-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BrbgqcUW1qQkVdhzhWzLPnGsStBy4qAyiHSJxNqmV1Qj4TLzqnFXTLZlmWff0zeo LTbjyEBchdYryApNPsmZyA== 0000950131-96-001766.txt : 19960501 0000950131-96-001766.hdr.sgml : 19960501 ACCESSION NUMBER: 0000950131-96-001766 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19960430 EFFECTIVENESS DATE: 19960430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACORN INVESTMENT TRUST CENTRAL INDEX KEY: 0000002110 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 362692100 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 002-34223 FILM NUMBER: 96553244 BUSINESS ADDRESS: STREET 1: 227 W MONROE STE 3000 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126349200 MAIL ADDRESS: STREET 1: 227 W MONROE ST STE 3000 STREET 2: ATTN: BRUCE LAUER CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: ACORN FUND INC DATE OF NAME CHANGE: 19920703 485BPOS 1 ACORN INVESTMENT TRUST As filed with the Securities and Exchange Commission on April 29, 1996 Securities Act registration no. 2-34223 Investment Company Act file no. 811-1829 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A ------------------------------ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 53 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 28 ------------------------------ ACORN INVESTMENT TRUST (Registrant) 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 Telephone number: 312/634-9200 ------------------------------ Ralph Wanger Janet D. Olsen Acorn Investment Trust Bell, Boyd & Lloyd 227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300 Chicago, Illinois 60606 Chicago, Illinois 60602 (Agents for service) ------------------------------ Amending Parts A, B, and C, and filing exhibits ------------------------------ It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to rule 485(b) [ X ] on MAY 1, 1996 pursuant to rule 485(b) [ ] 60 days after filing pursuant to rule 485(a)(1) [ ] on pursuant to rule 485(a)(1) [ ] 75 days after filing pursuant to rule 485(a)(2) [ ] on pursuant to rule 485(a)(2). - -------------------------------------------------------------------------------- Registrant has elected to register pursuant to Rule 24f-2 an indefinite number of shares of beneficial interest of its series designated Acorn Fund and Acorn International. On February 28, 1996, Registrant filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995. - -------------------------------------------------------------------------------- ACORN INVESTMENT TRUST Cross-reference sheet pursuant to rule 495(a) of Regulation C
ITEM LOCATION OR CAPTION* ---- -------------------- Part A (prospectus) ------------------- 1(a) & (b) Front cover 2(a) Expenses and Performance - Expenses (b) & (c) Contents; The Funds at a Glance 3(a) Financial History (b) Not applicable (c) Performance (d) Performance 4(a)(i) Organization (ii) The Funds at a Glance; The Acorn Philosophy; Securities, Investment Practices, and Risks (b) Securities, Investment Practices, and Risks (c) The Funds at a Glance - Who May Want to Invest; The Acorn Philosophy; Securities, Investment Practices, and Risks 5(a) Organization (b) Organization; Management; The Funds in Detail - Expenses; Expenses and Performance - Expenses; How to Contact Us (c) Organization; Management (d) Not applicable (e) How to Buy Shares; How to Sell Shares; How to Contact Us (f) Expenses and Performance - Expenses; The Funds in Detail - Expenses (g) Not applicable 5A The information called for is contained in the annual reports of Acorn Fund and Acorn International 6(a) Organization; How to Buy Shares; How to Sell Shares; Exchange Plan Restrictions (b) Not applicable (c) Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Redemptions; Exchange Plan Restrictions (d) Not applicable (e) Doing Business With Acorn; How to Buy Shares; How to Sell Shares; Shareholder and Account Policies - Statements and Reports; How to Contact Us (f) & (g) Dividends, Capital Gains, and Taxes 7 Doing Business with Acorn; How to Buy Shares; Shareholder and Account Policies - Purchases; Shareholder and Account Policies - Telephone Exchange Plan (a) Not applicable - -------------
/*/ References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. 1 ITEM LOCATION OR CAPTION/*/ --------- ----------------------------------- (b) How to Buy Shares; Shareholder and Account Policies - Share Price; Shareholder and Account Policies - Telephone Exchange Plan (c) Not applicable (d) How to Buy Shares; Exchange Plan Restrictions (e) & (f) Not applicable 8 (a) Doing Business with Acorn; How to Sell Shares; Shareholder and Account Policies - Redemptions; Shareholder and Account Policies - Telephone Exchange Plan; Exchange Plan Restrictions (b) Shareholder and Account Policies - Purchases (c) & (d) Shareholder and Account Policies - Redemptions 9 Not applicable Part B (Statement of additional information) 10 Front cover 11 Front cover 12 Part A - Organization 13 (a)-(c) Investment Objectives and Policies; Investment Techniques and Risks; Investment Restrictions (d) Investment Techniques and Risks 14 (a)-(b) Trustees and Officers (c) Not applicable 15 (a) & (b) Not applicable (c) Trustees and Officers 16 (a)(i) Investment Adviser (ii) Trustees and Officers (iii) Investment Adviser (b) Investment Adviser (c)-(g) Not applicable (h) Custodian; Independent Auditors (i) Not applicable 17 (a) Portfolio Transactions (b) Not applicable (c) & (d) Portfolio Transactions (e) Not applicable 18 (a) The Trust (b) Not applicable 19 (a)-(c) Purchasing and Redeeming Shares 20 Additional Tax Information 21 (a)-(b) Distributor 21 (c) Not Applicable - -------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. 2
ITEM LOCATION OR CAPTION/*/ --------- ----------------------------------- 22 Performance Information 23 Information About the Funds Part C (Other Information) -------------------------- 24 Financial statements and exhibits 25 Persons controlled by or under common control with registrant 26 Number of holders of securities 27 Indemnification 28 Business and other connections of investment adviser 29 Principal underwriters 30 Location of accounts and records 31 Management services 32 Undertakings
- --------------- *References are to captions within the part of the registration statement to which the particular item relates except as otherwise indicated. 3 prospectus 1996 Acorn Fund Acorn International No-Load Funds Prospectus and Application May 1, 1996 Managed by Wanger Asset Management, L.P. Dear Investor: Thank you for your interest in the Acorn Funds. This prospectus outlines the Funds' policies and procedures, and contains quick-reference pages for purchases, redemptions, telephone transactions, fund contacts and more. Please take time to read it carefully. Acorn Fund and Acorn International are small-cap growth funds, managed by Chicago-based Wanger Asset Management, L.P. Our flagship, Acorn Fund, has helped investors reach for their goals for more than 25 years; Acorn International has applied the same investment philosophy to 40 markets worldwide for over three years. Co-managers Charles P. McQuaid, Terence M. Hogan and Leah J. Zell work closely with our investment team to find interesting small companies to buy, both here and abroad. We want to own first-class companies for the long-term, and avoid speculative trading. Investing with the Acorn Funds helps you save money. How? Both funds are 100% no-load, which means that all of your money goes to work for you immediately. There are no sales charges, and no 12b-1 fees or back-end load fees, so all of your dollars are invested at net asset value. Acorn invests in companies for the long-term (usually 3-5 years), so our turnover rate is low. This minimizes both trading costs and shareholders' taxes. All these factors add up to greater value for our shareholders. Providing quality service is a source of pride for us. We strive daily to make doing business with Acorn as trouble-free as possible. We hope you'll find that all our fund literature and account forms are easy to understand and complete. Now, whether you want to make a purchase, redemption, address change, exchange between funds or change your distribution option, you may easily do so over a recorded telephone line at no charge. If you ever need help or have questions about a transaction, a friendly customer service representative can help. Simply call our toll-free number, 1-800-9-ACORN-9 (1-800-922-6769) during regular business hours for assistance. We invite you to squirrel away your acorns for a day when you really need them, and look forward to a long and mutually rewarding relationship with you. Happy investing, /S/ Ralph Wanger - ------------------------------- Ralph Wanger President and Portfolio Manager (Not part of the prospectus.) Please read this prospectus before investing, and keep it on file for future reference. It contains important information, including how the funds invest and the services available to shareholders. A Statement of Additional Information ("SAI") dated May 1, 1996 has been filed with the Securities and Exchange Commission, and is incorporated herein by ref- erence (is legally considered a part of this prospectus). The SAI is available free upon request by calling Acorn at 1-800-9-ACORN-9 (1-800-922-6769). LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS- SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA- TION TO THE CONTRARY IS A CRIMINAL OFFENSE. ACORN FUND ACORN INTERNATIONAL NO-LOAD FUNDS Acorn Fund and ACORN INTERNATIONAL invest for long-term capital growth. Each fund invests mostly in stocks of small and medium-size companies. Acorn Fund invests mostly in U.S. companies, but also has significant foreign investments. Acorn International invests in non-U.S. companies. PROSPECTUS MAY 1, 1996 ACORN INVESTMENT TRUST 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 CONTENTS THE FUNDS AT A GLANCE 4 Goal, Strategy, and Who May Want to Invest EXPENSES AND PERFORMANCE 5 Expenses 6 Financial History 8 Performance YOUR ACCOUNT 9 Doing Business with Acorn 9 Acorn Facts 10 Choices for your Account Registration 12 How to Buy Shares 14 How to Sell Shares SHAREHOLDER AND ACCOUNT 16 Statements and Reports POLICIES 16 Share Price 18 Address Changes 18 Telephone Transactions 20 Exchange Plan Restrictions DIVIDENDS, CAPITAL GAINS, 23 Distribution Options and Taxes AND TAXES THE FUNDS IN DETAIL 25 Organization 25 Management 26 Expenses 27 The Acorn Philosophy 29 Securities, Investment Practices and Risks HOW TO CONTACT US 36 Our Addresses and Phone Numbers
3 PROSPECTUS THE FUNDS AT A GLANCE GOAL Acorn Fund and Acorn Interna- tional invest for long-term growth of capital. STRATEGY Acorn Fund and Acorn International invest primarily in stocks of small and me- dium-size companies. The funds look for attractively-priced companies that Wanger Asset Management, investment advisor to the Funds, thinks will benefit from favorable long-term social, economic, or political trends. The areas of emphasis change from time to time. Acorn Fund invests mostly in U.S. companies, but also has significant foreign investments. Acorn International invests in non-U.S. companies. MANAGEMENT Wanger Asset Management (WAM) chooses investments for the funds. Ralph Wanger has managed both funds since they commenced operations. Charles P. McQuaid and Terence M. Hogan are co-managers of Acorn Fund and Leah J. Zell is co-manager of Acorn International. WAM has a team of analysts and - -------------------------------------------------------------------------------- DID YOU KNOW? The Funds' 14 member investment team reflects four different nationalities and 16 graduate degrees, including two Ph.D's, a CPA, a statistician, and an attor- ney. - -------------------------------------------------------------------------------- portfolio managers who concentrate on investment themes, countries, economic sectors, industries, and companies. WHO MAY WANT TO INVEST Acorn Fund and Acorn International are designed for investors who want long- term growth of capital rather than income and who have the long-term investment outlook needed for investing in the stocks of small and medium-size companies in the U.S. and overseas. The value of each fund's investments and the return it generates vary from day to day. Performance depends on WAM's skill in identifying the trends that are the basis for the funds' stock selections, and in picking individual stocks, as well as general market and economic conditions. When you sell your shares, they may be worth more or less than what you paid for them. The stocks of smaller companies often involve more risk than the stocks of larger companies. Over time, stocks have shown greater growth potential than other types of securities. In the short term, however, stock prices may fluctu- ate widely in response to company, market or economic news. The funds do not pursue income, and are not by themselves a balanced investment plan. See "Your Account" for how to buy and redeem shares. PROSPECTUS 4 EXPENSES AND PERFORMANCE EXPENSES SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares of a fund. TRANSACTION EXPENSES Maximum sales charge on purchases and reinvested dividends................. NONE Deferred sales charge on redemptions....................................... NONE Exchange fee............................................................... NONE Wire transaction fee....................................................... NONE
ANNUAL FUND OPERATING EXPENSES. Each fund pays its own operating expenses including the management fee to WAM. Expenses are factored into a fund's price or dividends, are subtracted from the share price daily, and are not charged directly to shareholder accounts. The following are projections based on historical expenses, and are calculated as a percentage of average net assets. ACORN FUND Management fee............................................................. .47% 12b-1 fee.................................................................. NONE Other expenses............................................................. .10% ---- Total fund operating expenses.............................................. .57%
ACORN INTERNATIONAL Management fee............................................................ .90% 12b-1 fee................................................................. NONE Other expenses............................................................ .32% ----- Total fund operating expenses............................................. 1.22%
- -------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Operating a mutual fund involves a variety of expenses for portfolio management, shareholder statements, tax reporting, and other services. These costs are paid from the fund's assets; any quoted share price or return is after expenses. - -------------------------------------------------------------------------------- EXAMPLE: Let's say, hypothetically, that each fund's annual return is 5% and that its operating expenses are exactly as shown in the column to the left. For every $1,000 you invested, here's how much you would have paid in total ex- penses if you closed your account after the number of years indicated: ACORN FUND After 1 year................................................................ $ 6 After 3 years............................................................... $18 After 5 years............................................................... $32 After 10 years.............................................................. $71
ACORN INTERNATIONAL After 1 year............................................................... $ 12 After 3 years.............................................................. $ 39 After 5 years.............................................................. $ 67 After 10 years............................................................. $148
These examples illustrate the effect of expenses, but are not meant to suggest actual or expected costs or returns, all of which may vary. 5 PROSPECTUS EXPENSES AND PERFORMANCE - CONTINUED FINANCIAL HISTORY ACORN FUND For a share outstanding throughout each year
Years ended December 31, -------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF YEAR $12.24 $13.95 $11.06 INCOME FROM INVESTMENT OPERATIONS Net investment income .11 .06 .04 Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.42 (1.10) 3.50 - --------------------------------------------------------------------------- Total from investment operations 2.53 (1.04) 3.54 LESS DISTRIBUTIONS Dividends from net investment income (.09) (.11) (.06) Distributions from net realized and unrealized gains reportable for federal income taxes (1.08) (.56) (.59) - --------------------------------------------------------------------------- Total distributions (1.17) (.67) (.65) - --------------------------------------------------------------------------- NET ASSET VALUE, END OF YEAR $13.60 $12.24 $13.95 - --------------------------------------------------------------------------- TOTAL RETURN 21% (7%) 32% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets .57% .62% .65% Ratio of net investment income to average net assets .89% .55% .30% Portfolio turnover rate 29% 18% 20% Net assets at end of year (in millions) $2,399 $1,983 $2,035
ACORN INTERNATIONAL For a share outstanding throughout each year
Years ended December 31, -------------------------------- 1995 1994 1993 - --------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $15.24 $ 15.94 $ 10.69 INCOME FROM INVESTMENT OPERATIONS Net investment income .16 .07 -- Net realized and unrealized gain (loss) on investments and foreign currency 1.20 (.67) 5.25 - --------------------------------------------------------------------------- Total from investment operations 1.36 (.60) 5.25 LESS DISTRIBUTIONS Dividends from net investment income -- -- -- Distributions from net realized gain (.01) (.10) -- - --------------------------------------------------------------------------- Total distributions (.01) (.10) -- - --------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $16.59 $ 15.24 $ 15.94 - --------------------------------------------------------------------------- TOTAL RETURN 8.9% (3.8%) 49.1% RATIOS/SUPPLEMENTAL DATA Ratio of expenses to average net assets 1.2% 1.2% 1.2% Ratio of net investment income to average net assets .9% .5% .1% Portfolio turnover rate 26% 20% 19% Net assets at end of period (in millions) $1,276 $ 1,363 $ 907
*Annualized PROSPECTUS 6 - -------------------------------------------------------------------------------------
1992 1991 1990 1989 1988 1987 1986 - ------------------------------------------------------------------------------------- $ 9.32 $ 6.51 $8.58 $7.27 $6.48 $7.45 $7.56 .07 .11 .12 .13 .12 .14 .13 2.16 2.95 (1.62) 1.65 1.47 .12 1.07 - ------------------------------------------------------------------------------------- 2.23 3.06 (1.50) 1.78 1.59 .26 1.20 (.08) (.10) (.13) (.11) (.16) (.15) (.10) (.41) (.15) (.44) (.36) (.64) (1.08) (1.21) - ------------------------------------------------------------------------------------- (.49) (.25) (.57) (.47) (.80) (1.23) (1.31) - ------------------------------------------------------------------------------------- $ 11.06 $ 9.32 $6.51 $8.58 $7.27 $6.48 $7.45 - ------------------------------------------------------------------------------------- 24% 47% (18%) 25% 25% 4% 17% .67% .72% .82% .73% .80% .82% .79% .72% 1.30% 1.60% 1.59% 1.52% 1.85% 1.71% 25% 25% 36% 26% 36% 52% 34% $ 1,449 $1,150 $ 767 $ 855 $ 563 $ 418 $ 415 The financial history of each Fund has been audited by Ernst & Young LLP, independent auditors. Their unqualified report is included in each fund's Annual Report. The Annual Reports are incorporated by reference into and are legally a part of the SAI. Inception Sept. 23, 1992 through Dec. 31, 1992 - ---------------------- $ 10.00 (.03) .72 - ---------------------- .69 -- -- - ---------------------- -- - ---------------------- $ 10.69 - ---------------------- 6.9% 2.4%* (1.4%)* 20% $ 30
7 PROSPECTUS EXPENSES AND PERFORMANCE - CONTINUED PERFORMANCE Mutual fund performance is commonly measured as total return. Total return is the change in value of an investment in a fund over a given pe- riod, assuming reinvestment of any dividends and capital gains. TOTAL RETURN reflects actual performance over a stated period of time. AVERAGE ANNUAL TOTAL RETURN is a hypothetical rate of return that, if achieved annually, would have produced the same total return if performance had been constant over the entire period. Average annual total returns smooth out variations in performance; they are not the same as actual year-by-year results. Total returns are based on past results and are not a prediction of future performance. They do not include the effect of income taxes. The funds sometimes show their performance compared to stock indexes (described in the statement of additional information), or give their ratings or rankings determined by an unrelated organization. Information about the performance of the funds is contained in each fund's an- nual report which may be obtained free of charge by calling Acorn at 1-800-9- ACORN-9 (1-800-922-6769). - -------------------------------------------------------------------------------- THE NO-LOAD ADVANTAGE Acorn Fund and Acorn Interna- tional are 100% no-load, which means that all of your money goes to work for you immediately. There are no sales charges, and no 12b-1 fees or back-end load fees, so all of your dollars are invested at net asset value. Acorn invests in companies for the long-term (usually 3-5 years), so our turnover rate is low. This minimizes both trading costs and shareholders' taxes. All these factors add up to greater value for our sharehold- ers. - -------------------------------------------------------------------------------- PROSPECTUS 8 YOUR ACCOUNT DOING BUSINESS WITH ACORN Acorn provides customers with service Monday through Friday, except holidays, from 8:00 a.m. to 4:30 p.m. Chicago (central) time. To reach Acorn, call: . For help in setting up your account, prices, literature, or fund informa- tion--1-800-9-ACORN-9 (1-800-922-6769) (from outside the U.S. 1-312-634-9240) . For existing IRAs--call our transfer agent at 1-800-962-1585 (outside the U.S. 1-617-774-5000 ext. 6457) . To add to your existing account, to redeem shares, or to exchange shares by phone--call our transfer agent by 3:00 p.m. Chicago (central) time at 1-800- 962-1585 (outside the U.S. 1-617-774-5000 ext. 6457) - -------------------------------------------------------------------------------- ACORN FACTS . Acorn Fund commenced operations in 1970; Acorn International opened to in- vestors in 1992 . Number of shareholder accounts: more than 120,000 . Number of portfolio managers and analysts working for the funds: 14 . Wanger Asset Management, the advisor to the Acorn Funds, specializes in find- ing small, niche companies for shareholders - -------------------------------------------------------------------------------- HOW TO BUY SHARES You can open a new account by: . mailing in an application with your check or a money order for $1,000 or more, or . using the exchange plan to move $1,000 or more from an account with Acorn Fund, Acorn International, or one of the money funds into an identically reg- istered account in Acorn Fund or Acorn International. After your account is open, you may add to it by: . wiring money from your bank; . moving money from your bank account by telephone if you participate in the telephone purchase plan; . using the telephone exchange plan to move your investment from one fund to the other, or from one of the money funds; or . mailing a check or money order with the stub from one of your year-end ac- count statements, a slip from the investment booklet provided by Acorn or a letter. You must make your telephone purchases or exchanges from Acorn or Acorn Inter- national by 3:00 p.m. Chicago (central) time. See "Shareholder and Account Policies" for more information about the exchange plan. 9 PROSPECTUS CHOICES FOR YOUR ACCOUNT REGISTRATION INDIVIDUAL OR JOINT OWNERSHIP For your general investment needs Individual accounts are owned by one person. Joint accounts can have two or more owners. - -------------------------------------------------------------------------------- GIFT OR TRANSFER TO A MINOR (UGMA, UTMA) To invest for a minor's education or other future needs These custodial accounts provide a way to give money to a minor. The account application must include the minor's social security number. - -------------------------------------------------------------------------------- TRUST OR ESTABLISHED EMPLOYEE BENEFIT OR PROFIT-SHARING PLAN For money being invested by a trust, employee benefit plan, or profit-sharing plan The trust or plan must be established before an account can be opened. - -------------------------------------------------------------------------------- CORPORATION OR OTHER ENTITY For investment needs of corporations, associations, partnerships, institutions, or other groups You will need to send a certified corporate resolution with your application. - -------------------------------------------------------------------------------- RETIREMENT To shelter your retirement savings from taxes Retirement plans allow individuals to shelter investment income and capital gains from current taxes. Contributions to these accounts may be tax deduct- ible. IRAs require a special application (call 1 800 9-ACORN-9); lower minimum investments apply. . ACORN INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and un- der 70 1/2 with earned income to save up to $2,000 per tax year. If your spouse has (or elects to be treated as having) earned income of less than $250 your spouse may invest in a "Spousal IRA." Each account is subject to the $2,000 maximum; the maximum for your combined accounts is $2,250. . ROLLOVER IRAS retain special tax advantages for certain distributions from employer-sponsored retirement plans. . SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or those with self-employment income to make tax-deductible contributions of up to $30,000 per year for themselves and any eligible employees. . OTHER RETIREMENT PLANS--The funds may be used as investments 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. PROSPECTUS 10 YOUR ACCOUNT - CONTINUED IF YOU ARE INVESTING THROUGH AN ACORN IRA for the first time you will need a special application. Call 1-800-9-ACORN-9 (1-800-922-6769) or complete and re- turn the enclosed card to receive information and an application for an Acorn IRA. For both initial and subsequent IRA investments, please indicate the year for which the investment is being made. MINIMUM INVESTMENTS To open an account $1,000 To open an IRA $ 200 To add to an account $ 100
If you sign up for the Automatic Investment Plan and later wish to change the amount or frequency of your automatic investments, or stop future investments, you may do so by simply calling us at 1-800-962-1585 at least one week prior to your next scheduled investment date. HOW TO SELL SHARES You can arrange to take money out of your fund account at any time by selling (redeeming) some or all of your shares. Your shares will be sold at the next NAV (share price) calculated after your order is received and accepted. See "Shareholder and Account Policies" for more information about share price. To sell shares in a regular (non-IRA) account, you may use any of the methods described here. To sell shares in an Acorn IRA, your request must be made in writing, except for exchanges between funds or to one of the money funds, which can be requested before 3:00 p.m. Chicago (central) time by phone or in writ- ing. If you need an IRA Withdrawal Request form, call us at 1-800-9-ACORN-9 (1- 800-922-6769). THE TELEPHONE REDEMPTION PLAN lets you redeem $100 to $50,000 per day by phone. You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. You automatically have the telephone redemption plan unless you decline it on your application. If you have changed the address on your account by telephone within 60 days of the telephone redemption request, this service is not avail- able. You must designate an account on your purchase application, or in writing with a signature guarantee, to have proceeds of redemption wired to your bank account. (continued on page 13) 11 PROSPECTUS HOW TO BUY SHARES PHONE 1-800-962-1585 LOGO - -------------------------------------------------------------------------------- To open an account: To add to an account: . Exchange between funds or from . Exchange between accounts with the same a money fund account (only if registration, including name, address, you had invested in the money and taxpayer ID number. fund by exchanging from Acorn Fund or Acorn International) . Use the telephone purchase plan to trans- with the same registration, fer $100 to $50,000 from your bank ac- including name, address, and count. Call first to verify that this taxpayer ID number. service is in place on your account. (This service is not available for IRAs.) You must make your telephone purchases or exchanges from Acorn or Acorn International by 3:00 p.m. Chicago (central) time. - -------------------------------------------------------------------------------- MAIL LOGO - -------------------------------------------------------------------------------- To open an account: To add to an account: . Complete and sign the applica- . Make your check payable to "Acorn Fund" tion. Make your check payable or "Acorn International." Put your fund to "Acorn Fund" or "Acorn In- account number on your check. Use the re- ternational." turn envelope that comes with your state- ments, or mail to the address on your statement. Mail to the address on the application, or for overnight delivery: Boston Financial Data Services Attn: Acorn Funds 2 Heritage Drive, 5th Floor N. Quincy, MA 02171 1- 617- 774- 5000 ext. 6457 - -------------------------------------------------------------------------------- WIRE LOGO - -------------------------------------------------------------------------------- To open an account: To add to an account: . You may not open a NEW account . Wire to: by wire. State Street Bank and Trust Co. Attn: Mutual Funds Boston, MA 02110 . You may open a new account by Routing #0110-0002-8 Deposit DDA 9902- mail. 990-2 Specify the name of the fund and the name and the number on your account. - -------------------------------------------------------------------------------- AUTOMATIC INVESTMENT PLAN LOGO - -------------------------------------------------------------------------------- To open an account: To add to an account: . You may not open a NEW account . Sign up on the purchase application for automatically. monthly or quarterly transfers of $100 to $50,000 from your bank account, or call . You may open a new account by 1-800-9-ACORN-9 (1-800-922-6769) for an mail. Account Services form. If you already have this service, you can easily change the frequency or amount of your automatic investments over the phone by calling 1- 800-962-1585. - -------------------------------------------------------------------------------- TDD--Service for the deaf and hearing-impaired: 1-800-306-4567 PROSPECTUS 12 YOUR ACCOUNT - CONTINUED THE SYSTEMATIC WITHDRAWAL PLAN lets you set up automatic monthly or quarterly redemptions from your account in specified dollar amounts if you have a $25,000 minimum Acorn account balance. Call 1-800-9-ACORN-9 (1-800-922-6769) for a Do- ing Business with Acorn form. SELLING SHARES IN WRITING Write a "letter of instruction" with: . your name, . the fund's name, . your fund account number, . the dollar amount or number of shares to be redeemed, . the stock certificates representing your shares to be redeemed, if you hold certificates for your shares, and . any other applicable requirements listed in the table on the next page. Mail your letter to: State Street Bank and Trust Co. Attn: Acorn Funds P.O. Box 8502 Boston, MA 02266-8502 If you are using overnight mail: Boston Financial Data Service Attn: Acorn Funds 2 Heritage Drive, 5th Floor N. Quincy, MA 02171 1-617-774-5000 ext. 6457 Do not sign your stock certificates. Send them by registered or certified mail so that you may receive confirmation of delivery. CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to protect you and Acorn from fraud. Your request must be made in writing and include a signa- ture guarantee if any of the following situations applies: . you wish to redeem more than $50,000 worth of shares; . 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) . your address has changed within the last 60 days and you would like to redeem shares; . the check is being mailed to an address different from the one on your ac- count (record address); . the check is being made payable to someone other than the account owner; or . you are instructing us to wire the proceeds to a bank or brokerage account and have not signed up for the telephone redemption by wire plan. (continued on page 15) 13 PROSPECTUS HOW TO SELL SHARES PHONE 1-800-962-1585 LOGO - -------------------------------------------------------------------------------- All accounts except . To verify that the telephone redemption plan is in IRAs place, call 1-800-9-ACORN-9 (1-800-922-6769). You automatically have this feature on your account. . Maximum--$50,000; minimum--$100 All account types . To exchange between identically-registered accounts. You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. - -------------------------------------------------------------------------------- MAIL LOGO - -------------------------------------------------------------------------------- Individuals, Joint . The letter of instruction must be signed by all Owners, Sole persons required to sign for transactions (usually, Proprietorships, UGMA, all owners of the account), exactly as their names UTMA appear on the account. IRAs . The account owner should complete an IRA Withdrawal Request form. Call 1-800-9-ACORN-9 (1-800-922-6769) to request one. Trust . The trustee must sign the letter indicating capacity as trustee. If the account registration does not include the trustee's name, provide a copy of the trust document certified within the last 60 days. Business or . The person or persons authorized by corporate Organization resolution to act on the account must sign, in that person's official capacity, the redemption request on the corporation's stationery. . Include a corporate resolution certified within 60 days if the amount to be redeemed exceeds $50,000. Executor, . Call 1-800-962-1585 for instructions. Administrator, Conservator, Guardian - -------------------------------------------------------------------------------- WIRE LOGO - -------------------------------------------------------------------------------- All account types . You must sign up for payment of redemptions by wire except IRAs before using this feature. Call to verify that this service is in place--1-800-9-ACORN-9 (1-800-922- 6769). . Minimum wire: $1,000; maximum: $50,000. You must make your telephone redemptions by 3:00 p.m. Chicago (central) time. - -------------------------------------------------------------------------------- AUTOMATIC EXCHANGE LOGO - -------------------------------------------------------------------------------- All account types . Call 1-800-962-1585 to set up monthly or quarterly automatic exchanges of $100 to $50,000 between identically registered accounts. - -------------------------------------------------------------------------------- TDD service for the deaf and hearing-impaired: 1-800-306-4567 NOTE: Some redemptions require signature guarantees. Please see page 13. PROSPECTUS 14 YOUR ACCOUNT - CONTINUED You should be able to obtain a signature guarantee from a bank, broker dealer, credit union (if authorized under state law), securities exchange or associa- tion, clearing agency, or savings association. A notary public cannot provide a signature guarantee. The price at which your shares will be redeemed is determined by the time of day our transfer agent receives your redemption request. The price per share is always the next net asset value (NAV) per share calculated after your redemp- tion request, including any required signature guarantee or supporting docu- ments, is received. The funds calculate NAV as of Closing Time on each day the New York Stock Exchange (NYSE) is open for trading. Closing Time is the close of regular session trading on the NYSE, which is usually 3:00 p.m. Chicago (central) time but is sometimes earlier. To get today's price-- . Use the telephone redemption plan to call your redemption request in before Closing Time (note that the Closing Time to exchange out of the money funds is 11:00 a.m. Chicago (central) time). . Have your written redemption request, with a signature guarantee if required and any supporting documents, delivered to our transfer agent before Closing Time. 15 PROSPECTUS SHAREHOLDER AND ACCOUNT POLICIES STATEMENTS AND REPORTS that Acorn sends to you include: . Confirmation statements (after every transaction in your account or change in your account registration) . Year-end account statements . Quarterly shareholder reports If you would like us to send duplicate statements to someone, simply call us at 1-800-962-1585, and we can take your request over the phone. Average cost statements for shares redeemed are available upon request. If you need copies of your historical account information, please call 1-800- 962-1585. There is a small charge for historical account information for prior years. SHARE PRICE THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE) is open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price to sell one share) are the fund's net asset value ("NAV") calculated at the next Closing Time after receipt of your order. Closing Time is the time of the close of regular session trading on the NYSE, which is usually 3:00 p.m. Chi- cago (central) time but is sometimes earlier. A FUND'S NAV is the value of a single share. The NAV is computed by adding up the value of the fund's investments, cash, and other assets, subtracting its liabilities, and then dividing the result by the number of shares outstanding. Each fund's portfolio securities and assets are valued primarily on the basis of market quotations from the primary market in which they are traded or, if quotations are not readily available, by a method that the board of trustees believes accurately reflects a fair value. Values of foreign securities are translated from the local currency into U.S. dollars using current exchange rates. Your purchase or redemption of fund shares will be priced at the next NAV cal- culated after your investment (including the application, if for a new account, and the money) or redemption request is received and accepted. An order re- ceived before Closing Time will get that day's price. No telephone orders will be accepted after Closing Time. PURCHASES . All of your purchases must be made in U.S. dollars and checks must be drawn on U.S. banks. You may not open an account with a third party check. . Acorn does not accept cash or credit cards. . If payment for your check or telephone order does not clear, your purchase will be cancelled and you will be liable for any losses or fees the fund or its transfer agent incurs. PROSPECTUS 16 SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED . Your Automatic Investment Plan and Telephone Purchase Plan may be immediately terminated in the event that any item is unpaid by your financial institu- tion. . When you make a purchase by telephone, the money is ordinarily drawn from your bank account the day AFTER you call and the Acorn shares purchased are at the NAV calculated after the money is transferred. EACH FUND RESERVES THE RIGHT TO reject any specific purchase order, including certain purchases through the exchange plan. See "Exchange Plan Restrictions." Purchase orders may be refused if, in WAM's opinion, they are of a size that would disrupt management of the fund. REDEMPTIONS . Normally, redemption proceeds will be mailed within seven days after State Street Bank receives a request for redemption. . A fund may hold payment on redemptions until it is reasonably satisfied that it has received payment for a recent purchase made by check, by the Automatic Investment Plan, or by the Telephone Purchase Plan, which can take up to fif- teen days. . If you elected to participate in the Telephone Redemption by Wire plan, Acorn will send payment for your redemption to your bank account by wire transfer. Your bank may impose a fee for the incoming wire. Payment by wire is usually credited to your bank ac- count on the next business day after your call. . Redemptions may be suspended or payment dates postponed on days when the NYSE is closed (other than weekends or holidays), when trading on the NYSE is re- stricted, or as permitted by the SEC. . Certain accounts (such as trust accounts, corporate accounts and custodial accounts) may require documentation in addition to the redemption request. Call 1-800-962-1585 for more information. If the value of your account falls below $1,000, Acorn reserves the right to close your account and send the proceeds to you. Your shares will be redeemed at the NAV calculated on the day your account is closed. If checks representing (1) redemption proceeds, (2) withdrawals under a system- atic withdrawal plan, or (3) dividend and capital gains distributions are re- turned "undeliverable" or remain uncashed for six months, the checks shall be cancelled and the proceeds will be reinvested in the fund issuing the check at the per share net asset value on the date of cancellation. In addition, after such six-month period, (1) your systematic withdrawal plan will automatically be cancelled and future withdrawals 17 PROSPECTUS will occur only when requested, or (2) your cash election will automatically be changed and future dividends and distributions will be reinvested in your fund at the per share net asset value determined on the date of payment of such distributions. ADDRESS CHANGES You may change your address over a recorded line by calling 1-800-962-1585. Acorn will send a written confirmation of the change to both your old and new addresses. No telephone redemptions may be made for 60 days after a change of address by phone. During those 60 days, a signature guarantee will be required for any written redemption request unless your change of ad- dress was made in writing with a signature guarantee. TELEPHONE TRANSACTIONS YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. Transactions over a recorded line: . Change your address; . Request duplicate statements to be sent to someone you designate; . Request an average cost statement for shares redeemed; . Request a current account statement; . Purchase shares through the telephone purchase plan (plan must be pre-estab- lished); . Redeem $50,000 or less and have it wired to a bank checking account (bank wire-redemption plan must be pre-established, not available for IRA ac- counts); . Change the frequency or amount, or discontinue the Automatic Investment Plan on your account(s); . Add or discontinue the telephone exchange privilege to your account; . Add or discontinue the telephone redemption by check privilege to your ac- count; . Add automatic exchange (from Acorn Fund to Acorn International or vice versa each month) to your account; . Change your distribution option (does not apply to IRA accounts); . Redeem $50,000 or less, with a check sent to the address of record (does not apply to IRA accounts, and your address of record must not have changed in the last 60 days); PROSPECTUS 18 SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED . Exchange money from an individual account to an existing IRA account with an identical registration; . Exchange money between identically registered accounts in Acorn Fund, Acorn International or certain Reich & Tang Money Market Funds, or exchange money from one fund to establish an identically registered account in another fund; and . Change the contribution year on an IRA account to the previous year up until April 15 of the following year. Acorn will not be responsible for any losses resulting from unauthorized trans- actions if it follows reasonable procedures designed to verify the identity of the caller. Those procedures may include recording the call, requesting addi- tional information, and sending written confirmation of telephone transactions. You should verify the accuracy of telephone transactions immediately upon re- ceipt of your confirmation statement. If you do not want to be able to initiate purchase or redemption transactions by telephone, decline these privileges on your account application or call Acorn for instructions at 1-800-962-1585. IF YOU ARE UNABLE TO REACH ACORN BY PHONE (for example, during periods of unu- sual market activity), consider placing your order by mail. TELEPHONE EXCHANGE PLAN Acorn's telephone exchange plan permits you to exchange your investment between Acorn Fund and Acorn International, into one of the money market mutual funds participating in the plan (money funds) upon tele- phone instructions, or from one of the money funds in which you had invested by exchanging from Acorn Fund or Acorn International. The MONEY FUNDS are: Short Term Income Fund, Money Market Portfolio; Short Term Income Fund, U.S. Govern- ment 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 In- come Fund; and Pennsylvania Daily Municipal Income Fund. 19 PROSPECTUS Each of the money funds is a no-load fund managed by Reich & Tang Asset Manage- ment 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 Port- folio is available for IRA accounts. THE PRICE AT WHICH SHARES ARE EXCHANGED is determined by the time of day we re- ceive your request. TO GET TODAY'S PRICE: . For an IRA account, call us at 1-800-962-1585 before Closing Time. . If you are exchanging between Acorn Fund and Acorn International, or from Acorn Fund or Acorn International into one of the money funds, call us at 1-800-962-1585 before Closing Time. . If you are exchanging from one of the money funds to Acorn Fund or Acorn In- ternational, CALL REICH & TANG AT 1-800-221-3079 BEFORE 11:00 A.M. CHICAGO (CENTRAL) TIME. Because of the time needed to transfer money between the funds and the money funds, you may not exchange into and out of a money fund on the same or succes- sive days; there must be at least one day between exchanges. EXCHANGE PLAN RESTRICTIONS . The fund you are exchanging into must be registered for sale in your state. . You may only exchange between accounts that are registered in the same name, address, and taxpayer identification number. . If you are opening a new account by exchange, your exchange must be at least $1,000 or $200 for an IRA account. . The exchange plan is not available for shares of either fund for which you have been issued certificates. (If you want to exchange shares between funds, call 1-800-962-1585 to get instructions for returning your certificates.) . If your account is subject to backup withholding, you may not use the ex- change plan. . Generally, you will be limited to 4 round-trip exchanges per year (a round- trip being the exchange out of one fund into the other fund, and then back). . Because excessive trading can hurt fund performance and shareholders, the funds reserve the right to temporarily or permanently terminate the exchange privilege of any investor who makes excessive use of the exchange plan. PROSPECTUS 20 SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED . The funds also reserve the right to refuse exchange purchases by any person or group if Acorn believes the purchase will be harmful to existing shareholders. . Before exchanging into a fund, you should read its prospectus. . Exchanges may have tax consequences for you. The funds reserve the right to terminate or modify the exchange plan at any time, but will try to give you prior notice whenever they are reasonably able to do so. - -------------------------------------------------------------------------------- EXCHANGE PLAN POLICIES Because excessive trading can hurt fund performance and shareholders, the funds may temporarily or permanently cut-off your exchange privilege if you make ex- cessive use of the exchange plan. Each shareholder is generally limited to 4 round-trip exchanges per year. - -------------------------------------------------------------------------------- 21 PROSPECTUS DOING BUSINESS WITH ACORN From time to time you may find it necessary to make changes to your account privileges or registration. The following easy-to-use shareholder forms are available upon request by calling 1-800-9-ACORN-9 (1-800-922-6769): - -------------------------------------------------------------------------------- To accomplish this: Please request this form: For changes to account .Doing Business with Acorn privileges For reregistering your current .Changing Your Account Registration account For reregistering your Acorn .Broker-Dealer Transfer Form shares held by a brokerage to an account with Acorn For changes to your IRA .Change of Beneficiary beneficiary designations For transferring money from an .IRA Transfer Form IRA account with another institution to Acorn For redeeming shares from your .IRA Withdrawal IRA account PROSPECTUS 22 DIVIDENDS, CAPITAL GAINS, AND TAXES Each fund distributes substantially all of its net income and capital gains to shareholders each year. Normally, dividends are paid in July and December, and capital gains are distributed in December. DISTRIBUTION OPTIONS When you open an account, specify on your application how you want to receive your distributions. If you later want to change your distribution option, call us at 1-800-962-1585. The funds offer three options: . REINVESTMENT OPTION. Your dividends and capital gain distributions will be automatically reinvested in additional shares of the fund. If you do not in- dicate a choice on your application, you will be assigned this option. . INCOME-ONLY OPTION. Your capital gain distributions will be automatically re- invested, but you will be sent a check for each dividend. . CASH OPTION. You will be sent a check for each dividend and capital gain dis- tribution. FOR IRA ACCOUNTS, all distributions are automatically reinvested because pay- ment of distributions in cash would be a taxable distribution from your IRA, and might be subject to income tax penalties if you are under 59 1/2 years old. After you are 59 1/2, you may request payment of distributions in cash. When you reinvest, the reinvestment price is the fund's NAV at the close of business on the reinvestment date. The mailing of distribution checks will usu- ally begin on the payment date, which is usually one week after the ex-dividend date. TAXES As with any investment, you should consider how your investment in a fund will be taxed. If your account is a tax-deferred account, for example, an IRA or an employee benefit plan account, the following tax discussion does not apply. If your account is not a tax-deferred account, 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. If you live outside the United States, your distributions could also be taxed by the country in which you re- side. Your distributions are taxable when they are paid, whether you take them in cash or reinvest them in additional shares. However, distributions declared in December and paid in January are taxable as if they were paid on December 31. For federal tax purposes, each fund's income and short-term capital gain dis- tributions are taxed as dividends; long-term capital gain distributions are taxed as long-term capital gains. Every January, Acorn will send you and the IRS a state- 23 PROSPECTUS DIVIDENDS, CAPITAL GAINS, AND TAXES - CONTINUED ment, called a Form 1099, showing the amount of each taxable distribution you received in the previous year. You may not receive a Form 1099 if total distri- butions for the year are less than $10.00. TAXES ON TRANSACTIONS. Your redemptions--including exchanges between funds or into a money fund--are subject to capital gains tax. A capital gain or loss is the difference between the cost of your shares and the price you receive when you sell them. Whenever you sell shares of either fund, Acorn will send you a confirmation statement showing how many shares you sold and at what price. You will also re- ceive a year-end statement every January. 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 to be paid. Be sure to keep your regular account statements; the information they contain will be essential in calculating the amount of your capital gains. FOREIGN INCOME TAXES Investment income received by either fund from sources within foreign countries may be subject to foreign income taxes withheld at the source. If a fund pays nonrefundable taxes to foreign governments during the year, the taxes will re- duce 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 (but not by Acorn Fund because not enough of Acorn Fund's assets are invested in foreign securi- ties for Acorn Fund to be able to pass through the foreign tax credit). Acorn International will send you this information as part of your annual Form 1099. WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to 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 redemptions. - -------------------------------------------------------------------------------- UNDERSTANDING DISTRIBUTIONS As a fund shareholder, you are entitled to your share of a fund's net income and any net gains realized on its investments. The funds' income from dividends and interest, and any net realized short-term capital gain, are paid to you as DIVIDENDS. A fund realizes capital gains when- ever it sells securities for a higher price than it paid for them. Net realized long-term gains are paid to you as CAPITAL GAIN DISTRIBUTIONS. - -------------------------------------------------------------------------------- PROSPECTUS 24 THE FUNDS IN DETAIL ORGANIZATION Acorn Fund and Acorn International are series of Acorn Investment Trust ("Acorn" or the "Trust"), an open-end, management investment company. The Acorn Fund, Inc. began operations in 1970, and was reorganized as the Acorn Fund se- ries of the Trust on June 30, 1992. The Trust is a Massachusetts business trust organized on April 21, 1992. Acorn International began operations on September 23, 1992. Each share of a fund is entitled to participate pro rata in any dividends and other distributions declared by the board of trustees with respect to that fund, and all shares of a fund have equal rights in the event of liquidation of that fund. THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for protect- ing the interests of the shareholders of the funds. The trustees are experi- enced executives and professionals who meet at regular intervals to oversee the activities of the Trust and the funds. A majority of trustees are not otherwise affiliated with Acorn or WAM. ACORN MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS to elect or remove trustees, change fundamental policies, approve a management contract, or for other pur- poses. Acorn will mail proxy materials in advance, including a voting card and information about the proposals to be voted on. You are entitled to one vote for each share of Acorn Fund and Acorn International that you own. Shareholders not attending these meetings are encouraged to vote by proxy. MANAGEMENT The funds are 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 trust- ees. WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd., which is controlled by Ralph Wanger. WAM manages more than $4.5 billion in assets. Ralph Wanger is the funds' portfolio manager and has managed the portfolios since each fund began (June 1970 for Acorn Fund and September 1992 for Acorn International). Mr. Wanger has been president and a member of the board of Acorn (and its predecessor, The Acorn Fund, Inc.) since 1970. He is a principal of WAM and was a principal of the Fund's prior advisor until July 1992. Mr. Wanger is primarily responsible for development of the funds' investment strat- egies. Charles P. McQuaid and TERENCE M. HOGAN are co-managers of Acorn Fund and as- sist in the selection of stocks held by Acorn Fund. Mr. McQuaid is senior vice president and a trustee of the 25 PROSPECTUS THE FUNDS IN DETAIL - CONTINUED Trust. Mr. Hogan is a vice president of the Trust. Mr. McQuaid and Mr. Hogan have been principals of WAM since July 1992. Before that date, Mr. McQuaid was a principal and Mr. Hogan was an analyst with the Trust's prior investment ad- visor. Mr. McQuaid and Mr. Hogan have been working with Mr. Wanger for 18 and 10 years, respectively. LEAH J. ZELL is co-manager of Acorn International and assists in the selection of stocks held by Acorn International. Ms. Zell is a vice president of the Trust. She has been a principal of WAM since July 1992 and was an analyst with the Trust's prior investment advisor before that date. Ms. Zell has been work- ing with Mr. Wanger for 12 years. The other executive officers are Merrillyn J. Kosier, vice president and secre- tary, and Bruce H. Lauer, vice president and treasurer. State Street Bank and Trust Company is each fund's transfer agent and custodi- an. DISTRIBUTOR Shares of Acorn Fund and Acorn International are offered for sale through WAM Brokerage Services, L.L.C. (Distributor) without any sales commission or charges to the funds or their shareholders. Distributor is wholly-owned by WAM, the funds' investment advisor, and the investment advisor's general partner, Wanger Asset Management, Ltd. The Distributor's address is 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606. All distribution and promotional expenses relating to the funds are paid by WAM, including the payment or reim- bursement of any expenses incurred by the Distributor. EXPENSES Like all mutual funds, Acorn Fund and Acorn International pay expenses related to their daily operations. Expenses paid out of each fund's assets are re- flected in its share price or dividends. Each fund pays a MANAGEMENT FEE to WAM for managing its investments and busi- ness affairs. See "Expenses and Performance." The rates of fee paid by Acorn International are higher than those paid by most mutual funds, reflecting the higher costs involved in management of an international portfolio. Each fund pays the management fee to WAM and the fees of its custodian, trans- fer agent, auditors, and lawyers. It also pays other expenses such as the cost of compliance with federal and state laws, proxy solicitations, shareholder re- ports, taxes, insurance premiums, and the fees of trustees who are not other- wise affiliated with Acorn or WAM. PROSPECTUS 26 THE ACORN PHILOSOPHY Acorn Fund and Acorn International seek long-term growth of capital. Although income is considered in the selection of securities for Acorn Fund, neither fund is designed for investors seeking primarily income rather than capital appreciation. ACORN PREFERS SMALL COMPANIES. Since large institutions seek highly marketable stocks, the stocks of large companies are studied in detail by security ana- lysts, with the result that all investors know much the same thing about large companies. WAM prefers to work with stocks where values are more attractive be- cause the facts about the companies are not universally known. Acorn Fund and Acorn International thus generally concentrate on that segment of the market where the competition is less intense--companies with a total common stock mar- ket capitalization of less than $1 billion. WAM wants to be able to understand any company in which Acorn invests, and smaller companies are easier to compre- hend than large firms or conglomerates. When a company develops into a multi- industry giant, it is difficult for even the top management of the company to understand its own business and even harder for an outsider to follow such widespread activities. Since WAM insists on understanding Acorn's investments, WAM talks to top management directly whenever possible. LOOKING FOR HIGH QUALITY COMPANIES. The funds look for quality businesses, with each investment ideally resting on a solid tripod of growth potential, finan- cial strength, and fundamental value. Not all of the companies in which the funds invest necessarily have all of these characteristics. The sources of growth are a growing marketplace for the company's product, good design, efficient manufacturing, sound marketing, and good profit margins. Fi- nancial strength means low debt, adequate working capital, and conservative ac- counting principles. Strong capitalization gives management the stability and flexibility to reach strategic objectives. In economies with less well-devel- oped capital markets than those of the U.S., a strong balance sheet is an es- sential component of competitive advantage. Fundamental value means low rela- tive price. The existence of a good company does not necessarily make its stock a good buy. The price of the stock determines value as measured relative to dividends, earnings, growth rate, book value, and economic replacement value of assets. The emphasis on fundamentals in relation to price sets Acorn Fund and Acorn International apart from pure "growth" or "value" funds. WAM also believes that finding and understanding high quality companies is im- portant because investing in smaller companies involves relatively higher in- vestment costs. One 27 PROSPECTUS THE FUNDS IN DETAIL - CONTINUED way to reduce these costs is to invest with a long-term time horizon (at least 3-5 years) and to avoid frequent turnover of the stocks held by the funds. Oc- casionally, however, securities purchased on a long-term basis may be sold within 12 months after purchase in light of a change in the circumstances of a particular company or industry, or in general market or economic conditions. INVESTMENT THEMES. To find long-term investments and reduce portfolio turnover, the funds seek out areas of the economy that they believe will benefit from fa- vorable long-term economic and political trends. These areas of emphasis may change from time to time, and are usually related to identified investment themes or market niches. A small company frequently can carve out a specialized niche for itself. The niche can be geographic, like that of a regional bank, utility, or railroad. It can be technological, based on patents and know-how. Sometimes the niche is a marketing technique. In international investing, the niche can be participation in a fast-growth economy. A well-run business in a growing country has an easier path to a high growth rate. The most important single theme at this time is the information group (including communications, media, electronics, and computer systems and software). The funds invest primarily in equity securities, including common and preferred stocks, warrants or other similar rights, and convertible securities. The funds may purchase foreign securities in the form of American Depository Receipts (ADRs), European Depository Receipts (EDRs), or other securities representing underlying shares of foreign issuers. The funds may also invest in any other type of security, including debt securities. Under normal market conditions, Acorn International invests at least 75% of its total assets, taken at market value, in foreign securities. Acorn Fund's in- vestments in foreign securities are limited to no more than one-third of its total assets. The foreign securities in which the funds invest may be traded in mature markets (for example, Japan, Canada, and the United Kingdom) and in de- veloping markets (Mexico and Indonesia, for example), examples of which are in- cluded in the SAI under "Investment Techniques and Risks--Foreign Securities." There are no limits on either fund's geographic asset distribution; at December 31, 1995 Acorn International had investments in 44 countries and Acorn Fund had investments in 36 countries. PROSPECTUS 28 The funds may invest without limit in corporate or government obligations or hold cash or cash equivalents if WAM determines that a temporary defensive po- sition is advisable. If investments in foreign securities appear to be rela- tively unattractive because of current or anticipated adverse political or eco- nomic conditions, Acorn International may hold cash or invest any portion of its assets in securities of the U.S. government and equity and debt securities of U.S. companies, as a temporary defensive strategy. The funds use various techniques to increase or decrease their exposure to the effects of possible changes in security prices, currency exchange rates, or other factors that af- fect the value of a fund's portfolio. These techniques include buying and sell- ing options, futures contracts, or options on futures contracts, or entering into currency exchange contracts or swap agreements. The investment objective of either Acorn Fund or Acorn International may be changed by the board of trustees without shareholder approval. If there were such a change, you should consider whether that fund would remain an appropri- ate investment in light of your then current financial position and needs. The funds are not intended, alone or together, to present a balanced investment program. SECURITIES, INVESTMENT PRACTICES, AND RISKS The following pages contain more detailed information about types of invest- ments the funds may make, and strategies WAM may employ in pursuit of each fund's investment objective, including information about the associated risks and restrictions. All policies stated throughout this prospectus, other than those identified as fundamental, can be changed without shareholder approval. A complete statement of each fund's investment restrictions is included in the SAI. Policies and limitations are considered at the time of purchase; the sale of instruments is not required because of a subsequent change in circumstances. WAM may not buy all of these instruments or use all of these techniques to the full extent permitted unless it believes that doing so will help a fund achieve its goal. Common stocks represent an equity (ownership) interest in a corporation. This ownership interest often gives a fund the right to vote on measures affecting the company's organization and operations. Although common stocks have a his- tory of long-term growth in value, their prices tend to fluctuate in the short term. 29 PROSPECTUS THE FUNDS IN DETAIL - CONTINUED - -------------------------------------------------------------------------------- *These restrictions are "fundamental," which means that they cannot be changed without shareholder approval. Acorn Fund and Acorn International invest mostly in the securities of smaller companies, that is, companies with a total market capitalization of less than $1 billion. During some periods, the securities of small companies, as a class, have performed better than the securities of large companies, and in some peri- ods they have performed worse. Stocks of small companies tend to be more vola- tile and less liquid than stocks of large companies. Small companies, as com- pared to larger companies, may have a shorter history of operations, may not have as great an ability to raise additional capital, may have a less diversi- fied product line making them susceptible to market pressure, and may have a smaller public market for their shares. Restrictions: Neither fund may 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.* 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 which in some ways may be greater than in U.S. investments, including: fluctuations in exchange rates of foreign currencies; imposition of exchange control regulations or currency restrictions that would prevent cash from being brought back to the United States; less public informa- tion with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different ac- counting, auditing, and financial reporting standards; different settlement pe- riods and trading practices; less liquidity, frequently greater price volatili- ty, and higher transaction costs in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operation- al, and financial protections applicable to foreign sub-custodial arrangements. Investing in countries outside the U.S. also involves political risk. A foreign government might restrict investments by foreigners, expropriate assets, seize or nationalize for- PROSPECTUS 30 eign bank deposits or other assets, establish exchange controls, or enact other policies that could affect investment in these nations. Economies in individual markets may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rates of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments positions. Many emerging market countries have experienced extremely high rates of inflation for many years. That has had and may continue to have very negative effects on the economies and securities markets of those coun- tries. The securities markets of emerging countries 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 U.S. There also may be a lower level of monitoring and regulation in emerging markets of traders, insiders, and investors. Enforcement of existing regulations has been extremely limited. The funds may invest in ADRs that are not sponsored by the issuer of the under- lying security. To the extent a fund does so, it would probably bear its pro- portionate share of the expenses of the depository and might have greater dif- ficulty in receiving copies of the issuer's shareholder communications than would be the case with a sponsored ADR. The funds may invest in securities purchased on a when-issued and delayed de- livery basis. Although the payment terms of such a security are established at the time a fund enters into the commitment, the security may be delivered and paid for a month or more after the date of purchase, when its value may have changed. A fund will make such commitments only with the intention of actually acquiring the securities, but may sell the securities before settlement date if WAM considers it advisable for investment reasons. Restrictions. Under normal market conditions, Acorn International invests at least 75% of its total assets in foreign securities. Acorn Fund's investments in foreign securities are limited to not more than 33% of its total assets. MANAGING INVESTMENT EXPOSURE The funds use various techniques to increase or decrease their exposure to the effects of possible changes in security prices, currency exchange rates or other factors that affect the value of the funds' portfolios. These techniques include buying and selling options, futures contracts, or options on futures contracts, or entering into currency exchange contracts or swap agreements. 31 PROSPECTUS THE FUNDS IN DETAIL - CONTINUED These techniques are used by WAM to adjust the risk and return characteristics of the funds' portfolios. If WAM judges market conditions incorrectly or em- ploys a strategy that does not correlate well with a fund's investments, or if the counterparty to the transaction does not perform as promised, the transac- tion could result in a loss. Use of these techniques may increase the volatil- ity of a fund and may involve a small investment of cash relative to the mag- nitude of the risk assumed. These techniques are used by the funds for hedg- ing, risk management or portfolio management purposes and not for speculation. CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be con- ducted 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 for- ward 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 and broker-dealers, are not exchange-traded and are usually for less than one year, but may be renewed. Currency exchange transactions may involve currencies of the different coun- tries 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 involv- ing either specific transactions or actual or anticipated portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to a specific receivable or payable 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 an actual or anticipated 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 denomi- nated in that currency. When a fund owns or anticipates owning securities in countries whose currencies are linked, WAM may aggregate those positions as to the currency hedged. Although forward contracts may be used to protect a fund from adverse currency movements, the use of such hedges may reduce or elimi- nate the potentially positive effect of currency revaluations on that fund's total return. OPTIONS AND FUTURES. Each fund may enter into stock index or currency futures contracts (or options thereon) to hedge a portion of that fund's portfolio, to provide an effi- PROSPECTUS 32 cient means of regulating the fund's exposure to the equity markets, or as a hedge against changes in prevailing levels of currency exchange rates. Each fund may write covered call options and purchase put and call options on for- eign currencies, securities, and stock indices. Futures contracts and options can be highly volatile. A fund's attempt to use such investments for hedging purposes may not be successful and could result in reduction of that fund's to- tal return. Restrictions: A fund will not use futures contracts for speculation, and will limit its use of futures contracts so that no more than 5% of that fund's total assets would be committed to initial margin deposits or premiums on such con- tracts. The aggregate market value of each fund's currencies or portfolio secu- rities covering call or put options will not exceed 10% of that fund's net assets. DEBT SECURITIES Bonds and other debt instruments are methods for an issuer to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest, and must repay the amount borrowed at maturity. Debt securities have varying degrees of quality and varying levels of sensitivity to changes in interest rates. "Investment grade" debt securities are those rated within the four highest rat- ings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of compara- ble quality. Securities rated BBB or Baa are considered to be medium grade and to have speculative characteristics. Investment in non-investment grade debt securities is speculative and involves a high degree of risk. Lower-rated debt securities (commonly called "junk bonds") are often considered speculative and involve greater risk of default or price changes due to changes in the issuer's credit-worthiness. The market prices of these securities may fluctuate more than higher-rated securities and may decline significantly in periods of general economic difficulty. MONEY MARKET INSTRUMENTS are high-quality, short-term debt securities that present minimal credit risk. These instruments may carry fixed or variable in- terest rates. Restrictions: There are no restrictions on the ratings of debt securities in which either fund may invest. Acorn Fund does not intend to invest more than 5% of its net assets in securities rated at or lower than the lowest investment grade. Acorn International will not invest more than 20% of its total assets in debt securities that are of below investment grade quality. 33 PROSPECTUS THE FUNDS IN DETAIL - CONTINUED - -------------------------------------------------------------------------------- *These restrictions are fundamental. Acorn Fund may invest without limit in corporate or government obligations, or hold cash or cash equivalents if WAM determines that a temporary defensive po- sition is advisable. If investments in foreign securities appear to be rela- tively unattractive because of current or anticipated adverse political or eco- nomic conditions, Acorn International may hold cash or invest any portion of its assets in securities of the U.S. government and equity and debt securities of U.S. companies, as a temporary defensive strategy. To meet liquidity needs (which, under normal market conditions, are not expected to exceed 25% of its total assets) or for temporary defensive purposes, each fund may hold cash in domestic and foreign currencies and may invest in domestic and foreign money market securities. ILLIQUID AND RESTRICTED SECURITIES Some investments may be determined by WAM to be illiquid, which means that they may be difficult to sell promptly at an acceptable price. Other securities, such as securities acquired in private placements, may be sold only pursuant to certain legal restrictions. Difficulty in selling securities may result in de- lays or a loss, or may be costly to the fund. Restrictions: Acorn Fund may not purchase a security if, as a result, more than 10% of its assets would be invested in illiquid or restricted securities. Acorn International is similarly restricted with respect to 15% of its assets.* DIVERSIFICATION Diversifying the funds' investment portfolios can reduce the risks of invest- ing. This may include limiting the amount of money invested in any one company or, on a broader scale, limiting the amount invested in any one industry or country. Restrictions: Acorn Fund may not invest more than 5% of its total assets in the securities of any one issuer. Acorn International is similarly limited with re- spect to 75% of its total assets. Neither fund may invest more than 25% of its total assets in any one industry. These limitations do not apply to U.S. gov- ernment securities.* OTHER INVESTMENT COMPANIES Certain markets are closed in whole or in part to equity investments by for- eigners. The funds may be able to invest in such markets solely or primarily through governmentally- authorized investment companies. Investment in another investment company may involve the payment of a premium above the value of PROSPECTUS 34 the issuer's portfolio securities, and is subject to market availability. In the case of a purchase of shares of such a company in a public offering, the purchase price may include an underwriting spread. The funds do not intend to invest in such circumstances unless, in the judgment of WAM, the potential ben- efits of such investment justify the payment of any applicable premium or sales charge. As a shareholder in an investment company, a fund would bear its rata- ble share of that investment company's expenses, including its advisory and ad- ministration fees. At the same time the fund would continue to pay its own man- agement fees and other expenses. Restrictions: A fund generally may invest up to 10% of its assets in shares of other investment companies and up to 5% of its assets in any one investment company (in each case measured at the time of investment). No investment in an- other investment company may represent more than 3% of the outstanding voting stock of the acquired investment company at the time of investment. OTHER SECURITIES The funds have the power to invest in repurchase agreements and reverse repur- chase agreements, but have no present intention of doing so. 35 PROSPECTUS HOW TO CONTACT US MAIL LOGO - -------------------------------------------------------------------------------- State Street Bank & Trust . for regular mail delivery, including Co. purchases, written exchanges, redemptions, Attn: Acorn Funds and IRA contributions P.O. Box 8502 Boston, MA 02266-8502 Boston Financial Data . for overnight deliveries of purchases, Service written exchanges, redemptions, or IRA Attn: Acorn Funds contributions 2 Heritage Drive, 5th Floor N. Quincy, MA 02171 Wanger Asset Management, . the funds' advisor L.P. 227 W. Monroe St., Suite 3000 Chicago, IL 60606-5016 WAM Brokerage Services, . the funds' distributor L.L.C. 227 W. Monroe St., Suite 3000 Chicago, IL 60606-5016 - -------------------------------------------------------------------------------- PHONE LOGO - -------------------------------------------------------------------------------- 1-800-9-ACORN-9 . for fund information, account balances, (1-800-922-6769) literature, prices, and performance information (from outside the U.S. 1-312-634- 9240) 1-800-962-1585 . for telephone purchases, exchanges and redemptions, and for IRA information (from outside the U.S. 1-617-774-5000 ext. 6457) 1-800-221-3079 . to exchange OUT OF a money fund 1-800-306-4567 . TDD service for the deaf and hearing impaired Customer service is available on business days from 8:00 a.m. to 4:30 p.m. Chicago (central) time. Telephone requests for purchases, redemptions or exchanges from Acorn Fund or Acorn International must be made by 3:00 p.m. Chicago (central) time. - -------------------------------------------------------------------------------- WIRE LOGO - -------------------------------------------------------------------------------- State Street Bank and Trust . to wire money from your bank to add to an Co. EXISTING account Attn: Mutual Funds Boston, MA 02110 Routing #0110- 0002-8 Deposit DDA 9902- 990-2 Specify the name of the fund and the name and the number on your account PROSPECTUS 36 Acorn Investment Trust P.O. Box 8502 [ACORN LOGO] Boston, MA 02266-8502 Application It takes only a few moments to fill out this simple step-by-step application. If you have questions, call us at 1-800-9-ACORN-9, (1-800-922-6769), weekdays, 8:00am-4:30pm, Chicago (central) time. Please be sure to print your information on this application, then simply sign and return it to us in the postage-paid envelope we've provided. (Please do not use this form if you are opening an IRA.) YOUR ACCOUNT REGISTRATION [][][] [][] [][][][] Social Security Number (Use minor's social security number for gifts/transfers to minors) or [][] [][][][][][][] Taxpayer ID Number _____________________________________________________________ [] Individual or Joint* Account _____________________________________________________________ Owner's name: first, middle initial, last _____________________________________________________________ Joint owner's name: first, middle initial, last *Joint tenants with right of survivorship, unless you indicate otherwise. _____________________________________________________________ [] Gift/Transfer to a Minor (ugma/utma) _____________________________________________as custodian for Custodian's name: first, middle initial, last ____________________________________________________under the Minor's name: first, middle initial, last _________________________Uniform Gifts/Transfers to Minors Act. State _______________________________________________________________ Minor's date of birth _______________________________________________________________ [] Trust or Established Employee Benefit or Profit-Sharing Plan ___________________________________________________as trustee of Trustee('s) name(s) _______________________________________________________________ Name of Trust Agreement _______________________________________________________________ Date of Trust Agreement Please include copy of first page and last page of trust agreement. _______________________________________________________________ [] Corporation or Other Entity _______________________________________________________________ Name of corporation or other entity _______________________________________________________________ Type of entity (for example, corporation, partnership, non-profit) Please attach a certified copy of your corporate resolution showing the person(s) authorized to act on this account. YOUR ADDRESS _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code _______________________________________________________________ Daytime phone, including area code [] U.S. Citizen [] Non-citizen residing in U.S. To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.) with a social security or tax identification number. CHOOSE YOUR INVESTMENTS There is an initial investment minimum of $1,000 per Fund. [] Acorn Fund $___________________ [] Acorn International $___________________ [] Total Investment $___________________ Make check(s) payable to Acorn Fund and/or Acorn International. DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS Please choose how you want to receive your income dividends and capital gains. If no option is checked, all dividends and capital gains will be reinvested automatically. (Check one box.) [] Reinvest dividends and capital gains to help keep my account growing. [] Pay dividends and capital gains in cash. [] Pay dividends in cash; reinvest capital gains. DUPLICATE STATEMENTS _______________________________________________________________ [] Send duplicate statements for my account to: _______________________________________________________________ Name _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code (MORE ON THE BACK.) Acorn Investment Trust FIRST CLASS WAM Brokerage Services, L.L.C. U.S. POSTAGE P.O. Box 8502 PAID Boston, MA 02266-8502 CHICAGO, IL PERMIT NO. 1200 AUTOMATIC INVESTMENT PLAN To keep building your investments, you can easily add to your fund accounts by joining the automatic investment plan: [_] Automatic Investment Plan: to add to your Acorn account automatically [_] Acorn Fund $____________________ [_] monthly [_] quarterly (check only one box) [_] Acorn International $____________________ [_] monthly [_] quarterly (check only one box) The minimum automatic investment is $100; the maximum is $50,000. Your automatic investment will be drawn from your bank account on or about the 15th of the month. Attach a voided check from the bank account you will be using. BANK TRANSFER OPTIONS To make transactions fast and easy, choose the Telephone Purchase Plan, Telephone Redemption by Wire Plan, or both. It takes about 10 days to set up these plans. [_] Telephone Purchase Plan: to add to your Acorn Fund account or Acorn International account by transferring money from your bank checking account ($100 minimum, $50,000 maximum per transfer.) [_] Telephone Redemptions by wire: to redeem shares and transfer the money to your bank checking account ($1,000 minimum, $50,000 maximum per transaction.) Telephone requests for purchases or redemptions must be made by 3:00 p.m. Chicago (central) time. Attach a voided check from the bank account you will be using. TELEPHONE PLANS You automatically have the ability to exchange and redeem shares by telephone unless you check the boxes below. Proceeds of telephone redemption requests are paid by check mailed to the address of record may not be more than $50,000. Exchanges must be between identically-registered accounts and requested by 3:00 p.m. Chicago (central) time. See the prospectus for details. I do NOT want: [_] telephone exchanges --- [_] telephone redemptions AGREEMENT By signing this form, I certify that: I am of legal age, have received and read the Prospectus, and agree to its terms. I understand that each of the account services, including the telephone exchange plan, may be terminated or modified by Acorn in the future. If I fail to give the correct number or sign this form, Acorn Fund or Acorn International may reject, restrict, or redeem my investment. I authorize Acorn Fund, Acorn International, and their affiliates and agents to act on any instructions reasonably believed to be genuine for any service authorized on this form (including telephone transactions). I agree that they will not be liable for any resulting loss or expense. I certify that I have read the explanation and agree to the terms and provisions for the services I have elected as set forth in the current prospectus of Acorn Fund and Acorn International, as amended from time to time. (If you have elected the Automatic Investment Plan or any Bank Transfer Option) I authorize Acorn Fund, Acorn International and their affiliates and agents to initiate (1) credit entries (deposits) (if I have elected the telephone redemption bank transfer option), (2) debit entries (withdrawals) (if I have elected to participate in the Automatic Investment Plan or telephone purchase Bank Transfer Option), and (3) debit or credit entries and adjustments for any entries made in error to my bank account, for which I have attached a voided check. This authorization will remain effective until I notify Acorn in writing or by telephone at 1-800-962-1585 of its termination and until Acorn has a reasonable time to act on that termination. YOUR SIGNATURE Under penalty, I certify that (i) the Social Security or Tax Identification Number given is correct and (ii) I am NOT currently subject to IRS backup withholding for failure to report dividend or interest income to the IRS. (Please cross out "NOT" if you are currently subject to withholding.) The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date Joint accounts require both signatures. ACORN INVESTMENT TRUST STATEMENT OF ADDITIONAL INFORMATION May 1, 1996 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 1-800-922-6769 ACORN FUND ACORN INTERNATIONAL No-Load Funds - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- Information About the Funds...............................................2 Investment Objectives and Policies........................................2 Investment Techniques and Risks...........................................2 Investment Restrictions..................................................17 Performance Information..................................................21 Investment Adviser.......................................................22 Distributor..............................................................23 The Trust................................................................24 Trustees and Officers....................................................24 Purchasing and Redeeming Shares..........................................27 Additional Tax Information...............................................28 Taxation of Foreign Shareholders.........................................29 Portfolio Transactions...................................................30 Custodian................................................................31 Independent Auditors.....................................................31 Appendix - Description of Bond Ratings...................................32 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 and ACORN INTERNATIONAL dated May 1, 1996 and any supplement thereto, which may be obtained from Acorn at no charge by writing or telephoning Acorn at its address or telephone number shown above. INFORMATION ABOUT THE FUNDS ACORN FUND and ACORN INTERNATIONAL are series of Acorn Investment Trust ("Acorn" or the "Trust"). Both funds are currently open to new investors; however, Acorn reserves the right to close one or both of the funds to new investors if additional cash flow is deemed detrimental to management of the fund. The 1995 annual report of each of the funds, copies of which accompany this SAI, contain financial statements, notes thereto, supplementary information entitled "Financial Highlights," and a report of independent auditors, all of which (but no other part of the annual reports) are incorporated herein by reference. Additional copies of the annual reports may be obtained from Acorn at no charge by writing or telephoning Acorn at its address or telephone number shown on the cover page of this SAI. The discussion below supplements the description in the prospectus of the funds' investment objectives, policies, and restrictions. INVESTMENT OBJECTIVES AND POLICIES ACORN FUND and ACORN INTERNATIONAL invest with the objective of long-term growth of capital. Although income is considered by ACORN FUND in the selection of securities, the funds are not designed for investors seeking primarily income rather than capital appreciation. The funds use the techniques and invest in the types of securities described below and in the prospectus. INVESTMENT TECHNIQUES AND RISKS 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. The funds may invest in securities of foreign issuers directly or in the form of American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), 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. 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" ADRs. In a sponsored ADR, the issuer typically pays some or all of the expenses of the depository and agrees to provide its regular shareholder communications to ADR holders. An unsponsored ADR is created independently of the issuer of the underlying security. The ADR holders 2 generally pay the expenses of the depository and do not have an undertaking from the issuer of the underlying security to furnish shareholder communications. Neither fund expects to invest 5% or more of its total assets in unsponsored ADRs. 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 "Foreign Currency Exchange Transactions.") Investors should understand and consider carefully the risks involved in foreign investing. Investing in foreign securities, positions in which are generally denominated in foreign currencies, and utilization of forward foreign currency exchange contracts involve risks and opportunities not typically associated with investing in U.S. securities. These considerations include: fluctuations in exchange rates of foreign currencies; possible imposition of exchange control regulation or currency restrictions that would prevent cash from being brought back to the United States; less public information with respect to issuers of securities; less governmental supervision of stock exchanges, securities brokers, and issuers of securities; different accounting, auditing, and financial reporting standards; different settlement periods and trading practices; less liquidity and frequently greater price volatility in foreign markets than in the United States; imposition of foreign taxes; and sometimes less advantageous legal, operational, and financial protections applicable to foreign sub-custodial arrangements. 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. The countries in which the funds invest include those listed below. A fund may not invest in all the countries listed, and it may invest in other countries as well, when such investments are consistent with that fund's investment objective and policies. 3 MATURE MARKETS DEVELOPING MARKETS EMERGING MARKETS -------------- ------------------ ---------------- Australia Argentina Bangladesh Morocco Austria Chile Botswana Pakistan Belgium Greece Brazil Peru Canada Hong Kong China Philippines Denmark Indonesia Colombia Poland Finland Israel Cyprus Sri Lanka France Korea Czech Republic Swaziland Germany Malaysia Ecuador Turkey Ireland Mexico Egypt Uruguay Italy Portugal Ghana Venezuela Japan Singapore Hungary Zambia Luxembourg Taiwan India Zimbabwe Netherlands Thailand Jordan New Zealand Kenya Norway South Africa Spain Sweden Switzerland United Kingdom United States It may not be feasible for the funds currently to invest in all of these countries due to restricted access to their securities markets or inability to implement satisfactory custodial arrangements. CURRENCY EXCHANGE TRANSACTIONS. The funds may enter into currency exchange transactions. A currency exchange transaction may be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or selling currency prevailing in the foreign exchange market or through a forward currency exchange contract ("forward contract"). A forward contract is an agreement to purchase or sell a specified currency at a specified future date (or within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks and 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 either fund owns or anticipates owning securities in 4 countries whose currencies are linked, WAM may aggregate such positions as to the currency hedged. If a fund enters into a forward contract hedging an anticipated purchase of portfolio securities, liquid assets of that fund, such as cash, U.S. government securities, or other liquid high grade debt obligations, having a value at least as great as the fund's commitment under such forward contract will be segregated on the books of the fund and held by the custodian while the contract is outstanding. At the maturity of a forward contract to deliver a particular currency, a fund may either sell the portfolio security related to such contract and make delivery of the currency, or it may retain the security and either acquire the currency on the spot market or terminate its contractual obligation to deliver the currency by purchasing an offsetting contract with the same currency trader obligating it to purchase on the same maturity date the same amount of the currency. It is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of a forward contract. Accordingly, it may be necessary for a fund to purchase additional currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the amount of currency that the fund is obligated to deliver and if a decision is made to sell the security and make delivery of the currency. Conversely, it may be necessary to sell on the spot market some of the currency received upon the sale of the portfolio security if its market value exceeds the amount of currency that fund is obligated to deliver. If a fund retains the portfolio security and engages in an offsetting transaction, that fund will incur a gain or a loss to the extent that there has been movement in forward contract prices. If the fund engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the currency. Should forward prices decline during the period between a fund's entering into a forward contract for the sale of a currency and the date it enters into an offsetting contract for the purchase of the currency, the fund will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, a fund will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell. A default on the contract would deprive the fund of unrealized profits or force the fund to cover its commitments for purchase or sale of currency, if any, at the current market price. Hedging against a decline in the value of a currency does not eliminate fluctuations in the prices of portfolio securities or prevent losses if the prices of such securities decline. Such transactions also preclude the opportunity for gain if the value of the hedged currency should rise. Moreover, it may not be possible for a fund to hedge against a devaluation that is so 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. 5 SYNTHETIC FOREIGN MONEY MARKET POSITIONS. The funds may invest in money market instruments denominated in foreign currencies. In addition to, or in lieu of, such direct investment, the funds may construct a synthetic foreign money market position by (a) purchasing a money market instrument denominated in one currency, generally U.S. dollars, and (b) concurrently entering into a forward contract to deliver a corresponding amount of that currency in exchange for a different currency on a future date and at a specified rate of exchange. For example, a synthetic money market position in Japanese yen could be constructed by purchasing a U.S. dollar money market instrument, and entering concurrently into a forward contract to deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a specified date and at a specified rate of exchange. Because of the availability of a variety of highly liquid short- term U.S. dollar money market instruments, a synthetic money market position utilizing such U.S. dollar instruments may offer greater liquidity than direct investment in foreign money market instruments. The results of a direct investment in a foreign currency and a concurrent construction of a synthetic position in such foreign currency, in terms of both income yield and gain or loss from changes in currency exchange rates, in general should be similar, but would not be identical because the components of the alternative investments would not be identical. Except to the extent a synthetic foreign money market position consists of a money market instrument denominated in a foreign currency, the synthetic foreign money market position shall not be deemed a "foreign security" for purposes of the policies that, under normal conditions, (a) ACORN FUND will not invest more than 33% of its total assets in foreign securities, and (b) ACORN INTERNATIONAL will invest at least 75% of its total assets in foreign securities. 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.) 6 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 cash consideration (or, if additional cash consideration is required, cash or cash equivalents in such amount are held in a segregated account by its custodian) upon conversion or exchange of other securities held in its portfolio. If an option written by a fund expires, that fund realizes a capital gain equal to the premium received at the time the option was written. If an option purchased by a fund expires, that fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an option may be closed out by an offsetting purchase or sale of an option of the same series (type, exchange, underlying security or index, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a fund desires. A fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if it is more, the fund will realize a capital loss. If the premium received from a closing sale transaction is more than the premium paid to purchase the option, the fund will realize a capital gain or, if it is less, the fund will realize a capital loss. The principal factors affecting the market value of a put or a call option include supply and demand, interest rates, the current market price of the underlying security or index in relation to the exercise price of the option, the volatility of the underlying security or index, and the time remaining until the expiration date. A put or call option purchased by a fund is an asset of that fund, valued initially at the premium paid for the option. The premium received for an option written by a fund is recorded as a deferred credit. The value of an option purchased or written is marked-to-market daily and is valued at the closing price on the exchange on which it is traded or, if not traded on an exchange or no closing price is available, at the mean between the last bid and asked prices. OTC DERIVATIVES. The Fund 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 the 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. 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 7 whether, when, and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events. There can be no assurance that a liquid market will exist when a fund seeks to close out an option position. If a fund were unable to close out an option that it had purchased on a security, it would have to exercise the option in order to realize any profit or the option would expire and become worthless. If a fund were unable to close out a covered call option that it had written on a security, it would not be able to sell the underlying security until the option expired. As the writer of a covered call option on a security, a fund foregoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the exercise price of the call. As the writer of a covered call option on a foreign currency, a fund foregoes, during the option's life, the opportunity to profit from currency appreciation. If trading were suspended in an option purchased or written by one of the funds, that fund would not able to close out the option. If restrictions on exercise were imposed, the fund might be unable to exercise an option it has purchased. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The funds may use interest rate futures contracts and index futures contracts. An interest rate or index futures contract provides for the future sale by one party and purchase by another party of a specified quantity of a financial instrument or the cash value of an index/1/ at a specified price and time. A public market exists in futures contracts covering a number of indexes (including, but not limited to: the Standard & Poor's 500 Index; the Value Line Composite Index; 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. - -------------------------- /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. 8 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, the funds 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 a fund's securities or the price of the securities that a fund intends to purchase. The funds' hedging may include sales of futures contracts as an offset against the effect of expected declines in stock prices or currency exchange rates or increases in interest rates and purchases of futures contracts as an offset against the effect of expected increases in stock prices or currency exchange rates or declines in interest rates. Although other techniques could be used to reduce the funds' exposure to stock price, interest rate, and currency fluctuations, the funds may be able to hedge their exposure more effectively and perhaps at a lower cost by using futures contracts and futures options. The success of any hedging technique depends on WAM correctly predicting 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, if legally permitted) 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 set by the exchange on which the contract is traded and may be modified during the term of the contract. 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, 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 9 capital gain, or if it is more, the funds realize a capital loss. Conversely, if an offsetting sale price is more than the original purchase price, the fund engaging in the transaction realizes a capital gain, or if it is less, the fund realizes a capital loss. The transaction costs must also be included in these calculations. RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the use of futures contracts and futures options as hedging techniques. A purchase or sale of a futures contract may result in losses in excess of the amount invested in the futures contract. There can be no guarantee that there will be a correlation between price movements in the hedging vehicle and in the portfolio securities being hedged. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfection of correlation depends on circumstances such as: variations in speculative market demand for futures, futures options, and the related securities, including technical influences in futures and futures options trading and differences between the funds' investments being hedged and the securities underlying the standard contracts available for trading. For example, in the case of index futures contracts, the composition of the index, including the issuers and the weighting of each issue, may differ from the composition of a fund's portfolio, and, in the case of interest rate futures contracts, the interest rate levels, maturities, and creditworthiness of the issues underlying the futures contract may differ from the financial instruments held in a fund's portfolio. A decision as to whether, when, and how to hedge involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected stock price or interest rate trends. Futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of the current trading session. Once the daily limit has been reached in a futures contract subject to the limit, no more trades may be made on that day at a price beyond that limit. The daily limit governs only price movements during a particular trading day and therefore does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions. For example, futures prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of positions and subjecting some holders of futures contracts to substantial losses. Stock index futures contracts are not normally subject to such daily price change limitations. There can be no assurance that a liquid market will exist at a time when a fund seeks to close out a futures or futures option position. The fund would be exposed to possible loss on the 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. 10 LIMITATIONS ON OPTIONS AND FUTURES. A fund will not enter into a futures contract or purchase an option thereon if, immediately thereafter, the initial margin deposits for futures contracts held by that fund plus premiums paid by it for open futures option positions, less the amount by which any such positions are "in-the-money,"/2/ would exceed 5% of the fund's total assets. When purchasing a futures contract or writing a put option on a futures contract, a fund must maintain with its custodian (or broker, if legally permitted) cash or cash equivalents (including any margin) 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 cash or cash equivalents (including any margin) equal to the amount by which such option is in-the-money until the option expires or is closed out by the fund. A fund may not maintain open short positions in futures contracts, call options written on futures contracts, or call options written on indexes if, in the aggregate, the market value of all such open positions exceeds the current value of the securities in its portfolio, plus or minus unrealized gains and losses on the open positions, adjusted for the historical relative volatility of the relationship between the portfolio and the positions. For this purpose, to the extent a fund has written call options on specific securities in its portfolio, the value of those securities will be deducted from the current market value of the securities portfolio. In order to comply with Commodity Futures Trading Commission Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," the "underlying commodity value" of each long position in a commodity contract in which the 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. As long as the funds continue to sell their shares in certain states, each fund's options and futures transactions will also be subject to certain non- fundamental investment restrictions set forth under "Investment Restrictions" in this SAI. Moreover, neither fund will purchase puts, - ---------------- /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 opinion. 11 calls, straddles, spreads, or any combination thereof if by reason of such purchase more than 10% of that fund's total assets would be invested in such securities. SWAP AGREEMENTS. A swap agreement is generally individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on its structure, a swap agreement may increase or decrease the 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 the 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 placed at risk. A swap agreement tends to shift the Fund's investment exposure from one type of investment to another. For example, if the 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 the 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 the Fund's investments and its net asset value. 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 the Fund. If a swap agreement calls for payments by the Fund, the 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. The Fund expects to be able to eliminate its 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. The Fund will segregate liquid assets (such as cash, U.S. government securities, or other liquid high grade debt obligations) of the Fund to cover its current obligations under swap agreements. If the 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 the Fund's accumulated obligations under the swap agreement over the accumulated amount the Fund is entitled to receive under the agreement. If the 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 the Fund's accumulated obligations under the agreement. 12 ILLIQUID SECURITIES The funds may not invest in illiquid securities, if as a result they would comprise more than 10% and 15% of the value of the net assets of ACORN FUND and ACORN INTERNATIONAL, respectively./3/ 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 fair value as determined in good faith by the board of trustees. If through the appreciation of illiquid securities or the depreciation of liquid securities, ACORN FUND or ACORN INTERNATIONAL should be in a position where more than 10% or 15% of the value of its net assets, respectively, are invested in illiquid assets, including restricted securities, that fund will take appropriate steps to protect liquidity. Notwithstanding the above, a fund may purchase securities that have been privately placed but that are eligible for purchase and sale under Rule 144A under the 1933 Act. That rule permits certain qualified institutional buyers, such as the funds, to trade in privately placed securities that have not been registered for sale under the 1933 Act. WAM, under the supervision of the board of trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to a fund's restriction of investing no more than 10% (for ACORN FUND) or 15% (for ACORN INTERNATIONAL) 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 - ---------------- /3/ In addition, the funds must comply with certain state regulations that may impose additional restrictions. As long as shares of a fund are offered for sale in Wisconsin, that fund may not invest more than 10% of its total assets in securities of issuers which the fund is restricted from selling to the public without registration under the Securities Act of 1933, excluding Rule 144A securities, and not more than 5% of its total assets in equity securities which are not readily marketable. Arkansas regulations currently prohibit investment of mo re than 10% of a fund's assets in restricted securities. 13 does not invest more than 10% (for ACORN FUND) or 15% (for ACORN INTERNATIONAL) 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. 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 fund expects to invest more than 5% of its net assets in such securities during the current fiscal year. 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 "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. 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 14 associated with direct investments in securities, a fund will enter into repurchase agreements only with banks and dealers believed by WAM to present minimum credit risks in accordance with guidelines approved by the board of trustees. WAM will review and monitor the creditworthiness of such institutions, and will consider the capitalization of the institution, WAM's prior dealings with the institution, any rating of the institution's senior long-term debt by independent rating agencies, and other relevant factors. A fund will invest only in repurchase agreements collateralized at all times in an amount at least equal to the repurchase price plus accrued interest. To the extent that the proceeds from any sale of such collateral upon a default in the obligation to repurchase were less than the repurchase price, the fund would suffer a loss. If the financial institution which is party to the repurchase agreement petitions for bankruptcy or otherwise becomes subject to bankruptcy or other liquidation proceedings there may be restrictions on a fund's ability to sell the collateral and the fund could suffer a loss. However, with respect to financial institutions whose bankruptcy or 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. The funds 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, liquid assets of the fund having a value at least as great as the purchase price of the securities to be purchased will be segregated on the books of the fund and held by the custodian throughout the period of the obligation. The use of these investment strategies, as well as any borrowing by a fund, may increase net asset value fluctuation. The funds have no present intention of investing in reverse repurchase agreements. 15 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. or 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. The funds' portfolio turnover rates have been low (in 1995, 29% for Acorn Fund and 26% for Acorn International). 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. 16 INVESTMENT RESTRICTIONS In pursuing its investment objective ACORN FUND will not: 1. Invest more than 5% of its assets (valued at time of investment) in securities of any one issuer, except in government obligations; 2. Acquire securities of any one issuer which at the time of investment (a) represent more than 10% of the voting securities of the issuer or (b) have a value greater than 10% of the value of the outstanding securities of the issuer; 3. Invest more than 25% of its assets (valued at time of investment) in securities of companies in any one industry; 4. Invest more than 5% of its assets (valued at time of investment) in securities of issuers with less than three years' operation (including predecessors); 5. Purchase or retain securities of a company if all of the trustees and officers of the Trust and of its investment adviser who individually own beneficially more than 1/2% of the securities of the company collectively own beneficially more than 5% of such securities; 6. Borrow money except (a) from banks for temporary or emergency purposes at fixed rates of interest in amounts not exceeding 10% of the value of the fund's assets at the time of borrowing, and (b) in connection with transactions in options and in securities index futures [the fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets]; 7. Pledge, mortgage or hypothecate its assets, except for temporary or emergency purposes and then to an extent not greater than 15% of it assets at cost, and except in connection with transactions in options and in securities index futures; 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);/4/ 5. Borrow money except (a) from banks for temporary or emergency purposes in amounts not exceeding 10% of the value of the fund's total assets at the time of borrowing, and (b) in connection with transactions in options, futures and options on futures. [The fund will not purchase additional securities when its borrowings, less amounts receivable on sales of portfolio securities, exceed 5% of total assets.]; - ---------------------------------- /4/ The funds have no present intention of investing in repurchase agreements or lending their portfolio securities. 17 8. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market to not more than 10% of its total assets at the time of acquisition; 9. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises which invest in real estate or interests in real estate; 10. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 11. Make margin purchases of securities, except for use of such short-term credits as are needed for clearance of transactions and except in connection with transactions in options, futures and options on futures; 12. Sell securities short or maintain a short position, except short sales against-the-box; 13. Participate in a joint or on a joint or several basis in any trading account in securities; 14. Invest in companies for the purpose of management or the exercise of control; 15. Issue any senior security except to the extent permitted under the Investment Company Act of 1940. Restrictions 1 through 15 above (except the portions in brackets) are "fundamental," which means that they cannot be changed without the approval of the lesser of (i) 67% of ACORN FUND'S shares present at a meeting if more than 50% of the shares outstanding are present or (ii) more than 50% of ACORN FUND'S outstanding shares. It is also a fundamental policy of ACORN FUND to make loans to the extent that investment in debt securities may be considered to constitute the making of loans (subject to the 10% limitation stated in restriction 8 above). 6. Underwrite the distribution of securities of other issuers; however the fund may acquire "restricted" securities which, in the event of a resale, might be required to be registered under the Securities Act of 1933 on the ground that the fund could be regarded as an underwriter as defined by that act with respect to such resale; but the fund will limit its total investment in restricted securities and in other securities for which there is no ready market, including repurchase agreements maturing in more than seven days, to not more than 15% of its total assets at the time of acquisition; 7. Purchase and sell real estate or interests in real estate, although it may invest in marketable securities of enterprises that invest in real estate or interests in real estate; 8. Purchase and sell commodities or commodity contracts, except that it may enter into (a) futures and options on futures and (b) forward contracts; 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. Restrictions 1 through 11 above (except the portions in brackets) are "fundamental," which means that they cannot be changed without the approval of the lesser of (i) 67% of ACORN INTERNATIONAL'S shares present at a meeting if more than 50% of the shares outstanding are present or (ii) more than 50% of the shares outstanding are present or (ii) more than 50% of ACORN INTERNATIONAL'S outstanding shares. In addition, ACORN INTERNATIONAL is subject to a number of restrictions that may be changed by the board of trustees without shareholder approval. Under those non-fundamental restrictions, ACORN INTERNATIONAL will not: 18 In addition, ACORN FUND is subject to a number of restrictions that may be changed by the board of trustees without shareholder approval. Under those nonfundamental restrictions, ACORN FUND will not: a. Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration; b. Invest more than 5% of its net assets (valued at time of investment) in warrants, valued at the lower of cost or market, including not more than 2% of its net assets in warrants not listed on the New York or American stock exchanges; provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; c. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940 and applicable state law; d. Purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions; nor e. Invest more than 33% of its total assets (valued at time of investment) in securities of foreign issuers. a. Invest in companies for the purpose of management or the exercise of control; b. Invest in oil, gas or other mineral leases or exploration or development programs, although it may invest in marketable securities of enterprises engaged in oil, gas or mineral exploration; c. Invest more than 10% of its net assets (valued at time of investment) in warrants, valued at the lower of cost or market; provided that warrants acquired in units or attached to securities shall be deemed to be without value for purposes of this restriction; d. Invest more than 5% of its total assets (valued at time of investment) in securities of issuers with less than three years' operation (including predecessors); e. Acquire securities of other registered investment companies except in compliance with the Investment Company Act of 1940 and applicable state law; f. Purchase or retain securities of a company if all of the trustees, directors and officers of the Trust and of its investment adviser who individually own beneficially more than 1/2% of the securities of the company collectively own beneficially more than 5% of such securities; 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. Purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closed transactions. Notwithstanding the foregoing investment restrictions, ACORN INTERNATIONAL may purchase securities pursuant to the exercise of subscription rights, provided that such purchase will not result in the 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 19 existing shareholders at a price substantially below the market price of the shares. The failure to exercise such rights would result in ACORN INTERNATIONAL'S interest in the issuing company being diluted. The market for such rights is not well developed in all cases and, accordingly, ACORN INTERNATIONAL 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. 20 PERFORMANCE INFORMATION From time to time the funds may quote total return figures. "Total Return" for a period is the percentage change in value during the period of an investment in shares of a fund, including the value of shares acquired through reinvestment of all dividends and capital gains distributions. "Average Annual Total Return" is the average annual compounded rate of change in value represented by the Total Return for the period. Average Annual Total Return is computed as follows: ERV = P(1+T)n Where: P = the amount of an assumed initial investment in shares of a fund T = average annual total return n = number of years from initial investment to the end of the period ERV = ending redeemable value of shares held at the end of the period For example, as of December 31, 1995 the Total Return and Average Total Return on a $1,000 investment in the funds for the following periods were:
ACORN FUND Average Annual - ---------- Total Return Total Return ------------ -------------- 1 year......................... 20.8% 20.8% 5 years........................ 170.8 22.1 10 years....................... 324.6 15.5 Life of Fund (inception 6/10/70) 4,874.1 16.5 ACORN INTERNATIONAL Average Annual - ------------------- Total Return Total Return ------------ -------------- 1 year......................... 8.9% 8.9% Life of Fund (inception 9/23/92) 67.0 17.0
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. 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 21 by Lipper Analytical Services, Inc., an independent service that monitors the performance of over 1,000 mutual funds, Morningstar, Inc., or another service. The funds may note their mention or recognition in newsletters, newspapers, magazines, or other media. The funds may similarly note mention or recognition of WAM, or appearances of principals of WAM, in the media. INVESTMENT ADVISER The funds' investment adviser, Wanger Asset Management, L.P. ("WAM"), furnishes continuing investment supervision to the funds 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. For its services to ACORN FUND WAM receives a quarterly fee (paid in three monthly installments) at the annual rate of .75% of the net asset value of the fund up to $100 million, .50% of the net asset value in excess of $100 million and up to $1.5 billion, and .40% of the net asset value in excess of $1.5 billion, as determined as of the beginning of each calendar quarter. Prior to July 1, 1992, ACORN FUND'S former investment adviser, Harris Associates L.P., received a monthly fee at the annual rate of .75% of the net asset value of the fund up to $100 million, .625% of the net asset value in excess of $100 million and up to $500 million, and .50% of the net asset value in excess of $500 million, as determined as of the beginning of each calendar quarter. The investment advisory fees of the fund for 1995, 1994, and 1993, were $10,429,000, $9,750,000, and $8,528,000, respectively. For its services to ACORN INTERNATIONAL, WAM receives a fee paid monthly at the annual rate of 1.25% of the net asset value of the fund up to $100 million, 1% of the net asset value in excess of $100 million and up to $500 million, and .80% of the net asset value in excess of $500 million, as determined as of the beginning of each calendar quarter, reduced by any amount necessary to cause the fund's expenses to be within the limitation described below. The investment advisory fees of ACORN INTERNATIONAL for 1995, 1994 and 1993 were $11,667,000, $11,561,000 and $2,543,000, respectively. The staff of the Securities and Exchange Commission has advised Acorn that the annual advisory fees paid by most mutual funds are less than .75% of average net assets. In 1995 ACORN FUND'S advisory fee was .47% of its average net assets, and ACORN INTERNATIONAL'S fee was .90% of its average net assets. The funds pay the cost of custodial, stock transfer, dividend disbursing, audit, and legal services. They also pay other expenses such as the cost of maintaining the registration of their shares under federal and state securities laws and of 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. 22 The investment advisory agreement provides that the total annual expenses of each fund, exclusive of taxes, interest, and extraordinary litigation expenses, but including fees paid to WAM, shall not exceed the limits prescribed by any state in which that fund's shares are being offered for sale. Acorn believes that currently the most restrictive limits are 2.5% of the first $30 million of the average net asset value, 2% of the next $70 million, and 1.5% of the average net asset value in excess of $100 million. Brokers' commissions and other charges relating to the purchase and sale of securities are not regarded as expenses for this purpose. Moreover, for purposes of calculating the expenses subject to this limitation, the excess custodian costs attributable to investments in foreign securities compared to the custodian costs which would have been incurred had the investments been in domestic securities are excluded. For the purpose of determining whether the fund is entitled to any reduction in advisory fee or expense reimbursement, the fund's expenses are calculated monthly and any reduction in fee or reimbursement is made monthly. Each fund's operating expenses have been well below those limitations. WAM advanced all of ACORN INTERNATIONAL'S organizational expenses, which are being amortized and reimbursed to WAM through September, 1997. WAM is a limited partnership managed by its general partner, Wanger Asset Management, Ltd., which is controlled by Ralph Wanger. WAM commenced operations in 1992. Ralph Wanger, Charles P. McQuaid, Terence M. Hogan, and Leah J. Zell, who are officers of the Trust, are limited partners of WAM. WAM has approximately $4.5 billion under management. DISTRIBUTOR Shares of each fund are distributed by WAM Brokerage Services, L.L.C. ("WAM BD") under a Distribution Agreement as described in the prospectus dated May 1, 1996, which is incorporated herein by reference. The Distribution Agreement continues in effect 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 auditing and filing fees in connection with registration of its shares under the various state blue sky 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. As agent, WAM BD offers shares of each fund to investors in states where the shares are qualified for sale, at net asset value without sales commissions or other sales loads to the investor. In addition, no sales commission or "12b-1" payment is paid by the funds. WAM BD offers the funds' shares only on a best efforts basis. 23 THE 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 and Acorn International 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. On any matter submitted to a vote of shareholders, shares are voted in the aggregate and not by individual series except that shares are voted by individual series when required by the Investment Company Act of 1940 or other applicable law, or when the board of trustees determines that the matter affects only the interests of one series, in which case shareholders of the unaffected series are not entitled to vote on such matters. All shares of the Trust are voted together in the election of trustees. TRUSTEES AND OFFICERS The trustees and officers of the Trust and their ages and principal business activities during the past five years are: Irving B. Harris, trustee and chairman Two North LaSalle Street, Chicago, Illinois 60602; age 85; chairman of the executive committee and director, Pittway Corporation (multi-product manufacturer and publisher); chairman, William Harris Investors, Inc. (investment adviser); chairman, The Harris Foundation (charitable foundation); director, Teva Pharmaceutical Industries, Inc. (pharmaceutical manufacturer) Ralph Wanger, trustee and president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 62; trustee and president, Wanger Advisors Trust; principal, Wanger Asset Management, L.P. since July 1992; prior thereto, principal, Harris Associates L.P. James H. Lorie, trustee and vice chairman 1101 East 58th Street, Chicago, Illinois 60637; age 74; retired; Eli B. and Harriet B. Williams Professor of Business Administration Emeritus, University of Chicago Graduate School of Business; director, Ardco, Inc. (refrigeration equipment manufacturer); director, Thornburg Mortgage Asset Corp. (REIT) 24 Leo A. Guthart, trustee 165 Eileen Way, Syosset, New York 11791; age 58; vice chairman, Pittway Corporation (multi-product manufacturer and publisher); chief executive officer, Pittway Corporation's Security Group of Companies which include ADEMCO (manufacturer of alarm equipment), ADI (distributor of security equipment), Fire Burglary Instruments (supplier of security control panels), First Alert Professional (alarm dealers), Cylink Corporation (supplier of encryption equipment), and Alarm Net (cellular radio service); director, AptarGroup, Inc. (producer of dispensing valves, pumps and closures); director, Cylink Corporation; chairman of the board of trustees, Hofstra University; chairman, Tech Transfer Island Corp. (private investment partnership); director, Long Island Research Institute. Jerome Kahn, Jr., trustee Two North LaSalle Street, Suite 505, Chicago, Illinois 60602; age 62; vice president, William Harris Investors, Inc. (investment adviser); director, Pittway Corporation (multi-product manufacturer and publisher) David C. Kleinman, trustee 1101 East 58th Street, Chicago, Illinois 60637; age 60; senior lecturer in business administration, University of Chicago Graduate School of Business; business consultant; director, Irex Corporation (insulation contractor) Charles P. McQuaid, trustee and senior vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 42; trustee and senior vice president, Wanger Advisors Trust; principal, Wanger Asset Management, L.P. since July 1992; prior thereto, principal, Harris Associates L.P. Roger S. Meier, trustee 1211 S. W. Fifth Avenue, Portland, Oregon 97204; age 70; president, AMCO, Inc. (investment and real estate management); director, Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited Partnership (hotel chain); director, Key Bank of Oregon (banking) Adolph Meyer, Jr., trustee 1511 West Webster Avenue, Chicago, Illinois 60614; age 72; president, Gulco Corp. (leather manufacturer) Malcolm N. Smith, trustee 309 Maple Avenue, Highland Park, Illinois 60035; age 75; president, Newmac, Inc. (importers of Sheffield cutlery); prior thereto, president, Macromatic Division, Milwaukee Electronics Corporation (electronic timing devices manufacturer) Terence M. Hogan, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 34; trustee and vice president, Wanger Advisors Trust; principal, analyst, and portfolio manager, Wanger Asset Management, L.P., since July 1992; prior thereto, analyst, Harris Associates L.P. 25 Leah J. Zell, vice president 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47; trustee and vice president, Wanger Advisors Trust; principal, analyst, and portfolio manager, Wanger Asset Management, L.P., since July 1992; prior thereto, analyst, Harris Associates L.P. Merrillyn J. Kosier, vice president and secretary 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 36; vice president and secretary, Wanger Advisors Trust; director of marketing and shareholder services, Wanger Asset Management, L.P., since September 1993; prior thereto, vice president of marketing, Kemper Financial Services, Inc. Bruce H. Lauer, vice president and treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 38; vice president and treasurer, Wanger Advisors Trust; chief administrative officer, Wanger Asset Management, L.P. since April 1995; prior thereto, first vice president, investment accounting, Kemper Financial Services, Inc. Kenneth A. Kalina, assistant treasurer 227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; age 36; assistant treasurer, Wanger Advisors Trust; Fund controller, Wanger Asset Management, L.P., since September 1995; prior thereto, treasurer of the Stein Roe Mutual Funds Messrs. McQuaid and Wanger are trustees who are interested persons of Acorn as defined in the Investment Company Act of 1940, and of WAM. Messrs. Harris, Lorie, and Wanger are members, and Mr. McQuaid is an alternate member, of the executive committee, which has authority during intervals between meetings of the board of trustees to exercise the powers of the board, with certain exceptions. At December 31, 1995 the trustees and officers as a group owned beneficially 3,041,662 shares (1.7% of the outstanding shares) of ACORN FUND and 642,734 shares (.84% of the outstanding shares) of ACORN INTERNATIONAL. The Illinois Deferred Compensation Plan held 13,002,878 shares of Acorn Fund (7.4% of the outstanding shares). Charles Schwab & Co., Inc. held 9,562,720 shares of Acorn International (12.4% of the outstanding shares) as holder of record, but not beneficially. During 1995 the funds paid fees aggregating $223,000 to board members who were not affiliated with WAM. The following table sets forth the total compensation paid by the Trust during the fiscal year ended December 31, 1995 to each of the trustees of the trust. The trust has no retirement or pension plan. The officers and trustees affiliated with WAM serve without any compensation from the Trust. 26
AGGREGATE TOTAL AGGREGATE COMPENSATION COMPENSATION COMPENSATION FROM ACORN FROM - ----------------------------------- FROM ACORN INTERNATIONAL FUND COMPLEX NAME OF TRUSTEES - ------------------------------------------------------------------------------ Irving B. Harris $49,000 $32,000 $81,000 Leo A. Guthart 11,400 7,600 19,000 Jerome Kahn, Jr. 12,300 8,200 20,500 David C. Kleinman 12,300 8,200 20,500 James H. Lorie 11,400 7,600 19,000 Charles P. McQuaid 0 0 0 Roger S. Meier 11,700 7,800 19,500 Adolph Meyer, Jr. 11,400 7,600 19,000 Malcolm N. Smith 12,300 8,200 20,500 Ralph Wanger 0 0 0 - ------------------------------------------------------------------------------
PURCHASING AND REDEEMING SHARES Purchases and redemptions are discussed in the funds' prospectus under the headings "How to Buy Shares," "How to Sell Shares," and "Transaction Services." All of that information is incorporated herein by reference. For purposes of computing the net asset value of a share of either fund, 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 sales 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 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. The funds' net asset values are 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 February, Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one of these holidays falls 27 on a Saturday or Sunday, the NYSE will be closed on the preceding Friday or the following Monday, respectively. Trading in the portfolio securities of the funds may take place in various foreign markets on certain days (such as Saturday) when the funds are not open for business and do not calculate their net asset values. Conversely, trading in the funds' portfolio securities may not occur on days when the funds are open. Therefore, the calculation of net asset value does not take place contemporaneously with the determinations of the prices of many of the funds' portfolio securities and the value of the funds' portfolios may be significantly affected on days when shares of the funds may not be purchased or redeemed. Computation of net asset value (and the sale and redemption of fund shares) may be suspended or postponed during any period when (a) trading on the NYSE is restricted, as determined by the Securities and Exchange Commission, or that exchange is closed for other than customary weekend and holiday closings, (b) the Commission has by order permitted such suspension, or (c) an emergency, as determined by the Commission, exists making disposal of portfolio securities or valuation of the net assets of the funds not reasonably practicable. 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 net asset value 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 shares in the account do not have a value of at least $1,000. 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. In connection with the Switch Plan, WAM acts as a shareholder servicing agent for the Money Funds. For its services it receives a fee at the rate of 0.35% of the average annual net assets of each account in a Money Fund established through the Switch Plan, pursuant to a 12b-1 plan adopted by the Money Funds. ADDITIONAL TAX INFORMATION Each fund intends to qualify, as it did in its last fiscal year, to be taxed as a regulated investment company under the Internal Revenue Code so as to be relieved of federal income tax on its capital gains and net investment income currently distributed to its shareholder. 28 At the time of your purchase, a fund's net asset value may reflect undistributed income, capital gains, or net unrealized appreciation of securities held by that fund. A subsequent distribution to you of such amounts, although constituting a return of your investment, would be taxable either as a dividend or capital gain distribution. Foreign currency gains and losses, including the portion of gain or loss on the sale of debt securities attributable to foreign exchange rate fluctuations, are taxable as ordinary income. If the net effect of these transactions is a gain, the income dividend paid by a fund will be increased; if the result is a loss, the income dividend paid by a fund will be decreased. Dividends paid by ACORN INTERNATIONAL are not eligible for the dividends- received deduction for corporate shareholders, if as expected, none of that fund's income consists of dividends paid by United States corporations. A portion of the dividends paid by ACORN FUND is expected to be eligible for the dividends-received deduction. Capital gain distributions paid from either fund 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 Internal Revenue 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 Internal Revenue Service 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. ACORN INTERNATIONAL 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, 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) ACORN INTERNATIONAL'S gross income from foreign sources. Of course, shareholders who are not liable for federal income taxes, such as retirement plans qualified under Section 401 of the Code, will not be affected by any such "pass through" of foreign tax credits. ACORN FUND does 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 (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 29 providing for a reduced rate or exemption from U.S. taxation. Distributions of net long-term capital gains are not subject to tax unless the foreign shareholder is a nonresident alien individual who was physically present in the U.S. during the tax year for more than 182 days. PORTFOLIO TRANSACTIONS Portfolio transactions of the funds are placed with those securities brokers and dealers that WAM believes will provide the best value in transaction and research services for each fund, either in a particular transaction or over a period of time. Although some transactions involve only brokerage services, many involve research services as well. 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. 30 Transactions of the funds in the over-the-counter market and the third market are executed with primary market makers acting as principal except where it is believed that better prices and execution may be obtained otherwise. Brokerage commissions incurred by ACORN FUND for 1995, 1994, and 1993 aggregated approximately $2,565,000, $1,870,000, and $1,922,000, respectively, not including the gross underwriting spread on securities purchased in underwritten public offerings. During 1995 ACORN FUND paid brokerage commissions aggregating approximately $1,600,000 in connection with portfolio transactions involving purchases and sales aggregating approximately $427 million to brokers who furnished investment research services to the fund. Brokerage commissions incurred by ACORN INTERNATIONAL for 1995, 1994, and 1993 aggregated approximately $3,113,000, $3,775,000, and $3,292,000, respectively, not including the gross underwriting spread on securities purchased in underwritten public offerings. In 1995 ACORN INTERNATIONAL paid brokerage commissions aggregating approximately $2,883,000 in connection with portfolio transactions involving purchases and sales aggregating approximately $586 million to brokers who furnished investment research services to the fund. 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 both of the funds and one or more other advisory clients. If one or both of the funds and other clients purchase or sell the same class of securities on the same day, the transactions will be allocated as to amount and price in a manner considered equitable to each. CUSTODIAN State Street Bank and Trust Company, P.O. Box 8502, Boston Massachusetts 02266-8502, 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. The custodian 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 the custodian to deposit certain portfolio securities of the funds in central depository systems as permitted under federal law. The funds may invest in obligations of the custodian and may purchase or sell securities from or to the custodian. 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. 31 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. Aa--Bonds rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba--Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. 32 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. 33 Acorn Fund Annual Report 1995 In a Nutshell Acorn Fund had only a minor gain in net asset value per share in the fourth quarter. We went up 0.3%, trailing the four market averages displayed in the table on the right. The table shows that small company stocks, as represented by the S&P MidCap and Russell 2000 averages, lagged the big companies that are in the Dow-Jones Industrials or S&P 500. For the full year, our net asset value increased 20.8%. This is a good return in an absolute sense, but was substantially behind the market averages. Our performance for the year is analyzed in some detail in the next section of the report. Corporate earnings were very strong in 1995. This year is starting off with a weak economy, so many companies will have down earnings in the first half of 1996. Since this is an election year, we can expect the Fed to have an easy money policy, keeping the U.S. market strong, but not as strong as in 1995. Finally, we want our shareholders to know that Acorn Fund is now open to new investors. We have substantially increased our staff and improved our systems to manage additional investments effectively. Results to December 31, 1995 - ------------------------------------------------------- 4th quarter Last 12 mos. --------------------------- Acorn Fund 0.3% 20.8% Dow-Jones 7.5% 36.9% Standard & Poor's 500 6.0% 37.5% Standard & Poor's MidCap 1.4% 31.0% Russell 2000 2.2% 28.4% The Dow Jones Industrial Average includes 30 big companies. The S&P 500 is a broad market-weighted average, still blue chip dominated. The S&P MidCap 400 is a market value weighted index of 400 stocks that are in the next tier down from the S&P 500. The Russell 2000 is formed by taking 3,000 companies and then eliminating the largest 1,000 leaving a good small company index. All indices are unmanaged and returns include reinvested dividends. 1995 DISTRIBUTIONS Ex-Dividend Reinvestment Distribution Per Share Date Price - ------------------------------------------------------------------- Ordinary Income $0.03 7/18/95 $13.89 Long-Term Capital Gain $0.12 7/18/95 $13.89 Ordinary Income $0.06 12/13/95 $13.49 Long-Term Capital Gain $0.96 12/13/95 $13.49 U.S. Government Interest: 1.57%; Taxable N.A.V. for Florida Intangible Tax: $13.54; Taxable N.A.V. for Pennsylvania Personal Property Tax: $9.77; Dividend Received Deduction % for Corporate Shareholders: 71%. The Value of a $10,000 Investment in Acorn Fund June 10, 1970 through December 31, 1995 [GRAPH APPEARS HERE] DATE ACORN ($) S&P ($) -------- --------- ------- 6/10/70 10,000 10,000 12/31/71 17,828 13,837 12/31/72 19,368 16,192 12/31/73 14,765 14,466 12/31/74 10,691 10,630 12/31/75 13,945 14,595 12/31/76 23,045 18,092 12/31/77 27,168 16,789 12/31/78 31,777 17,877 12/31/79 47,790 21,205 12/31/80 62,594 28,098 12/31/81 58,005 26,701 12/31/82 68,208 32,464 12/31/83 85,389 38,577 12/31/84 89,045 42,028 12/31/85 117,142 55,470 12/31/86 136,843 65,987 12/31/87 142,923 69,441 12/31/88 178,370 80,960 12/31/89 222,681 106,584 12/31/90 183,674 103,479 12/31/91 270,641 135,053 12/31/92 336,210 144,111 12/31/93 444,889 158,635 12/31/94 411,750 160,733 12/31/95 497,407 221,131 This graph compares the results of $10,000 invested in Acorn Fund on June 10, 1970 (the date Fund shares were first offered to the public), with all dividends and capital gains reinvested, with the Standard & Poor's 500 Stock Index with dividends reinvested (source: Salomon Brothers Inc Stock Facts and Shaw Data Services, Inc.) Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Average Annual Total Return 1 Year 5 Years 10 Years Life of Fund 20.8% 22.1% 15.5% 16.5% Acorn Fund Total Return Percentage for Each Year Net Asset Value Per Share on 12/31/95: $13.60 Squirrel Chatter Snow Job This winter's record blizzard on the East Coast certainly focused attention on the weather. A few days before the paralyzing storm, there was a story in The New York Times confirming that 1995 had been the warmest year on record. There may be an important connection between the two. Back in October, Swiss Re, one of the world's largest reinsurance companies, took an ad in The Financial Times of London: "Stop and think: giant storms are triggered by global warming; this is caused by the greenhouse effect; which is, in turn, accelerated by man."/1/ The first industry forced to notice the new climate may have been the insurance industry. Hurricane Andrew alone cost insurers $16.5 billion. The next might be agriculture; farmers have tuned their crop-raising practices to local conditions, and any change in climate is highly likely to hurt yields in the short run. Feeding the World In a new book by an old-time environmentalist,/2/ Lester Brown argues that China will be increasing its imports of grain very substantially over the next twenty years. Demand will increase as people upgrade their diets from rice to meat, requiring lots of livestock and poultry feed. A Chinese feed mill operator agrees, saying "When people have more money, the first thing they'll spend it on is food. Meat has status; it's a symbol of prosperity."/3/ Brown projects that grain consumption will increase from 360 million tons in 1995 to 460 million in 2010. At the same time that demand is increasing, the amount of prime agricultural land in China will shrink, and double-cropping will drop. This has happened under very similar conditions in Japan, Korea, and Taiwan. Farmland will turn into housing, shopping centers, roads, dams, parking lots, factories, and golf courses as China becomes prosperous. In the three countries cited, the conversion of farms to commercial real estate has outweighed improvements in yield per acre, requiring Japan, Korea, and Taiwan to import large quantities of grains and foodstuffs. World production of grain is about 1,800 million tons per year, of which 200 million tons are exported. An increase in demand of another 100 million tons would alter the supply-demand balance and greatly increase export tonnage. At the same time demand in China is rising, food demand will be increasing in most other countries as well. India and Indonesia are going through the same demand growth cycle as China. Can the world increase grain production enough to satisfy this demand increase? Brown thinks not, predicting a big rise in food prices. Julian Simon, an economist at the University of Maryland, disagrees; he has bet many environmental activists that commodity prices won't rise, and he has won all the bets so far. Supply may increase too: Who knows how much wheat a free Ukraine can grow? On balance, I think that the American farmer will see more favorable economics in the next decade than in the last as the volume of grain exported from the U.S. rises. We will be looking at investment opportunities in companies that will profit from this trend. Analysis of Investment Performance Our fund went up 20.8% in 1995. Acorn Fund underperformed most of the U.S. market averages. We were slightly behind our benchmark portfolio, which was up 21.9%. As a benchmark portfolio, we use this mix: Contributed to Index Weight 1995 Gain* Benchmark - --------------------------------------------------------- Russell 2000 53% +26.2% +13.9% S&P MidCap 400 20 +28.6 + 5.7 EAFE** 22 + 9.4 + 2.1 Cash 5 + 4.0 + 0.2 - --------------------------------------------------------- 100% +21.9% * Dividends not reinvested ** EAFE is Morgan Stanley's Europe, Australia and Far East Index, an unmanaged index of companies throughout the world in proportion to world stock market capitalization, excluding the U.S. and Canada. Our largest U.S. holdings at the start of the year returned only 15.7% for 1995, well below the market averages. We had no disasters, but not enough big winners. The rest of the domestic portfolio, 42.9% of our Fund, was up a very satisfactory 30.8%. These smaller positions include our newest ideas, a sign that our analysts are finding great new stocks, some of which will become large holdings in the future. Acorn's foreign portfolio was up 13.7% for the year. This was an excellent result for a foreign stock portfolio. Germany, Sweden, and Israel were our best markets, contributing 9.7% of the 13.7% total; Mexico, Brazil, and Japan hurt 3.0%. European markets as a group had modest returns in local currencies, but Acorn made money in them due to the dollar's decline and good stock-picking. Latin America was down, and Southeast Asia flat as emerging markets stayed weak for the second year in a row. 2 The Scarlet A The market was strong in 1995, and we had a bumper crop of great stocks. Every year we recognize skilled investment professionals who helped us harvest big returns. The Scarlet A goes to analysts and others who sowed the ideas that worked out the best over the year. In 1995, that meant that we made a high percentage return and at least $5 million in real money. Our best stock in 1995 was SAP, a German software company, on which we made $18 million. It returned 127% in percentage terms. Surprisingly, SAP was our best stock the previous year too, up 223% in 1994! We have sold most of our position on the theory that no stock could do that well three years in a row. The Scarlet A goes to our friend Charles Elliott of the Goldman Sachs office in London. It was a good year for European data processing companies. Mikael Randel of Carnegie Securities in Copenhagen brought us WM Data, a Swedish company in facilities management and data processing outsourcing. We made $14 million in 1995 when WM Data gained 217%. Our biggest percentage winner in 1995 was brought to us by Jon Raclin, now at Barrington Securities. We bought HA.LO on its IPO in 1992. The stock lay dormant for two years, then sprouted a spectacular 355% gain on the Fund's investment in 1995, the only stock Jon ever had go up faster than his golf handicap. The company, based in Skokie, Illinois, distributes specialty and premium advertising products. Our most profitable domestic stock was Silver King, a collection of UHF television broadcasting stations put together by the good folks who bring you the Home Shopping Network. The value of the company was taught to us by Peter Siris, now at Warnaco. In 1995 Silver King returned 204% and made us $13 million. Old friend Fred Holubow introduced us to Thermo Electron, a great company that has spawned a dozen fascinating spin-off companies. George Hatsopoulos, the founder of Thermo Electron, was one of Fred's professors at M.I.T. In 1995, ThermoTrex gained 223%, a $10 million winner. ThermoTrex is a venture capital unit, with success in Trex Medical (mammography) and Thermolase (hair removal). Fred works at Pegasus Associates in Chicago. A second winner from the Thermo Electron empire is Thermo Fibertek, a maker of paper recycling machinery. Fibertek ground out $9 million for us in 1995, up 110%. The Scarlet A goes to Paul Knight of NatWest Securities. And a third winner for Hatsopoulos! Thermedics makes food packaging inspection machines, bomb detectors, and artificial hearts. The diploma goes to Jeff Kessler of Lehman Brothers. Another Chicago winner is my former partner Peter Foreman, now at Sirius Associates. He helped us understand HBO & Co., a provider of hospital information services. Peter caught a big one. HBO & Co. made us $13 million, a 99% return. Many of the 1995 winners were in computer services or technology. That is not a surprise, given the technology stock strength in 1995. Demi Moore wore a Scarlet A in the movies this year, but she was not in our kind of stocks. /s/ RALPH WANGER Ralph Wanger President /1/ Quoted in Scientific American, February 1996, p. 27. /2/ Brown, Lester R., Who Will Feed China, W. W. Norton, New York, 1995. /3/ Liu Youhao, quoted in Forbes, January 1, 1996, p. 54. /4/ Computed by taking into account the changes in security price, trading activity and income earned.
Acorn's Best and Worst Stocks of 1995 $ gain/loss % change in 1995 Stock/Description in 1995/4/ (in millions) - -------------------------------------------------------------------- S A P +127% $18.3 MIS Software Packages WM Data Nordic +217 14.2 Computer Services/Consulting Silver King Communications +204 13.4 TV Stations HBO & Company +99 12.7 Hospital Information Systems ThermoTrex +223 9.8 Venture Capital Cash America International -41 (4.3) Pawn Shops American Media -58 (4.3) Tabloid Weeklies O'Sullivan Industries -45 (3.8) Do-It-Yourself Furniture Edison Brothers -66 (3.2) Retail--Men's Wear & Women's Shoes Spectrum HoloByte -37 (2.5) Computer Games
3 MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares or Principal Amount Held Sept. 30, 1995 Dec. 31, 1995 - ---------------------------------------------------------------------------------- ADDITIONS - ---------------------------------------------------------------------------------- Information Group - ---------------------------------------------------------------------------------- ACT Manufacturing 150,000 265,000 Altron - 150,000 Argyle Television - 300,000 Blonder Tongue Labs - 205,000 CACI International - 220,000 Cellular Communications of Puerto Rico 250,000 450,000 Centennial Cellular 200,000 300,000 COMARCO 20,000 285,000 GIGA Cv. Pfd. - 600,000 Granite Broadcasting - 300,000 Oak Industries 350,000 500,000 Palmer Wireless 15,000 200,000 PILTEL - 2,000,000 Planar Systems 250,000 350,000 Tele-Communications, Liberty Media Group 1,000,000 1,500,000 Thermo Optek, 5% Note Due 10/15/00 - $5,000,000 United International Holdings 250,000 425,000 Vanguard Cellular Systems 300,000 500,000 Health Care - ---------------------------------------------------------------------------------- AMSCO International 708,000 1,150,000 Fresenius USA - 25,000 Incyte Pharmaceutical - 66,000 Kinetic Concepts 15,000 607,000 Lincare Holding - 625,000 Paramount Bed - 45,000 Pet Practice - 90,000 RP Scherer - 95,000 Steris - 205,000 Trex Medical - 50,000 Consumer Goods - ---------------------------------------------------------------------------------- Borders 175,000 980,000 Genting International 3,800,000 4,500,000 Hollywood Park Cv. Pfd. - 201,000 Lands End - 210,000 Norwood Promotional - 150,000 Quality Food Centers 217,000 295,000 Quantum Restaurant Group - 300,000 Stanhome 120,000 180,000 Number of Shares Sept. 30, 1995 Dec. 31, 1995 - ---------------------------------------------------------------------------------- Universal Electronics - 25,000 Wolverine World Wide 150,000 190,000 Zale - 85,000 Finance - ---------------------------------------------------------------------------------- Liechtenstein Global Trust (formerly BIL GT Gruppe) 6,000 8,000 Phoenix Duff and Phelps - 710,000 National Data 283,000 580,000 Peoples Bank Bridgeport 519,000 675,000 Serco Group 900,000 1,200,000 Washington Federal 211,000 658,000 Industrial Goods and Services - ---------------------------------------------------------------------------------- Myers Industries 25,000 100,000 Schnitzer Steel Industries - 35,000 Wackenhut, Cl. B 141,000 318,600 Zoltek Companies - 180,000 Energy and Minerals - ---------------------------------------------------------------------------------- Abraxas Petroleum CVRs - 110,000 Global Natural Resources 600,000 750,000 Seacor Holdings - 19,000 The AES Corporation 820,000 995,000 United Meridan - 350,000 Veritas Energy Services - 200,000 SALES - ---------------------------------------------------------------------------------- Information Group - ---------------------------------------------------------------------------------- ADVO 800,000 520,000 Cellular Communications Cv. Pfd. 300,000 180,000 Homeowners Group 92,000 - International Game Technology 2,940,000 2,245,000 Philippine Long Distance Telephone 5.75% Cv. Pfd. 100,000 - Richardson Electronics 250,000 - Solectron 1,300,000 1,200,000 SAP 80,000 50,000 Tele-Communications, Series A TCI Group 2,800,000 2,000,000 Wo Kee Hong 8,350,000 -
4 MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares Sept. 30, 1995 Dec. 31, 1995 - ----------------------------------------------------------------- Health Care Group - ----------------------------------------------------------------- Apria Healthcare Group 656,000 456,000 Athens Medical Centre 79,880 - Kalbe Farma 120,000 - Orthofix International 98,500 - Teva Pharmaceutical Industries 275,000 - Consumer Goods and Services - ----------------------------------------------------------------- Best Products 320,000 - Burswood Property Trust 4,000,000 3,000,000 Cadenalco 500,000 - Cafe de Coral 800,000 - CML Group 300,000 - Genting 1,600,000 1,040,000 Gold Peak Batteries 1,100,000 - Harley-Davidson 1,175,000 1,100,000 Home Shopping Network 1,200,000 800,000 Little Switzerland 115,000 - Polygram 80,000 - Finance - ----------------------------------------------------------------- Jayhawk Acceptance 15,000 - Industrial Goods and Services - ----------------------------------------------------------------- Citation 100,000 - Logicon 270,000 - MEMTEC ADR 281,000 - Western Water 61,000 - Energy and Minerals - ----------------------------------------------------------------- Benton Oil & Gas 100,000 - Giant Industries 277,000 - International Colin Energy 85,000 - Louis Dreyfus Natural Gas 475,000 240,000 Plains Resources 230,000 - Seagull Energy 485,000 150,000 Tarragon Oil & Gas 160,000 - Weatherford International 600,000 200,000 Real Estate Group - ----------------------------------------------------------------- The Rouse Company 1,682,500 1,400,000
ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - --------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities--95.9% - --------------------------------------------------------------------- Information Group--20.8% - --------------------------------------------------------------------- Broadcasting and CATV--5.9% 1,500,000 Tele-Communications, Liberty Media Group (b) $40,313 2,000,000 Tele-Communications, Series A TCI Group (b) 39,750 50,000 Tele-Communications, Cum. Pfd. 3,613 300,000 Silver King Communications (b) 10,425 550,000 International Family Entertainment (b) 9,006 300,000 TCA Cable TV 8,288 300,000 BET Holdings (b) 6,863 440,000 Jones Intercable,Cl. A (b) 5,445 22,500 Jones Intercable (b) 281 300,000 Argyle Television (b) 5,250 635,000 Century Communications,Cl. A (b) 5,080 80,000 Cablevision Systems (b) 4,340 300,000 Granite Broadcasting (b) 3,188 270,000 DMX (b) 658 - --------------------------------------------------------------------- 142,500 Mobile Communications--3.5% 500,000 Telephone and Data Systems 19,750 700,000 Mobile Telecommunication Technologies (b) 14,963 450,000 Cellular Communications of Puerto Rico (b) 12,488 500,000 Vanguard Cellular Systems (b) 10,125 180,000 Cellular Communications Cv. Pfd. (b) 8,955 300,000 Centennial Cellular (b) 5,138 375,000 PriCellular (b) 4,875 200,000 Palmer Wireless (b) 4,400 400,000 Pittencrieff Communications (b) 1,525 375,000 Shared Technologies (b) 1,477 - --------------------------------------------------------------------- 83,696 Software--1.3% 750,000 Systems & Computer Technology (b) (c) 14,906 266,000 Business Records Corporation (b) 10,507
5 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995 - ---------------------------------------------------------------------
Number of Shares or Principal Amount Value (000) - --------------------------------------------------------------------- 220,000 CACI International (b) $ 2,612 120,000 Computer Language Research 1,680 100,000 Tripos (b) 850 110,000 Kurzweil Applied Intelligence (b) 481 - --------------------------------------------------------------------- 31,036 Gaming Equipment--1.0% 2,245,000 International Game Technology 24,414 Computer Game Software--0.3% 150,000 Sierra On-Line (b) 4,313 250,000 Spectrum HoloByte (b) 1,625 - --------------------------------------------------------------------- 5,938 Marketing Services--0.8% 520,000 ADVO 13,520 340,000 American Business Information (b) 6,588 - --------------------------------------------------------------------- 20,108 Publishing--0.1% 600,000 GIGA Cv. Pfd. (b) 2,100 Computer Systems--2.7% 1,200,000 Solectron (b) 52,950 150,000 Altron (b) 4,500 700,000 Triad Systems (b) 4,288 265,000 ACT Manufacturing (b) 2,948 - --------------------------------------------------------------------- 64,686 Instrumentation--1.3% 505,000 Thermo Instrument Systems (b) 17,044 $5,000 Thermo Optek, 5% Note Due 10/15/00 5,200 285,000 COMARCO (b) (c) 4,133 200,000 IFR Systems (b) 1,850 $1,500 Thermoquest, 5% Note Due 8/15/00 1,568 60,000 Datum (b) 615 - --------------------------------------------------------------------- 30,410 Distribution--1.1% 900,000 Pioneer-Standard Electronics 11,925 152,000 Kent Electronics (b) 8,873 520,000 Bell Microproducts (b) (c) 3,770 200,000 Richey Electronics (b) 2,600 - --------------------------------------------------------------------- 27,168 Components and Peripherals--1.9% 300,000 Kronos (b) (c) 14,250 500,000 Oak Industries (b) 9,375 210,000 In Focus Systems (b) 7,586 350,000 Planar Systems (b) 6,694 350,000 Exide Electronics Group (b) 5,163 205,000 Blonder Tongue Labs (b) 1,999 80,000 Daktronics (b) 360 - --------------------------------------------------------------------- 45,427 Consumer Electronics--0.9% 500,000 Harman International 20,063 150,000 InterTAN (b) 1,088 - --------------------------------------------------------------------- 21,151 ===================================================================== Information Group--Total 498,634 Health Care Group--11.2% - --------------------------------------------------------------------- Biotechnology/Drug Delivery--3.2% 225,000 Watson Pharmaceuticals (b) 11,025 742,000 North American Biologicals (b) 7,976 380,000 Sepracor (b) 6,982 258,000 Cygnus 5,773 (formerly Cygnus Therapeutic Systems) (b) 85,000 Biogen (b) 5,227 130,000 Human Genome Sciences (b) 4,972 95,000 RP Scherer (b) 4,667 195,000 Protein Design Labs (b) 4,509 450,000 Inhale Therapeutic Systems (b) 4,387 260,000 Alteon (b) 4,192 223,000 TheraTech (b) 4,014 193,000 CellPro (b) 3,088 100,000 Vertex Pharmaceuticals (b) 2,650 159,000 Ligand Pharmaceuticals (b) 1,709 66,000 Incyte Pharmaceutical (b) 1,650 175,000 Anesta (b) 1,619 69,000 Serologicals (b) 1,138 - --------------------------------------------------------------------- 75,578 Medical Equipment--3.7% 1,150,000 AMSCO International (b) 17,106 552,000 Thermedics (b) 15,318 570,000 Invacare 14,392 554,000 Respironics (b) 11,634 345,000 Space Labs Medical (b) 9,919 607,000 Kinetic Concepts 7,284 205,000 Steris (b) 6,611 300,000 EP Technologies (b) 4,350 450,000 Affymetrix (b) 2,025 50,000 Trex Medical (b) 512 25,000 Fresenius USA (b) 497 - --------------------------------------------------------------------- 89,648
6 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - ---------------------------------------------------------------------------- Hospital/Laboratory Supplies--0.7% 273,000 Hillenbrand Industries $ 9,248 322,000 Sybron International (b) 7,648 - ---------------------------------------------------------------------------- 16,896 Services--3.6% 285,000 HBO & Company 21,838 625,000 Lincare Holding (b) 15,625 456,000 Apria Healthcare Group (b) 12,882 291,000 Renal Treatment Centers (b) 12,804 200,000 ThermoTrex (b) 10,000 450,000 Pharmaceuticals Marketing Services (b) 6,806 833,333 Walsh International, Cv. Pfd. (b) 5,000 90,000 Pet Practice (b) 923 43,000 Worker's Compensation Medical Centers (b) 22 - ---------------------------------------------------------------------------- 85,900 ============================================================================ Health Care Group--Total 268,022 Consumer Goods and Services Group--11.5% - ---------------------------------------------------------------------------- Retail--1.9% 980,000 Borders (b) 18,130 800,000 Home Shopping Network (b) 7,200 295,000 Quality Food Centers 6,490 425,000 Mikasa (b) 5,737 540,000 Cato Corporation 4,185 220,000 Duckwall Alco Stores (b) (c) 2,255 85,000 Zale (b) 1,371 70,000 Dave & Buster's 849 - ---------------------------------------------------------------------------- 46,217 Recreational Vehicles--1.6% 1,100,000 Harley-Davidson 31,625 300,000 Thor Industries 5,812 - ---------------------------------------------------------------------------- 37,437 Food--0.4% 634,000 Au Bon Pain (b) (c) 5,230 300,000 Quantum Restaurant Group (b) 3,375 - ---------------------------------------------------------------------------- 8,605 Entertainment and Leisure--4.0% 1,400,000 Carnival Cruise Lines 34,125 1,450,000 Alliance Entertainment (b) 13,775 215,000 GC Companies (b) 7,202 276,000 Carmike Cinemas (b) 6,210 265,000 Royal Caribbean Cruises 5,830 1,250,000 American Media 5,313 226,000 Anchor Gaming (b) 5,141 14,000 International Speedway 3,304 188,000 Station Casinos (b) 2,749 Number of Shares or Principal Amount Value (000) - ---------------------------------------------------------------------------- 236,000 Players International (b) $ 2,522 201,000 Hollywood Park Cv. Pfd. 2,110 167,000 Rio Hotel & Casino (b) 1,983 535,000 Monarch Casino & Resort (b) (c) 1,872 200,000 Playboy Enterprises, Cl. B (b) 1,675 $6,250 Grand Palais Casino 14% Note Due 2/25/98 (b) 938 - ---------------------------------------------------------------------------- 94,749 Manufacturers--3.6% 1,650,000 Newell Companies 42,694 225,000 First Brands 10,716 182,000 St. John Knits 9,669 190,000 Wolverine World Wide 5,985 180,000 Stanhome 5,242 700,000 O'Sullivan Industries (b) 4,637 105,000 Liz Claiborne 2,914 210,000 Lands End (b) 2,861 150,000 Norwood Promotional (b) 2,550 - ---------------------------------------------------------------------------- 87,268 ============================================================================ Consumer Group -- Total 274,276 Finance Group--15.3% - ---------------------------------------------------------------------------- Banks--1.8% 96,000 BayBanks 9,432 285,000 Union Planters 9,084 206,000 First Commerce Corporation 6,592 211,000 Bank South 6,409 309,000 Texas Regional Bancshares 5,330 105,000 First American 4,974 104,000 Riverside National Bank 1,430 - ---------------------------------------------------------------------------- 43,251 Savings & Loans--2.9% 658,000 Washington Federal 16,861 675,000 Peoples Bank Bridgeport 12,825 339,000 Coast Savings Financial (b) 11,738 390,000 Washington Mutual 11,261 260,000 TCF Financial 8,612 162,000 Bell Bancorp 5,791 156,000 Indiana Federal 3,315 - ---------------------------------------------------------------------------- 70,403 Insurance--2.0% 836,000 Baldwin & Lyons, Cl. B 13,585 234,000 United Fire & Casualty 9,828 296,000 Transnational Re 7,252 127,000 Foremost Corporation of America 6,445
7 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - ----------------------------------------------------------------- 318,000 ALLIED Life Financial (c) $ 5,764 216,000 Leucadia National 5,400 - ----------------------------------------------------------------- 48,274 Money Management--1.9% 440,000 United Asset Management 16,885 404,000 SEI Corporation 8,787 241,000 BISYS Group (b) 7,411 127,000 T. Rowe Price Associates 6,255 710,000 Phoenix Duff and Phelps 4,881 - ----------------------------------------------------------------- 44,219 Credit Cards--4.1% 832,000 ADVANTA, Cl. A 31,824 530,000 ADVANTA, Cl. B 19,279 600,000 First USA 26,625 580,000 National Data 14,355 165,000 Concord EFS (b) 6,971 - ----------------------------------------------------------------- 99,054 Other--2.6% 1,524,000 Mercury Finance 20,193 784,000 Baker Fentress 13,132 879,000 Americredit (b) 11,976 1,220,000 Cash America International 6,710 237,000 Aames Financial 6,606 280,000 DVI Health Services (b) 3,920 - ----------------------------------------------------------------- 62,537 ================================================================= Finance Group--Total 367,738 Industrial Goods and Services--7.8% - ----------------------------------------------------------------- Steel--1.2% 1,090,000 Worthington Industries 22,686 300,000 Gibraltar Steel (b) 3,637 40,000 UCAR International (b) 1,350 - ----------------------------------------------------------------- 27,673 Machinery--3.3% 735,000 Thermo Fibertek (b) 16,629 540,000 Sealed Air (b) 15,188 200,000 Nordson 11,250 525,000 Baldor Electric 10,566 120,000 Teleflex 4,920 96,000 Mine Safety Appliances 4,608 300,000 Douglas & Lomason (c) 3,450 109,000 Applied Power 3,270 180,000 Zoltek Companies (b) 3,015 535,000 Stevens International, Cl. A (b) (c) 2,341 34,000 Stevens International, Cl. B (b) (c) 145 100,000 Myers Industries 1,638 Number of Shares or Principal Amount Value (000) - ----------------------------------------------------------------- 35,000 Schnitzer Steel Industries $ 1,068 195,000 Hein-Werner (b) (c) 890 - ----------------------------------------------------------------- 78,978 Waste Disposal--0.2% 530,000 Thermo Terratech 6,029 (formerly Thermo Process Systems) (b) Furniture and Textiles--1.2% 900,000 Unifi 19,913 745,000 Lilly Industries, Cl. A 9,499 - ----------------------------------------------------------------- 29,412 Services--1.8% 600,000 Expeditors International of Washington 15,675 256,000 HA.LO Industries (c) 7,872 318,600 Wackenhut, Cl. B 4,938 57,000 Wackenhut, Cl. A 1,026 356,000 Thomas Group (b) (c) 4,806 154,000 Unitog 3,715 $2,900 Western Water, 9% Cv. Note Due 9/25/05 2,900 115,000 AG Services of America (b) 1,093 - ----------------------------------------------------------------- 42,025 Foundry--0.1% 264,000 Atchison Casting (b) 3,168 ================================================================= Industrial Group--Total 187,285 Energy and Minerals Group--7.5% - ----------------------------------------------------------------- Cogeneration--3.3% 800,000 Thermo Electron (b) 41,600 995,000 The AES Corporation (b) 23,756 580,000 Thermo Ecotek (b) 9,715 285,000 Thermo Power (b) 3,669 - ----------------------------------------------------------------- 78,740 Oil & Gas Producers--1.8% 750,000 Global Natural Resources (b) 7,875 277,000 Devon Energy 7,063 350,000 United Meridian (b) 6,081 600,000 Tesoro Petroleum (b) 5,175 240,000 Louis Dreyfus Natural Gas (b) 3,630 150,000 Seagull Energy (b) 3,337 650,000 Coho Resources (b) 3,169 200,000 St. Mary Land & Exploration 2,800 360,000 Abraxas Petroleum (b) (c) 2,250 110,000 Abraxas Petroleum CVRs (b) 898 115,000 Basin Exploration (b) 568 - ----------------------------------------------------------------- 42,846
8 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - ---------------------------------------------------------------------- Refining/Marketing--0.8% 455,000 Southern Union (b) $ 11,489 500,000 NGC Corporation 4,437 143,000 KN Energy 4,165 - ---------------------------------------------------------------------- 20,091 Oil Services--1.5% 290,000 Atwood Oceanics (b) 7,322 885,000 Digicon (b) (c) 7,080 255,000 Energy Ventures (b) 6,439 200,000 Weatherford International (b) 5,775 235,000 Landmark Graphics (b) 5,464 170,000 Petroleum Helicopters 2,422 19,000 Seacor Holdings (b) 513 - ---------------------------------------------------------------------- 35,015 Mining--0.1% 250,000 Zeigler Coal Holding 3,469 ====================================================================== Energy Group--Total 180,161 Real Estate Group--2.6% - ---------------------------------------------------------------------- 1,400,000 The Rouse Company 28,525 315,000 Weingarten Realty Investors 11,970 210,000 Equity Residential Properties Trust 6,431 155,000 Forest City Enterprises, Cl. B 4,999 123,000 Forest City Enterprises, Cl. A 3,982 120,000 First Washington Realty Trust, Cv. Pfd. 2,730 80,000 First Washington Realty Trust 1,450 243,000 Sunstone Hotel Investors 2,491 ====================================================================== Real Estate Group--Total 62,578 Foreign Securities--19.2% - ---------------------------------------------------------------------- Canada--0.6% 800,000 Shaw Communications 5,058 30,000 Shaw Communications Warrants (b) 1 125,000 BCE Mobile Communications (b) 4,227 250,000 Enserv (b) 2,154 200,000 Cogeco Cable 1,283 200,000 Veritas Energy Services (b) 1,100 - ---------------------------------------------------------------------- 13,823 United Kingdom / Ireland--3.1% 400,000 International CableTel (b) 9,800 600,000 Comcast UK Cable Partners (b) 7,500 1,200,000 Serco Group 6,838 450,000 ADT (b) 6,750 490,000 Securicor Group, Cl. A 6,733 1,700,000 Invesco 6,691 68,000 Invesco ADS 2,635 3,750,000 Waterford Wedgwood (Ireland) 3,610 580,000 Powerscreen International 3,489 810,000 Medeva 3,370 800,000 N. Brown Group 3,329 500,000 Oriflame 3,144 1,000,000 Capital Corporation 3,136 345,000 Ethical Holdings (b) 3,105 1,200,000 Body Shop International 2,832 4,500,000 Rhino Group (b) 978 995,000 North American Gas Investors Trust (b) 850 700,000 Pittencrieff Resources 533 - ---------------------------------------------------------------------- 75,323 Germany / Austria--1.0% 50,000 SAP 7,773 425,000 United International Holdings (Austria) (b) 6,269 60,000 Flughafen Wien (Austria) 4,051 8,000 Binding-Brauerei 3,382 13,000 Escada 2,361 - ---------------------------------------------------------------------- 23,836 Nordic Countries--2.1% 460,000 WM Data Nordic (Sweden) 20,824 150,000 Hennes & Mauritz, Cl. B (Sweden) 8,375 800,000 SensoNor (Norway) (b) 6,458 39,000 Chr. Hansen's Laboratorium, Cl. B (Denmark) 3,800 150,000 Huhtamaki (Finland) 3,627 193,000 Pricer, Cl. B (Sweden) (b) 3,262 90,000 Benefon (Finland) 2,238 50,000 Sentra, Cl. A (Finland) (b) 979 27,000 OK Holding (Denmark) (b) 497 - ---------------------------------------------------------------------- 50,060 Netherlands / Belgium--0.3% 29,400 Telegraaf Holdings 4,145 77,000 Getronics 3,602 - ---------------------------------------------------------------------- 7,747 Switzerland--0.7% 3,500 Societe Generale de Surveillance 6,935 8,000 Liechtenstein Global Trust 4,728 (formerly BIL GT Gruppe) 13,200 Sece Cortaillod Holdings 4,359 - ---------------------------------------------------------------------- 16,022 France--0.8% 54,000 Guilbert 6,349 26,000 Cetelem 4,886 80,000 Ecco Travail Temporaire 4,654
9 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - ---------------------------------------------------------------------- 27,000 Sligos $ 2,230 96,000 Coflexip 1,812 - ---------------------------------------------------------------------- 19,931 Spain / Portugal--0.3% 375,000 Filmes Lusomundo (Portugal) 3,888 70,000 Cortefiel 1,835 60,000 Vallehermoso 1,115 - ---------------------------------------------------------------------- 6,838 Italy / Greece--1.1% 200,000 Hellenic Bottling (Greece) 6,552 150,000 Cellular Communications International (b) 6,413 110,000 Industrie Natuzzi 4,991 1,200,000 Costa Crociere Ord. 2,932 2,500,000 Banca Fideuram 2,892 1,100,000 Tecnost 1,803 - ---------------------------------------------------------------------- 25,583 Israel--0.1% 100,000 Pec Israel Economic Corporation (b) 2,413 India--0.2% 39,393 Housing Development Finance 3,029 298,700 Industrial Credit & Investment Corp. of India (b) 663 - ---------------------------------------------------------------------- 3,692 Hong Kong--0.6% 3,500,000 Varitronix International 6,496 1,150,000 Television Broadcasts 4,098 2,800,000 JCG Holdings 2,046 1,100,000 Johnson Electric Holdings 1,963 - ---------------------------------------------------------------------- 14,603 China--0.5% 810,000 AES China Generating (b) 6,480 2,200,000 New World Infrastructure (formerly New World China Fund) (b) 4,211 200,000 The Investment Company of China (b) 1,294 111,275 The China Investment Company (b) 1,029 - ---------------------------------------------------------------------- 13,014 Singapore--0.4% 4,500,000 Genting International 7,335 500,000 Clipsal Industries 1,130 - ---------------------------------------------------------------------- 8,465 Malaysia--1.3% 1,950,000 Resorts World 10,445 1,040,000 Genting 8,684 1,260,000 Kian Joo Can Factory 5,211 - ---------------------------------------------------------------------- 168,000 Kian Joo Can Factory Warrants 5/22/99 (b) 308 660,000 O.Y.L. Industries 5,121 745,000 New Straits Times Press 2,494 - ---------------------------------------------------------------------- 32,263 Thailand--0.6% 100,000 The Thailand Fund 9,837 3,300,000 Sinpinyo Fund V 2,391 200,000 Thai President Foods 1,231 110,000 International Cosmetics 1,004 375,000 Modernform 357 - ---------------------------------------------------------------------- 14,820 Korea / Taiwan--1.1% 104,000 Shinsegae 8,687 31,558 Shinsegae (New) (b) 2,603 5,000 Korea Mobile Telecom (b) 5,636 80,000 Seoul International Trust (b) 3,800 322,562 President Enterprises (Taiwan) (b) 3,709 300,000 Korea-Euro Fund 2,550 - ---------------------------------------------------------------------- 26,985 Philippines / Indonesia--0.4% 960,000 Tigaraksa Satria 3,359 195,501 Unilever Indonesia 2,351 2,000,000 PILTEL (b) 2,021 2,400,000 Mayora Indah 1,732 - ---------------------------------------------------------------------- 9,463 Japan--1.8% 75,000 Secom 5,220 160,000 Heiwa 4,172 50,000 Autobacs Seven 4,159 88,400 Sankyo 4,113 77,000 Aucnet 3,732 190,000 Mr. Max 3,665 110,000 Tostem 3,657 65,000 Sony Music Entertainment 3,402 45,000 Paramount Bed 3,141 60,000 Promise 2,891 36,000 Nichiei 2,687 47,000 Tsutsumi Jewelry 2,355 - ---------------------------------------------------------------------- 43,194 Australia / New Zealand--0.8% 400,000 Sky City (New Zealand) (b) 8,303 1,600,000 Village Roadshow 6,189 3,000,000 Burswood Property Trust 4,017 - ---------------------------------------------------------------------- 18,509
10 ACORN FUND STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - ----------------------------------------------------------------- Mexico-0.5% 300,000 Kimberly Clark de Mexico $ 4,532 1,000,000 Nadro, Series L 3,374 290,000 Grupo Radio Centro 2,139 4,200,000 Grupo Herdez, Series B (b) 872 600,000 Fondo Opcion, Series B (b) 607 170,000 Cofar, Series B 70 - ----------------------------------------------------------------- 11,594 Brazil-0.4% 175,000,000 Cemig 3,871 12,000,000 Itau Banco PN 3,346 1,900,000 Multibras PN 1,407 12,000,000 Casa Anglo Brasileira Pfd. 506 - ----------------------------------------------------------------- 9,130 Other Latin America-0.5% 130,000 Banco Latinoamericano de Export (Panama) 6,045 120,000 Panamerican Beverages (Panama) 3,840 125,000 IRSA (Argentina) 3,188 - ----------------------------------------------------------------- 13,073 ================================================================= Foreign Group - Total 460,381 25,000 Miscellaneous Securities-0.0% 187 Principal Amount Value (000) - ----------------------------------------------------------------- Total Common Stocks and Other Equity-Like Securities-95.9% $2,299,262 - ----------------------------------------------------------------- (Cost: $1,416,959) Money Market Instruments-4.3% - ----------------------------------------------------------------- Yield 5.4% - 6.0% Due January 1996 $55,185 General Motors Acceptance Corp. 55,113 $20,060 NYNEX Corporation 20,041 $10,415 Travelers Insurance 10,395 $10,000 US Treasury Bill 9,983 $8,535 Quaker Oats 8,532 - ----------------------------------------------------------------- (Amortized Cost: $104,064) 104,064 Total Investments-100.2% 2,403,326 - ----------------------------------------------------------------- (Cost: $1,521,023) Cash and Other Assets Less Liabilities-(0.2%) (4,731) - ----------------------------------------------------------------- Total Net Assets-100% $2,398,595 =================================================================
ACORN FUND NOTES TO STATEMENT OF INVESTMENTS DECEMBER 31, 1995 (a) At December 31, 1995, for federal income tax purposes cost of investments was $1,533,533,000 and net unrealized appreciation was $869,793,000, consisting of gross unrealized appreciation of $976,570,000 and gross unrealized depreciation of $106,777,000. (b) Non-income producing security. (c) On December 31, 1995, the Fund held the following percentages of the outstanding voting shares of the companies listed below: -------------------------------------- Digicon 8.34% Abraxas Petroleum 8.05 Hein-Werner 7.78 Douglas & Lomason 7.07 ALLIED Life Financial 6.90 Bell Microproducts 6.32 Stevens International 5.95 COMARCO 5.75 Thomas Group 5.68 Monarch Casino & Resort 5.61 Kronos 5.51 Duckwall Alco Stores 5.49 Au Bon Pain 5.47 Systems & Computer Technology 5.32 HA.LO Industries 5.15 The aggregate cost and value of investments in these companies at December 31, 1995, was $60,196,000 and $81,013,000, respectively. The market value of these securities represents 3.38% of the total net assets at December 31, 1995. During the period ended December 31, 1995, dividends received from these companies amounted to $174,000 and the net realized gain on sales of investments in such companies amounted to $92,000. See accompanying notes to financial statements. 11 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Acorn Fund and the Trustees of Acorn Investment Trust We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Acorn Fund as of December 31, 1995, the related statements of operations and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the ten years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of December 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Acorn Fund at December 31, 1995, the results of its operations and changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the ten years in the period then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 31, 1996
ACORN FUND STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995 (in thousands) - ----------------------------------------------------------------------------------------------- Assets Investments, at value (cost: $1,521,023) $2,403,326 Cash 1,333 Receivable for: Securities sold $ 6,376 Dividends and interest 2,227 Fund shares sold 372 Other 18 8,993 - ----------------------------------------------------------------------------------------------- Total assets 2,413,652 Liabilities and Net Assets Payable for: Securities purchased 12,187 Fund shares redeemed 2,358 Other 512 - ----------------------------------------------------------------------------------------------- Total liabilities 15,057 - ----------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $2,398,595 =============================================================================================== Fund shares outstanding 176,315 =============================================================================================== Pricing of Shares Net asset value, offering and redemption price per share $ 13.60 =============================================================================================== Analysis of Net Assets Paid-in capital $1,498,780 Undistributed net realized gain on sales of investments 24,722 Net unrealized appreciation of investments and other assets (net of unrealized PFIC gain distributions of $12,510) 869,805 Undistributed net investment income 5,288 - ----------------------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $2,398,595 ===============================================================================================
See accompanying notes to financial statements. 12
ACORN FUND STATEMENTS OF OPERATIONS DECEMBER 31, 1995 (in thousands) Years ended Dec. 31, ------------------------------ 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- Investment Income: - ------------------------------------------------------------------------------------------------------------------------------- Dividends $ 22,948 $ 18,294 Interest 9,264 5,194 - ------------------------------------------------------------------------------------------------------------------------------- Total investment income 32,212 23,488 Expenses: Investment advisory fee 10,429 9,750 Custodian fees and expenses 737 998 Transfer and dividend disbursing agent fees and expenses 733 714 Legal and audit fees and expenses 118 219 Reports to shareholders 331 367 Registration and blue sky expenses 26 102 Trustees' fees and other 239 359 - ------------------------------------------------------------------------------------------------------------------------------- Total expenses 12,613 12,509 - ------------------------------------------------------------------------------------------------------------------------------- Net investment income 19,599 10,979 Net realized and unrealized gain (loss) on investments and foreign currency: Net realized gain on sales of investments 198,606 93,750 Net realized loss on foreign currency transactions (118) (2,835) Net realized gain (loss) on futures transactions (12,798) 5,856 Change in net unrealized appreciation 211,069 (264,879) - ------------------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency 396,759 (168,108) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 416,358 $ (157,129) =============================================================================================================================== ACORN FUND STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 1995 From operations: Net investment income $ 19,599 $ 10,979 Net realized gain on sales of investments, foreign currency transactions and futures 185,690 96,771 Change in net unrealized appreciation 211,069 (264,879) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 416,358 (157,129) Equalization - (284) Distributions to shareholders from: Net investment income (14,810) (16,634) Net realized gain (including distribution of unrealized PFIC gains of $592 in 1995 and $673 in 1994) (177,941) (86,776) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders (192,751) (103,410) From Fund share transactions: Reinvestment of dividends and capital gain distributions 173,543 91,378 Proceeds from other shares sold 292,683 284,766 - ------------------------------------------------------------------------------------------------------------------------------- 466,226 376,144 Payments for shares redeemed (274,314) (167,020) - ------------------------------------------------------------------------------------------------------------------------------- Net increase in net assets from Fund share transactions 191,912 209,124 - ------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets 415,519 (51,699) Net Assets: Beginning of year 1,983,076 2,034,775 - ------------------------------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $5,288 in 1995 and $8,696 in 1994) $2,398,595 $1,983,076 ===============================================================================================================================
See accompanying notes to financial statements. 13
ACORN FUND FINANCIAL HIGHLIGHTS DECEMBER 31, 1995 For a share outstanding throughout each year. Years ended December 31, ------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, beginning of year $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $ 8.58 $7.27 $6.48 $ 7.45 $ 7.56 Income From Investment Operations Net investment income .11 .06 .04 .07 .11 .12 .13 .12 .14 .13 Net realized and unrealized gain (loss) on investments, foreign currency and futures 2.42 (1.10) 3.50 2.16 2.95 (1.62) 1.65 1.47 .12 1.07 - --------------------------------------------------------------------------------------------------------------------------------- Total from investment operations 2.53 (1.04) 3.54 2.23 3.06 (1.50) 1.78 1.59 .26 1.20 Less Distributions Dividends from net investment income (.09) (.11) (.06) (.08) (.10) (.13) (.11) (.16) (.15) (.10) Distributions from net realized and unrealized gains reportable for federal income taxes (1.08) (.56) (.59) (.41) (.15) (.44) (.36) (.64) (1.08) (1.21) - --------------------------------------------------------------------------------------------------------------------------------- Total distributions (1.17) (.67) (.65) (.49) (.25) (.57) (.47) (.80) (1.23) (1.31) - --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of year $13.60 $12.24 $13.95 $11.06 $ 9.32 $ 6.51 $8.58 $7.27 $ 6.48 $ 7.45 ================================================================================================================================= Total Return 21% -7% 32% 24% 47% -18% 25% 25% 4% 17% Ratios/Supplemental Data Ratio of expenses to average net assets .57% .62% .65% .67% .72% .82% .73% .80% .82% .79% Ratio of net investment income to average net assets .89% .55% .30% .72% 1.30% 1.60% 1.59% 1.52% 1.85% 1.71% Portfolio turnover rate 29% 18% 20% 25% 25% 36% 26% 36% 52% 34% Net assets at end of year (in millions) $2,399 $1,983 $2,035 $1,449 $1,150 $ 767 $ 855 $ 563 $ 418 $ 415
ACORN FUND NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. NATURE OF OPERATIONS Acorn Fund (the "Fund") is a series of Acorn Investment Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. The investment objective of the 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, or lacking any reported sales on that day, at the midpoint of the most recent bid and offer. 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 readily 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 and dividends, 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 Fund. 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. Net realized gains include distributions of realized gains from other investment companies of $877,200 in 1995 and $989,000 in 1994. 14 ACORN FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 Financial instruments The Fund may purchase or sell exchange-traded financial futures contracts, which are contracts that obligate the 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 Fund enters into such contracts to hedge a portion of its portfolio. Gains and losses are reflected as "Net Realized Gain (Loss) on Futures Transactions" in the Statements of Operations. Additionally, the Fund may engage in portfolio hedging with respect to changes in currency exchange rates by entering into forward foreign currency contracts to purchase or sell foreign currencies. The Statements of Operations reflect gains and losses as realized for closed forward foreign currency contracts and unrealized for open contracts. The Fund bears the market risk that arises from changes in the value of financial instruments and securities indices (futures contracts) or from changes in foreign currency rates (forward foreign currency contracts) and the credit risk should a counterparty fail to perform under such contracts. There were no futures or forward foreign currency contracts open at December 31, 1995. Fund share valuation Fund shares are sold and redeemed on a continuing basis at net asset value (less a redemption charge, currently waived, of 2% for shares held less than 60 days). 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 the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. Federal income taxes, dividends and distributions to shareholders It is the Fund's policy to comply with the special provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, to distribute all of its taxable income, as well as any net realized gain on sales of investments reportable for federal income tax purposes. Such provisions were complied with for the years ended December 31, 1995 and December 31, 1994 and no federal income taxes have been accrued. Dividends and distributions payable to its shareholders are recorded by the Fund on the ex-dividend date. The Fund has elected to mark-to-market its investment in Passive Foreign Investment Companies ("PFICs") for income tax purposes. In accordance with this election, the Fund recognized unrealized appreciation on PFICs of $592,000 in 1995 and $673,000 in 1994. In addition, the Fund recorded net realized losses of $295,000 in 1995 and realized gains of $2,465,000 in 1994 on sales of PFICs. Cumulative net unrealized appreciation recognized in prior years on PFICs sold in 1995 and 1994 amounted to $2,498,000 and $2,285,000, respectively. Distributions to shareholders from net realized gains include $592,000 in 1995 and $853,000 in 1994 relating to PFICs which are treated as ordinary income dividends for Federal income tax purposes. Reclassifications have been made in 1995 in the accompanying analysis of net assets from undistributed net investment income and undistributed net realized gain on sales of investments of $8,197,000 and $8,343,000, respectively, into paid-in capital to reflect differences between financial reporting and income tax bases. Equalization accounting Prior to 1995, a portion of proceeds from sales and cost of redemptions of Fund shares was credited or charged to undistributed net investment income so that income per share available for distribution was not affected by sales or redemptions of shares. Effective January 1, 1995, the Fund no longer utilizes equalization accounting. Other Certain amounts have been reclassified for 1994 to conform with the 1995 presentation. 3. TRANSACTIONS WITH AFFILIATES The Fund's investment advisor, Wanger Asset Management, L.P. ("WAM"), furnishes continuing investment supervision to the Fund and is responsible for the overall management of the Fund's business affairs. The Fund pays a monthly advisory fee at the following annual rates: 3/4 of 1% of the net asset value of the Fund up to $100 million, 1/2 of 1% of the net asset value in excess of $100 million and up to $1.5 billion, and 2/5 of 1% of the net asset value in excess of $1.5 billion, determined at the beginning of each calendar quarter. Certain officers and trustees of the Trust are also principals of WAM. The Trust makes no direct payments to its officers and trustees who are affiliated with WAM. The Fund paid trustees' fees and expenses of $134,000 in 1995 and $120,000 in 1994 to trustees not affiliated with WAM, including $49,000 in 1995 and $47,000 in 1994 to the Chairman of the Board. 4. 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:
(in thousands) 1995 1994 - --------------------------------------------------------------- Shares sold 21,831 21,442 Shares issued in reinvestment of dividend and capital gain distributions 12,817 7,423 - --------------------------------------------------------------- 34,648 28,865 Less shares redeemed 20,322 12,671 - --------------------------------------------------------------- Net increase in shares outstanding 14,326 16,194 =============================================================== 5. INVESTMENT TRANSACTIONS (in thousands) 1995 1994 - --------------------------------------------------------------- Investment securities (excluding money market instruments): Purchases $636,015 $391,391 Proceeds from sales 584,550 347,733 ===============================================================
6. FOREIGN PORTFOLIO BY INDUSTRY GROUP At December 31, 1995, the Fund's foreign portfolio of investments as a percentage of net assets was in the following sectors: Consumer Goods and Services 7.6% Information Technology 5.1 Finance 3.1 Industrial Goods and Services 1.5 Health Care 0.9 Energy and Minerals 0.6 Real Estate 0.2 Transportation 0.2 - -------------------------------------- Total Foreign Portfolio 19.2% ======================================
15 Acorn Fund Annual Report December 31, 1995 Trustees - ----------------------------------------------------- Leo A. Guthart Charles P. McQuaid Irving B. Harris Roger S. Meier Jerome Kahn, Jr. Adolph Meyer, Jr. David C. Kleinman Malcolm N. Smith James H. Lorie Ralph Wanger Officers - ----------------------------------------------------- Irving B. Harris, Chairman of the Board James H. Lorie, Vice Chairman of the Board Ralph Wanger, President Charles P. McQuaid, Senior Vice President Terence M. Hogan, Vice President Leah J. Zell, Vice President Merrillyn J. Kosier, Vice President and Secretary Bruce H. Lauer, Vice President and Treasurer Kenneth A. Kalina, Assistant Treasurer Transfer Agent, Dividend Disbursing Agent and Custodian - ----------------------------------------------------- State Street Bank and Trust Company Attention: Acorn Fund P.O. Box 8502 Boston, Massachusetts 02266-8502 1-800-962-1585 Investment Advisor - ----------------------------------------------------- Wanger Asset Management, L.P. 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) e-mail: wanger@mcs.com Legal Counsel - ----------------------------------------------------- Bell, Boyd & Lloyd Chicago, Illinois Auditors - ----------------------------------------------------- Ernst & Young LLP Chicago, Illinois This report, including the audited schedule of investments and financial statements, is submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution unless preceded or accompanied by a prospectus. [LOGO of Acorn Fund] Acorn Fund A No-Load Fund Annual Report December 31, 1995 Managed by Wanger Asset Management, L.P. Acorn International Annual Report 1995 In a Nutshell Acorn International was down less than 1% for the fourth quarter of 1995. Small- cap international funds came under pressure toward year-end, as cautious investors in overseas markets stayed with blue chip stocks and away from second liners and emerging markets. For 1995 as a whole, we finished up 8.9%, about the same as EAFE and over 3% ahead of our peer group of funds, as defined by the Lipper International Small Company Funds Average. Our performance for the year is analyzed in detail in the next section of the report. We are pleased to have done well in our fund category, but we know that U.S. funds did much better than foreign investments in 1995. Every year one market has to do better than the others, and 1995 was the year for the U.S.A. In December 1995 and January 1996, foreign stocks have outperformed the U.S. market. We look forward to 1996. Finally, we want our shareholders to know that Acorn International is now open to new investors. We have substantially increased our staff and improved our systems to manage additional investments effectively. Results to December 31, 1995 - ------------------------------------------------------------------ 4th quarter Last 12 mos. ----------------------------- Acorn International - 0.7% 8.9% EAFE 3.6% 9.4% Lipper International Small Company Funds Average - 0.3% 5.8% EAFE is Morgan Stanley's Europe, Australia and Far East Index, an unmanaged index of companies throughout the world in proportion to world stock market capitalization, excluding the U.S. and Canada. The Lipper International Small Company Funds Average is a group comprised of twelve small company international funds. 1995 DISTRIBUTIONS Ex-Dividend Reinvestment Distribution Per Share Date Price - -------------------------------------------------------------------- Long-Term Capital Gain $0.01 7/18/95 $16.23 No year-end distributions were paid by Acorn International. The Fund did not invest in U.S. Government Interest Obligations. The Taxable N.A.V. for the Florida Intangible Tax and Pennsylvania Personal Property Tax is $16.59. Corporate shareholders do not qualify for a Dividend Received Deduction, since all dividends in this fund are foreign. No foreign taxes were passed through to shareholders, since the Fund did not distribute an income dividend in 1995. The Value of a $10,000 Investment in Acorn International September 23, 1992 through December 31, 1995 Average Annual Total Return 1 Year Life of Fund 8.9% 17.0% [CHART APPEARS HERE] DATE ACORN INT'L ($) EAFE ($) ---- --------------- -------- 09/23/92 10,000 10,000 09/30/92 10,010 10,000 12/31/92 10,690 9,568 03/31/93 12,000 10,667 06/30/93 12,920 11,693 09/30/93 13,910 12,423 12/31/93 15,940 12,485 03/31/94 15,834 12,876 06/30/94 15,534 13,487 09/30/94 16,491 13,452 12/31/94 15,334 13,262 03/31/95 14,811 13,457 06/30/95 15,727 13,498 09/30/95 16,824 14,005 12/31/95 16,703 14,514 This graph compares the results of $10,000 invested in Acorn International on 9-23-92 (the date the Fund began operations) with Morgan Stanley's Europe, Australia and Far East Index ("EAFE"). Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Acorn International Total Return Percentage for Each Quarter Net Asset Value Per Share 12/31/95: $16.59 Squirrel Chatter Snow Job This winter's record blizzard on the East Coast certainly focused attention on the weather. A few days before the paralyzing storm, there was a story in The New York Times confirming that 1995 had been the warmest year on record. There may be an important connection between the two. Back in October, Swiss Re, one of the world's largest reinsurance companies, took an ad in The Financial Times of London: "Stop and think: giant storms are triggered by global warming; this is caused by the greenhouse effect; which is, in turn, accelerated by man."/1/ The first industry forced to notice the new climate may have been the insurance industry. Hurricane Andrew alone cost insurers $16.5 billion. The next might be agriculture; farmers have tuned their crop-raising practices to local conditions, and any change in climate is highly likely to hurt yields in the short run. Feeding the World In a new book by an old-time environmentalist,/2/ Lester Brown argues that China will be increasing its imports of grain very substantially over the next twenty years. Demand will increase as people upgrade their diets from rice to meat, requiring lots of livestock and poultry feed. A Chinese feed mill operator agrees, saying "When people have more money, the first thing they'll spend it on is food. Meat has status; it's a symbol of prosperity."/3/ Brown projects that grain consumption will increase from 360 million tons in 1995 to 460 million in 2010. At the same time that demand is increasing, the amount of prime agricultural land in China will shrink, and double-cropping will drop. This has happened under very similar conditions in Japan, Korea, and Taiwan. Farmland will turn into housing, shopping centers, roads, dams, parking lots, factories, and golf courses as China becomes prosperous. In the three countries cited, the conversion of farms to commercial real estate has outweighed improvements in yield per acre, requiring Japan, Korea, and Taiwan to import large quantities of grains and foodstuffs. World production of grain is about 1,800 million tons per year, of which 200 million tons are exported. An increase in demand of another 100 million tons would alter the supply-demand balance and greatly increase export tonnage. At the same time demand in China is rising, food demand will be increasing in most other countries as well. India and Indonesia are going through the same demand growth cycle as China. Can the world increase grain production enough to satisfy this demand increase? Brown thinks not, predicting a big rise in food prices. Julian Simon, an economist at the University of Maryland, disagrees; he has bet many environmental activists that commodity prices won't rise, and he has won all the bets so far. Supply may increase too: Who knows how much wheat a free Ukraine can grow? On balance, I think that the American farmer will see more favorable economics in the next decade than in the last as the volume of grain exported from the U.S. rises. We will be looking at investment opportunities in companies that will profit from this trend. Analysis of Investment Performance 1995 was a big story for the stock market in the United States, with the unmanaged S&P 500 stock index soaring 34.1% (excluding dividends). No foreign market did that well as measured in its own local currency. Two markets did beat the U.S.A. in dollar terms; Switzerland (+43%) and Sweden (+35%). The U.S. dollar was weak against the Swiss franc and Swedish krona over the year, so those returns are higher measured in U.S. dollars than in francs or kronor. "Emerging Markets" were all the rage in 1993. Markets in strange places sailed upwards as money moved offshore. Market manias are fine for a while, but eventually prove to be a trap. American investors sent unprecedented billions of dollars to undeveloped markets, where unscrupulous financiers with unpronounceable names sent unsophisticated Yankees home in their underwear. Emerging markets have now had two years of bear markets, and by the end of 1995 have been hammered down to reasonable prices. In Asia in 1995, the Indian market fell 29%, Pakistan 34%, Taiwan 30%, China 23%. Latin America was spooked by a serious financial crisis in Mexico. Mexican stocks went down 27%, Brazil 15%, Peru 17%.
Avg. Weight in Percent Contribution to Market Our Portfolio Gain (Loss) Our Portfolio* - ------------------------------------------------------------------------------- Up Sweden 7.0% 49% 2.8% Germany 4.8 74 2.7 United Kingdom 10.3 25 2.5 Norway 2.8 77 1.6 France 4.8 26 1.1 Down India 1.8 (45) (1.1) Mexico 2.2 (34) (1.0) Brazil 1.9 (34) (0.9) Japan 8.2 (3) (0.4) All Others 56.2 1.6 - ------------------------------------------------------------------------------- 100.0% 8.9%
*The contribution to the portfolio does not equal average country weighting times gain or loss because of foreign currency fluctuation. The Scarlet A Drudgery is as necessary to call out the treasures of the mind as harrowing and planting those of the earth. --Margaret Fuller Foreign markets were mixed in 1995, but we had a bumper crop of great stocks. Every year we recognize skilled investment professionals who helped us harvest big returns. The Scarlet A goes to analysts and others who sowed the ideas that worked out the best over the year. In 1995, that meant that we made a high percentage return and at least $2 million in real money. Many of the best stocks were European computer service companies. The percentage gain winner in 1995 was Sysdeco, a Norwegian company providing software toolsets and systems. The Scarlet A goes to our friend Mogens Vad, who is now at Svenska Handelsbanken. Mogens has been an excellent guide to Nordic stocks. The return on Sysdeco was 263% in 1995, and made us $14 million. We made the most dollars in another Nordic computer service company, WM Data of Sweden. Our position made $25 million in 1995, up 217%. The prize goes to Mikael Randel of Carnegie Securities in Copenhagen. SAP, a German software company, produced a 172% gain and $19 million in profits. More remarkably, it is a repeat winner, having been our best stock in 1994! We are awarding the Scarlet A to Charles Elliott of Goldman Sachs, at work in their London office. The fourth European computer service company to make the winners' circle is Tietotehdas of Finland. Mogens Vad gets his second Scarlet A for the year on this one. Our investment gained 96% in 1995, making us $8 million. Mexico is fighting a major economic crisis, 20% unemployment and 50% interest rates. When the crisis hit, we bought Kimberly Clark (Mexico) at the advice of Luanne Zurlo, now at CS First Boston. We reasoned that in a depression you give up toilet paper last. The stock returned 61% this past year. Our best Asian stock was Malaysian Assurance. We made a 35% gain on the stock. Charlene Wang of Vickers Ballas collects her Scarlet A. Demi Moore wore a Scarlet A in the movies this year, but she was not in our kind of stocks. /s/ Ralph Wanger - ---------------- Ralph Wanger President 1 Quoted in Scientific American, February 1996, p. 27. 2 Brown, Lester R., Who Will Feed China, W. W. Norton, New York, 1995. 3 Liu Youhao, quoted in Forbes, January 1, 1996, p. 54. 4 Computed by taking into account the changes in security price, trading activity and income earned. ======================================================================= Acorn International's Best and Worst Stocks of 1995 $ gain/(loss) % change in 1995 Stock Country in 1995/4/ (in millions) - ----------------------------------------------------------------------- WM Data Nordic Sweden +217% $24.7 Computer Services/Consulting SAP Pfd. Germany +172 19.4 MIS Software Packages Sysdeco Norway +263 14.3 Software Tool Sets & Systems Tietotehdas Finland +96 8.0 Computer Services/Consulting Fresenius Germany +106 8.0 Dialysis Equipment & Solutions Casa Anglo Brasileira Pfd. Brazil -79 (4.4) Department Store Chain International Cosmetics Thailand -49 (3.3) Consumer Goods Distribution Benefon Finland -34 (3.1) Mobile Telephones Grupo Fernandez Editores Mexico -75 (2.6) Textbook Publisher Industrial Credit & Investment Corp. of India India -45 (2.2) Bank/Financial Services 3 MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares Sept. 30, 1995 Dec. 31, 1995 - ------------------------------------------------------------------------------- ADDITIONS - ------------------------------------------------------------------------------- Europe - ------------------------------------------------------------------------------- Germany - ------------------------------------------------------------------------------- Rhoen Klinikum Ord. 5,000 93,000 (includes effect of 10 for 1 stock split) Rhoen Klinikum Pfd. 11,000 135,000 (includes effect of 10 for 1 stock split) Fresenius Pfd. 0 14,000 Italy - ------------------------------------------------------------------------------- Banca Fideuram 6,000,000 7,000,000 Saipem SPA 300,000 1,150,000 Norway - ------------------------------------------------------------------------------- Maritime Group 60,000 150,000 Sweden - ------------------------------------------------------------------------------- Althin Medical AB 160,000 265,000 France - ------------------------------------------------------------------------------- Axime Ex Segin 20,000 65,000 United Kingdom - ------------------------------------------------------------------------------- Edinburgh Fund Managers 0 300,000 Seton Healthcare Group 0 390,000 Rhino Group 7,100,000 13,000,000 Serco Group 1,500,000 1,800,000 Ivory & Sime 0 400,000 Netherlands - ------------------------------------------------------------------------------- Kempen 0 390,000 Asia - ------------------------------------------------------------------------------- India/Pakistan - ------------------------------------------------------------------------------- Max India 0 174,450 Malaysia - ------------------------------------------------------------------------------- Malaysian Assurance Alliance 1,250,000 1,699,500 (includes effect of 12.5% stock bonus) Philippines/Indonesia - ------------------------------------------------------------------------------- Bank Niaga 400,000 1,850,000 (includes effect of 2 for 1 stock split) PILTEL 1,900,000 7,000,000 Int'l Container Terminal Services 8,000,000 11,000,000 Singapore - ------------------------------------------------------------------------------- Genting International 3,800,000 4,600,000 Thailand - ------------------------------------------------------------------------------- International Cosmetics 180,000 360,000 Latin America - ------------------------------------------------------------------------------- Mexico - ------------------------------------------------------------------------------- Bufete Industrial 300,000 370,000 Other South America - ------------------------------------------------------------------------------- Banco De A Edwards 0 150,000 Other Countries - ------------------------------------------------------------------------------- Australia - ------------------------------------------------------------------------------- Publishing & Broadcasting 0 1,400,000 Austereo 0 2,900,000 Petroleum Securities Australia 750,000 1,400,000 Canada - ------------------------------------------------------------------------------- Veritas Energy Services 310,000 600,000 Ranger Oil 300,000 600,000 SALES - ------------------------------------------------------------------------------- Europe - ------------------------------------------------------------------------------- AAF Industries 200,000 0 Aran Energy 5,000,000 0 Banco Portuguese de Investimento 250,000 120,444 Confide 6,000,000 0 Enator Cl. B 750,000 0 Finanza & Futuro 1,200,000 0 Z Groupe Zannier 75,000 0 Milliyet Geazatec 18,750,000 0 OK Holding 220,000 106,000 Polgram 140,000 0 Rautakirja Cl. B 75,000 45,000 Schibsted Gruppen 400,000 0 Sidel 10,000 0 Zehnder Holding 12,000 10,000 Asia - ------------------------------------------------------------------------------- Bharat Petroleum 151,500 0 Cafe de Coral 700,000 0 Genting 900,000 450,000 Gold Peak Batteries 1,400,000 0 Pacific Corp 20,000 0 Philippine Long Distance Telephone 160,000 0 5.75% Cv. Pfd. Reliance Industries 345,961 1,776 Wo Kee Hong 15,300,000 0 Shanghai Yaohua Pilkington Glass 700,000 0 Latin America - ------------------------------------------------------------------------------- Cadenalco 1,700,000 0 Casa Anglo Brasileira Pfd. 25,000,000 20,000,000 Petroleos Ipiranga 300,000,000 0
4 MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
Number of Shares Sept. 30, 1995 Dec. 31, 1995 - -------------------------------------------------------------------------------- Other Countries - -------------------------------------------------------------------------------- Burswood Property Trust 7,000,000 4,500,000 Greenchip Opportunities 600,000 0 International Colin Energy 95,000 0 MEMTEC ADR 228,000 0 Tarragon Oil & Gas 200,000 0 Teva Pharmaceutical Industries 25,000 0 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995 - ------------------------------------------------------------------------------- Number of Shares Value (000) - -------------------------------------------------------------------------------- Common Stocks and Other Equity-Like Securities--97.2% - -------------------------------------------------------------------------------- Europe--52.9% - -------------------------------------------------------------------------------- Germany/Austria--6.6% 120,000 Fresenius $ 13,414 14,000 Fresenius Pfd. 1,330 Dialysis Equipment & Solutions 135,000 Rhoen Klinikum Pfd. 11,790 93,000 Rhoen Klinikum Ord. 9,227 Hospital Management 170,000 Flughafen Wien 11,479 Vienna Airport Authority (Austria) 38,000 Escada (c) 6,903 Designer Fashions 15,000 Binding-Brauerei 6,340 Brewer 400,000 United International Holdings (b) 5,900 Cable Television for Austria & Other Countries 15,000 Pfleiderer 4,559 Construction Materials 45,000 VAE Eisenbahnsysteme 3,798 Railroad Switches (Austria) 25,000 SAP Pfd. 3,790 MIS Software Packages 30,000 BWT 3,083 Water Filtration Systems (Austria) 3,100 Marschollek Lautenschlager 2,252 Financial Planning - -------------------------------------------------------------------------------- 83,865 Denmark--0.8% 47,000 Chr. Hansen's Laboratorium, Cl. B 4,580 Rennet, Food Additives & Allergens 22,000 Kompan International 3,553 Playground Equipment 106,000 OK Holding (b) 1,951 Southeast Asian Trading Company - -------------------------------------------------------------------------------- 10,084 Finland--3.6% 500,000 Tietotehdas, Cl. B (c) 16,236 Computer Services/Consulting 370,000 Benefon (c) 9,203 Mobile Telephones 300,000 Raision Tehtaat, Series V 4,871 Foodstuffs & Specialty Chemicals 180,000 Huhtamaki 4,353 Confectionery & Contraceptives 80,000 Fiskars, Series A 3,906 Scissors & Power Supply Equipment 100,000 Vaisala, Cl. A 3,662 Meteorological Instruments 105,000 Sentra, Cl. A 2,055 Convenience Stores, Restaurants 45,000 Rautakirya, Cl. B 2,031 Bookshops & Kiosks - -------------------------------------------------------------------------------- 46,317 Norway--3.3% 720,000 Sysdeco (b) (c) 19,715 Software Tool Sets & Systems 1,300,000 SensoNor (b) (c) 10,494 Electronic Sensors for Airbags 400,000 Elkjoeb Norge (c) 9,940 Consumer Electronics Retailer 150,000 Maritime Group 2,018 Oil Field Equipment & Services - -------------------------------------------------------------------------------- 42,167 Sweden--7.7% 800,000 WM Data Nordic 36,215 Computer Services/Consulting 250,000 Hennes & Mauritz, Cl. B 13,958 Apparel Stores 250,000 Elekta Instrument, Cl. B 10,035 Equipment for Neurosurgery 215,000 Getinge Industrier 9,814 Sterilization & Disinfection Equipment 150,000 Autoliv 8,782 Seatbelts & Airbags 575,000 Allgon, Series B 7,982 Mobile Telephone Antennae & Systems
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995 - -------------------------------------------------------------------------------
Number of Shares Value (000) - -------------------------------------------------------------------------------- 400,000 Pricer, Cl. B (b) $ 6,760 Electronic Shelf Labels for Supermarkets 265,000 Althin Medical AB (c) 5,398 Dialysis & Other Medical Equipment - -------------------------------------------------------------------------------- 98,944 France--5.0% 42,000 Cetelem 7,892 Consumer Loans 95,000 Sligos 7,848 Computer Services/Credit Card Processing 390,000 Coflexip 7,361 Flexible Pipe for Subsea Oil Wells 60,000 Guilbert 7,055 Office Supplies Distributor 62,000 NRJ 6,263 Radio Network 65,000 Spir Communication 5,968 Newspaper Publisher & Printer 42,000 Virbac 5,153 Veterinary Pharmaceuticals Manufacturer 65,000 Axime Ex Segin (b) 5,011 Computer Services/Consulting 52,000 CEP Communications 4,317 Trade Magazines & Book Publishing 55,000 Technip 3,790 Turnkey Engineering & Construction 65,000 Ecco Travail Temporaire 3,781 Temporary Employment - -------------------------------------------------------------------------------- 64,439 United Kingdom/Ireland--10.8% 3,000,000 Invesco 11,808 Investment Management 467,000 International CableTel (b) 11,442 Cable TV & Telephone System 1,800,000 Oriflame International 11,318 Natural Cosmetics 1,800,000 Serco Group 10,256 Facilities Management 1,550,000 Powerscreen International 9,325 Mobile Crushing & Screening Equipment 2,000,000 Capita Group 8,850 Outsourcing Government Services 2,500,000 Capital Corporation 7,841 Casino 1,700,000 N. Brown Group 7,074 Mail Order Women's Clothing 1,550,000 Medeva 6,450 Pharmaceuticals 670,000 Ethical Holdings (b) 6,030 Drug Delivery 430,000 Securicor Group, Cl. A 5,908 Mobile Communications 450,000 Comcast UK Cable Partners (b) 5,625 Cable TV & Telephone System 3,700,000 City Centre Restaurants 5,400 Fast Food Restaurants 410,000 Vosper Thornycroft Holdings 5,188 Military Shipbuilding 1,700,000 Rotork 4,513 Valve Actuators 1,820,000 Body Shop International 4,295 Natural Cosmetics & Toiletries 500,000 Dorling Kindersley 4,145 Reference Book & CD-ROM Publisher 300,000 Edinburgh Fund Managers 3,065 Investment Management 13,000,000 Rhino Group (b) 2,826 Video Game Stores 390,000 Seton Healthcare Group 2,392 Pharmaceuticals 400,000 Ivory & Sime 1,425 Investment Management 1,750,000 Pittencrieff Resources 1,331 Oil Producer 1,000,000 North American Gas Investors Trust (b) 854 Closed-End Fund - -------------------------------------------------------------------------------- 137,361 Switzerland--4.8% 6,500 Societe Generale de Surveillance 12,879 Inspection/Testing of Trade Goods 23,000 Phoenix Mecano 11,553 Electrical Components Manufacturer 5,000 Bobst 7,821 Packaging Machinery 13,000 Liechtenstein Global Trust 7,682 (formerly BIL GT Gruppe) Banking & Investment Management 21,600 Sece Cortaillod Holdings 7,133 Cables, Cable TV & Electrical Supply Distribution 6,000 Suedelektra Holding (b) 6,466 Diversified Pool of Commodity-Related Projects 10,000 Zehnder Holding 5,040 Specialty Radiators 10,000 Prodega 2,890 Cash-and-Carry Retailer - -------------------------------------------------------------------------------- 61,464 Italy/Greece--4.9% 7,000,000 Banca Fideuram 8,096 Life Insurance & Mutual Funds 550,000 Banca Popolare Di Bergamo 7,605 Regional Bank 3,100,000 Costa Crociere Ord. 7,574 Cruise Ship Line 600,000 Gewiss 7,560 Electrical Components Manufacturer
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - -------------------------------------------------------------------------------- 130,000 Industrie Natuzzi $ 5,899 Leather Furniture Manufacturer 170,000 Hellenic Bottling Company 5,569 Coca-Cola Bottler (Greece) 120,000 Ergo Bank 4,791 Bank (Greece) 1,100,000 Banca Di Legnano 4,174 Regional Bank 80,000 Cellular Communications International (b) 3,420 Mobile Communications 1,150,000 Saipem SPA 2,653 Pipeline Construction & Drilling Contractor 1,600,000 Tecnost 2,622 ATM, Lotto, Toll Collection Equipment Manufacturer 925,000 Editoriale L'Espresso (b) 1,603 Newspaper & Magazine Publisher 133,130 Teletypos 490 TV Broadcasting (Greece) - -------------------------------------------------------------------------------- 62,056 Turkey--0.5% 4,500,000 Tat Konservcelik Sanayii 2,845 Tomato Paste 92,412,000 Sabah Yayincilik 1,821 Newspapers, Magazines 62,000,000 Medya Holdings 1,069 Newspapers, Magazines, Television 30,000,000 Hurriyet Gazetecilik (b) 911 Newspapers, Magazines - -------------------------------------------------------------------------------- 6,646 Spain/Portugal--2.4% 110,000 Jeronimo Martins 6,112 Supermarket/Hypermarket Chain (Portugal) 300,000 Vallehermoso 5,576 Residential Property Developer & Landlord 160,000 Cortefiel 4,194 Apparel Retailing 170,000 Lusotur (b) 3,528 Real Estate/Resort Developer (Portugal) 100,000 Conservera Campofrio 3,330 Sausage Maker 350,000 Televisao Independente (b) 1,628 Television Station (Portugal) 120,444 Banco Portugues de Investimento (b) 1,442 Bank 378,000 Oscar Mayer S.A. 1,408 Sausage Maker 235,000 Estoril Sol (b) (c) 1,178 Casino Resort (Portugal) 100,000 Filmes Lusomundo 1,037 Newspapers, Radio, Video, Film Distribution (Portugal) 100,000 Marco Iberica Midesa 907 Magazine Distributor - -------------------------------------------------------------------------------- 30,340 Netherlands--2.4% 260,000 Getronics 12,164 Computer Consulting 57,000 Telegraaf Holdings 8,036 Newspaper Publisher 90,000 De Boer Winkelbedrijven 4,435 Supermarkets, Drug Stores, Liquor Stores 390,000 Kempen 3,965 Stock Brokerage/Investment Management 225,000 Fugro McClelland 2,428 Engineering, Consulting & Surveying - -------------------------------------------------------------------------------- 31,028 Eastern Europe--0.1% 147,000 Bank Komunalny 477 Bank (Poland) - -------------------------------------------------------------------------------- 477 ================================================================================ Europe--Total 675,188 Asia--29.3% - -------------------------------------------------------------------------------- China--0.7 % 2,500,000 New World Infrastructure 4,785 (formerly New World China Fund) (b) Infrastructure Investments 390,000 AES China Generating (b) 3,120 Cogeneration 111,275 The China Investment Company (b) 1,029 Closed-End Fund - -------------------------------------------------------------------------------- 8,934 Hong Kong--4.6% 5,000,000 Varitronix International 9,280 LCD Manufacturer 2,300,000 Television Broadcasts 8,195 Television Programming & Broadcasting 9,000,000 Li and Fung 8,032 Sourcing of Consumer Goods 10,000,000 JCG Holdings 7,307 Consumer Finance 14,000,000 Vitasoy International Holdings 5,975 Soya Milk Manufacturer 18,250,000 Golden Harvest Entertainment 4,839 Movie Distribution & Exhibition 11,000,000 Manhattan Card 4,695 Chase's Local Credit Card 2,500,000 Johnson Electric Holdings 4,462 Micromotor Manufacturer
7 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995
Number of Shares Value (000) - -------------------------------------------------------------------------------- 7,500,000 Chen Hsong Holdings $ 3,929 Plastic Injection Machines 12,100,000 ABC Communication Holdings 2,191 Paging Service - -------------------------------------------------------------------------------- 58,905 India/Pakistan--1.4% 82,702 Housing Development Finance 6,358 Mortgage Lender 987,800 Industrial Credit & Investment 2,194 Corporation of India (b) Bank/Financial Services 597,800 Zee Telefilms (c) 2,167 Hindi Television Programming & Broadcasting 221,785 Pakistan State Oil 1,718 Oil Distribution 342,100 Kotak Mahindra Finance 1,162 Consumer Finance Company 174,450 Max India 1,118 Mobile Communications 456,000 Tube Investment GDR 1,083 Bicycle Manufacturer 525,000 Business India TV (b) 860 Satellite Television Broadcasting Network 2,000,000 Centurion Quantum Growth (b) 324 Closed-End Fund 71,800 Mirc Electronic 246 Consumer Electronics 14,900 Adamjee Insurance 44 Insurance (Pakistan) 1,776 Reliance Industries 10 Petrochemicals & Textiles 1,000 Core Healthcare 3 Pharmaceuticals 300 Dabur India 2 Health Care - -------------------------------------------------------------------------------- 17,289 Japan--8.6% 200,000 Secom 13,920 Security Alarm Systems 250,000 Promise 12,044 Consumer Finance 114,000 Sanyo Shinpan 9,393 Consumer Finance 124,000 Nichiei 9,256 Lender to Small & Medium Businesses 195,000 Sankyo 9,073 Pachinko Machine Manufacturer 340,000 Heiwa 8,866 Pachinko Machine Manufacturer 240,000 Tostem 7,980 Window Sash Manufacturer 143,000 Aucnet 6,931 Used Auto Auctions Via Satellite 72,000 Autobacs Seven 5,988 Auto Parts Retailer 84,000 Paramount Bed 5,863 Hospital Bed Manufacturer 104,000 Sony Music Entertainment 5,444 Recorded Music/CDs 140,000 Hokuto 5,089 Mushroom Grower 81,000 Tsutsumi Jewelry 4,059 Jewelry Manufacturer, Retailer & Wholesaler 180,000 Mr. Max 3,472 Household Goods & Appliance Retailer 141,000 Homac Corporation 2,501 Discount Retailer - -------------------------------------------------------------------------------- 109,879 Korea/Taiwan--4.5% 19,000 Korea Mobile Telecom 21,417 Mobile Communications 330,000 Kookmin Bank 6,387 90,000 Kookmin Bank (New) (b) 1,681 Retail Bank 68,000 Shinsegae 5,680 20,666 Shinsegae (New) (b) 1,705 Department Stores 225,000 Daehan Blue Chip Index Trust 4,886 Closed-End Fund 400,000 President Enterprises 4,600 Food Manufacturer & Distributor (Taiwan) 50,000 Formosa Fund (b) 3,800 Closed-End Fund (Taiwan) 155,000 Formosa Growth Fund (b) 2,034 Closed-End Fund (Taiwan) 18,080 Baik Yang 2,447 Underwear Manufacturer 300,000 Baring Taiwan Fund (b) (c) 2,438 Closed-End Fund - -------------------------------------------------------------------------------- 57,075 Malaysia--3.1% 1,200,000 O.Y.L. Industries 9,311 Air Conditioners 1,699,500 Malaysian Assurance Alliance 7,698 Insurance 2,100,000 Sistem Televisyen Malaysia 7,568 Television Franchise 2,000,000 New Straits Times Press 6,696 Newspaper Publisher 1,200,000 Malaysian Oxygen 4,537 Industrial Gases Producer & Distributor 450,000 Genting 3,757 Hotels & Casinos - -------------------------------------------------------------------------------- 39,567
8
======================================================================================================== ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995 Number of Shares Value (000) - -------------------------------------------------------------------------------- Indonesia/Philippines--3.7% 7,000,000 PILTEL (b) $ 7,072 Mobile Communications (Philippines) 11,000,000 Int'l Container Terminal Services (b) 5,766 Container Handling Terminals & Port Management (Philippines) 1,633,000 Tigaraksa Satria 5,714 Distributor of Consumer Goods 11,000,000 Universal Robina 5,452 Snack Foods (Philippines) 3,000,000 Mustika Ratu (b) 4,789 Traditional Cosmetics 6,500,000 Mayora Indah 4,691 Baked Goods/Candy 750,000 Modern Photo Film 4,346 Fuji Film Distributor 1,850,000 Bank Niaga (b) 3,540 Banking 230,000 Unilever Indonesia 2,766 Manufacturer & Distributor of Detergents 1,500,000 Philippine Savings Bank (b) 2,631 Banking (Philippines) 1,200,000 Suba Indah (c) 800 Beverage & Food - -------------------------------------------------------------------------------- 47,567 Singapore--1.3% 4,600,000 Genting International 7,498 Cruise Line 1,600,000 Clipsal Industries 3,616 656,000 Clipsal Industries Warrants 8/12/98 (b) 354 Electrical Components 950,000 Venture Manufacturing 3,183 1,109,900 Venture Manufacturing Warrants 7/26/99 (b) 1,765 Contract Manufacturer of Electronic Goods - -------------------------------------------------------------------------------- 16,416 Thailand--1.4% 600,000 Srithai Superware 4,168 Plastic/Melamine Tableware & Containers 200,000 Serm Suk 3,763 Pepsi Bottler 360,000 International Cosmetics 3,287 Consumer Goods Distribution 2,600,000 Sinpinyo Fund V 1,884 Closed-End Fund 300,000 Thai President Foods 1,846 Instant Noodles & Cookies 100,756 Singer Thailand 1,464 Consumer Goods Distributor 1,505,000 Modernform 1,434 Furniture - -------------------------------------------------------------------------------- 17,846 ================================================================================ Asia--Total 373,478 Latin America--7.1% - -------------------------------------------------------------------------------- Mexico--2.1% 500,000 Kimberly Clark de Mexico 7,554 Paper Products 370,000 Bufete Industrial (b) 5,550 Engineering & Construction 1,500,000 Nadro, Series L 5,062 Pharmaceutical Distributor 350,000 Grupo Radio Centro 2,581 Radio Stations & Networks 600,000 GBM Atlantico, Series L (b) 1,950 Bank & Brokerage 1,500,000 Fondo Opcion, Series B (b) (c) 1,518 Real Estate Investment Fund 5,500,000 Grupo Herdez, Series B (b) 1,142 Sauces & Condiments 3,000,000 Grupo Fernandez Editores (b) 837 Textbook Publisher 107,000 Cofar 44 Drug Stores - -------------------------------------------------------------------------------- 26,238 Brazil--1.6% 26,000,000 Banco Itau Pfd. 7,249 Bank 3,500,000,000 White Martins 3,493 Producer/Distributor of Industrial Gases 146,000,000 Cemig Pfd. 3,229 Electric Utility 3,000,000 Multibras Pfd. 2,222 Household Appliances 35,000,000 Telemig Pfd. 1,602 14,000,000 Telemig 720 Telecommunications 20,000,000 Casa Anglo Brasileira Pfd. 844 Department Store Chain 1,000,000 Brazilian Smaller Companies Warrants (b) 700 Closed-End Fund 120,000 Fabricadora de Pecas 593 Auto Parts - -------------------------------------------------------------------------------- 20,652 Other South America--2.5% 260,000 IRSA 6,630 Real Estate Management & Development (Argentina) 130,000 Genesis Chile Fund 5,265 Closed-End Fund 250,000 Credicorp (b) 4,313 Universal Bank (Peru) 105,000 Compania Boliviana de Energia Electrica 3,491 Electric Utility 2,200,000 Banco Wiese 3,390 Bank (Peru) 150,000 Banco De A Edwards (b) 2,944 Bank (Chile)
9
============================================================================================================= ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995 Number of Shares or Principal Amount Value (000) - -------------------------------------------------------------------------------- 2,000,000 Enrique Ferreyros $ 2,344 Heavy Machinery Dealer (Peru) 400,000 Banco de Bogota 1,918 Bank (Colombia) $1,252 Tele 2000 9.75% Cv. Note 4/5/97 1,064 Telecommunications & Cable TV (Peru) 450,000 Global Casinos Cv. Pfd. (b) 225 225,000 Global Casinos (b) 63 Worldwide Casino Operator (Aruba) 229,500 Cerveceria Biekert (b) 434 Brewer (Argentina) - -------------------------------------------------------------------------------- 32,081 Central America--0.9% 150,000 Banco Latinoamericano de Exportaciones 6,975 Trade Financing (Panama) 150,000 Panamerican Beverages 4,800 Coca-Cola Bottler (Panama) - -------------------------------------------------------------------------------- 11,775 ================================================================================ Latin America--Total 90,746 Other Countries--7.0% - -------------------------------------------------------------------------------- Australia / New Zealand--4.0% 4,000,000 Village Roadshow Pfd. 12,498 Film Distribution, Exhibition & Production 410,000 Sky City (b) 8,511 Casino & Hotel (New Zealand) 4,500,000 Burswood Property Trust 6,026 Perth Casino & Resort 1,400,000 Publishing & Broadcasting 4,884 Media & TV Broadcasting 3,100,000 Just Jeans Holdings 4,474 Jeans & Fashion Retail Stores 2,900,000 Austereo 4,099 Media--Radio 12,000,000 Command Petroleum Holdings (b) 3,660 Oil & Gas Exploration 1,400,000 Petroleum Securities Australia 3,541 Oil Exploration & Mining 560,000 PDL Holdings 3,112 Electrical Equipment Manufacturer & Distributor (New Zealand) - -------------------------------------------------------------------------------- 50,805 Canada--1.9% 1,000,000 Shaw Communications 6,324 75,000 Shaw Communications Warrants (b) 1 Cable TV 600,000 Ranger Oil 3,750 Oil & Gas Producer 400,000 Enserv (b) 3,446 Oil Field Services 600,000 Veritas Energy Services (b) (c) 3,299 Geophysical Contractor 500,000 Cogeco 2,658 Cable TV 300,000 Cogeco Cable (c) 1,925 Cable TV 340,000 Archer Resources (b) 1,246 Oil & Gas Producer 250,000 Fundy Cable 1,065 Cable TV 330,000 Pan East Petroleum (b) 1,028 Oil & Gas Producer - -------------------------------------------------------------------------------- 24,742 Israel--0.6% 175,000 Pec Israel Economic (b) 4,222 Industrial Holdings 400,000 Ampal American Israel 2,100 Hotels, Real Estate & Industrial Holdings 600,000 Alliance Tire (b) 1,791 Off-the-Road Tires - -------------------------------------------------------------------------------- 8,113 South Africa--0.5% 460,000 Kersaf Investments 5,804 Casino Resorts ================================================================================ Other--Total 89,464 Foreign Corporations, Operations in the U.S.--0.9% - -------------------------------------------------------------------------------- 550,000 ADT (b) 8,250 Alarm Systems & Auto Auctions (Bermuda) 161,000 Carnival 3,924 Cruise Ship Line (Panama) ================================================================================ Foreign Corporations, Operations in the U.S.--Total 12,174 Total Common Stocks and Other Equity-Like Securities--97.2% 1,241,050 - -------------------------------------------------------------------------------- (Cost: $1,049,522) Money Market Instruments--2.2% - -------------------------------------------------------------------------------- Yield 5.60%-5.63% Due January 1996 $14,000 IBM Credit 13,996 $14,165 Travelers Insurance 14,158 - -------------------------------------------------------------------------------- (Cost: $28,154) 28,154 Total Investments--99.4% 1,269,204 - -------------------------------------------------------------------------------- (Cost: $1,077,676) Cash and Other Assets Less Liabilities--0.6% 7,040 - -------------------------------------------------------------------------------- Total Net Assets--100% $1,276,244 ================================================================================
10 ACORN INTERNATIONAL STATEMENT OF INVESTMENTS DECEMBER 31, 1995 (a) At December 31, 1995, for federal income tax purposes cost of investments was $1,089,796,000 and net unrealized appreciation was $179,408,000 consisting of gross unrealized appreciation of $308,310,000 and gross unrealized depreciation of $128,902,000. (b) Non-income producing security. (c) On December 31, 1995, the Fund held the following percentages of the outstanding voting shares of the companies listed below: - ------------------------------------------------------------------------ Estoril Sol (Portugal)........................... 9.12% Fondo Opcion (Mexico)............................ 8.13 Zee Telefilms (India)............................ 8.03 Benefon (Finland)................................ 7.96 Tietotehdas (Finland)............................ 7.91 Veritas Energy Services (Canada)................. 7.05 SensoNor (Norway)................................ 6.79 Elkjoep Norge (Norway)........................... 6.15 Althin Medical (Sweden).......................... 5.80 Sysdeco (Norway)................................. 5.52 Cogeco Cable (Canada)............................ 5.43 Suba Indah (Indonesia).......................... 5.33 Baring Taiwan Fund (Taiwan)...................... 5.27 Escada (Germany)................................. 5.26 The aggregate cost and value of investments in these companies at December 31, 1995, was $63,914,000 and $91,215,000 respectively. The market value of these securities represents 7.15% of the total net assets at December 31, 1995. During the period ended December 31, 1995, dividends received from these companies amounted to $775,000 and the net realized loss on sales of investments in such companies amounted to $8,000. PORTFOLIO DIVERSIFICATION At December 31, 1995, the Fund's portfolio of investments as a percent of net assets was diversified as follows:
Value (000) Percent - --------------------------------------------------------------- Information Group - --------------------------------------------------------------- Broadcasting and CATV $ 80,808 6.3% Distribution 76,200 6.0 Computer Systems 73,465 5.8 Mobile Communications 40,280 3.1 Consumer Electronics 34,989 2.7 Software 31,353 2.5 Instrumentation 3,662 0.3 - --------------------------------------------------------------- 340,757 26.7 Health Care - --------------------------------------------------------------- Biotechnology/Drug Delivery 34,682 2.7 Equipment 25,247 2.0 Hospital/Laboratory Supplies 20,607 1.6 Services 21,017 1.6 - --------------------------------------------------------------- 101,553 7.9 Consumer Goods and Services - --------------------------------------------------------------- Retail 147,669 11.6 Manufacturers 82,293 6.4 Entertainment and Leisure 79,337 6.2 Food 61,862 4.9 Recreational Vehicles 2,874 0.2 - --------------------------------------------------------------- 374,035 29.3 Finance Group - --------------------------------------------------------------- Money Management 64,040 5.0 Banks 63,661 5.0 Insurance 2,296 0.2 Other 87,538 6.8 - --------------------------------------------------------------- 217,535 17.0 Industrial Goods and Services - --------------------------------------------------------------- Machinery Processing 65,561 5.2 Services 41,116 3.2 Forest Products and Construction 10,109 0.8 Steel 5,188 0.4 Furniture and Textiles 1,444 0.1 - --------------------------------------------------------------- 123,418 9.7 Energy and Minerals - --------------------------------------------------------------- Oil and Gas Producers 25,790 2.0 Oil Services 12,032 0.9 Cogeneration 9,840 0.8 Mining 3,541 0.3 Refining/Marketing 1,718 0.1 - --------------------------------------------------------------- 52,921 4.1 Real Estate 19,352 1.5 - --------------------------------------------------------------- Transportation 11,479 1.0 - --------------------------------------------------------------- Total Common Stocks and Other Equity-Like Securities 1,241,050 97.2 Money Market Instruments 28,154 2.2 - --------------------------------------------------------------- Total Investments 1,269,204 99.4 Cash and Other Assets less Liabilities 7,040 0.6 - --------------------------------------------------------------- Net Assets $ 1,276,244 100.0% - ---------------------------------------------------------------
See accompanying notes to financial statements. 11 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Acorn International and the Trustees of Acorn Investment Trust We have audited the accompanying statement of assets and liabilities, including the statement of investments, of Acorn International as of December 31, 1995, the related statements of operations and changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four fiscal periods then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of investments owned as of December 31, 1995, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Acorn International at December 31, 1995, the results of its operations and changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four fiscal periods then ended in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois January 31, 1996 ACORN INTERNATIONAL STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1995
(in thousands) - -------------------------------------------------------------------------------- Assets Investments, at value (cost: $1,077,676) $1,269,204 Cash 15,339 Organization costs 26 Prepaid expenses 11 Receivable for: Securities sold $ 8,921 Dividends and interest 1,831 Fund shares sold 621 11,373 - -------------------------------------------------------------------------------- Total assets 1,295,953 Liabilities and Net Assets Payable for: Securities purchased 16,735 Fund shares redeemed 2,134 Organization costs 26 Other 814 - -------------------------------------------------------------------------------- Total liabilities 19,709 - -------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $1,276,244 ================================================================================ Fund shares outstanding 76,912 ================================================================================ Pricing of Shares Net asset value, offering and redemption price per share $ 16.59 ================================================================================ Analysis of Net Assets Paid-in capital $1,103,312 Accumulated net realized loss on sales of investments and foreign currency transactions (7,197) Net unrealized appreciation of investments and other assets (net of unrealized PFIC gains of $12,120) 179,436 Undistributed net investment income 693 - -------------------------------------------------------------------------------- Net assets applicable to Fund shares outstanding $1,276,244 ================================================================================
See accompanying notes to financial statements. 12
ACORN INTERNATIONAL STATEMENTS OF OPERATIONS DECEMBER 31, 1995 (in thousands) Year ended December 31, 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Investment Income: Dividends $ 23,529 $ 13,914 Interest 3,969 9,465 - --------------------------------------------------------------------------------------------------------------------- Total investment income 27,498 23,379 Expenses: Investment advisory fee 11,667 11,561 Custodian fees and expenses 1,804 2,024 Transfer and dividend disbursing agent fees and expenses 1,360 1,699 Legal and audit fees and expenses 119 241 Reports to shareholders 431 517 Registration and blue sky expenses 92 220 Trustees' fees and other expenses 383 545 - --------------------------------------------------------------------------------------------------------------------- Total expenses 15,856 16,807 - --------------------------------------------------------------------------------------------------------------------- Net investment income 11,642 6,572 Net realized and unrealized gain (loss) on investments and foreign currency: Net realized gain (loss) on sales of investments (1,937) 8,647 Net realized loss on foreign currency transactions (16,959) (13,918) Net realized loss on foreign index contracts - (5,975) Change in net unrealized appreciation 114,583 (67,989) - --------------------------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments and foreign currency 95,687 (79,235) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations $ 107,329 $ (72,663) ===================================================================================================================== ACORN INTERNATIONAL STATEMENTS OF CHANGES IN NET ASSETS DECEMBER 31, 1995 From operations: Net investment income $ 11,642 $ 6,572 Net realized loss on sales of investments, foreign currency transactions and foreign index contracts (18,896) (11,246) Change in net unrealized appreciation 114,583 (67,989) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations 107,329 (72,663) Distributions to shareholders from: Net investment income -- (200) Net realized gain (1,050) (8,696) - --------------------------------------------------------------------------------------------------------------------- Total distribution to shareholders (1,050) (8,896) From Fund share transactions: Reinvestment of dividends and capital gain distributions 1,001 8,273 Proceeds from other shares sold 147,138 802,940 - --------------------------------------------------------------------------------------------------------------------- 148,139 811,213 Payments for shares redeemed (340,704) (274,097) - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from Fund share transactions (192,565) 537,116 - --------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets (86,286) 455,557 Net Assets: Beginning of Period 1,362,530 906,973 - --------------------------------------------------------------------------------------------------------------------- End of Period (including undistributed net investment income of $693 in 1995 and $6,572 in 1994) $1,276,244 $1,362,530 =====================================================================================================================
See accompanying notes to financial statements. 13
ACORN INTERNATIONAL FINANCIAL HIGHLIGHTS DECEMBER 31, 1995 For a share outstanding throughout each period. Inception Sept. 23, 1992 Years ended December 31, through Dec. 31, 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, beginning of period $15.24 $15.94 $10.69 $10.00 Income From Investment Operations Net investment income .16 .07 .00 (.03) Net realized and unrealized gain (loss) on investments and foreign currency 1.20 (.67) 5.25 .72 - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations 1.36 (.60) 5.25 .69 Less Distributions Dividends from net investment income -- -- -- -- Distributions from net realized gain (.01) (.10) -- -- - -------------------------------------------------------------------------------------------------------------------------- Total distributions (.01) (.10) -- -- - -------------------------------------------------------------------------------------------------------------------------- Net Asset Value, end of period $16.59 $15.24 $15.94 $10.69 ========================================================================================================================== Total Return 8.9% - 3.8% 49.1% 6.9% Ratios/Supplemental Data Ratio of expenses to average net assets 1.2% 1.2% 1.2% 2.4%* Ratio of net investment income to average net assets .9% .5% .1% (1.4%)* Portfolio turnover rate 26% 20% 19% 20%* Net assets at end of period (in millions) $1,276 $1,363 $ 907 $ 30 *Annualized
ACORN INTERNATIONAL NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. NATURE OF OPERATIONS Acorn International (the "Fund") is a series of Acorn Investment Trust (the "Trust"), an open-end management investment company organized as a Massachusetts business trust. The investment objective of the 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, or lacking any reported sales on that day, at the midpoint of the most recent bid and offer. 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 readily 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 Fund. Interest income is recorded on the accrual basis and includes amortization of discounts on money market instruments and on 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. Financial instruments The Fund may purchase or sell exchange-traded financial futures contracts, which are contracts that obligate the 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 Fund enters into such contracts to hedge a portion of its portfolio. Gains and losses are reflected as "Net Realized Gain (Loss) on Foreign Index Contracts" in the Statements of Operations. Additionally, the 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 con- 14 ACORN INTERNATIONAL NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 tracts. The Fund bears the market risk that arises from changes in the value of financial instruments and securities indices (futures contracts) or from changes in foreign currency rates (forward foreign currency contracts) and the credit risk should a counterparty fail to perform under such contracts. There were no futures or forward foreign currency contracts open at December 31, 1995. Fund share valuation Fund shares are sold and redeemed on a continuing basis at net asset value (less a redemption charge, currently waived, of 2% for shares held less than 60 days). 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 the Fund's investments and other assets, less liabilities, by the number of Fund shares outstanding. Federal income taxes, dividends and distributions to shareholders It is the Fund's policy to comply with the special provisions of the Internal Revenue Code available to regulated investment companies and, in the manner provided therein, to distribute all of its taxable income, as well as any net realized gain on sales of investments and foreign currency transactions reportable for federal income tax purposes. Such provisions were complied with for the years ended December 31, 1995 and December 31, 1994 and no federal income taxes have been accrued. The Fund has elected to mark-to-market its investments in Passive Foreign Investment Companies ("PFIC's") for Federal income tax purposes. In accordance with this election, the Fund has recognized cumulative net unrealized PFIC gains of $11,427,000 which will not be distributed since they have been offset by accumulated net realized losses on foreign currency transactions. In addition, for Federal income tax purposes, undistributed net investment income at December 31, 1995 of $17,521,000, will not require distribution due to the application of a portion of the accumulated net realized loss on sales of investments and foreign currency transactions. Accordingly, unrealized PFIC gains of $11,427,000 and undistributed net investment income of $17,521,000 have been reflected as reductions to the accumulated net realized loss on sales of investments and foreign currency transactions in the accompanying analysis of net assets. The remaining accumulated net realized loss on sales of investments and foreign currency transactions of approximately $7,197,000 is available to offset future taxable capital gains. If not applied, the capital loss carryover will expire in 2003. Dividends and distributions payable to its shareholders are recorded by the Fund on the ex-dividend date. Other Certain amounts have been reclassified for 1994 to conform with the 1995 presentation. 3. TRANSACTIONS WITH AFFILIATES The Fund's investment advisor, Wanger Asset Management, L.P., ("WAM") furnishes continuing investment supervision to the Fund and is responsible for overall management of the Fund's business affairs. For its services WAM receives a fee paid monthly at the annual rate of 1.25% of the net asset value of the Fund up to $100 million, 1% of the net asset value in excess of $100 million and up to $500 million and .80% of the net asset value in excess of $500 million, determined at the beginning of each calendar quarter. Certain officers and trustees of the Trust are also principals of WAM. The Trust makes no direct payments to its officers and trustees who are affiliated with WAM. The Fund paid trustees' fees and expenses of $89,000 in 1995 and $80,000 in 1994 to trustees not affiliated with WAM, including $32,000 in 1995 and $31,000 in 1994 paid to the Chairman of the Board. WAM advanced $71,000 in connection with the organization and initial registration of the Fund. These costs are being amortized and reimbursed to WAM over the period January, 1993 through September, 1997. 4. 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:
(in thousands) 1995 1994 - ------------------------------------------------------------------- Shares sold 9,482 49,198 Shares issued in reinvestment of dividends and capital gain distributions 62 512 - ------------------------------------------------------------------- 9,544 49,710 Less shares redeemed 22,013 17,234 - ------------------------------------------------------------------- Net increase (decrease) in shares outstanding (12,469) 32,476 ===================================================================
5. INVESTMENT TRANSACTIONS
(in thousands) 1995 1994 - ------------------------------------------------------------------- Investment securities (excluding money market instruments): Purchases $318,862 $703,866 Proceeds from sales 416,451 235,930 ===================================================================
15 Acorn International Annual Report 1995 Acorn International December 31, 1995 A No-Load Fund Trustees - ------------------------------------------------- Annual Report Leo A. Guthart Charles P. McQuaid December 31, 1995 Irving B. Harris Roger S. Meier Jerome Kahn, Jr. Adolph Meyer, Jr. David C. Kleinman Malcolm N. Smith James H. Lorie Ralph Wanger Officers - ------------------------------------------------- Irving B. Harris, Chairman of the Board James H. Lorie, Vice Chairman of the Board Ralph Wanger, President Charles P. McQuaid, Senior Vice President Terence M. Hogan, Vice President Leah J. Zell, Vice President Merrillyn J. Kosier, Vice President and Secretary Bruce H. Lauer, Vice President and Treasurer Kenneth A. Kalina, Assistant Treasurer Transfer Agent, Dividend Disbursing Agent and Custodian - ------------------------------------------------- State Street Bank and Trust Company Attention: Acorn International P.O. Box 8502 Boston, Massachusetts 02266-8502 1-800-962-1585 Managed by Investment Advisor Wanger Asset Management, L.P. - ------------------------------------------------- Wanger Asset Management, L.P. 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 1-800-9-ACORN-9 (1-800-922-6769) e-mail: wanger@mcs.com Legal Counsel - ------------------------------------------------- Bell, Boyd & Lloyd Chicago, Illinois Auditors - ------------------------------------------------- Ernst & Young LLP Chicago, Illinois This report, including the audited schedule of investments and financial statements, is submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution unless preceded or accompanied by a prospectus. [LOGO OF ACORN INTERNATIONAL] annual report 1995 PART C OTHER INFORMATION ITEM 24. Financial Statements and Exhibits --------------------------------- (a) Financial statements: -------------------- (1) Financial statements included in Part A of this amendment: None (2) Financial statements included in Part B of this amendment: (i) Acorn Fund (incorporated by reference to the following portions of Registrant's 1995 Acorn Fund Annual Report; a copy of the annual report is attached to this amendment, but, except for those portions incorporated by reference, is furnished for the information of the Commission and is not deemed to be filed as part of this amendment): Report of independent auditors Statement of assets and liabilities at December 31, 1995 Statement of operations for each of the two years in the period ended December 31, 1995 Statement of changes in net assets for each of the two years in the period ended December 31, 1995 Statement of investments at December 31, 1995 Notes to financial statements (ii) Acorn International (incorporated by reference to the following portions of Registrant's 1995 Acorn International Annual Report; a copy of the annual report is attached to this amendment, but, except for those portions incorporated by reference, is furnished for the information of the Commission and is not deemed to be filed as part of this amendment): Report of independent auditors Statement of assets and liabilities at December 31, 1995 Statement of operations for each of the two years in the period ended December 31, 1995. Statement of changes in net assets for each of the two years in the period ended December 31, 1995. Statement of investments at December 31, 1995 Notes to financial statements C-1 (2) Financial statements included in Part C of this amendment: None Note: The following schedules have been omitted for the following reasons: Schedules I and III - The required information is presented in the statements of investments at December 31, 1995. Schedules II, IV, V, VI and VII - The required information is not present. (b) Exhibits: --------- 1. Agreement and declaration of trust 2 Bylaws, as amended through December 2, 1994 3. None 4.1 Specimen share certificate - Acorn Fund (exhibit 4.1 to Post-effective Amendment No. 49*) 4.2 Specimen share certificate - Acorn International (exhibit 4.2 to Post-effective Amendment No. 49*) 5.1 Investment advisory agreement - Acorn Fund 5.2 Investment advisory agreement - Acorn International 6. Distribution Agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated as of May 1, 1996 7. None 8.1 Custodian contract between the Registrant and State Street Bank and Trust Company dated July 1, 1992 8.2 Letter agreement applying custodian contract (exhibit 8) to Acorn International 9. None 10.1 Opinion and consent of Bell, Boyd & Lloyd dated June 25, 1992 - Acorn Fund (exhibit 10 to Post-Effective Amendment No. 42*) 10.2 Opinion and consent of Bell, Boyd & Lloyd dated July 22, 1992 - Acorn International (exhibit 10.1 to Post-Effective Amendment No. 43*) 11. Consent of independent auditors 12. None 13. None C-2 14. IRA plan booklet dated July 1, 1994 including general information, individual retirement plan and custodial agreement and individual retirement account disclosure statement, Internal Revenue Service determination letter, transfer form, application form, and designation of beneficiary form 15. None 16.1 Computation of performance information - Acorn Fund 16.2 Computation of performance information - Acorn International 17.1 Financial data schedule - Acorn Fund 17.2 Financial data schedule - Acorn International 18. Form of account application ITEM 25. Persons Controlled By or Under Common Control with Registrant ------------------------------------------------------------- The Registrant does not consider that there are any persons directly or indirectly controlling, controlled by, or under common control with the Registrant within the meaning of this item. The information in the prospectus under the caption "The Funds in Detail - Organization - Management" and in the statement of additional information in the eighth paragraph under the caption "Investment Adviser" is incorporated by reference. ITEM 26. Number of Holders of Securities ------------------------------- At March 31, 1996, there were 44,117 record holders of Registrant's shares of beneficial interest of the series designated Acorn Fund and 76,630 record holders of Registrant's shares of beneficial interest of the series designated Acorn International. ITEM 27. Indemnification --------------- Article VIII of the agreement and declaration of trust of Registrant (exhibit 1) provides in effect that Registrant shall provide certain indemnification of its trustees and officers. In accordance with Section 17(h) of the Investment Company Act, that provision shall not protect any person against any liability to the Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such C-3 indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Registrant, its trustees and officers, its investment adviser and persons affiliated with them are insured under a policy of insurance maintained by Registrant and its investment adviser, within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of actions, suits or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings, to which they are parties by reason of being or having been such trustees or officers. The policy expressly excludes coverage for any trustee or officer whose personal dishonesty, fraudulent breach of trust, lack of good faith, or intention to deceive or defraud has been finally adjudicated or may be established or who willfully fails to act prudently. ITEM 28. Business and Other Connections of Investment Adviser ---------------------------------------------------- The information in the prospectus in the second paragraph under the caption "The Funds in Detail - Organization - Management" is incorporated by reference. Neither Wanger Asset Management, L.P. nor its general partner has at any time during the past two years been engaged in any other business, profession, vocation or employment of a substantial nature either for its own account or in the capacity of director, officer, employee, partner or trustee. ITEM 29. Principal Underwriters ---------------------- WAM Brokerage Services, L.L.C. also acts as principal underwriter for Wanger Advisors Trust. NAME POSITIONS AND OFFICES POSITIONS AND OFFICES WITH UNDERWRITERS WITH REGISTRANT Terence M. Hogan President Vice President and Trustee Merrillyn J. Vice President and Vice President and Kosier Secretary Secretary THE PRINCIPAL BUSINESS OF EACH OFFICER OF WAM BROKERAGE L.L.C. IS 227 WEST MONROE STREET, SUITE 3000, CHICAGO, ILLINOIS 60606. ITEM 30. Location of Accounts and Records -------------------------------- Bruce H. Lauer, Vice President and Treasurer Acorn Investment Trust 227 West Monroe Street, Suite 3000 Chicago, Illinois 60606 C-4 ITEM 31. Management Services ------------------- None ITEM 32. Undertakings ------------ (a) & (b) Not applicable. --------- ----------------- (c) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. C-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the registrant certifies that it meets all of the requirements for effectiveness of this registration statement pursuant to rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Chicago, Illinois on April 26, 1996. ACORN INVESTMENT TRUST By /s/Ralph Wanger --------------- Ralph Wanger, President Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date - ------------------------- ------ --------------- /s/Irving B. Harris Trustee and chairman ) - ----------------------- Irving B. Harris ) ) /s/Leo A. Guthart Trustee ) - ----------------------- Leo A. Guthart ) ) /s/Jerome Kahn, Jr. Trustee ) - ----------------------- Jerome Kahn, Jr. ) ) /s/David C. Kleinman Trustee ) - ----------------------- David C. Kleinman ) ) /s/James H. Lorie Trustee ) - ----------------------- James H. Lorie ) ) /s/Charles P. McQuaid Trustee ) April 26, 1996 - ----------------------- Charles P. McQuaid ) ) /s/Roger S. Meier Trustee ) - ----------------------- Roger S. Meier ) ) /s/Adolph Meyer, Jr. Trustee ) - ----------------------- Adolph Meyer, Jr. ) ) /s/Malcolm N. Smith Trustee ) - ----------------------- Malcolm N. Smith ) ) /s/Ralph Wanger Trustee and President ) - ----------------------- Ralph Wanger (principal executive ) officer) ) ) /s/Bruce H. Lauer Treasurer (principal ) - ----------------------- financial and accounting ) Bruce H. Lauer officer) )
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT -------------------------------------------
EXHIBIT SEQUENTIAL NUMBER EXHIBIT PAGE - ------- ---------------------------------------- ---------- 1 Agreement and declaration of trust 2 Bylaws, as amended through December 2, 1994 5.1 Investment advisory agreement - Acorn Fund 5.2 Investment advisory agreement - Acorn International 6 Distribution agreement between Acorn Investment Trust and WAM Brokerage Services, L.L.C. dated as of May 1, 1996 8.1 Custodian contract between Registrant and State Street Bank and Trust Company dated July 1, 1992 8.2 Letter agreement applying custodian contract 11 Consent of independent auditors 14 IRA plan booklet dated July 1, 1994 including general information, individual retirement plan and a custodial agreement and individual retirement account disclosure statement, Internal Revenue Service determination letter, transfer form, application form, and designation of beneficiary form 16.1 Computation of performance information- Acorn Fund 16.2 Computation of performance information- Acorn International 17.1 Financial data schedule - Acorn Fund 17.2 Financial data schedule - Acorn International
EXHIBIT SEQUENTIAL NUMBER EXHIBIT PAGE - ------- ------- ---- 18 Form of account information EX-1 2 AGREEMENT AND DECLARATION OF TRUST ACORN INVESTMENT TRUST ___________________________ AGREEMENT AND DECLARATION OF TRUST _________________________________ AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 21st day of April, 1992 by Maxine Ziv (hereinafter with any additional and successor trustees referred to as the "Trustees") and by the holders of shares of beneficial interest to be issued hereunder as hereinafter provided. WITNESSETH that WHEREAS, this Trust has been formed to carry on the business of an investment company; and WHEREAS, the Trustees have agreed to manage all property coming into their hands as trustees of a Massachusetts business trust in accordance with the provisions hereinafter set forth. NOW, THEREFORE, the Trustees hereby declare that they will hold all cash, securities and other assets, which they may from time to time acquire in any manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon the following terms and conditions for the pro rata benefit of the holders from time to time of Shares in this Trust as hereinafter set forth. ARTICLE I NAME AND DEFINITIONS Name - ---- Section 1. This Trust shall be known as "Acorn Investment Trust", and the Trustees shall conduct the business of the Trust under that name or any other name as they may from time to time determine. Definitions - ----------- Section 2. Whenever used herein, unless otherwise required the context or specifically provided: (a) The "Trust" refers to the Massachusetts business trust established by this Agreement and Declaration of Trust, as amended from time to time; (b) "Trustees" refers to the Trustee or Trustees of the Trust named herein or elected in accordance with Article IV; (c) "Shares" means the equal proportionate transferable units of interest into which the beneficial interest in the Trust shall be divided from time to time or, if more than one series of Shares is authorized by the Trustees, the equal proportionate units into which each series of Shares shall be divided from time to time or, if more than one class of Shares of any series is authorized by the Trustees, the equal proportionate units into which each class of such series of Shares shall be divided from time to time; (d) "Shareholder" means a record owner of Shares; (e) The "1940 Act" refers to the Investment Company Act of 1940 and the Rules and Regulations thereunder, all as amended from time to time; (f) The terms "Affiliated Person," "Assignment," "Commission," "Interested Person," "Principal Underwriter" and "Majority Shareholder Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) shall have the meanings given them in the 1940 Act; (g) "Declaration of Trust" shall mean this Agreement and Declaration of Trust as amended or restated from time to time; and (h) "Bylaws" shall mean the Bylaws of the Trust as amended from time to time. ARTICLE II PURPOSE The purpose of the Trust is to engage in the business of a management investment company and to provide investors a managed 2 investment primarily in securities, commodities and debt instruments. ARTICLE III SHARES Division of Beneficial Interest - ------------------------------- Section 1. The Shares of the Trust shall be issued in one or more series as the Trustees may, without Shareholder approval, authorize. The Trustees may, without Shareholder approval, divide the Shares of any series into two or more classes, Shares of each such class having such preferences or special or relative rights or privileges (including conversion rights, if any) as the Trustees may determine and as are not inconsistent with any provision of this Declaration of Trust. Each series shall be preferred over all other series in respect of the assets allocated to that series. The beneficial interest in each series shall at all times be divided into Shares, without par value, each of which shall, except as the Trustees may otherwise authorize in the case of any series that is divided into two or more classes, represent an equal proportionate interest in the series with each other Share of the same series, none having priority or preference over another. The number of Shares authorized shall be unlimited, and the Shares so authorized may be represented in part by fractional shares. The Trustees may from time to time divide or combine the Shares of any series or class into a greater or lesser number without thereby changing the proportionate beneficial interests in the series or class. Ownership of Shares - ------------------- Section 2. The ownership of Shares shall be recorded on the books of the Trust or its transfer or similar agent. No certificates certifying the ownership of Shares shall be issued except as the Trustees may otherwise determine from time to time. The Trustees may make such rules as they consider appropriate for the issuance of Share certificates, the transfer of Shares and similar matters. The record books of the Trust as kept by the Trust or any transfer or similar agent of the Trust, as the case may be, shall be conclusive as to who are the Shareholders of each series and class and as to the number of Shares of each series and class held from time to time by each Shareholder. 3 Investments in the Trust; Assets of the Series - ---------------------------------------------- Section 3. The Trustees may accept investments in the Trust from such persons and on such terms and, subject to any requirements of law, for such consideration, which may consist of cash or tangible or intangible property or a combination thereof, as they from time to time authorize. All consideration received by the Trust for the issue or sale of Shares of each series, together with all income, earnings, profits and proceeds thereof, including any proceeds derived from the sale, exchange or liquidation thereof, and any funds or payments derived from any reinvestment of such proceeds in whatever form the same may be, shall irrevocably belong to the series of Shares with respect to which the same were received by the Trust for all purposes, subject only to the rights of creditors, and shall be so handled upon the books of account of the Trust and are herein referred to as "assets of" such series. No Preemptive Rights; Derivative Actions - ---------------------------------------- Section 4. Shareholders shall have no preemptive or other right to receive, purchase or subscribe for any additional Shares or other securities issued by the Trust. No action may be brought by a Shareholder on behalf of the Trust or a particular series of the Trust unless a prior demand regarding such matter has been made on the Trustees and the Shareholders of the Trust or such series. Status of Shares and Limitation of Personal Liability - ----------------------------------------------------- Section 5. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or 4 agent of the Trust, shall have any power to bind personally any Shareholder, nor except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. ARTICLE IV THE TRUSTEES Election; Removal - ----------------- Section 1. The number of Trustees shall be fixed by the Trustees, except that, subsequent to any sale of Shares pursuant to a public offering, there shall be not less than three Trustees. Any vacancies occurring in the Board of Trustees may be filled by the Trustees if, immediately after filling any such vacancy, at least two-thirds of the Trustees then holding office shall have been elected to such office by the Shareholders. In the event that at any time less than a majority of the Trustees then holding office were elected to such office by the Shareholders, the Trustees shall call a meeting of Shareholders for the purpose of electing Trustees. Each Trustee elected by the Shareholders or by the Trustees shall serve until the next meeting of Shareholders called for the purpose of electing Trustees and until the election and qualification of his or her successor, or until he or she sooner dies, resigns or is removed. The initial Trustees, each of whom shall serve until the first meeting of Shareholders at which Trustees are elected and until his or her successor is elected and qualified, or until he or she sooner dies, resigns or is removed, shall be Maxine Ziv and such other persons as the Trustee or Trustees then in office shall, prior to any sale of Shares pursuant to a public offering, appoint. By vote of a majority of the Trustees then in office, the Trustees may remove a Trustee with or without cause. At any meeting called for the purpose, a Trustee may be removed, with or without cause, by vote of the holders of two- thirds of the outstanding Shares. Effect of Death Resignation, etc. of a Trustee - ---------------------------------------------- Section 2. The death, declination, resignation, retirement, removal or incapacity of the Trustees, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration of Trust. 5 Powers - ------ Section 3. Subject to the provisions of this Declaration of Trust, the business of the Trust shall be managed by the Trustees, and they shall have all powers necessary or convenient to carry out that responsibility. Without limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this Declaration of Trust providing for the conduct of the business of the Trust and may amend and repeal them to the extent that such Bylaws do not reserve that right to the Shareholders; they may fill vacancies in their number, including vacancies resulting from increases in their number, and may elect and remove such officers and appoint and terminate such agents as they consider appropriate; they may appoint from their own number, and terminate, any one or more committees consisting of two or more Trustees, including an executive committee which may, when the Trustees are not in session, exercise some or all of the power and authority of the Trustees as the Trustees may determine; they may appoint an advisory board, the members of which shall not be Trustees and need not be Shareholders; they may employ one or more custodians of the assets of the Trust and may authorize such custodians to employ subcustodians and to deposit all or any part of such assets in a system or systems for the central handling of securities, retain a transfer agent or a Shareholder services agent, or both, provide for the distribution of Shares by the Trust, through one or more principal underwriters or otherwise, set record dates for the determination of Shareholders with respect to various matters, and in general delegate such authority as they consider desirable to any officer of the Trust, to any committee of the Trustees and to any agent or employee of the Trust or to any such custodian or underwriter. Without limiting the foregoing, the Trustees shall have power and authority: (a) To invest and reinvest in securities, options, futures contracts, options on futures contracts and other property, and to hold cash uninvested; (b) To sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or all of the assets of the Trust; 6 (c) To vote or give assent, or exercise any rights of ownership, with respect to stock or other securities or property; and to execute and deliver proxies or powers of attorney to such person or persons as the Trustees shall deem proper, granting to such person or persons such power and discretion with relation to securities or property as the Trustees shall deem proper; (d) To exercise powers and rights of subscription or otherwise which in any manner arise out of ownership of securities or other assets; (e) To hold any security or property in a form not indicating any trust, whether in bearer, unregistered or other negotiable form, or in the name of the Trustees or of the Trust or in the name of a custodian, subcustodian or other depository or a nominee or nominees or otherwise; (f) Subject to the provisions of Article III, Section 3, to allocate assets, liabilities and expenses of the Trust to a particular series of Shares or to apportion the same among two or more series, provided that any liabilities or expenses incurred by a particular series of Shares shall be payable solely out of the assets of that series; and to the extent necessary or appropriate to give effect to the preferences and special or relative rights and privileges of any classes of Shares, to allocate assets, liabilities, income and expenses of a series to a particular class of Shares of that series or to apportion the same among two or more classes of Shares of that series; (g) To consent to or participate in any plan for the reorganization, consolidation or merger of any corporation or issuer, any security of which is or was held in the Trust; to consent to any contract, lease, mortgage, purchase or sale of property by such corporation or issuer, and to pay calls or subscriptions with respect to any security held in the Trust; (h) To join with other security holders in acting through a committee, depositary, voting trustee or otherwise, and in that connection to deposit any security with, or transfer any security to, any such committee, depositary or trustee, and to delegate to them such power and authority with relation to any security (whether or 7 not so deposited or transferred) as the Trustees shall deem proper, and to agree to pay, and to pay, such portion of the expenses and compensation of such committee, depositary or trustee as the Trustees shall deem proper; (i) To compromise, arbitrate or otherwise adjust claims in favor of or against the Trust on any matter in controversy, including but not limited to claims for taxes; (j) To enter into joint ventures, general or limited partnerships and any other combinations or associations; (k) To borrow funds, securities or other assets; (l) To endorse or guarantee the payment of any notes or other obligations of any person; to make contracts of guaranty or suretyship, or otherwise assume liability for payment thereof; and to mortgage and pledge the Trust property or any part thereof to secure any of or all of such obligations or obligations incurred pursuant to subparagraph (k) hereof; (m) To purchase and pay for entirely out of Trust property such insurance as they may deem necessary or appropriate for the conduct of the business, including, without limitation, insurance policies insuring the assets of the Trust and payment of distributions and principal on its portfolio investments, and insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers or managers, principal underwriters or independent contractors of the Trust individually against all claims and liabilities of every nature arising by reason of holding, being or having held any such office or position, or by reason of any action alleged to have been taken or omitted by any such person as Shareholder, Trustee, officer, employee, agent, investment adviser or manager, principal underwriter or independent contractor, including any action taken or omitted that may be determined to constitute negligence, whether or not the Trust would have the power to indemnify such person against such liability; and 8 (n) To pay pensions for faithful service, as deemed appropriate by the Trustees, and to adopt, establish and carry out pension, profit-sharing, share bonus, share purchase, savings, thrift and other retirement, incentive and benefit plans, trusts and provisions, including the purchasing of life insurance and annuity contracts as a means of providing such retirement and other benefits, for any or all of the Trustees, officers, employees and agents of the Trust. The Trustees shall not in any way be bound or limited by any present or future law or custom in regard to investments by Trustees. Except as otherwise provided herein or from time to time in the Bylaws, any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of the Trustees (a quorum being present), within or without Massachusetts, including any meeting held by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting, or by written consents of a majority of the Trustees then in office. Payment of Expenses by Trust - ---------------------------- Section 4. The Trustees are authorized to pay or to cause to be paid out of the principal or income of the Trust, or partly out of principal and partly out of income, as they deem fair, all expenses, fees, charges, taxes and liabilities incurred or arising in connection with the Trust, or in connection with the management thereof, including, but not limited to, the Trustees' compensation and such expenses and charges for the services of the Trust's officers, employees, investment adviser or manager, principal underwriter, auditor, counsel, custodian, transfer agent, Shareholder services agent and such other agents or independent contractors, and such other expenses and charges, as the Trustees may deem necessary or proper to incur, provided, however, that all expenses, fees, charges, taxes and liabilities incurred or arising in connection with a particular series of Shares, as determined by the Trustees, shall be payable solely out of the assets of that series. 9 Ownership of Assets of the Trust - -------------------------------- Section 5. Title to all of the assets of each series of Shares and of the Trust shall at all times be considered as vested in the Trustees. Advisory Management and Distribution - ------------------------------------ Section 6. Subject to a favorable Majority Shareholder Vote, the Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or management services with Wanger Asset Management, L.P., a Delaware limited partnership, or any other partnership, corporation, trust, association or other organization (the "Adviser"), every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested, and to make changes in the Trust's investments. The Trustees may also, at any time and from time to time, contract with the Adviser or any other corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the Shares, every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine. The fact that: (i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, principal underwriter or distributor or agent of or for any corporation, trust, association or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract may have been or may hereafter be 10 made, or that any organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, Shareholder services or other agency contract may have been or may hereafter be made also has an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder services or other agency contract with one or more other corporations, trusts, associations or other organizations, or has other business or interests shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its Shareholders. ARTICLE V SHAREHOLDERS' VOTING POWERS AND MEETINGS Voting Powers - ------------- Section 1. The Shareholders shall have power to vote only (i) for the election of Trustees as provided in Article IV, Section 1, (ii) with respect to any Adviser as provided in Article IV, Section 6, (iii) with respect to any termination of this Trust to the extent and as provided in Article IX, Section 4, (iv) with respect to any amendment of this Declaration of Trust to the extent and as provided in Article IX, Section 7 and (v) with respect to such additional matters relating to the Trust as may be required by law, this Declaration of Trust, the Bylaws or any registration of the Trust with the Securities and Exchange Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. Notwithstanding any other provision of this Declaration of Trust, on any matter submitted to a vote of Shareholders, all Shares of the Trust then entitled to vote shall be voted in the aggregate as a single class without regard to series or class except: (1) when required by the 1940 Act or when the Trustees shall have determined that the matter 11 affects one or more series or classes materially differently, Shares shall be voted by individual series or class; and (2) when the Trustees have determined that the matter affects only the interests of one or more series or classes, then only Shareholders of such series or classes shall be entitled to vote thereon. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. At all meetings of Shareholders, unless inspectors of election have been appointed, all questions relating to the qualification of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by the chairman of the meeting. Unless otherwise specified in the proxy, the proxy shall apply to all Shares of each series of the Trust owned by the Shareholder. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, this Declaration of Trust or the Bylaws to be taken by Shareholders. Voting Power and Meetings - ------------------------- Section 2. Meetings of Shareholders of the Trust or of any series or class may be called by the Trustees or such other person or persons as may be specified in the Bylaws and held from time to time for the purpose of taking action upon any matter requiring the vote or the authority of the Shareholders of the Trust or any series or class as herein provided or upon any other matter deemed by the Trustees to be necessary or desirable. Meetings of Shareholders of the Trust or of any series or class shall be called by the Trustees or such other person or persons as may be specified in the Bylaws upon written application. The Shareholders shall be entitled to at least seven days' written notice of any meeting of the Shareholders. 12 Quorum and Required Vote - ------------------------ Section 3. Thirty per cent of the Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of this Declaration of Trust permits or requires that holders of any series or class shall vote as a series or class, then thirty percent of the aggregate number of Shares of that series or class entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series or class. Any lesser number, however, shall be sufficient for adjournments. Any adjourned session or sessions may be held within a reasonable time after the date set for the original meeting without the necessity of further notice. Except when a larger vote is required by any provision of this Declaration of Trust or the Bylaws, a majority of the Shares voted shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of this Declaration of Trust permits or requires that the holders of any series or class shall vote as a series or class, then a majority of the Shares of that series or class voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that series or class is concerned. Action by Written Consent - ------------------------- Section 4. Any action taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of this Declaration of Trust or the Bylaws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. Additional Provisions - --------------------- Section 5. The Bylaws may include further provisions for Shareholders' votes and meetings and related matters. 13 ARTICLE VI DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES, AND DETERMINATION OF NET ASSET VALUE Distributions - ------------- Section 1. The Trustees may, but need not, each year distribute to the Shareholders of each series or class such income and gains, accrued or realized, as the Trustees may determine, after providing for actual and accrued expenses and liabilities (including such reserves as the Trustees may establish) determined in accordance with good accounting practices. The Trustees shall have full discretion to determine which items shall be treated as income and which items as capital and their determination shall be binding upon the Shareholders. Distributions of each year's income of each series, if any be made, may be made in one or more payments, which shall be in Shares, in cash or otherwise and on a date or dates and as of a record date or dates determined by the Trustees. At any time and from time to time in their discretion, the Trustees may distribute to the Shareholders of any one or more series or classes as of a record date or dates determined by the Trustees, in Shares, in cash or otherwise, all or part of any gains realized on the sale or disposition of property of the series or otherwise, or all or part of any other principal of the Trust attributable to the series. In the case of any series not divided into two or more classes of Shares, each distribution pursuant to this Section 1 shall be made ratably according to the number of Shares of the series held by the several Shareholders on the applicable record date thereof, provided that no distribution need be made on Shares purchased pursuant to orders received, or for which payment is made, after such time or times as the Trustees may determine. In the case of any series divided into two or more classes, each distribution pursuant to this Section 1 may be made in whole or in such parts as the Trustees may determine to the Shareholders of any one or more classes, and the distribution to the Shareholders of any class shall be made ratably according to the number of Shares of the class (but need not be made ratably according to the number of Shares of the series, considered without regard to class) held by the several Shareholders on the record date thereof, provided that no distribution need be made on Shares purchased pursuant to orders received, or for which payment is made, after such time or times 14 as the Trustees may determine. Any such distribution paid in Shares will be paid at the net asset value thereof as determined in accordance with Section 7 of this Article VI. Redemptions and Repurchases - --------------------------- Section 2. Any holder of Shares of the Trust may by presentation of a written request, together with his or her certificates, if any, for such Shares, in proper form for transfer, at the office of the Trust or at a principal office of a transfer agent appointed by the Trust, redeem his or her Shares for the net asset value thereof determined and computed in accordance with the provisions of this Section 2 and the provisions of Section ~ of this Article VI. Upon receipt by the Trust or its transfer agent of such written request for redemption of Shares, such Shares shall be redeemed at the net asset value per share of the appropriate series next determined after such Shares are tendered in proper order for transfer to the Trust or determined as of such other time fixed by the Trustees as may be permitted or required by the 1940 Act, provided that no such tender shall be required in the case of Shares for which a certificate or certificates have not been issued, and in such case such Shares shall be redeemed at the net asset value per share of the appropriate series next determined after such request has been received in proper form or determined at such other time fixed by the Trustees as may be permitted or required by the 1940 Act. The obligation of the Trust to redeem its Shares of each series or class as set forth above in this Section 2 shall be subject to the conditions that during any time of emergency, as hereinafter defined, such obligation may be suspended by the Trust by or under authority of the Trustees for such period or periods during such time of emergency as shall be determined by or under authority of the Trustees. If there is such a suspension, any Shareholder may withdraw any demand for redemption and any tender of Shares which has been received by the Trust during any such period and any tender of Shares, the applicable net asset value of which would but for such suspension be calculated as of a time during such period. Upon such withdrawal, the Trust shall return to the Shareholder the certificates therefor, if any. For the purposes of any such suspension, "time of emergency" shall mean, either with respect to all Shares or any series of Shares, any period during which: 15 (a) the New York Stock Exchange is closed other than for customary weekend and holiday closings; or (b) the Trustees or authorized officers of the Trust shall have determined, in compliance with any applicable rules and regulations of the Securities and Exchange Commission, either that trading on the New York Stock Exchange is restricted, or that an emergency exists as a result of which (i) disposal by the Trust of securities owned by it is not reasonably practicable or (ii) it is not reasonably practicable for the Trust fairly to determine the current value of its net assets; or (c) the suspension or postponement of such obligations is permitted by order of the Securities and Exchange Commission. The Trust may also purchase, repurchase or redeem Shares in accordance with such other methods, upon such other terms and subject to such other conditions as the Trustees may from time to time authorize at a price not exceeding the net asset value of such Shares in effect when the purchase or repurchase or any contract to purchase or repurchase is made. Payment in Kind - --------------- Section 3. Subject to any generally applicable limitation imposed by the Trustees, any payment on redemption of Shares may, if authorized by the Trustees, be made wholly or partly in kind, instead of in cash. Such payment in kind shall be made by distributing securities or other property constituting, in the opinion of the Trustees, a fair representation of the various types of securities and other property then held by the series of Shares being redeemed (but not necessarily involving a portion of each of the series' holdings) and taken at their value used in determining the net asset value of the Shares in respect of which payment is made. Redemptions at the Option of the Trust - -------------------------------------- Section 4. The Trust shall have the right at its option and at any time to redeem Shares of any Shareholder at the net asset value thereof as determined in accordance with Section 7 of Article VI of this Declaration of Trust: (i)) if at such time such Shareholder owns fewer Shares than, or Shares having an aggregate net asset value of less than, an amount determined from 16 time to time by the Trustees; or (ii) to the extent that such Shareholder owns Shares of a particular series of Shares equal to or in excess of a percentage of the outstanding Shares of that series (determined without regard to class) determined from time to time by the Trustees; or (iii) to the extent that such Shareholder owns Shares of the Trust representing a percentage equal to or in excess of such percentage of the aggregate number of outstanding Shares of the Trust or the aggregate net asset value of the Trust determined from time to time by the Trustees. Dividends, Distributions, Redemptions and Repurchases - ----------------------------------------------------- Section 5. No dividend or distribution (including, without limitation, any distribution paid upon termination of the Trust or of any series) with respect to, nor any redemption or repurchase of, the Shares of any series (or of any class) shall be effected by the Trust other than from the assets of such series (or of the series of which such class is a part). Additional Provisions Relating to Redemptions and Repurchases - ------------------------------------------------------------- Section 6. The completion of redemption of Shares shall constitute a full discharge of the Trust and the Trustees with respect to such shares, and the Trustees may require that any certificate or certificates issued by the Trust to evidence the ownership of such Shares shall be surrendered to the Trustees for cancellation or notation. Determination of Net Asset Value - -------------------------------- Section 7. The term "net asset value" of the Shares of each series or class shall mean: (i) the value of all the assets of such series or class; (ii) less the total liabilities of such series or class; (iii) divided by the number of Shares of such series or class outstanding, in each case at the time of each determination. The "number of Shares of such series or class outstanding" for the purposes of such computation shall be exclusive of any Shares of such series or class to be redeemed and not then redeemed as to which the redemption price has been determined, but shall include Shares of such series or class presented for repurchase and not then repurchased and Shares of such series or class to be redeemed and not then redeemed as to which the redemption price has not been determined and Shares of such series or class the sale of which has been confirmed. Any 17 fractions involved in the computation of net asset value per share shall be adjusted to the nearer cent unless the Trustees shall determine to adjust such fractions to a fraction of a cent. The Trustees, or any officer or officers or agent of this Trust designated for the purpose by the Trustees, shall determine the net asset value of the Shares of each series or class, and the Trustees shall fix the times as of which the net asset value of the Shares of each series or class shall be determined and shall fix the periods during which any such net asset value shall be effective as to sales, redemptions and repurchases of, and other transactions in, the Shares of such series or class, except as such times and periods for any such transaction may be fixed by other provisions of this Declaration of Trust or by the Bylaws. In valuing the portfolio investments of any series or class for determination of net asset value per share of such series or class: (a) Each security for which market quotations are readily available shall be valued at current market value determined by methods specified by the Board of Trustees; (b) Each other security, including any security within (a) for which the specified price does not appear to represent a dependable quotation for such security as of the time of valuation, shall be valued at a fair value as determined in good faith by the Trustees; (c) Any cash on hand shall be valued at the face amount thereof; (d) Any cash on deposit, accounts receivable, and cash dividends and interest declared or accrued and not yet received, any prepaid expenses, and any other current asset shall be valued at the face amount thereof, unless the Trustees shall determine that any such item is not worth its face amount, in which case such asset shall be valued at a fair value determined in good faith by the Trustees; and (e) Any other asset shall be valued at a fair value determined in good faith by the Trustees. 18 Notwithstanding the foregoing, short-term debt obligations, commercial paper and repurchase agreements may be, but need not be, valued on the basis of quoted yields for securities of comparable maturity, quality and type, or on the basis of amortized cost. Liabilities of any series or class for accounts payable for investments purchased and for Shares tendered for redemption and not then redeemed as to which the redemption price has been determined shall be stated at the amounts payable therefor. In determining the net asset value of any series or class, the person or persons making such determination on behalf of the Trust may include in liabilities such reserves, estimated accrued expenses and contingencies as such person or persons may in its, his or their best judgment deem fair and reasonable under the circumstances. Any income dividends and gains distributions payable by the Trust shall be deducted as of such time or times on the record date therefor as the Trustees shall determine. The manner of determining the net assets of any series or class or of determining the net asset value of the Shares of any series or class may from time to time be altered as necessary or desirable in the judgment of the Trustees to conform to any other method prescribed or permitted by any applicable law or regulation. Determinations under this Section 7 made in good faith and in accordance with the provisions of the 1940 Act shall be binding on all parties concerned. ARTICLE VII COMPENSATION AND LIMITATION OF LIABILITY OF TRUSTEES Compensation - ------------ Section 1. The Trustees as such shall be entitled to reasonable compensation from the Trust: they may fix the amount of their compensation. Nothing herein shall in any way prevent the employment of any Trustee for advisory, management, legal, accounting, investment banking or other services and payment for the same by the Trust. 19 Limitation of Liability - ----------------------- Section 2. The Trustees shall not be responsible or liable in any event for any neglect or wrongdoing of any officer, agent, employee, adviser or principal underwriter of the Trust, nor shall any Trustee be responsible for the act or omission of any other Trustee, but nothing herein contained shall protect any Trustee against any liability to which he or she would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office. Every note, bond, contract, instrument, certificate, Share or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or with respect to their or his or her capacity as Trustees or Trustee, and such Trustees or Trustee shall not be personally liable thereon. ARTICLE VIII INDEMNIFICATION Trustees Officers, etc. - ----------------------- Section 1. The Trust shall indemnify each person who is or has been a Trustee or officer (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees and expenses reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person, except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be 20 subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees and expenses so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), may be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided that (a) such Covered Person shall provide security for his undertaking, (b) the Trust shall be insured against losses arising by reason of such Covered Person's failure to fulfill his undertaking or (c) a majority of the Trustees who are disinterested persons and who are not Interested Persons (provided that a majority of such Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (but not a full trial-type inquiry), that there is reason to believe such Covered Person ultimately will be entitled to indemnification. Compromise Payment - ------------------ Section 2. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication in a decision on the merits by a court, or by any other body before which the proceeding was brought, that such Covered Person is liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, indemnification shall be provided if (a) approved as in the best interest of the Trust, after notice that it involves such indemnification, by at least a majority of the Trustees who are disinterested persons and are not Interested Persons (provided that a majority of such Trustees then in office act on the matter), upon a determination, based upon a review of readily available facts (but not a full trial-type inquiry) that such Covered Person is not liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office, or (b) there has been obtained an opinion in writing of independent 21 legal counsel, based upon a review of readily available facts (but not a full- trial type inquiry) to the effect that such indemnification would not protect such Covered Person against any liability to the Trust to which such Covered Person would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction to have been liable to the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Indemnification Not Exclusive; Definitions - ------------------------------------------ Section 3. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article VIII, the term "Covered Person" shall include such person's heirs, executors and administrators, and a "disinterested person" is a person against whom none of the actions, suits or other proceedings in question or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of such persons. Shareholders - ------------ Section 4. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representatives or, in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense arising from such 22 liability, but only out of the assets of the particular series of Shares of which he or she is or was a Shareholder. ARTICLE IX MISCELLANEOUS Trustees, Shareholders, etc. Not Personally Liable; Notice - ---------------------------------------------------------- Section 1. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series of Shares for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officers or officer shall give notice that this Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustees or Trustee or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustees or Trustee or officers or officer or Shareholders or Shareholder individually. Trustee's Good Faith Action, Expert Advice, No Bond or Surety - ------------------------------------------------------------- Section 2. The exercise by the Trustees of their powers and discretions hereunder shall be binding upon everyone interested. A Trustee shall be liable for his or her own wilful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law. The Trustees may take advice of counsel or other 23 experts with respect to the meaning and operation of this Declaration of Trust, and shall be under no liability for any act or omission in accordance with such advice or for failing to follow such advice. The Trustees shall not be required to give any bond as such, nor any surety if a bond is required. Liability of Third Persons Dealing with Trustees - ------------------------------------------------ Section 3. No person dealing with the Trustees shall be bound to make any inquiry concerning the validity of any transaction made or to be made by the Trustees or to see to the application of any payments made or property transferred to the Trust or upon its order. Duration and Termination of Trust - --------------------------------- Section 4. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of each series entitled to vote or by the Trustees by written notice to the Shareholders. Any series of Shares may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of such series entitled to vote or by the Trustees by written notice to the Shareholders of such series. Upon termination of the Trust or of any one or more series of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated as may be determined by the Trustees, the Trust shall in accordance with such procedures as the Trustees consider appropriate reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the series involved, ratably according to the number of Shares of such series held by the several Shareholders of such series on the date of termination, except to the extent otherwise required or permitted by the preferences and special or relative rights and privileges of any classes of Shares of that series, provided that any distribution to the Shareholders of a particular class of Shares shall be made to such Shareholders pro rata in proportion to the number of Shares of such class held by each of them. 24 Filing of Copies, References, Headings - -------------------------------------- Section 5. The original or a copy of this instrument and of each amendment hereto shall be kept at the office of the Trust where it may be inspected by any Shareholder. A copy of this instrument and of each amendment hereto shall be filed by the Trust with the Secretary of State of The Commonwealth of Massachusetts and with the Clerk of the City of Boston, as well as any other governmental office where such filing may from time to time be required. Anyone dealing with the Trust may rely on a certificate by an officer of the Trust as to whether or not any such amendments have been made and as to any matters in connection with the Trust hereunder; and, with the same effect as if it were the original, may rely on a copy certified by an officer of the Trust to be a copy of this instrument or of any such amendments. In this instrument and in any such amendment, references to this instrument, and all expressions such as "herein," "hereof" and "hereunder," shall be deemed to refer to this instrument as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this instrument. This instrument may be executed in any number of counterparts, each of which shall be deemed an original. Applicable Law - -------------- Section 6. This Declaration of Trust is made in The Commonwealth of Massachusetts, and it is created under and is to be governed by and construed and administered according to the laws of said Commonwealth. The Trust shall be of the type commonly called a Massachusetts business trust, and without limiting the provisions hereof, the Trust may exercise all powers which are ordinarily exercised by such a trust. Amendments - ---------- Section 7. This Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the then Trustees when authorized so to do by a vote of Shareholders holding a majority of the Shares entitled to vote, except that an amendment which shall affect the holders of one or more series or classes of Shares but not the holders of all outstanding series and classes shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of each series 25 and class affected and no vote of Shareholders of a series or class not affected shall be required. Amendments having the purpose of changing the name of the Trust or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by Shareholder vote. IN WITNESS WHEREOF the undersigned has hereunto set her hand in the City of Boston, Massachusetts for herself and her assigns, as of this 21st day of April, 1992. _______________________________ Maxine Ziv, as Trustee and not individually THE COMMONWEALTH OF MASSACHUSETTS Boston ss. April 21, 1992 Then personally appeared the above-named Trustee and acknowledged the foregoing instrument to be her free act and deed, before me, _____________________________ Notary Public My commission expires: (Notary's Seal) Address of the Trust: Acorn Investment Trust C/O CT Corporation 2 Oliver Street Boston, MA 02109 Address of the Trustees: C/O CT Corporation 2 Oliver Street Boston, MA 02109 Address of the Registered Agent: CT Corporation 2 Oliver Street Boston, MA 02109 26 EX-2 3 BYLAWS OF ACORN INVESTMENT TRUST ACORN INVESTMENT TRUST BYLAWS ------ Table of Contents ----------------- Section 1. Agreement and Declaration of Trust and Principal Office....... 1 1.1 Agreement and Declaration of Trust............................ 1 1.2 Principal Office of the Trust................................. 1 Section 2. Shareholders.................................................. 1 2.1. Shareholder Meetings.......................................... 1 2.2 Place of Meetings............................................. 1 2.3 Notice of Meetings............................................ 1 2.4 Ballots....................................................... 2 2.5. Proxies....................................................... 2 Section 3. Trustees...................................................... 2 3.1 Committees and Advisory Board................................. 2 3.2 Chairman and Vice-chairman.................................... 2 3.3 Regular Meetings.............................................. 2 3.4 Special Meetings.............................................. 2 3.5 Notice........................................................ 3 3.6 Quorum........................................................ 3 3.7 Eligibility to Serve.......................................... 3 Section 4. Officers and Agents........................................... 3 4.1 Enumeration; Qualification.................................... 3 4.2 Powers........................................................ 3 4.3 Election...................................................... 4 4.4 Tenure........................................................ 4 4.5 President..................................................... 4 4.6 Vice Presidents............................................... 4
ii
4.7 Treasurer..................................................... 4 4.8 Secretary..................................................... 4 Section 5. Resignations and Removals..................................... 4 Section 6. Vacancies..................................................... 5 Section 7. Shares of Beneficial Interest................................. 5 7.1 Share Certificates............................................ 5 7.2 Loss of Certificates.......................................... 5 7.3 Discontinuance of Issuance of Certificates.................... 5 Section 8. Record Date and Closing Transfer Books........................ 6 Section 9. Seal.......................................................... 6 Section 10. Execution of Papers........................................... 6 Section 11. Fiscal Year................................................... 6 Section 12. Amendments.................................................... 6
iii BYLAWS ------ OF -- ACORN INVESTMENT TRUST ---------------------- (as amended through December 2, 1994) Section 1. Agreement and Declaration of Trust and Principal Office -------------------------- 1.1 Agreement and Declaration of Trust. These Bylaws shall be subject to the Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust") , of Acorn Investment Trust, a Massachusetts business trust established by the Declaration of Trust (the "Trust"). 1.2 Principal Office of the Trust. The principal office of the Trust shall be located in Chicago, Illinois. Section 2. Shareholders. ------------------------ 2.1. Shareholder Meetings. A meeting of the shareholders of the Trust or of any one or more series or classes of shares may be called at any time by the Trustees, by the chairman, the president or, if the Trustees, the chairman and the president shall fail to call any meeting of shareholders for a period of 30 days after written application of one or more shareholders who hold at least 10% of all outstanding shares of the Trust, if shareholders of all series are required under the Declaration of Trust to vote in the aggregate and not by individual series at such meeting, or of any series or class, if shareholders of such series or class are entitled under the Declaration of Trust to vote by individual series or class at such meeting, then such shareholders may call such meeting. If the meeting is a meeting of the shareholders of one or more series or classes of shares, but not a meeting of all shareholders of the Trust, then only the shareholders of such one or more series or classes shall be entitled to notice of and to vote at the meeting. Each call of a meeting shall state the place, date, hour and purposes of the meeting. 2.2 Place of Meetings. All meetings of the shareholders shall be held at the principal office of the Trust, or, to the extent permitted by the Declaration of Trust, at such other place within the United States as shall be designated by the Trustees or the president of the Trust. 2.3 Notice of Meetings. A written notice of each meeting of shareholders, stating the place, date and hour and the purposes of the meeting, shall be given at least seven days before the meet into each shareholder entitled to vote thereat by leaving such notice with him or her or at his or her residence or usual place of business or by mailing it, postage prepaid, and addressed to such shareholder at his or her address as it appears in the records of the Trust. Such notice shall be given by the secretary or an assistant secretary or by an officer designated by the Trustees. No notice of any meeting of shareholders need be given to a shareholder if a written waiver of notice, executed before or after the meeting by such shareholder or his or her attorney thereunto duly authorized, is filed with the records of the meeting. 2.4 Ballots. No ballot shall be required for any election unless requested by a shareholder present or represented at the meeting and entitled to vote in the election. 2.5. Proxies. Shareholders entitled to vote may vote either in person or by proxy in writing dated not more than six months before the meeting named therein, which proxies shall be filed with the secretary or other person responsible to record the proceedings of the meeting before being voted. Unless otherwise specifically limited by their terms, such proxies shall entitle the holders thereof to vote at any add adjournment of such meeting but shall not be valid after the final adjournment of such meeting. Section 3. Trustees -------------------- 3.1 Committees and Advisory Board. The Trustees may appoint from their number an executive committee and other committees. Except as the Trustees may otherwise determine, any such committee may make rules for conduct of its business. The Trustees may appoint an advisory board to consist of not less than two nor more than five members. The members of the advisory board shall be compensated in such manner as the Trustees may determine and shall confer with and advise the Trustees regarding the investments and other affairs of the Trust. Each member of the advisory board shall hold office until the first meeting of the Trustees following the next meeting of the shareholders and until his or her successor is elected and qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified, or until the advisory board is sooner abolished by the Trustees. 3.2 Chairman and Vice-chairman. The Trustees may appoint a chairman and a vice-chairman, who shall be Trustees of the Trust but need not be shareholders. The chairman shall preside at all meetings of the shareholders and of the Trustees and in the chairman's absence, the vice-chairman shall so preside. The chairman and the vice-chairman shall hold their respective positions at the pleasure of the Trustees. Neither the chairman nor the vice-chairman shall, by reason of holding such position, be or be deemed to be officers of the Trust. [added 9/15/92] 3.3 Regular Meetings. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees. [renumbered 9/15/92] 3.4 Special Meetings. Special meetings of the Trustees may be held at any time and at any place designated in the call of the meeting; when called by the chairman, the president or the treasurer or by two or more Trustees, sufficient notice thereof being given to each Trustee by the secretary or an assistant secretary or by the officer or one of the Trustees calling the meeting. [renumbered 9/15/92] 3.5 Notice. It shall be sufficient notice to a Trustee to send notice by mail at least forty-eight hours or by telegram at least twenty-four hours before the meeting addressed to the Trustee at his 2 or her usual or last known business or residence address or to give notice to him or her in person or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting. [renumbered 9/15/92] 3.6 Quorum. At any meeting of the Trustees one-third of the Trustees then in office shall constitute a quorum; provided, however, a quorum shall not be less than two. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice. [renumbered 9/15/92] 3.7 Eligibility to Serve. No person shall be appointed to serve as a trustee after attaining the age of 65 years. Any Trustee shall retire as a Trustee as of the end of the calendar year in which the Trustee attains the age of 75 years, except that (a) this provision shall not apply to Irving B. Harris, the founder of The Acorn Fund, Inc., the predecessor of the Trust, and (b) any other Trustee who had attained the age of 75 years as of December 31, 1992 shall retire as a Trustee as of the end of the calendar year in which the Trustee attains the age of 78 years, except that the retirement of Marshall M. Holleb which would otherwise occur at December 31, 1994 shall, for the convenience of the Trust, be delayed until February 28, 1995. [added 2/2/93; amended 12/2/94] Section 4. Officers and Agents ------------------------------- 4.1 Enumeration; Qualification. The officers of the Trust shall be a president, a treasurer, a secretary and such other officers, if any, as the Trustees from time to time may in their discretion elect or appoint. The Trust may also have such agents, if any, as the Trustees from time to time may in their discretion appoint. Any officer may be but none need be a Trustee or shareholder. Any two or more offices may be held by the same person. [amended 9/15/92] 4.2 Powers. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to his or her office as if the Trust were organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate, including without limitation the power to make purchases and sales of portfolio securities of the Trust pursuant to recommendations of the Trust's investment adviser in accordance with the policies and objectives of the Trust set forth in its prospectus and with such general or specific instructions as the Trustees may from time to time have issued. 4.3 Election. The president, the treasurer and the secretary shall be elected annually by the Trustees. Other officers, if any, may be elected or appointed by the Trustees at any time. [amended 9/15/92] 3 4.4 Tenure. The president, the treasurer and the secretary shall hold office until their respective successors are chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. Each other officer shall hold office at the pleasure of the Trustees. Each agent shall retain his or her authority at the pleasure of the Trustees. [amended 9/15/92] 4.5 President. The president shall be the chief executive officer of the Trust. In the absence of the chairman and the vice-chairman, or in the event of the inability or refusal to act of both of them, the president shall preside at meetings of the Trustees or shareholders. [amended 9/15/92] 4.6 Vice Presidents. In the absence of the president, or in the event of the president's inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of the president. Any vice president shall have such other duties and powers as shall be designated from time to time by the Trustees or the president. [renumbered 9/15/92] 4.7 Treasurer. The treasurer shall be the chief financial and accounting officer of the Trust and subject to any arrangement made by the Trustees with a bank or trust company or other organization as custodian or transfer or shareholder services agent, shall be in charge of its valuable papers and its books of account and accounting records, and shall have such duties and powers as shall be designated from time to time by the Trustees or the president. Any assistant treasurer shall have such duties and powers as shall be designated from time to time by the Trustees. [renumbered 9/15/92] 4.8 Secretary. The secretary shall record all proceedings of the shareholders and the Trustees in books to be kept therefor, which books shall be kept at the principal office of the Trust. In the absence of the secretary from any meeting of shareholders or Trustees, an assistant secretary, or if there be none or he or she is absent, a temporary clerk chosen at the meeting, shall record the proceedings thereof in the aforesaid books. [renumbered 9/15/92] Section 5. Resignations and Removals ------------------------------------- Any Trustee, chairman, vice-chairman, officer or advisory board member may resign at any time by delivering his or her resignation in writing to the president, the treasurer or the secretary or to a meeting of the Trustees. The Trustees may remove any officer elected by them with or without cause by the vote of a majority of the Trustees then in office. Except to the extent expressly provided in a written agreement with the Trust, no Trustee, chairman, vice-chairman, officer, or advisory board member resigning, and no officer, chairman, vice-chairman, or advisory board member removed, shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal. [amended 9/15/92] Section 6. Vacancies --------------------- A vacancy in any office may be filled at any time. Each successor shall hold office for the unexpired term, and in the case of the president, the treasurer and the secretary, until his or her 4 successor is chosen and qualified, or in each case until he or she sooner dies, resigns, is removed or becomes disqualified. [amended 9/15/92] Section 7. Shares of Beneficial Interest ----------------------------------------- 7.1 Share Certificates. No certificates certifying the ownership of shares shall be issued except as the Trustees may otherwise authorize. In the event that the Trustees authorize the issuance of share certificates, subject to the provisions of Section 7.3, each shareholder shall be entitled to a certificate stating the number of whole shares owned by him or her, in such form as shall be prescribed from time to time by the Trustees. Such certificate shall be signed by the chairman, the president or a vice president and by the treasurer or secretary. Such signatures may be facsimiles if the certificate is signed by a transfer agent or by a registrar, other than a Trustee, officer or employee of the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Trust with the same effect as if he or she were such officer at the time of its issue. In lieu of issuing certificates for shares, the Trustees or the transfer agent may either issue receipts therefor or keep accounts upon the books of the Trust for the record holders of such shares, who shall in either case be deemed, for all purposes hereunder, to be the holders of certificates for such shares as if they had accepted such certificates and shall be held to have expressly assented and agreed to the terms hereof. 7.2 Loss of Certificates. In the case of the alleged loss or destruction or the mutilation of a share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees may prescribe. 7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time discontinue the issuance of share certificates and may, by written notice to each shareholder, require the surrender of share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of shares in the Trust. Section 8. Record Date and Closing Transfer Books -------------------------------------------------- The Trustees may fix in advance a time, which shall not be more than 60 days before the date of any meeting of shareholders or the date for the payment of any dividend or making of any other distribution to shareholders, as the record date for determining the shareholders having the right to notice and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right, notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the transfer books for all or any part of such period. 5 Section 9. Seal ---------------- The seal of the Trust shall, subject to alteration by the Trustees, consist of a flat-faced circular die with the word "Massachusetts," together with the name of the Trust and the year of its organization, cut or engraved thereon; but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust. Section 10. Execution of Papers -------------------------------- Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all deeds, leases, transfers, contracts, bonds, notes, checks, drafts and other obligations made, accepted or endorsed by the Trust shall be signed, and all transfers of securities standing in the name of the Trust shall be executed, by the president or by one of the vice presidents or by the treasurer or by whomsoever else shall be designated for that purpose by the vote of the Trustees and need not bear the seal of the Trust. [amended 9/15/92] Section 11. Fiscal Year ------------------------ Except as from time to time otherwise provided by the Trustees, the fiscal year of the Trust shall end on December 31. Section 12. Amendments ----------------------- These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by one or more writings signed by such a majority. 6 EX-5.1 4 INVESTMENT ADVISORY AGREEMENT INVESTMENT ADVISORY AGREEMENT Acorn Investment Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (1940 Act) as an open-end diversified management investment company (Trust), and Wanger Asset Management, L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (Manager), agree that: 1. ENGAGEMENT OF MANAGER. Manager shall manage the investment and reinvestment of the assets of Acorn Fund, a series of Trust (Fund), subject to the supervision of the board of trustees of Trust, for the period and on the terms set forth in this agreement. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, bylaws, and registration statements under the 1940 Act and the Securities Act of 1933 (1933 Act), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall be deemed for all purposes to be an independent contractor and not an agent of Trust or Fund, and unless otherwise expressly provided or authorized, shall have no authority to act or represent Trust or Fund in any way. Manager is authorized to make the decisions to buy and sell securities, options and futures contracts for Fund, to place Fund's portfolio transaction with broker-dealers, and to negotiate the terms of such transactions including brokerage commissions on brokerage transactions, on behalf of Fund. Manager is authorized to exercise discretion with Fund's policy concerning allocation of its portfolio brokerage, as permitted by law, including but not limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not be required to make any reduction in its investment advisory fees. 2. EXPENSES TO BE PAID BY MANAGER. Manager shall furnish to Trust, at its own expense, office space and all necessary office facilities, equipment and personnel for managing that portion of Trust's business relating to Fund. Manager shall also assume and pay all other expenses incurred by it in connection with managing the assets of Fund, all expenses of marketing shares of Fund, all expenses of maintaining the registration of shares of Fund under the 1933 Act (not including typesetting and printing expenses referred to in section 3), all expenses in determination of daily price computations, placement of securities orders and related bookkeeping and one-half of all fees, dues and other expenses related to membership of Trust in any trade association or other investment company organization. 3. EXPENSES TO BE PAID BY TRUST. Trust shall pay all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities and other property and of its transfer agents and registrars and its dividend disbursing and redemption agents, if any; all charges of legal counsel and of independent auditors; all compensation of trustees other than those affiliated with 1 Manager and all expenses incurred in connection with their services to Trust; all costs of borrowing money; all expenses of publication of notices and reports to its shareholders and to governmental bodies or regulatory agencies; all expenses of proxy solicitations of Fund or of the board of trustees of the Trust; all expenses of shareholder meetings; all expenses of typesetting of Fund's prospectus and of printing and mailing copies of the prospectus furnished to each then-existing shareholder or beneficial owner; all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign, all stamp or other taxes; all expenses of printing and mailing certificates for shares of Fund; all expenses of bond and insurance coverage required by law or deemed advisable by Trust's board of trustees; all expenses of qualifying and maintaining qualification of shares of the Fund under the securities laws of such United States jurisdictions as the Trust may from time to time reasonably designate and all expenses of maintaining the registration of Trust under the 1940 Act and one-half of all fees, dues and other expenses related to membership of Trust in any trade association or other investment company organization. In addition to the payment of expenses, Fund shall also pay all brokers' commissions and other charges relative to the purchase and sale of portfolio securities for Fund. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust that is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the board of trustees of Trust. 4. COMPENSATION OF MANAGER. For the services to be rendered and the charges and expenses to be assumed and to be paid by Manager hereunder, Fund shall pay to Manager a quarterly fee of 3/16 of 1% of the net asset value of Fund up to $100 million, 1/8 of 1% of the net asset value of Fund in excess of $100 million and up to $1.5 billion and 1/10 of 1% of the net asset value of Fund in excess of $1.5 billion, as determined by valuations made as of the beginning of each calendar quarter, which fee shall be payable in three equal monthly installments on the last business day of each month during such quarter. 5. LIMITATION OF EXPENSES OF FUND. The total expenses of Fund, exclusive of taxes, of interest and of extraordinary litigation expenses, but including fees paid to Manager, shall not in any fiscal year of Fund exceed the most restrictive limits prescribed by any state in which Fund's shares are then being offered for sale, and Manager agrees to reimburse Fund for any sums expended for such expenses in excess of that amount. Brokers' commissions and other charges relative to the purchase and sale of portfolio securities shall not be regard as expenses. 6. SERVICES OF MANAGER NOT EXCLUSIVE. The services of Manager to Fund hereunder are not to be deemed exclusive, and Manager shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. 2 7. SERVICES OTHER THAN AS MANAGER. Manager (or an affiliate of Manager) may act as broker for Fund in connection with the purchase or sale of securities by or to Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of Trust. Such brokerage services are not within the scope of the duties of Manager under this agreement, and, within the limits permitted by law and the board of trustees of Trust, Manager (or an affiliate of Manager) may receive brokerage commissions, fees or other remuneration from Fund for such services in addition to its fee for services as Manager. Within the limits permitted by law Manager may receive compensation from Fund for other services performed by it for Fund which are not within the scope of the duties of Manager under this agreement. 8. LIMITATION OF LIABILITY OF MANAGER. Manager shall not be liable to Trust or its shareholders for any loss suffered by Trust or its shareholders from or as a consequence of any act or omission of Manager, or of any of the partners, employees or agents of Manager, in connection with or pursuant to this agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of Manager in the performance of its duties or by reason of reckless disregard by Manager of its obligations and duties under this agreement. 9. DURATION AND RENEWAL. Unless terminated as provided in Section 10, this agreement shall continue in effect until June 30, 1994, and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the board of trustees of Trust or vote of the holders of a "majority of the outstanding shares of Fund" (which term as used throughout this agreement shall be construed in accordance with the definition of "vote of a majority of the outstanding voting securities of a company" in section 2(a)(42) of the 1940 Act). 10. TERMINATION. This agreement may be terminated at any time, without payment of any penalty, by the board of trustees of Trust, or by a vote of the holders of a majority of the outstanding shares of Fund, upon 60 days' written notice to Manager. This agreement may be terminated by Manager at any time upon 60 days' written notice to Trust. This agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a(4) of the 1940 Act). 11. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this agreement on behalf of Trust shall impose any liability upon any trustee, officer or shareholder of Trust. 12. AMENDMENT. This agreement may not be amended without the affirmative vote (a) of a majority of those trustees who are not "interested persons" (as 3 defined in section 2(a)(19) of the 1940 Act) of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of the holders of a majority of the outstanding shares of Fund. Dated: May 1, 1993 ACORN INVESTMENT TRUST By ---------------------------- WANGER ASSET MANAGEMENT, L.P. By Wanger Asset Management, Ltd., Its General Partner By ---------------------------- 4 EX-5.2 5 INVESTMENT ADVISORY AGREEMENT ACORN INTERNATIONAL INVESTMENT ADVISORY AGREEMENT Acorn Investment Trust, a Massachusetts business trust registered under the Investment Company Act of 1940 (1940 Act) as an open-end diversified management investment company (Trust), and Wanger Asset Management, L.P., a Delaware limited partnership registered under the Investment Advisers Act of 1940 as an investment adviser (Manager), agree that: 1. ENGAGEMENT OF MANAGER. Manager shall manage the investment and reinvestment of the assets of Acorn International, a series of Trust (Fund), subject to the supervision of the board of trustees of Trust, for the period and on the terms set forth in this agreement. Manager shall give due consideration to the investment policies and restrictions and the other statements concerning Fund in Trust's agreement and declaration of trust, bylaws, and registration statements under the 1940 Act and the Securities Act of 1933 (1933 Act), and to the provisions of the Internal Revenue Code applicable to Fund as a regulated investment company. Manager shall be deemed for all purposes to be an independent contractor and not an agent of Trust or Fund, and unless otherwise expressly provided or authorized, shall have no authority to act or represent Trust or Fund in any way. Manager is authorized to make the decisions to buy and sell securities, options and futures contracts for Fund, to place Fund's portfolio transaction with broker-dealers, and to negotiate the terms of such transactions including brokerage commissions on brokerage transactions, on behalf of Fund. Manager is authorized to exercise discretion with Fund's policy concerning allocation of its portfolio brokerage, as permitted by law, including but not limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing shall not be required to make any reduction in its investment advisory fees. 2. EXPENSES TO BE PAID BY MANAGER. Manager shall furnish to Trust, at its own expense, office space and all necessary office facilities, equipment and personnel for managing that portion of Trust's business relating to Fund. Manager shall also assume and pay all other expenses incurred by it in connection with managing the assets of Fund, all expenses of marketing shares of Fund, all expenses of maintaining the registration of shares of Fund under the 1933 Act (not including typesetting and printing expenses referred to in section 3), all expenses in determination of daily price computations, placement of securities orders and related bookkeeping and one-half of all fees, dues and other expenses related to membership of Trust in any trade association or other investment company organization. 3. EXPENSES TO BE PAID BY TRUST. Trust shall pay all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities and other property and of its transfer agents and registrars and its dividend disbursing and redemption agents, if any; all charges of legal counsel and of independent auditors; all compensation of trustees other than those affiliated with Manager and all expenses incurred in connection with their services to Trust; all costs of borrowing money; all expenses of publication of notices and 1 reports to its shareholders and to governmental bodies or regulatory agencies; all expenses of proxy solicitations of Fund or of the board of trustees of the Trust; all expenses of shareholder meetings; all expenses of typesetting of Fund's prospectus and of printing and mailing copies of the prospectus furnished to each then-existing shareholder or beneficial owner; all taxes and fees payable to federal, state or other governmental agencies, domestic or foreign, all stamp or other taxes; all expenses of printing and mailing certificates for shares of Fund; all expenses of bond and insurance coverage required by law or deemed advisable by Trust's board of trustees; all expenses of qualifying and maintaining qualification of shares of the Fund under the securities laws of such United States jurisdictions as the Trust may from time to time reasonably designate and all expenses of maintaining the registration of Trust under the 1940 Act and one-half of all fees, dues and other expenses related to membership of Trust in any trade association or other investment company organization. In addition to the payment of expenses, Fund shall also pay all brokers' commissions and other charges relative to the purchase and sale of portfolio securities for Fund. Any expenses borne by Trust that are attributable solely to the organization, operation or business of Fund shall be paid solely out of Fund assets. Any expense borne by Trust that is not solely attributable to Fund, nor solely to any other series of shares of Trust, shall be apportioned in such manner as Manager determines is fair and appropriate, or as otherwise specified by the board of trustees of Trust. 4. COMPENSATION OF MANAGER. For the services to be rendered and the charges and expenses to be assumed and to be paid by Manager hereunder, Fund shall pay to Manager a quarterly fee of .3125% of the net asset value of Fund up to $100 million, .25% of the net asset value of Fund in excess of $100 million and up to $500 million and .20% of the net asset value of Fund in excess of $500 million, as determined by valuations made as of the beginning of each calendar quarter, which fee shall be payable in three equal monthly installments on the last business day of each month during such quarter. 5. LIMITATION OF EXPENSES OF FUND. The total expenses of Fund, exclusive of taxes, of interest and of extraordinary litigation expenses, but including fees paid to Manager, shall not in any fiscal year of Fund exceed the most restrictive limits prescribed by any state in which Fund's shares are then being offered for sale, and Manager agrees that the Manager's compensation under paragraph 4 of this agreement shall be reduced by the amount of any such expenses in excess of that limit. If Fund's expenses would still exceed that limit after the Manager's compensation has been reduced to zero, the Manager shall reimburse Fund for sums expended for such expenses to the extent necessary to cause Fund's expenses to be within the limit. Brokers' commissions and other charges relating to the purchase and sale of portfolio securities shall not be regard as expenses. 6. SERVICES OF MANAGER NOT EXCLUSIVE. The services of Manager to Fund hereunder are not to be deemed exclusive, and Manager shall be free to render similar services to others so long as its services under this agreement are not impaired by such other activities. 7. SERVICES OTHER THAN AS MANAGER. Manager (or an affiliate of Manager) may act as broker for Fund in connection with the purchase or sale of securities by or to Fund if and to the extent permitted by procedures adopted from time to time by the board of trustees of Trust. 2 Such brokerage services are not within the scope of the duties of Manager under this agreement, and, within the limits permitted by law and the board of trustees of Trust, Manager (or an affiliate of Manager) may receive brokerage commissions, fees or other remuneration from Fund for such services in addition to its fee for services as Manager. Within the limits permitted by law Manager may receive compensation from Fund for other services performed by it for Fund which are not within the scope of the duties of Manager under this agreement. 8. LIMITATION OF LIABILITY OF MANAGER. Manager shall not be liable to Trust or its shareholders for any loss suffered by Trust or its shareholders from or as a consequence of any act or omission of Manager, or of any of the partners, employees or agents of Manager, in connection with or pursuant to this agreement, except by reason of willful misfeasance, bad faith or gross negligence on the part of Manager in the performance of its duties or by reason of reckless disregard by Manager of its obligations and duties under this agreement. 9. DURATION AND RENEWAL. Unless terminated as provided in Section 10, this agreement shall continue in effect until June 30, 1994, and thereafter from year to year only so long as such continuance is specifically approved at least annually (a) by a majority of those trustees who are not interested persons of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the board of trustees of Trust or vote of the holders of a "majority of the outstanding shares of Fund" (which term as used throughout this agreement shall be construed in accordance with the definition of "vote of a majority of the outstanding voting securities of a company" in section 2(a)(42) of the 1940 Act). 10. TERMINATION. This agreement may be terminated at any time, without payment of any penalty, by the board of trustees of Trust, or by a vote of the holders of a majority of the outstanding shares of Fund, upon 60 days' written notice to Manager. This agreement may be terminated by Manager at any time upon 60 days' written notice to Trust. This agreement shall terminate automatically in the event of its assignment (as defined in Section 2(a(4) of the 1940 Act). 11. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of Trust hereunder shall be binding only upon the assets of Trust (or applicable series thereof) and shall not be binding upon any trustee, officer, employee, agent or shareholder of Trust. Neither the authorization of any action by the trustees or shareholders of Trust nor the execution of this agreement on behalf of Trust shall impose any liability upon any trustee, officer or shareholder of Trust. 12. AMENDMENT. This agreement may not be amended without the affirmative vote (a) of a majority of those trustees who are not "interested persons" (as defined in section 2(a)(19) of the 1940 Act) of Trust or of Manager, voting in person at a meeting called for the purpose of voting on such approval, and (b) of the holders of a majority of the outstanding shares of Fund. 3 Dated: September 15, 1992 ACORN INVESTMENT TRUST By ---------------------------- WANGER ASSET MANAGEMENT, L.P. By Wanger Asset Management, Ltd., Its General Partner By ---------------------------- 4 EX-6 6 DISTRIBUTION AGREEMENT EXHIBIT 6 DISTRIBUTION AGREEMENT BETWEEN ACORN INVESTMENT TRUST AND WAM BROKERAGE SERVICES, L.L.C. THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of this 27th day of February, 1996 by and between ACORN INVESTMENT TRUST, a business trust organized and existing under the laws of the Commonwealth of Massachusetts ("Acorn"), and WAM BROKERAGE SERVICES, L.L.C., a limited liability company organized and existing under the laws of the State of Illinois ("WAM BD"). RECITALS: WHEREAS, Acorn is engaged in business as an open-end management investment company registered under the Investment Company Act of 1940, as amended ("1940 Act"); WHEREAS, WAM BD is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended ("1934 Act"), and the laws of each state (including the District of Columbia and Puerto Rico) in which it engages in business to the extent such law requires, and is a member of the National Association of Securities Dealers ("NASD") (such registrations and membership are referred to collectively as the "Registrations"); WHEREAS, Acorn desires WAM BD to act as the distributor in the public offering of its shares of beneficial interest (hereinafter called "Shares") which are divided into two series, Acorn Fund and Acorn International (hereinafter called, collectively, the "Funds" and, individually, the "Fund"); WHEREAS, Acorn has entered into investment advisory agreements with Wanger Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which WAM has agreed to pay all expenses incurred in the sale and promotion of shares of Acorn; NOW, THEREFORE, the parties hereto agree as follows: 1. Appointment. Acorn appoints WAM BD to act as principal underwriter (as such term is defined in Section 2(a)(29) of the 1940 Act of its Shares. 2. Delivery of Acorn Documents. Acorn has furnished WAM BD with properly certified or authenticated copies of each of the following in effect on the date hereof and shall furnish WAM BD from time to time properly certified or authenticated copies of all amendments or supplements thereto: (a) Agreement and Declaration of Trust; (b) By-Laws; (c) Resolutions of its Board of Trustees (hereinafter referred to as the "Board") selecting WAM BD as distributor and approving this form of agreement and authorizing its execution. Acorn shall furnish WAM BD promptly with copies of any registration statements filed by it with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (the "1933 Act") or the 1940 Act, together with any financial statements and exhibits included therein, and all amendments or supplements thereto hereafter filed. Acorn also shall furnish WAM BD such other certificates or documents which WAM BD may from time to time, in its discretion, reasonably deem necessary or appropriate in the proper performance of its duties. 3. Solicitation of Orders for Purchase of Shares. (a) Subject to the provisions of Paragraphs 5, 6 and 8 hereof, and to such minimum purchase requirements as may from time to time be indicated in Acorn's Prospectus, WAM BD is authorized to solicit, as agent on behalf of Acorn, unconditional orders for purchases of Acorn's Shares authorized for issuance and registered under the 1933 Act, provided that: (1) WAM BD shall act solely as a disclosed agent on behalf of and for the account of Acorn; (2) Acorn's transfer agent shall receive directly from investors all payments for the purchase of Acorn's Shares and also shall pay directly to shareholders amounts due to them for the redemption or repurchase of all Acorn's Shares, with WAM BD having no rights or duties to accept such payment or to effect such redemptions or repurchases; if a payment for the purchase of Acorn's Shares be delivered to WAM BD, such payment shall not be negotiated by WAM BD but shall be delivered as soon as reasonably practicable to Acorn's transfer agent; (3) WAM BD shall confirm all orders received for purchase of Acorn's Shares which confirmation shall clearly state (i) that WAM BD is acting as agent of Acorn in the transaction, (ii) that all certificates for redemption, remittances and registration instructions should be sent directly to Acorn and (iii) Acorn's mailing address; (4) WAM BD shall have no liability for payment for purchases of Acorn's Shares it sells as agent; and (5) Each order to purchase Shares of Acorn received by WAM BD shall be subject to acceptance by an officer of Acorn in Chicago and entry of the order on Acorn's records or shareholder accounts and is not binding until so accepted and entered. 2 The purchase price to the public of Acorn's Shares shall be the public offering price as defined in Paragraph 7 hereof. (b) In consideration of the rights granted to WAM BD under this Agreement, WAM BD will use its best efforts (but only in states in which WAM BD may lawfully do so) to solicit from investors unconditional orders to purchase Shares of Acorn. Acorn shall make available to WAM BD, at WAM BD's cost, such number of copies of Acorn's currently effective Prospectus and Statement of Additional Information and copies of all information, financial statements and other papers which WAM BD may reasonably request for use in connection with the distribution of Shares. 4. Selling Agreements. WAM BD is authorized, as agent on behalf of Acorn, to enter into agreements with other broker-dealers providing for the solicitation of unconditional orders for purchases of Acorn's Shares authorized for issuance and registered under the 1933 Act. All such agreements shall be either in the form of agreement attached hereto or in such other form as may be approved by the officers of Acorn ("Selling Agreement"). All solicitations made by other broker-dealers pursuant to a Selling Agreement shall be subject to the same terms as are applied by this Agreement to solicitations made by WAM BD. 5. Solicitation of Orders to Purchase Shares by Acorn. The rights granted to WAM BD shall be non-exclusive in that Acorn reserves the right to solicit purchases from, and sell its Shares to, investors. Further, Acorn reserves the right to issue Shares in connection with the merger or consolidation of any other investment company, trust or personal holding company with Acorn, or Acorn's acquisition, by the purchase or otherwise, of all or substantially all of the assets of an investment company, trust or personal holding company, or substantially all of the outstanding shares or interests of any such entity. Any right granted to WAM BD to solicit purchases of Shares will not apply to Shares that may be offered by Acorn to shareholders by virtue of their being shareholders of Acorn. 6. Shares Covered by this Agreement. This Agreement relates to the solicitation of orders to purchase Shares that are duly authorized and registered and available for sale by Acorn, including redeemed or repurchased Shares if and to the extent that they may be legally sold and if, but only if, Acorn authorizes WAM BD to sell them. 7. Public Offering Price. All solicitations by WAM BD pursuant to this Agreement shall be for orders to purchase Shares of Acorn at the public offering price. The public offering price for each accepted subscription for Acorn's Shares will be the net asset value per share of the particular Fund subscribed for next determined by Acorn after it accepts such subscription. The net asset value per share shall be determined in the manner provided in Acorn's Agreement and Declaration of Trust as now in effect or as they may be amended, and as reflected in Acorn's then current Prospectus and Statement of Additional Information. 8. Suspension of Sales. If and whenever the determination of a Fund's net asset value is suspended and until such suspension is terminated, no further orders for Shares of such Fund shall be accepted by Acorn except such unconditional orders placed with Acorn and accepted by it before the suspension. In addition, Acorn reserves the right to suspend sales of 3 Shares if, in the judgment of the Board of Acorn, it is in the best interest of Acorn to do so, such suspension to continue for such period as may be determined by Acorn's Board; and in that event, (i) at the direction of Acorn, WAM BD shall suspend its solicitation of orders to purchase Shares of Acorn until otherwise instructed by Acorn and (ii) no orders to purchase Shares shall be accepted by Acorn while such suspension remains in effect unless otherwise directed by its Board. 9. Authorized Representations. Acorn is not authorized by WAM BD to give on behalf of WAM BD any information or to make any representations other than the information and representations contained in Acorn's registration statement filed with the SEC under the 1933 Act and/or the 1940 Act as it may be amended from time to time. WAM BD is not authorized by Acorn to give on behalf of Acorn or any Fund any information or to make any representations in connection with the sale of Shares other than the information and representations contained in Acorn's registration statement filed with the SEC under the 1933 Act and/or the 1940 Act, covering Shares, as such registration statement or Acorn's prospectus may be amended or supplemented from time to time, or contained in shareholder reports or other material that may be prepared by or on behalf of Acorn or approved by Acorn for WAM BD's use. No person other than WAM BD is authorized to act as principal underwriter (as such term is defined in the 1940 Act, as amended) for Acorn. 10. Registration of Additional Shares. Acorn hereby agrees to register either (i) an indefinite number of Shares pursuant to Rule 24f-2 under the 1940 Act, or (ii) a definite number of Shares as Acorn shall deem advisable pursuant to Rule 24e-2 under ICA-40, as amended. Acorn will, in cooperation with WAM BD, take such action as may be necessary from time to time to qualify such Shares (so registered or otherwise qualified for sale under the 1933 Act), in any state mutually agreeable to WAM BD and Acorn, and to maintain such qualification; provided, however, that nothing herein shall be deemed to prevent Acorn from registering its shares without approval of WAM BD in any state it deems appropriate. 11. Conformity With Law. WAM BD agrees that in soliciting orders to purchase Shares it shall duly conform in all respects with applicable federal and state laws and the rules and regulations of the NASD. WAM BD will use its best efforts to maintain its Registrations in good standing during the term of this Agreement and will promptly notify Acorn and WAM, in the event of the suspension or termination of any of the Registrations. 12. Independent Contractor. WAM BD shall be an independent contractor and neither WAM BD, nor any of its members, managers, officers, directors, employees or representatives is or shall be an employee of Acorn in the performance of WAM BD's duties hereunder. WAM BD shall be responsible for its own conduct and the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others through its agents and employees and agrees to pay all employee taxes thereunder. 13. Indemnification. WAM BD agrees to indemnify and hold harmless Acorn and each of the members of its Board and its officers, employees and representatives and each person, if any, who controls Acorn within the meaning of Section 15 of the 1933 Act against any 4 and all losses, liabilities, damages, claims and expenses (including the reasonable costs of investigating or defending any alleged loss, liability, damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which Acorn or such of the members of its Board and of its officers, employees, representatives, or controlling person or persons may become subject under the 1933 Act, under any other statute, at common law, or otherwise, arising out of the acquisition or sale of any Shares of Acorn by any person which (i) may be based upon any wrongful act by WAM BD or any of WAM BD's members, managers, directors, officers, employees or representatives, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, Statement of Additional Information, shareholder report or other information covering Shares of Acorn filed or made public by Acorn or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such statement or omission was made in reliance upon information furnished to Acorn by WAM BD in writing. In no case (i) is WAM BD's indemnity in favor of Acorn, or any person indemnified, to be deemed to protect Acorn or such indemnified person against any liability to which Acorn or such person would otherwise be subject by reason of willful misfeasance, bad faith or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement, or (ii) is WAM BD to be liable under its indemnity agreement contained in this paragraph with respect to any claim made against Acorn or any person indemnified unless Acorn or such person, as the case may be, shall have notified WAM BD in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon Acorn or upon such person (or after Acorn or such person shall have received notice of such service on any designated agent). However, failure to notify WAM BD of any such claim shall not relieve WAM BD from any liability which WAM BD may have to Acorn or any person against whom such action is brought otherwise than on account of WAM BD's indemnity agreement contained in this Paragraph. WAM BD shall be entitled to participate, at its own expense, in the defense, or, if WAM BD so elects, to assume the defense of any suit brought to enforce any such claim but, if WAM BD elects to assume that defense, such defense shall be conducted by legal counsel chosen by WAM BD and satisfactory to the persons indemnified who are defendants in the suit. In the event that WAM BD elects to assume the defense of any such suit and retain such legal counsel, persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If WAM BD does not elect to assume the defense of any such suit, WAM BD will reimburse persons indemnified who are defendants in such suit for the reasonable fees of any legal counsel retained by them in such litigation. Acorn agrees to indemnify and hold harmless WAM BD and each of its members, managers, directors, officers, employees, and representatives and each person, if any, who controls WAM BD within the meaning of Section 15 of the 1933 Act against any and all losses, liabilities, damages, claims or expenses (including the damage, claim or expense and reasonable legal counsel fees incurred in connection therewith) to which WAM BD or such of its members, managers, directors, officers, employees, representatives or controlling person or persons may otherwise become subject under the 1933 Act, under any other statute, at common law, or 5 otherwise arising out of the acquisition of any Shares by any person which (i) may be based upon any wrongful act by Acorn or any of the members of Acorn's Board, or Acorn's officers, employees or representatives other than WAM BD, or (ii) may be based upon any untrue statement or alleged untrue statement of a material fact contained in a registration statement, Prospectus, Statement of Additional Information, shareholder report or other information covering Shares filed or made public by Acorn or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading unless such statement or omission was made in reliance upon information furnished by WAM BD to Acorn. In no case (i) is Acorn's indemnity in favor of WAM BD or any person indemnified to be deemed to protect WAM BD or such indemnified person against any liability to which WAM BD or such indemnified person would otherwise be subject by reason of willful misfeasance, bad faith, or negligence in the performance of its or his duties or by reason of its or his reckless disregard of its or his obligations and duties under this Agreement, or (ii) is Acorn to be liable under its indemnity agreement contained in this Paragraph with respect to any claim made against WAM BD or any person indemnified unless WAM BD, or such person, as the case may be, shall have notified Acorn in writing of the claim within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim served upon WAM BD or upon such person (or after WAM BD or such person shall have received notice of such service on any designated agent). However, failure to notify Acorn of any such claim shall not relieve Acorn from any liability which Acorn may have to WAM BD or any person against whom such action is brought otherwise than on account of Acorn's indemnity agreement contained in this Paragraph. Acorn shall be entitled to participate, at its own expense, in the defense or, if Acorn so elects, to assume the defense of any suit brought to enforce such claim but, if Acorn elects to assume the defense, such defense shall be conducted by legal counsel chosen by Acorn and satisfactory to the persons indemnified who are defendants in the suit. In the event that Acorn elects to assume the defense of any such suit and retain such legal counsel, the persons indemnified who are defendants in the suit shall bear the fees and expenses of any additional legal counsel retained by them. If Acorn does not elect to assume the defense of any such suit, Acorn will reimburse the persons indemnified who are defendants in such suit for the reasonable fees and expenses of any legal counsel retained by them in such litigation. 14. Duration and Termination of this Agreement. This Agreement shall become effective upon its execution ("Effective Date") and unless terminated as provided herein, shall remain in effect through June 30, 1997, and from year to year thereafter, but only so long as such continuance is specifically approved at least annually by (a) a vote of majority of the members of the Board of Acorn who are not interested persons of WAM BD or Acorn, voting in person at a meeting called for the purpose of voting on such approval, and (b) the vote of either the Board of Acorn or a majority of the outstanding Shares of Acorn. This Agreement may be terminated at any time, without the payment or any penalty (a) on 60 days' written notice, by the Board of Acorn or by or by a vote of a majority of the outstanding Shares of Acorn, or by WAM BD, or (b) immediately, on written notice by the Board of Acorn, in the event of termination or 6 suspension of any of the Registrations. This Agreement will automatically terminate in the event of its assignment. In interpreting the provisions of this Paragraph 14, the definitions contained in Section 2(a) of the 1940 Act (particularly the definitions of "interested person", "assignment", and "majority of the outstanding shares") shall be applied. 15. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by each party against which enforcement of the change, waiver, discharge or termination is sought. If Acorn should at any time deem it necessary or advisable in the best interests of Acorn that any amendment of this Agreement be made in order to comply with the recommendations or requirements of the SEC or any other governmental authority or to obtain any advantage under state or Federal tax laws and notifies WAM BD of the form of such amendment and the reasons therefore, and if WAM BD should decline to assent to such amendment, Acorn may terminate this Agreement forthwith. If WAM BD should at any time request that a change be made in Acorn's Agreement and Declaration of Trust, By- Laws or its methods of doing business, in order to comply with any requirements of Federal law or regulations of the SEC, or of a national securities association of which WAM BD is or may be a member, relating to the sale of Shares, and Acorn should not make such necessary changes within a reasonable time, WAM BD may terminate this Agreement forthwith. 16. Liability. It is understood and expressly stipulated that neither the shareholders of Acorn nor the members of the Board of Acorn shall be personally liable hereunder. The obligations of Acorn are not personally binding upon, nor shall resort to the private property of, any of the members of the Board of Acorn nor of the shareholders, officers, employees or agents of Acorn, but only Acorn's property shall be bound. 17. Miscellaneous. The captions in this Agreement are included for convenience or reference only, and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18. Notice. Any notice required or permitted to be given by a party to this Agreement or to any other party hereunder shall be deemed sufficient if delivered in person or sent by registered or certified mail, postage prepaid, addressed by the party giving notice to each such other party at the address provided below or to the last address furnished by each such other party to the party giving notice. If to Acorn: 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 Attn: Bruce H. Lauer 7 If to WAM BD: 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 Attn: Merrillyn J. Kosier If to WAM: 227 West Monroe Street Suite 3000 Chicago, Illinois 60606 Attn: Bruce H. Lauer ATTEST: WAM BROKERAGE SERVICES, L.L.C. _____________________________ By:________________________________ Secretary Terence M. Hogan, President ATTEST: ACORN INVESTMENT TRUST _____________________________ By:________________________________ Secretary Ralph Wanger, President ACKNOWLEDGED: WANGER ASSET MANAGEMENT, L.P. By:__________________________ Ralph Wanger ATTEST: _____________________________ Secretary 8 EX-8.1 7 CUSTODIAN CONTRACT CUSTODIAN CONTRACT ------------------ This Contract between Acorn Investment Trust, a business trust organized and existing under the laws of the Commonwealth of Massachusetts, having its principal place of business at 2 North LaSalle Street, Chicago Illinois 60602 hereinafter called the "Fund", and State Street Bank and Trust Company, a Massachusetts trust company, having its principal place of business at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the "Custodian", WITNESSETH: WHEREAS, the Fund is authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets; and WHEREAS, the Fund intends to initially offer shares in one series, designated Acorn Fund (such series together with all other series subsequently established by the Fund and made subject to this Contract in accordance with paragraph 17, being herein referred to as the "Portfolio(s)"); NOW THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. Employment of Custodian and Property to be Held by It ----------------------------------------------------- The Fund hereby employs the Custodian as the custodian of the assets of the Portfolios of the Fund, including securities which the Fund, on behalf of the applicable Portfolio desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities") pursuant to the provisions of the Declaration of Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund representing interests in the Portfolios, ("Shares") as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio held or received by the Portfolio and not delivered to the Custodian. Upon receipt of "Proper Instructions" (within the meaning of Article 5), the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians, located in the United States but only in accordance with an applicable vote by the Board of Trustees of the Fund on 2 behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub- custodian has to the Custodian. The Custodian may employ as sub-custodian for the Fund's foreign securities on behalf of the applicable Portfolio(s) the foreign banking institutions and foreign securities depositories designated in Schedule A hereto but only in accordance with the provisions of Article 3. 2. Duties of the Custodian with Respect to Property of the Fund Held By the Custodian in the United States -------------------------------------------------------------------- 2.1 Holding Securities. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States including all domestic securities owned by such Portfolio, other than (a) securities which are maintained pursuant to Section 2.10 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury, collectively referred to herein as "Securities System" and (b) commercial paper of an issuer for which State Street Bank and Trust Company acts as issuing and paying agent ("Direct Paper") which 3 is deposited and/or maintained in the Direct Paper System of the Custodian pursuant to Section 2.10A. 2.2 Delivery of Securities. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian or in a Securities System account of the Custodian or in the Custodian's Direct Paper book-entry system account ("Direct Paper System Account") only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases: 1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor; 2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio; 3) In the case of a sale effected through a Securities System, in accordance with the provisions of Section 2.10 hereof; 4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio; 4 5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian; 6) To the issuer thereof, or its agent, for transfer into the name of the Portfolio or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.9 or into the name or nominee name of any sub-custodian appointed pursuant to Article 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian; 7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street 5 delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct; 8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for 6 definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian; 10) For delivery in connection with any loans of securities made by the Portfolio, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund on behalf of the Portfolio, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral; 11) For delivery as security in connection with any borrowings by the Fund on behalf of the Portfolio requiring a pledge of assets by the 7 Fund on behalf of the Portfolio, but only against receipt of amounts borrowed; 12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The National Association of Securities Dealers, Inc. ("NASD"), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio of the Fund; 13) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian, and a Futures Commission Merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission and/or any 8 Contract Market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Portfolio of the Fund; 14) Upon receipt of instructions from the transfer agent ("Transfer Agent") for the Fund, for delivery to such Transfer Agent or to the holders of shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund, related to the Portfolio ("Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption; and 15) For any other proper corporate purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an 9 Assistant Secretary, specifying the securities of the Portfolio to be delivered, setting forth the purpose for which such delivery is to be made, declaring such purpose to be a proper corporate purpose, and naming the person or persons to whom delivery of such securities shall be made. 2.3 Registration of Securities. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of the Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.9 or in the name or nominee name of any sub-custodian appointed pursuant to Article 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Contract shall be in "street name" or other good delivery form. If, however, the 10 Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers. 2.4 Bank Accounts. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Contract, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the Banking Department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to 11 act as a custodian under the Investment Company Act of 1940 and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board of Trustees of the Fund. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity. 2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on behalf of each applicable Portfolio and the Custodian, the Custodian shall, upon the receipt of Proper Instructions from the Fund on behalf of a Portfolio, make federal funds available to such Portfolio as of specified times agreed upon from time to time by the Fund and the Custodian in the amount of checks received in payment for Shares of such Portfolio which are deposited into the Portfolio's account. 2.6 Collection of Income. Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which each Portfolio shall be entitled either by law or pursuant to custom in the securities business, and 12 shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to such Portfolio's custodian account. Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder. Income due each Portfolio on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund. The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Portfolio is properly entitled. 2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall 13 pay out monies of a Portfolio in the following cases only: 1) Upon the purchase of domestic securities, options, futures contracts or options on futures contracts for the account of the Portfolio but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the Investment Company Act of 1940, as amended, to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Portfolio or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a Securities System, in accordance with the conditions set forth in Section 2.10 hereof; (c) in the case of a purchase involving the Direct Paper System, 14 in accordance with the conditions set forth in Section 2.10A; (d) in the case of repurchase agreements entered into between the Fund on behalf of the Portfolio and the Custodian, or another bank, or a broker-dealer which is a member of NASD, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian's account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Portfolio of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Portfolio or (e) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper 15 Instructions from the Fund as defined in Article 5; 2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof; 3) For the redemption or repurchase of Shares issued by the Portfolio as set forth in Article 4 hereof; 4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses; 5) For the payment of any dividends on Shares of the Portfolio declared pursuant to the governing documents of the Fund; 6) For payment of the amount of dividends received in respect of securities sold short; 16 7) For any other proper purpose, but only upon receipt of, in addition to Proper Instructions from the Fund on behalf of the Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee of the Fund signed by an officer of the Fund and certified by its Secretary or an Assistant Secretary, specifying the amount of such payment, setting forth the purpose for which such payment is to be made, declaring such purpose to be a proper purpose, and naming the person or persons to whom such payment is to be made. 2.8 Liability for Payment in Advance of Receipt of Securities Purchased. Except as specifically stated otherwise in this Contract, in any and every case where payment for purchase of domestic securities for the account of a Portfolio is made by the Custodian in advance of receipt of the securities purchased in the absence of specific written instructions from the Fund on behalf of such Portfolio to so pay in advance, the Custodian shall be absolutely liable to the Fund for 17 such securities to the same extent as if the securities had been received by the Custodian. 2.9 Appointment of Agents. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the Investment Company Act of 1940, as amended, to act as a custodian, as its agent to carry out such of the provisions of this Article 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. 2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit and/or maintain securities owned by a Portfolio in a clearing agency registered with the Securities and Exchange Commission under Section 17A of the Securities Exchange Act of 1934, which acts as a securities depository, or in the book-entry system authorized by the U.S. Department of the Treasury and certain federal agencies, collectively referred to herein as "Securities System" in accordance with applicable Federal Reserve Board and Securities and 18 Exchange Commission rules and regulations, if any, and subject to the following provisions: 1) The Custodian may keep securities of the Portfolio in a Securities System provided that such securities are represented in an account ("Account") of the Custodian in the Securities System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 2) The records of the Custodian with respect to securities of the Portfolio which are maintained in a Securities System shall identify by book-entry those securities belonging to the Portfolio; 3) The Custodian shall pay for securities purchased for the account of the Portfolio upon (i) receipt of advice from the Securities System that such securities have been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such payment and transfer for the account of the Portfolio. 19 The Custodian shall transfer securities sold for the account of the Portfolio upon (i) receipt of advice from the Securities System that payment for such securities has been transferred to the Account, and (ii) the making of an entry on the records of the Custodian to reflect such transfer and payment for the account of the Portfolio. Copies of all advices from the Securities System of transfers of securities for the account of the Portfolio shall identify the Portfolio, be maintained for the Portfolio by the Custodian and be provided to the Fund at its request. Upon request, the Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio in the form of a written advice or notice and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's 20 transactions in the Securities System for the account of the Portfolio; 4) The Custodian shall provide the Fund for the Portfolio with any report obtained by the Custodian on the Securities System's accounting system, internal accounting control and procedures for safeguarding securities deposited in the Securities System; 5) The Custodian shall have received from the Fund on behalf of the Portfolio the initial or annual certificate, as the case may be, required by Article 14 hereof; 6) Anything to the contrary in this Contract notwithstanding, the Custodian shall be liable to the Fund for the benefit of the Portfolio for any loss or damage to the Portfolio resulting from use of the Securities System by reason of any negligence, misfeasance or misconduct of the Custodian or any of its agents or of any of its or their employees or from failure of the 21 Custodian or any such agent to enforce effectively such rights as it may have against the Securities System; at the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claim against the Securities System or any other person which the Custodian may have as a consequence of any such loss or damage if and to the extent that the Portfolio has not been made whole for any such loss or damage. 2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian, in accordance with applicable rules of the Securities and Exchange Commission, may deposit and/or maintain securities owned by a Portfolio in the Direct Paper System of the Custodian subject to the following provisions: 1) No transaction relating to securities in the Direct Paper System will be effected in the absence of Proper Instructions from the Fund on behalf of the Portfolio; 2) The Custodian may keep securities of the Portfolio in the Direct Paper System only if 22 such securities are represented in an account ("Account") of the Custodian in the Direct Paper System which shall not include any assets of the Custodian other than assets held as a fiduciary, custodian or otherwise for customers; 3) The records of the Custodian with respect to securities of the Portfolio which are maintained in the Direct Paper System shall identify by book-entry those securities belonging to the Portfolio; 4) The Custodian shall pay for securities purchased for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such payment and transfer of securities to the account of the Portfolio. The Custodian shall transfer securities sold for the account of the Portfolio upon the making of an entry on the records of the Custodian to reflect such transfer and receipt of payment for the account of the Portfolio; 23 5) The Custodian shall furnish the Fund on behalf of the Portfolio confirmation of each transfer to or from the account of the Portfolio, in the form of a written advice or notice, of Direct Paper on the next business day following such transfer and shall furnish to the Fund on behalf of the Portfolio copies of daily transaction sheets reflecting each day's transaction in the Securities System for the account of the Portfolio; 6) The Custodian shall provide the Fund on behalf of the Portfolio with any report on its system of internal accounting control as the Fund may reasonably request from time to time. 2.11 Segregated Account. The Custodian shall upon receipt of Proper Instructions from the Fund on behalf of each applicable Portfolio establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.10 or Section 2.10A hereof, (i) 24 in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the NASD (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the Commodity Futures Trading Commission or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (ii) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (iii) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (iv) for other proper 25 corporate purposes, but only, in the case of clause (iv), upon receipt of, in addition to Proper Instructions from the Fund on behalf of the applicable Portfolio, a certified copy of a resolution of the Board of Trustees or of the Executive Committee signed by an officer of the Fund and certified by the Secretary or an Assistant Secretary, setting forth the purpose or purposes of such segregated account and declaring such purposes to be proper corporate purposes. 2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities. 2.13 Proxies. The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the 26 manner in which such proxies are to be voted, and shall promptly deliver to the Portfolio such proxies, all proxy soliciting materials and all notices relating to such securities. 2.14 Communications Relating to Portfolio Securities. Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund for each Portfolio all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights in connection therewith and notices of exercise of call and put options written by the Fund on behalf of the Portfolio and the maturity of futures contracts purchased or sold by the Portfolio) received by the Custodian from issuers of the securities being held for the Portfolio. With respect to tender or exchange offers, the Custodian shall transmit promptly to the Portfolio all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or his agents) making the tender or exchange offer. If the Portfolio desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Portfolio shall notify 27 the Custodian at least three business days prior to the date on which the Custodian is to take such action. 3. Duties of the Custodian with Respect to Property of the Fund Held Outside of the United States ----------------------------------------------------------------- 3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and instructs the Custodian to employ as sub-custodians for the Portfolios securities and other assets maintained outside the United States the foreign banking institutions and foreign securities depositories designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper Instructions", as defined in Section 5 of this Contract, together with a certified resolution of the Fund's Board of Trustees, the Custodian and the Fund may agree to amend Schedule A hereto from time to time to designate additional foreign banking institutions and foreign securities depositories to act as sub- custodian. Upon receipt of Proper Instructions, the Fund may instruct the Custodian to cease the employment of any one or more such sub- custodians for maintaining custody of the Portfolio's assets. 3.2 Assets to be Held. The Custodian shall limit the securities and other assets maintained in the custody 28 of the foreign sub-custodians to: (a) "foreign securities", as defined in paragraph (c)(l) of Rule 17f-5 under the Investment Company Act of 1940, and (b) cash and cash equivalents in such amounts as the Custodian or the Fund may determine to be reasonably necessary to effect the Portfolio's foreign securities transactions. 3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in writing by the Custodian and the Fund, assets of the Portfolios shall be maintained in foreign securities depositories only through arrangements implemented by the foreign banking institutions serving as sub-custodians pursuant to the terms hereof. Where possible, such arrangements shall include entry into agreements containing the provisions set forth in Section 3.5 hereof. 3.4 Segregation of Securities. The Custodian shall identify on its books as belonging to each applicable Portfolio of the Fund, the foreign securities of such Portfolios held by each foreign sub-custodian. Each agreement pursuant to which the Custodian employs a foreign banking institution shall require that such institution establish a custody account for the 29 Custodian on behalf of the Fund for each applicable Portfolio of the Fund and physically segregate in each account, securities and other assets of the Portfolios, and, in the event that such institution deposits the securities of one or more of the Portfolios in a foreign securities depository, that it shall identify on its books as belonging to the Custodian, as agent for each applicable Portfolio, the securities so deposited. 3.5 Agreements with Foreign Banking Institutions. Each agreement with a foreign banking institution shall be substantially in the form set forth in Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the foreign banking institution or its creditors or agent, except a claim of payment for their safe custody or administration; (b) beneficial ownership for the assets of each Portfolio will be freely transferable without the payment of money or value other than for custody or administration; (c) adequate records will be maintained identifying the assets as belonging to each applicable Portfolio; (d) officers of or auditors 30 employed by, or other representatives of the Custodian, including to the extent permitted under applicable law the independent public accountants for the Fund, will be given access to the books and records of the foreign banking institution relating to its actions under its agreement with the Custodian; and (e) assets of the Portfolios held by the foreign sub-custodian will be subject only to the instructions of the Custodian or its agents. 3.6 Access of Independent Accountants of the Fund. Upon request of the Fund, the Custodian will use its best efforts to arrange for the independent accountants of the Fund to be afforded access to the books and records of any foreign banking institution employed as a foreign sub-custodian insofar as such books and records relate to the performance of such foreign banking institution under its agreement with the Custodian. 3.7 Reports by Custodian. The Custodian will supply to the Fund from time to time, as mutually agreed upon, statements in respect of the securities and other assets of the Portfolio(s) held by foreign sub- custodians, including but not limited to an identification of entities having possession of the 31 Portfolio(s) securities and other assets and advices or notifications of any transfers of securities to or from each custodial account maintained by a foreign banking institution for the Custodian on behalf of each applicable Portfolio indicating, as to securities acquired for a Portfolio, the identity of the entity having physical possession of such securities. 3.8 Transactions in Foreign Custody Account (a) Except as otherwise provided in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to the foreign securities of the Fund held outside the United States by foreign sub-custodians. (b) Notwithstanding any provision of this Contract to the contrary, settlement and payment for securities received for the account of each applicable Portfolio and delivery of securities maintained for the account of each applicable Portfolio may be effected in accordance with the customary established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivering securities to the purchaser thereof or to a 32 dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (c) Securities maintained in the custody of a foreign sub-custodian may be maintained in the name of such entity's nominee to the same extent as set forth in Section 2.3 of this Contract, and the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such securities. 3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the Custodian employs a foreign banking institution as a foreign sub- custodian shall require the institution to exercise reasonable care in the performance of its duties and to indemnify, and hold harmless, the Custodian and the Fund from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution's performance of such obligations. At the election of the Fund, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a foreign banking institution as a consequence of any such loss, damage, cost, expense, 33 liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim. 3.10 Liability of Custodian. The Custodian shall be liable for the acts or omissions of a foreign banking institution to the same extent as set forth with respect to sub-custodians generally in this Contract and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism or any loss where the sub-custodian has otherwise exercised reasonable care. Notwithstanding the foregoing provisions of this paragraph 3.10, in delegating custody duties to State Street London Ltd., the Custodian shall not be relieved of any responsibility to the Fund for any loss due to such delegation, except such loss as may result from (a) political risk (including, but not limited to, 34 exchange control restrictions, confiscation, expropriation, nationalization, insurrection, civil strife or armed hostilities) or (b) other losses (excluding a bankruptcy or insolvency of State Street London Ltd. not caused by political risk) due to Acts of God, nuclear incident or other losses under circumstances where the Custodian and State Street London Ltd. have exercised reasonable care. 3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance cash or securities for any purpose for the benefit of a Portfolio including the purchase or sale of foreign exchange or of contracts for foreign exchange, or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such 35 Portfolios assets to the extent necessary to obtain reimbursement. 3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the Fund, during the month of June, information concerning the foreign sub-custodians employed by the Custodian. Such information shall be similar in kind and scope to that furnished to the Fund in connection with the initial approval of this Contract. In addition, the Custodian will promptly inform the Fund in the event that the Custodian learns of a material adverse change in the financial condition or foreign sub-custodian or any material loss of the assets of the Fund or in the case of any foreign sub-custodian not the subject of an exemptive order from the Securities and Exchange Commission is notified by such foreign sub-custodian that there appears to be a substantial likelihood that its shareholders' equity will decline below $200 million (U.S. dollars or the equivalent thereof) or that its shareholders' equity has declined below $200 million (in each case computed in accordance with generally accepted U.S. accounting principles). 36 3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this Contract, the provisions of Article 3 hereof shall not apply where the custody of the Portfolios assets are maintained in a foreign branch of a banking institution which is a "bank" as defined by Section 2(a)(5) of the Investment Company Act of 1940 meeting the qualification set forth in Section 26(a) of said Act. The appointment of any such branch as a sub- custodian shall be governed by paragraph 1 of this Contract. (b) Cash held for each Portfolio of the Fund in the United Kingdom shall be maintained in an interest bearing account established for the Fund with the Custodian's London branch, which account shall be subject to the direction of the Custodian, State Street London Ltd. or both, in accordance with this Agreement. 3.14 Tax Law. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States of America or any state or political subdivision thereof. It shall be the responsibility of the Fund to notify the Custodian 37 of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of jurisdictions other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of jurisdictions for which the Fund has provided such information. 4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund ---------------------------------------------------------- The Custodian shall receive from the distributor for the Shares or from the Transfer Agent of the Fund and deposit into the account of the appropriate Portfolio such payments as are received for Shares of that Portfolio issued or sold from time to time by the Fund. The Custodian will provide timely notification to the Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio. From such funds as may be available for the purpose but subject to the limitations of the Declaration of Trust and any 38 applicable votes of the Board of Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian. 5. Proper Instructions ------------------- Proper Instructions as used throughout this Contract means a writing signed or initialed by one or more person or persons as the Board of Trustees shall have from time to time authorized. Each such writing shall set forth the specific transaction or type of transaction involved, including a specific 39 statement of the purpose for which such action is requested. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing. Upon receipt of a certificate of the Secretary or an Assistant Secretary as to the authorization by the Board of Trustees of the Fund accompanied by a detailed description of procedures approved by the Board of Trustees, Proper Instructions may include communications effected directly between electro-mechanical or electronic devices provided that the Board of Trustees and the Custodian are satisfied that such procedures afford adequate safeguards for the Portfolios' assets. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any three - party agreement which requires a segregated asset account in accordance with Section 2.11. 6. Actions Permitted without Express Authority ------------------------------------------- The Custodian may in its discretion, without express authority from the Fund on behalf of each applicable Portfolio: 1) make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Contract, provided that no such 40 individual expense shall exceed $50.00, and all such payments shall be accounted for to the Fund on behalf of the Portfolio; 2) surrender securities in temporary form for securities in definitive form; 3) endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and 4) in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the Board of Trustees of the Fund. 7. Evidence of Authority --------------------- The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the Fund. The Custodian may receive and accept a certified copy of a vote of the Board of Trustees of the Fund as conclusive evidence (a) of the authority of any person to act in accordance with such vote or (b) of any determination or of any action by the Board of Trustees pursuant to the Declaration of Trust as described in such vote, and such vote may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary. 41 8. Duties of Custodian with Respect to the Books of Account and Calculation of Net Asset Value and Net Income ------------------------------------------------------------ The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board of Trustees of the Fund to keep the books of account of each Portfolio and/or compute the net asset value per share of the outstanding shares of each Portfolio or, if directed in writing to do so by the Fund on behalf of the Portfolio, shall itself keep such books of account and/or compute such net asset value per share. If so directed, the Custodian shall also calculate daily the net income of the Portfolio as described in the Fund's currently effective prospectus related to such Portfolio and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components. The calculations of the net asset value per share and the daily income of each Portfolio shall be made at the time or times described from time to time in the Fund's currently effective prospectus related to such Portfolio. 9. Records ------- The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and 42 obligations under this Contract in such manner as will meet the obligations of the Fund under the Investment Company Act of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the Securities and Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. 10. Opinion of Fund's Independent Accountant ---------------------------------------- The Custodian shall take all reasonable action, as the Fund on behalf of each applicable Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange Commission and with respect to any other requirements of such Commission. 43 11. Reports to Fund by Independent Public Accountants ------------------------------------------------- The Custodian shall provide the Fund, on behalf of each of the Portfolios at such times as the Fund may reasonably require, but not less than annually, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a Securities System, including the Custodian's Direct Paper System, relating to the services provided by the Custodian under this Contract; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state. 12. Compensation of Custodian ------------------------- The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund on behalf of each applicable Portfolio and the Custodian. 13. Responsibility of Custodian --------------------------- So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for 44 the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Contract and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Contract, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be liable for the acts or omissions of a foreign banking institution appointed pursuant to the provisions of Article 3 to the same extent as set forth in Article 1 hereof with respect to sub-custodians located in the United States (except as specifically provided in Article 3.10) and, regardless of whether assets are maintained in the custody of a foreign banking institution, a foreign securities depository or a branch of a U.S. bank as contemplated by paragraph 3.11 45 hereof, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from, or caused by, the direction of or authorization by the Fund to maintain custody or any securities or cash of the Fund in a foreign country including, but not limited to, losses resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism. If the Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, the Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form reasonably satisfactory to it. If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) for the benefit of a Portfolio including the purchase or sale of foreign exchange or of contracts for foreign exchange or in the event that the Custodian or its nominee shall incur or be assessed any 46 taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Contract, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement. 14. Effective Period, Termination and Amendment ------------------------------------------- This Contract shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided, however that the Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees of the Fund has approved the initial use of a particular Securities System by such Portfolio and the receipt of an annual certificate of the 47 Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by such Portfolio of such Securities System, as required in each case by Rule 17f-4 under the Investment Company Act of 1940, as amended and that the Custodian shall not with respect to a Portfolio act under Section 2.10A hereof in the absence of receipt of an initial certificate of the Secretary or an Assistant Secretary that the Board of Trustees has approved the initial use of the Direct Paper System by such Portfolio and the receipt of an annual certificate of the Secretary or an Assistant Secretary that the Board of Trustees has reviewed the use by such Portfolio of the Direct Paper System; provided further, however, that the Fund shall not amend or terminate this Contract in contravention of any applicable federal or state regulations, or any provision of the Declaration of Trust, and further provided, that the Fund on behalf of one or more of the Portfolios may at any time by action of its Board of Trustees (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Contract in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event 48 at the direction of an appropriate regulatory agency or court of competent jurisdiction. Upon termination of the Contract, the Fund on behalf of each applicable Portfolio shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its costs, expenses and disbursements. 15. Successor Custodian ------------------- If a successor custodian for the Fund, of one or more of the Portfolios shall be appointed by the Board of Trustees of the Fund, the Custodian shall, upon termination, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or the Custodian's Direct Paper System. If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of a certified copy of a vote of the Board of Trustees of the Fund, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such vote. 49 In the event that no written order designating a successor custodian or certified copy of a vote of the Board of Trustees shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the Investment Company Act of 1940, doing business in Boston, Massachusetts, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Contract on behalf of each applicable Portfolio and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System. Thereafter, such bank or trust company shall be the successor of the Custodian under this Contract. In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the certified copy of the vote referred to or of the 50 Board of Trustees to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Contract relating to the duties and obligations of the Custodian shall remain in full force and effect. 16. Interpretive and Additional Provisions -------------------------------------- In connection with the operation of this Contract, the Custodian and the Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Contract as may in their joint opinion be consistent with the general tenor of this Contract. Any such interpretive or additional provisions shall be in a writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Declaration of Trust of the Fund. No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Contract. 51 17. Additional Funds ---------------- In the event that the Fund establishes one or more series of Shares in addition to Acorn Fund with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder. 18. Massachusetts Law to Apply -------------------------- This Contract shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts. 19. Limitations of Liability of the Trustees, Officers and Shareholders -------------------------------------------------- A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees, Officers or Shareholders individually but are binding only upon the assets and property of the Fund. 52 20. Prior Contracts --------------- This Contract supersedes and terminates, as of the date hereof, all prior contracts between the Fund on behalf of each of the Portfolios and the Custodian relating to the custody of the Fund's assets. IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative and its seal to be hereunder affixed as of the 1st day of July, 1992. ATTEST ACORN INVESTMENT TRUST By - ------------------------------ ------------------------------------- ATTEST STATE STREET BANK AND TRUST COMPANY By - ------------------------------ ------------------------------------- Assistant Secretary Vice President 53 EXHIBIT 1 --------- CUSTODIAN AGREEMENT ------------------- TO: Gentlemen: The undersigned ("State Street") hereby requests that you (the "Bank") establish a custody account and a cash account for each State Street client whose account is identified to this Agreement. Each such custody or cash account as applicable will be referred to herein as the "Account" and will be subject to the following terms and conditions: 1. The Bank shall hold as agent for State Street and shall physically segregate in the Account such case, bullion, coin, stocks, shares, bonds, debentures, notes and other securities and other property which is delivered to the Bank for that State Street Account (the "Property"). 2. (a) Without the prior approval of State Street it will not deposit securities in any securities depository or utilize a clearing agency, incorporated or organized under the laws of a country other than the United States, unless such depository or clearing house operates the central system for handling of securities or equivalent book-entries in that country or operates a transnational system for the central handling of securities or equivalent book-entries. (b) When Securities held for an Account are deposited in a securities depository or clearing agency by the Bank, the Bank shall identify on its books as belonging to State Street as agent for such Account, the Securities so deposited. The Bank represents that either: 3. (a) It currently has stockholders' equity in excess of $200 million (US dollars or the equivalent of US dollars computed in accordance with generally accepted US accounting principles) and will promptly inform State Street in the event that there appears to be a substantial likelihood that its stockholders' equity will decline below $200 million, or in any event, at such time as its stockholders' equity in fact declines below $200 million; or (b) It is the subject of an exemptive order issued by the United States Securities and Exchange Commission, which such order permits State Street to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's stockholders' equity is currently below $200 million or may in the future decline below $200 million due to currency fluctuation 4. Upon the written instructions of State Street as permitted by Section 8, the Bank is authorized to pay out cash 2 from the Account and to sell, assign, transfer, deliver or exchange, or to purchase for the Account any and all stocks, shares, bonds, debentures, notes and other securities ("Securities"), bullion, coin and other property, but only as provided in such written instructions. The Bank shall not be held liable for any act or omission to act on instructions given or purported to be given should there be any error in such instructions. 5. Unless the Bank receives written instructions of State Street to the contrary, the Bank is authorized: a. To promptly receive and collect all income and principal with respect to the Property and to credit cash receipts to the Account; b. To promptly exchange Securities where the exchange is purely ministerial (including, without limitation, the exchange of temporary Securities for those in definitive form and the exchange of warrants, or other documents of entitlement to Securities, for the Securities themselves); c. To promptly surrender Securities at maturity or when called for redemption upon receiving payment therefor; d. Whenever notification of a rights entitlement or a fractional interest resulting from a rights issue, stock dividend or stock split is received for the Account and such rights entitlement or fractional interest bears an expiration date, the Bank will endeavor to obtain State Street's instructions, but should these not be received in time for the Bank to take timely action, the Bank is authorized to sell such rights entitlement or fractional interest and to credit the Account; 3 e. To hold registered in the name of the nominee of the Bank or its agents such Securities as are ordinarily held in registered form; f. To execute in State Street's name for the Account, whenever the Bank deems it appropriate, such ownership and other certificates as may be required to obtain the payment of income from the property; and g. To pay or cause to be paid from the Account any and all taxes and levies in the nature of taxes imposed on such assets by any governmental authority, and shall use reasonable efforts to promptly reclaim any foreign withholding tax relating to the Account. 6. If the Bank shall receive any proxies, notices, reports, or other communications relative to any of the Securities of the Account in connection with tender offers, reorganizations, mergers, consolidations, or similar events which may have an impact upon the issuer thereof, the Bank shall promptly transmit any such communication to State Street by means as will permit State Street to take timely action with respect thereto. 7. The Bank is authorized in its discretion to appoint brokers and agents in connection with the Bank's handling of transactions relating to the Property provided that any such appointment shall not relieve the Bank of any of its responsibilities or liabilities hereunder. 8. Written instructions shall include (i) instructions in writing signed by such persons as are designated in writing by 4 State Street (ii) telex or tested telex instructions of State Street, (iii) other forms of instruction in computer readable form as shall be customarily utilized for the transmission of like information and (iv) such other forms of communication as from time to time shall be agreed upon by State Street and the Bank. 9. The Bank shall supply periodic reports with respect to the safekeeping of assets held by it under this Agreement. The content of such reports shall include but not be limited to any transfer to or from any Account held by the Bank hereunder and such other information as State Street may reasonably request. 10. In addition to its obligations under Section 2 hereof, the Bank shall maintain such other records as may be necessary to identify the assets hereunder as belonging to each State Street client identified to this Agreement from item to time. 11. The Bank agrees that its books and records relating to its actions under this Agreement shall be opened to the physical, on-premises inspection and audit at reasonable times by officers of, auditors employed by or other representatives of State Street (including to the extent permitted under ________ law the independent public accountants for any entity whose Property is being held hereunder) and shall be retained for such period as shall be agreed by State Street and the Bank. 5 12. The Bank shall be entitled to reasonable compensation for its services and expenses as custodian under this Agreement, as agreed upon from time to time by the Bank and State Street. 13. The Bank shall exercise reasonable care in the performance of its duties as are set forth or contemplated herein or contained in instructions given to the Bank which are not contrary to this Agreement, and shall maintain adequate insurance and agrees to indemnify and hold State Street and each Account from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Bank's performance of its obligations hereunder. 14. The Bank agrees that (i) the Property is not subject to any right, charge, security interest, lien or claim of any kind in favor of the Bank or any of its agents or its creditors except a claim of payment for their safe custody and administration and (ii) the beneficial ownership of the Property shall be freely transferable without the payment of money or other value other than for safe custody or administration. 15. This Agreement may be terminated by the Bank or State Street by at least 60 days' written notice to the other, sent by registered mail or express courier. The Bank, upon the date this Agreement terminates pursuant to notice which has been given in a timely fashion, shall deliver the Property in accordance with 6 written instructions of State Street specifying the name(s) of the person(s) to whom the Property shall be delivered. 16. The Bank and State Street shall each use its best efforts to maintain the confidentiality of the Property in each Account, subject, however, to the provisions of any laws requiring the disclosure of the Property. 17. The Bank agrees to follow such Operating Requirements as State Street may require from time to time. A copy of the current State Street Operating Requirements is attached as an exhibit to this Agreement. 18. Unless otherwise specified in this Agreement, all notices with respect to matters contemplated by this Agreement shall be deemed duly given when received in writing or by tested telex by the Bank or State Street at their respective addresses set forth below, or at such other address as specified in each case in a notice similarly given: 7 To State Street: Global Custody Services Division STATE STREET BANK AND TRUST COMPANY P.O. Box 470 Boston, Massachusetts 02102 To the Bank: By ---------------------------- Date -------------------------- 19. This Agreement shall be governed by and construed in accordance with the laws of ___________________________. Please acknowledge your agreement to the foregoing by executing a copy of this letter Very truly yours, STATE STREET BANK AND TRUST COMPANY By ------------------------------------- Agreed to by: By ---------------------------- Date -------------------------- 8 EX-8.2 8 LETTER AGREEMENT September __, 1992 State Street Bank and Trust Company 1776 Heritage Drive North Quincy, Massachusetts 02171 Gentlemen: This is to advise you that Acorn Investment Trust has established a new series of shares to be known as Acorn International. In accordance with the Additional Funds provision in Section 17 of the Custodian Contract dated July 1, 1992 and in Article 10 of the Transfer Agency and Service Agreement dated July 1, 1992 between the Fund and State Street Bank and Trust Company, the Fund hereby requests that you act as Custodian and Transfer Agent for the new series under the terms of the respective contracts. Please indicate your acceptance of the foregoing by executing two copies of this Letter Agreement, returning one to the Fund and retaining one copy for your records. ACORN INVESTMENT TRUST By ------------------------------------ Maxine Ziv Vice President Agreed to this ___ day of ______________ , 1992. STATE STREET BANK AND TRUST COMPANY By --------------------------------- Vice President Schedule A ---------- The following foreign banking institutions and foreign securities depositories have been approved by the Board of Trustees of Acorn Investment Trust for use as subcustodians for the Trust's securities and other assets:
Country Subcustodian Central Depository - ------- ------------ ------------------ Australia Australia & New Zealand Austraclear Limited Banking Group Limited Austria Girozentrale und Bank Oesterreichische der osterreichischen Kontrollbank AG Sparkassen AG Belgium Banque Bruxelles Lambert Caisse Interprofessionnelle de Depots et de Virements de Titres S.A. (CIK) Canada The Canada Trust Company The Canadian Depository for Securities Limited (CDS) Denmark Den Danske Bank Vaerdipapircentralen The Danish Securities Center (VP) Finland Kansallis-Osake-Pankki None France Credit Commercial de Societe Interprofessionnelle France pour la Compensation des Valeurs Mobilieres (SICOVAM) Germany Berliner Handels The Deutscher Kassenverein und Frankfurter Bank AG (DKV) Greece National Bank of Greece The Central Depository Hong Kong Standard Chartered Bank None Indonesia Standard Chartered Bank None
Country Subcustodian Central Depository - ------- ------------ ------------------ Ireland Bank of Ireland None Italy Credito Italiano Monte Titoli S.p.A. Japan Sumitomo Trust None & Banking Co., Ltd. Malaysia Standard Chartered Bank None Mexico Citibank, N.A. Instituto para el Deposito de Valores (INDEVAL) Netherlands Bank Mees & Hope N.V. Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V. (NECIGEF) New Zealand Westpac Banking None Corporation Norway Christiania Bank og Verdipapirsentralen Kreditkasse The Norwegian Registry of Securities (VPS) Philippines Standard Chartered Bank None Portugal Banco Commercial Portugues Central de Valores Mobiliarios (Central) Singapore The Development Bank The Central Depository of Singapore Ltd. (Pte) Limited (CDP) Spain Banco Central None Hispanoamericano, S.A. Sweden Skandinaviska Enskilda Vardepapperscentralen (VPC) Banken Switzerland Union Bank of Switzerland Schweizerische Effekten- Giro AG (SEGA) Thailand Standard Chartered Bank None
2
Country Subcustodian Central Depository - ------- ------------ ------------------ Turkey Citibank, N.A. None United Kingdom State Street Bank and None Trust Company
Certified: -------------------------------- Trust's Authorized Officer Date: --------------------------- 3 EX-11 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 11 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Financial History" and to the incorporation by reference of our reports with respect to Acorn Fund and Acorn International dated January 31, 1996 in the Registration Statement of Acorn Investment Trust on Form N-1A and the related Prospectus filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 53 the Registration Statement under the Securities Act of 1933 (File No. 2-34223) and in this Amendment No. 28 to the Registration Statement under the Investment Company Act of 1940 (File No. 811-1829). Ernst & Young LLP Chicago, Illinois April 24, 1996 EX-14 10 ACORN IRA PLAN Acorn Fund Acorn International No-Load Funds IRA/SEP-IRA Plan and Applications Managed by Wanger Asset Management, L.P. Acorn IRA plan Dear Investor: Thank you for your interest in the Acorn Funds. We hope you find our IRA booklet informative and helpful. We understand how important it is to plan for your future. Starting to invest for your retirement today will give your savings as much time as possible to grow and will let you take advantage of the power of compounding over the long haul. An IRA provides the special advantage of tax-deferred compounding. Your investment grows year after year with no annual tax payments on the earnings in your account until you begin to withdraw from your IRA. This means that you can save more with an IRA than with a comparable taxable investment. What's more, all or part of your contribution may be deductible from your current taxes, providing additional tax savings. Whether you are opening a new IRA, making your annual IRA contribution, moving an existing IRA from another institution, or rolling over money from an employer-sponsored retirement plan, Acorn can help you save for your retirement. This booklet contains everything you need to open an IRA at Acorn. Please take a moment to read it carefully. If you have any questions or need help with any of the forms, please call us at 1-800-9-ACORN-9 (1-800-922-6769). Very truly yours, /s/ Ralph Wanger Ralph Wanger President P.S. Remember, as a shareholder in either Acorn Fund or Acorn International, you can open multiple accounts in either fund. Ask one of our customer service representatives for additional copies of the prospectus, shareholder reports, and easy-to-use applications. 2 Acorn IRA plan General Information about the Individual Retirement Account Plan Can anyone open an Acorn IRA? Once you have reached legal age, you may open or contribute to an Acorn IRA in any year before the year in which you reach age 70 1/2 and in which you have earnings from employment or self-employment. You may make your contribution for any year until April 15 of the following year. Because Acorn Fund and Acorn International are closed to new investors, you may open a new Acorn IRA only if you are currently an Acorn shareholder or are otherwise eligible to invest. See the Acorn prospectus for more information. How much can I contribute? The annual contribution limit for an IRA is the lesser of $2,000 or 100% of compensation (including alimony and separate maintenance payments) for the year. You may contribute the maximum amount to your IRA even if you and/or your spouse participate in an employer-sponsored retirement program or a Keogh plan (although some or all of your contribution may not be tax-deductible, as explained below). Why use an IRA? One of the keys to successful retirement planning is effectively using the time you have until you actually retire. This means saving regularly and starting now. An IRA is an exceptional way to save for retirement because it offers the opportunity for long-term growth and the benefit of tax-deferred compounding. This means that your earnings, both dividends and capital gains, grow free of current taxes. You pay no taxes on the growth of your IRA until you withdraw from it. The following table shows the effects of tax-deferred compounding of earnings compared to a similar taxable investment -- your IRA's tax-deferred advantage. Our example assumes a $2,000 contribution at the beginning of each year for 10, 20, and 30 years, a 31% tax bracket, and a constant earnings rate of 10% annually. Advantages of Tax-Deferred Compounding
- -------------------------------------------------------------------------------- $29,400 . Taxable investment $35,062 . Tax-deferred IRA $86,697 $126,005 $198,360 $361,887
This is a hypothetical example for illustrative purposes only and does not represent the performance of any mutual fund. - -------------------------------------------------------------------------------- In addition to the benefits of tax-deferred compounding, you may be able to reduce your current income taxes by taking a tax deduction for a part or all of your contributions in the years you add to your IRA. Whether all or part of your annual contribution is deductible depends upon the amount of your income for the year and whether you or your spouse participate in an employer's qualified retirement plan. Even if your contribution for a given year is non-deductible, you may contribute the maximum amount to your IRA for that year. Acorn IRA plan 3 General Information about the Individual Retirement Account Plan (Please see your tax adviser for additional information and reporting requirements.) The following chart shows the extent of your contribution's deductibility under current IRS regulations.
===================================================================================== Adjusted Gross Income (Before IRA Deduction) - -------------------------------------------- Retirement Plan Deductibility of a Joint Filing Single Filing* Participation** $2,000 Contribution ===================================================================================== Under $40,000 Under $25,000 Yes or No Full - ------------------------------------------------------------------------------------- $40,000 - $50,000 $25,000 - $35,000 No Full -------------------------------------- Yes Partial - ------------------------------------------------------------------------------------- Over $50,000 Over $35,000 No Full -------------------------------------- Yes No Deduction =====================================================================================
* Applies to married persons filing separate returns only if they lived apart for the entire year. ** "Yes" refers to either you or your spouse. "No" refers to both you and your spouse. If you don't know your participation status, refer to the pension plan box on your W-2 form. If your IRA contribution is partially deductible, you can calculate the deductible portion of your contribution amount from the following formula:
===================================================================================== Formula Example Your Contribution ===================================================================================== Joint Single 1. Subtract Adjusted Joint AGI = $43,500 AGI =$______ AGI =$______ Gross Income (AGI) $50,000 -$______ $35,000 -$______ from $50,000 (joint) $50,000-$43,500=$6,500 =$______ =$______ or $35,000 (single) $6,500/5 = $1,300 /5 =$______ /5 =$______ 2. Divide by 5 to get deductible amount* =====================================================================================
*If the deductible amount is not a multiple of $10, round up to the next highest $10. If it is $1-199, deduct $200. To calculate combined deduction for regular and Spousal IRA, multiply by .225 (instead of dividing by 5). You may contribute only this deductible amount or, if you wish, you may contribute up to the $2,000 annual limit with the excess amount being non- deductible. If you make a non-deductible contribution, you need to file Form 8606 with your tax return. If your spouse does not work and if you and your spouse file a joint tax return, you may be able to deduct up to $2,250 rather than $2,000 by opening a "Spousal IRA" for your non-working spouse. The total of contributions to your IRA and the Spousal IRA cannot exceed $2,250, but that amount may be divided between the two accounts in whatever proportion you and your spouse decide, up to $2,000 for either account. See your tax adviser for more information. 4 Acorn IRA plan Opening a new Acorn IRA Investing in an Acorn IRA gives you the opportunity to save for your retirement using three different mutual funds: Acorn Fund, Acorn International, and Short Term Income Fund Money Market Portfolio. You may invest all of your contributions in one fund or you may divide your contributions among the funds as you choose. To open a new Acorn IRA, complete the application included with this booklet. On the application, check the box for a regular IRA contribution and indicate the tax year for which you are making your IRA contribution. Select the fund(s) in which you want to invest and indicate the amount to be invested in each fund. Tell us whether you want to make regular investments in your Acorn IRA by using the Automatic Investment Plan and provide us with the beneficiary information requested on the back of the application. Then write a check payable to "State Street Bank" for the total amount you wish to invest (including the $5 set-up fee for each fund in which you are investing) and mail your check with the completed application to Acorn in the pre-addressed envelope provided or to the address shown on the application. Moving funds from another IRA to an Acorn IRA Acorn can help you to move funds from another IRA custodian to an Acorn IRA by a custodian to custodian (or trustee to trustee) transfer (also known as a direct transfer), or a 60-day rollover of a distribution you have received or money you have withdrawn from another IRA. Each method is explained below. Direct transfer Acorn will arrange a direct transfer of assets from your current IRA custodian or trustee directly to Acorn. In a direct transfer you do not receive the account proceeds during the transfer process. Your money goes directly from your old IRA custodian to Acorn. You may make direct transfers between IRAs as often as you choose. If you would like the transferred money to go into a new Acorn IRA, complete both the transfer form, checking the box for a new Acorn IRA, and the application, checking the box for a Direct Transfer. If the transferred money is to be invested in an existing Acorn IRA, complete only the transfer form. The transfer form tells us about the IRA assets you are transferring and provides information about your current custodian. This information should be on your most recent account statement. Complete the instructions authorizing your current custodian to Acorn IRA plan 5 General Information about the Individual Retirement Account Plan transfer your account to Acorn and sign the transfer form. Please check with your present custodian to find out whether you will need to obtain a signature guarantee. Send the completed form(s) to Acorn in the envelope provided or to the address shown on the application. Acorn will arrange for the transfer of assets from your present custodian. 60-day Rollover from an IRA If you physically receive money that was held in your IRA with another custodian, you must deposit the money into an IRA within 60 days to avoid paying income tax on the amount withdrawn. If this is not done within the 60-day time limit, you will have to pay income tax on the amount you have received, as well as possible penalties if you are under the age of 59 1/2 when you receive the money. You may make only one 60-day rollover per IRA in any twelve-month period. To establish a rollover account with money you have withdrawn from another IRA, complete the Acorn IRA application, checking the box for a 60-day rollover of an existing IRA. Indicate whether the rollover is from a Regular IRA or a Rollover IRA. Be sure that you forward your check in time for the funds to be received by State Street Bank no later than 60 days from the date on which the distribution was made from your IRA. Rollovers from an employer's qualified plan to an Acorn IRA If you have been participating in your employer's qualified retirement plan and are eligible for a distribution from the plan because of a job change, a lay- off, disability, retirement, or termination of the plan, you need to decide what you will do with your retirement plan money before you receive the distribution. Unless you are eligible to leave your money in the plan and want to do so, you have two main alternatives: (1) rollover the amount distributed and keep your money working for you tax-deferred, or (2) take the distribution now--subject to the applicable taxes and penalties. If you take your distribution now (even if you are planning to do a 60-day rollover), your employer must withhold 20% of the distribution for federal income taxes, so you'll receive only 80% of the money to be distributed. You may also be responsible for (a) additional federal income tax (depending on your tax bracket), (b) a penalty tax of 10% for an early withdrawal if you are not yet 59 1/2 (subject to exceptions if you are disabled, spend the distribution on medical expenses, or have separated from service and are at least age 55), and (c) state and local income taxes on your distribution. If you choose to reinvest the amount distributed, you have three options: (1) use a direct rollover to invest the money in an IRA; (2) use a 60-day 6 Acorn IRA plan rollover to invest the money in an IRA; or (3) roll over the distribution into a qualified plan sponsored by a new employer (if the plan accepts rollovers). If you are reinvesting the money in an IRA, a direct rollover is usually better than a 60-day rollover. In a direct rollover, you never receive the distribution (it is sent directly from the plan to the IRA custodian, or the plan gives you a check payable to the IRA custodian). Because a direct rollover is not treated as a distribution to you, no tax is withheld. Direct Rollover To set up your Acorn IRA by making a direct rollover you should complete the enclosed application, check the box for a Rollover IRA from an employer- sponsored plan, and check the appropriate box to tell us whether you are enclosing a check payable to State Street Bank or your employer will be sending the check directly to the bank. If your plan administrator gives you a check payable to State Street Bank, send that check along with the completed application in the pre-addressed envelope provided or to the address on the application. If your plan administrator is going to send a check directly to State Street, send the completed application without the check. We will open the account and have it ready to receive your distribution check. You may call us at 1-800-922-6769 to request your account number if your plan administrator needs it to send the distribution check. 60-Day Rollover from a qualified plan If you have already received a distribution directly, you will have had 20% withheld for taxes, but you can still make a 60-day rollover. You will avoid income tax and possible penalties on the amount you deposit in your IRA, up to the entire amount of your distribution (before deduction of the 20% for income tax withholding). You can rollover part of your distribution and keep part, paying income tax and any applicable penalties on the part you keep. If you rollover only the amount of your distribution check (the 80% that was left after the 20% income tax withholding), you will be treated as having kept the 20%, which will be subject to income taxes and any applicable penalties. You can avoid taxes and penalties entirely when you make the 60-day rollover by making up from other funds the 20% that was withheld for tax. The 20% that was withheld is treated like any other income tax withholding -- to the extent the total amount of tax withheld from you (including the 20% and tax withheld from your compensation) plus estimated income tax payments you make exceeds your tax liability when you file your return, you will receive a refund of the excess. If you receive a distribution of property (such as shares of stock) from your employer's plan, you can make a 60-day rollover by selling the property and depositing the sales proceeds Acorn IRA plan 7 General Information about the Individual Retirement Account Plan within the 60-day period. If you had borrowed against your account in the plan from which you receive the distribution, the taxable amount of your distribution may be more than the amount of cash you receive because it will include the unpaid loan balance. In this case, you can avoid paying tax on the unpaid loan balance by using other funds to complete rollover, in the same way you can make up the 20% tax withholding. The following chart summarizes the key features of your alternatives for reinvesting a distribution from your employer's plan and may help you decide how to keep your money working for your retirement.
======================================================================================================== Rollover IRA New Employer's Plan ======================================================================================================== Tax Considerations . avoids current taxes . avoids current taxes . money grows tax-deferred . money grows tax-deferred (but you may have to wait to transfer money into plan) - -------------------------------------------------------------------------------------------------------- Investment Options . a range of investment choices . options vary among plans - -------------------------------------------------------------------------------------------------------- Withdrawal Options . can take all or part of your . choices vary from plan to money out at any time plan; check with your new . earnings taxed when withdrawn; employer 10% penalty applies if younger . earnings taxed when withdrawn; than 59 1/2, unless disabled 10% penalty applies if younger than 59 1/2 or separated from . no mandatory 20% withholding for service before age 55, with federal income taxes on some exceptions withdrawals . 20% withholding for federal income taxes if withdrawal of eligible rollover distributions not rolled over into another plan - -------------------------------------------------------------------------------------------------------- Other Features . very easy to set up . can add future contributions to . can switch between your Acorn your plan investments tax-free as your needs . enables you to consolidate your and the market changes retirement plan money . offers you easy access to your . may be able to borrow from investments your account . borrowing not permitted ========================================================================================================
If you put your plan distribution into the same IRA with regular IRA (annual contributions) money, you forfeit the right to reinvest your plan distribution in another employer's qualified plan in the future. Because combining regular IRA and Rollover IRA funds may also have tax implications when you begin withdrawals from your IRA, you should consult your tax adviser before deciding to commingle your plan distribution with your regular IRA investments. 8 Acorn IRA plan Should You Consider a SEP-IRA? An IRA under a Simplified Employee Pension Plan (SEP-IRA) may be an attractive way to save for retirement if you have any income from self-employment, and may also be a way to offer an important benefit to your employees if you are a small business owner. You may open and contribute to a SEP-IRA as a self-employed individual if you provide any service from which you earn income, even if you have a full-time occupation in which you participate in an employer's retirement plan. If you own a small business as a sole proprietor, a partnership, or a corporation (including a Subchapter-S corporation), you can establish a SEP-IRA for yourself and your eligible employees. A SEP-IRA offers the advantage of tax-deferred compounding that is available in a regular IRA, while allowing annual contributions of up to 15% of earned income within the limits imposed by the IRS. We have included with this booklet a worksheet to help in calculating SEP-IRA contributions. In addition to tax-deferred compounding, a SEP-IRA provides full deductibility of each annual contribution from current taxable income. This means that, if your business is incorporated, you can deduct SEP-IRA contributions for yourself and any eligible employees as a business expense, or, if your business is not incorporated, you can (a) deduct contributions for any eligible employees as a business expense and (b) deduct contributions for yourself from your personal income. Setting up a SEP-IRA is simple and flexible. Only a brief information form (Form 5305-SEP, available from the IRS) must be completed and given to eligible employees. The IRS regulations for SEP-IRAs require that all eligible employees (other than union members and non-resident aliens) must be covered; eligible employees are all those who (a) are at least 21 years old, (b) have worked for your business for three of the last five years, and (c) have earned at least $396 in 1994 (an amount adjusted annually for changes in the cost-of-living). You may establish more liberal requirements to include more of your employees, but you may not impose more restrictive conditions. You must generally contribute the same percentage of earned income (based on W-2 wages) for each eligible employee, but that contribution percentage may vary between 0% and 15% of earned income each year at your discretion. You may be able to contribute a higher percentage for employees (including yourself) who earn more than the Social Security wage base. You may also, if you have no more than 25 eligible employees (including yourself), make contributions only for employees who elect to reduce their current compensation (a SAR-SEP). If your business has other employees, you should consult a qualified tax adviser as to the best contribution formula to use. Acorn IRA plan 9 General Information about the Individual Retirement Account Plan If you are self-employed, a new SEP-IRA for a given year must be established by April 15 of the following year, with each subsequent year's contribution also due by April 15 of the following year. If you are a business owner establishing SEP-IRAs for yourself and your employees, you must open the accounts by the due date of your business's federal tax return for the tax year for which the contribution will be made. In addition to your SEP-IRA, you may also be able to contribute to a regular IRA, but you should consult your tax adviser about the deductibility of your contributions and about the tax consequences of excess contributions to either account. To open a new SEP-IRA at Acorn, complete the enclosed application. If you have employees for whom you are establishing SEP-IRA accounts, please write a separate check for your contribution for each employee. You should also complete IRS Form 5305-SEP (available from the IRS), keep the original for your records, and give a copy to each eligible employee. Do not send Form 5305-SEP to Acorn or file it with the IRS. In addition, if your business has other employees, you may be required to furnish them with certain information to avoid being required to file annual tax returns for the SEP-IRA. To transfer your SEP-IRA to Acorn from another custodian, complete the transfer form, checking the box for a SEP-IRA Transfer. If this is a new Acorn SEP-IRA, you will also need to complete the application, checking the SEP-IRA and Direct Transfer boxes. If you have received SEP-IRA funds from another custodian and are moving your money to Acorn within 60 days of that distribution, complete the application and check the SEP-IRA and 60-Day Rollover boxes. Making withdrawals from your Acorn IRA You must begin withdrawing money from your IRA by April 1 of the year after the year in which you reach age 70 1/2. You may start to withdraw funds from your account without penalty when you reach age 59 1/2 or if you are disabled or meet certain other conditions. Any withdrawals you make before you reach age 59 1/2, unless you are disabled or meet certain other IRS qualifications, are subject to tax penalties. Call Acorn at 1-800-962-1585 for an Acorn IRA withdrawal service form to make a withdrawal from your IRA or to set up a regular withdrawal plan. State Street Bank can help you in completing this form if you have any questions. 10 Acorn IRA plan If you wish to withdraw only the minimum required distribution for each year after you reach age 70 1/2, State Street Bank can help you make the necessary calculations and set up a periodic withdrawal plan for your distributions. Simply check box C of the Withdrawal Instructions on the Acorn withdrawal service form, provide the other requested information for that section, and complete the remainder of the form. Certain tax penalties may also apply if you withdraw too much money from an IRA in a given year. You should consult your tax adviser concerning the differences among the tax effects which may result from taking the minimum required distribution and those involved in the other available withdrawal options. Account Fees State Street Bank, as custodian, charges the following fees for an Acorn IRA, per fund account: Initial set-up fee........................................... $ 5.00 Annual maintenance fee....................................... $10.00 Disbursement fee............................................. $10.00 (per withdrawal, except for automatic installment payments)
The $5.00 per fund set-up fee will be deducted from your initial IRA contribution; to maximize the contribution that goes to work for you, add $5 to your contribution for each fund in which your initial contribution will be invested (or send us a separate check for the set-up fee). Acorn will also withdraw the annual maintenance fee(s) from your account(s) unless you send a check for those fee(s) when you receive Acorn's annual fee statement in November. If the disbursement fee applies, Acorn will deduct the $10.00 from each withdrawal. - ------------------------------------------------------- Minimum Investments - ------------------------------------------------------- To open an IRA $200 To add to an IRA account 100 Minimum balance 200 - ------------------------------------------------------- Making an active and worry-free retirement possible means taking the time now to plan for your financial future. We hope that this booklet has been helpful and that you will make an Acorn IRA part of your retirement plan. Acorn IRA plan 11 Acorn Investment Trust Individual Retirement Plan and Custodial Agreement (June 30, 1992 Revision) The Acorn Fund, Inc. (the "Fund"), a regulated investment company, has heretofore established The Acorn Fund, Inc. Individual Retirement Plan (the "Plan"). Effective June 30, 1992, The Acorn Fund, Inc. was reorganized as Acorn Investment Trust, a Massachusetts business trust (the "Trust"), and the Trust thereby assumed and succeeded to all of The Acorn Fund, Inc.'s rights and obligations under the Plan, including the power reserved in Section VIII of the Plan to amend the Plan. Pursuant thereto, the Trust hereby amends and restates the Plan in its entirety to read as follows, effective as of June 30, 1992. The Plan is intended to meet the requirements of section 408 of the Internal Revenue Code of 1986, as amended. Some words and phrases used herein have a technical meaning and are defined in Article IX. I. Eligibility Any person who receives Compensation (including Earned Income of a self-employed individual and alimony or separate maintenance payments of a divorced person) during a taxable year is eligible to adopt this Plan for such year. In addition, any person making a Rollover Contribution or a trustee-to-trustee transfer may adopt the Plan. II. Participation A. Regular IRA. An individual may contribute to his Custodial Account for any taxable year an amount not in excess of the lesser of (1) $2,000 or (2) 100 percent of the Individual's Compensation includible in his gross income for such taxable year. The Fund and the Custodian are not responsible for determining the amount an Individual may contribute. B. Spousal IRA. (1) In addition to the contributions permitted under paragraph A, an Individual who files a joint federal income tax return for any taxable year and whose spouse has no Compensation for that year (or elects to be treated as having no compensation for the year) may contribute an amount to a separate Custodial Account for the benefit of the Individual's spouse. The aggregate amounts contributed to the Custodial Accounts of the Individual and the Individual's spouse for any taxable year may not exceed the lesser of (a) $2,250 or (b) 100 percent of the Compensation includible in the Individual's gross income for that year, but in no event shall the amount contributed to either Custodial Account exceed $2,000. (2) In determining marital status the following shall apply: (a) the determination of whether the Individual is married shall be made as of the close of the taxable year, except that if his spouse dies during the taxable year such determination shall be made as of the time of such death; and (b) if the Individual is legally separated from his spouse under a decree of divorce or of separate maintenance they shall not be considered as married. C. Contributions After Age 70 1/2. The Individual may not make a contribution under paragraph A for any taxable year if he has attained age 70 1/2 before the close of that year, nor under paragraph B if the spouse has attained age 70 1/2 before the close of that year. D. Refund of Excess Contribution. If for any taxable year the Individual contributes an amount for the Individual or the Individual's spouse under paragraph A or B which exceeds the maximum limits permitted by those paragraphs, such excess contribution shall upon the written request of the Individual (or the spouse in the case of a Spousal Account) be paid to the Individual (or the spouse in the case of a Spousal Account) by the Custodian. If the refund is made before the due date of the Individual's federal income tax return for that year (including extensions), the refund shall include any income attributable to the excess contribution. E. Rollover Contributions and Transfers. (1) The Individual may also make a Rollover Contribution as defined in Article IX of the Plan. Any Rollover Contribution and the earnings thereon may be held by the Custodian in a separate account for the Individual. (2) In addition, notwithstanding any other provisions hereof, the Individual may cause the custodian or trustee under any other individual retirement account established and maintained by the Individual to transfer all or any part of the funds in such account directly to the Custodian to be held under this Plan. Effective January 1, 1993, the Individual may also cause the trustee of any plan to which Section 401(a)(31) of the Code applies to transfer all or any part of the benefits payable under such plan directly to the Custodian to be held under this Plan. (3) In the case of a Rollover Contribution, the Individual shall certify to the Custodian that the contribution qualifies as such. F. Simplified Employee Pension (SEP-IRA). In the case of an employer contribution on behalf of the Individual to a Simplified Employee Pension, notwith- 12 Acorn IRA plan standing the limitations stated in paragraph A, the contribution for any taxable year shall not exceed the lesser of (1) 15 percent of the Compensation from the employer includible in the Individual's gross income for the year (determined without regard to the employer contribution to the Simplified Employee Pension), or (2) the amount contributed by the employer to the Simplified Employee Pension and included in gross income (but not in excess of $30,000). Employer contributions to a SEP-IRA may be made on behalf of the Individual after the Individual reaches age 70 1/2. G. Minimum Contributions. A contribution is not required for any year. Each contribution must be at least $200. However under the Automatic Investment Plan, which permits the purchase of Fund Shares automatically on a monthly basis through preauthorized checks, each monthly contribution after the initial contribution must be at least $100. H. Nonforfeitability. The interests of the Individual and the Individual's spouse in their respective Custodial Accounts shall be nonforfeitable at all times. I. Form of Contributions. All contributions and transfers shall be made only in cash. III. Investment of Contributions A. As directed by the Individual in writing, all contributions shall be used by the Custodian to purchase Fund Shares. All income dividends and capital gains distributions shall be reinvested in shares of the Fund which declared such dividends or distributions unless the Individual (or spouse in the case of a Spousal Account) elects in writing, in accordance with an opportunity to do so provided by the Fund declaring the dividend or distribution, to apply such dividend or distribution to purchase other Fund Shares available under the Plan. B. A telephonic Switch Plan ("Switch Plan"), as described in the prospectus(es) of the Funds is available hereunder. After the Custodian receives a Switch Plan authorization deemed by the Custodian to be in proper form, the Custodian, upon receipt of telephonic instructions from any person representing himself to be the Individual, may redeem any Fund Shares held by the Custodian on behalf of the Individual and apply the proceeds toward the purchase of any other Fund Shares available hereunder, subject to and in accordance with the terms and conditions of the Switch Plan. The Custodian shall be entitled to rely and act upon such telephonic instructions, and neither the Custodian, the Trust, any other Fund whose shares are available hereunder nor their officers, trustees, directors, employees or agents shall be liable for any liability, cost or expense for acting on any such instructions. In directing any switch pursuant to the Switch Plan, the Individual represents that he has obtained a current prospectus of the Fund into which the switch is to be made. The Individual authorizes and directs the Custodian to respond to any telephonic inquiries relating to the status of shares owned, including but not limited to the number of shares held. The Individual agrees that the authorizations, directions and restrictions contained herein will continue until the Custodian receives written notice of any change or revocation. The Individual agrees and understands that the Funds and the Custodian reserve the right to refuse any telephonic instructions. C. All Fund Shares acquired by the Custodian shall be registered in the name of the Custodian or its nominee. D. No part of the custodial funds shall be invested in life insurance contracts nor in collectibles (within the meaning of section 408(m) of the Code); nor may the assets of the Custodial Account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5) of the Code). E. All assets in the Custodial Account shall be held by the Custodian for the exclusive benefit of the Individual and the Individual's designated beneficiary or beneficiaries. IV. Distributions A. As directed in writing by the Individual, the entire interest of the Individual in the Custodial Account shall be distributed, or commence to be distributed, no later than April 1 following the calendar year in which the Individual attains age 70 1/2 (the "required beginning date"). Not later than the required beginning date, the Individual shall elect, in such form and at such time as is acceptable to the Custodian, to have the balance in the Custodial Account distributed: (1) In a single sum payment in cash or Fund Shares; (2) In equal or substantially equal annual installments in cash commencing not later than the required beginning date and over a specified period certain not extending beyond the life expectancy of the Individual, or the joint and last survivor life expectancy of the Individual and his designated beneficiary; or Acorn IRA plan 13 Individual Retirement Plan and Custodial Agreement (3) By the purchase of an annuity contract issued by an insurance company selected by the Individual and providing equal or substantially equal monthly, quarterly or annual payments commencing not later than the required beginning date, for the life of the Individual, or, if he so elects, for the lives of the Individual and his designated beneficiary, with any period certain limited to the life expectancy of the Individual or the joint and last survivor life expectancy of the Individual and his designated beneficiary. Even though distributions may have commenced pursuant to option (2) the individual may receive a distribution of any part or all of the balance in the Custodial Account, either in cash or in Fund Shares, at any time upon written notice to the Custodian. If the Individual fails to elect any of the methods of distribution described above before the required beginning date, distribution to the Individual shall be made on or before the required beginning date in a single distribution in Fund Shares. If the Individual elects option (2) as the mode of distribution, the annual payment required to be made by the Individual's required beginning date is for the calendar year the Individual reached age 70 1/2. The annual payment for each subsequent year, including the year in which the Individual's required beginning date occurs, must be made by December 31 of that year. If the Individual elects option (3) as the mode of distribution, the annuity contract must satisfy the requirements of section 408(b)(1), (3) and (4) of the Code. B. If the Individual dies before his or her entire interest in the Custodial Account is distributed, the entire remaining interest shall be distributed as directed in writing by the beneficiary as follows: (1) If the Individual dies on or after the Individual's required beginning date, distribution must continue to be made in accordance with paragraph A. (2) If the Individual dies before the Individual's required beginning date, the entire remaining interest shall, at the election of the beneficiary or beneficiaries, either (a) Be distributed by December 31 of the year containing the fifth anniversary of the Individual's death, or (b) Be distributed in equal or substantially equal annual payments over a specified period not extending beyond the life expectancy of the designated beneficiary or beneficiaries. The election of either (a) or (b) must be made by December 31 of the year following the year of the Individual's death. If the beneficiary or beneficiaries do not elect either of the distribution options described in (a) or (b), distribution shall be made in accordance with (b) if the beneficiary is the Individual's surviving spouse and in accordance with (a) if the beneficiary or beneficiaries are or include anyone other than the surviving spouse. In the case of distributions under (b), distributions must commence by December 31 of the year following the year of the Individual's death. However, if the Individual's spouse is the beneficiary, distributions need not commence until December 31 of the year the Individual would have attained age 70 1/2, if later. (3) If the designated beneficiary is the Individual's surviving spouse, the spouse may treat the Custodial Account as his or her own individual retirement arrangement (IRA). Such an election shall be deemed to have been made if such surviving spouse makes a regular IRA contribution to the Custodial Account, makes a rollover to or from the Custodial Account or fails to elect any of the preceding provisions. If the Individual dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash contributions or rollover contributions may be accepted in the Custodial Account. C. In the case of distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment for each year, divide the Individual's entire interest in the Custodial Account as of the close of business on December 31 of the preceding year by the life expectancy of the Individual (or the joint and last survivor life expectancy of the Individual and the Individual's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies). For this purpose, however, in the case of the year ("second distribution year") following the year in which the Individual reached age 70 1/2, the balance in the Custodial Account as of the close of business on December 31 of the preceding year shall be reduced by any distribution made during the second distribution year on or before April 1 to satisfy the minimum distribution requirement for the year the Individual reached age 70 1/2, as determined in accordance with paragraph J below. D. Effective for distributions after December 31, 1988 and before the Participant's death, notwithstanding any other provisions in this Plan, if the distribution period is longer than the Individual's life expectancy 14 Acorn IRA plan and the Individual's spouses is not the designated beneficiary, the minimum amount required to be distributed each year, beginning with the year the Individual reaches age 70 1/2, shall be determined by dividing the balance in the Custodial Account as of the close of business on December 31 of the preceding year by the lesser of (1) the joint and last survivor life expectancy of the Individual and his designated beneficiary determined as provided in paragraph C or (2) the applicable divisor determined from the table set forth in Q&A-4 of Proposed Treasury Regulation Section 1.401(a)(9)-2. For this purpose, however, in the case of the year ("second distribution year") following the year in which the Participant reached 70 1/2, balance in the Custodial Account as of the close of business on December 31 of the preceding year shall be reduced by any distribution made during the second distribution year on or before April 1 to satisfy the minimum distribution requirement for the year the Individual reached age 70 1/2. E. The minimum annual payment may be made in a series of installments (e.g., monthly, quarterly, etc.) as long as the total payments for the year made by the date required are not less than the minimum amounts required. F. Any annuity contract purchased for the Individual pursuant to the Plan shall be immediately distributed to the Individual, and the custodial relationship shall terminate upon such distribution. G. Except in the case of the Individual's death or Disability or attainment of age 59 1/2, no distribution shall be made to the Individual of his interest in the Custodial Account unless the Individual gives the Custodian a statement explaining how he or she intends to dispose of the amount to be distributed. H. An Individual shall have the right by written notice to the Custodian to designate one or more beneficiaries to receive any amount to which the Individual may be entitled in the event of his death before the complete distribution of his interest, and to change any such beneficiary. Such designation or change shall be on the Beneficiary Form provided by the Trust, and shall be effective only when filed with the Custodian before the death of the Individual. Such designation may include contingent or successive beneficiaries. If no such designation is in effect on an Individual's death, or if no designated beneficiary is living on the date any payment becomes due after the Individual's death, such payment shall be made to the executor or administrator of the Individual's estate. However, if after the Individual's death, his surviving spouse is receiving payments over a specified period, the surviving spouse may designate a beneficiary to receive the balance of the Custodial Account, if any, on his or her death in accordance with the foregoing rules. I. If any person to whom all or a portion of the Individual's interest is payable is a minor, payment of the minor's interest shall be made on behalf of the minor to the person designated by the Individual in the Beneficiary Form to receive the minor's interest as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute. If any person to whom all or a portion of the Individual's interest is payable is a minor and if either (a) the Individual has not so designated a person to receive the minor's interest as such custodian, or (b) the person so designated is unable to act (because of incapacity, failing or declining to act, death or otherwise), the Custodian shall: (i) Distribute the interest to the legal guardian of such minor; or (ii) If no guardian has been appointed, designate an adult member of the minor's family, a guardian or a trust company (including the Custodian), as those terms are defined in the Massachusetts Uniform Transfers to Minors Act or similar statute, as custodian for such minor under the Massachusetts Uniform Transfers to Minors Act or similar statute and distribute such minor's interest to the person so designated. The person designated as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute shall hold, manage and distribute such property in accordance with the provisions of such statute including, if such statute so requires, a total distribution prior to age 21. The distribution of the Individual's interest to the guardian or the person designated as custodian under the Massachusetts Uniform Transfers to Minors Act or similar statute shall be a full discharge of the Custodian to the extent of the distribution so made. J. For purposes of determining the minimum distribution required for any year pursuant to paragraph C, if the applicable life expectancy is the life expectancy of the Individual, the life expectancy of the Individual's surviving spouse, or the joint and last survivor life expectancy of the Individual and his spouse, such life expectancy shall be determined on the basis of the age attained by the Individual, his or her spouse, or both of them, on their birthdays occurring during the year for which the minimum distribution is calculated (which, in the case of a distribution under paragraph A made in the year which includes Acorn IRA plan 15 Individual Retirement Plan and Custodial Agreement the required beginning date for the year in which the Individual attains age 70 1/2, shall be the year in which the Individual attains age 70 1/2). If the applicable life expectancy is that of a beneficiary other than the Individual's surviving spouse, or the joint and last survivor life expectancy of the Individual and a beneficiary other than his surviving spouse, the life expectancy for the first year for which a distribution is required to be made (the "initial life expectancy") shall be determined on the basis of the age attained by the Individual, such beneficiary, or both of them on their birthdays occurring during such year, and the life expectancies for each subsequent year shall be determined by subtracting from the initial life expectancies the number of years that have elapsed since such initial year. All life expectancies shall be determined in accordance with tables contained or referenced in regulations promulgated under section 401(a)(9) of the Code. K. The provisions of this Article V shall determine the minimum distributions required to be made from the Custodial Account. Nothing contained herein shall be construed to limit the right of the Individual, or of his or her beneficiaries, to withdraw a larger amount from the Custodial Account than the minimum distribution required hereunder but amounts withdrawn in any year in excess of the minimum distribution required for such year shall not reduce the minimum amount required to be distributed in any subsequent year (except that any amount distributed in the year in which an Individual attains the age of 70 1/2 shall reduce the amount required to be distributed by April 1 of the subsequent year under paragraph A). L. Notwithstanding any provision of this Plan to the contrary, the distribution of an Individual's interest in the Custodial Account shall be made in accordance with the minimum distribution requirements of section 408(b)6) or section 408(b)(3) of the Code and the regulations thereunder, including the incidental death benefit provisions of section 1.401(a)(9)-2 of the proposed regulations, all of which are herein incorporated herein by reference (the "minimum distribution requirements"). Any ambiguity in the provisions of this Article 5 shall be resolved in a manner consistent with the minimum distribution requirements, and, if any provision of this Article 5 is inconsistent with the minimum distribution requirements, the minimum distribution requirements shall control. M. If distributions from the Custodial Account are to be made to the Individual's surviving spouse, or to a trust of which the Individual's surviving spouse is the income beneficiary, the amount which the surviving spouse (or such trust) is entitled to receive in each year shall not be less than the income of the Custodial Account (or of the portion of the Custodial Account with respect to which the surviving spouse or such trust is the beneficiary) for such year, as determined under section 2056(b)(7) of the Code. N. Whenever distributions after the death of the Individual are to be made to the Individual's surviving spouse and to one or more beneficiaries other than the surviving spouse, and any provision of this Article 5 or the minimum distribution requirements provides different treatment for the portion of the Custodial Account to be distributed to the surviving spouse, then such portion, and the income earned thereon, shall be separated and treated as a separate Custodial Account with respect to such surviving spouse. O. Notwithstanding anything herein to the contrary, all distributions shall be made by the Custodian in such manner and in such amounts as may be specified in written instructions received from time to time by the Individual or the beneficiary, as the case may be and all such instructions shall be deemed to constitute a certification by the Individual or beneficiary that the distribution so directed is one that the Individual or beneficiary is permitted to receive. In addition, the Custodian shall have no liability with respect to any distribution from the Account in accordance with the directions of the Individual or beneficiary or the failure to make a distribution in the absence of such instructions or any consequences thereof including, but not limited to, excise and other taxes and penalties which might accrue or be assessed, nor shall the Custodian be under any duty to make any inquiry or investigation with respect thereto. V. Administration Except as otherwise provided in the Plan, the Custodian shall, as directed in writing, on behalf of the Individual: (1) Receive contributions pursuant to the provisions of the Plan; (2) Hold, invest and reinvest the contributions in Fund Shares; (3) Register any property in the Custodial Account in the name of the custodian or its nominee; and (4) Make distributions from the Custodial Account in cash or in Fund Shares pursuant to the provisions of the Plan. 16 Acorn IRA plan The Custodian shall deliver or cause to be executed and delivered to the Individual all notices, prospectuses, financial statements, proxies and proxy soliciting material relating to assets credited to the custodial account. No Fund Shares shall be voted, and no other action shall be taken pursuant to such documents, except upon receipt of adequate written instructions from the Individual. The Custodian shall keep accurate and detailed account of its receipts, investments and disbursements. As soon as practicable after the end of each calendar year, and whenever required by regulations adopted under the Act or the Code, the Custodian shall file with the Individual a written report of the Custodian's transactions relating to the Custodial Account during the period from the last previous accounting, and shall file such other reports with the Internal Revenue Service as may be required of the Custodian by regulation. Unless the Individual sends the Custodian written objection to a report within 60 days after its receipt, the Individual shall be deemed to have approved such report, and in such case the Custodian shall be forever released and discharged with respect to all matters and things included therein. The Custodian may seek a judicial settlement of its accounts. In any such proceeding the only necessary party thereto in addition to the Custodian shall be the Individual unless otherwise required by law. The Custodian shall have no duties whatsoever except such duties as are specifically provided for herein, and no implied covenant or obligation shall be read into this Agreement against the Custodian. The Custodian shall not be liable for a mistake in judgment, for any action taken, or any failure to act, in good faith, or for any loss that is not a result of its gross negligence, except as expressly required by the Act and regulations promulgated thereunder. In performing its duties under this Agreement, the Custodian may hire agents, experts and attorneys and may delegate discretionary powers to, and rely upon information and advice furnished by, such agents, experts and attorneys. The Individual agrees to indemnify and hold the Custodian harmless from and against any liability that the Custodian may incur in the administration of the Custodial Account, unless arising from the Custodian's own gross negligence or willful misconduct. The Custodian shall be under no duty to question any direction of the Individual with respect to the investment of contributions, or to make suggestions to the Individual with respect to the investment, retention or disposition of any contributions or assets held in the Custodial Account. The Custodian shall pay out of the Custodial Account expenses of administration, including the fees of counsel employed by the Custodian, taxes, if any, and its fees for maintaining the Custodial Account, which are set forth in the Disclosure Statement but may be revised from time to time by the Custodian and the Trust. The Custodian may sell Fund Shares and use the proceeds of sale to pay the foregoing fees and expenses. The Custodian may resign as Custodian of any Individual's Custodial Account or as Custodian of all accounts adopted under the provisions of this Plan, in either case upon 30 days' prior notice to the Trust and 30 days' prior notice to each Individual who will be affected by such resignation. If the Trust or the Individual does not appoint a successor custodian within 30 days after the mailing of such notice, the Custodian will terminate the Custodial Account. The Individual shall be solely and fully responsible for all taxes and penalties which might accrue or be assessed with respect to any excess contributions, premature distributions or distributions which are below the annual minimum distribution required. The Custodian shall be entitled to receive and may charge against the Individual's Custodial Account such reasonable compensation for its services in accordance with its fee schedule as from time to time in effect, and shall also be entitled to reimbursement of its expenses as Custodian under this Agreement. The Custodian will notify the Individual in writing of any change in its fee schedule. This Agreement and the Custodial Account created hereby shall be subject to the applicable laws, rules and regulations, as the same may from time to time be amended, of the Federal government and the Commonwealth of Massachusetts and the agencies and instrumentalities of each having jurisdiction thereof, and shall be governed by and construed, administered and enforced according to the law of the Commonwealth of Massachusetts. All contributions to the Custodial Account shall be deemed to take place in the Commonwealth of Massachusetts. The Custodian and Individual hereby waive and agree to waive right to trial by jury in an action or proceeding instituted in respect to this Custodial Account. The Individual further agrees that the venue of any litigation between him and the Custodian with respect to the Custodial Account shall be in the County of Suffolk, Commonwealth of Massachusetts. Acorn IRA plan 17 Individual Retirement Plan and Custodial Agreement VI. The Trust The Individual delegates to the Trust the following powers with respect to the Plan: (1) to remove the Custodian and select a successor Custodian; and (2) to amend the Plan with the Custodian's consent as provided in Section VIII. The powers herein delegated to the Trust shall be exercised by such officer thereof as the Trust may designate from time to time, and shall be exercised only when similarly exercised with respect to all other Individuals adopting the Plan. Neither the Trust nor any officer director, trustee, board, committee, employee or member of the Trust shall incur any liability of any nature to the Individual or beneficiary or other person in connection with any act done or omitted to be done in good faith in the exercise of any power or authority herein delegated to the Trust. If the Trust shall hereafter determine that it is no longer desirable for the Trust to continue to exercise any of the powers hereby delegated to the Trust, it may relieve itself of any further responsibilities hereunder by notice in writing to the Individual and the Custodian at least 60 days before the date on which the Trust proposes to discontinue the exercise of the powers delegated to it. VII. Amendment Termination The Individual delegates to the Trust and the Custodian the power to amend the Plan (including retroactive amendment). The Individual may amend his Application (including retroactive amendment) by submitting to the Custodian (1) a copy of such amended Application, and (2) evidence satisfactory to the Custodian that the Plan as amended by such amended Application will continue to qualify as an Individual Retirement Account under the provisions of section 408 of the Code. No amendment shall be effective if it would cause or permit (a) any part of the Custodial Account to be diverted to any purpose that is not for the exclusive benefit of the Individual and his beneficiaries; (b) the Individual to be deprived of any portion of his interest in the Custodial Account, unless such action is taken in order to satisfy qualification requirements under the Code; or (c) the imposition of an additional duty on the Custodian without its written consent. The Individual reserves the right to terminate his adoption of this Plan by instrument in writing signed by him and filed with the Custodian. VIII. Definitions Whenever used in this Plan, the following terms shall have the meanings set forth below unless otherwise expressly provided herein: A. Act. The Employee Retirement Income Security Act of 1974, as amended from time to time. B. Application. The Individual Retirement Account Application, constituting an agreement between the Individual and the Custodian, by which the Individual adopts the Plan. C. Code. The Internal Revenue Code of 1986, as amended from time to time. Reference to a section of the Code shall include that section and any comparable section or sections of any future legislation that amends, supplements or supersedes that section. D. Compensation. The total compensation received by an Individual during a period, including wages, salaries, professional fees, or other amounts derived from or received for personal service actually rendered (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses) and including earned income, as defined in section 401(c) of the Code (reduced, in the case of a self-employed individual, by any federal income tax deduction taken for contributions to a qualified retirement (Keogh) plan). Compensation does not include amounts derived from or received as earnings or profits from property (including, but not limited to, interest and dividends) or amounts not includible in gross income. Compensation also does not include any amount received as a pension or annuity or as deferred compensation. The term "compensation" shall also include any amount includible in the Individual's gross income under section 71 of the Code with respect to a divorce or separation instrument described in section 71(b)(2)(A) of the Code. E. Custodial Account. The account established for an Individual under the Plan. F. Custodian. The bank named in the Application. G. Disability. The inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration. H. Trust. Acorn Investment Trust, a regulated investment company. 18 Acorn IRA plan I. Fund Shares. Shares issued by the Trust or shares of any other regulated investment company for which the Custodian acts as transfer agent and which may be available hereunder from time to time pursuant to an agreement between the Custodian and the Trust. No Fund shall be available for investment under the Plan (i) before the date the prospectus for that Fund discloses its availability, (ii) with respect to any Participant who resides in any state or other jurisdiction in which shares of the Fund are not available for sale, or (iii) with respect to any Participant not eligible to purchase Fund shares directly, when sales of Fund shares are restricted. J. Individual. An individual who adopts the Plan as provided therein. K. Rollover Contribution. A rollover amount or rollover contribution as described in section 402(a)(5) or 402(a)(7) (as in effect prior to January 1, 1993), 402(c) (effective January 1, 1993), 403(a)(4), 403(b)(8), or 408(d)(3) of the Code, and regulations promulgated thereunder. L. Simplified Employee Pension. An Individual Retirement Account with respect to which the requirements of section 408(k) of the Code are met. The foregoing Individual Retirement Plan and Custodial Agreement of Acorn Investment Trust is adopted by the Individual by signing the Individual Retirement Account Application, which is incorporated herein and made a part hereof. Acorn IRA plan 19 Acorn Investment Trust Individual Retirement Account Disclosure Statement We are required to give you this Disclosure Statement for the purpose of assuring that you are informed and understand the nature of an Individual Retirement Account ("IRA"). This disclosure statement explains the rules governing IRAs. Your Right to Revoke this IRA. You may revoke this IRA at any time within seven days after the later of the date you received this Disclosure Statement or the day you established this IRA. For purposes of revocation, it will be assumed that you received the Disclosure Statement no later than the date of your check or transfer direction with which you opened your IRA. If you did not receive the Disclosure Statement until a later date, your notice of revocation should state the date on which the Disclosure Statement was received. To revoke the IRA, you must either mail or deliver a notice of revocation to the following address: State Street Bank and Trust Company Attention: Acorn Investment Trust P.O. Box 8502 Boston, MA 02266-8502 If a notice of revocation is mailed, it will be deemed mailed on the date of the postmark (or if sent by certified or registered mail, the date of certification or registration) if it is deposited in the mail in the United States, first class postage prepaid and properly addressed. If you revoke your IRA, you are entitled to a return of the entire amount contributed. 1. Types of IRAs; Eligibility In General. An IRA is a trust or custodial account established in the United States for the exclusive benefit of an individual and his or her beneficiaries and which, under Section 408(a) of the Internal Revenue Code, meets the following requirements: annual contributions are limited as described below; the trustee or custodian is a bank or other approved financial institution; no part of the IRA can be invested in life insurance contracts; the individual's interest in the IRA is nonforfeitable; the IRA's assets cannot be commingled with other property except for certain permitted common funds; and minimum distributions are required as described below. There are several types of IRAs. For example, there is a "Regular IRA" to which you may make contributions for yourself. There is a "Spousal IRA" which you may be able to set up for your spouse. There is also a "Rollover IRA" which you can set up to receive assets from a qualified plan, annuity or another IRA. Finally, there is a SEP-IRA (which is also known as a Simplified Employee Pension Plan) which your employer can establish for you. Following is a general description of the rules which apply to each of these types of IRAs and who is eligible to establish them. A. Regular IRA. You may contribute up to the lesser of $2,000 or 100% of your compensation if you have not reached age 70 1/2 during the taxable year. You may make this contribution even if you or your spouse is an active participant in a qualified employer plan. However, as explained below, the amount of the contribution which is deductible for federal income tax purposes may be limited. Compensation includes wages, salary, commissions, bonuses, tips, etc., and also includes taxable alimony or separate maintenance payments. Compensation does not include income from interest, dividends or other earnings or profits from property, or amounts not includible in your gross income. B. Spousal IRA. You may contribute to your IRA and an IRA for your non-working spouse if: (1) you have received compensation during the taxable year and (2) you file a joint income tax return for the year with your spouse. Under such an arrangement, you may qualify for a total deduction equal to the lesser of $2,250 or 100% of your compensation for the taxable year. You can determine how to divide the contribution between the two accounts but you cannot contribute more than $2,000 annually into either one. While you cannot contribute to your IRA in the taxable year in which you reach 70 1/2, you can still contribute to your spouse's IRA if he or she has not reached 70. A Spousal IRA does not involve the creation of a joint account. The account of each spouse is separately owned and treated independently from the account of the other spouse. A "non-working spouse" is one who had no compensation for the year, or elects to be treated as having no compensation for this purpose. Your spouse's election is made by claiming a spousal IRA deduction on your joint tax return. C. Rollover IRAs. All or a portion of certain distributions from qualified retirement plans, annuities and other IRAs may be "rolled over" tax-free within 60 days after receipt of the distribution without regard to the limits on deductible contributions, but no deduction is allowed with respect to such a contribution. In general, you can roll over any distribution from a qualified plan unless it is either (1) one of a series of substantially equal periodic payments (such as an annuity or certain types of installment payments) or (2) a minimum distribution required to be made after you reach the age of 70 1/2. You can generally roll over any distribution from an IRA to another IRA except a minimum distribution required after you reach 70 1/2. 20 Acorn IRA plan The amount rolled over cannot exceed the taxable portion of the distribution, including any portion withheld for payment of taxes. If property, rather than cash, is distributed, you may either roll over the property distributed (although Acorn does not accept non-cash contributions), or sell the property within the 60-day period and roll over all or part of the proceeds. If you make a rollover from a qualified employer plan to an IRA, you may in turn under certain circumstances make a later rollover from the IRA into another qualified plan of a subsequent employer. To preserve that right, however, you must keep the rollover IRA separate from any other IRA you may have, since you cannot make a rollover to an employer plan from an IRA to which you have made yearly contributions. You can also transfer assets you hold in one IRA to another IRA by directing the current trustee or custodian to transfer those assets directly to the new IRA. You can direct such a so-called "trustee-to-trustee transfer" at any time. However, you may make a rollover from one IRA to another IRA only once during a one-year period. You can also direct the trustee or custodian of a qualified retirement plan to transfer a distribution from the plan directly to an IRA. This is called a "direct rollover." A direct rollover is generally preferable to a distribution followed by a 60-day rollover, because a distribution to you from a qualified plan is subject to 20% income tax withholding. This means that, if you want to roll over the full amount of your distribution, you will have to replace the 20% that was withheld with other funds. A direct rollover is not subject to tax withholding. Rollover amounts you receive may not be deposited in your spouse's IRA. However, if your surviving spouse receives a distribution from a qualified plan or IRA as your beneficiary, he or she can generally roll over the distribution to an IRA (but not to a qualified plan) to the same extent that you could have. This rollover right does not apply to beneficiaries other than your surviving spouse. The amount of the death payout rolled over by a spouse into an IRA may not subsequently be rolled over into another employer's qualified plan or annuity. The term "qualified plan" includes tax-qualified pension or profit-sharing plans (including 401(k) plans) maintained by your employer, and Keogh plans for self- employed persons and partners. Except for purposes of a surviving spouse's right to rollover distributions received as a beneficiary, it also includes qualified annuity plans, tax-sheltered annuities, and custodial accounts maintained by tax-exempt employers. Strict requirements must be met to qualify for tax-free rollover treatment. You should consult your personal tax advisor in connection with rollovers to and from your IRA. (d) Simplified Employee Pension (SEP-IRA). An employer may adopt a SEP-IRA and contribute to your SEP-IRA even if you are covered by another retirement plan. The maximum contribution is 15% of your compensation (computed without regard to the contribution) or $30,000 (or such other amount as may be prescribed by the Secretary of the Treasury), whichever is less. The contributions are deductible by the employer and are generally not includible in your income until you receive distributions. If your employer chooses and if certain conditions are satisfied, you can elect to have your salary reduced by up to $7,000 (or such higher amount as is specified from time to time by the Secretary of the Treasury) and to contribute the reduction to your SEP-IRA. This type of SEP-IRA is called an SAR-SEP. If you reduce your salary under a salary reduction agreement, your salary subject to federal income tax is reduced. To establish a SEP-IRA, your employer must sign a SEP-IRA plan agreement and provide you with a copy of the agreement as well as certain information concerning the rules applicable to such plans. Your employer can satisfy these requirements by using Form 5305-SEP, which is issued by the Internal Revenue Service. If you are self- employed, you may establish a SEP-IRA for your own benefit, but you may also have to cover any other employees you have. II. Contributions In General. As explained in this part, the amount of your IRA contributions which you can deduct is subject to limits. All contributions and transfers to your Acorn IRA must be in cash. Contributions to your Regular IRA or Spousal IRA may be made up to the due date for filing your tax return for the taxable year (excluding extensions thereof) even if you file before the due date. In making contributions, you must indicate the tax year to which the contribution applies. If no tax year is designated, the custodian will assume that the contribution is intended to apply to the calendar year in which it is received. The time limit for designating the applicable tax year is April 15. Contributions made by an employer to your SEP-IRA for a calendar year may be made no later than the due date of your employer's tax return (including extensions). In making a SEP-IRA contribution, the tax year to which the contribution relates must also be specified or it will be deemed to relate to the cal- Acorn IRA plan 21 Individual Retirement Account Disclosure Statement endar year in which it is received. In a SEP-IRA, this designation of the tax year of a contribution must be made by the due date for contributions described above. Deductible Contributions. If you are single and are not an "active participant" in a retirement plan maintained by your employer, you can deduct the full amount of your IRA contribution up to the lesser of $2,000 or 100% of your compensation for the year. If you are married, you can deduct the full amount of your IRA contribution so long as neither you nor your spouse is an "active participant" in a retirement plan maintained by your respective employers. These plans include qualified pension, profit-sharing, stock bonus or money purchase plans, 401(k) plans, SEP-IRAs, qualified annuity plans, tax-sheltered annuities and custodial accounts and governmental retirement plans (other than certain plans for reserve members of the armed forces and volunteer firemen, and certain deferred compensation plans). In general, you are considered to be an active participant in a plan if an employer contribution or forfeiture was credited to your account during the year in the case of a defined contribution plan or if you have met the minimum age and service requirements, in the case of a defined benefit plan (even if you don't actually accrue a benefit during the year). You are considered to be an active participant in a plan if you make a contribution to the plan during a year even if your employer does not. For active participation, it does not matter whether any interest you have in a plan is vested or unvested. If you or your spouse is an active participant in a plan, the amount of the deduction you can claim for an IRA contribution is reduced or totally denied depending upon the amount by which your adjusted gross income for the year exceeds the "applicable dollar amount." The applicable dollar amount is $25,000 for single people and $40,000 for married individuals filing a joint tax return. If you are married but are filing separate tax returns, your applicable dollar amount is $0. If your adjusted gross income exceeds your applicable dollar amount by more than $10,000, you may not deduct any portion of your IRA contribution. However, if it is between $0 and $10,000 more than your applicable dollar amount, you can claim a tax deduction for part of your contribution. To determine the amount of the deduction, follow these steps. First, determine the amount of the contribution you can make. If, for example, you have compensation in excess of $2,000 you could make a $2,000 contribution to your Regular IRA. Next, subtract the applicable dollar amount from your adjusted gross income. If you are single and your adjusted gross income is $30,000, the difference would be $5,000. Next, divide this difference by $10,000. In the example $5,000/$10,000 equals 50%. Accordingly, the maximum contribution to a Regular IRA you can deduct is 50% of $2,000, or $1,000. If the deduction limitation is not a multiple of $10, round the deduction to the next higher $10. If your adjusted gross income does not exceed $35,000 and you are single or $50,000 and you are married, you can deduct $200 regardless of how the computation comes out. Married persons who file separate returns are treated as unmarried for purposes of these rules if they did not live together at any time during the year. Nondeductible Contributions. Even though you may not be entitled to claim a deduction for contributions to your IRA, you are still allowed to make the contributions to the extent described in "Types of IRAs" above. To the extent that the amount of your contribution exceeds the deduction limit, it is considered a nondeductible contribution. Earnings on these contributions are not taxed until distributed, just like the earnings on deductible contributions. It may therefore be worthwhile making nondeductible contributions. You are required to report the amount of your nondeductible contributions on Form 8606 and attach it to your income tax return. You may be liable for a tax penalty of $50 if you fail to file the form, or $100 if you overstate the amount of your nondeductible contributions. (3) Investment and Holding of Contributions Contributions to your IRA, and the earnings thereon, are invested at your election in shares of Acorn Fund or Acorn International, each a series of Acorn Investment Trust, a no-load mutual fund managed by Wanger Asset Management, L.P., or in Short Term Income Fund, Inc.-Money Market Portfolio, a no-load money market fund managed by New England Investment Companies, L.P. Acorn Fund and Acorn International are closed to new investors. Only persons who are already Acorn Fund or Acorn International shareholders may purchase additional shares. The money market fund is available in a telephone exchange plan with Acorn Fund and Acorn International. If you elect to use this program, you will be able to exchange investments among Acorn Fund, Acorn International and the money fund. In order to enroll in the exchange plan, indicate your election on the IRA application. When your exchange 22 Acorn IRA plan plan is established, you can request a prospectus for the money fund and you will then be able to exchange by telephoning State Street Bank and Trust Company. IRA planholders may not use the check-writing redemption privileges offered by the money fund. If you wish to add to your IRA plan by putting money into the money fund instead of Acorn Fund or Acorn International, please call Acorn for instructions. The assets in your account are held in a custodial account exclusively for your benefit and the benefit of such beneficiaries as you may designate in writing delivered to the Custodian. The balance in your IRA represents a separate account which is clearly identified as your property and generally may not be combined for investment with the property of another individual. Your right to the entire balance in your account is nonforfeitable. No part of the assets of your account may be invested in life insurance contracts or in collectibles such as works of art, antiques, coins, stamps, etc. (4) Distributions From Your IRA Distribution During Your Life. The law permits distributions to be made from an IRA without penalty at any time after you attain age 59/1//2, and requires that distributions commence no later than April 1 following the calendar year in which you attain age 70/1//2. Distributions may be in the form of a single payment or, in accordance with regulations, in substantially equal monthly, quarterly or annual payments over your life or the joint lives of you and your designated beneficiary, or over a period certain not extending beyond your life expectancy or the joint and last survivor life expectancy of you and your designated beneficiary. However, if your beneficiary is not your spouse, the law imposes an additional requirement called the minimum distribution incidental benefit requirement. In general, this requirement puts a further limit on the maximum payout period. This further limit is based on a table in the income tax regulations, and if this limit applies to you, you should consult your tax advisor to determine your minimum distribution. If you direct distributions over your life or the joint lives of you and your designated beneficiary, the Custodian will purchase an immediate annuity contract from an insurance company you choose with your IRA and your payments will be made under the annuity. You must provide a completed annuity application from the insurance company of your choosing. Any distribution instruction must specify the reason for the distribution. Examples of such reasons are: premature distributions (i.e. distributions before age 59 1/2), rollovers, disability, death, normal (59 1/2 or over), excess contribution returns and other. Distributions After Your Death. If you die on or after the April following the year in which you reach age 70 1/2, the balance of your IRA must be distributed to your designated beneficiary at least as rapidly as under the method of distribution in effect before your death. If you die before the April following the year in which you reach age 70 1/2, the entire balance of the account must be distributed by December 31 of the year in which the 5th anniversary of your death occurs. However, distribution need not be made within this 5-year period if your beneficiary receives payments over a period measured by his or her life or life expectancy beginning no later than December 31 of the year following the year in which you die. If the beneficiary is your spouse, those installment payments don't have to begin until the later of December 31 of the year following the year in which you die or December 31 of the year in which you would have reached age 70 1/2. In addition, a distribution need not be made within 5 years of your death if your spouse is your beneficiary and he or she elects to treat the entire interest in the IRA (or the remaining part of such interest, if distribution has already begun) as his or her own IRA subject to the regular IRA distribution requirements. In such a case, your spouse will be considered to be the covered individual under the IRA. If you die before the entire IRA has been distributed to you and your spouse is not your beneficiary, no additional cash contributions or rollover contributions may be accepted by the IRA. (5) Income and Penalty Taxes Income Tax Treatment. Income tax on deductible IRA contributions and earnings on both deductible and nondeductible IRA contributions is generally deferred until you receive distributions. If you have made both deductible and nondeductible contributions to IRAs you maintain, a portion of each distribution you receive from any IRA (whether or not it is the one to which you made nondeductible contributions) will be considered to be a return of nondeductible contributions and therefore not included in your income for tax purposes. The balance of each distribution will be taxed as ordinary income regardless of its original source. The amount of any distribution which is considered to be a return of nondeductible contributions (and therefore not taxed) is determined by multiplying the amount of the distribution by a fraction. The numerator of the fraction Acorn IRA plan 23 Individual Retirement Account Disclosure Statement is the aggregate amount of nondeductible contributions you have made to all of your IRAs over the years and the denominator is the balance in all your IRAs at the end of the year (after adding back any distributions you received during the year). The aggregate amount which can be excluded from income for all years cannot exceed the amount of nondeductible contributions that you made in those years. You must attach Form 8606 to your tax return for any year in which you receive distributions if you have made any nondeductible contributions to an IRA. Taxable distributions from your account are taxed as ordinary income regardless of their original source. They are not eligible for special tax treatment that may apply to lump sum distributions from qualified employer plans. Penalty Tax for Premature Distributions. Your IRA is intended to provide income for you upon retirement. Accordingly, the law generally imposes a penalty on premature distributions. If you receive a taxable distribution from the IRA before reaching age 59 1/2, a nondeductible 10% penalty will be imposed on the portion of the distribution which is included in your gross income. This penalty is in addition to any income tax you must pay on the distribution itself. The penalty does not apply to the extent that the distribution is considered a return of nondeductible contributions or a return of an excess contribution which is permitted tax-free (see below). The penalty also will not apply if the distribution is made due to your permanent disability or death or if the distribution is one of a series of substantially equal periodic payments made over your life (or life expectancy) or over the joint lives (or life expectancies) of you and your beneficiary. Further, the penalty does not apply to the extent the distribution is rolled over to another IRA or (if permitted) qualified plan. Penalty Tax for Excess Contributions. Contributions to an IRA above the permissible limits are nondeductible and are subject to an annual nondeductible excise tax of 6% of the amount of such excess contributions for each year that the excess is not withdrawn or eliminated. The tax is paid by the person for whose benefit the IRA is established. If the person who contributed the excess takes no deduction for it and withdraws the excess amount plus the net earnings attributable to such excess on or before the due date (including extensions) for filing the Federal income tax return for the year for which the contribution was made, the 6% excise tax will not be applied but the 10% tax on premature distributions will be applied to the amount of net earnings. Generally, if the excess is withdrawn after the due date (including extensions) for filing the tax return for the year for which the contribution was made, not only will the excess contribution be subject to the 6% excise tax, but the amount of such excess and the net income attributable to it will also be includible in income; and if you have not attained the age of 59 1/2, or are not disabled, you will also be subject to the previously mentioned 10% penalty tax on premature distributions. The law provides, however, that if an individual has made a contribution to an IRA for a year which does not exceed $2,250 (excluding rollover amounts), all or part of which is an excess contribution for which he did not claim a deduction, and he does not correct the excess contribution before the due date (including extensions) for filing his tax return for the year, he nevertheless may withdraw the excess amount contributed (without the net income attributable thereto) at any time without incurring the 10% penalty tax on premature distributions or being required to include the amount withdrawn in income. The 6% excise tax will be imposed even in this special situation for the year of the excess contribution and each subsequent year until the excess is withdrawn or eliminated. The rules discussed above generally apply to SEP-IRAs as well. The law also allows you to withdraw tax-free and without penalty an excess contribution, regardless of the amount, made with respect to a rollover contribution (including an attempted rollover contribution), if the excess contribution occurred because you reasonably relied on erroneous information required to be supplied by the plan, trust or institution making the distribution that was the subject of the rollover. As an alternative to withdrawing excess contributions made to an IRA, such amounts may be eliminated by making reduced contributions for subsequent years; however, you will be required to pay the 6% excise tax on the amount of the excess for the year of the contribution and for each subsequent year until the amount of the excess is deducted in a later year for which you have not contributed the maximum deductible amount. If a contribution is made to your account in an amount less than the permissible limit in order to correct an excess contribution for a previous year for which you did not claim a deduction, you may under certain circumstances, taking into account the limits on contributions, be allowed to treat the amount of the reduction in the current year's contribution as an additional contribution for the current taxable year. 24 Acorn IRA plan Penalty Tax for Under-Distribution. If after April 1 following the year in which you attain age 70 1/2, the amount distributed is less than the minimum amount required by law to be distributed, a 50% excise tax may be imposed on any such deficiency. The minimum amount required by law to be distributed is generally based on your life expectancy or the joint and survivor life expectancy of you and your beneficiary. However, if your beneficiary is not your spouse, the law imposes an additional requirement which is called the minimum distribution incidental benefit requirement. In general, this requirement is designed to prevent you from naming a beneficiary who is much younger than yourself in order to extend your payout period. You should consult your tax advisor to determine your minimum distribution. This excise tax may also apply if your beneficiary fails to take the minimum required distribution in any year after your death, as described above. The Internal Revenue Service may waive the penalty tax for under-distribution if the deficiency was due to reasonable error and reasonable steps are being taken to correct the deficiency. Penalty Tax for Excess Distributions and Accumulations. A 15% penalty tax is imposed on annual distributions from retirement arrangements (including IRAs) to the extent that such distributions in a year are considered "excess distributions." A distribution is an "excess distribution" if it exceeds $150,000 (or such higher amount as may be specified by the IRS) during any calendar year. In addition, a 15% penalty tax will be imposed on your estate to the extent that at the time of your death the total balance to your account in all retirement arrangements exceeds the present value of a life annuity of $150,000 (or such higher amount as the IRS may specify) per year. The rules governing the 15% penalty tax are very complex, and may be affected by certain elections which you may have made in prior years. If you have a substantial balance to your account in IRAs and qualified retirement plans, you should consult a qualified tax advisor as to the possible application of this penalty tax. Prohibited Transactions and Pledging Account Assets. If during any taxable year you engage in a so-called "prohibited transaction" with respect to your IRA, the account will lose its tax-exempt status. In this event, the fair market value of all account assets, valued as of the first day of such taxable year, will be deemed distributed to you and the taxable portion will be includible in your gross income for the year. If you are under age 59 1/2, the 10% penalty for premature distributions may also apply. These prohibited transactions generally include any type of financial transaction between the IRA and you or your beneficiary, including borrowing or lending money, buying, selling, or renting property, paying compensation, or a transaction that indirectly benefits you or your beneficiary personally. Prohibited transactions may also involve members of your family, companies in which you have an interest, the sponsoring employer in the case of a SEP-IRA, any person who provides services to the IRA, and certain affiliates of such persons. However, prohibited transactions involving persons other than you or your beneficiary result in penalty taxes on the person involved, rather than disqualification of the IRA. If you pledge your account or any portion thereof as security for a loan, such pledged portion will be deemed distributed to you and, to the extent that it does not represent a return of nondeductible contributions, includible in your gross income. If you have not yet attained age 59 1/2, an additional tax equal to 10% of the amount pledged will be imposed on such funds includible in gross income. If your spouse engages in a prohibited transaction with respect to his or her account, the results will be the same. Any portion of an IRA used to purchase an endowment contract or collectible is also treated as distributed. VI. Miscellaneous Federal Income Tax Withholding. Distributions from an IRA to the covered individual or to a beneficiary are subject to Federal income tax withholding unless the covered individual or beneficiary elects to have no withholding apply. The current withholding rate required by the Internal Revenue Code is 10% for lump sum payments, and regular wage withholding rates for annuities or other periodic payments. Additional information concerning withholding and election forms will be available no later than at the time a distribution is requested. Federal Estate and Gift Taxes. Generally, your IRA will be included in your estate for Federal estate tax purposes. If your spouse is your beneficiary, your IRA may qualify for a deduction for purposes of that tax. An election under an IRA to have a distribution payable to a beneficiary on the death of the covered individual will not be treated as a gift subject to Federal gift tax. Reports to the Internal Revenue Service. As described above, you are required to attach Form 8606 to your return for any year in which you made Acorn IRA plan 25 Individual Retirement Account Disclosure Statement nondeductible contributions, or receive distributions after making nondeductible contributions. You are required to file Form 5329 with the IRS if you owe one of the IRA penalty taxes. These are the taxes on excess contributions, premature distributions, prohibited transactions and underdistributions after age 70/1//2, as described above. Social Security and Self-Employment Taxes. Contributions to a Regular or Spousal IRA are not deductible for purposes of the social security (FICA) and self- employment taxes. Contributions to a SEP-IRA by your employer are not subject to social security tax unless you elected to reduce your current compensation to receive the contributions (a SAR-SEP). Financial Information. The growth in value of the mutual fund shares held in your account can neither be guaranteed nor projected. Custodian Fees. State Street Bank and Trust Company as the Custodian of your IRA currently charges an acceptance fee of $5.00 per IRA application, and an annual maintenance fee of $10.00 per account, per fund in which you have an investment. An additional $10.00 fee is charged for each disbursement, other than an automatic installment payout. Note that Spousal IRAs require separate accounts. Each spouse's account is subject to the above fees. If you do not add the $5.00 acceptance fee to your initial contribution, it will be deducted from your account. The $10.00 annual maintenance fee will be deducted from your account, unless paid separately when billed in December The Custodian may change any of the above fees from time to time. IRS Approval Status. The Internal Revenue Service has determined that the form of Acorn Investment Trust Individual Retirement Plan and Custodial Agreement, as revised June 30, 1992, is acceptable under the Internal Revenue Code. This determination by the IRS relates only to form and not to the merits of your account. Further information concerning IRAs can be obtained from any district office of the IRS. September 1, 1994 26 Acorn IRA plan 00 Internal Revenue Service Department of the Treasury Plan Name: IRA Custodial Account FFN: 50127960000-001 Case: 9270228 EIN: 36-7008880 Washington, DC 20224 Letter Serial No: D113156a Person to Contact: Mr. Welty |> ACORN INVESTMENT TRUST Telephone Number: (202) 622-8380 227 WEST MONROE STREET Refer Reply to: E:EP:Q:2 CHICAGO, IL 60606 Date: 10/30/92 Dear Applicant: In our opinion, the form of the prototype trust, custodial account or annuity contract identified above is acceptable under section 408 of the Internal Revenue Code, as amended by the Tax Reform Act of 1986. Each individual who adopts this approved plan will be considered to have a retirement savings program that satisfies the requirements of Code section 408, provided they follow the terms of the program and do not engage in certain transactions specified in Code section 408(e). Please provide a copy of this letter to each person affected. The Internal Revenue Service has not evaluated the merits of this savings program and does not guarantee contributions or investments made under the savings program. Furthermore, this letter does not express any opinion as to the applicability of Code section 4975, regarding prohibited transactions. Code section 408(i) and related regulations require that the trustee, custodian or issuer of a contract provide a disclosure statement to each participant in this program as specified in the regulations. Publication 590, Tax Information on Individual Retirement Arrangements, gives information about the items to be disclosed. The trustee, custodian or issuer of a contract is also required to provide each adopting individual with annual reports of savings program transactions. Your program may have to be amended to include or revise provisions in order to comply with future changes in the law or regulations. If you have any questions concerning IRS processing of this case, call us at the above telephone number. Please refer to the Letter Serial Number and File Folder Number shown in the heading of this letter. Please provide those adopting this plan with your phone number, and advise them to contact your office if they have any questions about the operation of this plan. You should keep this letter as a permanent record. Please notify us if you terminate the form of this plan. Sincerely yours, /s/ John Swieca John Swieca Chief, Employee Plans Qualifications Branch Acorn IRA plan 27 ACORN INVESTMENT TRUST P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 IRA/SEP-IRA Application All sections must be completed. Please type or print clearly. Use this application to open an IRA or a SEP-IRA invested in Acorn Fund or Acorn International. To transfer your IRA directly to Acorn from another custodian, you must also complete the Acorn Investment Trust IRA Transfer Form. There is an acceptance fee of $5.00 per IRA account. If you have questions, call our friendly customer service representatives at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:30 am to 4:30 pm, Chicago (Central) time. YOUR ACCOUNT REGISTRATION Social Security Number: (used for tax reporting) |_|_|_| |_|_| |_|_|_|_| Date of Birth: month, day, year |_|_| |_|_| |_|_| - -------------------------------------------------------------------------------- Name (first, middle initial, last) - -------------------------------------------------------------------------------- Street Address and Apartment or Box Number - -------------------------------------------------------------------------------- City, State, Zip Code ( ) ( ) - ------------------------------------- ---------------------------------------- Evening phone Daytime phone - -------------------------------------------------------------------------------- Existing Acorn or Acorn International account number [ ] U.S. Citizen [ ] Resident Alien To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.) with a social security or tax identification number. We are required by the National Association of Securities Dealers (NASD) to ask for the following information. - -------------------------------------------------------------------------------- Your occupation - -------------------------------------------------------------------------------- Employer - -------------------------------------------------------------------------------- Employer's Address - -------------------------------------------------------------------------------- [ ] I am affiliated with or work for a member of the NASD. CHOOSE YOUR INVESTMENTS There is an initial investment minimum of $200 per fund. A separate IRA account will be established for each box you check below. [ ] Acorn Fund (90) $______________________________ [ ] Acorn International (100) $______________________________ [ ] Short Term Income Money Market Portfolio (104) $______________________________ Total Investment $______________________________ Make check(s) payable to State Street Bank and Trust Company and write the appropriate fund name on the check. Please indicate on your check the year for which the contribution is made. TYPE OF IRA SELECT ONLY ONE CATEGORY [ ] Regular IRA Contribution for Tax Year 199__ Check this box if your IRA will be used to make annual contributions up to a maximum of $2,000 per tax year. (A separate Spousal IRA can be opened for a spouse earning less than $250 per year. Your spouse must complete a separate application form.) [ ] Direct transfer of an existing IRA Check this box if you wish to authorize Acorn to transfer your existing IRA from another custodian to Acorn. You must also complete the enclosed IRA Transfer Form. Check type of IRA: [ ] Regular IRA funded with annual contributions [ ] Rollover IRA originally funded with a distribution from an employer-sponsored plan [ ] 60-day rollover of an existing IRA Check this box if you are funding this IRA with money you have withdrawn from an IRA at another custodian and are reinvesting at Acorn. Check type of IRA: [ ] Regular IRA funded with annual contributions [ ] Rollover IRA originally funded with a distribution from an employer-sponsored plan [ ] Rollover IRA from an employer-sponsored plan Check this box only if you are funding this IRA with money you accumulated in an employer's retirement plan which is eligible for rollover. If you combine Rollover IRA and regular IRA funds in the same account, you will forfeit the right to reinvest your Rollover IRA funds in another employer's qualified plan in the future. Combining IRA funds may also have tax implications at distribution. Check method of funding: [ ] A check payable to State Street Bank is enclosed. [ ] My employer will send a check directly to Acorn. [ ] SEP-IRA Please see your tax advisor for the maximum contribution limits on your SEP-IRA or SARSEP-IRA. [ ] Regular SEP-IRA Contribution for 199__ [ ] Regular Salary Reduction SEP-IRA (SARSEP) Contribution for 199__ [ ] 60-Day Rollover Check this box if you have withdrawn funds from a SEP-IRA at another custodian and are reinvesting them at Acorn. [ ] Direct Transfer Check this box to authorize Acorn to transfer your existing SEP-IRA directly from another custodian. Please complete both this application and an IRA Transfer Form. Be sure to notify your employer. - -------------------------------------------------------------------------------- (More on the back.) IRA/SEP-IRA Application, continued AUTOMATIC INVESTMENT PLAN To keep building your investments, you can easily add to your Acorn retirement accounts by joining the automatic investment plan: [ ] Automatic Investment Plan: to add to your IRA or SEP-IRA automatically. I authorize Acorn Fund or Acorn International and their agents to draw on my bank account on or about the fifteenth day of each month or quarter. [ ] Acorn Fund $_________________________________________ [ ] monthly [ ] quarterly (check only one box) [ ] Acorn International $_________________________________________ [ ] monthly [ ] quarterly (check only one box) Write "void" across the face of a check from the bank account you will be using, then send the check with this form. The minimum automatic investment is $100; the annual maximum investment is $2,000. (Quarterly investments are made in January, April, July, and October). IRA BENEFICIARY DESIGNATION Please indicate your beneficiaries here. If you wish to designate additional beneficiaries, please attach additional instructions providing the necessary beneficiary information. Your Primary Beneficiaries I hereby designate the person(s) named below as primary beneficiary(ies) to receive payment of the value of my IRA account upon my death. If any beneficiary is a trust, please indicate the trust's name and address, the date of the trust, and the trustee's name. 1 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------------- ------------------ -------------------------------- Share %:* Relationship Date of Birth (month, day, year) 2 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------------- ------------------ -------------------------------- Share %:* Relationship Date of Birth (month, day, year) Your Contingent Beneficiaries If no primary beneficiary is living at the time of my death, I hereby specify that the balance be distributed to my contingent beneficiary(ies) named below. 1 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------------- ------------------ -------------------------------- Share %:* Relationship Date of Birth (month, day, year) 2 - -------------------------------------------------------------------------------- Name (first, middle, last): - -------------------------- ------------------ -------------------------------- Share %:* Relationship Date of Birth (month, day, year) * Share percentages must be whole, not fractional, numbers, and must add up to 100%. Payment to primary and contingent beneficiaries will be made according to the rules of succession described in the signature section. SIGNATURE Please sign at the end of this section. We must have a signature to open the account. By signing this application I certify that: [ ] I understand that the annual IRA maintenance fee of $10 per fund account will be separately billed or collected by redeeming sufficient shares from each fund account balance. A $10 fee will apply for each disbursement other than an automatic installment payment. Acorn may change the fee schedule from time to time, as provided in the Custodial Agreement. Acceptance will be evidenced by a Letter of Acceptance sent by or on behalf of Acorn and State Street Bank and Trust Company. [ ] I understand that if more than one beneficiary is named and no percentages are indicated, payment shall be made in equal shares to my primary beneficiary(ies) who survives me. If a percentage is indicated and a primary beneficiary(ies) does not survive me, the percentage of that beneficiary's designated share shall be divided equally among the surviving primary beneficiary(ies). [ ] I understand that if I choose not to designate any beneficiary(ies), my beneficiary will be my estate (unless state law requires otherwise). I am aware that my beneficiary designation becomes effective when delivered to Acorn and will remain in effect until I deliver to Acorn another beneficiary designation with a later date. [ ] I understand that the beneficiary information provided herein shall apply to all Acorn IRAs for which State Street Bank and Trust Company (SSB&T) (or its affiliate and/or any successor custodian appointed pursuant to the terms of such IRAs) acts as custodian, including regular IRAs, SEP-IRAs, and Rollover IRAs, and shall replace all previous designation(s) I have made on any of my Acorn IRA accounts. [ ] I hereby adopt the Acorn IRA, appointing SSB&T as Custodian and as agent to perform administrative services. Although SSB&T is a bank, I recognize that neither Acorn Investment Trust nor any mutual fund in which this IRA may be invested is a bank, and that mutual fund shares are not backed or guaranteed by any bank or insured by the FDIC. This agreement shall be construed, administered and enforced according to the laws of the Commonwealth of Massachusetts, except as superseded by federal law or statute. [ ] I have received and read the prospectus for the fund(s) in which I am making a contribution, and have read and understand the IRA Custodial Agreement and Disclosure Statement. I hereby certify under penalties of perjury that my Social Security Number (above) is correct and that I am of legal age to enter into this agreement. [ ] By signing below, I hereby consent to the terms of the Acorn IRA and name the beneficiary(ies) I have designated in the application. X - ----------------------------------------------------- ----------------------- Your Signature Date (month, day, year) Nationwide toll-free number 1-800-9-ACORN-9 (1-800-922-6769). Service for the deaf and hearing impaired: Call toll-free TDD 1-800-306-4567, 9 a.m. to 5 p.m. Eastern time, weekdays. Send this form to State Street Bank in the enclosed postage-paid envelope or to the address below. - -------------------------------------------------------------------------------- ACORN INVESTMENT RUST P.O. Box 8502 Boston, MA 02266-8502 [LOGO OF ACORN] ACORN INVESTMENT TRUST P.O. Box 8502 [LOGO OF ACORN] Boston, MA 02266-8502 IRA/SEP-IRA Transfer Form All sections must be completed. Please type or print clearly. Use this form to authorize Acorn to transfer your IRA or SEP-IRA directly from another IRA Custodian and invest it at Acorn. Please read the instructions on the back of this form before completing the Transfer Form. If you have questions, call us at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:30 am to 4:30 pm, Chicago (Central) time. ACCOUNT OWNERSHIP Social Security Number: (used for tax reporting) |_|_|_| |_|_| |_|_|_|_| Date of Birth: month, day, year |_|_| |_|_| |_|_| - -------------------------------------------------------------------------------- Name (first, middle initial, last) - -------------------------------------------------------------------------------- Street Address and Apartment or Box Number - -------------------------------------------------------------------------------- City, State, Zip Code ( ) ( ) - ------------------------------------- ---------------------------------------- Evening phone Daytime phone TYPE OF IRA ACCOUNT [ ] Regular IRA [ ] SEP-IRA [ ] Rollover IRA* *Check this box only if you are transferring an IRA representing a previous rollover from an employer-sponsored retirement plan. (See explanation on the other side -- "IRA Transfer Checklist".) CURRENT IRA CUSTODIAN/TRUSTEE My IRA is currently invested in: [ ] Mutual fund name __________________________________________________________ [ ] CD/Date of Maturity (month-day-year) ______________________________________ [ ] Transfer the proceeds to my Acorn IRA at maturity. (Send us this Transfer Form at least three weeks prior to maturity. If the CD matures in less than three weeks, call 1-800-9-ACORN-9 (1-800-922-6769) for procedures.) [ ] Liquidate the CD immediately and transfer the proceeds to my Acorn IRA. (If you liquidate a CD prior to maturity, you may incur a penalty.) [ ] Other (Specify): ___________________________________________________________ My IRA is currently held at: (Please call your current custodian for the correct address. If this information is not provided, it could significantly delay your transfer.) - -------------------------------------------------------------------------------- Name of Present Custodian - -------------------------------------------------------------------------------- Name of individual or department responsible for transfers - -------------------------------------------------------------------------------- Address of Present Custodian - -------------------------------------------------------------------------------- City, State, Zip Code - ------------------------------------- ---------------------------------------- Telephone Number Account Number of Transferor Custodian (Please attach a copy of your most recent statement) INVESTING YOUR IRA TRANSFER A. Please check one of the following: [ ] I am opening a new Acorn IRA and am attaching my completed IRA application. [ ] I already own an Acorn IRA into which I am making this transfer. B. Please list the name(s) of the fund(s) into which the transfer proceeds are to be deposited. [ ] Acorn Fund $______________________________ Fund Account # (if existing) ______________________________ [ ] Acorn International $______________________________ Fund Account # (if existing) ______________________________ [ ] Short Term Income Money Market Portfolio $______________________________ Fund Account # (if existing) ______________________________ Total Investment $______________________________ If you do not indicate a fund choice, your transfer proceeds will be invested in Short Term Income Fund, a money market fund. AUTHORIZATION TO TRANSFER YOUR IRA Check only one of the following: [ ] Please liquidate and transfer in cash the IRA account listed at left. [ ] Please liquidate and transfer proportionately $___________ of the assets in the IRA account listed at left to my IRA. [ ] Please transfer in-kind my [ ] Acorn Fund [ ] Acorn International shares listed at left to an IRA with Acorn (see explanation on other side--"IRA Transfer Checklist") and-- [ ] liquidate and transfer in cash all other assets in the IRA account listed at left that are not currently invested in Acorn Fund or Acorn International. [ ] liquidate and transfer proportionately $___________ of the other assets in the IRA account listed at left. [ ] do not liquidate or transfer any assets in the IRA account listed at left other than those invested in Acorn Fund or Acorn International. I have received and read the prospectus for the fund(s) in which I am making my investment. If I am over 70-1/2, I attest that none of the amount to be transferred will include the required minimum distribution for the current year pursuant to Section 401(a)(9) of the Internal Revenue Code. If I have indicated an IRA Transfer which is different from the IRA I currently maintain (e.g., Regular IRA versus Rollover IRA), I hereby establish a new IRA, the terms of which shall be identical with the terms of the agreement for the Acorn IRA previously established. - ----------------------------------------------------- ----------------------- Your Signature Date (month, day, year) Signature Guarantee: Please call the custodian or other institution you are transferring from to see if a signature guarantee or other documentation is required. - -------------------------------------------------------------------------------- Name of Bank or Firm Providing Signature Guarantee - -------------------------------------------------------------------------------- Signature of Officer and Title (Be sure to stamp Signature Guarantee) - -------------------------------------------------------------------------------- (More on the back.) IRA (11/94) Acorn Investment Trust P.O. Box 8502 Boston, MA 02266-8502 IRA/SEP-IRA Transfer Form, continued HOW TO TRANSFER YOUR IRA FROM ANOTHER INSTITUTION TO ACORN 1. Carefully read the prospectus of the Acorn fund you have selected. 2. Complete this Transfer Form to authorize Acorn to request your IRA funds directly from another institution. You can make an unlimited number of direct transfers without any tax implications. 3. If you do not already own an Acorn IRA, you must also complete the Acorn IRA Application and check the "Direct Transfer" box. 4. Mail your Transfer Form and Application (if you are opening a new Acorn IRA) in the enclosed postage-paid envelope or to State Street Bank and Trust Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-8502. IRA TRANSFER CHECKLIST / If you combine Rollover IRA and regular IRA funds in the same account, you will forfeit the right to reinvest your Rollover IRA funds in another employer's qualified plan in the future. Combining IRA funds may also have tax implications at distribution. / This Transfer Form cannot be used to transfer individual stocks (except shares of Acorn Fund or Acorn International) or bonds in kind. Instead, you must check the box for liquidation and cash transfer of those investments. / If you currently have an Acorn Fund or Acorn International IRA with another custodian, and you wish to transfer those shares directly to Acorn and avoid liquidating the shares prior to transfer, please check the box for a transfer "in-kind." / Be sure you check with your present IRA custodian to see if a signature guarantee or other documentation is required. / If possible, identify the individual or department responsible for transfers at your present IRA custodian and provide this information where requested on this form. This can help speed up the transfer process. / If you are directly rolling over a distribution from an employer-sponsored retirement plan into an Acorn Rollover IRA, please do not use this form. Simply check the correct box on the IRA Application and send it to State Street Bank at the indicated address. ACORN WILL COMPLETE THIS SECTION Letter of Acceptance and Instructions for Transfer to an Acorn IRA Account To Transferor Custodian: State Street Bank and Trust company (and/or any successor custodian appointed pursuant to the terms of the Acorn IRA) will accept the transfer described above. Please transfer on a fiduciary-to-fiduciary basis all or part of the designated account as instructed above, and make check payable to the custodian, State Street and Trust Company. Please mail check to State Street Bank and Trust Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA 02266-8502. Also include the following information on the check: - ----------------------------------------------------------- ------------------ Reference Number EBO - ----------------------------------------------------------- ------------------ Authorized Acorn Signature Date Nationwide toll-free number 1-800-9-ACORN-9 (1-800-922-6769). Service for the deaf and hearing impaired: Call toll-free TDD 1-800-306-4567, 9 a.m. to 5 p.m. Eastern time, weekdays. Send this form to State Street Bank in the enclosed postage-paid envelope or to the address below. - -------------------------------------------------------------------------------- ACORN INVESTMENT RUST P.O. Box 8502 Boston, MA 02266-8502 [LOGO OF ACORN] EX-16 11 ACORN FUND TOTAL RETURN CALCULATION Acorn Fund Total Return Calculation Initial Investment: $ 1,000 Period: From January 1, 1995 to December 31, 1995 Number of Days in Period: 365 Total Return 20.80%
Dividend Dividend Total Account Dividend Dollars Shares Shares Value Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b) - ------------------------------------------------------------------------------------------------------------ Initial Investment $ 1,000 1/1/95 $12.24 81.6993 0 0 0 81.6993 1,000 7/17/95 13.89 81.6993 0.15 12.25 0.8823 82.58163 1,147 12/12/95 13.49 82.5816 1.02 84.23 6.2441 88.82575 1,198 12/31/95 13.60 88.8258 0 0.00 0.0000 88.82575 1,208
Page 1 Acorn International Fund Total Return Calculation Initial Investment: $ 1,000 Period: From January 1, 1995 to December 31, 1995 Number of Days in Period: 365 Total Return 8.90%
Dividend Dividend Total Account Dividend Dollars Shares Shares Value Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b) - ------------------------------------------------------------------------------------------------------------ Initial Investment $ 1,000 1/1/95 $15.24 65.6168 0 0 0 65.6168 1,000 7/17/95 16.23 65.6168 0.01296 0.85 0.0524 65.66919 1,066 12/31/95 16.59 65.6692 0 0.00 0.0000 65.66919 1,089
Page 1 EX-18 12 FORM OF APPLICATION Acorn Investment Trust P.O. Box 8502 [ACORN LOGO] Boston, MA 02266-8502 Application It takes only a few moments to fill out this simple step-by-step application. If you have questions, call us at 1-800-9-ACORN-9, (1-800-922-6769), weekdays, 8:00am-4:30pm, Chicago (central) time. Please be sure to print your information on this application, then simply sign and return it to us in the postage-paid envelope we've provided. (Please do not use this form if you are opening an IRA.) YOUR ACCOUNT REGISTRATION [][][] [][] [][][][] Social Security Number (Use minor's social security number for gifts/transfers to minors) or [][] [][][][][][][] Taxpayer ID Number _____________________________________________________________ [] Individual or Joint* Account _____________________________________________________________ Owner's name: first, middle initial, last _____________________________________________________________ Joint owner's name: first, middle initial, last *Joint tenants with right of survivorship, unless you indicate otherwise. _____________________________________________________________ [] Gift/Transfer to a Minor (ugma/utma) _____________________________________________as custodian for Custodian's name: first, middle initial, last ____________________________________________________under the Minor's name: first, middle initial, last _________________________Uniform Gifts/Transfers to Minors Act. State _______________________________________________________________ Minor's date of birth _______________________________________________________________ [] Trust or Established Employee Benefit or Profit-Sharing Plan ___________________________________________________as trustee of Trustee('s) name(s) _______________________________________________________________ Name of Trust Agreement _______________________________________________________________ Date of Trust Agreement Please include copy of first page and last page of trust agreement. _______________________________________________________________ [] Corporation or Other Entity _______________________________________________________________ Name of corporation or other entity _______________________________________________________________ Type of entity (for example, corporation, partnership, non-profit) Please attach a certified copy of your corporate resolution showing the person(s) authorized to act on this account. YOUR ADDRESS _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code _______________________________________________________________ Daytime phone, including area code [] U.S. Citizen [] Non-citizen residing in U.S. To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.) with a social security or tax identification number. CHOOSE YOUR INVESTMENTS There is an initial investment minimum of $1,000 per Fund. [] Acorn Fund $___________________ [] Acorn International $___________________ [] Total Investment $___________________ Make check(s) payable to Acorn Fund and/or Acorn International. DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS Please choose how you want to receive your income dividends and capital gains. If no option is checked, all dividends and capital gains will be reinvested automatically. (Check one box.) [] Reinvest dividends and capital gains to help keep my account growing. [] Pay dividends and capital gains in cash. [] Pay dividends in cash; reinvest capital gains. DUPLICATE STATEMENTS _______________________________________________________________ [] Send duplicate statements for my account to: _______________________________________________________________ Name _______________________________________________________________ Street or P.O. Box _______________________________________________________________ City State Zip Code (MORE ON THE BACK.) Acorn Investment Trust FIRST CLASS WAM Brokerage Services, L.L.C. U.S. POSTAGE P.O. Box 8502 PAID Boston, MA 02266-8502 CHICAGO, IL PERMIT NO. 1200 AUTOMATIC INVESTMENT PLAN To keep building your investments, you can easily add to your fund accounts by joining the automatic investment plan: [_] Automatic Investment Plan: to add to your Acorn account automatically [_] Acorn Fund $____________________ [_] monthly [_] quarterly (check only one box) [_] Acorn International $____________________ [_] monthly [_] quarterly (check only one box) The minimum automatic investment is $100; the maximum is $50,000. Your automatic investment will be drawn from your bank account on or about the 15th of the month. Attach a voided check from the bank account you will be using. BANK TRANSFER OPTIONS To make transactions fast and easy, choose the Telephone Purchase Plan, Telephone Redemption by Wire Plan, or both. It takes about 10 days to set up these plans. [_] Telephone Purchase Plan: to add to your Acorn Fund account or Acorn International account by transferring money from your bank checking account ($100 minimum, $50,000 maximum per transfer.) [_] Telephone Redemptions by wire: to redeem shares and transfer the money to your bank checking account ($1,000 minimum, $50,000 maximum per transaction.) Telephone requests for purchases or redemptions must be made by 3:00 p.m. Chicago (central) time. Attach a voided check from the bank account you will be using. TELEPHONE PLANS You automatically have the ability to exchange and redeem shares by telephone unless you check the boxes below. Proceeds of telephone redemption requests are paid by check mailed to the address of record may not be more than $50,000. Exchanges must be between identically-registered accounts and requested by 3:00 p.m. Chicago (central) time. See the prospectus for details. I do NOT want: [_] telephone exchanges --- [_] telephone redemptions AGREEMENT By signing this form, I certify that: I am of legal age, have received and read the Prospectus, and agree to its terms. I understand that each of the account services, including the telephone exchange plan, may be terminated or modified by Acorn in the future. If I fail to give the correct number or sign this form, Acorn Fund or Acorn International may reject, restrict, or redeem my investment. I authorize Acorn Fund, Acorn International, and their affiliates and agents to act on any instructions reasonably believed to be genuine for any service authorized on this form (including telephone transactions). I agree that they will not be liable for any resulting loss or expense. I certify that I have read the explanation and agree to the terms and provisions for the services I have elected as set forth in the current prospectus of Acorn Fund and Acorn International, as amended from time to time. (If you have elected the Automatic Investment Plan or any Bank Transfer Option) I authorize Acorn Fund, Acorn International and their affiliates and agents to initiate (1) credit entries (deposits) (if I have elected the telephone redemption bank transfer option), (2) debit entries (withdrawals) (if I have elected to participate in the Automatic Investment Plan or telephone purchase Bank Transfer Option), and (3) debit or credit entries and adjustments for any entries made in error to my bank account, for which I have attached a voided check. This authorization will remain effective until I notify Acorn in writing or by telephone at 1-800-962-1585 of its termination and until Acorn has a reasonable time to act on that termination. YOUR SIGNATURE Under penalty, I certify that (i) the Social Security or Tax Identification Number given is correct and (ii) I am NOT currently subject to IRS backup withholding for failure to report dividend or interest income to the IRS. (Please cross out "NOT" if you are currently subject to withholding.) The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding. X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date X ______________________________________________________________________ Signature (Sign exactly as name appears in Account Registration) Date Joint accounts require both signatures. EX-27.A 13 FINANCIAL DATA SCHEDULE
6 01 Acorn Fund 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,521,023 2,403,326 8,975 1,351 0 2,413,652 12,187 0 2,870 15,057 0 1,498,780 176,315 161,989 5,288 0 24,722 0 869,805 2,398,595 22,948 9,264 0 12,613 19,599 185,690 211,069 416,358 0 14,810 177,941 0 21,831 20,322 12,817 415,519 8,696 27,222 0 0 10,429 0 12,613 2,201,203 12.24 .11 2.42 0 1.17 0 13.60 .57 0 0
EX-27.B 14 FINANCIAL DATA SCHEDULE
6 02 Acorn International Fund 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,077,676 1,269,204 11,373 15,376 0 1,295,953 16,735 0 2,974 19,709 0 1,103,312 76,912 89,381 693 0 (7,197) 0 179,436 1,276,244 23,529 3,969 0 15,856 11,642 (18,896) 114,583 107,329 0 0 1,050 0 9,482 22,013 62 (86,286) 6,572 (16,892) 0 0 11,667 0 15,856 1,292,747 15.24 .16 1.20 0 (.01) 0 16.59 1.2 0 0
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