ACORN INVESTMENT TRUST
485BPOS, 1996-09-03
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<PAGE>

     
   As filed with the Securities and Exchange Commission on September 3, 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. 55                         


                                      and


        REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940


                               Amendment No. 30                                 

                        ------------------------------


                            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:

           [X]  immediately upon filing pursuant to rule 485(b)     
           [ ]  on September 3, 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 previously elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of its series designated
Acorn Fund, Acorn International and Acorn USA. On February 28, 1996, Registrant
filed its Rule 24f-2 Notice for the fiscal year ended December 31, 1995.      
- --------------------------------------------------------------------------------


<PAGE>
 
                             ACORN INVESTMENT TRUST

         Cross-reference sheet pursuant to rule 495(a) of Regulation C

ITEM               LOCATION OR CAPTION/*/
- ----          --------------------------------
              Part A (prospectus) - Acorn Fund and Acorn International
              --------------------------------------------------------

 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.

                                       2
<PAGE>
 
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 A (prospectus) - Acorn USA
              -------------------------------

 1 (a) & (b)  Front cover

 2 (a)        Expenses and Performance - Expenses
   (b) & (c)  Contents; The Fund at a Glance

 3 (a)        Not applicable
   (b)        Not applicable
   (c)        Performance
   (d)        Performance

 4 (a)(i)     Organization
      (ii)    The Fund at a Glance; The Acorn Philosophy; Securities,
               Investment Practices, and Risks
   (b)        Securities, Investment Practices, and Risks
   (c)        The Fund at a Glance - Who May Want to Invest; The Acorn
               Philosophy; Securities, Investment Practices, and Risks
 5 (a)        Organization
   (b)        Organization; Management; The Fund in Detail - Expenses;
               Expenses and Performance - Expenses
   (c)        Organization; Management
   (d)        Not applicable
   (e)        How to Buy Shares; How to Sell Shares
   (f)        Expenses and Performance - Expenses; The Funds in Detail -
               Expenses
   (g)        Not applicable

 5A           Not applicable - 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

- -------------------------

/*/References are to captions within the part of the registration statement to
   which the particular item relates except as otherwise indicated.

                                       3
<PAGE>
 
ITEM              LOCATION OR CAPTION/*/
- ----          ------------------------------

   (e)        Doing Business With Acorn; How to Buy Shares; How to Sell Shares;
                Shareholder and Account Policies - Statements and Reports
   (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 Transactions
   (a)        Not applicable
   (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 Transactions; 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) - Acorn Fund and
              -------------------------------------------------------------
              Acorn International
              -------------------
 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

- -------------------------

/*/References are to captions within the part of the registration statement to
   which the particular item relates except as otherwise indicated.

                                       4
<PAGE>
 
ITEM               LOCATION OR CAPTION/*/
- ----          -------------------------------
 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

 22           Performance Information

 23           Information About the Funds

              Part B (Statement of additional information) - Acorn USA
              --------------------------------------------------------

 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.
<PAGE>

<TABLE> 
<CAPTION> 
 
 ITEM          LOCATION OR CAPTION*
 ----    --------------------------------           
 <C>     <S> 
 22      Performance Information
 
 23      Information About the Fund
</TABLE> 

 
- -------------------------------
*References are to captions within the part of the registration statement to
 which the particular item relates except as otherwise indicated.

                                       6



<PAGE>

    
The Prospectus relating to Acorn Fund and Acorn International, each a series
of Acorn Investment Trust, is not affected by the filing of this post-
effective amendment No. 55.      

                                       7

<PAGE>

<TABLE> 
<CAPTION> 
 
ITEM          LOCATION OR CAPTION*
- ----    --------------------------------           
        Part C (Other Information)
        --------------------------
<C>     <S> 
  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

</TABLE>
 

 
- -------------------------------
*References are to captions within the part of the registration statement to
 which the particular item relates except as otherwise indicated.

                                       8

<PAGE>
 
ACORN USA

A NO-LOAD FUND

ACORN USA invests for long-term capital growth.  The Fund invests mostly in
stocks of small and medium-size U.S. companies.

    
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. In particular, you should review the
section of the prospectus entitled "The Fund in Detail" (see pages 18 - 25 of
the prospectus) which, among other things, contains a discussion of the Fund's
investment philosophy and the types of securities in which the Fund will invest.
The Fund invests mostly in stocks of small and medium-size U.S. companies, which
often involve more volatility than the stocks of larger companies.     

A Statement of Additional Information ("SAI") dated September 3, 1996 has been
filed with the Securities and Exchange Commission, and is incorporated herein by
reference (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 COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.


PROSPECTUS

SEPTEMBER 3, 1996


ACORN INVESTMENT TRUST

227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
<PAGE>

                               TABLE OF CONTENTS
    
<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>
THE FUND AT A GLANCE...........................................................3
 Goal.......................................................................... 
 Strategy...................................................................... 
 Management.................................................................... 
 Who May Want to Invest........................................................5
EXPENSES AND PERFORMANCE....................................................... 
 Expenses...................................................................... 
 Performance................................................................... 
YOUR ACCOUNT...................................................................7
 Doing Business with Acorn.....................................................7
 How to Buy Shares............................................................ 
 How to Sell Shares............................................................8
CHOICES FOR YOUR ACCOUNT REGISTRATION.........................................10
SHAREHOLDER AND ACCOUNT POLICIES..............................................11
 Statements and reports.......................................................11
 Share Price..................................................................
 Purchases....................................................................
 Redemptions..................................................................12
 Address Changes..............................................................13
 Telephone Transactions.......................................................
 Exchange Plan Restrictions...................................................15
DIVIDENDS, CAPITAL GAINS, AND TAXES...........................................16
 Distribution Options.........................................................16
 Taxes........................................................................
THE FUND IN DETAIL............................................................18
 Organization.................................................................18
 Management...................................................................
 Distributor..................................................................19
 Expenses.....................................................................
 The Acorn Philosophy.........................................................
 Securities, Investment Practices, and Risks..................................21
 Illiquid and Restricted Securities...........................................23
 Diversification..............................................................
 Lending and Repurchase Agreements............................................
 Other Investment Companies...................................................
 Foreign Securities...........................................................24
 Managing Investment Exposure.................................................25
</TABLE>      
<PAGE>

- --------------------------------------------------------------------------------
THE FUND AT A GLANCE
- --------------------------------------------------------------------------------

GOAL
Acorn USA invests for long-term growth of capital.


STRATEGY
    
Acorn USA invests primarily in stocks of small and medium-size U.S. companies.
The Fund looks for attractively-priced companies that Wanger Asset Management,
L.P., investment advisor to the Fund, thinks will benefit from favorable long-
term social, economic, or political trends. The areas of emphasis change from
time to time.

The Fund generally concentrates purchases on that segment of the market where
the competition is less intense -- companies with a total common stock market
capitalization of less than $1 billion. The Fund looks for quality businesses
and invests for the long-term. Please read "The Fund in Detail" for more
information about how Acorn USA invests.     

MANAGEMENT
Wanger Asset Management, L.P. (WAM) chooses investments for the Fund. WAM
employs a team approach to management of the Fund. The management team is
comprised of the lead portfolio manager, other WAM portfolio managers and
research analysts. Team members share responsibility for providing ideas,
information, knowledge and expertise in managing the Fund. Each team member has
one or more areas of expertise that is applied to the management of the Fund.
Daily decisions on portfolio selection rest with the lead portfolio manager who
utilizes the input and advice of the management team in making purchase and sale
determinations.

ROBERT MOHN is the Fund's lead portfolio manager.
There is no limit on the assets of the Fund. However, WAM will monitor Fund size
and its impact on portfolio management and the Fund may be closed to new
investors if the board of trustees of Acorn, based on WAM's recommendation,
believes closing the Fund would be in the best interests of the Fund's
shareholders. If and when the Fund is closed to new investors, it is expected
that persons who are shareholders of the Fund on the date of closing would be
permitted to continue to make investments, but that new investors would not be
permitted to open accounts.

WHO MAY WANT TO INVEST
    
Acorn USA is 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 U.S. companies. The Fund defines these
companies as those that are primarily located or domiciled in the United States
and that generally trade on a U.S. exchange or over-the-counter market.

RISK FACTORS
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
fluctuate widely in response to company, market or economic news. The Fund does
not pursue income, and is not by itself a balanced investment plan.     
<PAGE>
 
The value of the 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 Fund's 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 the amount you paid for them.
    
See "Your Account" for information on how to buy and sell shares.     

    
- ---------------------
The WAM Management Team
WAM employs a team approach to management of the Fund. The management team is 
comprised of the lead portfolio manager, other WAM portfolio managers and 
research analysts. Team members share responsibility for providing ideas, 
information, knowledge and expertise in managing the Fund. Robert Mohn is the 
Fund's lead portfolio manager.
- --------------------- 
     

                                       2
<PAGE>

- --------------------------------------------------------------------------------
EXPENSES AND PERFORMANCE
- --------------------------------------------------------------------------------

EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell shares
of the Fund.


<TABLE>
<CAPTION>
 
TRANSACTION EXPENSES
             <S>                                        <C>
 
             Maximum sales charge on purchases and
             reinvested dividends....................   NONE
             Deferred sales charge on redemptions....   NONE
             Exchange fee............................   NONE
             Wire transaction fee....................   NONE
</TABLE>

    
ANNUAL FUND OPERATING EXPENSES.  The Fund pays its own operating expenses
including the management fee to WAM.  Expenses are factored into the Fund's
price or dividends, and are subtracted from the share price daily.  Expenses are
not charged directly to shareholder accounts.     

The Fund expects to incur the following expenses (calculated as a percentage of
average net assets):

<TABLE>
<CAPTION>
 
     <S>                                              <C>
     Management fee........................           1.00%
     12b-1 fee.............................           NONE
     Other expenses (after reimbursement)..           1.00%
                                                      -----
     Total fund operating expenses (after             
     reimbursement)........................           2.00%
                                                      =====
</TABLE>
    
WAM has undertaken to reimburse the Fund for any ordinary operating expenses,
with certain exceptions, in excess of 2.00% of the Fund's average daily net
assets annually. Absent such expense reimbursement, "Other Expenses" and "Total
Operating Expenses" would have been 5.00% and 6.00%, respectively. The estimates
of "Other Expenses" and "Total Operating Expenses" are based on the expenses the
Fund expects to incur during its initial partial fiscal year.     
    
EXAMPLE: Let's say, hypothetically, that the Fund's annual return is 5% and that
its operating expenses are exactly as shown previously.  For every $1,000 you
invested, here's how much you would have paid in total expenses if you closed
your account after the number of years indicated:      


                    After 1 year                            $20
                    After 3 years                           $63

These examples illustrate the effect of expenses, but are not meant to suggest
actual or expected costs or returns, all of which may vary.  They are intended
to help you understand the costs and expenses associated with investing in the
Fund.

                                       3
<PAGE>
 
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 period, 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 Fund sometimes shows its performance compared to stock indexes (described in
the statement of additional information), or gives its ratings or rankings
determined by an unrelated organization.

- --------------------------------------------------------------------------------
THE NO-LOAD ADVANTAGE

Acorn USA is 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 the net asset value.  Acorn USA
invests in companies for the long-term (usually 3-5 years), so our turnover rate
is low.  This reduces both trading costs and shareholders' taxes.
- --------------------------------------------------------------------------------

                                       4
<PAGE>
 
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 information--
  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)

HOW TO BUY SHARES

YOU CAN OPEN A NEW ACCOUNT BY:
    
 . mailing in an application with your check or a money order for at least
  $1,000, or     
    
 . using the exchange plan to move $1,000 or more from your account with Acorn
  Fund, Acorn International, or one of the Reich & Tang Money Funds into a new
  identically registered account for Acorn USA.      

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 of your
  Acorn accounts to another account within the Acorn family, or from one of the
  Reich & Tang Money Funds; or

 . mailing a check or money order with the stub from one of your account
  statements, a slip from your Acorn Investment Booklet or a letter.
    
You must make your telephone purchases or exchanges from Acorn USA by 3:00 p.m.
Chicago (Central) time.  To exchange out of the Reich & Tang Money Funds, you
must call by 11:00 a.m. (Central) time.  See "Telephone Exchange Plan."     

See "Shareholder and Account Policies" for more information about the exchange
plan.

                                       5
<PAGE>
 
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 may 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 deductible.
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
     under 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
     $2,000 your spouse may invest in a "Spousal IRA." Each account is subject
     to the $2,000 maximum; the maximum for your combined accounts is $4,000. 
     

 .    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 Fund may be used as an investment in other
     kinds of retirement plans, including Keogh or corporate profit sharing and
     money purchase plans, 403(b) plans, and 401(k) plans. All of these accounts
     need to be established by the trustee of the plan. Acorn does not offer
     prototypes of these plans.
- --------------------------------------------------------------------------------

                                       6
<PAGE>
 
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
return 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
<TABLE>
<CAPTION>
 
                         <S>                     <C>
                         To open an account       $1,000
                         To open an IRA           $  200
                         To add to an account     $  100
</TABLE>

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 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 the Fund and another of the Acorn Funds or
to one of the Reich & Tang Money Funds, which can be requested before 3:00 p.m.
Chicago (central) time by phone or in writing.  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
available.  You must designate an account on your purchase application, or in
writing with a signature guarantee, to have proceeds of a telephone redemption
wired to your bank account.

                                       7
<PAGE>
 
HIGHLIGHTS - HOW TO BUY SHARES

- --------------------------------------------------------------------------------
PHONE 1-800-962-1585                                       LOGO
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
 .    Exchange between funds or from a money fund account with the same
     registration, including name, address, and taxpayer ID number.     

TO ADD TO AN ACCOUNT:
 .    Exchange between accounts with the same registration, including name,
     address, and taxpayer ID number.

 .    Use the telephone purchase plan to transfer $100 to $50,000 from your bank
     account. Call first to verify that this service is in place on your
     account. (This service is not available for IRAs.)

You must make your telephone purchases or exchanges from any of the Acorn Funds
by 3:00 p.m. Chicago (central) time.
- --------------------------------------------------------------------------------
MAIL                                                       LOGO
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
 .    Complete and sign the application.  Make your check payable to "Acorn
     USA".
     Mail:                                        Overnight delivery:
         State Street Bank & Trust Co.            Boston Financial Data Services
         Attn:  Acorn Funds                       Attn:  Acorn Funds
         P.O. Box 8502                            2 Heritage Drive, 6th Floor
         Boston, MA 02266-8502                    N. Quincy, MA 02171
                                                  1-617-774-5000 ext. 6457
TO ADD TO AN ACCOUNT:
 .    Make your check payable to "Acorn USA".  Put your fund account number on
     your check.
 .    Use the return envelope that comes with your statements, or mail to the
     address shown above.
- --------------------------------------------------------------------------------
WIRE                                                       LOGO
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
 .    You may not open a NEW account by wire.
 .    You may open a new account by mail.     
TO ADD TO AN ACCOUNT:
 .    Wire to:
       State Street Bank & Trust Co.
       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 of your account.
- --------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN                                  LOGO
- --------------------------------------------------------------------------------
TO OPEN AN ACCOUNT:
 .    You may not open a NEW account automatically.
 .    You may open a new account by mail.     
TO ADD TO AN ACCOUNT:

 .    Sign up on the purchase application for monthly or quarterly transfers of
     $100 to $50,000 from your bank account, or call 1-800-9-ACORN-9 (1-800-922-
     6769) for a Doing Business with Acorn 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

                                       8
<PAGE>
     
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
Doing 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, 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, 6th Floor
     N. Quincy, MA 02171      
     1-617-774-5000 ext. 6457

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 signature
guarantee if one 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
     account (address of record);

                                       9
<PAGE>
 
 .    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.

                                      10
<PAGE>
 
HIGHLIGHTS - HOW TO SELL SHARES

<TABLE> 
<CAPTION>
- --------------------------------------------------------------------------------
PHONE 1-800-962-1585                                LOGO
- --------------------------------------------------------------------------------
<S>                          <C>
All accounts, except IRAs    . To verify that the telephone redemption plan is
                               in place, call 1-800-9-ACORN-9 (1-800-922-6769).
                               You automatically have this feature on your new
                               account unless you tell us that you do not want
                               it.

                             . 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 Owners,   . The letter of instruction must be signed by all
Sole Proprietorships,          persons required to sign for transactions
UGMA, UTMA                     (usually, all owners of the account), exactly as
                               their names 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 Organization     . The person(s) authorized by the corporate
                               resolution to act on the account must sign, in
                               that person's official capacity, and the
                               redemption request must be on corporate
                               letterhead.

                             . Include a corporate resolution certified within
                               60 days if the amount to be redeemed exceeds
                               $50,000.

Executor, Administrator,     . Call 1-800-962-1585 for instructions.
Conservator, Guardian

- --------------------------------------------------------------------------------
WIRE                                                LOGO
- --------------------------------------------------------------------------------
All account types, except    . You must sign up for payment of redemptions by
 IRAs                          wire 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.
</TABLE> 

TDD service for the deaf and hearing-impaired: 1-800-306-4567
    
NOTE: Some redemptions require signature guarantees and must be done by mail.
Please see page 9.     
This Highlights page answers the most common questions about How to Sell Shares.
See "Your Account" for more information.

                                      11
<PAGE>
 
You should be able to obtain a signature guarantee from a bank, broker dealer,
credit union (if authorized under state law), securities exchange or
association, 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 redemption
request, including any required signature guarantee or supporting documents, is
received. The fund calculates 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 Reich &
     Tang 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.     

                                      12
<PAGE>
 
- --------------------------------------------------------------------------------
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

 .    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.     

SHARE PRICE

THE FUND IS 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. Chicago
(central) time but is sometimes earlier.

THE 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.

The 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.
    
Your purchase or redemption of Fund shares will be priced at the next NAV
calculated after your investment (including the application and the money) or
redemption request is received and accepted. An order received 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 canceled and you will be liable for any losses or fees the Fund or
     its transfer agent incurs.

 .    Your Automatic Investment Plan and Telephone Purchase Plan may be
     immediately terminated if any item is unpaid by your financial institution.

                                      13
<PAGE>
 
 .    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.

THE 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.

 .    The 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 fifteen 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 account 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 restricted, or as permitted by the SEC.

 .    Certain accounts (such as trust accounts, corporate accounts and custodial
     accounts) may require documentation in addition to the redemption request.
     Call 1-800-962-1585 for more information.

If the value of your account (except an IRA 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
systematic withdrawal plan, or (3) dividend and capital gains distributions are
returned "undeliverable" or remain uncashed for six months, the checks will be
canceled and the proceeds will be reinvested in the Fund at the per share net
asset value on the date of cancellation. In addition, after that six-month
period, (1) your systematic withdrawal plan will automatically be canceled and
future withdrawals will occur only when requested, or (2) your cash election
will automatically be changed and future dividends and distributions will be
reinvested in the 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
                                       14
<PAGE>
 
redemptions may be made for 60 days after a change of address by phone. During
those 60 days, all redemption requests must be in writing with a signature
guarantee. If you send us your change of address in writing with a signature
guarantee, your telephone redemption privilege will continue without
interruption.

TELEPHONE TRANSACTIONS
    
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE OVER A RECORDED LINE:

 .    Change your address;

 .    Request duplicate statements to be sent to someone you designate;

 .    Request a current account statement;

 .    Purchase shares through the Telephone Purchase Plan (after you have signed
     up for the plan);

 .    Redeem $50,000 or less and have it wired to a bank checking account (after
     you have signed up for the Wire-Redemption Plan; not available for IRA
     accounts);

 .    Change the frequency or amount, or discontinue the Automatic Investment
     Plan on your account(s);

 .    Add or discontinue the telephone exchange privilege on your account;

 .    Add or discontinue the telephone redemption by check privilege on your
     account;

 .    Add automatic exchange (from Acorn USA to Acorn Fund or Acorn
     International, or vice versa, each month) to your account;

 .    Change your distribution option (does not apply to IRA accounts);     


                                       15
<PAGE>
 
 .    Redeem $50,000 or less, with a check sent to the address of record (does
     not apply to IRA accounts, or to accounts for which the address of record
     was changed by telephone in the last 60 days);

 .    Exchange money from an individual account to an existing IRA account with
     an identical registration;

 .    Exchange money between identically-registered accounts in Acorn USA or
     another of the Acorn Funds or certain Reich & Tang Money 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 may be responsible for any losses resulting from unauthorized telephone
transactions if it does not follow reasonable procedures designed to verify the
identity of the caller.  Reasonable procedures may include recording the call,
requesting additional information, and sending written confirmation of telephone
transactions.     

You should verify the accuracy of telephone transactions immediately upon
receipt of your confirmation statement.  If you do not want 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
unusual market activity), consider placing your order by mail.
    
TELEPHONE EXCHANGE PLAN  Acorn's telephone exchange plan permits you to exchange
your investment between Acorn USA and another of the Acorn Funds (Acorn Fund and
Acorn International), into one of the money market mutual funds participating in
the plan (Reich & Tang Money Funds) upon telephone instructions, or from one of
the Reich & Tang Money Funds in which you had invested by exchanging from one of
the Acorn Funds.  The REICH & TANG MONEY FUNDS are: Short Term Income Fund ,
Money Market Portfolio; Short Term Income Fund, U.S. Government Portfolio; Daily
Tax Free Income Fund; California Daily Tax Free Income Fund; Connecticut Daily
Tax Free Income Fund; Florida Daily Municipal Income Fund; Michigan Daily Tax
Free Income Fund; New Jersey Daily Municipal Income Fund; New York Daily Tax
Free Income Fund; North Carolina Daily Municipal Income Fund; and Pennsylvania
Daily Municipal Income Fund.     

Each of the Reich & Tang Money Funds is a no-load fund managed by Reich & Tang
Asset Management L.P. and offers check-writing privileges (for accounts other
than IRAs) in addition to the exchange plan.  Only the Short Term Income Fund,
Money Market Portfolio is available for IRA accounts.

                                      16
<PAGE>
 
THE PRICE AT WHICH SHARES ARE EXCHANGED is determined by the time of day we
receive your request.  TO GET TODAY'S PRICE:

 .    For an IRA account, call Acorn at  1-800-962-1585 before Closing Time.

 .    If you are exchanging FROM ONE OF THE ACORN FUNDS (Acorn USA, Acorn Fund or
     Acorn International) into another of the Acorn Funds or one of the Reich &
     Tang Money Funds, call Acorn at 1-800-962-1585 before Closing Time.

 .    If you are exchanging FROM ONE OF THE REICH & TANG MONEY FUNDS to one of
     the Acorn Funds, 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 Acorn funds and the
Reich & Tang Money Funds, you may not exchange into and out of a money fund on
the same or successive 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 for a non-IRA account or $200 for an IRA account.     

 .    If your account is subject to backup withholding, you may not use the
     exchange plan.

 .    Generally, you will be limited to 4 round-trip exchanges per year (a round-
     trip being the exchange out of one fund into another fund, and then back).

 .    Because excessive trading can hurt Fund performance and shareholders, Acorn
     reserves the right to temporarily or permanently terminate the exchange
     privilege of any investor who makes excessive use of the exchange plan.

 .    Acorn also reserves 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.

Acorn reserves the right to terminate or modify the exchange plan at any time,
but will try to give you prior notice if it can reasonably do so.

                                       17
<PAGE>
 
- --------------------------------------------------------------------------------
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):

<TABLE>
<CAPTION>
TO ACCOMPLISH THIS:                       PLEASE REQUEST THIS FORM:
<S>                                       <C>
For changes to account privileges         .  Doing Business with Acorn

For reregistering your current account    .  Changing Your Account Registration

For re-registering your Acorn shares      .  Broker-Dealer Transfer Form
 held by a broker to an account with
 Acorn

For changes to your IRA beneficiary       .  Change of Beneficiary
 designations

For transferring money from an IRA        .  IRA Transfer Form
 account with another institution to
 Acorn

For redeeming shares from your IRA        .  IRA Withdrawal Form
 account
</TABLE>

                                      18
<PAGE>
 
DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes substantially all of its net income and capital gains to
shareholders each year, usually 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 Fund offers three options:

*    REINVESTMENT OPTION. Your dividends and capital gain distributions will be
     automatically reinvested in additional shares of the Fund. If you do not
     indicate a choice on your application, you will be assigned this option.

     INCOME-ONLY OPTION. Your capital gain distributions will be automatically
     reinvested, but you will be sent a check for each dividend.

     CASH OPTION. You will be sent a check for each dividend and capital gain
     distribution.

FOR IRA ACCOUNTS, all distributions are automatically reinvested because payment
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
usually 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 the 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 DIVIDENDS AND DISTRIBUTIONS. Dividends and 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 reside.

Your dividends and distributions are taxable when they are paid, whether you
take them in cash or reinvest them in additional shares. However, dividends and
distributions declared in December and paid in January are taxable as if they
were paid on December 31.

                                      19
<PAGE>
 
For federal tax purposes, the Fund's income and short-term capital gain
distributions 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 statement, 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
distributions for the year are less than $10.

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 (redeem) them.
    
Whenever you sell shares of the Fund, Acorn will send you a confirmation
statement showing how many shares you sold and at what price. You will also
receive 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.     

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 the Fund's net income
and any net gains realized on its investments.

The Fund's income from dividends and interest, and any net realized short-term
capital gain, are paid to you as DIVIDENDS. The Fund realizes capital gains
whenever 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.

                                      20
<PAGE>
 
THE FUND IN DETAIL

ORGANIZATION

Acorn USA is a 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 series of the Trust on June 30,
1992. The Trust is a Massachusetts business trust organized on April 21, 1992.
Acorn USA began operations in September 1996.

Each share of the Fund is entitled to participate pro rata in any dividends and
other distributions declared by the board of trustees with respect to the Fund,
and all shares of the Fund have equal rights in the event of liquidation of the
Fund.
    
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for
protecting the interests of the shareholders of the Fund and the other Acorn
funds. The trustees are experienced 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
purposes. 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 USA that you own. Shareholders not attending these
meetings are encouraged to vote by proxy.

MANAGEMENT

The Fund is managed by Wanger Asset Management, L.P. (WAM), 227 West Monroe
Street, Suite 3000, Chicago, Illinois 60606-5016. WAM chooses the Fund's
investments and handles its business affairs, under the direction of the board
of trustees. 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.

WAM employs a team approach to management of the Fund. The management team is
comprised of the lead portfolio manager, other WAM portfolio managers and
research analysts. Team members share responsibility for providing ideas,
information, knowledge and expertise in managing the Fund. Each team member has
one or more areas of expertise that is applied to the management of the Fund.
Daily decisions on portfolio selection rest with the lead portfolio manager who
utilizes the input and advice of the management team in making purchase and sale
determinations.

ROBERT MOHN is the Fund's lead portfolio manager.

Mr. Mohn has been a key member of WAM's domestic analytical team since August
1992, and a principal of WAM since July 1995. Prior to his position at WAM, he
worked as an analyst for Ariel Capital Management (June to August 1991). His
formal education includes a B.S. from Stanford University (1983) and an M.B.A.
from the University of Chicago (1992).

                                      21
<PAGE>
     
The rate of fee paid by the Fund to WAM is higher than that paid by many mutual
funds, reflecting the higher costs involved in actively managing a small and
mid-cap stock portfolio.  State Street Bank and Trust Company is the Fund's
transfer agent and custodian.     

DISTRIBUTOR
    
Shares of Acorn USA are offered for sale through WAM Brokerage Services, L.L.C.
("WAM BD") without any sales commission or charges to the Fund or its
shareholders. WAM BD is wholly-owned by WAM and WAM's general partner, Wanger
Asset Management, Ltd. WAM BD's address is 227 West Monroe Street, Suite 3000,
Chicago, Illinois 60606-5016. All distribution expenses relating to the Fund are
paid by WAM, including the payment or reimbursement of any expenses incurred by
WAM BD.      

EXPENSES

Like all mutual funds, Acorn USA pays expenses related to its daily operations.
Expenses paid out of the Fund's assets are reflected in its share price or
dividends.

The Fund pays a MANAGEMENT FEE to WAM for managing its investments and business
affairs. For services provided by WAM, the Fund pays an annual fee of (i) 1.00%
of the Fund's average daily net assets up to $200 million, and (ii) .95% of
average daily net assets in excess of $200 million.

While the management fee is a significant component of the Fund's annual
operating costs, the Fund has other expenses, too. The Fund pays the fees of its
custodian, transfer agent, auditors, and lawyers. It also pays other expenses
such as the cost of compliance with federal and state laws, proxy solicitations,
shareholder reports, taxes, insurance premiums, and the fees of trustees who are
not otherwise affiliated with Acorn or WAM.

THE ACORN PHILOSOPHY
    
ACORN USA seeks long-term capital growth.  Under normal market circumstances,
the Fund will invest at least 65% of its assets in stocks of small and medium-
sized U.S. companies.  The Fund defines these companies as those that are
primarily located or domiciled in the United States and that generally trade on
a U.S. exchange or over-the-counter market.     

THE FUND PREFERS SMALL COMPANIES. Since large institutions seek highly
marketable stocks, the stocks of large companies are studied in detail by
security analysts, 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 because the facts about the companies are not universally known. The
Fund thus generally concentrates purchases on that segment of the market where
the competition is less intense -- companies with a total common stock market
capitalization of less than $1 billion. WAM wants to be able to understand any
company in which the Fund invests, and smaller companies are easier to
comprehend 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

                                      22
<PAGE>
 
widespread activities.  Since WAM places a premium on understanding the Fund's
investments, when possible WAM talks to top management directly.  That is easier
to do with smaller firms.

                                      23
<PAGE>
 
LOOKING FOR HIGH QUALITY COMPANIES.  The Fund looks for quality businesses, with
each investment ideally resting on a solid tripod of growth potential, financial
strength, and fundamental value.  Not all of the companies in which the Fund
invests 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.
Financial strength means low debt, adequate working capital, and conservative
accounting principles.  Strong capitalization gives management the stability and
flexibility to reach strategic objectives.  In economies with less well-
developed capital markets than those of the U.S., a strong balance sheet is an
essential component of competitive advantage.  Fundamental value means low
relative price.  The existence of a good company does not necessarily make its
stock a good buy.  The price of a stock determines value as measured relative to
dividends, earnings, cash flow, growth rate, book value, and economic
replacement value of assets.  The emphasis on fundamentals in relation to price
sets the Fund apart from pure "growth" or "value" funds.

WAM also believes that finding and understanding high quality companies is
important because investing in smaller companies involves relatively higher
investment costs.  One 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 Fund.  Occasionally, however, securities purchased on a long-term
basis may be sold within 12 months after purchase in light of a change in the
circumstances of a particular company or industry, or in general market or
economic conditions.

INVESTMENT THEMES.  To find long-term investments and reduce its rate of
turnover, the Fund seeks out areas of the economy that it believes will benefit
from favorable 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.

The Fund invests primarily in equity securities, including common and preferred
stocks, warrants or other similar rights, and convertible securities of U.S.
companies.  The Fund may also invest in any other type of security, including
debt securities, and may invest up to 10% of its total assets in foreign
securities.

The Fund may invest without limit in corporate or government obligations or hold
cash or cash equivalents if WAM determines that a temporary defensive position
is advisable.  The Fund uses various techniques to increase or decrease its
exposure to the effects of possible changes in security prices, currency
exchange rates, or other factors that affect the value of the Fund's portfolio.
These techniques include buying and selling options, futures contracts, or
options on futures contracts, or entering into currency exchange contracts or
swap agreements.
    
The investment objective of the Fund is not fundamental may be changed by the
board of trustees without shareholder approval.  If there were such a change,
you should consider whether the Fund would remain an appropriate investment in
light of your then current financial position and needs.  The Fund alone is not
intended to present a balanced investment program.     

                                       24
<PAGE>
 
SECURITIES, INVESTMENT PRACTICES, AND RISKS

The following pages contain more detailed information about types of investments
the Fund may make, and strategies WAM may employ in pursuit of the 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 the Fund's investment restrictions is included in the SAI.
Compliance with these policies and limitations is determined at the time of
purchase; the sale of an investment 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 the Fund
achieve its goal.

COMMON STOCKS.  Common stocks represent an equity (ownership) interest in a
corporation.  This ownership interest often gives the Fund the right to vote on
measures affecting the company's organization and operations.  Although common
stocks have a history of long-term growth in value, their prices tend to
fluctuate in the short term.

Acorn USA invests 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 periods they have
performed worse.  Stocks of small companies tend to be more volatile and less
liquid than stocks of large companies.  Small companies, as compared 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 diversified product line
making them susceptible to market pressure, and may have a smaller public market
for their shares.

Restrictions:  The Fund may not 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.*  

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.


- --------------------------------
*    These restrictions are "fundamental," which means that they cannot be
     changed without shareholder approval.


                                       25
<PAGE>
 
"Investment grade" debt securities are those rated within the four highest
ratings 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 comparable
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
interest rates.

The Fund may invest without limit in corporate or government obligations, or
hold cash or cash equivalents if WAM determines that a temporary defensive
position is advisable.  To meet liquidity needs (which, under normal market
conditions, are not expected to exceed 25% of its total assets) or for temporary
defensive purposes, the Fund may hold cash and may invest in domestic and
foreign money market securities.

Restrictions:  There are no restrictions on the ratings of debt securities in
which the Fund may invest.  However, Acorn USA does not intend to invest more
than 20% of its total assets in debt securities, nor more than 5% of its total
assets in debt securities rated at or lower than the lowest investment grade.

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 subject to certain
legal restrictions on sale.  Difficulty in selling securities may result in
delays or a loss, or may be costly to the Fund.
    
Restrictions:  Acorn USA may not purchase a security if, as a result, more than
15% of its total net assets would be invested in illiquid or restricted
securities.     

DIVERSIFICATION

Diversifying the Fund's investment portfolio can reduce the risks of investing.
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.

                                       26
<PAGE>
 
Restrictions:  Acorn USA may not invest more than 5% of its total assets in the
securities of any one issuer.  This restriction applies to only 75% of Acorn
USA's total assets, leaving a "basket" of 25% of total assets in which
investments may exceed the 5% limit.  The Fund may not invest more than 25% of
its total assets in any one industry.  These limitations do not apply to U.S.
government securities.*

LENDING AND REPURCHASE AGREEMENTS

The Fund generally may not make loans, but will invest in repurchase agreements
(generally as a cash management technique).  A repurchase agreement involves a
sale of securities to the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time.  In the event of bankruptcy of the
seller, the Fund could experience both losses and delays in liquidating its
collateral.

Restrictions:  The Fund may not generally make loans, but may (a) invest in debt
securities within the limits described in the prospectus and SAI, (b) invest in
repurchase agreements, or (c) lend up to 33% of its portfolio securities.*

OTHER INVESTMENT COMPANIES

The Fund may invest in other investment companies, which may involve the payment
of a premium above the value of 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.  As a shareholder in an investment company, the Fund would bear its
ratable share of that investment company's expenses, including its advisory and
administration fees.  At the same time, the Fund would continue to pay its own
management fees and other expenses.  The Fund does not intend to invest in such
circumstances unless, in the judgment of WAM, the potential benefits of such
investment justify the payment of any applicable premium or sales charge and the
additional layer of expense.

Restrictions:  Acorn USA 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
another investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.

FOREIGN SECURITIES

The Fund invests mostly in stocks of U.S. companies, but has the flexibility to
invest up to 10% of its total assets in foreign securities.  Investment in a
foreign security may be appropriate if the foreign company has significant U.S.
operations, or occasionally if WAM believes it is an exceptional investment
opportunity.


- -------------------------------
*    These restrictions are fundamental.


                                       27
<PAGE>

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;
less public information with respect to issuers of securities; less governmental
supervision of stock exchanges, securities brokers, and issuers of securities;
different accounting, auditing, and financial reporting standards; different
settlement periods and trading practices; less liquidity, frequently greater
price volatility, and higher transaction costs in foreign markets than in the
United States; imposition of foreign taxes; and political risk, including
expropriation or nationalization.

The Fund may invest in American Depositary Receipts (ADRs) that are not
sponsored by the issuer of the underlying security. To the extent the Fund does
so, it would probably bear its proportionate share of the expenses of the
depository and might have greater difficulty in receiving copies of the issuer's
shareholder communications than would be the case with a sponsored ADR.

The Fund may invest in securities purchased on a when-issued and delayed
delivery 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. The 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. Acorn USA's investments in foreign securities, including ADRs, are
limited to not more than 10% of its total assets.

MANAGING INVESTMENT EXPOSURE

The Fund uses various techniques to increase or decrease its exposure to the
effects of possible changes in security prices, currency exchange rates or other
factors that affect the value of the Fund's portfolio. These techniques include
buying and selling options, futures contracts, or options on futures contracts,
or entering into currency exchange contracts or swap agreements.

These techniques are used by WAM to adjust the risk and return characteristics
of the Fund's portfolio. If WAM judges market conditions incorrectly or employs
a strategy that does not correlate well with the Fund's investments, or if the
counterparty to the transaction does not perform as promised, the transaction
could result in a loss. Use of these techniques may increase the volatility of
the Fund and may involve a small investment of cash relative to the magnitude of
the risk assumed. These techniques are used by the Fund for hedging, risk
management or portfolio management purposes and not for speculation.

OPTIONS AND FUTURES.  The Fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of the Fund's portfolio, to
provide an efficient means of regulating the Fund's exposure to the equity
markets, or as a hedge against changes in prevailing levels of currency exchange
rates. The Fund may write covered call options and purchase put and call options
on foreign currencies, securities, and stock indices. Futures contracts and
options can be highly volatile. The Fund's attempt to use such investments for
hedging purposes may not be successful and could result in reduction of the
Fund's total return.

                                      28
<PAGE>

CURRENCY EXCHANGE TRANSACTIONS. The Fund may use forward foreign currency
contracts to "lock-in" an exchange rate between the U.S. dollar and the foreign
currency or currencies involved in a particular transaction or in which
portfolio securities are denominated. 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.
Although forward contracts may be used to protect the Fund from adverse currency
movements, the use of such hedges may reduce or eliminate the potentially
positive effect of currency revaluations on the Fund's total return. See the SAI
for more information.

Restrictions:  The Fund will not use futures contracts for speculation, and will
limit its use of futures contracts so that no more than 5% of its total assets
would be committed to initial margin deposits or premiums on such contracts. The
aggregate market value of the Fund's portfolio securities covering call or put
options will not exceed 10% of the Fund's net assets.

                                      29
<PAGE>

     
<TABLE>
<CAPTION>
===============================================================================
HOW TO CONTACT US
===============================================================================
MAIL                                                LOGO
===============================================================================
State Street Bank & Trust    .  for regular mail delivery, including purchases,
 Co.                            written exchanges, redemptions, and IRA
Attn: Acorn Funds               contributions
P. O. Box 8502
Boston, MA 02266-8502
 
 
Boston Financial Data         . for overnight deliveries of purchases, written
 Service                        exchanges, redemptions, or IRA contributions
Attn: Acorn Funds
2 Heritage Drive, 6th Floor
N. Quincy, MA 02171
 
Wanger Asset Management,      . the Fund's advisor
 L.P.
227 W. Monroe St., Suite
 3000
Chicago, IL 60606-5016
 
WAM Brokerage Services,       . the Fund's distributor
 L.L.C.
227 W. Monroe St., Suite
 3000
Chicago, IL 60606-5016
===============================================================================
PHONE                                               LOGO
===============================================================================
<S>                          <C>
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 any of the Acorn
Funds must be made by 3:00 p.m. Chicago (central) time.  Telephone requests for
purchases, redemptions or exchanges from the Reich & Tang Money Funds must be
made by 11:00 a.m. Chicago (central) time.

===============================================================================
WIRE                                                LOGO
==================================================================================================

State Street Bank & 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 of your account
</TABLE>     

                                       30
<PAGE>
 
                      [THIS PAGE INTENTIONALLY LEFT BLANK]

                                       31
<PAGE>
 
                                                          ACORN INVESTMENT TRUST
                                                                    STATEMENT OF
                                                                      ADDITIONAL
                                                                     INFORMATION
                                                                     May 1, 1996
                                      As Supplemented on September 3, 1996      

                                                          227 West Monroe Street
                                                                      Suite 3000
                                                         Chicago, Illinois 60606
                                                                 1-800-9-ACORN-9
                                                                  1-800-922-6769

<TABLE>
<CAPTION>


ACORN FUND
ACORN INTERNATIONAL

No-Load Funds
- -------------------------------------------------------------------------------
                               TABLE OF CONTENTS
                               -----------------
                                                                     Page
                                                                     ----


<S>                                                                  <C>
     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
- -------------------------------------------------------------------------------
</TABLE>

     This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
ACORN FUND 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.

<PAGE>
 
                          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
<PAGE>
 
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
<PAGE>
 
<TABLE>
<CAPTION>

     MATURE MARKETS     DEVELOPING MARKETS             EMERGING MARKETS
     --------------     ------------------             ----------------
     <S>                <C>                       <C>            <C>  

       Australia           Argentina              Bangladesh      Morocco
       Austria             Chile                  Botswana        Pakistan
       Belgium             Greece                 Brazil          Peru
       Canada              Hong Kong              China           Philippines
       Denmark             Indonesia              Colombia        Poland
       Finland             Israel                 Cyprus          Sri Lanka
       France              Korea                  Czech Republic  Swaziland
       Germany             Malaysia               Ecuador         Turkey
       Ireland             Mexico                 Egypt           Uruguay
       Italy               Portugal               Ghana           Venezuela
       Japan               Singapore              Hungary         Zambia
       Luxembourg          Taiwan                 India           Zimbabwe
       Netherlands         Thailand               Jordan
       New Zealand                                Kenya
       Norway
       South Africa
       Spain
       Sweden
       Switzerland
       United Kingdom
       United States
</TABLE>

     It may not be feasible for the funds currently to invest in all of these
countries due to restricted access to their securities markets or inability to
implement satisfactory custodial arrangements.

CURRENCY EXCHANGE TRANSACTIONS.

     The funds may enter into currency exchange transactions.  A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract").  A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract.  Forward contracts are usually entered into with banks 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
<PAGE>
 
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, assets of that fund having a value at least as great as
the fund's commitment under such forward contract will be segregated on the
books of the fund and held by the custodian while the contract is 
outstanding.     

     At the maturity of a forward contract to deliver a particular currency, a
fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.

     It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that fund is obligated to deliver.

     If a fund retains the portfolio security and engages in an offsetting
transaction, that fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, a fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the fund of unrealized
profits or force the fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.

     Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a fund to hedge against a devaluation that is so
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
<PAGE>

     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
<PAGE>
     
     The funds will write call options and put options only if they are
"covered."  For example, in the case of a call option on a security, the option
is "covered" if a fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional consideration
(or, if additional consideration is required, assets having a value at least
equal to that amount are segregated on the books of a fund) upon conversion or
exchange of other securities held in its portfolio.     

     If an option written by a fund expires, that fund realizes a capital gain
equal to the premium received at the time the option was written.  If an option
purchased by a fund expires, that fund realizes a capital loss equal to the
premium paid.

     Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration).  There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a fund desires.

     A fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the fund will realize a capital loss.  If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the fund will realize a capital gain or, if it is less,
the fund will realize a capital loss.  The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.

     A put or call option purchased by a fund is an asset of that fund, valued
initially at the premium paid for the option.  The premium received for an
option written by a fund is recorded as a deferred credit.  The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.

     OTC DERIVATIVES.  The 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
<PAGE>

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.

     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.

- ------------------------------
/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
<PAGE>

     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 re quired 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
<PAGE>

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 inter est 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
<PAGE>
     
     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
<PAGE>
 
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 assets 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
<PAGE>
 
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 more than 10% of a fund's assets in
     restricted securities.

                                       13
<PAGE>
 
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
<PAGE>
 
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, 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
<PAGE>
 
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
<PAGE>
 
                            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 its 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
<PAGE>
 
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
<PAGE>
 
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
<PAGE>
 
                                       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
<PAGE>
 
                            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:

<TABLE>
<CAPTION>
ACORN FUND                                           
- ----------                                               Average Annual
                                         Total Return     Total Return
                                         ------------    --------------
<S>                                      <C>             <C>
 
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)..          4874.1             16.5
</TABLE> 
<TABLE> 
<CAPTION> 
ACORN INTERNATIONAL                                      
- -------------------                                      Average Annual
                                         Total Return     Total Return
                                         ------------    --------------
<S>                                      <C>             <C>  
1 year............................             8.9%             8.9%
Life of Fund (inception 9/23/92)..            67.0             17.0
</TABLE>

     The funds impose no sales charges and pay no distribution expenses. Income
taxes are not taken into account. Performance figures quoted by the funds are
not necessarily indicative of future results. Each fund's performance is a
function of conditions in the securities markets, portfolio management, and
operating expenses. Although information about past performance is useful in
reviewing a fund's performance and in providing some basis for comparison with
other investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.

     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
<PAGE>
 
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
<PAGE>

     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
<PAGE>
 
                                   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 86; 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) and Santa Fe Natural Tobacco      

                                       24
<PAGE>
 
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 43;
     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; 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
<PAGE>

     
Leah J. Zell, vice president
     227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47; 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 39; 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 37;
     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 July 31, 1996 the trustees and officers as a group owned beneficially
3,152,543 shares (1.7% of the outstanding shares) of ACORN FUND and 667,713
shares (.79% of the outstanding shares) of ACORN INTERNATIONAL.  The Illinois
Deferred Compensation Plan held 13,928,900 shares of Acorn Fund (13.0% of the
outstanding shares).  Charles Schwab & Co., Inc. held 11,093,055 shares of Acorn
International (7.6% 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
<PAGE>
 
<TABLE>
<CAPTION>

                                                 AGGREGATE           TOTAL
                              AGGREGATE        COMPENSATION       COMPENSATION
                             COMPENSATION       FROM ACORN            FROM
NAME OF TRUSTEES              FROM ACORN       INTERNATIONAL      FUND COMPLEX
- ------------------------------------------------------------------------------
 <S>                           <C>               <C>                <C>
 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
- ------------------------------------------------------------------------------
</TABLE>
                        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
<PAGE>
 
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 shareholders.

                                      28
<PAGE>
 
     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
<PAGE>
 
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
<PAGE>
 
     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
<PAGE>
 
                    APPENDIX - DESCRIPTION OF BOND RATINGS

     A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, WAM believes that the quality of debt securities in
which the funds invest should be continuously reviewed. A rating is not a
recommendation to purchase, sell or hold a security, because it does not take
into account market value or suitability for a particular investor. When a
security has received a rating from more than one service, each rating should be
evaluated independently. Ratings are based on current information furnished by
the issuer or obtained by the ratings services from other sources which they
consider reliable. Ratings may be changed, suspended or withdrawn as a result of
changes in or unavailability of such information, or for other reasons.

     The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").

MOODY'S RATINGS

     Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.

     Aa--Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.

     A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

     Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

     Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

                                      32
<PAGE>
 
     B--Bonds rated B generally lack characteristics of the desirable
investment.  Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

     Caa--Bonds rated Caa are of poor standing.  Such bonds may be in default or
there may be present elements of danger with respect to principal or interest.

     Ca--Bonds rated Ca represent obligations which are speculative in a high
degree.  Such bonds are often in default or have other marked shortcomings.

S&P RATINGS

     AAA--Bonds rated AAA have the highest rating.  Capacity to pay principal
and interest is extremely strong.

     AA--Bonds rated AA have a very strong capacity to pay principal and
interest and differ from AAA bonds only in small degree.

     A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.

     BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest.  Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in higher rated categories.

     BB--B--CCC--CC--Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.  BB
indicates the lowest degree of speculation among such bonds and CC the highest
degree of speculation.  Although such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

                                      33
<PAGE>
 
                                                          ACORN INVESTMENT TRUST

                                                                    STATEMENT OF
                                                                      ADDITIONAL
                                                                     INFORMATION
                                                               September 3, 1996


                                                          227 West Monroe Street
                                                                      Suite 3000
                                                         Chicago, Illinois 60606
                                                                 1-800-9-ACORN-9
                                                                  1-800-922-6769


ACORN USA

No-Load Fund

<TABLE>    
<CAPTION>
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                               TABLE OF CONTENTS
                               -----------------

                                                                           Page
                                                                           ----
<S>                                                                        <C>

Information About the Fund...............................................     2
Investment Objectives and Policies.......................................     2
Investment Techniques and Risks..........................................     2
Investment Restrictions..................................................    15
Performance Information..................................................    17
Investment Adviser.......................................................    18
Distributor..............................................................    19
The Trust................................................................    20
Trustees and Officers....................................................    21
Purchasing and Redeeming Shares..........................................    23
Additional Tax Information...............................................    25
Portfolio Transactions...................................................    25
Custodian................................................................    26
Independent Auditors.....................................................    27
Appendix - Description of Bond Ratings...................................    27
</TABLE>    
- --------------------------------------------------------------------------------

     This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
ACORN USA dated September 3, 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.
<PAGE>
 
                          INFORMATION ABOUT THE FUND

     ACORN USA is a series of Acorn Investment Trust ("Acorn" or the "Trust").


     The discussion below supplements the description in the prospectus of the
Fund's investment objectives, policies, and restrictions.

                      INVESTMENT OBJECTIVES AND POLICIES

     ACORN USA invests with the objective of long-term growth of capital.
Although income is considered by ACORN USA in the selection of securities, the
Fund is not designed for investors seeking primarily income rather than capital
appreciation.

     The Fund uses the techniques and invests in the types of securities
described below and in the prospectus.

                        INVESTMENT TECHNIQUES AND RISKS

DEBT SECURITIES

     The Fund 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 Fund or the portion of the
Fund's assets that may be invested in debt securities in a particular ratings
category.  The Fund does not intend to invest more than 20% of its total assets
in debt securities nor more than 5% of its total assets in securities rated at
or lower than the lowest investment grade.

     Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics.  Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal.  Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy.  An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities.  In addition,
lower-quality bonds are less sensitive to interest rate changes than higher-
quality instruments and generally are more sensitive to adverse economic changes
or individual corporate developments.  During a period of adverse economic
changes, including a period of rising interest rates, the junk bond market may
be severely disrupted, and issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.

     Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad.  The
market for unrated debt securities is even narrower.  During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and the Fund may have greater difficulty selling 

                                       2
<PAGE>
 
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.

OPTIONS AND FUTURES

     The Fund 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 Fund 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 Fund's investment objective.

     OPTIONS.  An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months).  The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or 
to pay the exercise price upon delivery of the underlying security or foreign
currency.  Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option.  (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
    
     The Fund 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 the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional
consideration (or, if additional consideration is required, assets having a
value at least equal to that amount are segregated on the books of the Fund)
upon conversion or exchange of other securities held in its portfolio.     

     If an option written by the Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written.  If an option
purchased by the Fund expires, the 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 the Fund desires.

                                       3
<PAGE>
 
     The 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 the Fund is an asset of the Fund, valued
initially at the premium paid for the option.  The premium received for an
option written by the 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.  The Fund will
limit its investments so that no more than 5% of its total assets will be placed
at risk in the use of OTC derivatives.  See "Illiquid Securities" below for more
information on the risks associated with investing in OTC derivatives.     

     RISKS ASSOCIATED WITH OPTIONS.  There are several risks associated with
transactions in options.  For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives.  A decision as to whether, when, and
how to use options involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because of market
behavior or unexpected events.

     There can be no assurance that a liquid market will exist when the Fund
seeks to close out an option position.  If the 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 the 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, the 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, the Fund foregoes, during the option's life, the
opportunity to profit from currency appreciation.

                                       4
<PAGE>
 
     If trading were suspended in an option purchased or written by the Fund,
the 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 Fund 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.

     The Fund 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 Fund, the Fund will limit its use of futures contracts and futures options
to hedging transactions.  For example, the Fund might use futures contracts to
hedge against fluctuations in the general level of stock prices, anticipated
changes in interest rates, or currency fluctuations that might adversely affect
either the value of the Fund's securities or the price of the securities that
the Fund intends to purchase.  The Fund's hedging may include sales of futures
contracts as an offset against the effect of expected declines in stock prices
or currency exchange rates or increases in interest rates and purchases of
futures contracts as an offset against the effect of expected increases in stock
prices or currency exchange rates or declines in interest rates.  Although other
techniques could be used to reduce the Fund's exposure to stock price, interest
rate, and currency fluctuations, the Fund may be able to hedge its 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.  

- -------------------------------
/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.

                                       
                                       5
<PAGE>
 
Should those predictions be incorrect, the 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 the Fund, the 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 Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the 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 the Fund does not represent a
borrowing or loan by the Fund but is instead settlement between the 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 Fund
will mark-to-market its open futures positions.

     The Fund is also required to deposit and maintain margin with respect to
put and call options on futures contracts it writes. 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 Fund.

     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 Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
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 Fund's investments being hedged and
the securities underlying the standard contracts available for trading. For
example, in the case of

                                       6
<PAGE>
 
index futures contracts, the composition of the index, including the issuers and
the weighting of each issue, may differ from the composition of the 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 the 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
the Fund seeks to close out a futures or futures option position. The Fund would
be exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.

     LIMITATIONS ON OPTIONS AND FUTURES.  The 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 the 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, the 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, the
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.

- -----------------
/2/  A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.

                                       7

<PAGE>
 
     The 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 the 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 Fund continues to sell its shares in certain states, the
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, the Fund will not purchase puts, calls, straddles, spreads,
or any combination thereof if by reason of such purchase more than 10% of the
Fund's total assets would be invested in such securities./3/

     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. The Fund may enter into any form of
swap agreement if WAM determines it is consistent with the Fund's investment
objective and policies, but the Fund will limit its use of swap agreements so
that no more than 5% of its total assets will be placed at risk.

- ---------------------
/3/  In addition, the Fund must comply with certain state regulations that may
impose additional restrictions. Arkansas regulations currently prohibit
investment of more than 5% of a fund's assets in such classes of securities.

                                       8
<PAGE>
 
     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 assets 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.     

ILLIQUID SECURITIES
     The Fund may not invest in illiquid securities, if as a result they would
comprise more than 15% of the value of the net assets of ACORN USA./4/
- ----------------

     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, the 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 USA

/4/  In addition, the Fund must comply with certain state regulations that may
impose additional restrictions. Arkansas regulations currently prohibit
investment of more than 10% of a fund's assets in restricted securities.

                                       9
<PAGE>
 
should be in a position where more than 15% of the value of its net
assets are invested in illiquid assets, including restricted securities, the
Fund will take appropriate steps to protect liquidity.

     Notwithstanding the above, the 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 Fund, 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 the Fund's restriction of investing no more than
15% 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 Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities.  Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities.
    
LENDING OF PORTFOLIO SECURITIES

     Subject to restriction (4) under "Investment Restrictions" in this
statement of additional information, the Fund may lend its portfolio securities
to broker-dealers and banks.  Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and also would receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral.  The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days.
The Fund would not have the right to vote the securities during the existence of
the loan but would call the loan to permit voting of the securities if, in
judgment of Wanger Asset Management, L.P., a material event requiring a
shareholder vote would otherwise occur before the loan was repaid.  In the event
of bankruptcy or other default of the borrower, the Fund could experience both
delays in liquidating the loan collateral or recovering the loaned securities
and losses, including (a) possible decline in the value of the collateral or in
the value of the securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of enforcing its rights.
The Fund does not currently intend to loan more than 5% of its net assets.     

                                       10
<PAGE>
 
REPURCHASE AGREEMENTS

     Repurchase agreements are transactions in which the Fund purchases a
security from a bank or recognized securities dealer and simultaneously commits
to resell that security to the bank or dealer at an agreed-upon price, date, and
market rate of interest unrelated to the coupon rate or maturity of the
purchased security.  Although repurchase agreements carry certain risks not
associated with direct investments in securities, the 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.

     The 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 the
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, the Fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS

     The Fund 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.  The 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.  The 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.

     The 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 the Fund enters into a binding obligation to purchase
securities on a when-issued basis or enters into a reverse repurchase agreement,
assets of the Fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the      

                                       11
<PAGE>
     
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
the Fund, may increase net asset value fluctuation.     

     The Fund has no present intention of investing in reverse repurchase
agreements.

FOREIGN SECURITIES

     The Fund may invest up to 10% of its total assets in foreign securities
(including American Depository Receipts ("ADRs")), 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.  ADRs are receipts typically issued by an American bank or
trust company evidencing ownership of the underlying securities.  The Fund may
invest in sponsored or unsponsored ADRs.  In the case of an unsponsored ADR, the
Fund is likely to bear its proportionate share of the expenses of the depository
and it may have greater difficulty in receiving shareholder communications than
it would have with a sponsored ADR.  The Fund does not intend to invest more
than 5% of its net assets in unsponsored ADRs.

     With respect to portfolio securities that are issued by foreign issuers or
denominated in foreign currencies, the Fund's investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies.  For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged.  Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under "Currency
Exchange Transactions.")

     Investors should understand and consider carefully the risks involved in
foreign investing.  Investing in foreign securities, positions in which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include:  fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.

     Although the Fund will 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 

                                       12
<PAGE>
 
controls, the adoption of foreign government restrictions, or other adverse
political, social or diplomatic developments that could affect investment in
these nations.

CURRENCY EXCHANGE TRANSACTIONS.

     The Fund 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 Fund may invest, and serve as hedges against possible
variations in the exchange rate between these currencies.  The Fund's currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions.  Transaction hedging is the
purchase or sale of a forward contract with respect to specific payables or
receivables of the 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 Fund 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 the Fund owns or anticipates
owning securities in countries whose currencies are linked, WAM may aggregate
such positions as to the currency hedged.
    
     If the Fund enters into a forward contract hedging an anticipated purchase
of portfolio securities, assets of the Fund having a value at least as great as
the Fund's commitment under such forward contract will be segregated on the
books of the Fund and held by the custodian while the contract is outstanding.
     
     At the maturity of a forward contract to deliver a particular currency, the
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 the 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 the Fund is obligated to deliver.

                                       13
<PAGE>
 
     If the Fund retains the portfolio security and engages in an offsetting
transaction, the 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 the 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, the 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 the 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 the 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.

TEMPORARY STRATEGIES

     The Fund has 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, the Fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. issuers, 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 the Fund
might employ defensive strategies.

     In addition, pending investment of proceeds from new sales of Fund shares
or to meet ordinary daily cash needs, the 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 Fund does 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.  A high rate of portfolio
turnover, if it should 

                                       14
<PAGE>
 
occur, would result in increased transaction expenses which must be borne by the
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.

                            INVESTMENT RESTRICTIONS

     In pursuing its investment objective ACORN USA will not:

     1.  With respect to 75% of the value of the Fund's total assets, invest
more than 5% of its total assets (valued at time of investment) in securities of
a single issuer, except securities issued or guaranteed by the government of the
U.S., or any of its agencies or instrumentalities;

     2.  Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the issuer;

     3.  Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry, except that this restriction does
not apply to investments in U.S. government securities;

     4.  Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that are
publicly distributed, or from investing up to an aggregate of 15% of its total
assets (taken at market value at the time of each purchase) in parts of issues
of bonds, debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its total
assets (taken at market value at the time of such loan);

     5.  Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the time
of borrowing, and (b) in connection with transactions in options, futures and
options on futures;

     6.  Underwrite the distribution of securities of other issuers; however,
the Fund may acquire "restricted" securities which, in the event of a resale,
might be required to be registered under the Securities Act of 1933 on the
ground that the Fund could be regarded as an underwriter as defined by that act
with respect to such resale;

     7.  Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real estate
or interests in real estate;

     8.  Purchase and sell commodities or commodity contracts, except that it
may enter into (a) futures and options on futures and (b) foreign currency
contracts;

                                       15
<PAGE>
 
     9.  Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in connection
with transactions in options, futures and options on futures;

     10.  Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.

     Restrictions 1 through 10 above are "fundamental," which means that they
cannot be changed without the approval of the lesser of (i) 67% of ACORN USA'S
shares present at a meeting if more than 50% of the shares outstanding are
present or (ii) more than 50% of ACORN USA'S outstanding shares.

     For the Fund has no present intention of investing in repurchase agreements
or lending its portfolio securities.

     In addition, ACORN USA is subject to a number of restrictions that may be
changed by the board of trustees without shareholder approval.  Under those
nonfundamental restrictions, ACORN USA will not:

     (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 2% of its net assets (valued at the time of
          investment) in warrants not listed on the New York or American stock
          exchanges, nor more than 5% of its net assets (valued at the time of
          investment) in all warrants, in each case 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 (other than issuers of federal agency
          obligations or securities issued or guaranteed by any foreign country
          or asset-backed securities) that, together with any predecessors or
          unconditional guarantors, have been in continuous operation for less
          than three years ("unseasoned issuers") or (b) more than 15% of its
          total assets (valued at the time of investment) in restricted
          securities and securities of unseasoned issuers;

     (e)  Acquire securities of other registered investment companies except in
          compliance with the Investment Company Act of 1940 and applicable
          state law;/5/

- ------------------------
/5/  The Ohio Administrative Code prohibits investment in the securities of
     other investment companies, except by purchase in the open market where no 
     commision or profit to a 

                                       16
<PAGE>
 
     (f)  Invest more than 15% of its net assets (valued at time of investment)
          in illiquid securities, including repurchase agreements maturing in
          more than seven days;

     (g)  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;

     (h)  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;

     (i)  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;

     (j)  Make short sales of securities unless the Fund owns at least an equal
          amount of such securities, or owns securities that are convertible or
          exchangeable, without payment of further consideration, into at least
          an equal amount of such securities;

     (k)  Invest more than 10% of its total assets (valued at the time of
          investment) in securities of non-U.S. issuers, including securities
          represented by American Depository Receipts.

Notwithstanding the foregoing investment restrictions, the Fund 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.

                            PERFORMANCE INFORMATION

     From time to time the Fund 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 the 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/

- --------------------------------------------------------------------------------

     sponsor or dealer results from the purchase other than the customary
     broker's commission, or except when the purchase is part of a plan of
     merger, consolidation, reorganization or acquisition.

                                      17
<PAGE>
 
     Where: P = the amount of an assumed initial investment in shares of the
                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


     The Fund imposes no sales charges and pays no distribution expenses.
Income taxes are not taken into account.  Performance figures quoted by the Fund
are not necessarily indicative of future results.  The 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 the 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, the Fund's performance may be compared
with those of market indexes and other mutual funds.  In addition to the
performance information described above, the Fund might use comparative
performance as computed in a ranking or rating determined by Lipper Analytical
Services, Inc., an independent service that monitors the performance of over
1,000 mutual funds, Morningstar, Inc., or another service.

     The Fund may note its mention or recognition in newsletters, newspapers,
magazines, or other media.  The Fund may similarly note mention or recognition
of WAM, or appearances of principals of WAM, in the media.

                              INVESTMENT ADVISER

     The Fund's investment adviser, 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.   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 Fund's
prospectus and reports to prospective investors.

     For its services to ACORN USA WAM receives a fee (calculated daily and paid
monthly) at the annual rate of 1.00% of the net asset value of the Fund up to
$200 million and .95% of the net asset value in excess of $200 million.

     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.

     The Fund pays the cost of custodial, stock transfer, dividend disbursing,
audit and legal services and membership in trade organizations.  It also pays
other expenses such as the cost of maintaining the registration of its 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.

     The investment advisory agreement provides that the total annual expenses
of the Fund, exclusive of taxes, interest, and extraordinary litigation
expenses, but including fees paid to 

                                      18
<PAGE>
 
WAM, shall not exceed the limits prescribed by any state in which the 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. WAM has voluntarily undertaken to reimburse the Fund for
any ordinary operating expenses, with certain exceptions, in excess of 2.0% of
the Fund's average daily net assets annually. 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 daily
and any reduction in fee or reimbursement is made monthly.

     WAM advanced all of ACORN USA'S organizational expenses, which are being
amortized and reimbursed to WAM through September 2001.

     WAM employs a team approach to management of the Fund.  The management team
is comprised of the lead portfolio manager, other WAM portfolio managers and
research analysts.  Team members share responsibility for providing ideas,
information, knowledge and expertise in managing the Fund.  Each team member has
one or more areas of expertise that is applied to the management of the Fund.
Daily decisions on portfolio selection rest with the lead portfolio manager who
utilizes the input and advice of the management team in making purchase and sale
determinations.
    
     ROBERT MOHN is the Fund's lead portfolio manager.

     Mr. Mohn has been a key member of WAM's domestic analytical team since
August 1992, and a principal of WAM since July 1995.  Prior to his position at
WAM, he worked as an analyst for Ariel Capital Management (June to August 1991).
His formal education includes a B.S. from Stanford University (1983) and an
M.B.A. from the University of Chicago (1992).     

     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 the Fund are distributed by WAM Brokerage Services, L.L.C. ("WAM
BD") under a Distribution Agreement as described in the prospectus dated
September 3, 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      

                                      19 
<PAGE>
 
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 the 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 Fund.  WAM BD offers the Fund's shares only on a best
efforts basis.     

                                   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 Fund are not
currently divided into classes.  Acorn Fund, Acorn International and Acorn USA
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.

     The Agreement and Declaration of Trust disclaims liability of the
shareholders, trustees and officers of the Trust for acts or obligations of the
Trust and requires that notice of such disclaimer be given in each agreement,
obligation, or contract entered into or executed by the Trust or the board of
trustees.  The Declaration of Trust provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable for obligations of the Trust.  Thus, although shareholders of a business
trust may, under certain circumstances, be held personally liable under
Massachusetts law for the obligations of the Trust, the risk of a shareholder
incurring financial loss on account of shareholder liability is believed to be
remote because it is limited to circumstances in which the disclaimer is
inoperative and the Trust itself is unable to meet its obligations.  The risk to
any one series of sustaining a loss on account of liabilities incurred by
another series is also believed to be remote.

     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.

                                      20
<PAGE>
 
                             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 86; 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) and Santa Fe Natural Tobacco      
    
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 43;
     trustee and senior vice president, Wanger Advisors Trust; principal, Wanger
     Asset Management, L.P. since July 1992; prior thereto, principal, Harris
     Associates L.P.

                                       21
<PAGE>
 
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; 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.      
    
Leah J. Zell, vice president
     227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47; 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 39; 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 37;
     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.

     No shares of the Fund were outstanding on the date of this Statement of
Additional Information. However, prior to the commencement of public offering of
shares of the Fund,

                                       22
<PAGE>
 
WAM or one or more of its principals, will purchase shares of the Fund at an
initial price of $10.00 per share.
    
     The following table sets forth the total compensation expected to be paid
by the Trust during the fiscal year ending December 31, 1996 to each of the
trustees of the Trust based on the Trust's current compensation schedule.  The
Trust has no retirement or pension plan.  The officers and trustees affiliated
with WAM serve without any compensation from the Trust.     

<TABLE>
<CAPTION>
 
                                                TOTAL
                               AGGREGATE     COMPENSATION
NAME OF TRUSTEES             COMPENSATION       FROM
                            FROM ACORN USA  FUND COMPLEX
- -----------------------------------------------------------------
 
<S>                                  <C>             <C>
  Irving B. Harris             $ 9,333        $ 81,000
  Leo A. Guthart                 2,333          18,000
  Jerome Kahn, Jr.               2,333          19,500
  David C. Kleinman              2,333          19,500
  James H. Lorie                 2,333          18,000
  Charles P. McQuaid                 0               0
  Roger S. Meier                 2,333          18,000
  Adolph Meyer, Jr.              2,333          18,000
  Malcolm N. Smith               2,333          19,500
  Ralph Wanger                       0               0
- -----------------------------------------------------------------
     Total                     $25,664        $212,000
</TABLE>

                        PURCHASING AND REDEEMING SHARES

     Purchases and redemptions are discussed in the Fund's prospectus under the
headings "How to Buy Shares," "How to Sell Shares," and "Transaction Services."
All of that information is incorporated herein by reference. In particular, a
minimum investment of $200 is required to open an IRA account.

     For purposes of computing the net asset value of a share of the 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

                                       23
<PAGE>
 
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 Fund's net asset values is determined only on days on which the New
York Stock Exchange ("NYSE") is open for trading.  The NYSE is regularly closed
on Saturdays and Sundays and on New Year's Day, the third Monday in February,
Good Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving,
and Christmas.  If one of these holidays falls 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 Fund may take place in various
foreign markets on certain days (such as Saturday) when the Fund is not open for
business and do not calculate their net asset values.  Conversely, trading in
the Fund's portfolio securities may not occur on days when the Fund is open.
Therefore, the calculation of net asset value does not take place
contemporaneously with the determinations of the prices of many of the Fund's
portfolio securities and the value of the Fund's portfolios may be significantly
affected on days when shares of the Fund 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 Fund 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 the 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 

                                       24
<PAGE>
 
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

     The Fund intends to qualify and to continue to qualify 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 shareholders.

     At the time of your purchase, the Fund's net asset value may reflect
undistributed income, capital gains, or net unrealized appreciation of
securities held by the 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 the Fund will be increased; if the result is a
loss, the income dividend paid by the Fund will be decreased.

     A portion of the dividends paid by ACORN USA is expected to be eligible for
the dividends-received deduction.  Capital gain distributions paid from the Fund
are never eligible for this deduction.

     Income received by the Fund 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 the Fund's total assets
at the close of its taxable year comprises securities issued by foreign
corporations, the Fund may file an election with the Internal Revenue Service to
"pass through" to its shareholders the amount of foreign income taxes paid by
the 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 USA does not expect to be able to "pass through" foreign tax credits.

                             PORTFOLIO TRANSACTIONS

     Portfolio transactions of the Fund are placed with those securities brokers
and dealers that WAM believes will provide the best value in transaction and
research services for the 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 

                                       25
<PAGE>
 
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 the
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 the Fund.

     The reasonableness of brokerage commissions paid by the Fund 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 the
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 Fund, and is
responsible for making and initiating the execution of investment decisions by
the Fund.  However, the board of trustees recognizes that it is important for
WAM, in performing its responsibilities to the Fund, 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 Fund to take into account the value of the information received
for use in advising the Fund.  The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the Fund 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 Fund might benefit from information obtained
by WAM in performing services to others.

     Transactions of the Fund 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.

     Although investment decisions for the Fund are made independently from
those for other investment advisory clients of WAM, it may develop that the same
investment decision is made for the Fund and one or more other advisory clients.
If the Fund 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 Fund.  It is responsible for holding all
securities and cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, 

                                       26
<PAGE>
 
receiving and collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties, all as
directed by authorized persons of the Fund. 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 Fund. The Fund
has authorized the custodian to deposit certain portfolio securities of the Fund
in central depository systems as permitted under federal law. The Fund 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 Fund's annual financial statements, reviews
certain regulatory reports and the Fund's tax returns, and performs other
professional accounting, auditing, tax, and advisory services when engaged to do
so by Acorn.

                     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 Fund invests 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.

                                       27
<PAGE>
 
     A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations.  Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

     Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured.  Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time.  Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

     Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured.  Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future.  Uncertainty of position characterizes
bonds in this class.

     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 

                                       28
<PAGE>
 
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.

                                       29
<PAGE>
 
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

<PAGE>
 
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
<PAGE>
 
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.

<TABLE>
<CAPTION>
 
Acorn's Best and Worst Stocks of 1995
                                                         $ gain/loss
                                       % change              in 1995
Stock/Description                       in 1995/4/     (in millions)
- --------------------------------------------------------------------
<S>                                    <C>             <C>
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

</TABLE>

                                       3

<PAGE>
 
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER

<TABLE>
<CAPTION>
 
                                                        Number of Shares or
                                                       Principal Amount Held     
                                                 Sept. 30, 1995      Dec. 31, 1995
<S>                                              <C>                 <C>
- ---------------------------------------------------------------------------------- 
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                  -

</TABLE>

                                       4

<PAGE>
 
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER

<TABLE>
<CAPTION>
                                          Number of Shares
                                    Sept. 30, 1995  Dec. 31, 1995
<S>                                 <C>             <C>
- -----------------------------------------------------------------
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

</TABLE>


ACORN FUND STATEMENT OF INVESTMENTS             DECEMBER 31, 1995

<TABLE>
<CAPTION>

Number of Shares                                           Value (000)
- ---------------------------------------------------------------------
Common Stocks and Other Equity-Like
Securities--95.9%
- ---------------------------------------------------------------------
<C>          <S>                                              <C> 
             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

</TABLE>

                                            5
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                 DECEMBER 31, 1995
- ---------------------------------------------------------------------
<TABLE> 
<CAPTION> 

 
Number of Shares or
Principal Amount                                          Value (000)
- ---------------------------------------------------------------------
<C>          <S>                                          <C>
 
    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
</TABLE>

                                       6
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                       DECEMBER 31, 1995

<TABLE>
<CAPTION>
 
Number of Shares                                                 Value (000)
- ----------------------------------------------------------------------------
<C>               <S>                                              <C>
                  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
</TABLE>

                                       7
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                       DECEMBER 31, 1995

<TABLE>
<CAPTION>

Number of Shares                                      Value (000)
- -----------------------------------------------------------------
<C>           <S>                                     <C>
    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
</TABLE>

                                     8
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                  DECEMBER 31, 1995

<TABLE>
<CAPTION>
 
Number of Shares                                           Value (000)
- ----------------------------------------------------------------------
<C>           <S>                                             <C>
              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
</TABLE>

                                       9
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                  DECEMBER 31, 1995

<TABLE>
<CAPTION>

Number of Shares                                           Value (000)
- ----------------------------------------------------------------------
<C>        <S>                                             <C>
   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
</TABLE>

                                       10
<PAGE>
 
ACORN FUND STATEMENT OF INVESTMENTS                       DECEMBER 31, 1995

<TABLE>
<CAPTION>

Number of Shares                                      Value (000)
<C>          <S>                                      <C>
- -----------------------------------------------------------------
             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
=================================================================
</TABLE>
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
<PAGE>
 
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
 
<TABLE> 
<CAPTION> 
 ACORN FUND STATEMENT OF ASSETS AND LIABILITIES                              DECEMBER 31, 1995
 
                                                                                (in thousands)
- -----------------------------------------------------------------------------------------------
<S>                                                             <C>                <C> 
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
===============================================================================================
</TABLE>

See accompanying notes to financial statements.

                                       12
<PAGE>
 
<TABLE>
<CAPTION>
 
ACORN FUND STATEMENTS OF OPERATIONS                                                                           DECEMBER 31, 1995

                                                                                                        (in thousands)
                                                                                                     Years ended Dec. 31,
                                                                                                 ------------------------------
                                                                                                    1995               1994
- -------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>                 <C>
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
===============================================================================================================================
</TABLE>
See accompanying notes to financial statements.

                                       13
<PAGE>
 
<TABLE>
<CAPTION>
 
 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
- ---------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>      <C>      <C>      <C>      <C>      <C>      <C>     <C>     <C>      <C>
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
 
</TABLE>

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
<PAGE>
 
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:
<TABLE>
<CAPTION>
 
(in thousands)                                 1995      1994
- ---------------------------------------------------------------
<S>                                          <C>       <C>
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
===============================================================
</TABLE>
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:
<TABLE>
<S>                              <C>
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%
======================================
</TABLE>

                                       15
<PAGE>
 
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: [email protected]

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.
<PAGE>
 
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
<PAGE>
 
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%.
<TABLE>
<CAPTION>
 
                          Avg. Weight in     Percent    Contribution to
Market                     Our Portfolio   Gain (Loss)    Our Portfolio*
- -------------------------------------------------------------------------------
<S>       <C>              <C>              <C>          <C>
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%
</TABLE>

*The contribution to the portfolio does not equal average country weighting
times gain or loss because of foreign currency fluctuation.
<PAGE>
 
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
<PAGE>
 
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE> 
<CAPTION> 
                                                         Number of Shares
                                                  Sept. 30, 1995  Dec. 31, 1995
- ------------------------------------------------------------------------------- 
<S>                                                <C>              <C>
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
</TABLE>
                                       4
<PAGE>
 
MAJOR PORTFOLIO CHANGES IN THE FOURTH QUARTER
<TABLE> 
<CAPTION> 
                                                  Number of Shares
                                    Sept. 30, 1995                 Dec. 31, 1995
- --------------------------------------------------------------------------------
<S>                                  <C>                          <C>
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
</TABLE>
<PAGE>
 

ACORN INTERNATIONAL STATEMENT OF INVESTMENTS                  DECEMBER 31, 1995
- -------------------------------------------------------------------------------
<TABLE> 
<CAPTION> 
Number of Shares                                                     Value (000)
- --------------------------------------------------------------------------------
<S>               <C>                                                   <C>
      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
</TABLE>
<PAGE>
 
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS                   DECEMBER 31, 1995
<TABLE>
<CAPTION>

  Number of Shares                                                   Value (000)
- --------------------------------------------------------------------------------
<S>               <C>                                                 <C>
      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
</TABLE>
                                       7
<PAGE>
 
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS                   DECEMBER 31, 1995
<TABLE>
<CAPTION>

  Number of Shares                                                   Value (000)
- --------------------------------------------------------------------------------
<S>               <C>                                                 <C>
 
    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
</TABLE> 
                              
                                       8
<PAGE>
 
<TABLE> 
<CAPTION> 

======================================================================================================== 
ACORN INTERNATIONAL STATEMENT OF INVESTMENTS                                           DECEMBER 31, 1995
  
Number of Shares                                                     Value (000)
- --------------------------------------------------------------------------------
<S>                                                                    <C>
                  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)
</TABLE>

                                       9
<PAGE>
 
<TABLE>
<CAPTION>
============================================================================================================= 
  ACORN INTERNATIONAL STATEMENT OF INVESTMENTS                                              DECEMBER 31, 1995
 
Number of Shares or
Principal Amount                                                     Value (000)
- --------------------------------------------------------------------------------
<S>                                                                    <C>  
    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
================================================================================
</TABLE>

                                      10
<PAGE>
 
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:

<TABLE>
<CAPTION>
                                        Value (000)     Percent
<S>                                     <C>             <C>
- ---------------------------------------------------------------
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%
- ---------------------------------------------------------------
</TABLE>

See accompanying notes to financial statements.

                                      11
<PAGE>
 
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

<TABLE>
<CAPTION>
                                                                  (in thousands)
<S>                                                   <C>            <C>   
- --------------------------------------------------------------------------------
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
================================================================================
</TABLE>

See accompanying notes to financial statements.

                                      12
<PAGE>
 
<TABLE>
<CAPTION>
ACORN INTERNATIONAL STATEMENTS OF OPERATIONS                                                        DECEMBER 31, 1995
 
                                                                                                 (in thousands)
                                                                                             Year ended December 31,
                                                                                             1995                1994
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                 <C>  
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
=====================================================================================================================
</TABLE>

See accompanying notes to financial statements.

                                      13
<PAGE>
 
<TABLE>
<CAPTION>
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
- --------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>              <C>              <C>       <C>
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
</TABLE> 

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
<PAGE>
 

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:

<TABLE>
<CAPTION>
(in thousands)                                     1995       1994
- -------------------------------------------------------------------
<S>                                              <C>       <C>
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
=================================================================== 
</TABLE> 
 
5. INVESTMENT TRANSACTIONS

<TABLE> 
<CAPTION> 
(in thousands)                                     1995       1994
- -------------------------------------------------------------------
<S>                                              <C>       <C>
Investment securities (excluding
money market instruments):
  Purchases                                    $318,862   $703,866
  Proceeds from sales                           416,451    235,930
=================================================================== 
</TABLE>
                                       
                                      15
<PAGE>
 

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: [email protected]

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
<PAGE>
 
                           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
<PAGE>
 
  (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 (exhibit 1 to Post-effective
            Amendment No. 53*)

  2.1     Bylaws, as amended September 15, 1992 (exhibit 2 to Post-effective
            Amendment No. 53*)

  2.2     Bylaw amendment adopted February 2, 1993 (exhibit 3 to Post-effective
            Amendment No. 53*)

  3.        None
    
  4.1     Specimen share certificate - Acorn Fund (exhibit 4.1 to Post-effective
            Amendment No. 54*) 

  4.2     Specimen share certificate - Acorn International (exhibit 4.2 to Post-
            effective Amendment No. 54*)      

  5.1     Investment advisory agreement - Acorn Fund (exhibit 5.1 to Post-
            effective Amendment No. 53*)

  5.2     Investment advisory agreement - Acorn International (exhibit 5.2 to
            Post-effective Amendment No. 53*)
    
  5.3     Form of Investment advisory agreement - Acorn USA (exhibit 5.3 to
            Post-effective Amendment No. 54*)

  5.4     Form of Organizational Expenses Agreement between Acorn Investment
            Trust and Wanger Asset Management, L.P. dated as of September __,
            1996 (exhibit 5.4 to Post-effective Amendment No. 54*)      

  6.1     Distribution Agreement between Acorn Investment Trust and WAM
            Brokerage Services, L.L.C. dated as of May 1, 1996 (exhibit 6 to
            Post-effective Amendment No. 53*)
    
  6.2     Form of Amendment to Distribution Agreement between Acorn Investment
            Trust and WAM Brokerage Services, L.L.C. dated as of September __,
            1996 (exhibit 6.2 to Post-effective Amendment No. 54*)      

- ----------------------------------

/*/Incorpoarated by reference.

                                      C-2
<PAGE>
 
  7.      None

  8.1     Custodian contract between the Registrant and State Street Bank and
            Trust Company dated July 1, 1992 (exhibit 8.1 to Post-effective
            Amendment No. 53*)

  8.2     Letter agreement applying custodian contract (exhibit 8.1) to Acorn
            International (exhibit 8.2 to Post-effective Amendment No. 53*)
    
  8.3     Form of letter agreement applying custodian contract (exhibit 8.1) to
            Acorn USA (exhibit 8.3 to Post-effective Amendment No. 54*)      

  9.      None

 10.1     Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
            Fund (exhibit 10.1 to Post-Effective Amendment No. 49*)

 10.2     Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
            International (exhibit 10.2 to Post-Effective Amendment No. 49*)
    
 10.3     Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
            USA (exhibit 10.3 to Post-effective Amendment No. 54*)     

 11.      Consent of independent auditors

 12.      None

 13.      None
    
 14.      IRA plan booklet dated September 1996 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 (exhibit 16.1 to
            Post-effective Amendment No 53*)

 16.2     Computation of performance information - Acorn International (exhibit
            16.2 to Post-effective Amendment No. 53*)

 17.1     Financial data schedule - Acorn Fund

 17.2     Financial data schedule - Acorn International
    
(exhibit 18 to Post-effective Amendment No. 54*)*Incorporated by reference.     

 
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
for Acorn Fund and Acorn International under the

                                      C-3
<PAGE>
 
caption "The Funds in Detail - Organization - Management" and in the prospectus
for Acorn USA under the caption "The Fund in Detail - Organization - Management"
and in the statement of additional information for Acorn Fund and Acorn
International in the eighth paragraph under the caption "Investment Adviser" and
in the statement of additional information for Acorn USA in the tenth paragraph
under the caption "Investment Adviser" is incorporated by reference.

ITEM 26.  Number of Holders of Securities
          -------------------------------
    
     At July 31, 1996, there were 45,944 record holders of Registrant's shares
of beneficial interest of the series designated Acorn Fund, 77,097 record
holders of Registrant's shares of beneficial interest of the series designated
Acorn International and no record holders of Registrant's shares of beneficial
interest of the series designated Acorn USA.     

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 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 for Acorn Fund and Acorn International in
the second paragraph under the caption "The Funds in Detail Organization - 
Management" and in the prospectus for Acorn USA in the second paragraph under 
the caption "The Fund in Detail -

                                      C-4
<PAGE>
 
Organization - Management", respectively 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.
<TABLE> 
<CAPTION> 
 
           NAME        POSITIONS AND OFFICES WITH    POSITIONS AND OFFICES WITH
                              UNDERWRITERS                    REGISTRANT
<S>                   <C>                           <C>
Terence M. Hogan      President                     Vice President and Trustee

Merrillyn J. Kosier   Vice President and Secretary  Vice President and Secretary
    
</TABLE>

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



ITEM 31.  Management Services
          -------------------

          None


ITEM 32.  Undertakings
          ------------

          (a)     Not applicable.
           
          (b)     Registrant undertakes to file a post-effective amendment,
                  using financial statements of the series designated Acorn
                  USA, that need not be certified, no later than 60 days
                  after the end of the four to six month period after
                  effectiveness of this Registration Statement.

                                      C-5
<PAGE>
 
          (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-6
<PAGE>
 
                                  SIGNATURES
    
     Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant certifies that it meets all of
the requirements for effectiveness of this registration statement 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 September 3, 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.
    
<TABLE>
<CAPTION>
          Name                     Title                         Date
          ----                     -----                         ----
<S>                      <C>                        <C>      <C>
 /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                    )        September 3, 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      )
- -----------------------  (principal executive       )
   Ralph Wanger           officer)                  )
                                                    )
                                                    )
 /s/ Bruce H. Lauer      Treasurer (principal       )
- -----------------------  financial and accounting   )
   Bruce H. Lauer        officer)                   )
                                                    )
</TABLE>      
<PAGE>
 
                  INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
                  -------------------------------------------
    
<TABLE>
<CAPTION>
EXHIBIT                                                               SEQUENTIAL
NUMBER                                       EXHIBIT                        PAGE
- -------                                      -------                        ----
<S>                          <C>                                      <C>
11                           Consent of independent auditors

14                           IRA plan booklet dated September
                             1996 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

17.1                         Financial data schedule - Acorn Fund

17.2                         Financial data schedule - Acorn
                             International
 
</TABLE>
     


<PAGE>
 
                                                                      Exhibit 11


                        Consent of Independent Auditors
                        -------------------------------


We consent 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 filed with the Securities and 
Exchange Commission in this Post-Effective Amendment No. 55 to the Registration 
Statement under the Securities Act of 1933 (Registration No. 2-34223) and in 
this Amendment No. 30 to the Registration Statement under the Investment Company
Act of 1940 (Registration No. 811-1829).

                                                ERNST & YOUNG LLP

Chicago, Illinois
August 30, 1996

<PAGE>

Acorn IRA plan



Acorn Fund
Acorn International
Acorn USA
No-Load Funds


IRA and SEP-IRA Plan
and Applications


Managed by
Wanger Asset Management, L.P.
<PAGE>
 
Dear Investor:


Thank you for your interest in the Acorn family of funds. We hope you find this
IRA booklet informative and helpful. At Acorn, we understand how important it is
to plan for your future. Investing for your retirement today will give your
savings the advantage of time and the power of compounding over the long haul.

Why is an IRA so important? With Social Security and pensions likely to be
inadequate to meet the needs of retirees, the benefits of today's IRAs --
possibly the simplest of tax-advantaged retirement plans available -- warrant
careful consideration. An IRA provides you with the 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.

An IRA with a no-load mutual fund makes greater sense. Why? "No-load" means that
you are never charged a commission for your investment, so 100% of your money
goes to work for you immediately.

With an Acorn IRA, you can invest in:

Acorn Fund - investing in small to mid-size companies in the U.S. and overseas,
since June 1970;

Acorn International - investing in small to mid-size international companies,
since September 1992; and

Acorn USA - investing in small to mid-size U.S. companies, beginning September
1996.

We want to help you build your savings for an enjoyable retirement. Whether you
want to open a new IRA, move an existing IRA from another institution, or roll
over money from an employer-sponsored retirement plan, this booklet has
everything you need to assist you in your transactions. Please take a moment to
read it carefully, and 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).

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

WAM Brokerage Services, L.L.C., Distributor. Member, NASD
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606
<PAGE>
 
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.

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

Advantages of Tax-Deferred Compounding

[CHART APPEARS HERE]

TAXABLE INVESTMENT

10 YEARS      20 YEARS     30 YEARS
- --------      --------     --------
$29,400       $86,697      $198,360

TAX-DEFERRED IRA

10 YEARS      20 YEARS     30 YEARS
- --------      --------     --------
$35,062       $126,005     $361,887
 
This chart shows the value of 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.
- -------------------------------------------------------------------------------

compared to a similar taxable investment. 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 in which 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.
(Please see your tax adviser for additional information and reporting
requirements.)

Acorn IRA plan                                                                 3
<PAGE>
 
General Information about the Individual Retirement Account Plan


The following chart shows the extent of your contribution's deductibility under
current IRS regulations.

<TABLE>
<CAPTION>
====================================================================================================================================
Adjusted Gross Income (Before IRA Deduction)                          Retirement Plan                            Deductibility of a
- --------------------------------------------
Joint Filing                 Single Filing*                           Participation**                            $2,000 Contribution
====================================================================================================================================
<S>                          <C>                                      <C>                                        <C>
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
====================================================================================================================================
</TABLE>

*    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:

<TABLE>
<CAPTION>
============================================================================================================== 
Formula                         Example                    Your Contribution
==============================================================================================================
<S>                             <C>                       <C>                          <C> 
                                                           Joint                        Single
1. Subtract Adjusted         Joint AGI = $43,500           AGI     = $________          AGI     = $________
   Gross Income (AGI)                                      $50,000 - $________          #35,000 - $________ 
   from $50,000 (joint) or   $50,000-$43,500 = $6,500              = $________                  = $________
   $35,000 (single)
                             $6,500/5=1,300                    / 5 = $________              / 5 = $________

2.  Divide by 5 to get deductible amount*
==============================================================================================================
</TABLE> 

*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 more than $2,000 by opening a "Spousal IRA" for your
non-working spouse. For 1996, 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. Beginning in 1997, you and your spouse may be eligible to
contribute up to $4,000 (divided between two accounts), provided your joint
income is at least as much as the amount contributed. See your tax adviser for
more information.

Opening a new Acorn IRA

Investing in an Acorn IRA gives you the opportunity to save for your

4                                                                 Acorn IRA plan
<PAGE>

retirement using four different mutual funds: Acorn Fund, Acorn International,
Acorn USA, and the 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 into 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 or a qualified plan to an Acorn IRA

Acorn can help you to move funds from other IRA custodians or qualified plans.
This can be done in three ways: a custodian to custodian (or trustee to trustee)
transfer (also known as a direct transfer); a 60-day rollover of a distribution
you have received from a qualified plan or money you have withdrawn from another
IRA; or a direct rollover of a distribution from your employer's qualified
retirement plan. Each method is explained in the following paragraphs.

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 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 IRA plan                                                                 5
<PAGE>
 
General Information about the Individual Retirement Account Plan


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. 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
from your IRA was made.

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
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

6                                                                 Acorn IRA plan
<PAGE>
 
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 Bank, 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 withheld income tax--to the extent the total
amount of tax withheld (including the 20% and tax withheld from your
compensation) from you 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 within the 60-day period. If you had borrowed
against your account in the plan from which you received 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 the
rollover, in the same way you can make up the 20% tax withholding.

Acorn IRA plan                                                                 7
<PAGE>

General Information about the Individual Retirement Account Plan


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.


<TABLE> 
<CAPTION> 

- -------------------------------------------------------------------------------------------------------------
                       Rollover IRA                             New Employer's Plan
- -------------------------------------------------------------------------------------------------------------
<S>                   <C>                                     <C> 
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 plan;
                         money out at any time                   check with your new employer
                       * earnings taxed when withdrawn;        * earnings taxed when withdrawn; 10%
                         10% penalty applies if younger          penalty applies if younger than 591/2 or
                         than 591/2, unless disabled            separated from service before age 55,
                                                                 with some exceptions
                       * no mandatory 20% withholding for      * 20% withholding for federal income
                         federal income taxes on withdrawals     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          * enables you to consolidate your
                         needs and the market changes            retirement plan money
                       * offers you easy access to your        * may be able to borrow from your
                         investments                             account
                       * borrowing not permitted
- -------------------------------------------------------------------------------------------------------------
</TABLE> 

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.

SEP-IRAs

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.

8                                                                 Acorn IRA plan
<PAGE>
 
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.

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 simple 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
$400 in 1996 (an amount adjusted periodically 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). (Beginning in 1997,
SAR-SEPs will be replaced by SIMPLE IRAs, which can be used by employers who
have up to 100 employees.) If your business has other employees, you should
consult a qualified tax adviser as to the best contribution formula to use.

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.

Acorn IRA plan                                                                 9
<PAGE>
 
General Information about the Individual Retirement Account Plan


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 State Street Bank at 1-800-962-1585 for an Acorn
IRA withdrawal request 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.

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 under the Withdrawal Instructions on the Acorn withdrawal
request 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:

<TABLE>
<S>                                                            <C>
Initial set-up fee...........................................  $ 5.00
Annual maintenance fee.......................................  $10.00
Disbursement fee.............................................  $10.00
(per withdrawal, except for automatic installment payments)
</TABLE>

10                                                                Acorn IRA plan
<PAGE>
 
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 $5.00
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 at the end of the year. If the
disbursement fee applies, Acorn will deduct the $10.00 from each withdrawal.

<TABLE>
<CAPTION>
=========================================================
Minimum                     through          beginning
Investments                 4/30/97            5/1/97
=========================================================
<S>                         <C>              <C>
To open an IRA              $ 200            $ 1,000

To add to an IRA account    $ 100              $ 100
</TABLE>

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. If you have any
questions regarding IRA accounts, please call our transfer agent at
1-800-962-1585.

Acorn IRA plan                                                                11
<PAGE>
 
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.

I. 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 or you can establish for yourself if you are self-
employed. 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. Beginning in 1997, you may contribute up
to $2,000 for each of you and your spouse, provided the combined contributions
do not exceed your combined compensation. 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

12                                                                Acorn IRA plan
<PAGE>
 
minimum distribution required after you reach 70 1/2.

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 adviser 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. (Beginning in 1997, SAR-SEPs have been replaced by the
SIMPLE IRAs described below.) 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.

E. Savings Incentive Match Plans (SIMPLE IRAs). SIMPLE IRAs are a new type of
IRA that will replace the SAR-SEPs described above beginning in 1997. In
general, each eligible employee of an employer offering a SIMPLE IRA plan may
elect to have up to $6,000 per year of his compensation deposited in an IRA on a
tax-deferred basis and the employer either matches the employee's deferral, up
to 3% of the employee's compensation, or contributes 2% of each eligible
employee's compensation, regardless of whether the employee has elected to defer
any compensation. More information about SIMPLE IRAs will be provided when they
become available in 1997.

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

Acorn IRA plan                                                                13
<PAGE>
 
Individual Retirement Account Disclosure Statement


(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 calendar 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.

Nonduductible 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 to make 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.

III. Investment and Holding of Contributions

Contributions to your IRA, and the earnings thereon, are invested at your
election in shares of Acorn Fund, Acorn International or Acorn USA, 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 Reich & Tang Asset Management, L.P., Acorn
Fund,

14                                                                Acorn IRA plan
<PAGE>
 
Acorn International and Acorn USA are collectively called the "Acorn Funds."

The money market fund is available in a telephone exchange plan with the Acorn
Funds. You will be able to exchange investments among any of the Acorn Funds and
the money fund. In order to place an exchange, you would need to telephone State
Street Bank at 1-800-962-1585. 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 one of the Acorn Funds, please call State Street Bank for instructions.

The assets in your IRA 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.

IV. 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
adviser to determine your minimum distribution.

In general, your life expectancy, your surviving spouse's life expectancy after
your death, and you and your spouse's joint and last survivor life expectancies
will all be recalculated each year based upon your (and your spouse's, if
applicable) age attained during that year. However, you can also elect to have
your (and your spouse's) life expectancies fixed in the year in which
distributions are required to begin, which may be advantageous in some
circumstances. On the other hand, if your beneficiary is someone other than your
surviving spouse, you and your beneficiary's joint and last survivor life
expectancy will ordinarily not be recalculated each year, although you may elect
to have it recalculated. Each of the elections described above must be made
before the date on which distributions are required to commence, and will be
irrevocable after that date. You should consult a qualified tax adviser to
determine whether you should make any of these elections.

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

Acorn IRA plan                                                                15
<PAGE>
 
Individual Retirement Account Disclosure Statement


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.

V. 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 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 non-deductible
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 rea-

16                                                                Acorn IRA plan
<PAGE>
 
sonably 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 pre-vious 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.

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 adviser 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
$155,000 (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 $155,000 (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. In addition, you
should be aware that the penalty tax on excess distributions (but not the tax on
excess accumulations) has been suspended for distributions received during 1997
through 1999. Thus, it may be to your advantage to withdraw funds from an IRA
during this three-year period. If you have substantial balances in your IRAs and
qualified retirement plans, you should consult a qualified tax adviser 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 bene-ficiary 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

Acorn IRA plan                                                                17
<PAGE>
 
Individual Retirement Account Disclosure Statement


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 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 under distributions 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 per fund acceptance fee to your initial
contribution, it will be deducted from your account. The $10.00 per fund annual
maintenance fee will be deducted from your account, unless paid separately when
billed in at the end of the year.

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, 1996

18                                                                Acorn IRA plan
<PAGE>
 
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 VIII.

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 the Individual's 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/her 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.

Acorn IRA plan                                                                19
<PAGE>
 
Individual Retirement Plan and Custodial Agreement


F. Simplified Employee Pension (SEP-IRA). In the case of an employer
contribution on behalf of the Individual to a Simplified Employee Pension,
notwithstanding the limitations stated in paragraph A, the contribution for any
taxable year shall not exceed the lesser of

(1) 15% 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 meet the minimum investment limitations stated from time to
time in the prospectus relating to the Fund Shares in which the contribution is
to be made.

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 Telephone Exchange Plan ("Exchange Plan"), as described in the
prospectus(es) of the Funds is available hereunder. 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 Exchange 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 exchange pursuant to the
Exchange 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;

<PAGE>
(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

(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

20                                                                Acorn IRA plan
<PAGE>
 
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 and the
Individual's spouse 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

Acorn IRA plan                                                                21
<PAGE>
 
Individual Retirement Plan and Custodial Agreement


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, then, unless the Individual or his surviving spouse otherwise elects as
hereinafter provided, 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 the required beginning date for the year in which the

22                                                                Acorn IRA plan
<PAGE>
 
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.
Notwithstanding the foregoing, the Individual or, if applicable, the
Individual's surviving spouse may elect to have any of the life expectancies
described in the first sentence of this Paragraph J determined in the manner
described in the second sentence, and the Individual may elect to have the joint
and last survivor life expectancy of the Individual and a beneficiary other than
his surviving spouse redetermined each year in accordance with section
1.401(a)(9)-1, Q&A E-8(b) of the proposed regulations (or any successor
thereto). Any such election shall be made prior to the Individual's required
beginning date (or, in the case of an election by a surviving spouse after the
Individual's death, prior to the date on which distributions are required to
commence under paragraph B) and, after such date, shall be irrevocable. 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 IV 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 incorporated herein by reference (the "minimum distribution
requirements"). Any ambiguity in the provisions of this Article IV shall be
resolved in a manner consistent with the minimum distribution requirements, and,
if any provision of this Article IV 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 IV 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.

Acorn IRA plan                                                                23
<PAGE>
 
Individual Retirement Plan and Custodial Agreement


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.

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

24                                                                Acorn IRA plan
<PAGE>
 
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.

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 VII.

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/her 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/her beneficiaries; (b) the Individual to be
deprived of any portion of his/her 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/her adoption of this Plan by
instrument in writing signed by him/her 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

Acorn IRA plan                                                                25
<PAGE>
 
Individual Retirement Plan and Custodial Agreement


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.

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.

26                                                                Acorn IRA plan
<PAGE>
 
Internal Revenue Service                              Department of the Treasury

Plan Name:  IRA Custodial Account                     Washington D.C.  20224
FFN: 50127960000-001  Case:  9270228  EIN: 36-7008880
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


<PAGE>
 
Acorn Investment Trust

P.O. Box 8502
Boston, MA 02266-8502

IRA/SEP-IRA Application

All sections must be completed. Please type or print clearly.

Use this application to open an Acorn IRA or a SEP-IRA. 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 any questions, please call one of our friendly customer
service representatives at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:00 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 P.O. Box

- ---------------------------------------------------
City           State          Zip Code

(    )
- ---------------------------------------------------
Daytime phone, including area code


 
[_] 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

A separate IRA account will be established for each box you check below.

[_] Acorn Fund (90)               $
                                   ----------------

[_] Acorn International (100)     $
                                   ----------------

[_] Acorn USA (820)               $
                                   ----------------

[_] Short Term Income
    Money Market Portfolio (104)  $
                                   ----------------

  Acceptance Fee ($5 per fund)    $
                                   ----------------

  TOTAL AMOUNT                    $
                                   ----------------
















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.

DUPLICATE STATEMENTS

[_] Send duplicate statements for my account to:


- ---------------------------------------------------
Name (first, middle initial, last)

- ---------------------------------------------------
Street Address and Apartment or P.O. Box


- ---------------------------------------------------
City           State          Zip Code


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 IRA
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 it 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 State Street Bank.


[_] 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.)
<PAGE>
 
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 Acorn IRA or
    SEP-IRA automatically.

[_] Acorn Fund                 $
                                --------------------------------
 
   [_] monthly             [_] quarterly (check only one box)


[_] Acorn International        $
                                --------------------------------
 
   [_] monthly             [_] quarterly (check only one box)


[_] Acorn USA                  $
                                --------------------------------
 
   [_] monthly             [_] quarterly (check only one box)

[_] Short Term Income
    Money Market Portfolio     $
                                --------------------------------
 
   [_] monthly             [_] quarterly (check only one box)


The minimum automatic investment is $100; the annual maximum investment for an
IRA is $2,000. Your automatic investment will be drawn from your bank account on
or about the 15th of the month; quarterly investments are made in January,
April, July, and October. Attach a voided check from your bank checking account
that you will be using.

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):

2
- ----------  ----------------------------------------------------
Share %:*   Relationship  Date of Birth (month, day, year)


- ----------------------------------------------------------------
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):

2
- ----------  ----------------------------------------------------
Share %:*   Relationship  Date of Birth (month, day, year)


- ----------------------------------------------------------------
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 will 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 will 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 further certify that I have, or my employer has, completed and executed
   Form 5305-SEP or Form 5305A-SEP and furnished to employees all materials
   required by applicable Department of Labor regulations. I further certify if
   my employer has adopted a Salary Reduction SEP, that I have entered into a
   salary reduction agreement.

 .  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 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
- ------------------------------------     --------------------
Signature                                Date


HOW DID YOU HEAR ABOUT US?


[_] press mention (specify)        [_] advertising (specify)
    
    -----------------------            ----------------------

[_] referred by friend/adviser     [_] other ________________
                                      
 
[_] I am a current Acorn shareholder

Send this form to State Street Bank and Trust Company in the enclosed postage-
paid envelope or to the address on the reverse side.
<PAGE>
 
Acorn Investment Trust

P.O. Box 8502
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 any
questions, please call one of our friendly customer service representatives at
1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:00 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 P.O. Box

__________________________________________________________
City                      State                   Zip Code
 
(_____)___________________________________________________
Daytime phone, including area code

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 our
        overnight delivery address.)

    [_] 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)   __________________

[_] ACORN USA                     $__________________
    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
the 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 $________ of the assets in the IRA account
    listed at left to my IRA.

[_] Please transfer in-kind my ____Acorn Fund ____Acorn USA ____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 the Acorn funds.
        
    [_] liquidate and transfer $________ 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 the Acorn funds.



                                                             (More on the back.)
<PAGE>
 
Acorn Investment Trust
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502

                                                                      IRA (9/96)

IRA/SEP-IRA Transfer Form, continued

YOUR SIGNATURE

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)

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

X 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.

X This Transfer Form cannot be used to transfer individual stocks  (except
  shares of one of the Acorn funds) or bonds in kind. Instead, you must check
  the box for liquidation and cash transfer of those investments.

X If you currently hold Acorn shares in an 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."

X Be sure you check with your present IRA custodian to see if a signature
  guarantee or other documentation is required.

X 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.

X 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 and Trust Company 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 on the other side, and
make check payable and mail to the custodian, 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                       FBO

___________________________________    _____________
Authorized Acorn Signature             Date

SEND THIS FORM TO STATE STREET BANK AND TRUST COMPANY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE OR TO THE ADDRESS ON THE REVERSE SIDE.

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<SERIES>   
   <NUMBER>   01
   <NAME>     Acorn Fund
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                        1,521,023
<INVESTMENTS-AT-VALUE>                       2,403,326
<RECEIVABLES>                                    8,975
<ASSETS-OTHER>                                   1,351
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               2,413,652
<PAYABLE-FOR-SECURITIES>                        12,187
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        2,870
<TOTAL-LIABILITIES>                             15,057
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     1,498,780
<SHARES-COMMON-STOCK>                          176,315
<SHARES-COMMON-PRIOR>                          161,989
<ACCUMULATED-NII-CURRENT>                        5,288
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                         24,722
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       869,805
<NET-ASSETS>                                 2,398,595
<DIVIDEND-INCOME>                               22,948
<INTEREST-INCOME>                                9,264
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  12,613
<NET-INVESTMENT-INCOME>                         19,599
<REALIZED-GAINS-CURRENT>                       185,690
<APPREC-INCREASE-CURRENT>                      211,069
<NET-CHANGE-FROM-OPS>                          416,358
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                       14,810
<DISTRIBUTIONS-OF-GAINS>                       177,941
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                         21,831
<NUMBER-OF-SHARES-REDEEMED>                     20,322
<SHARES-REINVESTED>                             12,817
<NET-CHANGE-IN-ASSETS>                         415,519
<ACCUMULATED-NII-PRIOR>                          8,696
<ACCUMULATED-GAINS-PRIOR>                       27,222
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           10,429
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 12,613
<AVERAGE-NET-ASSETS>                         2,201,203
<PER-SHARE-NAV-BEGIN>                            12.24
<PER-SHARE-NII>                                    .11
<PER-SHARE-GAIN-APPREC>                           2.42
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                         1.17
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              13.60
<EXPENSE-RATIO>                                    .57
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        


</TABLE>

<TABLE> <S> <C>

<PAGE>
 
<ARTICLE> 6
<SERIES>   
   <NUMBER>   02
   <NAME>     Acorn International Fund
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-START>                             JAN-01-1995
<PERIOD-END>                               DEC-31-1995
<INVESTMENTS-AT-COST>                        1,077,676
<INVESTMENTS-AT-VALUE>                       1,269,204
<RECEIVABLES>                                   11,373
<ASSETS-OTHER>                                  15,376
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                               1,295,953
<PAYABLE-FOR-SECURITIES>                        16,735
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        2,974
<TOTAL-LIABILITIES>                             19,709
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                     1,103,312
<SHARES-COMMON-STOCK>                           76,912
<SHARES-COMMON-PRIOR>                           89,381
<ACCUMULATED-NII-CURRENT>                          693
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                        (7,197)
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                       179,436
<NET-ASSETS>                                 1,276,244
<DIVIDEND-INCOME>                               23,529
<INTEREST-INCOME>                                3,969
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                  15,856
<NET-INVESTMENT-INCOME>                         11,642
<REALIZED-GAINS-CURRENT>                      (18,896)
<APPREC-INCREASE-CURRENT>                      114,583
<NET-CHANGE-FROM-OPS>                          107,329
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                         1,050
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                          9,482
<NUMBER-OF-SHARES-REDEEMED>                     22,013
<SHARES-REINVESTED>                                 62
<NET-CHANGE-IN-ASSETS>                        (86,286)
<ACCUMULATED-NII-PRIOR>                          6,572
<ACCUMULATED-GAINS-PRIOR>                     (16,892)
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                           11,667
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                 15,856
<AVERAGE-NET-ASSETS>                         1,292,747
<PER-SHARE-NAV-BEGIN>                            15.24
<PER-SHARE-NII>                                    .16
<PER-SHARE-GAIN-APPREC>                           1.20
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                        (.01)
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                              16.59
<EXPENSE-RATIO>                                    1.2
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0
        

</TABLE>


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