<PAGE>
As filed with the Securities and Exchange Commission on April 26, 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. 52
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27
------------------------------
ACORN INVESTMENT TRUST
(Registrant)
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone number: 312/634-9200
------------------------------
Ralph Wanger Janet D. Olsen
Acorn Investment Trust Bell, Boyd & Lloyd
227 West Monroe Street, Suite 3000 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for service)
------------------------------
Amending Parts A, B, and C, and filing exhibits
------------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to rule 485(b)
[ X ] on MAY 1, 1996 pursuant to rule 485(b)
[ ] 60 days after filing pursuant to rule 485(a)(1)
[ ] on pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on pursuant to rule 485(a)(2).
- --------------------------------------------------------------------------------
Registrant has elected to register pursuant to Rule 24f-2 an indefinite number
of shares of beneficial interest of its series designated Acorn Fund and Acorn
International. On February 28, 1996, Registrant filed its Rule 24f-2 Notice for
the fiscal year ended December 31, 1995.
- --------------------------------------------------------------------------------
<PAGE>
ACORN INVESTMENT TRUST
Cross-reference sheet pursuant to rule 495(a) of Regulation C
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION*
---- --------------------
Part A (prospectus)
-------------------
<S> <C>
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
- -------------
</TABLE>
/*/ References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
1
<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 B (Statement of additional information)
10 Front cover
11 Front cover
12 Part A - Organization
13 (a)-(c) Investment Objectives and Policies; Investment
Techniques and Risks; Investment Restrictions
(d) Investment Techniques and Risks
14 (a)-(b) Trustees and Officers
(c) Not applicable
15 (a) & (b) Not applicable
(c) Trustees and Officers
16 (a)(i) Investment Adviser
(ii) Trustees and Officers
(iii) Investment Adviser
(b) Investment Adviser
(c)-(g) Not applicable
(h) Custodian; Independent Auditors
(i) Not applicable
17 (a) Portfolio Transactions
(b) Not applicable
(c) & (d) Portfolio Transactions
(e) Not applicable
18 (a) The Trust
(b) Not applicable
19 (a)-(c) Purchasing and Redeeming Shares
20 Additional Tax Information
21 (a)-(b) Distributor
21 (c) Not Applicable
- --------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
2
<PAGE>
<TABLE>
<CAPTION>
ITEM LOCATION OR CAPTION/*/
--------- -----------------------------------
<S> <C>
22 Performance Information
23 Information About the Funds
Part C (Other Information)
--------------------------
24 Financial statements and exhibits
25 Persons controlled by or under common control
with registrant
26 Number of holders of securities
27 Indemnification
28 Business and other connections of investment adviser
29 Principal underwriters
30 Location of accounts and records
31 Management services
32 Undertakings
</TABLE>
- ---------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
3
<PAGE>
prospectus 1996
Acorn Fund
Acorn International
No-Load Funds
Prospectus and Application
May 1, 1996
Managed by
Wanger Asset Management, L.P.
<PAGE>
Dear Investor:
Thank you for your interest in the Acorn Funds. This prospectus outlines the
Funds' policies and procedures, and contains quick-reference pages for
purchases, redemptions, telephone transactions, fund contacts and more. Please
take time to read it carefully.
Acorn Fund and Acorn International are small-cap growth funds, managed by
Chicago-based Wanger Asset Management, L.P. Our flagship, Acorn Fund, has helped
investors reach for their goals for more than 25 years; Acorn International has
applied the same investment philosophy to 40 markets worldwide for over three
years. Co-managers Charles P. McQuaid, Terence M. Hogan and Leah J. Zell work
closely with our investment team to find interesting small companies to buy,
both here and abroad. We want to own first-class companies for the long-term,
and avoid speculative trading.
Investing with the Acorn Funds helps you save money. How? Both funds are 100%
no-load, which means that all of your money goes to work for you immediately.
There are no sales charges, and no 12b-1 fees or back-end load fees, so all of
your dollars are invested at net asset value. Acorn invests in companies for the
long-term (usually 3-5 years), so our turnover rate is low. This minimizes both
trading costs and shareholders' taxes. All these factors add up to greater value
for our shareholders.
Providing quality service is a source of pride for us. We strive daily to make
doing business with Acorn as trouble-free as possible. We hope you'll find that
all our fund literature and account forms are easy to understand and complete.
Now, whether you want to make a purchase, redemption, address change, exchange
between funds or change your distribution option, you may easily do so over a
recorded telephone line at no charge. If you ever need help or have questions
about a transaction, a friendly customer service representative can help. Simply
call our toll-free number, 1-800-9-ACORN-9 (1-800-922-6769) during regular
business hours for assistance.
We invite you to squirrel away your acorns for a day when you really need them,
and look forward to a long and mutually rewarding relationship
with you.
Happy investing,
/S/ Ralph Wanger
- -------------------------------
Ralph Wanger
President and Portfolio Manager
(Not part of the prospectus.)
<PAGE>
Please read this prospectus before investing, and keep it on file for future
reference. It contains important information, including how the funds invest
and the services available to shareholders.
A Statement of Additional Information ("SAI") dated May 1, 1996 has been filed
with the Securities and Exchange Commission, and is incorporated herein by ref-
erence (is legally considered a part of this prospectus). The SAI is available
free upon request by calling Acorn at 1-800-9-ACORN-9 (1-800-922-6769).
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ACORN FUND
ACORN INTERNATIONAL
NO-LOAD FUNDS
Acorn Fund and ACORN INTERNATIONAL invest for long-term capital growth. Each
fund invests mostly in stocks of small and medium-size companies. Acorn Fund
invests mostly in U.S. companies, but also has significant foreign investments.
Acorn International invests in non-U.S. companies.
PROSPECTUS
MAY 1, 1996
ACORN INVESTMENT TRUST
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
<PAGE>
<PAGE>
CONTENTS
<TABLE>
<S> <C>
THE FUNDS AT A GLANCE 4 Goal, Strategy, and Who May
Want to Invest
EXPENSES AND PERFORMANCE 5 Expenses
6 Financial History
8 Performance
YOUR ACCOUNT 9 Doing Business with Acorn
9 Acorn Facts
10 Choices for your Account
Registration
12 How to Buy Shares
14 How to Sell Shares
SHAREHOLDER AND ACCOUNT 16 Statements and Reports
POLICIES
16 Share Price
18 Address Changes
18 Telephone Transactions
20 Exchange Plan Restrictions
DIVIDENDS, CAPITAL GAINS, 23 Distribution Options and Taxes
AND TAXES
THE FUNDS IN DETAIL 25 Organization
25 Management
26 Expenses
27 The Acorn Philosophy
29 Securities, Investment
Practices
and Risks
HOW TO CONTACT US 36 Our Addresses and Phone Numbers
</TABLE>
3 PROSPECTUS
<PAGE>
THE FUNDS AT A GLANCE
GOAL
Acorn Fund and Acorn Interna- tional invest for long-term growth of capital.
STRATEGY
Acorn Fund and Acorn International invest primarily in stocks of small and me-
dium-size companies. The funds look for attractively-priced companies that
Wanger Asset Management, investment advisor to the Funds, thinks will benefit
from favorable long-term social, economic, or political trends. The areas of
emphasis change from time to time. Acorn Fund invests mostly in U.S. companies,
but also has significant foreign investments. Acorn International invests in
non-U.S. companies.
MANAGEMENT
Wanger Asset Management (WAM) chooses investments for the funds. Ralph Wanger
has managed both funds since they commenced operations. Charles P. McQuaid and
Terence M. Hogan are co-managers of Acorn Fund and Leah J. Zell is co-manager
of Acorn International. WAM has a team of analysts and
- --------------------------------------------------------------------------------
DID YOU KNOW?
The Funds' 14 member investment team reflects four different nationalities and
16 graduate degrees, including two Ph.D's, a CPA, a statistician, and an attor-
ney.
- --------------------------------------------------------------------------------
portfolio managers who concentrate on investment themes, countries, economic
sectors, industries, and companies.
WHO MAY WANT TO INVEST
Acorn Fund and Acorn International are designed for investors who want long-
term growth of capital rather than income and who have the long-term investment
outlook needed for investing in the stocks of small and medium-size companies
in the U.S. and overseas.
The value of each fund's investments and the return it generates vary from day
to day. Performance depends on WAM's skill in identifying the trends that are
the basis for the funds' stock selections, and in picking individual stocks, as
well as general market and economic conditions. When you sell your shares, they
may be worth more or less than what you paid for them.
The stocks of smaller companies often involve more risk than the stocks of
larger companies. Over time, stocks have shown greater growth potential than
other types of securities. In the short term, however, stock prices may fluctu-
ate widely in response to company, market or economic news. The funds do not
pursue income, and are not by themselves a balanced investment plan.
See "Your Account" for how to buy and redeem shares.
PROSPECTUS 4
<PAGE>
EXPENSES AND PERFORMANCE
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES are charges you pay when you buy or sell
shares of a fund.
TRANSACTION EXPENSES
<TABLE>
<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. Each fund pays its own operating expenses
including the management fee to WAM. Expenses are factored into a fund's price
or dividends, are subtracted from the share price daily, and are not charged
directly to shareholder accounts.
The following are projections based on historical expenses, and are
calculated as a percentage of average net assets.
ACORN FUND
<TABLE>
<S> <C>
Management fee............................................................. .47%
12b-1 fee.................................................................. NONE
Other expenses............................................................. .10%
----
Total fund operating expenses.............................................. .57%
</TABLE>
ACORN INTERNATIONAL
<TABLE>
<S> <C>
Management fee............................................................ .90%
12b-1 fee................................................................. NONE
Other expenses............................................................ .32%
-----
Total fund operating expenses............................................. 1.22%
</TABLE>
- --------------------------------------------------------------------------------
UNDERSTANDING EXPENSES
Operating a mutual fund involves a variety of expenses for portfolio management,
shareholder statements, tax reporting, and other services. These costs are paid
from the fund's assets; any quoted share price or return is after expenses.
- --------------------------------------------------------------------------------
EXAMPLE: Let's say, hypothetically, that each fund's annual return is 5% and
that its operating expenses are exactly as shown in the column to the left. For
every $1,000 you invested, here's how much you would have paid in total ex-
penses if you closed your account after the number of years indicated:
ACORN FUND
<TABLE>
<S> <C>
After 1 year................................................................ $ 6
After 3 years............................................................... $18
After 5 years............................................................... $32
After 10 years.............................................................. $71
</TABLE>
ACORN INTERNATIONAL
<TABLE>
<S> <C>
After 1 year............................................................... $ 12
After 3 years.............................................................. $ 39
After 5 years.............................................................. $ 67
After 10 years............................................................. $148
</TABLE>
These examples illustrate the effect of expenses, but are not meant to suggest
actual or expected costs or returns, all of which may vary.
5 PROSPECTUS
<PAGE>
EXPENSES AND PERFORMANCE - CONTINUED
FINANCIAL HISTORY
ACORN FUND
For a share outstanding throughout each year
<TABLE>
<CAPTION>
Years ended December
31,
--------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $12.24 $13.95 $11.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income .11 .06 .04
Net realized and unrealized gain (loss) on
investments, foreign currency and futures 2.42 (1.10) 3.50
- ---------------------------------------------------------------------------
Total from investment operations 2.53 (1.04) 3.54
LESS DISTRIBUTIONS
Dividends from net investment income (.09) (.11) (.06)
Distributions from net realized and unrealized
gains reportable for federal income taxes (1.08) (.56) (.59)
- ---------------------------------------------------------------------------
Total distributions (1.17) (.67) (.65)
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.60 $12.24 $13.95
- ---------------------------------------------------------------------------
TOTAL RETURN 21% (7%) 32%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets .57% .62% .65%
Ratio of net investment income to average net
assets .89% .55% .30%
Portfolio turnover rate 29% 18% 20%
Net assets at end of year (in millions) $2,399 $1,983 $2,035
</TABLE>
ACORN INTERNATIONAL
For a share outstanding throughout each year
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $15.24 $ 15.94 $ 10.69
INCOME FROM INVESTMENT OPERATIONS
Net investment income .16 .07 --
Net realized and unrealized gain (loss) on
investments and foreign currency 1.20 (.67) 5.25
- ---------------------------------------------------------------------------
Total from investment operations 1.36 (.60) 5.25
LESS DISTRIBUTIONS
Dividends from net investment income -- -- --
Distributions from net realized gain (.01) (.10) --
- ---------------------------------------------------------------------------
Total distributions (.01) (.10) --
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $16.59 $ 15.24 $ 15.94
- ---------------------------------------------------------------------------
TOTAL RETURN 8.9% (3.8%) 49.1%
RATIOS/SUPPLEMENTAL DATA
Ratio of expenses to average net assets 1.2% 1.2% 1.2%
Ratio of net investment income to average net
assets .9% .5% .1%
Portfolio turnover rate 26% 20% 19%
Net assets at end of period (in millions) $1,276 $ 1,363 $ 907
</TABLE>
*Annualized
PROSPECTUS 6
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <S>
$ 9.32 $ 6.51 $8.58 $7.27 $6.48 $7.45 $7.56
.07 .11 .12 .13 .12 .14 .13
2.16 2.95 (1.62) 1.65 1.47 .12 1.07
- -------------------------------------------------------------------------------------
2.23 3.06 (1.50) 1.78 1.59 .26 1.20
(.08) (.10) (.13) (.11) (.16) (.15) (.10)
(.41) (.15) (.44) (.36) (.64) (1.08) (1.21)
- -------------------------------------------------------------------------------------
(.49) (.25) (.57) (.47) (.80) (1.23) (1.31)
- -------------------------------------------------------------------------------------
$ 11.06 $ 9.32 $6.51 $8.58 $7.27 $6.48 $7.45
- -------------------------------------------------------------------------------------
24% 47% (18%) 25% 25% 4% 17%
.67% .72% .82% .73% .80% .82% .79%
.72% 1.30% 1.60% 1.59% 1.52% 1.85% 1.71%
25% 25% 36% 26% 36% 52% 34%
$ 1,449 $1,150 $ 767 $ 855 $ 563 $ 418 $ 415
The financial history of each Fund has been audited by Ernst &
Young LLP, independent auditors. Their unqualified report is
included in each fund's Annual Report. The Annual Reports are
incorporated by reference into and are legally a part of the
SAI.
Inception
Sept. 23, 1992
through
Dec. 31, 1992
- ----------------------
$ 10.00
(.03)
.72
- ----------------------
.69
--
--
- ----------------------
--
- ----------------------
$ 10.69
- ----------------------
6.9%
2.4%*
(1.4%)*
20%
$ 30
</TABLE>
7 PROSPECTUS
<PAGE>
EXPENSES AND PERFORMANCE - CONTINUED
PERFORMANCE
Mutual fund performance is commonly measured as total return.
Total return is the change in value of an investment in a fund over a given pe-
riod, assuming reinvestment of any dividends and capital gains. TOTAL RETURN
reflects actual performance over a stated period of time. AVERAGE ANNUAL TOTAL
RETURN is a hypothetical rate of return that, if achieved annually, would have
produced the same total return if performance had been constant over the entire
period. Average annual total returns smooth out variations in performance; they
are not the same as actual year-by-year results.
Total returns are based on past results and are not a prediction of future
performance. They do not include the effect of income taxes.
The funds sometimes show their performance compared to stock indexes (described
in the statement of additional information), or give their ratings or rankings
determined by an unrelated organization.
Information about the performance of the funds is contained in each fund's an-
nual report which may be obtained free of charge by calling Acorn at 1-800-9-
ACORN-9 (1-800-922-6769).
- --------------------------------------------------------------------------------
THE NO-LOAD ADVANTAGE
Acorn Fund and Acorn Interna-
tional are 100% no-load, which
means that all of your money goes
to work for you immediately.
There are no sales charges, and
no 12b-1 fees or back-end load
fees, so all of your dollars are
invested at net asset value.
Acorn invests in companies for
the long-term (usually 3-5
years), so our turnover rate is
low. This minimizes both trading
costs and shareholders' taxes.
All these factors add up to
greater value for our sharehold-
ers.
- --------------------------------------------------------------------------------
PROSPECTUS 8
<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 informa-
tion--1-800-9-ACORN-9 (1-800-922-6769) (from outside the U.S. 1-312-634-9240)
. For existing IRAs--call our transfer agent at 1-800-962-1585 (outside the
U.S. 1-617-774-5000 ext. 6457)
. To add to your existing account, to redeem shares, or to exchange shares by
phone--call our transfer agent by 3:00 p.m. Chicago (central) time at 1-800-
962-1585 (outside the U.S. 1-617-774-5000 ext. 6457)
- --------------------------------------------------------------------------------
ACORN FACTS
. Acorn Fund commenced operations in 1970; Acorn International opened to in-
vestors in 1992
. Number of shareholder accounts: more than 120,000
. Number of portfolio managers and analysts working for the funds: 14
. Wanger Asset Management, the advisor to the Acorn Funds, specializes in find-
ing small, niche companies for shareholders
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can open a new account by:
. mailing in an application with your check or a money order for $1,000 or
more, or
. using the exchange plan to move $1,000 or more from an account with Acorn
Fund, Acorn International, or one of the money funds into an identically reg-
istered account in Acorn Fund or Acorn International.
After your account is open, you may add to it by:
. wiring money from your bank;
. moving money from your bank account by telephone if you participate in the
telephone purchase plan;
. using the telephone exchange plan to move your investment from one fund to
the other, or from one of the money funds; or
. mailing a check or money order with the stub from one of your year-end ac-
count statements, a slip from the investment booklet provided by Acorn or a
letter.
You must make your telephone purchases or exchanges from Acorn or Acorn Inter-
national by 3:00 p.m. Chicago (central) time.
See "Shareholder and Account Policies" for more information about the exchange
plan.
9 PROSPECTUS
<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 can be opened.
- --------------------------------------------------------------------------------
CORPORATION OR OTHER ENTITY
For investment needs of corporations, associations, partnerships, institutions,
or other groups
You will need to send a certified corporate resolution with your application.
- --------------------------------------------------------------------------------
RETIREMENT
To shelter your retirement savings from taxes
Retirement plans allow individuals to shelter investment income and capital
gains from current taxes. Contributions to these accounts may be tax deduct-
ible. IRAs require a special application (call 1 800 9-ACORN-9); lower minimum
investments apply.
. ACORN INDIVIDUAL RETIREMENT ACCOUNTS (IRAS) allow anyone of legal age and un-
der 70 1/2 with earned income to save up to $2,000 per tax year. If your
spouse has (or elects to be treated as having) earned income of less than
$250 your spouse may invest in a "Spousal IRA." Each account is subject to
the $2,000 maximum; the maximum for your combined accounts is $2,250.
. ROLLOVER IRAS retain special tax advantages for certain distributions from
employer-sponsored retirement plans.
. SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS) allow small business owners or
those with self-employment income to make tax-deductible contributions of up
to $30,000 per year for themselves and any eligible employees.
. OTHER RETIREMENT PLANS--The funds may be used as investments in other kinds
of retirement plans, including Keogh or corporate profit sharing and money
purchase plans, 403(b) plans, and 401(k) plans. All of these accounts need to
be established by the trustee of the plan. Acorn does not offer prototypes of
these plans.
PROSPECTUS 10
<PAGE>
YOUR ACCOUNT - CONTINUED
IF YOU ARE INVESTING THROUGH AN ACORN IRA for the first time you will need a
special application. Call 1-800-9-ACORN-9 (1-800-922-6769) or complete and re-
turn the enclosed card to receive information and an application for an Acorn
IRA. For both initial and subsequent IRA investments, please indicate the year
for which the investment is being made.
MINIMUM INVESTMENTS
<TABLE>
<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 simply calling us at 1-800-962-1585 at least one week prior to
your next scheduled investment date.
HOW TO SELL SHARES
You can arrange to take money out of your fund account at any time by selling
(redeeming) some or all of your shares. Your shares will be sold at the next
NAV (share price) calculated after your order is received and accepted. See
"Shareholder and Account Policies" for more information about share price.
To sell shares in a regular (non-IRA) account, you may use any of the methods
described here. To sell shares in an Acorn IRA, your request must be made in
writing, except for exchanges between funds or to one of the money funds, which
can be requested before 3:00 p.m. Chicago (central) time by phone or in writ-
ing. If you need an IRA Withdrawal Request form, call us at 1-800-9-ACORN-9 (1-
800-922-6769).
THE TELEPHONE REDEMPTION PLAN lets you redeem $100 to $50,000 per day by phone.
You must make your telephone redemptions by 3:00 p.m. Chicago (central) time.
You automatically have the telephone redemption plan unless you decline it on
your application. If you have changed the address on your account by telephone
within 60 days of the telephone redemption request, this service is not avail-
able. You must designate an account on your purchase application, or in writing
with a signature guarantee, to have proceeds of redemption wired to your bank
account.
(continued on page 13)
11 PROSPECTUS
<PAGE>
HOW TO BUY SHARES
PHONE 1-800-962-1585
LOGO
- --------------------------------------------------------------------------------
To open an account: To add to an account:
. Exchange between funds or from . Exchange between accounts with the same
a money fund account (only if registration, including name, address,
you had invested in the money and taxpayer ID number.
fund by exchanging from Acorn
Fund or Acorn International) . Use the telephone purchase plan to trans-
with the same registration, fer $100 to $50,000 from your bank ac-
including name, address, and count. Call first to verify that this
taxpayer ID number. service is in place on your account.
(This service is not available for IRAs.)
You must make your telephone purchases or exchanges from Acorn or Acorn
International by 3:00 p.m. Chicago (central) time.
- --------------------------------------------------------------------------------
MAIL
LOGO
- --------------------------------------------------------------------------------
To open an account: To add to an account:
. Complete and sign the applica- . Make your check payable to "Acorn Fund"
tion. Make your check payable or "Acorn International." Put your fund
to "Acorn Fund" or "Acorn In- account number on your check. Use the re-
ternational." turn envelope that comes with your state-
ments, or mail to the address on your
statement.
Mail to the address on the application,
or
for
overnight delivery:
Boston
Financial
Data
Services
Attn:
Acorn
Funds
2
Heritage
Drive,
5th
Floor
N.
Quincy,
MA
02171
1-
617-
774-
5000
ext.
6457
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WIRE
LOGO
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To open an account: To add to an account:
. You may not open a NEW account . Wire to:
by wire. State Street Bank and Trust Co.
Attn: Mutual Funds Boston, MA 02110
. You may open a new account by Routing #0110-0002-8 Deposit DDA 9902-
mail. 990-2
Specify the name of the fund and the name
and the number on your account.
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AUTOMATIC INVESTMENT PLAN
LOGO
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To open an account: To add to an account:
. You may not open a NEW account . Sign up on the purchase application for
automatically. monthly or quarterly transfers of $100 to
$50,000 from your bank account, or call
. You may open a new account by 1-800-9-ACORN-9 (1-800-922-6769) for an
mail. Account Services form. If you already
have this service, you can easily change
the frequency or amount of your automatic
investments over the phone by calling 1-
800-962-1585.
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TDD--Service for the deaf and hearing-impaired: 1-800-306-4567
PROSPECTUS 12
<PAGE>
YOUR ACCOUNT - CONTINUED
THE SYSTEMATIC WITHDRAWAL PLAN lets you set up automatic monthly or quarterly
redemptions from your account in specified dollar amounts if you have a $25,000
minimum Acorn account balance. Call 1-800-9-ACORN-9 (1-800-922-6769) for a Do-
ing Business with Acorn form.
SELLING SHARES IN WRITING
Write a "letter of instruction" with:
. your name,
. the fund's name,
. your fund account number,
. the dollar amount or number of shares to be redeemed,
. the stock certificates representing your shares to be redeemed, if you hold
certificates for your shares, and
. any other applicable requirements listed in the table on the next page.
Mail your letter to:
State Street Bank and Trust Co.
Attn: Acorn Funds
P.O. Box 8502
Boston, MA 02266-8502
If you are using overnight mail:
Boston Financial Data Service
Attn: Acorn Funds
2 Heritage Drive, 5th Floor
N. Quincy, MA 02171 1-617-774-5000 ext. 6457
Do not sign your stock certificates. Send them by registered or certified mail
so that you may receive confirmation of delivery.
CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE, designed to protect you
and Acorn from fraud. Your request must be made in writing and include a signa-
ture guarantee if any of the following situations applies:
. you wish to redeem more than $50,000 worth of shares;
. your name has changed by marriage or divorce (send a letter indicating your
account number(s) and old and new names, signing the letter in both the old
and new names and having both signatures guaranteed)
. your address has changed within the last 60 days and you would like to redeem
shares;
. the check is being mailed to an address different from the one on your ac-
count (record address);
. the check is being made payable to someone other than the account owner; or
. you are instructing us to wire the proceeds to a bank or brokerage account
and have not signed up for the telephone redemption by wire plan.
(continued on page 15)
13 PROSPECTUS
<PAGE>
HOW TO SELL SHARES
PHONE 1-800-962-1585
LOGO
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All accounts except . To verify that the telephone redemption plan is in
IRAs place, call 1-800-9-ACORN-9 (1-800-922-6769). You
automatically have this feature on your account.
. Maximum--$50,000; minimum--$100
All account types . To exchange between identically-registered accounts.
You must make your telephone redemptions by 3:00 p.m. Chicago (central) time.
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MAIL
LOGO
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Individuals, Joint . The letter of instruction must be signed by all
Owners, Sole persons required to sign for transactions (usually,
Proprietorships, UGMA, all owners of the account), exactly as their names
UTMA appear on the account.
IRAs . The account owner should complete an IRA Withdrawal
Request form. Call 1-800-9-ACORN-9 (1-800-922-6769)
to request one.
Trust . The trustee must sign the letter indicating capacity
as trustee. If the account registration does not
include the trustee's name, provide a copy of the
trust document certified within the last 60 days.
Business or . The person or persons authorized by corporate
Organization resolution to act on the account must sign, in that
person's official capacity, the redemption request on
the corporation's stationery.
. Include a corporate resolution certified within 60
days if the amount to be redeemed exceeds $50,000.
Executor, . Call 1-800-962-1585 for instructions.
Administrator,
Conservator, Guardian
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WIRE
LOGO
- --------------------------------------------------------------------------------
All account types . You must sign up for payment of redemptions by wire
except IRAs before using this feature. Call to verify that this
service is in place--1-800-9-ACORN-9 (1-800-922-
6769).
. Minimum wire: $1,000; maximum: $50,000.
You must make your telephone redemptions by 3:00 p.m. Chicago (central) time.
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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.
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TDD service for the deaf and hearing-impaired: 1-800-306-4567
NOTE: Some redemptions require signature guarantees. Please see page 13.
PROSPECTUS 14
<PAGE>
YOUR ACCOUNT - CONTINUED
You should be able to obtain a signature guarantee from a bank, broker dealer,
credit union (if authorized under state law), securities exchange or associa-
tion, clearing
agency, or savings association. A notary public cannot provide a signature
guarantee.
The price at which your shares will be redeemed is determined by the time of
day our transfer agent receives your redemption request. The price per share is
always the next net asset value (NAV) per share calculated after your redemp-
tion request, including any required signature guarantee or supporting docu-
ments, is received. The funds calculate NAV as of Closing Time on each day the
New York Stock Exchange (NYSE) is open for trading. Closing Time is the close
of regular session trading on the NYSE, which is usually 3:00 p.m. Chicago
(central) time but is sometimes earlier.
To get today's price--
. Use the telephone redemption plan to call your redemption request in before
Closing Time (note that the Closing Time to exchange out of the money funds
is 11:00 a.m. Chicago (central) time).
. Have your written redemption request, with a signature guarantee if required
and any supporting documents, delivered to our
transfer agent before Closing Time.
15
PROSPECTUS
<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
. Quarterly shareholder reports
If you would like us to send duplicate statements to someone, simply call us at
1-800-962-1585, and we can take your request over the phone. Average cost
statements for shares redeemed are available upon request.
If you need copies of your historical account information, please call 1-800-
962-1585. There is a small charge for historical account information for prior
years.
SHARE PRICE
THE FUNDS ARE OPEN FOR BUSINESS each day the New York Stock Exchange (NYSE) is
open. THE OFFERING PRICE (price to buy one share) and REDEMPTION PRICE (price
to sell one share) are the fund's net asset value ("NAV") calculated at the
next Closing Time after receipt of your order. Closing Time is the time of the
close of regular session trading on the NYSE, which is usually 3:00 p.m. Chi-
cago (central) time but is sometimes earlier.
A FUND'S NAV is the value of a single share. The NAV is computed by adding up
the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and then
dividing the result by the number of shares outstanding.
Each fund's portfolio securities and assets are valued primarily on the basis
of market quotations from the primary market in which they are traded or, if
quotations are not readily available, by a method that the board of trustees
believes accurately reflects a fair value. Values of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
Your purchase or redemption of fund shares will be priced at the next NAV cal-
culated after your investment (including the application, if for a new account,
and the money) or redemption request is received and accepted. An order re-
ceived before Closing Time will get that day's price. No telephone orders will
be accepted after Closing Time.
PURCHASES
. All of your purchases must be made in U.S. dollars and checks must be drawn
on U.S. banks. You may not open an account with a third party check.
. Acorn does not accept cash or credit cards.
. If payment for your check or telephone order does not clear, your purchase
will be cancelled and you will be liable for any losses or fees the fund or
its transfer agent incurs.
PROSPECTUS 16
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED
. Your Automatic Investment Plan and Telephone Purchase Plan may be immediately
terminated in the event that any item is unpaid by your financial institu-
tion.
. When you make a purchase by telephone, the money is ordinarily drawn from
your bank account the day AFTER you call and the Acorn shares purchased are
at the NAV calculated after the money is transferred.
EACH FUND RESERVES THE RIGHT TO reject any specific purchase order, including
certain purchases through the exchange plan. See "Exchange Plan Restrictions."
Purchase orders may be refused if, in WAM's opinion, they are of a size that
would disrupt management of the fund.
REDEMPTIONS
. Normally, redemption proceeds will be mailed within seven days after State
Street Bank receives a request for redemption.
. A fund may hold payment on redemptions until it is reasonably satisfied that
it has received payment for a recent purchase made by check, by the Automatic
Investment Plan, or by the Telephone Purchase Plan, which can take up to fif-
teen days.
. If you elected to participate in the Telephone Redemption by Wire plan, Acorn
will send payment for your redemption to
your bank account by wire transfer. Your bank may impose a fee
for the incoming wire. Payment by wire is usually credited to your bank ac-
count on the next business day after your call.
. Redemptions may be suspended or payment dates postponed on days when the NYSE
is closed (other than weekends or holidays), when trading on the NYSE is re-
stricted, or as permitted by the SEC.
. Certain accounts (such as trust accounts, corporate accounts and custodial
accounts) may require documentation in addition to the redemption request.
Call 1-800-962-1585 for more information.
If the value of your account falls below $1,000, Acorn reserves the right to
close your account and send the proceeds to you. Your shares will be redeemed
at the NAV calculated on the day your account is closed.
If checks representing (1) redemption proceeds, (2) withdrawals under a system-
atic withdrawal plan, or (3) dividend and capital gains distributions are re-
turned "undeliverable" or remain uncashed for six months, the checks shall be
cancelled and the proceeds will be reinvested in the fund issuing the check at
the per share net asset value on the date of cancellation. In addition, after
such six-month period, (1) your systematic withdrawal plan will automatically
be cancelled and future withdrawals
17 PROSPECTUS
<PAGE>
will occur only when requested, or (2) your cash election will automatically be
changed and future dividends and distributions will be reinvested in your fund
at the per share net asset value determined on the date of payment of such
distributions.
ADDRESS CHANGES
You may change your address over a recorded line by calling
1-800-962-1585. Acorn will send a written confirmation of the change to both
your old and new addresses. No telephone redemptions may be made for 60 days
after a change of address by phone. During those 60 days, a signature guarantee
will be required for any written redemption request unless your change of ad-
dress was made in writing with a signature guarantee.
TELEPHONE TRANSACTIONS
YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE.
Transactions over a recorded line:
. Change your address;
. Request duplicate statements to be sent to someone you designate;
. Request an average cost statement for shares redeemed;
. Request a current account statement;
. Purchase shares through the telephone purchase plan (plan must be pre-estab-
lished);
. Redeem $50,000 or less and have it wired to a bank checking account (bank
wire-redemption plan must be pre-established, not available for IRA ac-
counts);
. Change the frequency or amount, or discontinue the Automatic Investment Plan
on your account(s);
. Add or discontinue the telephone exchange privilege to your account;
. Add or discontinue the telephone redemption by check privilege to your ac-
count;
. Add automatic exchange (from Acorn Fund to Acorn International or vice versa
each month) to your account;
. Change your distribution option (does not apply to IRA accounts);
. Redeem $50,000 or less, with a check sent to the address of record (does not
apply to IRA accounts, and your address of record must not have changed in
the last 60 days);
PROSPECTUS 18
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED
. Exchange money from an individual account to an existing IRA account with an
identical registration;
. Exchange money between identically registered accounts in Acorn Fund, Acorn
International or certain Reich & Tang Money Market Funds, or exchange money
from one fund to establish an identically registered account in another fund;
and
. Change the contribution year on an IRA account to the previous year up until
April 15 of the following year.
Acorn will not be responsible for any losses resulting from unauthorized trans-
actions if it follows reasonable procedures designed to verify the identity of
the caller. Those procedures may include recording the call, requesting addi-
tional information, and sending written confirmation of telephone transactions.
You should verify the accuracy of telephone transactions immediately upon re-
ceipt of your confirmation statement. If you do not want to be able to initiate
purchase or redemption transactions by telephone, decline these privileges
on your account application or
call Acorn for instructions at
1-800-962-1585.
IF YOU ARE UNABLE TO REACH ACORN BY PHONE (for example, during periods of unu-
sual market activity), consider placing your order by mail.
TELEPHONE EXCHANGE PLAN Acorn's telephone exchange plan permits you to exchange
your investment between Acorn Fund and Acorn International, into one of the
money market mutual funds participating in the plan (money funds) upon tele-
phone instructions, or from one of the money funds in which you had invested by
exchanging from Acorn Fund or Acorn International. The MONEY FUNDS are: Short
Term Income Fund, Money Market Portfolio; Short Term Income Fund, U.S. Govern-
ment Portfolio; Daily Tax Free Income Fund; California Daily Tax Free Income
Fund; Connecticut Daily Tax Free Income Fund; Florida Daily Municipal Income
Fund; Michigan Daily Tax Free Income Fund; New Jersey Daily Municipal Income
Fund; New York Daily Tax Free Income Fund; North Carolina Daily Municipal In-
come Fund; and Pennsylvania Daily Municipal Income Fund.
19 PROSPECTUS
<PAGE>
Each of the money funds is a no-load fund managed by Reich & Tang Asset Manage-
ment L.P. and offers check-writing privileges (for accounts other than IRAs) in
addition to the exchange plan. Only Short Term Income Fund, Money Market Port-
folio is available for IRA accounts.
THE PRICE AT WHICH SHARES ARE EXCHANGED is determined by the time of day we re-
ceive your request. TO GET TODAY'S PRICE:
. For an IRA account, call us at 1-800-962-1585 before Closing Time.
. If you are exchanging between Acorn Fund and Acorn International, or from
Acorn Fund or Acorn International into one of the money funds, call us at
1-800-962-1585 before Closing Time.
. If you are exchanging from one of the money funds to Acorn Fund or Acorn In-
ternational, CALL REICH & TANG AT 1-800-221-3079 BEFORE 11:00 A.M. CHICAGO
(CENTRAL) TIME.
Because of the time needed to transfer money between the funds and the money
funds, you may not exchange into and out of a money fund on the same or succes-
sive days; there must be at least one day between exchanges.
EXCHANGE PLAN RESTRICTIONS
. The fund you are exchanging into must be registered for sale in your state.
. You may only exchange between accounts that are registered in the same name,
address, and taxpayer identification number.
. If you are opening a new account by exchange, your exchange must be at least
$1,000 or $200 for an IRA account.
. The exchange plan is not available for shares of either fund for which you
have been issued certificates. (If you want to exchange shares between funds,
call 1-800-962-1585 to get instructions for returning your certificates.)
. If your account is subject to backup withholding, you may not use the ex-
change plan.
. Generally, you will be limited to 4 round-trip exchanges per year (a round-
trip being the exchange out of one fund into the other fund, and then back).
. Because excessive trading can hurt fund performance and shareholders, the
funds reserve the right to temporarily or permanently terminate the exchange
privilege of any investor who makes excessive use of the exchange plan.
PROSPECTUS 20
<PAGE>
SHAREHOLDER AND ACCOUNT POLICIES - CONTINUED
. The funds also reserve the right to refuse exchange purchases by any person
or group if Acorn
believes the purchase will be harmful to existing shareholders.
. Before exchanging into a fund, you should read its prospectus.
. Exchanges may have tax consequences for you.
The funds reserve the right to terminate or modify the exchange plan at any
time, but will try to give you prior notice whenever they are reasonably able
to do so.
- --------------------------------------------------------------------------------
EXCHANGE PLAN POLICIES
Because excessive trading can hurt fund performance and shareholders, the funds
may temporarily or permanently cut-off your exchange privilege if you make ex-
cessive use of the exchange plan. Each shareholder is generally limited to 4
round-trip exchanges per year.
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21 PROSPECTUS
<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):
- --------------------------------------------------------------------------------
To accomplish this: Please request this form:
For changes to account .Doing Business with Acorn
privileges
For reregistering your current .Changing Your Account Registration
account
For reregistering your Acorn .Broker-Dealer Transfer Form
shares held by a brokerage to
an account with Acorn
For changes to your IRA .Change of Beneficiary
beneficiary designations
For transferring money from an .IRA Transfer Form
IRA account with another
institution to Acorn
For redeeming shares from your .IRA Withdrawal
IRA account
PROSPECTUS 22
<PAGE>
DIVIDENDS, CAPITAL GAINS, AND TAXES
Each fund distributes substantially all of its net income and capital gains to
shareholders each year. Normally, dividends are paid in July and December, and
capital gains are distributed in December.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to receive
your distributions. If you later want to change your distribution option, call
us at 1-800-962-1585. The funds offer three options:
. REINVESTMENT OPTION. Your dividends and capital gain distributions will be
automatically reinvested in additional shares of the fund. If you do not in-
dicate a choice on your application, you will be assigned this option.
. INCOME-ONLY OPTION. Your capital gain distributions will be automatically re-
invested, but you will be sent a check for each dividend.
. CASH OPTION. You will be sent a check for each dividend and capital gain dis-
tribution.
FOR IRA ACCOUNTS, all distributions are automatically reinvested because pay-
ment of distributions in cash would be a taxable distribution from your IRA,
and might be subject to income tax penalties if you are under 59 1/2 years old.
After you are 59 1/2, you may request payment of distributions in cash.
When you reinvest, the reinvestment price is the fund's NAV at the close of
business on the reinvestment date. The mailing of distribution checks will usu-
ally begin on the payment date, which is usually one week after the ex-dividend
date.
TAXES
As with any investment, you should consider how your investment in a fund will
be taxed. If your account is a tax-deferred account, for example, an IRA or an
employee benefit plan account, the following tax discussion does not apply. If
your account is not a tax-deferred account, however, you should be aware of the
following tax rules:
TAXES ON DISTRIBUTIONS. Distributions are subject to federal income tax, and
may also be subject to state or local taxes. If you live outside the United
States, your distributions could also be taxed by the country in which you re-
side.
Your distributions are taxable when they are paid, whether you take them in
cash or reinvest them in additional shares. However, distributions declared in
December and paid in January are taxable as if they were paid on December 31.
For federal tax purposes, each fund's income and short-term capital gain dis-
tributions are taxed as dividends; long-term capital gain distributions are
taxed as long-term capital gains. Every January, Acorn will send you and the
IRS a state-
23 PROSPECTUS
<PAGE>
DIVIDENDS, CAPITAL GAINS, AND TAXES - CONTINUED
ment, called a Form 1099, showing the amount of each taxable distribution you
received in the previous year. You may not receive a Form 1099 if total distri-
butions for the year are less than $10.00.
TAXES ON TRANSACTIONS. Your redemptions--including exchanges between funds or
into a money fund--are subject to capital gains tax. A capital gain or loss is
the difference between the cost of your shares and the price you receive when
you sell them.
Whenever you sell shares of either fund, Acorn will send you a confirmation
statement showing how many shares you sold and at what price. You will also re-
ceive a year-end statement every January. It is up to you or your tax preparer
to determine whether any given sale resulted in a capital gain and, if so, the
amount of tax to be paid. Be sure to keep your regular account statements; the
information they contain will be essential in calculating the amount of your
capital gains.
FOREIGN INCOME TAXES
Investment income received by either fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. If a fund pays
nonrefundable taxes to foreign governments during the year, the taxes will re-
duce that fund's dividends but will still be included in your taxable income.
You may be able to claim an offsetting credit or deduction on your tax return
for your share of foreign taxes paid by Acorn International (but not by Acorn
Fund because not enough of Acorn Fund's assets are invested in foreign securi-
ties for Acorn Fund to be able to pass through the foreign tax credit). Acorn
International will send you this information as part of your annual Form 1099.
WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31% backup withholding for failing to report income to the IRS.
If you violate IRS regulations, the IRS can require Acorn to withhold 31% of
your taxable distributions and redemptions.
- --------------------------------------------------------------------------------
UNDERSTANDING DISTRIBUTIONS
As a fund shareholder, you are entitled to your share of a fund's net income and
any
net gains realized on its investments.
The funds' income from dividends and interest, and any net realized short-term
capital gain, are paid to you as DIVIDENDS. A fund realizes capital gains when-
ever it sells securities for a higher price than it paid for them. Net realized
long-term gains are paid to you as CAPITAL GAIN DISTRIBUTIONS.
- --------------------------------------------------------------------------------
PROSPECTUS 24
<PAGE>
THE FUNDS IN DETAIL
ORGANIZATION
Acorn Fund and Acorn International are series of Acorn Investment Trust
("Acorn" or the "Trust"), an open-end, management investment company. The Acorn
Fund, Inc. began operations in 1970, and was reorganized as the Acorn Fund se-
ries of the Trust on June 30, 1992. The Trust is a Massachusetts business trust
organized on April 21, 1992. Acorn International began operations on September
23, 1992.
Each share of a fund is entitled to participate pro rata in any dividends and
other distributions declared by the board of trustees with respect to that
fund, and all shares of a fund have equal rights in the event of liquidation of
that fund.
THE TRUST IS GOVERNED BY A BOARD OF TRUSTEES, which is responsible for protect-
ing the interests of the shareholders of the funds. The trustees are experi-
enced executives and professionals who meet at regular intervals to oversee the
activities of the Trust and the funds. A majority of trustees are not otherwise
affiliated with Acorn or WAM.
ACORN MAY HOLD SPECIAL MEETINGS OF SHAREHOLDERS to elect or remove trustees,
change fundamental policies, approve a management contract, or for other pur-
poses. Acorn will mail proxy materials in advance, including a voting card and
information about the proposals to be voted on. You are entitled to one vote
for each share of Acorn Fund and Acorn International that you own. Shareholders
not attending these meetings are encouraged to vote by proxy.
MANAGEMENT
The funds are managed by Wanger Asset Management, L.P. (WAM), 227 West Monroe
Street, Suite 3000, Chicago, Illinois 60606; WAM chooses the funds' investments
and handles their business affairs, under the direction of the board of trust-
ees. WAM is a limited partnership managed by its general partner, Wanger Asset
Management, Ltd., which is controlled by Ralph Wanger. WAM manages more than
$4.5 billion in assets.
Ralph Wanger is the funds' portfolio manager and has managed the portfolios
since each fund began (June 1970 for Acorn Fund and September 1992 for Acorn
International). Mr. Wanger has been president and a member of the board of
Acorn (and its predecessor, The Acorn Fund, Inc.) since 1970. He is a principal
of WAM and was a principal of the Fund's prior advisor until July 1992. Mr.
Wanger is primarily responsible for development of the funds' investment strat-
egies.
Charles P. McQuaid and TERENCE M. HOGAN are co-managers of Acorn Fund and as-
sist in the selection of stocks held by Acorn Fund. Mr. McQuaid is senior vice
president and a trustee of the
25 PROSPECTUS
<PAGE>
THE FUNDS IN DETAIL - CONTINUED
Trust. Mr. Hogan is a vice president of the Trust. Mr. McQuaid and Mr. Hogan
have been principals of WAM since July 1992. Before that date, Mr. McQuaid was
a principal and Mr. Hogan was an analyst with the Trust's prior investment ad-
visor. Mr. McQuaid and Mr. Hogan have been working with Mr. Wanger for 18 and
10 years, respectively.
LEAH J. ZELL is co-manager of Acorn International and assists in the selection
of stocks held by Acorn International. Ms. Zell is a vice president of the
Trust. She has been a principal of WAM since July 1992 and was an analyst with
the Trust's prior investment advisor before that date. Ms. Zell has been work-
ing with Mr. Wanger for 12 years.
The other executive officers are Merrillyn J. Kosier, vice president and secre-
tary, and Bruce H. Lauer, vice president and treasurer.
State Street Bank and Trust Company is each fund's transfer agent and custodi-
an.
DISTRIBUTOR
Shares of Acorn Fund and Acorn International are offered for sale through WAM
Brokerage Services, L.L.C. (Distributor) without any sales commission or
charges to the funds or their shareholders. Distributor is wholly-owned by WAM,
the funds' investment advisor, and the investment advisor's general partner,
Wanger Asset Management, Ltd. The Distributor's address is 227 West Monroe
Street, Suite 3000, Chicago, Illinois 60606. All distribution and promotional
expenses relating to the funds are paid by WAM, including the payment or reim-
bursement of any expenses incurred by the Distributor.
EXPENSES
Like all mutual funds, Acorn Fund and Acorn International pay expenses related
to their daily operations. Expenses paid out of each fund's assets are re-
flected in its share price or dividends.
Each fund pays a MANAGEMENT FEE to WAM for managing its investments and busi-
ness affairs. See "Expenses and Performance." The rates of fee paid by Acorn
International are higher than those paid by most mutual funds, reflecting the
higher costs involved in management of an international portfolio.
Each fund pays the management fee to WAM and the fees of its custodian, trans-
fer agent, auditors, and lawyers. It also pays other expenses such as the cost
of compliance with federal and state laws, proxy solicitations, shareholder re-
ports, taxes, insurance premiums, and the fees of trustees who are not other-
wise affiliated with Acorn or WAM.
PROSPECTUS 26
<PAGE>
THE ACORN PHILOSOPHY
Acorn Fund and Acorn International seek long-term growth of capital. Although
income is considered in the selection of securities for Acorn Fund, neither
fund is designed for investors seeking primarily income rather than capital
appreciation.
ACORN PREFERS SMALL COMPANIES. Since large institutions seek highly marketable
stocks, the stocks of large companies are studied in detail by security ana-
lysts, with the result that all investors know much the same thing about large
companies. WAM prefers to work with stocks where values are more attractive be-
cause the facts about the companies are not universally known. Acorn Fund and
Acorn International thus generally concentrate on that segment of the market
where the competition is less intense--companies with a total common stock mar-
ket capitalization of less than $1 billion. WAM wants to be able to understand
any company in which Acorn invests, and smaller companies are easier to compre-
hend than large firms or conglomerates. When a company develops into a multi-
industry giant, it is difficult for even the top management of the company to
understand its own business and even harder for an outsider to follow such
widespread activities. Since WAM insists on understanding Acorn's investments,
WAM talks to top management directly whenever possible.
LOOKING FOR HIGH QUALITY COMPANIES. The funds look for quality businesses, with
each investment ideally resting on a solid tripod of growth potential, finan-
cial strength, and fundamental value. Not all of the companies in which the
funds invest necessarily have all of these characteristics.
The sources of growth are a growing marketplace for the company's product, good
design, efficient manufacturing, sound marketing, and good profit margins. Fi-
nancial strength means low debt, adequate working capital, and conservative ac-
counting principles. Strong capitalization gives management the stability and
flexibility to reach strategic objectives. In economies with less well-devel-
oped capital markets than those of the U.S., a strong balance sheet is an es-
sential component of competitive advantage. Fundamental value means low rela-
tive price. The existence of a good company does not necessarily make its stock
a good buy. The price of the stock determines value as measured relative to
dividends, earnings, growth rate, book value, and economic replacement value of
assets. The emphasis on fundamentals in relation to price sets Acorn Fund and
Acorn International apart from pure "growth" or "value" funds.
WAM also believes that finding and understanding high quality companies is im-
portant because investing in smaller companies involves relatively higher in-
vestment costs. One
27 PROSPECTUS
<PAGE>
THE FUNDS IN DETAIL - CONTINUED
way to reduce these costs is to invest with a long-term time horizon (at least
3-5 years) and to avoid frequent turnover of the stocks held by the funds. Oc-
casionally, however, securities purchased on a long-term basis may be sold
within 12 months after purchase in light of a change in the circumstances of a
particular company or industry, or in general market or economic conditions.
INVESTMENT THEMES. To find long-term investments and reduce portfolio turnover,
the funds seek out areas of the economy that they believe will benefit from fa-
vorable long-term economic and political trends. These areas of emphasis may
change from time to time, and are usually related to identified investment
themes or market niches. A small company frequently can carve out a specialized
niche for itself. The niche can be geographic, like that of a regional bank,
utility, or railroad. It can be technological, based on patents and know-how.
Sometimes the niche is a marketing technique. In international investing, the
niche can be participation in a fast-growth economy. A well-run business in a
growing country has an easier path to a high growth rate. The most important
single theme at this time is the information group (including communications,
media, electronics, and computer systems and software).
The funds invest primarily in equity securities, including common and preferred
stocks, warrants or other similar rights, and convertible securities. The funds
may purchase foreign securities in the form of American Depository Receipts
(ADRs), European Depository Receipts (EDRs), or other securities representing
underlying shares of foreign issuers. The funds may also invest in any other
type of security, including debt securities.
Under normal market conditions, Acorn International invests at least 75% of its
total assets, taken at market value, in foreign securities. Acorn Fund's in-
vestments in foreign securities are limited to no more than one-third of its
total assets. The foreign securities in which the funds invest may be traded in
mature markets (for example, Japan, Canada, and the United Kingdom) and in de-
veloping markets (Mexico and Indonesia, for example), examples of which are in-
cluded in the SAI under "Investment Techniques and Risks--Foreign Securities."
There are no limits on either fund's geographic asset distribution; at December
31, 1995 Acorn International had investments in 44 countries and Acorn Fund had
investments in 36 countries.
PROSPECTUS 28
<PAGE>
The funds may invest without limit in corporate or government obligations or
hold cash or cash equivalents if WAM determines that a temporary defensive po-
sition is advisable. If investments in foreign securities appear to be rela-
tively unattractive because of current or anticipated adverse political or eco-
nomic conditions, Acorn International may hold cash or invest any portion of
its assets in securities of the U.S. government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. The funds use various
techniques to increase or decrease their exposure to the effects of possible
changes in security prices, currency exchange rates, or other factors that af-
fect the value of a fund's portfolio. These techniques include buying and sell-
ing options, futures contracts, or options on futures contracts, or entering
into currency exchange contracts or swap agreements.
The investment objective of either Acorn Fund or Acorn International may be
changed by the board of trustees without shareholder approval. If there were
such a change, you should consider whether that fund would remain an appropri-
ate investment in light of your then current financial position and needs. The
funds are not intended, alone or together, to present a balanced investment
program.
SECURITIES, INVESTMENT PRACTICES, AND RISKS
The following pages contain more detailed information about types of invest-
ments the funds may make, and strategies WAM may employ in pursuit of each
fund's investment objective, including information about the associated risks
and restrictions. All policies stated throughout this prospectus, other than
those identified as fundamental, can be changed without shareholder approval. A
complete statement of each fund's investment restrictions is included in the
SAI. Policies and limitations are considered at the time of purchase; the sale
of instruments is not required because of a subsequent change in circumstances.
WAM may not buy all of these instruments or use all of these techniques to the
full extent permitted unless it believes that doing so will help a fund achieve
its goal.
Common stocks represent an equity (ownership) interest in a corporation. This
ownership interest often gives a fund the right to vote on measures affecting
the company's organization and operations. Although common stocks have a his-
tory of long-term growth in value, their prices tend to fluctuate in the short
term.
29 PROSPECTUS
<PAGE>
THE FUNDS IN DETAIL - CONTINUED
- --------------------------------------------------------------------------------
*These restrictions are "fundamental," which means that they cannot be changed
without shareholder approval.
Acorn Fund and Acorn International invest mostly in the securities of smaller
companies, that is, companies with a total market capitalization of less than
$1 billion. During some periods, the securities of small companies, as a class,
have performed better than the securities of large companies, and in some peri-
ods they have performed worse. Stocks of small companies tend to be more vola-
tile and less liquid than stocks of large companies. Small companies, as com-
pared to larger companies, may have a shorter history of operations, may not
have as great an ability to raise additional capital, may have a less diversi-
fied product line making them susceptible to market pressure, and may have a
smaller public market for their shares.
Restrictions: Neither fund may acquire securities of any one issuer which at
the time of investment (a) represent more than 10% of the voting securities of
the issuer or (b) have a value greater than 10% of the value of the outstanding
securities of the issuer.*
FOREIGN SECURITIES
International investing allows you to achieve greater diversification and to
take advantage of changes in foreign economies and market conditions. From time
to time, many foreign economies have grown faster than the U.S. economy, and
the returns on investments in these countries have exceeded those of similar
U.S. investments, although there can be no assurance that these conditions will
continue.
Investments in foreign securities provide opportunities different from those
available in the U.S., and risks which in some ways may be greater than in U.S.
investments, including: fluctuations in exchange rates of foreign currencies;
imposition of exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less public informa-
tion with respect to issuers of securities; less governmental supervision of
stock exchanges, securities brokers, and issuers of securities; different ac-
counting, auditing, and financial reporting standards; different settlement pe-
riods and trading practices; less liquidity, frequently greater price volatili-
ty, and higher transaction costs in foreign markets than in the United States;
imposition of foreign taxes; and sometimes less advantageous legal, operation-
al, and financial protections applicable to foreign sub-custodial arrangements.
Investing in countries outside the U.S. also involves political risk. A foreign
government might restrict investments by foreigners, expropriate assets, seize
or nationalize for-
PROSPECTUS 30
<PAGE>
eign bank deposits or other assets, establish exchange controls, or enact other
policies that could affect investment in these nations. Economies in individual
markets may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rates of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency and balance of
payments positions. Many emerging market countries have experienced extremely
high rates of inflation for many years. That has had and may continue to have
very negative effects on the economies and securities markets of those coun-
tries.
The securities markets of emerging countries are substantially smaller, less
developed, less liquid, and more volatile than the securities markets of the
United States and other more developed countries. Disclosure and regulatory
standards in many respects are less stringent than in the U.S. There also may
be a lower level of monitoring and regulation in emerging markets of traders,
insiders, and investors. Enforcement of existing regulations has been extremely
limited.
The funds may invest in ADRs that are not sponsored by the issuer of the under-
lying security. To the extent a fund does so, it would probably bear its pro-
portionate share of the expenses of the depository and might have greater dif-
ficulty in receiving copies of the issuer's shareholder communications than
would be the case with a sponsored ADR.
The funds may invest in securities purchased on a when-issued and delayed de-
livery basis. Although the payment terms of such a security are established at
the time a fund enters into the commitment, the security may be delivered and
paid for a month or more after the date of purchase, when its value may have
changed. A fund will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before settlement date if
WAM considers it advisable for investment reasons.
Restrictions. Under normal market conditions, Acorn International invests at
least 75% of its total assets in foreign securities. Acorn Fund's investments
in foreign securities are limited to not more than 33% of its total assets.
MANAGING INVESTMENT EXPOSURE
The funds use various techniques to increase or decrease their exposure to the
effects of possible changes in security prices, currency exchange rates or
other factors that affect the value of the funds' portfolios. These techniques
include buying and selling options, futures contracts, or options on futures
contracts, or entering into currency exchange contracts or swap agreements.
31 PROSPECTUS
<PAGE>
THE FUNDS IN DETAIL - CONTINUED
These techniques are used by WAM to adjust the risk and return characteristics
of the funds' portfolios. If WAM judges market conditions incorrectly or em-
ploys a strategy that does not correlate well with a fund's investments, or if
the counterparty to the transaction does not perform as promised, the transac-
tion could result in a loss. Use of these techniques may increase the volatil-
ity of a fund and may involve a small investment of cash relative to the mag-
nitude of the risk assumed. These techniques are used by the funds for hedg-
ing, risk management or portfolio management purposes and not for speculation.
CURRENCY EXCHANGE TRANSACTIONS. A currency exchange transaction may be con-
ducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through a for-
ward currency exchange contract ("forward contract"). A forward contract is an
agreement to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the contract.
Forward contracts are usually entered into with banks and broker-dealers, are
not exchange-traded and are usually for less than one year, but may be
renewed.
Currency exchange transactions may involve currencies of the different coun-
tries in which the funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The funds' currency
transactions are limited to TRANSACTION HEDGING and PORTFOLIO HEDGING involv-
ing either specific transactions or actual or anticipated portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to a specific receivable or payable of a fund accruing in connection with the
purchase or sale of portfolio securities. Portfolio hedging is the use of a
forward contract with respect to an actual or anticipated portfolio security
position denominated or quoted in a particular currency. The funds may engage
in portfolio hedging with respect to the currency of a particular country in
amounts approximating actual or anticipated positions in securities denomi-
nated in that currency. When a fund owns or anticipates owning securities in
countries whose currencies are linked, WAM may aggregate those positions as to
the currency hedged. Although forward contracts may be used to protect a fund
from adverse currency movements, the use of such hedges may reduce or elimi-
nate the potentially positive effect of currency revaluations on that fund's
total return.
OPTIONS AND FUTURES. Each fund may enter into stock index or currency futures
contracts (or options thereon) to hedge a portion of that fund's portfolio, to
provide an effi-
PROSPECTUS 32
<PAGE>
cient means of regulating the fund's exposure to the equity markets, or as a
hedge against changes in prevailing levels of currency exchange rates. Each
fund may write covered call options and purchase put and call options on for-
eign currencies, securities, and stock indices. Futures contracts and options
can be highly volatile. A fund's attempt to use such investments for hedging
purposes may not be successful and could result in reduction of that fund's to-
tal return.
Restrictions: A fund will not use futures contracts for speculation, and will
limit its use of futures contracts so that no more than 5% of that fund's total
assets would be committed to initial margin deposits or premiums on such con-
tracts. The aggregate market value of each fund's currencies or portfolio secu-
rities covering call or put options will not exceed 10% of that fund's net
assets.
DEBT SECURITIES
Bonds and other debt instruments are methods for an issuer to borrow money from
investors. The issuer pays the investor a fixed or variable rate of interest,
and must repay the amount borrowed at maturity. Debt securities have varying
degrees of quality and varying levels of sensitivity to changes in interest
rates.
"Investment grade" debt securities are those rated within the four highest rat-
ings categories of Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") or, if unrated, determined by WAM to be of compara-
ble quality. Securities rated BBB or Baa are considered to be medium grade and
to have speculative characteristics. Investment in non-investment grade debt
securities is speculative and involves a high degree of risk.
Lower-rated debt securities (commonly called "junk bonds") are often considered
speculative and involve greater risk of default or price changes due to changes
in the issuer's credit-worthiness. The market prices of these securities may
fluctuate more than higher-rated securities and may decline significantly in
periods of general economic difficulty.
MONEY MARKET INSTRUMENTS are high-quality, short-term debt securities that
present minimal credit risk. These instruments may carry fixed or variable in-
terest rates.
Restrictions: There are no restrictions on the ratings of debt securities in
which either fund may invest. Acorn Fund does not intend to invest more than 5%
of its net assets in securities rated at or lower than the lowest investment
grade. Acorn International will not invest more than 20% of its total assets in
debt securities that are of below investment grade quality.
33 PROSPECTUS
<PAGE>
THE FUNDS IN DETAIL - CONTINUED
- --------------------------------------------------------------------------------
*These restrictions are fundamental.
Acorn Fund may invest without limit in corporate or government obligations, or
hold cash or cash equivalents if WAM determines that a temporary defensive po-
sition is advisable. If investments in foreign securities appear to be rela-
tively unattractive because of current or anticipated adverse political or eco-
nomic conditions, Acorn International may hold cash or invest any portion of
its assets in securities of the U.S. government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet liquidity needs
(which, under normal market conditions, are not expected to exceed 25% of its
total assets) or for temporary defensive purposes, each fund may hold cash in
domestic and foreign currencies and may invest in domestic and foreign money
market securities.
ILLIQUID AND RESTRICTED
SECURITIES
Some investments may be determined by WAM to be illiquid, which means that they
may be difficult to sell promptly at an acceptable price. Other securities,
such as securities acquired in private placements, may be sold only pursuant to
certain legal restrictions. Difficulty in selling securities may result in de-
lays or a loss, or may be costly to the fund.
Restrictions: Acorn Fund may not purchase a security if, as a result, more than
10% of its assets would be invested in illiquid or restricted securities. Acorn
International is similarly restricted with respect to 15% of its assets.*
DIVERSIFICATION
Diversifying the funds' investment portfolios can reduce the risks of invest-
ing. This may include limiting the amount of money invested in
any one company or, on a broader scale, limiting the amount invested in any one
industry or country.
Restrictions: Acorn Fund may not invest more than 5% of its total assets in the
securities of any one issuer. Acorn International is similarly limited with re-
spect to 75% of its total assets. Neither fund may invest more than 25% of its
total assets in any one industry. These limitations do not apply to U.S. gov-
ernment securities.*
OTHER INVESTMENT COMPANIES
Certain markets are closed in whole or in part to equity investments by for-
eigners. The funds may be able to invest in such markets solely or primarily
through governmentally- authorized investment companies.
Investment in another investment company may involve the payment of a premium
above the value of
PROSPECTUS 34
<PAGE>
the issuer's portfolio securities, and is subject to market availability. In
the case of a purchase of shares of such a company in a public offering, the
purchase price may include an underwriting spread. The funds do not intend to
invest in such circumstances unless, in the judgment of WAM, the potential ben-
efits of such investment justify the payment of any applicable premium or sales
charge. As a shareholder in an investment company, a fund would bear its rata-
ble share of that investment company's expenses, including its advisory and ad-
ministration fees. At the same time the fund would continue to pay its own man-
agement fees and other expenses.
Restrictions: A fund generally may invest up to 10% of its assets in shares of
other investment companies and up to 5% of its assets in any one investment
company (in each case measured at the time of investment). No investment in an-
other investment company may represent more than 3% of the outstanding voting
stock of the acquired investment company at the time of investment.
OTHER SECURITIES
The funds have the power to invest in repurchase agreements and reverse repur-
chase agreements, but have no present intention of doing so.
35 PROSPECTUS
<PAGE>
HOW TO CONTACT US
MAIL
LOGO
- --------------------------------------------------------------------------------
State Street Bank & Trust . for regular mail delivery, including
Co. purchases, written exchanges, redemptions,
Attn: Acorn Funds and IRA contributions
P.O. Box 8502
Boston, MA 02266-8502
Boston Financial Data . for overnight deliveries of purchases,
Service written exchanges, redemptions, or IRA
Attn: Acorn Funds contributions
2 Heritage Drive, 5th Floor
N. Quincy, MA 02171
Wanger Asset Management, . the funds' advisor
L.P.
227 W. Monroe St., Suite
3000
Chicago, IL 60606-5016
WAM Brokerage Services, . the funds' distributor
L.L.C.
227 W. Monroe St., Suite
3000
Chicago, IL 60606-5016
- --------------------------------------------------------------------------------
PHONE
LOGO
- --------------------------------------------------------------------------------
1-800-9-ACORN-9 . for fund information, account balances,
(1-800-922-6769) literature, prices, and performance
information (from outside the U.S. 1-312-634-
9240)
1-800-962-1585 . for telephone purchases, exchanges and
redemptions, and for IRA information (from
outside the U.S. 1-617-774-5000 ext. 6457)
1-800-221-3079 . to exchange OUT OF a money fund
1-800-306-4567 . TDD service for the deaf and hearing impaired
Customer service is available on business days from 8:00 a.m. to 4:30 p.m.
Chicago (central) time.
Telephone requests for purchases, redemptions or exchanges from Acorn Fund or
Acorn International must be made by 3:00 p.m. Chicago (central) time.
- --------------------------------------------------------------------------------
WIRE
LOGO
- --------------------------------------------------------------------------------
State Street Bank and Trust . to wire money from your bank to add to an
Co. EXISTING account
Attn: Mutual Funds Boston,
MA 02110 Routing #0110-
0002-8 Deposit DDA 9902-
990-2
Specify the name of the
fund and the name and the
number on your account
PROSPECTUS 36
<PAGE>
Acorn Investment Trust P.O. Box 8502 [ACORN LOGO]
Boston, MA 02266-8502
Application
It takes only a few moments to fill out this simple step-by-step
application. If you have questions, call us at 1-800-9-ACORN-9,
(1-800-922-6769), weekdays, 8:00am-4:30pm, Chicago (central) time.
Please be sure to print your information on this application, then
simply sign and return it to us in the postage-paid envelope we've
provided. (Please do not use this form if you are opening an IRA.)
YOUR ACCOUNT REGISTRATION
[][][] [][] [][][][]
Social Security Number (Use minor's social security number for
gifts/transfers to minors) or
[][] [][][][][][][]
Taxpayer ID Number
_____________________________________________________________
[] Individual or Joint* Account
_____________________________________________________________
Owner's name: first, middle initial, last
_____________________________________________________________
Joint owner's name: first, middle initial, last
*Joint tenants with right of survivorship, unless
you indicate otherwise.
_____________________________________________________________
[] Gift/Transfer to a Minor (ugma/utma)
_____________________________________________as custodian for
Custodian's name: first, middle initial, last
____________________________________________________under the
Minor's name: first, middle initial, last
_________________________Uniform Gifts/Transfers to Minors Act.
State
_______________________________________________________________
Minor's date of birth
_______________________________________________________________
[] Trust or Established Employee Benefit
or Profit-Sharing Plan
___________________________________________________as trustee of
Trustee('s) name(s)
_______________________________________________________________
Name of Trust Agreement
_______________________________________________________________
Date of Trust Agreement
Please include copy of first page and last page of trust agreement.
_______________________________________________________________
[] Corporation or Other Entity
_______________________________________________________________
Name of corporation or other entity
_______________________________________________________________
Type of entity (for example, corporation, partnership, non-profit)
Please attach a certified copy of your corporate resolution showing
the person(s) authorized to act on this account.
YOUR ADDRESS
_______________________________________________________________
Street or P.O. Box
_______________________________________________________________
City State Zip Code
_______________________________________________________________
Daytime phone, including area code
[] U.S. Citizen [] Non-citizen residing in U.S.
To invest, you must be a U.S. citizen (or a non-citizen residing
in the U.S.) with a social security or tax identification number.
CHOOSE YOUR INVESTMENTS
There is an initial investment minimum of $1,000 per Fund.
[] Acorn Fund $___________________
[] Acorn International $___________________
[] Total Investment $___________________
Make check(s) payable to Acorn Fund and/or Acorn International.
DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS
Please choose how you want to receive your income dividends and
capital gains. If no option is checked, all dividends and capital
gains will be reinvested automatically. (Check one box.)
[] Reinvest dividends and capital gains to help keep my
account growing.
[] Pay dividends and capital gains in cash.
[] Pay dividends in cash; reinvest capital gains.
DUPLICATE STATEMENTS
_______________________________________________________________
[] Send duplicate statements for my account to:
_______________________________________________________________
Name
_______________________________________________________________
Street or P.O. Box
_______________________________________________________________
City State Zip Code
(MORE ON THE BACK.)
<PAGE>
Acorn Investment Trust FIRST CLASS
WAM Brokerage Services, L.L.C. U.S. POSTAGE
P.O. Box 8502 PAID
Boston, MA 02266-8502 CHICAGO, IL
PERMIT NO. 1200
AUTOMATIC INVESTMENT PLAN
To keep building your investments, you can easily add
to your fund accounts by joining the automatic
investment plan:
[_] Automatic Investment Plan: to add to your Acorn
account automatically
[_] Acorn Fund $____________________
[_] monthly [_] quarterly (check only one box)
[_] Acorn International $____________________
[_] monthly [_] quarterly (check only one box)
The minimum automatic investment is $100; the maximum
is $50,000. Your automatic investment will be drawn from
your bank account on or about the 15th of the month.
Attach a voided check from the bank account you will
be using.
BANK TRANSFER OPTIONS
To make transactions fast and easy, choose the Telephone
Purchase Plan, Telephone Redemption by Wire Plan, or both.
It takes about 10 days to set up these plans.
[_] Telephone Purchase Plan: to add to your Acorn Fund account
or Acorn International account by transferring money from
your bank checking account ($100 minimum, $50,000 maximum
per transfer.)
[_] Telephone Redemptions by wire: to redeem shares and
transfer the money to your bank checking account ($1,000
minimum, $50,000 maximum per transaction.)
Telephone requests for purchases or redemptions must be made
by 3:00 p.m. Chicago (central) time.
Attach a voided check from the bank account you will be using.
TELEPHONE PLANS
You automatically have the ability to exchange and redeem
shares by telephone unless you check the boxes below.
Proceeds of telephone redemption requests are paid by check
mailed to the address of record may not be more than
$50,000. Exchanges must be between identically-registered
accounts and requested by 3:00 p.m. Chicago (central) time.
See the prospectus for details.
I do NOT want: [_] telephone exchanges
---
[_] telephone redemptions
AGREEMENT
By signing this form, I certify that:
I am of legal age, have received and read the Prospectus, and
agree to its terms. I understand that each of the account
services, including the telephone exchange plan, may be
terminated or modified by Acorn in the future.
If I fail to give the correct number or sign this form, Acorn
Fund or Acorn International may reject, restrict, or redeem
my investment.
I authorize Acorn Fund, Acorn International, and their
affiliates and agents to act on any instructions reasonably
believed to be genuine for any service authorized on this
form (including telephone transactions). I agree that they
will not be liable for any resulting loss or expense. I
certify that I have read the explanation and agree to the
terms and provisions for the services I have elected as set
forth in the current prospectus of Acorn Fund and Acorn
International, as amended from time to time.
(If you have elected the Automatic Investment Plan or any
Bank Transfer Option) I authorize Acorn Fund, Acorn
International and their affiliates and agents to initiate (1)
credit entries (deposits) (if I have elected the telephone
redemption bank transfer option), (2) debit entries
(withdrawals) (if I have elected to participate in the
Automatic Investment Plan or telephone purchase Bank Transfer
Option), and (3) debit or credit entries and adjustments for
any entries made in error to my bank account, for which I
have attached a voided check. This authorization will remain
effective until I notify Acorn in writing or by telephone at
1-800-962-1585 of its termination and until Acorn has a
reasonable time to act on that termination.
YOUR SIGNATURE
Under penalty, I certify that (i) the Social Security or Tax
Identification Number given is correct and (ii) I am NOT
currently subject to IRS backup withholding for failure to
report dividend or interest income to the IRS. (Please cross
out "NOT" if you are currently subject to withholding.) The
IRS does not require your consent to any provision of this
document other than the certifications required to avoid
backup withholding.
X
______________________________________________________________________
Signature (Sign exactly as name appears in Account Registration) Date
X
______________________________________________________________________
Signature (Sign exactly as name appears in Account Registration) Date
Joint accounts require both signatures.
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL
INFORMATION
May 1, 1996
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-9-ACORN-9
1-800-922-6769
ACORN FUND
ACORN INTERNATIONAL
No-Load Funds
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Page
----
Information About the Funds...............................................2
Investment Objectives and Policies........................................2
Investment Techniques and Risks...........................................2
Investment Restrictions..................................................17
Performance Information..................................................21
Investment Adviser.......................................................22
Distributor..............................................................23
The Trust................................................................24
Trustees and Officers....................................................24
Purchasing and Redeeming Shares..........................................27
Additional Tax Information...............................................28
Taxation of Foreign Shareholders.........................................29
Portfolio Transactions...................................................30
Custodian................................................................31
Independent Auditors.....................................................31
Appendix - Description of Bond Ratings...................................32
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
ACORN FUND and ACORN INTERNATIONAL dated May 1, 1996 and any supplement thereto,
which may be obtained from Acorn at no charge by writing or telephoning Acorn at
its address or telephone number shown above.
<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
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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.
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MATURE MARKETS DEVELOPING MARKETS EMERGING MARKETS
-------------- ------------------ ----------------
Australia Argentina Bangladesh Morocco
Austria Chile Botswana Pakistan
Belgium Greece Brazil Peru
Canada Hong Kong China Philippines
Denmark Indonesia Colombia Poland
Finland Israel Cyprus Sri Lanka
France Korea Czech Republic Swaziland
Germany Malaysia Ecuador Turkey
Ireland Mexico Egypt Uruguay
Italy Portugal Ghana Venezuela
Japan Singapore Hungary Zambia
Luxembourg Taiwan India Zimbabwe
Netherlands Thailand Jordan
New Zealand Kenya
Norway
South Africa
Spain
Sweden
Switzerland
United Kingdom
United States
It may not be feasible for the funds currently to invest in all of these
countries due to restricted access to their securities markets or inability to
implement satisfactory custodial arrangements.
CURRENCY EXCHANGE TRANSACTIONS.
The funds may enter into currency exchange transactions. A currency
exchange transaction may be conducted either on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market or through a forward currency exchange contract ("forward contract"). A
forward contract is an agreement to purchase or sell a specified currency at a
specified future date (or within a specified time period) and price set at the
time of the contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange-traded, and are usually for less than one year,
but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The funds' currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions." Transaction
hedging is the purchase or sale of a forward contract with respect to specific
payables or receivables of a fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to a portfolio security position denominated or quoted in
a particular currency. The funds may engage in portfolio hedging with respect
to the currency of a particular country in amounts approximating actual or
anticipated positions in securities denominated in that currency. When either
fund owns or anticipates owning securities in
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countries whose currencies are linked, WAM may aggregate such positions as to
the currency hedged.
If a fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, liquid assets of that fund, such as cash, U.S. government
securities, or other liquid high grade debt obligations, having a value at least
as great as the fund's commitment under such forward contract will be segregated
on the books of the fund and held by the custodian while the contract is
outstanding.
At the maturity of a forward contract to deliver a particular currency, a
fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that fund is obligated to deliver.
If a fund retains the portfolio security and engages in an offsetting
transaction, that fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, a fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the fund of unrealized
profits or force the fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to a fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
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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.)
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The funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if a fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by a fund expires, that fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a fund expires, that fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a fund desires.
A fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the fund will realize a capital gain or, if it is less,
the fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by a fund is an asset of that fund, valued
initially at the premium paid for the option. The premium received for an
option written by a fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
OTC DERIVATIVES. The Fund may buy and sell over-the-counter ("OTC")
derivatives. Unlike exchange-traded derivatives, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of OTC derivatives (derivatives not traded on exchanges)
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows the Fund greater flexibility to
tailor an instrument to its needs, OTC derivatives generally involve greater
credit risk than exchange-traded derivatives, which are guaranteed by the
clearing organization of the exchanges where they are traded. Each fund will
limit its investments so that no more than 5% of its total assets will be placed
at risk in the use of OTC derivatives.
RISKS ASSOCIATED WITH OPTIONS. There are several risks associated with
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
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whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a fund seeks
to close out an option position. If a fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
a fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call. As the writer of a covered call option on a
foreign currency, a fund foregoes, during the option's life, the opportunity to
profit from currency appreciation.
If trading were suspended in an option purchased or written by one of the
funds, that fund would not able to close out the option. If restrictions on
exercise were imposed, the fund might be unable to exercise an option it has
purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The funds may use
interest rate futures contracts and index futures contracts. An interest rate
or index futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index/1/ at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; and the New
York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds; U.S. Treasury notes;
Eurodollar certificates of deposit; and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.
- --------------------------
/1/ A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
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The funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned the opposite
short position. In the case of a put option, the opposite is true.
To the extent required by regulatory authorities having jurisdiction over
the funds, the funds will limit their use of futures contracts and futures
options to hedging transactions. For example, the funds might use futures
contracts to hedge against fluctuations in the general level of stock prices,
anticipated changes in interest rates, or currency fluctuations that might
adversely affect either the value of a fund's securities or the price of the
securities that a fund intends to purchase. The funds' hedging may include
sales of futures contracts as an offset against the effect of expected declines
in stock prices or currency exchange rates or increases in interest rates and
purchases of futures contracts as an offset against the effect of expected
increases in stock prices or currency exchange rates or declines in interest
rates. Although other techniques could be used to reduce the funds' exposure to
stock price, interest rate, and currency fluctuations, the funds may be able to
hedge their exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The success of any hedging technique depends on WAM correctly predicting
changes in the level and direction of stock prices, interest rates, currency
exchange rates, and other factors. Should those predictions be incorrect, a
fund's return might have been better had hedging not been attempted; however, in
the absence of the ability to hedge, WAM might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a fund, that fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature
of a performance bond or good faith deposit on the futures contract, which is
returned to the fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The funds expect to earn interest income on
their initial margin deposits. A futures contract held by a fund is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by a fund does not
represent a borrowing or loan by the fund but is instead settlement between that
fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the funds will mark-to-market their open futures positions.
The funds are also required to deposit and maintain margin with respect to
put and call options on futures contracts they write. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the funds.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the funds realize a
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capital gain, or if it is more, the funds realize a capital loss. Conversely, if
an offsetting sale price is more than the original purchase price, the fund
engaging in the transaction realizes a capital gain, or if it is less, the fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
RISKS ASSOCIATED WITH FUTURES. There are several risks associated with the
use of futures contracts and futures options as hedging techniques. A purchase
or sale of a futures contract may result in losses in excess of the amount
invested in the futures contract. There can be no guarantee that there will be
a correlation between price movements in the hedging vehicle and in the
portfolio securities being hedged. In addition, there are significant
differences between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given hedge not to achieve
its objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for futures,
futures options, and the related securities, including technical influences in
futures and futures options trading and differences between the funds'
investments being hedged and the securities underlying the standard contracts
available for trading. For example, in the case of index futures contracts, the
composition of the index, including the issuers and the weighting of each issue,
may differ from the composition of a fund's portfolio, and, in the case of
interest rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may differ from
the financial instruments held in a fund's portfolio. A decision as to whether,
when, and how to hedge involves the exercise of skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of market
behavior or unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
There can be no assurance that a liquid market will exist at a time when a
fund seeks to close out a futures or futures option position. The fund would be
exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
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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.
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calls, straddles, spreads, or any combination thereof if by reason of such
purchase more than 10% of that fund's total assets would be invested in such
securities.
SWAP AGREEMENTS. A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of investments or
market factors. Depending on its structure, a swap agreement may increase or
decrease the Fund's exposure to changes in the value of an index of securities
in which the Fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. A Fund may enter into any form of
swap agreement if WAM determines it is consistent with the Fund's investment
objective and policies, but each Fund will limit its use of swap agreements so
that no more than 5% of its total assets will be placed at risk.
A swap agreement tends to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agrees to exchange
payments in dollars at a fixed rate for payments in a foreign currency the
amount of which is determined by movements of a foreign securities index, the
swap agreement would tend to increase the Fund's exposure to foreign stock
market movements and foreign currencies. Depending on how it is used, a swap
agreement may increase or decrease the overall volatility of the Fund's
investments and its net asset value.
The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from the Fund. If a swap agreement calls for
payments by the Fund, the Fund must be prepared to make such payments when due.
If the counterparty's creditworthiness declines, the value of a swap agreement
would be likely to decline, potentially resulting in a loss. The Fund expects
to be able to eliminate its exposure under any swap agreement either by
assignment or by other disposition, or by entering into an offsetting swap
agreement with the same party or a similarly creditworthy party.
The Fund will segregate liquid assets (such as cash, U.S. government
securities, or other liquid high grade debt obligations) of the Fund to cover
its current obligations under swap agreements. If the Fund enters into a swap
agreement on a net basis, it will segregate assets with a daily value at least
equal to the excess, if any, of the Fund's accumulated obligations under the
swap agreement over the accumulated amount the Fund is entitled to receive under
the agreement. If the Fund enters into a swap agreement on other than a net
basis, it will segregate assets with a value equal to the full amount of the
Fund's accumulated obligations under the agreement.
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ILLIQUID SECURITIES
The funds may not invest in illiquid securities, if as a result they would
comprise more than 10% and 15% of the value of the net assets of ACORN FUND and
ACORN INTERNATIONAL, respectively./3/
Restricted securities may be sold only in privately negotiated transactions
or in a public offering with respect to which a registration statement is in
effect under the Securities Act of 1933 (the "1933 Act"). Where registration is
required, a fund may be obligated to pay all or part of the registration
expenses and a considerable period may elapse between the time of the decision
to sell and the time the fund may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the fund might obtain a less favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
value as determined in good faith by the board of trustees. If through the
appreciation of illiquid securities or the depreciation of liquid securities,
ACORN FUND or ACORN INTERNATIONAL should be in a position where more than 10% or
15% of the value of its net assets, respectively, are invested in illiquid
assets, including restricted securities, that fund will take appropriate steps
to protect liquidity.
Notwithstanding the above, a fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That rule permits certain qualified institutional buyers,
such as the funds, to trade in privately placed securities that have not been
registered for sale under the 1933 Act. WAM, under the supervision of the board
of trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to a fund's restriction of investing no more than 10%
(for ACORN FUND) or 15% (for ACORN INTERNATIONAL) of its assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination WAM will consider the trading
markets for the specific security taking into account the unregistered nature of
a Rule 144A security. In addition, WAM could consider the (1) frequency of
trades and quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and of market
place trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the funds' holdings of
illiquid securities would be reviewed to determine what, if any, steps are
required to assure that a fund
- ----------------
/3/ In addition, the funds must comply with certain state regulations that may
impose additional restrictions. As long as shares of a fund are offered for
sale in Wisconsin, that fund may not invest more than 10% of its total
assets in securities of issuers which the fund is restricted from selling
to the public without registration under the Securities Act of 1933,
excluding Rule 144A securities, and not more than 5% of its total assets in
equity securities which are not readily marketable. Arkansas regulations
currently prohibit investment of mo re than 10% of a fund's assets in
restricted securities.
13
<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, liquid
assets of the fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the fund and held
by the custodian throughout the period of the obligation. The use of these
investment strategies, as well as any borrowing by a fund, may increase net
asset value fluctuation.
The funds have no present intention of investing in reverse repurchase
agreements.
15
<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 it
assets at cost, and except in connection with transactions in options and
in securities index futures;
In pursuing its investment objective ACORN INTERNATIONAL will not:
1. With respect to 75% of the value of the fund's total assets, invest more
than 5% of its total assets (valued at time of investment) in securities of a
single issuer, except securities issued or guaranteed by the government of the
U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
4. Make loans, but this restriction shall not prevent the fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that are
publicly distributed, or from investing up to an aggregate of 15% of its total
assets (taken at market value at the time of each purchase) in parts of issues
of bonds, debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements, or (c) lending
portfolio securities, provided that it may not lend securities if, as a result,
the aggregate value of all securities loaned would exceed 33% of its total
assets (taken at market value at the time of such loan);/4/
5. Borrow money except (a) from banks for temporary or emergency purposes in
amounts not exceeding 10% of the value of the fund's total assets at the time of
borrowing, and (b) in connection with transactions in options, futures and
options on futures. [The fund will not purchase additional securities when its
borrowings, less amounts receivable on sales of portfolio securities, exceed 5%
of total assets.];
- ----------------------------------
/4/ The funds have no present intention of investing in repurchase agreements
or lending their portfolio securities.
17
<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:
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<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
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<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) 4,874.1 16.5
ACORN INTERNATIONAL Average Annual
- ------------------- Total Return Total Return
------------ --------------
1 year......................... 8.9% 8.9%
Life of Fund (inception 9/23/92) 67.0 17.0
</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.
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<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 85; chairman of the
executive committee and director, Pittway Corporation (multi-product
manufacturer and publisher); chairman, William Harris Investors, Inc.
(investment adviser); chairman, The Harris Foundation (charitable
foundation); director, Teva Pharmaceutical Industries, Inc.
(pharmaceutical manufacturer)
Ralph Wanger, trustee and president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 62;
trustee and president, Wanger Advisors Trust; principal, Wanger Asset
Management, L.P. since July 1992; prior thereto, principal, Harris
Associates L.P.
James H. Lorie, trustee and vice chairman
1101 East 58th Street, Chicago, Illinois 60637; age 74; retired; Eli B. and
Harriet B. Williams Professor of Business Administration Emeritus,
University of Chicago Graduate School of Business; director, Ardco, Inc.
(refrigeration equipment manufacturer); director, Thornburg Mortgage Asset
Corp. (REIT)
24
<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 42;
trustee and senior vice president, Wanger Advisors Trust; principal, Wanger
Asset Management, L.P. since July 1992; prior thereto, principal, Harris
Associates L.P.
Roger S. Meier, trustee
1211 S. W. Fifth Avenue, Portland, Oregon 97204; age 70; president, AMCO,
Inc. (investment and real estate management); director, Fred Meyer, Inc.
(retail chain); director, Red Lion Inns Limited Partnership (hotel chain);
director, Key Bank of Oregon (banking)
Adolph Meyer, Jr., trustee
1511 West Webster Avenue, Chicago, Illinois 60614; age 72; president, Gulco
Corp. (leather manufacturer)
Malcolm N. Smith, trustee
309 Maple Avenue, Highland Park, Illinois 60035; age 75; president, Newmac,
Inc. (importers of Sheffield cutlery); prior thereto, president, Macromatic
Division, Milwaukee Electronics Corporation (electronic timing devices
manufacturer)
Terence M. Hogan, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 34;
trustee and vice president, Wanger Advisors Trust; principal, analyst, and
portfolio manager, Wanger Asset Management, L.P., since July 1992; prior
thereto, analyst, Harris Associates L.P.
25
<PAGE>
Leah J. Zell, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 47;
trustee and vice president, Wanger Advisors Trust; principal, analyst, and
portfolio manager, Wanger Asset Management, L.P., since July 1992; prior
thereto, analyst, Harris Associates L.P.
Merrillyn J. Kosier, vice president and secretary
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 36; vice
president and secretary, Wanger Advisors Trust; director of marketing and
shareholder services, Wanger Asset Management, L.P., since September 1993;
prior thereto, vice president of marketing, Kemper Financial Services, Inc.
Bruce H. Lauer, vice president and treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; age 38; vice
president and treasurer, Wanger Advisors Trust; chief administrative
officer, Wanger Asset Management, L.P. since April 1995; prior thereto,
first vice president, investment accounting, Kemper Financial Services,
Inc.
Kenneth A. Kalina, assistant treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; age 36;
assistant treasurer, Wanger Advisors Trust; Fund controller, Wanger Asset
Management, L.P., since September 1995; prior thereto, treasurer of the
Stein Roe Mutual Funds
Messrs. McQuaid and Wanger are trustees who are interested persons of Acorn
as defined in the Investment Company Act of 1940, and of WAM. Messrs. Harris,
Lorie, and Wanger are members, and Mr. McQuaid is an alternate member, of the
executive committee, which has authority during intervals between meetings of
the board of trustees to exercise the powers of the board, with certain
exceptions.
At December 31, 1995 the trustees and officers as a group owned
beneficially 3,041,662 shares (1.7% of the outstanding shares) of ACORN FUND and
642,734 shares (.84% of the outstanding shares) of ACORN INTERNATIONAL. The
Illinois Deferred Compensation Plan held 13,002,878 shares of Acorn Fund (7.4%
of the outstanding shares). Charles Schwab & Co., Inc. held 9,562,720 shares of
Acorn International (12.4% of the outstanding shares) as holder of record, but
not beneficially. During 1995 the funds paid fees aggregating $223,000 to board
members who were not affiliated with WAM.
The following table sets forth the total compensation paid by the Trust
during the fiscal year ended December 31, 1995 to each of the trustees of the
trust. The trust has no retirement or pension plan. The officers and trustees
affiliated with WAM serve without any compensation from the Trust.
26
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE TOTAL
AGGREGATE COMPENSATION COMPENSATION
COMPENSATION FROM ACORN FROM
- ----------------------------------- FROM ACORN INTERNATIONAL FUND COMPLEX
NAME OF TRUSTEES
- ------------------------------------------------------------------------------
<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 shareholder.
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.
Aa--Bonds rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
32
<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>
- --------------------------------------------------------------------------------
[LOGO]
Wanger U.S. Small Cap Advisor
Annual Report
December 31, 1995
<PAGE>
- -------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Annual Report 1995
In a Nutshell
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor returned 16% to investors during the eight months
the Fund was in operation during 1995. Through September, our performance was
boosted by a number of winners in our information and finance groups. Our best
stocks were Silver King (TV stations), Sierra On-line (computer games) and Aames
(home equity lending). We more than doubled our money in each stock.
The fourth quarter of 1995 was more of a struggle. Rising U.S. consumer debt
delinquencies and bankruptcies spooked our credit card stocks (First USA,
Peoples Bank). A few weak energy stocks also hurt performance. Our disappointing
fourth quarter results pushed us slightly below the market averages shown in the
table for the period from the commencement of the Fund's operations (May 3,
1995) through the end of the year.
Our approach to investing is to buy the stocks of small- and medium-size
companies that we believe will benefit from favorable long-term social,
economic, or political trends. We have packed our portfolio with these companies
and are ready for the new year. Bring on 1996!
Results to December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
4th quarter May 3, 1995
------------------------
<S> <C> <C>
Wanger U.S. Small Cap Advisor -- 3.8% 16.0%
Dow-Jones 7.5% 20.4%
Standard & Poor's 500 6.0% 21.8%
Standard & Poor's MidCap 1.4% 18.7%
Russell 2000 2.2% 20.1%
</TABLE>
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.
Net Asset Value Per Share as of 12/31/95: $11.60
- --------------------------------------------------------------------------------
The Value of a $10,000 Investment in Wanger U.S. Small Cap Advisor
May 3, 1995 through December 31, 1995
[GRAPH APPEARS HERE]
Wanger US Small Cap Russell 2000
------------------- ------------
5/3/95 $10,000 $10,000
5/31/95 $ 9,870 $10,172
6/30/95 $10,770 $10,700
7/31/95 $11,560 $11,316
8/31/95 $11,940 $11,550
9/30/95 $12,060 $11,757
10/31/95 $11,380 $11,231
11/30/95 $11,640 $11,703
12/31/95 $11,600 $12,012
This graph compares the results of $10,000 invested in Wanger U.S. Small Cap
Advisor on May 3, 1995 (the date the Fund began operations) with the Russell
2000 with dividends reinvested. Past performance does not guarantee future
results. The investment return and principal value of an investment in the Fund
will fluctuate so that Fund shares, when redeemed, may be worth more or less
than their original cost.
2
<PAGE>
- --------------------------------------------------------------------------------
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
<TABLE>
<CAPTION>
Number of Shares Value
- --------------------------------------------------------------------------------
Common Stocks and Other Equity-Like
Securities--94.9%
Information Group--24.5%
- --------------------------------------------------------------------------------
Broadcasting and CATV--4.6%
<S> <C> <C>
20,000 Tele-Communications, Liberty $ 537,500
Media Group (b)
19,000 International Family Entertainment (b) 311,125
12,000 Jones Intercable, Cl. A (b) 148,500
- --------------------------------------------------------------------------------
997,125
Mobile Communications--4.6%
15,000 Cellular Communications of 416,250
Puerto Rico (b)
18,000 Vanguard Cellular Systems (b) 364,500
10,600 Mobile Telecommunication 226,575
Technologies (b)
- --------------------------------------------------------------------------------
1,007,325
Software--2.2%
25,500 CACI International (b) 302,813
4,300 Business Records Corporation (b) 169,850
- --------------------------------------------------------------------------------
472,663
Instrumentation--2.7%
30,000 COMARCO (b) 435,000
10,000 Thermo Spectra (b) 156,250
- --------------------------------------------------------------------------------
591,250
Computer Systems--2.5%
12,500 Solectron (b) 551,563
Distribution--2.1%
22,200 Richey Electronics (b) 288,600
23,000 Bell Microproducts (b) 166,750
- --------------------------------------------------------------------------------
455,350
Components and Peripherals--5.8%
15,000 In Focus Systems (b) 541,875
25,000 Oak Industries (b) 468,750
14,000 Planar Systems (b) 267,750
- --------------------------------------------------------------------------------
1,278,375
- --------------------------------------------------------------------------------
Information Group--Total 5,353,651
Health Care Group--8.9%
- --------------------------------------------------------------------------------
Medical Equipment--7.2%
42,000 Kinetic Concepts $ 504,000
30,000 AMSCO International (b) 446,250
14,000 Thermedics (b) 388,500
9,000 Invacare 227,250
- --------------------------------------------------------------------------------
1,566,000
Services--1.7%
15,000 Lincare Holding (b) 375,000
- --------------------------------------------------------------------------------
Health Care Group--Total 1,941,000
Consumer Goods and Services Group--14.0%
- --------------------------------------------------------------------------------
Retail--4.0%
30,000 Borders (b) 555,000
18,500 Dave & Buster's 224,312
10,000 Duckwall Alco Stores (b) 102,500
- --------------------------------------------------------------------------------
881,812
Entertainment and Leisure--3.3%
20,000 Rio Hotel & Casino (b) 237,500
13,000 Station Casinos (b) 190,125
5,000 GC Companies (b) 167,500
35,000 Monarch Casino & Resort (b) 122,500
- --------------------------------------------------------------------------------
717,625
Restaurants--1.8%
35,000 Quantum Restaurant Group (b) 393,750
Manufacturers--4.9%
21,000 Newell Companies 543,375
15,000 Liz Claiborne 416,250
10,000 Hampshire Group (b) 120,000
- --------------------------------------------------------------------------------
1,079,625
- --------------------------------------------------------------------------------
Consumer Group--Total 3,072,812
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Finance Group-22.7%
- --------------------------------------------------------------------------------
Savings & Loans-5.7%
18,000 Washington Federal $ 461,250
22,000 Peoples Bank Bridgeport 418,000
10,000 Bell Bancorp 357,500
- --------------------------------------------------------------------------------
1,236,750
Insurance-3.9%
18,000 Transnational Re 441,000
17,000 Leucadia National 425,000
- --------------------------------------------------------------------------------
866,000
Money Management-1.7%
17,000 SEI Corporation 369,750
Credit Cards-4.3%
20,000 National Data 495,000
10,000 First USA 443,750
- --------------------------------------------------------------------------------
938,750
Other-7.1%
35,000 Baker Fentress 586,250
30,000 DVI Health Services (b) 420,000
28,000 Americredit (b) 381,500
30,000 Cash America International 165,000
- --------------------------------------------------------------------------------
1,552,750
- --------------------------------------------------------------------------------
Finance Group-Total 4,964,000
Industrial Goods and Services-14.1%
- --------------------------------------------------------------------------------
Machinery-2.8%
25,000 Zoltek Companies (b) $ 418,750
10,600 Atchison Casting (b) 127,200
3,750 Baldor Electric 75,468
- --------------------------------------------------------------------------------
621,418
Steel-1.2%
8,000 UCAR International (b) 270,000
Furniture and Textiles-3.9%
33,000 Lilly Industries, Cl. A 420,750
19,000 Unifi 420,375
- --------------------------------------------------------------------------------
841,125
Services-6.2%
29,000 Wackenhut, Cl. B 449,500
35,000 AG Services of America (b) 332,500
25,000 NuCo2 (b) 325,000
19,000 Thomas Group (b) 256,500
- --------------------------------------------------------------------------------
1,363,500
- --------------------------------------------------------------------------------
Industrial Group-Total 3,096,043
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C> <C>
Energy and Minerals Group--10.7%
- --------------------------------------------------------------------------------
Cogeneration--4.8%
24,000 The AES Corporation (b) $ 573,000
29,000 Thermo Ecotek (b) 485,750
- --------------------------------------------------------------------------------
1,058,750
Oil & Gas Producer--3.5%
36,000 Abraxas Petroleum (b) 225,000
25,000 Tesoro Petroleum (b) 215,625
10,000 United Meridian (b) 173,750
14,700 Global Natural Resources (b) 154,350
- --------------------------------------------------------------------------------
768,725
Refining/Marketing--1.0%
24,000 NGC Corporation 213,000
Oil Services--1.4%
7,000 Atwood Oceanics (b) 176,750
5,000 Seacor Holdings (b) 135,000
- --------------------------------------------------------------------------------
311,750
- --------------------------------------------------------------------------------
Energy Group--Total 2,352,225
- --------------------------------------------------------------------------------
Total Common Stocks and Other
Equity-Like Securities--94.9% $20,779,731
- --------------------------------------------------------------------------------
(Cost: $20,340,288)
Cash and Other Assets
Less Liabilities--5.1% 1,123,805
- --------------------------------------------------------------------------------
Total Net Assets--100% $21,903,536
- --------------------------------------------------------------------------------
</TABLE>
Notes To Statement of Investments:
a) At December 31, 1995, for federal income tax purposes cost of investments
was $20,340,288 and net unrealized appreciation was $439,443 consisting of
gross unrealized appreciation of $1,596,638 and gross unrealized
depreciation of $1,157,195.
b) Non-income producing security.
See accompanying notes to financial statements.
5
<PAGE>
================================================================================
Report of Independent Auditors
To the Shareholders of Wanger U.S. Small
Cap Advisor and the Trustees of
Wanger Advisors Trust
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger U.S. Small Cap Advisor as of December
31, 1995, the related statements of operations and changes in net assets and the
financial highlights for the period from May 3, 1995 (commencement of
operations) through December 31, 1995. 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 audit.
We conducted our audit 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 audit provides 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 Wanger
U.S. Small Cap Advisor at December 31, 1995, the results of its operations and
changes in its net assets and the financial highlights for the period from May
3, 1995 through December 31, 1995 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996
6
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger U.S. Small Cap Advisor Statement of Assets December 31, 1995
and Liabilities
<S> <C> <C>
Assets
Investments, at value (cost: $20,340,288) $20,779,731
Cash 1,045,491
Organization costs 86,672
Receivable for:
Fund shares sold $305,337
Dividends 13,525 318,862
- -------------------------------------------------------------------------------
Total assets 22,230,756
Liabilities and Net Assets
Payable for:
Securities purchased 225,000
Amount owed to advisor 86,780
Other 15,440
- -------------------------------------------------------------------------------
Total liabilities 327,220
- -------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
Fund shares outstanding 1,888,396
- -------------------------------------------------------------------------------
Pricing of Shares
Net asset value, offering price and redemption price per share $ 11.60
- -------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $21,506,936
Undistributed net realized gain on sales of investments 59,816
Unrealized appreciation of investments 439,443
Net investment loss (102,659)
- -------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $21,903,536
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
U.S. Small Cap Advisor Statement of Operations December 31, 1995
May 3, 1995 through December 31, 1995
<S> <C>
Investment Income:
Dividends $ 40,287
Interest 46
- -------------------------------------------------------------------------------
Total investment income 40,333
Expenses:
Investment advisory fee 71,496
Custodian fees and expenses 5,384
Legal and audit fees and expenses 52,389
Reports to shareholders 4,437
Transfer agent fees and expenses 2,172
Amortization of organization costs 13,328
Trustees' fees and other expenses 13,000
Insurance 4,941
Other expenses 1,025
- -------------------------------------------------------------------------------
Total Expenses 168,172
Less custodian fees paid indirectly (5,384)
Less reimbursement of expenses by advisor (19,796)
- -------------------------------------------------------------------------------
Net expenses 142,992
- -------------------------------------------------------------------------------
Net investment loss (102,659)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net realized and unrealized gain on investments 499,259
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 396,600
================================================================================
Wanger U.S. Small Cap Advisor Statement May 3, 1995 through December 31, 1995
of Changes in Net Assets
- -------------------------------------------------------------------------------
From operations:
- -------------------------------------------------------------------------------
Net investment loss $ (102,659)
Net realized gain on sales of investments 59,816
Net change in unrealized appreciation 439,443
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations 396,600
From Fund share transactions:
Proceeds from shares sold 24,819,962
Payments for shares redeemed (3,438,708)
- -------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 21,381,254
- -------------------------------------------------------------------------------
Total increase in net assets 21,777,854
Net assets:
Beginning of period (May 3, 1995) 125,682
- -------------------------------------------------------------------------------
End of period (including net investment loss of $102,659) $21,903,536
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Wanger U.S. Small Cap Advisor Financial Highlights December 31, 1995
May 3, 1995 through December 31, 1995
- ------------------------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.05)
Net realized and unrealized gain on investments 1.65
- ------------------------------------------------------------------------------------------------
Total from investment operations 1.60
Net Asset Value, end of period $ 11.60
================================================================================================
Total Return 16.00%
Ratios / Supplemental Data:
Ratio of expenses to average net assets (a) (b) 2.08%*
Ratio of net investment loss to average net assets (b) (1.44)%*
Portfolio turnover rate 59%*
Net assets at end of period $21,903,536
================================================================================================
</TABLE>
* Annualized
a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been 2.35% and (1.71%), respectively.
See accompanying notes to financial statements.
9
<PAGE>
===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995
1. Nature of operations
Wanger U.S. Small Cap Advisor (the "Fund") is a series of Wanger Advisors 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. The Fund is available only for allocation to
certain life insurance company separate accounts established for the purpose of
funding qualified and non-qualified variable annuity contracts, and may also be
offered directly to certain types of pension plans and retirement arrangements.
The Fund commenced operations on May 3, 1995.
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.
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.
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.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.
10
<PAGE>
===============================================================================
Wanger U.S. Small Cap Advisor Notes to Financial Statements December 31, 1995
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.
Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.
3. Transactions with Affiliates
The Fund's portfolio and business affairs are managed by its investment advisor,
Wanger Asset Management, L.P. ("WAM"). The Fund pays WAM a monthly advisory fee
based upon average daily net assets at the following annual rates: 1% up to $100
million, .95% in excess of $100 million and up to $250 million, and .90% in
excess of $250 million.
The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the period ended December
31, 1995, WAM reimbursed the Fund $19,796.
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 incurred trustees' fees and expenses of $13,000 in 1995 to
trustees not affiliated with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
4. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Shares sold 2,170,461
Less shares redeemed 294,633
- ---------------------------------------------------------------
Net increase in shares outstanding 1,875,828
===============================================================
</TABLE>
5. Investment transactions
<TABLE>
<CAPTION>
Period ended 12/31/95
- ---------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $24,736,475
Proceeds from sales 4,456,003
===============================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Wanger U.S. Small Cap Advisor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustees Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ------------------------------------------------------------------------------------------------------------------------
Officers Ralph Wanger, President Merrillyn J. Kosier,
Charles P. McQuaid, Senior Vice President Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Leah J. Zell, Vice President Kenneth A. Kalina, Assistant Treasurer
- ------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend State Street Bank and Trust Company
Disbursing Agent and Attention: Wanger Advisors Trust
Custodian P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
- ------------------------------------------------------------------------------------------------------------------------
Investment Advisor Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
(312) 634-9200
- ------------------------------------------------------------------------------------------------------------------------
Legal Counsel Bell, Boyd & Lloyd
Chicago, Illinois
- ------------------------------------------------------------------------------------------------------------------------
Auditors Ernst & Young LLP
Chicago, Illinois
</TABLE>
This report, including the audited financial statements contained herein, 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.
<PAGE>
=============================================================================
[LOGO] Wanger International Small Cap Advisor
Annual Report
December 31, 1995
<PAGE>
=============================================================================
Wanger International Small Cap Advisor Annual Report 1995
In a Nutshell
- -----------------------------------------------------------------------------
Wanger International Small Cap Advisor had an extraordinary 1995. We began
operations on May 3, 1995. For the period from May 3 to the end of the year,
the foreign markets were up about 2%. Your fund went up 34.5%.
For the fourth quarter of 1995, your fund was up 4.2%, ahead of the two
market averages shown in the table.
Many of the best stocks of 1995 were in Europe. Our fund is a small cap
fund, not an emerging markets fund, so we have the majority of our investments
in the developed markets of Europe, Japan, Canada, and Australia. We
participate in the high-risk, high-return emerging markets, but only with part
of our money.
Results to December 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
4th quarter May 3, 1995
-------------------------
<S> <C> <C>
Wanger Int'l Small Cap 4.2% 34.5%
EAFE 3.6% 4.1%
Lipper Int'l Small Co. -0.3% 7.5%
Funds Average
</TABLE>
EAFE is Morgan Stanley's Europe, Australia and Far East Index. EAFE is 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 new group comprised of twelve small company
international funds.
Net Asset Value Per Share as of 12/31/95: $13.45
=============================================================================
The Value of a $10,000 Investment in
Wanger International Small Cap Advisor
May 3, 1995 through December 31, 1995
[GRAPH APPEARS HERE]
Total Return
Life of Fund 34.5%
<TABLE>
<CAPTION>
Wanger International
Measurement Period Small Cap Advisor EAFE
- ------------------ -------------------- ----------
<S> <C> <C>
5/3/95 $10,000 $10,000
5/31/95 $10,790 $ 9,867
6/30/95 $10,970 $ 9,681
7/31/95 $11,910 $10,270
8/31/95 $12,290 $ 9,864
9/30/95 $12,910 $10,044
10/31/95 $12,700 $ 9,760
11/30/95 $12,660 $10,019
12/31/95 $13,450 $10,409
</TABLE>
This graph compares the results of $10,000 invested in Wanger International
Small Cap Advisor on May 3, 1995 (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.
===================================================================
5/95 6/95 9/95 12/31/95
+9.7% +17.7% +4.2%
-------------------------------------------------------------------
Wanger International Small Cap Advisor Total Return for Each Period
2
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
<S> <C>
Common Stocks and Other Equity-Like
Securities--95.3%
Europe--45.8%
- --------------------------------------------------------------------------------
Germany/Austria--4.6%
- --------------------------------------------------------------------------------
3,120 Rhoen Klinikum Ord. $ 309,537
Hospital Management
1,200 BWT 123,324
Water Filtration Systems (Austria)
1,000 Fresenius Pfd. 95,019
Dialysis Equipment and Solutions
- --------------------------------------------------------------------------------
527,880
Denmark--2.7%
- --------------------------------------------------------------------------------
6,000 Martin Group (b) 313,966
Computer Controlled Lights
Netherlands--3.4%
- --------------------------------------------------------------------------------
20,000 Axxicon Group (b) 368,037
Plastic Injection Moulds for Compact Discs
Finland--2.9%
- --------------------------------------------------------------------------------
10,000 Tietotehdas, Cl. B 324,720
Computer Services/Consulting
Norway--1.7%
- --------------------------------------------------------------------------------
8,000 Elkjoeb Norge 198,797
Consumer Electronics Retailer
Sweden--6.2%
- --------------------------------------------------------------------------------
12,000 Pricer, Cl. B (b) 202,807
Electronic Shelf Labels for Supermarkets
9,000 Althin Medical AB 183,341
Dialysis & Other Medical Equipment
15,000 HL Display 165,233
Retail Display Systems
5,250 Frontec, Series B (b) 151,313
Computer Consulting and Software
- --------------------------------------------------------------------------------
702,694
France--8.4%
- --------------------------------------------------------------------------------
6,000 Axime Ex Segin (b) 462,529
Computer Services/Consulting
10,000 Coflexip 188,750
Flexible Pipe for Subsea Oil Wells
1,500 Guilbert 176,362
Office Supplies Distributor
1,400 Spir Communication 128,535
Newspaper Publisher & Printer
- --------------------------------------------------------------------------------
956,176
United Kingdom/Ireland--10.5%
- --------------------------------------------------------------------------------
55,000 Oriflame International 345,842
Natural Cosmetics
44,500 Serco Group 253,563
Facilities Management
30,000 Capita Group 132,747
Outsourcing Government Services
5,000 International Cabletel (b) 122,500
Cable TV & Telephone System
20,000 N. Brown Group 83,219
Mail Order Women's Clothing
12,400 Seton Healthcare Group 76,046
Pharmaceuticals
10,000 Biocompatibles International (b) 73,749
Contact Lenses, Coronary Stents & Other
Medical Devices
50,000 City Centre Restaurants 72,972
Fast Food Restaurants
15,000 Body Shop International 35,399
Natural Cosmetics and Toiletries
- --------------------------------------------------------------------------------
1,196,037
Switzerland--2.1%
- --------------------------------------------------------------------------------
300 Phoenix Mecano 150,691
Electrical Components Manufacturer
80 Suedelektra Holding (b) 86,208
Diversified Pool of Commodity-Related Projects
- --------------------------------------------------------------------------------
236,899
Italy--3.3%
- --------------------------------------------------------------------------------
16,000 Brembo (b) 185,334
Manufacturer of Disk Brake Systems
50,000 Costa Crociere Ord. 122,156
Cruise Ship Line
46,000 Tecnost 75,386
ATM, Lotto and Toll Collection Equipment
Manufacturer
- --------------------------------------------------------------------------------
382,876
- --------------------------------------------------------------------------------
Europe--Total 5,208,082
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------------------------
Asia--31.9%
- --------------------------------------------------------------------------------
Hong Kong/China--7.7%
- --------------------------------------------------------------------------------
<S> <C> <C>
1,000,000 Golden Harvest Entertainment $265,132
Movie Distribution & Exhibition
90,000 New World Infrastructure (b) 172,271
Infrastructure Investments (China)
150,000 Li and Fung 133,859
Sourcing of Consumer Goods
60,000 Varitronix International 111,355
LCD Manufacturer
200,000 Chen Hsong Holdings 104,759
Plastic Injection Machines
120,000 JCG Holdings 87,688
Consumer Finance
- --------------------------------------------------------------------------------
875,064
Japan--9.6%
- --------------------------------------------------------------------------------
7,000 Hokuto 254,459
Mushroom Grower
2,500 Autobacs Seven 207,929
Auto Parts Retailer
3,600 Sankyo Company 167,507
Pachinko Machine Manufacturer
3,300 Aucnet 159,946
Used Auto Auctions Via Satellite
6,000 Heiwa 156,456
Pachinko Machine Manufacturer
2,000 Paramount Bed 139,589
Hospital Bed Manufacturer
- --------------------------------------------------------------------------------
1,085,886
Malaysia--3.8%
- --------------------------------------------------------------------------------
50,000 Sistem Televisyen Malaysia 180,189
Television Franchise
33,750 Malaysian Assurance Alliance 152,865
Insurance
13,000 O.Y.L. Industries 100,866
Air Conditioners
- --------------------------------------------------------------------------------
433,920
Indonesia/Philippines--7.2%
- --------------------------------------------------------------------------------
280,000 Suba Indah 186,748
Beverage and Food Manufacturer
350,000 Int'l Container Terminal Services (b) 183,473
Container Handling Terminals & Port
Management (Philippines)
350,000 Universal Robina 173,466
Snack Foods (Philippines)
150,000 PILTEL (b) 151,544
Mobile Communications (Philippines)
80,000 Mustika Ratu (b) 127,706
Traditional Cosmetics
- --------------------------------------------------------------------------------
822,937
Singapore--3.6%
- --------------------------------------------------------------------------------
70,000 Venture Manufacturing Warrants 111,347
7/26/99 (b)
Contract Manufacturer of Electronic Goods
17,000 Clipsal Industries 38,420
Electrical Components
160,000 Genting International 260,800
Cruise Line
- --------------------------------------------------------------------------------
410,567
- --------------------------------------------------------------------------------
Asia--Total 3,628,374
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
Number of Shares Value
- --------------------------------------------------------------
<S> <C> <C>
Latin America--8.0%
- --------------------------------------------------------------
Mexico--5.8%
- --------------------------------------------------------------
61,500 Nadro, Series L $207,528
Pharmaceutical Distributor
21,000 Grupo Radio Centro 154,875
Radio Stations and Networks
10,000 Kimberly Clark De Mexico 151,071
Paper Products
10,000 Bufete Industrial (b) 150,000
Engineering and Construction
- --------------------------------------------------------------
663,474
Brazil/Chile--2.2%
- --------------------------------------------------------------
5,000 Genesis Chile Fund 202,500
Closed-End Fund (Chile)
70,000 Brazilian Smaller Companies Warrants (b) 49,000
Closed-End Fund (Brazil)
- --------------------------------------------------------------
251,500
- --------------------------------------------------------------
Latin America--Total 914,974
Other Countries--9.6%
- --------------------------------------------------------------
Australia/New Zealand--6.5%
- --------------------------------------------------------------
60,000 Publishing & Broadcasting 209,333
Media & TV Broadcasting
114,300 Austereo 161,553
Media - Radio
25,000 PDL Holdings 138,933
Electrical Equipment Manufacturer &
Distributor (New Zealand)
80,000 Just Jeans Holdings 115,453
Jeans & Fashion Retail Stores
350,000 Command Petroleum Holdings (b) 106,750
Oil and Gas Exploration
- --------------------------------------------------------------
732,022
- --------------------------------------------------------------
Canada--3.1%
- --------------------------------------------------------------
50,000 Tesco (b) 242,870
Rental of Drilling Equipment
20,000 Veritas Energy Services (b) 109,979
Geophysical Contractor
- --------------------------------------------------------------
352,849
- --------------------------------------------------------------
Other--Total 1,084,871
Total Common Stocks and Other
Equity-Like Securities--95.3% 10,836,301
- --------------------------------------------------------------
(Cost:$9,726,347)
Cash and Other Assets
Less Liabilities--4.7% 532,623
- --------------------------------------------------------------
Total Net Assets--100% $11,368,924
- --------------------------------------------------------------
</TABLE>
Notes to Statement of Investments:
a) At December 31, 1995, for federal income tax purposes cost of investments
was $9,759,245 and net unrealized appreciation was $1,077,056 consisting of
gross unrealized appreciation of $1,329,208 and gross unrealized depreciation
of $252,152.
b) Non-income producing security.
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Wanger International Small Cap Advisor Statement of Investments December 31, 1995
At December 31, 1995, the Fund's portfolio of investments as a percentage of net assets was diversified
as follows:
Value Percent
- ----------------------------------------------------
<S> <C> <C>
Information Group
- ----------------------------------------------------
Computer Systems $ 936,666 8.2%
- ----------------------------------------------------
Broadcasting and CATV 828,450 7.3
- ----------------------------------------------------
Consumer Electronics 499,263 4.4
- ----------------------------------------------------
Mobile Communications 151,544 1.3
- ----------------------------------------------------
Software 151,313 1.3
- ----------------------------------------------------
Distribution 128,535 1.2
- ----------------------------------------------------
2,695,771 23.7
Health Care
- ----------------------------------------------------
Biotechnology/Drug Delivery 388,333 3.4
- ----------------------------------------------------
Services 383,286 3.4
- ----------------------------------------------------
Hospital/Laboratory Supplies 234,608 2.1
- ----------------------------------------------------
Equipment 183,341 1.6
- ----------------------------------------------------
1,189,568 10.5
Consumer Goods and Services
- ----------------------------------------------------
Retail 1,650,847 14.5
- ----------------------------------------------------
Entertainment and Leisure 706,919 6.2
- ----------------------------------------------------
Manufacturers 705,024 6.2
- ----------------------------------------------------
Food 687,645 6.1
- ----------------------------------------------------
3,750,435 33.0
Finance Group
- ----------------------------------------------------
Money Management 423,771 3.7
- ----------------------------------------------------
Other 1,042,853 9.2
- ----------------------------------------------------
1,466,624 12.9
Industrial Goods and Services
- ----------------------------------------------------
Machinery Processing 752,081 6.6
- ----------------------------------------------------
Services 183,473 1.6
- ----------------------------------------------------
Forest Products and Construction 150,000 1.3
- ----------------------------------------------------
1,085,554 9.5
Energy and Minerals
- ----------------------------------------------------
Oil Services 431,620 3.8
- ----------------------------------------------------
Oil and Gas Producers 216,729 1.9
- ----------------------------------------------------
648,349 5.7
Total Common Stocks and
Other Equity-Like Securities 10,836,301 95.3
- ----------------------------------------------------
Cash and Other Assets
less Liabilities 532,623 4.7
- ----------------------------------------------------
Net Assets $11,368,924 100.0%
- ----------------------------------------------------
</TABLE>
===============================================================================
Report of Independent Auditors
To the Shareholders of Wanger International Small Cap Advisor and the Trustees
of Wanger Advisors Trust
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Wanger International Small Cap Advisor as of
December 31, 1995, the related statements of operations and changes in net
assets and the financial highlights for the period from May 3, 1995
(commencement of operations) through December 31, 1995. 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 audit.
We conducted our audit 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 audit provides 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 Wanger
International Small Cap Advisor at December 31, 1995, the results of its
operations and changes in its net assets and the financial highlights for the
period from May 3, 1995 through December 31, 1995 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 31, 1996
6
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================
Wanger International Small Cap Advisor Statement of Assets and Liabilities December 31, 1995
<S> <C> <C>
Assets
Investments, at value (cost: $9,726,347) $10,836,301
Cash 883,814
Organization costs 86,672
Receivable for:
Securities sold 79,781
Dividends 2,963
Fund shares sold 177,438 260,182
- ---------------------------------------------------------------------------------------------------------------
Total assets 12,066,969
Liabilities and Net Assets
Payable for:
Securities purchased 594,769
Fund shares redeemed 81
Amount owed to advisor 86,740
Other 16,455
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 698,045
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
- ---------------------------------------------------------------------------------------------------------------
Fund shares outstanding 845,182
===============================================================================================================
Pricing of Shares
Net asset value, offering price and redemption price per share $13.45
- ---------------------------------------------------------------------------------------------------------------
Analysis of Net Assets
Paid-in capital $10,233,014
Accumulated net realized gain on sales of investments and foreign currency transactions 53,357
Unrealized appreciation of investments and foreign currency transactions 1,109,954
Net investment loss (27,401)
- ---------------------------------------------------------------------------------------------------------------
Net assets applicable to Fund shares outstanding $11,368,924
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================
Wanger International Small Cap Advisor Statement of Operations December 31, 1995
May 3, 1995 through December 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign taxes of $5,769) $ 39,708
Interest 161
- ----------------------------------------------------------------------------------------------
Total investment income 39,869
Expenses:
Investment advisory fee 43,726
Custodian fees and expenses 19,208
Legal and audit fees and expenses 40,560
Reports to shareholders 3,199
Amortization of organization costs 13,328
Trustees' fees 13,000
Insurance 4,941
Other expenses 3,186
- ----------------------------------------------------------------------------------------------
Total expenses 141,148
Less custodian fees paid indirectly (10,886)
Less reimbursement of expenses by advisor (62,992)
- ----------------------------------------------------------------------------------------------
Net expenses 67,270
- ----------------------------------------------------------------------------------------------
Net investment loss (27,401)
Net realized and unrealized gain on investments:
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 1,163,311
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 1,135,910
==============================================================================================
Wanger International Small Cap Advisor Statement of Changes in Net Assets
==============================================================================================
From operations:
Net investment loss $ (27,401)
Net realized gain on sales of investments 53,290
Net realized gain on foreign currency transactions 67
Net change in unrealized appreciation 1,109,954
- ----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,135,910
From Fund share transactions:
Proceeds from shares sold 11,951,601
Payments for shares redeemed (1,844,269)
- ----------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 10,107,332
- ----------------------------------------------------------------------------------------------
Total increase in net assets 11,243,242
Net Assets:
- ----------------------------------------------------------------------------------------------
Beginning of period (May 3, 1995) 125,682
- ----------------------------------------------------------------------------------------------
End of period (including net investment loss of $27,401) $11,368,924
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Wanger International Small Cap Advisor Financial Highlights December 31, 1995
May 3, 1995 through December 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
Net Asset Value, beginning of period $ 10.00
Income From Investment Operations
Net investment loss (.03)
Net realized and unrealized gain on investments 3.48
- --------------------------------------------------------------------------------
Total from investment operations 3.45
Net Asset Value, end of period $ 13.45
================================================================================
Total Return 34.50%
Ratios/Supplemental Data
Ratio of expenses to average net assets (a) (b) 2.32%*
Ratio of net investment loss to average net assets (b) (0.81)%*
Portfolio turnover rate 14%*
Net assets at end of period $11,368,924
================================================================================
</TABLE>
* Annualized
a) In accordance with a requirement by the Securities and Exchange Commission,
this ratio reflects gross custodian fees. This ratio net of custodian fees
paid indirectly would have been 2.00%.
b) The Fund was reimbursed by the Advisor for certain net expenses from May 3,
1995 through December 31, 1995. Without the reimbursement, the ratio of
expenses to average net assets and the ratio of net investment loss to
average net assets would have been been 4.20% and (2.69)%, respectively.
See accompanying notes to financial statements.
9
<PAGE>
==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995
1. Nature of operations
Wanger International Small Cap Advisor (the "Fund") is a series of Wanger
Advisors 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. The Fund is available only for
allocation to certain life insurance company separate accounts established for
the purpose of funding qualified and non-qualified variable annuity contracts,
and may also be offered directly to certain types of pension plans and
retirement arrangements. The Fund commenced operations on May 3, 1995.
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 on investments
resulting from changes in foreign exchange rates is included with net realized
and unrealized gain or loss 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.
Fund share valuation
Fund shares are sold and redeemed on a continuing basis at net asset value. Net
asset value per share is determined daily as of the close of trading on the New
York Stock Exchange on each day the Exchange is open for trading by dividing the
total value of the Fund's investments and other assets, less liabilities, by the
number of Fund shares outstanding.
Custodian fees
Custodian fees are reduced based on the Fund's cash balances maintained with the
custodian. This presentation does not affect the determination of net investment
income.
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.
The Fund will elect 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 $32,898 for
the period ended December 31, 1995.
Dividends and distributions payable to its shareholders are recorded by the
Fund on the ex-dividend date.
10
<PAGE>
==============================================================================
Wanger International Small Cap Advisor
Notes to Financial Statements December 31, 1995
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. The Fund pays WAM a monthly advisory
fee based upon average daily net assets at the following rates: 1.3% up to $100
million, 1.2% in excess of $100 million and up to $250 million and 1.1% in
excess of $250 million.
The investment advisory agreement also provides that WAM will reimburse the
Fund to the extent that ordinary operating expenses (computed based on net
custodian fees) exceed 2% of average net assets. For the year ended December 31,
1995, WAM reimbursed the Fund $62,992.
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 incurred trustees' fees and expenses of $13,000 in 1995 to
trustees not affiliated with WAM.
WAM advanced $100,000 in connection with the organization and initial
registration of the Fund. These costs are being amortized and reimbursed to WAM
over the period May, 1995 through April, 2000.
4. Fund Share Transactions
Proceeds and payments on Fund shares as shown in the statement of changes in net
assets are in respect of the following numbers of shares:
<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Shares sold 986,106
Less shares redeemed 153,492
- ------------------------------------------------------------------------------
Net increase in shares outstanding 832,614
==============================================================================
</TABLE>
5. Investment transactions
<TABLE>
<CAPTION>
Period ended 12/31/95
- ------------------------------------------------------------------------------
<S> <C>
Investment securities
(excluding money market instruments):
Purchases $10,188,942
Proceeds from sales 516,063
==============================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================================
Wanger International Small Cap Advisor
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Trustees Fred D. Hasselbring James A. Star
Terence M. Hogan Ralph Wanger
Charles P. McQuaid Leah J. Zell
P. Michael Phelps
- ------------------------------------------------------------------------------------------------------------------------
Officers Ralph Wanger, President Merrillyn J. Kosier,
Charles P. McQuaid, Senior Vice President Vice President and Secretary
Terence M. Hogan, Vice President Bruce H. Lauer, Vice President and Treasurer
Leah J. Zell, Vice President Kenneth A. Kalina, Assistant Treasurer
- ------------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend State Street Bank and Trust Company
Disbursing Agent and Attention: Wanger Advisors Trust
Custodian P.O. Box 8502
Boston, Massachusetts 02266-8502
1-800-4-WANGER
(1-800-492-6437)
- ------------------------------------------------------------------------------------------------------------------------
Investment Advisor Wanger Asset Management, L.P.
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
(312) 634-9200
- ------------------------------------------------------------------------------------------------------------------------
Legal Counsel Bell, Boyd & Lloyd
Chicago, Illinois
- ------------------------------------------------------------------------------------------------------------------------
Auditors Ernst & Young LLP
Chicago, Illinois
</TABLE>
This report, including the audited financial statements contained herein, 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.
<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
2 Bylaws, as amended through December 2, 1994
3. None
4.1 Specimen share certificate - Acorn Fund (exhibit 4.1 to
Post-effective Amendment No. 49*)
4.2 Specimen share certificate - Acorn International (exhibit 4.2 to
Post-effective Amendment No. 49*)
5.1 Investment advisory agreement - Acorn Fund
5.2 Investment advisory agreement - Acorn International
6. Distribution Agreement between Acorn Investment Trust and WAM
Brokerage Services, L.L.C. dated as of May 1, 1996
7. None
8.1 Custodian contract between the Registrant and State Street Bank and
Trust Company dated July 1, 1992
8.2 Letter agreement applying custodian contract (exhibit 8) to Acorn
International
9. None
10.1 Opinion and consent of Bell, Boyd & Lloyd dated June 25, 1992 - Acorn
Fund (exhibit 10 to Post-Effective Amendment No. 42*)
10.2 Opinion and consent of Bell, Boyd & Lloyd dated July 22, 1992 - Acorn
International (exhibit 10.1 to Post-Effective Amendment
No. 43*)
11. Consent of independent auditors
12. None
13. None
C-2
<PAGE>
14. IRA plan booklet dated July 1, 1994 including general information,
individual retirement plan and custodial agreement and individual
retirement account disclosure statement, Internal Revenue Service
determination letter, transfer form, application form, and
designation of beneficiary form
15. None
16.1 Computation of performance information - Acorn Fund
16.2 Computation of performance information - Acorn International
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
18. Form of account application
ITEM 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
The Registrant does not consider that there are any persons directly or
indirectly controlling, controlled by, or under common control with the
Registrant within the meaning of this item. The information in the prospectus
under the caption "The Funds in Detail - Organization - Management" and in the
statement of additional information in the eighth paragraph under the caption
"Investment Adviser" is incorporated by reference.
ITEM 26. Number of Holders of Securities
-------------------------------
At March 31, 1996, there were 44,117 record holders of Registrant's shares
of beneficial interest of the series designated Acorn Fund and 76,630 record
holders of Registrant's shares of beneficial interest of the series designated
Acorn International.
ITEM 27. Indemnification
---------------
Article VIII of the agreement and declaration of trust of Registrant
(exhibit 1) provides in effect that Registrant shall provide certain
indemnification of its trustees and officers. In accordance with Section 17(h)
of the Investment Company Act, that provision shall not protect any person
against any liability to the Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
C-3
<PAGE>
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Registrant, its trustees and officers, its investment adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
ITEM 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The information in the prospectus in the second paragraph under the caption
"The Funds in Detail - Organization - Management" is incorporated by reference.
Neither Wanger Asset Management, L.P. nor its general partner has at any time
during the past two years been engaged in any other business, profession,
vocation or employment of a substantial nature either for its own account or in
the capacity of director, officer, employee, partner or trustee.
ITEM 29. Principal Underwriters
----------------------
WAM Brokerage Services, L.L.C. also acts as principal
underwriter for Wanger Advisors Trust.
NAME POSITIONS AND OFFICES POSITIONS AND OFFICES
WITH UNDERWRITERS WITH REGISTRANT
Terence M. Hogan President Vice President and
Trustee
Merrillyn J. Vice President and Vice President and
Kosier Secretary Secretary
THE PRINCIPAL BUSINESS OF EACH OFFICER OF WAM BROKERAGE L.L.C. IS 227 WEST
MONROE STREET, SUITE 3000, CHICAGO, ILLINOIS 60606.
ITEM 30. Location of Accounts and Records
--------------------------------
Bruce H. Lauer, Vice President and Treasurer
Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
C-4
<PAGE>
ITEM 31. Management Services
-------------------
None
ITEM 32. Undertakings
------------
(a) & (b) Not applicable.
--------- -----------------
(c) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without
charge.
C-5
<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 April 26, 1996.
ACORN INVESTMENT TRUST
By /s/Ralph Wanger
---------------
Ralph Wanger, President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
<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 ) April 26, 1996
- -----------------------
Charles P. McQuaid )
)
/s/Roger S. Meier Trustee )
- -----------------------
Roger S. Meier )
)
/s/Adolph Meyer, Jr. Trustee )
- -----------------------
Adolph Meyer, Jr. )
)
/s/Malcolm N. Smith Trustee )
- -----------------------
Malcolm N. Smith )
)
/s/Ralph Wanger Trustee and President )
- -----------------------
Ralph Wanger (principal executive )
officer) )
)
/s/Bruce H. Lauer Treasurer (principal )
- ----------------------- financial and accounting )
Bruce H. Lauer officer) )
</TABLE>
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
-------------------------------------------
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE
- ------- ---------------------------------------- ----------
<C> <S> <C>
1 Agreement and declaration of trust
2 Bylaws, as amended through December 2, 1994
5.1 Investment advisory agreement - Acorn
Fund
5.2 Investment advisory agreement - Acorn
International
6 Distribution agreement between Acorn
Investment Trust and WAM Brokerage
Services, L.L.C. dated as of May 1, 1996
8.1 Custodian contract between Registrant
and State Street Bank and Trust Company
dated July 1, 1992
8.2 Letter agreement applying custodian
contract
11 Consent of independent auditors
14 IRA plan booklet dated July 1, 1994
including general information,
individual retirement plan and a
custodial agreement and individual
retirement account disclosure
statement, Internal Revenue Service
determination letter, transfer form,
application form, and designation of
beneficiary form
16.1 Computation of performance information-
Acorn Fund
16.2 Computation of performance information-
Acorn International
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn
International
</TABLE>
<PAGE>
EXHIBIT SEQUENTIAL
NUMBER EXHIBIT PAGE
- ------- ------- ----
18 Form of account information
<PAGE>
ACORN INVESTMENT TRUST
___________________________
AGREEMENT AND DECLARATION OF TRUST
_________________________________
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts, this 21st
day of April, 1992 by Maxine Ziv (hereinafter with any additional and successor
trustees referred to as the "Trustees") and by the holders of shares of
beneficial interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming into their
hands as trustees of a Massachusetts business trust in accordance with the
provisions hereinafter set forth.
NOW, THEREFORE, the Trustees hereby declare that they will hold all cash,
securities and other assets, which they may from time to time acquire in any
manner as Trustees hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit of the holders from
time to time of Shares in this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Name
- ----
Section 1. This Trust shall be known as "Acorn Investment Trust", and the
Trustees shall conduct the business of the Trust under that name or any other
name as they may from time to time determine.
Definitions
- -----------
Section 2. Whenever used herein, unless otherwise required the context or
specifically provided:
<PAGE>
(a) The "Trust" refers to the Massachusetts business trust established
by this Agreement and Declaration of Trust, as amended from time to time;
(b) "Trustees" refers to the Trustee or Trustees of the Trust named
herein or elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided
from time to time or, if more than one series of Shares is authorized by
the Trustees, the equal proportionate units into which each series of
Shares shall be divided from time to time or, if more than one class of
Shares of any series is authorized by the Trustees, the equal proportionate
units into which each class of such series of Shares shall be divided from
time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 and
the Rules and Regulations thereunder, all as amended from time to time;
(f) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Principal Underwriter" and "Majority Shareholder
Vote" (the 67% or 50% requirement of the third sentence of Section 2(a)(42)
of the 1940 Act, whichever may be applicable) shall have the meanings given
them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and Declaration
of Trust as amended or restated from time to time; and
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from time
to time.
ARTICLE II
PURPOSE
The purpose of the Trust is to engage in the business of a management
investment company and to provide investors a managed
2
<PAGE>
investment primarily in securities, commodities and debt instruments.
ARTICLE III
SHARES
Division of Beneficial Interest
- -------------------------------
Section 1. The Shares of the Trust shall be issued in one or more series
as the Trustees may, without Shareholder approval, authorize. The Trustees may,
without Shareholder approval, divide the Shares of any series into two or more
classes, Shares of each such class having such preferences or special or
relative rights or privileges (including conversion rights, if any) as the
Trustees may determine and as are not inconsistent with any provision of this
Declaration of Trust. Each series shall be preferred over all other series in
respect of the assets allocated to that series. The beneficial interest in each
series shall at all times be divided into Shares, without par value, each of
which shall, except as the Trustees may otherwise authorize in the case of any
series that is divided into two or more classes, represent an equal
proportionate interest in the series with each other Share of the same series,
none having priority or preference over another. The number of Shares
authorized shall be unlimited, and the Shares so authorized may be represented
in part by fractional shares. The Trustees may from time to time divide or
combine the Shares of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial interests in the series or
class.
Ownership of Shares
- -------------------
Section 2. The ownership of Shares shall be recorded on the books of the
Trust or its transfer or similar agent. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
determine from time to time. The Trustees may make such rules as they consider
appropriate for the issuance of Share certificates, the transfer of Shares and
similar matters. The record books of the Trust as kept by the Trust or any
transfer or similar agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and class and as to the number of
Shares of each series and class held from time to time by each Shareholder.
3
<PAGE>
Investments in the Trust; Assets of the Series
- ----------------------------------------------
Section 3. The Trustees may accept investments in the Trust from such
persons and on such terms and, subject to any requirements of law, for such
consideration, which may consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or sale of Shares of
each series, together with all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation thereof,
and any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for all purposes,
subject only to the rights of creditors, and shall be so handled upon the books
of account of the Trust and are herein referred to as "assets of" such series.
No Preemptive Rights; Derivative Actions
- ----------------------------------------
Section 4. Shareholders shall have no preemptive or other right to
receive, purchase or subscribe for any additional Shares or other securities
issued by the Trust. No action may be brought by a Shareholder on behalf of the
Trust or a particular series of the Trust unless a prior demand regarding such
matter has been made on the Trustees and the Shareholders of the Trust or such
series.
Status of Shares and Limitation of Personal Liability
- -----------------------------------------------------
Section 5. Shares shall be deemed to be personal property giving only the
rights provided in this instrument. Every Shareholder by virtue of having
become a Shareholder shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the same nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners. Neither the Trust nor the Trustees, nor any officer, employee or
4
<PAGE>
agent of the Trust, shall have any power to bind personally any Shareholder, nor
except as specifically provided herein to call upon any Shareholder for the
payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay.
ARTICLE IV
THE TRUSTEES
Election; Removal
- -----------------
Section 1. The number of Trustees shall be fixed by the Trustees, except
that, subsequent to any sale of Shares pursuant to a public offering, there
shall be not less than three Trustees. Any vacancies occurring in the Board of
Trustees may be filled by the Trustees if, immediately after filling any such
vacancy, at least two-thirds of the Trustees then holding office shall have been
elected to such office by the Shareholders. In the event that at any time less
than a majority of the Trustees then holding office were elected to such office
by the Shareholders, the Trustees shall call a meeting of Shareholders for the
purpose of electing Trustees. Each Trustee elected by the Shareholders or by
the Trustees shall serve until the next meeting of Shareholders called for the
purpose of electing Trustees and until the election and qualification of his or
her successor, or until he or she sooner dies, resigns or is removed. The
initial Trustees, each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or her successor is
elected and qualified, or until he or she sooner dies, resigns or is removed,
shall be Maxine Ziv and such other persons as the Trustee or Trustees then in
office shall, prior to any sale of Shares pursuant to a public offering,
appoint. By vote of a majority of the Trustees then in office, the Trustees may
remove a Trustee with or without cause. At any meeting called for the purpose,
a Trustee may be removed, with or without cause, by vote of the holders of two-
thirds of the outstanding Shares.
Effect of Death Resignation, etc. of a Trustee
- ----------------------------------------------
Section 2. The death, declination, resignation, retirement, removal or
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.
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Powers
- ------
Section 3. Subject to the provisions of this Declaration of Trust, the
business of the Trust shall be managed by the Trustees, and they shall have all
powers necessary or convenient to carry out that responsibility. Without
limiting the foregoing, the Trustees may adopt Bylaws not inconsistent with this
Declaration of Trust providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such Bylaws do not reserve that
right to the Shareholders; they may fill vacancies in their number, including
vacancies resulting from increases in their number, and may elect and remove
such officers and appoint and terminate such agents as they consider
appropriate; they may appoint from their own number, and terminate, any one or
more committees consisting of two or more Trustees, including an executive
committee which may, when the Trustees are not in session, exercise some or all
of the power and authority of the Trustees as the Trustees may determine; they
may appoint an advisory board, the members of which shall not be Trustees and
need not be Shareholders; they may employ one or more custodians of the assets
of the Trust and may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems for the central
handling of securities, retain a transfer agent or a Shareholder services agent,
or both, provide for the distribution of Shares by the Trust, through one or
more principal underwriters or otherwise, set record dates for the determination
of Shareholders with respect to various matters, and in general delegate such
authority as they consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the Trust or to any
such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest in securities, options, futures contracts,
options on futures contracts and other property, and to hold cash
uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust;
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(c) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(d) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities or other assets;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form, or in the
name of the Trustees or of the Trust or in the name of a custodian,
subcustodian or other depository or a nominee or nominees or otherwise;
(f) Subject to the provisions of Article III, Section 3, to allocate
assets, liabilities and expenses of the Trust to a particular series of
Shares or to apportion the same among two or more series, provided that any
liabilities or expenses incurred by a particular series of Shares shall be
payable solely out of the assets of that series; and to the extent
necessary or appropriate to give effect to the preferences and special or
relative rights and privileges of any classes of Shares, to allocate
assets, liabilities, income and expenses of a series to a particular class
of Shares of that series or to apportion the same among two or more classes
of Shares of that series;
(g) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security of which
is or was held in the Trust; to consent to any contract, lease, mortgage,
purchase or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in the Trust;
(h) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or
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not so deposited or transferred) as the Trustees shall deem proper, and to
agree to pay, and to pay, such portion of the expenses and compensation of
such committee, depositary or trustee as the Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor of or
against the Trust on any matter in controversy, including but not limited
to claims for taxes;
(j) To enter into joint ventures, general or limited partnerships and
any other combinations or associations;
(k) To borrow funds, securities or other assets;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or suretyship, or
otherwise assume liability for payment thereof; and to mortgage and pledge
the Trust property or any part thereof to secure any of or all of such
obligations or obligations incurred pursuant to subparagraph (k) hereof;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the conduct of the
business, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or managers,
principal underwriters or independent contractors of the Trust individually
against all claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or by reason of
any action alleged to have been taken or omitted by any such person as
Shareholder, Trustee, officer, employee, agent, investment adviser or
manager, principal underwriter or independent contractor, including any
action taken or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such person
against such liability; and
8
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(n) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by any present or
future law or custom in regard to investments by Trustees. Except as otherwise
provided herein or from time to time in the Bylaws, any action to be taken by
the Trustees may be taken by a majority of the Trustees present at a meeting of
the Trustees (a quorum being present), within or without Massachusetts,
including any meeting held by means of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other at the same time, and participation by such means
shall constitute presence in person at a meeting, or by written consents of a
majority of the Trustees then in office.
Payment of Expenses by Trust
- ----------------------------
Section 4. The Trustees are authorized to pay or to cause to be paid out
of the principal or income of the Trust, or partly out of principal and partly
out of income, as they deem fair, all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with the Trust, or in connection
with the management thereof, including, but not limited to, the Trustees'
compensation and such expenses and charges for the services of the Trust's
officers, employees, investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder services agent and such
other agents or independent contractors, and such other expenses and charges, as
the Trustees may deem necessary or proper to incur, provided, however, that all
expenses, fees, charges, taxes and liabilities incurred or arising in connection
with a particular series of Shares, as determined by the Trustees, shall be
payable solely out of the assets of that series.
9
<PAGE>
Ownership of Assets of the Trust
- --------------------------------
Section 5. Title to all of the assets of each series of Shares and of the
Trust shall at all times be considered as vested in the Trustees.
Advisory Management and Distribution
- ------------------------------------
Section 6. Subject to a favorable Majority Shareholder Vote, the Trustees
may, at any time and from time to time, contract for exclusive or nonexclusive
advisory and/or management services with Wanger Asset Management, L.P., a
Delaware limited partnership, or any other partnership, corporation, trust,
association or other organization (the "Adviser"), every such contract to comply
with such requirements and restrictions as may be set forth in the Bylaws; and
any such contract may contain such other terms interpretive of or in addition to
said requirements and restrictions as the Trustees may determine, including,
without limitation, authority to determine from time to time what investments
shall be purchased, held, sold or exchanged and what portion, if any, of the
assets of the Trust shall be held uninvested, and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to time, contract
with the Adviser or any other corporation, trust, association or other
organization, appointing it exclusive or nonexclusive distributor or principal
underwriter for the Shares, every such contract to comply with such requirements
and restrictions as may be set forth in the Bylaws; and any such contract may
contain such other terms interpretive of or in addition to said requirements and
restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser, principal underwriter or distributor or agent of or for any
corporation, trust, association or other organization, or of or for any
parent or affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder services or other agency contract may have been or
may hereafter be
10
<PAGE>
made, or that any organization, or any parent or affiliate thereof, is a
Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization with
which an advisory or management contract or principal underwriter's or
distributor's contract, or transfer, Shareholder services or other agency
contract may have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or distributor's contract,
or transfer, shareholder services or other agency contract with one or more
other corporations, trusts, associations or other organizations, or has
other business or interests shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any liability or
accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Voting Powers
- -------------
Section 1. The Shareholders shall have power to vote only (i) for the
election of Trustees as provided in Article IV, Section 1, (ii) with respect to
any Adviser as provided in Article IV, Section 6, (iii) with respect to any
termination of this Trust to the extent and as provided in Article IX, Section
4, (iv) with respect to any amendment of this Declaration of Trust to the extent
and as provided in Article IX, Section 7 and (v) with respect to such additional
matters relating to the Trust as may be required by law, this Declaration of
Trust, the Bylaws or any registration of the Trust with the Securities and
Exchange Commission (or any successor agency) or any state, or as the Trustees
may consider necessary or desirable. Each whole Share shall be entitled to one
vote as to any matter on which it is entitled to vote and each fractional Share
shall be entitled to a proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to a vote of
Shareholders, all Shares of the Trust then entitled to vote shall be voted in
the aggregate as a single class without regard to series or class except: (1)
when required by the 1940 Act or when the Trustees shall have determined that
the matter
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<PAGE>
affects one or more series or classes materially differently, Shares shall be
voted by individual series or class; and (2) when the Trustees have determined
that the matter affects only the interests of one or more series or classes,
then only Shareholders of such series or classes shall be entitled to vote
thereon. There shall be no cumulative voting in the election of Trustees.
Shares may be voted in person or by proxy. A proxy with respect to Shares
held in the name of two or more persons shall be valid if executed by any one of
them unless at or prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise and the burden of proving invalidity
shall rest on the challenger. At all meetings of Shareholders, unless
inspectors of election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes shall be decided by the chairman of the meeting. Unless
otherwise specified in the proxy, the proxy shall apply to all Shares of each
series of the Trust owned by the Shareholder.
Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, this Declaration of Trust
or the Bylaws to be taken by Shareholders.
Voting Power and Meetings
- -------------------------
Section 2. Meetings of Shareholders of the Trust or of any series or class
may be called by the Trustees or such other person or persons as may be
specified in the Bylaws and held from time to time for the purpose of taking
action upon any matter requiring the vote or the authority of the Shareholders
of the Trust or any series or class as herein provided or upon any other matter
deemed by the Trustees to be necessary or desirable. Meetings of Shareholders
of the Trust or of any series or class shall be called by the Trustees or such
other person or persons as may be specified in the Bylaws upon written
application. The Shareholders shall be entitled to at least seven days' written
notice of any meeting of the Shareholders.
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Quorum and Required Vote
- ------------------------
Section 3. Thirty per cent of the Shares entitled to vote shall be a
quorum for the transaction of business at a Shareholders' meeting, except that
where any provision of law or of this Declaration of Trust permits or requires
that holders of any series or class shall vote as a series or class, then thirty
percent of the aggregate number of Shares of that series or class entitled to
vote shall be necessary to constitute a quorum for the transaction of business
by that series or class. Any lesser number, however, shall be sufficient for
adjournments. Any adjourned session or sessions may be held within a reasonable
time after the date set for the original meeting without the necessity of
further notice. Except when a larger vote is required by any provision of this
Declaration of Trust or the Bylaws, a majority of the Shares voted shall decide
any questions and a plurality shall elect a Trustee, provided that where any
provision of law or of this Declaration of Trust permits or requires that the
holders of any series or class shall vote as a series or class, then a majority
of the Shares of that series or class voted on the matter (or a plurality with
respect to the election of a Trustee) shall decide that matter insofar as that
series or class is concerned.
Action by Written Consent
- -------------------------
Section 4. Any action taken by Shareholders may be taken without a meeting
if a majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by any express provision of this
Declaration of Trust or the Bylaws) consent to the action in writing and such
written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
Additional Provisions
- ---------------------
Section 5. The Bylaws may include further provisions for Shareholders'
votes and meetings and related matters.
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ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
AND DETERMINATION OF NET ASSET VALUE
Distributions
- -------------
Section 1. The Trustees may, but need not, each year distribute to the
Shareholders of each series or class such income and gains, accrued or realized,
as the Trustees may determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may establish)
determined in accordance with good accounting practices. The Trustees shall
have full discretion to determine which items shall be treated as income and
which items as capital and their determination shall be binding upon the
Shareholders. Distributions of each year's income of each series, if any be
made, may be made in one or more payments, which shall be in Shares, in cash or
otherwise and on a date or dates and as of a record date or dates determined by
the Trustees. At any time and from time to time in their discretion, the
Trustees may distribute to the Shareholders of any one or more series or classes
as of a record date or dates determined by the Trustees, in Shares, in cash or
otherwise, all or part of any gains realized on the sale or disposition of
property of the series or otherwise, or all or part of any other principal of
the Trust attributable to the series. In the case of any series not divided
into two or more classes of Shares, each distribution pursuant to this Section 1
shall be made ratably according to the number of Shares of the series held by
the several Shareholders on the applicable record date thereof, provided that no
distribution need be made on Shares purchased pursuant to orders received, or
for which payment is made, after such time or times as the Trustees may
determine. In the case of any series divided into two or more classes, each
distribution pursuant to this Section 1 may be made in whole or in such parts as
the Trustees may determine to the Shareholders of any one or more classes, and
the distribution to the Shareholders of any class shall be made ratably
according to the number of Shares of the class (but need not be made ratably
according to the number of Shares of the series, considered without regard to
class) held by the several Shareholders on the record date thereof, provided
that no distribution need be made on Shares purchased pursuant to orders
received, or for which payment is made, after such time or times
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<PAGE>
as the Trustees may determine. Any such distribution paid in Shares will be paid
at the net asset value thereof as determined in accordance with Section 7 of
this Article VI.
Redemptions and Repurchases
- ---------------------------
Section 2. Any holder of Shares of the Trust may by presentation of a
written request, together with his or her certificates, if any, for such Shares,
in proper form for transfer, at the office of the Trust or at a principal office
of a transfer agent appointed by the Trust, redeem his or her Shares for the net
asset value thereof determined and computed in accordance with the provisions of
this Section 2 and the provisions of Section ~ of this Article VI.
Upon receipt by the Trust or its transfer agent of such written request for
redemption of Shares, such Shares shall be redeemed at the net asset value per
share of the appropriate series next determined after such Shares are tendered
in proper order for transfer to the Trust or determined as of such other time
fixed by the Trustees as may be permitted or required by the 1940 Act, provided
that no such tender shall be required in the case of Shares for which a
certificate or certificates have not been issued, and in such case such Shares
shall be redeemed at the net asset value per share of the appropriate series
next determined after such request has been received in proper form or
determined at such other time fixed by the Trustees as may be permitted or
required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each series or class as
set forth above in this Section 2 shall be subject to the conditions that during
any time of emergency, as hereinafter defined, such obligation may be suspended
by the Trust by or under authority of the Trustees for such period or periods
during such time of emergency as shall be determined by or under authority of
the Trustees. If there is such a suspension, any Shareholder may withdraw any
demand for redemption and any tender of Shares which has been received by the
Trust during any such period and any tender of Shares, the applicable net asset
value of which would but for such suspension be calculated as of a time during
such period. Upon such withdrawal, the Trust shall return to the Shareholder the
certificates therefor, if any. For the purposes of any such suspension, "time
of emergency" shall mean, either with respect to all Shares or any series of
Shares, any period during which:
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(a) the New York Stock Exchange is closed other than for customary
weekend and holiday closings; or
(b) the Trustees or authorized officers of the Trust shall have
determined, in compliance with any applicable rules and regulations of the
Securities and Exchange Commission, either that trading on the New York
Stock Exchange is restricted, or that an emergency exists as a result of
which (i) disposal by the Trust of securities owned by it is not reasonably
practicable or (ii) it is not reasonably practicable for the Trust fairly
to determine the current value of its net assets; or
(c) the suspension or postponement of such obligations is permitted by
order of the Securities and Exchange Commission.
The Trust may also purchase, repurchase or redeem Shares in accordance with
such other methods, upon such other terms and subject to such other conditions
as the Trustees may from time to time authorize at a price not exceeding the net
asset value of such Shares in effect when the purchase or repurchase or any
contract to purchase or repurchase is made.
Payment in Kind
- ---------------
Section 3. Subject to any generally applicable limitation imposed by the
Trustees, any payment on redemption of Shares may, if authorized by the
Trustees, be made wholly or partly in kind, instead of in cash. Such payment in
kind shall be made by distributing securities or other property constituting, in
the opinion of the Trustees, a fair representation of the various types of
securities and other property then held by the series of Shares being redeemed
(but not necessarily involving a portion of each of the series' holdings) and
taken at their value used in determining the net asset value of the Shares in
respect of which payment is made.
Redemptions at the Option of the Trust
- --------------------------------------
Section 4. The Trust shall have the right at its option and at any time to
redeem Shares of any Shareholder at the net asset value thereof as determined in
accordance with Section 7 of Article VI of this Declaration of Trust: (i)) if at
such time such Shareholder owns fewer Shares than, or Shares having an aggregate
net asset value of less than, an amount determined from
16
<PAGE>
time to time by the Trustees; or (ii) to the extent that such Shareholder owns
Shares of a particular series of Shares equal to or in excess of a percentage of
the outstanding Shares of that series (determined without regard to class)
determined from time to time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a percentage equal to or in
excess of such percentage of the aggregate number of outstanding Shares of the
Trust or the aggregate net asset value of the Trust determined from time to time
by the Trustees.
Dividends, Distributions, Redemptions and Repurchases
- -----------------------------------------------------
Section 5. No dividend or distribution (including, without limitation, any
distribution paid upon termination of the Trust or of any series) with respect
to, nor any redemption or repurchase of, the Shares of any series (or of any
class) shall be effected by the Trust other than from the assets of such series
(or of the series of which such class is a part).
Additional Provisions Relating to Redemptions and Repurchases
- -------------------------------------------------------------
Section 6. The completion of redemption of Shares shall constitute a full
discharge of the Trust and the Trustees with respect to such shares, and the
Trustees may require that any certificate or certificates issued by the Trust to
evidence the ownership of such Shares shall be surrendered to the Trustees for
cancellation or notation.
Determination of Net Asset Value
- --------------------------------
Section 7. The term "net asset value" of the Shares of each series or
class shall mean: (i) the value of all the assets of such series or class; (ii)
less the total liabilities of such series or class; (iii) divided by the number
of Shares of such series or class outstanding, in each case at the time of each
determination. The "number of Shares of such series or class outstanding" for
the purposes of such computation shall be exclusive of any Shares of such series
or class to be redeemed and not then redeemed as to which the redemption price
has been determined, but shall include Shares of such series or class presented
for repurchase and not then repurchased and Shares of such series or class to be
redeemed and not then redeemed as to which the redemption price has not been
determined and Shares of such series or class the sale of which has been
confirmed. Any
17
<PAGE>
fractions involved in the computation of net asset value per share shall be
adjusted to the nearer cent unless the Trustees shall determine to adjust such
fractions to a fraction of a cent.
The Trustees, or any officer or officers or agent of this Trust designated
for the purpose by the Trustees, shall determine the net asset value of the
Shares of each series or class, and the Trustees shall fix the times as of which
the net asset value of the Shares of each series or class shall be determined
and shall fix the periods during which any such net asset value shall be
effective as to sales, redemptions and repurchases of, and other transactions
in, the Shares of such series or class, except as such times and periods for any
such transaction may be fixed by other provisions of this Declaration of Trust
or by the Bylaws.
In valuing the portfolio investments of any series or class for
determination of net asset value per share of such series or class:
(a) Each security for which market quotations are readily available
shall be valued at current market value determined by methods specified by
the Board of Trustees;
(b) Each other security, including any security within (a) for which
the specified price does not appear to represent a dependable quotation for
such security as of the time of valuation, shall be valued at a fair value
as determined in good faith by the Trustees;
(c) Any cash on hand shall be valued at the face amount thereof;
(d) Any cash on deposit, accounts receivable, and cash dividends and
interest declared or accrued and not yet received, any prepaid expenses,
and any other current asset shall be valued at the face amount thereof,
unless the Trustees shall determine that any such item is not worth its
face amount, in which case such asset shall be valued at a fair value
determined in good faith by the Trustees; and
(e) Any other asset shall be valued at a fair value determined in good
faith by the Trustees.
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<PAGE>
Notwithstanding the foregoing, short-term debt obligations, commercial paper and
repurchase agreements may be, but need not be, valued on the basis of quoted
yields for securities of comparable maturity, quality and type, or on the basis
of amortized cost.
Liabilities of any series or class for accounts payable for investments
purchased and for Shares tendered for redemption and not then redeemed as to
which the redemption price has been determined shall be stated at the amounts
payable therefor. In determining the net asset value of any series or class,
the person or persons making such determination on behalf of the Trust may
include in liabilities such reserves, estimated accrued expenses and
contingencies as such person or persons may in its, his or their best judgment
deem fair and reasonable under the circumstances. Any income dividends and
gains distributions payable by the Trust shall be deducted as of such time or
times on the record date therefor as the Trustees shall determine.
The manner of determining the net assets of any series or class or of
determining the net asset value of the Shares of any series or class may from
time to time be altered as necessary or desirable in the judgment of the
Trustees to conform to any other method prescribed or permitted by any
applicable law or regulation.
Determinations under this Section 7 made in good faith and in accordance
with the provisions of the 1940 Act shall be binding on all parties concerned.
ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
Compensation
- ------------
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust: they may fix the amount of their compensation.
Nothing herein shall in any way prevent the employment of any Trustee for
advisory, management, legal, accounting, investment banking or other services
and payment for the same by the Trust.
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Limitation of Liability
- -----------------------
Section 2. The Trustees shall not be responsible or liable in any event
for any neglect or wrongdoing of any officer, agent, employee, adviser or
principal underwriter of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee, but nothing herein contained shall protect
any Trustee against any liability to which he or she would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his or her capacity as Trustees or Trustee, and such Trustees or
Trustee shall not be personally liable thereon.
ARTICLE VIII
INDEMNIFICATION
Trustees Officers, etc.
- -----------------------
Section 1. The Trust shall indemnify each person who is or has been a
Trustee or officer (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and counsel fees and expenses reasonably incurred by any Covered
Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil, criminal, administrative or investigative, and
any appeal therefrom, before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as a party or
otherwise or with which such person may be or may have been threatened, while in
office or thereafter, by reason of being or having been such a Covered Person,
except that no Covered Person shall be indemnified against any liability to the
Trust or its Shareholders to which such Covered Person would otherwise be
20
<PAGE>
subject by reason of wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office.
Expenses, including counsel fees and expenses so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), may be paid from time to time by the Trust
in advance of the final disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered Person to repay
amounts so paid to the Trust if it is ultimately determined that indemnification
of such expenses is not authorized under this Article, provided that (a) such
Covered Person shall provide security for his undertaking, (b) the Trust shall
be insured against losses arising by reason of such Covered Person's failure to
fulfill his undertaking or (c) a majority of the Trustees who are disinterested
persons and who are not Interested Persons (provided that a majority of such
Trustees then in office act on the matter), or independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(but not a full trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to indemnification.
Compromise Payment
- ------------------
Section 2. As to any matter disposed of (whether by a compromise payment,
pursuant to a consent decree or otherwise) without an adjudication in a decision
on the merits by a court, or by any other body before which the proceeding was
brought, that such Covered Person is liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such Covered Person's office,
indemnification shall be provided if (a) approved as in the best interest of the
Trust, after notice that it involves such indemnification, by at least a
majority of the Trustees who are disinterested persons and are not Interested
Persons (provided that a majority of such Trustees then in office act on the
matter), upon a determination, based upon a review of readily available facts
(but not a full trial-type inquiry) that such Covered Person is not liable to
the Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office, or (b) there has been obtained an opinion in writing of
independent
21
<PAGE>
legal counsel, based upon a review of readily available facts (but not a full-
trial type inquiry) to the effect that such indemnification would not protect
such Covered Person against any liability to the Trust to which such Covered
Person would otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
Any approval pursuant to this Section shall not prevent the recovery from
any Covered Person of any amount paid to such Covered Person in accordance with
this Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been liable to the
Trust or its Shareholders by reason of wilful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office.
Indemnification Not Exclusive; Definitions
- ------------------------------------------
Section 3. The right of indemnification hereby provided shall not be
exclusive of or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VIII, the term "Covered Person" shall include
such person's heirs, executors and administrators, and a "disinterested person"
is a person against whom none of the actions, suits or other proceedings in
question or another action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in this article shall
affect any rights to indemnification to which personnel of the Trust, other than
Trustees and officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase and maintain
liability insurance on behalf of such persons.
Shareholders
- ------------
Section 4. In case any Shareholder or former Shareholder shall be held to
be personally liable solely by reason of his or her being or having been a
Shareholder and not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her heirs, executors,
administrators or other legal representatives or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled to
be held harmless from and indemnified against all loss and expense arising from
such
22
<PAGE>
liability, but only out of the assets of the particular series of Shares of
which he or she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
Trustees, Shareholders, etc. Not Personally Liable; Notice
- ----------------------------------------------------------
Section 1. All persons extending credit to, contracting with or having any
claim against the Trust or a particular series of Shares shall look only to the
assets of the Trust or the assets of that particular series of Shares for
payment under such credit, contract or claim; and neither the Shareholders nor
the Trustees, nor any of the Trust's officers, employees or agents, whether
past, present or future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of The Commonwealth
of Massachusetts and shall recite that the same was executed or made by or on
behalf of the Trust or by them as Trustees or Trustee or as officers or officer
and not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recital as he or
she or they may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
- -------------------------------------------------------------
Section 2. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. A Trustee shall be liable
for his or her own wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of Trustee, and
for nothing else, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other
23
<PAGE>
experts with respect to the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
- ------------------------------------------------
Section 3. No person dealing with the Trustees shall be bound to make any
inquiry concerning the validity of any transaction made or to be made by the
Trustees or to see to the application of any payments made or property
transferred to the Trust or upon its order.
Duration and Termination of Trust
- ---------------------------------
Section 4. Unless terminated as provided herein, the Trust shall continue
without limitation of time. The Trust may be terminated at any time by vote of
Shareholders holding at least a majority of the Shares of each series entitled
to vote or by the Trustees by written notice to the Shareholders. Any series of
Shares may be terminated at any time by vote of Shareholders holding at least a
majority of the Shares of such series entitled to vote or by the Trustees by
written notice to the Shareholders of such series.
Upon termination of the Trust or of any one or more series of Shares, after
paying or otherwise providing for all charges, taxes, expenses and liabilities,
whether due or accrued or anticipated as may be determined by the Trustees, the
Trust shall in accordance with such procedures as the Trustees consider
appropriate reduce the remaining assets to distributable form in cash or shares
or other securities, or any combination thereof, and distribute the proceeds to
the Shareholders of the series involved, ratably according to the number of
Shares of such series held by the several Shareholders of such series on the
date of termination, except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of any classes of
Shares of that series, provided that any distribution to the Shareholders of a
particular class of Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each of them.
24
<PAGE>
Filing of Copies, References, Headings
- --------------------------------------
Section 5. The original or a copy of this instrument and of each amendment
hereto shall be kept at the office of the Trust where it may be inspected by any
Shareholder. A copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Clerk of the City of Boston, as well as any other
governmental office where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of the Trust as
to whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy certified by an officer of the Trust to be a copy
of this instrument or of any such amendments. In this instrument and in any
such amendment, references to this instrument, and all expressions such as
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as amended or affected by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument. This
instrument may be executed in any number of counterparts, each of which shall be
deemed an original.
Applicable Law
- --------------
Section 6. This Declaration of Trust is made in The Commonwealth of
Massachusetts, and it is created under and is to be governed by and construed
and administered according to the laws of said Commonwealth. The Trust shall be
of the type commonly called a Massachusetts business trust, and without limiting
the provisions hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
- ----------
Section 7. This Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees when authorized
so to do by a vote of Shareholders holding a majority of the Shares entitled to
vote, except that an amendment which shall affect the holders of one or more
series or classes of Shares but not the holders of all outstanding series and
classes shall be authorized by vote of the Shareholders holding a majority of
the Shares entitled to vote of each series
25
<PAGE>
and class affected and no vote of Shareholders of a series or class not
affected shall be required. Amendments having the purpose of changing the name
of the Trust or of supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent provision contained
herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF the undersigned has hereunto set her hand in the City of
Boston, Massachusetts for herself and her assigns, as of this 21st day of April,
1992.
_______________________________
Maxine Ziv, as Trustee and not
individually
THE COMMONWEALTH OF MASSACHUSETTS
Boston ss. April 21, 1992
Then personally appeared the above-named Trustee and acknowledged the
foregoing instrument to be her free act and deed, before me,
_____________________________
Notary Public
My commission expires:
(Notary's Seal)
Address of the Trust:
Acorn Investment Trust
C/O CT Corporation
2 Oliver Street
Boston, MA 02109
Address of the Trustees:
C/O CT Corporation
2 Oliver Street
Boston, MA 02109
Address of the Registered
Agent:
CT Corporation
2 Oliver Street
Boston, MA 02109
26
<PAGE>
ACORN INVESTMENT TRUST
BYLAWS
------
<PAGE>
Table of Contents
-----------------
<TABLE>
<S> <C>
Section 1. Agreement and Declaration of Trust and Principal Office....... 1
1.1 Agreement and Declaration of Trust............................ 1
1.2 Principal Office of the Trust................................. 1
Section 2. Shareholders.................................................. 1
2.1. Shareholder Meetings.......................................... 1
2.2 Place of Meetings............................................. 1
2.3 Notice of Meetings............................................ 1
2.4 Ballots....................................................... 2
2.5. Proxies....................................................... 2
Section 3. Trustees...................................................... 2
3.1 Committees and Advisory Board................................. 2
3.2 Chairman and Vice-chairman.................................... 2
3.3 Regular Meetings.............................................. 2
3.4 Special Meetings.............................................. 2
3.5 Notice........................................................ 3
3.6 Quorum........................................................ 3
3.7 Eligibility to Serve.......................................... 3
Section 4. Officers and Agents........................................... 3
4.1 Enumeration; Qualification.................................... 3
4.2 Powers........................................................ 3
4.3 Election...................................................... 4
4.4 Tenure........................................................ 4
4.5 President..................................................... 4
4.6 Vice Presidents............................................... 4
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.7 Treasurer..................................................... 4
4.8 Secretary..................................................... 4
Section 5. Resignations and Removals..................................... 4
Section 6. Vacancies..................................................... 5
Section 7. Shares of Beneficial Interest................................. 5
7.1 Share Certificates............................................ 5
7.2 Loss of Certificates.......................................... 5
7.3 Discontinuance of Issuance of Certificates.................... 5
Section 8. Record Date and Closing Transfer Books........................ 6
Section 9. Seal.......................................................... 6
Section 10. Execution of Papers........................................... 6
Section 11. Fiscal Year................................................... 6
Section 12. Amendments.................................................... 6
</TABLE>
iii
<PAGE>
BYLAWS
------
OF
--
ACORN INVESTMENT TRUST
----------------------
(as amended through December 2, 1994)
Section 1. Agreement and Declaration of
Trust and Principal Office
--------------------------
1.1 Agreement and Declaration of Trust. These Bylaws shall be subject to the
Agreement and Declaration of Trust, as from time to time in effect (the
"Declaration of Trust") , of Acorn Investment Trust, a Massachusetts business
trust established by the Declaration of Trust (the "Trust").
1.2 Principal Office of the Trust. The principal office of the Trust shall be
located in Chicago, Illinois.
Section 2. Shareholders.
------------------------
2.1. Shareholder Meetings. A meeting of the shareholders of the Trust or of
any one or more series or classes of shares may be called at any time by the
Trustees, by the chairman, the president or, if the Trustees, the chairman and
the president shall fail to call any meeting of shareholders for a period of 30
days after written application of one or more shareholders who hold at least 10%
of all outstanding shares of the Trust, if shareholders of all series are
required under the Declaration of Trust to vote in the aggregate and not by
individual series at such meeting, or of any series or class, if shareholders of
such series or class are entitled under the Declaration of Trust to vote by
individual series or class at such meeting, then such shareholders may call such
meeting. If the meeting is a meeting of the shareholders of one or more series
or classes of shares, but not a meeting of all shareholders of the Trust, then
only the shareholders of such one or more series or classes shall be entitled to
notice of and to vote at the meeting. Each call of a meeting shall state the
place, date, hour and purposes of the meeting.
2.2 Place of Meetings. All meetings of the shareholders shall be held at the
principal office of the Trust, or, to the extent permitted by the Declaration of
Trust, at such other place within the United States as shall be designated by
the Trustees or the president of the Trust.
2.3 Notice of Meetings. A written notice of each meeting of shareholders,
stating the place, date and hour and the purposes of the meeting, shall be given
at least seven days before the meet into each shareholder entitled to vote
thereat by leaving such notice with him or her or at his or her residence or
usual place of business or by mailing it, postage prepaid, and addressed to such
shareholder at his or her address as it appears in the records of the Trust.
Such notice shall be given by the secretary or an assistant secretary or by an
officer designated by the Trustees. No notice of any meeting of shareholders
need be given to a shareholder if a written waiver of
<PAGE>
notice, executed before or after the meeting by such shareholder or his or her
attorney thereunto duly authorized, is filed with the records of the meeting.
2.4 Ballots. No ballot shall be required for any election unless requested by
a shareholder present or represented at the meeting and entitled to vote in the
election.
2.5. Proxies. Shareholders entitled to vote may vote either in person or by
proxy in writing dated not more than six months before the meeting named
therein, which proxies shall be filed with the secretary or other person
responsible to record the proceedings of the meeting before being voted. Unless
otherwise specifically limited by their terms, such proxies shall entitle the
holders thereof to vote at any add adjournment of such meeting but shall not be
valid after the final adjournment of such meeting.
Section 3. Trustees
--------------------
3.1 Committees and Advisory Board. The Trustees may appoint from their number
an executive committee and other committees. Except as the Trustees may
otherwise determine, any such committee may make rules for conduct of its
business. The Trustees may appoint an advisory board to consist of not less than
two nor more than five members. The members of the advisory board shall be
compensated in such manner as the Trustees may determine and shall confer with
and advise the Trustees regarding the investments and other affairs of the
Trust. Each member of the advisory board shall hold office until the first
meeting of the Trustees following the next meeting of the shareholders and until
his or her successor is elected and qualified, or until he or she sooner dies,
resigns, is removed or becomes disqualified, or until the advisory board is
sooner abolished by the Trustees.
3.2 Chairman and Vice-chairman. The Trustees may appoint a chairman and a
vice-chairman, who shall be Trustees of the Trust but need not be shareholders.
The chairman shall preside at all meetings of the shareholders and of the
Trustees and in the chairman's absence, the vice-chairman shall so preside. The
chairman and the vice-chairman shall hold their respective positions at the
pleasure of the Trustees. Neither the chairman nor the vice-chairman shall, by
reason of holding such position, be or be deemed to be officers of the Trust.
[added 9/15/92]
3.3 Regular Meetings. Regular meetings of the Trustees may be held without
call or notice at such places and at such times as the Trustees may from time to
time determine, provided that notice of the first regular meeting following any
such determination shall be given to absent Trustees. [renumbered 9/15/92]
3.4 Special Meetings. Special meetings of the Trustees may be held at any time
and at any place designated in the call of the meeting; when called by the
chairman, the president or the treasurer or by two or more Trustees, sufficient
notice thereof being given to each Trustee by the secretary or an assistant
secretary or by the officer or one of the Trustees calling the meeting.
[renumbered 9/15/92]
3.5 Notice. It shall be sufficient notice to a Trustee to send notice by mail
at least forty-eight hours or by telegram at least twenty-four hours before the
meeting addressed to the Trustee at his
2
<PAGE>
or her usual or last known business or residence address or to give notice to
him or her in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any Trustee if a written
waiver of notice, executed by him or her before or after the meeting, is filed
with the records of the meeting, or to any Trustee who attends the meeting
without protesting prior thereto or at its commencement the lack of notice to
him or her. Neither notice of a meeting nor a waiver of a notice need specify
the purposes of the meeting. [renumbered 9/15/92]
3.6 Quorum. At any meeting of the Trustees one-third of the Trustees then in
office shall constitute a quorum; provided, however, a quorum shall not be less
than two. Any meeting may be adjourned from time to time by a majority of the
votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice. [renumbered 9/15/92]
3.7 Eligibility to Serve. No person shall be appointed to serve as a trustee
after attaining the age of 65 years. Any Trustee shall retire as a Trustee as
of the end of the calendar year in which the Trustee attains the age of 75
years, except that (a) this provision shall not apply to Irving B. Harris, the
founder of The Acorn Fund, Inc., the predecessor of the Trust, and (b) any other
Trustee who had attained the age of 75 years as of December 31, 1992 shall
retire as a Trustee as of the end of the calendar year in which the Trustee
attains the age of 78 years, except that the retirement of Marshall M. Holleb
which would otherwise occur at December 31, 1994 shall, for the convenience of
the Trust, be delayed until February 28, 1995. [added 2/2/93; amended 12/2/94]
Section 4. Officers and Agents
-------------------------------
4.1 Enumeration; Qualification. The officers of the Trust shall be a
president, a treasurer, a secretary and such other officers, if any, as the
Trustees from time to time may in their discretion elect or appoint. The Trust
may also have such agents, if any, as the Trustees from time to time may in
their discretion appoint. Any officer may be but none need be a Trustee or
shareholder. Any two or more offices may be held by the same person. [amended
9/15/92]
4.2 Powers. Subject to the other provisions of these Bylaws, each officer
shall have, in addition to the duties and powers herein and in the Declaration
of Trust set forth, such duties and powers as are commonly incident to his or
her office as if the Trust were organized as a Massachusetts business
corporation and such other duties and powers as the Trustees may from time to
time designate, including without limitation the power to make purchases and
sales of portfolio securities of the Trust pursuant to recommendations of the
Trust's investment adviser in accordance with the policies and objectives of the
Trust set forth in its prospectus and with such general or specific instructions
as the Trustees may from time to time have issued.
4.3 Election. The president, the treasurer and the secretary shall be elected
annually by the Trustees. Other officers, if any, may be elected or appointed
by the Trustees at any time. [amended 9/15/92]
3
<PAGE>
4.4 Tenure. The president, the treasurer and the secretary shall hold office
until their respective successors are chosen and qualified, or in each case
until he or she sooner dies, resigns, is removed or becomes disqualified. Each
other officer shall hold office at the pleasure of the Trustees. Each agent
shall retain his or her authority at the pleasure of the Trustees. [amended
9/15/92]
4.5 President. The president shall be the chief executive officer of the
Trust. In the absence of the chairman and the vice-chairman, or in the event of
the inability or refusal to act of both of them, the president shall preside at
meetings of the Trustees or shareholders. [amended 9/15/92]
4.6 Vice Presidents. In the absence of the president, or in the event of the
president's inability or refusal to act, the vice president (or in the event
there be more than one vice president, the vice presidents in the order
designated, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting shall
have all the powers of the president. Any vice president shall have such other
duties and powers as shall be designated from time to time by the Trustees or
the president. [renumbered 9/15/92]
4.7 Treasurer. The treasurer shall be the chief financial and accounting
officer of the Trust and subject to any arrangement made by the Trustees with a
bank or trust company or other organization as custodian or transfer or
shareholder services agent, shall be in charge of its valuable papers and its
books of account and accounting records, and shall have such duties and powers
as shall be designated from time to time by the Trustees or the president. Any
assistant treasurer shall have such duties and powers as shall be designated
from time to time by the Trustees. [renumbered 9/15/92]
4.8 Secretary. The secretary shall record all proceedings of the shareholders
and the Trustees in books to be kept therefor, which books shall be kept at the
principal office of the Trust. In the absence of the secretary from any meeting
of shareholders or Trustees, an assistant secretary, or if there be none or he
or she is absent, a temporary clerk chosen at the meeting, shall record the
proceedings thereof in the aforesaid books. [renumbered 9/15/92]
Section 5. Resignations and Removals
-------------------------------------
Any Trustee, chairman, vice-chairman, officer or advisory board member may
resign at any time by delivering his or her resignation in writing to the
president, the treasurer or the secretary or to a meeting of the Trustees. The
Trustees may remove any officer elected by them with or without cause by the
vote of a majority of the Trustees then in office. Except to the extent
expressly provided in a written agreement with the Trust, no Trustee, chairman,
vice-chairman, officer, or advisory board member resigning, and no officer,
chairman, vice-chairman, or advisory board member removed, shall have any right
to any compensation for any period following his or her resignation or removal,
or any right to damages on account of such removal. [amended 9/15/92]
Section 6. Vacancies
---------------------
A vacancy in any office may be filled at any time. Each successor shall hold
office for the unexpired term, and in the case of the president, the treasurer
and the secretary, until his or her
4
<PAGE>
successor is chosen and qualified, or in each case until he or she sooner dies,
resigns, is removed or becomes disqualified. [amended 9/15/92]
Section 7. Shares of Beneficial Interest
-----------------------------------------
7.1 Share Certificates. No certificates certifying the ownership of shares
shall be issued except as the Trustees may otherwise authorize. In the event
that the Trustees authorize the issuance of share certificates, subject to the
provisions of Section 7.3, each shareholder shall be entitled to a certificate
stating the number of whole shares owned by him or her, in such form as shall be
prescribed from time to time by the Trustees. Such certificate shall be signed
by the chairman, the president or a vice president and by the treasurer or
secretary. Such signatures may be facsimiles if the certificate is signed by a
transfer agent or by a registrar, other than a Trustee, officer or employee of
the Trust. In case any officer who has signed or whose facsimile signature has
been placed on such certificate shall have ceased to be such officer before such
certificate is issued, it may be issued by the Trust with the same effect as if
he or she were such officer at the time of its issue.
In lieu of issuing certificates for shares, the Trustees or the transfer agent
may either issue receipts therefor or keep accounts upon the books of the Trust
for the record holders of such shares, who shall in either case be deemed, for
all purposes hereunder, to be the holders of certificates for such shares as if
they had accepted such certificates and shall be held to have expressly assented
and agreed to the terms hereof.
7.2 Loss of Certificates. In the case of the alleged loss or destruction or the
mutilation of a share certificate, a duplicate certificate may be issued in
place thereof, upon such terms as the Trustees may prescribe.
7.3 Discontinuance of Issuance of Certificates. The Trustees may at any time
discontinue the issuance of share certificates and may, by written notice to
each shareholder, require the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not affect the ownership of
shares in the Trust.
Section 8. Record Date and Closing Transfer Books
--------------------------------------------------
The Trustees may fix in advance a time, which shall not be more than 60 days
before the date of any meeting of shareholders or the date for the payment of
any dividend or making of any other distribution to shareholders, as the record
date for determining the shareholders having the right to notice and to vote at
such meeting and any adjournment thereof or the right to receive such dividend
or distribution, and in such case only shareholders of record on such record
date shall have such right, notwithstanding any transfer of shares on the books
of the Trust after the record date; or without fixing such record date the
Trustees may for any of such purposes close the transfer books for all or any
part of such period.
5
<PAGE>
Section 9. Seal
----------------
The seal of the Trust shall, subject to alteration by the Trustees, consist of a
flat-faced circular die with the word "Massachusetts," together with the name of
the Trust and the year of its organization, cut or engraved thereon; but, unless
otherwise required by the Trustees, the seal shall not be necessary to be placed
on, and its absence shall not impair the validity of, any document, instrument
or other paper executed and delivered by or on behalf of the Trust.
Section 10. Execution of Papers
--------------------------------
Except as the Trustees may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers, contracts,
bonds, notes, checks, drafts and other obligations made, accepted or endorsed by
the Trust shall be signed, and all transfers of securities standing in the name
of the Trust shall be executed, by the president or by one of the vice
presidents or by the treasurer or by whomsoever else shall be designated for
that purpose by the vote of the Trustees and need not bear the seal of the
Trust. [amended 9/15/92]
Section 11. Fiscal Year
------------------------
Except as from time to time otherwise provided by the Trustees, the fiscal year
of the Trust shall end on December 31.
Section 12. Amendments
-----------------------
These Bylaws may be amended or repealed, in whole or in part, by a majority of
the Trustees then in office at any meeting of the Trustees, or by one or more
writings signed by such a majority.
6
<PAGE>
INVESTMENT ADVISORY AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered
under the Investment Company Act of 1940 (1940 Act) as an open-end diversified
management investment company (Trust), and Wanger Asset Management, L.P., a
Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser (Manager), agree that:
1. ENGAGEMENT OF MANAGER. Manager shall manage the investment and
reinvestment of the assets of Acorn Fund, a series of Trust (Fund), subject to
the supervision of the board of trustees of Trust, for the period and on the
terms set forth in this agreement. Manager shall give due consideration to the
investment policies and restrictions and the other statements concerning Fund in
Trust's agreement and declaration of trust, bylaws, and registration statements
under the 1940 Act and the Securities Act of 1933 (1933 Act), and to the
provisions of the Internal Revenue Code applicable to Fund as a regulated
investment company. Manager shall be deemed for all purposes to be an
independent contractor and not an agent of Trust or Fund, and unless otherwise
expressly provided or authorized, shall have no authority to act or represent
Trust or Fund in any way.
Manager is authorized to make the decisions to buy and sell
securities, options and futures contracts for Fund, to place Fund's portfolio
transaction with broker-dealers, and to negotiate the terms of such transactions
including brokerage commissions on brokerage transactions, on behalf of Fund.
Manager is authorized to exercise discretion with Fund's policy concerning
allocation of its portfolio brokerage, as permitted by law, including but not
limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing
shall not be required to make any reduction in its investment advisory fees.
2. EXPENSES TO BE PAID BY MANAGER. Manager shall furnish to Trust,
at its own expense, office space and all necessary office facilities, equipment
and personnel for managing that portion of Trust's business relating to Fund.
Manager shall also assume and pay all other expenses incurred by it in
connection with managing the assets of Fund, all expenses of marketing shares of
Fund, all expenses of maintaining the registration of shares of Fund under the
1933 Act (not including typesetting and printing expenses referred to in section
3), all expenses in determination of daily price computations, placement of
securities orders and related bookkeeping and one-half of all fees, dues and
other expenses related to membership of Trust in any trade association or other
investment company organization.
3. EXPENSES TO BE PAID BY TRUST. Trust shall pay all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents and
registrars and its dividend disbursing and redemption agents, if any; all
charges of legal counsel and of independent auditors; all compensation of
trustees other than those affiliated with
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Manager and all expenses incurred in connection with their services to Trust;
all costs of borrowing money; all expenses of publication of notices and reports
to its shareholders and to governmental bodies or regulatory agencies; all
expenses of proxy solicitations of Fund or of the board of trustees of the
Trust; all expenses of shareholder meetings; all expenses of typesetting of
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign,
all stamp or other taxes; all expenses of printing and mailing certificates for
shares of Fund; all expenses of bond and insurance coverage required by law or
deemed advisable by Trust's board of trustees; all expenses of qualifying and
maintaining qualification of shares of the Fund under the securities laws of
such United States jurisdictions as the Trust may from time to time reasonably
designate and all expenses of maintaining the registration of Trust under the
1940 Act and one-half of all fees, dues and other expenses related to membership
of Trust in any trade association or other investment company organization. In
addition to the payment of expenses, Fund shall also pay all brokers'
commissions and other charges relative to the purchase and sale of portfolio
securities for Fund. Any expenses borne by Trust that are attributable solely to
the organization, operation or business of Fund shall be paid solely out of Fund
assets. Any expense borne by Trust that is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned in such
manner as Manager determines is fair and appropriate, or as otherwise specified
by the board of trustees of Trust.
4. COMPENSATION OF MANAGER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by Manager hereunder, Fund
shall pay to Manager a quarterly fee of 3/16 of 1% of the net asset value of
Fund up to $100 million, 1/8 of 1% of the net asset value of Fund in excess of
$100 million and up to $1.5 billion and 1/10 of 1% of the net asset value of
Fund in excess of $1.5 billion, as determined by valuations made as of the
beginning of each calendar quarter, which fee shall be payable in three equal
monthly installments on the last business day of each month during such quarter.
5. LIMITATION OF EXPENSES OF FUND. The total expenses of Fund,
exclusive of taxes, of interest and of extraordinary litigation expenses, but
including fees paid to Manager, shall not in any fiscal year of Fund exceed the
most restrictive limits prescribed by any state in which Fund's shares are then
being offered for sale, and Manager agrees to reimburse Fund for any sums
expended for such expenses in excess of that amount. Brokers' commissions and
other charges relative to the purchase and sale of portfolio securities shall
not be regard as expenses.
6. SERVICES OF MANAGER NOT EXCLUSIVE. The services of Manager to
Fund hereunder are not to be deemed exclusive, and Manager shall be free to
render similar services to others so long as its services under this agreement
are not impaired by such other activities.
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<PAGE>
7. SERVICES OTHER THAN AS MANAGER. Manager (or an affiliate of
Manager) may act as broker for Fund in connection with the purchase or sale of
securities by or to Fund if and to the extent permitted by procedures adopted
from time to time by the board of trustees of Trust. Such brokerage services
are not within the scope of the duties of Manager under this agreement, and,
within the limits permitted by law and the board of trustees of Trust, Manager
(or an affiliate of Manager) may receive brokerage commissions, fees or other
remuneration from Fund for such services in addition to its fee for services as
Manager. Within the limits permitted by law Manager may receive compensation
from Fund for other services performed by it for Fund which are not within the
scope of the duties of Manager under this agreement.
8. LIMITATION OF LIABILITY OF MANAGER. Manager shall not be liable
to Trust or its shareholders for any loss suffered by Trust or its shareholders
from or as a consequence of any act or omission of Manager, or of any of the
partners, employees or agents of Manager, in connection with or pursuant to this
agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of Manager in the performance of its duties or by reason
of reckless disregard by Manager of its obligations and duties under this
agreement.
9. DURATION AND RENEWAL. Unless terminated as provided in Section
10, this agreement shall continue in effect until June 30, 1994, and thereafter
from year to year only so long as such continuance is specifically approved at
least annually (a) by a majority of those trustees who are not interested
persons of Trust or of Manager, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by either the board of trustees of
Trust or vote of the holders of a "majority of the outstanding shares of Fund"
(which term as used throughout this agreement shall be construed in accordance
with the definition of "vote of a majority of the outstanding voting securities
of a company" in section 2(a)(42) of the 1940 Act).
10. TERMINATION. This agreement may be terminated at any time,
without payment of any penalty, by the board of trustees of Trust, or by a vote
of the holders of a majority of the outstanding shares of Fund, upon 60 days'
written notice to Manager. This agreement may be terminated by Manager at any
time upon 60 days' written notice to Trust. This agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a(4) of
the 1940 Act).
11. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of
Trust hereunder shall be binding only upon the assets of Trust (or applicable
series thereof) and shall not be binding upon any trustee, officer, employee,
agent or shareholder of Trust. Neither the authorization of any action by the
trustees or shareholders of Trust nor the execution of this agreement on behalf
of Trust shall impose any liability upon any trustee, officer or shareholder of
Trust.
12. AMENDMENT. This agreement may not be amended without the
affirmative vote (a) of a majority of those trustees who are not "interested
persons" (as
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defined in section 2(a)(19) of the 1940 Act) of Trust or of Manager, voting in
person at a meeting called for the purpose of voting on such approval, and (b)
of the holders of a majority of the outstanding shares of Fund.
Dated: May 1, 1993
ACORN INVESTMENT TRUST
By
----------------------------
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By
----------------------------
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ACORN INTERNATIONAL
INVESTMENT ADVISORY AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered
under the Investment Company Act of 1940 (1940 Act) as an open-end diversified
management investment company (Trust), and Wanger Asset Management, L.P., a
Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser (Manager), agree that:
1. ENGAGEMENT OF MANAGER. Manager shall manage the investment and
reinvestment of the assets of Acorn International, a series of Trust (Fund),
subject to the supervision of the board of trustees of Trust, for the period and
on the terms set forth in this agreement. Manager shall give due consideration
to the investment policies and restrictions and the other statements concerning
Fund in Trust's agreement and declaration of trust, bylaws, and registration
statements under the 1940 Act and the Securities Act of 1933 (1933 Act), and to
the provisions of the Internal Revenue Code applicable to Fund as a regulated
investment company. Manager shall be deemed for all purposes to be an
independent contractor and not an agent of Trust or Fund, and unless otherwise
expressly provided or authorized, shall have no authority to act or represent
Trust or Fund in any way.
Manager is authorized to make the decisions to buy and sell
securities, options and futures contracts for Fund, to place Fund's portfolio
transaction with broker-dealers, and to negotiate the terms of such transactions
including brokerage commissions on brokerage transactions, on behalf of Fund.
Manager is authorized to exercise discretion with Fund's policy concerning
allocation of its portfolio brokerage, as permitted by law, including but not
limited to section 28(e) of the Securities Exchange Act of 1934, and in so doing
shall not be required to make any reduction in its investment advisory fees.
2. EXPENSES TO BE PAID BY MANAGER. Manager shall furnish to Trust,
at its own expense, office space and all necessary office facilities, equipment
and personnel for managing that portion of Trust's business relating to Fund.
Manager shall also assume and pay all other expenses incurred by it in
connection with managing the assets of Fund, all expenses of marketing shares of
Fund, all expenses of maintaining the registration of shares of Fund under the
1933 Act (not including typesetting and printing expenses referred to in section
3), all expenses in determination of daily price computations, placement of
securities orders and related bookkeeping and one-half of all fees, dues and
other expenses related to membership of Trust in any trade association or other
investment company organization.
3. EXPENSES TO BE PAID BY TRUST. Trust shall pay all charges of
depositories, custodians and other agencies for the safekeeping and servicing of
its cash, securities and other property and of its transfer agents and
registrars and its dividend disbursing and redemption agents, if any; all
charges of legal counsel and of independent auditors; all compensation of
trustees other than those affiliated with Manager and all expenses incurred in
connection with their services to Trust; all costs of borrowing money; all
expenses of publication of notices and
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reports to its shareholders and to governmental bodies or regulatory agencies;
all expenses of proxy solicitations of Fund or of the board of trustees of the
Trust; all expenses of shareholder meetings; all expenses of typesetting of
Fund's prospectus and of printing and mailing copies of the prospectus furnished
to each then-existing shareholder or beneficial owner; all taxes and fees
payable to federal, state or other governmental agencies, domestic or foreign,
all stamp or other taxes; all expenses of printing and mailing certificates for
shares of Fund; all expenses of bond and insurance coverage required by law or
deemed advisable by Trust's board of trustees; all expenses of qualifying and
maintaining qualification of shares of the Fund under the securities laws of
such United States jurisdictions as the Trust may from time to time reasonably
designate and all expenses of maintaining the registration of Trust under the
1940 Act and one-half of all fees, dues and other expenses related to membership
of Trust in any trade association or other investment company organization. In
addition to the payment of expenses, Fund shall also pay all brokers'
commissions and other charges relative to the purchase and sale of portfolio
securities for Fund. Any expenses borne by Trust that are attributable solely to
the organization, operation or business of Fund shall be paid solely out of Fund
assets. Any expense borne by Trust that is not solely attributable to Fund, nor
solely to any other series of shares of Trust, shall be apportioned in such
manner as Manager determines is fair and appropriate, or as otherwise specified
by the board of trustees of Trust.
4. COMPENSATION OF MANAGER. For the services to be rendered and the
charges and expenses to be assumed and to be paid by Manager hereunder, Fund
shall pay to Manager a quarterly fee of .3125% of the net asset value of Fund up
to $100 million, .25% of the net asset value of Fund in excess of $100 million
and up to $500 million and .20% of the net asset value of Fund in excess of $500
million, as determined by valuations made as of the beginning of each calendar
quarter, which fee shall be payable in three equal monthly installments on the
last business day of each month during such quarter.
5. LIMITATION OF EXPENSES OF FUND. The total expenses of Fund,
exclusive of taxes, of interest and of extraordinary litigation expenses, but
including fees paid to Manager, shall not in any fiscal year of Fund exceed the
most restrictive limits prescribed by any state in which Fund's shares are then
being offered for sale, and Manager agrees that the Manager's compensation under
paragraph 4 of this agreement shall be reduced by the amount of any such
expenses in excess of that limit. If Fund's expenses would still exceed that
limit after the Manager's compensation has been reduced to zero, the Manager
shall reimburse Fund for sums expended for such expenses to the extent necessary
to cause Fund's expenses to be within the limit. Brokers' commissions and other
charges relating to the purchase and sale of portfolio securities shall not be
regard as expenses.
6. SERVICES OF MANAGER NOT EXCLUSIVE. The services of Manager to
Fund hereunder are not to be deemed exclusive, and Manager shall be free to
render similar services to others so long as its services under this agreement
are not impaired by such other activities.
7. SERVICES OTHER THAN AS MANAGER. Manager (or an affiliate of
Manager) may act as broker for Fund in connection with the purchase or sale of
securities by or to Fund if and to the extent permitted by procedures adopted
from time to time by the board of trustees of Trust.
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<PAGE>
Such brokerage services are not within the scope of the duties of Manager under
this agreement, and, within the limits permitted by law and the board of
trustees of Trust, Manager (or an affiliate of Manager) may receive brokerage
commissions, fees or other remuneration from Fund for such services in addition
to its fee for services as Manager. Within the limits permitted by law Manager
may receive compensation from Fund for other services performed by it for Fund
which are not within the scope of the duties of Manager under this agreement.
8. LIMITATION OF LIABILITY OF MANAGER. Manager shall not be liable
to Trust or its shareholders for any loss suffered by Trust or its shareholders
from or as a consequence of any act or omission of Manager, or of any of the
partners, employees or agents of Manager, in connection with or pursuant to this
agreement, except by reason of willful misfeasance, bad faith or gross
negligence on the part of Manager in the performance of its duties or by reason
of reckless disregard by Manager of its obligations and duties under this
agreement.
9. DURATION AND RENEWAL. Unless terminated as provided in Section
10, this agreement shall continue in effect until June 30, 1994, and thereafter
from year to year only so long as such continuance is specifically approved at
least annually (a) by a majority of those trustees who are not interested
persons of Trust or of Manager, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by either the board of trustees of
Trust or vote of the holders of a "majority of the outstanding shares of Fund"
(which term as used throughout this agreement shall be construed in accordance
with the definition of "vote of a majority of the outstanding voting securities
of a company" in section 2(a)(42) of the 1940 Act).
10. TERMINATION. This agreement may be terminated at any time,
without payment of any penalty, by the board of trustees of Trust, or by a vote
of the holders of a majority of the outstanding shares of Fund, upon 60 days'
written notice to Manager. This agreement may be terminated by Manager at any
time upon 60 days' written notice to Trust. This agreement shall terminate
automatically in the event of its assignment (as defined in Section 2(a(4) of
the 1940 Act).
11. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any obligation of
Trust hereunder shall be binding only upon the assets of Trust (or applicable
series thereof) and shall not be binding upon any trustee, officer, employee,
agent or shareholder of Trust. Neither the authorization of any action by the
trustees or shareholders of Trust nor the execution of this agreement on behalf
of Trust shall impose any liability upon any trustee, officer or shareholder of
Trust.
12. AMENDMENT. This agreement may not be amended without the
affirmative vote (a) of a majority of those trustees who are not "interested
persons" (as defined in section 2(a)(19) of the 1940 Act) of Trust or of
Manager, voting in person at a meeting called for the purpose of voting on such
approval, and (b) of the holders of a majority of the outstanding shares of
Fund.
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<PAGE>
Dated: September 15, 1992
ACORN INVESTMENT TRUST
By
----------------------------
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By
----------------------------
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<PAGE>
EXHIBIT 6
DISTRIBUTION AGREEMENT
BETWEEN
ACORN INVESTMENT TRUST
AND
WAM BROKERAGE SERVICES, L.L.C.
THIS DISTRIBUTION AGREEMENT (the "Agreement") is made as of this 27th day
of February, 1996 by and between ACORN INVESTMENT TRUST, a business trust
organized and existing under the laws of the Commonwealth of Massachusetts
("Acorn"), and WAM BROKERAGE SERVICES, L.L.C., a limited liability company
organized and existing under the laws of the State of Illinois ("WAM BD").
RECITALS:
WHEREAS, Acorn is engaged in business as an open-end management investment
company registered under the Investment Company Act of 1940, as amended ("1940
Act");
WHEREAS, WAM BD is registered as a broker-dealer under the Securities
Exchange Act of 1934, as amended ("1934 Act"), and the laws of each state
(including the District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of the National
Association of Securities Dealers ("NASD") (such registrations and membership
are referred to collectively as the "Registrations");
WHEREAS, Acorn desires WAM BD to act as the distributor in the public
offering of its shares of beneficial interest (hereinafter called "Shares")
which are divided into two series, Acorn Fund and Acorn International
(hereinafter called, collectively, the "Funds" and, individually, the "Fund");
WHEREAS, Acorn has entered into investment advisory agreements with Wanger
Asset Management, L.P. ("WAM"), an affiliate of WAM BD, pursuant to which WAM
has agreed to pay all expenses incurred in the sale and promotion of shares of
Acorn;
NOW, THEREFORE, the parties hereto agree as follows:
1. Appointment. Acorn appoints WAM BD to act as principal underwriter (as
such term is defined in Section 2(a)(29) of the 1940 Act of its Shares.
2. Delivery of Acorn Documents. Acorn has furnished WAM BD with properly
certified or authenticated copies of each of the following in effect on the date
hereof and shall furnish WAM BD from time to time properly certified or
authenticated copies of all amendments or supplements thereto:
(a) Agreement and Declaration of Trust;
(b) By-Laws;
<PAGE>
(c) Resolutions of its Board of Trustees (hereinafter referred to as
the "Board") selecting WAM BD as distributor and approving this
form of agreement and authorizing its execution.
Acorn shall furnish WAM BD promptly with copies of any registration
statements filed by it with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933 (the "1933 Act") or the 1940 Act, together with any
financial statements and exhibits included therein, and all amendments or
supplements thereto hereafter filed.
Acorn also shall furnish WAM BD such other certificates or documents which
WAM BD may from time to time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 5, 6 and 8 hereof, and to such
minimum purchase requirements as may from time to time be indicated in Acorn's
Prospectus, WAM BD is authorized to solicit, as agent on behalf of Acorn,
unconditional orders for purchases of Acorn's Shares authorized for issuance and
registered under the 1933 Act, provided that:
(1) WAM BD shall act solely as a disclosed agent on behalf of and for
the account of Acorn;
(2) Acorn's transfer agent shall receive directly from investors all
payments for the purchase of Acorn's Shares and also shall pay
directly to shareholders amounts due to them for the redemption
or repurchase of all Acorn's Shares, with WAM BD having no rights
or duties to accept such payment or to effect such redemptions or
repurchases; if a payment for the purchase of Acorn's Shares be
delivered to WAM BD, such payment shall not be negotiated by WAM
BD but shall be delivered as soon as reasonably practicable to
Acorn's transfer agent;
(3) WAM BD shall confirm all orders received for purchase of Acorn's
Shares which confirmation shall clearly state (i) that WAM BD is
acting as agent of Acorn in the transaction, (ii) that all
certificates for redemption, remittances and registration
instructions should be sent directly to Acorn and (iii) Acorn's
mailing address;
(4) WAM BD shall have no liability for payment for purchases of
Acorn's Shares it sells as agent; and
(5) Each order to purchase Shares of Acorn received by WAM BD shall
be subject to acceptance by an officer of Acorn in Chicago and
entry of the order on Acorn's records or shareholder accounts and
is not binding until so accepted and entered.
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<PAGE>
The purchase price to the public of Acorn's Shares shall be the public
offering price as defined in Paragraph 7 hereof.
(b) In consideration of the rights granted to WAM BD under this Agreement,
WAM BD will use its best efforts (but only in states in which WAM BD may
lawfully do so) to solicit from investors unconditional orders to purchase
Shares of Acorn. Acorn shall make available to WAM BD, at WAM BD's cost, such
number of copies of Acorn's currently effective Prospectus and Statement of
Additional Information and copies of all information, financial statements and
other papers which WAM BD may reasonably request for use in connection with the
distribution of Shares.
4. Selling Agreements. WAM BD is authorized, as agent on behalf of Acorn,
to enter into agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of Acorn's Shares authorized
for issuance and registered under the 1933 Act. All such agreements shall be
either in the form of agreement attached hereto or in such other form as may be
approved by the officers of Acorn ("Selling Agreement"). All solicitations made
by other broker-dealers pursuant to a Selling Agreement shall be subject to the
same terms as are applied by this Agreement to solicitations made by WAM BD.
5. Solicitation of Orders to Purchase Shares by Acorn. The rights granted
to WAM BD shall be non-exclusive in that Acorn reserves the right to solicit
purchases from, and sell its Shares to, investors. Further, Acorn reserves the
right to issue Shares in connection with the merger or consolidation of any
other investment company, trust or personal holding company with Acorn, or
Acorn's acquisition, by the purchase or otherwise, of all or substantially all
of the assets of an investment company, trust or personal holding company, or
substantially all of the outstanding shares or interests of any such entity.
Any right granted to WAM BD to solicit purchases of Shares will not apply to
Shares that may be offered by Acorn to shareholders by virtue of their being
shareholders of Acorn.
6. Shares Covered by this Agreement. This Agreement relates to the
solicitation of orders to purchase Shares that are duly authorized and
registered and available for sale by Acorn, including redeemed or repurchased
Shares if and to the extent that they may be legally sold and if, but only if,
Acorn authorizes WAM BD to sell them.
7. Public Offering Price. All solicitations by WAM BD pursuant to this
Agreement shall be for orders to purchase Shares of Acorn at the public offering
price. The public offering price for each accepted subscription for Acorn's
Shares will be the net asset value per share of the particular Fund subscribed
for next determined by Acorn after it accepts such subscription. The net asset
value per share shall be determined in the manner provided in Acorn's Agreement
and Declaration of Trust as now in effect or as they may be amended, and as
reflected in Acorn's then current Prospectus and Statement of Additional
Information.
8. Suspension of Sales. If and whenever the determination of a Fund's net
asset value is suspended and until such suspension is terminated, no further
orders for Shares of such Fund shall be accepted by Acorn except such
unconditional orders placed with Acorn and accepted by it before the suspension.
In addition, Acorn reserves the right to suspend sales of
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<PAGE>
Shares if, in the judgment of the Board of Acorn, it is in the best interest of
Acorn to do so, such suspension to continue for such period as may be determined
by Acorn's Board; and in that event, (i) at the direction of Acorn, WAM BD shall
suspend its solicitation of orders to purchase Shares of Acorn until otherwise
instructed by Acorn and (ii) no orders to purchase Shares shall be accepted by
Acorn while such suspension remains in effect unless otherwise directed by its
Board.
9. Authorized Representations. Acorn is not authorized by WAM BD to give
on behalf of WAM BD any information or to make any representations other than
the information and representations contained in Acorn's registration statement
filed with the SEC under the 1933 Act and/or the 1940 Act as it may be amended
from time to time.
WAM BD is not authorized by Acorn to give on behalf of Acorn or any Fund
any information or to make any representations in connection with the sale of
Shares other than the information and representations contained in Acorn's
registration statement filed with the SEC under the 1933 Act and/or the 1940
Act, covering Shares, as such registration statement or Acorn's prospectus may
be amended or supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on behalf of Acorn or
approved by Acorn for WAM BD's use. No person other than WAM BD is authorized
to act as principal underwriter (as such term is defined in the 1940 Act, as
amended) for Acorn.
10. Registration of Additional Shares. Acorn hereby agrees to register
either (i) an indefinite number of Shares pursuant to Rule 24f-2 under the 1940
Act, or (ii) a definite number of Shares as Acorn shall deem advisable pursuant
to Rule 24e-2 under ICA-40, as amended. Acorn will, in cooperation with WAM BD,
take such action as may be necessary from time to time to qualify such Shares
(so registered or otherwise qualified for sale under the 1933 Act), in any state
mutually agreeable to WAM BD and Acorn, and to maintain such qualification;
provided, however, that nothing herein shall be deemed to prevent Acorn from
registering its shares without approval of WAM BD in any state it deems
appropriate.
11. Conformity With Law. WAM BD agrees that in soliciting orders to
purchase Shares it shall duly conform in all respects with applicable federal
and state laws and the rules and regulations of the NASD. WAM BD will use its
best efforts to maintain its Registrations in good standing during the term of
this Agreement and will promptly notify Acorn and WAM, in the event of the
suspension or termination of any of the Registrations.
12. Independent Contractor. WAM BD shall be an independent contractor and
neither WAM BD, nor any of its members, managers, officers, directors, employees
or representatives is or shall be an employee of Acorn in the performance of WAM
BD's duties hereunder. WAM BD shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and employees and
agrees to pay all employee taxes thereunder.
13. Indemnification. WAM BD agrees to indemnify and hold harmless Acorn
and each of the members of its Board and its officers, employees and
representatives and each person, if any, who controls Acorn within the meaning
of Section 15 of the 1933 Act against any
4
<PAGE>
and all losses, liabilities, damages, claims and expenses (including the
reasonable costs of investigating or defending any alleged loss, liability,
damage, claim or expense and reasonable legal counsel fees incurred in
connection therewith) to which Acorn or such of the members of its Board and of
its officers, employees, representatives, or controlling person or persons may
become subject under the 1933 Act, under any other statute, at common law, or
otherwise, arising out of the acquisition or sale of any Shares of Acorn by any
person which (i) may be based upon any wrongful act by WAM BD or any of WAM BD's
members, managers, directors, officers, employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement, Prospectus, Statement of Additional
Information, shareholder report or other information covering Shares of Acorn
filed or made public by Acorn or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon information furnished to
Acorn by WAM BD in writing. In no case (i) is WAM BD's indemnity in favor of
Acorn, or any person indemnified, to be deemed to protect Acorn or such
indemnified person against any liability to which Acorn or such person would
otherwise be subject by reason of willful misfeasance, bad faith or negligence
in the performance of its or his duties or by reason of its or his reckless
disregard of its or his obligations and duties under this Agreement, or (ii) is
WAM BD to be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against Acorn or any person indemnified unless
Acorn or such person, as the case may be, shall have notified WAM BD in writing
of the claim within a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim served upon Acorn or
upon such person (or after Acorn or such person shall have received notice of
such service on any designated agent). However, failure to notify WAM BD of any
such claim shall not relieve WAM BD from any liability which WAM BD may have to
Acorn or any person against whom such action is brought otherwise than on
account of WAM BD's indemnity agreement contained in this Paragraph.
WAM BD shall be entitled to participate, at its own expense, in the
defense, or, if WAM BD so elects, to assume the defense of any suit brought to
enforce any such claim but, if WAM BD elects to assume that defense, such
defense shall be conducted by legal counsel chosen by WAM BD and satisfactory to
the persons indemnified who are defendants in the suit. In the event that WAM
BD elects to assume the defense of any such suit and retain such legal counsel,
persons indemnified who are defendants in the suit shall bear the fees and
expenses of any additional legal counsel retained by them. If WAM BD does not
elect to assume the defense of any such suit, WAM BD will reimburse persons
indemnified who are defendants in such suit for the reasonable fees of any legal
counsel retained by them in such litigation.
Acorn agrees to indemnify and hold harmless WAM BD and each of its members,
managers, directors, officers, employees, and representatives and each person,
if any, who controls WAM BD within the meaning of Section 15 of the 1933 Act
against any and all losses, liabilities, damages, claims or expenses (including
the damage, claim or expense and reasonable legal counsel fees incurred in
connection therewith) to which WAM BD or such of its members, managers,
directors, officers, employees, representatives or controlling person or persons
may otherwise become subject under the 1933 Act, under any other statute, at
common law, or
5
<PAGE>
otherwise arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by Acorn or any of the members of Acorn's
Board, or Acorn's officers, employees or representatives other than WAM BD, or
(ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, Prospectus, Statement of
Additional Information, shareholder report or other information covering Shares
filed or made public by Acorn or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading unless
such statement or omission was made in reliance upon information furnished by
WAM BD to Acorn. In no case (i) is Acorn's indemnity in favor of WAM BD or any
person indemnified to be deemed to protect WAM BD or such indemnified person
against any liability to which WAM BD or such indemnified person would otherwise
be subject by reason of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his reckless disregard
of its or his obligations and duties under this Agreement, or (ii) is Acorn to
be liable under its indemnity agreement contained in this Paragraph with respect
to any claim made against WAM BD or any person indemnified unless WAM BD, or
such person, as the case may be, shall have notified Acorn in writing of the
claim within a reasonable time after the summons, or other first written
notification, giving information of the nature of the claim served upon WAM BD
or upon such person (or after WAM BD or such person shall have received notice
of such service on any designated agent). However, failure to notify Acorn of
any such claim shall not relieve Acorn from any liability which Acorn may have
to WAM BD or any person against whom such action is brought otherwise than on
account of Acorn's indemnity agreement contained in this Paragraph.
Acorn shall be entitled to participate, at its own expense, in the defense
or, if Acorn so elects, to assume the defense of any suit brought to enforce
such claim but, if Acorn elects to assume the defense, such defense shall be
conducted by legal counsel chosen by Acorn and satisfactory to the persons
indemnified who are defendants in the suit. In the event that Acorn elects to
assume the defense of any such suit and retain such legal counsel, the persons
indemnified who are defendants in the suit shall bear the fees and expenses of
any additional legal counsel retained by them. If Acorn does not elect to
assume the defense of any such suit, Acorn will reimburse the persons
indemnified who are defendants in such suit for the reasonable fees and expenses
of any legal counsel retained by them in such litigation.
14. Duration and Termination of this Agreement. This Agreement shall
become effective upon its execution ("Effective Date") and unless terminated as
provided herein, shall remain in effect through June 30, 1997, and from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually by (a) a vote of majority of the members of the Board of Acorn
who are not interested persons of WAM BD or Acorn, voting in person at a meeting
called for the purpose of voting on such approval, and (b) the vote of either
the Board of Acorn or a majority of the outstanding Shares of Acorn. This
Agreement may be terminated at any time, without the payment or any penalty (a)
on 60 days' written notice, by the Board of Acorn or by or by a vote of a
majority of the outstanding Shares of Acorn, or by WAM BD, or (b) immediately,
on written notice by the Board of Acorn, in the event of termination or
6
<PAGE>
suspension of any of the Registrations. This Agreement will automatically
terminate in the event of its assignment. In interpreting the provisions of this
Paragraph 14, the definitions contained in Section 2(a) of the 1940 Act
(particularly the definitions of "interested person", "assignment", and
"majority of the outstanding shares") shall be applied.
15. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by each party against which enforcement of the change, waiver,
discharge or termination is sought. If Acorn should at any time deem it
necessary or advisable in the best interests of Acorn that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or any other governmental authority or to obtain any advantage under
state or Federal tax laws and notifies WAM BD of the form of such amendment and
the reasons therefore, and if WAM BD should decline to assent to such amendment,
Acorn may terminate this Agreement forthwith. If WAM BD should at any time
request that a change be made in Acorn's Agreement and Declaration of Trust, By-
Laws or its methods of doing business, in order to comply with any requirements
of Federal law or regulations of the SEC, or of a national securities
association of which WAM BD is or may be a member, relating to the sale of
Shares, and Acorn should not make such necessary changes within a reasonable
time, WAM BD may terminate this Agreement forthwith.
16. Liability. It is understood and expressly stipulated that neither the
shareholders of Acorn nor the members of the Board of Acorn shall be personally
liable hereunder. The obligations of Acorn are not personally binding upon, nor
shall resort to the private property of, any of the members of the Board of
Acorn nor of the shareholders, officers, employees or agents of Acorn, but only
Acorn's property shall be bound.
17. Miscellaneous. The captions in this Agreement are included for
convenience or reference only, and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
18. Notice. Any notice required or permitted to be given by a party to
this Agreement or to any other party hereunder shall be deemed sufficient if
delivered in person or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other party at the address
provided below or to the last address furnished by each such other party to the
party giving notice.
If to Acorn: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
7
<PAGE>
If to WAM BD: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Merrillyn J. Kosier
If to WAM: 227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
Attn: Bruce H. Lauer
ATTEST: WAM BROKERAGE SERVICES, L.L.C.
_____________________________ By:________________________________
Secretary Terence M. Hogan, President
ATTEST: ACORN INVESTMENT TRUST
_____________________________ By:________________________________
Secretary Ralph Wanger, President
ACKNOWLEDGED:
WANGER ASSET MANAGEMENT, L.P.
By:__________________________
Ralph Wanger
ATTEST:
_____________________________
Secretary
8
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Acorn Investment Trust, a business trust
organized and existing under the laws of the Commonwealth of Massachusetts,
having its principal place of business at 2 North LaSalle Street, Chicago
Illinois 60602 hereinafter called the "Fund", and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to initially offer shares in one series,
designated Acorn Fund (such series together with all other series subsequently
established by the Fund and made subject to this Contract in accordance with
paragraph 17, being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets
of the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
2
<PAGE>
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian. The Custodian may employ as sub-custodian for
the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
--------------------------------------------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by
such Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which
State Street Bank and Trust Company acts as issuing and paying agent
("Direct Paper") which
3
<PAGE>
is deposited and/or maintained in the Direct Paper System of the
Custodian pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
Securities System account of the Custodian or in the Custodian's
Direct Paper book-entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of
the applicable Portfolio, which may be continuing instructions when
deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered into
by the Portfolio;
3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other
similar offers for securities of the Portfolio;
4
<PAGE>
5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.9 or into the
name or nominee name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
5
<PAGE>
delivery" custom; provided that in any such case, the
Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for
6
<PAGE>
definitive securities; provided that, in any such case, the
new securities and cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings
by the Fund on behalf of the Portfolio requiring a pledge of
assets by the
7
<PAGE>
Fund on behalf of the Portfolio, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian, and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission
and/or any
8
<PAGE>
Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such
Transfer Agent or to the holders of shares in connection
with distributions in kind, as may be described from time to
time in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions from the Fund
on behalf of the applicable Portfolio, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Fund and certified by
the Secretary or an
9
<PAGE>
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to
be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with
other registered investment companies having the same investment
adviser as the Portfolio, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities
accepted by the Custodian on behalf of the Portfolio under the terms
of this Contract shall be in "street name" or other good delivery
form. If, however, the
10
<PAGE>
Fund directs the Custodian to maintain securities in "street name",
the Custodian shall utilize its best efforts only to timely collect
income due the Fund on such securities and to notify the Fund on a
best efforts basis only of relevant corporate actions including,
without limitation, pendency of calls, maturities, tender or exchange
offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained
by the Portfolio in a bank account established and used in accordance
with Rule 17f-3 under the Investment Company Act of 1940. Funds held
by the Custodian for a Portfolio may be deposited by it to its credit
as Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or
trust company shall be qualified to
11
<PAGE>
act as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited with
each such bank or trust company shall on behalf of each applicable
Portfolio be approved by vote of a majority of the Board of Trustees
of the Fund. Such funds shall be deposited by the Custodian in its
capacity as Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the
Custodian shall, upon the receipt of Proper Instructions from the Fund
on behalf of a Portfolio, make federal funds available to such
Portfolio as of specified times agreed upon from time to time by the
Fund and the Custodian in the amount of checks received in payment for
Shares of such Portfolio which are deposited into the Portfolio's
account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other
payments with respect to registered domestic securities held hereunder
to which each Portfolio shall be entitled either by law or pursuant to
custom in the securities business, and
12
<PAGE>
shall collect on a timely basis all income and other payments with
respect to bearer domestic securities if, on the date of payment by
the issuer, such securities are held by the Custodian or its agent
thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when they
become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund. The Custodian will have no duty or responsibility in connection
therewith, other than to provide the Fund with such information or
data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Portfolio
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall
13
<PAGE>
pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian
(or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System,
14
<PAGE>
in accordance with the conditions set forth in Section
2.10A; (d) in the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities
either in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities or (ii) against delivery of the receipt
evidencing purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the agreement
by the Custodian to repurchase such securities from the
Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
15
<PAGE>
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section
2.2 hereof;
3) For the redemption or repurchase of Shares issued by the
Portfolio as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio
declared pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect
of securities sold short;
16
<PAGE>
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of
the Portfolio, a certified copy of a resolution of the Board
of Trustees or of the Executive Committee of the Fund signed
by an officer of the Fund and certified by its Secretary or
an Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such payment is
to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to
be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for
17
<PAGE>
such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or
trust company which is itself qualified under the Investment Company
Act of 1940, as amended, to act as a custodian, as its agent to carry
out such of the provisions of this Article 2 as the Custodian may from
time to time direct; provided, however, that the appointment of any
agent shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and
18
<PAGE>
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of
the Portfolio which are maintained in a Securities System
shall identify by book-entry those securities belonging to
the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of the Portfolio.
19
<PAGE>
The Custodian shall transfer securities sold for the account
of the Portfolio upon (i) receipt of advice from the
Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry
on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all
advices from the Securities System of transfers of
securities for the account of the Portfolio shall identify
the Portfolio, be maintained for the Portfolio by the
Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund on behalf of
the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's
20
<PAGE>
transactions in the Securities System for the account of the
Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with
any report obtained by the Custodian on the Securities
System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund on behalf of
the Portfolio the initial or annual certificate, as the case
may be, required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Fund for the benefit of
the Portfolio for any loss or damage to the Portfolio
resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or
any of its agents or of any of its or their employees or
from failure of the
21
<PAGE>
Custodian or any such agent to enforce effectively such
rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Portfolio has not been
made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The
Custodian, in accordance with applicable rules of the Securities and
Exchange Commission, may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions from the Fund on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if
22
<PAGE>
such securities are represented in an account ("Account") of
the Custodian in the Direct Paper System which shall not
include any assets of the Custodian other than assets held
as a fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of
the Portfolio which are maintained in the Direct Paper
System shall identify by book-entry those securities
belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of
the Portfolio upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
23
<PAGE>
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the
account of the Portfolio, in the form of a written advice or
notice, of Direct Paper on the next business day following
such transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the Securities System for the account
of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal
accounting control as the Fund may reasonably request from
time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 or Section 2.10A
hereof, (i)
24
<PAGE>
in accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by
the Portfolio or commodity futures contracts or options thereon
purchased or sold by the Portfolio, (iii) for the purposes of
compliance by the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance
of segregated accounts by registered investment companies and (iv) for
other proper
25
<PAGE>
corporate purposes, but only, in the case of clause (iv), upon receipt
of, in addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the
26
<PAGE>
manner in which such proxies are to be voted, and shall promptly
deliver to the Portfolio such proxies, all proxy soliciting materials
and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to
the Fund for each Portfolio all written information (including,
without limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund on
behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities being held for the Portfolio. With respect
to tender or exchange offers, the Custodian shall transmit promptly to
the Portfolio all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from
the party (or his agents) making the tender or exchange offer. If the
Portfolio desires to take action with respect to any tender offer,
exchange offer or any other similar transaction, the Portfolio shall
notify
27
<PAGE>
the Custodian at least three business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States
-----------------------------------------------------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolios
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as sub-
custodian. Upon receipt of Proper Instructions, the Fund may instruct
the Custodian to cease the employment of any one or more such sub-
custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody
28
<PAGE>
of the foreign sub-custodians to: (a) "foreign securities", as defined
in paragraph (c)(l) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Portfolio's foreign securities transactions.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the
Portfolios shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking institutions
serving as sub-custodians pursuant to the terms hereof. Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Segregation of Securities. The Custodian shall identify on its books
as belonging to each applicable Portfolio of the Fund, the foreign
securities of such Portfolios held by each foreign sub-custodian. Each
agreement pursuant to which the Custodian employs a foreign banking
institution shall require that such institution establish a custody
account for the
29
<PAGE>
Custodian on behalf of the Fund for each applicable Portfolio of the
Fund and physically segregate in each account, securities and other
assets of the Portfolios, and, in the event that such institution
deposits the securities of one or more of the Portfolios in a foreign
securities depository, that it shall identify on its books as
belonging to the Custodian, as agent for each applicable Portfolio,
the securities so deposited.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the form set
forth in Exhibit 1 hereto and shall provide that: (a) the assets of
each Portfolio will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking
institution or its creditors or agent, except a claim of payment for
their safe custody or administration; (b) beneficial ownership for the
assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration;
(c) adequate records will be maintained identifying the assets as
belonging to each applicable Portfolio; (d) officers of or auditors
30
<PAGE>
employed by, or other representatives of the Custodian, including to
the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and
records of the foreign banking institution relating to its actions
under its agreement with the Custodian; and (e) assets of the
Portfolios held by the foreign sub-custodian will be subject only to
the instructions of the Custodian or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign sub-
custodians, including but not limited to an identification of entities
having possession of the
31
<PAGE>
Portfolio(s) securities and other assets and advices or notifications
of any transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of each applicable Portfolio indicating, as to securities
acquired for a Portfolio, the identity of the entity having physical
possession of such securities.
3.8 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section
3.8, the provision of Sections 2.2 and 2.7 of this Contract shall
apply, mutatis mutandis to the foreign securities of the Fund held
outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance
with the customary established securities trading or securities
processing practices and procedures in the jurisdiction or market in
which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a
32
<PAGE>
dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract, and the Fund
agrees to hold any such nominee harmless from any liability as a
holder of record of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign sub-
custodian shall require the institution to exercise reasonable care in
the performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
33
<PAGE>
liability or claim if and to the extent that the Fund has not been
made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a
foreign banking institution, a foreign securities depository or a
branch of a U.S. bank as contemplated by paragraph 3.13 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism or any loss where
the sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.10, in
delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Fund for any loss
due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to,
34
<PAGE>
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such
35
<PAGE>
Portfolios assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns
of a material adverse change in the financial condition or foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there appears to be a substantial
likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
36
<PAGE>
3.13 Branches of U.S. Banks.
(a) Except as otherwise set forth in this Contract, the provisions of
Article 3 hereof shall not apply where the custody of the Portfolios
assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment
Company Act of 1940 meeting the qualification set forth in Section
26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be
subject to the direction of the Custodian, State Street London Ltd. or
both, in accordance with this Agreement.
3.14 Tax Law. The Custodian shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. It shall be the
responsibility of the Fund to notify the Custodian
37
<PAGE>
of the obligations imposed on the Fund or the Custodian as custodian
of the Fund by the tax law of jurisdictions other than those mentioned
in the above sentence, including responsibility for withholding and
other taxes, assessments or other governmental charges, certifications
and governmental reporting. The sole responsibility of the Custodian
with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund
under the tax law of jurisdictions for which the Fund has provided
such information.
4. Payments for Sales or Repurchases or Redemptions of Shares
of the Fund
----------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or
from the Transfer Agent of the Fund and deposit into the account of the
appropriate Portfolio such payments as are received for Shares of that Portfolio
issued or sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any
38
<PAGE>
applicable votes of the Board of Trustees of the Fund pursuant thereto, the
Custodian shall, upon receipt of instructions from the Transfer Agent, make
funds available for payment to holders of Shares who have delivered to the
Transfer Agent a request for redemption or repurchase of their Shares. In
connection with the redemption or repurchase of Shares of a Portfolio, the
Custodian is authorized upon receipt of instructions from the Transfer Agent to
wire funds to or through a commercial bank designated by the redeeming
shareholders. In connection with the redemption or repurchase of Shares of the
Fund, the Custodian shall honor checks drawn on the Custodian by a holder of
Shares, which checks have been furnished by the Fund to the holder of Shares,
when presented to the Custodian in accordance with such procedures and controls
as are mutually agreed upon from time to time between the Fund and the
Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
39
<PAGE>
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from
the Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this Contract,
provided that no such
40
<PAGE>
individual expense shall exceed $50.00, and all such payments shall be accounted
for to the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Portfolio, checks,
drafts and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other dealings
with the securities and property of the Portfolio except as otherwise directed
by the Board of Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
41
<PAGE>
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income
------------------------------------------------------------
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value
per share and the daily income of each Portfolio shall be made at the time or
times described from time to time in the Fund's currently effective prospectus
related to such Portfolio.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and
42
<PAGE>
obligations under this Contract in such manner as will meet the obligations of
the Fund under the Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall
be the property of the Fund and shall at all times during the regular business
hours of the Custodian be open for inspection by duly authorized officers,
employees or agents of the Fund and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by each Portfolio and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
43
<PAGE>
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, but not less than
annually, with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, including the Custodian's
Direct Paper System, relating to the services provided by the Custodian under
this Contract; such reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Fund to provide reasonable
assurance that any material inadequacies would be disclosed by such examination,
and, if there are no such inadequacies, the reports shall so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for
44
<PAGE>
the title, validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall be held
harmless in acting upon any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and shall be
without liability to the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 to the
same extent as set forth in Article 1 hereof with respect to sub-custodians
located in the United States (except as specifically provided in Article 3.10)
and, regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.11
45
<PAGE>
hereof, the Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of or
authorization by the Fund to maintain custody or any securities or cash of the
Fund in a foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism.
If the Fund on behalf of a Portfolio requires the Custodian to take
any action with respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Fund or the Portfolio being liable for
the payment of money or incurring liability of some other form, the Fund on
behalf of the Portfolio, as a prerequisite to requiring the Custodian to take
such action, shall provide indemnity to the Custodian in an amount and form
reasonably satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of a Portfolio including the purchase or sale of foreign
exchange or of contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any
46
<PAGE>
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable Portfolio shall
be security therefor and should the Fund fail to repay the Custodian promptly,
the Custodian shall be entitled to utilize available cash and to dispose of such
Portfolio's assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio and
the receipt of an annual certificate of the
47
<PAGE>
Secretary or an Assistant Secretary that the Board of Trustees has reviewed the
use by such Portfolio of such Securities System, as required in each case by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.10A hereof
in the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the Board of
Trustees has reviewed the use by such Portfolio of the Direct Paper System;
provided further, however, that the Fund shall not amend or terminate this
Contract in contravention of any applicable federal or state regulations, or any
provision of the Declaration of Trust, and further provided, that the Fund on
behalf of one or more of the Portfolios may at any time by action of its Board
of Trustees (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event
48
<PAGE>
at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each
applicable Portfolio shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the
Portfolios shall be appointed by the Board of Trustees of the Fund, the
Custodian shall, upon termination, deliver to such successor custodian at the
office of the Custodian, duly endorsed and in the form for transfer, all
securities of each applicable Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of the securities of each
such Portfolio held in a Securities System or the Custodian's Direct Paper
System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
49
<PAGE>
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board of Trustees shall have been delivered
to the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the
50
<PAGE>
Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this Contract.
51
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to Acorn Fund with respect to which it desires to have the Custodian
render services as custodian under the terms hereof, it shall so notify the
Custodian in writing, and if the Custodian agrees in writing to provide such
services, such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
19. Limitations of Liability of the Trustees, Officers
and Shareholders
--------------------------------------------------
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees, Officers or Shareholders individually but are binding
only upon the assets and property of the Fund.
52
<PAGE>
20. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 1st day of July, 1992.
ATTEST ACORN INVESTMENT TRUST
By
- ------------------------------ -------------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ------------------------------ -------------------------------------
Assistant Secretary Vice President
53
<PAGE>
EXHIBIT 1
---------
CUSTODIAN AGREEMENT
-------------------
TO:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the "Bank")
establish a custody account and a cash account for each State Street client
whose account is identified to this Agreement. Each such custody or cash
account as applicable will be referred to herein as the "Account" and will be
subject to the following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such case, bullion, coin, stocks, shares, bonds,
debentures, notes and other securities and other property which is delivered to
the Bank for that State Street Account (the "Property").
2. (a) Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, unless such depository or clearing house operates the central system for
handling of securities or equivalent book-entries in that country or operates
<PAGE>
a transnational system for the central handling of securities or equivalent
book-entries.
(b) When Securities held for an Account are deposited in a securities
depository or clearing agency by the Bank, the Bank shall identify on its books
as belonging to State Street as agent for such Account, the Securities so
deposited.
The Bank represents that either:
3. (a) It currently has stockholders' equity in excess of $200 million
(US dollars or the equivalent of US dollars computed in accordance with
generally accepted US accounting principles) and will promptly inform State
Street in the event that there appears to be a substantial likelihood that its
stockholders' equity will decline below $200 million, or in any event, at such
time as its stockholders' equity in fact declines below $200 million; or
(b) It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order permits State Street
to employ the Bank as a subcustodian, notwithstanding the fact that the Bank's
stockholders' equity is currently below $200 million or may in the future
decline below $200 million due to currency fluctuation
4. Upon the written instructions of State Street as permitted by Section
8, the Bank is authorized to pay out cash
2
<PAGE>
from the Account and to sell, assign, transfer, deliver or exchange, or to
purchase for the Account any and all stocks, shares, bonds, debentures, notes
and other securities ("Securities"), bullion, coin and other property, but only
as provided in such written instructions. The Bank shall not be held liable for
any act or omission to act on instructions given or purported to be given should
there be any error in such instructions.
5. Unless the Bank receives written instructions of State Street to the
contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with respect
to the Property and to credit cash receipts to the Account;
b. To promptly exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of temporary
Securities for those in definitive form and the exchange of warrants,
or other documents of entitlement to Securities, for the Securities
themselves);
c. To promptly surrender Securities at maturity or when called for
redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional interest
resulting from a rights issue, stock dividend or stock split is
received for the Account and such rights entitlement or fractional
interest bears an expiration date, the Bank will endeavor to obtain
State Street's instructions, but should these not be received in time
for the Bank to take timely action, the Bank is authorized to sell
such rights entitlement or fractional interest and to credit the
Account;
3
<PAGE>
e. To hold registered in the name of the nominee of the Bank or its
agents such Securities as are ordinarily held in registered form;
f. To execute in State Street's name for the Account, whenever the Bank
deems it appropriate, such ownership and other certificates as may be
required to obtain the payment of income from the property; and
g. To pay or cause to be paid from the Account any and all taxes and
levies in the nature of taxes imposed on such assets by any
governmental authority, and shall use reasonable efforts to promptly
reclaim any foreign withholding tax relating to the Account.
6. If the Bank shall receive any proxies, notices, reports, or other
communications relative to any of the Securities of the Account in connection
with tender offers, reorganizations, mergers, consolidations, or similar events
which may have an impact upon the issuer thereof, the Bank shall promptly
transmit any such communication to State Street by means as will permit State
Street to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and agents
in connection with the Bank's handling of transactions relating to the Property
provided that any such appointment shall not relieve the Bank of any of its
responsibilities or liabilities hereunder.
8. Written instructions shall include (i) instructions in writing signed
by such persons as are designated in writing by
4
<PAGE>
State Street (ii) telex or tested telex instructions of State Street, (iii)
other forms of instruction in computer readable form as shall be customarily
utilized for the transmission of like information and (iv) such other forms of
communication as from time to time shall be agreed upon by State Street and the
Bank.
9. The Bank shall supply periodic reports with respect to the safekeeping
of assets held by it under this Agreement. The content of such reports shall
include but not be limited to any transfer to or from any Account held by the
Bank hereunder and such other information as State Street may reasonably
request.
10. In addition to its obligations under Section 2 hereof, the Bank shall
maintain such other records as may be necessary to identify the assets hereunder
as belonging to each State Street client identified to this Agreement from item
to time.
11. The Bank agrees that its books and records relating to its actions
under this Agreement shall be opened to the physical, on-premises inspection and
audit at reasonable times by officers of, auditors employed by or other
representatives of State Street (including to the extent permitted under
________ law the independent public accountants for any entity whose Property is
being held hereunder) and shall be retained for such period as shall be agreed
by State Street and the Bank.
5
<PAGE>
12. The Bank shall be entitled to reasonable compensation for its services
and expenses as custodian under this Agreement, as agreed upon from time to time
by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties as are set forth or contemplated herein or contained in instructions
given to the Bank which are not contrary to this Agreement, and shall maintain
adequate insurance and agrees to indemnify and hold State Street and each
Account from and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its obligations
hereunder.
14. The Bank agrees that (i) the Property is not subject to any right,
charge, security interest, lien or claim of any kind in favor of the Bank or any
of its agents or its creditors except a claim of payment for their safe custody
and administration and (ii) the beneficial ownership of the Property shall be
freely transferable without the payment of money or other value other than for
safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by at
least 60 days' written notice to the other, sent by registered mail or express
courier. The Bank, upon the date this Agreement terminates pursuant to notice
which has been given in a timely fashion, shall deliver the Property in
accordance with
6
<PAGE>
written instructions of State Street specifying the name(s) of
the person(s) to whom the Property shall be delivered.
16. The Bank and State Street shall each use its best efforts to maintain
the confidentiality of the Property in each Account, subject, however, to the
provisions of any laws requiring the disclosure of the Property.
17. The Bank agrees to follow such Operating Requirements as State Street
may require from time to time. A copy of the current State Street Operating
Requirements is attached as an exhibit to this Agreement.
18. Unless otherwise specified in this Agreement, all notices with respect
to matters contemplated by this Agreement shall be deemed duly given when
received in writing or by tested telex by the Bank or State Street at their
respective addresses set forth below, or at such other address as specified in
each case in a notice similarly given:
7
<PAGE>
To State Street: Global Custody Services Division
STATE STREET BANK AND TRUST COMPANY
P.O. Box 470
Boston, Massachusetts 02102
To the Bank:
By
----------------------------
Date
--------------------------
19. This Agreement shall be governed by and construed in accordance with
the laws of ___________________________.
Please acknowledge your agreement to the foregoing by executing a copy of
this letter
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By
-------------------------------------
Agreed to by:
By
----------------------------
Date
--------------------------
8
<PAGE>
September __, 1992
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Gentlemen:
This is to advise you that Acorn Investment Trust has established a
new series of shares to be known as Acorn International. In accordance with the
Additional Funds provision in Section 17 of the Custodian Contract dated July 1,
1992 and in Article 10 of the Transfer Agency and Service Agreement dated July
1, 1992 between the Fund and State Street Bank and Trust Company, the Fund
hereby requests that you act as Custodian and Transfer Agent for the new series
under the terms of the respective contracts.
Please indicate your acceptance of the foregoing by executing two
copies of this Letter Agreement, returning one to the Fund and retaining one
copy for your records.
ACORN INVESTMENT TRUST
By
------------------------------------
Maxine Ziv
Vice President
Agreed to this ___ day of
______________ , 1992.
STATE STREET BANK AND TRUST COMPANY
By
---------------------------------
Vice President
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Acorn Investment
Trust for use as subcustodians for the Trust's securities and other assets:
<TABLE>
<CAPTION>
Country Subcustodian Central Depository
- ------- ------------ ------------------
<S> <C> <C>
Australia Australia & New Zealand Austraclear Limited
Banking Group Limited
Austria Girozentrale und Bank Oesterreichische
der osterreichischen Kontrollbank AG
Sparkassen AG
Belgium Banque Bruxelles Lambert Caisse Interprofessionnelle
de Depots et de Virements de
Titres S.A. (CIK)
Canada The Canada Trust Company The Canadian Depository
for Securities Limited
(CDS)
Denmark Den Danske Bank Vaerdipapircentralen
The Danish Securities
Center (VP)
Finland Kansallis-Osake-Pankki None
France Credit Commercial de Societe Interprofessionnelle
France pour la Compensation des
Valeurs Mobilieres
(SICOVAM)
Germany Berliner Handels The Deutscher Kassenverein
und Frankfurter Bank AG (DKV)
Greece National Bank of Greece The Central Depository
Hong Kong Standard Chartered Bank None
Indonesia Standard Chartered Bank None
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Country Subcustodian Central Depository
- ------- ------------ ------------------
<S> <C> <C>
Ireland Bank of Ireland None
Italy Credito Italiano Monte Titoli S.p.A.
Japan Sumitomo Trust None
& Banking Co., Ltd.
Malaysia Standard Chartered Bank None
Mexico Citibank, N.A. Instituto para el
Deposito de Valores
(INDEVAL)
Netherlands Bank Mees & Hope N.V. Nederlands Centraal
Instituut voor Giraal
Effectenverkeer B.V.
(NECIGEF)
New Zealand Westpac Banking None
Corporation
Norway Christiania Bank og Verdipapirsentralen
Kreditkasse The Norwegian Registry
of Securities (VPS)
Philippines Standard Chartered Bank None
Portugal Banco Commercial Portugues Central de Valores
Mobiliarios (Central)
Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
Spain Banco Central None
Hispanoamericano, S.A.
Sweden Skandinaviska Enskilda Vardepapperscentralen (VPC)
Banken
Switzerland Union Bank of Switzerland Schweizerische Effekten-
Giro AG (SEGA)
Thailand Standard Chartered Bank None
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Country Subcustodian Central Depository
- ------- ------------ ------------------
<S> <C> <C>
Turkey Citibank, N.A. None
United Kingdom State Street Bank and None
Trust Company
</TABLE>
Certified:
--------------------------------
Trust's Authorized Officer
Date:
---------------------------
3
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial History"
and to the incorporation by reference of our reports with respect to Acorn Fund
and Acorn International dated January 31, 1996 in the Registration Statement of
Acorn Investment Trust on Form N-1A and the related Prospectus filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 52 the
Registration Statement under the Securities Act of 1933 (File No. 2-34223) and
in this Amendment No. 27 to the Registration Statement under the Investment
Company Act of 1940 (File No. 811-1829).
Ernst & Young LLP
Chicago, Illinois
April 24, 1996
<PAGE>
Acorn Fund
Acorn International
No-Load Funds
IRA/SEP-IRA Plan
and Applications
Managed by
Wanger Asset Management, L.P.
Acorn IRA plan
<PAGE>
Dear Investor:
Thank you for your interest in the Acorn Funds. We hope you find our IRA booklet
informative and helpful. We understand how important it is to plan for your
future. Starting to invest for your retirement today will give your savings as
much time as possible to grow and will let you take advantage of the power of
compounding over the long haul.
An IRA provides the special advantage of tax-deferred compounding. Your
investment grows year after year with no annual tax payments on the earnings in
your account until you begin to withdraw from your IRA. This means that you can
save more with an IRA than with a comparable taxable investment. What's more,
all or part of your contribution may be deductible from your current taxes,
providing additional tax savings.
Whether you are opening a new IRA, making your annual IRA contribution, moving
an existing IRA from another institution, or rolling over money from an
employer-sponsored retirement plan, Acorn can help you save for your retirement.
This booklet contains everything you need to open an IRA at Acorn. Please take a
moment to read it carefully. If you have any questions or need help with any of
the forms, please call us at 1-800-9-ACORN-9 (1-800-922-6769).
Very truly yours,
/s/ Ralph Wanger
Ralph Wanger
President
P.S. Remember, as a shareholder in either Acorn Fund or Acorn International, you
can open multiple accounts in either fund. Ask one of our customer service
representatives for additional copies of the prospectus, shareholder reports,
and easy-to-use applications.
2 Acorn IRA plan
<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.
Because Acorn Fund and Acorn International are closed to new investors, you may
open a new Acorn IRA only if you are currently an Acorn shareholder or are
otherwise eligible to invest. See the Acorn prospectus for more information.
How much can I contribute?
The annual contribution limit for an IRA is the lesser of $2,000 or 100% of
compensation (including alimony and separate maintenance payments) for the year.
You may contribute the maximum amount to your IRA even if you and/or your spouse
participate in an employer-sponsored retirement program or a Keogh plan
(although some or all of your contribution may not be tax-deductible, as
explained below).
Why use an IRA?
One of the keys to successful retirement planning is effectively using the time
you have until you actually retire. This means saving regularly and starting
now. An IRA is an exceptional way to save for retirement because it offers the
opportunity for long-term growth and the benefit of tax-deferred compounding.
This means that your earnings, both dividends and capital gains, grow free of
current taxes. You pay no taxes on the growth of your IRA until you withdraw
from it.
The following table shows the effects of tax-deferred compounding of earnings
compared to a similar taxable investment -- your IRA's tax-deferred advantage.
Our example assumes a $2,000 contribution at the beginning of each year for 10,
20, and 30 years, a 31% tax bracket, and a constant earnings rate of 10%
annually.
Advantages of Tax-Deferred Compounding
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
$29,400 . Taxable investment
$35,062 . Tax-deferred IRA
$86,697
$126,005
$198,360
$361,887
</TABLE>
This is a hypothetical example for illustrative purposes only and does not
represent the performance of any mutual fund.
- --------------------------------------------------------------------------------
In addition to the benefits of tax-deferred compounding, you may be able to
reduce your current income taxes by taking a tax deduction for a part or all of
your contributions in the years you add to your IRA. Whether all or part of your
annual contribution is deductible depends upon the amount of your income for the
year and whether you or your spouse participate in an employer's qualified
retirement plan. Even if your contribution for a given year is non-deductible,
you may contribute the maximum amount to your IRA for that year.
Acorn IRA plan 3
<PAGE>
General Information about the Individual Retirement Account Plan
(Please see your tax adviser for additional information and reporting
requirements.)
The following chart shows the extent of your contribution's deductibility under
current IRS regulations.
<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) $50,000-$43,500=$6,500 =$______ =$______
or $35,000 (single)
$6,500/5 = $1,300 /5 =$______ /5 =$______
2. Divide by 5 to get
deductible amount*
=====================================================================================
</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 up to $2,250 rather than $2,000 by opening a "Spousal
IRA" for your non-working spouse. The total of contributions to your IRA and the
Spousal IRA cannot exceed $2,250, but that amount may be divided between the two
accounts in whatever proportion you and your spouse decide, up to $2,000 for
either account. See your tax adviser for more information.
4 Acorn IRA plan
<PAGE>
Opening a new Acorn IRA
Investing in an Acorn IRA gives you the opportunity to save for your retirement
using three different mutual funds: Acorn Fund, Acorn International, and Short
Term Income Fund Money Market Portfolio. You may invest all of your
contributions in one fund or you may divide your contributions among the funds
as you choose.
To open a new Acorn IRA, complete the application included with this booklet. On
the application, check the box for a regular IRA contribution and indicate the
tax year for which you are making your IRA contribution. Select the fund(s) in
which you want to invest and indicate the amount to be invested in each fund.
Tell us whether you want to make regular investments in your Acorn IRA by using
the Automatic Investment Plan and provide us with the beneficiary information
requested on the back of the application. Then write a check payable to "State
Street Bank" for the total amount you wish to invest (including the $5 set-up
fee for each fund in which you are investing) and mail your check with the
completed application to Acorn in the pre-addressed envelope provided or to the
address shown on the application.
Moving funds from another IRA to an Acorn IRA
Acorn can help you to move funds from another IRA custodian to an Acorn IRA by a
custodian to custodian (or trustee to trustee) transfer (also known as a direct
transfer), or a 60-day rollover of a distribution you have received or money you
have withdrawn from another IRA. Each method is explained below.
Direct transfer
Acorn will arrange a direct transfer of assets from your current IRA custodian
or trustee directly to Acorn. In a direct transfer you do not receive the
account proceeds during the transfer process. Your money goes directly from your
old IRA custodian to Acorn. You may make direct transfers between IRAs as often
as you choose.
If you would like the transferred money to go into a new Acorn IRA, complete
both the transfer form, checking the box for a new Acorn IRA, and the
application, checking the box for a Direct Transfer. If the transferred money is
to be invested in an existing Acorn IRA, complete only the transfer form.
The transfer form tells us about the IRA assets you are transferring and
provides information about your current custodian. This information should be on
your most recent account statement. Complete the instructions authorizing your
current custodian to
Acorn IRA plan 5
<PAGE>
General Information about the Individual Retirement Account Plan
transfer your account to Acorn and sign the transfer form. Please check with
your present custodian to find out whether you will need to obtain a signature
guarantee.
Send the completed form(s) to Acorn in the envelope provided or to the address
shown on the application. Acorn will arrange for the transfer of assets from
your present custodian.
60-day Rollover from an IRA
If you physically receive money that was held in your IRA with another
custodian, you must deposit the money into an IRA within 60 days to avoid paying
income tax on the amount withdrawn. If this is not done within the 60-day time
limit, you will have to pay income tax on the amount you have received, as well
as possible penalties if you are under the age of 59 1/2 when you receive the
money. You may make only one 60-day rollover per IRA in any twelve-month period.
To establish a rollover account with money you have withdrawn from another IRA,
complete the Acorn IRA application, checking the box for a 60-day rollover of an
existing IRA. Indicate whether the rollover is from a Regular IRA or a Rollover
IRA. Be sure that you forward your check in time for the funds to be received by
State Street Bank no later than 60 days from the date on which the distribution
was made from your IRA.
Rollovers from an employer's qualified plan to an Acorn IRA
If you have been participating in your employer's qualified retirement plan and
are eligible for a distribution from the plan because of a job change, a lay-
off, disability, retirement, or termination of the plan, you need to decide what
you will do with your retirement plan money before you receive the distribution.
Unless you are eligible to leave your money in the plan and want to do so, you
have two main alternatives: (1) rollover the amount distributed and keep your
money working for you tax-deferred, or (2) take the distribution now--subject to
the applicable taxes and penalties.
If you take your distribution now (even if you are planning to do a 60-day
rollover), your employer must withhold 20% of the distribution for federal
income taxes, so you'll receive only 80% of the money to be distributed. You may
also be responsible for (a) additional federal income tax (depending on your tax
bracket), (b) a penalty tax of 10% for an early withdrawal if you are not yet
59 1/2 (subject to exceptions if you are disabled, spend the distribution on
medical expenses, or have separated from service and are at least age 55), and
(c) state and local income taxes on your distribution.
If you choose to reinvest the amount distributed, you have three options: (1)
use a direct rollover to invest the money in an IRA; (2) use a 60-day
6 Acorn IRA plan
<PAGE>
rollover to invest the money in an IRA; or (3) roll over the distribution into a
qualified plan sponsored by a new employer (if the plan accepts rollovers). If
you are reinvesting the money in an IRA, a direct rollover is usually better
than a 60-day rollover. In a direct rollover, you never receive the distribution
(it is sent directly from the plan to the IRA custodian, or the plan gives you a
check payable to the IRA custodian). Because a direct rollover is not treated as
a distribution to you, no tax is withheld.
Direct Rollover
To set up your Acorn IRA by making a direct rollover you should complete the
enclosed application, check the box for a Rollover IRA from an employer-
sponsored plan, and check the appropriate box to tell us whether you are
enclosing a check payable to State Street Bank or your employer will be sending
the check directly to the bank. If your plan administrator gives you a check
payable to State Street Bank, send that check along with the completed
application in the pre-addressed envelope provided or to the address on the
application. If your plan administrator is going to send a check directly to
State Street, send the completed application without the check. We will open the
account and have it ready to receive your distribution check. You may call us at
1-800-922-6769 to request your account number if your plan administrator needs
it to send the distribution check.
60-Day Rollover from a qualified plan
If you have already received a distribution directly, you will have had 20%
withheld for taxes, but you can still make a 60-day rollover.
You will avoid income tax and possible penalties on the amount you deposit in
your IRA, up to the entire amount of your distribution (before deduction of the
20% for income tax withholding). You can rollover part of your distribution and
keep part, paying income tax and any applicable penalties on the part you keep.
If you rollover only the amount of your distribution check (the 80% that was
left after the 20% income tax withholding), you will be treated as having kept
the 20%, which will be subject to income taxes and any applicable penalties. You
can avoid taxes and penalties entirely when you make the 60-day rollover by
making up from other funds the 20% that was withheld for tax. The 20% that was
withheld is treated like any other income tax withholding -- to the extent the
total amount of tax withheld from you (including the 20% and tax withheld from
your compensation) plus estimated income tax payments you make exceeds your tax
liability when you file your return, you will receive a refund of the excess.
If you receive a distribution of property (such as shares of stock) from your
employer's plan, you can make a 60-day rollover by selling the property and
depositing the sales proceeds
Acorn IRA plan 7
<PAGE>
General Information about the Individual Retirement Account Plan
within the 60-day period. If you had borrowed against your account in the plan
from which you receive the distribution, the taxable amount of your distribution
may be more than the amount of cash you receive because it will include the
unpaid loan balance. In this case, you can avoid paying tax on the unpaid loan
balance by using other funds to complete rollover, in the same way you can make
up the 20% tax withholding.
The following chart summarizes the key features of your alternatives for
reinvesting a distribution from your employer's plan and may help you decide how
to keep your money working for your retirement.
<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
money out at any time plan; check with your new
. earnings taxed when withdrawn; employer
10% penalty applies if younger . earnings taxed when withdrawn;
than 59 1/2, unless disabled 10% penalty applies if younger
than 59 1/2 or separated from
. no mandatory 20% withholding for service before age 55, with
federal income taxes on some exceptions
withdrawals . 20% withholding for federal
income taxes if withdrawal of
eligible rollover distributions
not rolled over into another plan
- --------------------------------------------------------------------------------------------------------
Other Features . very easy to set up . can add future contributions to
. can switch between your Acorn your plan
investments tax-free as your needs . enables you to consolidate your
and the market changes retirement plan money
. offers you easy access to your . may be able to borrow from
investments your account
. borrowing not permitted
========================================================================================================
</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.
8 Acorn IRA plan
<PAGE>
Should You Consider a SEP-IRA?
An IRA under a Simplified Employee Pension Plan (SEP-IRA) may be an attractive
way to save for retirement if you have any income from self-employment, and may
also be a way to offer an important benefit to your employees if you are a small
business owner. You may open and contribute to a SEP-IRA as a self-employed
individual if you provide any service from which you earn income, even if you
have a full-time occupation in which you participate in an employer's retirement
plan. If you own a small business as a sole proprietor, a partnership, or a
corporation (including a Subchapter-S corporation), you can establish a SEP-IRA
for yourself and your eligible employees.
A SEP-IRA offers the advantage of tax-deferred compounding that is available in
a regular IRA, while allowing annual contributions of up to 15% of earned income
within the limits imposed by the IRS. We have included with this booklet a
worksheet to help in calculating SEP-IRA contributions.
In addition to tax-deferred compounding, a SEP-IRA provides full deductibility
of each annual contribution from current taxable income. This means that, if
your business is incorporated, you can deduct SEP-IRA contributions for yourself
and any eligible employees as a business expense, or, if your business is not
incorporated, you can (a) deduct contributions for any eligible employees as a
business expense and (b) deduct contributions for yourself from your personal
income.
Setting up a SEP-IRA is simple and flexible. Only a brief information form
(Form 5305-SEP, available from the IRS) must be completed and given to eligible
employees. The IRS regulations for SEP-IRAs require that all eligible employees
(other than union members and non-resident aliens) must be covered; eligible
employees are all those who (a) are at least 21 years old, (b) have worked for
your business for three of the last five years, and (c) have earned at least
$396 in 1994 (an amount adjusted annually for changes in the cost-of-living).
You may establish more liberal requirements to include more of your employees,
but you may not impose more restrictive conditions. You must generally
contribute the same percentage of earned income (based on W-2 wages) for each
eligible employee, but that contribution percentage may vary between 0% and 15%
of earned income each year at your discretion. You may be able to contribute a
higher percentage for employees (including yourself) who earn more than the
Social Security wage base. You may also, if you have no more than 25 eligible
employees (including yourself), make contributions only for employees who elect
to reduce their current compensation (a SAR-SEP). If your business has other
employees, you should consult a qualified tax adviser as to the best
contribution formula to use.
Acorn IRA plan 9
<PAGE>
General Information about the Individual Retirement Account Plan
If you are self-employed, a new SEP-IRA for a given year must be established by
April 15 of the following year, with each subsequent year's contribution also
due by April 15 of the following year. If you are a business owner establishing
SEP-IRAs for yourself and your employees, you must open the accounts by the due
date of your business's federal tax return for the tax year for which the
contribution will be made. In addition to your SEP-IRA, you may also be able to
contribute to a regular IRA, but you should consult your tax adviser about the
deductibility of your contributions and about the tax consequences of excess
contributions to either account.
To open a new SEP-IRA at Acorn, complete the enclosed application. If you have
employees for whom you are establishing SEP-IRA accounts, please write a
separate check for your contribution for each employee. You should also complete
IRS Form 5305-SEP (available from the IRS), keep the original for your records,
and give a copy to each eligible employee. Do not send Form 5305-SEP to Acorn or
file it with the IRS.
In addition, if your business has other employees, you may be required to
furnish them with certain information to avoid being required to file annual tax
returns for the SEP-IRA.
To transfer your SEP-IRA to Acorn from another custodian, complete the transfer
form, checking the box for a SEP-IRA Transfer. If this is a new Acorn SEP-IRA,
you will also need to complete the application, checking the SEP-IRA and Direct
Transfer boxes. If you have received SEP-IRA funds from another custodian and
are moving your money to Acorn within 60 days of that distribution, complete the
application and check the SEP-IRA and 60-Day Rollover boxes.
Making withdrawals from your Acorn IRA
You must begin withdrawing money from your IRA by April 1 of the year after the
year in which you reach age 70 1/2. You may start to withdraw funds from your
account without penalty when you reach age 59 1/2 or if you are disabled or
meet certain other conditions. Any withdrawals you make before you reach age
59 1/2, unless you are disabled or meet certain other IRS qualifications, are
subject to tax penalties. Call Acorn at 1-800-962-1585 for an Acorn IRA
withdrawal service form to make a withdrawal from your IRA or to set up a
regular withdrawal plan. State Street Bank can help you in completing this form
if you have any questions.
10 Acorn IRA plan
<PAGE>
If you wish to withdraw only the minimum required distribution for each year
after you reach age 70 1/2, State Street Bank can help you make the necessary
calculations and set up a periodic withdrawal plan for your distributions.
Simply check box C of the Withdrawal Instructions on the Acorn withdrawal
service form, provide the other requested information for that section, and
complete the remainder of the form. Certain tax penalties may also apply if you
withdraw too much money from an IRA in a given year. You should consult your tax
adviser concerning the differences among the tax effects which may result from
taking the minimum required distribution and those involved in the other
available withdrawal options.
Account Fees
State Street Bank, as custodian, charges the following fees for an Acorn IRA,
per fund account:
<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>
The $5.00 per fund set-up fee will be deducted from your initial IRA
contribution; to maximize the contribution that goes to work for you, add $5 to
your contribution for each fund in which your initial contribution will be
invested (or send us a separate check for the set-up fee). Acorn will also
withdraw the annual maintenance fee(s) from your account(s) unless you send a
check for those fee(s) when you receive Acorn's annual fee statement in
November. If the disbursement fee applies, Acorn will deduct the $10.00 from
each withdrawal.
- -------------------------------------------------------
Minimum Investments
- -------------------------------------------------------
To open an IRA $200
To add to an IRA account 100
Minimum balance 200
- -------------------------------------------------------
Making an active and worry-free retirement possible means taking the time now to
plan for your financial future. We hope that this booklet has been helpful and
that you will make an Acorn IRA part of your retirement plan.
Acorn IRA plan 11
<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 IX.
I. Eligibility
Any person who receives Compensation (including Earned Income of a self-employed
individual and alimony or separate maintenance payments of a divorced person)
during a taxable year is eligible to adopt this Plan for such year. In addition,
any person making a Rollover Contribution or a trustee-to-trustee transfer may
adopt the Plan.
II. Participation
A. Regular IRA. An individual may contribute to his Custodial Account for any
taxable year an amount not in excess of the lesser of (1) $2,000 or (2) 100
percent of the Individual's Compensation includible in his gross income for such
taxable year. The Fund and the Custodian are not responsible for determining the
amount an Individual may contribute.
B. Spousal IRA.
(1) In addition to the contributions permitted under paragraph A, an Individual
who files a joint federal income tax return for any taxable year and whose
spouse has no Compensation for that year (or elects to be treated as having no
compensation for the year) may contribute an amount to a separate Custodial
Account for the benefit of the Individual's spouse.
The aggregate amounts contributed to the Custodial Accounts of the Individual
and the Individual's spouse for any taxable year may not exceed the lesser of
(a) $2,250 or (b) 100 percent of the Compensation includible in the Individual's
gross income for that year, but in no event shall the amount contributed to
either Custodial Account exceed $2,000.
(2) In determining marital status the following shall apply:
(a) the determination of whether the Individual is married shall be made as of
the close of the taxable year, except that if his spouse dies during the taxable
year such determination shall be made as of the time of such death; and
(b) if the Individual is legally separated from his spouse under a decree of
divorce or of separate maintenance they shall not be considered as married.
C. Contributions After Age 70 1/2. The Individual may not make a contribution
under paragraph A for any taxable year if he has attained age 70 1/2 before the
close of that year, nor under paragraph B if the spouse has attained age 70 1/2
before the close of that year.
D. Refund of Excess Contribution. If for any taxable year the Individual
contributes an amount for the Individual or the Individual's spouse under
paragraph A or B which exceeds the maximum limits permitted by those paragraphs,
such excess contribution shall upon the written request of the Individual (or
the spouse in the case of a Spousal Account) be paid to the Individual (or the
spouse in the case of a Spousal Account) by the Custodian. If the refund is made
before the due date of the Individual's federal income tax return for that year
(including extensions), the refund shall include any income attributable to the
excess contribution.
E. Rollover Contributions and Transfers.
(1) The Individual may also make a Rollover Contribution as defined in Article
IX of the Plan. Any Rollover Contribution and the earnings thereon may be held
by the Custodian in a separate account for the Individual.
(2) In addition, notwithstanding any other provisions hereof, the Individual may
cause the custodian or trustee under any other individual retirement account
established and maintained by the Individual to transfer all or any part of the
funds in such account directly to the Custodian to be held under this Plan.
Effective January 1, 1993, the Individual may also cause the trustee of any plan
to which Section 401(a)(31) of the Code applies to transfer all or any part of
the benefits payable under such plan directly to the Custodian to be held under
this Plan.
(3) In the case of a Rollover Contribution, the Individual shall certify to the
Custodian that the contribution qualifies as such.
F. Simplified Employee Pension (SEP-IRA). In the case of an employer
contribution on behalf of the Individual to a Simplified Employee Pension,
notwith-
12 Acorn IRA plan
<PAGE>
standing the limitations stated in paragraph A, the contribution for any taxable
year shall not exceed the lesser of
(1) 15 percent of the Compensation from the employer includible in the
Individual's gross income for the year (determined without regard to the
employer contribution to the Simplified Employee Pension), or
(2) the amount contributed by the employer to the Simplified Employee Pension
and included in gross income (but not in excess of $30,000).
Employer contributions to a SEP-IRA may be made on behalf of the Individual
after the Individual reaches age 70 1/2.
G. Minimum Contributions. A contribution is not required for any year. Each
contribution must be at least $200. However under the Automatic Investment Plan,
which permits the purchase of Fund Shares automatically on a monthly basis
through preauthorized checks, each monthly contribution after the initial
contribution must be at least $100.
H. Nonforfeitability. The interests of the Individual and the Individual's
spouse in their respective Custodial Accounts shall be nonforfeitable at all
times.
I. Form of Contributions. All contributions and transfers shall be made only in
cash.
III. Investment of Contributions
A. As directed by the Individual in writing, all contributions shall be used by
the Custodian to purchase Fund Shares. All income dividends and capital gains
distributions shall be reinvested in shares of the Fund which declared such
dividends or distributions unless the Individual (or spouse in the case of a
Spousal Account) elects in writing, in accordance with an opportunity to do so
provided by the Fund declaring the dividend or distribution, to apply such
dividend or distribution to purchase other Fund Shares available under the Plan.
B. A telephonic Switch Plan ("Switch Plan"), as described in the prospectus(es)
of the Funds is available hereunder. After the Custodian receives a Switch Plan
authorization deemed by the Custodian to be in proper form, the Custodian, upon
receipt of telephonic instructions from any person representing himself to be
the Individual, may redeem any Fund Shares held by the Custodian on behalf of
the Individual and apply the proceeds toward the purchase of any other Fund
Shares available hereunder, subject to and in accordance with the terms and
conditions of the Switch Plan. The Custodian shall be entitled to rely and act
upon such telephonic instructions, and neither the Custodian, the Trust, any
other Fund whose shares are available hereunder nor their officers, trustees,
directors, employees or agents shall be liable for any liability, cost or
expense for acting on any such instructions. In directing any switch pursuant to
the Switch Plan, the Individual represents that he has obtained a current
prospectus of the Fund into which the switch is to be made. The Individual
authorizes and directs the Custodian to respond to any telephonic inquiries
relating to the status of shares owned, including but not limited to the number
of shares held. The Individual agrees that the authorizations, directions and
restrictions contained herein will continue until the Custodian receives written
notice of any change or revocation. The Individual agrees and understands that
the Funds and the Custodian reserve the right to refuse any telephonic
instructions.
C. All Fund Shares acquired by the Custodian shall be registered in the name of
the Custodian or its nominee.
D. No part of the custodial funds shall be invested in life insurance contracts
nor in collectibles (within the meaning of section 408(m) of the Code); nor may
the assets of the Custodial Account be commingled with other property except in
a common trust fund or common investment fund (within the meaning of section
408(a)(5) of the Code).
E. All assets in the Custodial Account shall be held by the Custodian for the
exclusive benefit of the Individual and the Individual's designated beneficiary
or beneficiaries.
IV. Distributions
A. As directed in writing by the Individual, the entire interest of the
Individual in the Custodial Account shall be distributed, or commence to be
distributed, no later than April 1 following the calendar year in which the
Individual attains age 70 1/2 (the "required beginning date"). Not later than
the required beginning date, the Individual shall elect, in such form and at
such time as is acceptable to the Custodian, to have the balance in the
Custodial Account distributed:
(1) In a single sum payment in cash or Fund Shares;
(2) In equal or substantially equal annual installments in cash commencing not
later than the required beginning date and over a specified period certain not
extending beyond the life expectancy of the Individual, or the joint and last
survivor life expectancy of the Individual and his designated beneficiary; or
Acorn IRA plan 13
<PAGE>
Individual Retirement Plan and Custodial Agreement
(3) By the purchase of an annuity contract issued by an insurance company
selected by the Individual and providing equal or substantially equal monthly,
quarterly or annual payments commencing not later than the required beginning
date, for the life of the Individual, or, if he so elects, for the lives of the
Individual and his designated beneficiary, with any period certain limited to
the life expectancy of the Individual or the joint and last survivor life
expectancy of the Individual and his designated beneficiary.
Even though distributions may have commenced pursuant to option (2) the
individual may receive a distribution of any part or all of the balance in the
Custodial Account, either in cash or in Fund Shares, at any time upon written
notice to the Custodian. If the Individual fails to elect any of the methods of
distribution described above before the required beginning date, distribution to
the Individual shall be made on or before the required beginning date in a
single distribution in Fund Shares.
If the Individual elects option (2) as the mode of distribution, the annual
payment required to be made by the Individual's required beginning date is for
the calendar year the Individual reached age 70 1/2. The annual payment for
each subsequent year, including the year in which the Individual's required
beginning date occurs, must be made by December 31 of that year. If the
Individual elects option (3) as the mode of distribution, the annuity contract
must satisfy the requirements of section 408(b)(1), (3) and (4) of the Code.
B. If the Individual dies before his or her entire interest in the Custodial
Account is distributed, the entire remaining interest shall be distributed as
directed in writing by the beneficiary as follows:
(1) If the Individual dies on or after the Individual's required beginning date,
distribution must continue to be made in accordance with paragraph A.
(2) If the Individual dies before the Individual's required beginning date, the
entire remaining interest shall, at the election of the beneficiary or
beneficiaries, either
(a) Be distributed by December 31 of the year containing the fifth anniversary
of the Individual's death, or
(b) Be distributed in equal or substantially equal annual payments over a
specified period not extending beyond the life expectancy of the designated
beneficiary or beneficiaries.
The election of either (a) or (b) must be made by December 31 of the year
following the year of the Individual's death. If the beneficiary or
beneficiaries do not elect either of the distribution options described in (a)
or (b), distribution shall be made in accordance with (b) if the beneficiary is
the Individual's surviving spouse and in accordance with (a) if the beneficiary
or beneficiaries are or include anyone other than the surviving spouse. In the
case of distributions under (b), distributions must commence by December 31 of
the year following the year of the Individual's death. However, if the
Individual's spouse is the beneficiary, distributions need not commence until
December 31 of the year the Individual would have attained age 70 1/2, if
later.
(3) If the designated beneficiary is the Individual's surviving spouse, the
spouse may treat the Custodial Account as his or her own individual retirement
arrangement (IRA). Such an election shall be deemed to have been made if such
surviving spouse makes a regular IRA contribution to the Custodial Account,
makes a rollover to or from the Custodial Account or fails to elect any of the
preceding provisions. If the Individual dies before his or her entire interest
has been distributed and if the beneficiary is other than the surviving spouse,
no additional cash contributions or rollover contributions may be accepted in
the Custodial Account.
C. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Individual's entire interest in the Custodial Account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Individual (or the joint and last survivor life expectancy of the Individual and
the Individual's designated beneficiary, or the life expectancy of the
designated beneficiary, whichever applies). For this purpose, however, in the
case of the year ("second distribution year") following the year in which the
Individual reached age 70 1/2, the balance in the Custodial Account as of the
close of business on December 31 of the preceding year shall be reduced by any
distribution made during the second distribution year on or before April 1 to
satisfy the minimum distribution requirement for the year the Individual reached
age 70 1/2, as determined in accordance with paragraph J below.
D. Effective for distributions after December 31, 1988 and before the
Participant's death, notwithstanding any other provisions in this Plan, if the
distribution period is longer than the Individual's life expectancy
14 Acorn IRA plan
<PAGE>
and the Individual's spouses is not the designated beneficiary, the minimum
amount required to be distributed each year, beginning with the year the
Individual reaches age 70 1/2, shall be determined by dividing the balance in
the Custodial Account as of the close of business on December 31 of the
preceding year by the lesser of (1) the joint and last survivor life expectancy
of the Individual and his designated beneficiary determined as provided in
paragraph C or (2) the applicable divisor determined from the table set forth in
Q&A-4 of Proposed Treasury Regulation Section 1.401(a)(9)-2. For this purpose,
however, in the case of the year ("second distribution year") following the year
in which the Participant reached 70 1/2, balance in the Custodial Account as of
the close of business on December 31 of the preceding year shall be reduced by
any distribution made during the second distribution year on or before April 1
to satisfy the minimum distribution requirement for the year the Individual
reached age 70 1/2.
E. The minimum annual payment may be made in a series of installments (e.g.,
monthly, quarterly, etc.) as long as the total payments for the year made by the
date required are not less than the minimum amounts required.
F. Any annuity contract purchased for the Individual pursuant to the Plan shall
be immediately distributed to the Individual, and the custodial relationship
shall terminate upon such distribution.
G. Except in the case of the Individual's death or Disability or attainment of
age 59 1/2, no distribution shall be made to the Individual of his interest in
the Custodial Account unless the Individual gives the Custodian a statement
explaining how he or she intends to dispose of the amount to be distributed.
H. An Individual shall have the right by written notice to the Custodian to
designate one or more beneficiaries to receive any amount to which the
Individual may be entitled in the event of his death before the complete
distribution of his interest, and to change any such beneficiary. Such
designation or change shall be on the Beneficiary Form provided by the Trust,
and shall be effective only when filed with the Custodian before the death of
the Individual. Such designation may include contingent or successive
beneficiaries. If no such designation is in effect on an Individual's death, or
if no designated beneficiary is living on the date any payment becomes due after
the Individual's death, such payment shall be made to the executor or
administrator of the Individual's estate. However, if after the Individual's
death, his surviving spouse is receiving payments over a specified period, the
surviving spouse may designate a beneficiary to receive the balance of the
Custodial Account, if any, on his or her death in accordance with the foregoing
rules.
I. If any person to whom all or a portion of the Individual's interest is
payable is a minor, payment of the minor's interest shall be made on behalf of
the minor to the person designated by the Individual in the Beneficiary Form to
receive the minor's interest as custodian under the Massachusetts Uniform
Transfers to Minors Act or similar statute. If any person to whom all or a
portion of the Individual's interest is payable is a minor and if either (a) the
Individual has not so designated a person to receive the minor's interest as
such custodian, or (b) the person so designated is unable to act (because of
incapacity, failing or declining to act, death or otherwise), the Custodian
shall:
(i) Distribute the interest to the legal guardian of such minor; or
(ii) If no guardian has been appointed, designate an adult member of the minor's
family, a guardian or a trust company (including the Custodian), as those terms
are defined in the Massachusetts Uniform Transfers to Minors Act or similar
statute, as custodian for such minor under the Massachusetts Uniform Transfers
to Minors Act or similar statute and distribute such minor's interest to the
person so designated. The person designated as custodian under the Massachusetts
Uniform Transfers to Minors Act or similar statute shall hold, manage and
distribute such property in accordance with the provisions of such statute
including, if such statute so requires, a total distribution prior to age 21.
The distribution of the Individual's interest to the guardian or the person
designated as custodian under the Massachusetts Uniform Transfers to Minors Act
or similar statute shall be a full discharge of the Custodian to the extent of
the distribution so made.
J. For purposes of determining the minimum distribution required for any year
pursuant to paragraph C, if the applicable life expectancy is the life
expectancy of the Individual, the life expectancy of the Individual's surviving
spouse, or the joint and last survivor life expectancy of the Individual and his
spouse, such life expectancy shall be determined on the basis of the age
attained by the Individual, his or her spouse, or both of them, on their
birthdays occurring during the year for which the minimum distribution is
calculated (which, in the case of a distribution under paragraph A made in the
year which includes
Acorn IRA plan 15
<PAGE>
Individual Retirement Plan and Custodial Agreement
the required beginning date for the year in which the Individual attains age
70 1/2, shall be the year in which the Individual attains age 70 1/2). If the
applicable life expectancy is that of a beneficiary other than the Individual's
surviving spouse, or the joint and last survivor life expectancy of the
Individual and a beneficiary other than his surviving spouse, the life
expectancy for the first year for which a distribution is required to be made
(the "initial life expectancy") shall be determined on the basis of the age
attained by the Individual, such beneficiary, or both of them on their birthdays
occurring during such year, and the life expectancies for each subsequent year
shall be determined by subtracting from the initial life expectancies the number
of years that have elapsed since such initial year. All life expectancies shall
be determined in accordance with tables contained or referenced in regulations
promulgated under section 401(a)(9) of the Code.
K. The provisions of this Article V shall determine the minimum distributions
required to be made from the Custodial Account. Nothing contained herein shall
be construed to limit the right of the Individual, or of his or her
beneficiaries, to withdraw a larger amount from the Custodial Account than the
minimum distribution required hereunder but amounts withdrawn in any year in
excess of the minimum distribution required for such year shall not reduce the
minimum amount required to be distributed in any subsequent year (except that
any amount distributed in the year in which an Individual attains the age of
70 1/2 shall reduce the amount required to be distributed by April 1 of the
subsequent year under paragraph A).
L. Notwithstanding any provision of this Plan to the contrary, the distribution
of an Individual's interest in the Custodial Account shall be made in accordance
with the minimum distribution requirements of section 408(b)6) or section
408(b)(3) of the Code and the regulations thereunder, including the incidental
death benefit provisions of section 1.401(a)(9)-2 of the proposed regulations,
all of which are herein incorporated herein by reference (the "minimum
distribution requirements"). Any ambiguity in the provisions of this Article 5
shall be resolved in a manner consistent with the minimum distribution
requirements, and, if any provision of this Article 5 is inconsistent with the
minimum distribution requirements, the minimum distribution requirements shall
control.
M. If distributions from the Custodial Account are to be made to the
Individual's surviving spouse, or to a trust of which the Individual's surviving
spouse is the income beneficiary, the amount which the surviving spouse (or such
trust) is entitled to receive in each year shall not be less than the income of
the Custodial Account (or of the portion of the Custodial Account with respect
to which the surviving spouse or such trust is the beneficiary) for such year,
as determined under section 2056(b)(7) of the Code.
N. Whenever distributions after the death of the Individual are to be made to
the Individual's surviving spouse and to one or more beneficiaries other than
the surviving spouse, and any provision of this Article 5 or the minimum
distribution requirements provides different treatment for the portion of the
Custodial Account to be distributed to the surviving spouse, then such portion,
and the income earned thereon, shall be separated and treated as a separate
Custodial Account with respect to such surviving spouse.
O. Notwithstanding anything herein to the contrary, all distributions shall be
made by the Custodian in such manner and in such amounts as may be specified in
written instructions received from time to time by the Individual or the
beneficiary, as the case may be and all such instructions shall be deemed to
constitute a certification by the Individual or beneficiary that the
distribution so directed is one that the Individual or beneficiary is permitted
to receive. In addition, the Custodian shall have no liability with respect to
any distribution from the Account in accordance with the directions of the
Individual or beneficiary or the failure to make a distribution in the absence
of such instructions or any consequences thereof including, but not limited to,
excise and other taxes and penalties which might accrue or be assessed, nor
shall the Custodian be under any duty to make any inquiry or investigation with
respect thereto.
V. Administration
Except as otherwise provided in the Plan, the Custodian shall, as directed in
writing, on behalf of the Individual:
(1) Receive contributions pursuant to the provisions of the Plan;
(2) Hold, invest and reinvest the contributions in Fund Shares;
(3) Register any property in the Custodial Account in the name of the custodian
or its nominee; and
(4) Make distributions from the Custodial Account in cash or in Fund Shares
pursuant to the provisions of the Plan.
16 Acorn IRA plan
<PAGE>
The Custodian shall deliver or cause to be executed and delivered to the
Individual all notices, prospectuses, financial statements, proxies and proxy
soliciting material relating to assets credited to the custodial account. No
Fund Shares shall be voted, and no other action shall be taken pursuant to such
documents, except upon receipt of adequate written instructions from the
Individual.
The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after the end of each
calendar year, and whenever required by regulations adopted under the Act or the
Code, the Custodian shall file with the Individual a written report of the
Custodian's transactions relating to the Custodial Account during the period
from the last previous accounting, and shall file such other reports with the
Internal Revenue Service as may be required of the Custodian by regulation.
Unless the Individual sends the Custodian written objection to a report within
60 days after its receipt, the Individual shall be deemed to have approved such
report, and in such case the Custodian shall be forever released and discharged
with respect to all matters and things included therein. The Custodian may seek
a judicial settlement of its accounts. In any such proceeding the only necessary
party thereto in addition to the Custodian shall be the Individual unless
otherwise required by law.
The Custodian shall have no duties whatsoever except such duties as are
specifically provided for herein, and no implied covenant or obligation shall be
read into this Agreement against the Custodian. The Custodian shall not be
liable for a mistake in judgment, for any action taken, or any failure to act,
in good faith, or for any loss that is not a result of its gross negligence,
except as expressly required by the Act and regulations promulgated thereunder.
In performing its duties under this Agreement, the Custodian may hire agents,
experts and attorneys and may delegate discretionary powers to, and rely upon
information and advice furnished by, such agents, experts and attorneys.
The Individual agrees to indemnify and hold the Custodian harmless from and
against any liability that the Custodian may incur in the administration of the
Custodial Account, unless arising from the Custodian's own gross negligence or
willful misconduct.
The Custodian shall be under no duty to question any direction of the Individual
with respect to the investment of contributions, or to make suggestions to the
Individual with respect to the investment, retention or disposition of any
contributions or assets held in the Custodial Account.
The Custodian shall pay out of the Custodial Account expenses of administration,
including the fees of counsel employed by the Custodian, taxes, if any, and its
fees for maintaining the Custodial Account, which are set forth in the
Disclosure Statement but may be revised from time to time by the Custodian and
the Trust. The Custodian may sell Fund Shares and use the proceeds of sale to
pay the foregoing fees and expenses.
The Custodian may resign as Custodian of any Individual's Custodial Account or
as Custodian of all accounts adopted under the provisions of this Plan, in
either case upon 30 days' prior notice to the Trust and 30 days' prior notice to
each Individual who will be affected by such resignation. If the Trust or the
Individual does not appoint a successor custodian within 30 days after the
mailing of such notice, the Custodian will terminate the Custodial Account.
The Individual shall be solely and fully responsible for all taxes and penalties
which might accrue or be assessed with respect to any excess contributions,
premature distributions or distributions which are below the annual minimum
distribution required.
The Custodian shall be entitled to receive and may charge against the
Individual's Custodial Account such reasonable compensation for its services in
accordance with its fee schedule as from time to time in effect, and shall also
be entitled to reimbursement of its expenses as Custodian under this Agreement.
The Custodian will notify the Individual in writing of any change in its fee
schedule.
This Agreement and the Custodial Account created hereby shall be subject to the
applicable laws, rules and regulations, as the same may from time to time be
amended, of the Federal government and the Commonwealth of Massachusetts and the
agencies and instrumentalities of each having jurisdiction thereof, and shall be
governed by and construed, administered and enforced according to the law of the
Commonwealth of Massachusetts. All contributions to the Custodial Account shall
be deemed to take place in the Commonwealth of Massachusetts.
The Custodian and Individual hereby waive and agree to waive right to trial by
jury in an action or proceeding instituted in respect to this Custodial Account.
The Individual further agrees that the venue of any litigation between him and
the Custodian with respect to the Custodial Account shall be in the County of
Suffolk, Commonwealth of Massachusetts.
Acorn IRA plan 17
<PAGE>
Individual Retirement Plan and Custodial Agreement
VI. The Trust
The Individual delegates to the Trust the following powers with respect to the
Plan: (1) to remove the Custodian and select a successor Custodian; and (2) to
amend the Plan with the Custodian's consent as provided in Section VIII.
The powers herein delegated to the Trust shall be exercised by such officer
thereof as the Trust may designate from time to time, and shall be exercised
only when similarly exercised with respect to all other Individuals adopting the
Plan.
Neither the Trust nor any officer director, trustee, board, committee, employee
or member of the Trust shall incur any liability of any nature to the Individual
or beneficiary or other person in connection with any act done or omitted to be
done in good faith in the exercise of any power or authority herein delegated to
the Trust.
If the Trust shall hereafter determine that it is no longer desirable for the
Trust to continue to exercise any of the powers hereby delegated to the Trust,
it may relieve itself of any further responsibilities hereunder by notice in
writing to the Individual and the Custodian at least 60 days before the date on
which the Trust proposes to discontinue the exercise of the powers delegated to
it.
VII. Amendment Termination
The Individual delegates to the Trust and the Custodian the power to amend the
Plan (including retroactive amendment).
The Individual may amend his Application (including retroactive amendment) by
submitting to the Custodian (1) a copy of such amended Application, and (2)
evidence satisfactory to the Custodian that the Plan as amended by such amended
Application will continue to qualify as an Individual Retirement Account under
the provisions of section 408 of the Code.
No amendment shall be effective if it would cause or permit (a) any part of the
Custodial Account to be diverted to any purpose that is not for the exclusive
benefit of the Individual and his beneficiaries; (b) the Individual to be
deprived of any portion of his interest in the Custodial Account, unless such
action is taken in order to satisfy qualification requirements under the Code;
or (c) the imposition of an additional duty on the Custodian without its written
consent.
The Individual reserves the right to terminate his adoption of this Plan by
instrument in writing signed by him and filed with the Custodian.
VIII. Definitions
Whenever used in this Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided herein:
A. Act. The Employee Retirement Income Security Act of 1974, as amended from
time to time.
B. Application. The Individual Retirement Account Application, constituting an
agreement between the Individual and the Custodian, by which the Individual
adopts the Plan.
C. Code. The Internal Revenue Code of 1986, as amended from time to time.
Reference to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements or
supersedes that section.
D. Compensation. The total compensation received by an Individual during a
period, including wages, salaries, professional fees, or other amounts derived
from or received for personal service actually rendered (including, but not
limited to, commissions paid salesmen, compensation for services on the basis of
a percentage of profits, commissions on insurance premiums, tips and bonuses)
and including earned income, as defined in section 401(c) of the Code (reduced,
in the case of a self-employed individual, by any federal income tax deduction
taken for contributions to a qualified retirement (Keogh) plan). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
"compensation" shall also include any amount includible in the Individual's
gross income under section 71 of the Code with respect to a divorce or
separation instrument described in section 71(b)(2)(A) of the Code.
E. Custodial Account. The account established for an Individual under the Plan.
F. Custodian. The bank named in the Application.
G. Disability. The inability to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long continued and indefinite duration.
H. Trust. Acorn Investment Trust, a regulated investment company.
18 Acorn IRA plan
<PAGE>
I. Fund Shares. Shares issued by the Trust or shares of any other regulated
investment company for which the Custodian acts as transfer agent and which may
be available hereunder from time to time pursuant to an agreement between the
Custodian and the Trust. No Fund shall be available for investment under the
Plan (i) before the date the prospectus for that Fund discloses its
availability, (ii) with respect to any Participant who resides in any state or
other jurisdiction in which shares of the Fund are not available for sale, or
(iii) with respect to any Participant not eligible to purchase Fund shares
directly, when sales of Fund shares are restricted.
J. Individual. An individual who adopts the Plan as provided therein.
K. Rollover Contribution. A rollover amount or rollover contribution as
described in section 402(a)(5) or 402(a)(7) (as in effect prior to January 1,
1993), 402(c) (effective January 1, 1993), 403(a)(4), 403(b)(8), or 408(d)(3) of
the Code, and regulations promulgated thereunder.
L. Simplified Employee Pension. An Individual Retirement Account with respect to
which the requirements of section 408(k) of the Code are met.
The foregoing Individual Retirement Plan and Custodial Agreement of Acorn
Investment Trust is adopted by the Individual by signing the Individual
Retirement Account Application, which is incorporated herein and made a part
hereof.
Acorn IRA plan 19
<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.
1. Types of IRAs; Eligibility
In General. An IRA is a trust or custodial account established in the United
States for the exclusive benefit of an individual and his or her beneficiaries
and which, under Section 408(a) of the Internal Revenue Code, meets the
following requirements: annual contributions are limited as described below; the
trustee or custodian is a bank or other approved financial institution; no part
of the IRA can be invested in life insurance contracts; the individual's
interest in the IRA is nonforfeitable; the IRA's assets cannot be commingled
with other property except for certain permitted common funds; and minimum
distributions are required as described below. There are several types of IRAs.
For example, there is a "Regular IRA" to which you may make contributions for
yourself. There is a "Spousal IRA" which you may be able to set up for your
spouse. There is also a "Rollover IRA" which you can set up to receive assets
from a qualified plan, annuity or another IRA. Finally, there is a SEP-IRA
(which is also known as a Simplified Employee Pension Plan) which your employer
can establish for you. Following is a general description of the rules which
apply to each of these types of IRAs and who is eligible to establish them.
A. Regular IRA. You may contribute up to the lesser of $2,000 or 100% of your
compensation if you have not reached age 70 1/2 during the taxable year. You
may make this contribution even if you or your spouse is an active participant
in a qualified employer plan. However, as explained below, the amount of the
contribution which is deductible for federal income tax purposes may be limited.
Compensation includes wages, salary, commissions, bonuses, tips, etc., and also
includes taxable alimony or separate maintenance payments. Compensation does not
include income from interest, dividends or other earnings or profits from
property, or amounts not includible in your gross income.
B. Spousal IRA. You may contribute to your IRA and an IRA for your non-working
spouse if: (1) you have received compensation during the taxable year and (2)
you file a joint income tax return for the year with your spouse. Under such an
arrangement, you may qualify for a total deduction equal to the lesser of $2,250
or 100% of your compensation for the taxable year. You can determine how to
divide the contribution between the two accounts but you cannot contribute more
than $2,000 annually into either one. While you cannot contribute to your IRA in
the taxable year in which you reach 70 1/2, you can still contribute to your
spouse's IRA if he or she has not reached 70. A Spousal IRA does not involve the
creation of a joint account. The account of each spouse is separately owned and
treated independently from the account of the other spouse.
A "non-working spouse" is one who had no compensation for the year, or elects to
be treated as having no compensation for this purpose. Your spouse's election is
made by claiming a spousal IRA deduction on your joint tax return.
C. Rollover IRAs. All or a portion of certain distributions from qualified
retirement plans, annuities and other IRAs may be "rolled over" tax-free within
60 days after receipt of the distribution without regard to the limits on
deductible contributions, but no deduction is allowed with respect to such a
contribution. In general, you can roll over any distribution from a qualified
plan unless it is either (1) one of a series of substantially equal periodic
payments (such as an annuity or certain types of installment payments) or (2) a
minimum distribution required to be made after you reach the age of 70 1/2. You
can generally roll over any distribution from an IRA to another IRA except a
minimum distribution required after you reach 70 1/2.
20 Acorn IRA plan
<PAGE>
The amount rolled over cannot exceed the taxable portion of the distribution,
including any portion withheld for payment of taxes. If property, rather than
cash, is distributed, you may either roll over the property distributed
(although Acorn does not accept non-cash contributions), or sell the property
within the 60-day period and roll over all or part of the proceeds. If you make
a rollover from a qualified employer plan to an IRA, you may in turn under
certain circumstances make a later rollover from the IRA into another qualified
plan of a subsequent employer. To preserve that right, however, you must keep
the rollover IRA separate from any other IRA you may have, since you cannot make
a rollover to an employer plan from an IRA to which you have made yearly
contributions.
You can also transfer assets you hold in one IRA to another IRA by directing the
current trustee or custodian to transfer those assets directly to the new IRA.
You can direct such a so-called "trustee-to-trustee transfer" at any time.
However, you may make a rollover from one IRA to another IRA only once during a
one-year period. You can also direct the trustee or custodian of a qualified
retirement plan to transfer a distribution from the plan directly to an IRA.
This is called a "direct rollover." A direct rollover is generally preferable to
a distribution followed by a 60-day rollover, because a distribution to you from
a qualified plan is subject to 20% income tax withholding. This means that, if
you want to roll over the full amount of your distribution, you will have to
replace the 20% that was withheld with other funds. A direct rollover is not
subject to tax withholding.
Rollover amounts you receive may not be deposited in your spouse's IRA. However,
if your surviving spouse receives a distribution from a qualified plan or IRA as
your beneficiary, he or she can generally roll over the distribution to an IRA
(but not to a qualified plan) to the same extent that you could have. This
rollover right does not apply to beneficiaries other than your surviving spouse.
The amount of the death payout rolled over by a spouse into an IRA may not
subsequently be rolled over into another employer's qualified plan or annuity.
The term "qualified plan" includes tax-qualified pension or profit-sharing plans
(including 401(k) plans) maintained by your employer, and Keogh plans for self-
employed persons and partners. Except for purposes of a surviving spouse's right
to rollover distributions received as a beneficiary, it also includes qualified
annuity plans, tax-sheltered annuities, and custodial accounts maintained by
tax-exempt employers.
Strict requirements must be met to qualify for tax-free rollover treatment. You
should consult your personal tax advisor in connection with rollovers to and
from your IRA.
(d) Simplified Employee Pension (SEP-IRA). An employer may adopt a SEP-IRA and
contribute to your SEP-IRA even if you are covered by another retirement plan.
The maximum contribution is 15% of your compensation (computed without regard to
the contribution) or $30,000 (or such other amount as may be prescribed by the
Secretary of the Treasury), whichever is less. The contributions are deductible
by the employer and are generally not includible in your income until you
receive distributions. If your employer chooses and if certain conditions are
satisfied, you can elect to have your salary reduced by up to $7,000 (or such
higher amount as is specified from time to time by the Secretary of the
Treasury) and to contribute the reduction to your SEP-IRA. This type of SEP-IRA
is called an SAR-SEP. If you reduce your salary under a salary reduction
agreement, your salary subject to federal income tax is reduced. To establish a
SEP-IRA, your employer must sign a SEP-IRA plan agreement and provide you with a
copy of the agreement as well as certain information concerning the rules
applicable to such plans. Your employer can satisfy these requirements by using
Form 5305-SEP, which is issued by the Internal Revenue Service. If you are self-
employed, you may establish a SEP-IRA for your own benefit, but you may also
have to cover any other employees you have.
II. Contributions
In General. As explained in this part, the amount of your IRA contributions
which you can deduct is subject to limits. All contributions and transfers to
your Acorn IRA must be in cash. Contributions to your Regular IRA or Spousal IRA
may be made up to the due date for filing your tax return for the taxable year
(excluding extensions thereof) even if you file before the due date. In making
contributions, you must indicate the tax year to which the contribution applies.
If no tax year is designated, the custodian will assume that the contribution is
intended to apply to the calendar year in which it is received. The time limit
for designating the applicable tax year is April 15.
Contributions made by an employer to your SEP-IRA for a calendar year may be
made no later than the due date of your employer's tax return (including
extensions). In making a SEP-IRA contribution, the tax year to which the
contribution relates must also be specified or it will be deemed to relate to
the cal-
Acorn IRA plan 21
<PAGE>
Individual Retirement Account Disclosure Statement
endar year in which it is received. In a SEP-IRA, this designation of the tax
year of a contribution must be made by the due date for contributions described
above.
Deductible Contributions. If you are single and are not an "active participant"
in a retirement plan maintained by your employer, you can deduct the full amount
of your IRA contribution up to the lesser of $2,000 or 100% of your compensation
for the year. If you are married, you can deduct the full amount of your IRA
contribution so long as neither you nor your spouse is an "active participant"
in a retirement plan maintained by your respective employers. These plans
include qualified pension, profit-sharing, stock bonus or money purchase plans,
401(k) plans, SEP-IRAs, qualified annuity plans, tax-sheltered annuities and
custodial accounts and governmental retirement plans (other than certain plans
for reserve members of the armed forces and volunteer firemen, and certain
deferred compensation plans). In general, you are considered to be an active
participant in a plan if an employer contribution or forfeiture was credited to
your account during the year in the case of a defined contribution plan or if
you have met the minimum age and service requirements, in the case of a defined
benefit plan (even if you don't actually accrue a benefit during the year). You
are considered to be an active participant in a plan if you make a contribution
to the plan during a year even if your employer does not. For active
participation, it does not matter whether any interest you have in a plan is
vested or unvested.
If you or your spouse is an active participant in a plan, the amount of the
deduction you can claim for an IRA contribution is reduced or totally denied
depending upon the amount by which your adjusted gross income for the year
exceeds the "applicable dollar amount." The applicable dollar amount is $25,000
for single people and $40,000 for married individuals filing a joint tax return.
If you are married but are filing separate tax returns, your applicable dollar
amount is $0.
If your adjusted gross income exceeds your applicable dollar amount by more than
$10,000, you may not deduct any portion of your IRA contribution. However, if it
is between $0 and $10,000 more than your applicable dollar amount, you can claim
a tax deduction for part of your contribution. To determine the amount of the
deduction, follow these steps. First, determine the amount of the contribution
you can make. If, for example, you have compensation in excess of $2,000 you
could make a $2,000 contribution to your Regular IRA. Next, subtract the
applicable dollar amount from your adjusted gross income. If you are single and
your adjusted gross income is $30,000, the difference would be $5,000. Next,
divide this difference by $10,000. In the example $5,000/$10,000 equals 50%.
Accordingly, the maximum contribution to a Regular IRA you can deduct is 50% of
$2,000, or $1,000. If the deduction limitation is not a multiple of $10, round
the deduction to the next higher $10. If your adjusted gross income does not
exceed $35,000 and you are single or $50,000 and you are married, you can deduct
$200 regardless of how the computation comes out.
Married persons who file separate returns are treated as unmarried for purposes
of these rules if they did not live together at any time during the year.
Nondeductible Contributions. Even though you may not be entitled to claim a
deduction for contributions to your IRA, you are still allowed to make the
contributions to the extent described in "Types of IRAs" above. To the extent
that the amount of your contribution exceeds the deduction limit, it is
considered a nondeductible contribution. Earnings on these contributions are not
taxed until distributed, just like the earnings on deductible contributions. It
may therefore be worthwhile making nondeductible contributions.
You are required to report the amount of your nondeductible contributions on
Form 8606 and attach it to your income tax return. You may be liable for a tax
penalty of $50 if you fail to file the form, or $100 if you overstate the amount
of your nondeductible contributions.
(3) Investment and Holding of Contributions
Contributions to your IRA, and the earnings thereon, are invested at your
election in shares of Acorn Fund or Acorn International, each a series of Acorn
Investment Trust, a no-load mutual fund managed by Wanger Asset Management,
L.P., or in Short Term Income Fund, Inc.-Money Market Portfolio, a no-load money
market fund managed by New England Investment Companies, L.P. Acorn Fund and
Acorn International are closed to new investors. Only persons who are already
Acorn Fund or Acorn International shareholders may purchase additional shares.
The money market fund is available in a telephone exchange plan with Acorn Fund
and Acorn International. If you elect to use this program, you will be able to
exchange investments among Acorn Fund, Acorn International and the money fund.
In order to enroll in the exchange plan, indicate your election on the IRA
application. When your exchange
22 Acorn IRA plan
<PAGE>
plan is established, you can request a prospectus for the money fund and you
will then be able to exchange by telephoning State Street Bank and Trust
Company. IRA planholders may not use the check-writing redemption privileges
offered by the money fund.
If you wish to add to your IRA plan by putting money into the money fund instead
of Acorn Fund or Acorn International, please call Acorn for instructions.
The assets in your account are held in a custodial account exclusively for your
benefit and the benefit of such beneficiaries as you may designate in writing
delivered to the Custodian. The balance in your IRA represents a separate
account which is clearly identified as your property and generally may not be
combined for investment with the property of another individual. Your right to
the entire balance in your account is nonforfeitable. No part of the assets of
your account may be invested in life insurance contracts or in collectibles such
as works of art, antiques, coins, stamps, etc.
(4) Distributions From Your IRA
Distribution During Your Life. The law permits distributions to be made from an
IRA without penalty at any time after you attain age 59/1//2, and requires that
distributions commence no later than April 1 following the calendar year in
which you attain age 70/1//2. Distributions may be in the form of a single
payment or, in accordance with regulations, in substantially equal monthly,
quarterly or annual payments over your life or the joint lives of you and your
designated beneficiary, or over a period certain not extending beyond your life
expectancy or the joint and last survivor life expectancy of you and your
designated beneficiary. However, if your beneficiary is not your spouse, the law
imposes an additional requirement called the minimum distribution incidental
benefit requirement. In general, this requirement puts a further limit on the
maximum payout period. This further limit is based on a table in the income tax
regulations, and if this limit applies to you, you should consult your tax
advisor to determine your minimum distribution.
If you direct distributions over your life or the joint lives of you and your
designated beneficiary, the Custodian will purchase an immediate annuity
contract from an insurance company you choose with your IRA and your payments
will be made under the annuity. You must provide a completed annuity application
from the insurance company of your choosing.
Any distribution instruction must specify the reason for the distribution.
Examples of such reasons are: premature distributions (i.e. distributions before
age 59 1/2), rollovers, disability, death, normal (59 1/2 or over), excess
contribution returns and other.
Distributions After Your Death. If you die on or after the April following the
year in which you reach age 70 1/2, the balance of your IRA must be distributed
to your designated beneficiary at least as rapidly as under the method of
distribution in effect before your death.
If you die before the April following the year in which you reach age 70 1/2,
the entire balance of the account must be distributed by December 31 of the year
in which the 5th anniversary of your death occurs. However, distribution need
not be made within this 5-year period if your beneficiary receives payments over
a period measured by his or her life or life expectancy beginning no later than
December 31 of the year following the year in which you die. If the beneficiary
is your spouse, those installment payments don't have to begin until the later
of December 31 of the year following the year in which you die or December 31 of
the year in which you would have reached age 70 1/2. In addition, a
distribution need not be made within 5 years of your death if your spouse is
your beneficiary and he or she elects to treat the entire interest in the IRA
(or the remaining part of such interest, if distribution has already begun) as
his or her own IRA subject to the regular IRA distribution requirements. In such
a case, your spouse will be considered to be the covered individual under the
IRA. If you die before the entire IRA has been distributed to you and your
spouse is not your beneficiary, no additional cash contributions or rollover
contributions may be accepted by the IRA.
(5) Income and Penalty Taxes
Income Tax Treatment. Income tax on deductible IRA contributions and earnings on
both deductible and nondeductible IRA contributions is generally deferred until
you receive distributions. If you have made both deductible and nondeductible
contributions to IRAs you maintain, a portion of each distribution you receive
from any IRA (whether or not it is the one to which you made nondeductible
contributions) will be considered to be a return of nondeductible contributions
and therefore not included in your income for tax purposes. The balance of each
distribution will be taxed as ordinary income regardless of its original source.
The amount of any distribution which is considered to be a return of
nondeductible contributions (and therefore not taxed) is determined by
multiplying the amount of the distribution by a fraction. The numerator of the
fraction
Acorn IRA plan 23
<PAGE>
Individual Retirement Account Disclosure Statement
is the aggregate amount of nondeductible contributions you have made to all of
your IRAs over the years and the denominator is the balance in all your IRAs at
the end of the year (after adding back any distributions you received during the
year). The aggregate amount which can be excluded from income for all years
cannot exceed the amount of nondeductible contributions that you made in those
years. You must attach Form 8606 to your tax return for any year in which you
receive distributions if you have made any nondeductible contributions to an
IRA.
Taxable distributions from your account are taxed as ordinary income regardless
of their original source. They are not eligible for special tax treatment that
may apply to lump sum distributions from qualified employer plans.
Penalty Tax for Premature Distributions. Your IRA is intended to provide income
for you upon retirement. Accordingly, the law generally imposes a penalty on
premature distributions. If you receive a taxable distribution from the IRA
before reaching age 59 1/2, a nondeductible 10% penalty will be imposed on the
portion of the distribution which is included in your gross income. This penalty
is in addition to any income tax you must pay on the distribution itself. The
penalty does not apply to the extent that the distribution is considered a
return of nondeductible contributions or a return of an excess contribution
which is permitted tax-free (see below). The penalty also will not apply if the
distribution is made due to your permanent disability or death or if the
distribution is one of a series of substantially equal periodic payments made
over your life (or life expectancy) or over the joint lives (or life
expectancies) of you and your beneficiary. Further, the penalty does not apply
to the extent the distribution is rolled over to another IRA or (if permitted)
qualified plan.
Penalty Tax for Excess Contributions.
Contributions to an IRA above the permissible limits are nondeductible and are
subject to an annual nondeductible excise tax of 6% of the amount of such excess
contributions for each year that the excess is not withdrawn or eliminated. The
tax is paid by the person for whose benefit the IRA is established. If the
person who contributed the excess takes no deduction for it and withdraws the
excess amount plus the net earnings attributable to such excess on or before the
due date (including extensions) for filing the Federal income tax return for the
year for which the contribution was made, the 6% excise tax will not be applied
but the 10% tax on premature distributions will be applied to the amount of net
earnings. Generally, if the excess is withdrawn after the due date (including
extensions) for filing the tax return for the year for which the contribution
was made, not only will the excess contribution be subject to the 6% excise tax,
but the amount of such excess and the net income attributable to it will also be
includible in income; and if you have not attained the age of 59 1/2, or are not
disabled, you will also be subject to the previously mentioned 10% penalty tax
on premature distributions. The law provides, however, that if an individual has
made a contribution to an IRA for a year which does not exceed $2,250 (excluding
rollover amounts), all or part of which is an excess contribution for which he
did not claim a deduction, and he does not correct the excess contribution
before the due date (including extensions) for filing his tax return for the
year, he nevertheless may withdraw the excess amount contributed (without the
net income attributable thereto) at any time without incurring the 10% penalty
tax on premature distributions or being required to include the amount withdrawn
in income. The 6% excise tax will be imposed even in this special situation for
the year of the excess contribution and each subsequent year until the excess is
withdrawn or eliminated.
The rules discussed above generally apply to SEP-IRAs as well. The law also
allows you to withdraw tax-free and without penalty an excess contribution,
regardless of the amount, made with respect to a rollover contribution
(including an attempted rollover contribution), if the excess contribution
occurred because you reasonably relied on erroneous information required to be
supplied by the plan, trust or institution making the distribution that was the
subject of the rollover.
As an alternative to withdrawing excess contributions made to an IRA, such
amounts may be eliminated by making reduced contributions for subsequent years;
however, you will be required to pay the 6% excise tax on the amount of the
excess for the year of the contribution and for each subsequent year until the
amount of the excess is deducted in a later year for which you have not
contributed the maximum deductible amount. If a contribution is made to your
account in an amount less than the permissible limit in order to correct an
excess contribution for a previous year for which you did not claim a deduction,
you may under certain circumstances, taking into account the limits on
contributions, be allowed to treat the amount of the reduction in the current
year's contribution as an additional contribution for the current taxable year.
24 Acorn IRA plan
<PAGE>
Penalty Tax for Under-Distribution. If after April 1 following the year in which
you attain age 70 1/2, the amount distributed is less than the minimum amount
required by law to be distributed, a 50% excise tax may be imposed on any such
deficiency. The minimum amount required by law to be distributed is generally
based on your life expectancy or the joint and survivor life expectancy of you
and your beneficiary. However, if your beneficiary is not your spouse, the law
imposes an additional requirement which is called the minimum distribution
incidental benefit requirement. In general, this requirement is designed to
prevent you from naming a beneficiary who is much younger than yourself in order
to extend your payout period. You should consult your tax advisor to determine
your minimum distribution. This excise tax may also apply if your beneficiary
fails to take the minimum required distribution in any year after your death, as
described above.
The Internal Revenue Service may waive the penalty tax for under-distribution if
the deficiency was due to reasonable error and reasonable steps are being taken
to correct the deficiency.
Penalty Tax for Excess Distributions and Accumulations. A 15% penalty tax is
imposed on annual distributions from retirement arrangements (including IRAs) to
the extent that such distributions in a year are considered "excess
distributions." A distribution is an "excess distribution" if it exceeds
$150,000 (or such higher amount as may be specified by the IRS) during any
calendar year.
In addition, a 15% penalty tax will be imposed on your estate to the extent that
at the time of your death the total balance to your account in all retirement
arrangements exceeds the present value of a life annuity of $150,000 (or such
higher amount as the IRS may specify) per year.
The rules governing the 15% penalty tax are very complex, and may be affected by
certain elections which you may have made in prior years. If you have a
substantial balance to your account in IRAs and qualified retirement plans, you
should consult a qualified tax advisor as to the possible application of this
penalty tax.
Prohibited Transactions and Pledging Account Assets. If during any taxable year
you engage in a so-called "prohibited transaction" with respect to your IRA, the
account will lose its tax-exempt status. In this event, the fair market value of
all account assets, valued as of the first day of such taxable year, will be
deemed distributed to you and the taxable portion will be includible in your
gross income for the year. If you are under age 59 1/2, the 10% penalty for
premature distributions may also apply. These prohibited transactions generally
include any type of financial transaction between the IRA and you or your
beneficiary, including borrowing or lending money, buying, selling, or renting
property, paying compensation, or a transaction that indirectly benefits you or
your beneficiary personally. Prohibited transactions may also involve members of
your family, companies in which you have an interest, the sponsoring employer in
the case of a SEP-IRA, any person who provides services to the IRA, and certain
affiliates of such persons. However, prohibited transactions involving persons
other than you or your beneficiary result in penalty taxes on the person
involved, rather than disqualification of the IRA. If you pledge your account or
any portion thereof as security for a loan, such pledged portion will be deemed
distributed to you and, to the extent that it does not represent a return of
nondeductible contributions, includible in your gross income. If you have not
yet attained age 59 1/2, an additional tax equal to 10% of the amount pledged
will be imposed on such funds includible in gross income. If your spouse engages
in a prohibited transaction with respect to his or her account, the results will
be the same. Any portion of an IRA used to purchase an endowment contract or
collectible is also treated as distributed.
VI. Miscellaneous
Federal Income Tax Withholding. Distributions from an IRA to the covered
individual or to a beneficiary are subject to Federal income tax withholding
unless the covered individual or beneficiary elects to have no withholding
apply. The current withholding rate required by the Internal Revenue Code is 10%
for lump sum payments, and regular wage withholding rates for annuities or other
periodic payments. Additional information concerning withholding and election
forms will be available no later than at the time a distribution is requested.
Federal Estate and Gift Taxes. Generally, your IRA will be included in your
estate for Federal estate tax purposes. If your spouse is your beneficiary, your
IRA may qualify for a deduction for purposes of that tax. An election under an
IRA to have a distribution payable to a beneficiary on the death of the covered
individual will not be treated as a gift subject to Federal gift tax.
Reports to the Internal Revenue Service. As described above, you are required to
attach Form 8606 to your return for any year in which you made
Acorn IRA plan 25
<PAGE>
Individual Retirement Account Disclosure Statement
nondeductible contributions, or receive distributions after making nondeductible
contributions. You are required to file Form 5329 with the IRS if you owe one of
the IRA penalty taxes. These are the taxes on excess contributions, premature
distributions, prohibited transactions and underdistributions after age 70/1//2,
as described above.
Social Security and Self-Employment Taxes. Contributions to a Regular or Spousal
IRA are not deductible for purposes of the social security (FICA) and self-
employment taxes. Contributions to a SEP-IRA by your employer are not subject to
social security tax unless you elected to reduce your current compensation to
receive the contributions (a SAR-SEP).
Financial Information. The growth in value of the mutual fund shares held in
your account can neither be guaranteed nor projected.
Custodian Fees. State Street Bank and Trust Company as the Custodian of your IRA
currently charges an acceptance fee of $5.00 per IRA application, and an annual
maintenance fee of $10.00 per account, per fund in which you have an investment.
An additional $10.00 fee is charged for each disbursement, other than an
automatic installment payout. Note that Spousal IRAs require separate accounts.
Each spouse's account is subject to the above fees.
If you do not add the $5.00 acceptance fee to your initial contribution, it will
be deducted from your account. The $10.00 annual maintenance fee will be
deducted from your account, unless paid separately when billed in December
The Custodian may change any of the above fees from time to time.
IRS Approval Status. The Internal Revenue Service has determined that the form
of Acorn Investment Trust Individual Retirement Plan and Custodial Agreement, as
revised June 30, 1992, is acceptable under the Internal Revenue Code. This
determination by the IRS relates only to form and not to the merits of your
account. Further information concerning IRAs can be obtained from any district
office of the IRS.
September 1, 1994
26 Acorn IRA plan
<PAGE>
00
Internal Revenue Service Department of the Treasury
Plan Name: IRA Custodial Account
FFN: 50127960000-001
Case: 9270228 EIN: 36-7008880 Washington, DC 20224
Letter Serial No: D113156a
Person to Contact: Mr. Welty
|> ACORN INVESTMENT TRUST
Telephone Number: (202) 622-8380
227 WEST MONROE STREET
Refer Reply to: E:EP:Q:2
CHICAGO, IL 60606
Date: 10/30/92
Dear Applicant:
In our opinion, the form of the prototype trust, custodial account or annuity
contract identified above is acceptable under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408(e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to the
applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File Folder
Number shown in the heading of this letter. Please provide those adopting this
plan with your phone number, and advise them to contact your office if they
have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
/s/ John Swieca
John Swieca
Chief, Employee Plans
Qualifications Branch
Acorn IRA plan 27
<PAGE>
ACORN INVESTMENT TRUST P.O. Box 8502 [LOGO OF ACORN]
Boston, MA 02266-8502
IRA/SEP-IRA Application
All sections must be completed. Please type or print clearly.
Use this application to open an IRA or a SEP-IRA invested in Acorn Fund or Acorn
International. To transfer your IRA directly to Acorn from another custodian,
you must also complete the Acorn Investment Trust IRA Transfer Form. There is an
acceptance fee of $5.00 per IRA account. If you have questions, call our
friendly customer service representatives at 1-800-9-ACORN-9 (1-800-922-6769),
weekdays, 8:30 am to 4:30 pm, Chicago (Central) time.
YOUR ACCOUNT REGISTRATION
Social Security Number:
(used for tax reporting) |_|_|_| |_|_| |_|_|_|_|
Date of Birth:
month, day, year |_|_| |_|_| |_|_|
- --------------------------------------------------------------------------------
Name (first, middle initial, last)
- --------------------------------------------------------------------------------
Street Address and Apartment or Box Number
- --------------------------------------------------------------------------------
City, State, Zip Code
( ) ( )
- ------------------------------------- ----------------------------------------
Evening phone Daytime phone
- --------------------------------------------------------------------------------
Existing Acorn or Acorn International account number
[ ] U.S. Citizen [ ] Resident Alien
To invest, you must be a U.S. citizen (or a non-citizen residing in the U.S.)
with a social security or tax identification number.
We are required by the National Association of Securities Dealers (NASD) to ask
for the following information.
- --------------------------------------------------------------------------------
Your occupation
- --------------------------------------------------------------------------------
Employer
- --------------------------------------------------------------------------------
Employer's Address
- --------------------------------------------------------------------------------
[ ] I am affiliated with or work for a member of the NASD.
CHOOSE YOUR INVESTMENTS
There is an initial investment minimum of $200 per fund. A separate IRA account
will be established for each box you check below.
[ ] Acorn Fund (90) $______________________________
[ ] Acorn International (100) $______________________________
[ ] Short Term Income
Money Market Portfolio (104) $______________________________
Total Investment $______________________________
Make check(s) payable to State Street Bank and Trust Company and write the
appropriate fund name on the check. Please indicate on your check the year for
which the contribution is made.
TYPE OF IRA SELECT ONLY ONE CATEGORY
[ ] Regular IRA Contribution for Tax Year 199__
Check this box if your IRA will be used to make annual contributions up to a
maximum of $2,000 per tax year. (A separate Spousal IRA can be opened for a
spouse earning less than $250 per year. Your spouse must complete a separate
application form.)
[ ] Direct transfer of an existing IRA
Check this box if you wish to authorize Acorn to transfer your existing IRA from
another custodian to Acorn. You must also complete the enclosed IRA Transfer
Form. Check type of IRA:
[ ] Regular IRA funded with annual contributions
[ ] Rollover IRA originally funded with a distribution from
an employer-sponsored plan
[ ] 60-day rollover of an existing IRA
Check this box if you are funding this IRA with money you have withdrawn from an
IRA at another custodian and are reinvesting at Acorn. Check type of IRA:
[ ] Regular IRA funded with annual contributions
[ ] Rollover IRA originally funded with a distribution from
an employer-sponsored plan
[ ] Rollover IRA from an employer-sponsored
plan
Check this box only if you are funding this IRA with money you accumulated in an
employer's retirement plan which is eligible for rollover. If you combine
Rollover IRA and regular IRA funds in the same account, you will forfeit the
right to reinvest your Rollover IRA funds in another employer's qualified plan
in the future. Combining IRA funds may also have tax implications at
distribution. Check method of funding:
[ ] A check payable to State Street Bank is enclosed.
[ ] My employer will send a check directly to Acorn.
[ ] SEP-IRA
Please see your tax advisor for the maximum contribution limits on your
SEP-IRA or SARSEP-IRA.
[ ] Regular SEP-IRA Contribution for 199__
[ ] Regular Salary Reduction SEP-IRA (SARSEP)
Contribution for 199__
[ ] 60-Day Rollover
Check this box if you have withdrawn funds from a SEP-IRA at another
custodian and are reinvesting them at Acorn.
[ ] Direct Transfer
Check this box to authorize Acorn to transfer your existing SEP-IRA
directly from another custodian. Please complete both this application
and an IRA Transfer Form. Be sure to notify your employer.
- --------------------------------------------------------------------------------
(More on the back.)
<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 IRA or
SEP-IRA automatically.
I authorize Acorn Fund or Acorn International and their agents to draw on my
bank account on or about the fifteenth day of each month or quarter.
[ ] Acorn Fund $_________________________________________
[ ] monthly [ ] quarterly (check only one box)
[ ] Acorn International $_________________________________________
[ ] monthly [ ] quarterly (check only one box)
Write "void" across the face of a check from the bank account you will be using,
then send the check with this form. The minimum automatic investment is $100;
the annual maximum investment is $2,000. (Quarterly investments are made in
January, April, July, and October).
IRA BENEFICIARY DESIGNATION
Please indicate your beneficiaries here. If you wish to designate additional
beneficiaries, please attach additional instructions providing the necessary
beneficiary information.
Your Primary Beneficiaries
I hereby designate the person(s) named below as primary beneficiary(ies) to
receive payment of the value of my IRA account upon my death. If any beneficiary
is a trust, please indicate the trust's name and address, the date of the trust,
and the trustee's name.
1
- --------------------------------------------------------------------------------
Name (first, middle, last):
- -------------------------- ------------------ --------------------------------
Share %:* Relationship Date of Birth (month, day, year)
2
- --------------------------------------------------------------------------------
Name (first, middle, last):
- -------------------------- ------------------ --------------------------------
Share %:* Relationship Date of Birth (month, day, year)
Your Contingent Beneficiaries
If no primary beneficiary is living at the time of my death, I hereby specify
that the balance be distributed to my contingent beneficiary(ies) named below.
1
- --------------------------------------------------------------------------------
Name (first, middle, last):
- -------------------------- ------------------ --------------------------------
Share %:* Relationship Date of Birth (month, day, year)
2
- --------------------------------------------------------------------------------
Name (first, middle, last):
- -------------------------- ------------------ --------------------------------
Share %:* Relationship Date of Birth (month, day, year)
* Share percentages must be whole, not fractional, numbers, and must add up to
100%. Payment to primary and contingent beneficiaries will be made according to
the rules of succession described in the signature section.
SIGNATURE
Please sign at the end of this section. We must have a signature to open the
account.
By signing this application I certify that:
[ ] I understand that the annual IRA maintenance fee of $10 per fund account
will be separately billed or collected by redeeming sufficient shares from
each fund account balance. A $10 fee will apply for each disbursement other
than an automatic installment payment. Acorn may change the fee schedule
from time to time, as provided in the Custodial Agreement. Acceptance will
be evidenced by a Letter of Acceptance sent by or on behalf of Acorn and
State Street Bank and Trust Company.
[ ] I understand that if more than one beneficiary is named and no percentages
are indicated, payment shall be made in equal shares to my primary
beneficiary(ies) who survives me. If a percentage is indicated and a primary
beneficiary(ies) does not survive me, the percentage of that beneficiary's
designated share shall be divided equally among the surviving primary
beneficiary(ies).
[ ] I understand that if I choose not to designate any beneficiary(ies), my
beneficiary will be my estate (unless state law requires otherwise). I am
aware that my beneficiary designation becomes effective when delivered to
Acorn and will remain in effect until I deliver to Acorn another beneficiary
designation with a later date.
[ ] I understand that the beneficiary information provided herein shall apply to
all Acorn IRAs for which State Street Bank and Trust Company (SSB&T) (or its
affiliate and/or any successor custodian appointed pursuant to the terms of
such IRAs) acts as custodian, including regular IRAs, SEP-IRAs, and Rollover
IRAs, and shall replace all previous designation(s) I have made on any of my
Acorn IRA accounts.
[ ] I hereby adopt the Acorn IRA, appointing SSB&T as Custodian and as agent to
perform administrative services. Although SSB&T is a bank, I recognize that
neither Acorn Investment Trust nor any mutual fund in which this IRA may be
invested is a bank, and that mutual fund shares are not backed or guaranteed
by any bank or insured by the FDIC. This agreement shall be construed,
administered and enforced according to the laws of the Commonwealth of
Massachusetts, except as superseded by federal law or statute.
[ ] I have received and read the prospectus for the fund(s) in which I am making
a contribution, and have read and understand the IRA Custodial Agreement and
Disclosure Statement. I hereby certify under penalties of perjury that my
Social Security Number (above) is correct and that I am of legal age to
enter into this agreement.
[ ] By signing below, I hereby consent to the terms of the Acorn IRA and name
the beneficiary(ies) I have designated in the application.
X
- ----------------------------------------------------- -----------------------
Your Signature Date (month, day, year)
Nationwide toll-free number 1-800-9-ACORN-9 (1-800-922-6769).
Service for the deaf and hearing impaired: Call toll-free TDD 1-800-306-4567,
9 a.m. to 5 p.m. Eastern time, weekdays.
Send this form to State Street Bank in the enclosed postage-paid envelope or to
the address below.
- --------------------------------------------------------------------------------
ACORN INVESTMENT RUST P.O. Box 8502
Boston, MA 02266-8502 [LOGO OF ACORN]
<PAGE>
ACORN INVESTMENT TRUST P.O. Box 8502 [LOGO OF ACORN]
Boston, MA 02266-8502
IRA/SEP-IRA Transfer Form All sections must be completed.
Please type or print clearly.
Use this form to authorize Acorn to transfer your IRA or SEP-IRA directly from
another IRA Custodian and invest it at Acorn. Please read the instructions on
the back of this form before completing the Transfer Form. If you have
questions, call us at 1-800-9-ACORN-9 (1-800-922-6769), weekdays, 8:30 am to
4:30 pm, Chicago (Central) time.
ACCOUNT OWNERSHIP
Social Security Number:
(used for tax reporting) |_|_|_| |_|_| |_|_|_|_|
Date of Birth:
month, day, year |_|_| |_|_| |_|_|
- --------------------------------------------------------------------------------
Name (first, middle initial, last)
- --------------------------------------------------------------------------------
Street Address and Apartment or Box Number
- --------------------------------------------------------------------------------
City, State, Zip Code
( ) ( )
- ------------------------------------- ----------------------------------------
Evening phone Daytime phone
TYPE OF IRA ACCOUNT
[ ] Regular IRA [ ] SEP-IRA
[ ] Rollover IRA*
*Check this box only if you are transferring an IRA representing a previous
rollover from an employer-sponsored retirement plan. (See explanation on the
other side -- "IRA Transfer Checklist".)
CURRENT IRA CUSTODIAN/TRUSTEE
My IRA is currently invested in:
[ ] Mutual fund name __________________________________________________________
[ ] CD/Date of Maturity (month-day-year) ______________________________________
[ ] Transfer the proceeds to my Acorn IRA at maturity.
(Send us this Transfer Form at least three weeks prior to maturity. If
the CD matures in less than three weeks, call 1-800-9-ACORN-9
(1-800-922-6769) for procedures.)
[ ] Liquidate the CD immediately and transfer the proceeds to my Acorn IRA.
(If you liquidate a CD prior to maturity, you may incur a penalty.)
[ ] Other (Specify): ___________________________________________________________
My IRA is currently held at: (Please call your current custodian for the
correct address. If this information is not provided, it could significantly
delay your transfer.)
- --------------------------------------------------------------------------------
Name of Present Custodian
- --------------------------------------------------------------------------------
Name of individual or department responsible for transfers
- --------------------------------------------------------------------------------
Address of Present Custodian
- --------------------------------------------------------------------------------
City, State, Zip Code
- ------------------------------------- ----------------------------------------
Telephone Number Account Number
of Transferor Custodian (Please attach a copy of
your most recent statement)
INVESTING YOUR IRA TRANSFER
A. Please check one of the following:
[ ] I am opening a new Acorn IRA and am attaching my
completed IRA application.
[ ] I already own an Acorn IRA into which I am making this transfer.
B. Please list the name(s) of the fund(s) into which the transfer proceeds are
to be deposited.
[ ] Acorn Fund $______________________________
Fund Account # (if existing) ______________________________
[ ] Acorn International $______________________________
Fund Account # (if existing) ______________________________
[ ] Short Term Income
Money Market Portfolio $______________________________
Fund Account # (if existing) ______________________________
Total Investment $______________________________
If you do not indicate a fund choice, your transfer proceeds will be invested in
Short Term Income Fund, a money market fund.
AUTHORIZATION TO TRANSFER YOUR IRA
Check only one of the following:
[ ] Please liquidate and transfer in cash the IRA account listed
at left.
[ ] Please liquidate and transfer proportionately $___________ of the
assets in the IRA account listed at left to my IRA.
[ ] Please transfer in-kind my [ ] Acorn Fund [ ] Acorn
International shares listed at left to an IRA with Acorn (see
explanation on other side--"IRA Transfer Checklist") and--
[ ] liquidate and transfer in cash all other assets in the IRA
account listed at left that are not currently invested in
Acorn Fund or Acorn International.
[ ] liquidate and transfer proportionately $___________ of the
other assets in the IRA account listed at left.
[ ] do not liquidate or transfer any assets in the IRA account
listed at left other than those invested in Acorn Fund or
Acorn International.
I have received and read the prospectus for the fund(s) in which I am making my
investment. If I am over 70-1/2, I attest that none of the amount to be
transferred will include the required minimum distribution for the current year
pursuant to Section 401(a)(9) of the Internal Revenue Code. If I have indicated
an IRA Transfer which is different from the IRA I currently maintain (e.g.,
Regular IRA versus Rollover IRA), I hereby establish a new IRA, the terms of
which shall be identical with the terms of the agreement for the Acorn IRA
previously established.
- ----------------------------------------------------- -----------------------
Your Signature Date (month, day, year)
Signature Guarantee: Please call the custodian or other institution you are
transferring from to see if a signature guarantee or other documentation is
required.
- --------------------------------------------------------------------------------
Name of Bank or Firm Providing Signature Guarantee
- --------------------------------------------------------------------------------
Signature of Officer and Title (Be sure to stamp Signature Guarantee)
- --------------------------------------------------------------------------------
(More on the back.)
<PAGE>
IRA (11/94)
Acorn Investment Trust
P.O. Box 8502
Boston, MA 02266-8502
IRA/SEP-IRA Transfer Form, continued
HOW TO TRANSFER YOUR IRA FROM ANOTHER INSTITUTION TO ACORN
1. Carefully read the prospectus of the Acorn fund you have selected.
2. Complete this Transfer Form to authorize Acorn to request your IRA funds
directly from another institution. You can make an unlimited number of direct
transfers without any tax implications.
3. If you do not already own an Acorn IRA, you must also complete the Acorn IRA
Application and check the "Direct Transfer" box.
4. Mail your Transfer Form and Application (if you are opening a new Acorn IRA)
in the enclosed postage-paid envelope or to State Street Bank and Trust
Company, Attention: Acorn Investment Trust, P.O. Box 8502, Boston, MA
02266-8502.
IRA TRANSFER CHECKLIST
/ If you combine Rollover IRA and regular IRA funds in the same account, you
will forfeit the right to reinvest your Rollover IRA funds in another
employer's qualified plan in the future. Combining IRA funds may also have tax
implications at distribution.
/ This Transfer Form cannot be used to transfer individual stocks (except shares
of Acorn Fund or Acorn International) or bonds in kind. Instead, you must
check the box for liquidation and cash transfer of those investments.
/ If you currently have an Acorn Fund or Acorn International IRA with another
custodian, and you wish to transfer those shares directly to Acorn and avoid
liquidating the shares prior to transfer, please check the box for a transfer
"in-kind."
/ Be sure you check with your present IRA custodian to see if a signature
guarantee or other documentation is required.
/ If possible, identify the individual or department responsible for transfers
at your present IRA custodian and provide this information where requested on
this form. This can help speed up the transfer process.
/ If you are directly rolling over a distribution from an employer-sponsored
retirement plan into an Acorn Rollover IRA, please do not use this form.
Simply check the correct box on the IRA Application and send it to State
Street Bank at the indicated address.
ACORN WILL COMPLETE THIS SECTION
Letter of Acceptance and Instructions for Transfer to an Acorn IRA Account
To Transferor Custodian: State Street Bank and Trust company (and/or any
successor custodian appointed pursuant to the terms of the Acorn IRA) will
accept the transfer described above. Please transfer on a fiduciary-to-fiduciary
basis all or part of the designated account as instructed above, and make check
payable to the custodian, State Street and Trust Company. Please mail check to
State Street Bank and Trust Company, Attention: Acorn Investment Trust, P.O. Box
8502, Boston, MA 02266-8502.
Also include the following information on the check:
- ----------------------------------------------------------- ------------------
Reference Number EBO
- ----------------------------------------------------------- ------------------
Authorized Acorn Signature Date
Nationwide toll-free number 1-800-9-ACORN-9 (1-800-922-6769).
Service for the deaf and hearing impaired: Call toll-free TDD 1-800-306-4567,
9 a.m. to 5 p.m. Eastern time, weekdays.
Send this form to State Street Bank in the enclosed postage-paid envelope or to
the address below.
- --------------------------------------------------------------------------------
ACORN INVESTMENT RUST P.O. Box 8502
Boston, MA 02266-8502 [LOGO OF ACORN]
<PAGE>
Acorn Fund
Total Return Calculation
Initial Investment: $ 1,000
Period: From January 1, 1995
to December 31, 1995
Number of Days in Period: 365
Total Return 20.80%
<TABLE>
<CAPTION>
Dividend Dividend Total Account
Dividend Dollars Shares Shares Value
Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Investment $ 1,000
1/1/95 $12.24 81.6993 0 0 0 81.6993 1,000
7/17/95 13.89 81.6993 0.15 12.25 0.8823 82.58163 1,147
12/12/95 13.49 82.5816 1.02 84.23 6.2441 88.82575 1,198
12/31/95 13.60 88.8258 0 0.00 0.0000 88.82575 1,208
</TABLE>
Page 1
<PAGE>
Acorn International Fund
Total Return Calculation
Initial Investment: $ 1,000
Period: From January 1, 1995
to December 31, 1995
Number of Days in Period: 365
Total Return 8.90%
<TABLE>
<CAPTION>
Dividend Dividend Total Account
Dividend Dollars Shares Shares Value
Date (a) NAV (b) Shares (c) Rate (d) (e)=(c)*(d) (f)=(e)/(b) (g)=(c)+(f) (h)=(g)*(b)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Investment $ 1,000
1/1/95 $15.24 65.6168 0 0 0 65.6168 1,000
7/17/95 16.23 65.6168 0.01296 0.85 0.0524 65.66919 1,066
12/31/95 16.59 65.6692 0 0.00 0.0000 65.66919 1,089
</TABLE>
Page 1
<PAGE>
Acorn Investment Trust P.O. Box 8502 [ACORN LOGO]
Boston, MA 02266-8502
Application
It takes only a few moments to fill out this simple step-by-step
application. If you have questions, call us at 1-800-9-ACORN-9,
(1-800-922-6769), weekdays, 8:00am-4:30pm, Chicago (central) time.
Please be sure to print your information on this application, then
simply sign and return it to us in the postage-paid envelope we've
provided. (Please do not use this form if you are opening an IRA.)
YOUR ACCOUNT REGISTRATION
[][][] [][] [][][][]
Social Security Number (Use minor's social security number for
gifts/transfers to minors) or
[][] [][][][][][][]
Taxpayer ID Number
_____________________________________________________________
[] Individual or Joint* Account
_____________________________________________________________
Owner's name: first, middle initial, last
_____________________________________________________________
Joint owner's name: first, middle initial, last
*Joint tenants with right of survivorship, unless
you indicate otherwise.
_____________________________________________________________
[] Gift/Transfer to a Minor (ugma/utma)
_____________________________________________as custodian for
Custodian's name: first, middle initial, last
____________________________________________________under the
Minor's name: first, middle initial, last
_________________________Uniform Gifts/Transfers to Minors Act.
State
_______________________________________________________________
Minor's date of birth
_______________________________________________________________
[] Trust or Established Employee Benefit
or Profit-Sharing Plan
___________________________________________________as trustee of
Trustee('s) name(s)
_______________________________________________________________
Name of Trust Agreement
_______________________________________________________________
Date of Trust Agreement
Please include copy of first page and last page of trust agreement.
_______________________________________________________________
[] Corporation or Other Entity
_______________________________________________________________
Name of corporation or other entity
_______________________________________________________________
Type of entity (for example, corporation, partnership, non-profit)
Please attach a certified copy of your corporate resolution showing
the person(s) authorized to act on this account.
YOUR ADDRESS
_______________________________________________________________
Street or P.O. Box
_______________________________________________________________
City State Zip Code
_______________________________________________________________
Daytime phone, including area code
[] U.S. Citizen [] Non-citizen residing in U.S.
To invest, you must be a U.S. citizen (or a non-citizen residing
in the U.S.) with a social security or tax identification number.
CHOOSE YOUR INVESTMENTS
There is an initial investment minimum of $1,000 per Fund.
[] Acorn Fund $___________________
[] Acorn International $___________________
[] Total Investment $___________________
Make check(s) payable to Acorn Fund and/or Acorn International.
DIVIDEND/CAPITAL GAINS PAYMENT OPTIONS
Please choose how you want to receive your income dividends and
capital gains. If no option is checked, all dividends and capital
gains will be reinvested automatically. (Check one box.)
[] Reinvest dividends and capital gains to help keep my
account growing.
[] Pay dividends and capital gains in cash.
[] Pay dividends in cash; reinvest capital gains.
DUPLICATE STATEMENTS
_______________________________________________________________
[] Send duplicate statements for my account to:
_______________________________________________________________
Name
_______________________________________________________________
Street or P.O. Box
_______________________________________________________________
City State Zip Code
(MORE ON THE BACK.)
<PAGE>
Acorn Investment Trust FIRST CLASS
WAM Brokerage Services, L.L.C. U.S. POSTAGE
P.O. Box 8502 PAID
Boston, MA 02266-8502 CHICAGO, IL
PERMIT NO. 1200
AUTOMATIC INVESTMENT PLAN
To keep building your investments, you can easily add
to your fund accounts by joining the automatic
investment plan:
[_] Automatic Investment Plan: to add to your Acorn
account automatically
[_] Acorn Fund $____________________
[_] monthly [_] quarterly (check only one box)
[_] Acorn International $____________________
[_] monthly [_] quarterly (check only one box)
The minimum automatic investment is $100; the maximum
is $50,000. Your automatic investment will be drawn from
your bank account on or about the 15th of the month.
Attach a voided check from the bank account you will
be using.
BANK TRANSFER OPTIONS
To make transactions fast and easy, choose the Telephone
Purchase Plan, Telephone Redemption by Wire Plan, or both.
It takes about 10 days to set up these plans.
[_] Telephone Purchase Plan: to add to your Acorn Fund account
or Acorn International account by transferring money from
your bank checking account ($100 minimum, $50,000 maximum
per transfer.)
[_] Telephone Redemptions by wire: to redeem shares and
transfer the money to your bank checking account ($1,000
minimum, $50,000 maximum per transaction.)
Telephone requests for purchases or redemptions must be made
by 3:00 p.m. Chicago (central) time.
Attach a voided check from the bank account you will be using.
TELEPHONE PLANS
You automatically have the ability to exchange and redeem
shares by telephone unless you check the boxes below.
Proceeds of telephone redemption requests are paid by check
mailed to the address of record may not be more than
$50,000. Exchanges must be between identically-registered
accounts and requested by 3:00 p.m. Chicago (central) time.
See the prospectus for details.
I do NOT want: [_] telephone exchanges
---
[_] telephone redemptions
AGREEMENT
By signing this form, I certify that:
I am of legal age, have received and read the Prospectus, and
agree to its terms. I understand that each of the account
services, including the telephone exchange plan, may be
terminated or modified by Acorn in the future.
If I fail to give the correct number or sign this form, Acorn
Fund or Acorn International may reject, restrict, or redeem
my investment.
I authorize Acorn Fund, Acorn International, and their
affiliates and agents to act on any instructions reasonably
believed to be genuine for any service authorized on this
form (including telephone transactions). I agree that they
will not be liable for any resulting loss or expense. I
certify that I have read the explanation and agree to the
terms and provisions for the services I have elected as set
forth in the current prospectus of Acorn Fund and Acorn
International, as amended from time to time.
(If you have elected the Automatic Investment Plan or any
Bank Transfer Option) I authorize Acorn Fund, Acorn
International and their affiliates and agents to initiate (1)
credit entries (deposits) (if I have elected the telephone
redemption bank transfer option), (2) debit entries
(withdrawals) (if I have elected to participate in the
Automatic Investment Plan or telephone purchase Bank Transfer
Option), and (3) debit or credit entries and adjustments for
any entries made in error to my bank account, for which I
have attached a voided check. This authorization will remain
effective until I notify Acorn in writing or by telephone at
1-800-962-1585 of its termination and until Acorn has a
reasonable time to act on that termination.
YOUR SIGNATURE
Under penalty, I certify that (i) the Social Security or Tax
Identification Number given is correct and (ii) I am NOT
currently subject to IRS backup withholding for failure to
report dividend or interest income to the IRS. (Please cross
out "NOT" if you are currently subject to withholding.) The
IRS does not require your consent to any provision of this
document other than the certifications required to avoid
backup withholding.
X
______________________________________________________________________
Signature (Sign exactly as name appears in Account Registration) Date
X
______________________________________________________________________
Signature (Sign exactly as name appears in Account Registration) Date
Joint accounts require both signatures.
<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>
