seagull Energy (b) 1,693
Oil & Gas Producer
- ------------------------------------------------------------------------------------------
6,292
DISTRIBUTION/MARKETING/REFINING: 7.6%
219,000 Atmos Energy 6,625
Natural Gas Utility
270,600 NGC 4,736
Gas Processing/Marketing
75,000 Equitable Resources 2,653
Gas Utility & Gas Producer
- ------------------------------------------------------------------------------------------
14,014
OIL SERVICES: 3.0%
252,000 GeoScience (b) 2,961
Offshore Seismic Equipment Company
57,600 J Ray McDermott (b) 2,477
Offshore Construction Company
- ------------------------------------------------------------------------------------------
5,438
----------
ENERGY/MINERALS: TOTAL 34,283
</TABLE>
See accompanying notes to financial statements 12
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------------------
Other Industries: 2.6%
<S> <C> <C>
REAL ESTATE: 2.4%
48,300 Forest City Enterprises Cl. A $ 2,807
Shopping Centers
35,000 Gaylord Entertainment 1,118
Opryland Hotel & Other Assets
22,000 Cornerstone Properties 422
Downtown Office Buildings
- --------------------------------------------------------------------------------
4,347
TRANSPORTATION: 0.2%
51,000 Trailer Bridge (b) 453
Tug & Barge Transporation
--------
OTHER INDUSTRIES: TOTAL 4,800
TOTAL COMMON STOCKS AND
--------
OTHER EQUITY-LIKE SECURITIES: 92.4% 170,500
(Cost: $139,134)
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (000)
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS: 9.4%
<S> <C> <C>
Yield 5.65%6.15%
Due 1/21/16/98
$6,202 General Motors Acceptance $ 6,197
$5,701 Hertz 5,697
$5,399 American General 5,398
- --------------------------------------------------------------------------------
(Amortized Cost: $17,292) 17,292
---------
TOTAL INVESTMENTS: 101.8% 187,792
(Cost: $156,426)
---------
CASH AND OTHER ASSETS LESS LIABILITIES: (1.8%) (3,168)
---------
TOTAL NET ASSETS: 100% $184,624
================================================================================
</TABLE>
________________________________________________________________________________
Notes to Statement of Investments
(a) At December 31, 1997, for federal income tax purposes cost of investments
was $156,441,000 and net unrealized appreciation was $31,351,000, consisting of
gross unrealized appreciation of $34,854,000 and gross unrealized depreciation
of $3,503,000.
(b) Non-income producing security.
13
<PAGE>
ACORN FUND
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE>
<CAPTION>
Number of Shares
------------------------
9/30/97 12/31/97
Additions
- -------------------------------------------------------------------------------
<S> <C> <C>
Information
ACNielsen 1,015,000 1,266,000
Activision 0 13,000,000
American Business
Information, Cl. A 830,000 1,000,000
(issued A shares 1 for every regular held)
Cablevision Systems, Pfd. 0 100,000
Cablevision Systems 311,000 350,000
Choicepoint 0 174,000
Coherent Communications 115,000 178,000
Computer Task Group 0 340,000
Electro Scientific Industries 0 125,000
Electronic Arts 250,000 350,000
Harte Hanks Communications 0 205,000
International Game Technology 1,880,000 2,050,000
Kent Electronics 300,000 600,000
Larscom 236,000 476,000
Mecklermedia 100,000 248,000
Micros Systems 330,000 375,000
National Data 729,000 1,292,000
National Instruments 0 242,000
Oak Industries 200,000 350,000
Peterson Companies 0 50,000
RCN (spin off from C-Tec Corp) 0 564,000
Solectron 1,090,000 1,220,000
Young Broadcasting 0 465,000
- -------------------------------------------------------------------------------
Health Care
Lincare Holdings 1,040,000 1,235,000
Synaptic Pharmaceuticals 0 680,000
- -------------------------------------------------------------------------------
Consumer Goods/Services
Cie Fin Richemont (Switzerland) 4,500 10,000
Nintendo (Japan) 110,000 145,000
Rio Hotel & Casino 210,000 290,000
- -------------------------------------------------------------------------------
Finance
Affiliated Managers Group 0 60,000
AmerUs Life Holdings 0 170,000
Baker Fentress 865,000 974,000
Capital Trust 0 250,000
Nichiei (Japan) 33,000 45,000
Protective Life 0 200,000
Shohkoh Fund (Japan) 16,000 20,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
------------------------
9/30/97 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Industrial Goods/Services
A M Castle 295,000 350,000
C H Robinson 0 400,000
Cambrex 12,000 120,000
H B Fuller 150,000 250,000
M A Hanna 176,000 600,000
Lilly Industries, Cl. A 775,000 900,000
Metal Management 0 27,000
Nanophase 0 550,000
Spectra Physics 0 230,000
Steel Dynamics 340,000 475,000
Unifi 625,000 800,000
- -------------------------------------------------------------------------------
Energy/Minerals
CalEnergy 1,200,000 1,355,000
Equitable Resources 401,000 600,000
Pride International 600,000 900,000
Seagull Energy 1,300,000 1,450,000
Ranger Oil (Canada) 1,200,000 1,500,000
Saipem (Italy) 1,855,000 2,355,000
Zeigler Coal Holding 400,000 700,000
- -------------------------------------------------------------------------------
Other Industries
IRSA (Argentina) 160,000 250,000
Hub Group 430,000 482,000
Security Capital Atlantic 250,000 350,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
------------------------
9/30/97 12/31/97
Sales
- -------------------------------------------------------------------------------
<S> <C> <C>
ACT Manufacturing 360,000 137,000
Altron 450,000 285,000
American Management Systems 495,000 225,000
Atos (France) 128,000 115,000
BDM International 405,000 0
Broderbund Software 100,000 0
CACI International 418,000 249,000
HSN 750,000 350,000
Keane 330,000 200,000
NTT Data (Japan) 266 200
Premiere Technologies 350,000 0
Securicor Group, Cl. A
(United Kingdom) 1,700,000 0
Systems & Computer Technology 505,000 430,000
Vanguard Cellular Systems 300,000 200,000
WM Data Nordic (Sweden) 1,500,000 1,340,000
- -------------------------------------------------------------------------------
Health Care
First Health Group 1,026,000 850,000
(formerly known as HealthCare Compare)
Kinetic Concepts 1,179,000 0
Paramount Bed (Japan) 20,000 0
R P Scherer 260,000 64,000
- -------------------------------------------------------------------------------
Consumer Goods/Services
Guilbert (France) 12,000 0
Heiwa (Japan) 130,000 0
Hellenic Bottling (Greece) 234,000 400,000
(includes effect of 100% stock bonus)
President Enterprises (Taiwan) 453,620 0
Pricer, Cl. B (Sweden) 180,000 50,000
Sankyo (Japan) 90,000 0
Showboat 124,000 0
</TABLE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares
----------------------
9/30/97 12/31/97
- -------------------------------------------------------------------------------
<S> <C> <C>
Finance
Amvescap ADR (United Kingdom) 81,000 0
Amvescap (United Kingdom) 1,270,000 960,000
Banc One 412,000 0
Banca Fideuram (Italy) 3,795,000 3,500,000
Cetelem (France) 70,000 0
IS Himalaya Fund (India) 300,000 0
Itau Banco PN (Brazil) 10,000,000 0
Liechtenstein Global Trust
(Switzerland) 6,000 0
Orient (Japan) 520,000 0
United Asset Management 862,000 712,000
Washington Mutual 297,000 116,000
- -------------------------------------------------------------------------------
Industrial Goods/Services
AirNet Systems 280,000 200,000
Expeditors International
of Washington 800,000 775,000
Nordson 75,000 0
Schnitzer Steel 350,000 250,000
Societe Generale de Surveillance
(Switzerland) 9,000 6,000
Western Water 9% Cv. Note
Due 9/25/05 $ 2,900,000 0
Zoltek 72,000 0
- -------------------------------------------------------------------------------
Energy/Minerals
Atwood Oceanics 288,000 516,000
(includes effect of 2 for 1 stock split)
Costilla Energy 350,000 165,000
J Ray McDermott 555,000 500,000
United Meridian 275,000 222,000
Veritas DGC 300,000 100,000
Veritas Energy Services (Canada) 115,000 80,000
- -------------------------------------------------------------------------------
Other Industries
Vallehermoso (Spain) 185,000 0
</TABLE>
15
<PAGE>
ACORN FUND
STATEMENT OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------
Common Stocks and Other
Equity-Like Securities 90.9%
- --------------------------------------------------------------
<S> <C> <C>
INFORMATION: 26.6%
MEDIA
BROADCASTING 1.2%
819,000 Data Transmission Network (b)(c) $ 22,932
465,000 Young Broadcasting (b) 18,019
370,000 Granite Broadcasting (b) 3,353
- -------------------------------------------------------------
44,304
CABLE TELEVISION: 1.5%
350,000 Cablevision Systems (b) 33,512
100,000 Cablevision Systems, Pfd. 3,850
300,000 TCA Cable TV 13,800
140,000 Cable Michigan (b) 3,202
- -------------------------------------------------------------
54,364
TELEVISION PROGRAMMING: 4.3%
2,400,000 Liberty Media Group,
Tele-Communications (b) 87,000
850,000 United Video Satellite Group (b) 24,438
420,000 BET Holdings, Cl. A (b) 22,942
350,000 HSN (b) 18,025
280,000 Macrovision (b) 4,445
50,000 Playboy Enterprises (b) 784
- -------------------------------------------------------------
157,634
TELECOMMUNICATIONS
TELEPHONE SERVICES: 0.8%
564,000 RCN (b) 19,317
374,000 Commonwealth Telephone
(formerly known as C-Tec) (b) 9,677
- -------------------------------------------------------------
28,994
MOBILE COMMUNICATIONS: 1.8%
500,000 Telephone and Data Systems 23,281
865,000 Mobile Telecommunication
Technologies (b) 19,030
400,000 Centennial Cellular (b) 8,200
355,000 COMARCO (b)(c) 7,810
450,000 PriCellular (b) 4,697
200,000 Vanguard Cellular Systems (b) 2,550
- -------------------------------------------------------------
65,568
</TABLE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- -------------------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS EQUIPMENT: 0.7%
714,000 Aspect Telecommunications (b) $ 14,905
178,000 Coherent Communications (b) 4,962
476,000 Larscom (b) 4,522
393,000 Verilink (b) 2,407
- -------------------------------------------------------------
26,796
COMPUTER RELATED HARDWARE
COMPUTER HARDWARE/
RELATED SYSTEMS: 1.3%
650,000 Kronos (b)(c) 20,028
375,000 Micros Systems (b) 16,875
453,000 American Power Conversion (b) 10,702
- -------------------------------------------------------------
47,605
SEMICONDUCTORS/
RELATED EQUIPMENT: 0.4%
350,000 Oak Industries (b) 10,391
125,000 Electro Scientific Industries (b) 4,750
- -------------------------------------------------------------
15,141
GAMING EQUIPMENT: 1.5%
2,050,000 International Game Technology 51,763
406,000 Acres Gaming (b) 1,776
- -------------------------------------------------------------
53,539
CONTRACT MANUFACTURING: 1.5%
1,220,000 Solectron (b) 50,706
285,000 Altron (b) 3,776
137,000 ACT Manufacturing (b) 1,935
- -------------------------------------------------------------
56,417
INSTRUMENTATION: 2.2%
1,085,000 Thermo Instrument Systems (b) 37,365
613,000 Thermoquest (b) 11,111
$1,500,000 Thermoquest, 5% Note Due 8/15/00 1,680
450,000 IFR Systems (c) 6,975
330,000 Itron (b) 5,940
$5,000,000 Thermo Optek, 5% Note Due 10/15/00 5,650
265,000 Thermo Optek (b) 4,074
200,000 Thermo Bio Analysis (b) 3,925
232,000 Metrika Systems (b) 3,538
73,684 Onix Systems (b) 700
37,100 Thermo Vision (b) 301
- -------------------------------------------------------------
81,259
</TABLE>
See accompanying notes to financial statements 16
<PAGE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------------
<S> <C> <C>
BUSINESS SOFTWARE: 1.7%
430,000 Systems & Computer Technology (b) $ 21,339
400,000 Compuware (b) 12,800
600,000 Wonderware (b) 8,475
242,000 National Instruments (b) 7,018
160,000 Sterling Commerce (b) 6,150
400,000 Computer Language Research 5,600
300,000 Walsh International (b) 3,150
- --------------------------------------------------------------------
64,532
CONSUMER SOFTWARE: 0.8%
$13,000,000 Activision, 6.75% Note Due 1/1/05 13,845
350,000 Electronic Arts (b) 13,234
1,100,000 MicroProse (b) 2,406
- --------------------------------------------------------------------
29,485
COMPUTER SERVICES: 1.5%
427,000 Analysts International 14,731
340,000 Computer Task Group 12,091
254,000 BRC Holdings (b) 9,715
200,000 Keane (b) 8,125
249,000 CACI International (b) 4,933
225,000 American Management Systems (b) 4,387
- --------------------------------------------------------------------
53,982
Software/Services
BUSINESS INFORMATION/
MARKETING SERVICES/PUBLISHING: 3.0%
1,185,000 World Color Press (b) 31,477
1,266,000 ACNielsen (b) 30,859
1,000,000 American Business Information, Cl. A (b) 10,500
900,000 American Business Information, Cl. B (b) 9,225
174,000 Choicepoint (b) 8,308
205,000 Harte Hanks Communications 7,611
248,000 Mecklermedia (b) 6,169
885,714 GIGA Cv. Pfd. (b)(c) 3,100
208,333 Source Informatics Cv. Pfd. (b) 2,360
50,000 Peterson Companies (b) 1,150
- --------------------------------------------------------------------
110,759
ELECTRONICS DISTRIBUTION: 1.0%
1,090,000 Pioneer-Standard Electronics 16,623
600,000 Kent Electronics (b) 15,075
450,000 Richey Electronics (b) 4,613
- --------------------------------------------------------------------
36,311
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------
<S> <C> <C>
TRANSACTION PROCESSORS: 1.4%
1,292,000 National Data $ 46,674
200,000 Concord EFS (b) 4,975
- --------------------------------------------------------------------
51,649
-------
INFORMATION: TOTAL 978,339
- --------------------------------------------------------------------
Health Care: 7.8%
BIOTECHNOLOGY/DRUG DELIVERY: 0.7%
450,000 Inhale Therapeutic Systems (b) 11,700
680,000 Synaptic Pharmaceuticals (b)(c) 7,395
64,000 RP Scherer (b) 3,904
800,000 Corvas International (b) 3,100
800,000 Corvas International Warrants (b) 400
- --------------------------------------------------------------------
26,499
MEDICAL EQUIPMENT: 1.0%
1,162,000 Respironics (b)(c) 26,000
300,000 Affymetrix (b) 9,337
275,000 Innovasive Devices (b) 2,509
- --------------------------------------------------------------------
37,846
HOSPITAL/LABORATORY SUPPLIES: 0.8%
322,000 Sybron International (b) 15,114
273,000 Hillenbrand Industries 13,974
- --------------------------------------------------------------------
29,088
SERVICES: 5.3%
1,235,000 Lincare Holdings (b) 70,395
996,000 HBO & Company 47,808
850,000 First Health Group (formerly known
as HealthCare Compare) (b) 43,456
1,000,000 Magellan Health Services (b) 21,500
485,000 United Payors and Providers (b) 9,336
43,000 Spectrum Health Solutions (b) 11
- --------------------------------------------------------------------
192,506
HEALTH CARE: TOTAL ---------
285,939
- --------------------------------------------------------------------
Consumer Goods/Services: 8.5%
Goods
LEISURE VEHICLES: 1.9%
2,200,000 Harley-Davidson 60,225
320,000 Thor Industries 10,980
- --------------------------------------------------------------------
71,205
HARDWARE: 0.7%
600,000 Newell 25,500
</TABLE>
17
<PAGE>
ACRON FUND
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------------
<S> <C> <C>
Services
RETAIL: 3.0%
1,960,000 Borders Group (b) $ 61,372
490,000 Quality Food Centers (b) 32,830
731,000 Host Marriott Services (b) 10,874
634,000 Au Bon Pain (b)(c) 4,795
- --------------------------------------------------------------------
109,871
CONSUMER SERVICES: 0.1%
200,000 Bally Total Fitness (b) 4,375
CASINOS: 0.5%
392,000 Hollywood Park 8,624
290,000 Rio Hotel & Casino (b) 6,090
535,000 Monarch Casino & Resort (b)(c) 2,943
$6,250,000 Grand Palais Casino
14% Note Due 2/25/98 (b) 313
- --------------------------------------------------------------------
17,970
CRUISE LINES: 2.3%
1,400,000 Carnival 77,525
140,000 Royal Caribbean Cruises 7,464
84,989
---------
CONSUMER GOODS/SERVICES: TOTAL 313,910
- --------------------------------------------------------------------
Finance: 12.0%
BANKS: 1.7%
285,000 Union Planters 19,362
570,000 Texas Regional Bancshares 17,385
510,000 TCF Financial 17,308
156,000 Pinnacle Financial 7,703
- --------------------------------------------------------------------
61,758
SAVINGS & LOANS: 3.5%
1,267,000 Peoples Bank Bridgeport 48,146
538,000 Coast Savings (b) 36,887
671,000 Washington Federal 21,095
538,000 Commonwealth Bancorp 10,693
116,000 Washington Mutual 7,402
280,000 Imperial Thrift & Loan (b) 5,390
- --------------------------------------------------------------------
129,613
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------
<S> <C> <C>
INSURANCE: 2.9%
823,000 Baldwin & Lyons, Cl. B 19,855
247,000 Foremost 17,228
351,000 United Fire & Casualty 15,532
444,000 Leucadia National 15,318
612,000 Acceptance Insurance (b) 14,803
200,000 Protective Life 11,950
170,000 AmerUs Life Holdings 6,269
210,000 Highlands Insurance (b) 5,959
- --------------------------------------------------------------------
106,914
MONEY MANAGEMENT: 2.8%
618,000 SEI Investments 25,956
974,000 Baker Fentress 17,775
620,000 Pioneer Group 17,438
712,000 United Asset Management 17,400
1,723,000 Phoenix Duff & Phelps 13,784
231,000 BISYS Group (b) 7,681
60,000 Affiliated Managers Group (b) 1,740
- --------------------------------------------------------------------
101,774
FINANCE COMPANIES: 1.1%
935,000 Americredit (b) 25,888
1,390,000 World Acceptance (b)(c) 7,471
340,000 DVI Health Services (b) 6,290
250,000 Capital Trust (b) 2,812
- --------------------------------------------------------------------
42,461
---------
FINANCE: TOTAL 442,520
- --------------------------------------------------------------------
Industrial Goods/Services: 8.8%
STEEL: 1.7%
1,295,000 Worthington Industries 21,368
540,000 Gibraltar Steel (b) 10,665
350,000 A M Castle 8,006
475,000 Steel Dynamics (b) 7,600
250,000 Schnitzer Steel 7,016
405,000 Atchison Casting (b) 6,581
200,000 Intermet 3,500
27,000 Metal Management (b) 449
- --------------------------------------------------------------------
65,185
</TABLE>
See accompanying notes to financial statements 18
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
MACHINERY: 1.4%
1,070,000 Baldor Electric $ 23,206
535,000 Applied Industrial Technologies 14,311
98,000 Applied Power 6,762
270,000 Valmont Industries 5,265
198,000 Hein-Werner (b)(c) 1,448
457,000 Stevens International, Cl. A (b)(c) 714
33,000 Stevens International, Cl. B (b)(c) 128
- --------------------------------------------------------------------------------
51,834
CONGLOMERATES: 1.1%
900,000 Thermo Electron (b) 40,050
INDUSTRIAL MATERIALS: 0.9%
800,000 Unifi 32,550
SPECIALTY CHEMICALS: 1.6%
900,000 Lilly Industries, Cl. A 18,563
600,000 M A Hanna 15,150
250,000 H B Fuller 12,375
550,000 Nanophase (b) 6,978
120,000 Cambrex 5,520
- --------------------------------------------------------------------------------
58,586
ELECTRICAL COMPONENTS: 0.1%
230,000 Spectra Physics Lasers (b) 2,875
OTHER INDUSTRIAL SERVICES: 2.0%
775,000 Expeditors International
of Washington 29,837
901,000 Wackenhut, Cl. B 19,034
45,000 Wackenhut, Cl. A 1,043
400,000 C H Robinson 8,950
210,000 HA.LO Industries (b) 5,460
330,000 National Patent Development (b) 4,579
200,000 Airnet Systems (b) 4,300
- --------------------------------------------------------------------------------
73,203
---------
INDUSTRIAL GOODS/SERVICES: TOTAL 324,283
Energy/Minerals: 11.1%
INDEPENDENT POWER: 3.9%
2,230,000 AES Corporation (b) 103,974
1,852 AES Corporation Warrants (b) 121
1,355,000 CalEnergy (b) 38,956
- --------------------------------------------------------------------------------
143,051
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
OIL/GAS PRODUCERS: 1.9% $ 29,906
1,450,000 Seagull Energy (b) 20,150
1,300,000 Tesoro Petroleum (b) 7,590
460,000 Forest Oil 6,244
222,000 United Meridian (b) 4,188
1,031,000 Tipperary (b)(c) 1,794
165,000 Costilla Energy (b)
- --------------------------------------------------------------------------------
69,872
DISTRIBUTION/MARKETING/REFINING: 2.1%
600,000 Equitable Resources 21,225
560,000 Atmos Energy 16,940
820,000 NGC 14,350
550,000 Southern Union (b) 13,131
190,000 KN Energy 10,260
- --------------------------------------------------------------------------------
75,906
OIL SERVICES: 2.9%
700,000 EVI (b) 36,225
516,000 Atwood Oceanics (b) 24,445
900,000 Pride International (b) 22,725
500,000 J Ray McDermott (b) 21,500
100,000 Veritas DGC (b) 3,950
- --------------------------------------------------------------------------------
108,845
MINING: 0.3%
700,000 Zeigler Coal Holding 11,419
---------
ENERGY/MINERALS: TOTAL 409,093
- --------------------------------------------------------------------------------
Other Industries: 3.9%
REAL ESTATE: 3.4%
829,000 The Rouse Company 27,150
233,000 Forest City Enterprises, Cl. B 13,441
185,000 Forest City Enterprises, Cl. A 10,753
260,000 Equity Residential Properties Trust 13,146
400,000 Macerich Company 11,400
754,000 Homestead Village (b) 11,357
350,000 Security Capital Atlantic 7,394
101,000 Security Capital Group, Cl. B (b) 3,283
18,000 Security Capital Warrants (b) 95
165,000 Weingarten Realty Investors 7,394
350,000 Cornerstone Properties 6,716
190,000 First Washington Realty Trust 5,225
120,000 First Washington Realty Trust, Cv. Pfd. 4,020
100,000 Gaylord Entertainment 3,194
- --------------------------------------------------------------------------------
124,568
</TABLE>
19
<PAGE>
ACORN FUND
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Number of Shares Value(000)
- ----------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION: 0.5%
482,000 Hub Group (b) $ 14,339
406,000 Trailer Bridge (b) 3,603
- ----------------------------------------------------------------
17,942
-------
OTHER INDUSTRIES: TOTAL 142,510
- ----------------------------------------------------------------
Foreign Securities: 12.2%
CANADA: 0.6%
1,500,000 Ranger Oil 10,313
200,000 Shaw Industries, Cl. A 6,792
80,000 Veritas Energy Services (b) 3,130
200,000 Cogeco Cable 1,824
- ----------------------------------------------------------------
22,059
UNITED KINGDOM: 2.6%
1,200,000 Serco Group 17,148
400,000 NTL (b) 11,150
700,000 Getty Communications, Cl. A (b)(c) 10,413
3,450,000 Medeva 9,168
960,000 Amvescap 8,261
1,100,000 N. Brown Group 7,556
700,000 Powerscreen International 6,997
330,000 Airtours 6,706
650,000 Comcast UK Cable Partners (b) 6,134
600,000 Edinburgh Fund Managers 4,507
600,000 Oriflame 4,393
530,000 Ethical Holdings (b) 1,656
- ----------------------------------------------------------------
94,089
GERMANY/AUSTRIA: 0.5%
180,000 Flughafen Wien (Austria) 7,142
552,000 United International Holdings
(Austria) (b) 6,348
23,000 Binding-Brauerei 5,436
----------------------------------------------------------------
18,926
NORDIC COUNTRIES: 1.4%
1,340,000 WM Data Nordic (Sweden) 24,234
650,000 Getinge Industrier (Sweden) 10,322
254,000 Autoliv (Sweden) 8,319
260,000 Esselte, Series A (Sweden) 4,915
590,000 SensoNor (Norway) (b) 1,801
50,000 Pricer, Cl. B (Sweden) (b) 926
- ----------------------------------------------------------------
$ 50,517
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value(000)
- ---------------------------------------------------------------
<S> <C> <C>
NETHERLANDS: 0.7%
270,000 Hunter Douglas 9,456
160,000 ASR Verzekeringsgroup 8,705
167,000 Getronics 5,321
- ----------------------------------------------------------------
23,482
SWITZERLAND: 0.6%
6,000 Societe Generale de Surveillance 11,518
10,000 Cie Fin Richemont 10,901
- ----------------------------------------------------------------
22,419
FRANCE: 0.4%
115,000 Atos (b) 14,834
PORTUGAL: 0.1%
375,000 Filmes Lusomundo (b)(c) 3,468
ITALY/GREECE: 1.8%
400,000 Cellular Communications
International (b) 18,700
3,500,000 Banca Fideuram 15,332
2,355,000 Saipem 12,387
400,000 Hellenic Bottling (Greece) 9,291
500,000 Aeroporti di Roma (b) 5,189
214,100 Industrie Natuzzi 4,416
- ----------------------------------------------------------------
65,315
INDIA: 0.1%
39,373 Housing Development Finance 3,090
HONG KONG: 0.2%
4,499,000 Varitronix International 7,722
CHINA: 0.1%
200,000 The Investment Company of China (b) 988
SINGAPORE: 0.1%
7,250,000 Star Cruises (b) 15,153
7,250,000 Genting International 834
- ----------------------------------------------------------------
15,987
JAPAN: 1.1%
145,000 Nintendo 14,274
200 NTT Data 10,813
20,000 Shohkoh Fund 6,122
45,000 Nichiei 4,811
174,000 Noritsu Koki 4,309
- ----------------------------------------------------------------
40,329
</TABLE>
see accompanying notes to finanical statements 20
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
AUSTRALIA/NEW ZEALAND: 0.3%
1,700,000 Sky City (New Zealand) $ 5,775
260,000 PetSec Energy ADR (b) 3,575
600,000 PetSec Energy (b) 1,591
- --------------------------------------------------------------------------------
10,941
MEXICO: 0.6%
3,100,000 Kimberly Clark de Mexico 15,189
6,000,000 Nadro, Series L 5,195
- --------------------------------------------------------------------------------
20,384
OTHER LATIN AMERICA: 1.0%
250,000 IRSA (Argentina) 9,406
2,800,000 Siderca (Argentina) 7,786
175,000 Banco Latinoamericano
de Export (Panama) 7,241
710,000 Perez Companc (Argentina) (b) 5,070
100,000,000 Cemig (Brazil) 4,345
- --------------------------------------------------------------------------------
33,848
-----------
FOREIGN: TOTAL 448,398
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (000)
- -------------------------------------------------------------------------------
<S> <C>
TOTAL COMMON STOCKS AND OTHER
-----------
EQUITY-LIKE SECURITIES: 90.9% $ 3,344,992
(Cost: $1,855,613)
SHORT-TERM OBLIGATIONS: 8.8%
Yield 5.00%6.15%
Due 1/22/12/98
$63,405 General Motors Acceptance 63,237
$57,565 Aon Corp 57,482
$30,945 Associates First Capital 30,861
$30,110 Cigna 30,008
$28,495 Hertz 28,439
$27,805 Baxter International 27,710
$20,975 Commercial Credit 20,927
$19,586 Ford Motor Credit 19,581
$19,240 Sears Acceptance 19,224
$16,560 GE Capital Services 16,495
$12,000 US Treasury Bill 11,930
- --------------------------------------------------------------------------------
(Amortized Cost: $325,894) 325,894
-----------
TOTAL INVESTMENTS: 99.7% 3,670,886
(Cost: $2,181,507)
-----------
CASH AND OTHER ASSETS LESS LIABILITIES: 0.3% 10,571
-----------
TOTAL NET ASSETS: 100% $ 3,681,457
- --------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
NOTES TO STATEMENT OF INVESTMENTS
(a) At December 31, 1997, for federal income tax purposes cost of investments
was $2,184,478,000 and net unrealized appreciation was $1,486,408,000,
consisting of gross unrealized appreciation of $1,573,823,000 and gross
unrealized depreciation of $87,415,000.
(b) Non-income producing security.
(c) On December 31, 1997, the Fund held the following percentages of the
outstanding voting shares of the affiliated companies (ownership of at least 5%)
listed below:
<TABLE>
<S> <C> <C> <C>
Kronos.................................................... 7.93% Au Bon Pain......................................... 6.23%
Tipperary................................................. 7.86% Stevens International............................... 6.18%
COMARCO................................................... 7.54% Getty Communications................................ 6.07%
World Acceptance.......................................... 7.34% Respironics......................................... 5.87%
Data Transmission Network................................. 7.33% Monarch Casino & Resort............................. 5.67%
Hein-Werner............................................... 6.85% IFR Systems......................................... 5.48%
Synaptic Pharmaceuticals.................................. 6.46% Giga................................................ 5.30%
Filmes Lusomundo.......................................... 6.25%
</TABLE>
The aggregate cost and value of investments in these companies at December 31,
1997, was $101,604,000 and $129,679,000, respectively. The market value
of these securities represents 3.52% of the total net assets at December 31,
1997. During the year ended December 31, 1997, cost of purchases and proceeds
from sales in affiliated companies was $19,846,000 and $9,914,000, respectively.
Dividends received from these companies amounted to $49,000 and net realized
gain on sales of investments in such companies amounted to $180,000.
21
<PAGE>
FOREIGN PORTFOLIO DIVERSIFICATION
At December 31, 1997 Acorn Fund's foreign portfolio of investments as a percent
of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value (000) Percent
- ----------------------------------------------------------
<S> <C> <C>
INFORMATION
Computer Services $ 55,202 1.5%
Cable Television 25,456 0.8
Mobile Communications 18,700 0.5
Business Information/Publishing 14,807 0.4
Semiconductors/Related Equipment 1,801 0.0
- ----------------------------------------------------------
115,966 3.2
HEALTH CARE
Hospital/Laboratory Supplies 10,322 0.3
Pharmaceuticals 9,168 0.3
Biotechnology/Drug Delivery 1,656 0.0
- ----------------------------------------------------------
21,146 0.6
CONSUMER GOODS/SERVICES
Nondurable Goods 24,497 0.7
Travel 22,693 0.6
Beverages 14,727 0.4
Consumer Software 14,274 0.4
Retail 7,556 0.2
Gaming 5,775 0.2
Consumer Goods Distribution 5,195 0.1
Furniture/Textiles 4,416 0.1
Other Durable Goods 17,775 0.5
Other Entertainment 10,901 0.3
- ----------------------------------------------------------
127,809 3.5
</TABLE>
<TABLE>
<CAPTION>
Value (000) Percent
- ----------------------------------------------------------
<S> <C> <C>
FINANCE
Money Management $ 28,100 0.8%
Finance Companies 14,023 0.4
Insurance 8,705 0.2
Banks 7,241 0.2
Closed-End Funds 988 0.0
- ----------------------------------------------------------
59,057 1.6
INDUSTRIAL GOODS/SERVICES
Outsourcing Services 17,148 0.5
Machinery 11,306 0.3
Steel 7,786 0.2
Electrical Components 7,722 0.2
Other Industrial Services 11,518 0.3
- ----------------------------------------------------------
55,480 1.5
ENERGY/MINERALS
Oil Services 22,309 0.6
Oil/Gas Producers 20,549 0.6
- ----------------------------------------------------------
42,858 1.2
OTHER INDUSTRIES
Transportation 12,331 0.3
Real Estate 9,406 0.2
Utilities 4,345 0.1
- ----------------------------------------------------------
26,082 0.6
--------------------
TOTAL FOREIGN PORTFOLIO $448,398 12.2%
==========================================================
</TABLE>
22
<PAGE>
ACORN INTERNATIONAL
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE>
<CAPTION>
Number of Shares
-------------------
9/30/97 12/31/97
Additions
- ----------------------------------------------------------
<S> <C> <C>
Europe
GERMANY/AUSTRIA
IVG Holdings 290,000 350,000
Rofin Sinar 0 100,000
FINLAND
Elcoteq Network 0 245,000
UNITED KINGDOM
AEA Technology 0 250,000
WS Atkins 0 500,000
Euro Money Publications 110,000 150,000
Fairey Group 0 600,000
Hogg Robinson 0 955,000
SWITZERLAND
Cie Fin Richemont 9,000 12,000
ITALY
Industrie Natuzzi ADR 200,000 245,000
Saipem SPA 2,500,000 3,300,000
- ----------------------------------------------------------
Asia
JAPAN
Aiful 0 60,000
Meitec 350,000 390,000
Nichiei 112,600 140,000
Nidec 0 125,000
Nintendo 110,000 130,000
SINGAPORE
Electronic Resources 0 3,900,000
Electronic Resources
Warrants 7/17/01 0 3,795,000
Natsteel Electronics 0 1,916,000
- ----------------------------------------------------------
Latin America
MEXICO
Grupo Continental 0 1,140,000
ARGENTINA
IRSA GDS 320,000 500,000
Perez Companc 1,400,000 1,650,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
-------------------
9/30/97 12/31/97
- ----------------------------------------------------------
<S> <C> <C>
Other Countries
CANADA
Ranger Oil 1,000,000 1,200,000
UNITED STATES
Khanty Mansiysk Oil 10% Notes 0 1,500,000
Sales
- ----------------------------------------------------------
Europe
GERMANY
Fresenius 50,000 7,000
Pfleiderer 330,000 260,000
Schaltbau 40,000 30,000
DENMARK
Falck 70,000 0
FINLAND
Benefon 25,000 0
SWEDEN
Pricer, Cl. B 180,000 50,000
WM Data Nordic 2,700,000 1,985,000
FRANCE
Atos 200,000 180,000
Cetelem 94,000 0
Groupe AB 350,000 0
Guilbert 15,000 0
UNITED KINGDOM
Capita Group 2,750,000 2,000,000
Gentia Software 250,000 0
Premier Oil 6,000,000 0
Tunstall 230,000 0
SWITZERLAND
Liechtenstein Global Trust 5,000 0
Societe Gen de Surveillance 9,000 6,000
ITALY/GREECE
Banca Fideuram 6,730,000 6,340,000
Dalmine 20,000,000 0
Hellenic Bottling (Greece) 250,000 400,000
(includes effect of 2 for 1 stock split)
</TABLE>
See accompanying notes to financial statements 23
<PAGE>
ACORN INTERNATIONAL
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE>
<CAPTION>
Number of Shares
--------------------------
9/30/97 12/31/97
- ------------------------------------------------------------
<S> <C> <C>
SPAIN/PORTUGAL
Estoril Sol 214,000 150,000
Vallehermoso 200,000 0
NETHERLANDS
Kempen 630,000 570,000
POLAND
Bank Inicjatyw Gospodarczych 2,500,000 0
- -----------------------------------------------------------
Asia
HONG KONG
TVB 3,500,000 3,100,000
INDIA
IS Himalaya Fund 300,000 0
Zee Telefilms 1,047,200 0
JAPAN
Aderans 440,000 400,000
Heiwa 255,000 0
Konami 235,000 143,000
Long Term Credit Bank 1,500,000 0
Nanto Bank 135,000 0
Nihon Jumbo 65,020 0
NTT Data 350 250
Orient Corporation 1,760,000 0
Orix Corporation 100,000 40,000
Paramount Bed 20,000 0
Sankyo 195,000 0
Softbank Corporation 120,000 0
TAIWAN
President Enterprises 473,380 0
INDONESIA
Bank Niaga 11,400,000 0
PHILIPPINES
Ionics Circuits 12,000,000 9,398,000
THAILAND
BEC World Public 815,000 0
Serm Suk 200,000 0
Shinawatra Satellite 500,000 0
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
--------------------------
9/30/97 12/31/97
- ------------------------------------------------------------
<S> <C> <C>
Latin America
MEXICO
Bufete Industrial 200,000 0
Corp Interamericana de
Entertenimiento 600,000 0
BRAZIL
Cemig Pfd. 165,000,000 130,000,000
Itau Banco Pfd. 18,000,000 0
Telemig Pfd. 30,000,000 0
White Martins 310,000 0
CHILE
Banco BHIF 260,000 0
- -----------------------------------------------------------
Other Countries
AUSTRALIA
Hudson Conway 240,000 0
Skilled Engineering 175,000 0
CANADA
Cinar Films 250,000 150,000
</TABLE>
<PAGE>
ACORN INTERNATIONAL
STATEMENT OF INVESTMENTS DECEMBER 31, 1997
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------
Common Stocks and Other
Equity-Like Securities: 87.9%
- ------------------------------------------------------------------------
<S> <C> <C>
Europe: 54.5%
GERMANY/AUSTRIA: 4.6%
180,000 Rhoen Klinikum Pfd. $ 17,518
125,000 Rhoen Klinikum 12,235
Hospital Management
350,000 IVG Holdings 8,973
Real Estate & Logistics
190,000 Flughafen Wien 7,539
Vienna Airport Authority (Austria)
473,000 United International Holdings (b) 5,439
Cable Television for Austria &
Other Countries (Austria)
260,000 Pfleiderer 4,584
Construction Materials
21,000 Cewe Color Holding 4,415
Photographic Developing & Printing
100,000 Boewe Systec 3,281
Envelope Stuffing Machines
30,000 Schaltbau 3,220
Railcar Components
212,000 Berzelius Umwelt 2,830
Industrial Waste Recycling
229,860 Scala Business Solutions (b) 1,526
95,775 Scala Business Solutions
Warrants 3/31/99 (b) 106
95,775 Scala Business Solutions
Warrants 3/31/01 (b) 83
Financial Accounting Software (Austria)
100,000 Rofin Sinar 1,213
Industrial Machinery
7,000 Fresenius 1,180
Dialysis Equipment & Solutions
- ------------------------------------------------------------------------
74,142
DENMARK: 0.2%
44,000 Kompan International (c) 4,080
Playground Equipment
FINLAND: 5.5%
500,000 TT Tieto, Cl. B (c) 56,283
Computer Services/Consulting
80,000 Fiskars, Series A 8,667
Scissors & Gardening Tools
88,000 Vaisala, Cl. A 7,433
Meteorological Instruments
100,000 Sentra, Cl. A (c) 7,345
Grocery Wholesaling & Retailing
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------
<S> <C> <C>
550,000 Talentum (c) $ 6,817
Trade Journals
245,000 Elcoteq Network (b) 3,082
Industrial Electrical Components
- ------------------------------------------------------------------------
89,627
NORWAY: 0.2%
800,000 SensoNor (b) 2,442
Electronic Sensors for Airbags
500,000 Atex Media Solutions 1,323
Print Media Software
- ------------------------------------------------------------------------
3,765
SWEDEN: 5.4%
1,985,000 WM Data Nordic 35,899
Computer Services/Consulting
1,000,000 Getinge Industrier 15,880
Sterilization & Disinfection Equipment
350,000 Autoliv 11,463
Seatbelts & Airbags
665,000 Bure Investment 8,758
Health Care Services & Investments
525,000 Atle 8,304
Investment Company
315,000 Esselte, Series A 5,955
Office Supplies & Related Equipment
50,000 Pricer, Cl. B (b) 926
Electronic Shelf Labels for Supermarkets
- ------------------------------------------------------------------------
87,185
FRANCE: 3.3%
180,000 Atos (b) 23,218
Computer Services/Transaction Processing
62,000 NRJ 8,636
Radio Network
60,000 Fininfo 7,131
Data Feeds for French Banks & Brokers
85,000 Spir Communications 5,341
Regional Newspapers
55,000 Virbac 4,516
Drugs for Animals
50,000 Groupe Partouche 2,851
Casinos
50,000 Assystem 1,621
Consultants on Nuclear Power Plants
- ------------------------------------------------------------------------
53,314
</TABLE>
See accompanying notes to financial statements 25
<PAGE>
ACORN INTERNATIONAL
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Number of shares Value (000)
- -----------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM: 14.4%
2,000,000 Serco Group $ 28,581
Facilities Management
1,600,000 Powerscreen International 15,993
Mobile Crushing & Screening Equipment
2,000,000 Oriflame International 14,644
Natural Cosmetics Sold Door-to-Door
467,000 NTL (b) 13,018
Cable TV & Telephone System
1,450,000 Seton Healthcare Group 12,466
Pharmaceuticals
2,000,000 Capita Group 12,143
Outsourcing Government Services
4,000,000 St. James Place 11,123
Life Insurance
800,000 Vosper Thornycroft Holdings 10,596
Naval Shipbuilding
1,500,000 N. Brown Group 10,304
Mail Order Clothing in Large Sizes
13,000,000 Electronics Boutique (b) 10,160
Videogame/Computer Software Stores
4,500,000 City Centre Restaurants 9,996
Fast Food Restaurants
3,355,000 Medeva 8,915
Drugs for Hyperactive Children
1,700,000 Rotork 7,552
Valve Actuators for Oil & Water Pipelines
950,000 Edinburgh Fund Managers 7,136
Investment Management
790,000 Expro International Group 7,006
Oil Field Services
3,200,000 HALMA 6,134
Fire Detection Devices
2,000,000 Shanks & McEwan 5,134
Landfills & Waste Incinerators
600,000 Fairey Group 5,094
Electronic Products
500,000 Comcast UK Cable Partners (b) 4,719
Cable TV & Telephone System
1,300,000 Dorling Kindersley 4,652
Reference Books & CD-ROMs
955,000 Hogg Robinson 4,015
Corporate Travel Management
150,000 Euro Money Publications 3,906
Financial Publications
1,200,000 Ivory & Sime 3,890
Investment Management
550,000 Eurotherm 3,376
Instruments & Measuring Devices
600,000 Hozelock Group 3,120
Garden Hoses
</TABLE>
<TABLE>
<CAPTION>
Number of shares Value (000)
- -----------------------------------------------------------------------
<S> <C> <C>
500,000 WS Atkins 2,991
Outsourcing Services
1,600,000 Aberdeen Trust 2,317
Money Management
250,000 AEA Technology 2,213
Nuclear Energy Consulting
670,000 Ethical Holdings ADR (b) 2,094
Drug Delivery
50,000 Vitec 523
Tripods for Cameras & Lighting
- ------------------------------------------------------------------------
233,811
SWITZERLAND: 4.6%
28,000 Phoenix Mecano 14,301
Electrical Components Manufacturer
12,000 Cie Fin Richemont 13,081
Luxury Goods & Tobacco
6,000 Societe Generale de Surveillance 11,518
Inspection/Testing of Trade Goods
45,000 PubliGroupe (formerly known as
Publicitas Holding) 9,842
Advertising
60,000 Selecta Group (b) 8,063
Vending Machines
18,000 Societe Generale d'Affichage 7,034
Billboard Advertising
12,000 Hero 6,787
Packaged Foods
10,000 Prodega (c) 4,285
Cash-and-Carry Retailer
- -----------------------------------------------------------------------
74,911
ITALY/GREECE: 9.4%
6,340,000 Banca Fideuram 27,773
Life Insurance & Mutual Funds
3,300,000 Saipem SPA 17,358
Pipeline Construction & Drilling Contractor
2,750,000 Autogrill Finanziari (b) 14,714
Tollway Restaurants
650,000 Mediolanum 12,242
Life Insurance & Mutual Funds
700,000 Banca Popolare Di Bergamo 12,234
Regional Bank
600,000 Gewiss 11,368
Electrical Plugs & Switches
2,000,000 Editoriale L'Espresso 9,615
Newspapers & Magazines
400,000 Hellenic Bottling 9,291
Coca-Cola Bottler (Greece)
500,000 Banco Pop Commercia e Industria 8,343
Regional Bank
</TABLE>
see accompying notes to finanical statements 26
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------
<S> <C> <C>
160,000 Cellular Communications
International (b) $ 7,480
Mobile Communications
480,000 Attica Enterprises 5,363
Ferry Line (Greece)
325,000 Saes Getters 5,220
Getters used in TVs/PCs
500,000 Aeroporti di Roma (b) 5,189
Airport Management
245,000 Industrie Natuzzi ADR 5,053
Leather Couches
130,000 Daniell 893
Steel-making Machinery
- -----------------------------------------------------------------------
152,136
SPAIN/PORTUGAL: 1.3%
290,000 Mapfre Vida 10,198
Life Insurance & Mutual Funds
220,000 Cortefiel 4,417
Apparel Retailer
150,000 Estoril Sol 2,595
Casino Resort (Portugal)
180,000 Lusotur (b) 1,665
Real Estate/Resort Developer (Portugal)
150,000 Filmes Lusomundo 1,387
Newspaper, Radio, Video,
Film Distribution (Portugal)
87,500 Televisao Independente (b) 114
Television Station (Portugal)
- -----------------------------------------------------------------------
20,376
NETHERLANDS: 5.2%
570,000 Kempen (C) 21,931
Stock Brakerage/investment Management
560,000 Getronics 17,844
Computer Services
270,000 Hunter Douglas 9,456
Decorative Window Coverings
310,000 Fugro NV 9,450
Consulting & Surveying
160,000 ASR Verzekeringsgroup 8,705
Insurance
310,000 Wegener Arcade NV 5,795
Newspaper Publisher
300,000 Telegraaf Holdings 5,653
Newspaper Publisher
320,000 DOC data (b) 5,604
Audio CD & CD-ROM Replication
- -----------------------------------------------------------------------
84,438
HUNGARY: 0.3%
40,000 Gedeon Richter 4,543
Generic Drugs
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------------
<S> <C> <C>
POLAND: 0.1%
200,000 Best Company Series D (b)(c) 942
Electronics Retailer
140,000 Bank Komunalny 477
Gdansk-Area Bank
- -----------------------------------------------------------------------
1,419
--------
EUROPE: TOTAL 883,747
- -----------------------------------------------------------------------
Asia: 17.8%
HONG KONG: 3.1%
14,020,000 Li and Fung 19,632
Sourcing of Consumer Goods
8,499,000 Varitronix International 14,588
LCD Manufacturer
3,100,000 TVB 8,842
Television Broadcasting
20,000,000 China HK Photo Products 5,007
Fuji Film Distributor
8,896,000 Vanda Systems 1,837
Systems Integrator
16,525,000 Golden Harvest Entertainment (b) 746
Movie Distribution & Exhibition
- -----------------------------------------------------------------------
50,652
INDIA: 0.5%
82,682 Housing Development Finance 6,490
Mortgage Lender
389,450 Max India 921
Penicillin & Mobile Phones
810,000 Tube Investment GDR 770
Bicycle Manufacturer
2,000,000 Centurion Quantum Growth (b) 219
Closed-End Fund
- -----------------------------------------------------------------------
8,400
JAPAN: 9.8%
140,000 Nichiei 14,966
Short-Term Loans for Small Businesses
250 NTT Data 13,517
Computer Services/Consulting
130,000 Nintendo 12,798
Video Games
40,000 Shohkoh Fund 12,244
Short-Term Loans for Small Businesses
390,000 Meitec 11,008
Engineering Outsourcing
400,000 Aderans 9,690
Hairpieces & Wigs
164,000 Aeon Credit Service 8,009
Credit Cards
</TABLE>
27
<PAGE>
ACORN INTERNATIONAL
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Number of Shares Value (000)
- -----------------------------------------------------------------------
<S> <C> <C>
226,840 Fuji Software ABC $ 7,798
Computer Services/Consulting
300,000 Hokuto 6,691
Mushroom Grower
270,000 Noritsu Koki 6,686
Photo Processing Lab Manufacturer
40,000 Keyence 5,937
Sensors
300,000 Amway Japan 5,768
Direct Consumer Goods Sales
80,000 Ryohin Keikaku 5,291
Designer & Retailer of Muji Brand
Specialty Consumer Goods
125,000 Nidec 5,287
Spindle Motor Manufacturer
310,000 Shinki 4,530
Corporate & Consumer Lending
165,000 Lasertec 4,188
Manufacturer of LCD &
Photomask Defect Detectors
60,000 Aiful (b) 4,084
Consumer Lending
143,000 Konami 3,530
Entertainment Software/Hardware
210,000 Arrk Corporation 3,069
Industrial Modeling
275,000 Mirai Industry 3,067
Manufacturer of Plastic Housing Components
160,000 NuSkin Asia Pacific (b) 2,920
Direct Consumer Goods Sales
40,000 Orix Corporation 2,799
Leasing Company
170,000 People 2,615
Sports Clubs
555,000 Chuo Trust & Banking 1,238
Bank
197,000 Central Uni 864
Health Care/Medical Equipment
152,000 Nihon Unisys 684
Data Communications
49,500 Tiemco 503
Fishing Equipment
- ----------------------------------------------------------------------
159,781
MALAYSIA: 0.3%
2,000,000 Malaysian Oxygen 4,470
Industrial Gases
</TABLE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- -----------------------------------------------------------------------
<S> <C> <C>
INDONESIA: 0.3%
2,000,000 Medco Energi $ 2,448
Oil & Gas Drilling & Production
2,985,000 Modern Photo Film 869
Fuji Film Distributor
3,000,000 Mustika Ratu 532
Traditional Cosmetics
6,166,000 Tunas Ridean 519
Auto Retailing
- ----------------------------------------------------------------------
4,368
PHILIPPINES: 1.0%
50,000,000 Int'l Container Terminal Services (b) 6,266
$5,000,000 Int'l Container Terminal Services
Cv. 1.75% 3/13/04 3,875
Container Handling Terminals &
Port Management
9,398,000 Ionics Circuits 3,886
Computers
4,375,000 Philippine Savings Bank (b) 1,508
Banking
- ----------------------------------------------------------------------
15,535
SINGAPORE: 2.7%
8,300,000 Star Cruises (b) 17,347
Asian Cruise Line
4,056,000 Venture Manufacturing 11,313
2,500,000 Venture Manufacturing
Warrants 7/26/99 (b) 5,134
Contract Electronics Manufacturer
3,900,000 Electronic Resources 3,958
3,795,000 Electronic Resources
Warrants 7/17/01 (b) 2,252
Distribution of Electronic Components
1,916,000 Natsteel Electronics (b) 2,456
Contract Electronics Manufacturer
8,300,000 Genting International 955
Investment Holding
- ----------------------------------------------------------------------
43,415
THAILAND: 0.1%
320,000 Bangkok Insurance 2,348
Finance/Insurance
ASIA: TOTAL 288,969
</TABLE>
See accompanying notes to Financial statements 28
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- -----------------------------------------------------------------
<S> <C> <C>
Latin America: 9.0%
MEXICO: 3.2%
3,300,000 Kimberly Clark de Mexico $16,168
Paper Products
1,500,000 Grupo Industrial Bimbo 14,513
Bread, Baked Goods & Snacks
460,000 Tubos de Acero de Mexico ADR (b) 9,948
Seamless Pipe for Oil Wells
9,000,000 Nadro, Series L 7,792
Pharmaceutical Distributor
1,140,000 Grupo Continental (b) 4,058
Beverages
- -----------------------------------------------------------------
52,479
BRAZIL: 0.9%
130,000,000 Cemig Pfd. 5,648
Electric Utility
350,000 Elevadores Atlas 4,233
Elevator Services
150,000 Bompreco GDS (b) 2,767
Supermarket Chain
23,000,000 Telemig (b) 2,267
Telecommunications
- -----------------------------------------------------------------
14,915
ARGENTINA: 2.5%
500,000 IRSA GDS 18,812
Real Estate Management & Development
1,650,000 Perez Companc 11,783
Oil & Gas Producer
3,600,000 Siderca 10,010
Steel Pipe Producer
- -----------------------------------------------------------------
40,605
CHILE: 0.9%
150,000 Genesis Chile Fund 5,738
Closed-End Fund
220,000 Santa Isabel ADR 3,850
Supermarket Chain
120,000 Embotelladora Andina, Series A ADR 2,497
120,000 Embotelladora Andina, Series B ADR 2,333
Coca-Cola Bottler
- -----------------------------------------------------------------
14,418
PERU: 0.4%
6,000,000 Enrique Ferreyros 6,339
Heavy Machinery Dealer
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- -----------------------------------------------------------------
<S> <C> <C>
PANAMA: 1.1%
195,000 Banco Latinoamericano
de Exportaciones $ 8,068
Trade Financing
161,000 Carnival 8,915
Cruise Ship Line
16,983
-------
LATIN AMERICA: TOTAL 145,739
- -----------------------------------------------------------------
Other Countries: 6.6%
AUSTRALIA/NEW ZEALAND: 2.6%
2,200,000 Publishing & Broadcasting 9,911
Media & TV Broadcasting
4,600,000 Tyndall Australia 7,194
Management & Insurance
1,750,000 Sky City 5,945
Casino & Hotel (New Zealand)
5,200,000 Sonic Healthcare 5,421
Pathology Labs
1,000,000 Siddons Ramset 5,017
Manufacturer & Distributor of
Construction Materials
3,200,000 Anaconda Nickel (b) 4,796
Nickel Mining
1,400,000 Petsec Energy (b) 3,713
Oil & Gas Producer
- -----------------------------------------------------------------
41,997
CANADA: 2.7%
520,000 Shaw Industries 17,659
Oil Field Services
1,200,000 Ranger Oil 8,250
Oil & Gas Producer
150,000 Cinar Films (b) 5,831
Children's Television Programming
1,700,000 Bracknell (b)(c) 5,049
Speciality Contractor
500,000 Cogeco 4,018
Cable TV
300,000 Cogeco Cable 2,736
Cable TV
900,000 Pangea Goldfields (b) 1,069
Gold Mining Exploration
- -----------------------------------------------------------------
44,612
ISRAEL: 0.4%
300,000 Blue Square Israel ADR 3,713
Supermarkets & Department Stores
317,000 ZAG Industries 2,813
Plastic Hardwares
- -----------------------------------------------------------------
6,526
</TABLE>
29
<PAGE>
ACORN INTERNATIONAL
STATEMENT OF INVESTMENTS
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------------------------
<S> <C> <C>
SOUTH AFRICA: 0.2%
665,000 Energy Africa (b) $ 3,519
Oil & Gas Producer
UNITED STATES: 0.7%
203,000 AES Corporation (b) 9,465
Electric Generating Plants
$1,500,000 Khanty Mansiysk Oil 10% Notes 1,500
Oil Production in Russia
- --------------------------------------------------------------------------------
10,965
----------
OTHER: TOTAL 107,619
Miscellaneous Securities: 0.0% 378
TOTAL COMMON STOCKS AND OTHER
----------
EQUITY-LIKE SECURITIES: 87.9% 1,426,452
(Cost: $1,119,108)
</TABLE>
<TABLE>
<CAPTION>
Principal Amount Value (000)
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS: 11.6%
<S> <C> <C>
Yield 5.70%5.98%
Due 1/21/16/98
$48,765 Baxter International $ 48,716
$37,093 Commerical Credit 37,059
$33,250 Cigna Corp 33,172
$26,842 Sears Acceptance 26,804
$24,225 Exxon Imperial 24,194
$17,855 American General Finance 17,838
- --------------------------------------------------------------------------------
(Amortized Cost: $ 187,783) 187,783
----------
TOTAL INVESTMENTS: 99.5% 1,614,235
(Cost: $1,306,891)
----------
CASH AND OTHER ASSETS LESS LIABILITIES: 0.5% 8,704
----------
TOTAL NET ASSETS: 100% $1,622,939
================================================================================
</TABLE>
Notes to Statement of Investments
(a) At December 31, 1997, for federal income tax purposes cost of investments
was $1,325,856,000 and net unrealized appreciation was $288,379,000 consisting
of gross unrealized appreciation of $448,505,000 and gross unrealized
depreciation of $160,126,000.
(b) Non-income producing security.
(c) On December 31, 1997, the Fund held the following percentages of the
outstanding voting shares of the affiliated companies (ownership of at least 5%)
listed below:
<TABLE>
<S> <C> <C> <C>
Prodega (Switzerland)....................................... 10.00% Talentum (Finland)............................... 6.89%
Kompan International (Denmark).............................. 9.36% Bracknell (Canada)............................... 6.47%
Best Company Series D (Poland).............................. 9.09% Kempen (Netherlands)............................. 5.80%
Sentra (Finland)............................................ 8.80% TT Tieto (Finland)............................... 5.69%
</TABLE>
The aggregate cost and value of investments in these companies at December 31,
1997, was $43,776,000 and $106,732,000 respectively. The market value of these
securities represents 6.58% of the total net assets at December 31, 1997. During
the year ended December 31, 1997, the cost of purchases and proceeds from sales
in affiliated companies were $16,710,000 and $3,130,000, respectively. Net
dividends received from these companies amounted to $1,243,000 and net realized
gain on sale of investments in such companies amounted to $1,999,000.
See accompanying notes to financial statements 30
<PAGE>
ACORN INTERNATIONAL
PORTFOLIO DIVERSIFICATION
At December 31, 1997, Acorn International's portfolio of investments as a
percent of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value (000) Percent
- -----------------------------------------------------------------
<S> <C> <C>
INFORMATION
Computer Services $156,396 9.6%
Publishing 43,539 2.7
CATV 29,930 1.9
Contract Manufacturing 28,393 1.7
Broadcasting 18,867 1.2
Advertising 16,876 1.0
Instrumentation 16,029 1.0
Radio 8,636 0.5
Mobile Communications 8,401 0.5
Business Information 8,057 0.5
Semiconductors 6,630 0.4
Electronics Distribution 6,210 0.4
Computer Hardware 5,971 0.4
Television Programming 5,831 0.4
Business Software 3,038 0.2
- -----------------------------------------------------------------
362,804 22.4
HEALTH CARE
Pharmaceuticals 30,440 1.9
Hospital Management 29,753 1.8
Hospital/Laboratory Supplies 15,880 1.0
Services 14,179 0.9
Biotechnology/Drug Delivery 2,094 0.1
Medical Equipment 2,044 0.1
- -----------------------------------------------------------------
94,390 5.8
CONSUMER GOODS/SERVICES
Nondurables 46,474 2.9
Retail 46,248 2.8
Food 27,991 1.7
Restaurants 24,710 1.5
Consumer Goods Distribution 23,825 1.5
Travel 22,317 1.4
Beverages 18,179 1.1
Consumer Software 16,328 1.0
Gaming 8,540 0.5
Leisure Products 7,465 0.5
Furniture & Textiles 5,053 0.3
Other Consumer Services 28,044 1.7
Other Durable Goods 27,375 1.7
Other Entertainment 25,593 1.6
- -----------------------------------------------------------------
328,142 20.2
FINANCE
Money Management $ 60,552 3.7%
Finance Companies 41,029 2.5
Insurance 32,374 2.0
Banks 31,868 2.0
Brokerage 21,931 1.4
Credit Cards 8,009 0.5
Closed-End Funds 5,957 0.4
Savings & Loans 4,084 0.2
- -----------------------------------------------------------------
205,804 12.7
INDUSTRIAL GOODS/SERVICES
Outsourcing Services 79,404 4.9
Machinery Processing 58,687 3.6
Electrical Components 54,370 3.4
Industrial Services 22,654 1.4
Steel 19,958 1.2
Conglomerates 8,304 0.5
Construction 7,651 0.5
Industrial Materials 5,017 0.3
Speciality Chemicals 4,470 0.3
- -----------------------------------------------------------------
260,515 16.1
ENERGY/MINERALS
Oil Services 51,473 3.2
Oil/Gas Producers 31,213 1.9
Independent Power 9,465 0.6
Non-Ferrous Metals 5,865 0.3
- -----------------------------------------------------------------
98,016 6.0
OTHER INDUSTRIES
Transportation 31,452 1.9
Real Estate 29,450 1.8
Waste Management 7,964 0.5
Regulated Utilities 7,915 0.5
- -----------------------------------------------------------------
76,781 4.7
TOTAL COMMON STOCKS AND
______________________
OTHER EQUITY-LIKE SECURITIES 1,426,452 87.9
SHORT-TERM OBLIGATIONS 187,783 11.6
----------------------
TOTAL INVESTMENTS 1,614,235 99.5
CASH AND OTHER ASSETS LESS
LIABILITIES 8,704 0.5
----------------------
NET ASSETS $1,622,939 100.0%
=================================================================
</TABLE>
See accompanying notes to financial statements 31
<PAGE>
ACORN FAMILY OF FUNDS
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of Acorn Investment Trust
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments of Acorn Fund, Acorn International and Acorn USA as
of December 31, 1997, the related statements of operations, changes in net
assets, and the financial highlights for the periods indicated thereon. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Acorn Fund, Acorn International and Acorn USA, as of December 31, 1997, the
results of their operations, changes in their net assets, and the financial
highlights for the periods indicated thereon, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 4, 1998
32
<PAGE>
ACORN FAMILY OF FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
ACORN
(in thousands) ACORN FUND INTERNATIONAL ACORN USA
- ----------------------------------------------------------------------------------------------------------------------
12/31/97
<S> <C> <C> <C>
ASSETS
Investments, at value (cost: Acorn Fund $2,181,507;
Acorn International $1,306,891; Acorn USA $156,426) $3,670,886 $1,614,235 $187,792
Cash 184 428 --
Net unrealized appreciation on foreign forward currency contracts -- 6,117 --
Organization costs -- -- 79
Receivable for:
Securities sold 16,427 8,975 32
Fund shares sold 5,480 727 450
Dividends and interest 1,202 3,468 26
Other assets 36 22 1
- ----------------------------------------------------------------------------------------------------------------------
Total assets 3,694,215 1,633,972 188,380
LIABILITIES AND NET ASSETS
Payable for:
Securities purchased 3,720 4,000 3,537
Fund shares redeemed 8,226 5,836 35
Organization costs -- -- 79
Other 812 1,197 105
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 12,758 11,033 3,756
Net assets applicable to Fund shares outstanding $3,681,457 $1,622,939 $184,624
======================================================================================================================
Fund shares outstanding 216,645 88,273 12,212
======================================================================================================================
PRICING OF SHARES
Net asset value, offering price and redemption price per share $16.99 $18.39 $15.12
======================================================================================================================
ANALYSIS OF NET ASSETS
Paid-in capital $2,146,869 $1,306,205 $151,677
Accumulated net realized gain on sales of investments, futures
and foreign currency transactions 47,522 15,568 1,581
Net unrealized appreciation of investments and other assets (net of unrealized
PFIC gains of $2,804 for Acorn Fund and $16,193 for Acorn International) 1,486,568 297,180 31,366
Undistributed net investment income 498 3,986 --
- ----------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $3,681,457 $1,622,939 $184,624
======================================================================================================================
</TABLE>
See accompanying notes to financial statements 33
<PAGE>
ACORN FAMILY OF FUNDS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ACORN
ACORN FUND INTERNATIONAL ACORN USA
Year Year Year Year Year Inception9/4
(in thousands) Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31 Ended 12/31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 28,012 $ 23,043 $ 27,667 $ 24,877 $ 568 $ 35
Interest 15,566 7,662 8,098 4,023 470 48
- ------------------------------------------------------------------------------------------------------------------------------------
43,578 30,705 35,765 28,900 1,038 83
Foreign taxes withheld (797) (845) (2,912) (2,681) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment income 42,781 29,860 32,853 26,219 1,038 83
EXPENSES:
Investment advisory 14,349 12,437 16,235 13,255 1,199 101
Custodian 1,034 1,079 2,489 2,235 24 6
Transfer and dividend disbursing agent 1,328 1,030 1,882 1,558 164 27
Reports to shareholders 564 466 841 706 85 7
Legal and audit 287 152 221 142 29 27
Registration and blue sky 273 174 73 108 72 14
Trustees' and other 441 216 364 209 56 8
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses 18,276 15,554 22,105 18,213 1,629 190
Less custodian fees paid indirectly -- -- -- -- (2) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 18,276 15,554 22,105 18,213 1,627 184
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 24,505 14,306 10,748 8,006 (589) (101)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on sales of investments 361,502 298,665 76,648 48,566 5,521 120
Net realized gain on foreign currency transactions -- 22,816 1,291 -- --
Net realized loss on futures (16,098) (22,053) -- -- -- --
Change in net unrealized appreciation of
investments and foreign currency transactions 356,307 250,750 (99,759) 221,576 27,198 4,168
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments,
futures and foreign currency transactions 701,711 527,362 (295) 221,433 32,719 4,288
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $726,216 $541,668 $ 10,453 $279,439 $32,130 $ 4,187
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements 34
<PAGE>
ACORN FAMILY OF FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
ACORN
ACORN FUND INTERNATIONAL ACORN USA
Year Year Year Year Year Inception 9/4
(in thousands) ended 12/31, ended 12/31, ended 12/31, ended 12/31, ended 12/31, through 12/31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS:
Net investment income (loss) $ 24,505 $ 14,306 $ 10,748 $ 8,006 $ (589) $ (101)
Net realized gain on sales of investments,
futures and foreign currency transactions 345,404 276,612 99,464 49,857 5,521 120
Change in net unrealized appreciation of
investments and foreign currency transactions 356,307 250,750 (99,759) 221,576 27,198 4,168
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 726,216 541,668 10,453 279,439 32,130 4,187
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (a) (31,681) (19,687) (33,072) (10,368) -- --
Net realized gain (320,289) (261,454) (77,970) (24,680) (3,351) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (351,970) (281,141) (111,042) (35,048) (3,351) --
FROM FUND SHARE TRANSACTIONS:
Reinvestment of dividends and capital
gain distributions 320,054 257,125 104,129 33,033 3,178 --
Proceeds from other shares sold 711,329 358,315 468,766 386,765 133,753 49,912
- ------------------------------------------------------------------------------------------------------------------------------------
1,031,383 615,440 572,895 419,798 136,931 49,912
Payments for shares redeemed (566,224) (432,510) (621,910) (167,890) (34,171) (1,014)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 465,159 182,930 (49,015) 251,908 102,760 48,898
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 839,405 443,457 (149,604) 496,299 131,539 53,085
NET ASSETS:
Beginning of period 2,842,052 2,398,595 1,772,543 1,276,244 53,085 --
End of period (b) $3,681,457 $2,842,052 $1,622,939 $1,772,543 $184,624 $53,085
====================================================================================================================================
</TABLE>
(a) Includes distributions relating to PFIC gains of $7,674 in 1997 and $2,671
in 1996 for Acorn Fund and $24,166 in 1997 and $3,813 in 1996 for Acorn
International.
(b) Includes undistributed net investment income of $498 in 1997 and $2,578 in
1996 for Acorn Fund and $3,986 in 1997 and $2,144 in 1996 for Acorn
International.
See accompanying notes to financial statements 35
<PAGE>
Acorn Family of Funds
Financial Highlights
<TABLE>
<CAPTION>
Years
Acorn Fund ended 12/31
- -------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year 1997 1996
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.04 $13.60
INCOME FROM INVESTMENT OPERATIONS
Net investment income .15 .09
Net realized and unrealized gain (loss) on investments, foreign currency and futures 3.57 2.93
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.72 3.02
LESS DISTRIBUTIONS
Dividends from net investment income (0.16) (.11)
Distributions from net realized and unrealized gains reportable
for federal income taxes (1.61) (1.47)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (1.58)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $16.99 $15.04
===============================================================================================================================
TOTAL RETURN 25.0% 22.6%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .56% .57%
Ratio of net investment income to average net assets .75% .53%
Portfolio turnover rate 32% 33%
Net assets at end of period (in millions) $3,681 $2,842
<CAPTION>
Years
Acorn International ended 12/31,
- -------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1997 1996
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $19.61 $16.59
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .40 .13
Net realized and unrealized gain (loss) on investments (.34) 3.29
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations .06 3.42
Less Distributions
Dividends from net investment income (.38) (.12)
Distributions from net realized and unrealized gains reportable
for federal income taxes (.90) (.28)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.28) (.40)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.39 $19.61
===============================================================================================================================
TOTAL RETURN 0.2% 20.7%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets 1.19% 1.17%
Ratio of net investment income (loss) to average net assets .58% .51%
Portfolio turnover rate 39% 34%
Net assets at end of period (in millions) $1,623 $1,773
<CAPTION>
Years Inception 9/4
Acorn USA ended 12/31, through 12/31,
- -------------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1997 1996
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.65 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss (e) (.07) (.02)
Net realized and unrealized gain on investments 3.83 1.67
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.76 1.65
Less Distributions
Dividends from net investment income -- --
Distributions from net realized and unrealized gains reportable
for federal income taxes (.29) --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.29) --
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $15.12 $11.65
===============================================================================================================================
Total Return 32.3% 16.5%
Ratios/Supplemental Data
Ratio of expenses to average net assets (d) 1.35% 1.85%*
Ratio of net investment loss to average net assets (.49%) (.99%)*
Portfolio turnover rate 33% 20% *
Net assets at end of period (in millions) $ 185 $ 53
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988*
<S> <C> <C> <C> <C> <C> <C> <C>
$12.24 $13.95 $11.06 $9.32 $6.51 $8.58 $7.27 $6.48
.11 .06 .04 .07 .11 .12 .13 .12
2.42 (1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47
------------------------------------------------------------------------------
2.53 (1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59
(.09) (.11) (.06) (.08) (.10) (.13) (.11) (.16)
(1.08) (.56) (.59) (.41) (.15) (.44) (.36) (.64)
------------------------------------------------------------------------------
(1.17) (.67) (.65) (.49) (.25) (.57) (.47) (.80)
------------------------------------------------------------------------------
$13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $ 7.27
------------------------------------------------------------------------------
20.8% (7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8% 24.8%
.57% .62% .65% .67% .72% .82% .73% .80%
.89% .55% .30% .72% 1.30% 1.60% 1.59% 1.52%
29% 18% 20% 25% 25% 36% 26% 36%
$2,399 $1,983 $2,035 $1,449 $1,150 $ 767 $ 855 $ 563
</TABLE>
<TABLE>
<CAPTION>
Inception 9/23
through 12/31
---------------------------------------
1995 1994 1993 1992
<S> <C> <C> <C>
$ 15.24 $ 15.94 $ 10.69 $ 10.00
.16 .07 -- (.03)
1.20 (.67) 5.25 .72
---------------------------------------
1.36 (.60) 5.25 .69
-- -- -- --
(.01) (.10) -- --
---------------------------------------
(.01) (.10) -- --
---------------------------------------
$ 16.59 $ 15.24 $ 15.94 $ 10.69
---------------------------------------
8.9% (3.8%) 49.1% 6.9%
1.22% 1.24% 1.21% 2.35%*
.90% .48% .06% (1.37%)*
26% 20% 19% 20%*
$ 1,276 $ 1,363 $ 907 $ 30
</TABLE>
________________________________________________________________________________
(a) Average commission rate paid per share on Acorn Fund stock transactions for
the years ended December 31, 1997 and December 31, 1996 was $.0128 and $.0194,
respectively.
(b) Average commission rate paid per share on Acorn International stock
transactions for the years ended December 31, 1997 and December 31, 1996 was
$.0085 and $.0008, respectively.
(c) Average commission rate paid per share on Acorn USA stock transactions for
the year ended December 31, 1997 and for the period ended December 31, 1996 was
$.0586 and $.0567, respectively.
(d) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn USA ratio reflects gross custodian fees. This ratio net of custodian
fees paid indirectly would have been 1.79% for the period ended December 31,
1996.
(e) Net investment loss per share was based upon the average shares outstanding
during each period.
* Annualized
See accompanying notes to financial statements 37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Nature of Operations
Acorn Fund, Acorn International and Acorn USA (the "Funds") are series of Acorn
Investment Trust (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust. The investment objective of each
Fund is to seek long-term growth of capital.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not available and any other assets are
valued at a fair value as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Funds. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and long term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
Financial instruments
Each Fund may purchase or sell exchange-traded financial futures contracts,
which are contracts that obligate that Fund to make or take delivery of a
financial instrument or the cash value of a securities index at a specified
future date at a specified price. The Funds enter into such contracts to hedge a
portion of their portfolio. Gains and losses are reflected as "Net Realized Gain
(Loss) on Futures" in the Statements of Operations. Additionally, each Fund may
engage in portfolio hedging with respect to changes in currency exchange rates
by entering into forward foreign currency contracts to purchase or sell foreign
currencies. The Statements of Operations reflect gains and losses as realized
for closed forward foreign currency contracts and unrealized for open contracts.
A Fund bears the market risk that arises from changes in the value of financial
instruments and securities indices (futures contracts) or from changes in
foreign currency rates (forward foreign currency contracts) and the credit risk
should a counterparty fail to perform under such contracts.
There were no futures contracts or forward foreign currency contracts open at
December 31, 1997 in Acorn Fund. There were no futures contracts open at
December 31, 1997 in Acorn International. Acorn International entered into
forward contracts to sell foreign currency, settling March 19 through March 27,
1998, as described below:
<TABLE>
<CAPTION>
U.S.Dollar Unrealized
Foreign Amount Currency Proceeds (000) Gain(Loss)(000)
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
84,000,000 Swiss Franc $59,093 $ 924
95,000,000 German Mark $54,111 $1,012
200,000,000 French Franc $33,916 $ 505
380,000,000 Hong Kong Dollar $48,597 ($172)
82,405,280,000 Italian Lira $47,482 $ 889
6,785,000,000 Japanese Yen $54,107 $1,248
532,000,000 Swedish Krone $68,921 $1,711
------
$6,117
</TABLE>
Acorn USA did not enter into any futures or forward foreign currency contracts
during the year ended December 31, 1997.
38
<PAGE>
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of each Fund's investments and other assets, less liabilities, by
the respective number of Fund shares outstanding.
Federal income taxes, dividends and distributions to shareholders
Each Fund has complied with the special provisions of the Internal Revenue Code
available to investment companies. Dividends payable to shareholders are
recorded by the Funds on the ex-dividend date.
Acorn Fund and Acorn International have elected to mark-to-market their
investments in Passive Foreign Investment Companies ("PFICs") for federal income
tax purposes. In accordance with this election, Acorn Fund recognized unrealized
appreciation on PFICs of $2,483,000 in 1997. Cumulative net unrealized
appreciation recognized in prior years on PFICs sold amounted to $7,736,000.
Distributions to shareholders from net investment income relating to PFICs were
$7,674,000.
In accordance with its PFIC election, for the year ended December 31, 1997,
Acorn International recognized unrealized appreciation on PFICs of $15,105,000.
The cumulative net unrealized appreciation recognized in prior years on PFICs
sold in 1997 amounted to $9,539,000. Distributions to shareholders from net
investment income relating to PFICs were $24,166,000.
Distributions relating to PFICs are treated as ordinary income for federal
income tax purposes.
Reclassifications have been made between undistributed net investment
income and accumulated net realized gain on sales of investments, futures, and
foreign currency transactions to reflect differences between financial reporting
and income tax bases. Undistributed net investment income has been increased as
follows: Acorn Fund, $2,613,000, Acorn International, $9,061,000, and Acorn USA,
$589,000.
3. Transactions with Affiliates
The Funds' investment advisor, Wanger Asset Management, L.P. ("WAM") furnishes
continuing investment supervision to the Funds and is responsible for the
overall management of the Funds' business affairs.
Under the Funds' investment management agreements which were in effect for
1997 and 1996, each fund paid WAM an annual management fee, payable monthly, at
the rates set forth below. The fees for Acorn Fund and Acorn International were
determined at the beginning of each calendar quarter and the fees for Acorn USA
were determined and accrued daily:
<TABLE>
<CAPTION>
ACORN FUND
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $100 million .75%
Next $1.4 billion .50%
Net assets in excess of $1.5 billion .40%
</TABLE>
<TABLE>
<CAPTION>
ACORN INTERNATIONAL
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $100 million 1.25%
Next $400 million 1.00%
Net assets in excess of $500 million .80%
</TABLE>
<TABLE>
<CAPTION>
ACORN USA
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $200 million 1.00%
Net assets in excess of $200 million .95%
</TABLE>
At a special meeting held on December 9, 1997, shareholders voted to
approve a proposal that replaced each Fund's investment management agreement
with a new investment management agreement and a separate administrative
services agreement. The new agreements are effective beginning January 1, 1998.
Under the new administrative services agreement, WAM provides administrative
services to each Fund at an annual rate of .05% of average daily net assets.
Under the new investment management agreement, fees will be accrued daily and
paid monthly to WAM at the annual rates shown in the table below for each Fund.
<TABLE>
<CAPTION>
ACORN FUND
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $700 million .75%
Next $1.3 billion .70%
Net assets in excess of $2 billion .65%
</TABLE>
<TABLE>
<CAPTION>
ACORN INTERNATIONAL
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $100 million 1.20%
Next $400 million .95%
Net assets in excess of $500 million .75%
</TABLE>
39
<PAGE>
ACORN FAMILY OF FUNDS
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
ACORN USA
- ------------------------------------------------------
<S> <C>
Net asset value:
For the first $200 million .95%
Net assets in excess of $200 million .90%
</TABLE>
Certain officers and trustees of the Trust are also principals of WAM. The
Trust makes no direct payments to its officers and trustees who are affiliated
with WAM. Acorn Fund paid trustees' fees and expenses of $196,000 in 1997 and
$115,700 in 1996; Acorn International paid $118,700 in 1997 and $99,700 in 1996
and Acorn USA paid $6,900 in 1997 and $600 in 1996 to trustees not affiliated
with WAM.
WAM advanced Acorn USA $107,000 in connection with the organization and
initial registration of the Fund. These costs are being amortized and reimbursed
to WAM over the period September, 1996 through August, 2001.
WAM Brokerage Services, L.L.C., a wholly-owned subsidiary of WAM, is the
distributor of the Funds' shares and receives no compensation for its services.
4. Subsequent Event
The Trust participates in a $250,000,000 credit facility entered into on January
30, 1998 to facilitate portfolio liquidity. No amounts have been borrowed under
the facility.
5. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the Statements of Changes in
Net Assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
ACORN FUND
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Shares sold 42,779 23,744
Shares issued in reinvestment of
dividend and capital gain distributions 19,004 17,382
----------------
61,783 41,126
Less shares redeemed 34,056 28,523
----------------
Net increase in shares outstanding 27,727 12,603
=======================================================================
<CAPTION>
ACORN INTERNATIONAL
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Shares sold 23,235 20,757
Shares issued in reinvestment of
dividend and capital gain distributions 5,501 1,708
------ ------
28,736 22,465
Less shares redeemed 30,846 8,994
Net increase (decrease)
------ ------
in shares outstanding (2,110) 13,471
=======================================================================
<CAPTION>
ACORN USA
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Shares sold 9,880 4,647
Shares issued in reinvestment of
dividend and capital gain distributions 212 --
------ ------
10,092 4,647
Less shares redeemed 2,436 91
------ ------
Net increase in shares outstanding 7,656 4,556
=======================================================================
</TABLE>
6. Investment Transactions
<TABLE>
<CAPTION>
ACORN FUND
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Investment securities (excluding
money market instruments):
Purchases $ 928,010 $862,321
Proceeds from sales 1,084,981 924,259
<CAPTION>
ACORN INTERNATIONAL
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Investment securities (excluding
money market instruments):
Purchases $ 656,789 $612,766
Proceeds from sales 824,939 498,234
<CAPTION>
ACORN USA
- -----------------------------------------------------------------------
(in thousands) 1997 1996
<S> <C> <C>
Investment securities (excluding
money market instruments):
Purchases $ 126,503 $ 45,708
Proceeds from sales 36,965 1,733
=======================================================================
</TABLE>
40
<PAGE>
TRUSTEES
Irving B. Harris
Chairman
James H. Lorie
Vice Chairman
Leo A. Guthart
Jerome Kahn, Jr.
David C. Kleinman
Charles P. McQuaid
Roger S. Meier
Adolph Meyer, Jr.
Ralph Wanger
OFFCERS
Ralph Wanger
President
Charles P. McQuaid
Senior Vice President
Leah J. Zell
Vice President
Robert A. Mohn
Vice President
Marcel P. Houtzager
Vice President
Merrillyn J. Kosier
Senior Vice President and Secretary
Bruce H. Lauer
Vice President and Treasurer
Kenneth A. Kalina
Assistant Treasurer
INVESTMENT ADVISOR
Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
e-mail: [email protected]
web site: www.wanger.com
DISTRIBUTOR
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, Massachusetts 02266-8502
TRANSFER AGENT, DIVIDEND DISBURSING AGENT
and Custodian
State Street Bank and Trust Company
Attention: Acorn Family of Funds
P.O. Box 8502
Boston, Massachusetts 02266-8502
LEGAL COUNSEL
Bell, Boyd & Lloyd
Chicago, Illinois
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, Illinois
This report, including the audited schedules of investments and financial
statements, is submitted for the general information of the shareholders of
Acorn Investment Trust. This report is not authorized for distribution unless
preceded or accompanied by a prospectus.
41
<PAGE>
[PHOTO APPEARS HERE]
FIRST CLASS
PRE-SORT
U.S. POSTAGE
PAID
CHICAGO,IL
PERMIT NO. 1200
THE ACORN
FAMILY OF FUNDS
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502
