<PAGE>
The Acorn Family of Funds
Acorn Fund
Acorn International
Acorn USA
Acorn Twenty
Acorn Foreign Forty
100% No-Load Funds
Acorn
Prospectus
May 1, 2000
The Securities and Exchange Commission
has not approved or disapproved these
securities or passed upon the adequacy of
this prospectus. Any representation to the
contrary is a criminal offense.
[PHOTO OF ACORNS]
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Acorn Investment Trust
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
800-9-ACORN-9
(800-922-6769)
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CONTENTS
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2 AT A GLANCE Acorn Fund 2
Fund Objective, Acorn International 4
Investment Strategy, Acorn USA 6
Risks, Fees and Expenses Acorn Twenty 8
Acorn Foreign Forty 10
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12 MANAGEMENT OF Portfolio Managers
THE FUNDS Management Fees
14 HOW THE FUNDS INVEST The Acorn Family of Funds Investment Philosophy
Securities in which the Funds Invest
Summarizing Risk
Managing Risk
18 SHAREHOLDER'S MANUAL How to Contact Us
Investment Minimums
Types of Accounts
How to Buy Shares
How to Sell Shares
Signature Guarantee
25 SHAREHOLDER AND Statements and Reports
ACCOUNT POLICIES Share Price
Address Changes
General Information on Telephone Transactions
Telephone Exchange Plan and Money Market Funds
Exchange Plan Restrictions
Authorized Agents
28 DIVIDENDS, CAPITAL Distribution Options
GAINS AND TAXES Taxes
Foreign Income Taxes
30 FINANCIAL HIGHLIGHTS Acorn Fund
Acorn International
Acorn USA
Acorn Twenty
Acorn Foreign Forty
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
<PAGE>
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AT A GLANCE ACORN FUND . ACRNX
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FUND OBJECTIVE
Acorn Fund seeks to provide long-term growth of capital.
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INVESTMENT STRATEGY
Acorn Fund invests primarily in the stocks of small- and medium-sized companies.
The fund generally invests in the stocks of companies around the globe with
capitalizations of less than $2 billion with the intention of holding them as
they grow and selling them when they become large.
The fund believes that these smaller, less-profiled companies may offer higher
return potential than the stocks of large companies.
Acorn Fund typically looks for companies with:
. A strong business franchise that offers growth potential.
. Products and services that give a company a competitive advantage.
. A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Acorn Fund invests the majority of its assets in U.S. companies, but
also invests a portion of its holdings in companies in developed and
emerging markets outside the U.S. The fund may invest up to 33% of its
assets in non-U.S. companies.
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YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing equity holdings with a smaller stock
fund that has some global exposure.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long term (at least 5 years).
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Are investing for short-term investment goals or needs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN ACORN FUND [GRAPHIC OMITTED]
Throughout this prospectus we've identified the areas that contain specific
information about risk.
Please read those areas carefully to fully understand your investment.
Smaller company stocks are often more volatile and less liquid than the stocks
of larger companies.
You could lose money on your investment in the fund, or the fund could
underperform other investments, if:
. The stock market goes down.
. Small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability.
. Higher transaction costs.
. Currency exchange rate fluctuations.
An investment in the fund is not a bank deposit and is not guaranteed by the
FDIC or any other government agency.
2
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ACORN FUND PERFORMANCE
The following chart and table illustrate annual fund returns for each of the
past 10 years as well as a comparison of returns of Acorn Fund, the S&P 500 and
the Russell 2000 indexes for the 1-, 5- and 10-year periods ended 12/31/1999.
This information helps you assess the variability of the fund's returns over the
past 10 years and the potential risks.
TOTAL RETURN FOR THE YEARS ENDED 12/31/1999
[BAR CHART APPEARS HERE]
Year Return
------ --------
'90 (17.52%)
'91 47.35%
'92 24.23%
'93 32.32%
'94 (7.45%)
'95 20.80%
'96 22.55%
'97 24.98%
'98 6.02%
'99 33.38%
Acorn Fund's highest and lowest quarterly returns for the 10 years ended
12/31/1999
quarter ended
- --------------------------------------------
highest 21.94% 12/31/99
lowest -23.77% 9/30/90
The fund's past performance is not an indication of future performance.
Average annual total returns for years ended 12/31/1999
1 Year 5 Years 10 Years
- --------------------------------------------------------
Acorn Fund 33.38% 21.21% 17.06%
S&P 500* 21.04% 28.56% 18.19%
Russell 2000* 21.26% 16.69% 13.39%
* The S&P 500 Index is a broad market-weighted average of large U.S. blue-chip
companies. The Russell 2000 Index is a market-weighted index of 2000 small
companies formed by taking the largest 3000 companies and eliminating the
largest 1000 of those companies. The indexes are unmanaged; the returns shown
include reinvested dividends but not the commissions and other costs that
would be incurred to invest in the securities comprising an index. Acorn
Fund's holdings are not identical to the S&P 500, the Russell 2000 or any
other market index. Therefore, the performance of the fund will not mirror
the returns of any particular index.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .69%
12b-1 fee None
Other expenses .16%
-----
Total annual fund
operating expenses .85%
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EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in the fund for the time period indicated, a 5% total return each
year, reinvestment of all dividends and distributions, and that operating
expenses remain constant at the level shown above. Your actual costs may be
higher or lower.
1 Year $ 87
3 Years $ 271
5 Years $ 471
10 Years $1,049
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
3
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AT A GLANCE ACORN INTERNATIONAL . ACINX
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FUND OBJECTIVE
Acorn International seeks to provide long-term growth of capital.
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INVESTMENT STRATEGY
Acorn International invests primarily in stocks of non-U.S. small- and
medium-sized companies. The fund generally invests in the stocks of companies
based outside the U.S. (or whose primary business takes place outside the U.S.)
with capitalizations of less than $5 billion with the intention of holding them
as they grow and selling them when they become large.
The fund believes that smaller, less-profiled companies--particularly outside
the U.S.--may offer higher return potential than the stocks of large companies.
Acorn International typically looks for companies with:
. A strong business franchise that offers growth potential.
. Products and services that give the company a competitive advantage.
. A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Acorn International is an international fund and invests the majority (under
normal market conditions, at least 75%) of its total assets in the stocks of
foreign companies based in developed and emerging markets outside the U.S.
- --------------------------------------------------------------------------------
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to diversify your existing equity holdings with a fund that
invests in the stocks of companies outside the U.S.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long term (at least 5 years).
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Are investing for short-term investment goals or needs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN ACORN INTERNATIONAL [GRAPHIC OMITTED]
Smaller and mid-size company stocks are often more volatile and less liquid than
the stocks of larger companies.
You could lose money on your investment in the fund, or the fund could
underperform other investments, if:
. International stock markets go down.
. Foreign small to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability.
. Higher transaction costs.
. Currency exchange rate fluctuations.
An investment in the fund is not a bank deposit and is not guaranteed by the
FDIC or any other government agency.
4
<PAGE>
ACORN INTERNATIONAL PERFORMANCE
The following chart and table illustrate annual fund returns for the past seven
years as well as a comparison of returns of Acorn International, the EAFE Index
and EMI Index for the periods listed.
This information helps you assess the variability of the fund's returns over the
past seven years and the potential risks.
TOTAL RETURN FOR THE YEARS ENDED 12/31/1999**
[BAR CHART APPEARS HERE]
Year Return
------ --------
'93 49.11%
'94 (3.80%)
'95 8.93%
'96 20.65%
'97 .19%
'98 15.43%
'99 79.19%
Acorn International's highest and lowest quarterly returns for the seven years
ended 12/31/1999
quarter ended
- --------------------------------------------
highest 41.63% 12/31/99
lowest -16.05% 9/30/98
The fund's past performance is not an indication of future performance.
Average Annual Total Returns for Years ended 12/31/1999
since
1 Year 5 Years inception*
- ---------------------------------------------------------
Acorn Int'l** 79.19% 22.19% 21.73%
EAFE+ 26.96% 12.83% 13.51%
EMI (world ex-U.S.)+ 23.52% 7.21% 9.48%
* Acorn International's inception date was 9/23/1992.
+ Morgan Stanley's Europe, Australasia and Far East Index (EAFE) is an index of
companies throughout the world in proportion to world stock market
capitalizations, excluding the U.S. and Canada. EMI (world ex-U.S.) is
Salomon Smith Barney's index of the bottom 20% of institutionally investable
capital of countries, selected by Salomon and excluding the U.S. The indexes
are unmanaged; the returns shown include reinvested dividends but not the
commissions and other costs that would be incurred to invest in the
securities comprising an index. Acorn International's holdings are not
identical to the EAFE, the EMI or any other market index. Therefore, the
performance of the fund will not mirror the returns of any particular index.
** The fund's performance in 1999 was achieved during a period of unusual market
conditions which are unlikely to continue.
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FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .81%
12b-1 fee None
Other expenses .30%
------
Total annual fund
operating expenses 1.11%
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EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in the fund for the time periods indicated, a 5% total return each
year, reinvestment of all dividends and distributions, and that operating
expenses remain constant at the level shown above. Your actual costs may be
higher or lower.
1 Year $ 113
3 Years $ 353
5 Years $ 612
10 Years $1,352
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
5
<PAGE>
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AT A GLANCE ACORN USA . AUSAX
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FUND OBJECTIVE
Acorn USA seeks to provide long-term growth of capital.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
Acorn USA invests primarily in stocks of small-and medium-sized U.S. companies.
The fund generally invests in the stocks of U.S. companies with capitalizations
of less than $2 billion with the intention of holding them as they grow and
selling them when they become large.
The fund believes that these smaller, less-profiled companies may offer higher
return potential than the stocks of large companies.
Acorn USA typically looks for companies with:
. A strong business franchise that offers growth potential.
. Products and services that give the company a competitive advantage.
. A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
- --------------------------------------------------------------------------------
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing domestic equity holdings with a
smaller company growth fund.
. Are seeking a stock fund that emphasizes the less-profiled stocks of small-
to medium-sized companies.
. Are seeking growth of your capital over the long term (at least 5 years).
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price.
. Are investing for short-term investment goals or needs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN ACORN USA [GRAPHIC OMITTED]
Smaller company stocks are often more volatile and less liquid than the stocks
of larger companies.
You could lose money on your investment in the fund, or the fund could
underperform other investments, if:
. The stock market goes down.
. Small- to mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
An investment in the fund is not a bank deposit and is not guaranteed by the
FDIC or any other government agency.
6
<PAGE>
ACORN USA PERFORMANCE
The following chart and table illustrate annual fund returns for the past three
years as well as a comparison of returns of Acorn USA and the Russell 2000 Index
for the periods listed.
This information helps you assess the variability of the fund's returns over the
past three years and the potential risks.
TOTAL RETURN FOR THE YEARS ENDED 12/31/1999
[GRAPH]
32.30% 5.79% 23.02%
'97 '98 '99
Acorn USA's highest and lowest quarterly returns for the three years ended
12/31/1999
quarter ended
- ---------------------------------------------
highest 18.93% 12/31/99
lowest -19.25% 9/30/98
The fund's past performance is not an indication of future performance.
Average Annual Total Returns for Years ended 12/31/1999
since
1 Year 3 Years inception*
- ---------------------------------------------------------
Acorn USA 23.02% 19.86% 23.33%
Russell 2000+ 21.26% 13.08% 14.68%
* Acorn USA's inception date was 9/4/1996.
+ The Russell 2000 Index is a market-weighted index, with dividends reinvested,
of 2000 small companies formed by taking the largest 3000 companies and
eliminating the largest 1000 of those companies. The index returns do not
include the commissions and other costs that would be incurred to invest in
the securities comprising the index. Acorn USA's holdings are not identical
to the Russell 2000 or any other market index. Therefore, the performance of
the fund will not mirror the returns of any particular index.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .93%
12b-1 fee None
Other expenses .22%
------
Total annual fund
OPERATING EXPENSES 1.15%
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in the fund for the time period indicated, a 5% total return each
year, reinvestment of all dividends and distributions, and that operating
expenses remain constant at the level shown above. Your actual costs may be
higher or lower.
1 Year $ 117
3 Years $ 365
5 Years $ 633
10 Years $1,398
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
7
<PAGE>
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AT A GLANCE ACORN TWENTY . ACTWX
- --------------------------------------------------------------------------------
FUND OBJECTIVE
Acorn Twenty seeks long-term growth of capital.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
Acorn Twenty invests primarily in the stocks of medium- to larger-sized U.S.
companies. The fund is a non-diversified fund that takes advantage of its
advisor's research and stock-picking capabilities to invest in a limited number
of companies (between 20-25) with market capitalizations of $2 billion to $12
billion, offering the potential to provide above-average growth over time.
The fund believes that companies within this capitalization range are less
profiled, and may offer higher return potential than the stocks of companies
with capitalizations above $12 billion.
Acorn Twenty typically looks for companies with:
. A strong business franchise that offers growth potential.
. Products and services that give the company a competitive advantage.
. A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
- --------------------------------------------------------------------------------
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing domestic equity holdings with a
focused stock fund.
. Are seeking a stock fund that emphasizes the less-profiled stocks of medium-
to larger-sized companies.
. Are seeking growth of your capital over the long term (at least 5 years).
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price or the more
volatile returns of a non-diversified fund.
. Are investing for short-term investment goals or needs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN ACORN TWENTY [GRAPHIC OMITTED]
Acorn Twenty is a non-diversified fund, meaning each stock may represent a
significant part of the overall portfolio. The performance of each of these
holdings will have a greater impact on the fund's total return, and may make the
fund's returns more volatile than a more diversified fund.
Mid-cap stocks are more volatile and may be less liquid than large-cap stocks.
Mid-cap companies may have a shorter history of operations and a smaller market
for their shares.
You could lose money on your investment in the fund, or the fund could
underperform other investments, if:
. The stock market goes down.
. Mid-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
An investment in the fund is not a bank deposit and is not guaranteed by the
FDIC or any other government agency.
8
<PAGE>
ACORN TWENTY PERFORMANCE
The following chart and table illustrate annual fund returns for the past one
year as well as a comparison of the returns of Acorn Twenty and the S&P MidCap
400 Index for the period listed.
This information helps you assess the variability of the fund's returns over the
past year and the potential risks.
[GRAPH]
TOTAL RETURN FOR THE YEAR ENDED 12/31/1999
'99 29.30%
Acorn Twenty's highest and lowest quarterly returns for the one year ended
12/31/1999
quarter ended
- --------------------------------------------
highest 14.35% 12/31/99
lowest -7.13% 9/30/99
The fund's past performance is not an indication of future performance.
Average Annual Total Returns for Periods ended 12/31/1999
1 Year Life of Fund*
- ----------------------------------------------------
Acorn Twenty 29.30% 34.44%
S&P MidCap 400+ 14.72% 24.66%
* Acorn Twenty's inception date was 11/23/1998.
+ The S&P MidCap 400 is an unmanaged, market value-weighted index of 400 midcap
U.S. companies. The index returns include reinvested dividends, but do not
include the commissions and other costs that would be incurred to invest in
the stocks comprising the index. Acorn Twenty's holdings are not identical to
the S&P MidCap 400 or any other market index. Therefore the performance of
the fund will not mirror the returns of any particular index.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .90%
12b-1 fee None
Other expenses .51%
-----
Total annual fund
operating expenses* 1.41%
* Wanger Asset Management has undertaken to reimburse the fund for any ordinary
operating expenses exceeding 1.35% of its average annual net assets. This
expense limitation is voluntary and is terminable by either the fund or
Wanger Asset Management on 30 days' notice to the other.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in the fund for the time period indicated, a 5% total return each
year, reinvestment of all dividends and distributions, and that operating
expenses remain constant at the level shown above (without giving effect to the
advisor's expense limitation). Your actual returns and costs may be higher or
lower.
1 Year $ 144
3 Years $ 446
5 Years $ 771
10 Years $1,691
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
9
<PAGE>
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AT A GLANCE ACORN FOREIGN FORTY . ACFFX
- --------------------------------------------------------------------------------
FUND OBJECTIVE
Acorn Foreign Forty seeks long-term growth of capital.
- --------------------------------------------------------------------------------
INVESTMENT STRATEGY
Acorn Foreign Forty invests primarily in the stocks of medium- to larger-sized
companies based in developed markets outside the U.S. The fund invests in at
least three countries. The fund is a non-diversified fund that takes advantage
of its advisor's research and stock-picking capabilities to invest in a limited
number of foreign companies (between 40-60) with market capitalizations of $5
billion to $15 billion, offering the potential to provide above-average growth
over time.
The fund believes that companies within this capitalization range are less
profiled, and may offer higher return potential than the stocks of companies
with capitalizations above $15 billion.
Acorn Foreign Forty typically looks for companies with:
. A strong business franchise that offers growth potential.
. Products and services that give the company a competitive advantage.
. A stock price the fund's advisor believes is reasonable relative to the
assets and earning power of the company.
Acorn Foreign Forty is an international fund and invests the majority of its
assets in the stocks of foreign companies based in developed markets outside the
U.S.
- --------------------------------------------------------------------------------
YOU MAY WANT TO INVEST IF YOU:
. Are seeking to complement your existing equity holdings with an international
stock fund.
. Are seeking a stock fund that emphasizes the less-profiled stocks of medium-
to larger-sized companies.
. Are seeking growth of your capital over the long term (at least 5 years).
YOU MAY NOT WANT TO INVEST IF YOU:
. Are seeking a significant amount of current dividend income.
. Are unwilling to accept short-term fluctuations in share price or the more
volatile returns of a non-diversified fund.
. Are investing for short-term investment goals or needs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING IN ACORN FOREIGN FORTY [GRAPHIC OMITTED]
Acorn Foreign Forty is a non-diversified fund that ordinarily holds 40 to 60
stocks. The fund may take larger positions in some of its stocks than others.
The performance of each of these larger holdings will have a greater impact on
the fund's total returns, and may make the fund's returns more volatile than a
more diversified international fund.
Mid-cap stocks are more volatile and may be less liquid than large-cap stocks.
Mid-cap companies may have a shorter history of operations and a smaller market
for their shares.
An investment in the fund is not a bank deposit and is not guaranteed by the
FDIC or any other government agency.
You could lose money on your investment in the fund, or the fund could
underperform other investments, if:
. International stock markets go down.
. Foreign mid- to large-cap stocks trail returns of the overall market.
. The stocks selected for the portfolio do not perform as expected.
Investments in foreign securities may have special risks in addition to those
mentioned above, including:
. Political or economic instability.
. Higher transaction costs.
. Currency exchange rate fluctuations.
10
<PAGE>
ACORN FOREIGN FORTY PERFORMANCE
The following chart and table illustrate annual fund returns for the past one
year as well as a comparison of returns of Acorn Foreign Forty and the Salomon
Smith Barney World ex-U.S. Cap Range $2 to $10 Billion Index for the periods
listed.
This information helps you assess the variability of the fund's returns over the
past year and the potential risks.
[GRAPH]
TOTAL RETURN FOR THE YEAR ENDED 12/31/1999**
'99 81.60%
Acorn Foreign Forty's highest and lowest quarterly returns for the one year
ended 12/31/1999:
quarter ended
- -------------------------------------------------------------
highest 46.65% 12/31/99
lowest 3.90% 9/30/99
The fund's past performance is not an indication of future performance.
Average Annual Total Returns for Years ended 12/31/1999
1 Year Life of Fund*
- ----------------------------------------------------------------------
Acorn Foreign Forty** 81.60% 87.58%
SSB Cap Range $2-10B+ 23.52% 24.89%
* Acorn Foreign Forty's inception date was 11/23/1998.
+ The SSB World ex-U.S. Cap Range $2 - 10 Billion Index is Salomon Smith
Barney's two to ten billion U.S. dollar security market subset of its Broad
Market Index. It represents a midcap developed market index, excluding the
U.S. The index returns include reinvested dividends, but do not include the
commissions and other costs that would be incurred to invest in the stocks
comprising the index. Acorn Foreign Forty's holdings are not identical to the
SSB World ex-U.S. Cap Range $2-10 Billion or any other market index.
Therefore, the performance of the fund will not mirror the returns of any
particular index.
** The fund's performance during 1999 was achieved in a period of unusual market
conditions which are unlikely to continue.
- --------------------------------------------------------------------------------
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER TRANSACTION EXPENSES
Fees paid directly from your investment:
Maximum sales charge None
Deferred sales charge None
Exchange fee None
Redemption fee None
ANNUAL FUND OPERATING EXPENSES
Expenses that are deducted from fund assets:
Management fees .95%
12b-1 fee None
Other expenses .62%
Total annual fund
operating expenses* 1.57%
* Wanger Asset Management has undertaken to limit Acorn Foreign Forty's annual
expenses to 1.45% of its average net assets. This expense limitation
undertaking is voluntary and is terminable by either the fund or WAM on 30
days' notice to the other.
- --------------------------------------------------------------------------------
EXAMPLE
This example is intended to help you compare the cost of investing in the fund
with the costs of investing in other mutual funds. It assumes a $10,000
investment in the fund for the time period indicated, a 5% return each year,
reinvestment of all dividends and distributions, and that operating expenses
remain constant at the level shown above (without giving effect to the adviser's
expense limitation). Your actual returns and costs may be higher or lower.
1 Year $ 160
3 Years $ 496
5 Years $ 855
10 Years $1,867
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
11
<PAGE>
MANAGEMENT OF THE FUNDS
- --------------------------------------------------------------------------------
The Acorn Family of Funds is managed by Wanger Asset Management, L.P. (WAM), 227
West Monroe Street, Suite 3000, Chicago, Illinois 60606. WAM chooses the funds'
investments and handles their business affairs under the direction of the board
of trustees. WAM is a limited partnership managed by its general partner, Wanger
Asset Management, Ltd. WAM manages more than $9 billion in assets.
WAM uses a team to manage the funds. Team members share responsibility for
providing ideas, information, and knowledge in managing the funds, and each team
member has one or more particular areas of expertise. The portfolio managers are
responsible for making daily portfolio selection decisions, and utilize the
management team's input and advice when making buy and sell determinations.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGERS
Acorn Fund
RALPH WANGER
Lead portfolio manager
Ralph Wanger is chief strategist of the Acorn Family of Funds and has been
involved in managing all of the funds and developing their investment strategies
since each fund began. He has been president and a member of the board of
trustees of Acorn Investment Trust (Acorn) since 1970, and is a principal of
WAM. He is a Chartered Financial Analyst (CFA), and earned his BS and MS degrees
in Industrial Management from the Massachusetts Institute of Technology.
Acorn Fund
CHARLES P. MCQUAID
Co-portfolio manager
Charles McQuaid is a senior vice president and member of Acorn's board of
trustees, and is the director of Domestic Research and a principal of WAM. Mr.
McQuaid has been a member of the Acorn Fund management team since 1978. He is a
CFA, and earned his BBA from the University of Massachusetts and his MBA from
the University of Chicago.
Acorn International
LEAH J. ZELL
Lead portfolio manager
Leah Zell is a vice president of Acorn, and a principal of WAM. She has managed
Acorn International since its inception in 1992, and was named lead portfolio
manager in 1997. She has worked with Acorn Fund's international securities since
1984. Ms. Zell also manages the foreign portfolio of an investment company whose
shares are offered only to non-U.S. investors. She is a CFA and earned her BA
and PhD from Harvard University.
Acorn International
MARGARET M. FORSTER
Co-portfolio manager
Margaret Forster is a vice president of Acorn and became co-portfolio manager of
Acorn International in May 1999. She has been a member of the international
analytical team since 1994 and a principal of WAM since January 1999. Before
joining WAM, Ms. Forster was a professor of finance at Northwestern and Ohio
State Universities, and an economist with the International Monetary Fund. She
is a CFA. Her degrees include a BS from Universidade de Sao Paulo, Escola
Politecnica, Brazil, and an MBA, MS and PhD from Cornell University.
12
<PAGE>
Acorn USA
ROBERT A. MOHN
Lead portfolio manager
Robert Mohn is a vice president of Acorn. He has been a member of WAM's domestic
analytical team since 1992, and a principal of WAM since 1995. He has managed
Acorn USA since its inception in 1996, and also manages a mutual fund underlying
variable insurance products and the U.S. portfolio of an investment company
whose shares are offered only to non-U.S. investors. He is a CFA and holds a BS
from Stanford University and an MBA from the University of Chicago.
Acorn Twenty
JOHN H. PARK
Lead portfolio manager
John Park is a vice president of Acorn, and has managed Acorn Twenty since its
inception in 1998. He has been a member of WAM's domestic investment team since
1993, and a principal of WAM since 1998. Mr. Park is also manager of a mutual
fund underlying variable insurance products. He is a CFA and earned both his BA
and MBA degrees from the University of Chicago.
Acorn Foreign Forty
MARCEL P. HOUTZAGER
Co-portfolio manager
Marcel Houtzager is a vice president of Acorn, and has managed Acorn Foreign
Forty since its inception in 1998. He has been a member of WAM's international
analytical team since 1992, and a principal of WAM since 1995. Mr. Houtzager
also manages an international mutual fund underlying variable insurance products
and the foreign portfolio of an investment company whose shares are offered only
to non-U.S. investors. He is a CFA and a CPA, and earned his BA from Pomona
College and his MBA from the University of California at Berkeley.
Acorn Foreign Forty
ROGER D. EDGLEY
Co-portfolio manager
Roger Edgley is a vice president of Acorn and became co-portfolio manager of
Acorn Foreign Forty in December 1999. He has been a member of the international
analytical team since 1994, and was named a principal of WAM in January 2000.
He is also director of International Research. Before joining WAM in 1994, Mr.
Edgley was a securities analyst in Hong Kong. He is a CFA and was educated in
the United Kingdom, completing his MSc degree from the London School of
Economics.
- --------------------------------------------------------------------------------
MANAGEMENT FEES
WAM earns the following advisory fees for managing the Acorn Family of Funds:
- -----------------------------------------------
FUND NAME FUND FEE AS A % OF
AVERAGE NET ASSETS
DURING 1999
- -----------------------------------------------
Acorn Fund .69%
Acorn International .81%
Acorn USA .93%
Acorn Twenty .90%
Acorn Foreign Forty .95%
- -----------------------------------------------
WAM also receives an administrative services fee from each fund at the annual
rate of .05% of that fund's average daily net assets.
For more information call 800-922-6769 or visit our web site
at www.acornfunds.com.
13
<PAGE>
How the Funds Invest
- --------------------------------------------------------------------------------
THE ACORN FAMILY OF FUNDS INVESTMENT PHILOSOPHY
THE INFORMATION EDGE
WAM invests in less-profiled, entrepreneurially managed smaller and mid-sized
companies that it believes are benefitting from an important economic, social
or technological trend and whose domination of a niche creates the opportunity
for superior earnings-growth potential.
WAM has built its reputation on innovative thinking and unconventional stock
picks. We rely primarily on our independent, internally generated research to
uncover companies that may be less well known than the more popular names. This
is where WAM adds the greatest value to Acorn shareholders. To find these
companies, WAM looks for growth potential, financial strength and fundamental
value.
<TABLE>
<CAPTION>
Growth Potential Financial Strength Fundamental Value
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
. superior technology . stability . lower stock price relative to
. innovative marketing . reduced risk growth potential and capital-
. solid management . competitive advantage ization
. dominant or niche position . low debt . growth at a reasonable price
. superior earnings prospects . adequate working capital
. fast growing economy . conservative accounting
practices
The realization of this growth A strong balance sheet gives Once we uncover a great com-
potential would likely produce management greater flexibility pany, we identify a price that
superior performance that is to pursue strategic objectives we believe would also make
sustainable over time. and is essential to maintaining the stock a good value.
a competitive advantage.
-----------------------------------------------------------------------------------------------------
</TABLE>
STOCK STRENGTH COMES FIRST
WAM's analysts continually screen companies and make more than 1,000
face-to-face visits around the globe each year. We want to know everything we
can about each Acorn investment to avoid surprises. To accomplish this, our
analysts talk to top management, vendors, suppliers and competitors, whenever
possible.
We believe that our thorough research helps us maintain lower taxes and
transaction costs. In managing the funds, we try to reduce these costs by
investing with a long-term time horizon (at least 2-5 years). Occasionally,
however, securities purchased on a long-term basis may be sold within 12 months
after purchase due to changes in the circumstances of a particular company or
industry, or changes in general market or economic conditions.
14
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES IN WHICH THE FUNDS INVEST
COMMON STOCKS
Each of the Acorn funds invests mostly in common stocks. Common stocks represent
an equity (ownership) interest in a corporation.
Acorn Fund, Acorn International and Acorn USA invest mainly in the common stocks
of small and medium-sized companies. Acorn Twenty and Acorn Foreign Forty invest
mostly in the stocks of mid- to larger-sized companies.
FOREIGN SECURITIES
Acorn International and Acorn Foreign Forty invest most of their assets in
non-U.S. securities. Acorn Fund invests most of its assets in the U.S., but has
moderate foreign investments. Acorn USA and Acorn Twenty invest most of their
assets in the U.S., and only intend to invest a part of their assets overseas
under certain circumstances (see Portfolio Allocation below).
- --------------------------------------------------------------------------------
PORTFOLIO ALLOCATION
Under normal conditions, the funds'common stock investments (as a percentage of
total assets) are limited by the following maximum allocations:
% in U.S. companies % in non-U.S. companies
Acorn Fund no limit up to 33%
- -----------------------------------------------------------------------------
Acorn International up to 25% no limit
- -----------------------------------------------------------------------------
Acorn USA no limit up to 10%
- -----------------------------------------------------------------------------
Acorn Twenty* no limit up to 15%
- -----------------------------------------------------------------------------
Acorn Foreign Forty** up to 15% no limit
- -----------------------------------------------------------------------------
* Acorn Twenty normally invests in a non-U.S. company only if its operations
are primarily located within the U.S.
** Acorn Foreign Forty normally invests in a U.S. company only if its operations
are primarily located outside the U.S.
Acorn's board of trustees may change each fund's investment objective without
shareholder approval.
- --------------------------------------------------------------------------------
SUMMARIZING RISK [GRAPHIC OMITTED]
When you invest in a mutual fund, you are exposed to certain risks. These
include the risk that you may receive little or no return on your investment, or
that you may even lose part or all of your investment. Investments that provide
higher potential reward present greater risk. Likewise, investments with lower
potential reward have lower risk. Before investing in one of the Acorn funds,
you should carefully consider the risks associated with that particular fund.
You should consider an investment in any of the Acorn funds a long-term
investment.
For more information call 800-922-6769 or visit our web site
at www.acornfunds.com.
15
<PAGE>
HOW THE FUNDS INVEST continued
- --------------------------------------------------------------------------------
COMMON STOCKS
Over time, common stocks have historically provided superior long-term capital
growth potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the funds should be
considered long-term investments designed to provide the best results when held
for several years or more.
SMALL AND MEDIUM COMPANIES
Acorn prefers small and medium companies rather than the stocks of large
companies. During some periods, the stocks of smaller companies and the stocks
of medium companies, as a class, have performed better than the stocks of larger
companies, and in some periods they have performed worse. Stocks of smaller- and
medium-sized companies may be more volatile and less liquid than the stocks of
larger companies.
FOREIGN SECURITIES
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of similar U.S.
investments, although there can be no assurance that these conditions will
continue.
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks that in some ways may be greater than in U.S.
investments. These risks may have a negative effect on the fund's NAV and
include: fluctuations in exchange rates of foreign currencies; less public
information with respect to issuers of securities; less governmental supervision
of stock exchanges, securities brokers and issuers of securities; different
accounting, auditing and financial reporting standards; different settlement
periods and trading practices; less liquidity, frequently greater price
volatility and higher transaction costs; and the possible imposition of foreign
taxes. Investing in countries outside the U.S. may also involve political risk.
Economies in individual markets may differ favorably or unfavorably from the
U.S. economy in areas such as gross domestic product, rates of inflation, debt
structure and currency valuation.
Securities markets in emerging countries may be substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
U.S. and other developed countries.
16
<PAGE>
- --------------------------------------------------------------------------------
MANAGING RISK [GRAPHIC OMITTED]
WAM uses various techniques and practices to try to reduce the funds'exposure to
risk.
INVESTMENT LIMITATIONS
Each fund has adopted the following investment limitations (generally based upon
a percentage of total assets) that cannot be changed without shareholder
approval and are designed to limit risk:
. Acorn Fund, Acorn International and Acorn USA are "diversified" funds. For
Acorn Fund, this means that the fund will not invest more than 5% of its
assets in a single issuer, except for U.S. government securities. Acorn
International and Acorn USA follow the same restriction, but apply it to only
75% of the fund's total assets. As to the other 25%, Acorn International and
Acorn USA may take larger positions, investing more than 5% in a single
issuer.
. Acorn Twenty is a "non-diversified" fund, which means that the fund invests
at least 50% of its total assets so that no more than 5% is invested in a
single issuer.
. Acorn Foreign Forty is registered as a "non-diversified" fund (like Acorn
Twenty) but has invested as if it were diversified. If Acorn Foreign Forty
continues to invest in a diversified manner through November 2001 (three
years from its commencement of operations), the fund will not be able to take
advantage of its non-diversified status without getting shareholder approval
to do so.
. None of the funds may invest more than 25% in any one issuer or more than 25%
in any one industry (in each case with the exception of U.S. government
securities).
DEFENSIVE INVESTMENT STRATEGIES
The funds'portfolio managers may use the following strategies if they believe
that a temporary defensive position is advisable. With respect to Acorn
International and Acorn Foreign Forty, this includes times when investment in
foreign securities appears to be relatively unattractive because of current or
anticipated adverse political or economic conditions.
. Each fund may invest without limit in U.S. corporate and government
obligations.
. Each fund may hold cash or cash equivalents.
. Each fund may hold cash in domestic and foreign currencies and may invest in
domestic and foreign money market securities to meet liquidity needs.
(Generally, this is not expected to exceed 25% of total assets.)
During these periods, a fund's assets may not be invested in accordance with its
strategy, and the fund may not achieve its investment objective.
HEDGING STRATEGIES
Each fund may (but is not required to) try to hedge against variations in
exchange rates, or to protect against exposure in the equity markets. Portfolio
managers may try to accomplish this by buying and selling:
. put and call options
. futures contracts
. options on futures contracts
. currency exchange contracts
. swap agreements
If a fund is not successful when using these techniques, total return could be
adversely affected.
For more information call 800-922-6769 or visit our web site
at www.acornfunds.com.
17
<PAGE>
SHAREHOLDER'S MANUAL
- --------------------------------------------------------------------------------
How to Contact Us
Acorn shareholder service representatives are available Monday through Friday
(except holidays) from 8:00 a.m. to 4:30 p.m. Central time. Call one of the
toll-free numbers, send us an E-mail or write to us at the address shown in the
table below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TELEPHONE SERVICE
- ----------------------------------------------------------------------------------------------------
<S> <C>
800-9-ACORN-9 (800-922-6769) . For general fund information
. For prices
outside the U.S. call 312-634-9240 . For Acorn literature and account forms
- ----------------------------------------------------------------------------------------------------
800-962-1585 . To buy, sell, or exchange shares
. To change your address
outside the U.S. . To establish an account by phone (existing
call 617-328-5000, ext. 55462 shareholders only)
(available 9 - 5:30 p.m. EST) . For any other account maintenance or transactions
. For IRA assistance
. For 24-hour account balances
- ----------------------------------------------------------------------------------------------------
800-221-3079 . For money market fund information or to exchange out
of a money fund
- ----------------------------------------------------------------------------------------------------
800-306-4567 . TDD service for the deaf and hearing impaired
- ----------------------------------------------------------------------------------------------------
INTERNET
- ----------------------------------------------------------------------------------------------------
E-mail: [email protected] . For your inquiries, comments, thoughts, criticisms
- ----------------------------------------------------------------------------------------------------
www.acornfunds.com . For account balances and recent transactions
. For Ralph Wanger's market commentary
. For daily and historical prices
. For general fund information
. For fund literature
. For distribution estimates and past distribution information
- ----------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MAIL SERVICE
- ----------------------------------------------------------------------------------------------------
<S> <C>
State Street Bank & Trust Co. For regular mail delivery, including purchases,
Attn: Acorn Family of Funds written exchanges, redemptions, and
P.O. Box 8502 IRA contributions
Boston, MA 02266-8502
- ----------------------------------------------------------------------------------------------------
Boston Financial Data Services For overnight deliveries of purchases, written exchanges,
Attn: Acorn Family of Funds redemptions, or IRA contributions
66 Brooks Drive
Braintree, MA 02184
- ----------------------------------------------------------------------------------------------------
Wanger Asset Management, L.P. The funds' advisor
227 W. Monroe St., Suite 3000
Chicago, IL 60606-5016
- ----------------------------------------------------------------------------------------------------
WAM Brokerage Services, L.L.C. The funds' distributor
227 W. Monroe Street, Suite 3000
Chicago, IL 60606-5016
- ----------------------------------------------------------------------------------------------------
WIRE
- ----------------------------------------------------------------------------------------------------
State Street Bank & Trust Co. To wire money from your financial institution to add to an
Attn: Mutual Funds existing account, please specify:
Boston, MA 02110 . Fund name
Routing #0110-0002-8 . Account number
Deposit DDA #9902-990-2 . Name(s) on the account
- ----------------------------------------------------------------------------------------------------
</TABLE>
For more information call 800-922-6769 or visit our web site
at www.acornfunds.com.
19
<PAGE>
SHAREHOLDER'S MANUAL continued
- --------------------------------------------------------------------------
INVESTMENT MINIMUMS
- --------------------------------------------------------------------------
Minimum to Minimum Minimum
Type of Account Open an Account Addition Balance
- --------------------------------------------------------------------------
Regular $1,000 $100 $1,000
IRA $1,000 $100 $1,000
Custodial (UTMA/UGMA) $1,000 $100 $1,000
Automatic Investment Plan $100 $100 --
Educational IRA $500 $100 $500
- --------------------------------------------------------------------------------
TYPES OF ACCOUNTS
. INDIVIDUAL OR JOINT OWNERSHIP Individual accounts are owned by one person.
Joint accounts have two or more owners. These accounts are intended for your
general investment needs.
. RETIREMENT PLANS These plans require a special application. Please call
800-922-6769 or visit www.acornfunds.com to request an application.
. ACORN INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and
under 701/2 with earned income to save up to $2,000 per tax year. If your
spouse has less than $2,000 in earned income, he or she may still contribute
up to $2,000 to an IRA, so long as you and your spouse's combined earned
income is at least $4,000 and you file a joint tax return. Contributions may
be deductible, depending on your income and participation in an
employer-sponsored plan.
. ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. ROTH IRAS allow single taxpayers with income up to $95,000 per year, and
married couples with income up to $150,000 per year, to contribute up to
$2,000 each or $4,000 per couple, respectively, per year. Contributions to
Roth IRAs are not tax-deductible but withdrawals are not taxable if the Roth
IRA has been held at least five years, and you are at least 591/2 or disabled
or use the proceeds to purchase a first home (subject to certain
restrictions).
. SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAs) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to 15% of the first $170,000 of compensation per year for themselves and any
eligible employees.
. SIMPLE-IRAS must be established by an employer, including a self-employed
person, and enable all employees of the employer to elect to have up to
$6,000 per year deducted from their paychecks on a before-tax basis and
deposited directly into an account maintained for the individual employee.
The employer is also generally required to make a contribution for each
employee who elects to contribute. SIMPLE-IRAs require a special application
(call 800-922-6769).
. EDUCATION IRAS allow individuals, subject to certain income limitations, to
contribute up to $500 annually on behalf of any child under the age of 18.
. OTHER RETIREMENT PLANS. Funds may be used as an investment in other kinds of
retirement plans, including Keogh or corporate profit sharing and money
purchase plans, 403(b) plans, and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. Acorn does not offer prototypes of
these plans.
20
<PAGE>
- --------------------------------------------------------------------------------
. GIFT OR TRANSFER TO A MINOR (UGMA, UTMA) These custodial accounts provide a
way to give money to a minor. The gift is irrevocable, and the minor gains
control of the account once he or she reaches the age of majority.
. TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN The trust or
plan must be established before you can open an account. Please include the
date of the trust or plan and the trustee(s) name(s) on the application.
Please send copies of the first and last pages of the trust plan or document
with your application.
. CORPORATION OR OTHER ENTITY This account is for a corporation, association,
partnership or similar institution. Along with your application, you will
need to send a copy of the corporate resolution with your application.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
HOW TO OPEN AN ACCOUNT
A new investor must be a U.S. resident with a social security or tax
identification number. You can open a new account in any of the following ways:
Complete the application. Make check or money order payable to Fund Name.
Third-party checks will not be accepted except for properly endorsed IRA
rollover checks.
MAIL TO:
Regular mail OVERNIGHT MAIL
State Street Bank and Trust Company Boston Financial Data Services
Attn: Acorn Family of Funds Attn: Acorn Family of Funds
PO Box 8502 66 Brooks Drive
Boston, MA 02266-8502 Braintree, MA 02184
617-328-5000 ext. 55462 or 800-962-1585
CURRENT ACORN SHAREHOLDERS
Open a new, identically registered (name(s), address and taxpayer I.D. number)
Acorn account by:
. Telephone Exchange Plan to switch $1,000 or more from your existing Acorn
Family of Funds account (or from a money fund offered through the exchange
plan) into a new account.
. Wire by simply calling 800-962-1585 to arrange for this transaction. (Not
available for IRA accounts.)
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
21
<PAGE>
SHAREHOLDER'S MANUAL continued
- --------------------------------------------------------------------------------
ADD TO AN EXISTING ACORN ACCOUNT
Add to your existing account in any of the following ways:
Make check or money order payable to Fund Name for $100 or more. Write your
account number on the check or use the stub from an Acorn account statement.
Mail to either address listed on the previous page.
Use the telephone exchange plan to switch money from one Acorn account to
another (or from one of the money funds offered through the exchange plan).
The registration of the accounts--i.e., name(s), address and taxpayer
identification number--must be identical.
Wire money from your bank account using the following wire instructions:
State Street Bank & Trust Company
Attn: Mutual Funds
Boston, MA 02110
Routing #0110-0002-8
Deposit DDA #9902-990-2
(specify the fund name, account number and name(s) on account)
Use the telephone purchase plan to move money from your bank account to your
Acorn fund account. You must select this feature on your account application
or add this by completing a "Doing Business With Acorn" form. Note: The price
you receive for your purchased shares will be the NAV calculated at Closing
Time (usually 3 p.m. Central time) the next business day (see Shareholder and
Account Policies--Share Price on page 25).
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN
Use the automatic investment plan to move money from your financial institution
to your Acorn account. Your financial institution account must be ACH (Automated
Clearing House) compatible. You may establish automatic investments on a monthly
or quarterly basis for $100 or more per period. Quarterly investments occur in
January, April, July and October unless you specify other months. The money will
be transferred on or about the 15th of the month unless you designate a
different day (must be after the 4th of the month). If the day you select falls
on a Saturday, Sunday, holiday or any other day when the New York Stock Exchange
(NYSE) is closed for trading, Acorn will process the transaction on the next
business day. You may change or cancel your automatic investment amount or
frequency by calling 800-962-1585 at least one week prior to your next scheduled
investment date.
- --------------------------------------------------------------------------------
GENERAL POLICIES FOR BUYING ACORN SHARES
The following policies apply any time you buy shares of the Acorn funds:
. All purchases must be made in U.S. dollars and checks must be drawn on U.S.
banks. The Acorn funds do not accept third-party checks, except for properly
endorsed IRA rollover checks. Acorn does not accept cash, traveler's checks,
credit cards, or credit card checks.
. If payment for your check or telephone purchase order does not clear, Acorn
will cancel your purchase and you will be liable for any losses or fees the
fund or its transfer agent incurs.
. Your participation in the automatic investment plan and telephone purchase
plan may be immediately terminated if any item is unpaid by your financial
institution.
. Each fund reserves the right to reject any specific request to buy shares,
including purchases through the telephone exchange plan (see Exchange Plan
Restrictions). Acorn may refuse a purchase if it could disrupt management of
the fund or would not be in the best interests of the fund's existing
shareholders.
THE ACORN FUNDS DO NOT PERMIT MARKET TIMING AND HAVE ADOPTED POLICIES TO
DISCOURAGE THIS PRACTICE.
22
<PAGE>
- --------------------------------------------------------------------------------
HOW TO SELL SHARES
You may sell your Acorn shares back to the funds in several different ways.
Please remember that sales and exchanges are taxable events in non-retirement
accounts.
Sell your shares by telephone using the telephone redemption plan. The plan
lets you sell $100 to $200,000 per day by phone;
Mail us a letter of instruction that includes:
. your name;
. signatures of all persons required to sign for transactions, exactly as their
names appear on the account (with the signatures guaranteed as required and
described on page 24);
. the fund name and account number;
. the dollar amount or number of shares you want to sell; and
. any unsigned stock certificates representing the shares you want to sell (if
applicable).
MAIL TO:
Regular mail OVERNIGHT MAIL
State Street Bank and Trust Company Boston Financial Data Services
Attn: Acorn Family of Funds Attn: Acorn Family of Funds
PO Box 8502 66 Brooks Drive
Boston, MA 02266-8502 Braintree, MA 02184
617-328-5000 ext. 55462 or 800-962-1585
Note: For your protection, you may not sell shares by telephone or by letter
of instruction without a signature guarantee if you have changed your account
address within the past 30 days. Shares must be redeemed with a letter of
instruction (as described above), with all registered account owners'
signatures guaranteed.
Establish the systematic withdrawal plan on your account. This plan allows you
to sell a specified dollar amount of shares from your account on a monthly or
quarterly basis. The sale takes place on or around the 23rd day of the month
(for monthly redemptions) or the 23rd day of January, April, July and October
(for quarterly redemptions). You must have an account balance of at least
$25,000 to be eligible for this service.
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
23
<PAGE>
SHAREHOLDER'S MANUAL continued
- --------------------------------------------------------------------------------
GENERAL POLICIES FOR SELLING ACORN SHARES
The following policies apply any time you sell shares of any of the Acorn funds.
. Normally, Acorn will mail your sale proceeds within seven days after
receiving your request to sell.
. Checks are made payable to the shareholder(s) of record, unless otherwise
requested in writing with all registered account owners'signatures
guaranteed.
. If you recently bought your shares and paid by check, automatic investment
plan, or telephone purchase plan, the proceeds of your sale may be held until
your funds for the purchase have been received (which may take up to 15
days).
. If you participate in the telephone redemption by wire/ACH (Automated
Clearing House) plan, Acorn will send the proceeds to your bank (or other
financial institution) account via wire or ACH transfer. Your bank may impose
a fee for the incoming wire. Payment by wire is usually credited to your bank
account on the next business day after your call; payment by ACH is usually
within two business days.
. Acorn may suspend accepting sales of shares or postpone payment dates on days
when the NYSE is closed (other than weekends or holidays), when trading on
the NYSE is restricted, or as permitted by the SEC.
. Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the request to sell. Call
800-962-1585 for more information.
. If a check representing: (1) sale proceeds, (2) a withdrawal under the
systematic withdrawal plan, or (3) a dividend/capital gains distribution is
returned "undeliverable" or remains uncashed for six months, Acorn may cancel
the check and reinvest the proceeds in the fund issuing the check at the NAV
on the date of cancellation. In addition, after such six-month period: (1)
Acorn will terminate your systematic withdrawal plan and future withdrawals
will occur only when requested, or (2) Acorn will automatically reinvest
future dividends and distributions in your fund.
. If the value of your regular account falls below $1,000 because you sold
shares, Acorn reserves the right to close your account and send the proceeds
to you. Lower minimums apply to certain IRA and automatic investment plan
accounts. Acorn will process the sale of your shares at the NAV calculated on
the day your account is closed.
. Acorn is obligated to pay for shares sold solely in cash up to the lesser of
$250,000 or 1% of the NAV of a fund during any 90-day period for any one
shareholder. Sales in excess of the above amounts will normally be paid in
cash, but may be paid wholly or partly by a distribution in kind of
securities. If payment for a sale is made in kind, the selling shareholder
would bear any transaction costs incurred in selling the securities received.
- --------------------------------------------------------------------------------
SIGNATURE GUARANTEE
In some cases, you will have to make your redemption request in writing, and
have your signature guaranteed. A signature guarantee is designed to protect you
and Acorn from fraud. This requirement applies to any of the following
situations:
. You request a change to your current account registration, including your
name, address or are establishing or changing a TOD (Transfer on Death)
beneficiary;
. You want to sell more than $200,000 in shares;
. You want the check mailed to an address other than the address on your
account registration;
. Your address of record was changed within the past 30 days;
. You want the check made payable to someone other than the account owner;
. You want to sell shares, and you instruct Acorn to wire the proceeds to a
bank or brokerage account, but you do not have the telephone redemption by
wire plan on your account; or
. Your name has changed by marriage or divorce (send a letter indicating your
account number(s) and old and new names, signing the letter in both the old
and new names and having both signatures guaranteed).
Signature guarantees can be obtained from a commercial bank, broker-dealer,
credit union (if authorized under state law), securities exchange or
association. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
24
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES
- --------------------------------------------------------------------------------
STATEMENTS AND REPORTS
To keep you informed about your investment, Acorn sends you various account
statements and reports, including:
. Confirmation statements that verify a buy or sell transaction, unless that
transaction is part of the automatic investment plan. Acorn will
automatically confirm your automatic investment plan transactions on a
quarterly basis unless you request more frequent statements by calling
800-962-1585.
. Quarter-end and year-end consolidated account statements.
. Quarterly, semiannual and annual Acorn Family of Funds reports.
. Average cost statements for certain types of accounts that sold shares during
the year.
Duplicate statements may be sent to a third party if requested on the account
application by the registered account owner or by calling 800-962-1585.
If you need copies of your historical account information, please call
800-962-1585. There is a small charge to obtain historical account information
for prior years.
To reduce expenses, the funds may choose to mail only one report or prospectus
to your household even if more than one person in the household has a fund
account. By signing the account application, you will consent to this method of
delivery. However, you may revoke your consent at any time. Please call
800-962-1585 if you would like to receive an individual copy of each report or
prospectus.
- --------------------------------------------------------------------------------
SHARE PRICE
The funds are open for business each day the NYSE is open. The offering price
(the price to buy one share) and the redemption price (price to sell one share)
are a fund's net asset value (NAV) calculated at the next Closing Time after
Acorn (or an authorized broker-dealer, financial services company, or other
agent, some of whom may charge a fee for their services) receives your purchase
or redemption order. Closing Time is the time of the close of regular session
trading on the NYSE, which is usually 3:00 p.m. Central time.
Acorn must receive both your purchase money and your application by Closing Time
for you to receive that day's price. Likewise, Acorn must receive your request
to sell shares by Closing Time for you to receive that day's price.
NOTE: Acorn requires one day to obtain your purchase money for a telephone
- ----
purchase order; therefore, a telephone purchase made before Closing Time will
get the next business day's NAV.
A fund's NAV is the value of a single share of the fund. The NAV is computed by
adding the value of a fund's investments, cash, and other assets, subtracting
its liabilities, and then dividing the result by the number of shares
outstanding.
Acorn generally values each fund's portfolio securities and assets on the basis
of market quotations from the primary market in which they are traded. In cases
when the quotations are not readily available, or the quotation is determined
not to represent a fair value, Acorn will use a method that Acorn's trustees
believe accurately reflects a fair value. Values of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates. Because of the different trading hours in various foreign markets, the
calculation of NAV does not take place at the same time as the determination of
the prices of many foreign securities held by the funds. These timing
differences may have a significant affect on a fund's NAV, on days or at times
when you cannot purchase or sell fund shares.
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
25
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES continued
- --------------------------------------------------------------------------------
ADDRESS CHANGES
You may easily change your address over a recorded telephone line by calling
800-962-1585. Acorn will send written confirmation of the change to both your
old and new addresses. You may not sell shares by telephone for 30 days after
you change your address by phone. During those 30 days, you must request any
sale of fund shares in writing signed by all registered account owners, and your
signature(s) must be guaranteed.
- --------------------------------------------------------------------------------
GENERAL INFORMATION ON TELEPHONE TRANSACTIONS
Acorn will not be responsible for any loss resulting from unauthorized
transactions if it follows reasonable procedures designed to verify the identity
of the caller. Those procedures may include recording the call, requesting
additional information, and sending written confirmation of telephone
transactions. You should verify the accuracy of telephone transactions
immediately upon receipt of your confirmation statement. If you do not want the
flexibility of telephone purchase and redemption for your account, decline those
services on your account application, or call 800-962-1585 for instructions.
- --------------------------------------------------------------------------------
TELEPHONE EXCHANGE PLAN AND MONEY MARKET FUNDS
The Telephone Exchange Plan permits you to use the telephone to switch your
investment between one Acorn fund and another, or between an Acorn fund and a
money market mutual fund participating in the plan.
Currently, the money market mutual funds participating in the plan are the Reich
& Tang Funds. The Reich & Tang Funds are: Short Term Income Fund, Money Market
Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily Tax Free
Income Fund; California Daily Tax Free Income Fund; Connecticut Daily Tax Free
Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax Free Income
Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax Free Income
Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania Daily
Municipal Income Fund.
Each of the Reich & Tang Funds is a no-load fund managed by Reich & Tang Asset
Management, L.P. and offers check writing privileges (for accounts other than
IRAs) in addition to the exchange plan. Only Short Term Income Fund, Money
Market Portfolio is available for IRA accounts.
EXCHANGE REQUESTS MUST BE RECEIVED BY THE TIMES NOTED BELOW TO RECEIVE THAT
DAY'S CLOSING PRICE.
. To exchange between IRA accounts with Acorn or a participating money market
fund, call 800-962-1585 before Closing Time (usually 3 p.m. Central time).
. To switch from one Acorn account into another, or from an Acorn account into
a participating money market fund, call 800-962-1585 before Closing Time.
. To switch from a participating money market fund to an Acorn fund, call
800-221-3079 before 11 a.m. Central time.
If we receive your call after the times noted above, we will process your
exchange at the NAV calculated on the following business day.
Because of the time needed to exchange money between the Acorn funds and a
participating money market fund, you may not exchange into and out of a
participating money market fund on the same or successive days; there must be at
least one day between exchanges.
26
<PAGE>
- --------------------------------------------------------------------------------
EXCHANGE PLAN RESTRICTIONS
THE ACORN FUNDS DO NOT PERMIT MARKET TIMING AND HAVE ADOPTED POLICIES TO
DISCOURAGE THIS PRACTICE.
. Generally, you will be permitted to make up to four round-trip exchanges per
year (a round trip is an exchange out of one fund into another fund, and then
back again).
. You may only exchange between accounts that are registered in the same
name(s), address, and taxpayer identification number.
. Shares of the fund you are exchanging into must be available for sale in your
state.
. If you are opening a new account by exchange, your exchange must be at least
$1,000. The exchange plan is not available for shares of a fund for which you
have been issued certificates.
. If your account is subject to backup withholding, you may not use the
exchange plan.
. Acorn may temporarily or permanently terminate the exchange plan privilege of
any investor who makes excessive use of the plan. Excessive trading can hurt
fund performance and shareholders.
. Acorn may refuse exchange purchases by any person or group if Acorn believes
the purchase will be harmful to existing shareholders.
. Before exchanging into a money market fund, you should read its prospectus.
Call 800-9-ACORN-9 (800-922-6769) to obtain a prospectus for a participating
money market fund.
. Exchanges may result in tax consequences for you.
. Acorn may terminate or modify the exchange plan at any time, but will try to
give prior notice whenever it is reasonably possible.
- --------------------------------------------------------------------------------
AUTHORIZED AGENTS
Acorn may authorize certain financial service companies, broker-dealers or their
designees (authorized agents) to accept purchase, redemption, and exchange
requests from their clients on whose behalf the authorized agent holds shares of
the funds. For purchase orders placed through an authorized agent, a shareholder
will pay a fund's NAV next computed after the receipt by the authorized agent of
such purchase order, plus any applicable transaction charge imposed by the
agent. For redemption orders placed through an authorized agent, a shareholder
will receive redemption proceeds which reflect the NAV next computed after the
receipt by the authorized agent of the redemption order, less any redemption
fees imposed by the agent.
Some financial institutions that act as Acorn's agent, or that otherwise
maintain nominee accounts with the funds for their clients, might charge a fee
(usually a percentage of the average net assets held in such accounts). The fee
is for accounting, shareholder servicing, and distribution services the
institution provides with respect to the underlying fund shares. WAM pays those
fees.
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
27
<PAGE>
DIVIDENDS, CAPITAL GAINS AND TAXES
- --------------------------------------------------------------------------------
Each fund distributes substantially all of its net income and net realized
capital gains to shareholders each year. Normally, the funds pay distributions
in June and December.
- --------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
You may receive your fund dividend and/or capital gains distributions in several
ways:
REINVESTMENT Acorn will automatically reinvest your dividends and capital gains
distributions in additional shares of your fund or into another Acorn account.
(Acorn will assign this option to your account, reinvesting in the fund paying
the distribution, if you do not indicate a choice on your account application.)
INCOME-ONLY Acorn will automatically reinvest your capital gains distributions,
but will send you a check for each dividend. If you prefer, Acorn will send your
dividend proceeds via ACH transfer directly to your bank or financial
institution. (You must establish this feature at least 10 days prior to a
dividend payment.)
CASH Acorn will automatically send you a check for all dividends and capital
gains. If you prefer, Acorn will send your distribution proceeds via ACH
transfer directly to your bank or financial institution. (You must establish
this feature at least 10 days prior to the distribution.) If you do not
currently have banking information on your account, we will require a signature
guarantee on this request.
Acorn will automatically reinvest distributions for IRA owners who are under
591/2 years old. A cash payment of a distribution is a withdrawal of IRA
earnings, and is subject to taxes and potential income tax penalties for those
under age 591/2. Once you reach 591/2 years old, and are eligible to withdraw
the earnings from your IRA, you may request cash payment of distributions.
Acorn will reinvest any distributions at the NAV at Closing Time (usually 3 p.m.
Central time) on the reinvestment date (ex-dividend). For those not reinvesting
their distributions, Acorn will normally begin mailing distribution checks on
the payment date, which is usually one week after the ex-dividend date.
- --------------------------------------------------------------------------------
TAXES
As with any investment, you should carefully consider how your investment in a
fund will be taxed. If your account is a tax-deferred or tax-exempt account (for
example, an IRA or an employee benefit plan account), the following tax
discussion does not apply. If your account is not tax-deferred or tax-exempt,
however, you should be aware of the following tax rules:
TAXES ON DISTRIBUTIONS Distributions are subject to federal income tax, and may
also be subject to state or local taxes. Your distributions are taxable when
they are paid, whether you receive them in cash or reinvest them in additional
shares. Distributions declared in October, November or December of the prior
year and paid in January are taxable as if they were paid on December 31.
For federal tax purposes, income and short-term capital gains distributions are
taxed as dividends (ordinary income); and long-term capital gains distributions
are taxed as long-term capital gains. Every January, Acorn will send you and the
IRS a statement called a Form 1099-DIV, which will show the amount of each
taxable distribution you received in the previous year. A year-end tax guide
will accompany your Form 1099. If the total distributions you received for the
year are less than $10.00, you may not receive a Form 1099.
28
<PAGE>
- --------------------------------------------------------------------------------
TAXES ON TRANSACTIONS Your redemptions--including exchanges between funds or
into a money fund--are treated as sales of the fund's shares and are subject to
capital gains tax. A capital gain or loss is the difference between the price
you paid (cost) for your shares and the price you receive when you sell them.
Whenever you sell shares of a fund, Acorn will send you a confirmation statement
showing how many shares you sold and at what price. Acorn will also send you a
year-end statement every January, and an average cost statement every February
(available for most accounts) for shares you redeemed, to assist you or your tax
preparer.
It is up to you or your tax preparer to determine whether any given sale
resulted in a capital gain and, if so, the amount of tax you owe. Be sure to
keep your regular account statements; the information they contain will be
essential in calculating the amount of your capital gains.
When you sign your account application, you certify that your social security or
taxpayer identification number is correct and that you are not subject to 31%
backup withholding for failing to report income to the IRS. If you violate IRS
regulations, the IRS can require Acorn to withhold 31% of your taxable
distributions and redemption proceeds.
- --------------------------------------------------------------------------------
FOREIGN INCOME TAXES
A fund may receive investment income from sources within foreign countries, and
that income may be subject to foreign income taxes at the source. If your fund
pays non-refundable taxes to foreign governments during the year, the taxes will
reduce that fund's dividends but will still be included in your taxable income.
You may be able to claim an offsetting credit or deduction on your tax return
for your share of foreign taxes paid by Acorn International or Acorn Foreign
Forty. The Acorn tax guide, which is mailed with your Form 1099-DIV each year,
will contain detailed information about the foreign tax credit/deduction.
For more information call 800-922-6769 or visit our web site at
www.acornfunds.com.
29
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following tables will help you better understand each fund's financial
performance for the past five years, or for the period from the date of a fund's
commencement of operations, if less than five years. They are excerpted from
each fund's financial statements for the fiscal year ended December 31, 1999,
audited by Ernst & Young LLP. Certain information reflects financial results for
a single fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in a fund (assuming
reinvestment of all dividends and distributions). You may obtain the complete
financial statements and auditor's report by calling 800-9-ACORN-9
(800-922-6769) and requesting a free copy of the funds' latest annual
shareholder report.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Acorn Fund For a share outstanding throughout 1999 1998 1997 1996 1995
each year--years ended 12/31
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACRNX . NET ASSET VALUE, BEGINNING OF YEAR $16.85 $16.99 $15.04 $13.60 $12.24
Income from Investment Operations:
Net investment income .09 .04 .15 .09 .11
Net realized and unrealized gain
on investments, foreign
currency and futures 5.22 .91 3.57 2.93 2.42
----------------------------------------------------------------------------------------
. TOTAL FROM INVESTMENT OPERATIONS 5.31 .95 3.72 3.02 2.53
Less distributions:
Dividends from net investment
income (.09) (.03) (.16) (.11) (.09)
Distributions from net realized
and unrealized gains reportable
for federal income taxes (3.54) (1.06) (1.61) (1.47) (1.08)
----------------------------------------------------------------------------------------
. TOTAL DISTRIBUTIONS (3.63) (1.09) (1.77) (1.58) (1.17)
NET ASSET VALUE, END OF YEAR $18.53 $16.85 $16.99 $15.04 $13.60
----------------------------------------------------------------------------------------
. TOTAL RETURN 33.4% 6.0% 25.0% 22.6% 20.8%
----------------------------------------------------------------------------------------
Ratios/supplemental data:
----------------------------------------------------------------------------------------
Ratio of expenses to average net
assets .85% .84% .56% .57% .57%
----------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets .49% .30% .75% .53% .89%
----------------------------------------------------------------------------------------
Portfolio turnover rate 34% 24% 32% 33% 29%
----------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR
(IN MILLIONS) $3,921 $3,549 $3,681 $2,842 $2,399
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ACORN INTERNATIONAL For a share outstanding throughout 1999 1998 1997 1996 1995
each year--years ended 12/31
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACINX . NET ASSET VALUE, BEGINNING OF YEAR $20.82 $18.39 $19.61 $16.59 $15.24
Income from Investment Operations:
Net investment income .83 .17 .40 .13 .16
Net realized and unrealized gain
(loss) on investments, foreign
currency and futures 15.45 2.68 (.34) 3.29 1.20
--------------------------------------------------------------------------------------------------------
. TOTAL FROM INVESTMENT OPERATIONS 16.28 2.85 .06 3.42 1.36
Less distributions:
Dividends from net investment
income (.22) (.15) (.38) (.12) --
Distributions from net realized
and unrealized gains reportable
for federal income taxes (1.55) (.27) (.90) (.28) (.01)
--------------------------------------------------------------------------------------------------------
. TOTAL DISTRIBUTIONS (1.77) (.42) (1.28) (.40) (.01)
. NET ASSET VALUE, END OF YEAR $35.33 $20.82 $18.39 $19.61 $16.59
--------------------------------------------------------------------------------------------------------
. Total return 79.2% 15.4% 0.2% 20.7% 8.9%
--------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
--------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets 1.11% 1.12% 1.19% 1.17% 1.22%
--------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets .12% .86% .58% .51% .90%
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate 46% 37% 39% 34% 26%
--------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF YEAR
(IN MILLIONS) $2,868 $1,725 $1,623 $1,773 $1,276
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
ACORN USA For a share outstanding throughout Year Ended Year Ended Year Ended Inception 9/4/96
each period 12/31/99 12/31/98 12/31/97 Through 12/31/96
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AUSAX . NET ASSET VALUE, BEGINNING OF PERIOD $14.80 $15.12 $11.65 $10.00
Income from Investment Operations:
Net investment loss (a) -- (.07) (.07) (.02)
Net realized and unrealized gain
on investments 3.32 .87 3.83 1.67
--------------------------------------------------------------------------------------------------------
. TOTAL FROM INVESTMENT OPERATIONS 3.32 .80 3.76 1.65
Less distributions:
Dividends from net investment
income -- -- -- --
Distributions from net realized
and unrealized gains reportable
for federal income taxes (1.37) (1.12) (.29) --
--------------------------------------------------------------------------------------------------------
. TOTAL DISTRIBUTIONS (1.37) (1.12) (.29) --
. NET ASSET VALUE, END OF PERIOD $16.75 $14.80 $15.12 $11.65
--------------------------------------------------------------------------------------------------------
. TOTAL RETURN (C) 23.0% 5.8% 32.3% 16.5%
--------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
--------------------------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (b) 1.15% 1.20% 1.35% 1.85%*
--------------------------------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets 0.00% (.42%) (.49%) (.99%)*
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate 49% 42% 33% 20%*
--------------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
(IN MILLIONS) $371 $281 $185 $53
</TABLE>
(a) Net investment loss per share was based upon the average shares
outstanding during the period.
(b) In accordance with a requirement by the Securities and Exchange
Commission, the ratio of expenses to average net assets for
Acorn USA reflects gross custodian fees. This ratio net of
custodian fees paid indirectly would have been 1.79% for the
period ended December 31, 1996.
(c) Total return is not annualized for periods less than one year.
* Annualized
32
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ACORN TWENTY For a share outstanding throughout Year Ended Inception 11/23/98
each period 12/31/99 Through 12/31/98
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACTWX . NET ASSET VALUE, BEGINNING OF PERIOD $10.71 $10.00
Income from Investment Operations:
Net investment income (loss) (a) (.08) --
Net realized and unrealized gain on
investments 3.21 .71
-----------------------------------------------------------------------------------------
. Total from investment operations 3.13 .71
LESS DISTRIBUTIONS:
Distributions from net realized
and unrealized gains reportable
for federal income taxes (.14) --
-----------------------------------------------------------------------------------------
. NET ASSET VALUE, END OF PERIOD $13.70 $10.71
-----------------------------------------------------------------------------------------
. TOTAL RETURN (d) 29.3% 7.1%
-----------------------------------------------------------------------------------------
Ratios/supplemental data:
-----------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (b)(c) 1.37% 1.41%*
-----------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(c) (.62%) .22%*
-----------------------------------------------------------------------------------------
Portfolio turnover rate 101% 173%*
-----------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
(IN MILLIONS) $68 $34
</TABLE>
(a) Net investment income (loss) per share was based upon the
average shares outstanding during the period.
(b) In accordance with a requirement by the Securities and
Exchange Commission, the Acorn Twenty ratio reflects total
expenses prior to the reduction of custodian fees for cash
balances it maintains with the custodian ("custodian fees
paid indirectly"). This ratio net of custodian fees paid
indirectly would have been 1.35% for the period ended
December 31, 1998 and the year ended December 31, 1999.
(c) Acorn Twenty was reimbursed by the Advisor for certain net
expenses from November 23, 1998 through December 31, 1999.
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, for the
period ended 12/31/98 and 1.41% and (.66%), respectively,
for the year ended 12/31/99.
(d) Total return is not annualized for periods less than one
year.
* Annualized
33
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Acorn For a share outstanding throughout Year Ended Inception 11/23/98
Foreign Forty each period 12/31/99 Through 12/31/98
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
ACFFX . NET ASSET VALUE, BEGINNING OF PERIOD $11.00 $10.00
Income from Investment Operations:
Net investment loss (a) (.02) (.01)
Net realized and unrealized gain on
investments 8.98 1.01
-------------------------------------------------------------------------------------
. TOTAL FROM INVESTMENT OPERATIONS 8.96 1.00
Less Distributions:
Distributions from net realized
and unrealized gains reportable
for federal income taxes (.03) --
-------------------------------------------------------------------------------------
. NET ASSET VALUE, END OF PERIOD $19.93 $11.00
-------------------------------------------------------------------------------------
. TOTAL RETURN (D) 81.6% 10.0%
-------------------------------------------------------------------------------------
Ratios/supplemental data:
-------------------------------------------------------------------------------------
Ratio of expenses to average net
assets (b)(c) 1.48% 1.73%*
-------------------------------------------------------------------------------------
Ratio of net investment
loss to average net assets(c) (.17%) (.78%)*
-------------------------------------------------------------------------------------
Portfolio turnover rate 60% 90%*
-------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD
(IN MILLIONS) $107 $16
</TABLE>
(a) Net investment loss per share was based upon the average
shares outstanding during the period.
(b) In accordance with a requirement by the Securities and
Exchange Commission, the Acorn Foreign Forty ratio
reflects total expenses prior to the reduction of
custodian fees for cash balances it maintains with the
custodian ("custodian fees paid indirectly"). This ratio
net of custodian fees paid indirectly would have been
1.45% for the period ended December 31, 1998, and the
year ended December 31, 1999.
(c) Acorn Foreign Forty was reimbursed by the Advisor for
certain net expenses from November 23, 1998 through
December 31, 1999. 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, for the period ended 12/31/98 and 1.57% and
(.26%), respectively, for the year ended 12/31/99.
(d) Total return is not annualized for periods less than one
year.
* Annualized
34
<PAGE>
Notes
- -------------------------------------------------------------------------------
35
<PAGE>
Notes
- -------------------------------------------------------------------------------
36
<PAGE>
FOR MORE INFORMATION
More information on each fund is available free upon request, including the
following:
SEMIANNUAL/ANNUAL REPORT
Describes the funds' performance and lists portfolio holdings at the end of the
six- and 12-month periods. In the funds' annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the funds'performance during the last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Provides more details about each fund and its policies and operations. A current
SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference (is legally considered part of this prospectus).
To obtain information:
BY TELEPHONE
Call 800-922-6769
BY MAIL Write to:
The Acorn Family of Funds
P.O. Box 8502
Boston, MA 02266-8502
ON THE INTERNET
www.acornfunds.com
FROM THE SEC
Text-only versions of fund documents can be viewed online or downloaded from the
SEC's EDGAR database at: http://www.sec.gov
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington, D.C. Call the SEC at 202-942-8090 for information about the Public
Reference Room's operations. You may obtain copies of the information from the
EDGAR database by sending your request and a duplicating fee to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Requests, after sending the
appropriate duplicating fee, may also be made electronically at
[email protected].
811-01829
<PAGE>
[PHOTO OF ACORNS]
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL INFORMATION
May 1, 2000
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-9-ACORN-9
1-800-922-6769
ACORN FUND
ACORN INTERNATIONAL
ACORN USA
ACORN TWENTY
ACORN FOREIGN FORTY
No-Load Funds
TABLE OF CONTENTS
Page
Information About the Funds...................................................2
Investment Objectives and Policies............................................2
Investment Techniques and Risks...............................................3
Investment Restrictions......................................................21
Performance Information......................................................27
Investment Adviser...........................................................33
Distributor..................................................................35
The Trust....................................................................36
Trustees and Officers........................................................36
Purchasing and Redeeming Shares..............................................41
Additional Tax Information...................................................43
Taxation of Foreign Shareholders.............................................44
Portfolio Transactions.......................................................44
Code of Ethics...............................................................47
Custodian....................................................................47
Independent Auditors.........................................................47
Financial Statements.........................................................48
Appendix - Description of Bond Ratings.......................................77
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign Forty
(each, a "Fund," together, the "Funds") dated the date of this SAI and any
supplement to the prospectus. A copy of the Acorn Family of Funds 1999 annual
report to shareholders accompanies this SAI. A copy of the prospectus and
additional copies of the annual reports can be obtained from Acorn at no charge
by writing or telephoning Acorn at its address or telephone number shown above.
1
<PAGE>
Information About the Funds
Acorn Fund invests mostly in stocks of small and medium-size companies,
generally those with market capitalizations of less than $2 billion. Of those
stocks, Acorn Fund invests mostly in U.S. companies, but also may have
significant foreign investments.
Acorn International concentrates its investments in stocks of small and
medium-size non-U.S. companies, generally those with market capitalizations of
less than $5 billion.
Acorn USA invests mostly in stocks of small and medium-sized U.S.
companies, generally those with market capitalizations of less than $2 billion.
Acorn Twenty invests primarily in the stocks of U.S. companies with market
capitalizations of $2 billion to $12 billion. Acorn Twenty is a non-diversified
fund that ordinarily focuses its investments in 20 to 25 U.S. companies.
Acorn Foreign Forty invests for long-term capital growth. The Fund invests
primarily in the stocks of foreign companies with market capitalizations of $5
billion to $15 billion. Acorn Foreign Forty is a non-diversified fund that
ordinarily has investments in 40 to 60 companies in developed markets.
Acorn Fund, Acorn International and Acorn USA are diversified funds under
the federal securities laws. Acorn Twenty and Acorn Foreign Forty are
non-diversified under the federal securities laws. However, each of the Funds
complies with the diversification standards established by the tax laws. See
"Investment Techniques and Risks - Diversification" for more information.
The Funds are series of Acorn Investment Trust ("Acorn" or the "Trust"),
and each Fund is an open-end, management investment company. All five Funds are
currently open to new investors; however, Acorn reserves the right to close one
or more of the Funds to new investors if the board of trustees of Acorn
determines that additional cash flow would be detrimental to the management of
the Funds.
The discussion below supplements the description in the prospectus of each
Fund's investment objective, policies, and restrictions.
Investment Objectives and Policies
Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn Foreign
Forty invest with the objective of long-term growth of capital. The Funds are
not designed for investors seeking primarily income rather than capital
appreciation. The Funds are not, alone or together, a balanced investment
program, and there can be no assurance that any of the Funds will achieve its
investment objective.
The Funds use the techniques and invest in the types of securities
described below and in the prospectus.
2
<PAGE>
Investment Techniques and Risks
Common Stocks
The Funds invest mostly in common stocks, which represent an equity
interest (ownership) in a corporation. This ownership interest often gives the
Funds the right to vote on measures affecting the company's organization and
operations. The Funds also invest in other types of equity securities, including
preferred stocks and securities convertible into common stocks. Over time,
common stocks have historically provided superior long-term capital growth
potential. However, stock prices may decline over short or even extended
periods. Stock markets tend to move in cycles, with periods of rising stock
prices and periods of falling stock prices. As a result, the Funds should be
considered long-term investments, designed to provide the best results when held
for several years or more. The Funds may not be suitable investments if you have
a short-term investment horizon or are unwilling to accept fluctuations in share
price, including significant declines over a given period. Under normal
conditions, the Funds' common stock investments (as a percent of total assets)
are allocated as follows:
- ------------------------------------------------------------------
U.S. Foreign
Companies Companies
- ------------------------------------------------------------------
Fund Maximum Maximum
- ------------------------------------------------------------------
Acorn Fund no limit up to 33%
Acorn International up to 25% no limit
Acorn USA no limit up to 10%
Acorn Twenty no limit up to 15%
Acorn Foreign Forty up to 15% no limit
- ------------------------------------------------------------------
Acorn Twenty usually limits its investments in foreign companies to those whose
operations are primarily in the U.S.
Acorn Foreign Forty usually limits its investments in U.S. companies to those
whose operations are primarily overseas.
See also the discussion of foreign securities below.
3
<PAGE>
Diversification
Diversification is a means of reducing risk by investing in a broad range
of stocks or other securities. Because Acorn Twenty and Acorn Foreign Forty are
non-diversified, those Funds have the ability to take larger positions in a
smaller number of issuers. The appreciation or depreciation of a single stock
may have a greater impact on the NAV of a non-diversified fund, because it is
likely to have a greater percentage of its assets invested in that stock. As a
result, the share price of Acorn Twenty and Acorn Foreign Forty can be expected
to fluctuate more than that of broadly diversified Funds investing in similar
securities. Because they are non-diversified, those Funds are not subject to the
limitations under the Investment Company Act of 1940 in the percentage of their
assets that they may invest in any one issuer. Both Funds, however, intend to
comply with the diversification standards for regulated investment companies
under Subchapter M of the Internal Revenue Code (summarized under "Investment
Restrictions").
Although Acorn Foreign Forty is registered as a non-diversified fund, it
has (through the date of this SAI) invested as if it were diversified. Acorn
Foreign Forty expects that it will begin to invest in a non-diversified manner
when it believes market conditions are appropriate to do so. However, if Acorn
Foreign Forty's investments remain diversified through November 23, 2001 (three
years after it began operations), the Fund will lose the ability to invest in a
non-diversified manner and would thereafter be a diversified fund. Acorn Foreign
Forty would not be able to become non-diversified unless it sought and obtained
the approval of the holders of a "majority of its outstanding voting
securities," as defined in the Investment Company Act of 1940.
Foreign Securities
The Funds invest in foreign securities, which may entail a greater degree
of risk (including risks relating to exchange rate fluctuations, tax provisions,
or expropriation of assets) than does investment in securities of domestic
issuers. As noted above, under normal market conditions, each Fund may invest in
foreign securities (as a percentage of total assets) as set forth below:
- -------------------------------------------------
Foreign
Companies
- -------------------------------------------------
Fund Maximum
- -------------------------------------------------
Acorn Fund up to 33%
Acorn International no limit
Acorn USA up to 10%
Acorn Twenty up to 15%
Acorn Foreign Forty no limit
- -------------------------------------------------
Acorn Foreign Forty invests primarily in developed countries but may invest
up to 15% of its total assets in securities of companies with broad
international interests that are domiciled in the United States or in countries
considered "emerging markets," if the operations of those companies are located
primarily in developed overseas markets. The Funds use the terms "developed
markets" and "emerging markets" as those terms are defined by the International
4
<PAGE>
Financial Corporation, a member of the World Bank Group ("IFC"). "Emerging
markets" as used by the Fund includes markets designated "frontier markets" by
the IFC. Acorn Foreign Forty does not intend to invest more than 5% of its total
assets in those countries included in the "emerging markets" or "frontier
markets" categories.
The securities markets of emerging markets are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the United States. There
also may be a lower level of monitoring and regulation of emerging markets of
traders, insiders, and investors. Enforcement of existing regulations has been
extremely limited.
Acorn Twenty usually limits its investments in foreign companies to those
whose operations are primarily in the U.S.
The Funds may invest in securities of foreign issuers directly or in the
form of American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), Global Depositary Receipts (GDRs) or other securities representing
underlying shares of foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks into which
they may be converted. ADRs are receipts typically issued by an American bank or
trust company evidencing ownership of the underlying securities. EDRs are
European receipts evidencing a similar arrangement. GDRs trade in both U.S. and
non-U.S. markets. Generally ADRs, in registered form, are designed for use in
the U.S. securities markets and EDRs, in bearer form, are designed for use in
European securities markets. The Funds may invest in both "sponsored" and
"unsponsored" depositary receipts. In a sponsored depositary receipt, the issuer
typically pays some or all of the expenses of the depository and agrees to
provide its regular shareholder communications to depositary receipt holders. An
unsponsored depositary receipt is created independently of the issuer of the
underlying security. The depositary receipt holders generally pay the expenses
of the depository and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. Therefore, in the
case of an unsponsored depositary receipt, a Fund is likely to bear its
proportionate share of the expenses of the depository and it may have greater
difficulty in receiving shareholder communications than it would have with a
sponsored depositary receipt. None of the Funds expects to invest 5% or more of
its total assets in unsponsored depositary receipts.
The Funds' investment performance is affected by the strength or weakness
of the U.S. dollar against the currencies of the foreign markets in which its
securities trade or in which they are denominated. For example, if the dollar
falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even though the price of
the stock remains unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under "Currency Exchange
Transactions.")
Investors should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve risks
5
<PAGE>
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign subcustodial arrangements. In addition, the costs of
investing in foreign securities are higher than the costs of investing in U.S.
securities.
Although the Funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
Currency Exchange Transactions
The Funds may enter into currency exchange transactions. A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks,
foreign exchange dealers or broker-dealers, are not exchange-traded, and are
usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the Funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The Funds' currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions." Transaction
hedging is the purchase or sale of a forward contract with respect to specific
payables or receivables of a fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward contract
with respect to a portfolio security position denominated or quoted in a
particular currency. The Funds may engage in portfolio hedging with respect to
the currency of a particular country in amounts approximating actual or
anticipated positions in securities denominated in that currency. When a Fund
owns or anticipates owning securities in countries whose currencies are linked,
Wanger Asset Management, L.P. ("WAM"), the Funds' investment adviser, may
aggregate such positions as to the currency hedged.
If a Fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, assets of that Fund having a value at least as great as
the Fund's commitment under
6
<PAGE>
such forward contract will be segregated on the books of the Fund while the
contract is outstanding.
At the maturity of a forward contract to deliver a particular currency, a
Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, that Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to a Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
Synthetic Foreign Money Market Positions. The Funds may invest in money
----------------------------------------
market instruments denominated in foreign currencies. In addition to, or in lieu
of, such direct investment, the Funds may construct a synthetic foreign money
market position by (a) purchasing a money market instrument denominated in one
currency (generally U.S. dollars) and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that
7
<PAGE>
currency in exchange for a different currency on a future date and at a
specified rate of exchange. For example, a synthetic money market position in
Japanese yen could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to deliver a
corresponding amount of U.S. dollars in exchange for Japanese yen on a specified
date and at a specified rate of exchange. Because of the availability of a
variety of highly liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign money market instruments.
The results of a direct investment in a foreign currency and a concurrent
construction of a synthetic position in such foreign currency, in terms of both
income yield and gain or loss from changes in currency exchange rates, in
general should be similar, but would not be identical because the components of
the alternative investments would not be identical. Except to the extent a
synthetic foreign money market position consists of a money market instrument
denominated in a foreign currency, the synthetic foreign money market position
shall not be deemed a "foreign security" for purposes of the investment limits
set forth in the charts on pages 3 and 4.
Options and Futures
The Funds may purchase and write both call options and put options on
securities and on indexes, and enter into interest rate and index futures
contracts, and may purchase or sell options on such futures contracts ("futures
options") in order to provide additional revenue, or to hedge against changes in
security prices or interest rates. The Funds may also use other types of
options, futures contracts and futures options currently traded or subsequently
developed and traded, provided the board of trustees determines that their use
is consistent with the Funds' investment objective.
Options. An option on a security (or index) is a contract that gives the
-------
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.
The Funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if a Fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional consideration
(or, if additional consideration is required, assets having a value at least
equal to that amount are segregated on the books of the Fund) upon conversion or
exchange of other securities held in its portfolio.
8
<PAGE>
If an option written by a Fund expires, that Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a Fund expires, that Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of that Fund, valued
initially at the premium paid for the option. The premium received for an option
written by a Fund is recorded as a deferred credit. The value of an option
purchased or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid and asked
prices.
OTC Derivatives. The Funds may buy and sell over-the-counter ("OTC")
---------------
derivatives. Unlike exchange-traded derivatives, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of OTC derivatives (derivatives not traded on exchanges)
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows a Fund greater flexibility to
tailor an instrument to its needs, OTC derivatives generally involve greater
credit risk than exchange-traded derivatives, which are guaranteed by the
clearing organization of the exchanges where they are traded. Each Fund will
limit its investments so that no more than 5% of its total assets will be placed
at risk in the use of OTC derivatives. See "Illiquid and Restricted Securities"
below for more information on the risks associated with investing in OTC
derivatives.
Risks Associated with Options. There are several risks associated with
-----------------------------
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would
9
<PAGE>
expire and become worthless. If a Fund were unable to close out a covered call
option that it had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a covered call
option on a security, a Fund foregoes, during the option's life, the opportunity
to profit from increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the call. As the
writer of a covered call option on a foreign currency, a Fund foregoes, during
the option's life, the opportunity to profit from currency appreciation.
If trading were suspended in an option purchased or written by one of the
Funds, that Fund would not able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts. The Funds may use
--------------------------------------------------
interest rate futures contracts and index futures contracts. An interest rate or
index futures contract provides for the future sale by one party and purchase by
another party of a specified quantity of a financial instrument or the cash
value of an index 1 at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; the Russell
2000 Index; and the New York Stock Exchange Composite Index) as well as
financial instruments (including, but not limited to: U.S. Treasury bonds; U.S.
Treasury notes; Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
The Funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having jurisdiction over
the Funds, the Funds will limit their use of futures contracts and futures
options to hedging transactions. For example, a Fund might use futures contracts
to hedge against fluctuations in the general level of stock prices, anticipated
changes in interest rates, or currency fluctuations that might adversely affect
either the value of the Fund's securities or the price of the securities that
the Fund intends to purchase. The Fund's hedging may include sales of futures
contracts as an offset against the
- ---------------------------
1 A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
10
<PAGE>
effect of expected declines in stock prices or currency exchange rates or
increases in interest rates and purchases of futures contracts as an offset
against the effect of expected increases in stock prices or currency exchange
rates or declines in interest rates. Although other techniques could be used to
reduce the Funds' exposure to stock price, interest rate, and currency
fluctuations, the Funds may be able to hedge their exposure more effectively and
perhaps at a lower cost by using futures contracts and futures options.
The success of any hedging technique depends on WAM's ability to correctly
predict changes in the level and direction of stock prices, interest rates,
currency exchange rates, and other factors. Should those predictions be
incorrect, a Fund's return might have been better had hedging not been
attempted; however, in the absence of the ability to hedge, WAM might have taken
portfolio actions in anticipation of the same market movements with similar
investment results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a Fund, that Fund
is required to deposit with its custodian or broker a specified amount of cash
or U.S. government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is generally set
by the exchange on which the contract is traded; however, the margin requirement
may be modified during the term of the contract, and the Fund's broker may
require margin deposits in excess of the minimum required by the exchange. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract, which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The Funds
expect to earn interest income on their initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking-to-market." Variation margin paid or received
by a Fund does not represent a borrowing or loan by the Fund but is instead
settlement between that Fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the previous day. In
computing daily net asset value ("NAV"), the Funds will mark-to-market their
open futures positions.
The Funds are also required to deposit and maintain margin with respect to
put and call options on futures contracts they write. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Funds.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Funds realize a capital
gain, or if it is more, the Funds realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
engaging in the transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
11
<PAGE>
Risks Associated with Futures. There are several risks associated with the
use of futures contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the futures contract. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. In addition, there are significant differences between
the securities and futures markets that could result in an imperfect correlation
between the markets, causing a given hedge not to achieve its objectives. The
degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options, and the
related securities, including technical influences in futures and futures
options trading and differences between the Funds' investments being hedged and
the securities underlying the standard contracts available for trading. For
example, in the case of index futures contracts, the composition of the index,
including the issuers and the weighting of each issue, may differ from the
composition of a Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and creditworthiness of the
issues underlying the futures contract may differ from the financial instruments
held in a Fund's portfolio. A decision as to whether, when, and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected stock
price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price change
limitations.
There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures or futures option position. The Fund would be
exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Limitations on Options and Futures. A Fund will not enter into a futures
----------------------------------
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that Fund plus premiums paid by it
for open futures option positions, less the
12
<PAGE>
amount by which any such positions are "in-the-money," 2 would exceed 5% of the
Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with its custodian or broker readily-marketable
securities having a fair market value (including any margin) at least equal to
the market value of such contract. When writing a call option on a futures
contract, a Fund similarly will maintain with its custodian or broker
readily-marketable securities having a fair market value (including any margin)
at least equal to the amount by which such option is in-the-money until the
option expires or is closed out by the Fund.
A Fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent a Fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool," the "underlying commodity
value" of each long position in a commodity contract in which a Fund invests
will not at any time exceed the sum of:
(1) the value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) unrealized appreciation on the contract held by the broker; and
(3) cash proceeds from existing investments due in not more than 30 days.
"Underlying commodity value" means the size of the contract multiplied by
the daily settlement price of the contract.
Taxation of Options and Futures. If a Fund exercises a call or put option
-------------------------------
that it holds, the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the security sold
(put). For cash settlement options and futures
- ---------------------------
2 A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
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options exercised by a Fund, the difference between the cash received at
exercise and the premium paid is a capital gain or loss.
If a call or put option written by a Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by a Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by a Fund is in-the-money at the time it was written
and the security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding period of the
securities covering an in-the-money option will not include the period of time
the option is outstanding.
If a Fund writes an equity call option3 other than a "qualified covered
call option," as defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required to recognize
for each taxable year its net unrealized gains and losses as of the end of the
year on futures, futures options and non-equity options positions ("year-end
mark-to-market"). Generally, any gain or loss recognized with respect to such
positions (either by year-end mark-to-market or by actual closing of the
positions) is considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions, the related
securities and certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call options (or futures
call options) or buying put options (or futures put options) that are intended
to hedge against a
- ------------------------------------------------
3 An equity option is defined to mean any option to buy or sell stock, and any
other option the value of which is determined by reference to an index of stocks
of the type that is ineligible to be traded on commodity futures exchange (e.g.,
an option contract on a sub-index based on the price of nine hotel-casino
stocks.) The definition of equity option excludes options on broad-based stock
indexes (such as the Standard & Poor's 500 index.)
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<PAGE>
change in the value of securities held by a Fund may affect the holding period
of the hedged securities.
If a Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales or
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property. The
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
In order for the Funds to continue to qualify for federal income tax
treatment as regulated investment companies, at least 90% of each Fund's gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities or foreign currencies, or other income (including but not
limited to gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income for purposes of
the 90% requirement.
The Funds intend to distribute to shareholders annually any capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other Fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the Funds. Shareholders will be
advised of the nature of such capital gain distributions.
For further information, see the discussion under "Additional Tax
Information."
Swap Agreements. A swap agreement is generally individually negotiated and
---------------
structured to include exposure to one or more of a variety of different types of
investments or market factors. Depending on its structure, a swap agreement may
increase or decrease a Fund's exposure to changes in the value of an index of
securities in which the Fund might invest, the value of a particular security or
group of securities, or foreign currency values. Swap agreements can take many
different forms and are known by a variety of names. A Fund may enter into any
form of swap agreement if WAM determines it is consistent with that Fund's
investment objective and policies, but each Fund will limit its use of swap
agreements so that no more than 5% of its total assets will be invested in such
agreements.
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A swap agreement tends to shift a Fund's investment exposure from one type
of investment to another. For example, if a Fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase that Fund's exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap agreement may
increase or decrease the overall volatility of a Fund's investments and its NAV.
The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from a Fund. If a swap agreement calls for
payments by a Fund, that Fund must be prepared to make such payments when due.
If the counterparty's creditworthiness declines, the value of a swap agreement
would be likely to decline, potentially resulting in a loss. WAM expects to be
able to eliminate a Fund's exposure under any swap agreement either by
assignment or by other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.
A Fund will segregate assets to cover its current obligations under a swap
agreement. If a Fund enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any, of
that Fund's accumulated obligations under the swap agreement over the
accumulated amount the Fund is entitled to receive under the agreement. If a
Fund enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of that Fund's accumulated
obligations under the agreement.
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<PAGE>
Short Sales Against the Box
Each Fund may make short sales of securities if, at all times when a short
position is open, the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short. This technique is called selling short "against the box."
Although permitted by its investment restrictions, the Funds do not currently
intend to sell securities short.
In a short sale against the box, a Fund does not deliver from its portfolio
the securities sold and does not receive immediately the proceeds from the short
sale. Instead, the Fund borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-dealer delivers such
securities, on behalf of the Fund, to the purchaser of such securities. Such
broker-dealer is entitled to retain the proceeds from the short sale until the
Fund delivers to such broker-dealer the securities sold short. In addition, the
Fund is required to pay to the broker-dealer the amount of any dividends paid on
shares sold short. Finally, to secure its obligation to deliver to such
broker-dealer the securities sold short, the Fund must deposit and continuously
maintain in a separate account with its custodian an equivalent amount of the
securities sold short or securities convertible into or exchangeable for such
securities without the payment of additional consideration. The Fund is said to
have a short position in the securities sold until it delivers to the
broker-dealer the securities sold, at which time the Fund receives the proceeds
of the sale. Because the Fund ordinarily will want to continue to hold
securities in its portfolio that are sold short, the Fund will normally close
out a short position by purchasing on the open market and delivering to the
broker-dealer an equal amount of the securities sold short, rather than by
delivering portfolio securities.
Short sales may protect a Fund against the risk of losses in the value of
its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium. The Funds will incur transaction
costs in connection with short sales.
In addition to enabling the Funds to hedge against market risk, short sales
may afford a Fund an opportunity to earn additional current income to the extent
the Fund is able to enter into arrangements with broker-dealers through which
the short sales are executed to receive income with respect to the proceeds of
the short sales during the period the Fund's short positions remain open.
The Taxpayer Relief Act of 1997 imposed constructive sale treatment for
federal income tax purposes on certain hedging strategies with respect to
appreciated securities. Under these rules taxpayers will recognize gain, but not
loss, with respect to securities if they enter into short sales of "offsetting
notional principal contracts" (as defined by the Act) with respect to the same
17
<PAGE>
or substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. The Secretary of the
Treasury is authorized to promulgate regulations that will treat as constructive
sales certain transactions that have substantially the same effect as short
sales.
Debt Securities
The Funds may invest in debt securities, including lower-rated securities
(i.e., securities rated BB or lower by Standard & Poor's Corporation ("S&P") or
Ba or lower by Moody's Investor Services, Inc. ("Moody's"), commonly called
"junk bonds"), and securities that are not rated. There are no restrictions as
to the ratings of debt securities acquired by the Funds or the portion of a
Fund's assets that may be invested in debt securities in a particular ratings
category, except that Acorn International may not invest more than 20% of its
assets in securities rated below investment grade or considered by the Adviser
to be of comparable credit quality. Neither Acorn Fund nor Acorn International
expects to invest more than 5% of its net assets in such securities during the
current fiscal year. Each of Acorn USA, Acorn Twenty and Acorn Foreign Forty do
not intend to invest more than 20% of their total assets in debt securities nor
more than 5% of their total assets in securities rated at or lower than the
lowest investment grade.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to adverse economic
changes or individual corporate developments. During a period of adverse
economic changes, including a period of rising interest rates, the junk bond
market may be severely disrupted, and issuers of such bonds may experience
difficulty in servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a Fund may have greater difficulty selling its
portfolio securities. See "Purchasing and Redeeming Shares - Net Asset Value."
The market value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions. A more complete description of the
characteristics of bonds in each ratings category is included in the appendix to
this SAI.
Illiquid and Restricted Securities
The Funds may not invest in illiquid securities, if as a result they would
comprise more than 15% of the value of the net assets of the Fund. An Illiquid
security generally is one that cannot be sold in the ordinary course of business
within seven days at substantially the value assigned to it in calculations of a
Fund's net asset value. Repurchase agreements maturing in
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<PAGE>
more than seven days, OTC derivatives and restricted securities are generally
illiquid; other types of investments may also be illiquid from time to time. If,
through the appreciation of illiquid securities or the depreciation of liquid
securities, a Fund should be in a position where more than 15% of the value of
its net assets are invested in illiquid assets, that Fund will take appropriate
steps to protect liquidity. Illiquid securities are priced at a fair value
determined in good faith by the board of trustees or its delegate.
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, a Fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at a
fair value as determined in good faith by the board of trustees. Neither Acorn
Fund, Acorn International nor Acorn USA will invest more than 10% of its total
assets (valued at the time of investment) in restricted securities.
Notwithstanding the above, a Fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That rule permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. WAM, under the supervision of the board
of trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to a Fund's restriction of investing no more than 10%
(for Acorn Fund) or 15% (for Acorn International, Acorn USA, Acorn Twenty and
Acorn Foreign Forty) of its assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of fact. In making
this determination WAM will consider the trading markets for the specific
security taking into account the unregistered nature of a Rule 144A security. In
addition, WAM could consider the (1) frequency of trades and quotes, (2) number
of dealers and potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of market place trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Funds' holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that a Fund does not invest
more than the specified percentage of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of increasing the amount
of a Fund's assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities.
Repurchase Agreements
Repurchase agreements are transactions in which a Fund purchases a security
from a bank or recognized securities dealer and simultaneously commits to resell
that security to the bank or dealer at an agreed-upon price, date, and market
rate of interest unrelated to the coupon rate or maturity of the purchased
security. Although repurchase agreements carry certain risks not associated with
direct investments in securities, a Fund will enter into repurchase agreements
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<PAGE>
only with banks and dealers WAM believes present minimal credit risks in
accordance with guidelines approved by the board of trustees. WAM will review
and monitor the creditworthiness of such institutions, and will consider the
capitalization of the institution, WAM's prior dealings with the institution,
any rating of the institution's senior long-term debt by independent rating
agencies, and other relevant factors.
A Fund will invest only in repurchase agreements collateralized at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such collateral upon a default
in the obligation to repurchase were less than the repurchase price, the Fund
would suffer a loss. If the financial institution which is party to the
repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on a
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, each Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
At present, Acorn USA, Acorn Twenty and Acorn Foreign Forty are the only
Funds that invest in repurchase agreements, and then only with respect to not
more than 5% of their respective total assets. Acorn Fund and Acorn
International have no present intention of investing in repurchase agreements.
When-Issued and Delayed Delivery Securities; Reverse Repurchase Agreements
The Funds may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. A Fund makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities before the
settlement date if WAM deems it advisable for investment reasons. A Fund may
utilize spot and forward foreign currency exchange transactions to reduce the
risk inherent in fluctuations in the exchange rate between one currency and
another when securities are purchased or sold on a when-issued or delayed
delivery basis.
A Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, assets of
the Fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation. The use of
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<PAGE>
these investment strategies, as well as any borrowing by a Fund, may increase
NAV fluctuation. The Funds have no present intention of investing in reverse
repurchase agreements.
Temporary Strategies
The Funds have the flexibility to respond promptly to changes in market and
economic conditions. In the interest of preserving shareholders' capital, WAM
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, a Fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. issuers (or, in the case of Acorn
Fund, Acorn International and Acorn Foreign Forty, those of foreign issuers),
and most or all of the Fund's investments may be made in the United States and
denominated in U.S. dollars. It is impossible to predict whether, when, or for
how long a Fund might employ defensive strategies.
In addition, pending investment of proceeds from new sales of Fund shares
or to meet ordinary daily cash needs, a Fund temporarily may hold cash (U.S.
dollars, foreign currencies, or multinational currency units) and may invest any
portion of its assets in money market instruments.
Portfolio Turnover
Although the Funds do not purchase securities with a
view to rapid turnover, there are no limitations on the length of time that
portfolio securities must be held. Portfolio turnover can occur for a number of
reasons such as general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors relating to the
desirability of holding or changing a portfolio investment. Under normal
conditions, the portfolio turnover rates of Acorn Fund, Acorn International and
Acorn USA are expected to be below about 50%. The portfolio turnover rates of
Acorn Twenty and Acorn Foreign Forty are likely to be greater than 50% but,
under normal market conditions, are expected to be no more than about 100%. A
high rate of portfolio turnover, if it should occur, would result in increased
transaction expenses which must be borne by each Fund. High portfolio turnover
may also result in the realization of capital gains or losses and, to the extent
net short-term capital gains are realized, any distributions resulting from such
gains will be considered ordinary income for federal income tax purposes.
Line of Credit
Acorn maintains a line of credit with a group of banks in order to permit
borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities. Any borrowings under that line of credit by the Funds
would be subject to each Fund's restrictions on borrowing under "Investment
Restrictions," below.
Investment Restrictions
Acorn Fund
In pursuing its investment objective Acorn Fund will not:
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1. Invest more than 5% of its assets (valued at time of investment) in
securities of any one issuer, except in government obligations;
2. Acquire securities of any one issuer which at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Invest more than 5% of its assets (valued at time of investment) in
securities of issuers with less than three years' operation (including
predecessors);
5. Borrow money except (a) from banks for temporary or emergency purposes in
amounts not exceeding 33% of the value of the fund's assets at the time of
borrowing, and (b) in connection with transactions in options and in securities
index futures [the fund will not purchase additional securities when its
borrowings, less amounts receivable on sales of portfolio securities, exceed 5%
of total assets];
6. Pledge, mortgage or hypothecate its assets, except in connection with
permitted borrowings;
7. Underwrite the distribution of securities of other issuers; however the fund
may acquire "restricted" securities which, in the event of a resale, might be
required to be registered under the Securities Act of 1933 on the ground that
the fund could be regarded as an underwriter as defined by that act with respect
to such resale; but the fund will limit its total investment in restricted
securities and in other securities for which there is no ready market to not
more than 10% of its total assets at the time of acquisition;
8. Purchase and sell real estate or interests in real estate, although it may
invest in marketable securities of enterprises which invest in real estate or
interests in real estate;
9. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) forward contracts;
10. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in connection
with transactions in options, futures and options on futures;
11. Sell securities short or maintain a short position, except short sales
against-the-box;
12. Participate in a joint or on a joint or several basis in any trading account
in securities;
13. Invest in companies for the purpose of management or the exercise of
control;
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14. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940;
15. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan).
Acorn International
In pursuing its investment objective Acorn International will not:
1. With respect to 75% of the value of the fund's total assets, invest more
than 5% of its total assets (valued at time of investment) in securities of
a single issuer, except securities issued or guaranteed by the government
of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures. [The fund will not purchase additional
securities when its borrowings, less amounts receivable on sales of
portfolio securities, exceed 5% of total assets.];
6. Underwrite the distribution of securities of other issuers; however the
fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the fund could be regarded as an underwriter as defined by that
act with respect to such resale; but the fund will limit its total
investment in restricted securities and in other securities for which there
is no
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ready market, including repurchase agreements maturing in more than seven
days, to not more than 15% of its total assets at the time of acquisition;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises that invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) forward contracts;
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
10. Sell securities short or maintain a short position, except short sales
against-the-box.
11. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Acorn USA
In pursuing its investment objective Acorn USA will not:
1. With respect to 75% of the value of the Fund's total assets, invest more
than 5% of its total assets (valued at time of investment) in securities of
a single issuer, except securities issued or guaranteed by the government
of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer which at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry, except that this restriction
does not apply to investments in U.S. government securities;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of
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borrowing, and (b) in connection with transactions in options, futures and
options on futures;
6. Underwrite the distribution of securities of other issuers; however, the
Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the Fund could be regarded as an underwriter as defined by that
act with respect to such resale;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) foreign currency
contracts;
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
10. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Acorn Twenty and Acorn Foreign Forty
In pursuing its investment objective each of Acorn Twenty and Acorn Foreign
Forty will not:
1. Acquire securities of any one issuer which at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have
a value greater than 10% of the value of the outstanding securities of the
issuer;
2. With respect to 50% of the value of the Fund's total assets, purchase
the securities of any issuer (other than cash items and U.S. government
securities and securities of other investment companies) if such purchase
would cause the Fund's holdings of that issuer to exceed 5% of the Fund's
total assets;
3. Invest more than 25% of its total assets in a single issuer (other than
U.S. government securities);
4. Invest more than 25% of its total assets in the securities of companies
in a single industry (excluding U.S. government securities);
5. Make loans, but this restriction shall not prevent the Fund from (a)
investing in debt securities, (b) investing in repurchase agreements, or
(c) lending its portfolio securities, provided that it may not lend
securities if, as a result, the aggregate value of all securities loaned
would exceed 33% of its total assets (taken at market value at the time of
such loan);
25
<PAGE>
6. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures;
7. Underwrite the distribution of securities of other issuers; however, the
Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the Fund could be regarded as an underwriter as defined by that
act with respect to such resale;
8. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
9. Purchase and sell commodities or commodity contracts, except that it may
enter into (a) futures and options on futures and (b) foreign currency
contracts;
10. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
11. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
The above restrictions (except the bracketed language) for each Fund are
"fundamental," which means that they cannot be changed without the approval of
the lesser of (i) 67% of each Fund's shares present at a meeting if more than
50% of the shares outstanding are present or (ii) more than 50% of each Fund's
outstanding shares.
In addition, Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and
Acorn Foreign Forty are subject to a number of restrictions that may be changed
by the board of trustees without shareholder approval. Under those
non-fundamental restrictions, the Funds will not:
a. Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940;
b. Invest more than 33% of its total assets (valued at time of investment)
in securities of foreign issuers [this restriction applies only to Acorn
Fund];
c. Invest more than 15% of its total assets in the securities of foreign
issuers [this restriction applies only to Acorn Twenty].
d. Invest more than 10% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers, not including securities
represented by American Depository Receipts [this restriction applies only
to Acorn USA].
26
<PAGE>
e. Invest more than 15% of its total assets in securities of United States
issuers, under normal market conditions [this restriction applies only to
Acorn Foreign Forty].
f. Invest in companies for the purpose of management or the exercise of
control;
g. Pledge, mortgage or hypothecate its assets, except as may be necessary
in connection with permitted borrowings or in connection with short sales,
options, futures and options on futures;
h. Invest more than 10% of its total assets (valued at the time of
investment) in restricted securities [this restriction applies only to
Acorn Fund, Acorn International and Acorn USA];
i. Invest more than 15% of its net assets (valued at time of investment) in
illiquid securities, including repurchase agreements in maturing in more
than seven days; and
j. Make short sales of securities unless the Fund owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into at least an
equal amount of such securities.
Notwithstanding the foregoing investment restrictions, Acorn International,
Acorn USA, Acorn Twenty and Acorn Foreign Forty may purchase securities pursuant
to the exercise of subscription rights, provided that, in the case of Acorn
International and Acorn USA, such purchase will not result in either Fund's
ceasing to be a diversified investment company. Japanese and European
corporations frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially below the
market price of the shares. The failure to exercise such rights would result in
a Fund's interest in the issuing company being diluted. The market for such
rights is not well developed in all cases and, accordingly, a Fund may not
always realize full value on the sale of rights. The exception applies in cases
where the limits set forth in the investment restrictions would otherwise be
exceeded by exercising rights or would have already been exceeded as a result of
fluctuations in the market value of Acorn International's portfolio securities
with the result that the Fund would be forced either to sell securities at a
time when it might not otherwise have done so, or to forego exercising its
rights.
Performance Information
From time to time the Funds may quote total return figures. "Total Return"
for a period is the percentage change in value during the period of an
investment in shares of a Fund, including the value of shares acquired through
reinvestment of all dividends and capital gains distributions. "Average Annual
Total Return" is the average annual compounded rate of change in value
represented by the Total Return for the period.
Average Annual Total Return is computed as follows:
ERV = P(1+T)n
27
<PAGE>
Where: P = the amount of an assumed initial investment in shares of a
Fund
T = average annual total return
n = number of years from initial investment to the end of
the period
ERV = ending redeemable value of shares held at the end of the
period
For example, the Total Return and Average Total Return on a $1,000
investment in each Fund for the following periods ended December 31, 1999 were:
ACORN FUND
- ---------- Average Annual
Total Return Total Return
------------ --------------
1 year ...................................... 33.38% 33.38%
5 years ..................................... 161.63% 21.21%
10 years .................................... 383.77% 17.06%
Life of Fund (inception 6/10/70) ............ 10,672.60% 17.14%
ACORN INTERNATIONAL
- ------------------- Average Annual
Total Return Total Return
------------ --------------
1 year ...................................... 79.19% 79.19%
3 years ..................................... 107.22% 27.49%
5 years ..................................... 172.34% 22.19%
Life of Fund (inception 9/23/92) ............ 317.61% 21.73%
ACORN USA
- --------- Average Annual
Total Return Total Return
------------ --------------
1 Year ...................................... 23.02% 23.02%
3 Years ..................................... 72.18% 19.86%
Life of Fund (inception 9/4/96) ............. 100.59% 23.33%
ACORN TWENTY
- ------------ Average Annual
Total Return Total Return
------------ --------------
1 Year ...................................... 29.30% 29.30%
Life of Fund (inception 11/23/98) ........... 38.48% 34.44%
ACORN FOREIGN FORTY
- ------------------- Average Annual
Total Return Total Return
------------ --------------
28
<PAGE>
1 Year ...................................... 81.60% 81.60%
Life of Fund (inception 11/23/98) ........... 99.75% 87.58%
The Funds may also quote after tax total returns and tax efficiency.
After-tax returns show the Funds' annualized after-tax total returns for the
time period specified. After-tax returns with redemptions show the Funds'
annualized after-tax total return for the time period specified plus the tax
effects of selling your shares of the Funds at the end of the period. To
determine these figures, all income, short-term capital gain distributions, and
long-term capital gain distributions are assumed to have been taxed at the
actual historical maximum tax rate. Those maximum tax rates are applied to
distributions prior to reinvestment and the after-tax portion is assumed to have
been reinvested in the Funds. State and local taxes are ignored.
Tax Efficiency is derived by dividing after-tax returns by pretax returns.
The highest possible score would be 100%, which would apply to a Fund that had
no taxable distributions. Because many interrelated factors affect tax
efficiency, it is difficult to predict tax efficiency.
Actual after-tax returns depend on a shareholder's tax situation and may
differ from those shown. After-tax returns reflect past tax-effects and are not
predictive of future tax effects.
As of December 31, 1999, the After-Tax Average Annual Total Return on a
$1,000 investment in each Fund for the following periods were:
ACORN FUND
- ---------- After-tax With
After-tax Redemption
----------- ----------------
1 Year ....................................... 28.54% 24.08%
5 Years ...................................... 18.14% 16.80%
10 Years ..................................... 14.72% 13.78%
ACORN FUND'S TAX EFFICIENCY
1 Year........................................ 85.50%
5 Years....................................... 85.53%
10 Years...................................... 86.28%
ACORN INTERNATIONAL
- ------------------- After-tax With
After-tax Redemption
----------- ----------------
29
<PAGE>
1 year........................................ 77.00% 49.13%
5 years ...................................... 21.18% 18.42%
Life of Fund (inception 9/23/92).............. 20.98% 18.58%
ACORN INTERNATIONAL'S TAX EFFICIENCY
1 Year........................................ 97.23%
5 Years....................................... 95.45%
Life of Fund (inception 9/23/92).............. 96.55%
ACORN USA
- --------- After-tax With
After-tax Redemption
----------- ----------------
1 year........................................ 21.01% 15.61%
3 years ...................................... 18.17% 15.90%
Life of Fund (inception 9/4/96)............... 21.17% 18.94%
ACORN USA'S TAX EFFICIENCY
1 Year........................................ 91.27%
3 Years....................................... 91.49%
Life of Fund (inception 9/4/96)............... 90.74%
ACORN TWENTY
- ------------ After-tax With
After-tax Redemption
----------- ----------------
1 year........................................ 28.75% 17.70%
Life of Fund (inception 11/23/98)............. 33.68% 27.17%
ACORN TWENTY'S TAX EFFICIENCY
1 Year........................................ 98.12%
Life of Fund (inception 11/23/98)............. 97.79%
ACORN FOREIGN FORTY
- ------------------- After-tax With
After-tax Redemption
----------- ----------------
30
<PAGE>
1 year........................................ 81.43% 49.26%
Life of Fund (inception 11/23/98)............. 86.70% 69.80%
ACORN FOREIGN FORTY'S TAX EFFICIENCY
- ------------------------------------
1 Year........................................ 99.79%
Life of Fund (inception 11/23/98)............. 99.00%
The Funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the Funds are
not necessarily indicative of future results. Each Fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a Fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
The Funds [that have been in operation at least three years] may also use
statistics to indicate volatility or risk. The premise of each of these measures
is that greater volatility connotes greater risk undertaken in achieving
performance. The Funds may quote the following measures of volatility:
Beta. Beta is the volatility of a fund's total return relative to the
----
movements of a benchmark index. A beta greater than one indicates volatility
greater than the index, and a beta of less than one indicates a volatility less
than the index.
R-squared. R-squared reflects the percentage of a fund's price movements
---------
that are explained by movements in the benchmark index. An R-squared of 1.00
indicates that all movements of a fund's price are completely explained by
movements in the index. Generally, a higher R-squared will indicate a more
reliable beta figure.
Alpha. Alpha is a measure used to discuss a fund's relative performance.
-----
Alpha measures the actual return of a fund compared to the expected return of a
fund given its risk (as measured by beta). The expected return of a fund is
based on how historical movements of the benchmark index and historical
performance of a fund compare to the benchmark index. The expected return is
computed by multiplying the advance or decline in a market represented by a
fund's beta. A positive alpha quantifies the value that a fund manager has added
and a negative alpha quantifies the value that a fund manager has lost.
Standard deviation. Standard deviation quantifies the volatility in the
------------------
returns of a Fund by measuring the amount of variation in the group of returns
that make up a Fund's average return. Standard deviation is generally calculated
over a three or five year period using monthly returns and modified to present
on annualized standard deviation.
31
<PAGE>
Sharpe ratio. A Fund's Sharpe ratio quantifies its total return in excess
of the return of a guaranteed investment (90 day U.S. treasury bills), relative
to its volatility as measured by its standard deviation. The higher a Fund's
Sharpe ratio, the better a Fund's returns have been relative to the amount of
investment risk it has taken.
Beta and R-squared are calculated by performing a least squares linear
regression using three years of monthly total return figures for each portfolio
and benchmark combination. Alpha is calculated by taking the difference between
the average monthly portfolio return and the beta-adjusted average monthly
benchmark return. The result of this calculation is then geometrically
annualized.
As of December 31, 1999, some statistics for the Funds are as follows:
R2 Beta Alpha
-- ---- -----
Acorn Fund
----------
vs. S&P 500 0.61 0.87 -2.26%
vs. Russell 2000 0.92 0.83 6.50%
Acorn International
-------------------
vs. EMI Ex U.S. 0.63 1.01 14.43%
vs. EAFE 0.56 0.83 10.95%
Other measures of volatility and relative performance may be used as
appropriate. All such measures will fluctuate and do not represent future
results.
The Funds may note their mention or recognition in newsletters, newspapers,
magazines, or other media. Portfolio managers and other members of WAM's staff
may make presentations at conferences or trade shows, appear on television or
radio programs, or conduct or participate in telephone conference calls, and the
Funds may announce those presentations, appearances or calls to some or all
shareholders, or to potential investors in the Funds. Biographical and other
information about a Fund's portfolio manager, including information about awards
received by that portfolio manager or mentions of the manager in the media, may
also be described or quoted in Fund advertisements or sales literature.
In advertising and sales literature, each Fund's performance may be
compared with those of market indexes and other mutual funds. In addition to the
performance information described above, a Fund might use comparative
performance as computed in a ranking or rating determined by Lipper, Inc., an
independent service that monitors the performance of over 1,000 mutual funds,
Morningstar, Incorporated or another service.
The following are some benchmark indices utilized by the Funds: Salomon
Smith Barney Extended Market Index ("EMI"), an index of the bottom 20% of
institutionally investable capital of countries, selected by SSB, excluding the
U.S.; the Salomon Smith Barney World ex-U.S. Cap Range $2-$10 billion Index is
the $2 to $10 billion (U.S.) subset of SSB's Broad
32
<PAGE>
Market Index, which represents a mid cap developed market index, excluding the
U.S.; IFCI Composite Index, the International Finance Corporation's index of 31
emerging markets, which weights securities according to their market
capitalizations after adjusting for shares held by other constituents in the
index; Morgan Stanley's Europe, Australasia Far East Index ("EAFE"), an index of
companies throughout the world in proportion to world stock market
capitalizations, excluding the U.S. and Canada; the Standard & Poor's 500 Stock
Index ("S&P 500"), a broad, market-weighted average of U.S. blue-chip companies;
the Standard & Poor's MidCap 400 ("S&P 400"), also a broad, market-weighted
average of U.S. companies in the next tier down in size from the S&P 500; and
the Russell 2000 Index, an index formed by taking the largest 3,000 small
companies in the U.S. and eliminating the largest 1,000 of those companies,
leaving an unweighted index of 2000 small companies. All indexes are unmanaged
and include reinvested dividends.
The Funds may also compare their performance to the performance of groups
of mutual funds, including Lipper Averages and Indexes. Each Lipper Average is
the mean return of all mutual funds tracked by Lipper, Inc. in that category,
which generally will include the Fund making the comparison. Lipper Indexes
measure the performance of the largest funds tracked by Lipper in a designated
category.
Investment Adviser
Wanger Asset Management, L.P. ("WAM"), serves as the investment adviser for
the Funds and for other institutional accounts. As of the date of this SAI, WAM
has approximately $9 billion under management, including the Funds. WAM is a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd. ("WAM Ltd."), whose stockholders are Ralph Wanger, Charles P. McQuaid, Leah
J. Zell, Marcel P. Houtzager, Robert A. Mohn, John H. Park, Margaret M. Forster,
Roger Edgely, Bruce H. Lauer and Peter Zaldivar. Ralph Wanger is the president
of WAM Ltd. On matters submitted to the shareholders of WAM Ltd., each
shareholder has one vote (or a lesser vote in the case of new shareholders).
With certain exceptions (including for extraordinary transactions, for which Mr.
Wanger's consent is required), decisions are made by majority vote. WAM
commenced operations in 1992.
WAM furnishes continuing investment supervision to the Funds under an
investment advisory agreement (the "Agreement") and is responsible for overall
management of the Funds' business affairs. It furnishes office space, equipment
and personnel to the Funds; it assumes substantially all expenses for
bookkeeping, and assumes the expenses of printing and distributing the Funds'
prospectus and reports to prospective investors. The Agreement will continue in
effect as to each Fund through June 30, 2000, and thereafter from year to year
so long as its continuance as to each Fund is approved at least annually by (i)
the board of trustees of Acorn or by the holders of a majority of that Fund's
outstanding voting securities as defined by the Investment Company Act of 1940
and (ii) a majority of the members of Acorn's board of trustees who are not
otherwise affiliated with Acorn or WAM, cast in person at a meeting called for
that purpose. Any amendment to the Agreement must be approved in the same
manner. The Agreement may be terminated as to a Fund without penalty by the vote
of the board of trustees of Acorn or the shareholders of that Fund (by a
majority as defined in the 1940 Act) on sixty days' written notice to WAM or by
WAM on sixty days'
33
<PAGE>
notice to the Fund, and will terminate automatically in the event of its
assignment. The fees payable by a Fund under the Agreement are the obligation
only of that Fund and impose no liability on the other Funds.
The advisory fees the Funds pay to WAM are calculated daily and paid
monthly, at the annual rates shown below:
Acorn Fund
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
Acorn USA
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
Acorn Twenty
Rate of Fee
-----------
0.90%
Acorn Foreign Forty
Rate of Fee
-----------
0.95%
WAM has undertaken to reimburse Acorn Twenty and Acorn Foreign Forty to the
extent their ordinary operating expenses exceed 1.35% and 1.45%, respectively of
its average annual net assets. This undertaking is voluntary and may be
terminated by either WAM or Acorn on 30 days' notice to the other.
34
<PAGE>
<TABLE>
<CAPTION>
The advisory fees paid to WAM by each Fund for the fiscal years ended
December 31, 1999, 1998, and 1997 were as follows:
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Fund 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
Acorn Fund $23,436,860 $24,905,000 $14,349,000
- ---------------------------------------------------------------------------------------------------------
Acorn International $15,668,082 $14,124,000 $16,235,000
- ---------------------------------------------------------------------------------------------------------
Acorn USA $2,805,167 $2,336,000 $1,199,000
- ---------------------------------------------------------------------------------------------------------
Acorn Twenty gross advisory fee: $503,457 $25,723* ---
exp. reimb: (23,136) (12,202)
--------------------------------------------
net advisory fee: $480,321 $13,521
- ---------------------------------------------------------------------------------------------------------
Acorn Foreign Forty gross advisory fee: $426,095 $11,674* ---
exp. reimb: (42,270) (11,875)
--------------------------------------------
net advisory fee: $383,825 $ (201)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*From inception on November 23, 1998.
Acorn has a separate administrative services agreement with WAM under which
WAM receives a fee, calculated daily and paid monthly, at the annual rate of
0.05 of 1% of each Fund's average daily net assets. The Funds pay the cost of
custodial, stock transfer, dividend disbursing, audit and legal services, and
membership in trade organizations. They also pay other expenses such as the cost
of maintaining the registration of their shares under federal law, complying
with state securities laws, proxy solicitations, printing and distributing
notices and copies of the prospectus and shareholder reports furnished to
existing shareholders, taxes, insurance premiums and the fees of trustees not
affiliated with WAM.
Distributor
Shares of each Fund are offered for sale by WAM Brokerage Services, L.L.C.
("WAM BD") without any sales commissions, 12b-1 fees or other charges to the
Funds or their shareholders. WAM BD is wholly-owned by WAM and WAM Ltd. All
distribution expenses relating to the Funds are paid by WAM, including the
payment or reimbursement of any expenses incurred by WAM BD. The Distribution
Agreements for Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and
Acorn Foreign Forty will continue in effect through June 30, 2000 and thereafter
from year to year provided such continuance is approved annually (i) by a
majority of the trustees or by a majority of the outstanding voting securities
of the Trust, and (ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party.
The Trust has agreed to pay all expenses in connection with registration of
its shares with the Securities and Exchange Commission and any auditing and
filing fees required in compliance with various state securities laws. WAM bears
all sales and promotional expenses, including the cost of prospectuses and other
materials used for sales and promotional purposes by WAM BD. WAM BD offers the
Funds' shares only on a best efforts basis. WAM BD is located at 227 West Monroe
Street, Suite 3000, Chicago, Illinois 60606.
35
<PAGE>
The Trust
The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust dated April 21, 1992 (the "Declaration of Trust"). The
Declaration of Trust may be amended by a vote of either the Trust's shareholders
or its trustees. The Trust may issue an unlimited number of shares, in one or
more series as the board of trustees may authorize. Any such series of shares
may be further divided, without shareholder approval, into two or more classes
of shares having such preferences or special or relative rights or privileges as
the trustees may determine. The shares of the Funds are not currently divided
into classes. Acorn Fund, Acorn International, Acorn USA, Acorn Twenty and Acorn
Foreign Forty are the only series of the Trust currently being offered. The
board of trustees may authorize the issuance of additional series if deemed
advisable, each with its own investment objective, policies and restrictions.
All shares issued will be fully paid and non-assessable and will have no
preemptive or conversion rights.
Under Massachusetts law, the shareholders of the Trust may, under certain
circumstances believed to be remote, be held personally liable for the Trust's
obligations. However, the Declaration of Trust disclaims liability of
shareholders and the Trust's trustees and officers for acts or obligations of
the Trust and requires that notice of such disclaimer be given in each
agreement, obligation or contract entered into or executed by the Trust or the
board of trustees. The Declaration of Trust provides for indemnification out of
the assets of the Trust of all losses and expenses of any shareholder held
personally liable for the obligations of the Trust. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
remote, since it is limited to circumstances in which the disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
On any matter submitted to a vote of shareholders, shares are voted in the
aggregate and not by individual series except that shares are voted by
individual series when required by the Investment Company Act of 1940 or other
applicable law, or when the board of trustees determines that the matter affects
only the interests of one series, in which case shareholders of the unaffected
series are not entitled to vote on such matters. All shares of the Trust are
voted together in the election of trustees.
Trustees and Officers
The board of trustees has overall responsibility for the Trust's and the
Funds' affairs. The trustees and officers of the Trust, their dates of birth and
their principal business activities during the past five years are:
Name and Date of Birth Position(s) Principal Occupation(s) During
Held with the Past Five Years
Trust
36
<PAGE>
Name and Date of Birth Position(s) Principal Occupation(s) During
- ---------------------- ----------- ------------------------------
Held with the Past Five Years
------------- ---------------
Trust
-----
Irving B. Harris Trustee and Former chairman of the executive
8/4/1910 chairman committee and former director,
Pittway Corporation (multi-product
manufacturer and publisher);
Chairman, William Harris Investors,
Inc. (investment adviser); Chairman,
The Harris Foundation (charitable
foundation).
Ralph Wanger* Trustee and Trustee and President, Wanger
6/21/1934 President Advisors Trust; Director, Wanger
Investment Company plc; Principal
and portfolio manager, Wanger Asset
Management, L.P.; President, Wanger
Asset Management, Ltd.
James H. Lorie Trustee and Retired; Eli B. and Harriet B.
2/23/1922 Vice Chairman Williams Professor of Business
Administration Emeritus, University
of Chicago Graduate School of
Business; director, Thornburg
Mortgage Asset Corp. (REIT) and
Santa Fe Natural Tobacco.
Leo A. Guthart Trustee Vice Chairman, Pittway Corporation
9/26/1937 (multi-product manufacturer and
publisher); chief executive officer,
Pittway Corporation's Security Group
of Companies which include ADEMCO
(manufacturer of alarm equipment),
ADI (distributor of security
equipment), Fire Burglary
Instruments (supplier of security
control panels), First Alert
Professional (alarm dealers), Alarm
Net (cellular radio service) and
Cylink Corporation (supplier of
encryption equipment)(chairman);
director, AptarGroup, Inc. (producer
of dispensing valves, pumps and
closures); former chairman of the
board of trustees, Hofstra
University; director, Symbol
Technologies, Inc.; chairman of the
general partner of Long Island
Venture Fund, L.P.
Jerome Kahn, Jr. Trustee President, William Harris Investors,
4/13/1934 Inc. (investment adviser); former
director, Pittway Corporation
(multi-product manufacturer and
publisher).
Steven N. Kaplan Trustee Neubauer Family Professor of
12/21/1959 Entrepreneurship and Finance,
Graduate School of Business,
University of Chicago; director,
ImageMax (provider of document
management products and services).
David C. Kleinman Trustee Adjunct professor of strategic
10/12/1935 management, University of Chicago
Graduate School of Business;
Business consultant; Chairman of the
Board, Irex Corporation (insulation
contractor); Director, Sonic
Foundry, Inc. (software); FirstCom
Corp. (competitive local exchange
carrier); Organics Management
Company (organic waste processor);
Wisconsin Paper & Products (paper
merchant); Plymouth Tube Company
(seamless and welded metal tubing);
Member of the advisory board, DSC
Logistics Company (warehousing and
logistics services).
Charles P. McQuaid* Trustee and Trustee and Senior Vice President,
8/27/1953 Senior Vice Wanger Advisors Trust; Principal,
President portfolio manager and director of
research, Wanger Asset Management,
L.P.
37
<PAGE>
Name and Date of Birth Position(s) Principal Occupation(s) During
- ---------------------- ----------- ------------------------------
Held with the Past Five Years
------------- ---------------
Trust
-----
Roger S. Meier Trustee CEO and Chairman of the Board, AMCO,
1/18/1926 Inc. (investment and real estate
management); President, AMCO, Inc.
1986-1999; former director, Fred
Meyer, Inc. (retail chain); advisory
board member, Key Bank of Oregon
(banking); Chairman of Investment
Council and member of Committee of
Legacy Systems (hospital); Executive
director and chairman of investment
committee, Portland Art Museum;
trustee of Portland Art Museum.
Allan B. Muchin Trustee Partner, Katten, Muchin & Zavis
1/10/1936 (law firm).
Robert E. Nason Trustee Consultant and private investor
7/29/1936 since 1998; from 1990-1998,
Executive partner and chief
executive officer, member of the
executive committee of Grant
Thorton, LLP (public accounting
firm) and member of the policy board
of Grant Thornton International;
director, Fruit of the Loom, Ltd.
and Fairfax Insurance Limited
(privately owned insurance company).
Katherine Schipper Trustee Professor of Accounting, University
10/04/1949 of Chicago Graduate School of
Business; Visiting Professor at
Fuqua School of Business, Duke
University, in the academic year
1999-2000.
Margaret M. Forster Vice President Analyst and Portfolio Manager,
1/28/1960 Wanger Asset Management, L.P., since
1994; assistant professor of
finance, Kellogg Graduate School of
Management, Northwestern University,
1993-1994.
Marcel P. Houtzager Vice President Vice President, Wanger Advisors
10/26/1960 Trust; principal, analyst and
portfolio manager, Wanger Asset
Management, L.P.; Chief financial
officer and Compliance officer,
Wanger Asset Management L.P., since
April 2000.
Kenneth A. Kalina Assistant Assistant Treasurer, Wanger Advisors
8/4/1959 Treasurer Trust; Fund controller, Wanger Asset
Management, L.P., since September
1995; prior thereto, treasurer of
the Stein Roe Mutual Funds.
Bruce H. Lauer Vice Vice President, assistant secretary
7/22/1957 President, and treasurer, Wanger Advisors
Assistant Trust; principal (since 2000) and
Secretary and chief operating officer, Wanger
Treasurer Asset Management, L.P. since April
1995; director, Wanger Investment
Company plc and New Americas Small
Cap Fund; prior thereto, first vice
president, investment accounting,
Kemper Financial Services, Inc.
Steven A. Radis Secretary Chief Marketing Officer and Managing
8/24/1962 Director, Wanger Asset Management,
L.P., since April 1999; prior
thereto, Vice President of Corporate
and Marketing Communications, Zurich
Kemper Life, January 1998 to March
1999, and First Vice President
Corporate Communications, Zurich
Kemper Life, January 1987 to
December 1997.
Robert A. Mohn Vice President Vice President, Wanger Advisors
9/13/1961 Trust; principal, analyst and
portfolio manager, Wanger Asset
Management, L.P.
John H. Park Vice President Vice President, Wanger Advisors
5/30/1967 Trust; principal, analyst and
portfolio manager, Wanger Asset
Management. L.P. (since 1993).
38
<PAGE>
Name and Date of Birth Position(s) Principal Occupation(s) During
- ---------------------- ----------- ------------------------------
Held with the Past Five Years
------------- ---------------
Trust
-----
Roger Edgely Vice President Vice President, Wanger Advisors
4/18/1955 Trust; Analyst, Wanger Asset
Management. L.P., since 1994;
Managing director and director of
international research, Wanger Asset
Management, L.P., since 1998; prior
thereto, analyst, Crosby Securities.
Leah J. Zell Vice President Vice President, Wanger Advisors
5/23/1949 Trust; principal, analyst and
portfolio manager, Wanger Asset
Management, L.P.
*Messrs. McQuaid and Wanger are trustees who are interested persons
of Acorn as defined in the Investment Company Act of 1940, and of WAM. Mr.
Wanger and Ms. Zell are married to each other. Messrs. Harris, Lorie, and Wanger
are members, and Mr. McQuaid is an alternate member, of the executive committee,
which has authority during intervals between meetings of the board of trustees
to exercise the powers of the board, with certain exceptions. As of March 31,
2000, the trustees and officers of Acorn as a group owned beneficially less than
1% of the outstanding shares of Acorn Fund and Acorn International. At March 31,
2000, the trustees and officers of Acorn as a group owned beneficially 2.78% of
the outstanding shares of Acorn USA, 3.20% of the outstanding shares of Acorn
Twenty, and 2.18% of the outstanding shares of Acorn Foreign Forty.
The addresses for Mr. Wanger, Mr. McQuaid, Mr. Edgely, Ms. Forster, Mr.
Houtzager, Mr. Kalina, Mr. Lauer, Mr. Mohn, Mr. Park, Mr. Radis and Ms. Zell is
Wanger Asset Management, L.P., 227 West Monroe Street, Suite 3000, Chicago,
Illinois 60606. The address for Messrs. Harris and Kahn is Two North LaSalle
Street, Suite 400, Chicago, Illinois 60602. The address for Messrs. Lorie,
Kaplan, and Kleinman is 1101 East 58th Street, Chicago, Illinois 60637. The
address for Mr. Guthart is 165 Eileen Way, Syosset, New York 11791. The address
for Mr. Meier is 1211 S.W. Fifth Avenue, Portland, Oregon 97204. The address for
Mr. Machin is 525 W. Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
The address for Mr. Nason is 567 Rockefeller Road, Lake Forest, Illinois 60045.
The address for Ms. Schipper is Fuqua School of Business, Duke University,
Durham, North Carolina 27708.
At March 31, 2000, the State of Illinois Deferred Compensation Plan, 200
West Washington, Springfield, IL 62706, held 23,454,743.7010 shares, Charles
Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104, ("Schwab")
held 14,683,990.1330 shares, and National Financial Services Corporation, One
World Financial Center, 200 Liberty Street, New York, NY 10281-1003 ("NFS") held
10,895,627.0220 shares of Acorn Fund as owners of record, but not beneficially
(10.86%, 6.80% and 5.05% of the outstanding shares, respectively). Schwab held
16,061,338.5040 shares, and NFS held 6,462,439.4690 shares of Acorn
International (18.65% and 7.50% of the outstanding shares, respectively) as
owners of record, but not beneficially. Schwab held 4,407,935.6480 shares, and
NFS held 2,630,068.9460 shares of Acorn USA (19.47% and 11.61% of the
outstanding shares, respectively) as owners of record, but not beneficially.
Schwab held 459,043.2890 shares, and NFS held 260,869.5390 shares, of
39
<PAGE>
Acorn Twenty (9.71% and 5.52% of the outstanding shares, respectively) as owners
of record, but not beneficially. Schwab held 1,757,597.0080 shares, and NFS held
846,318.3330 shares of Acorn Foreign Forty (25.72% and 12.39% of the outstanding
shares, respectively) as owners of record, but not beneficially.
During 1999 the Funds paid fees aggregating $448,500 to board members who
were not affiliated with WAM. The following table sets forth the total
compensation, (including any amounts deferred, as described below) paid by the
Trust during the fiscal year ended December 31, 1999 to each of the trustees of
the Trust:
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Aggregate Aggregate Total
Comp. Comp. Comp.from Comp. from Comp. from Comp.
Name of Trustee from Acorn from Acorn Acorn USA Acorn Twenty Acorn Foreign from
Fund Int. Forty Fund Complex
(5)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Irving B. Harris 65,503 33,822 5,299 870 506 $106,000
Leo A. Guthart 24,396 12,176 1,928 320 180 $39,000
Jerome Kahn, Jr. 25,659 13,196 2,090 348 207 $41,500
Steven N. Kaplan* 7,493 4,097 669 134 107 $12,500
David C. Kleinman 28,746 14,780 2,345 394 235 $46,500
James H. Lorie 25,304 12,235 1,943 323 195 $40,000
Charles P. McQuaid 0 0 0 0 0 0
Roger S. Meier 24,387 12,585 1,992 335 201 $39,500
Allan B. Muchin 24,387 12,585 1,992 335 201 $39,500
Robert E. Nason 25,904 13,387 2,124 364 221 $42,000
Katherine Schipper 25,904 13,387 2,124 364 221 $42,000
Ralph Wanger 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Elected to the Board of the Trust effective September 28, 1999.
The officers and trustees affiliated with WAM serve without any
compensation from the Trust. Acorn has adopted a deferred compensation plan (the
"Plan") for its non-interested trustees. Under the Plan, the trustees who are
not "interested persons" of Acorn or WAM ("participating trustees") may defer
receipt of all or a portion of their compensation from the Trust in order to
defer payment of income taxes or for other reasons. The deferred compensation
payable to a participating trustee is credited to a book reserve account as of
the business day such compensation would have been paid to such trustee. The
deferred compensation accrues income from the date of credit in an amount equal
to the amount that would have been earned had such deferred compensation (and
all income earned thereon) been invested and reinvested in shares of one or more
of the Funds. If a participating trustee retires, such trustee may elect to
receive
40
<PAGE>
payments under the plan in a lump sum or in equal annual installments over a
period of five years. If a participating trustee dies, any amount payable under
the Plan will be paid to that trustee's beneficiaries. Each Fund's obligation to
make payments under the Plan is a general obligation of that Fund. No Fund is
liable for any other Fund's obligations to make payments under the Plan.
Purchasing and Redeeming Shares
Purchases and redemptions are discussed in the Funds' prospectus under the
headings "Your Account - How to Buy Shares" and "Your Account - How to Sell
Shares." All of that information is incorporated herein by reference.
Acorn may from time to time authorize certain financial services companies,
broker-dealers or their designees ("authorized agents") to accept share purchase
and redemption orders on behalf of the Funds. Some of those authorized agents
may charge transaction fees for their services. For purchase orders placed
through an authorized agent, a shareholder will pay the Fund's NAV per share
(see "Purchasing and Redeeming Shares - Net Asset Value," below) next computed
after the receipt by the authorized agent of such purchase order, plus any
applicable transaction charge imposed by the agent. For redemption orders placed
through an authorized agent, a shareholder will receive redemption proceeds
which reflect the NAV per share next computed after the receipt by the
authorized agent of the redemption order, less any redemption fees imposed by
the agent.
In some instances, an authorized agent will not charge any transaction fees
directly to investors in a Fund. However, for accounting and shareholder
servicing services provided by such agent with respect to Fund share accounts
held on behalf of its customers, the agent may charge a fee, generally a
percentage of the annual average value of those accounts. WAM pays any such
fees.
Net Asset Value
Share purchase and redemption orders will be priced at a Fund's NAV next
computed after such orders are received and accepted by: (i) Acorn's transfer
agent; (ii) a broker-dealer or other financial services company authorized by
Acorn to accept purchase and redemption orders on the Fund's behalf; or (iii)
such authorized broker-dealer's designee. Each Fund's NAV is determined only on
days on which the New York Stock Exchange ("NYSE") is open for trading. The NYSE
is regularly closed on Saturdays and Sundays and on New Year's Day, the third
Monday in January, the third Monday in February, Good Friday, the last Monday in
May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of those
holidays falls on a Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively.
Computation of NAV (and the sale and redemption of Fund shares) may be
suspended or postponed during any period when (a) trading on the NYSE is
restricted, as determined by the Securities and Exchange Commission, or that
exchange is closed for other than customary weekend and holiday closings, (b)
the Commission has by order permitted such suspension, or
41
<PAGE>
(c) an emergency, as determined by the Commission, exists making disposal of
portfolio securities or valuation of the net assets of the Funds not reasonably
practicable.
For purposes of computing the NAV of a Fund share, a security traded on a
securities exchange, or in an over-the-counter market in which transaction
prices are reported, is valued at the last sale price at the time of valuation.
A security for which there is no reported sale on the valuation date is valued
at the mean of the latest bid and ask quotations or, if there is no ask
quotation, at the most recent bid quotation. Securities for which quotations are
not available, or for which the market quotation is determined not to represent
a fair value, and any other assets are valued at a fair value as determined in
good faith by the board of trustees. Money market instruments having a maturity
of 60 days or less from the valuation date are valued on an amortized cost
basis. All assets and liabilities initially expressed in foreign currencies are
converted into U.S. dollars at the mean of the bid and offer prices of such
currencies against U.S. dollars quoted by any major bank or dealer. If such
quotations are not available, the rate of exchange will be determined in
accordance with policies established in good faith by the board of trustees.
Trading in the foreign securities of the Funds' portfolios may take place
in various foreign markets at certain times and on certain days (such as
Saturday) when the NYSE is not open for business and the Funds do not calculate
their NAVs. Conversely, trading in the Funds' foreign securities may not occur
at times and on days when the NYSE is open. Because of the different trading
hours in various foreign markets, the calculation of NAV does not take place
contemporaneously with the determinations of the prices of many of the Funds'
foreign securities. Those timing differences may have a significant effect on a
Fund's NAV.
Acorn has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940 pursuant to which it is obligated to redeem shares solely in cash up
to the lesser of $250,000 or 1% of the NAV of a Fund during any 90-day period
for any one shareholder. Redemptions in excess of the above amounts will
normally be paid in cash, but may be paid wholly or partly by a distribution in
kind of securities. If a redemption is made in kind, the redeeming shareholder
would bear any transaction costs incurred in selling the securities
received.
Due to the relatively high cost of maintaining smaller accounts, Acorn
reserves the right to redeem shares in any account for their then-current value
(which will be promptly paid to the investor) if at any time the account value
falls below $1,000 because of share redemptions. An investor will be notified
that the value of his account is less than that minimum and allowed at least 30
days to bring the value of the account up to at least $1,000 before the
redemption is processed. The Agreement and Declaration of Trust also authorizes
Acorn to redeem shares under certain other circumstances as may be specified by
the board of trustees.
WAM acts as a shareholder servicing agent for the Reich & Tang Money Funds
(the "Money Funds") in connection with the exchange plan between the Acorn Funds
and the Money Funds. For its services it receives a fee at the rate of 0.35% of
the average annual net assets of
42
<PAGE>
each account in a Money Fund established by exchange from one of the Acorn
Funds, pursuant to a 12b-1 plan adopted by the Money Funds.
Additional Tax Information
Each Fund intends to continue to qualify to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
so as to avoid payment of federal income tax on its capital gains and net
investment income currently distributed to its shareholders.
At the time of your purchase, a Fund's NAV is likely to reflect
undistributed income, capital gains, or net unrealized appreciation of
securities held by that Fund. A subsequent distribution to you of such amounts,
although constituting a return of your investment, will be taxable either as a
dividend or capital gain distribution, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any distribution that is
paid in January but that was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to income tax at ordinary rates on income dividends and
distributions of net short-term capital gains. Distributions of net long-term
capital gains are taxable to you as long-term capital gains (currently taxed at
a maximum rate of 20%) regardless of the length of time you have held your
shares. Long-term gains are those derived from securities held by the Fund for
more than one year.
You will be advised annually as to the source of distributions for tax
purposes. If you are not subject to tax on your income, you will not be required
to pay tax on these amounts. If you realize a loss on the sale of Fund shares
held for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain distributions you have
received with respect to those shares.
Under certain circumstances, Acorn may be required to withhold 31% federal
income tax ("backup withholding") from dividend, capital gain and redemption
payments to you. Backup withholding may be required if: (a) you fail to furnish
your social security or other tax identification number; (b) you fail to certify
that your social security or tax identification number is correct and that you
are not subject to backup withholding due to the underreporting of certain
income; or (c) the IRS informs Acorn that your tax identification number is
incorrect.
These certifications are contained in the application that you complete
when you open your Fund account. Acorn must promptly pay the IRS all amounts
withheld. Therefore, it is usually not possible for Acorn to reimburse you for
amounts withheld. You may, however, claim the amount withheld as a credit on
your federal income tax return.
Foreign currency gains and losses, including the portion of gain or loss on
the sale of debt securities attributable to foreign exchange rate fluctuations,
are taxable as ordinary income. If the net effect of these transactions is a
gain, the income dividend paid by a Fund will be increased; if the result is a
loss, the income dividend paid by a Fund will be decreased.
43
<PAGE>
Dividends paid by Acorn International and Acorn Foreign Forty are generally
not eligible for the dividends-received deduction for corporate shareholders
because little or none of those Funds' income consists of dividends paid by
United States corporations. A portion of the dividends paid by Acorn Fund, Acorn
USA and Acorn Twenty is generally eligible for the dividends-received deduction.
Capital gain distributions paid from the Funds are never eligible for this
deduction.
Income received by the Funds from sources within various foreign countries
will be subject to foreign income taxes withheld at the source. Under the Code,
if more than 50% of the value of a Fund's total assets at the close of its
taxable year comprises securities issued by foreign corporations, that Fund may
file an election with the IRS to "pass through" to its shareholders the amount
of foreign income taxes paid by that Fund. Pursuant to this election,
shareholders will be required to: (i) include in gross income, even though not
actually received, their respective pro rata share of foreign taxes paid by the
Fund; (ii) treat their pro rata share of foreign taxes as paid by them; and
(iii) either deduct their pro rata share of foreign taxes in computing their
taxable income, or use it as a foreign tax credit against U.S. income taxes (but
not both). No deduction for foreign taxes may be claimed by a shareholder who
does not itemize deductions.
Each of Acorn International and Acorn Foreign Forty intends to meet the
requirements of the Code to "pass through" to its shareholders foreign income
taxes paid, but there can be no assurance that it will be able to do so. Each
shareholder will be notified within 60 days after the close of each taxable year
of Acorn International or Acorn Foreign Forty, if the foreign taxes paid by the
Fund will "pass through" for that year, and, if so, the amount of each
shareholder's pro rata share (by country) of (i) the foreign taxes paid, and
(ii) the Fund's gross income from foreign sources. Shareholders who are not
liable for federal income taxes, including retirement plans qualified under
Section 401 of the Code, will not be affected by any such "pass through" of
foreign tax credits. Acorn Fund, Acorn USA and Acorn Twenty do not expect to be
able to "pass through" foreign tax credits.
Taxation of Foreign Shareholders
The Code provides that dividends from net income, which are deemed to
include for this purpose each shareholder's pro rata share of foreign taxes paid
by Acorn International and Acorn Foreign Forty (see discussion of "pass through"
of the foreign tax credit to U.S. shareholders), will be subject to U.S. tax.
For shareholders who are not engaged in a business in the U.S., this tax would
be imposed at the rate of 30% upon the gross amount of the dividend in the
absence of a tax treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains are not subject to tax
unless the foreign shareholder is a nonresident alien individual who was
physically present in the U.S. during the tax year for more than 182 days.
Portfolio Transactions
Portfolio transactions of the Funds are placed with those securities
brokers and dealers that WAM believes will provide the best value in transaction
and research services for each
44
<PAGE>
Fund, either in a particular transaction or over a period of time. Although some
transactions involve only brokerage services, many involve research services as
well.
In valuing brokerage services, WAM makes a judgment as to which brokers are
capable of providing the most favorable net price (not necessarily the lowest
commission) and the best execution in a particular transaction. Best execution
connotes not only general competence and reliability of a broker, but specific
expertise and effort of a broker in overcoming the anticipated difficulties in
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, WAM makes a judgment of the usefulness of
research and other information provided to WAM by a broker in managing each
Fund's investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising that Fund.
The reasonableness of brokerage commissions paid by the Funds in relation
to transaction and research services received is evaluated by WAM's staff on an
ongoing basis. The general level of brokerage charges and other aspects of each
Fund's portfolio transactions are reviewed periodically by the board of trustees
and its committee on portfolio transactions.
WAM is the principal source of information and advice to the Funds, and is
responsible for making and initiating the execution of investment decisions by
the Funds. However, the board of trustees recognizes that it is important for
WAM, in performing its responsibilities to the Funds, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the Funds to take into account the value of the information received
for use in advising the Funds. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the Funds is not determinable. In addition, the board of trustees understands
that other clients of WAM might benefit from the information obtained for the
Funds, in the same manner that the Funds might benefit from information obtained
by WAM in performing services to others.
Transactions of the Funds in the over-the-counter market and the third
market are executed with primary market makers acting as principal except where
it is believed that better prices and execution may be obtained otherwise.
45
<PAGE>
Brokerage commissions incurred by each Fund during the last three fiscal
years, not including the gross underwriting spread on securities purchased in
underwritten public offerings, were as follows:
Fund 1999 1998 1997
---------------------------------------------------------------------------
Acorn Fund $3,938,000 $2,766,000 $2,952,000
Acorn International 4,457,000 4,111,000 5,350,000
Acorn USA 269,000 305,000 216,000
Acorn Twenty 151,000 53,000* N/A
Acorn Foreign Forty 254,000 41,000* N/A
* From commencement of operations on November 23, 1998.
46
<PAGE>
The increase in the commissions paid by Acorn Fund in 1999 compared to 1998
resulted from an increase in the Fund's assets (from $3.5 billion at December
31, 1998 to $3.9 billion at December 31, 1999) and an increase in portfolio
turnover from 24% in 1998 to 34% in 1999, although the Fund's turnover remains
very low. The increases in commissions paid by Acorn Twenty and Acorn Foreign
Forty resulted from the increases in their assets after they began operations in
November 1998. Although investment decisions for the Funds are made
independently from those for other investment advisory clients of WAM, it may
develop that the same investment decision is made for one or more of the Funds
and one or more other advisory clients. If any of the Funds and other clients
purchase or sell the same class of securities on the same day, the transactions
will be allocated as to amount and price in a manner considered equitable to
each.
Code of Ethics
The 1940 Act and rules thereunder require that the Trust and WAM establish
standards and procedures for the detection and prevention of certain conflicts
of interest, including activities by which persons having knowledge of the
investments and investment intentions of the Funds might take advantage of that
knowledge for their own benefit. The Trust and WAM have adopted a Code of Ethics
to meet those concerns and legal requirements. Although the Code does not
prohibit employees who have knowledge of the investments and investment
intentions of the Funds from engaging in personal securities investing, it does
regulate such personal securities investing by these employees as a part of the
effort by the Trust and WAM to detect and prevent conflicts of interest.
Custodian
State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts
02266-8502 ("State Street") is the custodian for the Funds. It is responsible
for holding all securities and cash of the Funds, receiving and paying for
securities purchased, delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering expenses of the
Funds, and performing other administrative duties, all as directed by authorized
persons of the Funds. State Street does not exercise any supervisory function in
such matters as purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds. The Funds have authorized State Street to
deposit certain portfolio securities of the Funds in central depository systems
as permitted under federal law. The Funds may invest in obligations of State
Street and may purchase or sell securities from or to State Street. State Street
is also the transfer agent for the Funds.
Independent Auditors
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois
60606 audits and reports on the Funds' annual financial statements, reviews
certain regulatory reports and the Funds' tax returns, and performs other
professional accounting, auditing, tax, and advisory services when engaged to do
so by the Funds.
47
<PAGE>
Financial Statements
Acorn Twenty
>Statement of Investments December 31, 1999
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------------------------
Common Stocks: 92.8%
- ----------------------------------------------------------------------------------------------
<S> <C>
Information: 34.5%
>Television Programming: 6.8%
82,000 Liberty Media Group, AT&T (b) $ 4,653
Cable & Satellite Programming
>Telecommunications/Wireline
Communications: 11.6%
68,000 McLeod USA (b) 4,003
Super Regional CLEC: Local, Long Distance &
Internet Services
82,000 RCN (b)
Metro Market CLEC: Voice, Video & 3,977
Internet Services
- ----------------------------------------------------------------------------------------------
7,980
>Instrumentation: 2.3%
41,000 Tektronix
Analytical Instruments 1,594
>Mobile Communications: 5.5%
30,000 Telephone and Data Systems
Cellular & Telephone Services 3,780
>Transaction Processors: 3.6%
72,000 National Data
Credit Card & Health Claims Processor 2,444
>Business Information: 4.7%
73,000 H&R Block
Tax Preparation 3,194
------
Information: Total 23,645
- ----------------------------------------------------------------------------------------------
Health Care: 11.1%
>Services: 11.1%
185,000 First Health (b) 4,972
PPO Network
75,000 Lincare Holdings (b) 2,602
Home Health Care Services
------
Health Care: Total 7,574
- ----------------------------------------------------------------------------------------------
Consumer Goods/Services: 14.8%
>Cruise Lines: 3.2%
45,000 Royal Caribbean Cruises 2,219
Cruises to Caribbean & Alaska
>Casinos: 4.1%
105,000 Harrah's Entertainment (b) 2,776
Casinos & Riverboats
>Furniture & Manufacturers: 7.5%
95,000 Jones Apparel (b) 2,577
Women's Apparel
110,000 Herman Miller 2,530
Office Furniture
- ----------------------------------------------------------------------------------------------
5,107
------
Consumer Goods/Services: Total 10,102
- ----------------------------------------------------------------------------------------------
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Finance: 17.6%
>Finance Companies: 6.9%
255,000 AmeriCredit (b) $ 4,718
Auto Lending
>Money Management: 5.5%
31,500 SEI Investments 3,749
Mutual Fund Administration
>Insurance: 5.2%
28,000 Progressive 2,048
Auto Insurance
143,000 UICI (b) 1,510
Insurance/Specialty Finance
- ----------------------------------------------------------------------------------------------
3,558
-------
Finance: Total 12,025
- ----------------------------------------------------------------------------------------------
Industrial Goods/Services: 4.0%
>Other Industrial Services: 4.0%
225,000 ServiceMaster 2,770
Facilities Management
-------
Industrial Goods/Services: Total 2,770
- ----------------------------------------------------------------------------------------------
Energy/Minerals: 10.8%
>Independent Power: 10.8%
56,000 AES Corporation (b) 4,186
Power Plants
95,000 MidAmerican Energy 3,200
Growth Utility
-------
Energy/Minerals: Total 7,386
-------
Total Common Stocks: 92.8% 63,502
(Cost: $52,064)
Short-Term Obligation: 3.3%
$ 2,281 Associates First Capital 4.00%
Due 1/03/00 2,280
-------
(Amortized Cost: $ 2,280)
Total Investments: 96.1% 65,782
(Cost: $54,344)
Cash and Other Assets less Liabilities: 3.9% 2,688
-------
Total Net Assets: 100% $68,470
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
>Notes to Statement of Investments:
(a) At December 31, 1999, for federal income tax purposes, cost of investments
was $54,461,000 and net unrealized appreciation was $11,321,000, consisting of
gross unrealized appreciation of $16,536,000 and gross unrealized depreciation
of $5,215,000.
(b) Non-income producing security.
48
<PAGE>
Acorn Foreign Fund
>Statement of Investments December 31, 1999
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------
Common Stocks: 95.0%
- ----------------------------------------------------------------
Europe: 62.7%
<S> <C>
>Germany: 1.0%
30,000 Rhoen Klinikum $1,102
Hospital Management
>Finland: 1.4%
21,200 Comptel (b) 1,490
Telephone Billing Software
>Sweden: 3.9%
60,000 Netcom (b) 4,216
Telecommunication Services
>France/Belgium: 8.8%
7,000 M6 Metropole TV 3,466
Television Broadcaster
40,000 Audiofina (Belgium) 3,019
Television Broadcaster
18,000 Atos (b) 2,982
Computer Services/Transaction Processing
- ----------------------------------------------------------------
9,467
>United Kingdom/Ireland: 28.2%
82,000 Energis (b) 3,940
Telecommunication Services
150,000 Logica 3,870
Computer Software & Services
170,000 WPP Group 2,694
Advertising
250,000 Carlton Communications 2,435
Television Broadcaster
660,000 St. James Capital 2,356
Life Insurance
18,000 NTL (b) 2,246
Voice, Video & Data Services
120,000 Sema Group 2,160
Computer Software & Services
120,000 Hays 1,911
Outsourcing Services
100,000 Capita Group 1,825
Outsourcing Services
170,000 Irish Life & Permanent (Ireland) 1,608
Life Insurance
220,000 Thus (b) 1,379
Telecommunication Services
300,000 NFC 1,187
Logistics & Moving Services
90,000 SSL International 1,139
Medical & Footcare Products
30,000 Serco Group 941
Facilities Management
85,000 Airtours 522
Packaged Tour Vacations
- ----------------------------------------------------------------
30,213
>Switzerland: 2.1%
800 Pargesa Holdings $ 1,308
Industrial & Media Conglomerate
390 Cie Fin Richemont 932
Luxury Goods, Tobacco & Pay TV
- ----------------------------------------------------------------
2,240
>Italy: 9.9%
300,000 Banca Fideuram 3,550
Life Insurance & Mutual Funds
800,000 SEAT Pagine Gialle 2,625
Yellow Pages Publishers
208,000 Editoriale L'Espresso 2,405
Newspapers & Magazines
300,000 Saipem 1,084
Offshore Construction
70,000 Mediolanum 964
Life Insurance & Mutual Funds
- ----------------------------------------------------------------
10,628
>Spain: 2.9%
110,000 Indra Sistemas 2,065
Computer Services
43,000 Mapfre Vida 991
Life Insurance & Mutual Funds
- ----------------------------------------------------------------
3,056
>Netherlands: 4.5%
40,000 Getronics 3,188
Computer Services
60,000 Hunter Douglas 1,630
Decorative Window Coverings
5,000 Fox Kids Europe (b) 64
Programming/Cartoons
- ----------------------------------------------------------------
4,882
------
Europe: Total 67,294
- ----------------------------------------------------------------
Asia: 18.3%
>Hong Kong: 1.4%
324,900 SmarTone Telecom 1,567
Mobile Telecommunications
>Japan: 9.6%
7,000 Softbank 6,697
Internet Services/Investment Holdings
12,000 Nintendo 1,993
Video Games
4,000 Shohkoh Fund 1,583
Commercial Lender
- ----------------------------------------------------------------
10,273
>Singapore: 7.3%
400,000 Star Cruises 4,080
Cruise Line
325,000 Venture Manufacturing 3,727
Electronic Manufacturing Services
- ----------------------------------------------------------------
7,807
------
Asia: Total 19,647
</TABLE>
49
<PAGE>
Acorn Foreign Forty
>Statement of Investments, continued
<TABLE>
<CAPTION>
Number of Shares Value(000)
- ----------------------------------------------------------------------------
<S> <C>
Other Countries: 14.0%
>Canada: 7.1%
90,000 Celestica (b) $ 5,028
Electronic Manufacturing Services
70,000 Canadian Natural Resources (b) 1,706
Oil & Gas Producer
50,000 Power Financial 830
Financial Services Holding Company
- ----------------------------------------------------------------------------
7,564
>Israel: 2.9%
90,000 Amdocs (b) 3,105
Telecommunications Billing & Customer Care Software
>United States: 4.0%
2,568,000 Global TeleSystems 3,431
Telecommunication Services
Principal Amount or
Number of Shares Value(000)
- ----------------------------------------------------------------------------
100,000 Azurix (b) $ 894
Owner/Operator of Water Utilities
- ----------------------------------------------------------------------------
4,325
----------
Other: Total 14,994
----------
Total Common Stocks: 95.0% $ 101,935
(Cost:$63,840)
Short-Term Obligation: 4.2%
$4,573 Associates First Capital 4.00%
Due 1/03/00 4,572
(Amortized Cost:$4,572)
----------
Total Investments: 99.2% 106,507
(Cost:$68,412)
Cash and Other Assets Less Liabilities: 0.8% 844
----------
Total Net Assets: 100% $ 107,351
- ----------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
>Notes to Statement of Investments:
(a) At December 31, 1999, for federal income tax purposes, cost of investments
was $64,145,000 and net unrealized appreciation was $37,790,000, consisting
of gross unrealized appreciation of $39,336,000 and gross unrealized
depreciation of $1,546,000.
(b) Non-income producing security.
(c) At December 31, 1999, $32,233,000 or 30.0% of the Fund's net assets was
denominated in the Euro currency.
50
<PAGE>
Acorn USA
>Statement of Investments December 31, 1999
<TABLE>
<CAPTION>
Number of Shares Value (000)
- --------------------------------------------------------------------------
<S> <C> <C>
Common Stocks: 90.2%
- --------------------------------------------------------------------------
Information: 48.1%
>Broadcasting: 1.7%
209,100 Data Transmission Network (b) $ 3,607
Data Services for Farmers
39,500 Young Broadcasting (b) 2,015
Television Stations
36,300 Salem Communications (b) 821
Radio Stations for Religious Programming
- --------------------------------------------------------------------------
6,443
>Television Programming: 0.8%
68,000 TV Guide 2,924
TV Program Guides & Programming
>Telecommunications/Wireline
Communications: 3.1%
207,800 RCN (b) 10,078
Metro Market CLEC: Voice, Video &
Internet Services
37,100 Classic Communications (b) 1,356
Cable Television in Rural Areas
- --------------------------------------------------------------------------
11,434
>Mobile Communications: 8.5%
186,000 Telephone and Data Systems 23,436
Cellular & Telephone Services
131,400 Price Communications (b) 3,655
Cellular Telephone Services
121,800 Comarco (b) 2,862
Wireless Network Testing
73,000 Diversinet (b) 1,606
Wireless PKI Security
- --------------------------------------------------------------------------
31,559
>Telecommunications Equipment: 2.7%
257,100 Aspect Communications (b) 10,059
Call Center Software
>Gaming Equipment: 0.8%
146,000 International Game Technology 2,966
Slot Machines & Progressive Jackpots
>Computer Services: 5.4%
312,500 Sykes Enterprises (b) 13,711
Call Center Services
820,000 Aztec Technology Partners (b) 3,741
Technology Staffing Services
151,700 Computer Task Group 2,247
Application Development & Staffing Services
16,700 Meta Group (b) 317
IT Publications & Consulting Services
- --------------------------------------------------------------------------
20,016
>Consumer Software: 0.1%
15,500 Activision (b) 237
Entertainment Software
>Business Software: 3.9%
486,300 JDA Software (b) 7,963
Applications/Software & Services for Retailers
119,000 Project Software (b) 6,604
Enterprise Maintenance Software
- --------------------------------------------------------------------------
14,567
>Transaction Processors: 2.7%
298,300 National Data $10,124
Credit Card & Health Claims Processor
>Internet: 1.0%
121,000 Online Resources (b) 2,012
Internet Banking Technology
125,000 Navidec (b) 1,500
Internet Computer Services
- --------------------------------------------------------------------------
3,512
>Business Information/
Marketing Services: 3.6%
206,000 CACI International (b) 4,661
Technology Services for Government
130,000 West TeleServices (b) 3,177
Customer Care & Sales Support
169,000 PRIMEDIA (b) 2,788
Specialty Magazines & Other Publications
56,800 Getty Images (b) 2,776
Photographs for Publications & Electronic Media
- --------------------------------------------------------------------------
13,402
>Contract Manufacturing: 0.9%
92,000 Applied Power 3,381
Electronic Enclosures & Industrial Products
>Semiconductors/Related
Equipment: 1.5%
232,000 Galileo Technology (b) 5,597
Semiconductors for Networking Equipment
>Computer Hardware/
Related Systems: 11.4%
526,000 Micros Systems (b) 38,924
Information Systems for Restaurants & Hotels
129,000 American Power Conversion (b) 3,402
Uninterruptable Power Systems
- --------------------------------------------------------------------------
42,326
-------
Information: Total 178,547
- --------------------------------------------------------------------------
Health Care: 8.8%
>Biotechnology/Drug Delivery: 1.4%
33,070 Maxygen (b) 2,348
Molecular Breeding
26,700 Myriad Genetics (b) 1,228
Gene Discovery & Diagnostic Products
44,900 Genome Therapeutics (b) 724
Gene Discovery Services
31,000 Genset (b) 591
Genomics
32,500 Genzyme Molecular
Oncology Division (b) 227
Gene Expression Technology & Cancer Drugs
5,118
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------------
>Services: 7.4%
<S> <C> <C>
341,400 Lincare Holdings (b) $ 11,842
Home Health Care Services
390,000 First Health (b) 10,481
PPO Network
816,100 Magellan Health Services (b) 5,152
Mental Health Services
- ---------------------------------------------------------------------------------
27,475
--------
Health Care: Total 32,593
- ---------------------------------------------------------------------------------
Consumer Goods/Services: 3.2%
>Consumer Services: 1.5%
112,000 ITT Educational Services (b) 1,729
Technology Oriented Postsecondary
Degree Programs
55,000 Bally Total Fitness (b) 1,468
Fitness Centers
157,600 NuSkin Enterprises (b) 1,428
Personal Care/Herbal Products
122,500 Telespectrum (b) 873
Call Center Services
- ---------------------------------------------------------------------------------
5,498
>Retail: 1.7%
375,000 Gadzooks (b) 3,680
Teen Apparel Retailer
58,500 Whole Foods Market (b) 2,713
Natural Food Supermarkets
- ---------------------------------------------------------------------------------
6,393
--------
Consumer Goods/Services: Total 11,891
- ---------------------------------------------------------------------------------
Finance: 10.4%
>Banks: 1.5%
93,500 Chittenden (b) 2,770
Vermont & West Massachusetts Bank
44,000 TCF Financial 1,095
Great Lakes Bank
34,000 Texas Regional Bancshares 986
TexMex Bank
38,000 Peoples Bank Bridgeport 803
Connecticut Savings & Loan
- ---------------------------------------------------------------------------------
5,654
>Finance Companies: 3.9%
633,500 AmeriCredit (b) 11,720
Auto Lending
590,000 World Acceptance (b) 2,839
Personal Loans
- ---------------------------------------------------------------------------------
14,559
>Money Management: 0.6%
163,000 Phoenix Investment Partners 1,324
Mutual Fund & Pension Manager
52,800 Pioneer Group (b) 832
Equity Mutual Funds
- ---------------------------------------------------------------------------------
2,156
Number of Shares Value (000)
- ---------------------------------------------------------------------------------
>Insurance: 4.4%
637,700 UICI (b) $ 6,736
Insurance/Specialty Finance
392,100 Acceptance Insurance (b) 2,279
Crop Insurance
93,000 Leucadia National 2,151
Insurance Holding Company
13,800 Markel (b) 2,139
Specialty Insurance
66,000 Protective Life 2,100
Life/Dental Insurance
30,000 Terra Nova Bermuda 900
Specialty Re-Insurance
- ---------------------------------------------------------------------------------
16,305
--------
Finance: Total 38,674
- ---------------------------------------------------------------------------------
Industrial Goods/Services: 6.4%
>Steel: 0.2%
79,000 Atchison Casting (b) 721
Steel Foundries
>Industrial Goods: 0.2%
140,000 Advanced Lighting Technologies (b) 805
Metal Halide Lighting
>Specialty Chemicals: 0.8%
225,600 Lilly Industries, Cl. A 3,031
Industrial Coatings
>Other Industrial Services: 5.2%
346,000 Hub Group (b) 6,920
Truck & Rail Freight Forwarder
347,400 Insurance Auto Auctions (b) 5,472
Auto Salvage Services
422,500 Wackenhut, Cl. B 4,357
Prison Management
210,000 Labor Ready (b) 2,546
Temporary Manual Labor
- ---------------------------------------------------------------------------------
19,295
--------
Industrial Goods/Services: Total 23,852
- ---------------------------------------------------------------------------------
Energy/Minerals: 13.1%
>Independent Power: 7.8%
855,400 MidAmerican Energy 28,816
Growth Utility
>Oil/Gas Producers: 1.5%
473,800 Tesoro Petroleum (b) 5,478
Oil Refinery/Gas Reserves
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
>Distribution/Marketing/Refining: 3.8%
253,400 Dynegy $ 6,161
Natural Gas & Electric Processing & Marketing
248,000 Atmos Energy 5,068
Natural Gas Utility
92,300 Equitable Resources 3,081
Natural Gas Utility & Producer
- ----------------------------------------------------------------------------------------------
14,310
--------
Energy/Minerals: Total 48,604
- ----------------------------------------------------------------------------------------------
Real Estate: 0.2%
47,000 The Rouse Company 999
Regional Shopping Malls
--------
Real Estate: Total 999
Principal Amount Value (000)
- ----------------------------------------------------------------------------------------------
Total Common Stocks: 90.2% $335,160
(Cost: $287,478)
Short-Term Obligations: 10.5%
Yield 4.00% - 4.05% Due 1/03- 1/06/00
$ 17,297 Associates First Capital 17,293
11,260 Motorola Credit 11,254
10,287 Citicorp 10,283
- ----------------------------------------------------------------------------------------------
(Amortized Cost: $38,830) 38,830
--------
Total Investments: 100.7% 373,990
- ----------------------------------------------------------------------------------------------
(Cost: $326,308)
Cash and Other Assets Less Liabilities: (0.7%) (2,562)
--------
Total Net Assets: 100% $371,428
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
>Notes to Statement of Investments:
(a) At December 31, 1999, for federal income tax purposes, cost of investments
was $326,698,000 and net unrealized appreciation was $47,292,000, consisting of
gross unrealized appreciation of $93,617,000 and gross unrealized depreciation
of $46,325,000.
(b) Non-income producing security.
53
<PAGE>
Acorn International
>Statement of Investments December 31, 1999
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------------------------------------
Common Stocks and Other
Equity-Like Securities: 96.7%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Europe: 48.7%
>Germany/Austria: 3.6%
600,000 Rhoen Klinikum Pfd. $ 21,374
500,000 Rhoen Klinikum 18,366
Hospital Management
250,000 UnitedGlobalCom (Austria) (b) 17,656
Cable Television for Europe, Israel & Australia
240,000 EM.TV & Merchandising 15,458
Children's Media Production, Merchandising
& Distribution
50,000 Fresenius, Pfd. 9,158
Dialysis Equipment & Solutions
100,000 Dialog Semiconductor (b) 7,397
Custom Semiconductors for Cell Phones
165,000 Flughafen Wien (Austria) 5,730
Vienna Airport Authority
150,000 Pfeiffer Vacuum Technologies 3,849
Vacuum Pump Manufacturer
28,000 Pixelpark (b) 3,184
Internet Consulting
- ---------------------------------------------------------------------------------------------------------------------
102,172
>Finland: 4.7%
1,200,000 TietoEnator 74,872
Computer Services/Consulting
1,500,000 Talentum (c) 36,380
Trade Journals & Internet Services
120,000 Helsinki Telephone 9,987
Telecommunications Provider
625,000 Fiskars, Series A 8,177
Scissors & Gardening Tools
95,400 Spar Finland (c) 3,341
Grocery/Convenience Stores
100,000 F-Secure (b) 2,918
Security Software
- ---------------------------------------------------------------------------------------------------------------------
135,675
>Norway: 0.2%
160,000 Enitel (b) 4,779
Telecommunications Provider
>Sweden: 5.2%
950,000 WM Data Nordic 58,716
Computer Services/Consulting
160,000 Information Highway (b) 26,508
Internet Consulting
1,085,000 Sigma 23,203
Technical Consulting
1,350,000 Mandator 20,146
Computer Services/Consulting
400,000 Modern Times Group (b) 19,834
TV, Newspapers and Electronic Commerce
- ---------------------------------------------------------------------------------------------------------------------
148,407
>France: 4.4%
375,000 Atos (b) $ 62,117
Computer Services/Transaction Processing
62,000 NRJ 42,646
Radio Network
50,000 Fininfo 12,579
Data Feeds for French Banks & Brokers
20,000 Penauille Polyservice 8,011
Industrial Cleaning/Airport Services
- ---------------------------------------------------------------------------------------------------------------------
125,353
>United Kingdom/Ireland: 14.2%
2,000,000 Serco Group 62,762
Facilities Management
450,000 NTL (b) 56,138
Voice, Video & Data Services Via Cable Networks
500,000 Baltimore Technologies 41,397
Security Software
2,000,000 Capita Group 36,510
Outsourcing Services
1,500,000 SSL International 18,986
Medical & Footcare Products
500,000 Euro Money Publications 18,174
Financial Publications
3,500,000 Taylor Nelson 15,464
Market Research Services
1,350,000 ITNET 14,885
Outsourcing Services
3,500,000 NFC 13,853
Logistics
150,000 Esat Telecom (Ireland) (b) 13,725
Telecommunications Provider
500,000 Logica 12,900
Computer Services/Consulting
2,125,000 Photobition Group 11,312
Production of Graphics for Exhibits
2,250,000 Bodycote 10,868
Materials Technology & Metal Processing
2,840,000 St. James Capital 10,140
Life Insurance
3,000,000 Smith & Nephew 10,081
Medical Equipment & Supplies
500,000 Flextech (b) 9,289
Cable Channels
1,700,000 Rotork 8,582
Valve Actuators for Oil & Water Pipelines
750,000 Irish Life & Permanent (Ireland) (b) 7,095
Savings Products
3,400,000 HALMA 6,509
Fire, Burglary & Flooding Detection Devices
1,000,000 Thus (b) 6,268
Telecommunications Provider
1,500,000 Hogg Robinson 5,876
Corporate Travel Management
715,000 Fairey Group 5,833
Electronic Products
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
290,000 Ocean Group $ 5,411
Freight Forwarder
3,206,400 Chloride Group 5,050
Electrical Equipment Manufacturer/Retailer
128,000 FKI (b) 496
Autonomous Manufacturer
- ---------------------------------------------------------------------------------------------------------------------
407,604
>Switzerland: 3.7%
80,000 Selecta Group 25,152
Vending Machine Owner/Operator
10,000 Cie Fin Richemont 23,895
Luxury Goods
30,000 Phoenix Mecano 15,091
Electrical Components Manufacturer
15,000 Bon Appetit 14,856
Wholesale Food Distributor and
Speciality Restaurant/Retailer
6,500 Sarasin & Cie Bank 13,202
Private Banking
5,000 Bachem 8,017
Peptides
1,600 Julius Baer 4,839
Private Banking
5,000 Societe Generale d'Affichage (b) 2,578
Billboard Advertising
- ---------------------------------------------------------------------------------------------------------------------
107,630
>Italy: 8.2%
6,000,000 Editoriale L'Espresso (b) 69,378
Newspaper & Magazine Publisher
4,000,000 Banca Fideuram 47,339
Life Insurance & Mutual Funds
3,000,000 Autogrill 37,738
Restaurants and Catering for Travelers
1,500,000 Class Editori 26,115
Newspapers & On-Line Financial Data
1,500,000 Mediolanum 20,665
Life Insurance & Mutual Funds
4,000,000 SEAT Pagine Gialle 13,123
Yellow Pages Publisher
1,400,000 Aeroporti di Roma 9,130
Airport Management
650,000 Gruppo Coin (b) 7,588
Food & Clothing Retailer
1,250,000 Saipem 4,516
Offshore Oil Services
- ---------------------------------------------------------------------------------------------------------------------
235,592
>Spain/Portugal: 1.9%
450,000 Cortefiel 11,774
Apparel Retailer
500,000 Indra Sistemas 9,384
Computer Services/Consulting
400,000 Mapfre Vida 9,218
Life Insurance & Mutual Funds
425,000 Filmes Lusomundo (Portugal) (b)(c) 5,988
Newspapers, Radio, Video, Film Distribution
400,000 Aguas de Barcelona $ 5,853
Water Utility
650,000 Prosegur 5,815
Security Guards
100,000 PT Multimedia (Portugal) (b) 5,683
Cable TV, Satellite Operator &
Internet Service Provider
- ---------------------------------------------------------------------------------------------------------------------
53,715
>Netherlands: 2.0%
500,000 Getronics 39,851
Computer Services/Consulting
420,000 Kempen 16,695
Stock Brokerage/Investment Management
27,000 Versatel (b) 951
Telecommunications Provider
65,000 Fox Kids Europe (b) 831
Cartoons
- ---------------------------------------------------------------------------------------------------------------------
58,328
>Hungary: 0.6%
1,200,000 Matav 8,402
47,000 Matav ADR 1,692
Telecommunications Provider
100,000 Gedeon Richter 6,574
Pharmaceuticals
- ---------------------------------------------------------------------------------------------------------------------
16,668
----------
Europe: Total 1,395,923
- ---------------------------------------------------------------------------------------------------------------------
Asia: 28.9%
>Hong Kong: 4.0%
30,000,000 Li & Fung 75,256
Sourcing of Consumer Goods
3,500,000 TVB (b) 23,863
Television Broadcasting
3,000,000 SmarTone Telecom 14,472
Mobile Telecommunications Provider
- ---------------------------------------------------------------------------------------------------------------------
113,591
>India: 0.0%
1,998,000 Zurich India Quantum (b) 533
Closed-End Fund
>Japan: 11.6%
130,000 JAFCO 46,415
Venture Capital Fund
175,000 Orix 39,406
Finance Leasing
85,000 Trans Cosmos 36,252
Information Technology Services & Investments
180,000 Ryohin Keikaku 36,113
Own Brand Specialty Retailer
160,000 Nintendo 26,575
Video Games
75,000 Nidec 21,642
Spindle Motor Manufacturer
</TABLE>
55
<PAGE>
Acorn International
>Statement of Investments, continued
Number of Shares Value(000)
- ----------------------------------------------------------------------------
30,000 OBIC $ 21,246
Computer Integrator
15,000 Bellsystem24 16,434
Telemarketing
180,000 Fuji Software ABC 14,086
Computer Services/Consulting
40,000 Otsuka Kagu 10,760
Furniture Retailer
40,000 Benesse 9,625
Correspondence Courses
300,000 Densei Lambda 9,391
Power Supplies
77,000 Taiyo Ink 9,038
Speciality Chemicals
35,000 C Two-Network 7,909
Discount Food Retailer
50,000 Aiful 6,114
Consumer Lending
75,000 Misumi 5,906
Distributor of Capital Goods Components
400,000 Kokuyo 5,321
Office Product Manufacturer & Retailer
800,000 Yamaha 5,196
Musical Instruments Manufacturer
175,000 Nichiei 3,800
Commercial Lender
24,400 Wilson Learning 1,193
Corporate Training
- ----------------------------------------------------------------------------
332,422
>Taiwan: 1.9%
3,000,000 Systex 20,456
Systems Integrator & Internet Services
3,000,000 Hitron Technology (b) 17,970
Network Integration & Internet Services
2,999,500 Chroma Ate (b) 8,793
Test & Measurement Instruments
4,000,000 Phoenixtec Power 7,711
Uninterruptable Power Supply Manufacturer
- ----------------------------------------------------------------------------
54,930
>Malaysia: 0.4%
2,000,000 Unisem 12,842
Semiconductor Assembly
>Philippines: 0.1%
36,918,000 Int'l Container Terminal Services (b) 3,344
Container Handling Terminals & Port Management
>South Korea: 1.2%
1,000,000 S1 Corporation 17,261
Security Services
100,000 Cheil Jedang 11,537
Consumer Staples
1,000,000 Korea Technology Investments (b) 6,103
Venture Capital
- ----------------------------------------------------------------------------
34,901
>Singapore: 9.7%
9,500,000 Star Cruises $ 96,900
Cruise Line
6,500,000 Venture Manufacturing 74,542
Electronic Manufacturing Services
8,000,000 Datacraft Asia 66,400
Network Integrator
7,500,000 Natsteel Electronics 39,628
Electronic Manufacturing Services
- ----------------------------------------------------------------------------
277,470
---------
Asia: Total 830,033
- ----------------------------------------------------------------------------
Latin America: 4.3%
>Mexico: 2.5%
9,000,000 Grupo Industrial Bimbo 20,090
Bread, Baked Goods & Snacks
5,000,000 Corp Interamericana de 19,974
Entretenimiento (b)
Special Events & Live Entertainment
3,500,000 Kimberly Clark de Mexico 13,575
Paper Products
5,450,000 Cifra SA Series V (b) 10,940
Discount Stores
5,000,000 Grupo Continental 7,282
Beverages
- ----------------------------------------------------------------------------
71,861
>Brazil: 1.2%
750,000 Embratel 20,438
Long Distance Telecommunications Provider
340,000 TeleSudeste Celular 13,196
Cellular Telecommunications Provider
- ----------------------------------------------------------------------------
33,634
>Argentina: 0.5%
400,000 IRSA GDS 12,938
Real Estate Management & Development
30,000 El Sitio (b) 1,102
Internet Network for Spanish & Portuguese
- ----------------------------------------------------------------------------
14,040
>Peru: 0.1%
7,000,000 Enrique Ferreyros 3,791
Heavy Machinery Dealer
---------
Latin America: Total 123,326
- ----------------------------------------------------------------------------
Other Countries: 14.8%
>Australia: 3.2%
7,500,000 ERG 42,130
Smart Card Systems for Public Transportation
4,500,000 Computershare 22,174
Financial Software/Services
5,000,000 AAPT (b) 17,115
Telecommunications Provider
2,000,000 KeyCorp (b)(c) 10,762
Smart Card Technology
- ----------------------------------------------------------------------------
92,181
56
<PAGE>
Number of Shares Value (000)
- --------------------------------------------------------------------------------
>Canada: 5.2%
1,200,000 Celestica (b) $ 67,035
Electronic Manufacturing Services
720,000 Canadian Natural Resources (b) 17,547
Oil & Gas Producer
750,000 Power Financial 12,445
Financial Services Holding Company
500,000 Cinar (b) 12,250
Children's TV Programming
500,000 Corus Entertainment (b) 10,198
CATV Programming & Radio Stations
500,000 Penn West Petroleum (b) 9,766
Oil & Gas Producer
1,200,000 Bracknell (b) 5,393
Electrical Contractor & Facilities Management
400,000 Leitch Technology (b) 4,923
Television Production Equipment
600,000 LGS Group (b) 4,853
Computer Systems Integrator
4,000,000 Dundee Realty (b) 4,038
Real Estate
110,000 Mosaic (b) 852
Outsourcing Market Services
- --------------------------------------------------------------------------------
149,300
>Israel: 2.7%
800,000 Amdocs (b) 27,600
Telecommunications Billing & Customer
Care Software
170,000 Gilat Satellite Network (b) 20,188
Satellite Communications Equipment
650,000 Galileo Technology (b) 15,681
Communications Semiconductors
350,000 ECI Telecom 11,069
Telecommunications Equipment
75,000 Radware (b) 3,234
Internet Infrastructure & Internet Traffic
- --------------------------------------------------------------------------------
77,772
Principal Amount of
Number of Shares Value(000)
- --------------------------------------------------------------------------------
>South Africa: 1.3%
6,000,000 Dimension Data (b) $ 37,674
Networks & Computer Services
>Russia: 0.0%
$1,500,000 Khanty Mansiysk 10% Notes
Due 10/14/02 (b) 750
4,001 Khanty Mansiysk (b) 150
Oil Production in Russia
- --------------------------------------------------------------------------------
900
>United States: 2.4%
400,000 MIH (b) 23,600
Pay-TV
300,000 AES Corporation (b) 22,425
Power Plants
475,000 Global TeleSystems 16,447
Telecommunications Provider
500,000 Azurix (b) 4,469
Owner & Operator of Water Utilities
- --------------------------------------------------------------------------------
66,941
------------
Other: Total 424,768
Total Common Stocks and Other
Equity-Like Securities: 96.7% ------------
2,774,050
(Cost: $1,188,760)
Short-Term Obligations: 3.1%
Yield 4.00% Due 1/03 - 1/06/00
$64,438 Associates First Capital 64,424
25,000 Bell Atlantic Financial 24,986
------------
(Amortized Cost: $89,410) 89,410
------------
Total Investments: 99.8% 2,863,460
(Cost: $1,278,170)
Cash and Other Assets less Liabilities: 0.2% 4,743
------------
Total Net Assets: 100% $2,868,203
================================================================================
- --------------------------------------------------------------------------------
>Notes to Statement of Investments:
(a) At December 31, 1999, for federal income tax purposes, cost of investments
was $1,344,131,000 and net unrealized appreciation was $1,519,329,000,
consisting of gross unrealized appreciation of $1,570,379,000 and gross
unrealized depreciation of $51,050,000.
(b) Non-income producing security.
(c) On December 31, 1999, the Fund held the following percentages of the
outstanding voting shares of the affiliated companies (ownership of at
least 5%) listed below:
Talentum (Finland)................ 9.19% KeyCorp (Australia)............ 6.40%
Filmes Lusomundo (Portugal)....... 7.08%
The aggregate cost and value of investments in these companies at December 31,
1999, was $20,950,000 and $53,129,000, respectively. The market value of these
securities represents 1.85% of the total net assets at December 31, 1999. During
the period ended December 31, 1999, the cost of purchases and proceeds from
sales in affiliated companies was $13,398,000 and $12,962,000 respectively. Net
dividends received from these companies amounted to $381,000 and net realized
loss on sales on investments in such companies amounted to $15,750,000.
(d) At December 31, 1999, $741,228,000 or 25.8% of the Fund's net assets was
denominated in the Euro currency.
57
<PAGE>
Acorn Fund
>Statement of Investments December 31, 1999
<TABLE>
<CAPTION>
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------------
Common Stocks and Other
Equity-Like Securities: 92.2%
- ---------------------------------------------------------------------------------------------
<S> <C>
Information: 38.4%
Media
>Broadcasting: 1.7%
785,000 Young Broadcasting (b) $ 40,035
Television Stations
819,000 Data Transmission Network (b) (c) 14,128
Data Services for Farmers
100,000 Cumulus Media (b) 5,075
Radio Stations in Small Cities
137,000 Salem Communications (b) 3,100
Radio Stations for Religious Programming
300,000 Shop at Home (b) 2,981
Television Home Shopping Network
250,000 Granite Broadcasting (b) 2,531
Television Stations
- ---------------------------------------------------------------------------------------
67,850
>Television Programming CATV: 2.9%
1,500,000 Liberty Media Group, AT&T (b) 85,125
Cable & Satellite Programming
550,000 Playboy Enterprises (b) 13,372
CATV & Satellite Programming, Publishing
500,000 Corus Entertainment (Canada) (b) 10,198
CATV Programming & Radio Stations
300,000 Cinar (Canada) (b) 7,350
Children's TV Programming
9,000 Fox Kids Europe (Netherlands) (b) 115
Cartoons
- ---------------------------------------------------------------------------------------
116,160
Telecommunications
>Telecommunications/Wireline
Communications: 2.3%
250,000 NTL (United Kingdom) (b) 31,188
Voice, Video & Data Services
584,000 RCN (b) 28,324
Metro Market CLEC: Voice, Video &
Internet Services
354,000 Commonwealth Telephone (b) 18,718
Rural Market CLEC: Local, Long Distance & Internet Services
200,000 Classic Communications (b) 7,312
Cable Television in Rural Areas
230,000 Startec Global Communications (b) 4,834
International Telecommunications
36,000 Thus (United Kingdom) (b) 226
Emerging Telecommunications
- ---------------------------------------------------------------------------------------
90,602
>Mobile Communications: 2.8%
580,000 Telephone and Data Systems 73,080
Cellular & Telephone Services
355,000 Pinnacle Holdings (b) 15,043
Towers for Cellular, PCs & Paging
420,000 Price Communications (b) 11,681
Cellular Telephone Services
355,000 COMARCO (b) (c) 8,342
Wireless Network Testing
- ---------------------------------------------------------------------------------------
108,146
Principal Amount or
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------
>Telecommunications Equipment: 0.1%
36,000 Comverse Technology (b) 5,211
Voicemail & Other Enhanced Services Equipment
Computer Related Hardware
>Computer Hardware/
Related Systems: 2.9%
765,000 Micros Systems (b) 56,610
Information System for Restaurants & Hotels
713,000 Kronos (b) (c) 42,780
Labor Management Solutions
550,000 American Power Conversion (b) 14,506
Uninterruptable Power Systems
- ---------------------------------------------------------------------------------------
>Semiconductors 113,896
Related Equipment: 0.5%
200,000 Oak Industries (b) 21,225
Communications Components
>Gaming Equipment: 2.1%
2,342,000 International Game Technology 47,572
Slot Machines & Progressive Jackpots
450,000 Anchor Gaming (b) 19,547
Slot Machines & Casinos
1,000,000 Aristocrat Leisure (Australia) 14,388
Slot Machines
- ---------------------------------------------------------------------------------------
81,507
>Contract Manufacturing: 2.0%
400,000 Solectron (b) 38,050
Electronic Manufacturing Services
200,000 Jabil Circuit (b) 14,600
Electronic Manufacturing Services
350,000 Applied Power 12,862
Electronic Enclosures & Industrial Products
2,000,000 Natsteel Electronics (Singapore) 10,567
Electronic Manufacturing Services
35,000 Plexus (b) 1,540
Electronic Manufacturing Services
- ---------------------------------------------------------------------------------------
77,619
>Instrumentation: 1.4%
480,000 Mettler Toledo (b) 18,330
Laboratory Products
520,000 Varian (b) 11,700
Analytical Instruments
613,000 Thermoquest (b) 6,322
$ 1,500,000 Thermoquest, 5% Note Due 8/15/00 1,470
Mass Spectrometry & Chromatography
$ 5,000,000 Thermo Optek, 5% Note Due 10/15/00 4,900
265,000 Thermo Optek 3,014
Elemental & Molecular Spectroscopy
98,000 Dionex (b) 4,036
Ion & Liquid Chromatography
266,000 Onix Systems (b) 1,629
Field Measurement & Sensor Equipment
232,000 Metrika Systems (b) 1,392
Gamma Ray Instrumentation
- ---------------------------------------------------------------------------------------
52,793
</TABLE>
58
<PAGE>
Acorn Fund
>Statement of Investments, continued
<TABLE>
<CAPTION>
Principal Amount or
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------------
<S> <C>
>Business Software: 1.2%
1,075,000 Systems & Computer Technology (b) $ 17,469
Enterprise Software & Services
687,000 JDA Software Group (b) 11,250
Applications/Software & Services for Retailers
200,000 Hyperion Solutions (b) 8,700
Analytical Application Software
300,000 Indus International (b) 3,656
Enterprise Asset Management Software
280,000 MAPICS (b) 3,535
Mid Market ERP Systems
100,000 Entra Data (Sweden) 2,562
Business Software
- ---------------------------------------------------------------------------------------------
47,172
>Consumer Software: 0.5%
$ 6,500,000 Activision, 6.75% Note Due 1/1/05 6,532
400,000 Activision (b) 6,125
Entertainment Software
245,000 THQ (b) 5,681
Entertainment Software
250,000 3DO Company (b) 2,273
Entertainment Software
- ---------------------------------------------------------------------------------------------
20,611
>Computer Services: 5.2%
1,000,000 WM Data Nordic (Sweden) 61,806
Computer Services/Consulting
230,000 Atos (France) (b) 38,098
Computer Services/Transaction Processing
650,000 Sykes Enterprises (b) 28,519
Call Center Services
171,084 Getronics (Netherlands) 13,636
Computer Services/Consulting
500,000 Cambridge Technology (b) 13,125
Software Implementation Services
790,000 Computer Task Group 11,702
Application Development & Staffing Services
642,000 RCM Technologies (b) (c) 11,075
Technology Staffing Services
250,000 American Management Systems (b) 7,844
Software Development Services
1,616,000 Aztec Technology Partners (b) (c) 7,373
Application Development & Maintenance Services
95,000 BISYS (b) 6,199
Processing for Banks
214,000 Analysts International 2,675
Technology Staffing Services
104,000 Meta Group (b) 1,976
IT Publications & Consulting Services
- ---------------------------------------------------------------------------------------------
204,028
Software/Services
>Business Information/Marketing
Services/Publishing: 3.8%
800,000 Getty Images (b) 39,100
Photographs for Publications & Electronic
Media
2,400,000 InfoUSA (b) 33,450
Business Data for Sales Leads
Number of Shares Value (000)
- ---------------------------------------------------------------------------------------------
1,100,000 PRIMEDIA (b) $ 18,150
Specialty Magazines & Other Publications
356,000 Choicepoint (b) 14,729
Fraud Protection Information
450,000 Information Holdings (b) 13,078
Scientific & Medical Publications,
Patent Information
445,000 West Teleservices (b) 10,875
Customer Care & Sales Support
403,000 ACNielsen (b) 9,924
Market Research, Information & Analysis
350,000 Acxiom (b) 8,400
Database Marketing Services
- ---------------------------------------------------------------------------------------------
147,706
>Internet: 6.6%
235,000 Softbank Corporation (Japan) 224,817
Internet Services/Investment Holdings
470,000 Online Resources (b) 7,814
Internet Banking Technology
100,000 RSA Security (b) 7,750
Enterprise Security Software
197,725 Internet Commerce (b) 5,046
E-Commerce Service Network
2,683 Bigfoot International (b) (c) 4,024
263,158 Bigfoot International, Series A (b) (c) 2,500
Internet Direct Marketing
511,630 NeoPlanet, Series A (b) 2,000
Web Browser
250,000 Musicmaker.com (b) 1,469
Make Your Own Music CD
61,000 Navidec (b) 732
Internet Computer Services
47,855 GIGA (b) 197
29,714 GIGA Warrants (b) 4
Data on Information Technology
- ---------------------------------------------------------------------------------------------
256,353
>Electronics Distribution: 0.5%
890,000 Pioneer-Standard Electronics 12,849
Component & Computer Distribution
300,000 Kent Electronics (b) 6,825
Component Distribution & Contract Assembly
- ---------------------------------------------------------------------------------------------
19,674
>Transaction Processors: 1.9%
1,874,000 National Data (c) 63,599
Credit Card & Health Claims Processor
380,000 Concord EFS (b) 9,785
Credit Card Processor
- ---------------------------------------------------------------------------------------------
73,384
Information: Total 1,503,937
Health Care: 7.7%
>Biotechnology/Drug Delivery: 3.7%
525,000 Myriad Genetics (b) (c) 24,150
Gene Discovery & Diagnostic Products
329,000 Protein Design Labs (b) 23,030
Computer Designed Monoclonal Antibodies
450,000 Inhale Therapeutic Systems (b) 19,153
Pulmonary Drug Delivery
</TABLE>
59
<PAGE>
Number of Shares Value (000)
- --------------------------------------------------------------------------
230,000 CuraGen (b) $ 16,042
Gene Based Drug Development
664,000 Genome Therapeutics (b) 10,707
Gene Discovery Services
160,000 Incyte Pharmaceutical (b) 9,600
Gene Sequencing
7,350,000 Nadro, Series L (Mexico) 9,309
Pharmaceutical Distributor
915,000 Microcide Pharmaceuticals (b) (c) 8,121
Antibiotics
1,508,000 Corvas International (b) (c) 6,692
Rational Drug Design
529,000 NPS Pharmaceuticals (b) 6,480
Small Molecule Drugs
351,000 Guilford Pharmaceuticals (b) 5,967
Drug Delivery & Neurology Drugs
768,000 Synaptic Pharmaceuticals (b) (c) 5,184
Receptor Targeted Drug Design
190,000 Genzyme Molecular
Oncology Division (b) 1,330
Gene Expression Technology &
Cancer Drugs
- --------------------------------------------------------------------------
145,765
>Medical Equipment: 0.6%
299,000 Wesley Jessen Vision (b) 11,325
Contact Lenses
407,000 Orthofix International (b) 5,825
Bone Fixation & Stimulation Devices
443,000 Acuson (b) 5,565
Ultrasound Devices
- --------------------------------------------------------------------------
22,715
>Hospital/Laboratory Supplies: 0.0%
27,000 Techne (b) 1,487
Cytokines, Antibodies, Other Reagents for
Life Sciences
>Services: 3.4%
2,038,000 Lincare Holdings (b) 70,693
Home Health Care Services
1,952,000 First Health Group (b) 52,460
PPO Network
1,280,000 Magellan Health Services (b) 8,080
Mental Health Services
- --------------------------------------------------------------------------
131,233
--------
Health Care: Total 301,200
- --------------------------------------------------------------------------
Consumer Goods/Services: 11.8%
Goods
>Leisure Vehicles: 2.0%
1,000,000 Harley-Davidson 64,062
Motorcycles & Related Merchandise
341,000 Thor Industries 10,379
RV's & Busses
2,200,000 Ducati Motor (Italy) (b) 5,701
Motorcycles & Related Merchandise
- --------------------------------------------------------------------------
80,142
>Furniture: 0.3%
520,000 Herman Miller 11,960
Office Furniture
>Beverages: 0.1%
23,000 Binding-Brauerei (Germany) $ 4,583
Brewery
>Nondurables: 0.2%
460,000 Helen of Troy (b) 3,335
Personal Care Products
401,000 First Years 3,333
Infant & Toddler Products
- --------------------------------------------------------------------------
6,668
>Durable Goods: 0.2%
312,439 Hunter Douglas (Netherlands) 8,489
Decorative Window Coverings
>Textiles/Apparel: 1.0%
730,000 Jones Apparel (b) 19,801
Women's Apparel
725,000 Nautica Enterprises (b) 8,202
Men's Casual Apparel
600,000 Unifi (b) 7,388
Polyester & Nylon Fabrics
85,000 Gildan Activewear (b) 1,541
Cotton T-Shirts
- --------------------------------------------------------------------------
36,932
Services
>Retail: 1.9%
1,600,000 Borders Group (b) 25,700
Bookstores
400,000 Whole Foods Market (b) 18,550
Natural Food Supermarkets
1,100,000 N. Brown Group (United Kingdom) 11,009
Mail Order Clothing in Large Sizes
729,000 Gadzooks (b) (c) 7,153
Teen Apparel Retailer
400,000 Panera Bread (b) 3,100
Bakery & Deli Restaurants
200,000 Quiksilver (b) 3,100
Gen Y Clothing
160,000 Gaiam (b) 2,540
Healthy Living Catalog & E-Commerce
100,000 Calloway Golf 1,769
Premium Golf Clubs & Balls
130,000 MotherNature.com (b) 951
Healthy Living E-Commerce
- --------------------------------------------------------------------------
73,872
>Consumer Services: 1.5%
1,250,000 Bally Total Fitness (b) 33,359
National Chain of Fitness Centers
600,000 ITT Educational Services (b) 9,263
Technology Oriented Postsecondary
Degree Programs
1,322,600 Airtours (United Kingdom) 8,119
Packaged Tour Vacations
270,000 Steiner Leisure (b) 4,506
Spas & Hair/Skin Products on Cruise Ships
234,000 Education Management (b) 3,276
Postsecondary Education
- --------------------------------------------------------------------------
58,523
60
<PAGE>
Acorn Fund
>Statement of Investments, continued
Number of Shares Value (000)
- --------------------------------------------------------------------------
>Casinos: 1.1%
1,080,000 Station Casinos (b) $ 24,233
Casinos & Riverboats
650,000 Isle of Capri Casino (b) 8,572
Five Casinos in Secondary Markets
360,000 Hollywood Park (b) 8,078
Casinos & Card Clubs
535,000 Monarch Casino & Resort (b) (c) 2,809
Casino/Hotel in Reno
63,000 Lakes Gaming (b) 500
Hotel & Casino in Biloxi & Gulfport
- --------------------------------------------------------------------------
44,192
>Cruise Lines: 3.5%
8,130,000 Star Cruises (Singapore) 82,926
Cruising/Casino Operations
1,100,000 Carnival 52,594
Largest Cruise Line
410,000 Royal Olympic Cruise (b) 1,999
Cruises in Mediterranean
- --------------------------------------------------------------------------
137,519
--------
Consumer Goods/Services: Total 462,880
- --------------------------------------------------------------------------
Finance: 13.8%
>Banks: 1.6%
799,000 TCF Financial 19,875
Great Lakes Bank
672,000 Texas Regional Bancshares 19,488
TexMex Bank
414,000 Chittenden 12,265
Vermont & West Massachusetts
Bank
180,000 CCB Financial 7,841
North Carolina Bank
400,000 Eldorado Bancshares (b) 4,300
California Bank
- --------------------------------------------------------------------------
63,769
>Savings & Loans: 1.3%
1,842,000 Peoples Bank Bridgeport 38,912
Connecticut Savings & Loan
702,000 Commonwealth Bancorp (c) 11,671
Philadelphia Savings & Loan
- --------------------------------------------------------------------------
50,583
>Insurance: 3.4%
600,000 Protective Life 19,088
Life/Dental Insurance
1,291,000 UICI (b) 13,636
Insurance/Specialty Insurance
78,000 Markel (b) 12,090
Specialty Insurance
511,000 Leucadia National 11,817
Insurance Holding Company
820,000 HCC Insurance Holdings 10,814
Aviation Insurance
488,000 Baldwin & Lyons, Cl. B 10,797
Trucking Insurance
300,000 RLI 10,200
Specialty Insurance
- --------------------------------------------------------------------------
154,308 ASR Verzekeringsgroep $ 9,814
(Netherlands)
Auto/Life Insurance
675,000 Philadelphia Consolidated 9,788
Holding (b) (c)
Specialty Insurance
322,000 Terra Nova Bermuda 9,660
Specialty Re-Insurance
274,000 United Fire & Casualty 6,199
Property & Casualty
210,000 StanCorp Financial 5,289
Group Life, Disability & 401K
612,000 Acceptance Insurance (b) 3,557
Crop Insurance
- --------------------------------------------------------------------------
132,749
>Money Management: 4.6%
555,000 SEI Investments 66,054
Mutual Fund Administration
3,019,000 Phoenix Investment Partners (c) 24,529
Mutual Fund & Pension Manager
1,500,000 Banca Fideuram (Italy) 17,752
Life Insurance & Mutual Funds
1,034,000 Pioneer Group (b) 16,286
Equity Mutual Funds
650,000 Neuberger Berman 16,169
Major Asset Management Company
1,063,000 Baker Fentress 15,081
Closed-End Investment Company
300,000 Affiliated Managers Group (b) 12,131
Mutual Fund & Pension Manager
1,250,000 Edinburgh Fund Managers
(United Kingdom) 10,723
Investment Management
200,000 The Investment Company of
China (China) (b) 1,112
Closed-End Fund
- --------------------------------------------------------------------------
179,837
>Finance Companies: 2.9%
3,912,000 AmeriCredit (b) (c) 72,372
Auto Lending
750,000 DVI Health Services (b) 11,391
Leases for Big Medical Equipment
570,000 Ace Cash Express (b) (c) 10,545
Check Cashing Stores
1,820,000 World Acceptance (b) (c) 8,759
Personal Loans
1,375,000 Capital Trust (b) (c) 6,875
Mortgage Loans
700,000 Creditrust (b) (c) 5,381
Buys Defaulted Credit Card Paper
- --------------------------------------------------------------------------
115,323
--------
Finance: Total 542,261
- --------------------------------------------------------------------------
Industrial Goods/Services: 8.1%
>Steel: 1.0%
820,000 Gibraltar Steel (c) 19,167
Steel Processing
61
<PAGE>
Number of Shares Value (000)
- -----------------------------------------------------------------------
650,000 AK Steel $12,269
Carbon & Stainless Steel Producer
420,000 Atchison Casting (b) (c) 3,832
Steel Foundries
245,000 A M Castle 2,879
Steel Distribution
- -----------------------------------------------------------------------
38,147
>Industrial Goods: 0.8%
1,000,000 Clarcor 18,000
Engines, Mobile & Environmental Filtration
538,000 Applied Industrial Technologies 8,944
Industrial Components Distribution
550,000 Advanced Lighting Technologies (b) 3,162
Metal Halide Lighting
- -----------------------------------------------------------------------
30,106
>Specialty Chemicals & Industrial
Materials: 0.9%
1,100,000 Lilly Industries, Cl. A 14,781
Industrial Coatings
346,121 SYMEX (b) 9,345
Combinatorial Materials
732,000 RPM 7,457
Specialty Coatings & Paint
100,000 Spartech 3,225
Plastics Distribution & Compounding
139,000 Brunswick Technologies (b) 495
Fiberglass Fabric for Composites
- -----------------------------------------------------------------------
35,303
>Outsourcing Services &
Training: 0.9%
2,500,000 Labor Ready (b) (c) 30,313
Temporary Manual Labor
600,000 GP Strategies (b) (c) 3,675
Training Programs
500,000 International Total Services (b) (c) 594
Aviation Services
- -----------------------------------------------------------------------
34,582
>Logistics: 2.7%
1,411,000 Expeditors International
of Washington 61,819
International Freight Forwarder
759,000 Hub Group (b) 15,180
Truck & Rail Freight Forwarder
350,000 C H Robinson 13,912
Truck Freight Forwarder
200,000 Forward Air (b) 8,675
Freight Transportation Between Airports
860,000 Airnet Systems (b) (c) 6,127
Check & Other Small Package Shipment
- -----------------------------------------------------------------------
105,713
>Other Industrial Services: 1.8%
1,200,000 Serco Group (United Kingdom) 37,657
Facilities Management
1,526,000 Wackenhut, Cl. B 15,737
31,000 Wackenhut, Cl. A 463
Prison Management
520,000 Mobile Mini (b) $11,180
Leases Portable Storage Units
1,000,000 Aeroporti di Roma (Italy) 6,521
Airport Management
- -----------------------------------------------------------------------
71,558
-------
Industrial Goods/Services: Total 315,409
- -----------------------------------------------------------------------
Energy/Minerals: 7.1%
>Independent Power: 2.2%
1,164,000 AES Corporation (b) 87,009
1,852 AES Corporation Warrants (b) 231
Power Plants
- -----------------------------------------------------------------------
87,240
>Oil/Gas Producers: 2.5%
2,100,000 Tesoro Petroleum (b) (c) 24,281
Oil Refinery/Gas Producer
600,000 Devon Energy 19,725
Oil & Gas Producer
1,615,000 Cross Timbers Oil 14,636
Oil & Gas Producer
530,000 Precision Drilling (Canada) (b) 13,558
Oil & Gas Well Driller
385,000 Canadian Natural Resources
(Canada) (b) 9,383
Oil & Gas Producer
350,000 Basin Exploration (b) 6,169
Oil & Gas Producer
300,000 Evergreen Resources (b) 5,925
Oil & Gas Producer
400,000 Ulster Petroleums (Canada) (b) 3,554
Oil & Gas Producer
800,000 Tipperary (b) (c) 1,100
Oil & Gas Producer
- -----------------------------------------------------------------------
98,331
>Distribution/Marketing/Refining: 1.8%
900,000 Equitable Resources 30,037
Natural Gas Utility & Producer
1,200,000 Dynegy 29,175
Natural Gas & Electric Processing,
Production & Marketing
600,000 Atmos Energy 12,262
Natural Gas Utility
- -----------------------------------------------------------------------
71,474
>Mining: 0.1%
283,000 US Aggregates (b) 3,396
Aggregrates, Ready Mix & Asphalt
>Oil Services: 0.5%
205,000 Hanover Compressor (b) 7,739
Natural Gas Compressor Rental
1,120,000 Newpark Resources (b) 6,860
Oilfield Fluid Management & Equipment Rental
1,250,000 Saipem (Italy) 4,516
Offshore Construction
- -----------------------------------------------------------------------
19,115
-------
Energy/Minerals: Total 279,556
62
<PAGE>
Acorn Fund
>Statement of Investments, continued
Number of Shares Value (000)
- -----------------------------------------------------------------------
Other Industries: 5.3%
>Real Estate: 4.2%
968,000 The Rouse Company $20,570
Regional Shopping Malls
903,125 Security Capital European Realty (b) 18,063
Strategic Real Estate Investments
466,000 Forest City Enterprises, Cl. B 14,475
Shopping Malls
500,000 First Industrial Realty Trust 13,719
Industrial Properties
412,000 IRSA (Argentina) 13,326
Real Estate Management & Development
820,000 Cornerstone Properties 11,992
Downtown Office Buildings
500,000 SL Green Realty 10,875
Downtown Office Buildings
400,000 Manufactured Home Communities 9,725
Manufactured Home Communities
400,000 Macerich Company 8,325
Regional Shopping Malls
699,000 LaSalle Hotel Properties 8,170
Upscale/Full Service Hotels
385,000 First Washington Realty Trust (c) 7,195
240,000 First Washington Realty Trust, Cv.
Pfd. (c) 5,730
Community Shopping Centers
250,000 BRE Properties 5,672
Apartments - Class A
200,000 General Growth Properties 5,600
Shopping Malls REIT
250,000 Amli Residential 5,047
Midwestern Apartments
250,000 Summit Properties 4,469
Southeastern Apartments
153,000 Consolidated Tomoka 1,951
16,000 Acres of Florida Land
- -----------------------------------------------------------------------
164,904
>Waste Management: 0.1%
287,000 Stericycle (b) 5,399
Medical Waste Disposal
>Regulated Utilities: 1.0%
1,300,000 Azurix (b) 11,619
Water Utility Holding Company
Principal Amount or
Number of Shares Value (000)
- -----------------------------------------------------------------------
600,000 Conectiv $10,087
Electric Utility in New Jersey, Delaware
& Maryland
865,000 Unisource Energy (b) 9,677
Electric Utility in Arizona
130,000 CH Energy 4,290
Electric Utility in New York
200,000 Utilicorp United 3,888
Global Utility Holding Company
- -----------------------------------------------------------------------
39,561
--------
Other Industries: Total 209,864
- -----------------------------------------------------------------------
Other Securities: 0.0% 19
Total Common Stocks and Other
----------
Equity-Like Securities: 92.2% $3,615,126
(Cost: $2,077,035)
Short-Term Obligations: 7.7%
Yield 4.00%-6.60% Due 1/3-2/3/00
$ 39,106 Aetna 39,073
37,110 Ford Motor Credit 37,098
33,386 GTE Corp 33,333
33,232 Exxon 33,214
29,974 Sears 29,920
28,962 AON 28,905
25,000 Bell Atlantic Financial 24,989
18,308 Citicorp 18,289
16,503 Wal-Mart 16,491
14,943 Associates First Capital 14,940
14,350 US West 14,334
11,907 US Treasury Bill 11,853
---------
(Amortized Cost: $302,439) 302,439
---------
Total Investments: 99.9% 3,917,565
(Cost: $2,379,474)
Cash and Other Assets Less Liabilities: 0.1% 3,274
---------
Total Net Assets: 100% $3,920,839
========================================================================
- ------------------------------------------------------------------------
>Notes to Statement of Investment:
(a) At December 31, 1999, for federal income tax purposes, cost of investment
was $2,318,230,000 and net unrealized appreciation was $1,536,335,000,
consisting of gross unrealized appreciation of $1,771,700,000 and gross
unrealized depreciation of $235,365,000.
(b) Non-income producing security.
63
<PAGE>
(c) On December 31, 1999, the Fund held the following percentages of the
outstanding voting shares of the companies listed below:
Corvas International............................................ 9.99%
Sirena Apparel.................................................. 9.92%
World Acceptance................................................ 9.47%
First Washington Realty Trust................................... 8.65%
COMARCO......................................................... 8.28%
Microcide Pharmaceuticals....................................... 8.24%
Gadzooks........................................................ 8.17%
Airnet Systems.................................................. 7.53%
International Total Services.................................... 7.51%
Aztec Technology Partners....................................... 7.28%
Synaptic Pharmaceuticals........................................ 7.15%
Data Transmission Network....................................... 6.99%
Phoenix Investment Partners..................................... 6.90%
Bigfoot International........................................... 6.54%
Tesoro Petroleum................................................ 6.49%
Creditrust...................................................... 6.48%
Gibraltar Steel................................................. 6.38%
Capital Trust................................................... 6.25%
RCM Technologies................................................ 5.86%
Commonwealth Bancorp............................................ 5.86%
Labor Ready..................................................... 5.84%
Kronos.......................................................... 5.66%
Ace Cash Express................................................ 5.66%
Monarch Casino & Resort......................................... 5.64%
National Data................................................... 5.53%
Atchison Casting................................................ 5.49%
GP Strategies................................................... 5.41%
Philadelphia Consolidated Holding............................... 5.38%
Americredit..................................................... 5.32%
Tipperary....................................................... 5.29%
Myriad Genetics................................................. 5.19%
The aggregate cost and value of investments in these companies at December 31,
1999, was $391,459,000 and $457,372,000, respectively. The market value of
these securities represents 11.67% of the total net assets at December 31, 1999.
During the year ended December 31, 1999, cost of purchases and proceeds from
sales in affiliated companies was $115,904,000 and $38,702,000, respectively.
Dividends received from these companies amounted to $2,378,000 and net realized
gain on sales of investments in such companies amounted to $18,100,000.
(d) On December 31, 1999, the market value of foreign securities represents
17.16% of total net assets. The Fund's foreign portfolio was diversified
as follows:
Value(000) Percent
---------- -------
Japan............................................ $224,817 5.73%
United Kingdom................................... 98,921 2.52%
Singapore........................................ 93,493 2.38%
Sweden........................................... 64,368 1.64%
Canada........................................... 44,042 1.12%
France........................................... 38,098 0.97%
Italy............................................ 34,490 0.88%
Netherlands...................................... 32,055 0.82%
Australia........................................ 14,388 0.37%
Argentina........................................ 13,326 0.34%
Mexico........................................... 9,309 0.24%
Germany.......................................... 4,583 0.12%
China............................................ 1,112 0.03%
Total............................................ $673,002 17.16%
64
<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, 1999, 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 auditing standards generally
accepted in the United States. 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, 1999, 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,
1999, the results of their operations and changes in their net assets and
financial highlights for the periods indicated therein, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Chicago, Illinois
February 3, 2000
See accompanying notes to financial statements
65
<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
- ------------------------------------------------------------------------------------------------------------------------
12/31/99
<S> <C> <C> <C> <C> <C>
Assets
Investments, at value (cost: Acorn Fund $2,379,474; Acorn
International $1,278,170; Acorn USA $326,308; Acorn
Twenty $54,344; Acorn Foreign Forty $68,412) $3,917,565 $2,863,460 $373,990 $65,782 $106,507
Cash 1 13,086 1 1 618
Organization costs -- -- 36 -- --
Receivable for:
Securities sold 3,710 1,676 294 4,410 --
Fund shares sold 2,692 3,816 906 170 478
Dividends and interest 2,744 1,897 23 24 134
Other assets 468 210 28 -- --
- ------------------------------------------------------------------------------------------------------------------------
Total assets 3,927,180 2,884,145 375,278 70,387 107,737
Liabilities and Net Assets
Net unrealized depreciation on foreign forward
currency contracts -- 1,951 -- -- --
Payable for:
Securities purchased 4,681 10,739 3,279 1,872 332
Fund shares redeemed 675 2,088 424 12 11
Organization costs -- -- 36 -- --
Other 985 1,164 111 33 43
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 6,341 15,942 3,850 1,917 386
- ------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $3,920,839 $2,868,203 $371,428 $68,470 $107,351
========================================================================================================================
Fund shares outstanding 211,618 81,178 22,170 4,996 5,387
========================================================================================================================
Pricing of Shares
Net asset value, offering price and redemption price
per share $ 18.53 $ 35.33 $ 16.75 $ 13.70 $ 19.93
========================================================================================================================
Analysis of Net Assets
Paid-in capital $2,171,715 $1,246,840 $317,053 $53,298 $ 68,575
Accumulated net realized gain on sales
of investments, futures and foreign
currency transactions 208,505 49,089 6,668 3,734 767
Net unrealized appreciation of investments and other
assets (net of unrealized PFIC gains of $65,710 for
Acorn International and $305 for Acorn Foreign Forty) 1,538,091 1,517,676 47,682 11,438 37,790
Undistributed net investment income 2,528 54,598 25 -- 219
- ------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
Fund shares outstanding $3,920,839 $2,868,203 $371,428 $68,470 $107,351
========================================================================================================================
</TABLE>
66
<PAGE>
Acorn Family of Funds
>Statements of Operations
<TABLE>
<CAPTION>
Acorn
Acorn Fund International
Year Year Year Year
(in thousands) ended 12/31, ended 12/31, ended 12/31, ended 12/31,
- -------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Investment Income:
Dividends $ 34,159 $ 28,483 $ 20,878 $ 26,225
Interest 11,416 13,414 4,883 10,223
- -------------------------------------------------------------------------------------------------------------------------
45,575 41,897 25,761 36,448
Foreign taxes withheld (330) (513) (2,094) (2,521)
- -------------------------------------------------------------------------------------------------------------------------
Total investment income 45,245 41,384 23,667 33,927
Expenses:
Investment advisory 23,437 24,905 15,668 14,124
Administration 1,699 1,812 961 858
Custodian 875 924 2,321 1,957
Transfer and dividend disbursing agent 1,312 1,414 1,380 1,384
Reports to shareholders 448 573 446 575
Legal and audit 229 223 136 97
Registration and blue sky 64 55 58 58
Trustees' and other 683 446 399 166
- -------------------------------------------------------------------------------------------------------------------------
Total expenses 28,747 30,352 21,369 19,219
Less custodian fees paid indirectly -- -- -- --
Less reimbursement of expenses by advisor -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net expenses 28,747 30,352 21,369 19,219
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 16,498 11,032 2,298 14,708
Net Realized and Unrealized Gain (Loss) on Investments,
Futures and Foreign Currency Transactions:
Net realized gain (loss) on sales of investments 915,362 252,065 205,354 2,408
Net realized gain (loss) on foreign currency transactions (110) (132) 1,133 (6,031)
Net realized gain (loss) on futures (6,918) (17,930) (403) 7,811
Change in net unrealized appreciation of
investments and foreign currency transactions 92,272 (43,553) 1,054,166 215,847
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments,
futures and foreign currency transactions 1,000,606 190,450 1,260,250 220,035
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,017,104 $201,482 $1,262,548 $234,743
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements
67
<PAGE>
<TABLE>
<CAPTION>
Acorn
Acorn USA Acorn Twenty Foreign Forty
Year Year Year Inception 11/23 Year Inception 11/23
ended 12/31, ended 12/31, ended 12/31, through 12/31, ended 12/31, through 12/31,
- -----------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
$ 2,223 $ 882 $ 280 $ 38 $ 459 $ 6
1,259 1,042 130 7 158 3
- -----------------------------------------------------------------------------------------
3,482 1,924 410 45 617 9
-- -- -- -- (42) (1)
- -----------------------------------------------------------------------------------------
3,482 1,924 410 45 575 8
2,805 2,336 503 26 426 11
150 124 28 1 22 1
43 39 12 2 85 3
218 246 105 18 60 13
95 126 75 1 53 1
41 32 29 1 29 1
26 33 20 4 25 2
85 43 17 -- 6 --
- -----------------------------------------------------------------------------------------
3,463 2,979 789 53 706 32
(6) (5) (11) (2) (13) (3)
-- -- (23) (12) (42) (11)
- -----------------------------------------------------------------------------------------
3,457 2,974 755 39 651 18
- -----------------------------------------------------------------------------------------
25 (1,050) (345) 6 (76) (10)
38,768 23,791 5,015 (246) 792 74
-- -- -- -- -- --
-- -- -- -- -- --
30,941 (14,625) 8,906 2,532 36,932 1,163
- -----------------------------------------------------------------------------------------
69,709 9,166 13,921 2,286 37,724 1,237
- -----------------------------------------------------------------------------------------
$69,734 $ 8,116 $13,576 $2,292 $37,648 $1,227
=========================================================================================
</TABLE>
68
<PAGE>
Acorn Family of Funds
>Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Acorn
Acorn Fund International
Year Year Year Year
(in thousands) ended 12/31, ended 12/31, ended 12/31, ended 12/31,
- ------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
From Operations:
Net investment income (loss) $ 16,498 $ 11,032 $ 2,298 $ 14,708
Net realized gain (loss) on sales of investments,
futures and foreign currency transactions 908,334 234,003 206,084 4,188
Change in net unrealized appreciation of
investments and foreign currency transactions 92,272 (43,553) 1,054,166 215,847
------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 1,017,104 201,482 1,262,548 234,743
Distributions to Shareholders From:
Net investment income (16,501) (6,284) (16,992) (12,611)
Net realized gain (638,460) (219,264) (119,344) (22,701)
- ------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (654,961) (225,548) (136,336) (35,312)
From Fund Share Transactions:
Reinvestment of dividend and capital
gain distributions 586,161 204,856 128,048 33,102
Proceeds from other shares sold 346,317 490,137 648,562 406,219
- ------------------------------------------------------------------------------------------------------------------
932,478 694,993 776,610 439,321
Payments for shares redeemed (923,243) (802,923) (760,116) (536,194)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 9,235 (107,930) 16,494 (96,873)
- ------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets 371,378 (131,996) 1,142,706 102,558
Net Assets:
Beginning of period 3,549,461 3,681,457 1,725,497 1,622,939
- ------------------------------------------------------------------------------------------------------------------
End of period $3,920,839 $3,549,461 $2,868,203 $1,725,497
==================================================================================================================
Undistributed Net Investment Income $ 2,528 $ 2,531 $ 54,598 $ 5,419
==================================================================================================================
</TABLE>
See accompanying notes to financial statements
69
<PAGE>
<TABLE>
<CAPTION>
Acorn
Acorn USA Acorn Twenty Foreign Forty
Year Year Year Inception 11/23 Year Inception 11/23
ended 12/31, ended 12/31, ended 12/31, through 12/31, ended through 12/31,
- --------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C>
$ 25 $ (1,050) $ (345) $ 6 $ (76) $ (10)
38,768 23,791 5,015 (246) 792 74
30,941 (14,625) 8,906 2,532 36,932 1,163
- --------------------------------------------------------------------------------------------------
69,734 8,116 13,576 2,292 37,648 1,227
-- -- -- -- -- --
(28,268) (19,532) (705) -- (99) --
- --------------------------------------------------------------------------------------------------
(28,268) (19,532) (705) -- (99) --
25,972 17,705 658 -- 94 --
118,916 175,578 34,563 31,688 66,325 14,739
- --------------------------------------------------------------------------------------------------
144,888 193,283 35,221 31,688 66,419 14,739
(95,877) (85,540) (13,346) (256) (12,402) (181)
- --------------------------------------------------------------------------------------------------
49,011 107,743 21,875 31,432 54,017 14,558
- --------------------------------------------------------------------------------------------------
90,477 96,327 34,746 33,724 91,566 15,785
280,951 184,624 33,724 -- 15,785 --
- --------------------------------------------------------------------------------------------------
$371,428 $280,951 $ 68,470 $33,724 $107,351 $15,785
==================================================================================================
$ 25 -- -- $ 6 $ 219 $ 9
==================================================================================================
</TABLE>
70
<PAGE>
Acorn Family of Funds
>Financial Highlights
<TABLE>
<CAPTION>
Years
Acorn Fund ended 12/31,
- ----------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1999 1998
<S> <C> <C>
Net Asset Value, beginning of year $16.85 $16.99
Income From Investment Operations
Net investment income .09 .04
Net realized and unrealized gain (loss) on investments, foreign currency and futures 5.22 .91
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 5.31 .95
Less Distributions
Dividends from net investment income (0.09) (0.03)
Distributions from net realized and unrealized gains reportable for federal income taxes (3.54) (1.06)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (3.63) (1.09)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $18.53 $16.85
================================================================================================================
Total Return 33.4% 6.0%
Ratios/Supplemental Data
Ratio of expenses to average net assets .85% .84%
Ratio of net investment income to average net assets .49% .30%
Portfolio turnover rate 34% 24%
Net assets at end of period (in millions) $3,921 $3,549
Years
Acorn International ended 12/31,
- ----------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1999 1998
Net Asset Value, beginning of period $20.82 $18.39
Income From Investment Operations
Net investment income (loss) .83 .17
Net realized and unrealized gain (loss) on investments 15.45 2.68
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 16.28 2.85
Less Distributions
Dividends from net investment income (.22) (.15)
Distributions from net realized and unrealized gains reportable for federal income taxes (1.55) (.27)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (.42)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $35.33 $20.82
================================================================================================================
Total Return (a) 79.2% 15.4%
Ratios/Supplemental Data
Ratio of expenses to average net assets 1.11% 1.12%
Ratio of net investment income to average net assets .12% .86%
Portfolio turnover rate 46% 37%
Net assets at end of period (in millions) $2,868 $1,725
(a) Total return is not annualized for periods less than one year.
* Annualized
Years
Acorn USA ended 12/31,
- ----------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each period 1999 1998
Net Asset Value, beginning of period $14.80 $15.12
Income From Investment Operations
Net investment gain (loss) (b) -- (.07)
Net realized and unrealized gain on investments 3.32 .87
- ----------------------------------------------------------------------------------------------------------------
Total from investment operations 3.32 .80
- ----------------------------------------------------------------------------------------------------------------
Less Distributions
Dividends from net investment income -- --
Distributions from net realized and unrealized gains reportable for federal income taxes (1.37) (1.12)
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.37) (1.12)
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $16.75 $14.80
================================================================================================================
Total Return (c) 23.0% 5.8%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) 1.15% 1.20%
Ratio of net investment income (loss) to average net assets 0.00% (.42%)
Portfolio turnover rate 49% 42%
Net assets at end of period (in millions) $ 371 $ 281
</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 year ended December 31, 1996.
(b) Net investment income (loss) per share was based upon the average shares
outstanding during each period.
(c) Total return is not annualized for periods less than one year.
* Annualized
See accompanying notes to financial statements
71
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
$15.04 $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58
.15 .09 .11 .06 .04 .07 .11 .12
3.57 2.93 2.42 (1.10) 3.50 2.16 2.95 (1.62)
- -------------------------------------------------------------------------
3.72 3.02 2.53 (1.04) 3.54 2.23 3.06 (1.50)
(0.16) (.11) (.09) (.11) (.06) (.08) (.10) (.13)
(1.61) (1.47) (1.08) (.56) (.59) (.41) (.15) (.44)
- -------------------------------------------------------------------------
(1.77) (1.58) (1.17) (.67) (.65) (.49) (.25) (.57)
- -------------------------------------------------------------------------
$16.99 $15.04 $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51
=========================================================================
25.0% 22.6% 20.8% (7.4%) 32.3% 24.2% 47.3% (17.5%)
.56% .57% .57% .62% .65% .67% .72% .82%
.75% .53% .89% .55% .30% .72% 1.30% 1.60%
32% 33% 29% 18% 20% 25% 25% 36%
$3,681 $2,842 $2,399 $1,983 $2,035 $1,449 $1,150 $ 767
<CAPTION>
Inception 9/23
through 12/31,
- ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
$19.61 $16.59 $15.24 $15.94 $10.69 10.00
.40 .13 .16 .07 -- (.03)
(.34) 3.29 1.20 (.67) 5.25 .72
- ----------------------------------------------------------
.06 3.42 1.36 (.60) 5.25 .69
(.38) (.12) -- -- -- --
(.90) (.28) (.01) (.10) -- --
- ----------------------------------------------------------
(1.28) (.40) (.01) (.10) -- --
- ----------------------------------------------------------
$18.39 $19.61 $16.59 $15.24 $15.94 $ 10.69
==========================================================
0.2% 20.7% 8.9% (3.8%) 49.1% 6.9%
1.19% 1.17% 1.22% 1.24% 1.21% 2.35%*
.58% .51% .90% 0.48% 0.06% (1.37%)*
39% 34% 26% 20% 19% 20%*
$1,623 $1,773 $1,276 $1,363 $ 907 $ 30
<CAPTION>
Inception 9/4
through 12/31,
- ---------------------
1997 1996
<S> <C>
$11.65 $10.00
(.07) (.02)
3.83 1.67
- ---------------------
3.76 1.65
- ---------------------
-- --
(.29) --
- ---------------------
(.29) --
- ---------------------
$15.12 $11.65
=====================
32.3% 16.5%
1.35% 1.85%*
(.49%) (.99%)*
33% 20%*
$ 185 $ 53
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Year Inception 11/23
Acorn Twenty ended 12/31, through 12/31,
- ------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year 1999 1998
<S> <C> <C>
Net Asset Value, beginning of period $10.71 $ 10.00
Income From Investment Operations
Net investment income (loss) (b) (.08) --
Net realized and unrealized gain on investments 3.21 .71
- ------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.13 .71
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions
Distributions from net realized and unrealized gains reportable for federal income
taxes (.14) --
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $13.70 $ 10.71
- ------------------------------------------------------------------------------------------------------------------------
Total Return (d) 29.3% 7.1%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (c) 1.37% 1.41%*
Ratio of net investment income (loss) to average net assets (c) (.62%) 0.22%*
Portfolio turnover rate 101% 173%*
Net assets at end of period (in millions) $ 68 $ 34
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 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 and the
year ended December 31, 1999.
(b) Net investment income per share was based upon the average shares
outstanding during the period.
(c) Acorn Twenty was reimbursed by the Advisor for certain net expenses from
November 23, 1998 through December 31, 1999. 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, for the period ended 12/31/98 and 1.41% and
(.66%), respectively, for the year ended 12/31/99.
(d) Total return is not annualized for periods less than one year.
*Annualized
<TABLE>
<CAPTION>
Year Inception 11/23
Acorn Foreign Forty ended 12/31, through 12/31,
- ----------------------------------------------------------------------------------------------------------------------------
For a share outstanding throughout each year 1999 1998
<S> <C> <C>
Net Asset Value, beginning of period $11.00 $ 10.00
Income From Investment Operations
Net investment loss (c) (.02) (.01)
Net realized and unrealized gain on investments 8.98 1.01
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations 8.96 1.00
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions
Distributions from net realized and unrealized gains reportable for federal income taxes (.03) .00
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, end of period $19.93 $ 11.00
- --------------------------------------------------------------------------------------------------------------------------
Total Return (d) 81.6% 10.0%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (c) 1.48% 1.73%*
Ratio of net investment loss to average net assets (c) (.17)% (.78)%*
Portfolio turnover rate 60% 90%*
Net assets at end of period (in millions) $ 107 $ 16
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 and the
year ended December 31, 1999.
(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, 1999. 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, for the period ended 12/31/98 and 1.57% and
(.26%), respectively, for the year ended 12/31/99.
(d) Total return is not annualized for periods less than one year.
* Annualized
See accompanying notes to financial statements
73
<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. A Fund bears the market risk that arises from changes in
the value of financial instruments and securities indices (futures contracts) or
from changes in foreign currency rates (forward foreign currency contracts) and
the credit risk should a counterparty fail to perform under such contracts.
None of the funds had futures contracts open at December 31, 1999. Acorn
International entered into forward contracts to sell foreign currency as
described below:
Acorn International
<TABLE>
<CAPTION>
Foreign Settlement U.S. Dollar Unrealized Loss
Amount (000) Currency Date Proceeds (000) (000)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
155,000 Hong Kong Dollar 1/10/00 $19,939 $ 439
5,260,000 Japanese Yen 3/10/00 $52,040 $1,512
------
Total Unrealized Loss $1,951
======
</TABLE>
Acorn USA, Acorn Twenty and Acorn Foreign Forty did not enter into any futures
or forward foreign currency contracts during the year ended December 31, 1999.
74
<PAGE>
Acorn Family of Funds
>Notes to Financial Statements
>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 1999 of $715,158,000, $135,249,000 and $27,669,000,
respectively, which was sufficient to allow each fund not to incur any income
tax. Acorn Twenty and Acorn Foreign Forty were not required to pay a long-term
capital gain 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 for
Acorn International is follows:
<TABLE>
<CAPTION>
Acorn International (000)
- -----------------------------------------------------------------------------
<S> <C>
Cumulative net unrealized appreciation
recognized in prior years at December 31, 1998 $ 311
Unrealized appreciation recognized through
December 31, 1999 66,039
Cumulative net unrealized appreciation recognized
in prior years on PFICs sold through
December 31, 1999 (640)
-------
Cumulative net unrealized appreciation recognized
in prior years at December 31, 1999 65,710
-------
A summary of transactions relating to PFICs during
1999 follows:
Unrealized appreciation recognized 66,039
Gain on the sale of PFICs classified as
ordinary income 2,710
</TABLE>
At December 31, 1999, Acorn Fund had no cumulative net unrealized appreciation
on PFICs.
At December 31, 1999, Acorn Foreign Forty had cumulative net unrealized
appreciation on PFICs of $305,000, of which $286,000 was recognized in 1999.
Distributions relating to PFICs are treated as ordinary income for Federal
income tax purposes.
Dividends payable to shareholders are recorded by the Funds on the ex-dividend
date.
Reclassifications have been made in 1999 for Acorn Fund, Acorn International
and Acorn USA in the accompanying analysis of net assets from accumulated net
realized gain on sale of investments to paid-in-capital of $95,281,000,
$19,806,000 and $4,308,000, respectively. A reclassification was also made in
Acorn International of $1,526,000 from undistributed net income to paid-in-
capital. All reclassifications were made to reflect differences between
financial reporting and income tax basis and had no impact on net asset value.
3. Transactions with Affiliates
The Funds' investment advisor, Wanger Asset Management, L.P. ("WAM") furnishes
continuing investment supervision to the Funds and is responsible for the
overall management of the Funds' business affairs.
Under the Funds' investment management 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 $1.3 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%
WAM has also contracted to provide administrative services to each Fund 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. Acorn Fund paid trustees' fees and expenses of the following:
75
<PAGE>
- -------------------------------------------------
(in thousands) 1999 1998
Acorn Fund $ 293 $ 211
Acorn International 150 94
Acorn USA 24 11
Acorn Twenty 4 --
Acorn Foreign Forty 2 --
-----------------
$ 473 $ 316
-----------------
WAM advanced Acorn USA $107,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period September 1996 through August 2001.
WAM Brokerage Services, L.L.C., a wholly owned subsidiary of WAM, is the
distributor of the Funds' shares and receives no compensation for its services.
4. 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 1999.
5. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the Statements of Changes in
Net Assets are in respect of the following numbers of shares:
Acorn Fund
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Shares sold 19,615 28,471
Shares issued in reinvestment of
dividend and capital gain distributions 33,973 12,814
---------------------
53,588 41,285
Less shares redeemed 52,676 47,224
---------------------
Net increase (decrease) in
Shares outstanding 912 (5,939)
===========================================================================
Acorn International
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Shares sold 25,580 19,818
Shares issued in reinvestment of
dividend and capital gain distributions 4,028 1,540
---------------------
29,608 21,358
Less shares redeemed 31,304 26,757
---------------------
Net decrease in
shares outstanding (1,696) (5,399)
===========================================================================
Acorn USA
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Shares sold 7,922 11,062
Shares isued in reinvestment of
dividend and capital gain distributions 1,645 1,270
---------------------
9,567 12,332
Less shares redeemed 6,383 5,558
---------------------
Net increase in shares outstanding 3,184 6,774
===========================================================================
Acorn Twenty
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Shares sold 2,862 3,176
Shares issued in reinvestment of
dividend and capital gain distributions 51 --
---------------------
2,913 3,176
Less shares redeemed 1,067 26
---------------------
Net increase in shares outstanding 1,846 3,150
===========================================================================
Acorn Foreign Forty
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Shares sold 4,836 1,453
Shares issued in reinvestment of
dividend and capital gain distributions 7 --
---------------------
4,843 1,453
Less shares redeemed 891 18
---------------------
Net increase in shares outstanding 3,952 1,435
===========================================================================
6. Investment Transactions
Investment Transactions (excluding money market instruments) for each of the
Funds are as follows:
Acorn Fund
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Investment securities:
Purchases $1,092,137 $ 830,390
Proceeds from sales 1,809,918 1,048,096
===========================================================================
Acorn International
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Investment securities:
Purchases $ 846,014 $ 570,304
Proceeds from sales 844,062 709,630
===========================================================================
Acorn USA
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Investment securities:
Purchases $ 138,244 $ 178,181
Proceeds from sales 135,001 95,639
===========================================================================
Acorn Twenty
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Investment securities:
Purchases $ 71,463 $ 34,025
Proceeds from sales 53,710 4,483
===========================================================================
Acorn Foreign Forty
- ---------------------------------------------------------------------------
(in thousands) 1999 1998
Investment securities:
Purchases $ 76,252 $ 13,984
Proceeds from sales 26,238 974
===========================================================================
76
<PAGE>
Appendix - Description of Bond Ratings
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, WAM believes that the quality of debt securities in
which the Funds invest should be continuously reviewed. A rating is not a
recommendation to purchase, sell or hold a security, because it does not take
into account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating should be
evaluated independently. Ratings are based on current information furnished by
the issuer or obtained by the ratings services from other sources which they
consider reliable. Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
Moody's Ratings
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very
77
<PAGE>
moderate and thereby not well safeguarded during both good and bad times over
the future. Uncertainty of position characterizes bonds in this class.
B--Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds rated Caa are of poor standing. Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.
Ca--Bonds rated Ca represent obligations which are speculative in a high
degree. Such bonds are often in default or have other marked shortcomings.
S&P Ratings AAA--Bonds rated AAA have the highest rating. Capacity to pay
principal and interest is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.
BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation among such bonds and CC the highest degree of
speculation. Although such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
78
