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