<PAGE>
As filed with the Securities and Exchange Commission on October 10, 1997
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. 58
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 33
----------------------
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)
[ ] on ____________ pursuant to rule 485(b)
[X] 60 days after filing pursuant to rule 485(a)(1)
[ ] on ____________ pursuant to rule 485(a)(1)
[ ] 75 days after filing pursuant to rule 485(a)(2)
[ ] on ____________ pursuant to rule 485(a)(2)
- --------------------------------------------------------------------------------
Registrant has previously elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of its series designated
Acorn Fund, Acorn International and Acorn USA. Registrant intends to file its
Rule 24f-2 Notice for the fiscal year ending December 31, 1997 on or before
March 31, 1998.
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<PAGE>
ACORN INVESTMENT TRUST
Cross-reference sheet pursuant to rule 495(a) of Regulation C
Item Location or caption*
- ---- -----------------------------------
Part A (prospectus)
-------------------
1(a)&(b) Front cover
2(a) Expenses and Performance - Expenses
(b)&(c) Contents; The Funds at a Glance
3(a) Financial History
(b) Not applicable
(c) Performance
(d) Performance
4(a)(i) Organization
(ii) The Funds at a Glance; The Acorn Philosophy; Securities,
Investment Practices, and Risks
(b) Securities, Investment Practices, and Risks
(c) The Funds at a Glance - Who May Want to Invest; The Acorn
Philosophy; Securities, Investment Practices, and Risks
5(a) Organization
(b) The Funds at a Glance; 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 at a
Glance;
The Funds in Detail - Expenses
(g) Not applicable
5A The information called for is contained in the annual
report
6(a) Organization; How to Buy Shares; How to Sell Shares;
Exchange Plan Restrictions
(b) Not applicable
(c) Shareholder and Account Policies - Purchases; Shareholder
and Account Policies - Redemptions; Exchange Plan
Restrictions
(d) Not applicable
(e) Doing Business With Acorn; How to Buy Shares; How to Sell
Shares; Shareholder and Account Policies - Statements and
Reports; How to Contact Us
(f)&(g) Dividends, Capital Gains, and Taxes
7 Doing Business with Acorn; How to Buy Shares; Shareholder
and Account Policies - Purchases; Shareholder and Account
Policies - Telephone Exchange Plan
(a) Not applicable
- -------------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
2
<PAGE>
Item Location or caption*
- ---- ------------------------------
(b) How to Buy Shares; Shareholder and Account Policies - Share
Price; Shareholder and Account Policies - Telephone Exchange
Plan
(c) Not applicable
(d) How to Buy Shares; Exchange Plan Restrictions
(e) & (f) Not applicable
8(a) Doing Business with Acorn; How to Sell Shares; Shareholder and
Account Policies - Redemptions; Shareholder and Account
Policies - Telephone Exchange Plan; Exchange Plan Restrictions
(b) Shareholder and Account Policies - Purchases
(c) & (d) Shareholder and Account Policies - Redemptions
9 Not applicable
- ---------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
ii
<PAGE>
Item Location or caption*
- ---- --------------------------------------
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
22 Performance Information
23 Information About the Funds
- ---------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
4
<PAGE>
Item Location or caption*
- ---- ------------------------------
Part C (Other Information)
--------------------------
24 Financial statements and exhibits
25 Persons controlled by or under common control with registrant
26 Number of holders of securities
27 Indemnification
28 Business and other connections of investment adviser
29 Principal underwriters
30 Location of accounts and records
31 Management services
32 Undertakings
- ---------------------
*References are to captions within the part of the registration statement to
which the particular item relates except as otherwise indicated.
iv
<PAGE>
- --------------------------------------------------------------------------------
Registrant's definitive prospectus dated April 30, 1997 was filed pursuant to
Rule 497(e) of the Securities Act of 1933 on August 26, 1997 (1933 Act No. 2-
34223). That prospectus is not affected by, and is therefore not included in,
this post-effective amendment no. 58.
- --------------------------------------------------------------------------------
<PAGE>
ACORN FUND
ACORN INTERNATIONAL
ACORN USA
Supplement dated December 10, 1997
to Prospectus dated April 30, 1997 of Acorn Investment Trust
At a meeting held on December 9, 1997, the shareholders of each series of
Acorn Investment Trust (the "Trust") approved a new Investment Advisory
Agreement (the "Agreement") between the Trust and Wanger Asset Management, L.P.
("WAM") relating to Acorn Fund, Acorn International and Acorn U.S.A. (each a
"Fund" and collectively the "Funds"). The new Agreement will take effect on
January 1, 1998 and will continue in effect through June 30, 1999.
On the effective date of the new Agreement, the services provided by WAM
will be divided between investment advisory and administrative services, and a
separate fee will be paid for each. The breakpoints in Acorn Fund's fee schedule
will be changed and the rate of fee payable on larger amounts of assets will be
increased so that the total amount of fees (advisory and administrative) paid by
Acorn Fund to WAM will also be increased, although the top rate of fee will
remain unchanged at .75 of 1%. The rates of fees paid by Acorn International and
Acorn USA to WAM will be divided between advisory and administrative services,
but will not be increased or decreased. In addition, the new Agreement requires
that Acorn Fund and Acorn International pay 100% of their respective allocable
portion of any trade association dues, which under the old agreement were shared
50/50 between each such Fund and WAM.
Under the new Agreement, the Funds will pay WAM an advisory fee, calculated
daily and paid monthly, at the following annual rates:
Acorn Fund
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
<PAGE>
Acorn USA
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
In addition, Acorn will enter into an administrative services agreement
with WAM under which WAM will provide the same administrative services it now
provides and will receive a fee, also calculated daily and paid monthly, at the
annual rate of 0.05 of 1% of each Fund's average daily net assets.
<PAGE>
ACORN INVESTMENT TRUST
STATEMENT OF
ADDITIONAL INFORMATION
April 30, 1997
(Supplemented December 10, 1997)
227 West Monroe Street
Suite 3000
Chicago, Illinois 60606
1-800-9-ACORN-9
1-800-922-6769
ACORN FUND
ACORN INTERNATIONAL
ACORN USA
No-Load Funds
TABLE OF CONTENTS
-----------------
Page
----
Information About the Funds................................2
Investment Objectives and Policies.........................2
Investment Techniques and Risks............................2
Investment Restrictions...................................18
Performance Information...................................25
Investment Adviser........................................26
Distributor...............................................29
The Trust.................................................29
Trustees and Officers.....................................30
Purchasing and Redeeming Shares...........................33
Additional Tax Information................................34
Taxation of Foreign Shareholders..........................35
Portfolio Transactions....................................35
Custodian.................................................37
Independent Auditors......................................37
Appendix - Description of Bond Ratings....................38
This Statement of Additional Information ("SAI") is not a prospectus but
provides information that should be read in conjunction with the prospectus of
Acorn Fund, Acorn International and Acorn USA dated April 30, 1997 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.
1
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Information About the Funds
Acorn Fund, Acorn International and Acorn USA are series of Acorn
Investment Trust ("Acorn" or the "Trust"). All three funds are currently open
to new investors; however, Acorn reserves the right to close one or more of the
funds to new investors if additional cash flow is deemed detrimental to
management of the funds.
Copies of the 1996 Annual and June 30, 1997 Semiannual Reports of the Acorn
funds accompany this SAI. The Annual Report contains audited financial
statements, notes thereto, supplementary information entitled "Financial
Highlights," and a report of independent auditors, all of which (but no other
part of the report) are incorporated herein by reference. The Semiannual Report
contains unaudited financial statements, notes thereto and supplementary
information entitled "Financial Highlights," all of which (but no other part of
the report) are incorporated herein by reference. Additional copies of the
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, Acorn International and Acorn USA invest with the objective of
long-term growth of capital. Although income is considered 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. Under normal market conditions, Acorn International invests at least
75% of its total assets in foreign securities; Acorn Fund's and Acorn USA's
investments in foreign securities are limited to not more than 33% and 10% of
each fund's total assets, respectively. 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
2
<PAGE>
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 generally pay the expenses of the
depository and do not have an undertaking from the issuer of the underlying
security to furnish shareholder communications. Therefore, in the case of an
unsponsored ADR, a fund is likely to bear its proportionate share of the
expenses of the depository and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored ADR. None of the
funds 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 "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; lack of uniform
accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign subcustodial
arrangements. In addition, the costs of investing in foreign securities are
higher than the costs of investing in U.S. securities.
Although the funds try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social, or diplomatic
developments that could affect investment in these nations.
The countries in which the funds invest include those listed below. A fund
may not invest in all the countries listed, and it may invest in other countries
as well, when such investments are consistent with that fund's investment
objective and policies.
3
<PAGE>
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,
foreign exchange dealers or broker-dealers, are not exchange-traded, and are
usually for less than one year, but may be renewed.
Forward currency transactions may involve currencies of the different
countries in which the funds may invest, and serve as hedges against possible
variations in the exchange rate between these currencies. The funds' currency
transactions are limited to transaction hedging and portfolio hedging involving
either specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions." Transaction
hedging is the purchase or sale of a forward contract with respect to specific
payables or receivables of a fund accruing in connection with the purchase or
sale of portfolio securities. Portfolio hedging is the use of a forward
contract with respect to a portfolio security position denominated or quoted in
a particular currency. The funds may engage in portfolio hedging with respect
to the currency of a particular country in amounts approximating actual or
anticipated positions in securities
4
<PAGE>
denominated in that currency. When a fund owns or anticipates owning securities
in countries whose currencies are linked, WAM may aggregate such positions as to
the currency hedged.
If a fund enters into a forward contract hedging an anticipated purchase of
portfolio securities, assets of that fund having a value at least as great as
the fund's commitment under such forward contract will be segregated on the
books of the fund and held by the custodian while the contract is outstanding.
At the maturity of a forward contract to deliver a particular currency, a
fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency that the fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency that fund is obligated to deliver.
If a fund retains the portfolio security and engages in an offsetting
transaction, that fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between a fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, a fund will suffer a loss to the extent the price of
the currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the fund of unrealized
profits or force the fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a fund to hedge against a devaluation that is so
generally anticipated that the fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to a fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
5
<PAGE>
Synthetic Foreign Money Market Positions. The funds may invest in money
market instruments denominated in foreign currencies. In addition to, or in
lieu of, such direct investment, the funds may construct a synthetic foreign
money market position by (a) purchasing a money market instrument denominated in
one currency (generally U.S. dollars) and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that currency in exchange
for a different currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen could be
constructed by purchasing a U.S. dollar money market instrument, and entering
concurrently into a forward contract to deliver a corresponding amount of U.S.
dollars in exchange for Japanese yen on a specified date and at a specified rate
of exchange. Because of the availability of a variety of highly liquid short-
term U.S. dollar money market instruments, a synthetic money market position
utilizing such U.S. dollar instruments may offer greater liquidity than direct
investment in foreign money market instruments. The results of a direct
investment in a foreign currency and a concurrent construction of a synthetic
position in such foreign currency, in terms of both income yield and gain or
loss from changes in currency exchange rates, in general should be similar, but
would not be identical because the components of the alternative investments
would not be identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a foreign
currency, the synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policies that, under normal conditions,
(a) Acorn Fund will not invest more than 33% of its total assets in foreign
securities; (b) Acorn USA will not invest more than 10% of its total assets in
foreign securities; and (c) Acorn International will invest at least 75% of its
total assets in foreign securities.
Options and Futures
The funds may purchase and write both call options and put options on
securities and on indexes, and enter into interest rate and index futures
contracts, and may purchase or sell options on such futures contracts ("futures
options") in order to provide additional revenue, or to hedge against changes in
security prices or interest rates. The funds may also use other types of
options, futures contracts and futures options currently traded or subsequently
developed and traded, provided the board of trustees determines that their use
is consistent with the funds' investment objective.
Options. An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to
pay the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
6
<PAGE>
The funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if a fund owns the security underlying the call or has an absolute
and immediate right to acquire that security without additional consideration
(or, if additional consideration is required, assets having a value at least
equal to that amount are segregated on the books of a fund) upon conversion or
exchange of other securities held in its portfolio.
If an option written by a fund expires, that fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a fund expires, that fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a fund desires.
A fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the fund will realize a capital gain or, if it is less,
the fund will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand, interest
rates, the current market price of the underlying security or index in relation
to the exercise price of the option, the volatility of the underlying security
or index, and the time remaining until the expiration date.
A put or call option purchased by a fund is an asset of that fund, valued
initially at the premium paid for the option. The premium received for an
option written by a fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.
OTC Derivatives. The funds may buy and sell over-the-counter ("OTC")
derivatives. Unlike exchange-traded derivatives, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of OTC derivatives (derivatives not traded on exchanges)
generally are established through negotiation with the other party to the
contract. While this type of arrangement allows a fund greater flexibility to
tailor an instrument to its needs, OTC derivatives generally involve greater
credit risk than exchange-traded derivatives, which are guaranteed by the
clearing organization of the exchanges where they are traded. Each fund will
limit its investments so that no more than 5% of its total assets will be placed
at risk in the use of OTC derivatives. See "Illiquid Securities" below for more
information on the risks associated with investing in OTC derivatives.
Risks Associated with Options. There are several risks associated with
transactions in options. For example, there are significant differences between
the securities markets, the currency markets, and the options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
7
<PAGE>
whether, when, and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a fund seeks
to close out an option position. If a fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
a fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call. As the writer of a covered call option on a
foreign currency, a fund foregoes, during the option's life, the opportunity to
profit from currency appreciation.
If trading were suspended in an option purchased or written by one of the
funds, that fund would not able to close out the option. If restrictions on
exercise were imposed, the fund might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts. The funds may use
interest rate futures contracts and index futures contracts. An interest rate
or index futures contract provides for the future sale by one party and purchase
by another party of a specified quantity of a financial instrument or the cash
value of an index (1) at a specified price and time. A public market exists in
futures contracts covering a number of indexes (including, but not limited to:
the Standard & Poor's 500 Index; the Value Line Composite Index; the Russell
2000 Index; and the New York Stock Exchange Composite Index) as well as
financial instruments (including, but not limited to: U.S. Treasury bonds; U.S.
Treasury notes; Eurodollar certificates of deposit; and foreign currencies).
Other index and financial instrument futures contracts are available and it is
expected that additional futures contracts will be developed and traded.
The funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the right, in
return for the premium paid, to assume a long position (call) or short position
(put) in a futures contract at a specified exercise price at any time during the
period of the option. Upon exercise of a call option, the holder acquires a
long
===========================
(1) A futures contract on an index is an agreement pursuant to which two
parties agree to take or make delivery of an amount of cash equal to the
difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was
originally written. Although the value of a securities index is a function
of the value of certain specified securities, no physical delivery of those
securities is made.
8
<PAGE>
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 a specified amount of cash
or U.S. government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is generally set
by the exchange on which the contract is traded; however, the margin requirement
may be modified during the term of the contract, and the fund's broker may
require margin deposits in excess of the minimum required by the exchange. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract, which is returned to the fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The funds
expect to earn interest income on their initial margin deposits. A futures
contract held by a fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the fund pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking-to-market." Variation margin paid or received
by a fund does not represent a borrowing or loan by the fund but is instead
settlement between that fund and the broker of the amount one would owe the
other if the futures contract had expired at the close of the previous day. In
computing daily net asset value, 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.
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Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the funds realize a capital
gain, or if it is more, the funds realize a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the fund
engaging in the transaction realizes a capital gain, or if it is less, the fund
realizes a capital loss. The transaction costs must also be included in these
calculations.
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
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above are relatively new instruments without a significant trading history. As a
result, there can be no assurance that an active secondary market will develop
or continue to exist.
Limitations on Options and Futures. A fund will not enter into a futures
contract or purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by that fund plus premiums paid by it
for open futures option positions, less the amount by which any such positions
are "in-the-money," (2) would exceed 5% of the fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a fund must maintain with its custodian or broker readily-marketable
securities having a fair market value (including any margin) at least equal to
the market value of such contract. When writing a call option on a futures
contract, a fund similarly will maintain with its custodian readily-marketable
securities having a fair market value (including any margin) at least equal to
the amount by which such option is in-the-money until the option expires or is
closed out by the fund.
A fund may not maintain open short positions in futures contracts, call
options written on futures contracts, or call options written on indexes if, in
the aggregate, the market value of all such open positions exceeds the current
value of the securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative volatility of
the relationship between the portfolio and the positions. For this purpose, to
the extent a fund has written call options on specific securities in its
portfolio, the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," the "underlying
commodity value" of each long position in a commodity contract in which a fund
invests will not at any time exceed the sum of:
(1) The value of short-term U.S. debt obligations or other U.S. dollar
denominated high-quality short-term money market instruments and cash
set aside in an identifiable manner, plus any funds deposited as
margin on the contract;
(2) Unrealized appreciation on the contract held by the broker; and
(3) Cash proceeds from existing investments due in not more than 30 days.
============================
(2) A call option is "in-the-money" if the value of the futures contract that
is the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.
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"Underlying commodity value" means the size of the contract multiplied by
the daily settlement price of the contract.
No fund will purchase puts, 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.
Taxation of Options and Futures. If the Fund exercises a call or put
option that it holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of the security
sold (put). For cash settlement options and futures options exercised by the
Fund, the difference between the cash received at exercise and the premium paid
is a capital gain or loss.
If a call or put option written by the Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by the Fund is in-the-money at the time it was
written and the security covering the option was held for more than the long-
term holding period prior to the writing of the option, any loss realized as a
result of a closing purchase transaction will be long-term. The holding period
of the securities covering an in-the-money option will not include the period of
time the option is outstanding.
If the Fund writes an equity call option (3) other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
===========================
(3) An equity option is defined to mean any option to buy or sell stock, and
any other option the value of which is determined by reference to an index
of stocks of the type that is ineligible to be traded on a commodity
futures exchange (e.g., an option contract on a sub-index based on the
price of nine hotel-casino stocks). The definition of equity option
excludes options on broad-based stock indexes (such as the Standard &
Poor's 500 index).
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For Federal income tax purposes, the Fund generally is required to
recognize for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with
respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by the Fund
may affect the holding period of the hedged securities.
If the Fund were to enter into a short index future, short index futures
option or short index option position and the Fund's portfolio were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions may be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for Federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) with respect
to, or futures or "forward contracts" (as defined by the Act) with respect to,
the same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property.
These changes generally apply to constructive sales after June 8, 1997.
Furthermore, the Secretary of the Treasury is authorized to promulgate
regulations that will treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting notional principal
contracts, and futures or forward contracts to deliver the same or substantially
similar property.
In order for the Fund to continue to qualify for Federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain realized from
futures (or futures options) contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement. In addition, for tax years beginning before August 5, 1997, gains
realized on the sale or other disposition of securities held less than three
months must be less than 30% of the Fund's annual gross income. In order to
avoid realizing excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
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The Fund intends to distribute to shareholders annually any capital gains
that have been recognized for Federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions, together with gains
on other Fund investments, to the extent such gains exceed recognized capital
losses and any net capital loss carryovers of the Fund. Shareholders will be
advised of the nature of such capital gain distributions.
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 a fund's exposure to changes in the value of an index of securities in
which the fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. A fund may enter into any form of
swap agreement if WAM determines it is consistent with that fund's investment
objective and policies, but each fund will limit its use of swap agreements so
that no more than 5% of its total assets will be placed at risk.
A swap agreement tends to shift a fund's investment exposure from one type
of investment to another. For example, if a fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase that fund's exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap agreement may
increase or decrease the overall volatility of a fund's investments and its 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 a fund. If a swap agreement calls for
payments by a fund, that fund must be prepared to make such payments when due.
If the counterparty's creditworthiness declines, the value of a swap agreement
would be likely to decline, potentially resulting in a loss. 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.
A fund will segregate its assets to cover its current obligations under a
swap agreement. If a fund enters into a swap agreement on a net basis, it will
segregate assets with a daily value at least equal to the excess, if any, of
that fund's accumulated obligations under the swap agreement over the
accumulated amount the fund is entitled to receive under the agreement. If a
fund enters into a swap agreement on other than a net basis, it will segregate
assets with a value equal to the full amount of that fund's accumulated
obligations under the agreement.
Illiquid Securities
The funds may not invest in illiquid securities, including restricted
securities and OTC derivatives, if as a result they would comprise more than 10%
of the value of the net assets of
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Acorn Fund, or more than 15% of the value of the net assets of each of Acorn
International and Acorn USA.
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 should be in a position where more than 10% of the value of its net
assets are invested in illiquid assets, including restricted securities and OTC
derivatives (or more than 15% of the value of the net assets of each of Acorn
International and Acorn USA), 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 and Acorn USA) of its assets in
illiquid securities. A determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination WAM will consider
the trading markets for the specific security taking into account the
unregistered nature of a Rule 144A security. In addition, WAM could consider
the (1) frequency of trades and quotes, (2) number of dealers and potential
purchasers, (3) dealer undertakings to make a market, and (4) nature of the
security and of market place trades (e.g., the time needed to dispose of the
security, the method of soliciting offers and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the funds' holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that a fund does not invest
more than 10% (for Acorn Fund) or 15% (for Acorn International and Acorn USA) 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,
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except that Acorn International may not invest more than 20% of its assets in
securities rated below investment grade or considered by the Adviser to be of
comparable credit quality. Neither Acorn Fund nor Acorn International expects to
invest more than 5% of its net assets in such securities during the current
fiscal year. Acorn USA does not intend to invest more than 20% of its total
assets in debt securities nor more than 5% of its total assets in securities
rated at or lower than the lowest investment grade.
Securities rated BBB or Baa are considered to be medium grade and to have
speculative characteristics. Lower-rated debt securities are predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer default or
bankruptcy. An economic downturn could severely disrupt the market for such
securities and adversely affect the value of such securities. In addition,
lower-quality bonds are less sensitive to interest rate changes than higher-
quality instruments and generally are more sensitive to adverse economic changes
or individual corporate developments. During a period of adverse economic
changes, including a period of rising interest rates, the junk bond market may
be severely disrupted, and issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Medium- and lower-quality debt securities may be less marketable than
higher-quality debt securities because the market for them is less broad. The
market for unrated debt securities is even narrower. During periods of thin
trading in these markets, the spread between bid and asked prices is likely to
increase significantly, and a fund may have greater difficulty selling its
portfolio securities. See "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 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
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repurchase agreement petitions for bankruptcy or otherwise becomes subject to
bankruptcy or other liquidation proceedings there may be restrictions on a
fund's ability to sell the collateral and the fund could suffer a loss. However,
with respect to financial institutions whose bankruptcy or liquidation
proceedings are subject to the U.S. Bankruptcy Code, each fund intends to comply
with provisions under such Code that would allow it immediately to resell such
collateral.
At present, Acorn USA is the only fund that invests in repurchase
agreements. Acorn Fund and Acorn International have no present intention of
investing in repurchase agreements.
When-Issued and Delayed Delivery Securities; Reverse Repurchase Agreements
The funds may purchase securities on a when-issued or delayed delivery
basis. Although the payment and interest terms of these securities are
established at the time the fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of purchase, when their
value may have changed. A fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before the
settlement date if WAM deems it advisable for investment reasons. A fund may
utilize spot and forward foreign currency exchange transactions to reduce the
risk inherent in fluctuations in the exchange rate between one currency and
another when securities are purchased or sold on a when-issued or delayed
delivery basis.
A fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, assets of
the fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the fund and held
by the custodian throughout the period of the obligation. The use of 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.
Temporary Strategies
The funds have the flexibility to respond promptly to changes in market and
economic conditions. In the interest of preserving shareholders' capital, WAM
may employ a temporary defensive investment strategy if it determines such a
strategy to be warranted. Pursuant to such a defensive strategy, a fund
temporarily may hold cash (U.S. dollars, foreign currencies, multinational
currency units) and/or invest up to 100% of its assets in high quality debt
securities or money market instruments of U.S. issuers (or, in the case of Acorn
Fund and Acorn International, those of foreign issuers), and most or all of the
fund's investments may be made in the United States and denominated in U.S.
dollars. It is impossible to predict whether, when, or for how long a fund
might employ defensive strategies.
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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 1996, 33% for Acorn Fund, 34% for Acorn International,
and 20% (annualized) for Acorn USA). A high rate of portfolio turnover, if it
should occur, would result in increased transaction expenses which must be borne
by each fund. High portfolio turnover may also result in the realization of
capital gains or losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be considered
ordinary income for federal income tax purposes.
Line of Credit
Acorn maintains a line of credit with a bank in order to permit borrowing
on a temporary basis to meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of portfolio securities.
Any borrowings under that line of credit by the funds would by subject to each
fund's restrictions on borrowing under "Investment Restrictions," below.
Investment Restrictions
Acorn Fund
In pursuing its investment objective Acorn Fund will not:
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);
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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 borrowings, and (b) in connection with
transactions in options in securities index futures [the fund will not
purchase additional securities when its borrowings, less amounts receivable
on sales of portfolio securities, exceed 5% of total assets];
7. Pledge, mortgage or hypothecate its assets, except for temporary or
emergency purposes and then to an extent not greater than 15% of its assets
at cost, and except in connection with transactions in options and in
securities index futures;
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
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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).
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 non-
fundamental 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.
Acorn International
In pursuing its investment objective Acorn International will not:
1. With respect to 75% of the value of the fund's total assets, invest
more than 5% of its total assets (valued at time of investment) in
securities of a single issuer, except securities issued or guaranteed by
the government of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer that at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b)
have a value greater than 10% of the value of the outstanding securities of
the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry;
20
<PAGE>
4. Make loans, but this restriction shall not prevent the fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 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.];
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
Acorn International's outstanding shares.
21
<PAGE>
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:
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
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.
22
<PAGE>
Acorn USA
In pursuing its investment objective Acorn USA will not:
1. With respect to 75% of the value of the Fund's total assets, invest
more than 5% of its total assets (valued at time of investment) in
securities of a single issuer, except securities issued or guaranteed by
the government of the U.S., or any of its agencies or instrumentalities;
2. Acquire securities of any one issuer which at the time of investment
(a) represent more than 10% of the voting securities of the issuer or (b)
have a value greater than 10% of the value of the outstanding securities of
the issuer;
3. Invest more than 25% of its assets (valued at time of investment) in
securities of companies in any one industry, except that this restriction
does not apply to investments in U.S. government securities;
4. Make loans, but this restriction shall not prevent the Fund from (a)
buying a part of an issue of bonds, debentures, or other obligations that
are publicly distributed, or from investing up to an aggregate of 15% of
its total assets (taken at market value at the time of each purchase) in
parts of issues of bonds, debentures or other obligations of a type
privately placed with financial institutions, (b) investing in repurchase
agreements, or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market value at the
time of such loan);
5. Borrow money except (a) from banks for temporary or emergency purposes
in amounts not exceeding 33% of the value of the Fund's total assets at the
time of borrowing, and (b) in connection with transactions in options,
futures and options on futures;
6. Underwrite the distribution of securities of other issuers; however,
the Fund may acquire "restricted" securities which, in the event of a
resale, might be required to be registered under the Securities Act of 1933
on the ground that the Fund could be regarded as an underwriter as defined
by that act with respect to such resale;
7. Purchase and sell real estate or interests in real estate, although it
may invest in marketable securities of enterprises which invest in real
estate or interests in real estate;
8. Purchase and sell commodities or commodity contracts, except that it
may enter into (a) futures and options on futures and (b) foreign currency
contracts;
9. Make margin purchases of securities, except for use of such short-term
credits as are needed for clearance of transactions and except in
connection with transactions in options, futures and options on futures;
23
<PAGE>
10. Issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
Restrictions 1 through 10 above are "fundamental," which means that they
cannot be changed without the approval of the lesser of (i) 67% of Acorn USA's
shares present at a meeting if more than 50% of the shares outstanding are
present or (ii) more than 50% of Acorn USA's outstanding shares.
In addition, Acorn USA is subject to a number of restrictions that may be
changed by the board of trustees without shareholder approval. Under those non-
fundamental restrictions, Acorn USA will not:
a. Invest in companies for the purpose of management or the exercise of
control;
b. Invest in oil, gas or other mineral leases or exploration or
development programs, although it may invest in marketable securities of
enterprises engaged in oil, gas or mineral exploration;
c. Invest more than 2% of its net assets (valued at the time of
investment) in warrants not listed on the New York or American stock
exchanges, nor more than 5% of its net assets (valued at the time of
investment) in all warrants, in each case valued at the lower of cost or
market; provided that warrants acquired in units or attached to securities
shall be deemed to be without value for purposes of this restriction;
d. Invest more than 5% of its total assets (valued at time of investment)
in securities of issuers (other than issuers of federal agency obligations
or securities issued or guaranteed by any foreign country or asset-backed
securities) that, together with any predecessors or unconditional
guarantors, have been in continuous operation for less than three years
("unseasoned issuers") or (b) more than 15% of its total assets (valued at
the time of investment) in restricted securities and securities of
unseasoned issuers;
e. Acquire securities of other registered investment companies except in
compliance with the Investment Company Act of 1940 and applicable state
law;
f. Invest more than 15% of its net assets (valued at time of investment)
in illiquid securities, including repurchase agreements maturing in more
than seven days;
g. Purchase or retain securities of a company if all of the trustees,
directors and officers of the Trust and of its investment adviser who
individually own beneficially more than 1/2% of the securities of the
company collectively own beneficially more than 5% of such securities;
h. Pledge, mortgage or hypothecate its assets, except as may be necessary
in connection with permitted borrowings or in connection with short sales,
options, futures and options on futures;
24
<PAGE>
i. Purchase a put or call option if the aggregate premiums paid for all
put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options
purchased as closing transactions;
j. Make short sales of securities unless the Fund owns at least an equal
amount of such securities, or owns securities that are convertible or
exchangeable, without payment of further consideration, into at least an
equal amount of such securities;
k. Invest more than 10% of its total assets (valued at the time of
investment) in securities of non-U.S. issuers, including securities
represented by American Depository Receipts.
Notwithstanding the foregoing investment restrictions, Acorn USA may purchase
securities pursuant to the exercise of subscription rights, provided that such
purchase will not result in the Fund's ceasing to be a diversified investment
company.
Performance Information
From time to time the 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, 1996 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............................ 22.6% 22.6%
5 years........................... 125.2% 17.6
10 years.......................... 345.5% 16.1
Life of Fund (inception 6/10/70).. 5,995.7% 16.7
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
ACORN INTERNATIONAL
------------------- Average Annual
Total Return Total Return
------------ --------------
<S> <C> <C>
1 year............................ 20.7% 20.7%
3 years........................... 26.4% 8.1
Life of Fund (inception 9/23/92).. 101.3% 17.8
ACORN USA
--------- Average Annual
Total Return Total Return
------------ --------------
Life of Fund (inception 9/4/96)... 16.5% 16.5%
</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 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"), is a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd. WAM serves as the investment adviser for the funds and for other
institutional accounts. At June 30, 1997 WAM had approximately $6.3 billion
under management, including the funds.
Currently, 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.
New Investment Advisory Agreement. At a meeting held on December 9, 1997,
the shareholders of each of Acorn Fund, Acorn International and Acorn USA
approved a new
26
<PAGE>
Investment Advisory Agreement (the "New Agreement") between Acorn and WAM
relating to each fund. The New Agreement will take effect on January 1, 1998 and
will continue in effect through June 30, 1999, and thereafter from year to year
so long as its continuance as to each fund is approved at least annually by (i)
the board of trustees of Acorn or by the holders of a majority of that fund's
outstanding voting securities as defined by the Investment Company Act of 1940
and (ii) a majority of the members of Acorn's board of trustees who are not
otherwise affiliated with Acorn or WAM, cast in person at a meeting called for
that purpose. Any amendment to the New Agreement must be approved in the same
manner. The New Agreement may be terminated as to a fund without penalty by the
vote of the board of trustees of Acorn or the shareholders of that fund (by a
majority as defined in the 1940 Act) on sixty days' written notice to WAM or by
WAM on sixty days' notice to the fund, and will terminate automatically in the
event of its assignment. The fees payable by a fund under the New Agreement are
the obligation only of that fund and impose no liability on the other funds.
On the effective date of the New Agreement, the services provided by WAM
will be divided between investment advisory and administrative services, and a
separate fee will be paid for each. The breakpoints in Acorn Fund's fee schedule
will be changed and the rate of fee payable on larger amounts of assets will be
increased so that the total amount of fees (advisory and administrative) paid by
Acorn Fund to WAM will also be increased, although the top rate of fee will
remain unchanged at .75 of 1%. The rates of fees paid by Acorn International and
Acorn USA to WAM will be divided between advisory and administrative services,
but will not be increased or decreased. In addition, the New Agreement requires
that Acorn Fund and Acorn International pay 100% of their respective allocable
portion of any trade association dues, which under the old agreement were shared
50/50 between each such fund and WAM.
Under the New Agreement, the funds will pay WAM an advisory fee, calculated
daily and paid monthly, at the following annual rates:
Acorn Fund
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
27
<PAGE>
Acorn USA
Average Daily Net Assets Rate of Fee
------------------------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
Through December 31, 1997, for its services to Acorn Fund WAM will continue
to receive 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. The investment advisory fees of the fund for 1996,
1995, and 1994, were $12,437,000, $10,429,000 and $9,750,000, respectively.
Through December 31, 1997, for its services to Acorn International, WAM
will continue to receive 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 1996, 1995 and 1994 were $13,255,000, $11,667,000 and
$11,561,000, respectively.
Through December 31, 1997, for its services to Acorn USA, WAM will continue
to receive a fee (calculated daily and paid monthly) at the annual rate of 1.00%
of the net asset value of the fund up to $200 million and .95% of the net asset
value in excess of $200 million, as determined as of the beginning of each
calendar quarter. From its inception on September 4, 1996 to December 31, 1996,
Acorn USA paid investment advisory fees of $101,000. WAM advanced all of Acorn
USA's organizational expenses, which are being amortized and reimbursed to WAM
through September 2001.
Under the current investment advisory agreement, the funds pay the cost of
custodial, stock transfer, dividend disbursing, audit and legal services, and
membership in trade organizations. They also pay other expenses such as the cost
of maintaining the registration of their shares under federal law, complying
with state securities laws, proxy solicitations, printing and distributing
notices and copies of the prospectus and shareholder reports furnished to
existing shareholders, taxes, insurance premiums and the fees of trustees not
affiliated with WAM. Under the New Agreement, WAM will provide only investment
advisory services; Acorn will enter into a separate administrative services
agreement with WAM under which WAM will provide the same administrative services
it now provides and will receive a fee, also calculated daily and paid monthly,
at the annual rate of 0.05 of 1% of each Fund's average daily net assets. Under
the New Agreement, WAM will no longer pay any of the funds' trade association
dues.
Changes at WAM. At the same time the New Agreement becomes effective, the
structure of WAM and WAM Ltd. will change to reflect more closely WAM's team
approach to investment management. WAM Ltd. has been controlled by Mr. Wanger,
and WAM has been
28
<PAGE>
controlled by Mr. Wanger with the consent of one or more of the other limited
partners, but each is evolving into an organization controlled by its partners
or shareholders collectively. New mechanisms are being created to facilitate the
admission of new limited partners to WAM and to give new limited partners an
equity interest in WAM Ltd., which will continue to be WAM's general partner.
Mr. Wanger's interests in WAM Ltd. and in WAM are being reduced to less than a
majority, although Mr. Wanger will continue to have the largest interest in
each.
On matters submitted to the shareholders of WAM Ltd., each shareholder will
have one vote (or a lesser vote in the case of new shareholders). With certain
exceptions (including for extraordinary transactions, for which Mr. Wanger's
consent will be required), decisions will be made by majority vote. WAM
commenced operations in 1992. Ralph Wanger, Charles P. McQuaid, Terence M.
Hogan, Leah J. Zell, Marcel P. Houtzager and Robert A. Mohn, who are officers of
the Trust, are the current limited partners of WAM.
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 April
30, 1997, 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 any auditing and filing fees
required in compliance with various state securities laws. WAM bears all sales
and promotional expenses, including the cost of prospectuses and other materials
used for sales and promotional purposes by WAM BD.
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.
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, Acorn International and Acorn USA
are the only series of the Trust currently being offered. The board of trustees
may authorize the issuance of additional series if deemed advisable, each with
its own investment objective, policies, and restrictions. All shares issued
will be fully paid and non-assessable and will have no preemptive or conversion
rights.
29
<PAGE>
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, their dates of birth and their
principal business activities during the past five years are:
Irving B. Harris, trustee and chairman
Two North LaSalle Street, Chicago, Illinois 60602; date of birth 8/4/1910;
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; date of birth
6/21/1934; trustee and president, Wanger Advisors Trust; principal, Wanger
Asset Management, L.P.
James H. Lorie, trustee and vice chairman
1101 East 58th Street, Chicago, Illinois 60637; date of birth 2/23/1922;
retired; Eli B. and Harriet B. Williams Professor of Business
Administration Emeritus, University of Chicago Graduate School of Business;
director, Thornburg Mortgage Asset Corp. (REIT) and Santa Fe Natural
Tobacco
Leo A. Guthart, trustee
165 Eileen Way, Syosset, New York 11791; date of birth 9/26/1937; 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 400, Chicago, Illinois 60602; date of birth
4/13/1934; vice president, William Harris Investors, Inc. (investment
adviser); director, Pittway Corporation (multi-product manufacturer and
publisher).
30
<PAGE>
David C. Kleinman, trustee
1101 East 58th Street, Chicago, Illinois 60637; date of birth 10/12/1935;
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; date of birth
8/27/1953; trustee and senior vice president, Wanger Advisors Trust;
principal, Wanger Asset Management, L.P.
Roger S. Meier, trustee
1211 S. W. Fifth Avenue, Portland, Oregon 97204; date of birth 1/18/1926;
president, AMCO, Inc. (investment and real estate management); director,
Fred Meyer, Inc. (retail chain); director, Red Lion Inns Limited
Partnership (hotel chain); director and advisory board member, Key Bank of
Oregon (banking); chairman of Investment Council and member of Committee of
Legacy Systems (hospital); executive director and chairman of investment
committee, Portland Art Museum.
Adolph Meyer, Jr., trustee
1511 West Webster Avenue, Chicago, Illinois 60614; date of birth
11/26/1923; president, Gulco Corp. (leather manufacturer).
Terence M. Hogan, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
2/18/1962; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Leah J. Zell, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
5/23/1949; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Marcel P. Houtzager, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
10/26/1960; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Robert A. Mohn, vice president
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
9/13/1961; vice president, Wanger Advisors Trust; principal, analyst and
portfolio manager, Wanger Asset Management, L.P.
Merrillyn J. Kosier, vice president and secretary
227 West Monroe Street, Suite 3000, Chicago, Illinois 60606; date of birth
12/10/1959; 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; date of birth
7/22/1957; 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.
31
<PAGE>
Kenneth A. Kalina, assistant treasurer
227 West Monroe Street, Suite 3000, Chicago, Illinois 60603; date of birth
8/4/1959; 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. As of June 30, 1997, no officer or trustee of Acorn owned
beneficially greater than 1% of the outstanding shares of any fund.
At March 31, 1997 the trustees and officers as a group had the power to
vote or dispose of 3,595,385 shares (1.88% of the outstanding shares) of Acorn
Fund; 1,233,214 shares (1.32% of the outstanding shares) of Acorn International;
and 1,008,242 shares (13.32% of the outstanding shares) of Acorn USA. Of these
shares, the trustees and officers disclaimed beneficial ownership in the
following numbers of shares: 2,413,102 shares of Acorn Fund (1.26% of the
outstanding shares); 999,997 shares of Acorn International (1.07% of the
outstanding shares); and 433,001 shares of Acorn USA (5.72% of the outstanding
shares). The Illinois Deferred Compensation Plan held 16,331,111 shares of
Acorn Fund (8.55% of the outstanding shares). Charles Schwab & Co., Inc. held
13,317,126 shares of Acorn International (14.23% of the outstanding shares) as
holder of record, but not beneficially. National Financial Service held 940,443
shares of Acorn USA (12.4% of the outstanding shares) as holder of record, but
not beneficially. During 1996 the funds paid fees aggregating $216,000 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, 1996 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.
<TABLE>
<CAPTION>
Aggregate Aggregate Aggregate Total
Compensation Compensation Compensation Compensation
Name of Trustee from Acorn from Acorn from Acorn from
Fund International USA Fund Complex
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Irving B. Harris $43,197 $35,595 $208 $81,000
Leo A. Guthart 9,965 8,480 55 18,500
Jerome Kahn, Jr. 10,965 9,480 55 20,500
David C. Kleinman 11,280 9,660 60 21,000
James H. Lorie 9,465 7,980 55 17,500
Charles P. McQuaid 0 0 0 0
Roger S. Meier 10,215 8,730 55 19,000
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Adolph Meyer, Jr. 9,650 8,300 50 18,000
Malcolm N. Smith/4/ 10,965 9,480 55 20,500
Ralph Wanger 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Purchasing and Redeeming Shares
Purchases and redemptions are discussed in the funds' prospectus under the
headings "How to Buy Shares" and "How to Sell Shares." 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 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.
============================
/4/ At December 31, 1996, Mr. Smith had resigned his position as a trustee.
33
<PAGE>
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 Reich & Tang Money Funds ("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 continue to qualify to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code (the "Code")
so as to be relieved of federal income tax on its capital gains and net
investment income currently distributed to its shareholders.
At the time of your purchase, 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.
34
<PAGE>
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 and Acorn USA is expected to be
eligible for the dividends-received deduction. Capital gain distributions paid
from the funds are never eligible for this deduction.
Income received by the funds from sources within various foreign countries
will be subject to foreign income taxes withheld at the source. Under the Code,
if more than 50% of the value of a fund's total assets at the close of its
taxable year comprises securities issued by foreign corporations, that fund may
file an election with the 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 and
Acorn USA do not expect to be able to "pass through" foreign tax credits.
Taxation of Foreign Shareholders
The Code provides that dividends from net income, which are deemed to
include for this purpose each shareholder's pro rata share of foreign taxes paid
by Acorn International (see discussion of "pass through" of the foreign tax
credit to U.S. shareholders), will be subject to U.S. tax. For shareholders who
are not engaged in a business in the U.S., this tax would be imposed at the rate
of 30% upon the gross amount of the dividend in the absence of a Tax Treaty
providing for a reduced rate or exemption from U.S. taxation. Distributions of
net long-term capital gains are not subject to tax unless the foreign
shareholder is a nonresident alien individual who was physically present in the
U.S. during the tax year for more than 182 days.
Portfolio Transactions
Portfolio transactions of the funds are placed with those securities
brokers and dealers that WAM believes will provide the best value in transaction
and research services for each 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.
35
<PAGE>
In valuing brokerage services, WAM makes a judgment as to which brokers are
capable of providing the most favorable net price (not necessarily the lowest
commission) and the best execution in a particular transaction. Best execution
connotes not only general competence and reliability of a broker, but specific
expertise and effort of a broker in overcoming the anticipated difficulties in
fulfilling the requirements of particular transactions, because the problems of
execution and the required skills and effort vary greatly among transactions.
In valuing research services, WAM makes a judgment of the usefulness of
research and other information provided to WAM by a broker in managing each
fund's investment portfolio. In some cases, the information, e.g., data or
recommendations concerning particular securities, relates to the specific
transaction placed with the broker, but for the greater part the research
consists of a wide variety of information concerning companies, industries,
investment strategy, and economic, financial, and political conditions and
prospects, useful to WAM in advising that fund.
The reasonableness of brokerage commissions paid by the funds in relation
to transaction and research services received is evaluated by WAM's staff on an
ongoing basis. The general level of brokerage charges and other aspects of each
fund's portfolio transactions are reviewed periodically by the board of trustees
and its committee on portfolio transactions.
WAM is the principal source of information and advice to the funds, and is
responsible for making and initiating the execution of investment decisions by
the funds. However, the board of trustees recognizes that it is important for
WAM, in performing its responsibilities to the funds, to continue to receive and
evaluate the broad spectrum of economic and financial information that many
securities brokers have customarily furnished in connection with brokerage
transactions, and that in compensating brokers for their services, it is in the
interest of the funds to take into account the value of the information received
for use in advising the funds. The extent, if any, to which the obtaining of
such information may reduce WAM's expenses in providing management services to
the funds is not determinable. In addition, the board of trustees understands
that other clients of WAM might benefit from the information obtained for the
funds, in the same manner that the funds might benefit from information obtained
by WAM in performing services to others.
Transactions of the funds in the over-the-counter market and the third
market are executed with primary market makers acting as principal except where
it is believed that better prices and execution may be obtained otherwise.
Brokerage commissions incurred by Acorn Fund for its fiscal years ended
December 31, 1996, 1995, and 1994 aggregated approximately $3,440,000,
$2,565,000, and $1,870,000, respectively, not including the gross underwriting
spread on securities purchased in underwritten public offerings. During 1996
Acorn Fund paid brokerage commissions aggregating approximately $2,435,000 in
connection with portfolio transactions involving purchases and sales aggregating
approximately $822 million to brokers who furnished investment research services
to the fund.
36
<PAGE>
Brokerage commissions incurred by Acorn International for its fiscal years
ended December 31, 1996, 1995, and 1994 aggregated approximately $3,929,000,
$3,113,000, and $3,775,000, respectively, not including the gross underwriting
spread on securities purchased in underwritten public offerings. In 1996 Acorn
International paid brokerage commissions aggregating approximately $3,614,000 in
connection with portfolio transactions involving purchases and sales aggregating
approximately $910 million to brokers who furnished investment research services
to the fund.
Brokerage commissions incurred by Acorn USA from commencement of
operations on September 4, 1996 through the end of its fiscal period ended
December 31, 1996 totalled $88,900, not including the gross underwriting spread
on securities purchased in underwritten public offerings. During its 1996
fiscal period, Acorn USA paid brokerage commissions aggregating approximately
$47,400 in connection with portfolio transactions involving purchases and sales
aggregating approximately $15 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.
37
<PAGE>
Appendix - Description of Bond Ratings
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general
and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, WAM believes that the quality of
debt securities in which the funds invest should be continuously reviewed. A
rating is not a recommendation to purchase, sell or hold a security, because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service,
each rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the ratings services from
other sources which they consider reliable. Ratings may be changed, suspended
or withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
The following is a description of the characteristics of ratings used by
Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
Moody's Ratings
Aaa--Bonds rated Aaa are judged to be the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt-edge".
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such bonds.
Aa--Bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa bonds or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa bonds.
A--Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
38
<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.
39
<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 1996 Acorn Investment Trust Annual Report; a copy of
the report was filed with the Commission on March 3, 1997, and is
not included in this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations at December 31, 1996
Statement of Changes in Net Assets at December 31, 1996
Statement of Investments at December 31, 1996
Notes to financial statements
Acorn Fund (incorporated by reference to the following portions of
Registrant's Semiannual Report at June 30, 1997; a copy of the
report was filed with the Commission on August 21, 1997, and is not
included in this amendment):
Statement of Assets and Liabilities at June 30, 1997 (unaudited)
Statement of Operations at June 30, 1997 (unaudited)
Statement of Changes in Net Assets at June 30, 1997 (unaudited)
Statement of Investments at June 30, 1997 (unaudited)
Notes to financial statements
(ii) Acorn International (incorporated by reference to the following
portions of Registrant's 1996 Acorn Investment Trust Annual
Report; a copy of the report was filed with the Commission on
March 3, 1997, and is not included in this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations at December 31, 1996
Statement of Changes in Net Assets at December 31, 1996
1
<PAGE>
Statement of Investments at December 31, 1996
Notes to financial statements
Acorn International (incorporated by reference to the following
portions of Registrant's Semiannual Report at June 30, 1997; a
copy of the report was filed with the Commission on August 21,
1997, and is not included in this amendment):
Statement of Assets and Liabilities at June 30, 1997 (unaudited)
Statement of Operations at June 30, 1997 (unaudited)
Statement of Changes in Net Assets at June 30, 1997 (unaudited)
Statement of Investments at June 30, 1997 (unaudited)
Notes to financial statements
(iii) Acorn USA (incorporated by reference to the following portions of
Registrant's 1996 Acorn Investment Trust Annual Report; a copy of
the report was filed with the Commission on March 3, 1997, and is
not included in this amendment):
Report of Independent Auditors
Statement of Assets and Liabilities at December 31, 1996
Statement of Operations at December 31, 1996
Statement of Changes in Net Assets at December 31, 1996
Statement of Investments at December 31, 1996
Notes to financial statements
Acorn USA (incorporated by reference to the following portions of
Registrant's Semiannual Report at June 30, 1997; a copy of the
report was filed with the Commission on August 21, 1997, and is
not included in this amendment):
Statement of Assets and Liabilities at June 30, 1997 (unaudited)
Statement of Operations at June 30, 1997 (unaudited)
Statement of Changes in Net Assets at June 30, 1997 (unaudited)
Statement of Investments at June 30, 1997 (unaudited)
Notes to financial statements
(3) Financial statements included in Part C of this amendment:
None
2
<PAGE>
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 June 30, 1997.
Schedules II, IV and V - The required information is not present.
(b) Exhibits:
--------
1. Agreement and declaration of trust**
2.1 Bylaws, as amended September 15, 1992**
2.2 Bylaw amendment adopted February 2, 1993**
3. None
4.1 Specimen share certificate - Acorn Fund***
4.2 Specimen share certificate - Acorn International***
4.3 Specimen share certificate - Acorn USA+
5.1 Investment advisory agreement - Acorn Fund**
5.2 Investment advisory agreement - Acorn International**
5.3 Form of Investment advisory agreement - Acorn USA***
5.4 Form of Organizational Expenses Agreement between Acorn Investment
Trust and Wanger Asset Management, L.P. dated as of September,
1996 ***
5.5 Form of Investment Advisory Agreement among Acorn Fund, Acorn
International, Acorn USA and Wanger Asset Management, L.P., dated
January 1, 1998
5.6 Form of Administration Agreement among Acorn Fund, Acorn
International, Acorn USA and Wanger Asset Management, L.P., dated
January 1, 1998
6.1 Distribution Agreement between Acorn Investment Trust and WAM
Brokerage Services, L.L.C. dated as of May 1, 1996**
6.2 Form of Amendment to Distribution Agreement between Acorn
Investment Trust and WAM Brokerage Services, L.L.C. dated as of
September, 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**
8.3 Form of letter agreement applying custodian contract (exhibit 8.1)
to Acorn USA***
3
<PAGE>
9. None
10.1 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
Fund*
10.2 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
International*
10.3 Opinion and consent of Bell, Boyd & Lloyd dated June 18, 1996 - Acorn
USA***
11. Consent of Independent Auditors
12. None
13. None
14. IRA plan booklet dated September 1996 including general information,
individual retirement plan and custodial agreement and individual
retirement account disclosure statement, Internal Revenue Service
determination letter, transfer form, application form, and designation
of beneficiary form+
14.1 IRA plan booklet dated January 1997 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++
14.2 Form of SIMPLE-IRA plan and application++
15. None
16.1 Computation of performance information - Acorn Fund**
16.2 Computation of performance information - Acorn International**
16.3 Computation of performance information - Acorn USA
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
- ----------------------------------------
*Previously filed. Incorporated by reference to the exhibit of the same number
filed in post-effective amendment No. 49 to the Registrant's registration
statement, Securities Act file no. 2-34223 (the "Registration Statement").
**Previously filed. Incorporated by reference to the exhibit of the same number
filed in post-effective amendment No. 53 to the Registration Statement, filed on
April 29, 1996.
***Previously filed. Incorporated by reference to the exhibit of the same number
filed in post-effective amendment No. 54 to the Registration Statement, filed on
June 26, 1996.
+Previously filed. Incorporated by reference to the exhibit of the same number
filed in post-effective amendment No. 55 to the Registration Statement, filed on
September 3, 1996.
4
<PAGE>
++Previously filed. Incorporated by reference to the exhibit of the same number
filed in post-effective amendment No. 56 to the Registration Statement, filed on
April 30, 1997.
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 under the caption "Investment Adviser" is
incorporated by reference.
Item 26. Number of Holders of Securities
-------------------------------
At September 30, 1997, there were 54,755 record holders of Registrant's
shares of beneficial interest of the series designated Acorn Fund; 71,172
record holders of Registrant's shares of beneficial interest of the series
designated Acorn International; and 6,415 record holders of Registrant's
shares of beneficial interest of the series designated Acorn USA.
Item 27. Indemnification
---------------
Article VIII of the Agreement and Declaration of Trust of the Registrant
(exhibit 1) provides in effect that Registrant shall provide certain
indemnification of its trustees and officers. In accordance with Section 17(h)
of the Investment Company Act, that provision shall not protect any person
against any liability to the Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Registrant, its trustees and officers, its investment adviser and persons
affiliated with them are insured under a policy of insurance maintained by
Registrant and its investment adviser, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities that might be
imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such trustees or officers. The policy
expressly excludes coverage for any trustee or officer whose personal
dishonesty, fraudulent breach of trust, lack of good faith, or intention to
deceive or defraud has been finally adjudicated or may be established or who
willfully fails to act prudently.
5
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
The information in the prospectus 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.
<TABLE>
<CAPTION>
Name Positions and Offices with Positions and Offices with
Underwriters Registrant
<S> <C> <C>
Terence M. Hogan President Vice President
Merrillyn J. Kosier Vice President and Secretary Vice President and Secretary
</TABLE>
The principal business of each officer of WAM Brokerage Services, L.L.C. is 227
West Monroe Street, Suite 3000, Chicago, Illinois 60606.
Item 30. Location of Accounts and Records
--------------------------------
Bruce H. Lauer, Vice President and Treasurer
Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Item 31. Management Services
-------------------
None
Item 32. Undertakings
------------
(a) Not applicable.
(b) Registrant undertakes to 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.
6
<PAGE>
(b) 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.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the registrant 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 October 10, 1997.
ACORN INVESTMENT TRUST
By /s/ Ralph Wanger
-----------------------
Ralph Wanger, President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Irving B. Harris Trustee and chairman )
- ------------------------ )
Irving B. Harris )
)
/s/ Leo A. Guthart Trustee )
- ------------------------ )
Leo A. Guthart )
)
/s/ Jerome Kahn, Jr. Trustee )
- ------------------------ )
Jerome Kahn, Jr. )
)
/s/ David C. Kleinman Trustee )
- ------------------------ )
David C. Kleinman )
)
/s/ James H. Lorie Trustee )
- ------------------------ )
James H. Lorie )
)
/s/ Charles P. McQuaid Trustee ) October 10, 1997
- ------------------------ )
Charles P. McQuaid )
)
/s/ Roger S. Meier Trustee )
- ------------------------ )
Roger S. Meier )
)
/s/ Adolph Meyer, Jr. Trustee )
- ------------------------ )
Adolph Meyer, Jr. )
)
/s/ Ralph Wanger Trustee and President )
- ----------------------- (principal executive )
Ralph Wanger officer) )
)
/s/ Bruce H. Lauer Treasurer (principal )
- ----------------------- financial and accounting )
Bruce H. Lauer officer) )
<PAGE>
Index of Exhibits Filed with this Amendment
-------------------------------------------
Exhibit
Number Exhibit
- ------ -------
5.5 Form of Investment Advisory Agreement among Acorn Fund,
Acorn International, Acorn USA and Wanger Asset Management,
L.P., dated January 1, 1998
5.6 Form of Administration Agreement among Acorn Fund, Acorn
International, Acorn USA and Wanger Asset Management, L.P.,
dated January 1, 1998
11 Consent of independent auditors
16.3 Performance data for Acorn USA
17.1 Financial data schedule - Acorn Fund
17.2 Financial data schedule - Acorn International
17.3 Financial data schedule - Acorn USA
<PAGE>
EXHIBIT 5.5
INVESTMENT ADVISORY AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company ("Acorn"), and Wanger Asset Management, L.P., a
Delaware limited partnership registered under the Investment Advisers Act of
1940 as an investment adviser ("WAM"), agree that:
1. Engagement of WAM. Acorn appoints WAM to furnish investment advisory
and other services to Acorn for its series designated Acorn Fund, Acorn
International and Acorn USA (each, a "Fund"), and WAM accepts that appointment,
for the period and on the terms set forth in this agreement.
If Acorn establishes one or more series in addition to the Funds named
above with respect to which it desires to retain WAM as investment adviser
hereunder, and if WAM is willing to provide such services under this agreement,
Acorn and WAM may add such new series to this agreement, by written supplement
to this agreement. Such supplement shall include a schedule of compensation to
be paid to WAM by Acorn with respect to such series and such other modifications
of the terms of this agreement with respect to such series as Acorn and WAM may
agree. Upon execution of such a supplement by Acorn and WAM, that series will
become a Fund hereunder and shall be subject to the provisions of this agreement
to the same extent as the Funds named above, except as modified by the
supplement.
2. Services of WAM.
(a) Investment Management. Subject to the overall supervision and control
of Acorn's board of trustees (the "Board"), WAM shall have supervisory
responsibility for the general management and investment of the Funds' assets.
WAM shall comply with the 1940 Act and with all applicable rules and regulations
of the Securities and Exchange Commission, the provisions of the Internal
Revenue Code applicable to the Funds as regulated investment companies, the
investment policies and restrictions, portfolio transaction policies and the
other statements concerning the Funds in Acorn's agreement and declaration of
trust, bylaws, and registration statements under the 1940 Act and the Securities
Act of 1933 (the "1933 Act"), and policy decisions and procedures adopted by the
Board from time to time.
WAM is authorized to make the decisions to buy and sell securities and
other assets for the Funds, to place the Funds' portfolio transactions with
broker-dealers, and to negotiate the terms of such transactions including
brokerage commissions on brokerage transactions, on behalf of the Funds. WAM is
authorized to exercise discretion within the Funds' 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.
<PAGE>
(b) Reports and Information. WAM shall furnish to the Board periodic
reports on the investment strategy and performance of the Funds and such
additional reports and information as the Board or the officers of Acorn may
reasonably request.
(c) Customers of Financial Institutions. It is understood that WAM may,
but shall not be obligated to, make payments from its own resources to financial
institutions (which may include banks, broker-dealers, recordkeepers,
administrators and others) that provide, either directly or through agents,
administrative and other services with respect to shareholders who are customers
of such institutions, including establishing shareholder accounts, assisting
Acorn's transfer agent with respect to recording purchase and redemption
transactions, advising shareholders about the status of their accounts, current
yield and dividends declared and such related services as the shareholders or
the Funds may request.
(d) Confidentiality. WAM shall treat confidentially and as proprietary
information of Acorn all records and other information relating to Acorn or to
prior, present or potential shareholders of Acorn, and will not use such records
or information for any purpose other than in the performance of its
responsibilities and duties hereunder, except (i) after prior notification to
and approval by Acorn, (ii) when so requested by Acorn, or (iii) as required by
applicable law or regulation, provided that, in the case of any disclosure
pursuant to applicable law or regulation, WAM shall, to the extent it is
reasonably able to do so, provide Acorn with prior notice in order to allow
Acorn to contest such request, requirement or order.
(e) Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, WAM agrees to maintain records relating to its services
under this agreement, and further agrees that all records that it maintains for
Acorn are the property of Acorn and to surrender promptly to Acorn any of such
records upon Acorn's request. WAM further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 3la-1 under the 1940 Act.
(f) Status of WAM. WAM shall for all purposes herein be deemed to be an
independent contractor and not an agent of Acorn and shall, unless otherwise
expressly provided or authorized, have no authority to act for or represent
Acorn in any way. WAM agrees to notify the Trust promptly of any change in the
identity of WAM's general partner.
3. Expenses to be Paid by Trust. Except as otherwise provided in this
agreement or any other contract to which Acorn is a party, Acorn shall pay all
expenses incidental to its organization, operations and business, including,
without limitation:
(a) all charges of depositories, custodians, sub-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;
(b) all charges of its administrator, if any;
(c) all charges of legal counsel and of independent auditors;
2
<PAGE>
(d) all compensation of trustees other than those affiliated with WAM or
Acorn's administrator, if any, and all expenses incurred in connection
with their services to Acorn;
(e) all expenses of preparing, printing and distributing notices, proxy
solicitation materials and reports to shareholders of the Funds;
(f) all expenses of meetings of shareholders of the Funds;
(g) all expenses of registering and maintaining the registration of Acorn
under the 1940 Act and of shares of the Funds under the 1933 Act,
including all expenses of preparation, filing and printing of annual
or more frequent revisions of the Funds' registration statements under
the 1940 Act and 1933 Act, and of supplying each then existing
shareholder or beneficial owner of shares of the Funds of a copy of
each revised prospectus or supplement thereto, and of supplying a copy
of the statement of additional information upon request to any then
existing shareholder;
(h) all costs of borrowing money;
(i) all expenses of publication of notices and reports to shareholders and
to governmental bodies or regulatory agencies;
(j) all taxes and fees payable to federal, state or other governmental
agencies, domestic or foreign, and all stamp or other taxes;
(k) all expenses of printing and mailing certificates for shares of a
Fund;
(l) all expenses of bond and insurance coverage required by law or deemed
advisable by the Board;
(m) all expenses of qualifying and maintaining qualification of, or
providing appropriate notification of intention to sell relating to,
shares of the Funds under the securities laws of the various states
and other jurisdictions, and of registration and qualification of
Acorn under any other laws applicable to Acorn or its business
activities;
(n) all fees, dues and other expenses related to membership of Acorn in
any trade association or other investment company organization; and
(o) any extraordinary expenses.
In addition to the payment of expenses, Acorn shall also pay all brokers'
commissions and other charges relating to the purchase and sale of portfolio
securities for each Fund.
4. Allocation of Expenses Paid by Acorn. Any expenses paid by Acorn that
are attributable solely to the organization, operation or business of a Fund or
Funds shall be paid solely out of the assets of that Fund or Funds. Any expense
paid by Acorn that is not solely attributable to a Fund or Funds, nor solely to
any other series of Acorn, shall be apportioned in such manner as Acorn or
Acorn's administrator determines is fair and appropriate, or as otherwise
specified by the Board.
3
<PAGE>
5. Expenses to be Paid by WAM. WAM shall furnish to Acorn, at WAM's own
expense, office space and all necessary office facilities, equipment and
personnel required to provide its services pursuant to this agreement. WAM shall
also assume and pay all expenses of marketing shares of the Funds and all
expenses of placement of securities orders and related bookkeeping.
6. Compensation of WAM. For the services to be rendered and the expenses
to be assumed and to be paid by WAM under this agreement, Acorn shall pay to WAM
fees accrued daily and paid monthly at the annual rates shown below:
Acorn Fund
<TABLE>
<CAPTION>
Assets Rate of Fee
------ -----------
<S> <C>
First $700 million 0.75%
$700 million to $2 billion 0.70%
In excess of $2 billion 0.65%
Acorn International
Assets Rate of Fee
------ -----------
First $100 million 1.20%
$100 million to $500 million 0.95%
In excess of $500 million 0.75%
Acorn USA
Assets Rate of Fee
------ -----------
First $200 million 0.95%
In excess of $200 million 0.90%
</TABLE>
The fees attributable to each Fund shall be a separate charge to such Fund and
shall be the several (and not joint or joint and several) obligation of each
such Fund.
7. Services of WAM Not Exclusive. The services of WAM to Acorn under this
agreement are not exclusive, and WAM shall be free to render similar services to
others so long as its services under this agreement are not impaired by such
other activities.
8. Services Other Than as Adviser. Within the limits permitted by law,
WAM may receive compensation from Acorn for other services performed by it for
Acorn which are not within the scope of the duties of WAM under this agreement,
including the provision of brokerage services.
4
<PAGE>
9. Standard of Care. To the extent permitted by applicable law, neither
WAM nor any of its partners, officers, agents or employees shall be liable to
Acorn or its shareholders for any loss suffered by Acorn or its shareholders as
a result of any error of judgment, or any loss arising out of any investment, or
as a consequence of any other act or omission of WAM in the performance of its
duties under this agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the part of WAM, or by reason of
reckless disregard by WAM of its obligations and duties under this agreement.
10. Effective Date, Duration and Renewal. This agreement shall become
effective on January 1, 1998. Unless terminated as provided in Section 11, this
agreement shall continue in effect as to a Fund until June 30, 1999 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 Acorn or of WAM, voting in person at a meeting called for
the purpose of voting on such approval, and (b) by either the Board or vote of
the holders of a "majority of the outstanding shares" of that 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).
11. Termination. This agreement may be terminated as to a Fund at any
time, without payment of any penalty, by the Board, or by a vote of the holders
of a majority of the outstanding shares of that Fund, upon 60 days' written
notice to WAM. This agreement may be terminated by WAM at any time upon 60 days'
written notice to Acorn. This agreement shall terminate automatically in the
event of its assignment (as defined in Section 2(a)(4) of the 1940 Act).
12. Amendment. This agreement may not be amended as to a Fund 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 Acorn or of WAM,
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 that Fund.
13. Non-Liability of Trustees and Shareholders. All obligations of Acorn
hereunder shall be binding only upon the assets of Acorn (or the appropriate
Fund) and shall not be binding upon any trustee, officer, employee, agent or
shareholder of Acorn. Neither the authorization of any action by the Trustees or
shareholders of Acorn nor the execution of this agreement on behalf of Acorn
shall impose any liability upon any trustee, officer or shareholder of Acorn.
14. Notices. Any notice, demand, change of address or other communication
to be given in connection with this agreement shall be given in writing and
shall be given by personal delivery, by registered or certified mail or by
transmittal by facsimile or other electronic medium addressed to the recipient
as follows:
5
<PAGE>
If to WAM: Wanger Asset Management, L.P.
Attention: Ralph Wanger
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-0016
If to Acorn: Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-1919
with a copy to:
Bell, Boyd & Lloyd
Attention: Janet D. Olsen
Three First National Plaza, Suite 3300
Chicago, Illinois 60602
Telephone: 312/372-1121
Facsimile: 312/372-2098
All notices shall be conclusively deemed to have been given on the day of
actual delivery thereof and, if given by registered or certified mail, on the
fifth business day following the deposit thereof in the mail and, if given by
facsimile or other electronic medium, on the day of transmittal thereof.
15. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Illinois and the laws of the United
States of America applicable to contracts executed and to be performed therein.
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By
-----------------------
Ralph Wanger, President
6
<PAGE>
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By ______________________________
Ralph Wanger, President
7
<PAGE>
EXHIBIT 5.6
ADMINISTRATION AGREEMENT
Acorn Investment Trust, a Massachusetts business trust registered under the
Investment Company Act of 1940 (the "1940 Act") as an open-end diversified
management investment company ("Acorn"), on its own behalf and on behalf of each
of the Funds listed on Schedule A, as such Schedule shall be amended from time
to time (each, a "Fund," together, the "Funds"), and Wanger Asset Management,
L.P., a Delaware limited partnership ("WAM"), agree that:
1. Appointment and Acceptance. Acorn hereby appoints WAM to act as
Administrator of the Funds, subject to the supervision and direction of the
Board of Trustees of Acorn (the "Board"), as hereinafter set forth. WAM hereby
accepts such appointment and agrees to furnish or cause to be furnished the
services contemplated by this Agreement.
2. Duties of WAM.
(a) WAM shall perform or arrange for the performance of the following
administrative and clerical services:
1) maintain and preserve the books and records, including financial and
corporate records, of Acorn as required by law or otherwise for the
proper operation of Acorn;
2) supervise the preparation and, subject to approval by Acorn, filing of
registration statements and amendments thereto, notices, reports, tax
returns and other documents required by U.S. Federal, state and other
applicable laws and regulations (other than state "blue sky" laws),
including proxy materials and periodic reports to Fund shareholders;
3) oversee the preparation and filing of registration statements,
notices, reports and other documents required by state "blue sky"
laws, and oversee the monitoring of sales of shares of the Funds for
compliance with state securities laws;
4) calculate and publish the net asset value of each Fund's shares,
including provision of and payment for any third party pricing
services;
5) calculate dividends and distributions and performance data for each
Fund, and prepare other financial information regarding Acorn;
6) oversee and assist in the coordination of, and, as the Board may
reasonably request or deem appropriate, make reports and
recommendations to the Board on, the performance of administrative and
professional services rendered to the Funds by others, including the
custodian, registrar, transfer agent and dividend disbursing agent,
shareholder servicing agents, accountants, attorneys, underwriters,
brokers and
<PAGE>
dealers, corporate fiduciaries, insurers, banks and such other persons
in any such other capacity deemed to be necessary or desirable;
7) furnish corporate secretarial services to Acorn, including, without
limitation, preparation or supervision of the preparation by Acorn's
counsel, of materials necessary in connection with meetings of the
Board, including minutes, notices of meetings, agendas and other Board
materials;
8) provide Acorn with the services of an adequate number of persons
competent to perform the administrative and clerical functions
described herein;
9) provide Acorn with administrative office and data processing
facilities;
10) arrange for payment of each Fund's expenses;
11) provide routine accounting services to the Funds, and consult with
Acorn's officers, independent accountants, legal counsel, custodian,
and transfer and dividend disbursing agent in establishing the
accounting policies of Acorn;
12) prepare such financial information and reports as may be required by
any banks from which Acorn borrows funds;
13) develop and implement procedures to monitor each Fund's compliance
with regulatory requirements and with each Fund's investment policies
and restrictions as set forth in each Fund's currently effective
Prospectus and Statement of Additional Information filed under the
Securities Act of 1933, as amended;
14) provide for the services of principals and employees of WAM who may be
appointed as officers of Acorn, including the President, Vice
Presidents, Treasurer, Secretary and one or more assistant officers;
15) provide services to shareholders of the Funds, including responding to
shareholder inquiries regarding, among other things, share prices,
account balances, dividend amounts and payment dates, and changes in
account registrations or options, to the extent not provided by a
Fund's transfer agent; and
16) provide such assistance to the Investment Adviser, the custodian,
other Trust service providers and Acorn's counsel and auditors as
generally may be required to carry on properly the business and
operations of Acorn.
Acorn agrees to deliver, or cause to be delivered, to WAM, on a timely
basis, such information as may be necessary or appropriate for WAM's performance
of its duties and responsibilities hereunder, including but not limited to,
shareholder reports, records of transactions, valuations of investments and
records of expenses borne by each Fund, and WAM shall be entitled to rely on the
accuracy and completeness of such information in performing its duties
hereunder.
2
<PAGE>
(b) In providing for any or all of the services listed in section 2(a)
hereof, and in satisfaction of its obligations to provide such services, WAM may
enter into agreements with one or more other persons to provide such services to
Acorn, provided that any such agreement shall have been approved by the Board,
and provided further that WAM shall be as fully responsible to Acorn and the
Funds for the acts and omissions of any such service providers as it would be
for its own acts or omissions hereunder.
(c) All activities of WAM shall be conducted in accordance with Acorn's
agreement and declaration of trust, bylaws and registration statement, under the
supervision and direction of the Board, and in conformity with the 1940 Act and
other applicable federal and state laws and regulations.
3. Expenses of WAM. WAM assumes the expenses of and shall pay for
maintaining the staff and personnel necessary to perform its obligations under
this agreement, and shall at its own expense provide office space, facilities,
equipment and the necessary personnel which it is obligated to provide under
section 2(a) hereof, except that Acorn shall pay the fees and expenses of its
legal counsel, auditors and any blue sky service providers. In addition, WAM
shall be responsible for the payment of any persons engaged pursuant to section
2(b) hereof. Acorn shall assume and pay or cause to be paid all other expenses
of the Funds.
4. Compensation of WAM. For the services provided to Acorn and each Fund
by WAM pursuant to this Agreement, each Fund shall pay WAM for its services, a
fee accrued daily and paid monthly at the annual rate of 0.05% of such Fund's
average daily net assets.
5. Limitation of Liability of WAM. WAM shall not be liable to Acorn or
any Fund for any error of judgment or mistake of law or for any loss arising out
of any act or omission by WAM, including officers, agents and employees of WAM
and its affiliates, or any persons engaged pursuant to section 2(b) hereof, in
the performance of its duties hereunder, except by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
reckless disregard of its obligations and duties hereunder.
6. Activities of WAM. The services of WAM under this Agreement are not
exclusive, and WAM and its affiliates shall be free to render similar services
to others and services to Acorn in other capacities.
7. Duration and Termination of this Agreement.
(a) This Agreement shall become effective on January 1, 1998 and shall
continue in effect with respect to each Fund until June 30, 1999, and thereafter
from year to year so long as such continuation is specifically approved at least
annually by the Board, including a majority of the members of the Board who are
not "interested persons" of Acorn within the meaning of the 1940 Act and who
have no direct or indirect interest in this agreement; provided, however, that
this agreement may be terminated at any time without the payment of any penalty,
on behalf of any or all of the Funds, by Acorn, by the Board or, with respect to
any Fund, by "vote of a majority of the outstanding voting securities" (as
defined in the 1940 Act) of that Fund, or by
3
<PAGE>
WAM, in each case on not less than 60 days' written notice to the other party.
This Agreement shall terminate automatically in the event of its "assignment" as
defined in the 1940 Act.
(b) WAM hereby agrees that the books and records prepared hereunder with
respect to Acorn are the property of Acorn and further agrees that upon the
termination of this agreement or otherwise upon request WAM will surrender
promptly to Acorn copies of the books and records maintained or required to be
maintained hereunder, including in such machine-readable form as agreed upon by
the parties, in accordance with industry practice, where applicable.
8. Amendment. This Agreement may be amended by the parties hereto only if
such amendment is specifically approved by the Board and such amendment is set
forth in a written instrument executed by each of the parties hereto.
9. Governing Law. The provisions of this Agreement shall be construed and
interpreted in accordance with the laws of the State of Illinois as at the time
in effect and the applicable provisions of the 1940 Act. To the extent that the
applicable law of the State of Illinois, or any provisions herein, conflict with
the applicable provisions of the 1940 Act, the latter shall control.
10. Counterparts. This Agreement may be executed by the parties hereto in
counterparts and if so executed, the separate instruments shall constitute one
agreement.
11. Notices. All notices or other communications hereunder to either party
shall be in writing and shall be deemed to be received on the earlier date of
the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid. Notice shall be addressed:
If to WAM: Wanger Asset Management, L.P.
Attention: Ralph Wanger
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-1919
If to Acorn: Acorn Investment Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Telephone: 312 634-9200
Facsimile: 312 634-0016
with a copy to:
Bell, Boyd & Lloyd
Attention: Janet D. Olsen
Three First National Plaza, Suite 3300
Chicago, Illinois 60602
4
<PAGE>
Telephone: 312 372-1121
Facsimile: 312 372-2098
or at such other address as either party may designate by written notice to the
other. Notice shall also be deemed sufficient if given by telex, telecopier,
telegram or similar means of same day delivery (with a confirming copy by mail
as provided herein).
12. Separate Funds. This Agreement shall be construed to be made by Acorn
as a separate agreement with respect to each Fund, and under no circumstances
shall the rights, obligations or remedies with respect to a particular Fund be
deemed to constitute a right, obligation or remedy applicable to any other Fund.
13. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof and supersedes any prior
arrangements, agreements or understandings.
14. Non-Liability of Trustees and Shareholders. All obligation of Acorn
hereunder shall be binding only upon the assets of Acorn (or the appropriate
Fund) and shall not be binding upon any trustee, officer, employee, agent or
shareholder of Acorn. Neither the authorization of any action by the Trustees or
shareholders of Acorn nor the execution of this agreement on behalf of Acorn
shall impose any liability upon any trustee, officer or shareholder of Acorn.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By _______________________
Ralph Wanger, President
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By _______________________
Ralph Wanger, President
5
<PAGE>
SCHEDULE A
to the Administration Agreement
between
Acorn Investment Trust
and
Wanger Asset Management, L.P.
Funds to which the Administration Agreement is Applicable
---------------------------------------------------------
Acorn Fund
Acorn International
Acorn USA
Dated: January 1, 1998
ACORN INVESTMENT TRUST
By _______________________
Ralph Wanger, President
WANGER ASSET MANAGEMENT, L.P.
By Wanger Asset Management, Ltd.,
Its General Partner
By _______________________
Ralph Wanger, President
6
<PAGE>
Exhibit 11
Consent of Independent Auditors
-------------------------------
We consent to the incorporation by reference of our reports with respect to
Acorn Fund, Acorn International and Acorn USA dated January 31, 1997 in the
Registration Statement of Acorn Investment Trust on Form N-1A filed with the
Securities and Exchange Commission in this Post-Effective Amendment No. 58 to
the Registration Statement under the Securities Act of 1933 (Registration No.
2-34223) and in this Amendment No. 33 to the Registration Statement under the
Investment Company Act of 1940 (Registration No. 811-1829).
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Chicago, Illinois
October 9, 1997
<PAGE>
Exhibit 16.3
Acorn USA Fund
Total Return Calculation
Initial Investment: $1,000
Period: From 9/4/96 to 12/31/96
Number of Days in Period 118
Total Return 16.50%
<TABLE>
<CAPTION>
Account
Date NAV Shares Value
- -------------------------------------------------------------------------
<S> <C> <C> <C>
9/4/96 $10.00 100 $1,000
12/31/96 11.65 100 1,165
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> The following information is extracted from and qualified by reference
to registrant's report on Form N-SAR for the period ended June 30, 1997 and the
unaudited financial statements included in registrant's semiannual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> ACORN FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 1921838
<INVESTMENTS-AT-VALUE> 3219766
<RECEIVABLES> 13931
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3233706
<PAYABLE-FOR-SECURITIES> 9394
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3563
<TOTAL-LIABILITIES> 12957
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1754464
<SHARES-COMMON-STOCK> 193496
<SHARES-COMMON-PRIOR> 188918
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</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
The following information is extracted from and qualified by reference to
registrant's report on form N-SAR for the period ended June 30, 1997 and the
unaudited financial statements included in registrant's semiannual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> ACORN INTERNATIONAL
<MULTIPLIER> 1000
<CAPTION>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
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<PAID-IN-CAPITAL-COMMON> 1403353
<SHARES-COMMON-STOCK> 92838
<SHARES-COMMON-PRIOR> 90383
<ACCUMULATED-NII-CURRENT> 12351
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<ACCUMULATED-NET-GAINS> 91299
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 463034
<NET-ASSETS> 1970037
<DIVIDEND-INCOME> 16772
<INTEREST-INCOME> 4111
<OTHER-INCOME> 0
<EXPENSES-NET> 10676
<NET-INVESTMENT-INCOME> 10207
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<APPREC-INCREASE-CURRENT> 60529
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-REDEEMED> 8831
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 197494
<ACCUMULATED-NII-PRIOR> 2144
<ACCUMULATED-GAINS-PRIOR> 12674
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> The following informations is extracted from and qualified by reference
to registrant's report on form N-SAR for the period ended June 30, 1997 and the
unaudited financial statements included in registrant's semiannual report to
shareholders.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> ACORN USA
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 98806
<INVESTMENTS-AT-VALUE> 114526
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<ASSETS-OTHER> 91
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115439
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 1749
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97185
<SHARES-COMMON-STOCK> 8538
<SHARES-COMMON-PRIOR> 4556
<ACCUMULATED-NII-CURRENT> (195)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 980
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15720
<NET-ASSETS> 113690
<DIVIDEND-INCOME> 238
<INTEREST-INCOME> 169
<OTHER-INCOME> 0
<EXPENSES-NET> 602
<NET-INVESTMENT-INCOME> (195)
<REALIZED-GAINS-CURRENT> 961
<APPREC-INCREASE-CURRENT> 11552
<NET-CHANGE-FROM-OPS> 12318
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NII> (.03)
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</TABLE>
