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