<PAGE>
Securities Act registration no 2-34223
Investment Company Act file no. 811-1829
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
______________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 64
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 39
______________________________
ACORN INVESTMENT TRUST
(Registrant)
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone number: 312/634-9200
______________________________
Ralph Wanger Janet D. Olsen
Acorn Investment Trust Bell, Boyd & Lloyd
227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
_____________________________
Amending Parts A, B, and C, and filing exhibits
______________________________
It is proposed that this filing will become effective:
[_] immediately upon filing pursuant to rule 485(b)
[_] on pursuant to rule 485(b)
[_] 60 days after filing pursuant to rule 485(a)(1)
[X] on May 1, 1999 pursuant to rule 485(a)(1)
[_] 75 days after filing pursuant to rule 485(a)(2)
[_] on ___________ pursuant to rule 485(a)(2).
<PAGE>
The Acorn Family of Funds
Acorn Fund
Acorn International
Acorn USA
Acorn Twenty
Acorn Foreign Forty
100% No-Load Funds
PROSPECTUS
May 1, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
Acorn Family of Funds
---------------
227 West Monroe Street Suite 3000 Chicago, Illinois 60606
1-800-9-ACORN-9 (1-800-922-6769)
- --------------------------------
<PAGE>
ACORN FUND
CONTENTS
At a Glance (FUND OBJECTIVE, RISKS, FEES AND EXPENSES).......... 3
Acorn Fund................................................. 3
Acorn International........................................ 6
Acorn USA.................................................. 10
Acorn Twenty............................................... 14
Acorn Foreign Forty........................................ 17
Management of the Funds......................................... 20
How the Funds Invest............................................ 22
The Acorn Philosophy....................................... 22
Fund Investments........................................... 23
Managing Risk.............................................. 25
Investing with Acorn....................................... 26
Year 2000.................................................. 26
How to Buy Shares.......................................... 28
How to Sell Shares......................................... 31
Shareholder and Account Policies................................ 32
Statements and Reports..................................... 32
Share Price................................................ 33
Address Changes............................................ 33
Telephone Transactions..................................... 34
Telephone Exchange and Money Market Funds.................. 34
Exchange Plan Restrictions................................. 35
Authorized Agents.......................................... 35
Dividends, Capital Gains and Taxes.............................. 36
Distribution Options....................................... 36
Taxes...................................................... 36
Foreign Income Taxes....................................... 37
Fund Service Providers.......................................... 37
Transfer Agent and Custodian............................... 37
Distributor................................................ 37
Financial Highlights............................................ 38
2
<PAGE>
ACORN FUND
AT A GLANCE
FUND OBJECTIVE
Acorn Fund seeks to provide long-term growth of capital. The Fund is a
diversified mutual fund that invests primarily in the stocks of small- and
medium-size companies.
INVESTMENT STRATEGY
Acorn Fund generally invests in the stocks of companies around the globe with
capitalizations of less than $1 billion with the intention of holding them as
they grow and selling them when they become large. The Fund believes that these
smaller, less profiled companies may offer higher return potential than the
stocks of large companies.
Acorn Fund typically looks for the stocks of companies with:
. Companies with a strong business franchise that offer growth potential.
. Products and services that give them a competitive advantage.
. A strong balance sheet and solid management.
. A reasonable stock price relative to the assets and earning power of the
Company.
Acorn Fund is a global fund. It invests the majority of its assets in U.S.
companies, but also invests a portion of its holdings in companies outside of
the U.S.
*RISKS OF INVESTING IN ACORN FUND
Smaller company stocks are often more volatile or less liquid than the stocks of
larger companies.
You could lose money on your investment in the Fund, or the Fund could
underperform other investments if any of the following occurs:
. The stock market goes down.
. Small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability
. Higher transaction costs
. Currency exchange rate fluctuations
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing equity holdings with a global
growth fund.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long-term (at least 5 years.)
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Have short-term investment goals or needs.
3
<PAGE>
ACORN FUND
ACORN FUND PERFORMANCE
The chart and table below illustrate annual Fund returns on a $10,000 investment
for each of the past 10 years as well as a comparison of returns of Acorn Fund,
the S&P 500 and the Russell 2000 for the 1-, 5- and 10-year periods ended
12/31/1998.
This information is intended to help you assess the variability of Fund
returns over the past 10 years (and consequently the potential rewards and risks
of a Fund investment).
Acorn Fund's holdings are not identical to the S&P 500, the Russell 2000 or
any other market index. Therefore, the performance of the Fund will not mirror
the returns of any particular index.
[Insert Bar chart]
<TABLE>
<S> <C>
12/31/89 24.84%
12/31/90 -17.52%
12/31/91 47.35%
12/31/92 24.23%
12/31/93 32.32%
12/31/94 -7.45%
12/31/95 20.80%
12/31/96 22.55%
12/31/97 24.98%
12/31/98 6.02%
</TABLE>
For the 10 years ended 12/31/1998, Acorn Fund's highest and lowest quarterly
returns were 19.3% and -23.8%, respectively, for the quarters ended 3/31/91 and
9/30/90. The Fund's past performance is not an indication of future performance.
<TABLE>
<CAPTION>
Average Annual Total Returns for
Periods Ended 12/31/1998
- -----------------------------------------------
1 Year 5 Years 10 Years
- -----------------------------------------------
<S> <C> <C> <C>
Acorn Fund 6.0 12.7 16.3
- -----------------------------------------------
S&P 500* 28.6 24.1 19.2
- -----------------------------------------------
Russell 2000* -2.6 11.9 12.9
- -----------------------------------------------
</TABLE>
*The S&P 500 Index is a broad market-weighted average of U.S. blue-chip
companies. The Russell 2000 Index is a market capitalization-weighted index of
small companies, formed by taking the largest 3,000 companies and eliminating
the largest 1,000 companies.
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment:
As noted in this table, you do not pay fees of any kind when you buy, sell, or
redeem shares of Acorn Fund.
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Deducted from fund assets:
Operating expenses include investment advisory fees and the costs of maintaining
accounts, providing shareholder services and other activities.
Management Fee .69%
12b-1 Fee None
Other Expenses .15%
-----
Total annual fund operating
expenses .84%
EXAMPLE. This example is intended to help you compare the cost of investing in
the Fund with the costs of investing in other mutual funds. It assumes you
invest $10,000 in the Fund for the time period indicated ending on December 31,
1998, earn a 5% return each year, and that operating expenses remain constant.
Your actual returns and costs may be higher or lower.
1 Year $ 86
3 Years $ 268
5 Years $ 466
10 Years $1,037
4
<PAGE>
ACORN FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER: Wanger Asset Management
PORTFOLIO MANAGERS: Ralph Wanger (lead portfolio manager) and Charles McQuaid
(co-portfolio manager)
INCEPTION DATE: June 10, 1970
NET ASSETS AS OF 3/31/99: $#,###,###
DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December.
PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99:
LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None
MINIMUM INITIAL INVESTMENT: $1,000
ACORN FUND NUMBER: 90
CUSIP NUMBER: 004851101
TICKER SYMBOL: ACRNX
- --------------------------------------------------------------------------------
5
<PAGE>
ACORN INTERNATIONAL
AT A GLANCE
FUND OBJECTIVE
Acorn International seeks to provide long-term growth of capital. The Fund is a
diversified mutual fund that invests primarily in stocks of non-U.S. small- and
medium-size companies.
INVESTMENT STRATEGY
Acorn International generally invests in the stocks of companies based outside
of the U.S. (or whose primary business takes place outside of the U.S.) with
capitalizations of less than $1 billion with the intention of holding them as
they grow and selling them when they become large.
The Fund believes that these smaller, less profiled companies - particularly
outside of the U.S. - may offer higher return potential than the stocks of large
companies.
Acorn International typically looks for the stocks of companies with:
. Companies with a strong business franchise that offer growth potential.
. Products and services that give them a competitive advantage.
. A strong balance sheet and solid management.
. A reasonable stock price relative to the assets and earning power of the
Company.
Acorn International is an international fund and invests the majority (under
normal market conditions, at least 75%) of its total assets in the stocks of
foreign companies based outside the U.S.
* RISKS OF INVESTING IN ACORN INTERNATIONAL
Smaller company stocks are often more volatile or less liquid than the stocks of
larger companies. You could lose money on your investment in the Fund, or the
Fund could underperform other investments if any of the following occurs:
. International stock markets go down.
. Foreign small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability
. Higher transaction costs
. Currency exchange rate fluctuations
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to diversify your existing equity holdings with a fund that
invests in the stocks of companies outside the U.S.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long-term (at least 5 years.)
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Have short-term investment goals or needs.
6
<PAGE>
ACORN INTERNATIONAL
ACORN INTERNATIONAL PERFORMANCE
The chart and table below illustrate annual fund returns on a $10,000 investment
for the past 6 years as well as a comparison of returns of Acorn International,
EAFE and EMI for the periods listed.
This information is intended to help you assess the variability of Fund
returns for the life of the Fund (and consequently the potential rewards and
risks of a Fund investment).
Acorn International's holdings are not identical to the EAFE, the EMI or any
other market index. Therefore, the performance of the Fund will not mirror the
returns of any particular index.
<TABLE>
<CAPTION>
<S> <C>
DATE RETURN
- -------- -------
12/31/93 49.11%
12/31/94 -3.80%
12/31/95 8.93%
12/31/96 20.65%
12/31/97 0.19%
12/31/98 15.43%
</TABLE>
As of 12/31/1998, the Fund's highest and lowest quarterly returns were 18.2% and
- - 16.1%, respectively, for the quarters ended 3/31/98 and 9/30/98. The Fund's
past performance is not an indication of future performance.
<TABLE>
<CAPTION>
Average Annual Total Returns for
Periods Ended 12/31/1998
- -----------------------------------------------------
1 Year 5 Years Since
Inception*
- -----------------------------------------------------
<S> <C> <C> <C>
Acorn Int'l 15.4 7.9 14.5
- -----------------------------------------------------
EAFE+ 20.0 9.2 11.5
- -----------------------------------------------------
EMI (World ex-U.S.)+ 12.2 4.5 7.4
- -----------------------------------------------------
</TABLE>
*Acorn International's inception 9/23/1992. Beginning date for EAFE is
9/30/1992.
+Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an unmanaged
index of companies throughout the world in proportion to world stock market
capitalizations, excluding the U.S. and Canada. EMI (World ex-U.S.) is Salomon
Brothers' index of the bottom 20% of institutionally investable capital of
countries, selected by Salomon and excluding the U.S.
7
<PAGE>
ACORN INTERNATIONAL
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment:
As noted in this table, you do not pay fees of any kind when you buy, sell, or
redeem shares of Acorn International.
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Deducted from fund assets:
Operating expenses include investment advisory fees and the costs of maintaining
accounts, providing shareholder services and other activities.
Management fee .82%
12b-1 fee None
Other expenses .30%
-----
Total annual fund operating
expenses 1.12%
EXAMPLE. This example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated ending on December 31,
1998, earn a 5% return each year, and that operating expenses remain constant.
Your actual returns and costs may be higher or lower.
1 Year $ 114
3 Years $ 356
5 Years $ 617
10 Years $1,363
8
<PAGE>
ACORN INTERNATIONAL
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
INVESTMENT ADVISER: Wanger Asset Management
PORTFOLIO MANAGER: Leah Zell (lead portfolio manager), Margaret Forster
(co-portfolio manager)
INCEPTION DATE: September 23, 1992
NET ASSETS AS OF 3/31/99:
DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December.
PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99:
LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None
MINIMUM INITIAL INVESTMENT: $1,000
ACORN FUND NUMBER: 100
CUSIP NUMBER: 004851200
TICKER SYMBOL: ACINX
- --------------------------------------------------------------------------------
9
<PAGE>
ACORN USA
AT A GLANCE
FUND OBJECTIVE
Acorn USA seeks to provide long-term growth of capital. The Fund is a
diversified mutual fund that invests primarily in stocks of small- and medium-
size U.S. companies.
INVESTMENT STRATEGY
Acorn USA generally invests in the stocks of U.S. companies with capitalizations
of less than $1 billions with the intention of holding them as they grow and
selling them when they become large.
The Fund believes that these smaller, less profiled companies may offer
higher return potential than the stocks of large companies.
Acorn USA typically looks for the stocks of companies with:
. Companies with a strong business franchise that offer growth potential.
. Products and services that give them a competitive advantage.
. A strong balance sheet and solid management.
. A reasonable stock price relative to the assets and earning power of the
company.
* RISKS OF INVESTING IN ACORN USA
Smaller company stocks are often more volatile or less liquid than the
stocks of larger companies.
You could lose money on your investment in the Fund, or the Fund could
underperform other investments if any of the following occurs:
. The stock market goes down.
. Small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing domestic equity holdings with an
aggressive growth fund.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long-term (at least 5 years.)
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Have short-term investment goals or needs.
10
<PAGE>
ACORN USA
ACORN USA PERFORMANCE
The chart and table below illustrate annual fund returns on a $10,000 investment
for the past two years as well as a comparison of returns of Acorn USA and the
Russell 2000 for the periods listed.
This information is intended to help you assess the variability of Fund returns
over the life of the Fund (and consequently the potential rewards and risks of a
Fund investment.)
Acorn USA's holdings are not identical to the Russell 2000 or any other
market index. Therefore, the performance of the Fund will not mirror the returns
of any particular index.
<TABLE>
<CAPTION>
Date Return
- -------------------------------
<S> <C>
12/31/97 32.30%
12/31/98 5.79%
</TABLE>
As of 12/31/1998, the Fund's highest and lowest quarterly returns were 16.0% and
- -19.25%, respectively, for the quarters ending 6/30/97 and 9/30/98. The Fund's
past performance is not an indication of future performance.
Average Annual Total Returns for
Periods Ended 12/31/1998
<TABLE>
<CAPTION>
- ----------------------------------------------
1 Year Since
Inception*
- ----------------------------------------------
<S> <C> <C>
Acorn USA 5.8 23.5
- ----------------------------------------------
Russell 2000+ -2.6 12.0
- ----------------------------------------------
</TABLE>
*Acorn USA's inception on 9/4/1996.
+The Russell 2000 Index is a market capitalization-weighted index of small
companies, formed by taking the largest 3,000 companies and eliminating the
largest 1,000 companies.
11
<PAGE>
ACORN USA
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment:
As noted in this table, you do not pay fees of any kind when you buy, sell, or
redeem shares of Acorn USA.
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Deducted from fund assets:
Operating expenses include investment advisory fees and the costs of maintaining
accounts, providing shareholder services and other activities.
Management fee .94%
12b-1 fee None
Other expenses .26%
--------
Total annual fund operating
expenses 1.20%
--------
EXAMPLE. This example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated ending on December 31,
1998, earn a 5% return each year, and that operating expenses remain constant.
Your actual returns and costs may be higher or lower.
1 Year $ 122
3 Years $ 381
5 Years $ 660
10 Years $1,455
12
<PAGE>
ACORN USA
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
INVESTMENT ADVISER: Wanger Asset Management
PORTFOLIO MANAGER: Robert Mohn
INCEPTION DATE: September 4, 1996
NET ASSETS AS OF 3/31/99:
DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December.
PORTFOLIO'S EXPENSE RATIO FOR PERIOD ENDED 3/31/99:
LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None
MINIMUM INITIAL INVESTMENT: $1,000
ACORN FUND NUMBER: 820
CUSIP NUMBER: 004851309
TICKER SYMBOL: AUSAX
- --------------------------------------------------------------------------------
13
<PAGE>
ACORN TWENTY
AT A GLANCE
FUND OBJECTIVE
Acorn Twenty seeks long-term growth of capital. The Fund invests primarily in
the stocks of medium- to larger-size U.S. companies.
INVESTMENT STRATEGY
Acorn Twenty is a non-diversified fund that takes advantage of its advisor's
research and stock-picking capabilities to invest in a limited number of
companies (between 20-25) with market capitalizations of $1 billion to $10
billion. The performance of each holding may have a greater impact on the Fund's
total return offering the potential to provide above average growth over time.
The Fund believes that companies within this capitalization range are less
profiled, and may offer higher return potential, than the stocks of companies
with capitalizations above $10 billion.
Acorn Twenty typically looks for the stocks of companies with:
. Companies with a strong business franchise that offer growth potential
. Products and services that give them a competitive advantage .
. A strong balance sheet and solid management.
. A reasonable stock price relative to the assets and earning power of the
company.
* RISKS OF INVESTING IN ACORN TWENTY
Acorn Twenty is a non-diversified fund. Therefore, each stock may represent
a significant part of its overall portfolio. Acorn Twenty is designed for
investors who are willing to accept the potentially greater price fluctuations
of a non-diversified fund. You could lose money on your investment in the Fund,
or the Fund could underperform other investments if any of the following occurs:
. The stock market goes down.
. Mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing domestic equity holdings with a
focused stock fund that offers higher return potential.
. Are seeking a stock fund that emphasizes the less profiled stocks of
medium-to-larger sized companies.
. Are seeking growth of your capital over the long-term (at least 5 years.)
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Have short-term investment goals or needs.
14
<PAGE>
ACORN TWENTY
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment: As noted in this table, you do not pay fees
of any kind when you buy, sell, or redeem shares of Acorn Twenty.
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Deducted from fund assets:
Operating expenses include investment advisory fees and the costs of maintaining
accounts, providing shareholder services and other activities.
Management Fee .90%
12b-1 Fee None
Other Expenses .93%
----
Total annual fund operating
expenses (gross)+ 1.83%
- -------------------
+ WAM has undertaken to limit Acorn Twenty's annual expenses to 1.35% of its
average daily net assets. For the period from commencement of operations on
November 23, 1998 through December 31, 1998, the reduction in the Fund's
expenses was represented by an advisory fee reimbursement of .42% of the Fund's
average daily net assets and an earnings credit for cash balances maintained
with the custodian of .06% of the Fund's daily net assets.
EXAMPLE. This example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. It assumes you
invest $10,000 in the Fund for the time period indicated ending on December 31,
1998, earn a 5% return each year, and that operating expenses remain constant.
Your actual returns and costs may be higher or lower.
1 Year $186
3 Years $576
15
<PAGE>
ACORN TWENTY
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
INVESTMENT ADVISER: Wanger Asset Management
PORTFOLIO MANAGERS: John Park, Mark Yost
INCEPTION DATE: November 23, 1998
NET ASSETS AS OF 3/31/99:
DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December.
PORTFOLIO'S EXPENSES RATIO FOR PERIOD ENDED 3/31/99:
LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None
MINIMUM INITIAL INVESTMENT: $1,000
ACORN FUND NUMBER: 149
CUSIP NUMBER: 004851408
TICKER SYMBOL: ACTWX
- --------------------------------------------------------------------------------
16
<PAGE>
ACORN FOREIGN FORTY
AT A GLANCE
FUND OBJECTIVE
Acorn Foreign Forty seeks long-term growth of capital. The Fund invests
primarily in the stocks of medium- to larger-size companies based in developed
markets outside the U.S. The Fund invests in at least three countries.
INVESTMENT STRATEGY
Acorn Foreign Forty is a non-diversified fund that takes advantage of its
advisor's research and stock-picking capabilities to invest in a limited number
of foreign companies (between 40-60) with market of $1 billion to $10 billion.
The performance of each holding may have a greater impact on the Fund's total
return offering the potential to provide above average growth over time.
The Fund believes that companies within this capitalization range are less
profiled, and may offer higher return potential, than the stocks of companies
with capitalizations above $10 billion.
Acorn Foreign Forty typically looks for the stocks of companies with:
. Companies with a strong business franchise that offer growth potential
. Products and services that give them a competitive advantage.
. A strong balance sheet and solid management.
. A reasonable stock price relative to the assets and earning power of the
company.
Acorn Foreign Forty is an international fund and invests the majority of its
assets in the stocks of foreign companies based in developed markets outside the
U.S.
* RISKS OF INVESTING IN ACORN FOREIGN FORTY
Acorn Foreign Forty is a non-diversified fund that ordinarily holds 40 to 60
stocks. The Fund takes larger positions in some of its stocks than others. The
performance of each of these larger holdings will have a greater impact on the
Fund's total returns, and may make the Fund's returns more volatile in the
short-term than a more diversified international fund. You could lose money on
your investment in the Fund, or the Fund could underperform other investments if
any of the following occurs:
. International stock markets go down.
. Foreign small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability.
. Higher transaction costs.
. Currency exchange rate fluctuations.
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing equity holdings with an
international stock fund that offers higher return potential.
. Are seeking a stock fund that emphasizes the less-profiled stocks of
medium-to-larger sized companies.
. Are seeking growth of your capital over the long-term (at least 5 years.)
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Have short-term investment goals or needs.
17
<PAGE>
ACORN FOREIGN FORTY
FEES AND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Paid directly from your investment:
As noted in this table, you do not pay fees of any kind when you buy, sell, or
redeem shares of Acorn Fund.
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Deducted from fund assets:
Operating expenses include investment advisory fees and the costs of maintaining
accounts, providing shareholder services and other activities.
Management fee .95%
12b-1 fee None
Other expenses 1.75%
Total annual fund operating ----
expenses (gross)+ 2.70%
- -------------------
+ WAM has undertaken to limit Acorn Foreign Forty's annual expenses to 1.45% of
its average net assets. For the period from commencement of operations on
November 23, 1998 through December 31, 1998, the reduction in the Fund's
expenses was represented by an advisory fee reimbursement of .97% of the Fund's
average daily net assets and an earnings credit for cash balances maintained
with the custodian of .28% of the Fund's daily net assets.
EXAMPLE. This example is intended to help you compare the cost of investing in
the fund with the costs of investing in other mutual funds. It assumes you
invest $10,000 in the fund for the time period indicated, earn a 5% return each
year, and that operating expenses remain constant. Your actual returns and costs
may be higher or lower.
1 Year $273
3 Years $838
18
<PAGE>
ACORN FOREIGN FORTY
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
INVESTMENT ADVISER: Wanger Asset Management
PORTFOLIO MANAGER: Marcel Houtzager (lead portfolio manager)
INCEPTION DATE: November 23, 1998
NET ASSETS AS OF 3/31/99:
DIVIDENDS AND CAPITAL GAINS: Paid semi-annually, usually in June and December.
PORTFOLIO'S EXPENSES RATIO FOR PERIOD ENDED 3/31/99:
LOADS, 12B-1 MARKETING FEES, TRANSACTION FEES: None
MINIMUM INITIAL INVESTMENT: $1,000
ACORN FUND NUMBER: 163
CUSIP NUMBER: 004851507
TICKER SYMBOL: ACFFX
- --------------------------------------------------------------------------------
19
<PAGE>
MANAGEMENT OF THE FUNDS
The Acorn Family of Funds is managed by WANGER ASSET MANAGEMENT, L.P. (WAM), 227
West Monroe Street, Suite 3000, Chicago, Illinois 60606. WAM chooses the funds'
investments and handles their business affairs under the direction of the board
of trustees. WAM is a limited partnership managed by its general partner, Wanger
Asset Management, Ltd. WAM manages more than $7 billion in assets.
WAM uses a team approach when managing the funds. The management teams consist
of a lead portfolio manager (or co-managers), other WAM portfolio managers, and
research analysts. Team members share responsibility for providing ideas,
information, and knowledge in managing the funds, and each team member has one
or more particular areas of expertise. The lead portfolio manager and co-
managers are responsible for making daily portfolio selection decisions, and
utilize the management team's input and advice when making buy and sell
determinations.
PORTFOLIO MANAGERS
RALPH WANGER
Lead portfolio manager, Acorn Fund. Ralph Wanger is chief strategist of the
Acorn Family of Funds and has been involved in managing all of the funds and
developing their investment strategies since each fund began. He has been
president and a member of the board of trustees of Acorn Investment Trust
("Acorn") since 1970, and is a principal of WAM. He is a Chartered Financial
Analyst (CFA), and earned his BS and MS degrees in Industrial Management from
the Massachusetts Institute of Technology.
CHARLES P. MCQUAID
Co-portfolio manager, Acorn Fund. Charles P. McQuaid is a senior vice president
and member of Acorn's board of trustees, and is the director of research and a
principal of WAM. Mr. McQuaid went to work for Acorn in 1978. He is a CFA,
and earned his BBA from the University of Massachusetts and his MBA from the
University of Chicago.
LEAH J. ZELL
Lead portfolio manager, Acorn International. Leah Zell is a vice president of
Acorn, and a principal of WAM. She has managed Acorn International since its
inception in 1992, and was named lead portfolio manager in 1997. She has worked
with Acorn Fund's international securities since 1984. Ms. Zell also manages the
foreign portfolio of an investment company whose shares are offered only to non-
U.S. investors. She is a CFA and earned her BA from Radcliffe and PhD from
Harvard University.
MARGARET M. FORSTER
Co-portfolio manager, Acorn International. Margaret Forster is a vice president
of Acorn. She has been a key member of the international analytical team since
1994 and a principal of WAM since January 1999. Before joining WAM, Ms. Forster
was a professor of finance at Northwestern and Ohio State Universities, and an
economist with the International Monetary Fund. She is a CFA. Her degrees
include a BA from Universidade de Sao Paulo, Escola Politecnica, and an MBA, MS
and PhD from Cornell University.
ROBERT A. MOHN
Lead portfolio manager, Acorn USA. Robert Mohn is a vice president of Acorn. He
has been a key member of WAM's domestic analytical team since 1992, and a
principal of WAM since 1995. He has managed Acorn USA since its inception in
1996, and also manages the mutual fund portfolio for WAM's variable annuity
product and the U.S. portfolio of an investment company whose shares are offered
only to non-U.S. investors. He is a CFA, and holds a BS from Stanford University
and an MBA from the University of Chicago.
20
<PAGE>
MANAGEMENT OF THE FUNDS
MARCEL P. HOUTZAGER
Lead portfolio manager, Acorn Foreign Forty. Marcel Houtzager is a vice
president of Acorn, and has managed Acorn Foreign Forty since its inception in
1998. He has been a key member of WAM's international analytical team since
1992, and a principal of WAM since 1995. Mr. Houtzager also manages the foreign
portfolio for WAM's variable annuity product and the foreign portfolio of an
investment company whose shares are offered only to non-U.S. investors. He is a
CFA and a CPA, and earned his BA from Pomona College and his MBA from the
University of California at Berkeley.
JOHN H. PARK
Co-portfolio manager, Acorn Twenty. John Park is a vice president of Acorn, and
has co-managed Acorn Twenty since its inception in 1998. He has been a key
member of WAM's domestic investment team since 1993, and a principal of WAM
since 1998. Mr. Park also manages the mutual fund portfolio for WAM's variable
annuity product. He is a CFA and earned both his BA and MBA degrees from the
University of Chicago.
MARK H. YOST
Co-portfolio manager, Acorn Twenty. Mark Yost is a vice president of Acorn, and
has co-managed Acorn Twenty since its inception in 1998. He has been a key
member of WAM's domestic investment team since 1995. Before joining WAM, Mr.
Yost was an investment analyst for First Chicago Corporation. Mr. Yost also
manages the WAM Yost Partnership, L.P., a smaller company focused limited
partnership, the mutual fund portfolio for WAM's variable annuity product, and
the portfolio of an investment company whose shares are offered only to non-U.S.
investors. He is a CFA and earned his BA from St. Olaf College and his MBA from
the University of Chicago.
MANAGEMENT FEES
WAM earns the following fees for managing the Acorn Family of Funds:
Fee as a % of Average
Net Assets
(12/31/98)
----------
Fund
----
Acorn Fund .69%
Acorn .82%
International
Acorn USA .94%
Acorn Twenty .90%
Acorn Foreign .95%
Forty
WAM also receives an administrative services fee from each fund equal to .05% of
that fund's average net assets.
21
<PAGE>
THE ACORN INVESTMENT PHILOSOPHY
THE INFORMATION EDGE
WAM has built a reputation on innovative thinking and unconventional stock
picks. We rely primarily on our independent, internally-generated research to
uncover companies that may be less profiled than the more popular names. This is
where WAM adds the greatest value to Acorn shareholders. WAM's research process
is constantly uncovering quality companies that exhibit exciting
characteristics-companies that rest on a solid tripod of growth potential,
financial strength and fundamental value.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Growth Potential Financial Strength Fundamental Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
. superior technology . stability . lower stock price
. innovative marketing . reduced risk relative to
. solid management . competitive advantage growth potential
. strategic or niche position and capitalization
. superior earnings prospects . growth at a
. fast growing economy reasonable price
. The realization of this . A strong balance sheet . Once we uncover a great
growth potential would likely gives management greater company, we identify a price
produce superior performance flexibility to pursue that we believe would also
that is sustainable over time. strategic objectives and is make the stock a good value.
essential to maintaining a
competitive advantage.
- ----------------------------------------------------------------------------------------------
</TABLE>
STOCK STRENGTH COMES FIRST
WAM primarily follows a "bottom-up" approach to portfolio construction, placing
greater emphasis on the merits of each individual stock.
Our analysts continually screen companies, including making over 1,000
face-to-face visits around the globe each year. We want to know everything we
can about each Acorn investment to avoid surprises. To accomplish this, our
analysts talk directly to top management whenever possible.
Sometimes, WAM's analysts will use a "top-down" investment approach to
generate ideas for new investments. This approach is broader in scope than a
bottom-up approach. Here, the analytical teams identify current investment
themes, or trends, and set regional and industry allocations.
We believe that our thorough research helps us maintain lower taxes and
transaction costs. In managing the funds, we try to reduce these costs by
investing with a long-term time horizon (at least 2-5 years). Occasionally,
however, securities purchased on a long-term basis may be sold within 12 months
after purchase in light of a change in the circumstances of a particular company
or industry, or in general market or economic conditions.
22
<PAGE>
FUND INVESTMENTS
COMMON STOCKS
The Acorn funds invest mostly in common stocks. Common stocks represent an
equity (ownership) interest in a corporation. The funds may also invest in other
types of equity securities, including preferred stocks and stocks that are
convertible into common stocks.
Acorn Fund, Acorn International and Acorn USA invest mainly in the common stocks
of small and medium-size companies, with market capitalizations of less than $1
billion. Acorn Twenty and Acorn Foreign Forty invest mostly in the stocks of
companies with market capitalizations of $1-$10 billion.
FOREIGN SECURITIES
Acorn International and Acorn Foreign Forty invest most of their assets in non-
U.S. securities. Acorn Fund has significant foreign investments, although most
of its assets are invested in the U.S. Acorn USA and Acorn Twenty invest most of
their assets in the U.S., and only intend to invest a part of their assets
overseas under certain circumstances (see Portfolio Allocation below).
The foreign securities in which the funds invest are similar to U.S. common
stocks. These include American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs) and other securities underlying shares of foreign issuers.
PORTFOLIO ALLOCATION
Under normal conditions, the funds' common stock investments (as a percentage of
total assets) are limited by the following maximum allocations:
Acorn Fund
. 100% in U.S. companies
. 33% in non-U.S. companies
Acorn International
. 100% in non-U.S. companies
. 25% in U.S. companies
Acorn Usa
. 100% in U.S. companies
. 10% in non-U.S. companies.
Acorn Twenty
. 100% in U.S. companies
. 15% in non-U.S. companies. (Acorn Twenty will normally only invest in a
non-U.S. company whose operations are primarily located within the
U.S.)
Acorn Foreign Forty
. 100% in non-U.S. companies
. 15% in U.S. companies. (Acorn Foreign Forty will normally only invest in a
U.S. company whose operations are primarily located outside of the U.S.)
ACORN'S BOARD OF TRUSTEES MAY CHANGE EACH FUND'S INVESTMENT OBJECTIVE WITHOUT
SHAREHOLDER APPROVAL.
23
<PAGE>
SUMMARIZING RISK
When you invest in a mutual fund, you are exposed to certain risks. These
include the risk that you may receive little or no return on your investment, or
that you may even lose part or all of your investment. Investments that provide
higher potential reward also present greater risk. You can lose money by
investing in a fund. Likewise, investments with lower potential reward have
lower risk. Before investing in one of the Acorn funds, you should carefully
consider the risks associated with that particular fund. Because of these risks,
you should consider an investment in the any of the Acorn funds a long-term
investment.
Throughout this prospectus we've identified the areas that contain specific
information about risk with *. Please read those areas carefully to fully
understand your investment.
COMMON STOCKS
Over time, common stocks have historically provided superior long-term capital
growth potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the funds should be
considered long-term investments, designed to provide the best results when held
for several years or more.
SMALL AND MEDIUM COMPANIES
Acorn prefers small and medium companies over the stocks of companies of large
companies. During some periods, the securities of smaller companies and the
stocks of medium companies, as a class, have performed better than the
securities of larger companies, and in some periods they have performed worse.
Securities of smaller companies may be more volatile and less liquid than the
stocks of large companies.
FOREIGN SECURITIES
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of similar U.S.
investments, although there can be no assurance that these conditions will
continue.
Investments in foreign securities provide opportunities different from
those available in the U.S., and risks that in some ways may be greater than in
U.S. investments. These risks include fluctuations in exchange rates of foreign
currencies; less public information with respect to issuers of securities; less
governmental supervision in how securities are issued or transacted; less
liquidity, frequently greater price volatility and higher transactions costs and
the possible imposition of foreign taxes. Investing in countries outside the
U.S. may also involve political risk. Economies in individual markets may differ
favorably or unfavorably from the U.S. economy in such respects as gross
domestic product, rates of inflation, debt structure and currency valuation.
Emerging countries may be substantially smaller, less developed, less
liquid, and more volatile than the securities markets of the U.S. and other
developed countries.
24
<PAGE>
INVESTING WITH ACORN
MANAGING RISK
WAM uses various techniques and practices to mitigate the funds' exposure to
risk.
* INVESTMENT LIMITATIONS
Each fund has adopted the following investment limitations (generally based upon
a percentage of total assets) that cannot be changed without shareholder
approval and are designed to limit risk:
. None of the funds may invest more than 5% in securities of any one issuer,
except for U.S. government securities.*
. None of the funds may invest more than 25% in any one issuer or more than
25% in any one industry (in each case with the exception of U.S. government
securities).
* This restriction applies to only 75% of the total assets of each of Acorn
Fund, Acorn International and Acorn USA, and to only 50% of the total assets of
each of Acorn Twenty and Acorn Foreign Forty.
* DEFENSIVE INVESTMENT STRATEGIES
The funds' portfolio managers may use the following strategies if they believe
that a temporary defensive position is advisable. With respect to Acorn
International and Acorn Foreign Forty, this includes times when investment in
foreign securities appears to be relatively unattractive because of current or
anticipated adverse political or economic conditions.
. Each fund may invest without limit in U.S. corporate and government
obligations.
. Each fund may hold cash or cash equivalents.
. Each fund may hold cash in domestic and foreign currencies and may invest
in domestic and foreign money market securities to meet liquidity needs.
(Generally, this is not expected to exceed 25% of total assets.)
DURING THESE PERIODS, A FUND'S ASSETS MAY NOT BE INVESTED IN ACCORDANCE WITH ITS
STRATEGY, AND THE FUND MAY NOT ACHIEVE ITS INVESTMENT OBJECTIVE.
25
<PAGE>
INVESTING WITH ACORN
* HEDGING STRATEGIES
Each fund may hedge against variations in exchange rates, or to protect against
exposure in the equity markets. Portfolio managers try to accomplish this by
buying and selling
. options,
. futures contracts,
. options on futures contract,
. currency exchange contracts,
. swap agreements, or
. put and call options.
If a fund is not successful when using these techniques, total return could be
adversely affected.
* YEAR 2000
Some of today's computer systems cannot process date-related information because
they are not programmed to distinguish between the year 2000 and the year 1900
(commonly referred to as the Year 2000 problem or Y2K). WAM is working closely
with the funds' service providers to ensure the proper functioning of the
computer systems on which the funds depend for smooth operation. Based on the
information currently available, WAM does not anticipate any material impact on
the delivery of services currently provided. There can be no assurance, however,
that the steps taken by WAM in preparation for the year 2000 will be sufficient
to avoid any adverse impact on the funds.
26
<PAGE>
INVESTING WITH ACORN
Acorn shareholder service representatives are available Monday through Fridays
(except holidays) from 8:00 a.m. to 4:30 p.m. Central time. Call one of the
toll-free numbers in the table below to obtain the appropriate representative.
- ------------------------------------------------------------------------------
Toll-free number Reason for call
- ------------------------------------------------------------------------------
FUND ADVISOR (WAM): . For general fund information
. For prices
1-800-9-ACORN . For Acorn literature and account
(1-800-922-6769) forms
(outside the U.S. call 1-312-634-9240)
- ------------------------------------------------------------------------------
TRANSFER AGENT: . To buy, sell, or exchange shares
. To change your address
1-800-962-1585 . To establish an account by phone
(outside the U.S. call (existing shareholders only)
1-617-328-5000, ext. 5462) . For any other account maintenance or
transactions
. For IRA assistance
. For 24-hour account balances
- ------------------------------------------------------------------------------
TRANSFER AGENT/TDD SERVICE TDD service for the deaf and hearing
impaired
1-800-306-4567
- ------------------------------------------------------------------------------
WEB SITE: . For daily and historical prices
. For general fund information
www.acornfunds.com . For fund literature
- ------------------
. To email the Acorn funds
. For distribution estimates
- ------------------------------------------------------------------------------
27
<PAGE>
HOW TO BUY SHARES
INVESTMENT MINIMUMS
- --------------------------------
To open an account $1,000
To open an IRA $1,000
To add to an account $ 100
- --------------------------------
OPEN A NEW ACORN ACCOUNT
To invest with Acorn you must be a U.S. resident with a social security or tax
identification number. You can open a new account in any of the following ways.
Mail us a completed account application and a check or money order payable to
"name of fund" for $1,000 or more.
Regular mail
State Street Bank and Trust Company
Attn: Acorn Family of Funds
PO Box 8502
Boston, MA 02266-8502
Overnight mail
Boston Financial Data Services
Attn: Acorn Family of Funds
66 Brooks Drive
Braintree, MA 02184
1-617-328-5000 ext. 5462
Current Acorn shareholders may also open a new, IDENTICALLY REGISTERED Acorn
fund account by:
using the telephone exchange plan to switch $1,000 or more from your existing
Acorn account (or from a money fund offered through the exchange plan) into a
new Acorn account.
wire by simply calling 1-800-962-1585 to arrange for this transaction. (Not
available for IRA accounts.)
ADD TO AN EXISTING ACORN ACCOUNT
You may add to your existing Acorn account in any of the following ways.
Mail a check or money order to "FUND NAME" for $100 or more to either address at
left. You may send your check by itself (make sure to identify your Acorn
account number on the check), or you may include a stub from an Acorn account
statement.
Use the telephone exchange plan to switch money from one Acorn account to
another (or from one of the money funds offered through the exchange plan).
Wire money from your bank account using the following wire instructions:
State Street Bank & Trust Company
Attn: Mutual Funds
Boston, MA 02110
Routing #0110-0002-8
Deposit DDA #9902-990-2
(specify the fund name and account number)
Use the telephone purchase plan to move money from your bank account to your
Acorn account via ACH transfer. To use the telephone purchase plan, you must
select this feature on your account application or add this by completing a
"Doing Business With Acorn" form. Note: It takes a day to process your telephone
purchase request. Therefore, the price you receive for your purchased shares
will be the closing price calculated THE DAY AFTER your instructions are
received.
Use the automatic investment plan to move money from your bank account to your
Acorn account via ACH transfer. You may establish this on a monthly or
quarterly basis for $100 to $50,000 per
28
<PAGE>
HOW TO BUY SHARES
period. Quarterly investments occur in January, April, July and October. The
money will be transferred on or about the 15th of the month unless you designate
a different day. (If the day you select falls on a Saturday, Sunday, holiday or
any other day when the New York Stock Exchange (NYSE) is closed for trading,
Acorn will process the transaction on the next business day). You may change
your automatic investment amount or frequency by calling 1-800-962-1585 at least
one week prior to your next scheduled investment date.
29
<PAGE>
HOW TO BUY SHARES
GENERAL POLICIES FOR BUYING ACORN SHARES
The following policies apply any time you buy shares of the Acorn funds.
. All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. THE ACORN FUNDS DO NOT ACCEPT THIRD PARTY CHECKS, EXCEPT FOR
PROPERLY ENDORSED IRA ROLLOVER CHECKS.
. Acorn does not accept cash, credit cards, or credit card checks.
. If payment for your check or telephone purchase order does not clear, Acorn
will cancel your purchase and you will be liable for any losses or fees the
fund or its transfer agent incurs.
. Your participation in the automatic investment plan and telephone purchase
plan may be immediately terminated if any item is unpaid by your financial
institution.
THE ACORN FUNDS DO NOT PERMIT MARKET-TIMING and have adopted policies to
discourage this practice.
Each fund reserves the right to reject any specific request to buy shares,
including certain purchases through the telephone exchange plan. (See Exchange
Plan Restrictions.) Acorn may refuse a purchase if it could disrupt management
of the fund or would not be in the best interests of the fund's existing
shareholders.
30
<PAGE>
HOW TO SELL SHARES
You may sell your Acorn shares in several different ways.
Mail us a letter of instruction that indicates
. your name,
. the fund's name and account number,
. the dollar amount or number of shares you want to sell, and
. any unsigned stock certificates
representing the shares you want to sell (if applicable) to:
Regular mail
State Street Bank and Trust Co.
Attn: Acorn Family of Funds
P.O. Box 8502
Boston, MA 02266-8502
Overnight mail
Boston Financial Data Services
Attn: Acorn Family of Funds
66 Brooks Drive
Braintree, MA 02184
1-617-328-5000 ext. 5462
Sell your shares by telephone using the telephone redemption plan. The plan
lets you sell $100 to $50,000 per day by phone. (You are eligible for the
telephone redemption plan service, unless you declined it on your account
application.)
Note: For your protection, you may not sell shares by telephone or by letter of
instruction without a signature guarantee if you have changed your account's
address within the past 60 days. Shares must be redeemed with a letter of
instruction (as described above), with all registered account owner's signatures
guaranteed.
Establish the systematic withdrawal plan on your account. This plan allows you
to redeem a specified dollar amount of shares from your account on a monthly or
quarterly basis. You must have an account balance of at least $25,000 to be
eligible for this service.
SIGNATURE GUARANTEE
In some cases, you will have to make your redemption request in writing, and
will have to obtain a signature guarantee. A signature guarantee is designed to
protect you and Acorn from fraudulent activities. This requirement applies to
any of the following situations:
. you request a change to your current account registration, including your
name, address or are establishing or changing a TOD beneficiary;
. you want to sell more than $50,000 in shares;
. you want the check mailed to an address other than the address on your
account registration;
. you want the check made payable to someone other than the account owner; or
. you want to sell shares, and you instruct Acorn to wire the proceeds to a
bank or brokerage account, but you do not have the telephone redemption by
wire plan on your account.
Signature guarantees can be obtained from a bank, broker-dealer, credit union
(if authorized under state law), securities exchange or association. A NOTARY
PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
31
<PAGE>
HOW TO SELL SHARES
GENERAL POLICIES FOR SELLING ACORN SHARES
The following policies apply any time you sell shares of any of the Acorn funds.
. Normally, Acorn will mail your redemption proceeds within seven days after
receiving your redemption request.
. Redemption checks are made payable to the shareholder(s) of record, unless
otherwise requested in writing with the signatures of all shareholders of
record guaranteed.
. Redemptions on recent purchases made by check, automatic investment plan,
or telephone purchase plan may be held for up to 15 days until your funds
for the purchase have been received. If you participate in the telephone
redemption by wire/ACH plan, Acorn will send redemption proceeds to your
bank (or other financial institution) account via wire or ACH transfer.
Your bank may impose a fee for the incoming wire. Payment by wire or ACH is
usually credited to your bank account on the next business day after your
call.
. Acorn may suspend redemptions or postpone payment dates on days when the
NYSE is closed (other than weekends or holidays), when trading on the NYSE
is restricted, or as permitted by the SEC.
. Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request.
(Call 1-800-962-1585 for more information.)
. If a check representing (1) redemption proceeds, (2) a withdrawal under the
systematic withdrawal plan, or (3) a dividend/capital gains distribution is
returned "undeliverable" or remains uncashed for 6 months, Acorn will
cancel the check and will reinvest the proceeds in the fund issuing the
check at the NAV on the date of cancellation. In addition, after such 6-
month period, (1) Acorn will terminate your systematic withdrawal plan and
future withdrawals will occur only when requested, or (2) Acorn will
automatically reinvest future dividends and distributions in your fund.
If the value of your account falls below $1,000 because you sold shares, Acorn
reserves the right to close your account and send the proceeds to you. Acorn
will redeem your shares at the NAV calculated on the day your account is closed.
SHAREHOLDER AND ACCOUNT POLICIES
STATEMENTS AND REPORTS
To keep you informed about your investment, Acorn sends you various account
statements and reports, including:
. Confirmation statements that verify a buy or sell transaction, unless that
transaction is part of the automatic investment plan. Acorn will
automatically confirm your automatic investment plan transactions on a
quarterly basis unless you request otherwise by calling 1-800-962-1585.
. Quarter-end and year-end consolidated account statements
. Quarterly, semi-annual and annual Acorn Family of Funds reports
. Average cost statements for those accounts that sold shares during the year
Duplicate statements may be sent to a third party if requested by the registered
account
32
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
owner. Simply call us toll-free at 1-800-962-1585.
If you need copies of your historical account information, please call 1-800-
962-1585. There is a small charge to obtain historical account information for
prior years.
SHARE PRICE
The funds are open for business each day the NYSE is open. The offering price
(the price to buy one share) and the redemption price (price to sell one share)
are a fund's net asset value (NAV) calculated at the next Closing Time after
Acorn (or an authorized broker-dealer or financial services company, some of
whom may charge a fee for their services) receives your purchase or redemption
order. Closing Time is the time of the close of regular session trading on the
NYSE, which is usually 3:00 p.m. Central time but is sometimes earlier.
Acorn must receive both your purchase money and your application by Closing Time
for you to receive that day's price. Likewise, Acorn must receive your
redemption request by Closing Time for you to receive that day's price. NOTE:
ACORN REQUIRES ONE DAY TO OBTAIN YOUR PURCHASE MONEY FOR A TELEPHONE PURCHASE
ORDER; THEREFORE, A TELEPHONE PURCHASE MADE BEFORE CLOSING TIME WILL GET THE
NEXT DAY'S PRICE.
NAV. A fund's NAV is the value of a single share of the fund. The NAV is
computed by adding up the value of a fund's investments, cash, and other assets,
subtracting its liabilities, and then dividing the result by the number of
shares outstanding.
Acorn generally values each fund's portfolio securities and assets on the basis
of market quotations from the primary market in which they are traded. In cases
when the quotations are not readily available, Acorn will use a method that
Acorn's trustees believe accurately reflects a fair value. Values of foreign
securities are translated from the local currency into U.S. dollars using
current exchange rates. Because of the different trading hours in various
foreign markets, the calculation of NAV does not take place at the same time as
the determination of the prices of many foreign securities held by the funds.
These timing differences may have a significant effect on a fund's NAV.
ADDRESS CHANGES
You may easily change your address over a recorded telephone line by calling our
transfer agent toll-free at 1-800-962-1585. Acorn will send written
confirmation of the change to both your old and new addresses. You may not make
a telephone redemption for 60 days after you change your address by phone.
During those 60 days, you must request any fund redemptions in writing, and your
signature must be guaranteed.
33
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
GENERAL INFORMATION PERTAINING TO ALL TELEPHONE TRANSACTIONS
Acorn will not be responsible for any loss resulting from unauthorized
transactions if it follows reasonable procedures designed to verify the identity
of the caller. Those procedures may include recording the call, requesting
additional information, and sending written confirmation of telephone
transactions.
You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement. If you do not want the flexibility of
telephone purchase and redemption for your account, decline those services on
your account application, or call our transfer agent toll-free at 1-800-962-1585
for instructions.
TELEPHONE EXCHANGE PLAN AND MONEY MARKET FUNDS
The telephone exchange plan permits you to use the telephone to switch your
investment between one Acorn fund and another, or between an Acorn fund and a
money market mutual fund participating in the plan.
Currently, the money market mutual funds participating in the plan are the Reich
& Tang Funds. The Reich & Tang Funds are: Short Term Income Fund, Money Market
Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily Tax Free
Income Fund; California Daily Tax Free Income Fund; Connecticut Daily Tax Free
Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax Free Income
Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax Free Income
Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania Daily
Municipal Income Fund.
Each of the Reich & Tang Funds is a no-load fund managed by Reich & Tang Asset
Management, L.P. and offers check writing privileges (for accounts other than
IRAs) in addition to the Exchange Plan. Only Short Term Income Fund, Money
Market Portfolio is available for IRA accounts.
EXCHANGE REQUESTS MUST BE RECEIVED BY TIMES NOTED BELOW TO RECEIVE THAT DAY'S
CLOSING PRICE.
. To exchange between IRA accounts with Acorn or a participating money market
fund, call 1-800-962-1585 before Closing Time.
. To switch from one Acorn account into another, or from an Acorn account into a
participating money market fund, call 1-800-962-1585 before Closing Time.
. To switch FROM A PARTICIPATING MONEY MARKET FUND TO AN ACORN FUND, CALL 1-800-
221-3079 BEFORE 11:00 A.M. CENTRAL TIME.
If we receive your call AFTER the times noted above, we will process your
exchange at the NAV next calculated after receipt of your call.
Because of the time needed to exchange money between the Acorn funds and a
participating money market fund, you may not exchange into and out of a
participating money market fund on the same or successive days; there must be at
least one day between exchanges.
34
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
EXCHANGE PLAN RESTRICTIONS
THE ACORN FUNDS DO NOT PERMIT MARKET-TIMING and have adopted policies to
discourage this practice.
. Generally, you will be permitted to make up to 4 round trip exchanges per year
(a round trip is an exchange out of one fund into another fund, and then back
again).
. YOU MAY ONLY EXCHANGE BETWEEN ACCOUNTS THAT ARE REGISTERED IN THE SAME NAME,
ADDRESS, AND TAXPAYER IDENTIFICATION NUMBER.
. Shares of the fund you are exchanging into must be available for sale in your
state.
. If you are opening a new account by exchange, your exchange must be at least
$1,000.
. The exchange plan is not available for shares of a fund for which you have
been issued certificates.
. If your account is subject to backup withholding, you may not use the exchange
plan.
. Acorn may temporarily or permanently terminate the exchange plan privilege of
any investor who makes excessive use of the plan. Excessive trading can hurt
fund performance and shareholders.
. Acorn may refuse exchange purchases by any person or group, if Acorn believes
the purchase will be harmful to existing shareholders.
. Before exchanging into a fund, you should read its prospectus. Call 1-800-9-
ACORN-9 (1-800-922-6769) to obtain a prospectus for a participating money market
fund.
. Exchanges may result in tax consequences for you.
. Acorn may terminate or modify the exchange plan at any time, but will try to
give prior notice whenever it is reasonably possible.
AUTHORIZED AGENTS
Acorn may authorize certain financial service companies, broker-dealers or their
designees (authorized agents) to accept purchase, redemption, and exchange
requests from their clients on whose behalf the authorized agent holds shares of
the funds. For purchase orders placed through an authorized agent, a shareholder
will pay a fund's NAV next computed after the receipt by the authorized agent of
such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the NAV next computed after the
receipt by the authorized agent of the redemption order, less any redemption
fees imposed by the agent.
Some financial institutions that act as Acorn's agent, or that otherwise
maintain nominee accounts with the funds for their clients for whom they hold
fund shares, might charge a fee (usually a percentage of the average net assets
held in such accounts) for accounting, shareholder servicing, and distribution
services the institution provides with respect to the underlying fund shares.
WAM pays those fees.
35
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
Each fund distributes substantially all of its net income and net realized
capital gains to shareholders each year. Normally, the funds pay distributions
in June and December.
DISTRIBUTION OPTIONS
You may receive your fund dividend and/or capital gains distributions in several
ways:
Reinvestment. Acorn will automatically reinvest your dividends and capital
gains distributions in additional shares of your fund. (Acorn will assign this
option to your account if you do not indicate a choice on your account
application.)
Income-Only. Acorn will automatically reinvest your capital gains
distributions, but you may receive a check for each dividend. If you prefer,
Acorn will send your dividend proceeds via ACH transfer directly to your bank or
financial institution. (You must establish this feature at least 10 days prior
to the distribution.)
Cash. Acorn will automatically send you a check for all dividends and capital
gains. If you prefer, Acorn will send your dividend and distribution proceeds
via ACH transfer directly to your bank or financial institution. (You must
establish this feature at least 10 days prior to the distribution.)
Acorn will automatically reinvest distributions for IRA owners who are under 59
1/2 years old. A cash payment of a distribution is a withdrawal of IRA
earnings, and is subject to taxes and potential income tax penalties for those
under age 59 1/2. Once you reach 59 1/2 years old, and are eligible to withdraw
the earnings from your IRA, you may request cash payment of distributions.
Acorn will reinvest any distributions at the NAV at Closing Time on the
reinvestment date (ex-dividend). For those not reinvesting their distributions,
Acorn will normally begin mailing distribution checks on the payable date, which
is usually one week after the ex-dividend date.
TAXES
As with any investment, you should carefully consider how your investment in a
fund will be taxed. If your account is a tax-deferred or tax-exempt account
(for example, an IRA or an employee benefit plan account), the following tax
discussion does not apply. If your account is not tax-deferred or tax-exempt,
however, you should be aware of the following tax rules:
Taxes on Distributions. Distributions are subject to federal income tax, and
may also be subject to state or local taxes. Your distributions are taxable
when they are paid, whether you receive them in cash or reinvest them in
additional shares. Distributions declared in October, November or December of
the prior year and paid in January are taxable as if they were paid on December
31 of the prior year.
For federal tax purposes, income and short-term capital gains distributions are
taxed as dividends; and long-term capital gains distributions are taxed as long-
term capital gains. Every January, Acorn will send you and the IRS a statement
called a Form 1099-DIV, which will show the amount of each taxable distribution
you received in the previous year. A year-end tax guide will accompany your
Form 1099. If the total distributions you received for the year
36
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
are less than $10.00, you will not receive a Form 1099.
Taxes on Transactions. Your redemptions - including exchanges between funds or
into a money fund - are subject to capital gains tax. A capital gain or loss is
the difference between the average price you paid (cost) for your shares and the
price you receive when you sell them.
Whenever you sell shares of a fund, Acorn will send you a confirmation statement
showing how many shares you sold and at what price. Acorn will also send you a
year-end statement every January, and an average cost statement every February
(if applicable) for shares you redeemed, to assist you or your tax preparer. It
is up to you or your tax preparer to determine whether any given sale resulted
in a capital gain and, if so, the amount of tax you owe. BE SURE TO KEEP YOUR
REGULAR ACCOUNT STATEMENTS; the information they contain will be essential in
calculating the amount of your capital gains.
FOREIGN INCOME TAXES
A fund may receive investment income from sources within foreign countries, and
that income may be subject to foreign income taxes at the source. If your fund
pays non-refundable taxes to foreign governments during the year, the taxes will
reduce that fund's dividends but will still be included in your taxable income.
You may be able to claim an offsetting credit or deduction on your tax return
for your share of foreign taxes paid by Acorn International or Acorn Foreign
Forty. The Acorn tax guide, which is mailed with your Form 1099-DIV each year,
will contain detailed information about the foreign tax credit/deduction.
When you sign your account application, you certify that your social security or
taxpayer identification number is correct and that you are not subject to 31%
backup withholding for failing to report income to the IRS. If you violate IRS
regulations, the IRS can require Acorn to withhold 31% of your taxable
distributions and redemption proceeds.
FUND SERVICE PROVIDERS
TRANSFER AGENT AND CUSTODIAN
State Street Bank and Trust Company
Attn: Acorn Family of Funds
PO Box 8502
Boston, MA 02266-8502
DISTRIBUTOR
WAM Brokerage Service, L.L.C.
227 W. Monroe Street
Suite 3000
Chicago, IL 60606-5016
Shares of the funds are offered for sale through WAM Brokerage Services, L.L.C.
(WAM BD) without any sales commission or charges to the funds or their
shareholders. WAM BD is wholly owned by WAM, the funds' investment advisor, and
the investment advisor's general partner, Wanger Asset Management, Ltd. WAM pays
all distribution expenses relating to the funds, including payment or
reimbursement of any expenses incurred by WAM BD.
37
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables will help you better understand each fund's performance for
the past five years, or for the period from the date of a fund's commencement of
operations, if less than five years. They are excerpted from each fund's
financial statements for the fiscal year ended December 31, 1998, audited by
Ernst & Young LLP. Certain information reflects financial results for a single
fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in a fund (assuming reinvestment of
all dividends and distributions). You may obtain the complete financial
statements and auditor's report by calling 1-800-9-ACORN-9 (1-800-922-6769) and
requesting a free copy of a fund's latest annual shareholder report.
ACORN FUND
----------
Years ended 12/31,
<TABLE>
<CAPTION>
For a share outstanding throughout each 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
year
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $16.99 $15.04 $13.60 $12.24 $13.95
Income from Investment Operations:
- ---------------------------------
Net investment income .04 .15 .09 .11 .06
Net realized and unrealized gain
(loss) on investments, foreign
currency and futures .91 3.57 2.93 2.42 (1.10)
-------------------------------------------------------------------
Total from investment operations .95 3.72 3.02 2.53 (1.04)
Less distributions:
- ------------------
Dividends from net investment income (.03) (.16) (.11) (.09) (.11)
Distributions from net realized and
unrealized gains reportable for
federal income taxes (1.06) (1.61) (1.47) (1.08) (.56)
-------------------------------------------------------------------
Total distributions (1.09) (1.77) (1.58) (1.17) (.67)
Net asset value, end of year $16.85 $16.99 $15.04 $13.60 $12.24
===================================================================
Total return 6.0 % 25.0% 22.6% 20.8% (7.4%)
- ------------
Ratios/supplemental data:
- ------------------------
Ratio of expenses to average net .84% .56% .57% .57% .62%
assets
Ratio of net investment income .30% .75% .53% .89% .55%
to average net assets
Portfolio turnover rate 24% 32% 33% 29% 18%
Net assets at end of year (in millions) $3,549 $3,681 $2,842 $2,399 $1,983
</TABLE>
38
<PAGE>
ACORN INTERNATIONAL
-------------------
Years ended 12/31,
<TABLE>
<CAPTION>
For a share outstanding throughout each 1998 1997 1996 1995 1994
---- ---- ---- ---- ----
year
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $18.39 $19.61 $16.59 $15.24 $15.94
Income from Investment Operations:
- ---------------------------------
Net investment income .17 .40 .13 .16 .07
Net realized and unrealized gain
(loss) on investments, foreign
currency and futures 2.68 (.34) 3.29 1.20 (.67)
-------------------------------------------------------------------
Total from investment operations 2.85 .06 3.42 1.36 (.60)
Less distributions:
- ------------------
Dividends from net investment income (.15) (.38) (.12) -- --
Distributions from net realized and
unrealized gains reportable for
federal income taxes (.27) (.90) (.28) (.01) (.10)
-------------------------------------------------------------------
Total distributions (.42) (1.28) (.40) (.01) (.10)
Net asset value, end of year 20.82 $18.39 $19.61 $16.59 $15.24
===================================================================
Total return 15.4% 0.2% 20.7% 8.9% (3.8%)
- ------------
Ratios/supplemental data:
- ------------------------
Ratio of expenses to average net 1.12% 1.19% 1.17% 1.22% 1.24%
assets
Ratio of net investment income .86% .58% .51% .90% .48%
to average net assets
Portfolio turnover rate 37% 39% 34% 26% 20%
Net assets at end of year (in millions) $1,725 $1,623 $1,773 $1,276 $1,363
</TABLE>
39
<PAGE>
ACORN USA
---------
<TABLE>
<CAPTION>
For a share outstanding throughout each Year ended Year ended Inception 9/4
---------- ---------- -------------
period 1998 12/31/97 through 12/31/96
---- -------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period $15.12 $11.65 $10.00
Income from Investment Operations:
---------------------------------
Net investment loss (a)** (.07) (.07) (.02)
Net realized and unrealized gain
on investments, foreign
currency and futures .87 3.83 1.67
--------------------------------------------------
Total from investment operations .80 3.76 1.65
Less distributions:
------------------
Dividends from net investment
income --- --- ---
Distributions from net realized and (1.12) (.29) ---
unrealized gains reportable for
federal income taxes
--------------------------------------------------
Total distributions (1.12) (.29) ---
Net asset value, end of period $14.80 $15.12 $11.65
==================================================
Total return 5.8% 32.3% 16.5%
------------
Ratios/supplemental data:
------------------------
Ratio of expenses to average net
assets (b) 1.20% 1.35% 1.85%*
Ratio of net investment loss
to average net assets (.42%) (.49%) (.99%)*
Portfolio turnover rate 42% 33% 20%*
Net assets at end of year (in millions) $ 281 $ 185 $53
</TABLE>
(a) Net investment loss per share was based upon the average shares outstanding
during the period.
(b) The ratio of expenses to average net assets for Acorn USA reflects gross
custodian fees. This ratio net of custodian fees paid indirectly would have
been 1.79% for the period ended December 31, 1996.
* Annualized
40
<PAGE>
ACORN TWENTY
------------
<TABLE>
<CAPTION>
For a share outstanding throughout the period Inception 11/23 through 12/31/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) --
Net realized and unrealized gain on investments .71
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations .71
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.71
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.1%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (b)(c) 1.41%*
Ratio of net investment income gain to average net 0.22%*
assets (c)
Portfolio turnover rate 173%*
Net assets at end of period (in millions) $ 34
</TABLE>
(a) Net investment income (loss) per share was based upon the average shares
outstanding during the period.
(b) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn Twenty ratio reflects total expenses prior to the reduction of
custodian fees for cash balances it maintains with the custodian
("custodian fees paid indirectly"). This ratio net of custodian fees paid
indirectly would have been 1.35% for the period ended December 31, 1998.
(c) Acorn Twenty was reimbursed by the Advisor for certain net expenses
from November 23, 1998 through December 31, 1998. Without the
reimbursement, the ratio of expenses (prior to custodian fees paid
indirectly) to average net assets and the ratio of net investment income to
average net assets would have been 1.83% and (.21%), respectively.
* Annualized
41
<PAGE>
ACORN FOREIGN FORTY
-------------------
<TABLE>
<CAPTION>
For a share outstanding throughout the period Inception 11/23 through 12/31/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment loss(a) (.01)
Net realized and unrealized gain on investments 1.01
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 1.00
- ----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.00
- ----------------------------------------------------------------------------------------------------------------
TOTAL RETURN 10.0%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets (b)(c) 1.73%*
Ratio of net investment loss to average net (.78%)*
assets (c)
Portfolio turnover rate 90%*
Net assets at end of period (in millions) $ 16
</TABLE>
(a) Net investment loss per share was based upon the average shares outstanding
during the period.
(b) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn Foreign Forty ratio reflects total expenses prior to the reduction of
custodian fees for cash balances it maintains with the custodian ("custodian
fees paid indirectly"). This ratio net of custodian fees paid indirectly would
have been 1.45% for the period ended December 31, 1998.
(c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses
from November 23, 1998 through December 31, 1998. Without the reimbursement, the
ratio of expenses (prior to custodian fees paid indirectly) to average net
assets and the ratio of net investment income to average net assets would have
been 2.70% and (1.75%), respectively.
* Annualized
42
<PAGE>
ACORN FAMILY OF FUNDS
The Acorn Family of Funds' semiannual and annual reports to shareholders contain
additional information about the funds. These reports provide commentary on
market conditions and investment strategies that affected each fund's
performance over the past six- and 12-month periods. The Statement of Additional
Information (also known as the "SAI") also contains detailed information about
the Acorn funds' policies and operations. The SAI is incorporated in this
prospectus by reference.
You may obtain free copies of a fund's latest semi-annual and annual shareholder
reports and/or a fund's SAI. Simply call 1-800-9-ACORN-9 (1-800-922-6769) to
make your request, or write to The Acorn Family of Funds, PO Box 8502, Boston,
Massachusetts, 02266-8502. Reports may also be viewed and downloaded from our
website at www.acornfunds.com.
You may also obtain this and other information about the Acorn funds directly
from the Securities and Exchange Commission (SEC). You may visit the SEC online
at http://www.sec.gov or in person at the SEC's Public Reference Room in
Washington DC. You may also request information by calling the SEC at
1-800-SEC-0330 (1-800-732-0330), or sending your request and the appropriate
duplicating fee to the SEC's Public Reference Section, Washington, DC
20549-6009.
43
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 1999
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-9-ACORN-9
1-800-922-6769
ACORN FUND
ACORN INTERNATIONAL
ACORN USA
ACORN TWENTY
ACORN FOREIGN FORTY
No-Load Funds
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Information About the Funds............................................. 2
Investment Objectives and Policies...................................... 2
Investment Techniques and Risks......................................... 3
Investment Restrictions................................................. 21
Performance Information................................................. 27
Investment Adviser...................................................... 30
Distributor............................................................. 32
The Trust............................................................... 32
Trustees and Officers................................................... 33
Purchasing and Redeeming Shares......................................... 37
Additional Tax Information.............................................. 38
Taxation of Foreign Shareholders........................................ 40
Portfolio Transactions.................................................. 40
Custodian............................................................... 42
Independent Auditors.................................................... 42
Appendix - Description of Bond Ratings.................................. 44
Financial Statements.................................................... 45
</TABLE>
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY
dated the date of this SAI and any supplement thereto. A copy of the Acorn
Family of Funds 1998 annual report to shareholders accompanies this SAI. A copy
of the prospectus and additional copies of the annual
<PAGE>
reports can be obtained from Acorn at no charge by writing or telephoning Acorn
at its address or telephone number shown above.
INFORMATION ABOUT THE FUNDS
ACORN FUND invests mostly in stocks of small and medium-size companies,
generally those with market capitalizations of less than $1 billion. Of those
stocks, Acorn Fund invests mostly in U.S. companies, but also may have
significant foreign investments.
ACORN INTERNATIONAL FUND concentrates its investments in stocks of small
and medium-size non-U.S. companies, generally those with market capitalizations
of less than $1 billion.
ACORN USA invests mostly in stocks of small and medium-sized U.S.
companies, generally those with market capitalizations of less than $1 billion.
ACORN TWENTY invests primarily in the stocks of U.S. companies with market
capitalizations of $1 billion to $10 billion. Acorn Twenty is a non-diversified
fund that ordinarily focuses its investments in 20 to 25 U.S. companies.
ACORN FOREIGN FORTY invests for long-term capital growth. The fund invests
primarily in the stocks of foreign companies with market capitalizations of $1
billion to $10 billion. Acorn Foreign Forty is a non-diversified fund that
ordinarily has investments in 40 to 60 companies in developed markets.
ACORN FUND, ACORN INTERNATIONAL and ACORN USA are diversified funds under
the federal securities laws. ACORN TWENTY and ACORN FOREIGN FORTY are non-
diversified under the federal securities laws. However, each of the funds
comply with the diversification standards established by the tax laws. See
"Investment Techniques and Risks - Diversification" for more information.
The funds are series of Acorn Investment Trust ("Acorn" or the "Trust").
All five funds are currently open to new investors; however, Acorn reserves the
right to close one or more of the funds to new investors if the board of
trustees of Acorn determines that additional cash flow would be detrimental to
the management of the funds.
The discussion below supplements the description in the prospectus of the
funds' investment objectives, policies, and restrictions.
INVESTMENT OBJECTIVES AND POLICIES
Acorn Fund, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN
FORTY invest with the objective of long-term growth of capital. The funds are
not designed for investors seeking primarily income rather than capital
appreciation. The funds are not, alone or together, a balanced investment
program, and there can be no assurance that any of the funds will achieve its
investment objective.
2
<PAGE>
The funds use the techniques and invest in the types of securities
described below and in the prospectus.
INVESTMENT TECHNIQUES AND RISKS
COMMON STOCKS
The funds invest mostly in common stocks, which represent an equity
interest (ownership) in a corporation. This ownership interest often gives the
funds the right to vote on measures affecting the company's organization and
operations. The funds also invest in other types of equity securities,
including preferred stocks and securities convertible into common stocks. Over
time, common stocks have historically provided superior long-term capital growth
potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the funds should be
considered long-term investments, designed to provide the best results when held
for several years or more. The funds may not be suitable investments if you
have a short-term investment horizon or are unwilling to accept fluctuations in
share price, including significant declines over a given period. Under normal
conditions, the funds' common stock investments (as a percent of total assets)
are allocated as follows:
<TABLE>
<CAPTION>
U.S.* FOREIGN
COMPANIES COMPANIES
----------------------
FUND MAXIMUM MAXIMUM
-------------------------------------------
<S> <C> <C>
Acorn Fund 100% 33%
Acorn International 25% 100%
Acorn USA 100% 10%
Acorn Twenty 100% 15%
Acorn Foreign Forty 15% 100%
-------------------------------------------
</TABLE>
Acorn Twenty usually limits its investments in foreign companies to those whose
operations are primarily in the U.S.
* For Acorn Foreign Forty, includes U.S. investments ( usually limited to
companies whose operations are primarily overseas).
See also the discussion of foreign securities below.
DIVERSIFICATION
Diversification is a means of reducing risk by investing in a broad range
of stocks or other securities. Because ACORN TWENTY and ACORN FOREIGN FORTY are
non-diversified, those funds have the ability to take larger positions in a
smaller number of issuers. The appreciation or depreciation of a single stock
may have a greater impact on the NAV of a non-diversified fund, because it is
likely to have a greater percentage of its assets invested in that stock. As a
result, the share price of ACORN TWENTY and ACORN FOREIGN FORTY can be expected
to fluctuate more than that of broadly diversified funds investing in similar
securities. Because they are non-
3
<PAGE>
diversified, those funds are not subject to the limitations under the Investment
Company Act of 1940 in the percentage of their assets that they may invest in
any one issuer. Both funds, however, intend to comply with the diversification
standards for regulated investment companies under Subchapter M of the Internal
Revenue Code summarized under "Investment Restrictions").
FOREIGN SECURITIES
The funds invest in foreign securities, which may entail a greater degree
of risk (including risks relating to exchange rate fluctuations, tax provisions,
or expropriation of assets) than does investment in securities of domestic
issuers. As noted above, under normal market conditions, each fund may invest
in foreign securities (as a percentage of total assets) as set forth below:
<TABLE>
<CAPTION>
FOREIGN
COMPANIES
----------------------
FUND MAXIMUM
-----------------------------------------------
<S> <C>
Acorn Fund 33%
Acorn International 100%
Acorn USA 10%
Acorn Twenty 15%
Acorn Foreign Forty 100%
-----------------------------------------------
</TABLE>
ACORN FOREIGN FORTY invests primarily in developed countries but may invest
up to 15% of its total assets in securities of companies with broad
international interests that are domiciled in the United States or in countries
considered "emerging markets," if the operations of those companies are located
primarily in developed overseas markets. The Fund uses the terms "developed
markets" and "emerging markets" as those terms are defined by the International
Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging
markets" as used by the Fund includes markets designated "frontier markets" by
the IFC. The Fund does not intend to invest more than 5% of its total assets in
those countries included in the "emerging markets" or "frontier markets"
categories.
The securities markets of emerging markets are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States. There
also may be a lower level of monitoring and regulation of emerging markets of
traders, insiders, and investors. Enforcement of existing regulations has been
extremely limited.
ACORN TWENTY usually limits its investments in foreign companies to those
whose operations are primarily in the U.S.
The funds may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs) or other securities representing
underlying shares of foreign issuers. Positions in these
4
<PAGE>
securities are not necessarily denominated in the same currency as the common
stocks into which they may be converted. ADRs are receipts typically issued by
an American bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement. GDRs
trade in both U.S. and non-U.S. markets. Generally ADRs, in registered form, are
designed for use in the U.S. securities markets and EDRs, in bearer form, are
designed for use in European securities markets. The funds may invest in both
"sponsored" and "unsponsored" depositary receipts. In a sponsored depositary
receipt, the issuer typically pays some or all of the expenses of the depository
and agrees to provide its regular shareholder communications to depositary
receipt holders. An unsponsored depositary receipt is created independently of
the issuer of the underlying security. The depositary receipt holders generally
pay the expenses of the depository and do not have an undertaking from the
issuer of the underlying security to furnish shareholder communications.
Therefore, in the case of an unsponsored depositary receipt, a fund is likely to
bear its proportionate share of the expenses of the depository and it may have
greater difficulty in receiving shareholder communications than it would have
with a sponsored depositary receipt. None of the funds expects to invest 5% or
more of its total assets in unsponsored depositary receipt.
The funds' investment performance is affected by the strength or weakness
of the U.S. dollar against the currencies of the foreign markets in which its
securities trade or in which they are denominated. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value relative to
the yen, the dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve risks and opportunities not typically
associated with investing in U.S. securities. These considerations include:
fluctuations in exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public information with
respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign subcustodial
arrangements. In addition, the costs of investing in foreign securities are
higher than the costs of investing in U.S. securities.
Although the funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
5
<PAGE>
The countries in which the funds invest include those listed below. A fund
may not invest in all the countries listed, and it may invest in other countries
as well, when such investments are consistent with that fund's investment
objective and policies.
<TABLE>
<CAPTION>
--------------
MATURE MARKETS DEVELOPING MARKETS EMERGING MARKETS
-------------- ------------------ ----------------
<S> <C> <C>
Australia Argentina Bangladesh Morocco
Austria Chile Botswana Pakistan
Belgium Greece Brazil Peru
Canada Hong Kong China Philippines
Denmark Indonesia Colombia Poland
Finland Israel Cyprus Sri Lanka
France Korea Czech Republic Swaziland
Germany Malaysia Ecuador Turkey
Ireland Mexico Egypt Uruguay
Italy Portugal Ghana Venezuela
Japan Singapore Hungary Zambia
Luxembourg Taiwan India Zimbabwe
Netherlands Thailand Jordan
New Zealand Kenya
Norway
South Africa
Spain
Sweden
Switzerland
United Kingdom
United States
</TABLE>
It may not be feasible for the funds currently to invest in all of these
countries due to restricted access to their securities markets or inability to
implement satisfactory custodial arrangements.
CURRENCY EXCHANGE TRANSACTIONS
The funds may enter into currency exchange transactions. A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks,
foreign exchange dealers or broker-dealers, are not exchange-traded, and are
usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The funds' currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions." Transaction
6
<PAGE>
hedging is the purchase or sale of a forward contract with respect to specific
payables or receivables of a fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to a portfolio security position denominated or quoted in
a particular currency. The funds may engage in portfolio hedging with respect
to the currency of a particular country in amounts approximating actual or
anticipated positions in securities denominated in that currency. When a fund
owns or anticipates owning securities in countries whose currencies are linked,
Wanger Asset Management, L.P. ("WAM"), the funds' investment adviser, may
aggregate such positions as to the currency hedged.
If a fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, assets of that fund having a value at least as great as
the fund's commitment under such forward contract will be segregated on the
books of the fund and held by the custodian while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency, a
fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that fund is obligated to deliver.
If a fund retains the portfolio security and engages in an offsetting
transaction, that fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, a fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the fund of unrealized
profits or force the fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a fund to hedge against a devaluation that is so
7
<PAGE>
generally anticipated that the fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to a fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The funds may invest in money
----------------------------------------
market instruments denominated in foreign currencies. In addition to, or in
lieu of, such direct investment, the funds may construct a synthetic foreign
money market position by (a) purchasing a money market instrument denominated in
one currency (generally U.S. dollars) and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that currency in exchange
for a different currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen could be
constructed by purchasing a U.S. dollar money market instrument, and entering
concurrently into a forward contract to deliver a corresponding amount of U.S.
dollars in exchange for Japanese yen on a specified date and at a specified rate
of exchange. Because of the availability of a variety of highly liquid short-
term U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign money market instruments. The results of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the investment limits set forth in the chart
on page 4.
OPTIONS AND FUTURES
The funds may purchase and write both call options and put options on
securities and on indexes, and enter into interest rate and index futures
contracts, and may purchase or sell options on such futures contracts ("futures
options") in order to provide additional revenue, or to hedge against changes in
security prices or interest rates. The funds may also use other types of
options, futures contracts and futures options currently traded or subsequently
developed and traded, provided the board of trustees determines that their use
is consistent with the funds' investment objective.
OPTIONS. An option on a security (or index) is a contract that gives the
-------
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
8
<PAGE>
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
The funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if a fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional consideration
(or, if additional consideration is required, assets having a value at least
equal to that amount are segregated on the books of a fund) upon conversion or
exchange of other securities held in its portfolio.
If an option written by a fund expires, that fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a fund expires, that fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a fund desires.
A fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the fund will realize a capital gain or, if it is less,
the fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by a fund is an asset of that fund, valued
initially at the premium paid for the option. The premium received for an
option written by a fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
OTC DERIVATIVES. The funds may buy and sell over-the-counter ("OTC")
---------------
derivatives. Unlike exchange-traded derivatives, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of OTC derivatives (derivatives not traded on exchanges)
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows a fund greater flexibility to
tailor an instrument to its needs, OTC derivatives generally involve greater
credit risk than exchange-traded derivatives, which are guaranteed by the
clearing organization of the exchanges where they are traded. Each fund will
limit its investments so that no more than 5% of its total assets will be placed
at risk in the use of OTC derivatives. See "Illiquid Securities" below for more
information on the risks associated with investing in OTC derivatives.
9
<PAGE>
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with
-----------------------------
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when a fund seeks
to close out an option position. If a fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
a fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call. As the writer of a covered call option on a
foreign currency, a fund foregoes, during the option's life, the opportunity to
profit from currency appreciation.
If trading were suspended in an option purchased or written by one of the
funds, that fund would not able to close out the option. If restrictions on
exercise were imposed, the fund might be unable to exercise an option it has
purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The funds may use
--------------------------------------------------
interest rate futures contracts and index futures contracts. An interest rate
or index futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
-
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; the Russell
2000 Index; and the New York Stock Exchange Composite Index) as well as
financial instruments (including, but not limited to: U.S. Treasury bonds; U.S.
Treasury notes; Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
The funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long
___________
/1/ A futures contract on an index is an agreement pursuant to which two
- parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
10
<PAGE>
position (call) or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true.
To the extent required by regulatory authorities having jurisdiction over
the funds, the funds will limit their use of futures contracts and futures
options to hedging transactions. For example, a fund might use futures
contracts to hedge against fluctuations in the general level of stock prices,
anticipated changes in interest rates, or currency fluctuations that might
adversely affect either the value of the fund's securities or the price of the
securities that the fund intends to purchase. The fund's hedging may include
sales of futures contracts as an offset against the effect of expected declines
in stock prices or currency exchange rates or increases in interest rates and
purchases of futures contracts as an offset against the effect of expected
increases in stock prices or currency exchange rates or declines in interest
rates. Although other techniques could be used to reduce the funds' exposure to
stock price, interest rate, and currency fluctuations, the funds may be able to
hedge their exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The success of any hedging technique depends on WAM's ability to correctly
predict changes in the level and direction of stock prices, interest rates,
currency exchange rates, and other factors. Should those predictions be
incorrect, a fund's return might have been better had hedging not been
attempted; however, in the absence of the ability to hedge, WAM might have taken
portfolio actions in anticipation of the same market movements with similar
investment results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a fund, that fund
is required to deposit with its custodian or broker a specified amount of cash
or U.S. government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is generally set
by the exchange on which the contract is traded; however, the margin requirement
may be modified during the term of the contract, and the fund's broker may
require margin deposits in excess of the minimum required by the exchange. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract, which is returned to the fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The funds
expect to earn interest income on their initial margin deposits. A futures
contract held by a fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking-to-market." Variation margin paid or received
by a fund does not represent a borrowing or loan by the fund but is instead
settlement between that fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the previous day. In
computing daily net asset value ("NAV"), the funds will mark-to-market their
open futures positions.
The funds are also required to deposit and maintain margin with respect to
put and call options on futures contracts they write. Such margin deposits will
vary depending on the nature
11
<PAGE>
of the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other futures
positions held by the funds.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the funds realize a capital
gain, or if it is more, the funds realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the fund
engaging in the transaction realizes a capital gain, or if it is less, the fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the
-----------------------------
use of futures contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the futures contract. There can be no guarantee that there will be
a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge not to achieve
its objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for futures,
futures options, and the related securities, including technical influences in
futures and futures options trading and differences between the funds'
investments being hedged and the securities underlying the standard contracts
available for trading. For example, in the case of index futures contracts, the
composition of the index, including the issuers and the weighting of each issue,
may differ from the composition of a fund's portfolio, and, in the case of
interest rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may differ from
the financial instruments held in a fund's portfolio. A decision as to whether,
when, and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when a
fund seeks to close out a futures or futures option position. The fund would be
exposed to possible loss on the
12
<PAGE>
position during the interval of inability to close, and would continue to be
required to meet margin requirements until the position is closed. In addition,
many of the contracts discussed above are relatively new instruments without a
significant trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES. A fund will not enter into a futures
----------------------------------
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that fund plus premiums paid by it
for open futures option positions, less the amount by which any such positions
are "in-the-money," /2/ would exceed 5% of the fund's total assets.
-
When purchasing a futures contract or writing a put option on a futures
contract, a fund must maintain with its custodian or broker readily-marketable
securities having a fair market value (including any margin) at least equal to
the market value of such contract. When writing a call option on a futures
contract, a fund similarly will maintain with its custodian readily-marketable
securities having a fair market value (including any margin) at least equal to
the amount by which such option is in-the-money until the option expires or is
closed out by the fund.
A fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent a fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which a fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
______________
/2/ A call option is "in-the-money" if the value of the futures contract that
- is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
13
<PAGE>
(3) Cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by
the daily settlement price of the contract.
No fund will purchase puts, calls, straddles, spreads, or any combination
thereof if by reason of such purchase more than 10% of that fund's total assets
would be invested in such securities.
TAXATION OF OPTIONS AND FUTURES. If a fund exercises a call or put
--------------------------------
option that it holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of the security
sold (put). For cash settlement options and futures options exercised by a
fund, the difference between the cash received at exercise and the premium paid
is a capital gain or loss.
If a call or put option written by a fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by a fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by a fund is in-the-money at the time it was written
and the security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding period of the
securities covering an in-the-money option will not include the period of time
the option is outstanding.
If a fund writes an equity call option/3/ other than a "qualified covered
call option," as defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a fund delivers securities under a futures contract, the
fund also realizes a capital gain or loss on those securities.
___________________________
/3/ An equity option is defined to mean any option to buy or sell stock, and
- any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel-casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
14
<PAGE>
For federal income tax purposes, a fund generally is required to recognize
for each taxable year its net unrealized gains and losses as of the end of the
year on futures, futures options and non-equity options positions ("year-
endmark-to-market"). Generally, any gain or loss recognized with respect to such
positions (either by year-end mark-to-market or by actual closing of the
positions) is considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions, the related
securities and certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call options (or futures
call options) or buying put options (or futures put options) that are intended
to hedge against a change in the value of securities held by a fund may affect
the holding period of the hedged securities.
If a fund were to enter into a short index future, short index futures
option or short index option position and the fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
In order for the funds to continue to qualify for federal income tax
treatment as regulated investment companies, at least 90% of each fund's gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or foreign currencies, or other income (including but not
limited to gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for purposes of
the 90% requirement.
The funds intend to distribute to shareholders annually any capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the funds. Shareholders will be
advised of the nature of such capital gain distributions.
For further information, see the discussion under "Additional Tax
Information."
15
<PAGE>
SWAP AGREEMENTS. A swap agreement is generally individually negotiated and
----------------
structured to include exposure to a variety of different types of investments or
market factors. Depending on its structure, a swap agreement may increase or
decrease a fund's exposure to changes in the value of an index of securities in
which the fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. A fund may enter into any form of
swap agreement if WAM determines it is consistent with that fund's investment
objective and policies, but each fund will limit its use of swap agreements so
that no more than 5% of its total assets will be invested in such agreements.
A swap agreement tends to shift a fund's investment exposure from one type
of investment to another. For example, if a fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase that fund's exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap agreement may
increase or decrease the overall volatility of a fund's investments and its NAV.
The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from a fund. If a swap agreement calls for
payments by a fund, that fund must be prepared to make such payments when due.
If the counterparty's creditworthiness declines, the value of a swap agreement
would be likely to decline, potentially resulting in a loss. WAM expects to be
able to eliminate a fund's exposure under any swap agreement either by
assignment or by other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.
A fund will segregate its assets to cover its current obligations under a
swap agreement. If a fund enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any, of
that fund's accumulated obligations under the swap agreement over the
accumulated amount the fund is entitled to receive under the agreement. If a
fund enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of that fund's accumulated
obligations under the agreement.
SHORT SALES AGAINST THE BOX
Each fund may make short sales of securities if at all times, when a short
position is open, the fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short. This technique is called selling short "against the
box." Although permitted by its investment restrictions, the Funds do not
currently intend to sell securities short.
In a short sale against the box, a fund does not deliver from its portfolio
the securities sold and does not receive immediately the proceeds from the short
sale. Instead, the fund borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the fund, to the purchaser of such
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<PAGE>
securities. Such broker-dealer is entitled to retain the proceeds from the short
sale until the fund delivers to such broker-dealer the securities sold short. In
addition, the fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the fund must deposit
and continuously maintain in a separate account with State Street an equivalent
amount of the securities sold short or securities convertible into or
exchangeable for such securities without the payment of additional
consideration. The fund is said to have a short position in the securities sold
until it delivers to the broker-dealer the securities sold, at which time the
fund receives the proceeds of the sale. Because the fund ordinarily will want to
continue to hold securities in its portfolio that are sold short, the fund will
normally close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities sold short,
rather than by delivering portfolio securities.
Short sales may protect a fund against the risk of losses in the value of
its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the fund owns,
either directly or indirectly, and, in the case where the fund owns convertible
securities, changes in the conversion premium. The funds will incur transaction
costs in connection with short sales.
In addition to enabling the funds to hedge against market risk, short sales
may afford a fund an opportunity to earn additional current income to the extent
the fund is able to enter into arrangements with broker-dealers through which
the short sales are executed to receive income with respect to the proceeds of
the short sales during the period the fund's short positions remain open.
The Taxpayer Relief Act of 1997 imposed constructive sale treatment for
federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules taxpayers will recognize gain, but
not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) with respect
to the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales.
DEBT SECURITIES
The funds may invest in debt securities, including lower-rated securities
(i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or
Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called
"junk bonds"), and securities that are not rated. There are no restrictions as
to the ratings of debt securities acquired by the funds or the portion of a
fund's assets that may be invested in debt securities in a particular ratings
category, except that ACORN INTERNATIONAL may not invest more than 20% of its
assets in securities rated
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<PAGE>
below investment grade or considered by the Adviser to be of comparable credit
quality. Neither Acorn Fund nor Acorn International expects to invest more than
5% of its net assets in such securities during the current fiscal year. Acorn
USA, Acorn Twenty and Acorn Foreign Forty does not intend to invest more than
20% of its total assets in debt securities nor more than 5% of its total assets
in securities rated at or lower than the lowest investment grade.
Securities rated BBB or Baa are considered to be medium grade and to
have speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, the junk bond
market may be severely disrupted, and issuers of such bonds may experience
difficulty in servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a fund may have greater difficulty selling its
portfolio securities. See "Purchasing and Redeeming Shares - Net Asset Value."
The market value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions. A more complete description of the
characteristics of bonds in each ratings category is included in the appendix to
this SAI.
ILLIQUID SECURITIES
The funds may not invest in illiquid securities, including restricted
securities and OTC derivatives, if as a result they would comprise more than 10%
of the value of the net assets of Acorn Fund, or more than 15% of the value of
the net assets of each of ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN
FOREIGN FORTY.
Restricted securities may be sold only in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act of 1933 (the "1933 Act"). Where
registration is required, a fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
a fair value as determined in good faith by the board of trustees. If, through
the appreciation of illiquid securities or the depreciation of liquid
securities, Acorn Fund should be in a position where more than 10% of the value
of its net assets are invested in illiquid assets, including restricted
securities and OTC derivatives (or more than 15% of the
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<PAGE>
value of the net assets of each of ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY
and ACORN FOREIGN FORTY), that fund will take appropriate steps to protect
liquidity.
Notwithstanding the above, a fund may purchase securities that have
been privately placed but that are eligible for purchase and sale under Rule
144A under the 1933 Act. That rule permits certain qualified institutional
buyers, such as the funds, to trade in privately placed securities that have not
been registered for sale under the 1933 Act. WAM, under the supervision of the
board of trustees, will consider whether securities purchased under Rule 144A
are illiquid and thus subject to a fund's restriction of investing no more than
10% (for Acorn Fund) or 15% (for Acorn International, Acorn USA, Acorn Twenty
and Acorn Foreign Forty) of its assets in illiquid securities. A determination
of whether a Rule 144A security is liquid or not is a question of fact. In
making this determination WAM will consider the trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security. In
addition, WAM could consider the (1) frequency of trades and quotes, (2) number
of dealers and potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of market place trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the funds' holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that a fund does not invest
more than the specified percentage of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the amount
of a fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security. Although repurchase agreements carry certain risks not
associated with direct investments in securities, a fund will enter into
repurchase agreements only with banks and dealers WAM believes present minimum
credit risks in accordance with guidelines approved by the board of trustees.
WAM will review and monitor the creditworthiness of such institutions, and will
consider the capitalization of the institution, WAM's prior dealings with the
institution, any rating of the institution's senior long-term debt by
independent rating agencies, and other relevant factors.
A fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on a
fund's ability to sell the collateral and the fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or
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<PAGE>
liquidation proceedings are subject to the U.S. Bankruptcy Code, each fund
intends to comply with provisions under such Code that would allow it
immediately to resell such collateral.
At present, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY are the
only funds that invest in repurchase agreements, and then only with respect to
not more than 5% of their respective total assets. ACORN FUND and ACORN
INTERNATIONAL have no present intention of investing in repurchase agreements.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS
The funds may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. A fund makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities before the
settlement date if WAM deems it advisable for investment reasons. A fund may
utilize spot and forward foreign currency exchange transactions to reduce the
risk inherent in fluctuations in the exchange rate between one currency and
another when securities are purchased or sold on a when-issued or delayed
delivery basis.
A fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a fund enters into a binding obligation to purchase
securities on a when-issued basis or enters into a reverse repurchase agreement,
assets of the fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the fund and held
by the custodian throughout the period of the obligation. The use of these
investment strategies, as well as any borrowing by a fund, may increase NAV
fluctuation. The funds have no present intention of investing in reverse
repurchase agreements.
TEMPORARY STRATEGIES
The funds have the flexibility to respond promptly to changes in market
and economic conditions. In the interest of preserving shareholders' capital,
WAM may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, a fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. issuers (or, in the case of ACORN
FUND, ACORN INTERNATIONAL and ACORN FOREIGN FORTY, those of foreign issuers),
and most or all of the fund's investments may be made in the United States and
denominated in U.S. dollars. It is impossible to predict whether, when, or for
how long a fund might employ defensive strategies.
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<PAGE>
In addition, pending investment of proceeds from new sales of fund
shares or to meet ordinary daily cash needs, a fund temporarily may hold cash
(U.S. dollars, foreign currencies, or multinational currency units) and may
invest any portion of its assets in money market instruments.
PORTFOLIO TURNOVER
Although the funds do not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Under normal conditions, the
funds' portfolio turnover rate will be below 50%. A high rate of portfolio
turnover, if it should occur, would result in increased transaction expenses
which must be borne by each fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.
LINE OF CREDIT
Acorn maintains a line of credit with a bank in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the funds
would be subject to each fund's restrictions on borrowing under "Investment
Restrictions," below.
INVESTMENT RESTRICTIONS
ACORN FUND
In pursuing its investment objective ACORN FUND will not:
1. Invest more than 5% of its assets (valued at time of investment) in
securities of any one issuer, except in government obligations;
2. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment)
in securities of companies in any one industry;
4. Invest more than 5% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
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5. Purchase or retain securities of a company if all of the trustees
and officers of the Trust and of its investment adviser who
individually own beneficially more than 1/2% of the securities of the
company collectively own beneficially more than 5% of such securities;
6. Borrow money except (a) from banks for temporary or emergency
purposes at fixed rates of interest in amounts not exceeding 10% of
the value of the fund's assets at the time of borrowing, and (b) in
connection with transactions in options and in securities index
futures [the fund will not purchase additional securities when its
borrowings, less amounts receivable on sales of portfolio securities,
exceed 5% of total assets];
7. Pledge, mortgage or hypothecate its assets, except for temporary
or emergency purposes and then to an extent not greater than 15% of
its assets at cost, and except in connection with transactions in
options and in securities index futures;
8. Underwrite the distribution of securities of other issuers;
however the fund may acquire "restricted" securities which, in the
event of a resale, might be required to be registered under the
Securities Act of 1933 on the ground that the fund could be regarded
as an underwriter as defined by that act with respect to such resale;
but the fund will limit its total investment in restricted securities
and in other securities for which there is no ready market to not more
than 10% of its total assets at the time of acquisition;
9. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises which
invest in real estate or interests in real estate;
10. Purchase and sell commodities or commodity contracts, except that
it may enter into (a) futures and options on futures and (b) forward
contracts;
11. Make margin purchases of securities, except for use of such short-
term credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on
futures;
12. Sell securities short or maintain a short position, except short
sales against-the-box;
13. Participate in a joint or on a joint or several basis in any
trading account in securities;
14. Invest in companies for the purpose of management or the exercise
of control;
15. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
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<PAGE>
ACORN INTERNATIONAL
In pursuing its investment objective ACORN INTERNATIONAL will not:
1. With respect to 75% of the value of the fund's total assets,
invest more than 5% of its total assets (valued at time of investment)
in securities of a single issuer, except securities issued or
guaranteed by the government of the U.S., or any of its agencies or
instrumentalities;
2. Acquire securities of any one issuer that at the time of
investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment)
in securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the fund from
(a) buying a part of an issue of bonds, debentures, or other
obligations that are publicly distributed, or from investing up to an
aggregate of 15% of its total assets (taken at market value at the
time of each purchase) in parts of issues of bonds, debentures or
other obligations of a type privately placed with financial
institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as
a result, the aggregate value of all securities loaned would exceed
33% of its total assets (taken at market value at the time of such
loan);
5. Borrow money except (a) from banks for temporary or emergency
purposes in amounts not exceeding 10% of the value of the fund's total
assets at the time of borrowing, and (b) in connection with
transactions in options, futures and options on futures. [The fund
will not purchase additional securities when its borrowings, less
amounts receivable on sales of portfolio securities, exceed 5% of
total assets.];
6. Underwrite the distribution of securities of other issuers;
however the fund may acquire "restricted" securities which, in the
event of a resale, might be required to be registered under the
Securities Act of 1933 on the ground that the fund could be regarded
as an underwriter as defined by that act with respect to such resale;
but the fund will limit its total investment in restricted securities
and in other securities for which there is no ready market, including
repurchase agreements maturing in more than seven days, to not more
than 15% of its total assets at the time of acquisition;
7. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises that
invest in real estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that
it may enter into (a) futures and options on futures and (b) forward
contracts;
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9. Make margin purchases of securities, except for use of such
short-term credits as are needed for clearance of transactions and
except in connection with transactions in options, futures and options
on futures;
10. Sell securities short or maintain a short position, except short
sales against-the-box.
11. Issue any senior security except to the extent permitted under
the Investment Company Act of 1940.
ACORN USA
In pursuing its investment objective ACORN USA will not:
1. With respect to 75% of the value of the Fund's total assets,
invest more than 5% of its total assets (valued at time of investment)
in securities of a single issuer, except securities issued or
guaranteed by the government of the U.S., or any of its agencies or
instrumentalities;
2. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment)
in securities of companies in any one industry, except that this
restriction does not apply to investments in U.S. government
securities;
4. Make loans, but this restriction shall not prevent the Fund from
(a) buying a part of an issue of bonds, debentures, or other
obligations that are publicly distributed, or from investing up to an
aggregate of 15% of its total assets (taken at market value at the
time of each purchase) in parts of issues of bonds, debentures or
other obligations of a type privately placed with financial
institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as
a result, the aggregate value of all securities loaned would exceed
33% of its total assets (taken at market value at the time of such
loan);
5. Borrow money except (a) from banks for temporary or emergency
purposes in amounts not exceeding 33% of the value of the Fund's total
assets at the time of borrowing, and (b) in connection with
transactions in options, futures and options on futures;
6. Underwrite the distribution of securities of other issuers;
however, the Fund may acquire "restricted" securities which, in the
event of a resale, might be required to be registered under the
Securities Act of 1933 on the ground that the Fund could be regarded
as an underwriter as defined by that act with respect to such resale;
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<PAGE>
7. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises which
invest in real estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that
it may enter into (a) futures and options on futures and (b) foreign
currency contracts;
9. Make margin purchases of securities, except for use of such
short-term credits as are needed for clearance of transactions and
except in connection with transactions in options, futures and options
on futures;
10. Issue any senior security except to the extent permitted under
the Investment Company Act of 1940.
ACORN TWENTY AND ACORN FOREIGN FORTY
In pursuing its investment objective each of ACORN TWENTY and ACORN
FOREIGN FORTY will not:
1. Acquire securities of any one issuer which at the time of
investment (a) represent more than 10% of the voting securities of the
issuer or (b) have a value greater than 10% of the value of the
outstanding securities of the issuer;
2. With respect to 50% of the value of the Fund's total assets,
purchase the securities of any issuer (other than cash items and U.S.
government securities and securities of other investment companies) if
such purchase would cause the Fund's holdings of that issuer to exceed
5% of the Fund's total assets;
3. Invest more than 25% of its total assets in a single issuer
(other than U.S. government securities);
4. Invest more than 25% of its total assets in the securities of
companies in a single industry (excluding U.S. government securities);
5. Make loans, but this restriction shall not prevent the Fund from
(a) investing in debt securities, (b) investing in repurchase
agreements, or (c) lending its portfolio securities, provided that it
may not lend securities if, as a result, the aggregate value of all
securities loaned would exceed 33% of its total assets (taken at
market value at the time of such loan);
6. Borrow money except (a) from banks for temporary or emergency
purposes in amounts not exceeding 33% of the value of the Fund's total
assets at the time of borrowing, and (b) in connection with
transactions in options, futures and options on futures;
7. Underwrite the distribution of securities of other issuers;
however, the Fund may acquire "restricted" securities which, in the
event of a resale, might be required to be
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<PAGE>
registered under the Securities Act of 1933 on the ground that the
Fund could be regarded as an underwriter as defined by that act with
respect to such resale;
8. Purchase and sell real estate or interests in real estate,
although it may invest in marketable securities of enterprises which
invest in real estate or interests in real estate;
9. Purchase and sell commodities or commodity contracts, except that
it may enter into (a) futures and options on futures and (b) foreign
currency contracts;
10. Make margin purchases of securities, except for use of such
short-term credits as are needed for clearance of transactions and
except in connection with transactions in options, futures and options
on futures;
11. Issue any senior security except to the extent permitted under
the Investment Company Act of 1940.
The above restrictions (except the bracketed language) for each fund
are "fundamental," which means that they cannot be changed without the approval
of the lesser of (i) 67% of each fund's shares present at a meeting if more than
50% of the shares outstanding are present or (ii) more than 50% of each fund's
outstanding shares.
In addition, ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY
and ACORN FOREIGN FORTY are subject to a number of restrictions that may be
changed by the board of trustees without shareholder approval. Under those
non-fundamental restrictions, the funds will not:
a. Acquire securities of other registered investment companies
except in compliance with the Investment Company Act of 1940;
b. Invest more than 33% of its total assets (valued at time of
investment) in securities of foreign issuers [this restriction applies
only to Acorn Fund];
c. Invest more than 15% of its total assets in the securities of
foreign issuers [this restriction applies only to ACORN TWENTY].
c. Invest more than 10% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers, not including
securities represented by American Depository Receipts [this
restriction applies only to ACORN USA].
e. Invest more than 15% of its total assets in securities of United
States issuers, under normal market conditions [this restriction
applies only to ACORN FOREIGN FORTY].
d. Invest in companies for the purpose of management or the exercise
of control;
e. Pledge, mortgage or hypothecate its assets, except as may be
necessary in connection with permitted borrowings or in connection
with short sales, options, futures and options on futures;
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<PAGE>
f. Invest more than 10% of its total assets (valued at the time of
investment) in restricted securities [this restriction applies only to
ACORN FUND, ACORN INTERNATIONAL and ACORN USA];
g. Invest more than 15% of its net assets (valued at time of
investment) in illiquid securities, including repurchase agreements in
maturing in more than seven days; and
h. Make short sales of securities unless the Fund owns at least an
equal amount of such securities, or owns securities that are
convertible or exchangeable, without payment of further consideration,
into at least an equal amount of such securities.
Notwithstanding the foregoing investment restrictions, ACORN
INTERNATIONAL, ACORN USA, ACORN TWENTY and ACORN FOREIGN FORTY may purchase
securities pursuant to the exercise of subscription rights, provided that, in
the case of ACORN INTERNATIONAL and ACORN USA, such purchase will not result in
either fund's ceasing to be a diversified investment company. Japanese and
European corporations frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise such rights would
result in a fund's interest in the issuing company being diluted. The market for
such rights is not well developed in all cases and, accordingly, a fund may not
always realize full value on the sale of rights. The exception applies in cases
where the limits set forth in the investment restrictions would otherwise be
exceeded by exercising rights or would have already been exceeded as a result of
fluctuations in the market value of ACORN INTERNATIONAL'S portfolio securities
with the result that the fund would be forced either to sell securities at a
time when it might not otherwise have done so, or to forego exercising its
rights.
PERFORMANCE INFORMATION
From time to time the funds may quote total return figures. "Total
Return" for a period is the percentage change in value during the period of an
investment in shares of a fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(1+T)/n/
Where: P = the amount of an assumed initial investment in shares of
a fund
T = average annual total return
n = number of years from initial investment to the end of
the period
ERV = ending redeemable value of shares held at the end of the
period
For example, as of December 31, 1998 the Total Return and Average
Total Return on a $1,000 investment in the funds for the following periods were:
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<TABLE>
<CAPTION>
ACORN FUND Average Annual
- ----------
Total Return Total Return
------------ --------------
<S> <C> <C>
1 year............................ 6.02% 6.02%
5 years........................... 81.55% 12.67%
10 years.......................... 352.81% 16.29%
Life of Fund (inception 6/10/70).. 7,976.85% 16.61%
ACORN INTERNATIONAL Average Annual
- -------------------
Total Return Total Return
------------ --------------
1 year............................ 15.43% 15.43%
3 years........................... 39.53% 11.74%
5 years........................... 46.20% 7.89%
Life of Fund (inception 9/23/92).. 133.05% 14.45%
ACORN USA Average Annual
- ---------
Total Return Total Return
------------ --------------
1 Year............................ 5.79% 5.79%
Life of Fund (inception 9/4/96)... 63.05% 23.46%
ACORN TWENTY Average Annual
- ------------
Total Return Total Return
------------ --------------
Life of Fund (inception
11/23/98)........................ 7.10% N/A
ACORN FOREIGN FORTY Average Annual
- -------------------
Total Return Total Return
------------ --------------
Life of Fund (inception
11/23/98)........................ 10.00% N/A
</TABLE>
The funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the funds are
not necessarily indicative of future results. Each fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
The funds may note their mention or recognition in newsletters, newspapers,
magazines, or other media. Portfolio managers and other members of WAM's staff
may make presentations at conferences or trade shows, appear on television or
radio programs, or conduct or participate in telephone conference calls, and the
Funds may announce those presentations, appearances or
28
<PAGE>
calls to some or all shareholders, or to potential investors in the Funds.
Biographical and other information about a Fund's portfolio manager, including
information about awards received by that portfolio manager or mentions of the
manager in the media, may also be described or quoted in Fund advertisements or
sales literature.
In advertising and sales literature, each fund's performance may be
compared with those of market indexes and other mutual funds. In addition to
the performance information described above, a fund might use comparative
performance as computed in a ranking or rating determined by Lipper Analytical
Services, Inc., an independent service that monitors the performance of over
1,000 mutual funds, Morningstar, Inc., or another service.
The funds may also use statistics to indicate volatility or risk. The
premise of each of these measures is that greater volatility connotes greater
risk undertaken in achieving performance. One measure of volatility is beta.
Beta is the volatility of a fund's total return relative to the movements of a
benchmark index. A beta greater than one indicates volatility greater than the
index, and a beta of less than one indicates a volatility less than the index.
Another measure of volatility is R-squared. It reflects the percentage of a
fund's price movements that are explained by movements in the benchmark index.
An R-squared of 1.00 indicates that all movements of a fund's price are
completely explained by movements in the index. Generally, a higher R-squared
will indicate a more reliable beta figure. Alpha is a measure used to discuss a
fund's relative performance. Alpha measures the actual return of a fund
compared to the expected return of a fund given its risk (as measured by beta).
The expected return of a fund is based on how historical movements of the
benchmark index and historical performance of a fund compare to the benchmark
index. The expected return is computed by multiplying the advance or decline in
a market represented by a fund's beta. A positive alpha quantifies the value
that a fund manager has added and a negative alpha quantifies the value that a
fund manager has lost. Beta and R-squared are calculated by performing a least
squares linear regression using five years of monthly total return figures for
each portfolio and benchmark combination. Alpha is calculated by taking the
difference between the average monthly portfolio return and the beta-adjusted
average monthly benchmark return. The result of this calculation is then
geometrically annualized.
The following are some benchmark indices utilized by the funds: Salomon
Brothers Extended Market Index ("EMI"), an index of the bottom 20% of
institutionally investable capital of countries, selected by Salomon, excluding
the U.S.; Morgan Stanley's Europe, Australasia Far East Index ("EAFE"), an index
of companies throughout the world in proportion to world stock market
capitalizations, excluding the U.S. and Canada; the Standard & Poor's 500 Stock
Index ("S&P 500"), a broad, market-weighted average of U.S. blue-chip companies;
the Standard & Poor's MidCap 400 ("S&P 400"), also a broad, market-weighted
average of U.S. companies in the next tier down in size from the S&P 500; and
the Russell 2000 Index, an index formed by taking the 3,000 largest U.S.
companies and eliminating the largest 1,000, leaving an unweighted index of 2000
small companies. All indexes are unmanaged and included reinvested dividends.
29
<PAGE>
As of December 31, 1998, some statistics for the funds are as follows:
<TABLE>
<CAPTION>
R2 Beta Alpha
-- ---- ------
Acorn Fund
- ----------
<S> <C> <C> <C>
vs. S&P 500 0.70 0.89 -6.90%
vs. Russell 2000 0.82 0.79 5.74%
Acorn International
- -------------------
vs. EMI Ex U.S. 0.68 0.80 4.29%
vs. EAFE 0.63 0.70 1.58%
</TABLE>
Other measures of volatility and relative performance may be used as
appropriate. All such measures will fluctuate and do not represent future
results.
INVESTMENT ADVISER
Wanger Asset Management, L.P. ("WAM"), serves as the investment adviser for
the funds and for other institutional accounts. As of the date of this SAI, WAM
has approximately $7 billion under management, including the funds. WAM is a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd. ("WAM Ltd."), whose stockholders are Ralph Wanger, Charles P. McQuaid, Leah
J. Zell, Marcel P. Houtzager, Robert A. Mohn, John H. Park and Margaret M.
Foster. Ralph Wanger is the president of WAM Ltd. On matters submitted to the
shareholders of WAM Ltd., each shareholder has one vote (or a lesser vote in the
case of new shareholders). With certain exceptions (including for extraordinary
transactions, for which Mr. Wanger's consent is required), decisions are made by
majority vote. WAM commenced operations in 1992.
WAM furnishes continuing investment supervision to the funds under an
investment advisory agreement (the "Agreement") and is responsible for overall
management of the funds' business affairs. It furnishes office space, equipment
and personnel to the funds; it assumes substantially all expenses for
bookkeeping, and assumes the expenses of printing and distributing the funds'
prospectus and reports to prospective investors. The Agreement will continue in
effect as to each fund through June 30, 1999, and thereafter from year to year
so long as its continuance as to each fund is approved at least annually by (i)
the board of trustees of Acorn or by the holders of a majority of that fund's
outstanding voting securities as defined by the Investment Company Act of 1940
and (ii) a majority of the members of Acorn's board of trustees who are not
otherwise affiliated with Acorn or WAM, cast in person at a meeting called for
that purpose. Any amendment to the Agreement must be approved in the same
manner. The Agreement may be terminated as to a fund without penalty by the
vote of the board of trustees of Acorn or the shareholders of that fund (by a
majority as defined in the 1940 Act) on sixty days' written notice to WAM or by
WAM on sixty days' notice to the fund, and will terminate automatically in the
event of its assignment. The fees payable by a fund under the Agreement are the
obligation only of that fund and impose no liability on the other funds.
30
<PAGE>
The advisory fees the funds pay to WAM are calculated daily and paid
monthly, at the annual rates shown below:
ACORN FUND
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
ACORN INTERNATIONAL
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
ACORN USA
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
ACORN TWENTY
Rate of Fee
-----------
0.90%
ACORN FOREIGN FORTY
Rate of Fee
-----------
0.95%
The advisory fees paid by ACORN FUND for 1998, 1997 and 1996, respectively,
were $24,905,000, $14,349,000 and $12,437,000. The investment advisory fees
paid by ACORN INTERNATIONAL for 1998, 1997 and 1996 were $14,124,000,
$16,235,000 and $13,255,000. For the year ended December 31, 1998 and 1997 and
from its inception on September 4, 1996 to December 31, 1996, ACORN USA paid
investment advisory fees of $2,336,000, $1,199,000 and $101,000. For the year
ended December 31, 1998 since inception on November 23, 1998, ACORN TWENTY and
ACORN FOREIGN FORTY paid advisory fees of $26,000 and $11,000, respectively.
All advisory fees for the periods before January 1, 1998 were paid at the rates
in effect at that time, which, for ACORN FUND were lower than the rates of fee
shown. WAM advanced all of ACORN USA'S organizational expenses, which are being
amortized and reimbursed to WAM through September 2001.
31
<PAGE>
Acorn has a separate administrative services agreement with WAM under which
WAM receives a fee, calculated daily and paid monthly, at the annual rate of
0.05 of 1% of each fund's average daily net assets. The funds pay the cost of
custodial, stock transfer, dividend disbursing, audit and legal services, and
membership in trade organizations. They also pay other expenses such as the
cost of maintaining the registration of their shares under federal law,
complying with state securities laws, proxy solicitations, printing and
distributing notices and copies of the prospectus and shareholder reports
furnished to existing shareholders, taxes, insurance premiums and the fees of
trustees not affiliated with WAM.
DISTRIBUTOR
Shares of each fund are offered for sale by WAM Brokerage Services, L.L.C.
("WAM BD") without any sales commissions, 12b-1 fees or other charges to the
funds or their shareholders. WAM BD is wholly-owned by WAM and WAM Ltd. All
distribution expenses relating to the funds are paid by WAM, including the
payment or reimbursement of any expenses incurred by WAM BD. The Distribution
Agreement for ACORN FUND, ACORN INTERNATIONAL and ACORN USA will continue in
effect through December 31, 1999 and thereafter from year to year provided such
continuance is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and (ii) by a
majority of the trustees who are not parties to the Agreement or interested
persons of any such party. The Distribution Agreement for ACORN TWENTY and ACORN
FOREIGN FORTY will continue in effect through June 30, 1999 and thereafter from
year to year provided such continuance is approved annually (i) by a majority of
the trustees or by a majority of the outstanding voting securities of the Trust,
and (ii) by a majority of the trustees who are not parties to the Agreement or
interested persons of any such party.
The Trust has agreed to pay all expenses in connection with registration of
its shares with the Securities and Exchange Commission and any auditing and
filing fees required in compliance with various state securities laws. WAM
bears all sales and promotional expenses, including the cost of prospectuses and
other materials used for sales and promotional purposes by WAM BD. WAM BD offers
the funds' shares only on a best efforts basis. WAM BD is located at 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
THE TRUST
The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust dated April 21, 1992 (the "Declaration of Trust"). The
Declaration of Trust may be amended by a vote of either the Trust's shareholders
or its trustees. The Trust may issue an unlimited number of shares, in one or
more series as the board of trustees may authorize. Any such series of shares
may be further divided, without shareholder approval, into two or more classes
of shares having such preferences or special or relative rights or privileges as
the trustees may determine. The shares of the funds are not currently divided
into classes. ACORN FUND, ACORN INTERNATIONAL, ACORN USA, ACORN TWENTY and
ACORN FOREIGN FORTY are the only series of the Trust currently being offered.
The board of trustees may authorize the issuance of additional series if deemed
advisable, each with its own investment objective, policies and
32
<PAGE>
restrictions. All shares issued will be fully paid and non-assessable and will
have no preemptive or conversion rights.
Under Massachusetts law, the shareholders of the Trust may, under certain
circumstances believed to be remote, be held personally liable for the Trust's
obligations. However, the Declaration of Trust disclaims liability of
shareholders and the Trust's trustees and officers for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or contract entered into or executed by the Trust or the
board of trustees. The Declaration of Trust provides for indemnification out of
the assets of the Trust of all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
remote, since it is limited to circumstances in which the disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the board of trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of trustees.
TRUSTEES AND OFFICERS
The trustees and officers of the Trust, their dates of birth and their
principal business activities during the past five years are:
Irving B. Harris, trustee and chairman
Two North LaSalle Street, Suite 400 Chicago, Illinois 60602; date of birth
8/4/1910; chairman of the executive committee and director, Pittway
Corporation (multi-product manufacturer and publisher); chairman, William
Harris Investors, Inc. (investment adviser); chairman, The Harris
Foundation (charitable foundation); director, Teva Pharmaceutical
Industries, Inc. (pharmaceutical manufacturer)
Ralph Wanger, trustee and president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
6/21/1934; trustee and president, Wanger Advisors Trust; director, Wanger
Investment Company plc; principal, Wanger Asset Management, L.P.
James H. Lorie, trustee and vice chairman
1101 East 58th Street, Chicago, Illinois 60637; date of birth 2/23/1922;
retired; Eli B. and Harriet B. Williams Professor of Business
Administration Emeritus, University of Chicago Graduate School of Business;
director, Thornburg Mortgage Asset Corp. (REIT) and Santa Fe Natural
Tobacco
Leo A. Guthart, trustee
165 Eileen Way, Syosset, New York 11791; date of birth 9/26/1937; vice
chairman, Pittway Corporation (multi-product manufacturer and publisher);
chief executive officer, Pittway Corporation's Security Group of Companies
which include ADEMCO (manufacturer of alarm equipment), ADI (distributor of
security equipment), Fire Burglary Instruments (supplier of security
control panels), First Alert Professional (alarm
33
<PAGE>
dealers), Alarm Net (cellular radio service) and Cylink Corporation
(supplier of encryption equipment)(chairman); director, AptarGroup, Inc.
(producer of dispensing valves, pumps and closures); chairman of the board
of trustees, Hofstra University; chairman, Tech Transfer Island Corp.
(private investment partnership); director, Long Island Research Institute.
Jerome Kahn, Jr., trustee
Two North LaSalle Street, Suite 400, Chicago, Illinois 60602; date of birth
4/13/1934; president, William Harris Investors, Inc. (investment adviser);
director, Pittway Corporation (multi-product manufacturer and publisher).
David C. Kleinman, trustee
1101 East 58/th/ Street, Chicago, Illinois 60637; date of birth 10/12/1935;
senior lecturer in business administration, University of Chicago Graduate
School of Business; business consultant; director, Irex Corporation
(insulation contractor).
Charles P. McQuaid, trustee and senior vice president*
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
8/27/1953; trustee and senior vice president, Wanger Advisors Trust;
principal and director of research, Wanger Asset Management, L.P.
Roger S. Meier, trustee
1211 S. W. Fifth Avenue, Portland, Oregon 97204; date of birth 1/18/1926;
president, AMCO, Inc. (investment and real estate management); director,
Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited
Partnership (hotel chain); director and advisory board member, Key Bank of
Oregon (banking); chairman of Investment Council and member of Committee of
Legacy Systems (hospital); executive director and chairman of investment
committee, Portland Art Museum.
Allan B. Muchin, trustee
525 West Monroe Street, Chicago, Illinois 60661; date of birth 1/10/1936;
partner, Katten, Muchin & Zavis (law firm); director, Alberto-Culver
Company (toiletries).
Robert E. Nason, trustee
130 East Randolph Drive, Chicago, Illinois 60601; date of birth 7/29/1936;
director, Hach Company (manufacturer and distributor of water testing and
monitoring products and agents); director, Fairfax Insurances Limited
(privately owned insurance company); from 1990-1998, executive partner and
chief executive officer, member of the executive committee and member of
the policy board of Grant Thornton International (public accounting firm).
Katherine Schipper, trustee
1101 East 58/th/ Street, Chicago, Illinois 60637; date of birth 10/04/1949;
Eli B. and Harriet B. Williams Professor of Accounting, KPMG Peat Marwick
Faculty Research Scholar and Director of the Institute of Professional
Accounting, University of Chicago Graduate School of Business.
Margaret M. Forster, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
_________; analyst and portfolio manager, Wanger Asset Management, L.P.,
since 1994; assistant professor of finance, Kellogg Graduate School of
Management, Northwestern University, 1993-1994.
34
<PAGE>
Marcel P. Houtzager, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
10/26/1960; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Kenneth A. Kalina, assistant treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; date of birth
8/4/1959; assistant treasurer, Wanger Advisors Trust; Fund controller,
Wanger Asset Management, L.P., since September 1995; prior thereto,
treasurer of the Stein Roe Mutual Funds.
Bruce H. Lauer, vice president, assistant secretary and treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
7/22/1957; vice president and treasurer, Wanger Advisors Trust; chief
administrative officer, Wanger Asset Management, L.P. since April 1995;
director, Wanger Investment Company plc; prior thereto, first vice
president, investment accounting, Kemper Financial Services, Inc.
Robert A. Mohn, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
9/13/1961; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
John H. Park, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
5/30/1967; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management. L.P. (since 1993); analyst.
Mark H. Yost, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
6/28/1963; analyst and portfolio manager, Wanger Asset Management, L.P.,
(since October 1995); co-portfolio manager; Wanger U.S. Smaller Companies
Fund since June 1997; portfolio manager of WAM Yost Partnership, L.P.;
prior thereto, investment analyst, First Chicago Corporation.
Leah J. Zell, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
5/23/1949; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
*Messrs. McQuaid and Wanger are trustees who are interested persons of
Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs.
Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member,
of the executive committee, which has authority during intervals between
meetings of the board of trustees to exercise the powers of the board, with
certain exceptions. As of December 1, 1998, the trustees and officers of Acorn
as a group owned beneficially less than 1% of the outstanding shares of the
funds.
Mr. Wanger and Ms. Zell are married to each other.
At January 31, 1999, The State of Illinois Deferred Compensation Plan held
19,974,389 shares, and Charles Schwab & Co., Inc. ("Schwab") held 11,379,160
shares of Acorn Fund as owners of record, but not beneficially (9.80% and 5.58%
of the outstanding shares, respectively). Schwab held 12,682,052 shares of Acorn
International (15.40% of the outstanding shares) as owner of record, but not
beneficially. Schwab held 2,323,554 shares, and National Financial Services
Corporation, Donaldson Lufkin & Jenrette and Firstcinco Reinvest held 1,304,791,
1,213,449 and 1,158,744 shares, of Acorn USA (12.39%, 6.96%, 6.47% and 6.18% of
the outstanding shares, respectively) as owners of record, but not beneficially.
35
<PAGE>
During 1998 the funds paid fees aggregating $302,000 to board members who
were not affiliated with WAM. The following table sets forth the total
compensation paid by the Trust during the fiscal year ended December 31, 1998 to
each of the trustees of the Trust:
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE TOTAL
COMP. COMP. COMP.FROM COMP. FROM COMP. FROM COMP.
FROM ACORN FUND FROM ACORN ACORN USA ACORN TWENTY+ ACORN FOREIGN FROM
Name of Trustee INT. FORTY+ FUND COMPLEX (5)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Irving B. Harris 60,800 27,500 2,700 0 0 $91,000
Leo A. Guthart 23,450 10,500 1,050 0 0 $35,000
Jerome Kahn, Jr. 23,450 10,500 1,050 0 0 $35,000
David C. Kleinman 23,450 10,500 1,050 0 0 $35,000
James H. Lorie 23,950 10,500 1,050 0 0 $35,500
Charles P. McQuaid 0 0 0 0 0 0
Roger S. Meier 23,450 10,500 1,050 0 0 $35,000
Adolph Meyer, Jr.* 19,430 8,700 870 0 0 $29,000
Allan B. Muchin** 1,452 650 65 0 0 $2,167
Robert E. Nason** 1,452 650 65 0 0 $2,167
Katherine Schipper** 1,452 650 65 0 0 $2,167
Ralph Wanger 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Since November 23, 1998.
* Served on the Board of the Trust until December 31, 1998.
** Elected to the Board of the Trust effective December 1, 1998.
The officers and trustees affiliated with WAM serve without any
compensation from the Trust. Acorn has adopted a deferred compensation plan
(the "Plan") for its non-interested trustees. Under the Plan, the trustees who
are not "interested persons" of Acorn or WAM ("participating trustees") may
defer receipt of all or a portion of their compensation from the Trust in order
to defer payment of income taxes or for other reasons. The deferred
compensation payable to a participating trustee is credited to a book reserve
account as of the business day such compensation would have been paid to such
trustee. The deferred compensation accrues income from the date of credit in an
amount equal to the amount that would have been earned had such deferred
compensation (and all income earned thereon) been invested and reinvested in
shares of one or more of the funds. If a participating trustee retires, such
trustee may elect to receive payments under the plan in a lump sum or in equal
annual installments over a period of five years. If a participating trustee
dies, any amount payable under the Plan will be paid to that trustee's
beneficiaries. Each fund's obligation to make payments under the Plan is a
general obligation of that fund. No fund is liable for any other fund's
obligations to make payments under the Plan.
36
<PAGE>
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the funds' prospectus under the
headings "Your Account - How to Buy Shares" and "Your Account - How to Sell
Shares." All of that information is incorporated herein by reference.
Acorn may from time to time authorize certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share purchase
and redemption orders on behalf of the funds. Some of those authorized agents
may charge transaction fees for their services. For purchase orders placed
through an authorized agent, a shareholder will pay the fund's NAV per share
(see "Purchasing and Redeeming Shares - Net Asset Value," below) next computed
after the receipt by the authorized agent of such purchase order, plus any
applicable transaction charge imposed by the agent. For redemption orders
placed through an authorized agent, a shareholder will receive redemption
proceeds which reflect the NAV per share next computed after the receipt by the
authorized agent of the redemption order, less any redemption fees imposed by
the agent.
In some instances, an authorized agent will not charge any transaction fees
directly to investors in a fund. However, for accounting and shareholder
servicing services provided by such agent with respect to fund share accounts
held on behalf of its customers, the agent may charge a fee, generally a
percentage of the annual average value of those accounts. WAM pays any such
fees.
NET ASSET VALUE
Share purchase and redemption orders will be priced at a fund's NAV next
computed after such orders are received and accepted by: (i) Acorn's transfer
agent; (ii) a broker-dealer or other financial services company authorized by
Acorn to accept purchase and redemption orders on the fund's behalf; or (iii)
such authorized broker-dealer's designee. Each fund's NAV is determined only on
days on which the New York Stock Exchange ("NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the
third Monday in January, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one
of those holidays falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively.
Computation of NAV (and the sale and redemption of fund shares) may be
suspended or postponed during any period when (a) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or that
exchange is closed for other than customary weekend and holiday closings, (b)
the Commission has by order permitted such suspension, or (c) an emergency, as
determined by the Commission, exists making disposal of portfolio securities or
valuation of the net assets of the funds not reasonably practicable.
For purposes of computing the NAV of a fund share, a security traded on a
securities exchange, or in an over-the-counter market in which transaction
prices are reported, is valued at the last sale price at the time of valuation.
A security for which there is no reported sale on the
37
<PAGE>
valuation date is valued at the mean of the latest bid and ask quotations or, if
there is no ask quotation, at the most recent bid quotation. Securities for
which quotations are not available, or for which the market quotation is
determined not to represent a fair value, and any other assets are valued at a
fair value as determined in good faith by the board of trustees. Money market
instruments having a maturity of 60 days or less from the valuation date are
valued on an amortized cost basis. All assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars at the mean of
the bid and offer prices of such currencies against U.S. dollars quoted by any
major bank or dealer. If such quotations are not available, the rate of exchange
will be determined in accordance with policies established in good faith by the
board of trustees.
Trading in the foreign securities of the funds' portfolios may take place
in various foreign markets at certain times and on certain days (such as
Saturday) when the NYSE is not open for business and the funds do not calculate
their NAVs. Conversely, trading in the funds' foreign securities may not occur
at times and on days when the NYSE is open. Because of the different trading
hours in various foreign markets, the calculation of NAV does not take place
contemporaneously with the determinations of the prices of many of the funds'
foreign securities. Those timing differences may have a significant effect on a
fund's NAV.
Acorn has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the NAV of a fund during any 90-day period
for any one shareholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of securities. If a redemption is made in kind, the redeeming shareholder
would bear any transaction costs incurred in selling the securities received.
Due to the relatively high cost of maintaining smaller accounts, Acorn
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time the account value
falls below $1,000 because of share redemptions. An investor will be notified
that the value of his account is less than that minimum and allowed at least 30
days to bring the value of the account up to at least $1,000 before the
redemption is processed. The Agreement and Declaration of Trust also authorizes
Acorn to redeem shares under certain other circumstances as may be specified by
the board of trustees.
WAM acts as a shareholder servicing agent for the Reich & Tang Money Funds
(the "Money Funds") in connection with an exchange plan between the Acorn funds
and the Money Funds (the "Switch Plan"). For its services it receives a fee at
the rate of 0.35% of the average annual net assets of each account in a Money
Fund established through the Switch Plan, pursuant to a 12b-1 plan adopted by
the Money Funds.
ADDITIONAL TAX INFORMATION
Each fund intends to continue to qualify to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
so as to avoid payment of
38
<PAGE>
federal income tax on its capital gains and net investment income currently
distributed to its shareholders.
At the time of your purchase, a fund's NAV may reflect undistributed
income, capital gains, or net unrealized appreciation of securities held by that
fund. A subsequent distribution to you of such amounts, although constituting a
return of your investment, will be taxable either as a dividend or capital gain
distribution, whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in January but that
was declared in the prior calendar year is deemed paid in the prior calendar
year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gains. The Internal Revenue Service
Restructuring and Reform Act of 1998 eliminated the requirement that capital
assets be held for more than 18 months in order to be taxed at the lowest rate
in effect under current law, and instead permits capital assets to be so taxed
if held for more than one year. This change applies generally to sales
transactions which occur during taxable years ending after December 31, 1997.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gain. Distributions of net long-term
capital gains are taxable to you as long-term capital gains (currently taxed at
a maximum rate of 20%) regardless of the length of time you have held your
shares. Long-term gains are those derived from securities held by the Fund for
more than one year.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be
required to pay tax on these amounts. If you realize a loss on the sale of fund
shares held for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain distributions you have
received with respect to those shares.
Under certain circumstances, Acorn may be required to withhold 31% federal
income tax ("backup withholding") from dividend, capital gain and redemption
payments to you. Backup withholding may be required if: (a) you fail to
furnish your social security or other tax identification number; (b) you fail to
certify that your social security or tax identification number is correct and
that you are not subject to backup withholding due to the underreporting of
certain income; or (c) the IRS informs Acorn that your tax identification number
is incorrect.
These certifications are contained in the application that you complete
when you open your fund account. Acorn must promptly pay the IRS all amounts
withheld. Therefore, it is usually not possible for Acorn to reimburse you for
amounts withheld. You may, however, claim the amount withheld as a credit on
your federal income tax return.
Foreign currency gains and losses, including the portion of gain or loss on
the sale of debt securities attributable to foreign exchange rate fluctuations,
are taxable as ordinary income. If the net effect of these transactions is a
gain, the income dividend paid by a fund will be increased; if the result is a
loss, the income dividend paid by a fund will be decreased.
Dividends paid by ACORN INTERNATIONAL and ACORN FOREIGN FORTY are not
eligible for the dividends-received deduction for corporate shareholders, if as
expected, none of that fund's
39
<PAGE>
income consists of dividends paid by United States corporations. A portion of
the dividends paid by ACORN FUND, ACORN USA and ACORN TWENTY is expected to be
eligible for the dividends-received deduction. Capital gain distributions paid
from the funds are never eligible for this deduction.
Income received by the funds from sources within various foreign countries
will be subject to foreign income taxes withheld at the source. Under the Code,
if more than 50% of the value of a fund's total assets at the close of its
taxable year comprises securities issued by foreign corporations, that fund may
file an election with the IRS to "pass through" to its shareholders the amount
of foreign income taxes paid by that fund. Pursuant to this election,
shareholders will be required to: (i) include in gross income, even though not
actually received, their respective pro rata share of foreign taxes paid by the
fund; (ii) treat their pro rata share of foreign taxes as paid by them; and
(iii) either deduct their pro rata share of foreign taxes in computing their
taxable income, or use it as a foreign tax credit against U.S. income taxes (but
not both). No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions.
Each of ACORN INTERNATIONAL and ACORN FOREIGN FORTY intends to meet the
requirements of the Code to "pass through" to its shareholders foreign income
taxes paid, but there can be no assurance that it will be able to do so. Each
shareholder will be notified within 60 days after the close of each taxable year
of ACORN INTERNATIONAL or ACORN FOREIGN FORTY, if the foreign taxes paid by the
fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the fund's gross income from foreign sources. Shareholders who are not
liable for federal income taxes, including retirement plans qualified under
Section 401 of the Code, will not be affected by any such "pass through" of
foreign tax credits. ACORN FUND, ACORN USA and ACORN TWENTY do not expect to be
able to "pass through" foreign tax credits.
TAXATION OF FOREIGN SHAREHOLDERS
The Code provides that dividends from net income, which are deemed to
include for this purpose each shareholder's pro rata share of foreign taxes paid
by ACORN INTERNATIONAL and ACORN FOREIGN FORTY (see discussion of "pass through"
of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax.
For shareholders who are not engaged in a business in the U.S., this tax would
be imposed at the rate of 30% upon the gross amount of the dividend in the
absence of a tax treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains are not subject to tax
unless the foreign shareholder is a nonresident alien individual who was
physically present in the U.S. during the tax year for more than 182 days.
PORTFOLIO TRANSACTIONS
Portfolio transactions of the funds are placed with those securities
brokers and dealers that WAM believes will provide the best value in transaction
and research services for each fund, either in a particular transaction or over
a period of time. Although some transactions involve only brokerage services,
many involve research services as well.
40
<PAGE>
In valuing brokerage services, WAM makes a judgment as to which brokers are
capable of providing the most favorable net price (not necessarily the lowest
commission) and the best execution in a particular transaction. Best execution
connotes not only general competence and reliability of a broker, but specific
expertise and effort of a broker in overcoming the anticipated difficulties in
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, WAM makes a judgment of the usefulness of
research and other information provided to WAM by a broker in managing each
fund's investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising that fund.
The reasonableness of brokerage commissions paid by the funds in relation
to transaction and research services received is evaluated by WAM's staff on an
ongoing basis. The general level of brokerage charges and other aspects of each
fund's portfolio transactions are reviewed periodically by the board of trustees
and its committee on portfolio transactions.
WAM is the principal source of information and advice to the funds, and is
responsible for making and initiating the execution of investment decisions by
the funds. However, the board of trustees recognizes that it is important for
WAM, in performing its responsibilities to the funds, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the funds to take into account the value of the information received
for use in advising the funds. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the funds is not determinable. In addition, the board of trustees understands
that other clients of WAM might benefit from the information obtained for the
funds, in the same manner that the funds might benefit from information obtained
by WAM in performing services to others.
Transactions of the funds in the over-the-counter market and the third
market are executed with primary market makers acting as principal except where
it is believed that better prices and execution may be obtained otherwise.
Brokerage commissions incurred by the funds during the last three fiscal
years, not including the gross underwriting spread on securities purchased in
underwritten public offerings, were as follows:
<TABLE>
<CAPTION>
FUND 1998 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Acorn Fund $2,766,000 $2,952,000 $3,440,000
Acorn International 4,111,000 5,350,000 3,929,000
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C> <C>
Acorn USA 305,000 216,000 88,900*
Acorn Twenty 53,000** N/A N/A
Acorn Foreign Forty 41,000** N/A N/A
</TABLE>
* From commencement of operations on September 4, 1996.
** From commencement of operations on November 23, 1998.
During 1998, the funds paid brokerage commissions in connection with
portfolio transactions involving purchases and sales to brokers who furnished
investment research services to the funds, as follows: ACORN FUND paid
approximately $1,268,000 in brokerage commissions on purchases and sales
aggregating approximately $448 million; ACORN INTERNATIONAL paid approximately
$3,619,000 in brokerage commissions on purchases and sales aggregating
approximately $1,019 million; ACORN USA paid approximately $80,000 in brokerage
commissions aggregating approximately $37 million; ACORN TWENTY paid
approximately $22,000 in brokerage commissions aggregating approximately $9
million; and ACORN FOREIGN FORTY paid approximately $37,000 in brokerage
commissions aggregating approximately $12 million.
The funds and WAM each have adopted a code of ethics that, among other
things, regulates the personal transactions in securities of certain officers,
directors, partners and employees of Acorn and WAM. Although investment
decisions for the funds are made independently from those for other investment
advisory clients of WAM, it may develop that the same investment decision is
made for one or more of the funds and one or more other advisory clients. If any
of the funds and other clients purchase or sell the same class of securities on
the same day, the transactions will be allocated as to amount and price in a
manner considered equitable to each.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts
02266-8502 ("State Street") is the custodian for the funds. It is responsible
for holding all securities and cash of the funds, receiving and paying for
securities purchased, delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering expenses of the
funds, and performing other administrative duties, all as directed by authorized
persons of the funds. State Street does not exercise any supervisory function in
such matters as purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the funds. The funds have authorized State Street to
deposit certain portfolio securities of the funds in central depository systems
as permitted under federal law. The funds may invest in obligations of State
Street and may purchase or sell securities from or to State Street.
INDEPENDENT AUDITORS
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois
60606 audits and reports on the funds' annual financial statements, reviews
certain regulatory reports
42
<PAGE>
and the funds' tax returns, and performs other professional accounting,
auditing, tax, and advisory services when engaged to do so by the funds.
43
<PAGE>
APPENDIX - DESCRIPTION OF BOND RATINGS
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general
and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, WAM believes that the quality of
debt securities in which the funds invest should be continuously reviewed. A
rating is not a recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service,
each rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the ratings services from
other sources which they consider reliable. Ratings may be changed, suspended
or withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
MOODY'S RATINGS
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
44
<PAGE>
B--Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
Ca--Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
S&P RATINGS
AAA--Bonds rated AAA have the highest rating. Capacity to pay principal
and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation. Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
45
<PAGE>
FINANCIAL STATEMENTS
Acorn Twenty
Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------
Common Stocks: 94.4%
- ------------------------------------------------------------------
Information: 39.0%
<S> <C> <C>
Television Programming: 3.4%
25,000 Liberty Media Group,
Tele-Communications (b) $1,152
CATV & Satellite Dish Programming
Telephone Services: 8.9%
170,000 RCN 3,007
Metro Market: Voice, Video & Data Services
Mobile Communications: 11.0%
83,000 Telephone and Data Systems 3,730
Cellular & Telephone Franchises
Business Information/
Marketing Services: 15.7%
50,000 Acxiom (b) 1,550
Database Marketing Services
28,000 H & R Block 1,260
Tax Preparation
40,000 TCI Ventures (b) 943
Communication Services
70,000 PRIMEDIA 823
Specialty Magazines & Other Publications
25,000 ACNielsen (b) 706
Retail Measurement
- ------------------------------------------------------------------
5,282
-------
Information: Total 13,171
- ------------------------------------------------------------------
Health Care: 12.8%
Services: 12.8%
40,000 Lincare Holdings (b) 1,622
Home Health Care Services
91,000 First Health Group (b) 1,507
PPO Network
41,000 HBO & Company 1,176
Hospital Computer Services
4,305
-------
Health Care: Total 4,305
- ------------------------------------------------------------------
Consumer Goods/Services: 12.1%
Cruise Lines: 5.2.%
47,000 Royal Caribbean Cruises $1,739
Cruises to Caribbean & Alaska
Leisure Vehicles: 3.4%
24,000 Harley-Davidson 1,137
Motorcycles & Related Merchandise
Manufacturers: 3.5%
54,000 Jones Apparel (b) 1,191
Women's Apparel
-------
Consumer Goods/Services: Total 4,067
- ------------------------------------------------------------------
Finance: 17.4%
Finance Companies: 5.6%
135,000 Americredit (b) 1,865
Auto Lending
Insurance: 5.0%
10,000 Progressive 1,694
Auto Insurance
Banks: 6.8%
28,000 Republic NY 1,276
Private & Retail Banking
51,000 Peoples Heritage Financial 1,020
New England Bank
- ------------------------------------------------------------------
2,296
------
Finance: Total 5,855
- ------------------------------------------------------------------
Industrial Goods/Services: 5.6%
Logistics: 5.6%
45,000 Expeditors International of Washington 1,890
International Freight Forwarder
------
Industrial Goods/Services: Total 1,890
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------
- --------------------------------------------------------------
<S> <C>
Energy/Minerals: 7.5%
Independent Power: 7.5%
28,000 AES Corporation (b) $ 1,326
Power Plants
35,000 CalEnergy (b) 1,214
Power Plants/Competitive Utility
- --------------------------------------------------------------
2,540
-------
Energy/Minerals: Total 2,540
-------
Total Common Stocks: 94.4% 31,828
(Cost: $29,296)
Short-Term Obligations: 2.9%
$ 994 State Street Bank
Repurchase Agreement 994
2.0% Maturing 1/4/99;
12/31/98 Agreement
Collateralized by U.S. Treasury Bonds
- --------------------------------------------------------------
(Cost: $994) 994
-------
Total Investments: 97.3% 32,822
(Cost: $30,290)
-------
Cash and Other Assets Less Liabilities: 2.7% 902
-------
Total Net Assets: 100% $33,724
==============================================================
</TABLE>
>Notes to Statement of Investments
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $30,290,000 and net unrealized appreciation was $2,532,000, consisting
of gross unrealized appreciation of $2,805,000 and gross unrealized
depreciation of $273,000.
(b) Non-income producing security.
47
<PAGE>
Acorn Foreign Forty
Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ------------------------------------------------------------------
Common Stocks: 90.3%
- ------------------------------------------------------------------
<C> <S> <C>
Europe: 71.5%
Germany: 1.3%
2,000 Rhoen Klinikum $199
Hospital Management
Denmark: 2.1%
5,000 ISS International System 325
Cleaning Services
Finland: 2.8%
7,500 Helsinki Telephone 449
Telecommunications Operator
Sweden: 0.9%
4,000 Autoliv 149
Seatbelts & Airbags
France: 7.1%
2,500 Atos (b) 598
Computer Services/Transaction Processing
2,000 SITA 524
Waste Hauling & Landfills
- ------------------------------------------------------------------
1,122
United Kingdom: 23.1%
60,000 Hays 527
Outsourcing Services
9,000 NTL (b) 508
Voice, Video & Data Services
150,000 Smith & Nephew 467
Medical Equipment
30,000 Bodycote 415
Materials Technology & Metal Processing
45,000 Logica 391
Computer Software & Services
60,000 Airtours 383
Markets & Operates Packaged Tour Vacations
20,000 Serco Group (b) 383
Facilities Management
35,000 Sema Group 344
Computer Software & Services
10,000 Energis (b) 224
Telecommunications Services
- ------------------------------------------------------------------
3,642
Switzerland: 5.6%
350 Cie Fin Richemont 495
Luxury Goods, Tobacco & Pay TV
250 Pargesa Holdings 395
Industrial & Media Conglomerate
- ------------------------------------------------------------------
890
Italy: 7.4%
160,000 Olivetti (b) 558
Mobile Telecommunications
42,000 Editoriale L'Espresso 369
Newspapers & Magazines
30,000 Autogrill 242
Tollway Restaurants
- ------------------------------------------------------------------
1,169
7,500 Aguas de Barcelona $ 503
Utility
12,000 Mapfre Vida 452
Life Insurance & Mutual Funds
- ------------------------------------------------------------------
955
Netherlands: 15.1%
23,000 Unique International 527
Temporary Employment
20,000 Kon. Pakhoed 505
Logistics
9,000 Global TeleSystems (b) 502
Telecommunications Services
13,000 Hunter Douglas 431
Decorative Window Coverings
4,543 ASR Verzekeringsgroep 412
Insurance
- ------------------------------------------------------------------
2,377
------
Europe: Total 11,277
- ------------------------------------------------------------------
Asia: 11.6%
Hong Kong: 0.1%
7,000 Li and Fung 14
Sourcing of Consumer Goods
Japan: 8.3%
100 NTT Data 497
Computer Services/Data Communications
2,500 Nintendo 243
Video Games
10,000 Terumo 236
Health Care Supplies
2,000 Softbank 120
Software/Network Services
1,500 Takefuji 110
Unsecured Loans
4,500 NuSkin Enterprises (b) 106
Cosmetics Sold Door-to-Door
- ------------------------------------------------------------------
1,312
Singapore: 3.2%
200,000 Natsteel Electronics 509
Electronic Manufacturing Services
-----
Asia: Total 1,835
- ------------------------------------------------------------------
Other Countries: 7.2%
Canada: 5.8%
19,000 Celestica (b) 468
Electronic Manufacturing Services
20,000 Canadian Natural Resources (b) 299
Oil & Gas Producer
7,000 Power Financial 155
Financial Services Holding Company
- ------------------------------------------------------------------
922
Israel: 0.6%
5,000 Amdocs (b) 86
Telecommunications Billing
& Customer Care Software
See accompanying notes to financial statements
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------------
<S> <C>
South Africa: 0.8%
16,000 Comparex Holdings $ 130
Computer Networking & Systems Integration ------
Other: Total 1,138
Total Common Stocks: 90.3% 14,250
(Cost: $13,084)
Short-Term Obligations: 10.8%
$ 1,709 State Street Bank
Repurchase Agreement 1,709
3.25% Maturing 1/4/99;
12/31/98 Agreement
Collateralized by U.S. Treasury Bonds
- -------------------------------------------------------------------
(Cost: $1,709) 1,709
Total Investments: 101.1% $15,959
(Cost: $14,793)
-------
Cash and Other Assets Less Liabilities: (1.1%) (174)
-------
Total Net Assets: 100% $15,785
- -------------------------------------------------------------------
</TABLE>
Notes to Statement of Investments
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $14,812,000 and net unrealized appreciation was $1,147,000, consisting of
gross unrealized appreciation of $1,289,000 and gross unrealized depreciation of
$142,000.
(b) Non-income producing security.
Portfolio Diversification
At December 31, 1998, Acorn Foreign Forty's portfolio of investments as a
percent of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value (000) Percent
-----------------------------------------------------
<S> <C> <C>
Information
Computer Services $ 1,960 12.5%
Telephone Services 1,175 7.5
Mobile Communications 558 3.5
Contract Manufacturing 509 3.2
CATV 508 3.2
Publishing 489 3.1
Business Software 86 0.5
- ------------------------------------------------------
5,285 33.5
Health Care
Hospital/Laboratory Supplies 467 3.0
Medical Equipment 236 1.5
Hospital Management 199 1.2
- ------------------------------------------------------
902 5.7
Consumer Goods/Services
Durable Goods 580 3.7
Entertainment 495 3.1
Travel 383 2.4
Consumer Software 243 1.5
Restaurants 242 1.5
Nondurables 106 0.8
- ------------------------------------------------------
2,049 13.0
Finance
Insurance 1,019 6.5
Closed-End Funds 395 2.5
Savings & Loan 110 0.7
- ------------------------------------------------------
1,524 9.7
Industrial Goods/Services
Outsourcing Services $ 1,776 11.3%
Industrial Services 505 3.2
Electrical Components 468 3.0
Industrial Materials 415 2.5
- ------------------------------------------------------
3,164 20.0
Energy/Minerals
Oil/Gas Producers 299 1.9
Other Industries
Waste Management 524 3.3
Regulated Utilities 503 3.2
- ------------------------------------------------------
1,027 6.5
Total Common Stocks: 14,250 90.3
Short-Term Obligations: 1,709 10.8
- ------------------------------------------------------
Total Investments: 15,959 101.1
Cash and Other Assets less
Liabilities: (174) (1.1)
- ------------------------------------------------------
Net Assets: $15,785 100.0%
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Acorn USA
Major Portfolio Changes in the Fourth Quarter
Number of Shares
------------------
9/30/98 12/31/98
Additions
- ----------------------------------------------------
<S> <C> <C>
Information
Aspect Telecommunications 146,100 377,100
Aztec Technology Partners 243,000 531,300
Information Management 0 22,000
JDA Software 0 214,000
Micros Systems 391,500 518,500
National Data 182,100 214,300
Sykes Enterprises 196,300 258,500
Systems & Computer Technology 0 210,400
- ----------------------------------------------------
Health Care
CuraGen 0 49,100
First Health Group 152,000 352,000
Lincare Holdings 275,200 352,200
- ----------------------------------------------------
Consumer Goods/Services
First Years 0 2,500
Host Marriott Services 842,100 930,600
- ----------------------------------------------------
Finance
Americredit 0 135,000
Markel 0 13,800
- ----------------------------------------------------
Industrial Goods/Services
Compass International Services 83,000 243,000
Wackenhut, Cl. B 349,500 382,200
- ----------------------------------------------------
Energy/Minerals
CalEnergy 573,400 674,400
Tesoro Petroleum 439,300 483,800
Sales
- ----------------------------------------------------
Information
Cable Michigan 35,100 0
Mecklermedia 378,800 0
Mettler Toledo 93,000 56,000
Startec Global Communications 124,400 0
Thermoquest 102,300 0
United Video Satellite Group 312,000 288,000
- ----------------------------------------------------
Finance
AmerUs Life Holdings 210,500 184,500
Washington Mutual 149,500 94,400
(includes effect of 1.68 for 1 share
merger with H.F. Ahmanson)
- ----------------------------------------------------
Industrial Goods/Services
Trailer Bridge 51,000 0
- ----------------------------------------------------
Energy/Minerals
J Ray McDermott 52,400 37,900
</TABLE>
50
<PAGE>
Acorn USA
Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
Common Stocks: 93.3%
- ----------------------------------------------------------------------------
<S> <C> <C>
Information: 38.0%
Broadcasting: 2.2%
209,100 Data Transmission Network (b) $ 6,038
Data Services for Farmers
Television Programming: 4.2%
288,000 United Video Satellite Group (b) 6,804
CATV & Satellite Dish Programming
106,000 Liberty Media Group,
Tele-Communications (b) 4,883
CATV & Satellite Dish Programming
- ----------------------------------------------------------------------------
11,687
Telephone Services: 3.3%
402,700 RCN (b) 7,123
Metro Market: Voice, Video & Data Services
65,500 Commonwealth Telephone (b) 2,194
Rural Market: Local, Long Distance
& Internet Access
- ----------------------------------------------------------------------------
9,317
Mobile Communications: 4.7%
254,000 Centennial Cellular (b) 10,414
Cellular Franchises
121,800 COMARCO (b) 2,923
Wireless Network Testing
- ----------------------------------------------------------------------------
13,337
Telecommunications Equipment: 2.3%
377,100 Aspect Telecommunications (b) 6,505
Call Center Equipment
Gaming Equipment: 1.3%
146,000 International Game Technology 3,550
Slot Machines & Progressive Jackpots
Computer Services: 3.5%
258,500 Sykes Enterprises (b) 7,884
Call Center Services
531,300 Aztec Technology Partners (b) 1,926
Technology Staffing Services
- ----------------------------------------------------------------------------
9,810
Consumer Software: 0.4%
111,900 Activision (b) 1,245
Entertainment Software
Business Software: 1.8%
210,400 Systems & Computer Technology (b) 2,893
Enterprise Software & Services
214,000 JDA Software (b) 2,073
Applications Software & Services for Retailers
22,000 Information Management (b) 129
Call Center Software
- ----------------------------------------------------------------------------
5,095
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Transaction Processors: 3.7%
214,300 National Data $ 10,434
Credit Card & Health Claims Processor
Instrumentation: 0.6%
56,000 Mettler Toledo (b) 1,571
Laboratory Products
Business Information/
Marketing Services: 1.6%
408,100 IntelliQuest Information (b) 2,755
Technology/Market Research
240,500 Info USA, Cl. B (b) 1,263
107,000 Info USA, Cl. A 522
Business Data for Sales Leads
- ----------------------------------------------------------------------------
4,540
Computer Hardware/
Related Equipment: 8.4%
518,500 Micros Systems (b) 17,046
Information Systems for Restaurants & Hotels
147,100 Kronos (b) 6,518
Time Accounting Software & Clocks
- ----------------------------------------------------------------------------
23,564
--------
Information: Total 106,693
- ----------------------------------------------------------------------------
Health Care: 9.2%
Biotechnology/Drug Delivery: 0.5%
78,000 Synaptic Pharmaceuticals (b) 1,170
Receptor Targeted Drug Design
49,100 CuraGen (b) 347
Genomics
- ----------------------------------------------------------------------------
1,517
Services: 8.7%
352,200 Lincare Holdings (b) 14,286
Home Health Care Services
352,000 First Health (b) 5,830
PPO Network
520,000 Magellan Health Services (b) 4,355
Mental Health Services
- ----------------------------------------------------------------------------
24,471
--------
Health Care: Total 25,988
- ----------------------------------------------------------------------------
Consumer Goods/Services: 3.6%
Retail: 3.4%
930,600 Host Marriott Services (b) 9,655
Fast Food Kiosks in Airports
Nondurables: 0.0%
2,500 First Years 39
Infant & Toddler Products
Food: 0.2%
84,700 Fresh Foods (b) 402
Prepared Foods
--------
Consumer Goods/Services: Total 10,096
</TABLE>
See accompanying notes to financial statements
51
<PAGE>
Acorn USA
Statement of Investments
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
<S> <C> <C>
Finance: 13.3%
Savings & Loans: 1.7%
94,400 Washington Mutual $ 3,605
West Coast Savings & Loan
156,500 Coast Contingency Rights (b) 1,037
Litigation Claim Against US Government
- ----------------------------------------------------------------------------
4,642
Finance Companies: 2.0%
590,000 World Acceptance (b) 3,835
Personal Loans
135,000 Americredit (b) 1,865
Auto Lending
- ----------------------------------------------------------------------------
5,700
Money Management: 0.4%
52,800 Pioneer Group 1,043
Equity Mutual Funds
Insurance: 9.2%
342,700 UICI (b) 8,396
Health Insurance
392,100 Acceptance Insurance (b) 7,940
Crop Insurance
184,500 AmerUs Life Holdings 4,128
Annuities/Life Insurance
93,000 Leucadia National 2,929
Insurance Holding Company
13,800 Markel (b) 2,498
Specialty Insurance
- ----------------------------------------------------------------------------
25,891
--------
Finance: Total 37,276
- ----------------------------------------------------------------------------
Industrial Goods/Services: 11.5%
Steel: 0.9%
97,300 Schnitzer Steel 1,399
Scrap Steel Processor
119,000 Atchison Casting (b) 1,101
Steel Foundries
- ----------------------------------------------------------------------------
2,500
Industrial Distribution: 0.5%
70,000 Vallen (b) 1,400
Safety Products Distribution
Machinery: 0.8%
221,200 Farr Company (b) 2,239
Filters
Specialty Chemicals: 1.6%
225,600 Lilly Industries, Cl. A 4,498
Industrial Coatings
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Other Industrial Services: 7.7%
382,200 Wackenhut, Cl. B $ 8,384
Prison Management
346,000 Hub Group (b) 6,704
Truck & Rail Freight Forwarder
334,500 Insurance Auto Auctions (b) 3,972
Auto Salvage Services
243,000 Compass International Services (b) 2,582
Collection Agencies
- ----------------------------------------------------------------------------
21,642
--------
Industrial Goods/Services: Total 32,279
- ----------------------------------------------------------------------------
Energy/Minerals: 16.5%
Independent Power: 8.3%
674,400 CalEnergy (b) 23,393
Power Plants/Competitive Utility
Oil/Gas Producers: 2.1%
483,800 Tesoro Petroleum (b) 5,866
Oil Refinery/Gas Reserves
Distribution/Marketing/Refining: 5.1%
283,000 Atmos Energy 9,127
Natural Gas Utility
92,300 Equitable Resources 2,688
Natural Gas Utility & Producer
228,400 Dynegy 2,498
Natural Gas Processing & Marketing
- ----------------------------------------------------------------------------
14,313
Oil Services: 1.0%
179,000 GeoScience (b) 1,958
Offshore Seismic Equipment Company
37,900 J Ray McDermott (b) 926
Offshore Construction Company
- ----------------------------------------------------------------------------
2,884
--------
Energy/Minerals: Total 46,456
- ----------------------------------------------------------------------------
Real Estate: 1.2%
85,400 Forest City Enterprises Cl. A 2,242
Shopping Centers
39,100 Gaylord Entertainment (b) 1,178
Opryland Hotel & Other Assets
- ----------------------------------------------------------------------------
3,420
--------
Real Estate: Total 3,420
</TABLE>
See accompanying notes to financial statements
52
<PAGE>
<TABLE>
<CAPTION>
Principal Amount Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
--------
Total Common Stocks: 93.3% $262,208
(Cost: $245,467)
Short-Term Obligations: 7.0%
Yield 4.90%-6.11%
Due 1/4-1/6/99
$8,132 American General 8,126
$6,454 General Motors Acceptance 6,451
$5,003 General Electric Capital 5,000
- ----------------------------------------------------------------------------
(Amortized Cost: $19,577) 19,577
--------
Total Investments: 100.3% 281,785
Cost: $265,044)
--------
Cash and Other Assets Less Liabilities: (0.3%) (834)
--------
Total Net Assets: 100% $280,951
- ----------------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------------------------------
Notes to Statement of Investments
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $265,251,000 and net unrealized appreciation was $16,534,000, consisting of
gross unrealized appreciation of $48,630,000 and gross unrealized depreciation
of $32,096,000.
(b) Non-income producing security.
53
<PAGE>
Acorn International
Major Portfolio Changes in the Fourth Quarter
<TABLE>
<CAPTION>
Number of Shares
----------------------
9/30/98 12/31/98
Additions
- --------------------------------------------------------------------------
<S> <C> <C>
Europe
Denmark
Carli Gry 0 100,000
Finland
Helsinki Telephone 0 85,000
Sweden
Esselte, Series A 309,400 400,000
Mandator 0 50,000
Semcon 0 35,400
France
SITA 35,000 45,000
United Kingdom
Airtours 0 600,000
Atkins 1,100,000 1,350,000
Bodycote 0 450,000
Energis 0 50,000
HALMA 3,400,000 4,000,000
Hays 0 350,000
(includes effect of 100% stock bonus)
Logica 75,000 575,000
(includes effect of 5 for 1 stock split)
Ocean Group 0 225,000
(includes effect of 9 for 10 reverse stock split)
Parity 200,000 500,000
Premier Oil 0 10,000,000
Sema Group 0 401,908
Smith & Nephew 0 500,000
Taylor Nelson 0 3,500,000
Switzerland
Cie Fin Richemont 19,000 20,000
Italy
Aeroporti di Roma 1,000,000 1,400,000
Autogrill 2,750,000 2,900,000
Banca Fideuram 2,725,000 3,000,000
Spain/Portugal
Aguas de Barcelona 5,000 79,500
Mapfre Vida 335,000 370,000
Jeronimo Martins (Portugal) 0 13,800
Netherlands
ASR Verzekeringsgroep 130,000 145,000
Global TeleSystems 0 40,000
Kon. Pakhoed 0 150,000
Hungary
Gedeon Richter 0 30,000
Matav 0 750,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
----------------------
9/30/98 12/31/98
Additions
- --------------------------------------------------------------------------
<S> <C> <C>
Asia
Hong Kong
TVB 0 1,500,000
Varitronix International 8,585,000 9,250,000
Japan
Bellsystem 24 0 10,000
NTT Data 0 1,000
NuSkin Enterprises 0 132,000
Orix 0 100,000
Secom 0 54,000
Terumo 0 120,000
Singapore
Datacraft Asia 4,400,000 9,999,964
(includes effect of 100% stock bonus)
Natsteel Electronics 5,875,000 6,500,000
- --------------------------------------------------------------------------
Latin America
Brazil
Itau Banco 0 8,000,000
- --------------------------------------------------------------------------
Other Countries
Australia
AAPT 3,070,000 4,000,000
Mayne Nickless 0 1,250,000
Canada
Canadian Natural Resources 0 400,000
Celestica 510,000 600,000
Northstar Energy 0 82,250
Penn West Petroleum 0 300,000
Israel
Galileo Technology 0 90,000
South Africa
Dimension Data 0 2,000,000
United States
AES Corporation 128,000 300,000
</TABLE>
54
<PAGE>
<TABLE>
Number of Shares
--------------------
9/30/98 12/31/98
Sales
- ------------------------------------------------------------------
<S> <C> <C>
Europe
Germany
IVG Holdings 89,000 0
Finland
Tieto Corporation 2,195,000 1,500,000
Sweden
Atle 525,000 315,000
Autoliv 367,000 295,000
Bure Investment 700,000 475,000
Getinge Industrier 970,000 760,000
Icon Medialab 73,400 0
WM Data Nordic 2,000,000 1,800,000
France
Virbac 24,000 6,600
United Kingdom
Coca-Cola Beverages 2,200,000 0
Capita Group 2,000,000 1,800,000
Dorling Kindersley 190,000 0
Dialog Corporation 1,600,000 350,000
Powerscreen International 490,000 0
Professional Staff 190,000 0
Seton Scholl Healthcare Group 1,500,000 1,000,000
Vosper Thornycroft Holdings 400,000 270,500
Switzerland
Phoenix Mecano 36,000 34,000
Italy
Banca Popolare Di Bergamo 450,000 250,000
Saes Getters 135,000 0
Portugal
Estoril Sol 133,500 0
Netherlands
DOCdata 290,000 175,000
Kempen 375,000 300,000
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
----------------------
9/30/98 12/31/98
Sales
- ---------------------------------------------------------------------
Asia
<S> <C> <C>
Hong Kong
Vanda Systems 10,310,000 0
Japan
Hokuto 390,000 108,000
People 204,000 0
Meitec 390,000 0
Fuji Software ABC 250,000 200,000
Indonesia
Mustika Ratu 2,126,000 0
Philippines
Philippine Savings 215,000 0
Latin America
Brazil
Cemig Pfd. 220,000,000 160,000,000
Argentina
Siderca 1,600,000 0
IRSA GDS 500,000 407,124
(includes effect of 1.78% stock dividend)
Other Countries
Australia/New Zealand
PetSec Energy 800,000 0
Sky City (New Zealand) 873,000 0
Israel
Orbotech 100,000 0
South Africa
Energy Africa 500,000 0
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Acorn International
Statement of Investments December 31, 1998
Number of Shares Value (000)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks and Other
Equity-Like Securities: 87.6%
- -------------------------------------------------------------------------------
Europe: 60.8%
Germany/Austria: 4.1%
200,000 Rhoen Klinikum Pfd. $20,412
160,000 Rhoen Klinikum 15,898
Hospital Management
473,000 United International Holdings
(Austria) (b) 9,105
Cable Television for Austria & Other Countries
200,000 Merck KGA 9,006
Pharmaceuticals
165,000 Flughafen Wien (Austria) 8,100
Vienna Airport Authority
18,500 Cewe Color Holding 3,277
Photographic Developing & Printing
200,000 Berzelius Umwelt 3,122
Industrial Waste Recycling
60,000 Boewe Systec 2,450
Envelope Stuffing Machines
- -------------------------------------------------------------------------------
71,370
Denmark: 0.9%
100,000 Carli Gry 6,033
Casual Clothing
50,000 Vest Wood 4,007
Furniture Company
45,000 ISS International System 2,927
Cleaning Services
44,000 Kompan International (c) 2,143
Playground Equipment
- -------------------------------------------------------------------------------
15,110
Finland: 7.0%
1,500,000 Tieto Corporation 67,247
Computer Services/Consulting
1,200,000 Talentum (c) 20,145
Trade Journals & Multimedia
480,000 Fiskars, Series A 9,764
Scissors & Gardening Tools
750,000 Elcoteq Network (c) 8,147
Electronic Manufacturing Services
135,000 KCI Konecranes International 6,132
Cranes & Maintenance
85,000 Helsinki Telephone 5,087
Telecommunications Operator
100,000 Spar Finland (c) 4,345
Grocery/Convenience Stores
- -------------------------------------------------------------------------------
120,867
Norway: 0.0%
500,000 Atex Media Solutions (b) 722
Print Media Software
- -------------------------------------------------------------------------------
Sweden: 6.8%
1,800,000 WM Data Nordic 76,834
Computer Services/Consulting
760,000 Getinge Industrier 11,439
Sterilization & Disinfection Equipment
295,000 Autoliv 10,970
Seatbelts & Airbags
475,000 Bure Investment 6,739
Health Care Services & Investments
400,000 Esselte, Series A 6,415
Office Supplies & Related Equipment
315,000 Atle 4,080
Investment Company
50,000 Mandator 392
Computer Services/Consulting
35,400 Semcon 293
Technical Consultant
- -------------------------------------------------------------------------------
117,162
France: 5.1%
180,000 Atos (b) 43,049
Computer Services/Transaction Processing
45,000 SITA 11,801
Waste Hauling & Landfills
62,000 NRJ 11,099
Radio Network
60,000 Fininfo 10,633
Data Feeds for French Banks & Brokers
95,000 Spir Communications 5,672
Regional Newspapers
15,000 Penauille Polyservice 4,189
Industrial Cleaning
38,000 Assystem 875
Nuclear Energy Consulting
6,600 Virbac 508
Veterinary Medicine
- -------------------------------------------------------------------------------
87,826
</TABLE>
See accompanying notes to financial statements
56
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
United Kingdom/Ireland: 14.5%
2,045,000 Serco Group $39,179
Facilities Management
467,000 NTL (b) 26,356
Voice, Video & Data Services
13,000,000 Electronics Boutique 17,466
Videogame/Computer Software Stores
1,800,000 Capita Group 16,636
Outsourcing Services
1,000,000 Seton Scholl Healthcare Group 13,934
Pharmaceuticals
510,000 Euro Money Publications 11,880
Financial Publications
1,350,000 Atkins 11,174
Outsourcing Services
1,700,000 Rotork 10,890
Valve Actuators for Oil & Water Pipelines
4,000,000 HALMA 8,153
Fire Detection Devices
650,000 AEA Technology 7,922
Lithium Batteries/Nuclear Energy Consulting
1,500,000 N. Brown Group 7,262
Mail Order Clothing in Large Sizes
2,000,000 Shanks & McEwan 7,005
Landfills & Waste Incinerators
450,000 Bodycote 6,233
Materials Technology & Metal Processing
325,000 Saville Systems ADR (Ireland) (b) 6,175
Telecommunications Billing
& Customer Care Software
2,000,000 Oriflame International 5,707
Cosmetics Sold Door-to-Door
4,400,000 City Centre Restaurants 5,234
Fast Food Restaurants
575,000 Logica 4,999
Computer Software & Services
500,000 Parity 4,763
Computer Software, IT Staffing & Services
3,500,000 Taylor Nelson 4,426
Market Research Services
401,908 Sema Group (b) 3,952
Computer Software & Services
600,000 Airtours 3,833
Markets & Operates Packaged Tour Vacations
1,100,000 Hogg Robinson 3,779
Corporate Travel Management
270,500 Vosper Thornycroft Holdings 3,459
Naval Shipbuilding
766,000 Edinburgh Fund Managers 3,154
Investment Management
350,000 Hays 3,072
Outsourcing Services
700,000 Fairey Group 2,987
Electronic Products
225,000 Ocean Group (b) 2,836
250,000 Ocean Group, Cl. B (b) 266
Logistics
10,000,000 Premier Oil (b) 2,620
Oil & Gas Producer
250,000 ITNET (b) 1,965
IT Outsourcing Services
500,000 Smith & Nephew 1,556
Medical Equipment
50,000 Energis (b) 1,119
Telecommunications Services
350,000 Dialog Corporation (b) 338
Online Business Information
- ----------------------------------------------------------------------------
250,330
Switzerland: 5.9%
20,000 Cie Fin Richemont 28,278
Luxury Goods, Tobacco & Pay TV
34,000 Phoenix Mecano 20,422
Electrical Components Manufacturer
60,000 Selecta Group 16,600
Vending Machines
13,000 Hero 8,897
Packaged Foods
15,000 Bon Appetit 8,179
Cash & Carry Stores/Specialty Restaurants
4,500 Sarasin & Cie Bank 7,994
Private Banking
18,000 Societe Generale d'Affichage 7,024
Billboard Advertising
3,200 Pargesa Holdings 5,056
Industrial & Media Conglomerate
- ----------------------------------------------------------------------------
102,450
Italy/Greece: 8.4%
2,900,000 Autogrill 23,356
Tollway Restaurants
3,000,000 Banca Fideuram 21,477
Life Insurance & Mutual Funds
2,000,000 Editoriale L'Espresso 17,587
Newspapers & Magazines
700,000 Banco Pop Commercia e Industria 14,073
Regional Bank
1,400,000 Aeroporti di Roma 12,226
Airport Management
600,000 Gewiss 12,226
Electrical Plugs & Switches
1,160,000 Attica Enterprises (Greece) 10,397
Ferry Line
1,400,000 Mediolanum 10,401
Life Insurance & Mutual Funds
400,000 Industrie Natuzzi ADR 9,950
Leather Couches
250,000 Hellenic Bottling (Greece) 7,717
Coca-Cola Bottler
250,000 Banca Popolare Di Bergamo 6,080
Regional Bank
- ----------------------------------------------------------------------------
145,490
Spain/Portugal: 2.4%
370,000 Mapfre Vida 13,944
Life Insurance & Mutual Funds
600,000 Prosegur 7,008
Security Guards
250,000 Cortefiel 6,599
Apparel Retailer
</TABLE>
57
<PAGE>
Acorn International
Statement of Investments
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
79,750 Aguas de Barcelona $ 5,347
Utility
150,000 Sol Melia 5,240
Hotel Management
118,200 Filmes Lusomundo (Portugal) (b) 1,482
Newspapers, Radio, Video, Film Distribution
13,800 Jeronimo Martins (Portugal) 755
Food
- ------------------------------------------------------------------------------
40,375
Netherlands: 5.1%
560,000 Getronics 27,751
Computer Services/Consulting
300,000 Kempen 15,954
Stock Brokerage/Investment Management
145,000 ASR Verzekeringsgroep 13,135
Insurance
300,000 Hunter Douglas 9,943
Decorative Window Coverings
370,000 Wegener Arcade NV 6,723
Newspaper
900,000 Scala Business Solutions GIC Units (b)(c) 5,837
50,000 Scala Business Solutions (b) 453
95,775 Scala Business Solutions
Warrants 3/31/99 (b) 11
95,775 Scala Business Solutions
Warrants 3/31/01 (b) 7
Enterprise Software for Small-to-Medium
Sized Companies
150,000 Kon. Pakhoed 3,789
Logistics
40,000 Global TeleSystems (b) 2,230
Telecommunications Services
175,000 DOCdata (b) 1,790
Audio CD & CD-ROM Replication
- ------------------------------------------------------------------------------
87,623
Hungary: 0.6%
750,000 Matav (b) 4,288
Telecommunications Operator
100,000 Pick Szeged 4,250
Salami Producer
30,000 Gedeon Richter 1,278
Pharmaceuticals
- ------------------------------------------------------------------------------
9,816
---------
Europe: Total 1,049,141
- ------------------------------------------------------------------------------
Asia: 14.2%
Hong Kong: 2.9%
14,327,000 Li and Fung 29,681
Sourcing of Consumer Goods
9,250,000 Varitronix International 17,312
LCD Manufacturer
1,500,000 TVB 3,872
Television Broadcasting
- ------------------------------------------------------------------------------
50,865
India: 0.3%
80,000 Housing Development Finance 4,101
Mortgage Lender
2,000,000 Centurion Quantum Growth (b) 332
Closed-End Fund
- ------------------------------------------------------------------------------
4,433
Japan: 5.0%
125,000 Nidec 15,326
Spindle Motor Manufacturer
130,000 Nintendo 12,620
Video Games
76,500 Ryohin Keikaku 10,207
Designer & Retailer of Muji Brand
Specialty Consumer Goods
200,000 Fuji Software ABC 10,195
Computer Services/Consulting
100,000 Orix 7,482
Finance Leasing
255,000 Noritsu Koki 5,539
Photo Processing Lab Manufacturer
1,000 NTT Data 4,973
Computer Services/Consulting
54,000 Secom 4,481
Security Services
270,000 Shinki 3,327
Corporate & Consumer Lending
132,000 NuSkin Enterprises (b) 3,118
Cosmetics Sold Door-to-Door
120,000 Terumo 2,830
Medical Supplies
108,000 Hokuto 2,633
Mushroom Grower
10,000 Bellsystem 24 2,234
Telemarketing
207,000 Arrk Corporation 1,101
Industrial Modeling
- ------------------------------------------------------------------------------
86,066
Taiwan: 0.2%
1,249,616 Chroma Ate (b) 3,316
Measuring Instruments
Malaysia: 0.1%
1,595,000 Malaysian Oxygen 2,115
Industrial Gases
Philippines: 0.8%
$8,750,000 Int'l Container Terminal Services
Cv. 1.75% 3/13/04 6,650
79,260,000 Int'l Container Terminal Services (b) 6,622
Container Handling Terminals & Port Management
- ------------------------------------------------------------------------------
13,272
Singapore: 4.9%
7,500,000 Venture Manufacturing 28,636
Electronic Manufacturing Services
9,500,000 Star Cruises (b) 20,045
Cruise Line
</TABLE>
See accompanying notes to financial statements
58
<PAGE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- ------------------------------------------------------------------------------
<S> <C> <C>
9,999,964 Datacraft Asia $ 17,700
Network Systems Integration
6,500,000 Natsteel Electronics 16,545
Electronic Manufacturing Services
16,900,000 Genting International (b) 1,775
Investment Holding
- ------------------------------------------------------------------------------
84,701
-------
Asia: Total 244,768
- ------------------------------------------------------------------------------
Latin America: 4.5%
Mexico: 2.6%
7,000,000 Grupo Industrial Bimbo 13,448
Bread, Baked Goods & Snacks
3,500,000 Kimberly Clark de Mexico 11,148
Paper Products
3,600,000 Corp Interamericana
de Entretenimiento (b) 9,828
Special Events & Live Entertainment
8,940,000 Nadro, Series L 5,695
Pharmaceutical Distributor
2,300,000 Grupo Continental 5,570
Beverages
- ------------------------------------------------------------------------------
45,689
Brazil: 0.7%
470,000 Elevadores Atlas 5,057
Elevator Installation & Maintenance
8,000,000 Itau Banco 3,906
Commercial Banking Services
160,000,000 Cemig Pfd. 3,046
Electric Utility
- ------------------------------------------------------------------------------
12,009
Argentina: 0.7%
407,124 IRSA GDS 11,323
Real Estate Management & Development
Peru: 0.3%
6,500,000 Enrique Ferreyros 5,870
Heavy Machinery Dealer
Panama: 0.2%
150,000 Banco Latinoamericano
de Exportaciones 2,494
Trade Financing
------
Latin America: Total 77,385
- ------------------------------------------------------------------------------
Other Countries: 8.1%
Australia: 1.7%
4,000,000 AAPT (b) 10,305
Telecommunications Services
6,500,000 Tyndall Australia 9,968
Money Management & Insurance
1,250,000 Mayne Nickless (b) 4,639
Logistics & Hospital Management
2,500,000 Anaconda Nickel (b) 3,834
Nickel Mining
- ------------------------------------------------------------------------------
28,746
Canada: 3.2%
600,000 Celestica (b) 14,766
Electronic Manufacturing Services
400,000 Power Financial 8,854
Financial Services Holding Company
1,000,000 Shaw Industries 8,138
Oil Field Services
400,000 Canadian Natural Resources (b) 5,990
Oil & Gas Producer
580,000 LGS Group (b) 4,342
Computer Systems Integration
4,000,000 Dundee Realty (b) 3,776
Real Estate
300,000 Penn West Petroleum (b) 3,223
Oil & Gas Producer
800,000 Bracknell (b) 2,917
Electrical Contractor & Facilities Management
82,250 Northstar Energy (b) 2,356
Oil & Gas Producer
- ------------------------------------------------------------------------------
54,362
Israel: 0.5%
350,000 Blue Square Israel ADR 3,631
Supermarkets & Department Stores
165,000 Amdocs (b) 2,826
Telecommunications Billing/Customer Care Software
90,000 Galileo Technology (b) 2,430
Communications Semiconductors
- ------------------------------------------------------------------------------
8,887
South Africa: 0.9%
2,000,000 Dimension Data (b) 8,499
Computer Services/Consulting
1,000,000 Comparex Holdings 8,125
Computer Networking & Systems Integration
- ------------------------------------------------------------------------------
16,624
Russia: 0.0%
$1,500,000 Khanty Mansiysk 10% Notes (b) 750
279 Khanty Mansiysk (b) 63
Oil Production in Russia
- ------------------------------------------------------------------------------
813
United States: 1.8%
350,000 Carnival 16,800
Largest Cruise Line
300,000 AES Corporation (b) 14,212
Power Plants
- ------------------------------------------------------------------------------
31,012
-------
Other: Total 140,444
</TABLE>
59
<PAGE>
Acorn International
Statement of Investments
<TABLE>
<CAPTION>
Principal Amount Value (000)
- ----------------------------------------------------------
<S> <C>
Total Common Stocks and Other ----------
Equity-Like Securities: 87.6% $1,511,738
(Cost: $981,572)
Short-Term Obligations: 12.5%
Yield 4.85%--6.05%
Due 1/4--1/13/99
$54,485 General Motors Acceptance 54,416
$37,270 Ford Motor Credit 37,233
$29,613 Commercial Credit 29,600
$26,815 Xerox Credit 26,773
$26,225 Cigna 26,208
$25,450 General Electric Capital 25,420
$16,063 GTE 16,037
- ----------------------------------------------------------
(Amortized Cost: $215,687) 215,687
----------
Total Investments: 100.1% 1,727,425
(Cost: $1,197,259)
----------
Cash and Other Assets Less Liabilities: (0.1%) (1,928)
----------
Total Net Assets: 100% $1,725,497
==========================================================
</TABLE>
- --------------------------------------------------------------------------------
Notes to Statement of Investments
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $1,199,172,000 and net unrealized appreciation was $528,253,000 consisting
of gross unrealized appreciation of $625,913,000 and gross unrealized
depreciation of $97,660,000.
(b) Non-income producing security.
(c) On December 31, 1998, the Fund held the following percentages of the
outstanding voting shares of the affiliated companies (ownership of at least 5%)
listed below:
Kompan International (Denmark). . . . . . . 9.36%
Spar Finland (Finland). . . . . . . . . . . 8.80%
Talentum (Finland). . . . . . . . . . . . . 7.35%
Elcoteq Network (Finland) . . . . . . . . . 5.89%
Scala Business Solutions (Netherlands). . . 5.68%
The aggregate cost and value of investments in these companies at December 31,
1998, was $37,542,000 and $40,616,000 respectively. The market value of these
securities represents 2.35% of the total net assets at December 31, 1998. During
the year ended December 31, 1998, the cost of purchases in affiliated companies
was $12,901,000. There were no sales of these companies for the year ended
December 31, 1998. Net dividends received from these companies amounted to
$288,000.
See accompanying notes to financial statements
60
<PAGE>
Acorn International
Portfolio Diversification
At December 31, 1998, Acorn International's portfolio of investments as a
percent of net assets was diversified as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Value (000) Percent
- -----------------------------------------------------
Information
Computer Services $284,504 16.6%
Publishing 63,489 3.7
Contract Manufacturing 46,971 2.7
CATV 35,461 2.1
Telephone Services 25,263 1.5
Business Software 20,794 1.2
Computer Hardware 15,326 0.9
Instrumentation 14,456 0.8
Marketing 14,254 0.8
Radio 11,099 0.6
Business Information 10,971 0.6
Advertising 7,024 0.4
Broadcasting 3,872 0.2
Semiconductors 2,430 0.1
- -----------------------------------------------------
555,914 32.2
Health Care
Hospital Management 36,310 2.1
Pharmaceuticals 24,726 1.4
Hospital/Laboratory Supplies 12,995 0.8
Services 11,378 0.7
Medical Equipment 2,830 0.1
- -----------------------------------------------------
88,239 5.1
Consumer Goods/Services
Retail 51,953 3.0
Food 37,407 2.2
Consumer Services 31,367 1.8
Nondurables 29,737 1.7
Travel 29,432 1.7
Restaurants 28,590 1.7
Entertainment 28,278 1.6
Durable Goods 20,913 1.2
Cruise Lines 16,800 1.0
Furniture & Textiles 13,957 0.8
Beverages 13,287 0.8
Consumer Software 12,620 0.7
Consumer Goods Distribution 10,040 0.6
Leisure Products 2,143 0.1
- -----------------------------------------------------
326,524 18.9
Finance
Money Management 45,000 2.6
Insurance 35,933 2.1
Banks 34,547 2.0
Brokerage 15,954 0.9
Finance Companies 14,910 0.9
Closed-End Funds 5,388 0.3
- -----------------------------------------------------
151,732 8.8
Industrial Goods/Services
Outsourcing Services 102,669 6.0
Electrical Components 72,873 4.2
Machinery Processing 34,340 2.0
Industrial Services 21,927 1.3
Industrial Materials 6,233 0.3
Conglomerates 4,080 0.2
Logistics 2,836 0.2
Specialty Chemicals 2,115 0.1
- -----------------------------------------------------
247,073 14.3
Energy/Minerals
Oil/Gas Producers 21,417 1.2
Independent Power 14,212 0.9
Oil Services 8,138 0.5
Non-Ferrous Metals 3,834 0.2
- -----------------------------------------------------
47,601 2.8
Other Industries
Transportation 43,995 2.5
Waste Management 21,928 1.3
Real Estate 20,339 1.2
Regulated Utilities 8,393 0.5
- -----------------------------------------------------
94,655 5.5
Total Common Stocks and
Other Equity-Like Securities: 1,511,738 87.6
----------- ------
Short-Term Obligations: 215,687 12.5
----------- ------
Total Investments: 1,727,425 100.1
Cash and Other Assets less
Liabilities: (1,928) (0.1)
----------- ------
Net Assets: $1,725,497 100.0%
- -----------------------------------------------------
</TABLE>
61
<PAGE>
Acorn Fund
Major Portfolio Changes in the Fourth Quarter
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares
--------------------
9/30/98 12/31/98
Additions
- ------------------------------------------------------------------------------------
Information
Aspect Telecommunications 714,000 864,000
Commonwealth Telephone 374,000 454,000
Cumulus Media 0 150,000
Getty Images 500,000 860,000
Information Management 0 68,000
JDA Software 0 400,000
Micros Systems 786,000 886,000
National Data 1,702,000 1,808,000
Playboy Enterprises 0 30,000
PRIMEDIA 0 705,000
RCN 1,298,000 1,584,000
Smart Modular Technology 0 52,000
Softbank (Japan) 0 86,200
Systems & Computer Technology 660,000 950,000
Telephone & Data Systems 500,000 577,000
True North Communications 0 200,000
- ------------------------------------------------------------------------------------
Health Care
CuraGen 0 124,000
First Health Group 1,752,000 1,952,000
NPS Pharmaceuticals 0 148,000
- ------------------------------------------------------------------------------------
Consumer Goods/Services
Anchor Gaming 0 86,000
First Years 0 139,000
Jones Apparel 0 500,000
- ------------------------------------------------------------------------------------
Finance
Americredit 935,000 2,070,000
(includes effect of a 2 for 1 stock split)
Capital Trust 886,000 1,375,000
Creditrust 0 165,000
DVI Health Services 340,000 448,000
Phoenix Investment Partners 1,777,000 2,112,000
Pioneer Group 819,000 974,000
Protective Life 200,000 400,000
- ------------------------------------------------------------------------------------
Industrial Goods/Services
Advanced Lighting Technologies 0 122,000
Airnet Systems 500,000 600,000
Expeditors Int'l of Washington 950,000 1,000,000
Labor Ready 850,000 1,070,000
Symex 0 445,000
Wackenhut, Cl. B 1,081,000 1,236,000
- ------------------------------------------------------------------------------------
Energy/Minerals
Atwood Oceanics 398,000 525,000
Canadian Natural Gas (Canada) 0 400,000
Devon Energy 300,000 650,000
(exchanged from Northstar Energy on a .235 for 1 basis)
Dynegy 700,000 800,000
Enron Oil & Gas 816,000 1,220,000
- ------------------------------------------------------------------------------------
Other Industries
IRSA (Argentina) 320,000 407,124
(includes effect of a 1.781% stock bonus)
Security Capital European Realty 690,625 770,312
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
------------------
9/30/98 12/31/98
Sales
- -------------------------------------------------------------------
<S> <C> <C>
Information
American Power Conversion 398,000 200,000
Cable Michigan 140,000 0
Cablevision Systems 800,000 600,000
Choicepoint 478,000 270,000
Comparex Holdings (South Africa) 407,000 200,000
(formerly known as Persetel Q Data)
Compuware 300,000 0
Harte Hanks Communications 200,000 100,000
IFR Systems 250,000 0
Itron 280,000 0
Jabil Circuit 470,000 370,000
Keane 120,000 0
Kent Electronics 550,000 400,000
Kronos 650,000 575,000
Larscom 577,000 0
Macrovision 280,000 150,000
Mecklermedia 305,000 0
Mettler Toledo 810,000 672,000
Richardson Electronics 100,000 0
Richey Electronics 450,000 250,000
Sanmina 435,000 250,000
SkyTel Communications 865,000 700,000
Solectron 900,000 770,000
(includes effect of .45 for 1 share
merger with Altron)
Thermo Instrument Systems 885,000 705,000
WM Data Nordic (Sweden) 1,110,000 1,000,000
- -------------------------------------------------------------------
Health Care
Ethical Holdings ADR
(United Kingdom) 1,107,000 0
(includes effect of 1 for 10 reverse split)
Getinge Industrier (Sweden) 630,000 495,000
Hillenbrand Industries 273,000 253,000
Innovasive Devices 470,000 0
Magellan Health Services 1,410,000 1,110,000
Respironics 798,000 718,000
Sybron International 644,000 544,000
- -------------------------------------------------------------------
Consumer Goods/Services
Au Bon Pain 634,000 400,000
Autoliv (Sweden) 320,000 256,000
Barnes & Noble 72,000 10,000
Borders Group 1,750,000 1,550,000
Carnival 2,690,000 2,650,000
Coca-Cola Beverages
(United Kingdom) 1,000,000 0
Fred Meyer Holdings 771,000 599,000
Newell 120,000 0
Oriflame (United Kingdom) 700,000 0
Sky City (New Zealand) 434,000 0
Unifi 867,000 600,000
- -------------------------------------------------------------------
Finance
AmerUs Life Holdings 460,000 200,000
Imperial Thrift & Loan 275,000 0
SEI Investments 618,000 604,000
UICI 1,000,000 815,000
Washington Mutual 66,000 664,000
(includes effect of 1.68 for 1 share
merger with H.F.Ahmanson)
- -------------------------------------------------------------------
Industrial Goods/Services
Applied Industrial Technologies 365,000 140,000
Applied Power 196,000 0
Baldor Electric 980,000 882,000
H B Fuller 295,000 0
Metal Management 400,000 0
Powerscreen International
(United Kingdom) 340,000 0
Siderca (Argentina) 1,200,000 0
Spectra Physics Lasers 273,000 0
Thermo Electron 750,000 650,000
Trailer Bridge 421,000 0
- -------------------------------------------------------------------
Energy/Minerals
AES Corporation 1,803,000 1,464,000
KN Energy 340,000 240,000
Northstar Energy (Canada) 1,000,000 0
(exchanged for Devon Energy on a .235 for 1 basis)
PetSec Energy (Australia) 490,000 0
PetSec Energy ADR (Australia) 125,000 0
Pride International 840,000 0
Seagull Energy 700,000 0
Weatherford International 500,000 300,000
- -------------------------------------------------------------------
Other Industries
First Industrial Realty Trust 485,000 200,000
LaSalle Hotel Properties 1,025,000 699,000
Security Capital Group 101,000 0
</TABLE>
63
<PAGE>
Acorn Fund
Statement of Investments December 31, 1998
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- ---------------------------------------------------------------------------
Common Stocks and Other
Equity-Like Securities: 93.8%
- ---------------------------------------------------------------------------
<S> <C> <C>
Information: 32.3%
Media
Broadcasting: 1.5%
819,000 Data Transmission Network (b)(c) $ 23,649
Data Services for Farmers
500,000 Young Broadcasting (b) 20,938
Television Stations
567,000 Granite Broadcasting (b)(c) 3,402
Television Stations
85,000 Univision Communications (b) 3,076
TV Network & Stations
150,000 Cumulus Media (b) 2,494
Radio Stations
- ---------------------------------------------------------------------------
53,559
Cable Television: 1.1%
600,000 Cablevision Systems (b) 30,112
100,000 Cablevision Systems, Pfd. (b) 7,538
Cable TV
- ---------------------------------------------------------------------------
37,650
Television Programming: 5.4%
3,500,000 Liberty Media Group,
Tele-Communications (b) 161,219
CATV & Satellite Dish Programming
1,000,000 United Video Satellite Group (b) 23,625
CATV & Satellite Dish Programming
150,000 Macrovision (b) 6,338
Copyright Protection for Video Tapes & DVDs
30,000 Playboy Enterprises (b) 628
CATV & Satellite Dish Programming
- ---------------------------------------------------------------------------
191,810
Telecommunications
Telephone Services: 1.3%
1,584,000 RCN (b) 28,017
Metro Market: Voice, Video & Data Services
454,000 Commonwealth Telephone (b) 15,209
Rural Market: Local, Long Distance
& Internet Access
140,000 Startec Global Communications (b) 1,348
International Telecommunications
- ---------------------------------------------------------------------------
44,574
Mobile Communications: 1.9%
577,000 Telephone & Data Systems 25,929
Cellular & Telephone Franchises
450,000 Centennial Cellular (b) 18,450
Cellular Franchises
700,000 SkyTel Communications (b) 15,488
Nationwide Paging
355,000 COMARCO (b)(c) 8,520
Wireless Network Testing
- ---------------------------------------------------------------------------
68,387
Telecommunications Equipment: 0.4%
864,000 Aspect Telecommunications (b) 14,904
Call Center Equipment
Computer Related Hardware
Computer Hardware/
Related Systems: 1.8%
886,000 Micros Systems (b)(c) 29,127
Information System for Restaurants & Hotels
575,000 Kronos (b)(c) 25,480
Time Accounting Software & Clocks
200,000 American Power Conversion (b) 9,687
Uninterruptable Power Systems
- ---------------------------------------------------------------------------
64,294
Semiconductors/
Related Equipment: 0.3%
350,000 Oak Industries (b) 12,250
Communications Components
Gaming Equipment: 1.7%
2,262,000 International Game Technology 54,995
Slot Machines & Progressive Jackpots
86,000 Anchor Gaming (b) 4,848
Slot Machines & Colorado Casino
380,000 Acres Gaming (b) 926
Manufacturer of Casino Systems
- ---------------------------------------------------------------------------
60,769
Contract Manufacturing: 3.3%
770,000 Solectron (b) 71,562
Electronic Manufacturing Services
370,000 Jabil Circuit (b) 27,611
Electronic Manufacturing Services
250,000 Sanmina (b) 15,625
Backplanes & Electronic Manufacturing Services
52,000 Smart Modular Technology (b) 1,443
Memory Module Manufacturing Services
- ---------------------------------------------------------------------------
116,241
Instrumentation: 1.5%
672,000 Mettler Toledo (b) 18,858
Laboratory Products
705,000 Thermo Instrument Systems (b) 10,619
Scientific & Industrial Instruments
613,000 Thermoquest (b) 7,931
$1,500,000 Thermoquest, 5% Note Due 8/15/00 1,500
Mass Spectrometry & Chromatography
$5,000,000 Thermo Optek, 5% Note Due 10/15/00 4,850
265,000 Thermo Optek (b) 2,302
Elemental & Molecular Spectroscopy
200,000 Thermo Bio Analysis (b) 2,650
Biochemical Instruments
232,000 Metrika Systems (b) 2,001
Gamma Ray Instrumentation
266,122 Onix Systems (b) 1,696
Field Measurement & Sensor Equipment
- ---------------------------------------------------------------------------
52,407
</TABLE>
See accompanying notes to financial statements
64
<PAGE>
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Business Software: 1.0%
950,000 Systems & Computer Technology (b) $13,063
Enterprise Software & Services
228,800 Sterling Commerce (b) 10,296
Electronic Commerce Software & Services
266,000 National Instruments (b) 9,077
Virtual Instruments
400,000 JDA Software (b) 3,875
Applications Software & Services for Retailers
68,000 Information Management (b) 400
Call Center Software
- --------------------------------------------------------------------------------
36,711
Consumer Software: 0.8%
350,000 Electronic Arts (b) 19,644
Entertainment Software
$6,500,000 Activision, 6.75% Note Due 1/1/05 5,590
445,000 Activision (b) 4,951
Entertainment Software
- --------------------------------------------------------------------------------
30,185
Computer Services: 2.6%
750,000 Sykes Enterprises (b) 22,875
Call Center Services
590,000 Computer Task Group 16,004
Application Development & Maintenance Services
500,000 RCM Technologies (b) 13,250
Technology Staffing Services
231,000 BISYS (b) 11,925
Processing for Banks
608,000 BRC Holdings (b) 11,400
Technology Outsourcing for Local Governments
535,000 Analysts International 10,299
Technology Staffing Services
1,033,000 Aztec Technology Partners (b) 3,745
Application Development & Maintenance Services
360,000 Dunn Computer (b) 1,485
Custom Computer Systems for Government
- --------------------------------------------------------------------------------
90,983
Software/Services
Business Information/
Marketing Services/Publishing: 4.2%
1,278,000 ACNielsen (b) 36,103
Retail Measurement
910,000 World Color Press (b) 27,698
Web-Offset Printing
270,000 Choicepoint (b) 17,415
Fraud Protection Information
860,000 Getty Images (b) 14,781
Photographs for Publications & Electronic Media
350,000 Acxiom (b) 10,850
Database Marketing Services
705,000 PRIMEDIA 8,284
Specialty Magazines & Other Publications
470,000 Information Holdings (b) 7,403
Scientific & Medical Books/Journals
400,000 CMP Media (b)(c) $ 7,300
Technology Trade Press
200,000 True North Communications 5,375
Advertising Agencies
1,400,000 InfoUSA, Cl. A (b) 6,825
1,000,000 InfoUSA, Cl. B (b) 5,250
Business Data for Sales Leads
100,000 Harte Hanks Communications 2,850
Direct Marketing Services
- --------------------------------------------------------------------------------
150,134
Internet: 0.2%
2,683 Bigfoot International (b)(c) 4,024
Internet Direct Marketing
342,855 GIGA (b) 1,563
29,714 GIGA Warrants (b) 6
Data on Information Technology
- --------------------------------------------------------------------------------
5,593
Electronics Distribution: 0.5%
990,000 Pioneer-Standard Electronics 9,281
Component & Computer Distribution
400,000 Kent Electronics (b) 5,100
Component Distribution & Contract Assembly
250,000 Richey Electronics (b) 2,578
Component Distribution & Contract Assembly
- --------------------------------------------------------------------------------
16,959
Transaction Processors: 2.8%
1,808,000 National Data (c) 88,027
Credit Card & Health Claims Processor
300,000 Concord EFS (b) 12,712
Credit Card Processor
- --------------------------------------------------------------------------------
100,739
---------
Information: Total 1,148,149
- --------------------------------------------------------------------------------
Health Care: 8.2%
Biotechnology/Drug Delivery: 1.0%
450,000 Inhale Therapeutic Systems (b) 14,850
Pulmonary Drug Delivery
680,000 Synaptic Pharmaceuticals (b)(c) 10,200
Receptor Targeted Drug Design
1,508,000 Corvas International (b)(c) 4,241
Rational Drug Design
915,000 Microcide Pharmaceuticals (b)(c) 3,546
Antibiotics
148,000 NPS Pharmaceuticals (b) 1,138
Small Molecule Drugs
124,000 CuraGen (b) 876
Genomics
- --------------------------------------------------------------------------------
34,851
Medical Equipment: 0.6%
718,000 Respironics (b) 14,382
Sleep Apnea Products
307,000 Affymetrix (b) 7,483
Diagnostic Development
- --------------------------------------------------------------------------------
21,865
</TABLE>
65
<PAGE>
Acorn Fund
Statement of Investments
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Hospital/Laboratory Supplies: 0.8%
544,000 Sybron International (b) $ 14,790
Laboratory Supplies
253,000 Hillenbrand Industries 14,389
Hospital Beds & Coffins
- ----------------------------------------------------------------------------
29,179
Services: 5.8%
2,470,000 Lincare Holdings (b) 100,189
Home Health Care Services
2,177,000 HBO & Company 62,453
Hospital Computer Services
1,952,000 First Health Group (b) 32,330
PPO Network
1,110,000 Magellan Health Services (b) 9,296
Mental Health Services
43,000 Spectrum Health Solutions (b) 11
Workman's Compensation
- ----------------------------------------------------------------------------
204,279
--------
Health Care: Total 290,174
- ----------------------------------------------------------------------------
Consumer Goods/Services: 11.3%
Goods
Leisure Vehicles: 3.3%
2,200,000 Harley-Davidson 104,225
Motorcycles & Related Merchandise
480,000 Thor Industries 12,240
Mobile Homes & RVs
- ----------------------------------------------------------------------------
116,465
Nondurables: 0.1%
139,000 First Years 2,198
Infant & Toddler Products
Manufacturers: 0.9%
600,000 Unifi 11,738
Polyester & Nylon Fabrics
500,000 Jones Apparel (b) 11,031
Women's Apparel
340,000 St. John Knits 8,840
Upscale Knitware
- ----------------------------------------------------------------------------
31,609
Services
Retail: 2.5%
1,550,000 Borders Group (b) 38,653
Bookstores
599,000 Fred Meyer Holdings (b) 36,090
Supermarkets in the West
911,000 Host Marriott Services (b) 9,452
Fast Food Kiosks in Airports
400,000 Au Bon Pain (b) 2,700
Bakery & Deli Restaurants
10,000 Barnes & Noble (b) 425
Bookstores
- ----------------------------------------------------------------------------
87,320
Consumer Services: 0.3%
770,000 Protection One $ 6,593
Security Alarm Monitoring
236,000 Bally Total Fitness (b) 5,870
Fitness Centers
- ----------------------------------------------------------------------------
12,463
Casinos: 0.3%
420,000 Hollywood Park (b) 3,491
Race Track & Casino
535,000 Monarch Casino & Resort (b)(c) 2,809
Casino/Hotel in Reno
155,000 Rio Hotel & Casino (b) 2,461
Hotel & Casino in Las Vegas
250,000 Grand Casinos (b) 2,016
Casino/Hotel in Biloxi
$6,250,000 Grand Palais Casino
14% Note Due 2/25/98 (b) 313
New Orleans Casino
- ----------------------------------------------------------------------------
11,090
Cruise Lines: 3.9%
2,650,000 Carnival 127,200
Largest Cruise Line
240,000 Royal Caribbean Cruises 8,880
Cruises to Caribbean & Alaska
410,000 Royal Olympic Cruise (b) 1,384
Cruises in Mediterranean
- ----------------------------------------------------------------------------
137,464
--------
Consumer Goods/Services: Total 398,609
- ----------------------------------------------------------------------------
Finance: 12.1%
Banks: 1.1%
695,000 TCF Financial 16,810
Great Lakes Bank
570,000 Texas Regional Bancshares 14,286
Tex Mex Bank
170,000 CNB Bancshares 7,926
Indiana Bank
70,000 Peoples Heritage Financial 1,400
New England Bank
- ----------------------------------------------------------------------------
40,422
Savings & Loans: 2.8%
1,554,000 Peoples Bank Bridgeport 42,929
Connecticut Savings & Loan
664,000 Washington Mutual 25,357
West Coast Savings & Loan
738,000 Washington Federal 19,695
Washington State Savings & Loan
538,000 Commonwealth Bancorp 8,373
Philadelphia Savings & Loan
554,000 Coast Contingency Rights (b) 3,670
Litigation Claims Against US Government
- ----------------------------------------------------------------------------
100,024
</TABLE>
See accompanying notes to financial statements
66
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Insurance: 3.2%
815,000 UICI (b) $ 19,968
Health Insurance
723,000 Baldwin & Lyons, Cl. B 17,894
Trucking Insurance
511,000 Leucadia National 16,097
Insurance Holding Company
400,000 Protective Life 15,925
Life/Dental Insurance
687,000 Foremost 14,427
Mobile Home & RV Insurance
612,000 Acceptance Insurance (b) 12,393
Crop Insurance
351,000 United Fire & Casualty 11,802
Property & Casualty
200,000 AmerUs Life Holdings 4,475
Annuities/Life Insurance
- ----------------------------------------------------------------------------
112,981
Money Management: 3.3%
604,000 SEI Investments 60,023
Mutual Fund Administration
974,000 Pioneer Group 19,237
Equity Mutual Funds
2,112,000 Phoenix Investment Partners 17,820
Mutual Fund & Pension Manager
1,063,000 Baker Fentress 16,277
Closed-End Investment Company
80,000 Affiliated Managers Group (b) 2,390
Mutual Fund & Pension Manager
- ----------------------------------------------------------------------------
115,747
Finance Companies: 1.7%
2,070,000 Americredit (b) 28,592
Auto Lending
1,820,000 World Acceptance (b)(c) 11,830
Personal Loans
1,375,000 Capital Trust (b) 8,250
Whole Mortgage Loans
448,000 DVI Health Services (b) 8,120
Leases for Big Medical Equipment
165,000 Creditrust (b) 4,207
Collection Agency
- ----------------------------------------------------------------------------
60,999
--------
Finance: Total 430,173
- ----------------------------------------------------------------------------
Industrial Goods/Services: 7.8%
Steel: 1.3%
806,000 Gibraltar Steel (b)(c) 18,336
Steel Processing
1,295,000 Worthington Industries 16,188
Steel Processing
345,000 A M Castle 5,175
Steel Distribution
420,000 Atchison Casting (b)(c) 3,885
Steel Foundries
140,000 Schnitzer Steel 2,013
Scrap Steel Processor
- ----------------------------------------------------------------------------
45,597
Machinery: 0.9%
882,000 Baldor Electric 17,860
Electric Motors
585,000 Clarcor 11,700
Filters
140,000 Applied Industrial Technologies 1,942
Industrial Components Distribution
- ----------------------------------------------------------------------------
31,502
Conglomerates: 0.3%
650,000 Thermo Electron (b) 11,009
Instrumentation, Biomedical & Industrial Products
Specialty Chemicals: 1.0%
1,000,000 Lilly Industries, Cl. A 19,938
Industrial Coatings
610,000 Cambrex 14,640
Pharmaceutical & Other Specialty Chemicals
445,000 Symex (b) 2,003
Combinatorial Materials
- ----------------------------------------------------------------------------
36,581
Electrical Components
Industrial Materials: 0.0%
100,000 Brunswick Technologies (b) 637
Fiberglass Fabric for Composites
Outsourcing Services & Training: 0.8%
1,070,000 Labor Ready (b) 21,066
Temporary Manual Labor
438,000 GP Strategies (b) 6,570
Training Programs
500,000 International Total Services (b)(c) 2,500
Aviation Services
- ----------------------------------------------------------------------------
30,136
Logistics: 2.2%
1,000,000 Expeditors Int'l of Washington 42,000
International Freight Forwarder
759,000 Hub Group (b) 14,706
Truck & Rail Freight Forwarder
435,000 C H Robinson 11,283
Truck Freight Forwarder
600,000 Airnet Systems (b) 8,625
Check & Other Small Package Shipment
- ----------------------------------------------------------------------------
76,614
</TABLE>
67
<PAGE>
Acorn Fund
Statement of Investments
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Other Industrial Services: 1.3%
1,236,000 Wackenhut, Cl. B $ 27,115
31,000 Wackenhut, Cl. A 789
Prison Management
806,000 Compass International Services (b)(c) 8,564
Collection Agencies
209,000 HA.LO Industries (b) 7,864
Distributor of Specialty Products
122,000 Advanced Lighting Technologies (b) 1,189
Metal Halide Lighting
- ----------------------------------------------------------------------------
45,521
--------
Industrial Goods/Services: Total 277,597
- ----------------------------------------------------------------------------
Energy/Minerals: 7.9%
Independent Power: 3.4%
1,464,000 AES Corporation (b) 69,357
1,852 AES Corporation Warrants (b) 120
Power Plants
1,420,000 CalEnergy (b) 49,256
Power Plants/Competitve Utility
- ----------------------------------------------------------------------------
118,733
Oil/Gas Producers: 2.0%
2,000,000 Tesoro Petroleum (b)(c) 24,250
Oil Refinery/Gas Reserves
1,220,000 Enron Oil & Gas 21,045
Oil & Gas Producer
650,000 Devon Energy 19,947
Oil & Gas Producer
250,000 Evergreen Resources (b) 4,437
Oil & Gas Producer
1,031,000 Tipperary (b)(c) 1,095
Oil & Gas Producer
- ----------------------------------------------------------------------------
70,774
Distribution/Marketing/Refining: 1.8%
900,000 Equitable Resources 26,212
Natural Gas Utility & Producer
650,000 Atmos Energy 20,962
Natural Gas Utility
800,000 Dynegy 8,750
Natural Gas Processing & Marketing
240,000 KN Energy 8,730
Natural Gas Pipelines & Processor
- ----------------------------------------------------------------------------
64,654
Oil Services: 0.7%
400,000 J Ray McDermott (b) 9,775
Offshore Construction Company
525,000 Atwood Oceanics (b) 8,925
Offshore Drilling
300,000 Weatherford International (b) 5,813
Diversfied Oil Field Products & Services
- ----------------------------------------------------------------------------
24,513
--------
Energy/Minerals: Total 278,674
- ----------------------------------------------------------------------------
Other Industries: 3.7%
Real Estate: 3.7%
829,000 The Rouse Company 22,798
Shopping Malls
770,312 Security Capital European Realty (b) 15,406
Strategic Real Estate Investments
820,000 Cornerstone Properties 12,812
Downtown Office Buildings
466,000 Forest City Enterprises, Cl. B 11,999
370,000 Forest City Enterprises, Cl. A 9,712
Shopping Centers
260,000 Equity Residential Properties Trust 10,514
Nationwide Apartments
400,000 Macerich Company 10,250
Regional Shopping Malls
165,000 Weingarten Realty Investors 7,363
Community Shopping Centers
699,000 LaSalle Hotel Properties 7,252
Upscale/Full Service Hotels
350,000 Archstone 7,087
Equity Real Estate Investment Trust
200,000 First Industrial Realty Trust 5,362
Industrial Properties
190,000 First Washington Realty Trust 4,501
120,000 First Washington Realty Trust, Cv. Pfd. 3,563
Community Shopping Centers
945,000 Homestead Village (b) 4,253
Extended Stay Hotels
- ----------------------------------------------------------------------------
132,872
--------
Other Industries: Total 132,872
- ----------------------------------------------------------------------------
Foreign Securities: 10.5%
Canada: 0.3%
400,000 Canadian Natural Gas (b) 5,990
Oil & Gas Producer
440,000 Shaw Industries, Cl. A 3,581
Oil Field Services
- ----------------------------------------------------------------------------
9,571
United Kingdom: 2.2%
644,000 NTL (b) 36,346
Voice, Video & Data Services
1,200,000 Serco Group 22,990
Facilities Management
1,650,000 Airtours 10,542
Markets & Operates Packaged Tour Vacations
1,100,000 N. Brown Group 5,326
Mail Order Clothing in Large Sizes
484,000 Edinburgh Fund Managers 1,993
Investment Management
- ----------------------------------------------------------------------------
77,197
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------
<S> <C> <C>
Germany/Austria: 0.7%
552,000 United International Holdings
(Austria) (b) $ 10,626
Cable Television for Austria & Other Countries
180,000 Flughafen Wien (Austria) 8,837
Vienna Airport Authority
23,000 Binding-Brauerei 6,352
Brewery
- ---------------------------------------------------------------------------
25,815
Sweden: 1.7%
1,000,000 WM Data Nordic 42,685
Computer Services/Consulting
256,000 Autoliv 9,520
Seatbelts & Airbags
495,000 Getinge Industrier 7,450
Sterilization & Disinfection Equipment
- ---------------------------------------------------------------------------
59,655
Netherlands: 0.9%
146,407 ASR Verzekeringsgroep 13,262
Insurance
305,000 Hunter Douglas 10,109
Decorative Window Coverings
167,000 Getronics 8,276
Computer Services/Consulting
- ---------------------------------------------------------------------------
31,647
Switzerland: 0.4%
11,000 Cie Fin Richemont 15,553
Luxury Goods, Tobacco & Pay TV
France: 0.8%
115,000 Atos (b) 27,503
Computer Services/Transaction Processing
Portugal: 0.1%
297,200 Filmes Lusomundo (b) 3,727
Newspapers, Radio, Video, Film Distribution
Italy/Greece: 1.0%
1,500,000 Banca Fideuram 10,739
Life Insurance & Mutual Funds
1,000,000 Aeroporti di Roma 8,733
Airport Management
325,000 Industrie Natuzzi 8,084
Leather Couches
250,000 Hellenic Bottling (Greece) 7,717
Coca-Cola Bottler
- ---------------------------------------------------------------------------
35,273
Malaysia: 0.0%
750,000 Resorts World Berhad 605
Casino/Hotel Resort
590,000 Berjaya Sports Toto 515
Lottery/Gaming
- ---------------------------------------------------------------------------
1,120
Hong Kong: 0.2%
4,500,000 Varitronix International 8,422
LCD Manufacturer
China: 0.0%
200,000 The Investment Company of China (b) 1,100
Closed-End Fund
Singapore: 0.6%
8,128,000 Star Cruises (b) 17,150
Cruise Line
1,500,000 Natsteel Electronics 3,818
Electronic Manufacturing Services
- ---------------------------------------------------------------------------
20,968
Japan: 0.7%
180,000 Nintendo 17,473
Video Games
86,200 Softbank Corporation 5,196
Software/Networking Services
76,000 Noritsu Koki 1,651
Photo Processing Lab Manufacturer
- ---------------------------------------------------------------------------
24,320
South Africa: 0.1%
200,000 Comparex Holdings 1,625
Computer Networking & Systems Integration
Mexico: 0.4%
3,300,000 Kimberly Clark de Mexico 10,511
Paper Products
7,350,000 Nadro, Series L 4,682
Pharmaceutical Distributor
- ---------------------------------------------------------------------------
15,193
Other Latin America: 0.4%
407,124 IRSA (Argentina) 11,323
Real Estate Management & Development
135,000 Banco Latinoamericano
de Exportaciones (Panama) 2,244
Trade Financing
112,000,000 Cemig (Brazil) 2,131
Electric Utility
- ---------------------------------------------------------------------------
15,698
-------
Foreign: Total 374,387
</TABLE>
69
<PAGE>
Acorn Fund
Statement of Investments
<TABLE>
<CAPTION>
Principal Amount Value (000)
- --------------------------------------------------------------
<S> <C> <C>
Total Common Stocks and Other ----------
Equity-Like Securities: 93.8% $3,330,635
(Cost: $1,884,771)
Short-Term Obligations: 7.2%
Yield 4.38%-6.01%
Due 1/4-2/18/99
$38,320 General Motors Acceptance 38,258
$29,068 American General Finance 29,050
$28,500 Aon 28,483
$27,293 Commercial Credit 27,281
$23,575 Ford Motor Credit 23,551
$21,510 GE Capital Services 21,493
$20,000 American General 19,992
$20,000 Ford Motor Credit 19,977
$18,799 Cigna 18,769
$18,212 GTE 18,182
$10,000 US Treasury Bill 9,942
- -------------------------------------------------------------
(Cost: $254,978) 254,978
---------
Total Investments: 101.0% 3,585,613
(Cost: $2,139,749)
----------
Cash and Other Assets Less Liabilities: (1.0%) (36,152)
----------
Total Net Assets: 100% $3,549,461
- -------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
Notes to Statement of Investments
Notes to Statement of Investments:
(a) At December 31, 1998, for federal income tax purposes cost of investments
was $2,140,654,000 and net unrealized appreciation was $1,444,959,000,
consisting of gross unrealized appreciation of $1,619,020,000 and gross
unrealized depreciation of $174,061,000.
(b) Non-income producing security.
(c) On December 31, 1998, the Fund held the following percentages of the
outstanding voting shares of the companies listed below:
<TABLE>
<CAPTION>
<S> <C>
Bigfoot International......................10.00%
Corvas International........................9.99%
World Acceptance............................9.48%
Microcide Pharmaceuticals...................8.33%
Tipperary...................................7.77%
International Total Services................7.50%
Kronos......................................6.94%
COMARCO.....................................6.92%
Data Transmission Network...................6.67%
Gibraltar Steel.............................6.39%
Compass International Services..............6.36%
Synaptic Pharmaceuticals....................6.36%
Tesoro Petroleum............................6.18%
Granite Broadcasting........................5.69%
CMP Media...................................5.66%
Monarch Casino & Resort.....................5.62%
Micros Systems..............................5.52%
National Data...............................5.34%
Atchison Casting............................5.15%
</TABLE>
The aggregate cost and value of investments in these companies at December 31,
1998, was $216,457,000 and $280,785,000, respectively. The market value of
these securities represents 7.91% of the total net assets at December 31, 1998.
During the year ended December 31, 1998, cost of purchases and proceeds from
sales in affiliated companies was $85,641,000 and $36,553,000, respectively.
Dividends received from these companies amounted to $486,000 and net realized
gain on sales of investments in such companies amounted to $5,984,000.
See accompanying notes to financial statements.
70
<PAGE>
Acorn Fund
Foreign Portfolio Diversification
At December 31, 1998 Acorn Fund's foreign portfolio of investments as a percent
of net assets was diversified as follows:
<TABLE>
<CAPTION>
Value (000) Percent
- --------------------------------------------------------
<S> <C> <C>
Information
Computer Services $ 80,089 2.3%
Cable Television 46,972 1.3
Semiconductors
& Related Equipment 22,990 0.6
Business Information/Publishing 8,923 0.2
Contract Manufacturing 3,818 0.1
- --------------------------------------------------------
162,792 4.5
Health Care
Hospital Services 7,450 0.2
Consumer Goods/Services
Travel 27,692 0.8
Consumer Software 17,473 0.5
Beverages 14,069 0.4
Nondurable Goods 10,511 0.3
Furniture & Textiles 8,084 0.2
Retail 5,326 0.2
Consumer Goods Distribution 4,682 0.1
Gaming 515 0.0
Other Durable Goods 19,629 0.5
Other Entertainment 16,158 0.5
- --------------------------------------------------------
124,139 3.5
Finance
Insurance 13,262 0.4
Money Management 12,732 0.4
Banks 2,244 0.1
Closed-End Funds 1,100 0.0
- --------------------------------------------------------
29,338 0.9
Industrial Goods/Services
Electrical Components 8,422 0.2
Machinery 1,651 0.0
- --------------------------------------------------------
10,073 0.2
Energy/Minerals
Oil/Gas Producers 5,990 0.2
Oil Services 3,581 0.1
- --------------------------------------------------------
9,571 0.3
Other Industries
Transportation 17,570 0.5
Real Estate 11,323 0.3
Utilities 2,131 0.1
- --------------------------------------------------------
31,024 0.9
-------------------
Total Foreign Portfolio $374,387 10.5%
- --------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
71
<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, Acorn USA, Acorn
Twenty and Acorn Foreign Forty, comprising the Acorn Investment Trust, as of
December 31, 1998, the related statements of operations, changes in net assets,
and the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1998, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective Funds of the Acorn Investment Trust as of December 31,
1998, the results of their operations and changes in their net assets and
financial highlights for the periods indicated therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 9, 1999
72
<PAGE>
Acorn Family of Funds
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
Acorn Acorn Acorn Acorn Acorn
(in thousands) Fund International USA Twenty Foreign Forty
- ------------------------------------------------------------------------------------------------------------------------
12/31/98
<S> <C> <C> <C> <C> <C>
Assets
Investments, at value (cost: Acorn Fund
$2,139,749; Acorn Int'l $1,197,259;
Acorn USA $265,044; Acorn Twenty
$30,290; Acorn Foreign Forty $14,793) $3,585,613 $1,727,425 $281,785 $32,822 $15,959
Cash 327 423 -- 254 --
Organization costs -- -- 57 -- --
Receivable for:
Securities sold 8,959 809 129
Fund shares sold 2,868 1,788 1,170 722 777
Dividends and interest 2,078 2,546 46 21 --
Other assets 175 80 9 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total assets 3,600,020 1,733,071 283,196 33,819 16,736
Liabilities and Net Assets
Net unrealized depreciation on foreign
forward currency contracts 42 969 -- -- --
Payable for:
Securities purchased 11,480 2,479 460 60 936
Fund shares redeemed 38,266 1,743 1,628 1 --
Organization costs -- -- 58 -- --
Other 771 2,383 99 34 15
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 50,559 7,574 2,245 95 951
Net assets applicable to Fund
shares outstanding $3,549,461 $1,725,497 $280,951 $33,724 $15,785
- ------------------------------------------------------------------------------------------------------------------------
Fund shares outstanding 210,706 82,874 18,986 3,150 1,435
- ------------------------------------------------------------------------------------------------------------------------
Pricing of Shares
Net asset value, offering price and
redemption price per share $ 16.85 $ 20.82 $ 14.80 $ 10.71 $ 11.00
- ------------------------------------------------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $2,067,199 $1,209,014 $263,734 $31,432 $14,558
Accumulated net realized gain (loss) on sales
of investments, futures and foreign
currency transactions 33,912 (17,845) 476 (246) 74
Net unrealized appreciation of investments
and other assets (net of unrealized PFIC
gains of $311 for Acorn International
and $19 for Acorn Foreign Forty) 1,445,819 528,909 16,741 2,532 1,144
Undistributed net investment income 2,531 5,419 -- 6 9
- ------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
Fund shares outstanding $3,549,461 $1,725,497 $280,951 $33,724 $15,785
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
73
<PAGE>
<TABLE>
<CAPTION>
Acorn Family of Funds
Statements of Operations
Acorn Acorn
Fund International
(in thousands) Year ended Year ended Year ended Year ended
- ----------------------------------------------------------------------------------
12/31/1998 12/31/1997 12/31/1998 12/31/1997
<S> <C> <C> <C> <C>
Investment Income:
Dividends $ 28,483 $ 28,012 $ 26,225 $ 27,667
Interest 13,414 15,566 10,223 8,098
- ----------------------------------------------------------------------------------
41,897 43,578 36,448 35,765
Foreign taxes withheld (513) (797) (2,521) (2,912)
- ----------------------------------------------------------------------------------
Total investment income 41,384 42,781 33,927 32,853
Expenses:
Investment advisory 24,905 14,349 14,124 16,235
Administration 1,812 - 858 -
Custodian 924 1,034 1,957 2,489
Transfer and dividend
disbursing agent 1,414 1,328 1,384 1,882
Reports to shareholders 573 564 575 841
Legal and audit 223 287 97 221
Registration and blue sky 55 273 58 73
Trustees' and other 446 441 166 364
- ----------------------------------------------------------------------------------
Total expenses 30,352 18,276 19,219 22,105
Less custodian fees paid
indirectly - - - -
Less reimbursement of
expenses by advisor - - - -
- ----------------------------------------------------------------------------------
Net expenses 30,352 18,276 19,219 22,105
- ----------------------------------------------------------------------------------
Net investment income
(loss) 11,032 24,505 14,708 10,748
Net Realized and
Unrealized Gain (Loss) on
Investments,
Futures and Foreign
Currency Transactions:
Net realized gain (loss)
on sales of investments 252,065 361,502 2,408 76,648
Net realized gain (loss)
on foreign currency
transactions (132) - (6,031) 22,816
Net realized gain (loss)
on futures (17,930) (16,098) 7,811 -
Change in net unrealized
appreciation
of investments and
foreign currency
transactions (43,553) 356,307 215,847 (99,759)
- -----------------------------------------------------------------------------------
Net realized and
unrealized gain (loss) on
investments,
futures and foreign
currency transactions 190,450 701,711 220,035 (295)
- -----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $201,482 $726,216 $234,743 $ 10,453
- -----------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements
74
<PAGE>
<TABLE>
<CAPTION>
Acorn Acorn Acorn
USA Twenty Foreign Forty
Inception Inception
Year ended Year ended 11/23 through 11/23 through
- --------------------------------------------------------------------------------------
12/31/1998 12/31/1997 12/31/1998 12/31/1998
<S> <C> <C> <C>
$ 882 $ 568 $ 38 $ 6
1,042 470 7 3
- --------------------------------------------------------------------------------------
1,924 1,038 45 9
- - - (1)
- --------------------------------------------------------------------------------------
1,924 1,038 45 8
2,336 1,199 26 11
124 - 1 1
39 24 2 3
246 164 18 13
126 85 1 1
32 29 1 1
33 72 4 2
43 56 - -
- --------------------------------------------------------------------------------------
2,979 1,629 53 32
(5) (2) (2) (3)
- - (12) (11)
- --------------------------------------------------------------------------------------
2,974 1,627 39 18
- --------------------------------------------------------------------------------------
(1,050) (589) 6 (10)
23,791 5,521 (246) 74
- - - -
- - - -
(14,625) 27,198 2,532 1,163
- --------------------------------------------------------------------------------------
9,166 32,719 2,286 1,237
- --------------------------------------------------------------------------------------
$ 8,116 $32,130 $2,292 $1,227
- --------------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
Acorn Family of Funds
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Acorn Acorn
Fund International
(in thousands) Year ended Year ended Year ended Year ended
- ----------------------------------------------------------------------------------
12/31/1998 12/31/1997 12/31/1998 12/31/1997
<S> <C> <C> <C> <C>
From Operations:
Net investment income
(loss) $ 11,032 $ 24,505 $ 14,708 $ 10,748
Net realized gain (loss)
on sales of investments,
futures and foreign
currency transactions 234,003 345,404 4,188 99,464
Change in net unrealized
appreciation of
investments and foreign
currency transactions (43,553) 356,307 215,847 (99,759)
- ----------------------------------------------------------------------------------
Net increase in net
assets resulting from
operations 201,482 726,216 234,743 10,453
Distributions to
Shareholders From:
Net investment income (a) (6,284) (31,681) (12,611) (33,072)
Net realized gain (219,264) (320,289) (22,701) (77,970)
- ----------------------------------------------------------------------------------
Total distributions
to shareholders (225,548) (351,970) (35,312) (111,042)
From Fund Share
Transactions:
Reinvestment of dividends
and capital gain
distributions 204,856 320,054 33,102 104,129
Proceeds from other shares
sold 490,137 711,329 406,219 468,766
- ----------------------------------------------------------------------------------
694,993 1,031,383 439,321 572,895
Payments for shares
redeemed (802,923) (566,224) (536,194) (621,910)
- ----------------------------------------------------------------------------------
Net increase (decrease)
in net assets from Fund
share transactions (107,930) 465,159 (96,873) (49,015)
- ----------------------------------------------------------------------------------
Total increase (decrease)
in net assets (131,996) 839,405 102,558 (149,604)
Net Assets:
Beginning of period 3,681,457 2,842,052 1,622,939 1,772,543
End of period $ 3,549,461 $3,681,457 $1,725,497 $1,622,939
- ----------------------------------------------------------------------------------
Undistributed Net
Investment Income $ 2,531 $ 498 $ 5,419 $ 3,986
- ----------------------------------------------------------------------------------
</TABLE>
(a) Includes distributions of unrealized PFIC gains of $7,674 in 1997 for Acorn
Fund and $24,166 in 1997 for Acorn International.
76
<PAGE>
<TABLE>
<CAPTION>
Acorn Acorn
Acorn Twenty Foreign Forty
USA Inception Inception
Year ended Year ended 11/23 through 11/23 through
- ---------------------------------------------------------------------------------
12/31/1998 12/31/1997 12/31/1998 12/31/1997
<S> <C> <C> <C> <C>
$ (1,050) $ (589) $ 6 $ (10)
23,791 5,521 (246) 74
(14,625) 27,198 2,532 1,163
- ---------------------------------------------------------------------------------
8,116 32,130 2,292 1,227
-- -- -- --
(19,532) (3,351) -- --
- ---------------------------------------------------------------------------------
(19,532) (3,351) -- --
17,705 3,178 -- --
175,578 133,753 31,688 14,739
- ---------------------------------------------------------------------------------
193,283 136,931 31,688 14,739
(85,540) (34,171) (256) (181)
- ---------------------------------------------------------------------------------
107,743 102,760 31,432 14,558
- ---------------------------------------------------------------------------------
96,327 131,539 33,724 15,785
184,624 53,085 -- --
$ 280,951 $ 184,624 $ 33,724 $ 15,785
- ---------------------------------------------------------------------------------
-- -- $ 6 $ 9
- ---------------------------------------------------------------------------------
</TABLE>
77
<PAGE>
Acorn Family of Funds
Financial Highlights
<TABLE>
<CAPTION>
Years
Acorn Fund ended 12/31
- ------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year 1998 1997
<S> <C> <C>
Net Asset Value, beginning of year $16.99 $15.04
Income From Investment Operations
Net investment income .04 .15
Net realized and unrealized gain (loss) on investments, foreign currency and futures .91 3.57
- ------------------------------------------------------------------------------------------------------------
Total from investment operations .95 3.72
Less Distributions
Dividends from net investment income (.03) (.16)
Distributions from net realized and unrealized gains reportable for federal income taxes (1.06) (1.61)
- ------------------------------------------------------------------------------------------------------------
Total distributions (1.09) (1.77)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $16.85 $16.99
- ------------------------------------------------------------------------------------------------------------
Total Return 6.0% 25.0%
Ratios/Supplemental Data
Ratio of expenses to average net assets .84% .56%
Ratio of net investment income to average net assets .30% .75%
Portfolio turnover rate 24% 32%
Net assets at end of period (in millions) $3,549 $3,681
Years
Acorn International ended 12/31
- ------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1998 1997
Net Asset Value, beginning of period $18.39 $19.61
Income From Investment Operations
Net investment income (loss) .17 .40
Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.68 (.34)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations 2.85 .06
Less Distributions
Dividends from net investment income (.15) (.38)
Distributions from net realized and unrealized gains reportable for federal income taxes (.27) (.90)
- ------------------------------------------------------------------------------------------------------------
Total distributions (.42) (1.28)
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $20.82 $18.39
- ------------------------------------------------------------------------------------------------------------
Total Return 15.4% 0.2%
Ratios/Supplemental Data
Ratio of expenses to average net assets 1.12% 1.19%
Ratio of net investment income (loss) to average net assets .86% .58%
Portfolio turnover rate 37% 39%
Net assets at end of period (in millions) $1,725 $1,623
</TABLE>
* Annualized
See accompanying notes to financial statements
78
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $7.27
.09 .11 .06 .04 .07 .11 .12 .13
2.93 2.42 (1.10) 3.50 2.16 2.95 (1.62) 1.65
- ----------------------------------------------------------------------------------
3.02 2.53 (1.04) 3.54 2.23 3.06 (1.50) 1.78
(.11) (.09) (.11) (.06) (.08) (.10) (.13) (.11)
(1.47) (1.08) (.56) (.59) (.41) (.15) (.44) (.36)
- ----------------------------------------------------------------------------------
(1.58) (1.17) (.67) (.65) (.49) (.25) (.57) (.47)
- ----------------------------------------------------------------------------------
$15.04 $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $8.58
- ----------------------------------------------------------------------------------
22.6% 20.8% (7.4%) 32.3% 24.2% 47.3% (17.5%) 24.8%
.57% .57% .62% .65% .67% .72% .82% .73%
.53% .89% .55% .30% .72% 1.30% 1.60% 1.59%
33% 29% 18% 20% 25% 25% 36% 26%
$2,842 $2,399 $1,983 $2,035 $1,449 $1,150 $ 767 $ 855
</TABLE>
<TABLE>
<CAPTION>
Inception 9/23
through 12/31,
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 1995 1994 1993 1992
$16.59 $15.24 $15.94 $10.69 $10.00
.13 .16 .07 -- (.03)
3.29 1.20 (.67) 5.25 .72
-------------------------------------------------------------
3.42 1.36 (.60) 5.25 .69
(.12) -- -- -- --
(.28) (.01) (.10) -- --
-------------------------------------------------------------
(.40) (.01) (.10) -- --
-------------------------------------------------------------
$19.61 $16.59 $15.24 $15.94 $10.69
-------------------------------------------------------------
20.7% 8.9% (3.8%) 49.1% 6.9%
1.17% 1.22% 1.24% 1.21% 2.35%*
.51% .90% .48% .06% (1.37%)*
34% 26% 20% 19% 20%*
$1,773 $1,276 $1,363 $ 907 $ 30
</TABLE>
79
<PAGE>
Acorn Family of Funds
Financial Highlights
<TABLE>
<CAPTION>
Years Inception 9/4
Acorn USA ended 12/31, through 12/31,
- --------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1998 1997 1996
<S> <C> <C> <C>
Net Asset Value, beginning of period $15.12 $11.65 $ 10.00
Income From Investment Operations
Net investment loss (b) (.07) (.07) (.02)
Net realized and unrealized gain on investments .87 3.83 1.67
- --------------------------------------------------------------------------------------------------------------
Total from investment operations .80 3.76 1.65
Less Distributions
Dividends from net investment income -- -- --
Distributions from net realized and unrealized gains
reportable for federal income taxes (1.12) (.29) --
- --------------------------------------------------------------------------------------------------------------
Total distributions (1.12) (.29) --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $14.80 $15.12 $ 11.65
- --------------------------------------------------------------------------------------------------------------
Total Return 5.8% 32.3% 16.5%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) 1.20% 1.35% 1.85%*
Ratio of net investment loss to average net assets (.42%) (.49%) (.99%)*
Portfolio turnover rate 42% 33% 20%*
Net assets at end of period (in millions) $ 281 $ 185 $ 53
</TABLE>
<TABLE>
<CAPTION>
Inception 11/13
Acorn Twenty through 12/31,
- -------------------------------------------------------------------------------
For a share outstanding throughout each period 1998
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment income (b) --
Net realized and unrealized gain on investments .71
- -------------------------------------------------------------------------------
Total from investment operations .71
- -------------------------------------------------------------------------------
Net Asset Value, end of period $ 10.71
- -------------------------------------------------------------------------------
Total Return 7.1%
Ratios/Supplemental Data
Ratio of expenses to average net assets (c)(d) 1.41%*
Ratio of net investment gain to average net assets (d) 0.22%*
Portfolio turnover rate 173%*
Net assets at end of period (in millions) $ 34
</TABLE>
- -------------------------------------------------------------------------------
(a) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn USA ratio reflects gross custodian fees. This ratio net of custodian
fees paid indirectly would have been 1.79% for the period ended December 31,
1996.
(b) Net investment income (loss) per share was based upon the average shares
outstanding during each period.
(c) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn Twenty ratio reflects total expenses prior to the reduction of
custodian fees for cash balances it maintains with the custodian ("custodian
fees paid indirectly"). This ratio net of custodian fees paid indirectly would
have been 1.35% for the period ended December 31, 1998.
(d) Acorn Twenty was reimbursed by the Advisor for certain net expenses from
November 23, 1998 through December 31, 1998. Without the reimbursement, the
ratio of expenses (prior to custodian fees paid indirectly) to average net
assets and the ratio of net investment income to average net assets would have
been 1.83% and (.21%), respectively.
* Annualized
See accompanying notes to financial statements
80
<PAGE>
Inception 11/23
Acorn Foreign Forty through 12/31,
- ------------------------------------------------------------------------
For a share outstanding throughout each period 1998
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (b) (.01)
Net realized and unrealized gain on investments 1.01
- ------------------------------------------------------------------------
Total from investment operations 1.00
- ------------------------------------------------------------------------
Net Asset Value, end of period $ 11.00
- ------------------------------------------------------------------------
Total Return 10.0%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a)(c) 1.73%*
Ratio of net investment loss to average net assets (c) (.78%)*
Portfolio turnover rate 90%*
Net assets at end of period (in millions) $ 16
- --------------------------------------------------------------------------------
(a) In accordance with a requirement by the Securities and Exchange Commission,
the Acorn Foreign Forty ratio reflects total expenses prior to the
reduction of custodian fees for cash balances it maintains with the
custodian ("custodian fees paid indirectly"). This ratio net of custodian
fees paid indirectly would have been 1.45% for the period ended December
31, 1998.
(b) Net investment loss per share was based upon the average shares outstanding
during the period.
(c) Acorn Foreign Forty was reimbursed by the Advisor for certain net expenses
from November 23, 1998 through December 31, 1998. Without the
reimbursement, the ratio of expenses (prior to custodian fees paid
indirectly) to average net assets and the ratio of net investment income to
average net assets would have been 2.70% and (1.75%), respectively.
* Annualized
81
<PAGE>
Acorn Family of Funds
Notes to Financial Statements
1. Nature of Operations
Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign Forty
(the "Funds") are series of Acorn Investment Trust (the "Trust"), an open-end
management investment company organized as a Massachusetts business trust. The
investment objective of each Fund is to seek long-term growth of capital.
2. Significant Accounting Policies
Security valuation
Investments are stated at current value. Securities traded on securities
exchanges or in over-the-counter markets in which transaction prices are
reported are valued at the last sales price at the time of valuation. Securities
for which there are no reported sales on the valuation date are valued at the
mean of the latest bid and ask quotation or, if there is no ask quotation, at
the most recent bid quotation. Money market instruments having a maturity of 60
days or less from the valuation date are valued on an amortized cost basis.
Securities for which quotations are not available and any other assets are
valued at a fair value as determined in good faith by the Board of Trustees.
Foreign currency translations
Values of investments denominated in foreign currencies are converted into U.S.
dollars using the spot market rate of exchange at the time of valuation.
Purchases and sales of investments and dividend and interest income are
translated into U.S. dollars using the spot market rate of exchange prevailing
on the respective dates of such transactions. The gain or loss resulting from
changes in foreign exchange rates is included with net realized and unrealized
gain or loss from investments, as appropriate.
Security transactions and investment income
Security transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend date,
except that certain dividends from foreign securities are recorded as soon as
the information is available to the Funds. Interest income is recorded on the
accrual basis and includes amortization of discounts on money market instruments
and long-term debt instruments when required for federal income tax purposes.
Realized gains and losses from security transactions are reported on an
identified cost basis.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
Financial instruments
Each Fund may purchase or sell exchange-traded financial futures contracts,
which are contracts that obligate that Fund to make or take delivery of a
financial instrument or the cash value of a securities index at a specified
future date at a specified price. The Funds enter into such contracts to hedge a
portion of their portfolio. Gains and losses are reflected as "Net Realized Gain
(Loss) on Futures" in the Statements of Operations. Additionally, each Fund may
engage in portfolio hedging with respect to changes in currency exchange rates
by entering into forward foreign currency contracts to purchase or sell foreign
currencies. The Statements of Operations reflect gains and losses as realized
for closed forward foreign currency contracts and unrealized for open contracts.
The Fund bears the market risk that arises from changes in the value of
financial instruments and securities indices (futures contracts) or from changes
in foreign currency rates (forward foreign currency contracts) and the credit
risk should a counterparty fail to perform under such contracts.
None of the Funds had any futures contracts open at December 31, 1998. Acorn
Fund and Acorn International entered into forward contracts to sell foreign
currency as described below:
<TABLE>
<CAPTION>
Acorn Fund
Foreign Settlement U.S. Dollar Unrealized
Amount (000) Currency Date Proceeds (000) Loss (000)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hong Kong
78,085 Dollar 5/20/99 $10,000 $ (42)
Acorn International
Unrealized
Foreign Settlement U.S.Dollar Gain
Amount(000) Currency Date Proceeds (000) (Loss) (000)
- -------------------------------------------------------------------------------
13,500 Swiss Franc 3/19/99 $10,105 $ 198
17,000 German Mark 3/19/99 $10,247 $ (2)
15,000 British Pound 3/19/99 $25,077 $ 174
155,000 Hong Kong Dollar 1/15/99 $19,591 $(411)
4,735,000 Japanese Yen 3/19/99 $41,491 $(928)
- ------------------------------------------------------------------------------
Total Unrealized Loss: $(969)
=====
</TABLE>
82
<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.
In accordance with the distribution requirements imposed on investment
companies, Acorn Fund, Acorn International and Acorn USA paid long-term capital
gain distributions in 1998 of $247,613,000, $22,701,000 and $17,598,000,
respectively, which was sufficient to allow each fund not to incur any income
tax. Acorn Twenty and Acorn Foreign Forty also complied with these provisions
and were not required to pay a distribution.
Acorn Fund, Acorn International and Acorn Foreign Forty have elected to
mark-to-market their investments in Passive Foreign Investment Companies
("PFICs") for Federal income tax purposes. A summary of transactions relating to
PFICs is as follows:
<TABLE>
<CAPTION>
Acorn Fund (000)
- ----------------------------------------------------------------
<S> <C>
Cumulative net unrealized appreciation
recognized in prior years at December 31, 1997 $2,804
Unrealized depreciation recognized through
December 31, 1998 (232)
Cumulative net unrealized appreciation
recognized in prior years on PFICs sold
through December 31, 1998 (2,572)
------
Cumulative net unrealized appreciation recognized
in prior years at December 31, 1998 -
======
A summary of transactions relating to PFICs
during 1998 follows:
Unrealized depreciation recognized (232)
Losses on the sale of PFICs
classified as ordinary income (2,483)
Acorn International (000)
- ----------------------------------------------------------------
Cumulative net unrealized appreciation
recognized in prior years at December 31, 1997 $ 16,193
Unrealized appreciation recognized through
December 31, 1998 231
Cumulative net unrealized appreciation recognized in
prior years on PFICs sold through December 31, 1998 (16,113)
-------
Cumulative net unrealized appreciation recognized
in prior years at December 31, 1998 311
=======
A summary of transactions relating to PFICs
during 1998 follows:
Unrealized appreciation recognized 231
Losses on the sale of PFICs
classified as ordinary income (540)
</TABLE>
Acorn Foreign Forty recognized unrealized appreciation on PFICs of $19,000 for
the period ended December 31, 1998.
Distributions relating to PFICs are treated as ordinary income for Federal
income tax purposes.
Acorn International and Acorn Twenty intend to utilize provisions of the
federal tax law that allow them to carry a realized capital loss forward for
eight years following the year of the loss and offset such losses against future
realized gains. At December 31, 1998, Acorn International and Acorn Twenty had
capital loss carryforwards of $16,804,000 and $246,000, respectively which will
expire December 31, 2006.
Dividends payable to shareholders are recorded by the Funds on the ex-
dividend date.
Reclassifications have been made in 1998 for Acorn Fund and Acorn USA in the
accompanying analysis of net assets from accumulated net realized gain on sale
of investments to paid-in-capital of $28,349,000 and $4,314,000 respectively. A
reclassification was made in Acorn International of $355,000 from accumulated
net realized gain on sale of investments to undistributed net income and in
Acorn USA of $1,050,000 from undistributed net investment income to accumulated
net realized gains. All reclassifications were made to reflect differences
between financial reporting and income tax basis and had no impact on net asset
value.
83
<PAGE>
Acorn Family of Funds
Notes to Financial Statements
3. Transactions With Affiliates
The Funds' investment advisor, Wanger Asset
Management, L.P. ("WAM") furnishes
continuing investment supervision to the
Funds and is responsible for the overall
management of the Funds' business affairs.
Under the investment management
agreements for Acorn Fund, Acorn
International and Acorn USA which were in
effect for 1997 each fund paid WAM an
annual management fee, payable monthly, at
the rates set forth below. The fees for
Acorn Fund and Acorn International were
determined at the beginning of each
calendar quarter and the fees for Acorn USA
were determined and accrued daily:
Acorn Fund
- -------------------------------------------
Net asset value:
For the first $100 million .75%
Next $1.4 billion .50%
Net assets in excess of $1.5 billion .40%
Acorn International
- -------------------------------------------
Net asset value:
For the first $100 million 1.25%
Next $400 million 1.00%
Net assets in excess of $500 million .80%
Acorn USA
- -------------------------------------------
Net asset value:
For the first $200 million 1.00%
Net assets in excess of $200 million .95%
Beginning in 1998, the management
agreement for Acorn Fund, Acorn
International and Acorn USA was replaced
with a new investment management agreement
and a separate administrative service
agreement as approved by shareholders.
Under the new investment management
agreement, fees are accrued daily and paid
monthly to WAM at the annual rates shown in
the table below for each Fund.
Acorn Fund
- -------------------------------------------
Net asset value:
For the first $700 million .75%
Next $1.300 billion .70%
Net assets in excess of $2 billion .65%
Acorn International
- -------------------------------------------
Net asset value:
For the first $100 million 1.20%
Next $400 million .95%
Net assets in excess of $500 million .75%
Acorn USA
- -------------------------------------------
Net asset value:
For the first $200 million .95%
Net assets in excess of $200 million .90%
Acorn Twenty
- -------------------------------------------
On average daily net assets .90%
Acorn Foreign Forty
On average daily net assets .95%
Under the new administrative service
agreement, WAM provides administrative
services to each Fund (including Acorn
Twenty and Acorn Foreign Forty) in return
for fees, accrued daily and paid monthly at
an annual rate of .05% of average daily net
assets.
Certain officers and trustees of the
Trust are also principals of WAM. The
Trust makes no direct payments to its
officers and trustees who are affiliated
with WAM. The Funds paid trustees' fees and
expenses of the following:
- -------------------------------------------
(in thousands) 1998 1997
Acorn Fund $ 211 $ 196
Acorn International 94 119
Acorn USA 11 7
Acorn Twenty - -
Acorn Foreign Forty - -
------------
$ 316 $ 322
============
WAM advanced Acorn USA $107,000 in
connection with the organization and initial
registration of the Fund. These costs are
being amortized and reimbursed to WAM over
the period September 1996 though August
2001. WAM paid all of the organization costs
associated with the organization of Acorn
Twenty and Acorn Foreign Forty. These costs
amounted to $92,000. WAM will not be
reimbursed for these costs by the Funds.
WAM Brokerage Services, L.L.C., a
wholly owned subsidiary of WAM, is the
distributor of the Funds' shares and
receives no compensation for its services.
4. Borrowing Arrangements
The Trust participates in a $250,000,000
credit facility which was entered into
to facilitate portfolio liquidity. No
amounts were borrowed under this facility
during 1998.
84
<PAGE>
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) 1998 1997
<S> <C> <C>
Shares sold 28,471 42,779
Shares issued in reinvestment of
dividend and capital gain distributions 12,814 19,004
--------------------
41,285 61,783
Less shares redeemed 47,224 34,056
- -------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding (5,939) 27,727
- -------------------------------------------------------------------------------
Acorn International
- -------------------------------------------------------------------------------
(in thousands) 1998 1997
Shares sold 19,818 23,235
Shares issued in reinvestment of
dividend and capital gain distributions 1,540 5,501
--------------------
21,358 28,736
Less shares redeemed 26,757 30,846
--------------------
Net decrease in shares outstanding (5,399) (2,110)
- -------------------------------------------------------------------------------
Acorn USA
- -------------------------------------------------------------------------------
(in thousands) 1998 1997
Shares sold 11,062 9,880
Shares issued in reinvestment of
dividend and capital gain distributions 1,270 212
--------------------
12,332 10,092
Less shares redeemed 5,558 2,436
--------------------
Net increase in shares outstanding 6,774 7,656
- -------------------------------------------------------------------------------
Acorn Twenty
- -------------------------------------------------------------------
(in thousands) 1998
Shares sold 3,176
Less shares redeemed 26
----------
Net increase in shares outstanding 3,150
- -------------------------------------------------------------------
Acorn Foreign Forty
- -------------------------------------------------------------------
(in thousands) 1998
Shares sold 1,453
Less shares redeemed 18
----------
Net increase in shares outstanding 1,435
- -------------------------------------------------------------------
6. Investment Transactions
Investment Transactions (excluding money market instruments) for each of the
Funds are as follows:
Acorn Fund
- -------------------------------------------------------------------------------
(in thousands) 1998 1997
Purchases $ 830,390 $ 928,010
Proceeds from sales 1,048,096 1,084,981
Acorn International
- -------------------------------------------------------------------------------
(in thousands) 1998 1997
Purchases $570,304 $656,789
Proceeds from sales 709,630 824,939
Acorn USA
- -------------------------------------------------------------------------------
(in thousands) 1998 1997
Purchases $178,181 $126,503
Proceeds from sales 95,639 36,965
Acorn Twenty
- -------------------------------------------------------------------
(in thousands) 1998
Purchases $34,025
Proceeds from sales 4,483
Acorn Foreign Forty
- -------------------------------------------------------------------
(in thousands) 1998
Purchases $13,984
Proceeds from sales 974
- -------------------------------------------------------------------
</TABLE>
85
<PAGE>
PART C OTHER INFORMATION
ITEM 23 Exhibits:
--------
a. Agreement and declaration of trust(1).
b. Bylaws, as amended October 24, 1997 (exhibit 2.3 to post-effective
amendment no. 60)(2).
c.1 Specimen share certificate - Acorn Fund(3).
c.2 Specimen share certificate - Acorn International (exhibit 4.2 to post-
effective amendment no. 54)(3).
c.3 Specimen share certificate - Acorn USA(4).
c.4 Specimen shares certificates - Acorn Twenty and Acorn Foreign
Forty(5).
d.1 Investment Advisory Agreement among Acorn Fund, Acorn International,
Acorn USA and Wanger Asset Management, L.P., dated January 1,
1998(6).
d.2 Administration Agreement among Acorn Fund, Acorn International, Acorn
USA and Wanger Asset Management, L.P., dated January 1, 1998
(exhibit 5.2 to post-effective amendment no. 61)(6).
d.3 Organizational Expenses Agreement between Acorn Investment Trust and
Wanger Asset Management, L.P. dated September 3, 1996 (exhibit 5.3
to post-effective amendment no. 61)(6).
d.4 Supplement to the Investment Advisory Agreement among Acorn Investment
Trust and Wanger Asset Management, L.P. relating to Acorn Twenty and
Acorn Foreign Forty dated August 17, 1998.
d.5 Amendment to the Administrative Agreement between Acorn Investment
Trust and Wanger Asset Management, L.P. relating to Acorn Twenty and
Acorn Foreign Forty, dated August 17, 1998.
e.1 Distribution Agreement between Acorn Investment Trust and WAM
Brokerage Services, L.L.C. dated January 1, 1998 (exhibit 6 to post-
effective amendment no. 61)(6).
e.2 Amendment to the Distribution Agreement between Acorn Investment Trust
and WAM Brokerage Services, L.L.C., relating to Acorn Twenty and
Acorn Foreign Forty dated August 17, 1998.
f. None
g.1 Custodian contract between the Registrant and State Street Bank and
Trust Company dated July 1, 1992 (exhibit 8.1 to post-effective
amendment no. 60)(1)
<PAGE>
g.2 Letter agreement applying custodian contract (exhibit 8.2 to post-
effective amendment no. 60)(1).
g.3 Letter agreement applying custodian contract (exhibit 8.1) relating to
Acorn USA (exhibit no. 8.3 to post-effective amendment no. 61)(6).
g.4 Letter agreement applying custodian contract and transfer agency and
service agreement (exhibit 8.1) relating to Acorn Twenty and Acorn
Foreign Forty, dated August 17, 1998.
h. None
i. Consent of Bell, Boyd & Lloyd
j. Consent of Ernst & Young LLP
k. None
l. None
m. None
n.1 Financial data schedule - Acorn Fund
n.2 Financial data schedule - Acorn International
n.3 Financial data schedule - Acorn USA
n.4 Financial data schedule - Acorn Twenty
n.5 Financial data schedule - Acorn Foreign Forty
o. None
_____________________
(1) Previously filed. Incorporated by reference to exhibit 1 filed in post-
effective amendment No. 53 to the registrant's registration statement,
Securities Act file number 2-34223 (the "Registration Statement"), filed on
April 30, 1996.
(2) Previously filed. Incorporated by reference to the exhibit of the same
number filed in post-effective amendment No. 60 to the Registration Statement,
filed on December 30, 1997.
(3) Previously filed. Incorporated by reference to exhibit 4.1 filed in post-
effective amendment No. 54 to the Registration Statement, filed on June 18,
1996.
(4) Previously filed. Incorporated by reference to exhibit 4.3 filed in post-
effective amendment No. 55 to the Registration Statement, filed on September 3,
1996.
(5) Previously filed. Incorporated by reference to exhibit 4.4 filed in post-
effective amendment No. 62 to the Registration Statement, filed on June 3, 1998.
(6) Previously filed. Incorporated by reference to exhibit 5.1 filed in post-
effective amendment No. 61 to the Registration Statement filed on April 30,
1998.
<PAGE>
ITEM 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with the
Registrant within the meaning of this item. The information in the prospectus
under the caption "The Funds in Detail - Organization - Management" and in the
statement of additional information under the caption "Investment Adviser" is
incorporated by reference.
ITEM 25. Indemnification
---------------
Article VIII of the Agreement and Declaration of Trust of the Registrant
(exhibit 1) provides in effect that Registrant shall provide certain
indemnification of its trustees and officers. In accordance with Section 17(h)
of the Investment Company Act, that provision shall not protect any person
against any liability to the Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Registrant, its trustees and officers, its investment adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
ITEM 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
The information in the prospectus under the caption " Management of the
Funds" is incorporated by reference. Neither Wanger Asset Management, L.P. nor
its general partner has at any time during the past two years been engaged in
any other business, profession, vocation or employment of a substantial nature
either for its own account or in the capacity of director, officer, employee,
partner or trustee.
ITEM 27. Principal Underwriters
----------------------
WAM Brokerage Services, L.L.C. also acts as principal underwriter for
Wanger Advisors Trust.
<PAGE>
NAME POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
UNDERWRITERS REGISTRANT
Bruce H. Lauer President Vice President and Treasurer
THE PRINCIPAL BUSINESS OF EACH OFFICER OF WAM BROKERAGE SERVICES, L.L.C. IS 227
WEST MONROE STREET, SUITE 3000, CHICAGO, ILLINOIS 60606.
Item 28. Location of Accounts and Records
--------------------------------
Bruce H. Lauer, Vice President and Treasurer
Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
ITEM 29. Management Services
-------------------
None
ITEM 30. Undertakings
------------
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under Rule
485(b) under the Securities Act and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Chicago, Illinois on February 26, 1999.
ACORN INVESTMENT TRUST
By /s/ Ralph Wanger
---------------------------
Ralph Wanger, President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Irving B. Harris Trustee and chairman )
- ----------------------------
Irving B. Harris )
)
/s/ Leo A. Guthart Trustee )
- ----------------------------
Leo A. Guthart
/s/ Jerome Kahn, Jr. Trustee )
- ----------------------------
Jerome Kahn, Jr. )
)
/s/ David C. Kleinman Trustee )
- ----------------------------
David C. Kleinman )
)
Trustee )
- ---------------------------- ) February 26, 1999
James H. Lorie
/s/ Charles P. McQuaid Trustee )
- ---------------------------- )
Charles P. McQuaid )
)
/s/ Roger S. Meier Trustee )
- ----------------------------
Roger S. Meier )
)
/s/ Allan B. Muchin Trustee )
- ----------------------------
Allan B. Muchin )
)
/s/ Robert E. Nason Trustee )
- ----------------------------
Robert E. Nason )
)
/s/ Katherine Schipper Trustee )
- ----------------------------
Katherine Schipper )
)
/s/ Ralph Wanger Trustee and President )
- ---------------------------- (principal executive )
Ralph Wanger officer) )
/s/ Bruce H. Lauer Treasurer (principal )
- ---------------------------- financial and accounting )
Bruce H. Lauer officer) )
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
-------------------------------------------
EXHIBIT
NUMBER EXHIBIT
- ------ -------
d.4 Supplement to the Investment Advisory Agreement among Acorn
Investment Trust and Wanger Asset Management, L.P. relating Acorn
Twenty and Acorn Foreign Forty
d.5 Amendment to the Administration Agreement between Acorn Investment
Trust and Wanger Asset Management, L.P.
e.2 Amendment to the Distribution Agreement between Acorn Investment
Trust and WAM Brokerage Services, L.L.C., relating to Acorn Twenty
and Acorn Foreign Forty
g.4 Letter agreement applying custodian contract and transfer agent
and service agreement to Acorn Twenty and Acorn Foreign Forty
i. Consent of Bell, Boyd & Lloyd
j Consent of Ernst & Young LLP
n.1 Financial data schedule - Acorn Fund
n.2 Financial data schedule - Acorn International
n.3 Financial data schedule - Acorn USA
n.4 Financial data schedule - Acorn Twenty
n.5 Financial data schedule - Acorn Foreign Forty
<PAGE>
EXHIBIT D.4
SUPPLEMENT TO THE ADVISORY AGREEMENT
This Supplement to the Investment Advisory Agreement dated January 1, 1998,
between Acorn Investment Trust, a Massachusetts business trust ("Acorn"), on
behalf of its series, Acorn Fund, Acorn International and Acorn USA (the
"Funds"), and Wanger Asset Management, L.P., a Delaware limited partnership
("WAM") (the "Agreement"), is made this 17th day of August, 1998.
RECITALS
In the Agreement, Acorn appointed WAM as the investment adviser to the
Funds.
The Agreement provides that "if Acorn establishes one or more series in
addition to the Funds named above with respect to which it desires to retain WAM
as investment adviser hereunder, and if WAM is willing to provide such services
under this agreement, Acorn and WAM may add such new series to this agreement,
by written supplement to this agreement. Such supplement shall include a
schedule of compensation to be paid to WAM by Acorn with respect to such series
and such other modifications of the terms of this agreement with respect to such
series as Acorn and WAM may agree. Upon execution of such a supplement by Acorn
and WAM, that series will become a Fund hereunder and shall be subject to the
provisions of this agreement to the same extent as the Funds named above, except
as modified by the supplement."
Acorn has established two new series, designated Acorn Twenty and Acorn
Foreign Forty, respectively, and desires to retain WAM as the investment adviser
to each series. WAM is willing to provide such investment advisory services
under the Agreement.
THEREFORE, Acorn and WAM agree:
1. The series of Acorn designated Acorn Twenty and Acorn Foreign Forty
are Funds under the Agreement.
2. For the services to be rendered and the expenses to be assumed on
behalf of Acorn Twenty and Acorn Foreign Forty and to be paid by WAM under this
agreement, Acorn shall pay to WAM fees accrued daily and paid monthly at the
annual rates shown below:
FUND Rate of Fee
---- -----------
Acorn Twenty .90%
Acorn Foreign Forty .95%
<PAGE>
EXHIBIT D.4
The fees attributable to each Fund shall be a separate charge to that Fund and
shall be the several (and not joint or joint and several) obligation of that
Fund.
ATTEST: WANGER ASSET MANAGEMENT, L.P.
/s/ Merrillyn J. Kosier
Secretary By: /s/ Ralph Wanger
ATTEST: ACORN INVESTMENT TRUST
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
Secretary
<PAGE>
EXHIBIT D.5
AMENDMENT TO
ADMINISTRATION AGREEMENT
between
ACORN INVESTMENT TRUST
and
WANGER ASSET MANAGEMENT, L.P.
This Amendment to the Admininstration Agreement dated January 1, 1998 (the
"Agreement") between Acorn Investment Trust, a Massachusetts business trust
("Acorn"), on behalf of its series, Acorn Fund, Acorn International and Acorn
USA (the "Funds"), and Wanger Asset Management, L.P., a Delaware limited
partnership ("WAM") (the "Amendment"), is made this 17th day of August, 1998.
RECITALS
In the Agreement, Acorn appointed WAM to act as Administrator of the Funds,
subject to the supervision and direction of the Board of Trustees of Acorn.
The Agreement provides that Schedule A to the Agreement, which lists the
Funds for which administrative services are to be provided by WAM, may be
amended from time to time in writing.
Acorn has established two new series, designated Acorn Twenty and Acorn
Foreign Forty, respectively, and desires to retain WAM as the Administrator to
each series. WAM is willing to provide such administrative services as
contemplated by the Agreement.
THEREFORE, Acorn and WAM agree:
1. As used in the Agreement, "Funds" shall include the series of Acorn
designated Acorn Twenty and Acorn Foreign Forty.
2. Schedule A to the Agreement is hereby amended as follows:
"Funds to which the Administration Agreement is Applicable
Acorn Fund
Acorn International
Acorn USA
Acorn Twenty
Acorn Foreign Forty"
<PAGE>
EXHIBIT D.5
ATTEST: WANGER ASSET MANAGEMENT, L.P.
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
Secretary
ATTEST: ACORN INVESTMENT TRUST
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
Secretary
<PAGE>
EXHIBIT E.2
AMENDMENT TO
DISTRIBUTION AGREEMENT
between
ACORN INVESTMENT TRUST
and
WAM BROKERAGE SERVICES, L.L.C.
This Amendment to the Distribution Agreement is made this 17th day of
August, 1998 by and between ACORN INVESTMENT TRUST, a business trust organized
and existing under the laws of the Commonwealth of Massachusetts ("Acorn") and
WAM BROKERAGE SERVICES, L.L.C., a limited liability company organized and
existing under the laws of the State of Illinois ("WAM BD").
RECITALS
Acorn and WAM BD entered into a Distribution Agreement (the "Agreement")
dated January 1, 1998 by which Acorn appointed WAM BD as principal underwriter
of its Shares.
The Agreement defines Shares as the "shares of beneficial interest...which
currently are divided into three series, Acorn Fund, Acorn International and
Acorn USA, and including shares of any additional series which may from time to
time be offered for sale to the public."
Acorn has designated and wishes to offer for sale to the public shares of
two additional series, Acorn Twenty and Acorn Foreign Forty, and may from time
to time hereafter wish to offer for sale to the public shares of yet additional
series.
Acorn has entered into an investment advisory agreement dated January 1,
1998 with Wanger Asset Management, L.P. ("WAM"), an affiliate of WAM BD,
pursuant to which WAM has agreed to pay all expenses incurred in the sale and
promotion of shares of Acorn.
THEREFORE, Acorn and WAM BD agree:
As used in the Distribution Agreement, "Shares" shall include the shares of
beneficial interest of the series of Acorn designated Acorn Twenty and Acorn
Foreign Forty.
<PAGE>
EXHIBIT E.2
ATTEST: WAM BROKERAGE SERVICES, L.L.C.
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
Secretary
ATTEST: ACORN INVESTMENT TRUST
/s/ Merrillyn J. Kosier By: /s/ Ralph Wanger
Secretary
ACKNOWLEDGED:
WANGER ASSET MANAGEMENT, L.P.
By: /s/ Ralph Wanger
ATTEST:
/s/ Merrillyn J. Kosier
Secretary
<PAGE>
EXHIBIT G.4
Acorn Investment Trust
227 West Monroe
Suite 3000
Chicago, Illinois 60606-5016
1-800-9-ACORN-9
(1-800-922-6769)
August 17, 1998
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Ladies and Gentlemen:
This is to advise you that Acorn Investment Trust has established two new
series of shares to be known as Acorn Twenty and Acorn Foreign Forty. In
accordance with the Additional Funds provision in Section 17 of the Custodian
Contract dated July 1, 1992, as amended from time to time, and in Article 10 of
the Transfer Agency and Service Agreement dated July 1, 1992 between Acorn
Investment Trust and State Street Bank and Trust Company, Acorn Investment Trust
hereby requests that you act as Custodian and Transfer Agent for each new
series.
Please indicate your acceptance of this appointment as Custodian and
Transfer Agent by executing three copies of this Letter Agreement, returning two
copies to us and retaining one copy for your records.
ACORN INVESTMENT TRUST
By: /s/ Merrillyn J. Kosier
Merrillyn J. Kosier
Senior Vice President and Secretary
Agreed to this 17/th/ day of August, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
Name: Ronald E. Logue
Title: Executive Vice President
<PAGE>
Exhibit I
BELL, BOYD & LLOYD
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
312 372 1121
Fax: 312 372 2098
February 26, 1999
As Counsel for Acorn Investment Trust (the "Registrant"), we consent to the
incorporation by reference of our opinion for the Registrant's series designated
Acorn Fund, Acorn International and Acorn USA dated April 30, 1998, filed with
the Registrant's registration statement on Form N-1A on April 30, 1998, and our
opinion for the Registrant's series designated Acorn Twenty and Acorn Foreign
Forty dated June 2, 1998, filed with the Registrant's registration statement on
Form N-1A on June 3, 1998 (Securities Act file no. 2-34223).
In giving this consent we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
/s/ Bell, Boyd & Lloyd
<PAGE>
Exhibit j
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
February 9, 1999 on the 1998 financial statements of Acorn Fund, Acorn
International, Acorn USA, Acorn Twenty and Acorn Foreign Forty, comprising Acorn
Investment Trust and its incorporation by reference in the Registration
Statement (Form N-1A) and in the related Prospectus and Statement of Additional
Information, filed with the Securities and Exchange Commission in this Post-
Effective Amendment No. 64 to the Registration Statement under the Securities
Act of 1933 (Registration No. 2-34223) and in the Amendment No. 39 to the
Registration Statement under the Investment Company Act of 1940 (Registration
No. 811-1829).
/s/ Ernst & Young LLP
Chicago, Illinois
February 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended December 31, 1998 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> ACORN FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 2139749
<INVESTMENTS-AT-VALUE> 3585613
<RECEIVABLES> 13905
<ASSETS-OTHER> 502
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3600020
<PAYABLE-FOR-SECURITIES> 11480
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 39079
<TOTAL-LIABILITIES> 50559
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2067199
<SHARES-COMMON-STOCK> 210706
<SHARES-COMMON-PRIOR> 216645
<ACCUMULATED-NII-CURRENT> 2531
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 33912
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1445819
<NET-ASSETS> 3549461
<DIVIDEND-INCOME> 27970
<INTEREST-INCOME> 13414
<OTHER-INCOME> 0
<EXPENSES-NET> 30352
<NET-INVESTMENT-INCOME> 11032
<REALIZED-GAINS-CURRENT> 254003
<APPREC-INCREASE-CURRENT> (43553)
<NET-CHANGE-FROM-OPS> 201682
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6284
<DISTRIBUTIONS-OF-GAINS> 219264
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28471
<NUMBER-OF-SHARES-REDEEMED> 47224
<SHARES-REINVESTED> 12814
<NET-CHANGE-IN-ASSETS> (131996)
<ACCUMULATED-NII-PRIOR> 498
<ACCUMULATED-GAINS-PRIOR> 47522
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 24905
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 30352
<AVERAGE-NET-ASSETS> 3629987
<PER-SHARE-NAV-BEGIN> 16.99
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .91
<PER-SHARE-DIVIDEND> .03
<PER-SHARE-DISTRIBUTIONS> 1.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.85
<EXPENSE-RATIO> .84
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended December 31, 1998 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> ACORN INTERNATIONAL
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1197259
<INVESTMENTS-AT-VALUE> 1727425
<RECEIVABLES> 5143
<ASSETS-OTHER> 503
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1733071
<PAYABLE-FOR-SECURITIES> 2479
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5095
<TOTAL-LIABILITIES> 7570
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1209014
<SHARES-COMMON-STOCK> 62874
<SHARES-COMMON-PRIOR> 88273
<ACCUMULATED-NII-CURRENT> 5419
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (17865)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 528909
<NET-ASSETS> 1725497
<DIVIDEND-INCOME> 23704
<INTEREST-INCOME> 10223
<OTHER-INCOME> 0
<EXPENSES-NET> 19219
<NET-INVESTMENT-INCOME> 14708
<REALIZED-GAINS-CURRENT> 4188
<APPREC-INCREASE-CURRENT> 215847
<NET-CHANGE-FROM-OPS> 234743
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12611
<DISTRIBUTIONS-OF-GAINS> 22701
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19518
<NUMBER-OF-SHARES-REDEEMED> 26757
<SHARES-REINVESTED> 1540
<NET-CHANGE-IN-ASSETS> 102558
<ACCUMULATED-NII-PRIOR> 3986
<ACCUMULATED-GAINS-PRIOR> 15568
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14124
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 19219
<AVERAGE-NET-ASSETS> 1718370
<PER-SHARE-NAV-BEGIN> 18.39
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 2.68
<PER-SHARE-DIVIDEND> .15
<PER-SHARE-DISTRIBUTIONS> .27
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.82
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended December 31, 1998 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> ACORN USA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 265044
<INVESTMENTS-AT-VALUE> 281785
<RECEIVABLES> 1345
<ASSETS-OTHER> 66
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 283196
<PAYABLE-FOR-SECURITIES> 460
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1785
<TOTAL-LIABILITIES> 2245
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263734
<SHARES-COMMON-STOCK> 18986
<SHARES-COMMON-PRIOR> 12212
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 476
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16741
<NET-ASSETS> 280951
<DIVIDEND-INCOME> 882
<INTEREST-INCOME> 1042
<OTHER-INCOME> 0
<EXPENSES-NET> 2974
<NET-INVESTMENT-INCOME> (1050)
<REALIZED-GAINS-CURRENT> 23791
<APPREC-INCREASE-CURRENT> (14625)
<NET-CHANGE-FROM-OPS> 8116
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 19532
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11042
<NUMBER-OF-SHARES-REDEEMED> 9558
<SHARES-REINVESTED> 1270
<NET-CHANGE-IN-ASSETS> 96227
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1581
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2979
<AVERAGE-NET-ASSETS> 247195
<PER-SHARE-NAV-BEGIN> 15.12
<PER-SHARE-NII> (.07)
<PER-SHARE-GAIN-APPREC> .87
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.12
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.80
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended December 31, 1998 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> ACORN TWENTY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 30290
<INVESTMENTS-AT-VALUE> 32822
<RECEIVABLES> 743
<ASSETS-OTHER> 254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33819
<PAYABLE-FOR-SECURITIES> 60
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 35
<TOTAL-LIABILITIES> 95
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31432
<SHARES-COMMON-STOCK> 3150
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (246)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2532
<NET-ASSETS> 33724
<DIVIDEND-INCOME> 38
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 39
<NET-INVESTMENT-INCOME> 6
<REALIZED-GAINS-CURRENT> (246)
<APPREC-INCREASE-CURRENT> 2532
<NET-CHANGE-FROM-OPS> 2292
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3176
<NUMBER-OF-SHARES-REDEEMED> 26
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 33724
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 53
<AVERAGE-NET-ASSETS> 25254
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .71
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 1.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended December 31, 1998 and the
audited financial statements included in registrant's annual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> ACORN FOREIGN FORTY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14793
<INVESTMENTS-AT-VALUE> 15959
<RECEIVABLES> 777
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16736
<PAYABLE-FOR-SECURITIES> 936
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15
<TOTAL-LIABILITIES> 951
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14558
<SHARES-COMMON-STOCK> 1435
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1144
<NET-ASSETS> 15785
<DIVIDEND-INCOME> 5
<INTEREST-INCOME> 3
<OTHER-INCOME> 0
<EXPENSES-NET> 18
<NET-INVESTMENT-INCOME> (10)
<REALIZED-GAINS-CURRENT> 74
<APPREC-INCREASE-CURRENT> 1163
<NET-CHANGE-FROM-OPS> 1227
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1453
<NUMBER-OF-SHARES-REDEEMED> 18
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15785
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 32
<AVERAGE-NET-ASSETS> 11315
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 1.01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
